121 / 462
g a z e t t e
a p r i l 1991
(i) That the contractor had an
immediate right to be paid sub-
ject only to specified de-
ductions.
(ii) That if not paid on a certificate,
the contractor could suspend
work;
(iii) That, w i th exceptions (stated
by Finlay P. to be immaterial),
arbitration on disputes was not
to open until after the works
were complete.
It may be questioned, w i th
respect, whether any of these
clauses should settle the issue. As
to the first, Lord Salmon in
dHffert-
TÉBfc,(Whose approach is closest to
that of Finlay P. in
John Sisk)
described a similar Clause as
"entirely neutral". He said: —
" I t is a common feature of any
commercial contract that it
should make provision for the
dates and cond i t i ons upon
which payments are to be made.
I have never yet heard it
suggested that such a provision
in any way affects the rights of
set off. Set-off indeed does not
come into play unless and until
some sum Is otherwise due
and payable by the Defend-
ants".
16
One would agree that provision
for payment can hardly in itself ex-
clude a set-off since set-off cannot
arise until there is a right to be paid.
As to the second clause, the ex-
ceptions regarded as immaterial
include
17
a right to immediate
arbitration on a certificate, a point
wh i ch Murphy J. in
P.J. Hegarty &
Sons -v- Royal Liver
Friendly
Society
was to stress in differing
from Finlay P. With all respect to
Finlay P., since he regarded the right
to payment on the certificates as
crucial, can the right to immediate
arbitration on this question really be
" imma t e r i a l "? As to the third
clause, it is to say the least re-
grettable that Lord Salmon in
Gilbert-Ash
took a similar clause as
ev i dence
f or
t he
o p p o s i te
conclusion.
18
Clearly, each of the clauses relied
on by Finlay P. is at least open to
a different construction; can it
therefore be said that set-off was
excluded, either in clear words or
by necessary implication? While
the test laid down by Finlay P. is
admirably clear, one may question
the way he applied it.
P.J. Hegarty
& Son -v- Royal
Liver Friendly
Society
The on ly ma t e r i al d i f f e r en ce
between the facts of
John Sisk
and
those of
Hegarty
was that in the
former the 1966 Edition of the
R.I.A.I. Contract was used, in the
latter the 197T Edition. Murphy J
quoted the relevant passage from
Lord Denn i ng 's j u d gme nt in
Dawnays
:
wh i le noting rather
regretfully that it was attractively
phrased and " good commercial
sense" he pointed to the central
law in it i.e. that contracts depend
on wh a t t he parties agreed,
whether or not their agreement is
commercially sensible. Turning to
Gilbert-Ash
he tried to summarise
its effect as follows: —
"(i) That an amount included in
a c e r t i f i c a te ( wh e t h er
interim or final) does not
constitute a debt of a
particular character and
enjoys no special immunity
from any cross claim or
right of set-off to which the
debtor may be entitled.
(ii) One starts w i th the pre-
sumption that each party
to a building contract is
entitled to all those reme-
dies for its breach as would
arise by operation of law
including the remedy of
setting up a breach of
warranty in diminution or
extinction of the price of
materials supplied or work
e x e c u t ed
under
t he
contract.
(iii) Parties to building con-
tracts or sub-contracts, like
the parties to any other
t y pe of c o n t r a c t, are
entitled to incorporate in
their contract any clause
t hey please. The re is
nothing to prevent them
from extinguishing, cur-
tailing, or enlarging the
ordinary rights of set-off.
(iv) Whether the parties had in
fact curtailed or restricted
t he Common Law or
equitable right of set-off
depends on t he con-
struction of the agreement
between them".
19
If one excludes the views of Lord
Reid and Lord Morris, this is
probably as close as one can come
to the ratio of
Gilbert-Ash.
Turning
to
John Sisk,
Murphy J quoted the
passage from page 8 set out above
and agreed wi th it. Considering the
three Clauses relied on by Finlay P.,
he appeared of the view (which the
writer shares) that none of them
clearly excluded set-off.
He would
however have followed
John Sisk
were it not for his view that the
arbitration clause was central to
Finlay P/s reasoning. Pointing out
that the relevant clause in the 1977
Edition clearly referred to arbitra-
tion on the certificate, before
completion, he stated that this took
the arbitration point " out of the
reckoning" and that since in his
view the other t wo clauses were
ambiguous, he found that the right
of set-off had not been clearly
excluded.
Though the writer agrees w i th
the result reached by Murphy J and
w i th much of his reasoning, there
is one serious d i f f i cu l t y: t he
wording of the arbitration clauses
in the t wo Editions is effectively
identical. The arbitration clause
cannot therefore be " t aken out of
the reckoning". Since Murphy J
expressed his great reluctance to
differ from Finlay P., he should, on
that ground at least, have reached
the same result, though he might
well have queried Finlay P.'s view of
the reference to arbitration on
ce r t i f i ca t es as " i mma t e r i a l " ).
Alternatively, while accepting the
test laid down by Finlay P., he might
have f ound t hat it had been
wrongly applied in
John Sisk
itself,
on the ground that no clause is
inconsistent w i th a set-off. At any
rate the "difference of opinion"
goes well beyond a reading of the
arbitration clause.
Rohan Construction
-v- Antigen
Like
Hegarty, Rohan
Construction,
was concerned w i th the 1977
Edition of the R.I.A.I. Contract. In
view of Murphy J's distinction bet-
ween the t wo Editions, Costello J.
in
Rohan Construction
compared
the t wo and could find no material
difference between the arbitration
clauses. He stated that, but for
Hegarty,
he would have had no
difficulty in applying
John Sisk
and
regretting the " un f o r t una te dif-
ference of opinion" he stated that
he preferred Finlay P.'s reasoning
and found the parties had agreed to
exclude the right of set-off. Given
103