Don’t Budget on Responsibility: Architects must consider costs

31 / 01 / 2018

Riva Properties Ltd & Ors v Foster + Partners Ltd [2017] EWHC 2574

Background

Mr Dhanoa of Riva Properties Ltd, engaged Fosters, the internationally renowned architects, to design a five star hotel at a site near London Heathrow airport. The original budget for the development was £70 million, although Mr Dhanoa later increased this to £100 million when his quantity surveyor priced Fosters’ design at £195 million. The reason the budget was only raised to £100 million is because Fosters assured Mr Dhanoa that the Fosters design could be value engineered down to reach that figure. Fosters also advised Mr Dhanoa to put the design through planning before commencing value engineering. Soon after planning permission had been obtained, however, it became apparent that the design could not possibly be value engineered down to £100 million, and Mr Dhanoa failed to secure funding for the project. Mr Dhanoa thereby claimed against Fosters for wasted expenditure and loss of profit on the development.

Decision

The key question to be decided by the Court in this case was whether (and to what extent) Fosters should have had regard to the budget when designing the hotel and advising Mr Dhanoa. On the facts, the judge decided that Fosters did have such an obligation, not least because their appointment required them to perform their services “…using all the skill, care and diligence to be expected of suitably qualified and experienced architects… “. In the Court’s view, this meant that Fosters could be expected to adhere to the requirements of the Royal Institute of British Architects (RIBA) Job Book, including a requirement to identify and confirm “key constraints” of a given project. Therefore, in failing to consider the budget in their design (which, it was held, was clearly a “key constraint”), Fosters were in breach of contract and could be held liable for Mr Dhanoa’s losses arising out of that breach.

The judge was also asked to consider whether Fosters had been negligent in advising that the design could be value engineered down to reach the desired figure of £100 million, deciding that the architects had been so negligent. Even if Fosters had not advised Mr Dhanoa that this feat was possible, it was held, they would still have been negligent for failing to inform Mr Dhanoa that it could not be done, particularly given there was clear evidence showing “knowledge on the part of [Fosters] that should have led [them] to warn Mr Dhanoa that it was impossible to cut costs so dramatically without losing value“. Failing to do so constituted a second breach of contract, for which Fosters could similarly be required to bear the cost of Mr Dhanoa’s losses.

Comment

This case confirms that architects have an obligation to consider the budget of a development when producing their designs. Moreover, insofar as they are aware that the client holds mistaken beliefs regarding the costs of a design, architects may be required to correct these misconceptions to avoid breach of contract.