Desmond Murtagh Construction Ltd ((in Receivership)) & others v Hannaan & others

• Jurisdiction: Ireland
• Judge: Mr. Justice Clarke,Mr. Justice William M. McKechnie
• Judgment Date: 31 July 2014
• Neutral Citation: [2014] IESC 52
• Date: 31 July 2014
• Docket Number: Supreme Court Record No: S:LE:IE:2011:000374,[S.C. No. 374 of 2011]
• Court: Supreme Court

[2014] IESC 52

THE SUPREME COURT

McKechnie J.

Clarke J.

Dunne J.

Supreme Court Record No: S:LE:IE:2011:000374

BETWEEN

DESMOND MURTAGH CONSTRUCTION LTD (IN RECEIVERSHIP)

AND

PATRICK MURTAGH, SUSAN WATTERS TOGETHER WITH THE PERSONAL REPRESENTATIVES OF DESMOND MURTAGH (DECEASED)

PLAINTIFFS/RESPONDENTS

AND

BRENDAN HANNAN, OLIVER MALONE, SEÁN MCGUIGAN

AND

JOHN OLWILL

DEFENDANTS/APPELLANTS

Contracts – Planning permission – Conditions – Appellants resisting an order directing them to specifically perform a series of contracts – Whether the appellants were bound by such agreements

Facts: In the High Court the plaintiffs/respondents, Desmond Murtagh Construction Ltd (in receivership), Mr P Murtagh, Ms Watters together with the personal representatives of Mr D Murtagh (deceased), obtained an order directing the defendants/appellants, Mr Hannan, Mr Malone, Mr McGuigan and Mr Olwill, to specifically perform a series of contracts, in respect of 22 units being part of a residential retirement complex, known as Castlemanor Retirement Village, situated at Billis, Drumalee, Co. Cavan. The obligation in its compliance, involved the payment of €1,804,000 to the estate of Mr. Murtagh and €4,136,000 to Desmond Murtagh Construction Ltd, making in all the sum of €5,940,000, which was due under such contracts. The defendants resisted the making of such an order and grounded their appeal to the Supreme Court therefrom, on the basis that they were not bound by such agreements, because certain conditions of the planning permission by reference to which the underlying development was constructed, had not been complied with. In particular, the foul sewer specified in Condition No. 33 of the grant of planning permission, dated the 13th October, 2005 (Register Reference No. 05/162) had not been constructed at the relevant date, and therefore it was claimed, that the purported certificate of compliance, which was issued in respect of the development, was invalid. They thus argued that there had been a fundamental failure of a contractual obligation by the plaintiffs. Consequently it was claimed that the High Court committed a significant error of law in not recognising their right to rescind. Accordingly they sought from the Supreme Court to have that error rectified. McKechnie J considered the following issues: (i) firstly the relationship between the General Conditions and the Special Conditions and in particular how the former were affected by the latter, and secondly the nature of the obligation imposed on the vendors regarding evidence of planning compliance (the first issue); (ii) thirdly whether, even if Special Condition No. 10 had the meaning argued for by the respondents, they were nevertheless precluded from relying upon it, by virtue of certain principles of law which the appellants said deny it any validity (the second issue); (iii) whether the architect’s Certificate was correct in accordance with its terms (the third issue); (iv) the position regarding planning Condition No. 14 (the fourth issue); and (v) the appropriate remedy (the fifth issue).

Held by McKechnie J that: (i) the appellants were bound to accept the architect’s certificate, the procuring of which would be a sufficient discharge by the respondents of their obligations in that regard; (ii) the appellants’ response to the Special Conditions could not be upheld; (iii) such a certificate was accurate; (iv) it was unnecessary to expressly deal with this issue; and (v) the trial judge was correct and amply justified in law in making the order which he did.

McKechnie J held that the appeal would be dismissed.

Appeal dismissed.

Judgment of Mr. Justice William M. McKechnie , delivered the 31st day of July, 2014.

Issue:

1 In the High Court the plaintiffs obtained an order directing the defendants to specifically perform a series of contracts, in respect of 22 units being part of a residential retirement complex, known as Castlemanor Retirement Village, situated at Billis, Drumalee, Co. Cavan. The obligation in its compliance, involves the payment of €1,804,000 to the estate of Mr. Murtagh and €4,136,000 to Desmond Murtagh Construction Ltd. (“DMC” or “the company”), making in all the sum of €5,940,000, which was due under such contracts. The defendants resisted the making of such an order and grounded their appeal to this Court therefrom, on the basis that they are not bound by such agreements, because certain conditions of the planning permission by reference to which the underlying development was constructed, have not been complied with. In particular, the foul sewer specified in Condition No. 33 of the grant of planning permission, dated the 13th October, 2005 (Register Reference No. 05/162) had not been constructed at the relevant date, and therefore it is claimed, that the purported certificate of compliance, which was issued in respect of the development, is invalid. They thus argue that there has been a fundamental failure of a contractual obligation by the plaintiffs: consequently it is claimed that the High Court committed a significant error of law in not recognising their right to rescind: accordingly they seek from this Court to have that error rectified.

2 An understanding of this case requires knowledge of a number of the terms and conditions which the parties signed up to, as well as an appreciation of the relevant planning conditions. Before outlining these however, some lead-in history to the dispute is called for.

History:

3 Mr. Hannan, the first named defendant/appellant, was for a number of years the manager of the Cavan branch of ACC Bank. In 2002, he joined with the other named defendants and together they formed a partnership known as the “Hammo Partnership”, which involved itself in property speculation and development. In 2005, it purchased lands at the above location and very quickly thereafter obtained the planning permission, as mentioned, for a total outlay of €3,000,000: the breakdown showed a purchase price of €1,700,000, an unspecified payment to a Mr. Leddy, who introduced the lands, with the balance representing the cost of obtaining the said planning permission. Two years later it turned over that property for €7,000,000 having originally sought as an asking price €9,000,000. That was the beginning of the relationship between the plaintiffs/respondents and the defendants/appellants.

4 In January, 2007, a composite transaction involving the following three contracts took place:

(i) An agreement for sale was executed whereunder Mr. Murtagh, agreed to purchase the subject lands for €7,000,000. No dispute has ever existed, in respect of this agreement.

(ii) The second agreement, which in all respects was a building contract was also entered into, in which Desmond Murtagh Construction Ltd. (“DMC”), agreed to build, erect and construct a retirement residential complex to be known as Castlemanor Retirement Village on such lands.

(iii) And finally, the defendants, by way of a separate agreement, agreed to buy back 48 units of this development when so constructed.

All of these agreements, which were executed sequentially so as to give legal effect to the steps outlined, were dated the 8th January, 2007.

5 Work proceeded with accelerated haste as it had to, because of the requirement to meet deadlines so that the tax advantage envisaged by the scheme could be obtained. By the date of the events next described, the development was well under construction with the standard and quality of work carried out by Mr. Murtagh and his company, despite the time pressure, being commended by all.

6 To enhance financial return and thus profit, and following the obtaining of further tax advice, the above transaction at the behest of the defendants, was substantially recast in November, 2007. Both the building contract and the buy-back agreement were replaced by an arrangement which saw a single contract for sale and a single building contract being created for each of the residential units involved. As there were 48 such units, there was thus 48 individual contracts for sale by Mr. Murtagh to the defendants and a corresponding number of building contracts in which DMC was the contractor and the defendants were the employers. The purchase price for each unit was constant at €270,000, which when broken down showed the sum of €82,000 being allocated to each site and the sum of €188,000 to each building contract. Completion dates were of course specified. These were staggered in number and in time, with the latter extending from December, 2007 to October, 2008. All of these steps were carried out with the agreement and consent of all parties.

7 To continue the narrative: in December, 2007, the sale back of the first 20 of the 48 units was completed: between that date and the summer of 2008, the sales of a further six units were also closed. The remaining 22 units were to be signed off, some by the end of March, 2008, some others at the end of June, 2008 with the remainder by the end of October, 2008. With both the March and June deadlines having passed, the plaintiffs had become so concerned by the apparent reluctance of the defendants to close any of these remaining units, that they served completion notices under the relevant contracts: the first of which were dated the 14th July, 2008, with a series of further such notices being served on the 4th November, 2008. As the sales were not closed, despite the service of such notices, the current proceedings then followed.

8 It might be noted that a Receiver was appointed to DMC on the 11th February, 2009 and that Mr. Murtagh died on the 5th June, 2009; hence the description of the plaintiffs in the title above given.

Relevant Documents:

The Bond/Guarantee:

9 In January, 2007, at the time of the original transaction, it was agreed by the parties that the defendants would provide a bond of €1,500,000 in lieu of paying any deposit under...