The High Court has dismissed a developer’s claim against an insurer under a construction performance bond, ruling that any damages first had to be established through the dispute process in the underlying building contract.
Mr Justice Garrett Simons delivered the judgment on 6 September 2019 in proceedings brought by Clarington Developments Limited against HCC International Insurance Company plc. The developer sought to have the High Court assess the damages it said arose from defective construction work and determine what the insurer owed under the bond.
The court considered the insurer’s application to dismiss the claim as bound to fail. It was not deciding whether the works were defective: for the purpose of the application, the court assumed the developer could establish that at a full hearing.
The developer had contracted with Sammon Contracting Ltd to build a primary care centre and sports hall in Newbridge, Co. Kildare. The works were certified as practically complete on 2 March 2013. The bond’s amount reduced from €1.2 million to €600,000 on practical completion, and its terms tied the insurer’s liability to damages established in accordance with the building contract.
The developer argued that the High Court could quantify damages in separate proceedings, applying the building contract’s substantive rules. The insurer said the contract required the developer and contractor to pursue conciliation and, if that did not resolve the dispute, arbitration. No arbitration had taken place.
The judge found that the bond’s wording incorporated the building contract’s dispute-resolution provisions as well as its substantive terms. The damages therefore had to be established through conciliation or arbitration between the developer and contractor before a claim could be made against the insurer. The bond did not permit parallel processes to produce separate assessments of damages.
The developer had also issued proceedings against the contractor companies on the same day as its claim against the insurer, seeking to refer the dispute to arbitration. The judge said the claim against the insurer was inconsistent with those proceedings and could not succeed under the bond as interpreted.
The court dismissed the claim under its inherent jurisdiction, finding that maintaining it was an abuse of process. The judgment did not decide the insurer’s separate argument that the bond had been cancelled under its time limit. The judge said it was unnecessary to determine that issue.