119 / 462
g a z e t t e
a p r i l 1991
Agreement to waive set off - "an
unfortunate difference of opinion"
Since Law depends on precedent, nothing unsettles the lawyer
more than the inability of Judges to agree on how the law is to be
applied to a given set of facts. The best recent example in Ireland
is the question of whether the standard form Building Contract
issued by the Royal Institute of Architects of Ireland does or does
not contain an agreement by the employer to waive his right of set
off. This question, not on the face of it very difficult, has produced
what Costello J. described
1
as "an unfortunate difference of
opinion": i.e. of three High Court Judges. In considering effect of
the same contract, one reached the directly opposite conclusion
to the other two. Further, if one looks to U.K. precedent for
guidance, one finds so many differences of opinion that the mind
reels.
Procedure
All three cases involved claims by
contractors that payment on foot
of ce r t i f i ca t es issued by t he
architect had been wr ong f u l ly
withheld by the employer: being
liquidated each claim was brought
on foot of a Summary Summons
seeking liberty to enter final
j u d gme n t. In each case t he
employer sought to resist judg-
ment: however in one case it was
not entirely clear what form of relief
he sought. In
Rohan
Construction
Ltd. - v- Antigen Ltd.
2
the Defend-
ant sought a stay either pursuant
to the contract or in the alternative
under 0.42, r.17, R.S.C. In
PJ.
Hegarty & Sons -v- Royal Liver
Friendly Society
3
leave to defend
was sought on the ground that the
employer had an arguable defence
of equitable set-off on foot of
proceedings already issued. In
John
Sisk & Son -v- Lawter B.V.
4
it was
\ stated that the defendant filed an
affidavit seeking to resist judgment
on the grounds of a cross-claim for
unliquidated damages; though this
does not appear f r om t he
judgment, presumably leave to
defend was sought on the grounds
of an equitable set-off. Since the
stay in
Rohan Construction
was
sought principally on the grounds
of a right to have the claim to an
equitable set-off arbitrated, it
would appear that in each case the
claim on foot of the certificate was
met by a claim for equitable set-
off.
U.K. Precedent
Until 1971, it would not have been
questioned in Britain that an un-
liquidated claim for damages for
negligence and/or delay in regard to
By
Christopher Doyle,
B.L.,
the
work done could properly be
pleaded as an equitable set off
against the amount due on interim
certificates to the contractor.
.Certainly the Judgment of Morris
L.J. in
Hanak -v- Green
8
regarded
as
the best
survey of the topic,
would allow such a claim. However,
in
Dawnays Ltd. -v- F.G. Minter
Ltd.
6
Lord
Denning
M.R.
announced somewhat to the sur-
prise of the profession that building
contracts of their nature exclude
the right of set-off. He said: —
"Eve ry business knows the
reason why interim certificates
are issued and why they have to
be honoured. It is so that the
sub-contractor can have the
money in hand to get on wi th his
work and the further work he
had to do. Take this very case.
The sub-contractor has had to
expend his money on steel work
and labour. He is out of pocket.
He probably has an overdraft at
the Bank. He cannot go on
unless he is paid for what he
does as he does it. An interim
certificate is to be regarded
virtually as cash, like a bill of
exchange. It must be honoured.
Payment must not be withheld
on account of cross claims,
whether good or bad - except
so far as the contract specifically
provides. Otherwise any main
contractor could always get out
of payment by mak i ng all
so r ts of
u n f o u n d ed
cross
claims".
7
This was followed in a number of
Court of Appeal decisions but it
was not until 1974 t hat the
question reached the House of
Lords in
Modern Engineering Ltd. -
v- Gi/bert-Ash
8
The result justifies
Glanville Williams' remark that the
Law Lords often leave the law more
confused t han they f ound it.
Although the five Law Lords were
unanimous in the result and it may
be said that, on the application of
the law to the particular facts
before them, it is difficult to find
any general proposition on which
all five could agree, and the
reasoning used to support the
result varies between speeches.
The relevant passage from Lord
Denn i ng M.R.'s J u d gme nt in
Dawneys
was disapproved entirely
Christopher Doyle
101