“We must consult our means rather than our wishes” (George Washington)

23 November 2017

S_mcauley

The recent decision in Riva Properties Limited –v- Foster & Partners Limited [2017 EWHC 2574] serves as a warning to all professionals and in particular construction professionals of the costly consequences of failing to appreciate the duties owed to their clients.

The Defendants, Foster & Partners, are a world renowned firm of architects who have been involved in providing architecture and design services relating to some of the world’s most iconic buildings and landmarks, from the Bloomberg Building and re-development of Trafalgar Square to the Yale School of Management and Apple Park’s Steve Jobs Theatre.

Foster & Partners were asked to draw up proposals for a new five star hotel beside Heathrow Airport, a project which on the face of it would compliment Foster & Partners roll call of iconic designs.

Foster & Partner’s client was a Mr Dhanoa, a simple property developer. Mr Dhanoa had high aspirations for this project despite a modest budget of some £70 million. Whilst the design proposal put forward by Foster & Partners was everything that could have been expected from a project being undertaken by them, the estimated cost of the proposal was £195 million, almost three times Mr Dhanoa’s budget.However, it is alleged that Foster & Partners claimed that the project could be ‘value engineered’ down to a cost of £100 million.

On that basis, Mr Dhanoa agreed to increase his £70 million budget to £100 million.It later materialised however that project could not in reality be value engineered down to £100 million. Furthermore by the time Mr Dhanoa sought funding to undertake the project, the UK as a whole had suffered an economic downturn and obtaining finance had become extremely difficult. Mr Dhanoa consequently was unable to raise the funds needed to build the hotel as designed.

Mr Dhanoa, through his group of companies Riva Properties Limited and others, issued proceedings against Foster & Partners for loss of profits, recovery of the costs incurred on the project to date and the costs of procuring a new design which would be capable of construction within Mr Dhanoa’s budget.

The Court’s Judgment makes for an interesting read, both in terms of the Court’s criticism of Foster & Partners’ demeaning attitude towards Mr Dhanoa (and in particular their view that Foster & Partners considered Mr Dhanoa beneath them as a client) but also in terms of the views expressed on the key duties of construction professionals.

The Court held that Foster & Partners owed Mr Dhanoa a duty to confirm his key requirements and constraints for the project.In particular, they should have established the budget at an early stage and did not do so contrary to the Royal Institute of British Architects (RBIA) Job Book. The Court also found that the architects had a duty to advise Mr Dhanoa that the project could not be value engineered down to the £100 million budget and were negligent in failing to do so.

Although the Court was highly critical of Foster & Partners’ handling of the transaction, and the claim is likely to have damaged their reputation, the damages awarded against Foster & Partners were considerably less than the sums claimed by Mr Dhanoa. In particular, although the Court awarded the return of the fees paid to Foster & Partners (some £3.6 million) they did not make any award for loss of profits. The Court considered that the financial crisis and lenders requiring a greater contribution from the borrowers before funding a project were the more fundamental reasons for the failure of the project rather than the expensive design.

Summary

The recent decision in Riva Properties Limited and Others –v- Foster & Partners Limited [2017 EWHC 2574] serves as a cautionary tale to all professionals setting out that as an aspect the professional’s duty of skill and care they are obliged to confirm their client’s key requirements and constraints of a project at the outset. One such constraint is the client’s budget. The Court also held that professionals are under a duty to inform a client if they know that that client is under a misconception about how a budget can be achieved.

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