The High Court has ruled that Kelcar Developments Limited cannot claim, in its arbitration with Bowen Construction Limited, repair costs and anticipated business losses said to have been suffered by other parties to a golf resort development.
Mr Justice Ryan delivered the judgment on 16 October 2009 after an arbitrator referred questions of law to the court by way of a special case under the Arbitration Act 1954. The court decided whether the employer under a building contract could set off or counterclaim for alleged defects and consequential losses sustained by people and companies that were not parties to that contract. It did not decide whether the alleged defects or losses had actually occurred: those were assumed for the purpose of answering the questions.
The dispute concerned Blarney Golf Resort in Co Cork. Kelcar had engaged Bowen to carry out construction work. Kelcar had transferred ownership of buildings to others under development agreements, and the resort was operated by BGR Limited, a wholly owned subsidiary of Kelcar. The judgment records that the hotel and clubhouse owners had executed collateral warranties giving them rights to pursue Bowen for defects. Similar warranties for cottage owners had been agreed but not executed. Bowen said it was willing to provide them and had not been asked to do so; Kelcar did not dispute that account.
Kelcar sought to claim the alleged cost of repairs and projected consequential losses, including disruption to BGR’s business if the resort had to close during repairs. Bowen disputed the claims, arguing that Kelcar had sustained no such losses and could not recover losses belonging to non-parties. The arbitrator allowed Kelcar to amend its defence and counterclaim but refused an application to join BGR to the arbitration.
Justice Ryan rejected Kelcar’s argument that clauses in the building contract allowed it to claim for third-party losses. He also considered exceptions to the rule of privity of contract, including circumstances where a “legal black hole” would leave the party suffering loss without a remedy. The court concluded that no such gap existed here because the hotel and clubhouse owners had warranty rights and the cottage owners were entitled to similar warranties. If Bowen refused to provide the agreed cottage warranties, Kelcar could seek specific performance and, alternatively, the cost of repairs, the judge said.
The court also identified practical concerns: the third parties were not before the arbitrator, and allowing Kelcar’s claims could reduce what it owed Bowen without settling those parties’ own claims. The judgment noted a risk of double liability for Bowen.
The court answered “No” when asked whether Kelcar could claim the repair costs in its own right, and “No” when asked whether Kelcar could claim any damages BGR might be entitled to recover from Bowen in the arbitration. Other questions were marked not applicable as a result. The ruling determined those legal questions in the reference; it did not make findings that the roofs were defective or that any party had suffered loss.