This is an interesting and entertaining Judgment in which the Defendant, the renowned architectural practice established by Norman Foster, the internationally acclaimed leading architect, was found liable in damages for breach of contract in the sum of £3,604,694.36 plus interest and legal costs.
The High Court held that the Defendant acted in breach of its contractual duties in relation to its design for a new 500 room 5 star hotel in Bath Road near Heathrow Airport. That, in particular, it designed a far too elaborate and expensive hotel in breach of its instructions to keep to a budget of £70 million that was then increased to £100 million. Its design was costed at £195 million and the Court rejected the Defendant’s case that there was no budget or that their design could have been value engineered down to £100 million.
The Claimant bought the site in 2007 for £14.5 million with the benefit of substantial bank lending. But the hotel has not been built to this day. The Claimant does not even have planning permission for any hotel although it claimed that, properly advised, it would have constructed a hotel for £100 million by 2009. The damages awarded represented wasted fees and costs, including £2 million of fees charged by the Defendant. A claim for loss of profits exceeding £16 million failed as explained below. In fact, any liability would have been capped at a total sum of £10 million under the contract.
What is particularly interesting about the Judgment is the way the Judge reacted to how the Defendant put its defence, to the Defendant’s witness evidence, and the way the Defendant treated its own client, the Claimant. There are also interesting findings and comments as to the collapse of the property market in 2007/8 and as to how substantial commission can be earned by brokers for doing relatively little to secure financing. One broker told the Claimant to get on a plane to the Middle East to find funding!
It would be a severe understatement to say the Judge did not like the Defendant’s case or how it was so aggressively presented. The Judgment is a good reminder that a Judge may see things very differently to how any party does and it is best concentrating on the facts and letting the Judge form his or her own conclusions as to the parties’ motivations and the legitimacy of their conduct.
The Judge held that the Defendant set out on a character assassination of Mr Dhanoa, the owner and Chief Executive of the Claimant. Mr Dhanoa had previously been made bankrupt in 1990 and he was accused of having sought to construct a case when he had no claim at all, and to be the author of his own downfall. He was also stated to have acted unlawfully and, because the claim was pursued with the benefit of a CFA and ATE insurance, of having used litigation as if it was a game of high stakes poker played with other people’s money.
None of the accusations were established, In fact, it was the representatives of the Defendant who the Judge decided had acted badly. They had been contemptuous of Mr Dhanoa and what he was seeking to achieve and believed the project to be somewhat beneath them. Because they regarded themselves so highly as world class architects, they had not been best pleased by having to attend a meeting at Mr Dhanoa’s semi-detached house in Hayes and by the fact that Mr Dhanoa had seen fit to instruct E.C.Harris as quantity surveyors rather than accept their recommendation of Davis Langdon. Although their whole case was based on no budget having been set despite constantly asking for one, one of their Directors then readily accepted when giving evidence that he was told a figure of £70 – £100 million by Mr Dhanoa. And their case that the contract did not require them to provide the Strategic Brief was held to be wholly misconceived, and irrelevant anyway as advising as to a budget would have come within their obligation to confirm key requirements and constraints.
The Judge described the written evidence of the relevant Defendants’ Partners as self-serving and seemingly drafted regardless of the facts. And, when giving oral evidence, he said these witnesses were hesitant and anxious not to give an answer if it might damage their case. Another witness not employed by the Defendant but formerly by E.C Harris gave damning evidence about Mr Dhanoa’s conduct which was demonstrated by a contemporaneous document to be totally untrue.
The Judge was also critical of some of the expert evidence and the basis upon which it was prepared, thereby highlighting the importance of ensuring any expert is properly instructed and does deal with all the issues on the basis of each party’s case, and not just the facts relied on by his/her client.
Having found that the Defendant had failed to design the hotel to the requisite budget, and had failed to advise the Claimant it could not be value engineered to reduce the cost to £100 million, the Judge had to deal with a number of interesting legal issues as to the recoverable loss. These included the following findings:-
- All of the fees paid were abortive as they will be incurred again whenever the hotel is ever built and, accordingly, the work undertaken had no value to the Claimant.
- Damages were recoverable even though certain fees were incurred by associated companies to whom the Defendant owed no duty, and not the contracting party.
- Loss of profits was irrecoverable as the failings of the Defendant were not causative of the loss. Instead, it was the credit crunch that commenced in 2007/8 that was the dominant reason why the hotel was never built then as funding was simply not possible at that time unless the Claimant could itself inject substantial equity, which it could not.
- There was no contributory negligence on the part of the Claimant and, accordingly, no reduction to be made in the damages recoverable.
(Living in semi-detached house in Whetstone not designed by Foster & Partners Ltd.)