Construgomes & Carlos Gomes SA v Dragados Ireland Ltd, BAM Civil Engineering and Banco BPI SA

• Jurisdiction: Ireland
• Judge: Ms. Justice Nuala Butler
• Judgment Date: 04 February 2021
• Neutral Citation: [2021] IEHC 79
• Docket Number: [2020 No. 6649 P.]
• Court: High Court
• Date: 04 February 2021

Between

Construgomes & Carlos Gomes SA

Plaintiff

and

Dragados Ireland Limited, BAM Civil Engineering and Banco BPI SA

Defendants

[2021] IEHC 79

[2020 No. 6649 P.]

THE HIGH COURT

Interlocutory injunction – Interim protection – Fraud – Plaintiff seeking an interlocutory injunction or interim protection – Whether the plaintiff had established a clear or obvious case of fraud

Facts: The plaintiff, Construgomes & Carlos Gomes SA, applied to the High Court seeking an interlocutory injunction under O. 50, r. 6 of the Rules of the Superior Courts or interim protection in respect of an intended arbitration under O. 56, r. 3(1)(a) to restrain payment by the third defendant, Banco BPI SA (the Bank), on foot of a performance bond (also referred to as a letter of credit) provided by the plaintiff for the benefit of the first and second defendants, Dragados Ireland Ltd and BAM Civil Engineering. Whilst acknowledging that the threshold for obtaining the relief sought was necessarily high, the plaintiff contended that the legal principles regarding the test to be met in respect of fraud had not been definitively settled in Ireland. Further, the plaintiff contended that this case was exceptional and gave rise to new considerations because of the existence of an adjudicator’s decision in the plaintiff’s favour under s. 6 of the Construction Contracts Act 2013.

Held by Butler J that, having examined the facts of this case, it was apparent that the plaintiff had not established a clear or obvious case of fraud. Butler J held that the plaintiff’s case was dependent on the assertion that the claim made by the joint venture was the same as that made to and rejected by the adjudicator; however, the joint venture had put evidence before the court of the basis on which it was making its claim and evidence that this was not the same claim which was rejected by the adjudicator. Butler J held that this evidence may or may not ultimately be sufficient to defend the claim of fraud made by the plaintiff in these proceedings. However, Butler J held that it was certainly sufficient to enable the court to say that fraud had not been clearly or obviously established by the plaintiff such as to entitle the plaintiff to restrain payment on foot of an on demand bond into which it entered as part of its contractual agreement with the joint venture.

Butler J held that the plaintiff had not made out the seriously arguable case of fraud that was required for the purposes of considering whether interlocutory relief should be granted to restrain payment on foot of the bond. In those circumstances Butler J did not propose proceeding to consider the balance of convenience and the anterior issue of whether the court should proceed to consider the balance of convenience. Butler J was conscious of the potential divergence between the jurisprudence on this issue in Ireland and in the neighbouring jurisdiction and took the view that the teasing out and resolution of any such differences would be better suited to a case in which the court had found that the basic test for the grant of an injunction of this type had been met so that consideration of the balance of convenience issue was required.

Application dismissed.

JUDGMENT of Ms. Justice Nuala Butler delivered on the 4th day of February, 2021

Introduction

1 In this application, the plaintiff seeks an interlocutory injunction under O. 50, r. 6 of the Rules of the Superior Courts or interim protection in respect of an intended arbitration under O. 56, r. 3(1)(a) to restrain payment by the third named defendant (“the Bank”) on foot of a performance bond (also referred to as a letter of credit) provided by the plaintiff for the benefit of the first and second defendants. It is well established that the courts will not lightly grant interlocutory relief to restrain payment of a letter of credit even in circumstances where there is an unresolved dispute between the person who issued the letter of credit and the beneficiary thereof, save in cases of fraud. Whilst acknowledging that the threshold for obtaining the relief sought is necessarily high, the plaintiff contends that the legal principles regarding the test to be met in respect of fraud have not been definitively settled in Ireland. Further, the plaintiff contends that this case is exceptional and gives rise to new considerations because of the existence of an adjudicator's decision in the plaintiff's favour under s. 6 of the Construction Contracts Act, 2013. Under s. 6(10) of the 2013 Act, this decision is final until the payment dispute underlying the decision is finally settled by the parties or resolved by arbitration or litigation.

2 On being notified of the making of an interim order, the Bank agreed to abide by any order made by the court and did not participate in the interlocutory hearing in which the issues were canvased by the plaintiff and the first and second named defendants. There was not, in fact, any significant disagreement between the parties as to the relevant law: rather, as to how that should be applied to the facts of this case. Consequently, it may be useful to set out the background to the case at the outset.

Factual Background

3 The first named defendant is an Irish company which is part of a large Spanish based multinational group specialising in major infrastructural projects. Similarly, the second named defendant is an Irish company which is part of a Dutch based multinational construction company. The first and second named defendants combined to form a joint venture and tendered for the award of a contract to construct and operate the New Ross Bypass. They were successful in this regard and a public private partnership contract worth some €230 million was awarded to the joint venture in January, 2016. The project consisted of 15 kilometres of motorway and 29 structures including a 900 metre cable-stayed bridge over the River Barrow.

4 As commonly occurs, the joint venture then subcontracted certain aspects of the work to subcontractors of which the plaintiff was one. The plaintiff is a Portuguese based civil engineering company, specialising in bridgework and acted through its Irish branch in respect of this project. The subcontract entered into between the plaintiff and the joint venture was worth just under €2.7 million and required the plaintiff to “execute and complete the subcontract works and remedy any defects therein”. The subcontract works were specified in detail and, in particular, required the construction of a deck on the falsework of the bridge over the River Barrow together with related ancillary work in accordance with designs provided by the joint venture. The subcontract was subsequently amended on two occasions to provide, inter alia, for the extension of the completion date. These amendments are otherwise not material to the issues before the court. Clause 25 of the subcontract provided for the determination of disputes between the parties by reference to arbitration in accordance with ICC rules and that the arbitrator's award would be final and binding on the parties.

5 As part of the contractual arrangements between the parties, the plaintiff was required to provide a performance security bond, equivalent to 10% of the value of the subcontract. The agreement provided for the phased release of the bond such that only half of its original value, namely, €134,713.45 remains.

6 The performance security bond was provided through an agreement between the plaintiff and the Bank dated 23rd March, 2017. The terms of the agreement are reflected in a notification sent by the Bank to the joint venture on the 27th April, 2017 which recites:-

“The Bank's obligations are direct primary obligations and shall be fulfilled without any proof or conditions and receipt of request of payment from the contractor shall be conclusive evidence of the Bank's liability to pay to the contractor the amount demanded up to the “maximum guaranteed amount”.”

The Bank then provided an undertaking in the following terms:-

“…herewith irrevocably undertake to pay you, without any deduction, set off, any amount up to €134,713.45 (“guaranteed amount”) upon receipt by us at our mail address of a request for payment with your declaration that the contractor violated the terms of the contract and, notwithstanding being requested to pay the above requested amount, has failed to do so.”

It is evident from this that the only pre-condition to payment on foot of the bond is that the joint venture declare that the plaintiff is in breach of the subcontract and, having been requested to make payment, has failed to do so. Hence, the description as an “ on demand” bond. There is no provision for independent verification of the joint venture's view that the plaintiff is in breach of contract before the Bank is obliged to pay. The usual adjudicative mechanisms remain available to the parties in respect of any dispute as regards the breach of contract alleged but, if invoked, those mechanisms operate entirely separately from the Bank's liability to pay the joint venture once a call has been validly made in accordance with the terms of the bond. The joint venture was advised that its claim could be submitted to the Bank through confirmation from its own bank that the original claim had been sent by registered mail. The expiry date of the bond was stated to be the 30th September, 2020. Finally, the bond was stated to be subject to ICC Uniform Rules for Demand Guarantees (URDG 758).

7 Work proceeded on the project, albeit more slowly than anticipated. By February, 2019, issues had arisen between the parties and the joint venture withheld payment of certain monies due on the subcontract. On 16th April, 2019, the plaintiff submitted its final account which, by formal letter dated 12th June, 2019, the joint venture refused to pay. As this entailed a “ payment dispute” under a “ ...