In Gembira Ltd ("plaintiff") v Amtrust Europe Ltd ("defendant") [2024] IEHC 188, a construction contract between the plaintiff and a contractor was terminated when an interim examiner was appointed to the contractor. The plaintiff applied for summary judgment in an amount of €1,360,735 pursuant to a performance bond issued in 2017.
The contract was an amended RIAI form of contract. Clause 33 provided that, if an examiner was appointed to the contractor, the plaintiff could terminate the employment and employ and pay another contractor to complete the works (and this happened). After completion, the contract architect would certify the amount of the expenses incurred by the employer to completion. Clause 33(c)(iv) provided that if that amount, added to the money paid to the original contractor before termination of the contract, exceeded the amount which would have been payable on due completion of the contract, the difference would be a debt payable to the employer by the contractor.
The bond provided that, if the contractor's obligation to complete the works was terminated under clause 33 of the contract, the defendant would pay the employer any amount for which the contractor was liable under clause 33(c)(iv) of the contract. The issues before the court turned principally on whether the requirements of this contractual provision had been satisfied and, in particular, the nature of the certificate to be issued by the architect.
In 2020, the contract architect issued what the plaintiff described as a certificate to the effect that a sum of €35,948,975 represented the amount of expenses properly incurred by the plaintiff in completing the works subject to finalisation of snags and defects, and that this considerably exceeded the value remaining on the bond. (At the time of the claim the cap on the bond was €1,360,735.)
The plaintiff relied on this certificate in its application for summary judgment.
However, Mr Justice Quinn found that it was "not a Certificate effective for the purpose of establishing a debt within the meaning of clause 33". Instead, it was "an estimate ... simply asserting that the amount considerably exceeds the value remaining on the bond .... This "headroom" claim, based on an estimate, cannot be taken as conclusive evidence of a debt". Clause 33(c)(iv) of the contract required a calculation to be made, it contained no provision conferring binding and conclusive status on an architect's certificate in any form, and the bond did not relieve the plaintiff from establishing the amount of a debt due under clause 33.
These findings were enough to conclude that the defendant had a bona fide defence to the proceedings, and so the Judge did not grant summary judgment to the plaintiff.
However, nor did the Judge dismiss the plaintiff's claim: further issues to be determined in plenary hearing include whether the contract was validly terminated, whether the plaintiff failed to comply with section 549 of the Companies Act 2014, whether the liability of the contractor has now been ascertained in accordance with clause 33 of the contract, and whether there are outstanding amounts owing to the contractor.
The Judge makes clear that there is no requirement for the plaintiff to first pursue the contractor for the debt identified under clause 33, and that it may pursue the defendant directly under the bond. However, that does not mean that the debt does not have to be first established in accordance with the formula in clause 33.
The authors wish to thank Martha McGarry for her contribution to this briefing.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.