High Court: Development company’s claim for damages dismissed as an abuse of process

About this case:

• Citation:
  [2019] IEHC 630
• Judgment:
  External link
• Court:
  High Court
• Judge:
  Mr Justice Garrett Simons

Finding that it was clear from the contract that damages must be quantified in accordance with the dispute resolution mechanisms set out in the building contract, Mr Justice Garrett Simons said the development company had, by instituting the proceedings, sought to bypass contractual arrangements.

Stating that it was essential for courts to protect their processes from abuse, Mr Justice Simons said that allowing unmeritorious litigation to proceed can present defendants with “a Hobson’s choice” of protracted litigation with unrecoverable legal costs, or settling for a lesser sum.

Performance bond

In December 2011, the plaintiff, Clarington Developments Limited contracted Sammon Contracting to construct a primary care centre and sports hall in Newbridge, County Kildare.

The building contract contained a “performance bond” or “contract guarantee bond” which set out a dispute resolution mechanism; stating that if a dispute arose regarding any provisions of the contract, it should be referred to conciliation in accordance with procedures published by the Royal Institution of the Architects of Ireland – and thereafter referred to arbitration if a settlement is not reached.

The surety under the bond is the defendant to these proceedings, HCC International Insurance Company Plc. HCC International undertook to satisfy and discharge any damages sustained by Clarington in the event of default on the part of Sammon in the performance of the building contract.

Work pursuant to the building contract commenced in January 2012, and were certified as “practically complete” in March 2013.

Damages for breach of contract

In February 2014, alleging that the construction works under the building contract were carried out defectively, Clarington issued the within proceedings seeking to enforce the performance bond against HCC International.

On the same day, Clarington issued proceedings against Sammon Contracting seeking an order directing Sammon Contracting to refer the “proceedings” to arbitration, or in the alternative, seeking damages for breach of contract and negligence. Sammon Contracting has since been placed into liquidation by order of the High Court.

Application to dismiss the claim

HCC International brought an application to dismiss the claim on the grounds that it disclosed no reasonable cause of action. In the alternative, HCC International sought an order staying the proceedings on the grounds that the case is bound to fail.

Mr Justice Simons said that for the purposes of determining the application to dismiss the proceedings, it would be assumed that if the proceedings were to go to trial, Clarington would be able to establish that the construction works were carried out defectively.

Both parties agreed that damages must be quantified before deciding the issue of liability to make payment. However, the “fundamental disagreement” was whether the damages should be assessed by the High Court (Clarington’s argument); or by way of conciliation or arbitration between Clarington and Sammon Contracting pursuant to the building contract (HCC International’s argument). HCC International argued that since arbitration had not taken place, it was not open to Clarington to have the damages quantified by the High Court – therefore the proceedings were bound to fail.

Mr Justice Simons said the resolution of the disagreement turned on the correct interpretation of the bond, and whether the phrase “the damages sustained […] as established and ascertained pursuant to and in accordance with the provisions of” the building contract, meant that the damages could only be quantified by way of conciliation or arbitration under the building contract.

Mr Justice Simons said that the language used in the bond was significant, and considering the dictionary definitions of “establish” and “in accordance with”, the quantification of damages must be determined in conformity with the building contract and the dispute resolution mechanisms therein – i.e. conciliation or arbitration. Mr Justice Simons said that Clarington’s interpretation, allowing for damages to be determined in parallel proceedings before the High Court, could not be “reconciled with the contractual language”. In truth, Clarington sought to bypass the contractual arrangements.

Abuse of process

Satisfied that the institution of the proceedings by Clarington represented an abuse of process, Mr Justice Simons said that the claim against HCC International could not succeed. Mr Justice Simons said it was essential that the courts protect their process from abuses such as the institution of proceedings which are bound to fail.

Dismissing the proceedings, Mr Justice Simons said it was unjust to put defendants to the time and expense of a full hearing in circumstances where the claim cannot succeed. He said that to do otherwise would create “a risk that defendants may be forced, for commercial reasons, to make a windfall payment to a plaintiff in order to compromise unmeritorious litigation” – presenting a defendant “with a Hobson’s choice of defending protracted litigation in circumstances where its legal costs might not be recovered, or seeking instead to compromise the litigation for a lesser sum than that which would be incurred in legal costs”.

• by Róise Connolly for Irish Legal News