In a recent summary judgment application, the Technology and Construction Court held that an owner of an insolvent sub-contractor was liable to the main contractor for £4m – Multiplex Construction Europe Ltd v Gordan Alan Dunne

Background

  • Multiplex Europe Construction Limited (Multiplex) appointed Dunne Building and Civil Engineering Ltd (DBCE) as sub-contractor on a number of different sub-contracts. These were for building and civil engineering sub-contract works at a variety of construction projects.
  • DBCE encountered financial difficulties, and the parties decided that Multiplex would, in accordance with two agreements, advance £4m to DBCE (the Agreement). This was to assist DBCE with its cash flow and to avoid DBCE’s financial position deteriorating any further.
  • Mr Dunne was party to the Agreement in his personal capacity, and was also named as a guarantor (together with DBCE’s parent company). DBCE was subsequently placed into administration, and Multiplex brought a summary judgment application against Mr Dunne in an attempt to recover the £4m paid in advance.

The summary judgment application

The claim by Multiplex was based on the proper construction of the Agreement being a contract of indemnity, such that Multiplex had the right to claim from Mr Dunne personally the £4m (on the basis that this gives rise to primary obligations upon Mr Dunne). Mr Dunne submitted that the Agreement is a contract of guarantee that only contains secondary obligations upon Mr Dunne, with the primary obligations being upon DBCE.

The decision

The court held that the Agreement was a contract of indemnity, and that Mr Dunne was liable as the primary obligor (jointly and severally with DBCE’s parent company) to make the payment of £4m to Multiplex. In reaching this decision the court considered the points below.

  • A key provision in the Agreement stated that Mr Dunne “irrevocably and unconditionally guarantees, warrants and undertakes jointly and severally to" Multiplex that should such an event of insolvency occur, he would "immediately be liable to the Contractor for the payment of the Advance Payment". The court said that the use of the word "immediately" was “very important, if not crucial”. This was on the basis that (a) it simply would not be possible to repay the advance "immediately" if any sort of accounting had to be done with DBCE; and (b) it would be contrary to the commercial purpose were Mr Dunne's liability to Multiplex to be a secondary one, with the primary obligation being upon DBCE (especially in circumstances where DBCE would, so far as this trigger is concerned, have become insolvent and not in a position to make such as payment).
  • Mr Dunne argued that the Agreement was termed a normal guarantee, whereby Mr Dunne is not a primary obligor and could, therefore, rely upon set offs and counterclaims of DBCE, which were said to exceed £4m. The court rejected this argument on the basis that there was no mechanism in the Agreement for the amount to be changed and reduced by set offs, counterclaims or other sums to which DBCE might be or become entitled.
  • Finally, the court did not consider that there was any ambiguity in the words chosen in the Agreement, and, therefore, saw no reason to rely upon or apply the contra proferentem rule. Interestingly, the court commented obiter that “there are now only skeletal, if any, remains of the contra proferentem maxim, or rule of construction, in commercial cases.”

Cash flow is key within the construction industry, and this case serves as a useful reminder for construction companies to ensure that they review with care any financial arrangements they decide to enter into within the supply chain. Indeed, the court noted in this case that Mr Dunne had not taken any legal advice on the Agreement (which is surprising given the size of the advance).