Kellys of Fantane (Concrete) Ltd ((in Receivership)) v Bowen Construction Ltd ((in Receivership))

• Jurisdiction: Ireland
• Judge: MR. JUSTICE MICHAEL PEART
• Judgment Date: 20 March 2019
• Neutral Citation: [2019] IECA 98
• Docket Number: Record Number: 2017/408
• Court: Court of Appeal (Ireland)
• Date: 20 March 2019

[2019] IECA 98

THE COURT OF APPEAL

Peart J.

Peart J.

Edwards J.

Baker J.

Record Number: 2017/408

BETWEEN:

KELLYS OF FANTANE (CONCRETE) LIMITED (IN RECEIVERSHIP)

PLAINTIFF/RESPONDENT

- AND -

BOWEN CONSTRUCTION LIMITED (IN RECEIVERSHIP)

FIRST DEFENDANT

- AND -

SOMAGUE ENGENHARIA SOCIEDAD ANONIMA, TOGETHER TRADING AS BOWEN SOMAGUE JOINT VENTURE

SECOND DEFENDANT/APPELLANT

Summary judgment – Conciliator’s recommendation – Sub-contract – Plaintiff seeking summary judgment – Whether termination of the sub-contract clause 12(b) absolved the defendants from any obligation to make a further payment to plaintiff pending the determination of the arbitration

Facts: The defendants, Bowen Construction Ltd and Somague Engenharia Sociedad Anonima together trading as Bowen Somague Joint Venture (Bowens), appealed to the Court of Appeal from an order of the High Court (McGovern J) made on the 31st July 2017 whereby summary judgment was granted to the plaintiff, Kellys of Fantane (Concrete) Ltd (KOF), against Bowens in the amount of €6,364,978 and costs as sought in notice of motion dated 3rd March 2017, the trial judge being satisfied that Bowens had not established a bona fide defence to the claim. The amount for which judgment was granted was found to be due on foot of a binding conciliator’s recommendation dated 15th December 2015 in respect of certain disputes referred to the conciliator by Notice to Refer dated 13th March 2015. Those disputes had arisen in relation to works carried out by KOF under a sub-contract dated 19th January 2009 entered into between it and Bowens, who were the main contractors engaged by Laois County Council for the N7 Castletown to Nenagh Road Scheme under “the main contract” dated 29th January 2008. On appeal, Bowens argued that since a default termination notice was issued, there could be no further sums payable at all by Bowens to KOF as provided for in clause 12(b) of the sub-contract, and further that in circumstances where such a termination had occurred, the provisions of clause 13.1.11.1 had no applicability. Reliance was placed on the judgment of Laffoy J in White Cedar Developments Ltd v Cordil Construction Ltd [2012] IEHC 525. KOF submitted that White Cedar is readily distinguishable on the basis that in that case the dispute had been referred to a conciliator prior to the termination of the contract, unlike this case.

Held by Peart J that Bowens was incorrect to state that upon termination of the sub-contract clause 12(b) thereof absolves it altogether from any obligation to make a further payment to KOF pending the determination of the arbitration. Peart J rejected the appellant’s argument that upon a default termination the respondent’s claim under clause 13 must fail. In Peart J’s view, White Cedar was decided on different facts and in a different context. Peart J was satisfied that the trial judge was entitled on the evidence before him to conclude that the dispute which was the subject of the Notice to Refer dated 9th March 2011 was the same dispute that was referred to the conciliator and became the subject of his recommendation.

Peart J held that the trial judge was entitled to find that KOF was entitled to judgment in the amount claimed to be payable on foot of the conciliator’s recommendation in accordance with the relevant provisions of clause 13 of the sub-contract. Peart J held that the appeal would be dismissed.

Appeal dismissed.

JUDGMENT OF MR. JUSTICE MICHAEL PEART DELIVERED ON THE 20TH DAY OF MARCH 2019

1 This is an appeal from an order of the High Court (McGovern J.) made on the 31st July 2017 whereby summary judgment was granted to the plaintiff (‘KOF’) against the defendants (‘Bowens’) in the amount of €6,364,978 and costs as sought in notice of motion dated 3rd March 2017, the trial judge being satisfied that Bowens had not established a bona fide defence to the claim.

2 The amount for which judgment was granted was found to be due on foot of a binding conciliator's recommendation dated 15th December 2015 in respect of certain disputes referred to the conciliator by Notice to Refer dated 13th March 2015. Those disputes had arisen in relation to works carried out by KOF under a sub-contract dated 19th January 2009 entered into between it and Bowens, who were the main contractors engaged by Laois County Council for the N7 Castletown to Nenagh Road Scheme under ‘the main contract’ dated 29th January 2008.

3 It is not in dispute that the sub-contract was lawfully terminated by Bowens on the 12th April pursuant to the provisions of clause 12(a)(x) of the sub-contract 2011 due to the occurrence of an event of default by KOF, namely the appointment of a receiver, whereupon the provisions of clause 12.2 of the main contract applied, including that at 12.2.2, namely:

‘Payment of all sums of money that may then be due from [Bowens] to [KOF] shall be postponed, and [Bowens] shall not be required to make any further payment to [KOF] except as provided in this sub-clause.’ [Emphasis provided]

4 Clauses 12.2.3 and 12.2.9 are then relevant because they make provision for the post-termination calculation of how much may be due to KOF by Bowens in respect of works already completed by KOF and not yet paid for (‘the termination value’), and in respect of additional costs incurred by Bowens by having to engage another contractor to complete the sub-contract works (‘the termination amount’). Clause 12.2.11 provides for the setting off of one against the other, and for payment as appropriate. It is in relation to these calculations that a dispute arose, which was referred to arbitration by Notice to Refer dated 13th March 2015 pursuant to clause 13.2 of the sub-contract.

5 Clause 13(b)(1) of the sub-contract provides:

‘No step will be taken in the arbitration after the Notice to Refer has been served until the disputes have first been referred to conciliation….’.

6 Accordingly, the parties agreed upon a conciliator, Brian L. Bond, and referred their dispute to him. Mr Bond issued his recommendation on the 15th December 2015, which found that the sum of €6,364,978 was due by Bowens to KOF following termination of the sub-contract. Being unhappy with this recommendation, Bowens” solicitors issued a Notice of Dissatisfaction dated 18th December 2015 in respect of the conciliator's recommendation. It is at this point that other provisions of clause 13 of the main contract which were incorporated into the sub-contract by clause 13(b)(3), come into play.

7 The most relevant sub-clause of clause 13 of the main contract is clause 13.1.11(1) which provides respectively:

‘11. If the conciliator had recommended the payment of money, and a notice of dissatisfaction is given, the following shall apply:

(1) The party concerned shall make the payment recommended by the conciliator, provided that the other party first:

(a) gave a notice, complying with the arbitration rules referred to in sub- clause 13.2, referring the same dispute to arbitration and

(b) gave the paying party a bond executed by a surety approved by the paying party, acting reasonably, in the form included in the Works Requirements or, if there be none, a form approved by the paying party, acting reasonably, for the amount of the payment.’

8 Clause 13(b)(5) of the sub-contract has some relevance also. It provides:

‘(5) If a party fails to comply with a conciliator's recommendation which is binding, the other party may take such court proceedings as are appropriate to force compliance with the conciliator's recommendation without availing further of the conciliation or arbitration process.’

9 By reference to these clauses KOF's case is a simple one. It accepts that the sub-contract was lawfully terminated. Following termination, Bowens determined the termination value to be “nil” and the termination amount to be €768,911, and as provided for in clause 12.2 of the main contract demanded payment thereof. KOF did not accept Bowen's calculations and issued a Notice to Refer the dispute to arbitration, as it was entitled to do under clause 13(a) of the sub-contract, whereupon the provisions of clause 13(b) of the sub-contract were applicable, requiring that no step be taken in the arbitration until the dispute was first referred for conciliation. This happened, and in due course the conciliator issued his recommendation for the payment of the sum of €6,364,978 to KOF by Bowens, following which Bowens issued a notice of dissatisfaction. KOF maintain that upon the issue of that notice of dissatisfaction the provisions of clause 13.1.11(1) applied, and that they have complied with the conditions therein, namely (a) that the same dispute was the subject of the Notice to Refer to the arbitrator on 13th March 2015, and (b) they provided the required bond in a form approved by Bowens, and for the amount in question.

10 It is submitted therefore that the amount specified in the conciliator's recommendation, namely €6,364,978, became payable by Bowens once those conditions were fulfilled notwithstanding that the arbitration is ongoing, that Bowens have refused to pay same and, as provided for in clause 13(b)(5) of the sub-contract, KOF were entitled to issue proceedings for its recovery without awaiting the eventual outcome of the arbitration. KOF submits that these provisions are pellucidly clear in their terms, and that the trial judge was correct to reject the grounds of defence put forward by Bowens, and to grant a summary judgment in its favour.

The grounds of defence advanced by Bowens

11 Bowens consider that KOF have not complied with clause 13.1.11(1)(a) of the main contract (as incorporated into the sub-contract) because the dispute that was the subject of the Notice to Refer to arbitration is not ‘the same dispute’ as that the subject of the conciliator's...