Arbitrator's award against Dunnes Stores upheld

Mon, Apr 16, 2012, 01:00

HIGH COURT:Dunnes Stores -v- Holtglen Ltd

High Court:Commercial Court

Neutral citation number:2012 IEHC 93

Judgment was delivered on March 27th, 2012, by Mr Justice Peter Kelly.

Judgment

An arbitration award that Dunnes Stores had to pay a sum of about €20 million to a development company, Holtglen Ltd, which was now insolvent, was upheld by the court.

Background

The arbitrator, Eoin McCullough SC, made an award on October 7th, 2011, in favour of Holtglen Ltd, arising out of a development agreement concluded on June 13th, 2007.

This concerned the development of an anchor store in the Ferrybank Shopping Centre, Co Kilkenny. Holtglen’s loans with the Bank of Ireland were transferred to the National Asset Management Agency (Nama) on October 28th, 2010.

Dunnes had claimed that Holtglen had breached the agreement in a number of ways, and the arbitrator had upheld a large part of these claims. However, he also found that Holtglen had remedied these breaches. Holtglen then counter-claimed for payment of €20,269,732 for work done and Mr McCullough found in its favour. Dunnes sought to set the award aside, claiming a fundamental error of law.

Mr Justice Kelly said that in order for an arbitrator’s award to be set aside, the applicant must demonstrate an error so serious and so substantial or so fundamental that it smacked of injustice, and the court could not permit it to go unchallenged.

The agreement contained clauses providing for staged payments for the construction of the store. It also provided that the developer should ensure sufficient funds were in place during the construction of the works. Holtglen claimed that 85 per cent of the money had become payable.

Dunnes claimed that because Holtglen had become insolvent it was not entitled to obtain payments. Holtglen said such a provision was not contained in the agreement, and Dunnes was liable for payment for the work already completed. Dunnes then sought to amend its claim to include the issue of Holtglen’s insolvency.

The arbitrator stated there was no express positive obligation to be or remain solvent in the agreement, and it would not be appropriate to make such an inference or implication. Insolvency gave the right to terminate the agreement, but did not give the right to claim damages or to refuse to perform other obligations under the agreement.

He therefore concluded he was obliged to refuse the application from Dunnes to amend its claim.

Decision

Mr Justice Kelly stated that in interpreting a commercial agreement, a court or arbitrator should seek to give it a commercially sensible construction. Where parties have used unambiguous language, that language must be applied, he said. However, if there was an ambiguity, the court was entitled to construe the contract in the more commercially sensible manner.

The argument made by Dunnes was that it was not obliged to pay for the work done by Holtglen because that entity had become insolvent.

The agreement was directed towards providing Dunnes with an entitlement to terminate the contract if insolvency occurred, so that it could avoid incurring future liabilities. But it did not and could not provide a means by which Dunnes could escape any liabilities previously incurred.

The agreement required Holtglen to construct an anchor store for Dunnes, which was certified as practically complete on June 10th, 2009, but Dunnes had only paid for a fraction of this work. Holtglen’s claim was for work done in 2008 and 2009. The logic of the Dunnes position was that it was not obliged to pay for work carried out and completed.

“The result is wholly unattractive from the point of view of business common sense or commercial reality,” Mr Justice Kelly said.

The arbitrator was not guilty of any error in law in the approach he took.

Mr Justice Kelly noted that on February 13th, 2012, National Asset Loan Management Ltd (Nalm, a subsidiary of Nama) served a notice of substitution, seeking to exercise all rights and powers of the funder of the development company.

In the light of this development the whole issue of the insolvency of Holtglen had become an irrelevance. However, he said he had decided the case on its merits prior to this event.

The full judgment is on courts.ie


Brian O’Moore SC and Paul Coughlan BL, instructed by Arthur Cox Co, for the appellant; Paul GardinerSC and Declan Maguire BL, instructed by Eugene F Collins, for the respondent