Financial advisers

Consultants not aware of the extent of their liability for advising on financial matters are putting themselves at risk.

To the uninitiated, the idea of what ultimately is to be paid under a fixed-price, lump-sum building contract might appear as certain as who won the last boat race. Inexperienced clients often make this mistake - an understandable faux pas, given custom and practice in most other areas of commerce.

Typically when a client learns at the end of a venture that the numbers do not quite match its expectations, it is the consultants who run for cover.

Of course most architects and quantity surveyors know too well that "fixed price" under most standard forms of contract has a very different meaning. But how often do they properly explain to their client how the goal-posts can be shifted through variations, delay, disruption, loss and expense and fluctuations? The answer from the courts is: not often enough.

The general law imposes duties on all consultants. I will concentrate on the architect. An architect should possess adequate skill and knowledge to enable him to plan, design and originate building and other work that requires skilled design. The architect must also be able to arrange for and monitor the construction process. The architect’s duty is not, however, a duty of result. He is not guaranteeing success in these various tasks. Of course, higher standards may be imposed where the parties so contract.

An architect may also be liable if his negligent advice causes the client damage. In Nye Saunders ⁽¹⁾ the Court of Appeal considered a failure to advise on the effects of inflation. Here, the Architects had been commissioned to do up a country mansion. In February 1974, a period when inflation was rife, the architects gave an estimate of £238,000. By August the estimate had climbed to £440,000 and the client became somewhat irate. When sued for the fees by the architect, he contended he had to cancel the project as he could not proceed because he had been misled. He terminated the architect’s appointment and refused to pay their fees. The court found the architect negligent for failing to point out that the estimate was based on prices current at a time of high inflation.

In Aubray ⁽²⁾, the Court held that, if the architect bases his estimate on current building costs and makes it plain he has done just that, this ought to be sufficient.
However, the need for care in preparing preliminary cost plans and specifications was painfully reinforced in Gable House ⁽³⁾. Here, the defendant architect provided a preliminary cost plan and elemental specification showing a cost of the works at £5.8m and a useable office space of 33,928ft2. The actual area was only 31,769ft2. The judge found the architect knew that the amount of lettable space was important to its client, with the result that it was liable for its client’s claim.

In a recent case ⁽⁴⁾, an employer made a number of claims against an architect. It concerned a nightclub conversion where the client alleged the architect had said the cost would be no more than £515,000. It turned out to be £827,000. The client then hit financial problems and had to sell up. It argued that the architect ought to pay the difference between expected and actual final costs; that it should not be paid its fee and that it was responsible for the client’s financial problems.
The court found no evidence to support the claim that the architect had warranted the cost, dismissed the about fees as hopeless, and found no causal relation between the architect’s negligent advice and the client's financial problems.

The case covers a range of issues and should be compulsory reading for those involved in development.

1. Nye Saunders & Partners v Alan E Bristow (1987) 37 BLR 92

2. Aubray Jacabus & Partners v Gerrard (1981)

3. Gable House Estates v The Halpern Partnership (1995) CILL 1072

4. Turner Page Music Ltd v Torres Design Associates Ltd (1997) CILL 1263