Case fails to clarify principle breached by inducements

While Martell v Roszkowski & Ors [2024] EWHC 840 (TCC) concerned a claim for negligent design and construction of a basement extension, it emerged during the trial that the structural engineer had received payments from the contractor he himself had recommended, even though this was not pleaded as a cause of action.

There were two major problems with the work carried out on Perdita Martell's west London home. First, it resulted in significant water penetration of the basement; then, during remedial works, it was discovered that the concrete used for the underpinning and walls was of insufficient strength. Martell brought claims against both GSB and MGA for more than £400,000.

GSB was held to be in breach of the construction contract, in that its design and construction of the waterproofing system lacked reasonable care and skill, and they had not used the required strength of concrete despite being notified of what this was.

Meanwhile, MGA was found to have breached its duty to Martell in not ensuring this or advising her that the waterproofing design was incomplete.

Miss Martell had used MGA on previous projects and had 'a good relationship with its proprietor Mr Martyn Gustyn'. She appointed MGA to a wider role than usual, since she did not use an architect: MGA would prepare the plans for planning permission and Martyn Gustyn was appointed party wall surveyor for the work.

Miss Martell's evidence was that she 'had complete faith in Mr Gustyn' based on the previous projects they had done together, albeit that he 'had never quoted in advance for the work he undertook or issued her with any contract or terms and conditions'.

However, during his evidence Walczak revealed that his firm had paid Gustyn £10,000 in cash for recommending them to the job and assistance with GSB's queries.

Walczak explained that, for every single project on which they worked together, Martin Gustyn had asked GSB for about £10,000 in cash. The purpose of these payments was, first, to recommend the firm for the project and, second, to be available to them to help during the work, 'just if we need some advice on the project we can … call him and we can get him in'.

The judge noted that the cash payment had not been included in the process of disclosure and she only became aware of it during the trial. It appeared that GSB had prepared an additional quotation for 'extras'. Gustyn had texted Walczak a message including the words: 'In the additional quote, include 8% for me, OK?'

HHJ Watson observed that these extra costs were charged to Martell at a time when MGA was her adviser on the project, though she was unaware that MGA was acting for GSB in any way or receiving cash payments from them.

Martell said she 'had complete faith in Gustyn' based on previous projects, although he 'had never quoted in advance for the work he undertook or issued her with any contract or terms and conditions'.

The relevance of this fact in the judge's view was that it called into question whether MGA was acting at all times in Martell's interests rather than MGA's, Gustyn's or GSB's. She noted: 'It is likely that MGA would have faced conflicts of interest, for example, in relation to pointing out defects in GSB's work to Martell, particularly if [Gustyn] had advised GSB on any of the work.'

1. the acceptance of that proportion of the £10,000 cash payment that can be notionally allocated to the recommendation of GSB to Martell as contractor
2. the acceptance of the proportion that can be allocated to Gustyn's availability for and provision of advice to GSB during the project
3. Gustyn's request to GSB to include in its calculation of the cost of 'extras' an item of 8% for himself.

As there was no written contract there were no express terms in the agreement by MGA to provide services to Martell, beyond a brief confirmation of the tasks to be undertaken. Any terms as to the obligations of MGA and the manner of its performance would therefore have to be implied.

The question then arises as to whether the implication is of individual terms prohibiting the conduct of the three issues enumerated above, or whether a more general term should be implied.

Perhaps 40 years ago, it appeared to be trite law that a professional in a client relationship could not allow personal interest to conflict with, or override, the client's interests and the duty to look after them.

The relationships that members of the professions entered into required them to do more than provide an arm's-length commercial product or service, or often did so, and typically involved putting the interests of the client ahead of any commercial benefits to the practitioner.

The source of these obligations was not always carefully analysed, though. Some professional relationships could be categorised as fiduciary because a solicitor, for example, was actually handling client money in a transaction.

RICS Rule of Conduct 1.2 requires that '[m]embers and firms do not allow themselves to be influenced improperly by others (as a result of, for example, giving or receiving work referrals, gifts, hospitality or payments) or by their own self‑interest.'

Rule 1.3 meanwhile obliges '[m]embers and firms identify actual and potential conflicts of interest throughout a professional assignment and do not provide advice or services where a conflict of interest or a significant risk of one arises'; further guidance on this is available in the current edition of RICS' Conflicts of interest.

So it may be that an implied term in a contract between a member of a professional body includes compliance with that body's entire code of conduct, and breach of such a code would in broad terms amount to breach of the implied term. Yet that is not without difficulty as an analysis.

In England and Wales, at least, there are relatively few professions that can only be undertaken by a member of a designated body. So if the implied term is defined by reference to a code that binds members rather than governing a particular function, it is hard to see how it would apply in a contract where the supplier of the service was not a member.

If so it would mean an imposition of liability on the professional that could not apply to a non‑professional performing the same task.

Of course, it is true that the implied term under the Supply of Goods and Services Act 1982 section 13 governs a 'supplier … acting in the course of a business'; section 49 is the equivalent in the Consumer Rights Act 2015.

This therefore does not just apply to professionals; but it would require a remarkable expansion of the duty of reasonable care and skill required under these acts to create fiduciary obligations of the kind entailed in this case.

HHJ Watson indicated a concern that the transactions between MGA and GSB might have an impact on the former's ability to carry out its contractual obligations, but that would be well short of requiring that reasonable skill and care automatically involves a fiduciary relationship between client and professional.

Indeed, in contract administration and supervision it is normally agreed that the administrator has significant duties as an agent for the employer, as well as more limited duties to balance the interests of employer and contractor.

If it could be said that MGA was acting as Martell's agent; this would be enough to create fiduciary obligations to her as principal, going beyond the standard implied duty of reasonable care and skill.

Lord Justice Millett's famous definition in Mothew (t/a Stapley & Co) v Bristol & West Building Society Respondant [1996] EWCA Civ 533 of a fiduciary was 'someone who has undertaken to act for or on behalf of another in a particular matter or circumstance [that] gives rise to a relationship of trust and confidence'.

Martell's evidence was that she 'had complete faith in Gustyn', and HHJ Watson concluded that the client 'understood that MGA was protecting her interests and giving her impartial advice'. It would follow from this that MGA, as agent, was under a fiduciary duty to avoid conflicts of interest and not to take secret profits from the relationship.

Even if the recommendation of GSB as contractor came before the agency was created and was thus not a breach of fiduciary duty, the provision of advice for money – and certainly seeking a percentage of the cost of additional work after payment – would be so.

Agency may then provide an explanation of what was wrong in MGA's performance of its duties to the client. But even this is not without its limitations as an analysis: not all supplies of services can be characterised as being in a relationship of agency.

Under a FIDIC contract, for example, the engineer acts as agent for the employer in many functions, but in making decisions between employer and contractor assuredly does not do so.

If purchasing the services of a construction professional, such as in the preparation of a design, does create a fiduciary relationship then this cannot be because that purchase has created an agency.

However, explaining the underlying rationale is essential to an understanding of the scope of the obligations of the professional – or non‑professional – supplier of construction services, and which was not clear in this case.