Stephen Donald Architects Ltd. v King

The claims made in this action

The architectural services provided by the Claimant were provided in accordance with a contract between the parties ("the contract").

The contract was agreed between the parties in the following manner:

In the premises it is the Claimant’s case that the contract for services between the parties was formed in or about September 2000, but that an exact fee for the works had then yet to be agreed (save that the fee would be in excess of £100,000). The exact fee for the services (£125,000 (ex VAT) + disbursements) was agreed thereafter, either in January 2002, at the meeting of 18 June 2002 or alternatively in mid July 2002."

In the premises, it was an express term of the contract that the Claimant would provide the architectural services set out at stages A –L of the RIBA Standard Form of Agreement for the sum of £125,000 + VAT + disbursements.

It was an express alternatively an implied term of the contract that the Claimant would be entitled to request and receive interim payment for the architectural services provided.

Pursuant to the contract between the parties, the Claimant is entitled to be paid for the architectural services it has provided to the Defendant 75% of the sum of £125,000 + VAT + disbursements (being the percentage due in respect of stages A – H of the RIBA Standard Form of Agreement) ie £93,750 + VAT of £16,406.25 + disbursements. The Claimant’s disbursements are estimated in the sum of £11,829."

Credit was given against the sum claimed for an amount of £15,000 paid by telegraphic transfer on 27 June 2002.

"In the alternative, if, contrary to the Claimant’s primary case, there was no concluded contract between the parties as pleaded above, the Claimant is entitled (either by way of quantum meruit or on the basis of an implied promise) to be paid a fair and reasonable sum for the architectural services it provided to the Defendant. It is the Claimant’s case that such a fair and reasonable sum is approximately £165,990 (ex VAT). The Claimant will rely on the time spent by its staff on the project (details of which have already been provided to the Defendant by way of disclosure)."

By letter dated 2 August 2002, the Defendant’s solicitors, for and on behalf of the Defendant and without prior notice, repudiated the contract between the parties. The Claimant claims damages for repudiatory breach of contract.

Particulars of Loss and Damage for Repudiatory Breach

Had the contract not been repudiated, the Claimant would have been entitled to complete the contract works and be paid fees of £125,000 + VAT + disbursements for its architectural services. The Claimant claims the sum of £125,000 + VAT + £11,829 disbursements, less (1) the sum of £15,000 (inclusive of VAT) already paid to the Claimant; and (2) less the cost of completing its obligations under the contract estimated at £10,000.

In the alternative, if contrary to the Claimant’s case (but as alleged by the Defendant), there was an agreement between the parties that instead of being paid in money the Claimant would be rewarded for its services by the transfer of a one bedroom flat at the Property, the Claimant is entitled to and claims the current market value of a notional one bedroom flat at the Property (less an allowance for the sum of £15,000 (inclusive of VAT) already paid) as damages for the repudiatory breach. The Claimant is presently unable to quantify the current market value of the said flat and shall rely on expert evidence in respect of the same."

On 21 June 2002 the Claimant submitted to the Defendant an invoice number SDA207 in the sum of £40,000 plus £7,000 VAT and on the same date an interim fee request SDA208 in the sum of £53,750 plus VAT of £9,406.25 as the balance due. The invoice SDA207 was in respect of a cheque for £47,000 drawn by the Defendant on 20 June 2002 on his account with AIB Bank, Old Jewry Brach [sic], which was presented for payment on 21 June 2002 but was not met on presentation. Both the invoice and interim fee request were made in respect of sums due as interim payment for architectural services.

By a letter dated 20 August 2002 to the Defendant from Percy Short & Cuthbert, then solicitors for the Claimant, notice of dishonour of the said cheque was given to the Defendant….

Further and in the alternative, in respect of the architectural services performed the Claimant is entitled to and claims payment of the sum of £47,000 by reason of the dishonour of the Defendant’s cheque as set out at paragraphs 9 – 10 [sic] above. For the avoidance of doubt, the Defendant is not entitled to claim any right of set-off in respect of the said sum of £47,000."

The Amended Defence and Counterclaim

Mr. Donald began carrying out planning, project management and architectural services in early 2000. Mr. Donald suggested to the Defendant that Mr. Donald should be a co-developer, and receive £300,000 at the end of the development, which he said would be three times his normal fee of £100,000. The Defendant suggested to Mr. Donald that he should instead receive a one bedroomed flat. Mr. Donald wanted a two bedroomed flat. The Defendant indicated that they should assess what was possible once the costs and financial return from the development of the Property were clearer.

In early 2002, the identity of the unit to be provided to the Claimant in lieu of fees was still under discussion, but a figure needed to be included in the figures presented to the Allied Irish Bank to cover architectural fees. Mr. Donald and the Defendant agreed that although an allowance for architectural fees would be made in calculations for funding purposes, it was essential if the development was to go forward that the architectural fees or the transfer of a flat in lieu of fees should only take place once the development was complete and the flats ready for sale or occupation.

In the premises, the Claimant agreed to provide planning, project management and architectural services for the Development of the Property, for a reasonable fee (or transfer of flat in lieu) payable after the development was finished and the flats ready for occupation. If the Development of the Property could not take place, then no fee would be payable. It was an implied term of the said contract that the Claimant should provide services with skill and care, and faithfully as the Defendant’s agent, and the duties pleaded at Paragraph 7 above were implied terms of the said contract.

If, contrary to the Defendant’s case, it was not agreed that the Claimant would only be entitled to any fees at the end of the development, then the parties were never ad idem and there was no contract at all, since he Defendant never agreed that the Claimant could be paid before the development was complete."

As to paragraphs 10 and 11:

The first sentence of paragraph 12 is denied. The agreement between the parties is as pleaded in the Amended Particulars of Claim. For the avoidance of doubt it is specifically denied that it was ever agreed or even contemplated by the parties that if the development of the property could not take place, then no fee would be payable to the Claimant. As to the third sentence of paragraph 12, the implication of the terms alleged are admitted only insofar as is admitted in respect of the duties referred to at paragraph 7 above.

Paragraph 13 is denied."

To carry out his services as the Defendant’s agent faithfully with proper regard for the interests of the Defendant;

to carry out his services with the skill and care reasonably to be expected of an architect, project manager and adviser;

To give advice as to the Development with reasonable skill and care.

Further such advice extended to financial advice because the Claimant involved himself in financial advice:

The duties of care contended for were admitted in the Amended Reply and Defence to Counterclaim, subject, so far as the allegation that the duties of care extended to giving financial advice, to these points pleaded at paragraph 7(iii) of the Amended Reply and Defence to Counterclaim:-

The first subparagraph of Paragraph 7 of the Amended Particulars of Claim is admitted. It is admitted that no fee was agreed at any time in 2000 or 2001. It is denied that any fee was agreed on any of the three occasions identified by the Claimants. As to those occasions the Defendant’s case is as follows:

"The Defendant pleads as follows in relation to quantum meruit:

"It is admitted that the Defendant’s solicitors gave notice that the involvement of the Claimant had to cease. It was clear that there had been a breakdown of relations which made it impossible for the Claimant to continue to act for the Defendant. It is denied that the Defendant repudiated the alleged or any contract as alleged or at all. Further, the Defendant had to bring the Defendant’s [sic] contract to an end because he could not afford the Claimant’s design, and so the contract would have ended in any event. An architect has no contractual right to insist that his client builds any project which the architect designs. The loss and damage claimed is in any event denied, the Claimant’s design was such that there was no possibility of the development being completed to the Claimant’s design, and the Claimant had shown himself wholly unwilling or unable to redesign the project to suit the Defendant’s resources. In the premises, the Claimant’s engagement was bound to end fairly soon."

The alleged breakdown in relations is denied. It was not impossible for the Claimant to continue to act for the Defendant.

It is denied that the Defendant had to bring the Defendant’s [sic] contract to an end because he could not afford the Claimant’s design. The Claimant shall rely on the following matters:

As to the Claimant’s claim for repudiatory breach, the entitlement to damages in respect of the same depends on the facts of each particular case. In the present case the Claimant is entitled to such damages.

The Claimant would have been ready and willing to adapt or redesign the project had the Defendant so instructed him."

In reliance upon the agreement contended for above in this defence, alternatively in reliance upon a common understanding between himself and Mr. Donald that fees would be paid or satisfied by the transfer of a flat at the end of the development, the Defendant proceeded with the development of the Property, and explored the tax and other implications of giving Mr. Donald a flat in lieu of fees.

After the first and second stage tenders had been submitted by a company known as Durkan Pudelek, (in February and April 2002) it became clear to the Claimant and Mr. Donald, that the Development was at risk and was not going to take place. Only at that stage, by letter dated 20^th June 2002 did the Claimant and Mr. Donald then set out expressly to the Defendant the proposal that the Claimant should be paid in accordance with the RIBA scale, or a fixed fee, and on completion of various stages as contemplated by the RIBA scale. The said proposal was wholly contrary to the agreement or common understanding pleaded above.

If there was no binding contract for services as pleaded above, then the Claimant and Mr. Donald are estopped from denying that there was a binding agreement to postpone any payment of fees until the development was complete. It would be unconscionable for the Claimant or Mr. Donald to contend that any different fee structure applies, for three reasons:

In June the Claimant approached the Defendant and said he was in acute financial difficulties with substantial demands from the Inland Revenue and asked the Defendant for help. The Claimant threatened the Defendant that he would not complete design of the development if the Defendant did not give him financial assistance. This was an attempt to depart from the agreement that the Claimant was only to be paid after the Development was complete, and/or to resile from the convention and understanding that the Claimant was only to be paid after the Development was complete. After a conversation lasting in excess of two hours the Defendant reluctantly agreed to give the Claimant the cheque for £47,000 on the express proviso that this would require permission from the bank and was not to be cashed before that permission was given. The Claimant ignored this stipulation and paid in the cheque immediately.

The Defendant was unable to contact Mr. Finbarr Daly at the Allied Irish Bank, who was ill, and so could not discuss with Mr. Daly an extension of the facility to permit cashing the cheque to assist Mr. Donald. The Defendant therefore stopped the cheque.

The Defendant arranged a meeting between himself, Mr. Donald and Mr. Daly as soon as Mr. Daly returned to work, to discuss the cheque. At that meeting Mr. Daly did not give permission to cash the cheque, but offered to give Mr. Donald a personal overdraft, and also arranged for a telegraphic transfer of £15,000 at the request of the Defendant to assist Mr. Donald. Mr. Donald did not threaten to sue on the stopped cheque at that meeting, or in his subsequent proposals for revised fees in July and the Defendant was thereby led to assume that such legal proceedings would not be brought. Furthermore, the Defendant still believed at that meeting that he and Mr. Donald were still working together, and that together they could achieve the Development as designed by Mr. Donald, and pay Mr. Donald at the end as agreed. The Defendant as a further gesture of friendship provided an additional £15,000.00 paid by telegraphic transfer in order to assist the Claimant. The said payment of £15,000.00 was made on the basis that the Claimant was once again going to join wholeheartedly in the Development on the agreed basis that his fee would be postponed. The Defendant then acted further to his detriment in continuing with the Development on that basis.

In the premises the Defendant is not liable to the Claimant as pleaded or at all."

The sum of £47,000 was paid to the Claimant as an interim payment on [sic] fees that the Defendant acknowledged were due in the sum of approximately £90,000. The Defendant provided the Claimant with a cheque for the said sum; the Defendant did not specify any conditions for cashing the cheque.

It is admitted that subsequent to the dishonour of the cheque the Claimant attended a meeting with the Defendant and Mr. Daly during which an overdraft facility was discussed (but never agreed). It is admitted that £15,000 was subsequently transferred to the Claimant. It was not paid as a gesture of friendship but rather as payment for sums due to the Claimant for services provided. The £15,000 was not paid on the basis that the Claimant’s fee would be postponed.

It is admitted and averred that at that meeting the Claimant and the Defendant were still working together and that the Claimant had every intention of seeing the project to completion.

Save as aforesaid paragraphs 29 – 31 are denied."

As a result of friendly discussions between the Defendant and Mr. Donald, in the "Rosemary Branch" public house, the Defendant and Mr. Donald became friends over a period of four or five years. In or about 1999 the Defendant told Mr. Donald of the Defendant’s financial problems, and discussed with Mr. Donald whether the Defendant could convert "the Property" into flats to sell to make money. The Defendant explained the following facts and matters about the Defendant’s requirements to Mr. Donald:

Paragraph 4 is admitted, and the instructions from the Defendant pleaded at Paragraph 4 (i) to (iii) of the Amended Particulars of Claim are admitted and averred. The Claimant was aware, alternatively ought to have been aware, that in the event of conflict between the Defendant’s financial constraints as set out in Paragraph 4 (a) to (c) above and any of the Defendant’s requirements for the design of the building, the financial constraints would have to take priority.

At all material times the Defendant’s instructions and requirements remained essentially the same but they became more precise in the following respects:

Paragraph 4 of the Re-Amended Particulars of Claim was in these terms:-

There was no real dispute as to the matters set out in paragraphs 4, 5 and 6 of the Amended Defence and Counterclaim, other than as to whether it formed part of the brief of the Claimant to seek to provide Mr. King, through the medium of the Project, with a pension fund, and as to whether Mr. Donald had said that the Project could be completed for the amount of the loan offered by Allied Irish Bank ("AIB"), which in fact seems to have been a trading style of a company incorporated in Northern Ireland the correct name of which was AIB Group (UK) plc. The former of these allegations was denied at paragraph 4(e) of the Amended Reply and Defence to Counterclaim, whilst the latter was denied at paragraph 6(ii) of that statement of case. It was pleaded at paragraph 6(iv) of the Amended Reply and Defence to Counterclaim that Mr. Donald was not aware that Mr. King intended to accept the loan offered by AIB until he in fact did so on 21 May 2002.

In breach of contract and in breach of a duty owed to the Defendant the Claimant was negligent in the provision of architectural and planning services and failed to exercise proper skill and care.

The Claimant developed plans on the basis of which the Claimant secured planning permission on the Defendant’s behalf. The Claimant and Defendant attended meetings with the Defendant’s bank, the Allied Irish Bank, to assist the Defendant in securing bank finance on the basis of the Claimant’s plans.

The Claimant failed to act faithfully in the interests of the Defendant in that the plans and proposals he developed were such as to provide a striking architectural design which was too extravagant and expensive ever to maximise the money the Defendant would receive, contrary to the interests of the Defendant as set out at Paragraph 3 [sic]. It provided a landmark building which showed off the skills of the Claimant, but the Defendant had no interest in such a landmark building, nor could the Defendant realistically get finance adequate for such a landmark building.

The Claimant failed to carry out his services with the skill and care reasonably to be expected of an architect, project manager and adviser, in that his design was wasteful extravagant [sic], and failed to maximise saleable space.

PARTICULARS OF NEGLIGENCE

Extravagant features:

Saleable space:

Maintenance: Further the Claimant’s design makes no allowance for ongoing maintenance issues and the complex design means that window cleaning, external painting maintenance is expensive and difficult.

The Claimant failed to give advice as to the Development with reasonable skill and care, in that having created his landmark design he neither adapted it to reduce costs, nor did he give the Defendant realistic advice as to the selling prices of his design. The Claimant was at the meeting in the Defendant’s kitchen, around the Defendant’s kitchen table, at which Mr. Finbarr Daly the responsible manager at the Allied Irish Bank, tabled the finance offer dated 19^th March 2002. At that meeting the Claimant confirmed to the Defendant both that the allowance made in that offer for the costs of the development was high enough, and that the Claimant would not be taking any fee in advance of completion of the Development.

The Claimant’s advice, once the high tender prices from the builders became known, and the discrepancy between those prices and the amount allowed by the bank was clear to him, was:

"The Claimant’s design was in the best interests of the Defendant; it is denied that (as appears implicit in the Defendant’s case) the Defendant’s interest could only be advanced by the Claimant producing the cheapest and most mundane design. For the avoidance of doubt is [sic] the Claimant’s case that a functional design of architectural merit was in the Claimant’s [sic] interest because:

Detailed responses to the specific individual criticisms of the design set out in the particulars under paragraph 40 of the Amended Defence and Counterclaim were given in paragraph 27 of the Amended Reply and Defence to Counterclaim, but they can be summarised as nothing included was inappropriate. It was pleaded that there were in fact three external finishes, timber cladding, in situ concrete and rendered concrete block. The only other points which need be noted are, first, that the question of etching figures on the outside was a matter under consideration, with the cost excluded until a conclusion had been reached, and, second, the admission that the balcony as designed would have trespassed into neighbouring airspace, although it was said that the problem could have been dealt with by a minor change to the design.

"The tender prices from the builders were received in the following way:

"In particular, whereas if the Claimant’s design had been such as to make it possible to keep within the parameters set by the Allied Irish Bank in its loan letter of 19^th March, the Defendant would have had the option of continuing with the Claimant’s design and taking advantage of it, that was simply impossible in fact, and in the view of the Allied Irish Bank. The Allied Irish Bank on whom the Defendant had to rely, took the view (correctly) that the costs figures on which they had made a facility available were too low, and that the proposed design used the space available poorly, and was not a cost effective design for a speculative development. The bank relied in this respect on the professional advice of Dunlop Heywood Lorenz in their second report of about August 2002, who were monitoring in accordance with the conditions attached to the facility letter of 19^th March, and whom the bank asked to look at the development in more detail when it became clear that the work was not proceeding. The bank therefore explained to the Defendant that he should not proceed further, and the bank would not allow further drawdowns, and had he not taken their advice and stopped, the bank would have stopped him from proceeding."

The difference of £1817 per month between the Defendant’s mortgage of £1,000.00 per month in respect of 13 Murray Grove and rent in the sum of £650 per week equivalent to £2817 per month of alternative premises at 21 Cross Street from 1^st June 2002 and continuing.

Quantity Surveyor’s fees:

invoice 14^th June 2002 £10,000.00;

invoice 20^th October 2002 - £7,625.00

RYKBA fees – 18^th August 2002 - £11,750.

CPE Soil Engineer’s Report – 11^th October 2002 - £3,223.00

Bank facility fee – 19^th March 2002 - £21,960.00

Interest on bank borrowing as set out in the letter dated 19^th March 2002. A full calculation will be supplied.

Valuation fee – Dunlop Heywood Lorenz - £4,996.68.

Fees of Techniker Engineers - £30,800.00 plus VAT.

The Defendant claims return of the £15,000 paid to the Claimant."

The issues in this action

What was agreed in relation to fees

As the Defendant had said that he was not well placed financially, as a consequence of losing some large contracts the agreement reached was that the Claimant would meet the costs of the planning process, with the exception the Defendant would pay the planning application fee directly to the Local Authority, this being a disbursement. It was agreed that the Defendant would then pay these sums upon receipt of planning consent. However in order to proceed it was agreed in principal [sic] by both parties that a secondary option would be that the Claimant would re-invest some of the fees earned into the Project, by acquiring one of the units.

I always envisaged that should the Project go to plan, this would possibly be a suitable arrangement. However, the arrangements were on the basis that the Claimant and the Defendant’s respective legal and accountancy team would oversee any final agreement. At this early stage of the contract, neither the Claimant nor the Defendant had approached their advisers for guidance.

It was clearly understood by both parties that should the fee investment/ equity agreement not come to fruition then the Claimant would be remunerated under the terms of RIBA terms of engagement, in any event. In meetings between the Defendant and I in September 2000, I stated that the Claimant would be willing to provide the necessary architectural services for the redevelopment and informed the Defendant that the Claimant’s fees for proving [sic] such services would be in excess of £100,000. I provided the Defendant with a photocopy of the Design and Management Services Supplement schedule from a document published by the RIBA entitled SFA/99 which sets out the list of architectural services (work stages A – L) that would be required for the completion of the redevelopment …. It was agreed with the Defendant that the Claimant was to carry out such services.

I made it clear to the Defendant at the start of the Project, and the Defendant understood that the Claimant’s fees would be at least £100,000. I referred to the RIBA plan of work, Stages A – D expressed as a percentage in terms of the guidelines. The Defendant therefore knew that the Claimant’s fees up to lodging the planning submission stage would be approximately 35% of the overall fee. Further, the process of revising design proposals is an integral part of the planning negotiation procedure, and forms part of RIBA Plan of Work Stage E: Detailed Design Services. A further 20% of the overall fee is due in respect of this element of the work.

In hindsight, it would have been prudent for both parties to set down the exact terms of our Contract in writing before starting work on the Project. However, as a close friend of the Defendant, I completely trusted him and so did not prepare, complete and sign any standard RIBA form of Terms of Engagement."

From the beginning I emphasised to Donald that I was asset rich and cash poor. I told him that the development had to be self-financing since I had no cash. It was clear from an early stage that the development costs would be in excess of £1m. I had no experience with property or finance other than freelance photography and buying my various homes. I am sure that Donald also became aware that I have difficulty with documents. I left school with two "O" levels, in art and metal work. The careers advice I received was that my ambitions should be limited to unskilled factory work. I was fortunate that I found my feet as a photographer and that my visual abilities have outweighed my limited literacy skills. Because of this I was particularly reliant upon Donald, who I trusted as a personal friend as well as a professional. He dealt with all the documentation, he kept all the documentation and he also was my exclusive channel of communication to other people on all matters concerning this development. £1m was a figure entirely outside my experience. I emphasised to Donald that I was completely dependent on his professional advice and expertise. I often emphasised that the development had to be self-financing. I also emphasised that I had no pension provision and needed the development to give me an income in my retirement. Money was of primary importance to me and I made this clear right from the start, from our first friendly informal discussions in the pub.

Donald told me not to worry about money but get the project going. He suggested that he should be a co-developer and, on that basis, receive three times his normal fee, that is £300,000.00 instead of about £100,000.00. He said this when we first started talking. I cannot remember how many times it has cropped up but it was often repeated in conversation. The first reference was probably in about the spring of 2000, soon after his son’s christening. To the best of my recollection he would use a form of words such as "If I put my money in then I expect to be treated as a co-developer and have a three to one return" or "If I put in £100,000.00 of my own money I expect to get a good return". I suggested in response that he could have a one bedroomed flat, which at the time was valued at about £160,000.00, still a significant increase on his proposed fee, He wanted a two bedroomed flat. I said we would assess what was possible once we knew the costs and financial return. My accountants, Keeling Lester, advised that accounting and taxation difficulties would be caused by him taking a flat instead of a fee."

The advice of the accountants was given in writing and was very much later than the reference to it in Mr. King’s witness statement would suggest. The relevant letter was dated 30 May 2001, but it was common ground that it was actually written on 30 May 2002.

"We also enclose a copy of the letter dated 9^th November 2000 from Techniker who are a firm of structural engineers that we have often worked with previously, confirming their interest in the project and an otlline [sic] of their anticipated services and associated professional fees.

You should also anticipate additional consultancy input from environmental services, (in respect of heating + ventilation systems) and cost control consultants at a later part of the more detailed design stages of the project. We will advise you of the scope of these services and associated fees in due course.

Finally we would welcome an early opportunity to re-discuss and confirm our own scope of services and associated fees, and/or investment in the project as soon as convenient, but in the meantime, look forward to working with you on this very exciting project."

As it seems to me, there would have been no need for any discussion or confirmation of the scope of the Claimant’s services or the associated fees if those matters had already been addressed in the manner in which Mr. Donald indicated in his witness statement.

"I would suggest the following.

To market as a house, I suggest a figure of £700 to 750,000. However yours is a very unusual property and it may take some time, high value home buyers are very "fussy", we can sell it, but it will take longer to track down the particular buyer who suits your property.

The other alternative is to explore the development angle, where the market is very strong in your location. There is a strong demand for new build land with planning. You have already sensed this, hence your wise decision to apply for planning. Stephen is a very good architect and the massing on the site is excellent.

With the existing scheme you would be looking at late £600’s. However, if the ground floor void could be reduced, and say 2 live-work units granted, then the site value would rise by some £200,000. Seeing as the property is already live-work, and at The Shaftesbury we got full residential, the planners may allow this amendment.

The planning is the key. I did speak with Stephen, but he seemed a little upset at my suggestions, so unfortunately the call was a brief one. ….

My advice is to re-analyse the planning. If not you may undersell, to then see your buyer gain the extra £200,000 by getting the consent later.

I appreciate this may delay your existing application. However once planners have granted the existing consent, with Hackneys problems, it could then take a year to make a new consent to change it, plus all the extra fees involved in a new application.

Whether you decide to build the scheme out yourself, or sell the building as is, in order to make this judgement, it is important for you to be aware of build costs, end values, site values etc."

"Just a brief note to explain my views.

Under existing consent if built you would make say a £436,000 profit.

With my live work scheme the profit is £700,000 (made up of £501,000 profit, plus £200,000 difference in the site values).

If you built out the live-work scheme you would be almost £300,000 better off. I know you are not focused on profit, but ask yourself this: How long and how hard would you have to work to earn an extra £300,000 profit in your existing business? In effect the studio does not have a "cost" to you of £300,000 but £600,000. I know it is not a true cost as you want to keep it, but on paper the true cost of your studio is a lot more than you may realise.

I may sound like an agent hungry for work, but I am not. I just believe passionately that as this is probably one of your major assets, and you may miss the opportunity to gain an extra profit £300,000 when you build out. It is no skin off my nose. I personally will not earn any more money, but I do understand how to maximise development in your area, my track record speaks for itself.

My suggestion: consider the live-work scheme, try to amend the planning, but in such a way that you can use it as either. You build a studio that can be converted to live-work when you want to sell, all windows, services etc in the right place.

The council will always allow a change of use from live work to commercial, but may resist a change the other way after the consent has been granted, plus all the fees etc.

Another angle to consider: you could buy a commercial unit elsewhere, perhaps a ground floor in an existing building. Obviously you will have to move out of the Princess Alice for the 14 month construction period anyway. In your area this will cost some £100 per sq. ft. I know you would like to keep within your structure, but be open to ideas.

I do wish you well in the scheme, the flats will sell, but in a property development always keep a sharp eye on money/profit. It is usually un-foreseen construction costs increases that destroy it. My figure of £100 is a "own build" i.e. no contractors profit. You may find a general builder quoting closer to £135 per sq. ft. you should get a fixed price quote.

You’ve got some major thinking to do."

"Value Added Tax

Planning, Professional, Survey and Legal Fees

All loose furniture, furnishings, fittings and effects

Operational equipment other than noted

Computer systems

Works beyond the defined area including diversion of Statutory Services in paving or roads

Works associated with the diversion of or protection to existing services of systems crossing the Site

Any abnormal Local Authority, Fire Authority and/or Planning requirements

Party Wall awards or work in connection thereto

Phased completion, out of hours working and accelerated working costs, however partial possession is included if the requirement is established at start of tendering

Increased costs beyond 4Q 2002

Piled foundations

Kitchen fit-outs"

"We are advised by the customer’s Architect that the estimated cost of the building works (based upon £100 per square metre) is likely to be in the order of £1,000,000 (One million pounds), exclusive of any VAT which may be payable."

"The overall new gross floor areas to be constructed is calculated at 1000m2/ 10800 ft2.

We are advised by our cost control consultant that construction costs should be anticipated to be in the region of £1,250,000 + VAT.

The professional team comprises of the following consultancies and their anticipated professional fees are apportioned thus:

Architects + Project Managers: Stephen Donald Architects Ltd. £125,000

Cost Control Consultants: Boyden & Co. £25,000

Structural Engineers: Techniker £25,000

Environmental Services (Partial): Rybka £5,000

Planning Supervision: Boyden PS £10,000

These figures combined provide an overall Construction Design & Management cost of £1,440,000 + VAT."

I discussed the construction cost with the Defendant in terms of price per square foot. From previous experience, I estimated that it would cost at least £120 per square foot. Therefore, because the property comprised of 10,500 square feet, the overall cost would be at least an estimated £1.25 million. I advised the Defendant he would have to instruct engineers and other consultants with a global estimated fee of 20% of the construction price including the Claimant’s fees.

In or around May 2002 we re-considered the proposed arrangement whereby the Defendant would pay the Claimant the agreed £125,000, at which point the Claimant would invest the £125,000 into the Property, by way of purchasing a unit."

"The overall new gross floor areas to be constructed is [sic] calculated at 1000m2/10800ft2.

We are advised by our cost control consultants that construction costs should be anticipated to be in the region of £1,250,000 + VAT. Also refer to Durkan Pudelek letter dated 26^th March 2002, further copy enclosed.

The professional team comprises the following consultancies and their professional fees are apportioned thus:

Architects + Environmental Services (Partial) + Project Managers:

Stephen Donald Architects Ltd. £125,000

Cost Control Consultants: Boyden & Co. £25,000

Structural Engineers: Techniker £25,000

Environmental Services (Partial): Rybka £5,000

Planning Supervision: Boyden PS £10,000

Consultants + Project Management Fees Subtotal £190,000

These figures combined provide an overall Construction, Design & Management cost of £1,440,000 + VAT …

Finally we would welcome an early opportunity to re-discuss any aspect of the proposed funding and investment elements of these proposals as soon as convenient, but in the meantime, look forward to working with you on this very exciting project."

The truth is that the so-called agreed fee of £125,000 first appeared in the Strategy Document. It was no doubt not a coincidence that the figure was simply 10% of the estimated construction cost, net of Value Added Tax, mentioned in the document. The same figures as those set out in the Strategy Document were then simply repeated in the letter dated 18 April 2002. That letter to Mr. Barnes was copied to Mr. King, but there was no evidence that the contents of it were ever discussed or agreed with him.

"Further to our earlier correspondence and enclosures dated 18^th April, we have had further and more detailed meetings with the preferred contractors and cost control consultants. We have been asked by Chris to provide you with updated estimates of construction and development costs as follows. ….

We are advised by our cost control consultants and preferred contractors that construction costs should be anticipated to be in the region of £1,450,000, which equates with a cost of £125/ft2 and includes an allowance of £100,000 for fully fitted kitchens and floor finishes throughout, essentially providing a turnkey operation."

The reference to updated estimates was to cost plans received from DP at the end of April and discussions which took place at a meeting on 30 April 2002. I shall come back to those cost plans and to the discussions at the meeting. Mr. Donald’s letter dated 2 May 2002 was also copied to Mr. King. Once again there was no evidence that the contents were ever discussed or agreed with him before it was despatched. There was, however, evidence that it was discussed with him after it had been despatched, and to that I now turn.

"Although the facility letter was dated March, I did not sign it straightaway because I was unsure of final costs. Some months later Finbar, Donald and myself sat around my kitchen table at Murray Grove. I made a joke in reference to the fact that there was an Englishman, and [sic] Irishman and a Scotsman all talking money! Donald continued to insist that "we can build it for the money". I even asked Donald can we build for the money. He confirmed. I signed the letter in his presence."

"The whole point of the two hour meeting that we had was to try to establish that it was possible to reduce the figures that Stephen Donald had quoted in that letter [of 2 May 2002].

The conclusion of the meeting was: he was going to be able to deliver the project within the available funding, part of which was back ending his remuneration, whatever form it took, and the whole point of the meeting was to say that the letter he had furnished essentially said the project cannot go ahead because there was not enough money to fund it.

During the course of that meeting we discussed the various ways and means, part of which was my suggestion that it should be possible to mortgage the portion of the property which Chris King would retain to meet some of the shortfall but it was very, very clear that Chris’s acceptance of the facility was on the basis that Stephen Donald was going to be able to procure the construction for a lesser sum than he referred to in his letter."

On the 21 May 2002 the Defendant asked me to go to a meeting with him and Mr. Daly of the Bank at his studio. Mr. Daly and the Defendant came up with an idea of using the restricted budget and alleviating cash flow difficulties by attempting to defer payment to contractors until, presumably, the units had been sold. Nevertheless, the Defendant acknowledged he would have to consider further extending his mortgage. The long and the short of the meeting was that the Bank was not amenable to the idea of increasing the offer of funding.

I again made it clear to Mr. Daly and the Defendant that the funding proposed was totally inadequate."

£100,000 for kitchen/flooring : etc

Drawn down later ….

£125,000 SDA Bal £65,000 aditional [sic] consultancies.

1 640 000

225 000

1 415 000"

Mr. Donald was asked about those figures. It was suggested to him that the figure of £1,640,000 was the total of the estimated construction costs set out in his letter dated 2 May 2002, which it fairly obviously was, and that the figure of £225,000 represented the element of £100,000 included in the total estimate of construction cost of £1,450,000 in respect of kitchens and floor finishes and the element of £125,000 in respect of the fees of the Claimant indicated in that letter. He said that the element of £225,000 was in fact the overall consultancy fees plus Value Added Tax. That actually it is not. The total of the contemplated consultancy fees was £190,000. Value Added Tax on that sum at 17.5% is £33,250. Then this exchange took place, as recorded in the transcript for Day 1 at page 103 lines 12 to 24:-

Mr. Donald also at length accepted in cross-examination that on the occasion of the meeting between Mr. King, Mr. Daly and himself he had seen Mr. King appear to sign a document, although he contended that he could not see what that document was or whether Mr. King actually signed it.

On 17^th June 2002, I met with the Defendant initially at the Property and thereafter at a local bar/restaurant to discuss the letter from the Accountant. The Defendant confirmed he would pay a fee of £125,000 for the Claimant’s services. He asked what work had been undertaken to date, and I informed him that approximately 75% or £90,000 of work had been undertaken by the Claimant.

At this stage I provided the Defendant with a detailed account of the estimation of 75% of the overall body of work provided, reminding the Defendant of the various stages of the Project and the proportionate levels which accord with RIBA Plan of Work. The Defendant asked me if the Claimant would accept approximately 50% of the fees incurred to date as an immediate interim payment. I agreed this would be acceptable and the Defendant stated he would contact his bank, the Allied Irish Bank ("the Bank") the following day.

The Defendant stated that he had contacted the bank and called me at approximately 3.00 – 3.30 pm on the 19^th June 2002. He said he had his chequebook with him and wanted to come to the Claimant’s offices.

At the Claimant’s offices, the Defendant brought his chequebook and said he would pay approximately half the fees incurred to date. He offered to pay me £47,000 (£40,000 plus VAT) as a payment on account. I said I would hold on until the following day before cashing the cheque in order to comply with formalities, such as producing an invoice for the sum received.

Based on the 17 June meeting with the Defendant it was made very clear that the only option which was being presented at that stage was to proceed with the agreement for the Defendant to pay my fees in the sum of £125,000 with perhaps the opportunity to re-invest the fees at a later stage. I called my then solicitors (Mr. Boyes of Percy Short & Cuthbert) to discuss this proposal approximately 30 minutes after meeting the Defendant and receiving the on account payment. Mr. Boyes said he couldn’t comment on tax matters but advised to write the Defendant a covering letter re-confirming what I understood the Claimant’s terms of appointment to be, incorporating an invoice for the monies received and then present the cheque for payment.

I then wrote a covering letter dated 20^th June 2002 … stating what I understood to be the terms of appointment and sent this, together with an invoice and a fee request dated 21^st June 2002 … In the same letter, I also requested financial assurance from the Defendant as to when the outstanding monies might be paid….

The following day, Wednesday 26 June 2002 the Defendant called me at approximately 8.00 in the morning to inform me that he was meeting Mr. Daly at the Bank at 9.30 am. At 10.30 am I met the Defendant with Mr. Daly at the Claimant’s offices. Mr. Daly informed me that he had put a stop on the cheque because the Defendant did not have sufficient funds in his account to honour it.

Mr. Daly tried to imply that I and/or the Claimant were a party to the agreement between the Bank and the Defendant. However, this was not substantiated. I specifically pointed out to Mr. Daly that at the previous meeting I had asked whether the Claimant was required to be part of any such agreement between the Bank and the Defendant, but Mr. Daly said this was unnecessary. I did not understand why the Bank was now saying I was a party to the agreement, as this had never been the case. Further, up until June 2003 in these proceedings, I had not seen the agreement, which was eventually signed by the Defendant. I have reviewed the AIB offer letter of 19^th March 2002 and still cannot understand the banks’ [sic] justification for stopping the on account payment….

As a compromise, Mr. Daly offered me a £50,000 overdraft on a new personal bank account to compensate for the Bank not honouring the cheque in the sum of £47,000. In order to do this, Mr. Daly said he would need a utility bill. I had a number with me for the Claimant. However, Mr. Daly said I would need one from my home address and not the company. In the Defendant’s absence Mr. Daly further advised that the Defendant would act as a financial guarantor for the loan. I thought this was a rather dubious proposition and said I would speak to my own accountant before making any decision. Mr. Daly predicted that if I took advice from an independent accountant, the accountant would tell me not to do it. In fact, this was the case and my accountant, Mr. Chin, strongly advised against such an arrangement. Mr. Chin also discussed the proposition with Mr. Daly, although I have no note of that conversation.

After the extended private meeting between the Claimant and Mr. Daly, the Defendant went away in order to draft and sign a document to confirm the Defendant would act as financial guarantor for the £50,000 overdraft. Approximately one hour after the meeting ended, I received by fax at 12.31 pm the necessary application form from the Bank to open an account on behalf of the Claimant…."

"Meanwhile, in the latter part of June, Stephen Donald asked me to meet him in the pub. He told me that my job would have to take second place as he could not afford to do it because of financial pressures, in particular from his bank and the Inland Revenue. After some two hours of arguing and three bottles of wine I eventually gave in and, as a gesture of friendship, gave him a cheque for £47,000. Although he gave me a fee note as a receipt, our agreement was that fees would be deferred and this was purely a gesture of friendship to help him out. I also made it clear that I would need to speak to Finbar Daly, the manager at Allied Irish Bank, to clear the cheque. That was because the conditions for funds being available had not yet been met, due entirely to Donald’s default. He ignored my request and paid the cheque in anyway and later told me that he had written out cheques before the money had cleared. That is suggestive of the financial pressures to which he was subject. Unfortunately Finbar Daly was absent from the office with an ear infection and I was not able to speak to him until six days later on the following Wednesday, as a result of which I stopped the cheque. Finbar Daly and I met with Donald the same day. Finbar Daly agreed to loan Donald money through Allied Irish Bank in order to get him out of trouble so that he could continue working. He refused this. I gave him £15,000 sent by TT, which Finbar Daly authorised. Having given him the £15,000.00 I thought the question of the returned cheque was forgotten. Donald had told me that he was in difficulties and I believed that the £15,000.00 would sort him out financially for the time being and tide him over as far as necessary. I certainly did not believe that he would sue me on the cheque. I understood that he was under acute financial pressure. I assumed that he had lots of work, since he said that my work would have to go "to the back of the queue" if I did not pay him. With hindsight, I think he was trying to force me to give him money because he realised that the project was not viable financially and would never get completed."

I comment in particular on the circumstances as I know them relevant to the issue of a cheque by the Defendant, in the sum of £47,000 and a telegraphic transfer from the Defendant’s account to the Claimant in the sum of £15,000. As I have said above no funds were available from my bank until the conditions were met. I had been away for a few days when the Defendant contacted me and said that he had issued a cheque to the Claimant for £47,000 because of considerable pressure from the Claimant who appeared to be in acute financial difficulties. Accompanied by the Defendant I visited the Claimant and explained to him that, until the conditions attached to the offer were fulfilled, with particular reference to his role, funds could not be made available. It was also made clear that the funding was on the basis that the Claimant had agreed, right from the start, that he would not be paid until the development was complete and he would then be given one of the flats in the development in lieu of fees. I rather reluctantly agreed to release £15,000 that was paid by telegraphic transfer directly to the Claimant’s account.

From professional advice received I understand that the design by the Claimant made poor use of the site and more financially robust arrangements were possible providing more units at lower cost. The facility given was quantified specifically on the professional advice and figures provided by the Claimant. I should add that I am also particularly concerned at the timing of the Claimant’s pressure on the Defendant which came immediately after the Defendant had vacated his home and when he certainly appeared to me to be particularly vulnerable. I was also concerned that the Claimant’s design represented what I regarded as a "trophy building", that is a monument to the Claimant’s professional expertise rather than providing a pension for the Defendant which was the intention. The Claimant said to me that he was not a party to the offer letter and therefore did not regard myself as being bound by him [sic]. That is obviously true in a technical sense but in the circumstances I regard it as showing a degree of cynicism. I understand it to be his professional role to procure a building that could be constructed within the budget fixed. That budget was fixed on the basis of the figures he put forward and the bank facility was based on figures put forward by the Claimant to me in the circumstances set out in this statement. His demand to be paid up front rendered the already faltering procurement process futile. He had failed to produce cost reductions by changes in the building, despite representations by other professional advisers. His demand to be paid removed his fees from the available funds. It was never envisaged that he would be paid until the project was finished. It was never agreed that he should be paid a fee but be given a flat in lieu of fees."

Many of Mr. Daly’s comments on his perception of the quality of the work done by the Claimant seem to me to be based upon a misconception as to the nature of the functions of an architect, but his understanding of the financial arrangements contemplated as between Mr. King and the Claimant is obviously material in deciding what was actually agreed between them. I accept the evidence of Mr. Daly on that point.

"This project, initiated by yourself and subsequently co developed with myself on behalf of SDA Ltd. in September 2000, has been documented at different stages over the past 20 months or so, in various items of correspondence, drawings etc, dating back to 14^th November 2000, wherein our letter to you of that date, covering the planning permission documents and local authority costs, referred to my interest and preparedness to act in an extended co development and investment capacity in the project.

The project was progressed, based on subsequent meetings and conversations between ourselves and was agreed in principle whereby I endeavoured to develop the scheme beyond the basic architect’s services normally provided, perhaps most obviously including providing the majority of the financial backing/support for the project up until now. In addition I was responsible for implimenting [sic] various examples of extremely productive and advantageous development strategies, with myself assuming the lead role yet always operating in tandem with yourself. Although there were some critical moments when the financial resources of my practice were perhaps obviously overstretched, my natural tenacity and hopefully skillful project management prevailed and ultimately I was able to demonstrate adeptness to yourself in identifying and affording the maximum development potential of this project (for our mutual commercial benefit). An example of this being the extremely time consuming, detailed and complex procedures involved in obtaining such a commercially advantageous planning consent from the development control department of the bankrupt London Borough of Hackney. At all times I believe you have been very generous in your acknowledgement and appreciation of my input in these respects.

SDA Ltd. in our extended role were also and exceptionally involved in helping you, in various ways, secure the major financial input for the project to date. Not only with your recently appointed bank, the AIB, but prior to this, helping to investigate a number of potential alternative sources of finance including NatWest + CBF Ltd.

The cost of our basic architectural/project management fees were confirmed in all correspondence and development documents, since planning consent was obtained by SDA Ltd. in March this year. Over the past three months further associated correspondence, based on negotiations conducted by ourselves as co developers of the project, has been exchanged between SDA Ltd. and others, appointing the various members of the professional consultancy team and several firms of prospective contractors, etc. relating to the project.

On 12^th June 20002 [sic] you diligently provided me with a copy of a letter from your accountants Messrs. Keeling Lester + Co. dated 30^th May, the contents of which have instigated the requirement for a clarification of the situation which exists.

After our own private, further and more detailed meetings over the last few days, aimed at enabling us to re-appraise the situation, I am pleased on behalf of SDA Ltd. and both of us, to confirm the terms of our modified appointment as follows which I accept has been made within mutually acceptable parameters of commercial efficiency, cost effectiveness and affordability.

With regards to the proposals contained in your accountant’s letter, which I refer to with the utmost professional respect; although it seems, in the main, to perhaps represent a fundamental misapprehension of the extent and nature of my endeavours beyond that of the basic architect’s/project management services which we have already provided and invested in the project; I nevertheless write to confirm my acceptance of the particular recommendations relating to the tax implications. We therefore have agreed that our basic fees for architectural and project management services of £125,000 + vat are to be paid as a separate transaction to an associated and additional fee or commission in lieu of our supplementary input to the project to date as principal financiers and co developers of the project.

In accordance with RIBA guidelines, RIBA Plan of Work, the project has been advanced almost to stages K –L ("Operations on Site and Completion"), whereby we are very close to appointing the contractors Durkan Puddelek [sic] on your behalf and therefore we calculate that our basic architectural and management services are now 75% complete. We would now expect to be paid 75% of the overall fee of £125,000 + vat, which equates with the sum of £93,750 + vat. In this respect the cheque for £40,000 + vat which you presented yesterday is gratefully received as an "on account" payment and therefore leaves a current balance of £53,750 + vat to be paid, for the basic architectural and project management services provided and completed to date.

Thereafter the remaining post contract fee balance of £31,250 + vat can be paid in 12 equal monthly sums over the duration of the building contract. Whilst we welcome the relatively prompt payment of the "on account" sum of £40,000 + vat following our meeting last Monday, it would also be appreciated if you could provide some additional financial reassurance, by verifying with your bank when the existing outstanding balance might be paid. In this regard it may be prudent to provide a copy of this letter both to your accountant and your bank. We would be happy to forestall the lodgement of the cheque received yesterday for a few days in order to enable you to achieve this if necessary.

In regards to the above payments we enclose our invoice ref. no. SDA/207 for the payment of £40,000 + vat made yesterday and a further fee request ref. no. SDA/208 which indicate a balance of payment of £53,750 + vat which is the outstanding sum currently due.

Finally, with regards to negotiating terms and agreeing the additional value of our supplementary input to the project to date, as principal financiers ad co-developers of the project and from now until completion, (from this new more business-like perspective), perhaps we could arrange an early meeting tomorrow between ourselves and then thereafter with either or both the bank and your accountant, so that we can re-establish and formalise our extended business relationship with mutually beneficial co-development incentives and performance related levels of remuneration.

In the meantime, I can again reconfirm the unstinting commitment of my practice and my own extended personal involvement in this great project, in addition to my appreciation of your generous spirit and friendship and my looking forward to working with you further on this very exciting, (though challenging endeavour), which I am sure will mark a significant threshold for both our careers."

Approximately one week later the Defendant met the Claimant and started to write his proposals on the back of a Guardian dated 10 July 2002 … He then put the proposal down on blank A4 paper, after I had asked him to do so to make the proposal clearer …

I took the letter away to consider and then wrote to the Defendant on the 11^th July 2002 … setting out why I thought it would be totally inadequate to accept the Defendant’s proposal and putting forward the Claimant’s proposal in writing.

In essence, the proposal states that the Claimant was willing to invest £125,000 plus vat into the Property by acquiring a 2 bedroom flat. I thought this was fair, by reference to DHL’s valuation report. It should be noted that we are also advising the Defendant that we did not anticipate at that stage the construction cost estimates which were being prepared by the contractors to be less than they had been submitted previously. Further, that the bank should be reminded of the estimated construction costs noted in our letter 2^nd May 2002 and by extension those referred to in DHL valuation report.

By return letter dated 16^th July 2002 …. the Defendant agreed fees in the sum of £125,000 plus VAT (with £15,000 including VAT being paid on account). The Defendant repeated his proposal of the Claimant investing some of those fees in a one bedroom flat in the Property. I replied to the Defendant’s letter, by letter dated 18^th July 2002 …. confirming I would accept in principle the offer of unit no. 5, a one bedroom flat equating to 60% of outstanding fees i.e. £75,000 plus VAT."

Despite these gestures of friendship, perhaps recognising the vulnerable position I was in having given up my premises at Murray Grove, Donald kept pressure on me to sign a contract. I was increasingly concerned about the quality of his design and professional advice. We still did not have a firm contract to develop the flats and still had not met the bank’s requirements for release of funds. Donald kept calling me every day trying to force me to sign contracts and agree to the two bedroom flat.

As a result of our meeting and discussions I wrote a letter in July to Donald suggesting I would give him a one bedroom flat, subject to a firm contract with the builders at a fixed contract price. Donald kept pressuring me to sign a contract. I believe that at this stage he realised that his building could not be built within budget and that the job would therefore never get finished. I believe that he hoped that me signing a contract might ensure that he got his flat anyway. Durkan Pudelek grew increasingly agitated at the lack of construction drawings from Donald. They doubled there [sic] tender fee to £7500 because of the complexity of the tender process."

"To Steve Donald

If you can wait until the building is complete and signed off with all appropriate doc’s prices realised and properly certificated with garentees estate agent etc consulted with good intent – a 2 bed flat of approx 1000 sq ft will be writen to contract to Steve Donald. However if markets take serious turn down a 1 bedroom apt approx 500 sq ft may be offered as payment of fees.

This offer is made on the understanding that Steve Donald fee’s are a part and wholly paid with echange of contracts on decide apartment and fee demand are not applicable on agreement of this note.

This offer only apply’s to final cost given by builder contractors etc to the building 13 Murray Grove N17QT and is not binding until all the above fullfilment have been made.

£15000 has already been paid to Steve Donald as payment and this should be returned to Chris King.

If this is an uneceptable offer and Steve Donald is unable to accept the fees will be paid and I would expect all work to be fullfiled with appropriate costs without prededise to his high quality and dillygence and building supervision is contracted to him at appropriate fee to be decided before contract are signed.

With all the good will I do wish to carry on with this project and I must now push for final cost so that Allied Irish can be approached with the intent of extra funding to found."

"Further to my letter dated 20^th June 2002, our subsequent meetings on Monday 1^st July and yesterday 10 July during which you drafted your proposals, a photocopy of which I enclose, I write to let you know that not only are the proposals unacceptable they indicate a complete lack of commitment from your self, although I acknowledge that this was not your intention.

I therefore write to confirm my terms for carrying on with this project as follows.

Firstly I require your written confirmation that my basic architectural fees are agreed and that 75% are currently due for payment as referred to in my letter dated 20^th June 2002. These were also referred to earlier in my letters dated 28^th [sic – in fact 18] April and 2may [sic] to AIB, discussed and agreed with yourself previously. You could also refer to these letters in regards to overall anticipated construction and development costs and immediately re-advise the bank that we do not anticipate the updated construction costs, which we hope to receive from Durkan Pudelek on Monday 15^th July, to be lower than those indicated previously.

My proposal for securing an ongoing business relationship on the project comprises the following. I will continue to provide the full range of architects services as outlined in RIBA Plan of Work, as per the enclosed copy of the Architects Standard Form of agreement SFA/99, my net fee is £125,000 + Standard disbursements (Approx £12,000) + vat. In lieu of me providing these services and the co-development input to date I will accept a 99 year lease, at no premium, for the pre-sale of the specific unit No. 4 valued at between £250,000 - £300,000 as referred to in the valuation report commissioned by AIB from Dunlop Heywood Lorenz dated 31^st May 2002. This obviously discounts the payment of £15,000 which I have already received.

Before I or other members of my company do any further work after today, it is essential that the basis on which I am to be adequately remunerated must be agreed and resolved. It would therefore be appreciated if you could discuss this proposal with your financial and legal advisors as soon as possible so that contracts can be drawn up and exchanged at the earliest opportunity."

"I confirm that from all of our previous anddiscussons that fees of £125.000 + vat [£15,000. Inc vat has been paid on account]

is due for design, planning drawings consultation withexpert company’s engineers Durkan Pudelek pricing, building supervision, certification, guarantees and the final signing off of the building 13 Murray Grove N17QT on its complition. As you have been well aware from the out set of this project that this money has not been available to be drawn down from the AIB as the original plan to the bank left your fees in. For this consideration my offer of a one bedroom flat still stands in lieu of your fees. Estimated value £160,000 - £180,00 possibly more depending on the market forces at the time.

I do hope the planning notice that now is proved to have a mistake on is correct and enables us to proceed swiftly. That we are able to get building cost to a manageable level and I reserve the rights to change any part of the final finishes to accommodate the budgets.

I eagerly await final costs from Durkan and hope that we can now go ahead swiftly and get building start date. I must make you aware that my costs are rising day by day and my enthusiasm and commitment for this project may change if we cannot resolve a building start as you are already aware that on completion of this project we could be launching into a slightly lagging market which also make me very nervous.

I do appreciate all the hard work you have put into this project and we can go forward united and finish what started life as a few jottings on a beer mat."

Quantum meruit

"While it is not unknown that such services should be remunerated by a fee if it is expressly or impliedly so agreed, this is by no means necessarily, and would not generally be, the case. The idea of such a fee being excluded, it follows that the question of the amount to which the appellant is entitled is left at large, and the court must do the best it can to arrive at a figure which seems to it fair and reasonable to both parties, on all the facts of the case. One aspect of the facts to be considered is found in the communings of the parties while the business was going on. Evidence of this nature is admissible to show what the parties had in mind, however indeterminately, with regard to the basis of remuneration. On those facts, the court may be able to infer, or attribute to the parties, an intention that a certain basis of payment should apply."

In the present case the parties had been discussing, and had agreed in principle by no later than the despatch by Mr. King of his letter dated 16 July 2002, a fee of £125,000 for the totality of the architectural services involved in the completion of the redevelopment. By reference to the RIBA Form, of which Mr. Donald sent Mr. King a copy under cover of his letter dated 11 July 2002, the work which had actually been done by 2 August 2002 amounted to some 75% of the total. I should thus have awarded the Claimant on a quantum meruit basis, had it been appropriate to do so, 75% of £125,000 plus Value Added Tax at 17.5%, namely a total of £110,156.25.

"This does not of course mean that questions of intention may not be highly relevant to the question of whether or not enrichment has been unjust."

"I have found it impossible to formulate a clear general principle which satisfactorily governs the different factual situations which have arisen, let alone those which could easily arise in other cases. Perhaps, in the absence of any recognition in English law of a general duty, of good faith in contractual negotiations, this is not surprising. Much of the difficulty is caused by attempting to categorise as an unjust enrichment of the defendant, for which an action in restitution is available, what is really a loss unfairly sustained by the plaintiff. There is a lot to be said for a broad principle enabling either to be recompensed, but no such principle is clearly established in English law. Undoubtedly the court may impose an obligation to pay for benefits resulting from services performed in the course of a contract which is expected to, but does not, come into existence. This is so, even though, in all cases, the defendant is ex hypothesi free to withdraw from the proposed contract, whether the negotiations were expressly made "subject to contract" or not. Undoubtedly, such an obligation will be imposed only if justice requires it or, which comes to much the same thing, if it would be unconscionable for the plaintiff not to be recompensed.

Beyond that, I do not think that it is possible to go further than to say that, in deciding whether to impose an obligation and if so its extent, the court will take into account and give appropriate weight to a number of considerations which can be identified in the authorities. The first is whether the services were of a kind which would normally be given free of charge. Secondly, the terms in which the request to perform the services was made may be important in establishing the extent of the risk (if any) which the plaintiffs may fairly be said to have taken that such services would in the end be unrecompensed. What may be important here is whether the parties are simply negotiating, expressly or impliedly "subject to contract", or whether one party has given some kind of assurance or indication that he will not withdraw, or that he will not withdraw except in certain circumstances. Thirdly, the nature of the benefit which has resulted to the defendants is important, and in particular whether such benefit is real (either "realised" or "realisable") or a fiction, in the sense of Traynor CJ’s dictum. Plainly, a court will at least be more inclined to impose an obligation to pay for a real benefit, since otherwise the abortive negotiations will leave the defendant with a windfall and the plaintiff out of pocket. However, the judgment of Denning LJ in the Brewer Street case suggests that the performance of services requested may of itself suffice amount [sic] to a benefit or enrichment. Fourthly, what may often be decisive are the circumstances in which the anticipated contract does not materialise and in particular whether they can be said to involve "fault" on the part of the defendant, or (perhaps of more relevance) to be outside the scope of the risk undertaken by the plaintiff at the outset. I agree with the view of Rattee J that the law should be flexible in this area, and the weight to be given to each of these factors may vary from case to case. "

"Thus, in a case such as Regalian, the work undertaken in order to obtain the contract gives rise to no restitutionary remedy because the party providing the services is taken to have run the risk that the contract will not eventuate and he will therefore not be paid. Here, however, while the claimant was prepared to take the risk that the defendant’s bid would fail, it was not prepared to run the risk that, if the defendant’s bid succeeded, it would not be rewarded. That was the whole purpose and underlying assumption of the 15 September Agreement. The claimant’s costs were incurred in the belief that it would get them (and more) back under the sub-contract if the defendant’s bid succeeded. That bid did succeed. The contingency on which the services were to be paid for happened. The claim is therefore in my judgment a good one. "

Termination

"We are instructed by Christopher King to terminate your involvement in the above development. This involvement has been ad hoc without any concluded contract. In the alternative any agreement, which is denied, is void for uncertainty. In the further alternative, any performance of professional duties as an architect has been without proper skill and care to the extent that the lender is unable to proceed with funding because the procurement process has not delivered a building tender for an amount within the available budget. Advice has been received that a fresh planning application is required with the consequence that a completely fresh design is required. "

The claim on the cheque

The counterclaim

"As proposed the property will have a unique appearance and should prove to be a landmark building in this locale."

At paragraph 11.8 he commented:-

"From our conversations with local estate agents it is evident that the residential market is relatively buoyant in the area and provided this continues the completed residential unit should be readily marketable. Furthermore, we consider that the basement and ground floor studio should appeal to any number of potential users should it be available for disposal on a long lease at a nominal ground rent."

"Chris –

Just received this information from Durkan Pudelek.

- Not exactly what we were looking for @ approx £165/ft2

Bell me on mobile later and we can jump in the canal together maybe after a quick gargle @ the commissary "

"The Commissary", Mr. Donald told me, is a wine bar. The effect of Mr. Donald’s message obviously was that the high level of cost indicated by DP made it look as if the project for the redevelopment of the Property was not viable on financial grounds.

Mr. Pudelek did come back to Mr. Donald on 29 April 2002 and indicated that the high figure indicated in the cost plan sent on 26 April 2002 was based upon a misunderstanding as to the area of the proposed development. A revised cost plan sent by DP to Mr. Bonfield on 29 April 2002 was in the sum of £1,577,544, equating to a cost of £146.07 per square foot for a building of 10,800 square feet.

Measure

The quantity surveyor’s measurements are appreciably greater than our own. As a consequence we have added a £30,000.00 contingency to the updated cost schedule. The enclosed schedule clarifies. …

As a last but important point we have allowed for masonry and render in lieu of screen printed concrete walling."

In other words, DP at that stage had included a contingency element which it had not been asked to include and for which there was no obvious justification, and it had allowed for fair-faced brickwork in place of the screen printed concrete. The amount of the revised tender was £1,614,013.81. That figure equated to £149.45 per square foot, on the basis that the area of the proposed new building was 10,800 square feet. Once more the figure was said to exclude concrete screen printing, kitchens, floor finishes, modifications to existing statutory services and new incoming statutory services. However, it now expressly excluded in addition client fitout, rental of adjacent land (for a site compound), and local authority fees. The revised tender as tabulated was set out beside what was said to be "original cost plan", which totalled £1,426,315.28. Quite where that figure came from or when it had been produced did not appear. It was not identical with, although of a similar order of magnitude to, the cost plan figure discussed at the meeting on 31 May 2002.

At a meeting on Monday 22 July 2002 at the Claimant’s offices which was attended by the Defendant, Kevin Bonfield of Boyden & Co., the Quantity Surveyor and Cost Consultant ("Boyden & Co."), 2 representatives of Durkan Pudelek ("DPL"), the Main Contractor and I, it was clear that DPL was not interested in negotiating down from the proposed £1.6 million and, likewise, was not interested in securing the work.

After the meeting the Defendant, Kevin Bonfield and I had a brief chat. The Defendant asked me if I could go to the Bank on Tuesday, the following day. I said I was unable to due to prior commitments, but I could attend on Wednesday. The Defendant and Kevin Bonfield then entered into their own discussion. The Defendant asked Kevin Bonfield whether he (the quantity surveyor) would go to the Bank with the Defendant the following day, Tuesday. I expressed my opinion that the Defendant should contact the Bank himself to arrange an early meeting, but as Kevin Bonfield was not involved in the previous discussions with the Bank and therefore might be of limited value. My final suggestion was that the most productive route would be for the three of us to meet the Bank as soon as practicable.

In conversation with the Defendant later that evening I reiterated my offer to attend a meeting with the bank on Wednesday and also reconfirmed that we would send out all packages to another contractor Developing Interiors Limited (formerly RPA Creative) who had originally been involved in the initial tendering procedures and who had expressed an interest in proving an updated submission. I also re-assured the Defendant that contrary to the advice of the Claimant’s then solicitors to stop work until we could secure a proper contract and lease, the Claimant would carry on providing services."

"In the meantime, contrary to my solicitor’s advice that I stop work, I have asked Kevin and Frank to forward to me all copies of their costing and structural data and I will add to this information to [sic] detailed design drawings and schedules and provide them to the contractors RPA in order to obtain alternative costings within the next few days."

"Further to our meeting on 22^nd July 2002 with Durkan Pudelek Ltd. (DPL) and our mutual Client, Chris King, I confirm the following:- …

This pricing exercise was in principle to contain the previous negotiations carried out with DPL since the submission of their First Stage Tender on 13/03/02. …

The costs submitted by DPL are greatly in excess of the most recent total project budget discussions. As part of their submission, DPL listed the following reasons for the disparity in their figure:

Underestimation of elements prior to sub-tendering.

Inability to achieve sub-contract prices for certain elements.

Increased allowances for Preliminaries.

Inclusion of a contingency.

General over optimistic target savings for the majority of elements.

It is our opinion that DPL have not fully complied with the principles of Two Stage Tendering. In particular the following comments are made:

Previously agreed cost parameters have not been adhered to.

The correct sub-tendering of the packages has not been carried out in the main.

The increase in Preliminaries is in contravention of the First Stage tender. In fact the Preliminaries as submitted initially were agreed to be revisited and reduced due to the simplification of and reduction in the Scheme generally.

The inclusion of a contingency has not been requested.

The submitted DPL figure lacked the back-up of a price document (this has been requested)…

Conclusion

DPL have been given a total of four weeks to price the project based on a full set of tender documents. Despite this ample tender period, they have failed to produce a thorough and detailed price with full back-up material.

The previous discussions held with DPL regarding the scheme and value engineering have largely been ignored resulting in an exaggerated price for the scheme.

The willingness of DPL to continue to work towards a mutually acceptable figure is in question and therefore confirmation of this must be obtained."

Durkan submitted a priced document on 22/7/02 totalling £1,614,031.81 (£139/ft2 [only if the assumed total area of the proposed new building was 11,611.74 square feet]) and excluded kitchens, statutory connections, floor finishes, screen printing, Local Authority fees and rental of adjacent land. These exclusions could have added a potential further £100,000 to £120,000 to the total.

From analysis of this figure, it was apparent that certain structural elements were changed following extensive input from Techniker resulting in savings. However, the architectural value engineering changes that discussed [sic] and were not incorporated and remained priced at such a level that the overall figure was in excess of the desired budget.

Following a further meeting with Durkan and Mr. Donald, we wrote to Mr. Donald with a summary of the status of the project costing by Durkans on 29/7/02. Durkan’s pricing had reflected the design as issued in the second stage tender but included increases that were not fully explained i.e. Preliminaries costs, inclusion of risk money against the more complex interface elements and the like. These issues were likely to be reconcilable given the time required. We also stated that the value engineering exercises carried out in April and May 2002 had been largely ignored in the design. We suggested that some fundamental changes could be made to reduce the Durkan price initially including the use of Mr. Donald’s suggested Electrical Sub-Contractors, MBS Ltd. It transpired that MBS Ltd. were unable to substantiate their indicated cost. It was clear that the design of the building was not in keeping with the budget aspirations of the Client, despite extensive work to establish the changes required to meet this budget. Whilst Durkan’s price as submitted was high, we believe that Durkan foresaw high risk elements in this design and priced the project accordingly. This could have been avoided if the value engineering exercises were adhered to by Mr. Donald. However, it is unlikely that the cost of £1.2m would be achievable without fundamental changes in the design, all of which were discussed with Mr. Donald at length. It became apparent that Durkan were becoming less interested in proceeding to contract and Mr. Donald advised them that their services were no longer required.

Mr. Donald continued to believe that the Durkan pricing was responsible for the significant over budget costings. Mr. Donald approached a contractor known to him, namely RPA Developing Interiors, to price the project. This company produced a figure to Mr. Donald of £1,181,360 during the course of August 2002. Following repeated requests from us we eventually received a fax on 10/9/02 from Mr. Donald enclosing a one page letter from Developing Interiors Ltd. which contained an elemental summary of costs. The costs were stated as provisional and without any back-up were meaningless.

Following the meeting on 22^nd July 2002, I spoke to Mr. King and asked if he was fully aware of the build-up of the then current pricing issues. He appeared to be poorly informed of the negotiations with Durkans and it appeared that there was some disagreement over Mr. Donald’s appointment/fee arrangements with the Client. I informed Mr. King that whilst Durkan’s pricing as submitted was high, the fundamental problem lay in the design of the building. The optimum commercial development of this site was being compromised by the excessive cost of construction and the risks attached to achieving the design. These risks were apparent to Durkans, and any professional contractor, and would be priced accordingly.

With the inability of a contract sum to be agreed with Durkans, due to the non incorporation of fundamental value engineering measures, the Client found himself at a point close to starting on site without a contractor. Mr. King had apparently vacated 13 Murray Grove which surprised me in the light of the difficulties in pricing during May and June 2002, a fact which Mr. Donald should have made clear to his Client."

"Further to receiving your tender document 25^th July 2002 please find our provisional costings for the work at Murray Grove, which we can go into greater detail should our preliminary costings, be of interest to you. …

Total £1,181,350.00

I would like to clarify that the time scale for the tender was very tight and firm upper costs at a later date subject to a meeting with yourself and the quantity surveyor to go through the project."

"Ref: Proposed Development @ 13 Murray Grove London N1

Further to our earlier conversations regarding the above, please find attached the letter dated 14^th August 2002 from Developing Interiors Ltd. (formerly RPA Creative) confirming their schedule of costings for the project in response to the package of information issued to them 23^rd July 2002.

Please call me to advise me of your views."

The facsimile transmission dated 9 September 2002 was copied to Mr. King. By 14 August 2002 the costings indicated by RPA were only of academic interest, as Mr. King had already decided to pursue a different type of scheme from that designed by Mr. Donald, and to pursue it with different architects.

Mr. King’s alleged losses

"The Quantity Surveyor advised that work could start on 24 July 2002. I therefore arranged to move out of Murray Grove, selling a lot of my furniture because I knew that I would have to move into somewhere smaller."

In other words, he moved out not in the light of anything said by Mr. Donald, but in the light of what Mr. Bonfield had said to him, and said, moreover, so it would seem from the date upon which rent started to be paid, at a time long before second stage tender documents had been sent to DP, still less a price tendered which was likely to be acceptable. The move thus, in my judgment, had nothing to do with Mr. Donald, and the Claimant could not be held responsible for the costs incurred in additional living expenses in any event. Not merely was the incurring of the costs not caused by the Claimant, but it was not, it seems to me, reasonably foreseeable that Mr. King would do something so stupid as to move out of the Property into smaller, but more expensive, accommodation in advance of the concluding of a binding contract for the undertaking of building work at the Property. Furthermore, it is not obvious why, since he has known since 22 July 2002 that the scheme designed by Mr. Donald was not going to proceed, he has continued to incur accommodation costs instead of moving back to the Property.

Conclusions