Riva Properties Ltd & Ors v Foster + Partners Ltd [2017] EWHC 2574 (TCC)

Foster + Partners Limited (Fosters) are facing a 3.6m bill following a High Court ruling in respect of a hotel scheme the practice worked on almost a decade ago, which did not proceed.

In 2007, internationally acclaimed architects Fosters were commissioned to design a hotel on a site near Heathrow Airport. Fosters' scheme far exceeded their client's budget. As a result of the financial crisis, the client was unable to obtain sufficient funding for the scheme to proceed. The recovery of losses, including loss of profits of over 16m, was sought. The case raises some important issues in respect of an architect's duties to their client in respect of the budget and what losses may be recovered as a result of a finding of negligence in respect of those duties.

Facts

In 2007, Mr Dhanoa, by one of his Riva Group companies, engaged Fosters to design a hotel at a site he had purchased close to London's Heathrow Airport. With the then recent announcement that the 2012 Olympic Games would be taking place in London, the time for such a venture was opportune.

Fosters produced a scheme for a glass-shelled 13-storey building which included 600 bedrooms, a 1200 capacity ballroom and leisure facilities. Mr Dhanoa's budget for the project was 70m, which he later increased to 100m. Fosters' scheme was costed in February 2008 by EC Harris, engaged by Mr Dhanoa, at 195m; which was more than Riva Group were able to obtain funding for. Therefore, the scheme which Fosters had designed, which had cost Mr Dhanoa nearly 4m in professional fees alone, could not be built.

Claim

Mr Dhanoa claimed that the budget of 70m had been communicated to Fosters and that they were in breach of their duty to exercise reasonable skill and care in their professional performance as architects. Mr Dhanoa claimed that he increased the budget to 100m after Fosters' scheme was costed at 195m, in reliance upon Fosters stating that the project could be "value engineered" down to that figure from 195m.

Judgment

In his judgment of 18 October 2017, Mr Justice Fraser considered at length the scope of an architect's duty of care owed towards his client in relation to costs, in particular, whether and in what respects Fosters were obliged to advise Mr Dhanoa on costs and whether Fosters had a duty to ascertain and consider Mr Dhanoa's budget during the design stages.

Duties

Fosters were obliged to confirm "key requirements and constraints", as set out in the schedule of services in the appointment agreed between the parties. With a client's budget plainly being a constraint, if not also a requirement, Mr Justice Fraser found that Fosters had a duty to, at an early stage in the project, establish whether Mr Dhanoa had a budget, even if such budget was not communicated to them by Mr Dhanoa. In respect of which, Mr Justice Fraser stated "it simply could not be assumed by Fosters that there was no budget at all."

Mr Justice Fraser went on to find that, if Fosters determined that the design desired by Mr Dhanoa was incompatible with his budget, they had an obligation to communicate this to him. As Fosters knew that Mr Dhanoa expected and intended the scheme to be capable of being value engineered down to 100m, this gave rise to an obligation to advise Mr Dhanoa that the scheme was not capable of being value engineered down to such a figure.

In terms of the scope of Fosters' duties in relation to costs, Mr Justice Fraser found that, although their duty did not extend to providing costs advice to Mr Dhanoa, this did not equate to Fosters having no duty towards Mr Dhanoa in relation to his budget: "what Fosters cannot do is excuse itself from performing the services required...by saying the budget equates to costs, and costs are nothing to do with them as architect."

Breach

Breaches were categorised into two distinct categories, referred to as "breach 1" and "breach 2".

Breach 1 was a failure by Fosters to identify and confirm one of, if not the key constraint in the project the 70m budget, later increased to 100m. Reference was made to an architect having regard to the RIBA Job Book, which contains many references to costs being a key constraint. Mr Justice Fraser found that the budget, whether identified as a key constraint or not, should always be identified by an architect exercising reasonable skill and care.

Breach 2 referred to negligent advice given that the scheme could be value engineered down to 100m, as Fosters were aware that Mr Dhanoa expected and intended this figure to be achieved by value engineering.

Causation and loss (including loss of profits)

Mr Justice Fraser found that there were three causes for Mr Dhanoa being unable build the scheme designed by Fosters, being:

1. The financial crisis at the time, leading to what had previously been widely available sums becoming far less widely available;

2. Fosters' design was too expensive; and

3. Lenders required greater contribution from borrowers during the financial crisis

Mr Dhanoa had received independent advice as to costs, he had not relied on advice from Fosters in relation to costs. This fact alone was not enough to break the chain of causation. Fosters had advised Mr Dhanoa that the scheme could be value engineered down to 100m and it was not unreasonable for Mr Dhanoa to rely on this advice from Fosters, as leading architects. However, due to the financial crisis, which resulted in restrictions on borrowing, Mr Dhanoa would not have been able to build the hypothetical 100m design he envisaged with the funding that was available to him at the time in any event. This was the effective cause of Mr Dhanoa's loss of profits, and his claim for loss of profits against Fosters therefore failed.

Award

Fosters were ordered to pay Mr Dhanoa compensatory damages in the amount that had been paid to them by Mr Dhanoa under their appointment, amounting to 3.6m.

Commentary

The findings in this case apply specifically to architects and are a reminder of an architect's duties in respect of their client's budget. However, duties to consider client's budgets may also apply to other construction professionals in similar circumstances. The case highlights the fundamental importance of managing clients' expectations in respect of what is and isn't achievable within a client's budget at the outset and to keep them informed of the same.

The judgment also provides an indication of the applicability of the 2017 Supreme Court judgment in Hughes-Holland v BPE Solicitors [2017] 2 WLR 1029, which the judge considered in detail, and provides guidance on the application of the so called SAAMCO cap (see our article on that case here), which was held not to be applicable. However, if the principles were to be applied to the case, the key question would be whether the inability to obtain funding, caused by the financial crisis, was a type of harm from which Fosters had a duty to keep Mr Dhanoa harmless. Mr Justice Fraser found that it was not in this instance.

Whilst the damages were, in this case, limited to the architect's fee, the existence of an enforceable limit on liability (10m) no doubt protected Fosters from what could have been a far worse award if the claimant had succeeded in their claim for loss of profits.