An analysis of the recent case of Riva Properties v Foster + Partners Ltd [2017] EWHC 2574 relating to an architect’s scope of duty towards their client.
Should an architect be expected to advise on the cost budget for a development including the client’s unrealistic budget expectations? If such advice is negligently not provided, what is the client’s remedy? Mr Justice Fraser gave an in depth look at these issues in his judgement of Riva Properties v Foster + Partners.
The case concerned a claim for professional negligence against Fosters, the well known and very respected architecture firm in relation to the design for the development of a 5 star hotel near Heathrow airport.
The Facts
The dispute related to whether the principal claimant Mr Dhanoa (through companies he controlled) had provided, or indeed had, a budget for the project.
Mr Dhanoa said the budget was set at £70m. Fosters denied there was any agreed budget and embarked on a design scheme that would cost around £195m. However, in reliance on Fosters representation that the scheme could be “value engineered” down to £100m, Mr Dhanoa says that he agreed to increase the budget to £100m.
Once planning permission had been obtained Mr Dhanoa discovered that the scheme could not be value engineered down to anywhere near the figure of £100m.
At this stage, the design team’s fees were around £4m.
It was claimed that Fosters had failed to exercise reasonable skill and care and should be liable for the substantial loss of profits from the hotel complex, which consequently could not be built, together with wasted expenditure.
At the time of project conception, it was envisaged that such a hotel would benefit from the London Olympics, which had been announced shortly after the claimant had acquired the site. However, due to the financial crisis commencing in 2008, the claimant would have had issues obtaining financial backing during the time the hotel was meant to be built.
The Court considered, amongst other things:
- what was the scope of the architect’s duties
- whether the architects owed a duty to advise on the budget/costs
- whether the architect was obliged to ascertain and consider the claimant’s budget.
Fosters’ appointment included express duties to: (a) exercise the skill and care of a professional consultant, and (b) to “confirm key requirements and constraints”.
A budget ceiling was considered to be one of those constraints. The Judge stated that Fosters could not just assume that there was no budget at all. He also considered that Fosters had additional duties in advising the claimant to engage a quantity surveyor if it was necessary to consider budget issues. However, Fosters did not have a duty to “advise on costs”.
Fosters argued, that because the claimant had separate advice in relation to costs, he had not relied upon Fosters’ advice. The Judge said that this did not break the chain of causation as it ignored the evidence that Fosters told the claimant that value engineering was possible.
The Judge also said that due to Fosters’ reputation in the industry, it was not unreasonable to rely on Fosters’ advice.
Decision
It was therefore held that:
- Fosters had failed to identify the budget constraint;
- the duty to advise on budget constraints was established in the Royal Institute of British Architects (RIBA) Job Book; and
- Fosters' advice that the project could be ‘value engineered’ from £195m to £100m was negligent and, in this respect, Fosters was under an obligation to advise the claimant that the desired budget was impossible to achieve regardless of the advice in relation to “value engineering”.
However, it was also held that the main reason the claimant was unable to complete Fosters’ design was because of the financial crisis resulting in the banks’ squeeze on credit and the requirement for developers to make larger financial contributions. In the circumstances, the claimant would not have been able to complete the hypothetical £100m design. Consequently, Fosters were not liable for lost profits.
Fosters were therefore ordered to repay their fees, in the sum of £3.6m.
COMMENT: This decision demonstrates the importance of the scope of a construction professional’s duties, whether express or implied.
The Court found that architects have an active duty to ascertain and consider key constraints, such as the budget and to warn the client if they know the client is being overly optimistic about the budget.
It remains to be seen if this decision is specific to architects, or whether these principles will apply equally to other members of the design team.
