Chelsfield Advisers LLP v Qatari Diar Real Estate Investment Company and Another
| Jurisdiction | England & Wales |
| Judge | Richard Spearman |
| Judgment Date | 15 May 2015 |
| Neutral Citation | [2015] EWHC 1322 (Ch) |
| Court | Chancery Division |
| Docket Number | Claim No: HC2014-000693 |
| Date | 15 May 2015 |
[2015] EWHC 1322 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Richard Spearman Q.C.
(sitting as a Deputy Judge of the Chancery Division)
Claim No: HC2014-000693
John McGhee QC (instructed by Mishcon de Reya LLP) for the Claimant
Alain Choo-Choy QC (instructed by Hogan Lovells International LLP) for the Defendants
Hearing dates: 13 and 23 March 2015
Richard Spearman Q.C.:
Introduction
This is an application for summary judgment in respect of an agreement relating to the proposed redevelopment of the site of the embassy of the United States of America in Grosvenor Square ("the Property"), which is due to be relocated in 2018 as part of the major development of the south side of the River Thames in the vicinity of Battersea Power Station. It raises the question of whether and in what circumstances a contract may be subject to an implied term or condition that it will only continue in existence for so long as a relationship of mutual trust and confidence subsists between the parties.
John McGhee QC appeared for the Claimant ("Chelsfield") and Alain Choo-Choy QC for the First Defendant ("QDREIC") and the Second Defendant ("QDDC"). I am grateful to both Counsel for their clear and helpful submissions (which occupied, in all, 60 pages of written argument, and, with full pre-reading, over one day of court time).
The parties
Chelsfield is one of a number of affiliated entities ("the Chelsfield group") which are engaged in the acquisition, management, financial structuring and development of major real estate assets in London and Paris. QDREIC is a company incorporated under the laws of Qatar and is one of a group of companies established by that country's sovereign wealth fund to co-ordinate the fund's real estate development priorities. QDDC was established to manage that group's projects in the United Kingdom.
Background and outline of the dispute
In 2008 the Chelsfield group and an entity which is unrelated to the parties to the present dispute, namely Qinvest LLP, were accepted by the US government as preferred joint bidders for the purchase and development of the Property. However, QDREIC subsequently bought out the interest of Qinvest LLP in that arrangement.
QDREIC and the Chelsfield group then agreed that they would not purchase and develop the Property together as a joint venture. Instead: (a) QDREIC would buy out Chelsfield's interest, and (b) once the Property had been purchased by a QDREIC group company, QDDC would provide development management services to that QDREIC group company in relation to the subsequent development, and Chelsfield or a member of the Chelsfield group would, in turn, provide such services to QDDC.
On 1 November 2009, Chelsfield, QDREIC and QDDC entered into an agreement in writing styled "Development Fees Agreement" ("DFA"). The DFA (a) refers to the events summarised above, (b) provides that Chelsfield and QDDC will enter into a "Development Management Agreement" ("DMA") for the provision of development management services in relation to the Property and the development of the same, (c) records that the "Buyout Fee" payable to Chelsfield for agreeing to withdraw from the acquisition and development of the Property, and instead enter into the DMA with QDDC, was £15,000,000, and (d) provides that in the event that Chelsfield and QDDC (acting reasonably and with all due expediency and in good faith) have not agreed the terms of the DMA within 5 months they are to be determined by an expert.
On the same day, QDDC entered into a contract with the US government for the purchase of the Property (and its leaseback pending relocation of the embassy in 2018).
In addition to the "Buyout Fee", the DFA provided (by Clause 2 and Schedule 1) that QDDC would pay Chelsfield (a) an "Arrangement Fee" of £5,000,000 for the services which Chelsfield had performed in connection with the acquisition and development of the Property, and (b) a "Costs Contribution" of up to £1,500,000 in reimbursement of the costs that it had incurred. These payments were all duly made by QDDC.
Clause 3 of the DFA provided that QDDC would appoint Chelsfield as development manager pursuant to a DMA in consideration of (a) "Development Management Fees" of £100,000 per month for the first three years of the period until planning permission was obtained and (b) "Planning Incentive Fees", which were capped at £20,000,000 and were to be calculated by reference to the amount of permitted floorspace authorised by the planning permission obtained for the development of the Property.
Clause 4 of the DFA provided that, on completion of the sale and leaseback of the Property pursuant to the contract made between the US government and QDREIC ("Completion"), QDDC would pay Chelsfield an "Advance Planning Payment" of £10,000,000. This was an advance on the Planning Incentive Fees to which Chelsfield would be entitled under the DMA, and there was provision for refunding the whole or part of that sum if the Planning Incentive Fees turned out to be less than that sum.
Clause 4.2 of the DFA provided that if Chelsfield was of materially weaker covenant strength at Completion than it was at the date of the DFA, it would provide QDDC with reasonable security for the potential repayment of the Advance Planning Payment.
Clause 13 of the DFA set out various circumstances in which QDDC was entitled to determine the DFA. These were all, in essence, insolvency events, and it was not in dispute at the hearing before me that none of these circumstances applied.
QDREIC was referred to in the DFA as "Guarantor", and, by Clause 14 of the DFA, it guaranteed the performance by QDDC of its obligations under the DFA.
The parties began negotiations over the form of the DMA in 2010. QDDC's solicitors ("Hogan Lovells") prepared a draft which was sent to Chelsfield on or about 5 August 2010. Chelsfield's then solicitors ("Herbert Smith") sent it back to Hogan Lovells with their amendments on 1 September 2010, and Hogan Lovells returned it to Herbert Smith with further amendments 8 October 2010. The parties met to discuss the matter, following which, on 10 November 2010, a schedule was prepared identifying 7 key points that remained in dispute.
There was then a substantial pause, of the order of 2.5 years. The explanation for this may be that, at that stage, Completion was not due to take place for some time. Completion in fact took place on 28 August 2013.
On 30 July 2013, in the run up to Completion, the group chief operating officer of QDREIC, Naaman Atallah, sent an email to the chairman and chief executive of Chelsfield, Robert Burrow, asking Mr Burrow to provide (a) a proposed scope of services for the DMA (b) details of Chelsfield's staff and resources and (c) proposals for security for the £10,000,000 Advance Planning Payment.
Between 29 August 2013 and 23 September 2013 there was correspondence between Mr Burrow for Chelsfield and the group chief executive officer of QDREIC, Khaled Al Sayed, regarding those three points. Mr Burrow's position was that (a) it was premature in advance of the DMA being entered into to prepare a detailed scope of services (b) Chelsfield was entitled to delegate the provision of services under the DMA to other members of the Chelsfield group and (c) security was not required for the Advance Planning Payment which, following Completion, was now due.
Mr Al Sayed took, in short, a diametrically opposed position on all three points.
On 27 September 2013 QDDC provided Chelsfield with a draft DMA (which included a proposed scope of services) which differed in a number of respects from the form of DMA discussed between the parties in 2010 and indicated that, if the terms of the DMA could not be agreed, the matter would need to be referred for expert determination as provided for under the DFA. Without prejudice negotiations followed, but they failed to achieve a resolution. Chelsfield then responded on 27 February 2014.
A schedule of terms in dispute was prepared and the parties met in order to seek to reach agreement. However, no agreement was reached. Accordingly, pursuant to the DFA, QDDC applied to the RICS for the appointment of an expert. This resulted in the appointment of Mr Tony Bingham MRICS FASI ("the Expert") on 6 May 2014.
The Expert gave directions, and the parties exchanged submissions on 26 June 2014 and counter submissions on 21 July 2014. The submissions covered (among other things) (a) the scope of the services to be provided by Chelsfield under the DMA (b) whether Chelsfield was to be entitled to delegate the provision of services to others and (c) whether QDDC was entitled to require Sir Stuart Lipton (who had a major role at Chelsfield at the time the DFA was entered into) to be a "Key Person" under the DMA.
The Expert raised the question of his suitability as an expert to determine the matter. However, on 25 July 2014 Hogan Lovells indicated that QDDC was happy that he should continue with his determination, and on 31 July 2014 they agreed with his request that he should have an extension of time to make his award.
Hogan Lovells for QDDC and Chelsfield's new solicitors ("Mishcon de Reya") sought to agree a list of issues which was submitted to the Expert in almost agreed form on 1 September 2014. At the Expert's suggestion, a meeting was due to take place between him and the parties on 2 October 2014 in advance of his determination. On 15 September 2014, Hogan Lovells suggested that a telephone conversation take place with the Expert in advance of that meeting to discuss the precise purpose of the proposed meeting. The...
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