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Quantum of damages must be first ascertained pursuant to dispute resolution mechanisms of building contract

By: Emma Foley BL

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High Court makes an order dismissing plaintiff's proceedings, on the grounds that it is a condition precedent to any claim against the surety that the quantum of damages be first established and ascertained pursuant to the dispute resolution mechanisms of the building contract.

High Court - practice and procedure - application to dismiss the plaintiff's claim on the grounds that is discloses no reasonable cause of action - contractual interpretation - the plaintiff, defendant and a third-party contractor entered into a performance bond whereby the defendant undertook to discharge any damages incurred by the plaintiff, as employer, in the event of default by the third-party contractor in the performance of a building contract - 12 month time limit reckonable by reference to the date of the issuing of the certificate of practical completion - plaintiff seeking damages from the defendant as surety under the bond - proceedings brought to quantify damages - defendant argues that under the agreement damages were to be established and ascertained by way of conciliation or arbitration between the plaintiff and the third-party contractor - no factual dispute between the parties - the plaintiff engaged the contractor in December 2011 - clause 38 of the building contract contained the dispute resolution mechanisms between the plaintiff and the contractor - firstly the dispute shall be referred to conciliation and if a settlement is not reached by the parties the parties may refer the matter to arbitration - the plaintiff and the contractor subsequently entered into a bond and the defendant was the surety under the bond - the contractor and the defendant were jointly and severally bound to the plaintiff in the sum of €1,200,000 - under the bond the defendant was to satisfy and discharge any damage sustained by the plaintiff as established and ascertained to and in accordance with the provisions of the said contract - the bond amount would automatically reduce by half on issuance of the certificate of practical completion of the works - the contractor and the defendant were to be released from the liabilities under the bond 12 months after the date of the practical completion - any suits brought against the defendant were to be instituted no later than the expiry of the 12 months - under the bond there were several conditions precedents to the right of the plaintiff to recover against the defendant - the defendant was to be notified in writing by way of registered or hand delivered letter of any serious breach or default in the terms in the building contract as soon as possible and within three months after such breach has come into the knowledge of the plaintiff, allow the defendant to perform the provisions of the contract which have been failed to be completed - the certificate of practical completion issued in March 2013 - proceedings issued in February 2014 seeking to have the High Court quantify the damages payable by the defendant - proceedings were served until February 2015 - question is whether the institution of proceedings represents an abuse of process - the Court determined that on the case law, the approach to be taken to an application to strike out or to dismiss proceedings will differ slightly in circumstances where the underlying proceedings turn on the interpretation of (agreed) contractual documents - there must be no factual dispute as to the validity of the contractual documents - it must be accepted that the documents represent the entire agreement between the parties - the documentation must be capable of interpretation on its own terms - if the court concludes that no reasonable interpretation of the contractual documentation could give rise to a claim on the part of the plaintiff the proceedings can be dismissed as an abuse of power - the plaintiff argued that the proceedings were of considerable intricacy and should not be dismissed due to their legal complexity but this was rejected by the Court - the Court determined that there was no jurisdictional issue and that dispute at hand was a straightforward issue of contractual interpretation - Interpreting the bond - conditional bond - damages to be quantified before liability to make payment arises - argued by the defendant that the damages must be quantified in line with the dispute resolution provisions of the building contract - the plaintiff argues that damages be established and ascertained in accordance with the substantive provisions of the building contract and that the time limits imposed by the building contract were unrealistic - whether quantification can be carried out by the High Court - The Court determined that the interpretation of the bond is obvious - it is assumed that the works were defective and damage was sustained - Oxford Dictionary of English definition of establish is to show to be true or certain by determining the facts - the bond refers to the provisions of the building contract - nothing to support the plaintiff's interpretation - the language of clause 1 of the bond had the effect of ensuring that all the provisions of the building contract must be complied with - It is not the function of the court to substitute its view as to what the appropriate allocation of risk should have been - the interpretation of the bond has the effect of precluding an action to quantify damages in the High Court - the conditions precedent are not exhaustive and none of the conditions deal with the factual matrix at hand - the Court cannot depart from the language of the bond even if the limitation period results in hard cases - no findings made in relation to the time limits under the bond - it is a condition precedent to any claim against the surety that the quantum of damages be first established and ascertained pursuant to the dispute resolution mechanisms of the building contract.

Note: This is intended to be a fair and accurate report of a decision made public by a court of law. Any errors should be notified to the editor and will be dealt with accordingly.

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