Estimated Cost or Actual Cost?

In an interesting decision, reflecting the difference between interior design contracts and other forms of construction contracts, an interior designer was entitled to charge the amounts included in its “estimated costs” for furniture and fittings, as agreed by the client, even though the amount the interior designer actually paid for the furniture and fittings was lower, due to wholesale rates and lower trade prices that it was able to negotiate with its suppliers.

This was the case of Alebrahim v BM Design London Ltd [2022] EWCA Civ 183 and involved an interior design contract which provided for an interior design fee to be charged “based on 20% of the total cost of works”.  The property owner argued that the designer should charge 20% on the items it procured at cost price; whereas the designer argued that it could charge 20% on the retail price of those items.  The judge agreed with the designer for two main reasons:

1. The designer would provide the owner with an itemised estimate on a weekly basis, and the owner would then choose whether or not to agree to those figures.  The designer would then raise an invoice for that amount, together with the 20% design fee.  Once the invoice was paid, the designer would place the relevant orders with the suppliers and pay whatever amount was agreed between them.  It is important to note that the owner was not obliged to accept the figures in the estimates.  The contract expressly provided that, if the owner thought that a quoted figure for an item was too high, they could make their own enquiries and endeavour to obtain it more cheaply elsewhere (in which case the designer would get the 20% fee for identifying the relevant item in the first place but not anything more) or choose a completely different item (in which case there was no fee of any kind due to the designer).

2. The contract did not entitle the property owner to take advantage of trade discounts received by the designer from its suppliers.  Such an interpretation would undermine the purpose of the weekly estimates.  Whilst in some forms of building contract, references to “cost” mean the cost to the contractor undertaking the work, this was not the intention of this design contract and indeed would give rise to difficulties and inconsistencies if this were to be implied.

It is perhaps not difficult to have some sympathy with the property owner, as the contract was not as transparent as it should have been on this point.  It may be worthwhile for interior designers to review their own contracts and terms of business to make it clear that such costs would not be negotiated further, so the client would be clear that no further information would be given.

If you would like any guidance on how your standard terms may be interpreted and/or assistance with potential redrafting, please do not hesitate to get in touch.