INGENIEUR
had alleged defective work and challenged the
correctness of the certificate. The pivotal issue
that called for decision there was whether, upon
the true interpretation of the building contract,
an obligation rested on the employer to pay the
sum at once without regard to pending disputes
including cross-claims by the employer.
The Supreme Court had to consider whether
it was available to the employer to rely on his
claims for liquidated and non-liquidated damages
to defeat the builder’s claim. It is noteworthy that
the architect had not invoked his powers under
the building contract to direct the builder to do
rectification work in response to the employer’s
complaints of defective work, materials and/
or over-valuation. In the event, the builder was
under no obligation to remedy the deficiencies
complained of.
The court said that “the express enumeration
of permitted set-offs in a contract or sub-contract,
can imply that a defendant builder or main
contractor, as the case may be, is limited to making
such deductions from the amounts claimed as fall
strictly within the scope of the permitted set-offs,
and nothing else, on the basis of the expressio
unius principle [a maxim of interpretation meaning
that the expression of one thing is the exclusion of
another].”
Applying this principal, the contended set-off
by the employer did not fall into any of the seven
permitted categories of set-off in the contract. The
Supreme Court held that the employer’s alleged
right to a set-off had “been extinguished, not
expressly but by clear implication”.
In Dataran Rentas Sdn Bhd v BMC
Constructions Sdn Bhd [2008] 2 MLJ 856, the
appellant and respondent had entered into a
construction contract in the form of the PAM
Standard Form Building Contract 1969 Edition
(Without Quantities). The appellant failed to
make payment to the respondent for amounts
due under four interim certificates within the
stipulated time. The respondent then determined
the contract. The appellant alleged that the
determination was wrong and that there were
defective works.
Relying on the dictum in Pembinaan Leow Tuck
Chui that the right of set-off is restricted to those
expressly allowed under the contract, Zulkefli
JCA found that the appellant had no right of set-
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VOL 55 JUNE 2013
Engineers at a project site.
off under the PAM contract against the certified
sum. There was no architect’s instruction issued
under clause 2(1) that the works carried out by the
respondent were defective. In the unpaid interim
certificates, the architect had stated: “Addition/
Deduction for works not in accordance with the
contract” as being “RM nil”.
A widely drafted clause forbidding a set-off,
deduction or withholding may well be able to
exclude reliance on any claim to pay less than
the full amount, whether that claim is based
on a “pure” defence, abatement, set-off or
counterclaim (Totsa Total Oil Tradi ng SA v Bharat
Petroleum Corp Ltd [2005] EWHC 1641 (Comm)).
EQUITABLE SET-OFF
It is generally agreed that the modern law of
equitable set-off dates back to Hanak v Green
[1958] 2 QB 9 with Morris LJ’s judgment being
described as “authoritative” by Dillon LJ in BICC
v Burndy Corporation [1985] 1 Ch 232 and
“masterly” by Lord Diplock in Gilbert-Ash. Under
this doctrine, the court could intervene to restrain
someone who had commenced an action at law
from proceeding with the trial of the action or
from levying execution of a judgment until further
order. The circumstances include the existence
of an un-liquidated cross-claim by the defendant
and regarded by the court as justifying the
protection of the defendant from the plaintiff’s
claim. An equitable set-off operates in a litigation
to extinguish the claim and prevent its original
establishment, rather than to provide a sum to be
netted off against the claim once established.
Morris LJ in Hanak v Green identified two
factors as being critical in qualifying a crossclaim as an equitable set-off: it would have been