Hong Kong – Abatement No Defence To Claims For Professional Services Fees.

2 March, 2016

 

In William Clark Partnership Ltd v Dock St PCT Ltd [2015] EWHC 2923 (TCC), 16 October 2015, a case before England’s Technology and Construction Court, a professional services practice (Clark) which had provided quantity surveying and project management services for the Defendant Employer (Dock Street) in a construction project, claimed the balance of its fees due under its retainer with Dock Street. Dock Street counterclaimed for repayment of fees already paid to Clark and damages for breach of contract and/or professional negligence, contending that Clark had failed to provide the specified services in certain key respects, with the result that there was a considerable overspend on the project. In construction claims, employers can rely on the common law defence of abatement to reduce contractors’ claims on the basis that the contractor has not earned the sum claimed. In this case, the Court had to consider whether the defence is available to a claim for payment in respect of professional services. It concluded that it is not.

 

In reaching its conclusion, the Court referred to the case of Multiplex Construction v Cleveland Bridge [2006] EWHC 1341 (TCC), in which the Court set out the principles applicable to the defence of abatement, as follows:-

 

1. In a contract for the provision of labour and materials, where performance has been defective, the employer is entitled at common law to maintain a defence of abatement.
2. The measure of abatement is the amount by which the product of the contractor's endeavours has been diminished in value as a result of that defective performance.
3. The method of assessing diminution in value will depend upon the facts and circumstances of each case.
4. In some cases, diminution in value may be determined by comparing the current market value of that which has been constructed with the market value which it ought to have had. In other cases, diminution in value may be determined by reference to the cost of remedial works. In the latter situation, however, the cost of remedial works does not become the measure of abatement. It is merely a factor which may be used either in isolation or in conjunction with other factors for determining diminution in value.
5. The measure of abatement can never exceed the sum which would otherwise be due to the contractor as payment.
6. Abatement is not available as a defence to a claim for payment in respect of professional services.Claims for delay,
7. disruption or damage caused to anything other than that which the contractor has constructed cannot feature in a defence of abatement.

 

Although, the Court held that the abatement defence is not available in respect of professional services, it said that a deduction could be claimed on the basis that all or a specific part of such services were either not performed at all or were performed so badly so as to be worthless. Here the Court made a deduction in respect of some of the services that Clark had provided.

 

This case is a reminder to employers who want to deduct fees payable to consultants due to their poor services that the deduction must be mounted on the proper basis. It is sometimes difficult to prove that services provided are worthless, although they may not be up to the standard expected. It is also not common to have consultant fees structured in a way that employers can identify specific parts of services against which deduction can be made. This is why it is more common for employers to rely on set-off and counterclaim for loss suffered as a result of the professional negligence of the consultants which should be covered by professional indemnity insurance taken out by the consultants.