Riva Properties Ltd & Ors v Foster + Partners Ltd

An architect retained to provide a full design service must identify and take account of the client’s key requirements and constraints, including the project budget. The architect need not provide specialist quantity-surveying advice, but cannot ignore the budget when preparing the design. Where the architect knows that the client intends to reduce an unaffordable design to a stated budget, and that reduction is impossible by value engineering, the architect must warn the client. A client’s experience does not remove those contractual obligations. Loss of profits was nevertheless unrecoverable where the effective causes of the failure to build were the financial crisis, restricted lending and inadequate available equity. The contracting claimant recovered the reasonable cost of obtaining a replacement design and associated services.

Four companies controlled by John Dhanoa claimed damages from Foster + Partners Ltd for professional negligence and breach of an architectural appointment concerning a proposed 500-bedroom five-star hotel near Heathrow.

The defendant produced a scheme costed at about £195 million, although the budget communicated to it was initially £70 million and later a range up to £100 million. The claimants alleged that the defendant failed to identify and design to the budget and advised, or failed to warn, that the scheme could be value engineered to £100 million. The issues included contractual scope, tortious duties to non-contracting companies, breach, causation, contributory negligence, recoverable expenditure and lost profits.

1. Scope of retainer. The appointment required a full service through Work Stages A to L. The defendant was therefore obliged to perform Stages A and B, including identifying and confirming key requirements and constraints. A project budget was such a constraint. The defendant was obliged to establish whether a budget existed and to take it into account when designing the project.
2. Value engineering. The defendant knew that the client intended to reduce the cost of the design to approximately £100 million. It advised that value engineering could achieve that result, although the architectural experts agreed that this was impossible. The advice was negligent. Alternatively, the defendant was under a duty positively to warn that the reduction could not be achieved.
3. Non-contracting claimants. Applying the threefold approach in Caparo Industries plc v Dickman [1990] 2 AC 605, no duty of care in tort was owed to the second or third claimants. There was insufficient proximity, and the contractual mechanisms for third-party warranties and assignment made it unjust and unreasonable to impose a parallel duty.
4. Causation and loss. The global financial crisis, restricted lending and the claimants’ inability to satisfy the post-crisis equity requirements were the effective causes of the hotel not being built. The loss-of-profits claim therefore failed. The defendant’s breaches did cause expenditure incurred in obtaining a replacement design and associated professional services. Damages were assessed on the expectation basis, using the reasonable cost of repeating the necessary work.
5. Contributory negligence and corporate identity. None of the pleaded allegations of contributory negligence was established. Although expenditure had sometimes been paid by the second or third claimant, the first claimant could recover the relevant sums as the contracting party because the contractual third-party mechanisms had not been operated and the sums measured expenditure which the first claimant would itself incur on the successor scheme.
6. Disposition. Judgment was entered for the first claimant in the sum of £3,604,694.36. The loss-of-profits claim and the alternative restitution claim failed or did not arise. Consequential matters, including interest and costs, were reserved.