The focal point of this blog is the decision of the Technology and Construction Court in Martell v Roszkowski & Ors [2024] EWHC 840 (TCC).
However, it does not primarily concern the ratio of HH Judge Sarah Watson’s decision on the claims for negligent design and construction of a basement extension. This blog is concerned with something which was not even pleaded as a cause of action in the case, namely the receipt by the structural engineer of payments from the client’s contractor, and how that should be analysed.
An outline of the case
Perdita Martell wanted to improve and extend the basement of her West London house. She appointed Martin Gustyn & Associates (MGA) as structural engineers and Mr Gustyn recommended Roszkowski and Walczak, trading as GS Building Services (GSB) as contractors.
There were two major problems with the work. First, there was 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.
Miss Martell brought claims against both GSB and MGA for over £400,000. GSB was held to be in breach of the construction contract, in that its design and construction of the waterproofing system was not carried out with reasonable care and skill and, once it had been notified of the required strength of the concrete, in not achieving it.
MGA was found to have breached its duty to Miss Martell in not advising her of the incompleteness of the design of the waterproofing and in failing to ensure that the concrete used by the contractors was of the required strength.
The role of the structural engineer
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, it was during the evidence of Walczak, from GSB, that an extraordinary fact was revealed: “GSB had paid Mr Gustyn £10,000 in cash for recommending them to the job and for assistance with GSB’s queries”.
HHJ Watson found that “whilst there is no pleaded issue on this point, it is right that I should address an issue that arose unexpectedly during the trial”. It appeared that “for every single project”, Mr Gustyn asked GSB for ‘about £10,000 in cash’. The purpose of the payments was (i) “for the recommendation for the project” and (ii) availability to GSB to assist them 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 previously disclosed. Miss Martell was, of course, unaware of it during the project. She only became aware of it during the trial.”
It appeared that GSB had prepared an additional quotation for ‘extras’. Mr Gustyn had texted through a message including the words “in the additional quote, include 8% for me, OK?” The judge observed that these extra costs were charged to Miss Martell “at a time when MGA was acting as her adviser on the project … Miss Martell was unaware that MGA was acting for GSB in any way or receiving cash payments from them. She understood that MGA was protecting her interests and giving her impartial advice.” The relevance, in the judge’s view, of this fact was that it “calls into question whether MGA was acting at all times in Miss Martell’s interests rather than MGS’s, Mr Gustyn’s and/or GSB’s interests. It is likely that MGA would have faced conflicts of interest, for example, in relation to pointing out defects in GSB’s work to Miss Martell, particularly if he had advised GSB on any of the work.”
What’s wrong with that?
After some brief comments on the ratio of 'Martell v Roszkowski'in the context of liability for design, construction and supervision of work to my M.Sc Construction Law students, comprising lawyers and construction professionals from around the world, I read out to them extracts from the evidence concerning the payments. The almost universal response ranged from low whistles to loud gasps: it clearly felt wrong to them. But that is not enough. It is necessary to understand what was wrong, and why. There are three elements for consideration, though similar issues arise for all. They are:
- The acceptance of that proportion of the £10,000 cash payment which can be notionally allocated to the recommendation of GSB to Miss Martell as Contractor.
- The acceptance of that proportion of the £10,000 cash payment which can be notionally allocated to availability for and/or provision of advice to GSB during the project.
- The request to GSB to include in its calculation of the cost of ‘extras’ and item of ‘8% for me’.
Breach of contract? Something more?
There was no written contract and no express terms in the agreement by MGA to provide services to Miss Martell, beyond brief confirmation of the tasks to be undertaken. Any terms as to the obligations of MGA and the manner of its performance would have to be implied. The question then arises as to whether the implication is of individual terms prohibiting the conduct of (i), (ii) and (iii) 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 which members of the professions entered into required them to do more than deliver an ‘arm’s length’ commercial product or service, or often did so. A professional relationship typically involved putting the interests of the client/patient first, ahead of any commercial benefits to the practitioner. The source of these obligations was not always carefully analysed. Some professional relationships could be categorised as fiduciary, because a solicitor, for example, was actually handling client money in a transaction.
Code of conduct and ethics
The ethical content of a profession’s code of conduct, one of the characteristic indicators of professional status, could be taken to inform the client’s expectation of protection and the practitioner’s obligation to provide it.
As a Fellow of the RICS, even though I don’t practise as a chartered surveyor, I have to observe its Rules of Conduct, which include in Rule 1.2:
“Members 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”
and in Rule 1.3:
“Members 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”.
(The RICS produces further guidance in its Conflict of Interest Document.)
So it may be that an implied term in a contract between a member of a professional body includes compliance with all the content of that body’s Code of Conduct, so that breach of the Code of Conduct in the disciplinary sense would in broad terms amount to breach of the implied term. That is not without difficulty as an analysis. In England and Wales, at least, there are relatively few activities which can only be undertaken by a member of a designated professional body. Contrast this with Singapore, for example, where I once worked, where certificates of supervision under Building Control legislation can only be signed by registered Professional Engineers or Architects. So if the implied term is defined by reference to the Code of Conduct which binds members of a professional body, 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 of that body, or any professional body.
Of course, it is true that the implied term under the Supply of Goods and Services Act s.13 governs a “supplier acting in the course of a business” (s.49 is the equivalent in the Consumer Rights Act) and so does not just apply to professionals, but it would require a remarkable expansion of a duty of reasonable care and skill to create fiduciary obligations. HH Judge Watson indicated a concern that the ‘transactions’ between MGA and GSB might have an impact on MGA’s ability to carry out its contractual obligations, but that is well short of requiring that reasonable skill and care automatically involves a fiduciary relationship.
Agency as an explanation
As indicated in the introduction, MGA’s appointment was a good deal wider than would be usual for a structural engineer. Some of the tasks undertaken, for example, in obtaining planning permission, could certainly be characterised as an agency function. Indeed, in contract administration and supervision it is normally agreed that the contract administrator has significant duties as agent to the employer, as well as more limited duties to ‘hold the scales fairly’ between employer and contractor.
If it could be said that MGA was acting as Miss Martell’s agent, that 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 'Bristol & West v Mothew') of a fiduciary was “someone who has undertaken to act for or on behalf of another in a particular matter or circumstance which gives rise to a relationship of trust and confidence”. Miss Martell’s evidence was that she “had complete faith in Mr Gustyn” and HHJ Watson concluded that “she 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 conflict 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, so that that element was not a breach of fiduciary duty, the provision of advice or money, and certainly the seeking after payment of a percentage of the cost of additional work, would be so.
So agency may provide an explanation of what was wrong in the performance by MGA of its duties to the client. Even that is not without its limitations as an analysis. It is not possible to characterise all supplies of services as within a relationship of agency. Under a FIDIC contract, the Engineer acts as agent for the Employer in many functions, but in making decisions between Employer and Contractor assuredly does not do so.
Conclusion
It goes without saying that weight must be given to HHJ Watson’s treatment of the unexpected evidence. I would also attach some weight to the reaction of the King’s post‑grad students. I have tried to offer some thoughts as to the basis of a professional’s duty to a client in such circumstances.