FINAL REPORT HomeBond`s Repudiation Of

FINAL REPORT
HomeBond’s Repudiation Of Purchasers’ Claims
WAS IT LAWFUL?
A Report on the Mass Repudiation of Homeowners’ Claims under the Major
Defects Warranty in the HomeBond Agreement for Damage by Pyritic Heave
prepared by
Joseph M. Tyrrell, FCII, FCILA, FUEDI-ELAE
Insurance Claims Consultant
8 Homeleigh
Castleknock
Dublin 15
email: jmtyrrell@outlook.com
August 2015
CONTENTS
SECTION
PAGE
EXECUTIVE SUMMARY
ii
1
MEANINGS OF CERTAIN TERMS USED IN THIS REPORT
1
2
ORIGINS OF THIS REPORT
1
3
THE WRITER’S QUALIFICATIONS TO INTERPRET THE
HOMEBOND AGREEMENT
1
4
A BRIEF HISTORY OF HOMEBOND
2
5
THE PYRITE PROBLEM IN IRELAND
3
6
JAMES ELLIOTT CONSTRUCTION -v- IRISH ASPHALT
4
7
HOMEBOND’S REPUDIATION OF LIABILITY
4
8
REPORT OF THE PYRITE PANEL
5
9
EXCLUSION CLAUSES AND THE LAW
8
10
ANALYSIS OF HOMEBOND’S LETTER TO PURCHASERS
10
11
THE FIRST EXCLUSION
11
12
THE SECOND EXCLUSION
13
13
THE PYRITE RESOLUTION ACT, 2013
15
14
THE GOVERNMENT’S POSITION
16
15
A ROUGH ESTIMATE OF COST TO THE EXCHEQUER
18
16
RESPONSE TO THE WRITER’S INVESTIGATIONS
18
17
CONCLUDING COMMENTS
20
APPENDIX 1 – HOMEBOND’S LETTER OF 31 AUGUST 2011
APPENDIX 2 – THE HOMEBOND AGREEMENT
HomeBond’s Repudiation of Purchasers’ Claims
EXECUTIVE SUMMARY
This Final Report is a definitive, stand-alone restatement and updating of the analysis undertaken
during May, June and July 2015 of what I believe to have been HomeBond’s unlawful repudiation of
Purchasers’ claims for pyrite damage to their homes. It puts forward additional evidence in support of
my conclusions and describes certain developments that arose from the circulation of the original
report, including its mention during Question Time in the Dáil on 11 June 2015.
My work attracted the attention of Dr Tom St John, an engineering geologist with a PhD in
geochemistry, specifically relating to the presence of pyrite and gypsum in geological materials. Tom
worked for over two years on the pyrite problem in Ireland and is the founder and creator of the
www.pyriteproblem.com website, on which I welcome the opportunity to publish this report.
I have assumed, for the purpose of this summary only, that those concerned with the pyrite disaster
— not only homeowners whose Dwellings were ruined, but all interested parties and stakeholders —
have at least a basic knowledge of the problem and its history in Ireland since 2007.
On 31 August 2011 and subsequent dates, relying on the High Court judgment delivered three
months earlier in the case of James Elliott Construction Ltd. v Irish Asphalt Ltd. (“Elliott”), HomeBond
wrote to an undisclosed number of Purchasers who had entered into HomeBond Agreements and
reported claims for pyrite damage under their Major Defects Warranties, rejecting those claims and
disowning responsibility for prior undertakings given to Purchasers by HomeBond agents or
employees. HomeBond’s original letter (“the letter”) is reproduced in Appendix 1 to this report.
Following a wide-ranging investigation, I am satisfied that HomeBond’s rejection of hundreds of its
warranty-holders’ claims was invalid, for reasons which I have examined in detail in the main body of
this report and will try to précis as concisely as possible in this summary.
The operative part of the letter is on the second page and reads as follows:
“We are of the firm belief that the potential problems with the use of hardcore infill which was not
sound, not durable or not inert should have been identified by the quarry supplier of the material used in
your dwelling by performing a suite of standard tests.
We wish to bring to your attention the following exclusions in Section 3.6 of the HomeBond Agreement
relevant to your dwelling:
•
any defect which is the result of negligence on the part of someone other than the Member or his
sub-contractor;
•
any defect … … … …1 in relation to which legislation provides for compensation;
We confirm that as:
(a) the quarry supplier of the hardcore infill acted negligently in our view in supplying material that
was not of merchantable quality and fit for purpose; and
(b) supplied a defective product in circumstances where legislation provides for compensation;
HomeBond’s liability for major defects is specifically excluded. Accordingly, HomeBond does not
propose to take any further action in this case.”
Yours faithfully
HomeBond”
1
This series of ellipses replaced the words “which is covered by insurance, or”. (See sub-sections 12.1 and 12.2 in the body of
ii
The repudiation was based entirely on the two bullet-pointed exclusions, which I will refer to as the
first and second exclusions. Both are inapplicable, in my opinion, for the following reasons:
The first exclusion
1. The first exclusion is of defects “the result of negligence” on the part of someone other than the
Member (builder) or a sub-contractor. HomeBond relied in this respect on the Elliott judgment, but
that judgment contains not one finding of negligence, and the Judge specifically stated that
negligence was “not part of the case”. This did not deter HomeBond from making its own “finding”
of negligence against the defendant, Irish Asphalt, and by extension against the suppliers of
hardcore fill to HomeBond’s Members in every claim repudiated. This is wholly unacceptable.
2. Neither did the Supreme Court make any finding of negligence; but the High Court made several
findings of breach of contract which were subsequently upheld by the Supreme Court. There is
a distinct difference in law and in fact between negligence and breach of contract.
3. If HomeBond wanted to except its liability resulting from breach of contract it could have done so
by wording the exclusion to read “any defect which is the result of negligence or breach of
contract on the part of someone other than the Member or his sub-contractor”, i.e. by simply
adding the words “or breach of contract”.
The second exclusion
4. The second exclusion cited is of defects “in relation to which legislation provides for
compensation”. HomeBond relied in this regard on the Liability for Defective Products Act, 1991.
But this Act is not legislation that provides for compensation. It is an Act that strengthened our law
of negligence by augmenting citizens’ rights to sue suppliers for damages, as distinct from
claiming compensation from the state in specified circumstances.
5. There is an irrefutable distinction between compensation and damages in our body of legislation,
and it can persuasively be shown that the second exclusion relates to defects in respect of which
the Purchaser would have a right to apply for compensation, not damages in contract or tort.
It is clear, in my submission, that the second exclusion does not apply to legislation of the genre
that governs assignable rights to sue for damages, but to that which confers non-assignable rights
to compensation. This matter is examined in detail in the body of this report.
The Agreement generally
6. HomeBond’s construal of the exclusion clauses cited can be shown to be, at the very least,
ambiguous, if not wholly invalid. The law takes a stern view of ambiguities in contract documents,
particularly insurance contracts, including structural or latent defects warranties or guarantees.
The main body of this report contains examples of common law cases where the insurer lost
because the exclusion clause or clauses on which it relied were ambiguous. Here is just one
quotation, taken from a 2005 judgment of our Supreme Court, which is constitutionally Ireland’s
“Court of Final Appeal”, whose decisions are “final and conclusive”:
“Since exceptions are inserted in the policy mainly for the purpose of exempting the insurers from
liability for a loss which, but for the exception, would be covered by the policy, they are construed
against the insurers with the utmost strictness. It is the duty of the insurers to except their liability
in clear and unambiguous terms.”
The Pyrite Resolution Act, 2013
Consequent on HomeBond’s rejection of warranty-holders’ claims for pyrite damage, the then Minister
for Environment, Community and Local Government, Mr Phil Hogan, established the Pyrite Panel in
September 2011. The Panel delivered its detailed report and recommendations in June 2012, leading
to the enactment of the Pyrite Resolution Act, 2013, described as “An Act to provide for the making of
a scheme for certain dwellings affected by pyrite; to provide for the established of the Pyrite
iii
Resolution Board to manage the implementation of such scheme; and to provide for matters
connected therewith.” The Pyrite Remediation Scheme was duly drawn up by the Board and
applicants’ claims are currently being processed in accordance with its terms and conditions.
Section 3 of the Scheme deals with eligibility criteria and sub-section 3.9 provides that: “The applicant
must show to the satisfaction of the PRB that he/she does not have available to him or her any
practicable option, other than under the Scheme or the use of his or her own resources, to remediate
or secure the remediation of the dwelling.” Such “practicable options” would include a structural
defects warranty such as that provided by HomeBond, but HomeBond had reneged on its obligations
to warranty-holders by its letters dated 31 August 2011 and subsequent dates. This unwarranted
denial of hundreds of Purchasers’ claims for pyrite damage has never been seriously challenged.
The Government’s position
During Dáil Question Time on 11 June 2015, arising from the circulation of my earlier report to
Members of the Oireachtas, Questions were tabled by the Independent TD, Ms Clare Daly, to the
Minister for Environment, asking (a) if the Minister had read the report and would make a statement
on it, and (b) if he would act to ensure that HomeBond delivers on its responsibilities to homeowners
who purchased houses with the backing of the HomeBond guarantee. Written replies were provided
by Mr Paudie Coffey TD, Minister of State, who acknowledged receipt of the report but avoided
answering the Questions in any meaningful way, simply reiterating his Department’s position on
HomeBond as propounded originally by former Minister Phil Hogan.
The Department of Environment’s position on HomeBond’s letter of repudiation dated 31 August 2011
is that it was a “withdrawal of cover”, a term used repeatedly in the Report of the Pyrite Panel and in
the Dáil and elsewhere by government spokesmen. Unfortunately, it was adopted and used several
times in media reports and even on the websites of certain law firms, which may have led to a
perception that HomeBond was somehow entitled to withdraw cover if it wished to do so.
In fact, HomeBond’s letter was nothing short of a categorical repudiation of liability, and to refer to it
as a “withdrawal of cover” was to inadvertently disguise its true purpose and intent. The Agreements
to which the letter refers are for terms of ten years (the Liability Period) from their Cover (inception)
Dates and HomeBond has no entitlement to withdraw cover in mid-term for defects within its own
Definition. Agreements that have not run their ten-year terms are still in force and HomeBond has no
power to withdraw cover while they remain so.
The only negative response to my earlier report was received by email from a prominent Fine Gael
TD who expressed the view that I am not qualified to question the legal advice on which HomeBond
based its repudiation, and went on to state: “Simply put, a purchaser of a property is not covered by
the HomeBond Scheme. The builder of said property is.” I disagree emphatically, for the reasons
stated in sub-section 16.6 in the body of this report.
Conclusions
I am satisfied that HomeBond’s repudiation of liability, as set out in its letter of 31 August 2011, was
invalid. It is astonishing, to my mind, that no one in authority appears to have looked closely at the
reasons given for wrongfully turning down so many Purchasers’ claims, but it seems that this is what
happened and that HomeBond has thus far got away with its shameful behaviour. I feel that this
deplorable state of affairs can be ended only by firm political intervention or legal action, and hope
that the dissemination of this report will bring the outrage to the attention of some person, firm or
political entity having the capacity, influence and will to do something constructive about it.
This Final Report brings my investigation to an end, but I would be available, if required, to assist in
any credible initiative to redress the injustice to homeowners and the Irish taxpayer.
The views expressed in this summary and report are entirely my own and I take full responsibility for
them.
J M Tyrrell
August 2015
iv
Final Report on HomeBond’s Repudiation of Purchasers Claims
1. MEANINGS OF CERTAIN TERMS USED IN THIS REPORT
1.1.
Certain Capitalised terms in bold type used throughout this report are taken from the printed
document entitled HomeBond Agreement, a copy of which can be found in Appendix 2, and
should be read as having the meanings accorded to them in Section 1 – Definitions thereof.
2. ORIGINS OF THIS REPORT
2.1.
The origins of this report lie in two pyrite-related disputes, the details of which are confidential,
in which I was retained as an insurance expert. One led to arbitration proceedings in which I
became privy to informed technical evidence on the pyrite problem. The other was a complex
dispute concerning the interpretation of commercial property and liability insurances in a claim
arising from the pyrite problem. I thus became familiar with the issues involved from an
insurance standpoint, and learned of HomeBond’s disclaimer of liability from media coverage.
2.2.
More recently, I came across a copy of the HomeBond Agreement and re-read the list of
Exclusions in Section 3.6 thereof. I was puzzled as to what reason or reasons HomeBond could
have found to justify their blanket repudiation of a reportedly large number of claims. This led to
my looking up the Pyrite Panel’s online report and finding in it a copy of HomeBond’s letter to
claimants of 31 August 2011. My concern deepened on further scrutiny of the Agreement,
leading eventually to the production of this and earlier reports.
2.3.
My conclusions, explained in detail below, are that the repudiation was invalid, that the grounds
relied upon for issuing it were disingenuous and insupportable, and that it should be withdrawn.
I am also of the opinion that the Department of Environment’s stated position, as set out in
Section 14 hereof, is unrealistic and unsatisfactory, and should be reconsidered.
3. THE WRITER’S QUALIFICATIONS TO INTERPRET THE HOMEBOND AGREEMENT
3.1.
A wholly negative response to my earlier report was received by email from a prominent Fine
Gael TD who stated, inter alia, “you are wrong and not in the position, either through
qualification or experience to make a legal determination on a matter that has already been
through the Courts”. At this point, therefore, in light of my correspondent’s criticism of my
experience and qualifications to undertake this analysis, I consider it advisable to set them out
in greater detail than I would otherwise have done. I will address the remainder of the Deputy’s
comments, with which I take serious issue, in Section 16 of this report.
3.2.
I am a Fellow of the Chartered Insurance Institute (FCII), Fellow of the Chartered Institute of
Loss Adjusters (FCILA), Life Member of the Insurance Institute of Ireland and FUEDI accredited
European Loss Adjusting Expert. I served several years on the London based Council of the
CILA as Representative for the Republic of Ireland, and sat on its Technical and International
Committees. I hold the Sargison Memorial Prize awarded by the Insurance Institute of Ireland
for “particular and outstanding distinction” in the qualifying examinations of the Chartered
Insurance Institute. Fellowship of the CII is the highest level of academic achievement in the
insurance industry, and the attainment of FCII and FCILA qualifications involved intensive study
through correspondence courses and lectures over a period of seven years.
3.3.
I have been employed in the insurance industry for over fifty years. In 1966 I was joint founder
of Scully Tyrrell & Company, Chartered Loss Adjusters, which in time became the largest Irish
loss adjusting practice, with eleven offices throughout Ireland and two in the UK. In 1992 we
became part of the multinational GAB Robins Group, of which I was a director until my
retirement in 1997. My former firm currently trades as Cunningham Lindsey Ireland.
3.4.
I worked throughout my loss adjusting career at the coalface of investigating, adjusting and
reporting on property, pecuniary and liability claims, and handled countless major losses on
1
behalf of a wide range of domestic and foreign insurers. I gave evidence as an witness for the
2
insurer in several important cases, including Fagan v. General Accident , Carrigan v. Norwich
3
Union , and two lengthy High Court trials in Superwood Holdings plc & Ors. v. Sun Alliance
4
Insurance plc & Ors . I was regularly consulted by Claims Managers and staff for my advice
and recommendations on difficult issues of policy liability.
3.5.
Since my retirement from loss adjusting I have accepted many assignments on a consultancy
basis. While maintaining a low profile, I think I have a relatively good reputation in the area of
policy interpretation and liability disputes. I no longer engage directly in negotiations with
insurers or their loss adjusters but take instructions from solicitors and insurance brokers to
whom I report my views and recommendations. I have an abiding interest in insurance law, in
which I endeavour to keep up to date, and have worked effectively on many occasions as a
consultant and expert witness in liaison with solicitors and counsel. I am a sole practitioner,
completely independent of any insurer, insurance broker, loss adjuster or public loss assessor.
3.6.
The HomeBond Agreement is closely akin to an insurance contract and contains several
provisions similar to those found in insurance policies. The meaning of such terms is ultimately
a matter for legal determination, but the experience of those employed in the insurance industry
can often be of assistance to the legal profession. The views of insurance practitioners are
informed in large measure by reference to decided cases over the years. In offering the
opinions set out herein, I have had regard to various judicial decisions and legal textbooks,
including works by Irish lawyers specialising in insurance. A recent text of this genre is
Insurance Law — First Supplement to the Third Edition by Mr Austin J. Buckley, BCL, LLM,
FCII, published in 2014 by Round Hall. It contains a chapter entitled Insurance and Pyrite
Damage with a review of the High Court judgment in James Elliott Construction Limited v Irish
5
Asphalt Limited , which I found helpful and relevant to my investigation
3.7.
As for my critic’s accusation, “you are wrong and not in the position… to make a legal
determination on a matter that has already been through the Courts”, I would point out, firstly,
that I did not make a legal determination but rather expressed the opinion, albeit as forcibly as I
could, that HomeBond’s repudiation of liability was invalid. I imagine that my correspondent’s
reference to the Courts relates to the Elliott case, but the High Court finding in that case was
not concerned in any way whatever with HomeBond or its warranty-holders. I would also
mention that the making of legal determinations is not necessarily the sole preserve of Judges
and legally qualified Arbitrators. Legally binding Findings and Awards are routinely made, for
example, by the Financial Services Ombudsman and members of his staff who do not hold
formal legal qualifications, and by professionals such as architects and engineers acting in the
role of Arbitrator. I do not and never did suggest that this report is legally binding in any respect.
4.
A BRIEF HISTORY OF HOMEBOND
4.1.
HomeBond dates to 1978, when the National Housebuilders’ Guarantee Scheme was set up at
the behest of the Department of the Environment as a joint initiative by the Irish Homebuilders’
Association and the Construction Industry Federation. Its principal objective was to provide a
structural defects warranty to Purchasers. It was operated by the National Housebuilding
Guarantee Company Ltd. (Company No. 61063) which adopted the trading name HomeBond in
1996. The builder Members of the Scheme were required to register all houses being built by
them with HomeBond.
4.2.
The HomeBond Warranty is a form of structural defects insurance or guarantee which
operates only if the Member (builder) defaults on their obligation to deliver a Dwelling free of
Major Defects as defined in the HomeBond Agreement. The Liability Period with respect to
Major Defects such as those caused by pyritic heave is ten years. Section 3 — Major Defects
of the Agreement contains the Member Warranty (3.1), HomeBond Warranty (3.2) and
2
High Court, unreported, Murphy J., 19 February 1993; Supreme Court [1998] IESC 27.
(1) [1987] I.R. 618; ((2) High Court, unreported, Lynch J., 11 December 1987.
4
High Court, unreported, (1) O’Hanlon J., 13 -15 August & 12 November 1991; (2) Smyth J., 4-7 April 2001.
5
[2011] IEHC 269 http://www.bailii.org/ie/cases/IEHC/2011/H269.html
3
2
Member’s Warranty Regarding Major Defects (3.3), along with the applicable terms,
conditions and exclusions. Sub-section 3.6 contains the list of Exclusions. Section 4 sets out
details of the General Limits on HomeBond’s Liability. In common with most general
insurance products, the Agreement also contains Subrogation and Arbitration Conditions
presented under the headings Assignment of Rights (3.7) and Dispute Resolution (6.1),
respectively. A copy of the HomeBond Agreement is contained in Appendix 2 to this report.
4.3.
In November 2008, HomeBond Insurance Services Ltd. commenced trading as an insurance
intermediary, and the current HomeBond Insurance Policy document has been underwritten
since then by Allianz plc. Both HomeBond Insurance Services Ltd. and Allianz plc are
“regulated entities” bound by the Consumer Protection Codes 2006 to 2015 and regulated by
the Central Bank of Ireland. The following information on the new corporate structure is taken
from HomeBond’s website, www.homebond.ie :
“HomeBond Insurance Services Ltd helps Home Buyers protect their new home investment by
providing HomeBond Insurance, which is underwritten by Allianz plc. HomeBond Insurance is a
structural and defect insurance with deposit and stage payment cover for new homes. Once the
Certificate of Insurance is issued, HomeBond Insurance provides financial cover for relevant structural
and relevant defects, should they arise. The Policy covers:
• Structural Defects
Cover for 10 years in respect of the repair of major structural defects”
4.4.
Policies issued by HomeBond Insurance Services Ltd., underwritten by Allianz plc, differ from
earlier HomeBond Agreements, and I note from the Report of the Pyrite Panel (page 76) that
cover for defects due to pyrite was specifically excluded with effect from 1 January 2012. This
exclusion could not be applied retrospectively to claims under the “HomeBond Warranty” in
Agreements issued between 1 January 2002 and 31 December 2011, or before 2002 for that
matter, provided that the ten year Liability Period had not expired when the “complaint” was
notified in writing to HomeBond.
5. THE PYRITE PROBLEM IN IRELAND
5.1.
Pyrite (Iron Sulphide, FeS2), colloquially known as fool’s gold, is a very common mineral found
in many types of rock. It can occur in a reactive form which can undergo chemical changes on
exposure to air and water, leading to the production of gypsum taking up a greater volume than
the original pyrite, a process called pyritic expansion. Pyritic rock that existed unchanged for
millions of years in the geological environment may undergo such changes if excavated from a
quarry, broken up and exposed to air and moisture.
5.2.
The pyrite problem that has beleaguered homeowners in Ireland since 2007 is directly
attributable to the use by builders of hardcore made from quarried rock containing reactive
pyrite as aggregate fill under the concrete ground floors of houses, apartment blocks and other
buildings. The hardcore is filled into the space enclosed by the rising walls and thoroughly
compacted by the builder before the floor slab is laid on top. Thus, if expansion occurs, it will
exert pressure on the underside of the floor slab forming the lid of the concrete box in which the
hardcore is encased. The floor will in time be heaved upwards, causing cracking and/or
displacement of walls, floors and other structural elements of the building. The rising walls will
be subjected to lateral expansive force, which may cause them to deflect outwards. That, in
short, is what happened to the homes of thousands of citizens, many of whom reported claims
under the Major Defects Warranty in their HomeBond Agreements.
5.3.
The pyrite problem caused consternation for many builders and quarrymen, and created a
great deal of work for consulting engineers, geologists and the legal profession. Cases
involving entities such as Menolly Homes, Lagan Group, Irish Asphalt and Hansfield
Developments took up enormous amounts of time in our superior courts and cost vast sums in
damages, costs and settlements, including the establishment by Menolly and the Lagan Group
of a trust fund to remediate hundreds of homes in North Dublin. This happened following a
costly High Court hearing lasting over 150 days. The case of greatest interest in the present
3
6
context, however, is that which involved James Elliott Construction Ltd. and Irish Asphalt Ltd. ,
which I will refer to as “Elliott” or “the Elliott case”.
6. JAMES ELLIOTT CONSTRUCTION LTD. -v- IRISH ASPHALT LTD.
6.1.
The High Court and Supreme Court proceedings in Elliott related to an action taken by James
Elliott Construction Ltd. against Irish Asphalt Ltd. arising from damage ultimately found to have
been caused by pyritic heave to the Ballymun Youth Facility building in Dublin 11, part of a
redevelopment undertaken by Ballymun Regeneration Ltd. (“the employer”). Elliott was
appointed building contractor and Irish Asphalt supplied the hardcore used as infill under the
“floating” concrete ground floor slabs of the building, which were poured in December 2004.
6.2.
The works were certified as “practically complete” by the employer’s architect in September
2005, when Ballymun Regeneration started to use the building as a youth centre. Early signs of
damage of an unusual nature appeared around August 2006, but the phenomenon of pyritic
heave was virtually unheard of in construction industry circles in Ireland at that time, and the
significance of the damage was not appreciated.
6.3.
In July 2007, Irish Asphalt wrote to Elliott following the publication of media reports on structural
damage associated with pyrite in certain housing developments, and admitted to the presence
of pyrite in one of its quarries, located at Bay Lane, near Kilshane in north County Dublin. The
letter stated, inter alia, “it is the responsibility of the purchaser of materials to ensure that the
correct product is chosen to ensure suitability for its intended purpose”. This letter and the
disclosures therein led to fractious correspondence and meetings between contractor and
supplier; and increasingly serious damage on site led to complaints from the employer and its
architect. The building was eventually remediated by Elliott in 2009 at a cost of €1.55m.
6.4.
Elliott instigated High Court proceedings against Irish Asphalt by plenary summons issued in
June 2008, and judgment was delivered by Mr Justice Charleton on 25 May 2011 following a
hearing lasting 58 days. The court’s findings may very briefly be summarised thus:
6.5.
•
The contract between Elliott and its supplier, Irish Asphalt, required the delivery of hardcore
conforming to an industry standard called Clause 804 (derived from Clause 804 in a
Department of Enterprise specification for roadworks) but the material supplied, known as
Bay Lane aggregate, did not so conform, and was unfit for purpose.
•
The contract incorporated an implied term as to merchantability pursuant to the Sale of
Goods and Supply of Services Act, 1980, which had not been complied with.
•
An exclusion clause invoked by Irish Asphalt to limit its liability to the replacement value of
the product supplied had not been incorporated into the contract between the parties. Even
had it been, it would have been neither fair nor reasonable to enforce it.
Irish Asphalt lodged an appeal against the High Court judgment, and the Supreme Court
7
delivered its judgment some three-and-a-half years later, on 2 December 2014, substantially
endorsing Judge Charleton’s findings in Irish law, subject to its penultimate paragraph (184)
recording the Supreme Court’s view that it considered itself obliged to make a reference to the
European Court of Justice pursuant to Article 267 of the Treaty on the Functioning of the EU.
7. HOMEBOND’S REPUDIATION OF LIABILITY
7.1.
6
7
Initially, after the problem first manifested itself, HomeBond accepted and dealt with
Purchasers’ claims for pyrite damage under the HomeBond Agreement, but they ceased to
do so some three months after the delivery in May 2011 of the High Court judgment in Elliott.
[2011] IEHC 269 http://www.bailii.org/ie/cases/IEHC/2011/H269.html
[2014] IESC 74 http://www.bailii.org/ie/cases/IESC/2014/S74.html
4
7.2.
Relying on the Elliott judgment, HomeBond wrote on 31 August 2011 to Purchasers claiming
under the Major Defects Warranty – Section 3.2 (a) – in their HomeBond Agreements, quoting
from paragraph 269 of the judgment (not paragraph 270 as indicated in the letter) as follows:
“The material supplied by Irish Asphalt to Elliott Construction was not of merchantable
quality. Therefore, there was a breach of contract. In addition, the implied condition as to
fitness for purpose was an obligation by Irish Asphalt to Elliott Construction under the
contract. The material was not fit for purpose.”
7.3.
The letter goes on to cite further passages from the judgment and concludes with the following
statements:
“In our view, the quarry supplier has breached a duty of care owed to both the
Member/Builder and to you and has negligently supplied hardcore infill to the
Member/Builder which was not of merchantable quality or fit for purpose, which has
resulted in damage to your dwelling. Furthermore, it should be noted that the Liability
for Defective Products Act, 1991 provides a strict liability remedy so that a producer is
made liable for damage caused wholly or partly by a defect in his product, regardless of
whether or not he was negligent. It is also our view that the quarry supplier of the
under-floor infill material for your dwelling falls within the ambit of this legislation.
We wish to bring to your attention the following exclusions in Section 3.6 of the
HomeBond Agreement relevant to your dwelling:
•
any defect which is the result of negligence on the part of someone other than the
Member or his sub-contractor;
•
any defect … … … … [sic] in relation to which legislation provides for
compensation;
We confirm that as:
(a) the quarry supplier of the hardcore infill acted negligently in our view in supplying
material that was not of merchantable quality and fit for purpose; and
(b) supplied a defective product in circumstances where legislation provides for
compensation;
HomeBond’s liability for major defects is specifically excluded. Accordingly, HomeBond
does not propose to take any further action in this case.
Please note that any prior representations by any agent or employee of HomeBond,
whether oral or written or whether in express or implied terms, to accept liability or to
carry out testing or remedial works or to pay a monetary sum in relation to your
dwelling, is hereby withdrawn. HomeBond relies, and will continue to rely, on the full
terms and conditions of the HomeBond Agreement.”
Claims reported subsequent to 31 August 2011 were declined on similar grounds. I am privy to
one letter issued in October 2013 in which the reasons cited are virtually identical to those in
the original letter, down to a repeated error in referring to “the Sale of Goods Act 1984”, which
does not exist in the Irish Statute Book.
8. THE REPORT OF THE PYRITE PANEL
8.1.
The Pyrite Panel was established in September 2011, less than a month after HomeBond’s
repudiation of Purchasers’ claims, by Mr Phil Hogan, T.D., then Minister for Environment,
Community and Local Government, to address the issue of pyrite contamination in hardcore
material used in the construction of private housing stock. The remit of the Panel was to identify
possible options to address the problem caused by pyrite and in particular to try to facilitate a
5
resolution of the problem for homeowners whose homes had been damaged by pyrite. The
Panel was also asked to make recommendations that might help to prevent a similar situation
arising in the future.
8.2.
In June 2012 the Panel delivered its report, which is available online, together with several
related documents and submissions, at: http://www.environ.ie/en/PyriteReport/ The report is a
comprehensive document addressing, inter alia, the background to the pyrite problem from
geological and historical perspectives; the investigations carried out by stakeholders since
2005; the scale of the problem in private Dwellings and its geographical extent in Ireland and
elsewhere; the response or lack thereof of the insurance industry, with particular reference to
HomeBond, Allianz, Premier Guarantee/Liberty Syndicates (which continued to deal with
claims), and the Irish Insurance Federation (now Insurance Ireland); and the roles of the
construction industry and representative bodies. It concludes with a detailed chapter on the
Panel’s conclusions and recommendations, and should be read by anyone wishing to acquire
an overall grasp of the problem and its ramifications.
8.3.
I consider the following excerpt from the Panel’s report – taken from the Executive Summary
under “Stakeholder activity” on pages vii and viii – to be pertinent:
“The withdrawal by HomeBond of cover for defects caused by pyritic heave (in August
2011) has left the homeowners who were covered by their warranty in very distressing
situations. They had a reasonable expectation, understandably, that under the terms of
the HomeBond Warranty Scheme, structural defects, including serious defects due to
pyritic heave, were covered and that their homes would be remediated either directly by
the builder or by HomeBond. While the Law Society raised concerns about the
HomeBond Warranty Scheme in a practice note in July 2000, it mainly dealt with security
for deposits and limits of liability. It was not envisaged that the exclusion clauses in
the Warranty Scheme would be used in the circumstances in which they have.
The Panel is keenly aware that many homeowners face significant barriers to finding a
resolution to the problem of pyritic heave, particularly in cases where HomeBond is
declining cover and the builder refuses to undertake the remediation work or is no longer
trading. Many of the key stakeholders have stepped back from constructive engagement
with homeowners and have not actively pursued any co-ordinated strategy to find
solutions for homeowners.
In the opinion of many of the groups and individuals with whom the Panel engaged,
those identified as having responsibility should pay for the remediation, (i.e. vendors,
builders/ subcontractors, quarries and insurance companies) and the State should not
bear the cost. No organisation came forward with any proposals for how that should be
done or, indeed, made any offer of funding for the remediation.
The insurance industry only engaged in a limited way with the Panel and this was
disappointing as it has a key role in the resolution of the pyrite issue. It was mentioned to
the Panel that some insurance companies are declining insurance cover for homes
affected by pyrite, even in cases where a Dwelling itself is not affected but some other
Dwellings in the estate may be affected or even where remediation works have been
successfully carried out. The Panel was concerned to learn of this restriction and
considers that it is not helpful to the resolution of the problem.” (emphases added)
8.4.
HomeBond’s letter to claimants is reproduced as Appendix 14 to the Panel’s Report and
replicated in Appendix 1 to this report. To describe this letter as a “withdrawal of cover”, as it
was in several publications, including the Panel’s report, is inaccurate. It was an outright
repudiation of liability under the terms of the Agreement and attracted much criticism from
several quarters, including the Pyrite Panel; Pyrite Action Group; Minister Phil Hogan; a number
of Teachtaí Dála; and numerous media commentators. The Irish Insurance Federation (now
Insurance Ireland), representative body for some 95% of the insurers writing business in
Ireland, also came in for criticism. The following excerpts from the report are indicative of the
Panel’s views on the response of the insurance industry generally, and HomeBond in particular.
6
From sub-section 1.3 – Approach adopted by the Panel (page 3)
“The Panel was disappointed that some stakeholders were unwilling to meet with it and
in particular some of the insurance companies involved with the construction industry. In
the case of the Irish Insurance Federation (IIF), its lack of any engagement with the
Panel was disappointing and frustrating and the Panel considers that it was a missed
opportunity for the IIF to make a meaningful contribution to the work of the Panel. In a
letter to the Panel dated 8 February 2012, the IIF stated ‘it is not possible for the IIF to
assist the Panel with the three core issues it wishes to address’. The Panel considered
this to be a disappointing response particularly as the IIF states that one of its key
functions (as outlined in its website) is ‘representing its members’ interest to
Government, state agencies, regulatory bodies, public representatives, other interest
groups, the media and the general public’.”
From sub-section 6.2.1 – HomeBond (page 75)
“… the pyrite problem was first confirmed in early 2007. Between 2007 and August 2011,
HomeBond processed and satisfied claims for damage arising from pyritic heave under
the terms of their warranty scheme. However, in August 2011, they withdrew cover for
major defects arising from pyritic heave. They took this decision, according to
themselves, on the basis of legal opinion, expert technical advice and having regard to
the decision of Mr Justice Charleton in the James Elliott Construction Limited and Irish
Asphalt Limited case. A significant number of claims have been made against
HomeBond and, understandably, the homeowners are frustrated that HomeBond has not
continued to provide cover which those homeowners had believed would be covered
under the structural defects guarantee. This frustration is understandable, particularly
when one considers that the homeowner had no choice in the selection of the structural
guarantee provider. The impact of this action has been very upsetting for homeowners,
with some loss of confidence in the cover offered by HomeBond and, indeed, in
HomeBond itself.”
From sub-section 6.7 – Insurance (page 81)
“The level of stress and uncertainty for both homeowners and builders was clearly
evident to the Panel during discussions. Apart from Liberty Syndicates (underwriters of
Premier Guarantee), HomeBond, QBE and Liberty Insurance, the insurance industry at
large was not willing to engage with the Panel despite requests to the Irish Insurance
Federation and to a number of individual companies. While the Irish Insurance
Federation had an initial meeting with the Panel, it refused to engage further or to make
a submission, stating as follows: “It is not possible for IIF to assist the Panel ….While sub
judice, all matters are confidential “
8.5.
An important aspect of the disaster that the Panel did not examine is the legitimacy or
otherwise of the reasons stated by HomeBond in its letter of 31 August 2011, repeated in
subsequent letters, for its refusal to indemnify Purchasers under the terms of the HomeBond
Agreement, a matter which I have endeavoured to address in this report.
8.6.
Some people may have been deterred from taking action against HomeBond by the prospect
that such a measure would involve substantial costs. I note from a separate judgment on
8
damages and costs in the Elliott case that, by July 2011, Elliott had already paid out some
€2.4m. in litigation costs and experts’ expenses and that this figure was considered likely to
increase by about 50%, presumably because of the then pending appeal to the Supreme Court.
This, of course, is not a valid comparison with the position of homeowners who may have
contemplated a challenge to HomeBond, but suggests that, in all likelihood, the legal costs of
taking action could well have exceeded most Purchasers’ ability to pay.
8.7.
I also notice that a question arose as to Irish Asphalt’s ability to pay. The following edited
excerpt is taken from the damages and costs judgment of Mr Justice Charleton:
“It is hard to predict that an appeal in this case will be heard… before 2013 at the earliest…
this is balanced against the declaration of a dividend by the defendant company in 2010
8
[2011] IEHC 338, Charleton J. 14 July 2011
7
exceeding €3,000,000. The defendant says that it cannot pay... I do not accept that (Irish
Asphalt) will not be able to pay and I am sure that they will be aware of the necessity to
make proper provision for this case in their accounts... The plaintiff has borne the burden of
this litigation and of the rehabilitation of the building by a careful management of resources,
and in the future can be predicted to act as prudently in business as it has in the past and in
carrying through on a justified complaint.”
8.8.
Another point to consider is that the Agreement is subject to an Arbitration Condition (Section 6
– Dispute Resolution) which in turn is subject to a requirement whereby the Purchaser could
be required by HomeBond to provide security for costs. Arbitration hearings are held in private,
but can be just as costly as High Court proceedings, although they have the advantage of being
less formal and less likely to suffer lengthy delays. I am personally of the opinion that, in
Ireland, Arbitration Conditions are used by insurers to circumvent potentially embarrassing
exposure in open court. Arbitration in insurance disputes in the UK is normally confined to
issues of quantum, not liability, which probably explains why there is proportionately more case
law on insurance matters in the UK than in Ireland. The Analog Devices case (considered in the
next Section of this report) was an exception, probably, in my view, because it related to an
Irish dispute under two policies, one of which was governed by the laws of the Commonwealth
of Massachusetts.
8.9.
It would appear that some settlements have been reached behind the scenes on disputes
related to pyrite, as evidenced by the following excerpt from the Pyrite Panel’s report (Section
6.3 – Arbitration/Mediation processes):
“The Panel understands that there are also a number of cases being dealt with through
arbitration and that some agreements have been concluded, putting in place funding
mechanisms to facilitate remediation work. Agreements concluded through arbitration are
subject to confidentiality and consequently the Panel has no knowledge of the number or
type of agreements that have been reached. However, it would appear that insurance
companies are involved in some of these arbitration/ mediation processes and are parties to
agreements on funding arrangements to undertake remediation work. These agreements
would seem to cover both housing and public contract construction projects. The Panel
welcomes the fact that such agreements are being achieved and it would urge the
insurance companies to expedite the process and to make the information on the
processes and agreements public.” (emphasis added)
9. EXCLUSION CLAUSES AND THE LAW
9.1.
Almost eighty years ago, Mr Justice Hanna, in his 1936 Irish High Court judgment in
General
Omnibus Company v. London General Insurance9, stated as follows:
“The policy starts by giving an indemnity in general terms and then imposing exceptions.
The law is that the insurance company must bring their case clearly and unambiguously
within the exception under which they claim benefit, and, if there is any ambiguity, it must be
given against them on the principle of contra proferentes.”
On appeal to the Supreme Court, the Hon. Mr Justice Hugh Kennedy, our first Chief Justice,
described the policy in question as ‘an ill-drawn document, stupid and unintelligible in many
parts, due perhaps to amendments made from time to time by unskilled draftsmen’.
9.2.
Some sixty years later, the distinguished legal academic, Professor E. R. Hardy Ivamy, stated
th
in his General Principles of Insurance Law (6 edition, Butterworth, London, 1993):
‘Since exceptions are inserted in the policy mainly for the purpose of exempting the insurers
from liability for a loss which, but for the exception, would be covered by the policy, they are
construed against the insurers with the utmost strictness. It is the duty of the insurers to
except their liability in clear and unambiguous terms.’
9
[1936] IR 596
8
9.3.
The rules of contractual interpretation were further expanded and clarified in the 1998 English
10
House of Lords contract law case of ICS Ltd. v. West Bromwich Building Society , in which
Lord Hoffman set down five principles of construction that have since gained widespread
acceptance and have been cited with approval in several Irish and UK judgments, notably that
11
of the Irish Supreme Court in Analog Devices v. Zurich [2005] . These principles may be
summarised thus:
1. The interpretation should ascertain the meaning which the document would convey to “a
reasonable person” in possession of all “background knowledge” available to the parties.
2. This background is referred as the “matrix of fact” and includes “absolutely anything that
would have affected the way in which the language of the document would have been
understood by a reasonable man”.
3. “The law excludes from the admissible background the previous negotiations of the
parties…”
4. “The meaning which a document would convey to a reasonable man is not the same as the
meaning of its words. The meaning of words is a matter of dictionaries and grammar; the
meaning of the document is what the parties using those words against the relevant
background would reasonably have been understood to mean. The background may not
merely enable the reasonable man to choose between the possible meanings of words
which are ambiguous but even to conclude that the parties must, for whatever reason, have
used the wrong words or syntax.”
5. “The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the
commonsense proposition that we do not easily accept that people have made linguistic
mistakes, particularly in formal documents. On the other hand, if one would nevertheless
conclude from the background that something must have gone wrong with the language,
the law does not require judges to attribute to the parties an intention which they plainly
could not have had.”
9.4.
ICS v West Bromwich was not an insurance case. The legal principles of construction applying
to insurance contracts, and thus also to structural warranties and guarantees, are more strict
upon the risk-taker than on the policyholder, or in this case the warranty-holder, in accordance
with the long established legal principle of contra proferentem (against the offeror). In modern
insurance law the principle applies only in the event of ambiguity and particularly to printed
contract documents such as the HomeBond Agreement, drafted entirely by the dominant
contracting party (usually a corporate repeat player) and in which the other party (often an
unsophisticated individual who enters in few such agreements) had no say. Successive
judgments against parties responsible for drafting such documents reflect the courts’ dislike of
standardised, take-it-or-leave-it style contracts whose terms are dictated by the dominant party.
9.5.
The above quoted authorities, and others in similar vein, were cited with approval by Mr Justice
Geoghegan, Mrs Justice Denham and Mr Justice Hardiman concurring, in the landmark Irish
Supreme Court judgment in Analog Devices & Ors. v Zurich Insurance Company & Anor.
12
[2005] . The exclusions relied on by the insurers in that case related, in brief, to “faulty
workmanship”, “errors in processing or manufacturing” and “contaminants or pollutants”.
13
Upholding an earlier (2001) High Court judgment of Mr Justice Kelly , the Supreme Court
found unanimously that the exclusions relied on did not apply. In my view, in which I make no
claim to legal credentials, HomeBond is on far shakier ground in relying on the exclusions cited
in their letter than were the unsuccessful defendant insurers in Analog.
10
[1998] 1 WLR 896
[2005] IESC 12 (16 March 2005) http://www.bailii.org/ie/cases/IESC/2005/12.html
12
[2005] IESC 12 (16 March 2005) http://www.bailii.org/ie/cases/IESC/2005/12.html
13
[2001] IEHC 237 (18 May 2001) http://www.bailii.org/ie/cases/IEHC/2001/237.html
11
9
9.6.
I would like to draw attention to four more citations of which our Supreme Court approved in the
Analog case:
“If the exempting provision is ambiguous and capable of more than one interpretation then
the courts will read the clause against the party seeking to rely on it.” (Prof. Robert Clark in
th
the 4 edition of Contract Law in Ireland).
"It is well settled that in construing the terms of a policy the cardinal rule is that the intention
of the parties must prevail, but the intention is to be looked for on the face of the policy,
including any documents incorporated therewith, in the words in which the parties have
themselves chosen to express their meaning. The Court must not speculate as to their
intention, apart from their words, but may, if necessary, interpret the words by reference to
the surrounding circumstances. The whole of the policy must be looked at, and not merely a
particular clause." (Mr Justice Griffin, Finlay C.J. and Hederman J. concurring, in Rohan
Construction Limited v. Insurance Corporation of Ireland Limited [1988] ILRM 373 at 377)
“… if there is any ambiguity in the language used, it is to be construed more strongly against
the party who prepared it, i.e. in most cases against the insurer. It is also clear that the
words used must not be construed with extreme liberalism, but with reasonable latitude,
keeping always in view the principal object of the contract of insurance.” (Mr Justice
Keane in Rohan Construction v. Insurance Corporation of Ireland [1986] ILRM 419).
(Underlining added by the writer to emphasise Mr Justice Keane’s important inference).
“If underwriters wish to limit by some qualification a risk which, prima facie, they are
undertaking in plain terms, they should make it perfectly clear what that qualification is.
They should, with the aid of competent advice, make up their minds as to the qualifications
they wish to impose and should express their intention in language appropriate for achieving
the result desired. There is no justification for underwriters, who are carrying on a
widespread business and making use of printed forms, either failing to make up their minds
what they mean, or, if they have made up their minds what mean, failing to express it in
suitable language. Any competent draftsman could carry out the intention which (counsel)
imputes to this document, and, if that is what was really intended, it ought to have been
done.” (Kingsmill Moore J. in In re Sweeney and Kennedy’s Arbitration [1950] IR 85)
9.7.
The Supreme Court is constitutionally Ireland’s “Court of Final Appeal” and its decisions are
“final and conclusive”.
10. ANALYSIS OF HOMEBOND’S LETTER TO PURCHASERS
10.1. As one who has spent much of his working life interpreting insurance contracts and exploring
the labyrinth of conditions, warranties and exclusions that they contain, I am strongly of the
opinion that the grounds relied on by HomeBond to avoid meeting pyrite damage claims
already reported or yet to materialise in August 2011 were invalid and unsustainable, for the
many reasons stated in this report.
10.2. Significant structural damage by pyritic heave constitutes, without doubt, a Major Defect as
defined in the HomeBond Agreement. Crucially, the Agreement did not at the relevant times
contain any exclusion of such damage. Claimant Purchasers would thus be deemed to have
discharged the onus of providing prima facie proof of loss within the terms of the Agreement,
and the onus would then have shifted to HomeBond to prove the applicability of the exclusions
relied upon. In my view, it has failed demonstrably to do this.
10.3. HomeBond sought to attribute to the Purchasers’ claims the same causative circumstances as
in Elliott Construction v Irish Asphalt, a commercial case not involving a Dwelling but a large
youth centre building and a particular defendant whose products and business practices may
have had little in common with those of some, at least, of the quarrymen who supplied pyritic
hardcore to HomeBond Members who subsequently defaulted on their obligations to
remediate Purchasers’ homes. That HomeBond in turn defaulted on its obligations is
regrettable, but it may not be necessary to rely on the dissimilarities in circumstances to which I
10
have drawn attention, as I believe that there are compelling alternative grounds on which to
show the exclusion clauses invoked by HomeBond to be inapplicable.
10.4. The HomeBond Warranty applies only if the Member (builder) defaults on his obligation to
deliver a Dwelling free of Major Defects. The exclusions relied upon by HomeBond excluded:
•
any defect which is the result of negligence on the part of someone other than the Member
or his sub-contractor, and
•
any defect which is covered by insurance, or in relation to which legislation provides for
compensation.
11. THE FIRST EXCLUSION
11.1. The first exclusion cited by HomeBond refers to defects “the result of negligence on the part of
someone other than the Member or his sub-contractor”. HomeBond relied heavily in this regard
on the High Court judgment in Elliott, against which Irish Asphalt had lodged an appeal, of
which the outcome was still awaited when HomeBond wrote the letter. The Supreme Court
14
eventually delivered its judgment on 2 December 2014, substantially endorsing the findings of
Mr Justice Charleton. Neither the High Court nor the Supreme Court made any finding
whatever of negligence. The defendant, Irish Asphalt, was found to have been in breach of
certain contractual obligations, which are reviewed in HomeBond’s letter and summarised in
sub-section 6.4 of this report, but the exclusion makes no mention of defects the result of
breach of contract.
11.2. There is a clear distinction in law between negligence and breach of contract, a point supported
by a large body of case law, including not only the High Court and Supreme Court judgments in
Elliott, but also a separate but related case involving Irish Asphalt, namely Noreside
15
16
Construction Ltd. v Irish Asphalt Ltd., IEHC [2011] 364 and IESC [2014] 68, and a peripheral
17
judgment by Judge Charlton on the issue of costs and expenses in Elliott, [2011] IEHC 338 .
The following excerpts are considered relevant:
From main High Court judgment and judgment on damages and costs:
“269. The material supplied by Irish Asphalt to Elliott Construction was not of merchantable
quality. Therefore, there was a breach of contract. In addition, the implied condition as to
fitness for purpose was an obligation by Irish Asphalt to Elliott Construction under the
contract. The material was not fit for purpose. The exclusion clause was not incorporated into
the contract by the defendant as against this plaintiff. Even had it been, in the context of the
case, it would be neither fair nor reasonable to enforce it.”
From the High Court judgment on damages and costs (second sentence):
“The Court decided that the cause of the condition of the building was pyrite heave and that
the defendant, as supplier of the stone infill which had expanded, was in breach of contract of
sale and answerable in damages.” (emphases added)
11.3. The main High Court judgment of 104 pages in Elliott uses the word “negligence” only once, in
paragraph 261, the last sentence of which reads, “I have not analysed such potential liability in
negligence as it is not part of the case but I regard this potential scenario as neither fair nor
reasonable”. In contrast, the judgment uses the term “breach of contract” twelve times.
11.4. It will be noted that Mr Justice Charleton specifically mentioned that he had not analysed Irish
Asphalt’s “potential liability in negligence as it is not part of the case” (my emphasis), so that it
is beyond doubt that no finding of negligence was made in the judgment.
14
[2014] IESC 74 http://www.bailii.org/ie/cases/IESC/2014/S74.html
http://www.bailii.org/ie/cases/IEHC/2011/H364.html
16
http://www.bailii.org/ie/cases/IESC/2014/S68.html
17
http://www.bailii.org/ie/cases/IEHC/2011/H338.html
15
11
11.5. The Supreme Court judgment of 56 pages in Elliott uses the word “negligence” four times, none
of which is even remotely suggestive of negligence on the part of Irish Asphalt. In contrast, it
uses “breach of contract” 16 times. There is no finding of negligence in that judgment, nor, for
that matter, in either judgment in Noreside v Irish Asphalt.
11.6. The term “breach of contract” refers to the infringement of some legal agreement existing
between two or more parties, often set down in writing in one or more contract documents.
Negligence, on the other hand, is a tort committed by a person or other legal entity against
another in the absence of any contract between them. The best known example of the latter is
18
the famous House of Lords “snail in the bottle” case of Donoghue v Stevenson [1932] . The
modern concept of negligence arose directly from that celebrated case.
11.7. The absence of any finding of negligence in either the High Court or Supreme Court judgment
is in stark contrast with HomeBond’s evident willingness to make its own “finding” of
negligence, when it suited its purpose to do so, in its letter of repudiation. For ease of reference
I have reproduced below the relevant passages from HomeBond’s letter and have emphasised
in bold the words and phrases considered important:
“In our view, the quarry supplier has breached a duty of care owed to both the
Member/Builder and to you and has negligently supplied hardcore infill to the
Member/Builder which was not of merchantable quality or fit for purpose, which has
resulted in damage to your dwelling. Furthermore, it should be noted that the Liability
for Defective Products Act, 1991 provides a strict liability remedy so that a
producer is made liable for damage caused wholly or partly by a defect in his
product, regardless of whether or not he was negligent. It is also our view that the
quarry supplier of the under-floor infill material for your dwelling falls within the ambit
of this legislation.
We wish to bring to your attention the following exclusions in Section 3.6 of the
HomeBond Agreement relevant to your dwelling:
• any defect which is the result of negligence on the part of someone other than the
Member or his sub-contractor;
• any defect … … … … in relation to which legislation provides for compensation;
We confirm that as:
(a) the quarry supplier of the hardcore infill acted negligently in our view in
supplying material that was not of merchantable quality and fit for purpose; and
(b) supplied a defective product in circumstances where legislation provides for
compensation;
HomeBond’s liability for major defects is specifically excluded. Accordingly,
HomeBond does not propose to take any further action in this case.
Please note that any prior representations by any agent or employee of HomeBond,
whether oral or written or whether in express or implied terms, to accept liability or to
carry out testing or remedial works or to pay a monetary sum in relation to your
dwelling, is hereby withdrawn. HomeBond relies, and will continue to rely, on the full
terms and conditions of the HomeBond Agreement.” (Emphases added).
11.8. I would emphatically refute HomeBond’s unfounded allegations of negligence on the part of
Irish Asphalt or any other supplier, since no such negligence has been proven.
18
[1932] All ER Rep. 1; [1932] AC 562; House of Lords: http://www.leeds.ac.uk/law/hamlyn/donoghue.htm
12
11.9. If HomeBond wished to except its liability resulting from breach of contract, it could very easily
have done so by wording the exclusion “any defect which is the result of negligence or breach
of contract on the part of someone other than the Member or his sub-contractor”, i.e. by simply
adding the words “or breach of contract”.
11.10. It is highly unlikely, in my view, that the HomeBond Agreement was ever intended to exclude
defects arising from the use of defective building materials purchased by the builder and
incorporated by him or his sub-contractor into the fabric of Dwellings in course of construction.
Such an interpretation would go a considerable distance towards defeating the basic purpose
of a structural defects warranty. In fact, I would consider it likely that HomeBond has dealt with
many claims for Major Defects caused by the use of faulty building materials — concrete
blocks, bricks, ready-mixed concrete, roof tiles, cement, structural timbers, etc. — without
invoking the first exclusion to repudiate liability on the grounds that the supplier was negligent.
On the other hand, it is quite likely to have had occasion to invoke the Assignment of Rights
Condition (sub-section 3.7) to seek recoveries from suppliers of defective materials, and I note
that that condition refers specifically to legal rights against, inter alia, suppliers.
12. THE SECOND EXCLUSION
12.1. HomeBond, in its letter of repudiation, substituted four ellipses for the text “which is covered by
insurance, or” so that the second exclusion was expressed thus:
“any defect … … … … in relation to which legislation provides for compensation;”
in lieu of
“any defect which is covered by insurance, or in relation to which legislation provides for
compensation;”
12.2. I do not suggest an ulterior motive for the omission of the reference to insurance; it was
probably made in the interests of clarity, but may really have had the opposite effect in that it
obscures the fact that the exclusion clause in its original form refers to two separate classes of
legal instruments that may grant non-assignable rights, i.e. insurance products and legislation
that provides for compensation. Such rights cannot be assigned through subrogation to an
indemnifier such as HomeBond. This, in my view, is precisely why the Agreement excludes
defects with respect to which the Purchaser would be able to claim compensation elsewhere
without troubling HomeBond. On the other hand, rights under legislation providing for the
payment of damages are assignable post-indemnification by means of subrogation.
12.3. This exclusion, to the extent to which HomeBond relies on it, refers explicitly to legislation that
provides for compensation, not damages. This indicates that the legislation to which the
exclusion applies is of the type enacted by national parliaments to provides for the payment of
compensation to alleviate distress suffered by citizens affected by natural or man-made
disasters such as flood, landslide or coastal erosion; or man-made types such as chemical
pollution, nuclear accidents or terrorism; or to compensate land owners in the event of
compulsory acquisitions or collateral damage caused during the course of protecting or
improving the national infrastructure, e.g. the Arterial Drainage Acts, 1925 , 1945 and 1995, or
the Acquisition of Land (Assessment of Compensation) Act, 1919. None of these statutes
makes any mention of damages but they contain many references to compensation.
12.4. I submit, for the purpose of this analysis, that there are two distinct types of Irish legislation,
which I would describe as follows:
1) Humanitarian or compensatory legislation providing for the payment of compensation by
the state of the type described in sub-section 12.3. The recently-enacted Pyrite Resolution
Act, 2013 (dealt with later in Section 13) is an excellent example of this type.
2) Legislation creating or augmenting rights for the recovery of damages in tort or under
contract. Examples of this type would include the Sale of Good Act, 1893, the Sale of
Goods and Supply of Services Act, 1980, and the Liability for Defective Products Act, 1991,
13
all of which were considered by Mr Justice Charleton in the Elliott judgment. The lastmentioned of these is cited and relied on by HomeBond on page 2 of its letter of 31 August
2011. The third paragraph on page 1 of that letter contains a reference to the “Sale of
Goods Act 1984”, but there is no such Act on the Irish Statute Book, and I suspect that the
letter-writer may have had in mind one or both of the Acts 1893 and 1980. The 1893 Act is
one of many pre-1922 Acts of the British Parliament still in force, but it was substantially
amended by the Act of 1980.
12.5. In my view, the second exclusion was not intended to exclude defects in respect of which a
right to claim damages could exist under legislation of the type described in sub-section 12.4
(2) above with respect to which — as often happens in claims under insurance policies — an
indemnifier such as HomeBond, after satisfying a claim, would be entitled to an assignment by
way of subrogation as provided for in this case by Section 3.7 – Assignment of Rights, of the
Agreement. Why, if that is not so, would the indemnifier incorporate in the policy/agreement a
subrogation condition that specifically mentions the assignment of rights against, inter alia, any
supplier, manufacturer, sub-contractor or any other party? The answer, in my view, is that this
subrogation condition, like all such conditions in insurance contracts, relates to assignable
rights against a third party, whereas the exclusion relates to defects in relation to which nonassignable rights might exist under an insurance contract or some form of statutory redress
i.e. legislation providing for compensation, not involving a third party against whom
recovery rights might be enforced. For example, third party recovery rights under the Liability
for Defective Products Act 1991 could be taken over by an insurer under a subrogation
condition, whereas rights under an insurance policy or legislation providing for compensation
would be pursued directly by the injured party — hence the exclusion in the Agreement of
defects in relation to which legislation provides for compensation.
12.6. In addition to the reasons set out in the preceding paragraphs of this Section of the report, I
should like to add that, in my experience, it would be extremely unusual, perhaps unheard of,
for a property insurance policy of any kind to exclude loss or damage caused by a contingency
with respect to which the insured might possess recovery rights against another under
legislation such as the Liability for Defective Products Act 1991 upon which HomeBond relied.
That Act, or any other product liability legislation, did not create the concept of negligence. It
was an enactment pursuant to an EU directive to augment consumers’ rights with respect to
defective products. HomeBond stated in its letter that “the quarry supplier of the hardcore infill
acted negligently in our view in supplying material that was not of merchantable quality and fit
for purpose; and… supplied a defective product in circumstances where legislation provides for
compensation”. I have already dealt with what I described as HomeBond’s “finding” of
negligence in the absence of any legal authority to support that finding.
12.7. By way of experiment, I Googled the exact phrase “legislation provides for compensation” and
got a surprising number of hits, the first of which appears to have been taken from a
HomeBond statement published in the news website www.TheJournal.ie. The remaining entries
on the first two pages of about 17,000 results relate to legislation on such matters as
whistleblowing (the Protected Disclosures Bill 2013), conservation measures in Denmark,
personal injuries law in the EU, employment law, etc. etc. I found nothing resembling the
Liability for Defective Products Act, 1991 relied upon in HomeBond’s letter, or, indeed, any form
of legislation relating to actions for damages based on civil torts or sale of goods laws.
12.8. More recently, in the course of reviewing an unrelated assignment concerned with a
subsidence claim under a household insurance policy, I noticed an exclusion in the July 2011
issue of the 123.ie Household Insurance Policy underwritten by RSA Insurance Ireland Ltd. of
“loss or damage where compensation is provided by legislation”. This exclusion is repeated in
the April 2012 and January 2014 (current) editions of the policy booklet. It relates only to the
“INSURED CAUSE” of “Subsidence or Heave of the site on which the Home stands ”, and not
to any other Insured Cause, e.g. fire, storm, flood, theft, etc. I submit that, in that case, there is
no doubt whatever that the exclusion relates solely to compensatory legislation of the type
described above and not to the kind that creates or augments citizens’ rights to claim damages
in tort. I should explain that the insurer concerned in the assignment referred to above was not
RSA or its 123.ie subsidiary.
14
12.9. Hereunder, in similar vein, is a direct quotation from a publication of the House of
Representatives Committees of the Parliament of Australia on the subject of statutory
19
protection for whistleblowers :
Many submissions noted the damaging personal effects of adverse
treatment, including depressive illnesses. Any legislation that provides
for compensation would not take away a personal right to sue for
damages in a situation where the detriment included an injury.
The second sentence of the above excerpt is entirely in accordance with my views as to the
meaning of the term “legislation that provides for compensation”, especially as it goes on to
refer to the separate right to sue for damages. Many more examples can be found by Googling
the exact phrase “legislation that provides for compensation”.
12.10. Any interpretation of the second exclusion other than that set out in sub-section 12.5 above
would be incorrect, in my view, and I agree completely with the Pyrite Panel’s comments that
Purchasers… “had a reasonable expectation, understandably, that under the terms of the
HomeBond Warranty Scheme, structural defects, including serious defects due to pyritic heave,
were covered and that their homes would be remediated either directly by the builder or by
HomeBond” (page vii of the Executive Summary in the Panel’s report). I believe that
HomeBond sought and found an excuse, rather than a reason, to allege that pyrite damage
claims were excluded, but that this allegation fails utterly to withstand scrutiny.
12.11. I trust that I have demonstrated that the second exclusion is at least ambiguous, but more likely
wholly inapplicable, to warranty-holders’ claims relating to pyrite damage. Or, in the alternative,
that it is likely that it would be interpreted in that way by Lord Hoffman’s hypothetical
“reasonable person” (see sub-section 9.3). If there is any doubt as to its intention, and I do not
think there is, I believe it would be decided in law against HomeBond as the putative
indemnifier and author of the disputed document.
13. THE PYRITE RESOLUTION ACT, 2013
20
13.1. The Pyrite Resolution Act, 2013 (“the Act”) came into force on 10 January 2014 and
established the Pyrite Resolution Board (“the Board”) whose functions are set out in Section 9
of the Act. The Pyrite Remediation Scheme (“the Scheme”) currently in operation was drawn up
by the Board in accordance with its powers under Section 13 of the Act. Section 3 of the
Scheme deals with eligibility criteria and sub-section 3.9 provides that: “The applicant must
show to the satisfaction of the PRB that he/she does not have available to him or her any
practicable option, other than under the Scheme or the use of his or her own resources, to
remediate or secure the remediation of the dwelling.” Such “practicable options” would
obviously include a structural defects warranty like that provided by HomeBond.
13.2. I think it can be assumed that, had the Act been in force during the period commencing with the
emergence of the pyrite problem in or about 2007, HomeBond’s exclusion of “any defect… in
relation to which legislation provides for compensation” would have been applicable and thus
provided HomeBond with valid grounds on which to decline Purchasers’ claims. I consider that
the wording of the exclusion would have given it precedence over eligibility criterion 3.9 cited
above, as the HomeBond Agreement with the exclusion in place would not then have been “a
practicable option”. To put it another way, the exclusion would have deprived of its practicability
the option that would otherwise have been available. But the Act was not then in force, and
claims were dealt with under the terms of the Warranty until HomeBond issued its repudiation
three months after publication of the Elliott judgment on 25 May 2011. I am unsure as to the
effective date from which HomeBond started to turn down claims, but am assuming for the
present purpose that it was 31 August 2011, being the date of the letter. On that basis the
period for which claims were processed in the usual way was about four years (2007 to 2011).
19
http://www.aph.gov.au/parliamentary_Business/Committees/House_of_Representatives_Committees?url=laca/whistleblowing/r
eport/index.htm
20
http://www.irishstatutebook.ie/pdf/2013/en.act.2013.0051.pdf
15
13.3. It is truly ironic that, in response to the widespread distress suffered by homeowners in
consequence of the pyrite problem, the Oireachtas should have enacted legislation of the type
excluded by the second exclusion, which, if in place when the letter of repudiation was issued,
would have legitimised a repudiation of liability and enabled HomeBond to foist responsibility
onto the state. As matters now stand, I think it would be an outrage were HomeBond permitted
to seize upon the Pyrite Resolution Act, 2013, as a vehicle through which to escape liabilities
which they should have accepted under the ten year structural defects warranties held by
Purchasers whose homes were ruined.
13.4. If my dates are accurate, the period for which Purchasers had no enforceable remedy was
from 31 August 2011 until the coming into force of the Act on 10 January 2014. It may well be
that HomeBond’s repudiation of liability was at least a contributory factor, if not the main
determinant, in the Government’s decision to enact legislation providing relief to those affected.
The Act applies retrospectively, picking up all claims dating back to HomeBond’s repudiation,
provided that the eligibility criteria are satisfied.
14. THE GOVERNMENT’S POSITION
14.1. Arising from the circulation of my earlier report to several Members of the Oireachtas, Deputy
Clare Daly (Independent), who has spoken on many occasions for the affected homeowners,
tabled two Questions to the Minister for Environment, Community and Local Government on 11
June 2015, referring to my report and asking, in essence, (a) if the Minister had read the report
and would make a statement on it, and (b) if he would act to ensure that HomeBond delivers on
its responsibilities to homeowners who purchased houses with the backing of the HomeBond
guarantee. The questions were replied to in writing by Mr Paudie Coffey TD, Minister of State at
the Department, who acknowledged receipt of the report but did not answer the Questions in
any meaningful way, simply reiterating his Department’s position on HomeBond as propounded
originally by former Minister Phil Hogan. Several of Mr Hogan’s earlier comments were
repeated verbatim by Mr Coffey, who answered the questions as follows:
•
“My Department received a copy of the report and has noted its contents. In this regard, my
Department has previously put on record its strong disagreement with the stance adopted
by HomeBond in withdrawing, in August 2011, cover for pyrite-related damage to
homeowners. Following publication of the Report of the Pyrite Panel (July 2012), my
Department engaged in protracted discussions with the key stakeholders, including
HomeBond, to try and put in place a framework within which the parties, which had been
identified in the report as being responsible for the pyrite problem, could bring about a
resolution for affected homeowners; regrettably, this did not prove possible.”
•
“HomeBond is a private limited company providing structural guarantees for new houses
and, since November 2008, the HomeBond Insurance Scheme is underwritten by Allianz
Insurance. As is the case for any private company, its operations are a matter for its
management and Board of Directors. My Department understands that HomeBond
Insurance Services Ltd is regulated by the Central Bank of Ireland. As a private company,
my Department has no role or function in its operations and cannot direct HomeBond to
take a particular course of action.”
•
“However, the Pyrite Resolution Board will continue to seek contributions from parties who
may have a liability in respect of dwellings which are the subject of applications under the
pyrite remediation scheme as those applications are progressed and the contracts for
remediation works to affected homes are advanced.”
•
“… in the context of the pyrite remediation scheme, an agreement was reached between
the Pyrite Resolution Board and HomeBond in June 2014 under which HomeBond has
agreed to contribute technical and project management services to the Board to the value
of €2 million. Such services include assisting in organising and managing the testing of
dwellings and project management of remediation contracts. HomeBond has also agreed to
16
make available to the Pyrite Resolution Board / Housing Agency the results of testing
undertaken by it prior to the operation of the scheme.”
•
“As matters stand, over 730 applications have been received under the pyrite remediation
scheme and the Board will continue to accept applications from homeowners, and will
continue to remediate dwellings, subject to those applications meeting the eligibility criteria
of the scheme.”
14.2. The Department of Environment’s position from the outset on HomeBond’s letter of repudiation
dated 31 August 2011 is that it was a “withdrawal of cover”, a term used repeatedly in the
Report of the Pyrite Panel and in the Dáil and elsewhere by government spokesmen. It was
taken up and used many times in newspaper reports, on the social media, and even on the
websites of certain law firms, which may led to the widespread perception that HomeBond was
somehow possessed of an entitlement to withdraw cover if it wished to do so.
14.3. In the concluding paragraphs of its initial letter of repudiation dated 31 August 2011, addressed
individually to warranty-holders who had reported claims for pyrite damage, HomeBond cited
the exclusions examined earlier, and went on to state:
“HomeBond’s liability for major defects is specifically excluded. Accordingly, HomeBond
does not propose to take any further action in this case.
Please note that any prior representations by any agent or employee of HomeBond,
whether oral or written or whether in express or implied terms, to accept liability or to
carry out testing or remedial works or to pay a monetary sum in relation to your
dwelling, is hereby withdrawn. HomeBond relies, and will continue to rely, on the full
terms and conditions of the HomeBond Agreement.”
14.4. This was a categorical denial of liability, not a “withdrawal of cover”, and to refer to it as such
was to inadvertently disguise and sugarcoat its true purpose and intent. The Agreements to
which the letter refers are for terms of ten years (the Liability Period) from their Cover Dates
and HomeBond has no entitlement to withdraw cover in mid-term for Major Defects falling
21
within its own Definition. Agreements that have not run their ten-year terms are still in force
and HomeBond has no authority to change their Liability Periods, much less withdraw cover,
while they remain in force.
14.5. Consequent on its refusal to deal with its warranty-holders’ claims, HomeBond was requested
to appear before an Oireachtas Committee for the Environment, Transport, Culture and the
Gaeltacht chaired by Mr Ciarán Lynch TD, but declined to do so, attracting much criticism and
reproof for its snub to the Committee. Here is an extract from a contemporaneous press
release from the Houses of the Oireachtas:
“The refusal of HomeBond to appear before the Committee on Environment, Transport,
Culture and the Gaeltacht is a matter of serious public concern. The Committee has agreed to
request Minister Hogan to encourage HomeBond to appear before the Committee to discuss
the cost of restoring the structural integrity of houses damaged by the use of pyrite in building
materials.
Committee Chairman Ciarán Lynch, TD said: ‘As part of the Committee’s hearings into the
cost of restoring houses damaged by the use of pyrite in building materials, HomeBond was
invited before the Committee to explain its decision to opt out of legal responsibility to the
purchasers of homes damaged by pyrite.
As HomeBond is a private limited company, the Committee could not compel it to appear
before it to discuss the topic. However, the refusal by HomeBond to discuss an issue of public
importance with an Oireachtas Committee is a matter of serious public
concern’…” (underlining added)
21
The Liability Period for major defects due to smoke or water penetration is five years; it is otherwise ten years.
17
14.6. The repeated references to HomeBond’s “withdrawal of cover” and the above-mentioned
allusion to its decision to “opt out” of its legal responsibility to Purchasers completely
understate the true position, which is that an insurer or indemnifier such as HomeBond
a) is not entitled under any circumstances to withdraw cover retrospectively in respect of
an insured event which has actually occurred, and
b) has absolutely no right to opt out of a legal responsibility to pay a genuine claim unless it
can demonstrate that the loss falls squarely within the ambit of an exclusion.
To “withdraw cover” or “opt out of responsibility” for an insured loss not specifically excluded
would be contrary to the fundamental purpose and raison d’être of insurance, and there is no
doubt, in my opinion, that the exclusions relied on by HomeBond were inapplicable.
14.7. By email from the Private Secretary to the Minister for Justice and Equality, Ms Frances
Fitzgerald TD, I was advised that the position of the Justice Department is that “the matter is
more appropriate to the Department of Environment”.
15. A ROUGH ESTIMATE OF THE COST TO THE EXCHEQUER AND THE IRISH TAXPAYER
15.1. A footnote to Table 4.2 on page 50 of the Pyrite Panel’s Report dated June 2012 states, “The
typical cost of remediation for an average house, as quoted to the Panel by those who have
undertaken a significant amount of such work, is approximately €45,000…” Application of this
average to the 730 applications mentioned in Minister Coffey’s written answer of 11 June 2015
produces a sum of €32.85m., to which would need to be added the administrative and
legislative costs of the Pyrite Panel, the enactment of the Pyrite Resolution Act, 2013,
appointment of the Pyrite Resolution Board and establishment and operation of the Pyrite
Remediation Scheme, on which basis I suggest that an overall estimate of €40m. would be
extremely conservative.
16. RESPONSE TO THE WRITER’S INVESTIGATIONS
16.1. I undertook this investigation in the public interest, on a pro bono basis, as I felt very strongly
that a grave injustice had been perpetrated on HomeBond warranty-holders whose homes had
been ruined by pyrite, and by extension on the long-suffering Irish taxpayer as a result of the
measures undertaken by the Government in response to the crisis precipitated by HomeBond’s
blanket repudiation of its warranty-holders’ claims. My objective was primarily to demonstrate
that HomeBond’s denial of liability was invalid, as I hope thereby to attract the interest and
practical support of one or more individuals or organisations in a position to mount a credible
initiative to redress the injustice by legal action or political intervention.
16.2. My previous reports and other communications, commencing with the original “HomeBond
Repudiation” Report of 18 May 2015 and resting with an “Update” dated 1 July 2015, were
circulated to a total of about 90 individuals and organisations, including stakeholders on both
sides of the controversy, politicians in the government and opposition parties, legal
practitioners, and members of the insurance and construction industries. To date, in addition to
several messages of support and encouragement, I have received expressions of interest,
which I intend to pursue, from two law firms and a multinational insurance brokerage and risk
management company.
16.3. On the political front, the Independent TD, Ms Clare Daly — clearly motivated by genuine
concern for Purchasers in her constituency of Dublin North, where an estimated 5,000 homes
were ruined by pyrite (see Figure 4.7 on page 45 of the Report of the Pyrite Panel) — brought
th
forward the issues raised in my report during Question Time in the Dáil on 11 June (see subsection 14.1 above). I received emails from two more opposition party members with whom I
propose to communicate further
18
16.4. Only one respondent, a Fine Gael TD, expressed disagreement with my conclusions on
HomeBond’s denial of liability. In the first of two emails received from him he stated, “I am
aware that HomeBond’s decision to reject purchaser claims in pyrite instances was based on a
legal advice, born [sic] out by a decision of the High Court”, an obvious reference to the
judgment of Mr Justice Charleton in the case of James Elliott Construction Ltd. v Irish Asphalt
Ltd. He went on to suggest that “a legal opinion rather than an insurance opinion would
determine that advice to be correct”. This is an understandable observation, to which I would
respond that two lawyers have so far expressed agreement with my conclusions, and that, in
recent times, several consultancy and expert witness assignments were entrusted to me by
solicitors seeking assistance in disputes involving the interpretation of insurance contracts.
16.5. In response to my correspondent’s first email I sent him a copy of my Update report dated 1
July 2015, under cover of an email of the same date, reading as follows:
“Dear (first name),
Thank you for your response to my correspondence. I attach an update clarifying certain aspects of this matter. You’ll find that I mentioned your message to me on page 4, without identifying you, and I’d be grateful if you would read at least the executive summary (just two pages) of my main report, plus the addendum and the attached update. I did a lot of research into this disgraceful episode and read your post (HomeBond snub to Oireachtas etc.) of … (date deleted). Despite HomeBond’s claim to have taken legal advice, I have absolutely no doubt that its repudiation was invalid. The Elliott decision to which you adverted contains no finding whatever of negligence, nor did the Supreme Court judgment that eventually materialised, endorsing Mr Justice Charlton’s findings of breach of contract (but no negligence) on the part of Irish Asphalt. HomeBond was wrong to rely on the High Court judgment when it was under appeal and thus not settled law, and there are many other weaknesses in its denial of liability, which are explained in my report … … Kind regards, Joe Tyrrell” He responded by email of the same date (1 July 2015) stating: “Mr. Tyrrell,
I respect entirely your views and the time you have taken to consider this matter.
I would submit however that you are wrong and not in the position, either through qualification
or experience to make a legal determination on a matter that has already been through the
Courts.
Simply put, a purchaser of a property is not covered by the Homebond Scheme. The builder of
said property is. It is not within Homebond's remit to ensure that Building Regulations are
adhered to. This is the legal finding on the matter and the reason why Homebond withdrew
from issues relating to Pyrite.
You are also wrong, in law to make a determination that because a decision of the High Court
is under appeal, the decision doesn't stand.
I would ask that you refrain from including any of my comments in your letters to members of
the Oireachtas.
19
I believe this concludes our discussion.
Yours sincerely,”
16.6. I have already commented in Section 3 of this report (sub-sections 3.1 and 3.7) on the Deputy’s
comments on my qualifications and experience. My views on the third and fourth paragraphs
are as follows:
Third paragraph: It is quite wrong to state that the builder, not the purchaser, is covered by the
“HomeBond Scheme”. I would draw attention to the HomeBond Warranty (3.2) in Section 3 –
Major Defects of the HomeBond Agreement in Appendix 2 hereto, which commences: “(a)
HomeBond warrants to the Purchaser that, IF AND WHEN A FINAL CERTIFICATE ISSUES IN
RELATION TO THE DWELLING, that, in the event of the Member defaulting on its warranty
under Section 3.3, HomeBond will attend to any Major Defect in the Dwelling…” etc. Clearly,
the Agreement provides cover for the Purchaser if the Member (builder) defaults. The builder is
not, in fact, covered by the Agreement, and remains liable even should the Purchaser have
been indemnified by HomeBond under sub-section 3.2.
Fourth paragraph: I did not say that a High Court decision under appeal to the Supreme Court
doesn’t stand. What I said was that HomeBond was wrong to rely on the High Court judgment
when it was under appeal and thus not settled law.
17. CONCLUDING COMMENTS
17.1. I am satisfied, for all the reasons stated herein, that HomeBond’s repudiation of liability, as set
out in its letter of 31 August 2011, was invalid.
17.2. It is astonishing, to my mind, that no one in authority appears to have looked closely at the
reasons given by HomeBond for wrongfully declining so many Purchasers’ claims, but it
seems that this is precisely what happened and that HomeBond has thus far got away with its
reprehensible behaviour. I feel that this state of affairs can be redressed only by firm political
intervention or legal action, and hope that the dissemination of this report will bring the matter
to the attention of some person, firm or political entity having the capacity, influence and will to
do something constructive about it.
17.3. I have not investigated the financial standing of either HomeBond or National Housebuilding
Guarantee Company Ltd., nor do I feel qualified to do so. During the course of my research,
however, it came to my notice that, on a number of occasion, it was alleged under Dáil privilege
by Opposition Deputies that HomeBond had €25 million in its bank account when it “walked
away” from its obligations to Purchasers. The website of the Companies Registration Office
(www.cro.ie) contains basic information on HomeBond, National Housebuilding Guarantee
Company Ltd. and associated companies, along with published Financial Statements and
details of Directors and Secretaries. I believe, though, that any serious investigation into this
aspect of the matter would warrant the engagement of a forensic accountant.
17.4. A point to bear in mind should a legal initiative be contemplated is that the HomeBond
Agreement is subject to an Arbitration Clause (Section 6 — Dispute Resolution), which could
give rise to complications. Unlike the Arbitration Condition found in most insurance policies,
however, the HomeBond Agreement’s wording does not impose a time limit within which the
dispute must be referred to Arbitration, or be deemed abandoned.
17.5. My primary focus in this investigation has been on the HomeBond Agreement issued by
National Housebuilding Guarantee Company Ltd. trading as HomeBond. I note that this
company is not listed as a regulated entity in the online registers of the Central Bank of
Ireland. All HomeBond Agreements issued between August 2005 (ten years ago) and 31
October 2008 (being the date from which the current HomeBond Insurance Policy underwritten
by Allianz plc succeeded the HomeBond Agreement) are still in force and will remain so until
their ten-year terms expire. HomeBond Insurance Services Ltd. is registered with the Central
20
Bank as an Insurance/Reinsurance Intermediary and Allianz plc as a Non-Life Insurance
Undertaking.
17.6. It is unlikely that any Dwellings built after 2007 suffered pyrite damage but it is probable that the
repudiation embraced many claims under Agreements issued prior to August 2005 and
reported to HomeBond within their ten year Liability Periods. The Report of the Pyrite Panel
states, “The main guarantee providers (HomeBond and Premier Guarantee) advised the Panel
that they were not aware that problems were pyrite-related prior to January 2007” (footnote 1 to
Figure 4.4 on page 41).
17.7. This Final Report brings my investigation to an close, but I would be available, if required, to
assist in any credible initiative to redress the injustice perpetrated on homeowners and the Irish
taxpayer.
17.8. The views expressed in this report are entirely my own and I take full responsibility for them.
Joseph M. Tyrrell
August 2015
21
APPENDIX 1
HomeBond’s Letter of 31 August 2011
APPENDIX 2
The HomeBond Agreement