Index: src/main/org/codehaus/groovy/control/CompilerConfiguration.java
===================================================================
--- src/main/org/codehaus/groovy/control/CompilerConfiguration.java	(revision 6688)
+++ src/main/org/codehaus/groovy/control/CompilerConfiguration.java	(working copy)
@@ -168,23 +168,23 @@
         setMinimumRecompilationInterval(100);
         setTargetBytecode(getVMVersion());
 
-        //
-        // Try for better defaults, ignore errors.
-
         String encoding = null;
         try {
-            //
             // Source file encoding
             encoding = System.getProperty("groovy.source.encoding");
         } catch (Exception e) {
-            //
             // Try for better defaults, ignore errors.
+        }
+        if (encoding == null ) {
             try {
                 encoding = System.getProperty("file.encoding", "US-ASCII");
-            } catch (Exception ee) {
-            }
+            } catch (Exception e) {
+                // Try for better defaults, ignore errors.
+            } 
         }
-        setSourceEncoding(encoding);
+        if (encoding != null) {
+            setSourceEncoding(encoding);
+        }
 
         try {
             setOutput(new PrintWriter(System.err));