High Court rules architects must design to a budget or risk paying their clients the money to start again
Thursday, 19th October 2017
Judgment was given by Fraser J on 18 October 2017 in the case of Riva Properties Limited, Riva Bowl Limited, Riva Bowl LLP and Wellstone Management (collectively referred to as "Riva") against Foster + Partners Limited ("Fosters"), the World famous architects firm. In a lengthy judgment Fraser J found in favour of Riva on each of the alleged breaches, detailed below.
The case involved the design of a 5* hotel by Fosters for Riva at a site near Heathrow. Fosters were contacted in July 2007 and formally instructed to carry out RIBA Stages A - L (equivalent to the current RIBA work stages 0 - 6) in September 2007. From October 2007 onwards Fosters commenced work on the hotel design, the first drafts being completed in or around Christmas 2007 which involved a 600 bed, 5* hotel with conferencing and leisure facilities, a bowling alley and parking set out in a village theme.
The proposed hotel had 7 floors above ground and 7 floors below ground and a large glass biosphere around the outside containing the "village". It was Riva's position that it had notified Fosters of an intended overall budget of £70 million later increased to £100 million. When the hotel design was costed in January 2008, the estimated cost was more than double the original budget, coming in at £195 million. Notwithstanding this high cost, the hotel design was submitted to and granted planning permission. However, the hotel was never built as it was not possible to obtain funding for a hotel scheme with such a high build cost.
Stephen Homer and Lianne Edwards of Ashfords LLP, acted for the Claimants, working closely with John Dhanoa, Director and Shareholder at each of the Claimant companies.
Commenting following the handing down of the Judgment, Partner Stephen Homer said: "This case serves as a warning to designers that they cannot design in a vacuum. Cost and budget is a key constraint and should always be identified and considered when designing any project, even when the provision of cost advice is expressly excluded from the designer's obligations.
Riva alleged 3 key breaches against Fosters:
- Fosters failed to carry out RIBA Stages A and B (now work stages 0 - 1) including failing to establish the budget and as a result Riva was left with a hotel design that would cost more than twice its original intended budget to build;
- Fosters advised Riva, after receipt of the first costings, that the hotel design could be value engineered to within a budget of £100million, the parties' respective expert witnesses having agreed that it was impossible to value engineer the design to such an extent.
- In the alternative to (2), Fosters failed to warn Riva, when informed that Riva intended to value engineer the design to within a budget of £100million, that this was not possible.
Riva claimed the fees required to have a new hotel designed and planning permission obtained, or in the alternative, reimbursement of the fees wasted on the Fosters design. Riva also claimed lost profits due to the inevitable delay that will occur until the hotel is built and trading.
Over the course of an 11 day trial, Fosters raised, inter alia, the following in defence:
- they were never informed of the budget and denied there was any budget;
- denied they had a duty to establish budget or design to a budget as they were not required to advise on cost under their appointment;
- any cost advice could not be expected from Fosters and Fosters informed Riva that they needed to appoint a quantity surveyor;
- Fosters denied that they had failed to carry out RIBA Stages A and B and denied that they were required to prepare the Strategic Brief under RIBA Stage B;
- Fosters alleged that despite the cost advice received from the quantity surveyor, Riva decided to proceed to planning;
- Fosters denied any advice was given to Riva that the project could be value engineered;
- Fosters alleged Riva was contributorily negligent for, inter alia, delaying in the appointment of a cost consultant and failing to proceed with the project diligently or at all following the cessation of Fosters appointment; and
- Fosters denied causation.
In a lengthy judgment Fraser J found in favour of Riva on each of the alleged breaches on the following basis:
- Stage A required Fosters to "identify requirements and possible constraints". Stage B required Fosters to "confirm key requirements and constraints". Fraser J held that "a client's budget for a project is plainly a constraint (it could also be argued that it is a requirement too)". In the circumstances, Fraser J considered that an Architect must "establish whether there was a budget or not at an early stage, as that is the only way that all of the key requirements and constraints could have been identified". Having found that Fosters were aware of the budget, or in any event, should have identified the budget, Fraser J found Fosters in breach of contract for failing to complete RIBA Stages A and B with the reasonable skill and care to be expected. Fosters were required to identify any constraints and ultimately design the project to match the constraint of budget. However, Fosters appeared to have jumped straight to Stage C and designed without any thought for costs.
Fosters' liability was not diminished by any delay in Riva not appointing a quantity surveyor until December 2007 as Fosters had not expressed any urgency when advising Riva to appoint a quantity surveyor and indeed, Fosters themselves delayed in contacting potential quantity surveyors until November 2007. Further, and importantly, designing a project to match the constraint of budget is not synonymous with providing advice on costs.
- Fraser J found Fosters undoubtedly knew that Riva intended to value engineer the Foster design to a figure of £100million and in such circumstances, Fraser J considered Fosters to be under a duty to warn that this was not possible. Fraser J also accepted Riva's evidence that Fosters advised Riva positively that the scheme could be value engineered down to £100 million. Given the fact it was so "blindingly obvious" that the Foster design could not be value engineered to £100 million, Fraser J found Fosters in breach of contract for positively advising it could be value engineered or in the alternative, failing to warn to the contrary.
Although Riva were not successful in claiming lost profits for reasons of causation, as a result of the breaches established, and the losses suffered in instructing new architects and consultants to design a hotel scheme that fulfils Riva's brief and could be built for £100 million, Riva was awarded £3,604,694 net of interest.