Background

In October of this year, the TCC handed down its judgement in Riva Properties Limited & Ors v Foster & Partners Limited (2017) EWHC 2574, finding Fosters (the architects) liable for £3.6 million for professional negligence. In his lengthy judgment, Mr Justice Fraser provided an interesting refresher on the scope of a professional’s duty of care and matters related to causation, as well as a timely reminder to designers that they must not operate in a vacuum, should always fulfil their contractual obligations with the client’s budget in mind and that client care amongst professionals must be considered.

Facts

Following an initial consultation in the summer of 2007 with Mr Dhanoa, the beneficial owner of Riva, Fosters were engaged to carry out RIBA stages A-L (current work stages 0-6) and design an iconic 5 star hotel near Heathrow airport, complete with bowling alley, spa and a distinctive village theme.

Mr Dhanoa contended that he communicated his budget of £70 million to Fosters from the outset. Fosters produced a design for the hotel which was later estimated to cost £195 million to build. Fosters argued that the budget had never been communicated to them. Mr Dhanoa obtained planning permission, claiming that he had relied on the architects’ subsequent advice that they could “value engineer” the project down to an increased budget of £100 million.

Fosters asserted that there was no budget for the project and they had not advised Mr Dhanoa in respect of value engineering.

Mr Dhanoa was unable to obtain funding in 2009 for the project as a result of the financial crisis. In addition, it was subsequently determined by experts that it would have been impossible in any case to value engineer the project down to a £100 million budget.

Mr Dhanoa argued that Fosters owed Riva a duty of care to design the hotel within the constraints of his budget, and accordingly claimed for professional fees and loss of profits as a result of the hotel never opening. The case centred on whether Mr Dhanoa had in fact communicated his budget to Fosters, and even if not initially disclosed, whether there was a duty imposed on Fosters to ascertain and work to the budget.

The second issue that Mr Justice Fraser had to resolve is whether Fosters had advised Mr Dhanoa that the project could be value engineered from £195 million to £100 million, and if so, whether they were negligent in giving such advice.

Decision

In a judgement which chastised Fosters for unfairly treating Mr Dhanoa to “business-character assassination” throughout the litigation process and viewing him as “beneath them as a client”, Mr Justice Fraser found largely in Riva’s favour.

Finding on the facts that Mr Dhanoa had informed Fosters of his budget from the outset, the court held that in any event, Fosters were contractually obliged to ascertain and work to Riva’s budget. RIBA stages A and B required Fosters to “identify and confirm the key requirements and constraints of the project”, with the budget being identified as a key constraint. Regardless of whether Fosters were in fact informed of the budget, Fosters still had a duty to enquire about the budget as it would be impossible to provide professional architectural services compliant with the RIBA requirement to consider project constraints without regard to the budget.

In addition, Mr Justice Fraser did not find Fosters’ assertion that they had not advised on the possibility of value engineering compelling, stating that they were “extraordinarily enthusiastic [in the proceedings] to twist the facts” and that they had negligently advised Mr Dhanoa that the project could be engineered to £100 million even though it was “blindingly obvious” that this was impossible. The court held that Fosters had negligently breached their duty to exercise reasonable skill and care, and had a positive obligation to advise Riva that the design could not be completed to this budget.

Riva were awarded £3.6 million to cover the professional fees incurred in procuring the Fosters’ design, the planning permission and associated costs. However, Riva were unable to recover for loss of profit because the effective cause for the failure to build and open the hotel was the lack of lending generally available following the 2008 financial crisis.

Implications

It will be interesting to see how this judgement is applied moving forwards as the outcome was determined largely on the unique fact scenario. However, this case serves as a useful reminder to architects and other designers that they must be pro-active in understanding the client’s budget and project constraints from the outset. For clarity, appointments should be drafted so that consideration of cost constraints and budgets form part of a designers’ services. However, even where no budget or costings is set out, it is likely that a duty of reasonable skill and care will require a designer to establish any cost constraints and consider the limitations of any budget when producing designs.

Aside from this main take-away point, the manner in which Mr Justice Fraser criticised the behaviour of Fosters during the process, coupled with the fact that their witnesses lacked credibility at trial, illustrates the importance of client care and professional behaviour throughout a project, even into any subsequent litigation.