What is the scope of an architect’s duty towards their client? Must an architect ascertain the budget, advise the client of their unrealistic budget expectations or advise the client generally? Assuming such advice is negligently not provided, what is the scope of the claimant’s remedy? Mr Justice Fraser in the long and complex judgment in Riva Properties v Foster [2017] EWHC 2574 has discussed these issues.

The case concerned a claim in professional negligence against a well-known company of architects. The effective claimant, Mr Dhanoa, owned and controlled four companies who were formally bringing the claim. Fosters had been engaged by Mr Dhanoa (through one of his companies) to design a 5 star hotel near Heathrow airport. The budget, according to Mr Dhanoa, was £70m, though Fosters denied that there was any budget. Fosters came up with a design that would cost £195m, and Mr Dhanoa increased the budget to £100m, in reliance of Fosters telling him that the costs of the project could be pushed down to that figure through ‘value engineering’.

This turned out to be impossible, and Mr Dhanoa therefore could not build the Fosters design which had already cost him £4m to produce. The claim was for substantial lost profits of the hotel complex, which consequently was not built when it should have been, and wasted expenditure. The time was opportune for the building of such a hotel, as the London Olympics were announced shortly after Mr Dhanoa acquired the land, but the financial crisis had impeded the availability of credit during the time when the hotel was meant to be built.

There were several complex issues in the case, some to do factual questions (e.g. how adverse inferences can be drawn). The more generally important issues for professional negligence in the construction context are whether the architects owed a duty of claim to the claimant companies, and what the scope of those duties was. In particular, important issues revolved around whether and in what respects Fosters were obliged to advise Riva on costs, and whether Fosters were obliged to ascertain and consider Riva’s budget. Some of the important causation questions involved the claimant’s hypothetical replacement hotel, and any profit it could have made.

It was clear that Fosters’ duties included a contractual duty of care and skill, and had a duty to ‘confirm key requirements and constraints’. A budget is clearly one such constraint. It therefore ‘simply could not be assumed by Fosters that there was no budget at all’ (para 77). Mr Justice Fraser stated at para 108 that Forsters’ duties extended to advising Mr Dhanoa to hire a quantity surveyor if it were truly necessary for the key constraint of the budget to be complied with, but not to ‘advise on costs’ (para 126).

Predictably, Mr Justice Fraser found a breach of duty in that Fosters had failed to identify a key constraint – the budget (para 153). This duty was ascertainable from the Royal Institute of British Architects (RIBA) Job Book, which the architects’ duty of reasonable care and skill required them to consider (para 154).

A second breach in Fosters’ advice that the project could be ‘value engineered’ down from £195m to £100m was found in two different ways. Firstly, the Fraser J found that Mr Stewart, the architect, had in fact told Mr Dhanoa that the design could be ‘value engineered’ down to £100m. This, the architectural experts agreed, was negligent (para 158).

Mr Justice Fraser also found that Fosters knew Mr Dhanoa expected the cost-reduction to happen by value engineering. That being the case, Fraser J found that Fosters were under an obligation to advise him that it could not be done regardless of whether they had advised him of the value engineering in the first place. One expert, that Fraser J chose to follow, gave evidence that failing to do so was negligent (paras 159-161).

On the questions of causation, Foster J found that there were three reasons why Mr Dhanoa’s companies could not complete the Fosters design: 1) the financial crisis leading to large sums becoming far less widely available; 2) the Fosters design was very expensive, and 3) lenders required a greater contribution from the borrowers after the financial crisis (Para 187).

Fosters argued, inter alia, that because Mr Dhanoa had separate advise as to costs, he had not relied upon Fosters. Fraser J held that this could not be said to break the chain of causation as it ignores the evidence that Fosters told Mr Dhanoa that value engineering was possible (paras 199-200). Foster J also held that it was not unreasonable to rely on Fosters’ statements, as they are a world-leading firm of architects (para 201), but because of the restrictions on borrowing resulting from the financial crisis Mr Dhanoa would have been unable to build even the hypothetical £100m design with his then-available funds (para 206). Consequently, Fosters were not liable for lost profits.

The same result could have been arrived at by an application of Hughes-Holland v BPE Solicitors [2017] 2 WLR 1029. Prima facie, Fraser J held that the SAAMCO case and Hughes-Holland would not apply to this case, as Fosters were not engaged to give advice on the business viability of the hotel scheme. However, if the principles were to be applied to the case, the operative 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 the claimants harmless. The answer to this hypothetical question was in the negative.

The claimant companies therefore got compensatory damages to the amount that was paid to Fosters under the contract. This is because the claimant contracted with Fosters to have a project designed that would be a 500 bed, five-star hotel that could be built on site for £100m. The best estimate for the value of that performance was the money paid to Fosters as their fees (para 250). This amounted to £3,6m in round numbers.

The case serves to highlight important issues of the scope of construction professionals’ duty and the applicability of recent Supreme Court guidance on SAAMCO. As to the first issue, the case found that not only do architects have a duty to consider and find out key constraints of the project such as its budget, they must also inform the client if they know the client is under a misconception about how the budget could be achieved. Whether this is specific to architects, or even this particular case, remains to be seen. Generally, the architect were not under a duty to advise the client companies.

The fact that Hughes-Holland was found to be inapplicable to the case is of some significance, as the Supreme Court’s refinements of SAAMCO are quite recent and therefore subject to comparatively little guidance. In essence, after a long discussion on the principles, Fraser J held that Hughes-Holland/SAAMCO does not cover cases where the scope of the defendant’s duty was to provide material which the client will take into account in making their own decision on a broader assessment of the risks (para 210-211). In other words, the advice provided (or not provided) to the client must be absolutely essential for the client’s decision to trigger Hughes-Holland/SAAMCO.

These two aspects of the case could prove significant in very different contexts. Whether other High Court decisions choose to follow both or either line of reasoning is an issue that construction lawyers will do well to keep an eye on.