The litigation in Riva Properties Ltd v Foster & Partners Ltd [2017] EWHC 2574 (TCC) concerned the proposed development of a five-star hotel close to Heathrow Airport, which, ultimately, proved too expensive to build. The owner of the site had appointed Foster & Partners, an internationally acclaimed firm of architects, to design a hotel that was iconic, with “impeccable green credentials”, and they had obliged. Articulated as a 13-storey structure, with several levels sunk below the ground, the building was surrounded by an innovative and impressive glass biosphere, which was to act as a barrier to aircraft noise.
The budget for the development was not specified in the document appointing Fosters as the architects for the scheme. But the landowner claimed that he had made it clear that he had had a budget of £70m. Consequently, when the scheme was independently costed, he was shocked to discover that it would cost in the region of £195m. However, he was prepared to increase the budget to £100m, in reliance on advice from Fosters that the project could be “value engineered” down to that figure after planning permission was obtained.
Planning permission was granted in March 2009, but the economic climate had deteriorated. It proved impossible to reduce the cost of the scheme below £170m and the landowner was unable to obtain funding for it. Consequently, it was unable to build the scheme that Fosters had designed (wasting approximately £4m in professional and other fees alone).
Fosters denied that there had been any budget for the scheme – or said that, if there had been, it had not been communicated to them. They also claimed that they had not been under any obligation to ask whether there was a budget, that they had not been engaged to provide costs advice, and that their client’s requirement for an iconic hotel overrode any other considerations.
However, Fosters had been appointed to provide RIBA Work Stages “A-L”, which included the preparation of a “Strategic Brief” confirming “key requirements and constraints”. The judge considered the existence of a budget to be a key requirement and constraint, and ruled that Fosters had not been entitled to assume that there was no budget at all. They should have identified whether there was a budget or not, and had not been entitled to ignore the constraint of the £70m-£100m budget which, the judge found as a fact, had been communicated to them.
However, the effective causes of the failure to construct the hotel, and open it for business in order to generate profits, were the “credit crunch” and the landowner’s inability to put up sufficient funds to satisfy more stringent loan-to-value ratios imposed by lenders. These obstacles would have been showstoppers, even if Fosters had designed a £100m hotel. Consequently, the landowner was not entitled to recover any loss of profits in respect of the scheme. Importantly, however, it was awarded £3,604,694 towards the cost of instructing new architects and consultants to design a new scheme, within budget, to put it in the position in which it would have been, had Fosters complied with their contractual obligations and designed a scheme that could have been built for £100m.
Allyson Colby is a property law consultant
