It is not uncommon for a health body to use consultants or contractors on more than one project and for a number of projects to be running at the same time. Imagine that the contractor is in delay on one project but has a claim for loss and expense under another. The health body may be able to use equitable set-off to off set the liquidated damages it is entitled to under one contract thereby reducing/defeating the contractor’s claim for loss and expense under the other one. This is potentially a useful legal weapon. Geldof Metaalconstructie NV v Simon Carves Limited has clarified when it can be used.
Simon Carves Limited (SCL) subcontracted two separate contracts to Geldof in relation to the same project: one for supply, the other for installation. Geldof brought a claim for the price of the goods under the supply contract. SCL tried to offset its damages claim under the installation contract.
The court clarified that equitable set-off is allowed where "the cross-claims…[are]..so closely connected with the…[claimant’s]…demands…that it would be manifestly unjust to allow him to enforce payment without taking into account the cross-claim."
In this case, even though the cross-claims arose out of two separate contracts which were concluded at different times, Geldof brought the contracts into an "intimate relationship with each other" by making the payment of invoices under the supply contract a pre-condition of completing work under the installation contract. Also, the fact that both contracts related to the same project and that the goods supplied were useless unless the installation contract was properly performed made it manifestly unjust to enforce payment under one without reference to the other.