The Gazette 1991

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.

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. 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 Rohan Construction Like Hegarty, Rohan -v- Antigen

P.J. Hegarty Liver Friendly

& Son -v- Royal

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