BOWEN CONSTRUCTION Ltd v KELCAR DEVELOPMENTS Ltd

• Jurisdiction: Ireland
• Judgment Date: 16 October 2009
• Date: 16 October 2009
• Docket Number: [2009 No. 242 SS]
• Court: High Court

Bowen Construction Ltd. v. Kelcar Developments Ltd.

In the matter of the Arbitration Acts 1954 to 1998and in the matter of an arbitration between Bowen Construction Ltd.

Applicant

and

Kelcar Developments Ltd.

Respondent

[2009] IEHC 467,

[2009 No. 242 SS]

High Court

Contract law - Building contract - Privity of contract - Exceptions to privity of contract - Whether employer in building contract can sue for losses incurred by third party - Whether party can sue for losses incurred by third party where no other remedy available - Rules of the Superior Courts 1986 (S.I. No. 15), O. 62, rr. 2 and 5 - Arbitration Act 1954 (No. 26), s. 35.

An arbitrator was appointed pursuant to a dispute arising out of a building contract entered into between the applicant as contractor and the respondent as employer relating to the building of a hotel, golf clubhouse and cottages. The resort was not owned by the respondent but rather by associated persons and companies and private investors. It was operated by a wholly owned subsidiary of the respondent. The contractor had executed collateral warranties under seal in favour of certain of the private investors which gave them the right to pursue the applicant for defects. The collateral warranty had not been executed in relation to the cottage owners prior to the arbitration commencing but the applicant conceded that it would furnish them if so requested.

The respondent claimed that there were serious defects in the buildings and sought to claim for repairs and consequential losses that would be sustained by persons or companies who were not parties to the building contract. The arbitrator stated questions of law to the High Court as to whether the respondent was entitled to counterclaim for, and set off to, these losses in the arbitration.

Held by the High Court (Ryan J.), in addressing the arbitrator's questions, 1, that privity of contract together with the general prohibition on claiming for loss or damage sustained by third parties was subject to exceptions in order to avoid injustice.

Linden Gardens Ltd. v. Lenesta Ltd. [1994] 1 A.C. 85 followed.

2. That in building contract cases, the exception would apply where the person who sustained the losses had no other remedy in law, where the person entitled to sue would not be able to prove substantial loss and where the party in breach of contract would escape liability for its wrongdoing.

3. That where the party suffering the loss had a right of action against the person in breach of contract the exception would not apply.

McAlpine Construction v. Panatown [2001] 1 A.C. 518 and Linden Gardens Ltd. v. Lenesta Ltd. [1994] 1 A.C. 85 followed.

4. That, if, in cases where it was not necessary to avoid injustice, i.e. where the injured party had a remedy, the employer in a building contract also had a right to sue for failure to provide what was contracted for, this would create a problem as to the status of any damages that might be awarded to the employer in respect of repairs or consequential losses sustained by other parties.

Linden Gardens Ltd. v. Lenesta Ltd. [1994] 1 A.C. 85 considered.

5. That the exclusion of the contractor's liability to indemnify the employer for loss or damage in respect of building works up until the date of practical completion did not introduce a liability to the employer for loss or damage suffered by third parties after the date of practical completion.

Cases mentioned in this report:-

The Albazero [1977] A.C. 774; [1976] 3 W.L.R. 419; [1976] 3 All E.R. 129; [1976] 2 Lloyd's Rep. 467; 126 N.L.J.R. 953; 120 Sol. Jo. 570.

Burke (a minor) v. Dublin Corporation [1991] 1 I.R. 341.

Darlington B.C. v. Wiltshier Northern Ltd. [1995] 1 W.L.R. 68; [1995] 3 All E.R. 895; [1994] 37 L.S. Gaz. R. 49; 69 B.L.R. 1; 11 Const. L.J. 36; 138 Sol. Jo. 161.

Linden Gardens Ltd. v. Lenesta Ltd. [1994] 1 A.C. 85; [1993] 3 W.L.R. 408; [1993] 3 All E.R. 417; 36 Con. L.R. 1; [1993] 45 L.S. Gaz. R. 39; [1993] N.L.J.R. 1152; 137 Sol. Jo. 183.

McAlpine Construction v. Panatown [2001] 1 A.C. 518; [2000] 3 W.L.R. 946; [2000] 4 All E.R. 97.

The following additional cases were cited in argument:-

Murphy v. Bower (1866) I.R. 2 C.L. 506.

Jackson v. Horizon Holidays [1975] 1 W.L.R. 1468; [1975] 3 All E.R. 92.

Special case stated

The facts have been summarised in the headnote and are more fully set out in the judgment of Ryan J., infra.

The arbitrator stated a special case dated the 1st February, 2009, for the decision of the High Court pursuant to s. 35(1)(a) of the Arbitration Act 1954 with respect to questions of law arising in the course of a reference.

The matter came on for hearing before the High Court (Ryan J.) on the 30th July, 2009.

Cur. adv. vult.

Ryan J. 16th October, 2009

[1] Blarney Golf Resort, Co. Cork, consists of a golf course, a clubhouse, a hotel and 56 cottages. The golf course is owned by Kelcar Lands Ltd. and the clubhouse and hotel by a group of private investors. Eighteen of the cottages have been sold while the remaining 38 continue to be held by Frank and Derek McCarthy, the shareholders in the respondent. The resort is operated by BGR Ltd., a wholly owned subsidiary of the respondent.

[2] The construction work for the development was carried out pursuant to a building contract between the respondent as employer and the applicant as contractor. The respondent transferred the ownership of the buildings to others, including associated persons and companies, on foot of development agreements. Under one of the terms of the building contract, the applicant agreed to execute collateral warranties to give the transferees of the buildings similar rights to sue for defects as were contained in that agreement. The development agreements also contained warranties by the respondent as to the quality of the buildings.

[3] Pursuant to the undertaking in the building contract, the applicant executed collateral warranties under seal in favour of the private investors, who own the clubhouse and the hotel, which conferred on them the right to pursue the applicant for defects. However, in the case of the cottage owners, although the respondent and the applicant agreed that such warranties would be given, they have not, in fact, been executed. The applicant submitted that it is willing do to so but has not been called upon to execute any such warranty. The respondent does not contest this proposition.

[4] The arbitrator in a dispute under the building contract for the development has sought directions from the court in respect of issues that have arisen in the course of the hearing. Under s. 35 of the Arbitration Act 1954, he has stated questions of law in the form of a special case for the decision of the court. The legal issue raised is whether the respondent who is party to the building contract can counterclaim and set off in the arbitration the costs of remedying defects, and anticipated...