Riva Properties Ltd & Ors v Foster + Partners Ltd [1]

[2017] EWHC 2574 (TCC)

This case has generated a lot of publicity. In short, the Claimants (through “Mr Dhanoa”) alleged that Fosters were in breach of the duty owed to exercise reasonable care and skill in their professional performance undertaken between 2007 and 2009 following their engagement as architects to design a hotel at a site at London Heathrow. To resolve this issue, Mr Justice Fraser had to consider the scope of Foster’s duty towards Mr Dhanoa and in particular the extent to which they had to ascertain the budget and/or advise their client generally about the budget and whether it was realistic or not.

Mr Dhanoa said that he told Fosters that his budget for this project was £70 million. Fosters embarked upon the design process, and produced a scheme that was costed in February 2008 at £195 million. Mr Dhanoa said that he then increased the budget to £100 million, in reliance upon Fosters telling him that the project could be “value engineered” down to that figure. However, Mr Dhanoa could not obtain funding for the scheme, which he eventually discovered could not possibly be value engineered downwards to as low a figure as £100 million. He could not therefore build the scheme which Fosters had designed for him, and which had cost him approximately £4 million in professional fees. Fosters denied that there was any budget and said that at the least Mr Dhanoa had no budget, or at least none that he had communicated to them. Further Fosters stated that they were not obliged to find out whether he had a budget or not and they were not engaged to provide costs advice;

Mr Justice Fraser found that Fosters, as part of their contract, were clearly obliged to provide the “Full service A-L” which meant all of the RIBA Work Stages. This meant that Fosters were therefore responsible for the identification of key requirements and constraints. A client’s budget for a project was plainly a constraint (and also probably a requirement too). If Fosters were obliged to prepare the Strategic Brief (which the Judge said that they were), this would and should have included identification of the budget as a key requirement and constraint. Both the expert architects accepted that in some, if not most projects, the budget can be a constraint. It was therefore necessary for any architect in Fosters’ position to establish whether there was a budget or not at an early stage, as that was the only way that all of the key requirements and constraints could have been identified.

Further clause 8.1 of the contract, noted that: “...the Consultant has used and shall use all the skill, care and diligence to be expected of suitably qualified and experienced architects undertaking services the like of those undertaken by the Consultant in relation to projects of the scale and character of the Development”. The “scale and character of the Development” can only be established if the existence, or absence, of a budget is also established.

Mr Justice Fraser went on to discuss what “the budget” actually was.  Obviously, the term can have many different meanings depending upon its context. The Judge said that in the context of this project (if not in all, or at least most, construction projects) “it connotes an approximate outturn cost for the project; it can also mean the approximate level of the funds available to the developer or employer”. Here, the meaning given to that phrase by the parties during 2007 and 2008 was the approximate outturn cost for the project. It could only be an approximation, certainly in the early stages of any project. Fosters said that they were architects, not costs specialists, and so could not give costs advice. That was true, but that did not mean that “budget” in the sense that it was used by these parties throughout this project was not relevant. Budget meant the amount of funds available or the amount that one wished to spend. Fosters sought to draw a distinction between a budget used by a professional firm to calculate fees, and a budget for the approximate outturn cost. What they were trying to do was to justify their use of the figure of £75 million to calculate their fees, but at the same time distinguish this from their having to design a building to within even approximate touching distance of that figure as a budget. This approach was firmly rejected.

The Judge made it clear that the brief from Mr Dhanoa was “remarkably simple”. He wanted a 500 bedroom 5 star hotel that could be built within the budget on the site he had acquired at Heathrow. The Judge agreed that the budget was not specified in the Fosters’ Appointment. The request from Mr Dhanoa to clarify his brief and requirements in the Appointment was simply ignored. However, that did not matter because Stage A required Fosters to identify their client’s requirements and possible constraints in any event. This included the budget. Even if the budget had not been communicated to Fosters by Mr Dhanoa, they had an obligation to enquire of their client whether there was a budget, and if so, what it was. That said the Judge was satisfied that the budget was communicated to Fosters. What Fosters could not do was excuse themselves from performing the services required in Stages A and B by saying the budget equated to costs, and costs were nothing to do with them as architect.

In addition to this, Mr Justice Fraser held that Fosters had negligently advised that the project could be “value engineered” down from £195m to £100m. Further, as Mr Dhanoa expected the cost-reduction to happen by value engineering, Fosters were under an obligation to advise him that it could not be done. However as the Judge himself commented, the fact that Fosters had been held to be in breach of their obligations to Mr Dhanoa was but one step along the road to the recovery of damages.

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