The Gazette 1991

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.

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

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

Christopher Doyle

101