The Mouse Guarding the Cheese? – part I

Case: The defendants (=def), the heads of an institution, hired the plaintiff (=pl), who works in the field of construction, to be in charge of building three halls in and around their building. His responsibilities included helping decide on a contractor, forging agreements with him, serving as the building inspector, and overseeing payments. Pl recommended a contracting company (=comp), said to be owned/operated by the contractor (=cont), whom he praised and reported to have given the best possible offer. Def hired comp, and they began working, receiving several payments for a subtotal of 1,016,000 NIS, but the work they did, which is now on hold, was estimated by an appraiser as being worth 230,000 NIS. Pl is suing for unpaid fees for his services of 126,000 NIS. Def claim that pl withheld the fact that pl actually had owned comp while he was supposed to be overseeing them. While he had said that he used to own comp and sold it to cont, it has only recently been transferred. Therefore, def are countersuing for the excess payment of 786,000 NIS, which to a great extent, went to pl, along with other damages he caused. Pl responded that he sold comp to cont before the work began and that he had not approved the early payment to comp (pl/def’s contract said that def should wait for pl to instruct them to pay), and since cont now certainly owns comp, def should sue cont if they overpaid.

Ruling: Pl is correct that his sale of comp was not fictitious, and at the time of the agreement with def, he intended that cont would receive practical control quickly. However, the sale did not go through as planned, as transfer of shares from pl to cont and control of comp’s bank account were delayed by a year because cont did not pay according to schedule. We do not accept pl’s contention that this control, which included depositing and writing checks, was only a formality. Therefore, the problem of a conflict of interest, when one is, in effect, supervising his own company’s work, is a serious one. Therefore, def’s agreement to pl’s role was based on misrepresentation, and pl does not deserve the balance of his salary that he has demanded, even though there is not proof that he did not visit the building site as much as he was required.

Regarding the choice of comp to do the work, it is clear that pl was significantly involved. However, it was not proved that the choice of comp was not a good one, as their price was lower than another estimate, and def did not prove that it was too high for the work involved. Only the price given for the anti-fire sprinkler system was excessive (400,000 NIS instead of 84,000 NIS offered by a different company). This is reason for pl to not receive his salary for organizing and supervising.