Riva Properties Ltd & Ors v Foster + Partners Ltd [2]

[2017] EWHC 2574 (TCC)

The largest of Mr Dhanoa’s claims was for loss of profits on the basis that he was not able to proceed with his scheme because of the advice given (or not given) by Fosters. This claim failed. The breaches by Fosters were not the effective cause of Mr Dhanoa being unable to construct the hotel. The reason the hotel was not built was the lack of funding caused by the financial crash in the period 2007-2009. As a result, whereas previously, the borrowing of very sizeable sums in the tens of millions of pounds (and certainly £100 million) had been widely available now such sums were far less available. Further, the new lending approach post-financial crisis meant that funders required a much greater contribution from the borrower.

The Judge noted that an identical result would have been obtained by posing an entirely different question, namely whether the inability to obtain funding, caused by the financial crisis, was a type of harm from which Fosters had a duty to protect the claimants? That question arose from the 2017 Supreme Court decision in the case of Hughes-Holland v BPE Solicitors. The point here was that there was a distinction to be drawn between information provided to a party, and the giving of advice. The Judge did not consider that the professional service provided by Foster, namely the design of the hotel scheme, fell into either category. The professional services encompassed advice in some respects (such as the advice in respect of value engineering) but the scope of the retainer was to design the scheme and provide the architectural services.

Here, Fosters were not engaged to give advice on the business viability of the hotel scheme. To give that advice, any professional adviser would need to consider the financial resources available to the client, the credit risk they would represent to any lender, and other relevant information. This type of advice formed no part of the architectural services which Fosters agreed to provide.

However Mr Dhanoa was able to recover compensatory damages in relation to the amount that was paid to Fosters under the contract.  Fosters should have designed to the budget if there had been one, but a failure to do would be what one of the experts called at “architect’s risk”. By this the expert meant that Fosters could simply be required to do the design again, at their own cost, if they failed to comply with the budget first time around. This essentially came down to an acceptance that an architect must design to his client’s brief. Any architect exercising reasonable skill and care would, if a client provides a budget, take that budget into consideration when in designing the project. It cannot simply be ignored.

Looked at another way, the best evidence of how much it would cost the contracting party to have such a design produced by an alternative architect was the cost Fosters were charging to do this. As a result this amount could represent the measure of damages for breach of contract, calculated on an “expectation” basis. It was not recovery of the sums paid to Fosters (and the other professionals) as such, it was using the sums paid to Fosters (and the other professionals) as the appropriate measure of the damages payable to the claiming party, to put it in the position it would have been in, had Fosters complied with their obligations under the contract. It was using those sums as the measure of the expected loss. The same was true of other services. For example, quantity surveying services would be required on the successor scheme and so they would be incurred again. Accordingly they were recoverable from Fosters here.

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