Development company Sir Robert McAlpine Ltd has been order to pay Almacantar, owners of the Centre Point tower in central London, just over £1m in a dispute over fees relating to the iconic building.
The dispute is a complicated contractual issue that arises from a cancelled agreement between McAlpine and Almacantar. The pair entered into a “pre-construction services agreement” to work on the Centre Point project in September 2012. That agreement was terminated two years later.
McAlpine claimed it was entitled to 50% of the full fee (£948,070.35 plus VAT). Almacantar disagreed. The pair fought a legal battle in a private adjudication and in June last year the adjudicator found in favour of McApline, ordering Almacantar to pay the money.
However, in a public ruling, handed down at London’s Technology and Construction Court this week, a High Court judge ruled that the adjudicator got it wrong, and ordered McAlpine to pay back the money.
According to the ruling, written by Mrs Justice Jefford, the pair entered into a two-stage development agreement in which McAlpine was paid its fee in instalments.
“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,” Jefford J said.
The agreement stated that Almacantar “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”.
Almacantar and McApline proceeded to work on the project. However, the judge said in her ruling that by June 2014 McAlpine “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 [McAlpine] dated 1 July 2014, Mr Waite of Almacantar set out the content of a previous conversation including that [McAlpine] 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, McAlpine proposed a methodology, timetable and cash flow to run down the PCSA over the next three months.”
Almacantar formally confirmed the content of the phone call and e-mail by letter to terminate the agreement, and appointed Brookfield Multiplex Construction to take over. McAlpine sued for the final 50%, arguing it was entitled to it under the agreement.
According to the judgment, McAlpine had three points. First, it claimed that the agreement stipulated that McAlpine would be entitled to the second 50% of the fee after the “first valuation” but it did not stipulate that McAlpine had to be the contractor.
Second, its fee was a lump sum payable by instalments. The second 50% was referred to as an “instalment” so that is what it was due.
Finally, the parties could have agreed that the second 50% was only payable if the main contract was entered into with, but they didn’t.
In her ruling the judge acknowledged the force of the argument put forward by McAlpine’s legal team. She said there is “undoubtedly an attraction” in the argument that “next following instalment” could be the second half of the fee.
However, on further examination of the contract “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”.
“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,” she said.
She said that the purpose of the agreement was to put Almacantar in a position to proceed with a well-planned and costed design and build contract.
“In most circumstances in which Almacantar terminated [McAlpine’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,” she wrote.
“The only circumstance in which Almacantar would have a windfall (but a fairly valueless one) and [McAlpine] would be unfairly out of pocket would be if Almacantar decided not to proceed with the project at all”.
She ruled that McAlpine was not entitled to the 50% balance plus VAT and interest. and ordered it should be repaid. In total she said McApline must pay £1,166,711.16 plus any further interest that might have accrued.
Almacantar (Centre Point) Limited -and- Sir Robert McAlpine Limited, Technology and Construction Court (Jefford J) 21 February 2018.
Mr Stephen Dennison QC and Mr Peter Land (instructed by Freshfields Bruckhaus Deringer LLP) for the claimant
Mr Sean Brannigan QC and Mr James Leabeater (instructed by MacFarlanes LLP) for the defendant
Hearing date: 9th October 2017
