Almacantar (Centre Point) Ltd v Sir Robert McAlpine Ltd

This dispute arises out of a project to redevelop the landmark Centre Point Tower and surrounding properties at the junction of New Oxford Street and Charing Cross Road. The project involves the redevelopment of these buildings, largely for residential use with some retail and other facilities, at a cost in excess of £100 million.

The parties, Almacantar (Centre Point) Limited (“Almacantar”), the developer, and Sir Robert McAlpine (“SRM”) entered into a Pre-Construction Services Agreement (“the PCSA”) on 17 September 2012. In September 2014, the PCSA was terminated by consent. This dispute centres on SRM’s right to further payment following that termination and in particular, and as I explain further below, to payment of the balance of 50% of the Fee under the PCSA.

On 15 September 2015 SRM issued its application no. 25 claiming that amount, being £948,072.35 (plus VAT), and subsequently issued an invoice dated 19 February 2016, which Almacantar refused to pay. In April 2017 SRM then commenced an adjudication. The adjudicator’s decision in June 2017 was in SRM’s favour. I note that the amount awarded to SRM (and paid by Almacantar) included a small amount which did not form part of the 50% of the Fee and is not in issue in these proceedings.

Almacantar then commenced these Part 8 proceedings seeking the following declarations:

“(1)

On a true construction of the PCSA, McAlpine was only entitled to payment in respect of the balance of 50% of the Fee (as varied):

(a)

in the event that McAlpine and Almacantar entered a construction contract for the Project; and

(b)

on the occurrence of the first valuation following commencement on site under such contract.

(2)

As a result of McAlpine not entering a construction contract for the Project before the PCSA was terminated on 15 September 2014, McAlpine has no entitlement to the balance of 50% of the Fee awarded by the Adjudicator in the Decision.

(3)

The Decision was wrong and does not bind the parties.”

Almacantar further claimed repayment of the sums paid to SRM plus interest.

The PCSA

It seems to me clear, and indeed largely uncontroversial, that the background to the entering into of the PCSA was as follows. Almacantar intended to procure the construction contract for the project using a two stage procedure. The first stage was to select a contractor to enter into the PCSA and on 16 November 2011 Almacantar issued an “Invitation to Provide Pre-Construction Services Submission”. That sought “a proposal to undertake pre-construction services … with a view to agreeing a design and build construction contract subject to satisfactory agreement of terms.”. The Services identified were in due course incorporated into the PCSA. They included services under the headings Programme Preparation, Construction Advice, Cost Advice, Design and Procurement Services, etc. The Invitation sought amongst other things a fixed price lump sum for the provision of pre-construction services and various indicative percentage additions for overheads and profit (for example, on sub-contract tender sums and novated consultants’ fees). The Invitation included the following statement:

“The Client will hold back 50% of the pre-construction fee which will ONLY be released at the first valuation subsequent to the signing of the main contract. The client reserves the right to abandon the project and will only be liable for costs up to the end of the month in which cancellation takes place.”

The second stage involved the performance of the Services under the PCSA. In broad terms the nature of the PCSA was that it was an agreement under which the contractor would develop the Contractor’s Proposals and identify a Contract Sum with the intention that the parties would then enter into a design and build contract on that basis. The recitals to the PCSA recorded that amongst other things (i) SRM was in receipt of a schedule of proposed amendments to the JCT Design and Build Contract 2011 edition which were still to be agreed between the parties and (ii) that overheads and profit were agreed at 3% to be applied to the net value of the sub-contract tender sums and novated consultants’ fees but that the design development and pricing contingency percentage was still to be agreed.

It is, however, common ground between the parties that neither of them was obliged to enter into such a contract or any contract.

This scheme was reflected in the terms of the PCSA entered into on 17 September 2012. The terms of the PCSA are at the heart of this dispute and I set them out in some degree of detail below. I observe at the outset, however, that although the term of the PCSA ran initially to 30 June 2013 (clause 21), it was extended by agreement on three occasions to 31 December 2013, then to 31 March 2014, and then to 30 June 2014. As I understand it, although there was no detailed evidence about this, the Fee and the instalments (to which I refer below) were adjusted accordingly.

In the PCSA, Almacantar is referred to as the Employer and SRM as the Contractor. I set out below the terms of the PCSA that seem to me to be material to the argument. Passages underlined are my emphasis.

It is perhaps not immediately obvious from the terms as set out above but the effect of the identification of the amounts in the instalments in Part D was that by the application for and payment of the 11^th instalment only 50% of the total lump sum Fee would have been paid. As recited in Recital (v) and set out in clause 12.1A, “… the final Fee instalment of £239,836.50 [50% of the Fee] shall not become payable to the Contractor until the first valuation subsequent to commencement on site under the main contract.”

The parties proceeded to perform the PCSA and, as I have said, there were a number of extensions to the period for performance set out under clause 21 and agreements as to the amount of instalments and the total lump sum Fee.

By June 2014, however, SRM was telling Almacantar that it would not enter into a design and build contract and would only be willing to contract on a construction management basis. By e-mail to SRM dated 1 July 2014, Mr Waite of Almacantar set out the content of a previous conversation including that SRM had confirmed that they were no longer able to entertain entering into a design and build contract and proposed “a construction management or management contract form of procurement” which was not acceptable to Almacantar. As a result, SRM proposed a methodology, timetable and cash flow to run down the PCSA over the next 3 months. By letter dated 23 September 2014, Almacantar wrote to SRM in the following terms:

“With reference to Clause 21 of the Pre-Construction Services Agreement (PCSA) dated 17^th September 2012 and Almacantar letter dated 5 June 2014, I confirm our telephone conversation of 11^th September 2014 and the agreement to terminate the PCSA as of 9am on Monday 15^th September 2014.”

At the same time, an affiliate of Almacantar appointed Brookfield Multiplex Construction Europe Ltd. (“Brookfield”) under a replacement pre-construction services agreement. On 4 December 2014, another Almacantar affiliate entered into a main contract with Brookfield who started on site on 26 January 2015.

Thereafter SRM made the application for payment of the second 50% of the Fee as set out above.

The parties have come at the dispute between them in different ways and with different emphases.

SRM’s primary position is summarised in its skeleton argument as follows:

This argument proceeds on the basis that clause 16 is not engaged at all and that is indeed SRM’s case because the PCSA was, it says, terminated by agreement.

As I consider below Almacantar’s primary position is that clause 16 is engaged. In the alternative, SRM therefore contend that clause 16.4.1 provides for the payment of a fair and reasonable proportion of the next instalment following termination to be paid. The next instalment following termination was the balance of 50% of the Fee and, since as a matter of fact, all the Services had been performed, that amount was payable following the first valuation subsequent to commencement on site under the main contract. Thus the same issue as to the meaning of this limitation on payment arises on both cases.

Almacantar advances its arguments in the opposite order. Almacantar says firstly that the termination of SRM’s engagement was subject to clause 16.4 which applies if the Contractor’s engagement is terminated for any reason. That clause provides, as it was put, “an exclusive regime” for further payment and it is clear that the further payment can only be a proportion of the next monthly instalment due. There is no further entitlement to the payment of the balance of the Fee at a later date. That argument turns on the nature of the payment anticipated under clause 16.4 and the payment regime under the Fifth Schedule. I return to this point below.

If that is wrong, Almacantar argues that in any event the second half of the Fee is only due on the first valuation under a main contract with SRM.

Clause 12 provides that the Employer shall pay to the Contractor “the Fee in accordance with the Fifth Schedule”. The Fifth Schedule sets out the mechanism for payment. It seems to me implicit in clause 12 that the Fifth Schedule is intended to cover the payment of the whole of the Fee including the second 50%. As I have said above, the effect of the Schedule 1 – Part D is that the first 11 (or however many it may ultimately have been) payments of instalments (in accordance with the mechanism in the Fifth Schedule) result in the payment of 50% of the Fee with the final 12^th instalment being the second 50%. Part D gives the date of application for payment of that final instalment as “First valuation subsequent to commencement on site under the main contract”. Clause 12.1A reiterates that the second 50% shall not become payable until then “for the avoidance of doubt”. The Main Contract (as defined) need not be a contract with SRM. I recognise that these aspects of the PCSA would on the face of it, therefore, seem to support SRM’s case.

The PCSA, however, provides for the termination of SRM’s engagement. In that case, clause 16 is engaged and SRM’s entitlement to payment is the subject matter of clause 16.4.1. Clause 16.4.1 makes provision for one further application for payment to cover any instalments of the Fee that have accrued due and “a fair and reasonable proportion of the next following instalment commensurate with the Services which have been properly performed up to the date of termination”. In my judgment that must supersede any other entitlement to payment. If that entitlement does not encompass the second 50% of the Fee, then it does not become payable. That point is not met by the provision in clause 12 that the Employer shall pay the Fee to the Contractor because that would result in the irreconcilable inconsistency between the two clauses which Mr Dennison QC identified.

If clause 16.4 applies then I repeat that SRM’s further right to payment was to “a fair and reasonable proportion of the next following instalment commensurate with the Services which have been properly performed up to the date of termination ….” such payment to be applied for and made in accordance with paragraph 3 of the Fifth Schedule. The wording of that clause is most obviously concerned with payment for services partially performed at the date of termination.

There is undoubtedly an attraction in Mr Brannigan QC’s argument that there are circumstances in which the “next following instalment” could be the second half of the Fee which appears as an instalment in Part D and I accept that he is right to say that the second 50% of the Fee is treated under the PCSA as “an instalment”. Further, where all the Services had been performed, the commensurate amount could be, as he says, the whole of that portion of the Fee.

The difficulty with the argument is that it simply does not fit with paragraph 3 of the Fifth Schedule which is concerned with monthly applications for payment. Taking clause 16.4.1 and that paragraph together, it seems to me clear that what is contemplated is that following termination, say mid-month, there will be one further application for payment for the Services performed in that month. It is unclear to me whether there was any such payment – it appears from the adjudicator’s decision that there was not, quite probably because the services were being wound down. What was not contemplated was that there would be a gap of many months and then a further application for the second half of the fee.

It is right to observe that, on that construction, the Fifth Schedule might not then appear to cater for the payment of the second half of the Fee where SRM remains engaged and proceeds to enter into and perform the Main Contract. That would appear to contradict the provision in clause 12 that the Fee shall be paid in accordance with the Fifth Schedule. But it seem to me that that apparent contradiction is readily dealt with. In those circumstances, it is much easier to see how there could be continuing nil value monthly applications for payment until the first valuation subsequent to commencement on site when a further application could be made. That is not what is contemplated in the event of termination and nor is it what happened.

Almacantar further argued that SRM’s argument must be wrong because it would have the effect that the application for payment of the second half of the Fee would fall due, under the Fifth Schedule, at the end of the month following termination irrespective of whether any main contract had been entered into. I do not see that this follows but it does seem to me that the provisions of paragraph 3 could only capture the 50% balance of the Fee if it happened to be due on the last Friday of the month following termination since there is no provision for continuing or later applications. The circumstances in which that would happen would be highly unusual and probably beyond the contemplation of the parties. Plainly on the dates set out above, the second half of the Fee did not, on any view, fall due for many months.

I would add that any apparent difficulty in the operation of clause 16.4 or in the relationship between clauses 12 and 16 only arises on the particular facts of this case where the PCSA was not terminated until, on SRM’s case, the Services were fully performed. In any other case, in the course of performance of the PCSA, SRM could clearly have an entitlement to accrued instalments and a proportion of an instalment commensurate with Services performed and there would, in my view, be no question of the payment of the second 50% at some later date.

That that is what the PCSA provides for is also, to my mind, supported by the absence of any provision for payment of part of 50% of the Fee. If SRM’s engagement were terminated after, say, 3 instalments had accrued due, the effect of SRM’s argument would be that they would be entitled in due course either to 50% of the total Fee (which would make no commercial sense) or to 50% of the value of the 3 instalments. The PCSA contains no reference to the payment of 50% of the value of instalments accrued and paid but only to payment of the second 50% of the Fee, that is, the lump sum.

SRM placed some reliance on the words of clause 5.3 “Without prejudice to the Employer’s obligation to pay the Contractor in accordance with Clause 12”. SRM argued that these words demonstrate that, if the Main Contract was not entered into with SRM, SRM would not be entitled to loss of profit or similar compensation for loss of business but would retain its entitlement to the second 50% of the Fee. The difficulty with that argument is that it elevates the “without prejudice” wording to an operative obligation to pay. Clause 5.3, however, appears in the context of a clause which, (i) in sub-clause 5.2 provides that the obligation to negotiate and endeavour to agree documents is subject to clauses 5.5 and cl. 16 and (ii) in sub-clause 5.5 provides that the Employer can bring negotiations to an end such that the Agreement is deemed to be terminated under clause 16. So, clause 5 as a whole contemplates that where, to put it colloquially, the project does not go ahead with SRM, clause 16 will apply. In that case, SRM will not be paid the whole of “the Fee in accordance with the Fifth Schedule” but will be paid that part of the Fee which it is entitled to under clause 16.4. To read the opening words of clause 5.3 otherwise would seem to me to drive the proverbial coach and horses through clause 16.

This question therefore becomes key to this dispute and in my judgment the answer to the question is that clause 16 does apply.

The first issue is one of construction. Under clauses 16.1 and 16.2, either party may terminate the Contractor’s engagement by giving notice. Clause 17 provides for notice personally, by post or by fax. Under clause 21 the Agreement is deemed to be terminated by the passage of time and no notice is necessary.

It is arguable that clause 16 only applies where the Contractor’s engagement is terminated by notice and not when clause 21 operates to terminate the Agreement itself. I doubt, however, that either party intended the contract to operate in that way for the simple reason that it would have left SRM without any rights to payment following termination under clause 21. Clause 16 refers to termination of the Contractor’s engagement “for any reason” and I accept Mr Dennison QC’s submission that it applies in the case of termination under clause 21.

That view is supported by the provisions of clause 5.5 which I consider would have applied in any event. Under that clause if the Employer decides “not to enter into the Main Contract with the Contractor” the Agreement is terminated automatically subject to the provisions of clause 16. In this instance, therefore, it is the Agreement that is terminated and clause 16 applies. Although in this instance (unlike clause 21) express provision is made for clause 16 to apply, that seems to me to indicate that the intention of the parties is that clause 16 should apply on termination of the Contractor’s engagement and on termination of the Agreement.

Mr Brannigan QC argued to the contrary that it could not be right that termination under clause 21 was subject to clause 16 because it would result in a position where, if the PCSA came to an end by effluxion of time but a contract was later entered into with SRM, SRM would not be entitled to the second half of the Fee. The intention of clause 21 is clearly that the Main Contract is entered into before an agreed date. If it is, the PCSA continues to exist and apply and deals with payment as I have considered above. If the PCSA came to an end but the parties nonetheless later decided to contract with one another, that would be a matter for further agreement. Mr Brannigan QC further argued that if the PCSA subsisted, it would remain open to Almacantar, even if the Main Contract were entered into with SRM, to terminate under clause 16 thus, on Almacantar’s case, disentitling SRM to the second half to the Fee. It seems to me far more likely that that (unlikely) scenario could be addressed by construing clause 16 as not providing for termination in such circumstances: there could be no question of terminating the engagement to perform pre-construction services (which would by definition have been performed), no basis for terminating as contemplated by clause 5.5 and no relevance in clause 21. In short, I do not see that arguments of this nature assist in construing or should drive the construction of clause 16 and clause 21.

I refer to the distinction between termination of the Contractor’s engagement and termination of the Agreement itself because the letter sent on 23 September 2014, although recording an agreement to terminate the PCSA also stated that it was sent “with reference to clause 21”. It seems to me, therefore, that, against a background of a number of agreements to extend the date in clause 21, the agreement the parties had now reached was that that date would be 15 September 2014. That date had passed without the entering into of a Main Contract and the PCSA was at an end. Indeed, in this case, and despite the reference to clause 21 in Almacantar’s letter, clause 5.5 would have been equally applicable.

If I am wrong about that, the position is that the parties had agreed to bring the PCSA to an end with no discussion or agreement on either party’s case as to further payment to SRM. That is essentially SRM’s case. Mr Brannigan QC argues that clause 16 can have no relevance because the parties simply agreed to terminate the PCSA.

I reject that argument for the reasons I have given in paragraph 36 above. In any case, the premise that the parties would have agreed to terminate the PCSA without any discussion as to future payment makes some degree of commercial sense in circumstances where, by agreement, SRM had wound down the PCSA and had been paid what it was entitled to. In the alternative, it makes sense if the parties were proceeding on the basis that any future payment was governed by the existing provisions of the PCSA as to termination. But it seems to me to make very little commercial sense that the parties proceeded silently on the basis that at some point in the future, if a contract was entered into with another contractor, SRM would be able to claim the second half of the Fee. Yet that is the premise of SRM’s primary case. I return to this below.

I would, therefore, for all these reasons find in Almacantar’s favour. For completeness, however, I will consider the further aspects of the argument.

Whether or not clause 16 is relevant, SRM’s claim necessarily involves the contention that the obligation to pay the second half of the Fee can be triggered by the entering into and performance of a main contract by a contractor other than SRM. As I have summarised above, SRM’s primary case is, as I understand it, that that payment becomes due without any mechanism other than the provision in clause 12.1 that the Employer shall pay the Fee but subject to the proviso in clause 12.1A. On its alternative case, the second half becomes due under clause 16.4.1 but at the date set out in the First Schedule – Part D.

It follows that if I am wrong about the entitlement to payment under clause 12 and/or the applicability of clause 16 and/or the operation of clause 16.4.1 that this issue between the parties would fall to be addressed.

As I have set out above, the PCSA contains a definition of Main Contract. That definition is one which encompasses the possibility that the Main Contract will not be a contract between Almacantar and SRM. Evidently the PCSA also on occasion uses the term “main contract”, as it does in clause 12.1A and Part D. On its face, this is not a defined term.

Almacantar’s position is that the 50% balance of the Fee would only be payable at the time of the first valuation under a Main Contract (or main contract) entered into with SRM (which it might be thought ignores the definition of the Main Contract.)

The strength of SRM’s primary argument lies in the definition of Main Contract and the absence of a definition of “main contract”. But the problem with it stems from the way in which the defined term is, in fact, deployed in the PCSA and it is this that is relied on by Almacantar.

For example, if the definition is inserted into clause 5.1, Almacantar and SRM acknowledge that they have entered into negotiations to agree the terms and conditions of the Main Contract which may not be with SRM. Although not impossible, that makes very little sense. It only makes sense if the parties are acknowledging that they have entered into negotiations to agree the terms and conditions of the Main Contract on the assumption that the said contract will be between Almacantar and SRM.

Similarly in Clause 5.1A, Almacantar and SRM shall negotiate and endeavour to agree the contents of the Contractor’s Proposals. The definition of the Contractor’s Proposals takes in the definition of the Main Contract (as one not necessarily entered into with SRM) so that under clause 5.1A the parties are to negotiate and endeavour to agree the Contractor’s Proposals for a contract that may be with another contractor. That flies in the face of the normal meaning under the contemplated JCT Contract of the Contractor’s Proposals as being the proposals of the contracting party to meet the Employer’s Requirements. Again the provision only makes sense if the parties are agreeing to negotiate and endeavour to agree the contents of the Contractor’s Proposal on the assumption that the contract will be between Almacantar and SRM. A similar point arises on clause 5.1B where the difficulty in construction is compounded by the reference to the “Design Consultants” being as defined in the Main Contract.

Clause 5.2 provides that Almacantar is not obliged to enter into the Main Contract “whether with the Contractor or any other entity”. Given the definition of Main Contract, these words are superfluous. The same may be said of the expression “Main Contract with another contractor” in clause 5.5 whereas in clause 5.7 the Main Contract is by definition one with SRM.

To my mind, what this demonstrates is that the definition of Main Contract either emphasises the fact that Almacantar is not obliged to enter into to a design and build contract (or other contract) for the project with SRM or reflects that position so as to avoid conflict or inconsistency with clause 5.2. But as used in the PCSA the term necessarily has a meaning which is dependent on the context (and is capable in some contexts of meaning a contract between Almacantar and SRM or in other contexts between Almacantar and SRM or another contractor). A particular instance is clause 21 in which “the Main Contract” can only sensibly refer to a contract between Almacantar and SRM. If that were not the case, the clause would provide for the termination by the effluxion of time if a contract were not entered into with any contractor by the stated date, but in the circumstances where the main contract was not entered into with SRM the PCSA (or SRM’s engagement under the PCSA) would already have been terminated.

In my view, the references to the “main contract” in Recital (v), clause 12.1A and the First Schedule - Part D in the context of the date when the payment of the second 50% of the Fee becomes due are then references to a contract with SRM. I say this for two reasons.

Firstly, I repeat what I have said above about the difficulty in finding any provision in the PCSA for the payment of part of the second half of the Fee. That seems to me to reflect the intention of the parties that the second 50% would only become payable when and if a contract was entered into and performed by SRM. Secondly, even if clause 16 does not apply, it provides the context in which the parties agreed to terminate SRM’s engagement and/or the PCSA. Under clause 16.4.1, SRM would only have been entitled to a proportion of one further instalment commensurate with the services performed. The absence of a provision for the payment of the second 50% of the instalments paid to date is then all the more striking.

There is also, it seems to me, an element of commercial reality to be borne in mind. This is not a contract under which, if Almacantar exercised its right to terminate, it would, with impunity, avoid paying the second 50% of the Fee. The purpose of the PCSA was to put Almacantar in a position to proceed with a well-planned design and build contract with developed Contractor’s Proposals and a robust Contract Sum. In most circumstances in which Almacantar terminated SRM’s engagement, Almacantar would to a greater or lesser extent lose those benefits and have to go back to the drawing board with another contractor. That would be the position if the parties could not reach agreement, if Almacantar was dissatisfied with SRM or if, as happened, SRM did not wish to proceed. The only circumstance in which Almacantar would have a windfall (but a fairly valueless one) and SRM would be unfairly out of pocket would be if Almacantar decided not to proceed with the project at all. If on the other hand SRM’s construction of the PCSA were right, they would receive the second 50% of the Fee (or some part of it) even if its services had been of no benefit to Almacantar in engaging with another contractor.

I find that SRM is not entitled to the balance of the 50% of the Fee awarded in the adjudication and I will make the first two declarations sought by Almacantar. The third declaration is unnecessary.

I will order the repayment of the sum of £948,070.35 plus VAT and interest awarded in the adjudication in the total sum of £1,166,711.16.

I will also award interest and invite the parties to agree the principle and amount or make further submissions.