Mr Dhanoa, a businessman, hired, through Riva Properties Limited, one of his companies, an internationally renowned firm of architects to design a scheme for a 5 star 500 bed hotel at Heathrow. The architects were told that his budget was £70 million, subsequently increased to £100 million. The scheme design produced was, however, costed at £195 million but the architects advised Mr Dhanoa that the cost could be value engineered down to £100 million. That was impossible but the architects did not tell him. The project did not proceed and four of Mr Dhanoa’s companies sued the architects.
Mr Justice Fraser ruled that they were in breach of contract, in failing to carry out Stages A & B of the appointment which referred, respectively, to: “Identification of Client’s requirements and of possible constraints on development…” and “….Preparation of Strategic Brief by [or] on behalf of the Client confirming key requirements and constraints.” In his view an architect exercising reasonable skill and care must have regard to the RIBA Job Book, which contains many references to cost being a key constraint that must be identified and considered at Stages A and B. The architects were also in breach in negligently advising that their scheme could be value engineered down to £100 million.
As a matter of causation, it was not, however, those breaches but Mr Dhanoa’s lack of substantial cash reserves, together with the financial crisis, that caused the hotel scheme not to be built. Alternatively, the inability to obtain funding, caused by the financial crisis, was not a type of harm from which the architects had a duty to keep the claimants harmless. Which meant that Riva’s claim for loss of profits from the hotel failed but its claim for expenditure on professional fees was different. Riva Properties was entitled to damages for breach of contract on the expectation basis, to put it in the position it would have been in, had the architects complied with their contract obligations. As the claimants had to start again from scratch, the sums paid to the architects and other professionals in connection with the £195 million scheme were used as the measure of the expectation loss.
Some of the costs had been paid by other companies of Mr Dhanoa. Did that matter? The court ruled that the architects owed no duty of care to the companies. There was no proximity and it was not fair just and reasonable to impose such a duty; provisions for warranties to be given to another legal entity and for assignment could have, but had not, been operated. The architects argued that Riva Properties could not recover these sums. It had not paid them and so it had suffered no loss but the court said that the fact that they had been paid by other companies did not prevent recovery by Riva Properties, the party that had suffered the substantial loss. The judge was, in fact, not sure that the no loss issue arose at all, as the sums paid were being used as the measure of loss that would be incurred by Riva Properties in engaging services for the successor scheme.