Shining a light on complex management company agreements: Clarion Quay Management Company v Dublin City Council and Anor [2021] IEHC 811

Speed Read 

The Commercial Court (Barniville J) has recently delivered judgment in Clarion Quay Management Company v Dublin City Council and Anor [2021] IEHC 811. The judgment is noteworthy for a number of reasons:

• the Court's consideration and application of the rules of contractual interpretation to a complex management company agreement that incorporates the Law Society General Conditions of Sale (1995 edition).
   
• the thorough discussion of the law on implied terms engaged in by Barniville J. 
   
• the guidance on, among other things, the interpretation of the Multi-Unit Developments Act 2011 (the 2011 Act), to include retrospective effect and the exclusive jurisdiction of the Circuit Court to enforce rights conferred by the 2011 Act.  
   
• the judgment of the Commercial Court was delivered in respect of the trial of four agreed preliminary issues and in circumstances where there were other proceedings between the parties in both the High Court and the Circuit Court.

Background

The proceedings arose from a development that comprised retail and residential units known as Clarion Quay (the development). Dublin City Council (DCC) was the first defendant and the owner of the lands upon which the development had been constructed. DCC was vested with the reversionary interests in the leases, the common areas and the unlet areas of the development. The remaining defendants were members of a partnership referred to as Campshire Partnership (Campshire) which was the developer alongside Dublin Docklands Development Authority (DDDA) for the development. Campshire also claimed beneficial ownership of various units and parking spaces in the development.

The relationship between Campshire and DDDA was governed through a joint venture agreement (JVA). There was also a management company agreement (MCA) between the owners of the management company (Clarion), DDDA and the North Wall Quay Partnership regarding the development. Under the MCA, DCC succeeded both the rights and obligations of the DDDA.

Clarion alleged that DCC and Campshire were responsible for various defects in the development's design, construction and certification. In July 2019, Quinn J directed the trial of the following four preliminary issues:

1. Whether DCC was bound by general condition 36(d) of the Law Society General Conditions of Sale (1995 edition) (the 1995 General Conditions);
2. Whether certain terms that Clarion sought to place reliance on were implied terms of the MCA;
3. Whether Clarion was entitled to rely on the 2011 Act in the instant High Court proceedings; and
4. If so, whether the 2011 Act required DCC and Campshire to complete the development of the common areas and to indemnify Clarion against any claims relating to works completed on the development. 

Decision 

The 1995 General Conditions

In relation to the first preliminary issue, Clarion submitted that clause 10 had the effect of incorporating general condition 36(d) of the 1995 General Conditions into the MCA. Clause 10 provided as follows: 

“Save insofar as same are inconsistent herewith that the Law Society General Conditions of Sale (1995 edition) shall apply to this sale. In the event of any inconsistency between presents and the said General Conditions these presents shall prevail.”

On the other hand, DCC and Campshire argued that general condition 36(d) was not consistent with, among other things, clause 4 which provided that DCC “shall not be under any obligation to complete or cause to be completed such development and may alter such development as it may wish”. In considering the issue, Barniville J set out the legal principles relating to the interpretation of contracts in Irish law, with a particular emphasis placed on the "text in context" approach . The "text in context approach" requires courts to consider the text having regard to the circumstances in which the relevant contract was produced. Barniville J commented on the degree to which regard could be had for "commercial common sense" when interpreting contracts and highlighted the principle that courts should not impose a meaning on the words used in a contract which they would not otherwise have in endeavoring to give commercial efficacy to a contract. It was held that the terms of the MCA did not include a condition that prevented the application of general condition 36(d). 

Implied Terms

In terms of the second issue, Clarion submitted that the MCA contained various implied terms which were implied by law and on the facts.  Among other things, it was alleged that there was an implied term that the development would be constructed in a "first class state of decorative repair and condition". In relation to Clarion's argument regarding terms that can be implied into a contract by law, reliance was placed on the judgment of Davitt P in Brown v Norton [1954] IR 35. However, Barniville J differentiated Brown from the present case on the basis that the implied terms were only allowed in the limited circumstances that reflected the specific facts of the case (the parties in Brown had entered into a contract for the sale of a dwelling house which the purchaser would be able to live in as soon as it was completed). The transaction between the parties in the present case was not one of the said transactions. In determining whether the terms were implied based on the facts, Barniville J applied the five stage test set out in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 and concluded that the terms relied on were not implied terms of the MCA. 

The 2011 Act, the appropriate forum for claims and retrospective effect?

The Court considered whether Clarion could rely on the 2011 Act in the present High Court proceedings. Clarion had a contractual relationship with DCC but not with Campshire. Clarion sought to rely on the 2011 Act to advance its claim against Campshire in circumstances where it would have been precluded from advancing such a claim before the 2011 Act was enacted on the basis of the doctrine of privity of contract. It was held that s.29 of the 2011 Act meant that Clarion could keep its contract law claim and its claim for damages for breach of statutory provisions (except for those related to the 2011 Act) in the High Court. To the extent that Clarion sought to rely on the 2011 Act in claims against DCC, the case had to be brought in the Circuit Court. As mentioned above, Clarion had no contract with Campshire and its claims which were not related to the 2011 Act could be maintained in the High Court. In a similar fashion to the claims against DCC, the claims which Clarion sought to bring against Campshire in reliance on the 2011 Act had to be brought in the Circuit Court. 

The Court then considered whether the 2011 Act had retrospective effect in circumstances where the contracts in question had been entered into approximately 10 years before the coming into effect of the 2011 Act. Clarion submitted that the 2011 Act was intended to have retrospective effect (specifically, ss. 7, 9(2) and 31(2)). DCC and Campshire argued that although ss. 4 and 5 were retrospective in nature in that they affect existing contracts regarding the transfer of common areas, the remainder of the 2011 Act could not be regarded as having retrospective effect. After engaging in a detailed consideration of the relevant principles, Barniville J held that the sections relied on by Clarion in the 2011 Act did not have retrospective effect. In the event that the conclusion arrived at in respect of this issue was successfully appealed, Barniville J went on to outline why the provisions relied on by Clarion where nonetheless misplaced. In relation to s.7 of the 2011 Act, it was held that no new obligations other than the ones already in existence by virtue of the MCA and JVA had been created. It was held that s.9 (2) was not a free standing indemnity and that the indemnity sought by Clarion would go beyond the contractual obligations on DCC and Campshire. In terms of s. 31(2) and schedule 3, it was held that the provisions only applied after the "development stage" which in Clarion's case, had yet to be reached. 

Conclusion 

The remarkably thorough judgment demonstrates the rules of contractual interpretation that are applicable in this jurisdiction. Furthermore, the decision has confirmed that the Circuit Court enjoys an exclusive jurisdiction when it comes to making orders which enforce obligations or rights under the 2011 Act. Equally, the judgment provides a detailed discussion of the interpretation and scope of various provisions contained in the 2011 Act. It also underscores the willingness of the Court to tackle complex preliminary issues in litigation. While the Court expressed some reservations as to the appropriateness of selecting these four issues (which were agreed by the parties) from the range of issues in dispute between the parties, nevertheless the Court was satisfied that it could determine the four issues set out, at this point in the proceedings.