Although the case specifically concerns the provision of architectural design services, it is a cautionary tale of the consequences of failing to put clients’ objectives first, which is just as relevant to lawyers, professional advisers of any specialism and indeed to all parties involved in the delivery of construction projects.
The issue of the client's budget
The case concerns Mr Dhanoa, a businessman, who, through companies he owned, engaged Fosters in 2007 to design an iconic, 5-star hotel at a site near Heathrow Airport.
The focus of the dispute was whether Mr Dhanoa informed Fosters of his budget for the hotel. Mr Dhanoa’s case was that he communicated a budget of £70m to Fosters but, upon receiving his cost consultant’s £195m valuation of Fosters’ design, agreed to increase his budget to £100m on the proviso that Fosters would value engineer the scheme down to that sum. He further claimed that Fosters encouraged him to obtain planning permission on the basis of its design and value engineer it afterwards.
When Fosters’ complex design could not be value engineered down to £100m, the scheme fell through. Mr Dhanoa argued that Fosters had breached its duty to ascertain and work to the budget, claiming from Fosters the amount spent on professional fees (roughly £4m) and £16m loss of profit.
By contrast, Fosters vehemently denied there was any budget for the project and insisted that they provided no assurance that the scheme could be value engineered to £100m.
What was the outcome?
The court agreed with Mr Dhanoa. Fosters was informed of Mr Dhanoa’s £70m budget for the project but failed to take account of it in producing their design. They therefore failed to identify or confirm the client's key requirements and constraints for the project as required by the RIBA Work Stages A and B. On the facts, the court found that Fosters did not comply with any of the obligations under either of Stages A or B at all.
Furthermore, Fosters knew that Mr Dhanoa intended to value engineer the scheme down to a budget of £100m, knew that it was not possible to do so but failed to advise Mr Dhanoa in that regard.
As a result, Fosters fell short of its contractual duties of care and skill. The court held they were liable to Mr Dhanoa for the professional fees he had incurred but, due to a break in the chain of causation, not for the loss of profits he alleged he had suffered.
On those brief facts alone, the case is an example of negligence by a world-renowned architect, but otherwise not particularly noteworthy. What is remarkable, and what sets the case apart, is the judge’s finding that Fosters’ breaches of duty were the direct result of the very low regard in which they held their client.
Mr Justice Fraser found that Fosters considered Mr Dhanoa "beneath them as a client". In fact, it was clear from the outset of Fosters’ engagement that they held him in low esteem, with witness statements making express reference to the initial client meeting at Mr Dhanoa’s "semi-detached house…in Hayes", seeming to suggest that Mr Dhanoa was not a client of a suitable calibre.
Nonetheless, Fosters was happy to take Mr Dhanoa’s money and to accept the engagement as his architect. However, the level of service that was delivered was far below what one would expect of any professional adviser. Not only did Fosters not take account of Mr Dhanoa’s budget, but they did not prepare "whole classes of documents at all…and sought to obfuscate and hide their non-performance".
Fosters’ low opinion of Mr Dhanoa was carried over into the defence of his claim, their strategy appearing to be built on the basis of attacking Mr Dhanoa’s credibility as a businessman, describing him as treating the litigation as a "game of high stakes poker". In particular, the pleadings and written and oral testimony given by Fosters’ witnesses:
- Attempted to characterise Mr Dhanoa’s previous bankruptcy as indicating a cavalier attitude to the project.
- Disparaged his planned retention of a bowling alley on the site as an idiosyncratic decision made to placate his wife (in fact it was a planning requirement).
- Sought to portray him as out of his depth.
However, that strategy backfired. Fraser J identified that Fosters’ witnesses were "entirely self-serving, and [their witness evidence] seemed to have been drafted regardless of the facts", and that they were "extraordinarily enthusiastic in these proceedings to twist the facts".
In relation to evidence on the budget, the court found that "the entire defence Fosters adopted on this point was simply factually wrong" and that a budget had clearly been provided to them.
I think that, above all else, this case provides an important reminder that clients are central to the construction industry and indeed to legal practice. The many shortcomings of Fosters’ service were a direct result of them failing to treat Mr Dhanoa with respect and to put his end goals first.
Ultimately, the effective delivery of any service, whether in a construction or a professional context (or both), relies on mutual respect and co-operation between all parties involved. If the relationship between the parties does not have those qualities as its foundation, it is unlikely that the outcome will be successful.
As this case demonstrates, the consequences can be severe for both parties. Mr Dhanoa’s loss is clear. While, in some respects, Fosters might be said to have got off lightly (having avoided liability for Mr Dhanoa’s £16m loss of profits claim), the damage to its reputation is potentially much greater given that the judgment has been widely publicised in the legal and mainstream press.
A version of this Expert Insight first appeared on the Practical Law Construction Blog on 15 November 2017.