Glow Heating Ltd v Eastern Health Board

• Jurisdiction: Ireland
• Judge: Mr. Justice Costello
• Judgment Date: 04 March 1988
• Neutral Citation: 1988 WJSC-HC 1176
• Court: High Court
• Docket Number: [1986 No. 6813P]
• Date: 04 March 1988

GLOW HEATING LTD v. EASTERN HEALTH BOARD

BETWEEN

GLOW HEATING LTD.

PLAINTIFFS

AND

THE EASTERN HEALTH BOARD, PATRICK ROONEY BUILDING AND ENGINEERING LTD (IN LIQUIDATION)

DEFENDANTS

1988 WJSC-HC 1176

THE HIGH COURT

Synopsis:

CONTRACT

Construction

Building agreement - Sub-contractor - Payment - Failure of contractor - Payment by employer - Fiduciary role of contractor - Work done and material supplied by sub-contractor after commencement of winding up of contractor company - ~See~ Winding up, property - (Costello J. - 4/3/88) - [1988] I.R. 110

|Glow Heating Ltd. v. Eastern Health Board|

WINDING UP

Property

Ascertainment - Building contract - Contractor - Sub-contractor - Retention money - Trust money - Liquidation of contractor company - Determination of limits of property of that company available for discharge of its liabilities in winding up that company - Failure of contractor company to pay sub-contractor - Rights of sub-contractor under sub-contract and main contract - Whether rights of sub-contractor in conflict with statutory provisions for application of property of contractor company in course of winding up that company - In September, 1982, Building & Engineering Ltd. (the contractor and third defendant) agreed with the Eastern Health Board (the employer and first defendant) to supply and instal certain mechanical services at a health centre at Clondalkin in the county of Dublin - In December, 1982, the plaintiff company (the sub-contractors) agreed with the contractor to perform part of the work required to complete the main contract between the employer and the contractor, and the sub-contractors became a nominated sub-contractor under the main contract - Clause 55(a) of the main contract provided:- "On application to the architect, and within twenty-one days of the agreement by the architect of the amount due, the contractor shall be entitled to receive without undue delay a certificate from the architect of the amount due to him from the employer including sums due (if any) in respect of nominated sub- contractors (which sums shall be shown separately on each certificate) and, before issuing any such certificate, the architect shall require the contractor to furnish to him reasonable proof that all nominated sub-contractors" accounts included in previous certificates have been duly discharged (or, if not discharged, that the contractor has reasonable cause for withholding payment) and, in default of such proof or satisfactory explanation of the cause of withholding payment, the employer shall himself pay such accounts upon the certificate of the architect and deduct the amount so paid from any sums otherwise payable to the contractor" - Clause 11(d) of the sub- contract provided:- "Payments made to the contractor in respect of work done and materials used by the sub-contractor shall, until received by the sub-contractor, be deemed to be money or money's worth held in trust by the contractor for the sub- contractor to be applied in or towards payment of the sub- contractor's account, subject always to the right of adjustment by the architect/engineer in the event of his certifying that adjustment is necessary" - In the event of the contractor receiving from the employer payments for work done by the sub- contractors and failing to pay the sub-contractors for that work, the sub-contract provided at clause 11(c) that the sub- contractors "may (but without prejudice to any other right or remedy) apply directly to the employer for, and the employer may make payment of, the amounts certified to be due to the sub-contractor direct to the sub-contractor, and the employer may set off the amount of any payment or payments made by him to the sub-contractor against any moneys due or to become due to the contractor. Payment by the employer to the sub- contractor direct shall be regarded as payment by the contractor to the sub-contractor ..." - Clause 11(k) of the sub-contract provided:- "If, and to the extent that, the amount retained by the employer in accordance with the main contract includes any retention money, the contractor's interest in such money shall be fiduciary as trustee for the sub-contractor and, if the contractor attempts or purports to mortgage or otherwise charge such interest or his interest in the whole of the amount retained as aforesaid, such mortgage or charge shall, in so far as it relates to the retention money, be void" - By clause 12 of the sub-contract the contractor agreed that, if so requested, the contractor would obtain for the sub-contractors any rights or benefits of the main contract, so far as they were applicable to the sub- contract works - Clause 22 of the sub-contract provided that, if the provisions of the main contract were repugnant to, or inconsistent with, the sub-contract, the provisions of the sub-contract were to prevail - On 15/10/84 the architect under the main contract (the second defendant) certified (inter alia) that #6,616 was payable to the sub-contractors for work and material supplied by them and, at the end of that month, the employer paid to the contractor a sum which included the #6,616 that had been so certified - The contractor failed to pay that sum to the sub-contractors - On 29/3/85 the High Court ordered that the contractor company be wound up by the court, and a liquidator of that company was appointed - The contractor company completed, under the direction of the liquidator, the remaining work involved in the main contract and on 19/12/85 the consulting engineers under the main contract recommended that the sub-contractors be paid #9,935 for work not already certified - No certificate issued in respect of that work and on 7/3/86 the sub-contractors claimed from the architect and the employer the said sum of #9,935 and a further sum of #2,212 which had been certified on 15/10/84 to be due to the sub-contractors from the retention fund - The liquidator of the contractor company and the employer accepted that the said sums of #9,935 and #2,212 should be paid to the sub-contractors pursuant to the trustee clauses in the sub- contract - The plaintiff sub-contractors claimed that, pursuant to the terms of the main contract, the sum of #6,616 should be paid to them by the defendant employer out of the retention moneys due to the contractor - The liquidator of the contractor company contended that the moneys in the retention fund were the property of that company; he argued that an application of the terms of clause 55(a) of the main contract would (a) reduce the assets of the company by #6,616; (b) contravene the ~pari passu~ provisions of s.275 of the Act of 1963 and (c) give effect to a contract which was contrary to public policy - Section 275 of the Act of 1963 states:- "Subject to the provisions of this Act as to preferential payments, the property of a company shall, on its winding up, be applied in satisfaction of its liabilities pari passu, and, subject to such application shall, unless the articles otherwise provide, be distributed among the members according to their rights and interests in the company" - Held that the part of clause 11(c) of the sub-contract which stated that the sub-contractors "may ... apply directly to the employer" for payment was not inconsistent with the provisions of clause 55(a) of the main contract which stated that, in the events there specified, the employer "shall himself pay" the amount due to the sub-contractors - Held that the defendants had not contended that the sub-contractors were not entitled to declaratory relief in regard to the terms of the main contract: ~In re Tout and Finch Ltd~ [1954] 1 All E.R. 127 mentioned - Held that the provisions of clause 55(a) of the main contract requiring the employer to pay money to the sub- contractor "from any sums otherwise payable to the contractor" applied to moneys retained by the employer in the retention fund: ~In re Tout and Finch Ltd.~ [1954] 1 All E.R. 127 applied - Held that the property owned by the contractor company at the date of the commencement of the winding up of the company, and prima facie available to satisfy its liabilities, was available for that purpose subject to the exercise of rights existing at the commencement of the winding up: ~In re Wilkinson~ [1905] 2 K.B. 713 considered - Held that one of the rights affecting the interest of the contractor company in the retention fund of the main contract at the commencement of the winding up of that company was the right of the sub-contractors to be paid by the employer from that fund pursuant to a certificate of the architect in the event of the contractor failing to pay the sub-contractors - Held that the implementation of the said right of the sub- contractors was not in conflict with, or excluded by, the provisions of s.275 of the Act of 1963: ~British Eagle International Air Lines v. Compagnie Air France~ [1975] 1 W.L.R. 758 distinguished - Held that the court would declare that the sub-contractors were entitled, pursuant to clause 55(a) of the main contract, to be paid #6,616 by the employer on foot of a separate certificate to be issued by the architect, and that the employer was entitled to deduct that sum from any sums otherwise payable by the employer to the contractor - Held that the court would direct the architect to issue to the contractor a certificate in favour of the sub- contractors for #9,935 and for the sum of #2,212; and that the said sums, when received by the contractor, be held in trust for the sub-contractors in accordance with clause 11(d) and (k) of the sub-contract and that the same be paid forthwith by the contractor to the sub-contractors - Companies Act, 1963, s.275 - (Costello J. - 4/3/88) - [1988] I.R. 110

|Glow Heating Ltd. v. Eastern Health Board|

Citations:

BRITISH EAGLE INTERNATIONAL AIRLINES V COMPAGNIE NATIONALE AIR FRANCE 1975 2 AER 390, 1975 1 WLR 758

TOUT & FINCH LTD,RE 1954 1 AER 127

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