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Fiduciary or Contractual? Experts' Duties and Conflicting Interests

In the case of (1) Secretariat Consulting Pte Ltd, (2) Secretariat International UK Ltd, (3) Secretariat Advisors LLC v A Company [2021] EWCA Civ 6, the Court of Appeal upheld the decision of the Technology and Construction Court in A Company v (1) X, (2) Y, 3 (Z) [2020] EWHC 809 (TCC) on different grounds. The Court of Appeal found that although an expert may owe fiduciary duties, including a duty to avoid conflicts of interest and a duty of loyalty, there was an express contractual provision on conflicts which was breached.

 

Facts

In our alert on 17 April 2020, we visited the case of A Company v (1) X, (2) Y, 3 (Z) [2020] EWHC 809 (TCC) wherein we discussed the judgment that Justice O'Farrell handed down on 3 April 2020. The case involved a claim by the owner ("A Company") of a petrochemical plant (the "Project") against various companies of the Secretariat group. A Company engaged a project manager (the "Project Manager") for the engineering, procurement and construction management services for the Project.

Two arbitrations subsequently commenced where experts were engaged:

  • The first arbitration concerned a dispute between the sub-contractor and A Company regarding the construction works under the Project ("Arbitration 1"). A Company subsequently engaged an expert ("Expert K") from Secretariat Consulting Pte Ltd ("SCL") to provide expert services in Arbitration 1.
  • The second arbitration concerned a dispute between the Project Manager and A Company. The Project Manager claimed unpaid fees under the terms of its management contract in connection with the Project ("Arbitration 2"). The Project Manager approached an expert ("Expert M") from Secretariat International UK Ltd ("SUIL") to provide quantum expert services in respect of Arbitration 2.

Secretariat Advisors LLC ("SAL") were involved in some of the correspondence. SCL, SUIL and SAL were part of the same consultancy firm, Secretariat group.

SCL informed A Company that engaging in the services of both SCL and SUIL would not present a conflict of interests because: (i) SCL was based in a different country to SUIL; (ii) Arbitration 1 and Arbitration 2 were different; and (iii) Secretariat group had physical and electronic barriers that protected confidential information.

On 20 March 2020, A Company issued an urgent ex parte application for an injunction to prevent SUIL from acting for the Project Manager. The Claimant argued that engaging SCL to provide expert services in Arbitration 1 gave rise to a fiduciary duty of loyalty.

Following the hearing on 31 March 2020, Justice O'Farrell handed down her written judgment on 3 April 2020 in which she found that SCL owed a fiduciary duty of loyalty to A Company as it was engaged to provide extensive advice and support to A Company throughout Arbitration 1. This duty extended to SUIL and SAL (as part of the Secretariat group). Our full article on this judgment can be accessed here.

SCL, SUIL and SAL appealed the decision of Justice O'Farrell to the Court of Appeal.

 

Issue 1: Did SCL owe a Fiduciary Duty of Loyalty to A Company?

SCL, SUIL and SAL objected to the finding of a fiduciary duty in this case because they argued that the overriding duty that an expert had towards the Court or Tribunal (Wheeldon Brothers Waste Ltd v Millennium Insurance Co Ltd [2017] EWHC 218 (TCC)), would conflict with or negate any fiduciary duty of loyalty.

Justice Coulson rejected this submission: whilst he accepted that an expert's overriding duty is to the Court or Tribunal, he did not accept that such a duty meant that the expert could not in law owe a fiduciary duty of loyalty to his client.

However, although Justice Coulson rejected the primary reason for objecting to the finding of a fiduciary duty, in the interest of preventing unseen ramifications by labelling the expert's duty as fiduciary (as the "expression 'fiduciary' is freighted with a good deal of legal baggage"), Justice Coulson concluded that there was no purpose by designating the relationship as a fiduciary one. There was a contract between the parties with an express clause dealing with conflicts of interest; a fiduciary duty of loyalty would not enhance the obligations arising from this clause.

 

Issue 2: Did SCL owe A Company a Contractual Duty to avoid Conflicts of Interest?

The terms of SCL's engagement by A Company in Arbitration 1 were set out in a letter which expressly recorded, under the heading "CONFLICT OF INTEREST", that SCL had "confirmed [it had] no conflict of interest in acting for [the Claimant] in this engagement" and that SCL "will maintain this position for the duration of [its] engagement".

Justice Coulson concluded that this provision had two consequences: (i) SCL confirmed that there was no conflict of interest at the time of the agreement; and (ii) SCL undertook to not create any such conflict of interest in the future. On this basis, SCL owed A Company a clear contractual duty to avoid conflicts of interest for the duration of its retainer.

 

Issue 3: Was the Duty also owed by the other Secretariat Entities?

Justice Coulson found that the undertaking given by SCL bound all the other Secretariat entities which all provide the same or similar litigation and arbitration support / expert services, as the Conflict Check undertaken by SCL for Arbitration 1 was carried out in respect of all the Secretariat entities.

In support of this conclusion, Justice Coulson noted that a great deal of other evidence confirmed that it is 'Secretariat International' who is regarded by its clients as their expert, not an individual entity in the Secretariat structure. In particular:

  1. It was 'Secretariat International' that appeared on all the e-mail addresses, irrespective of which company in the group for which the individual worked.
  2. Secretariat International markets itself as (and the emphasis in all the Secretariat material is on) one global firm, with numerous regional offices around the world. Indeed, when Expert K joined SCL, the press release stated that he would "lead Secretariat's charge into Asia whilst also contributing to the firm's ongoing success in the Middle East".
  3. Expert K and Expert M are both part of what the Secretariat International website calls "the Secretariat International Team".
  4. Expert K used the expression "our firm" when advising A Company that SIUL had received an enquiry from the Project Manager.

 

Issue 4: Was there a Conflict of Interest?

In order to address the issue of whether there was a conflict of interest, Justice Coulson first considered the scope of the experts' services. SCL, SUIL and SAL argued that there was a distinction between a 'testifying expert' and a 'roving expert'; with the submission that Expert K as a testifying expert did not have a wider advisory role. It was submitted that SCL (in the person, Expert K) had a limited role which pointed away from a conflict of interest arising with SUIL, where Expert M was dealing with both quantum and delay issues alongside preparing sections of the Project Manager's pleadings.

Justice Coulson did not confirm the validity of the distinction between a 'testifying expert' and a 'roving expert'. However, to the extent that this points to the fact that an expert with a wider advisory role is more likely to run a risk of creating conflicts, Justice Coulson considered: (i) Expert K's retainer letter and (ii) a letter from the Project Manager dated 24 August 2020, which confirmed that SIUL looked at a wide range of documents to assist the Project Manager's Particulars of Claim.

On the basis of his review of the letters, Justice Coulson concluded that both SCL and SIUL "could be fairly described as the freest of 'roving experts', and the risk of a conflict of interest was thereby exacerbated".

Justice Coulson held that there was a clear conflict of interest between SCL acting for A Company and SUIL acting for the Project Manager, for the following four reasons:

  1. SCL was advising A Company in Arbitration 1. If SUIL was then engaged by the Project Manager in Arbitration 2, it would be advising against A Company.
  2. A Project Manager acts as the Employer's representative on site during the project. As far as any on-site contractor on this Project was concerned, the Project Manager was, for all intents and purposes, the Employer Client.
  3. SCL in Arbitration 1 and SUIL in Arbitration 2 would be advising on the design and construction of the same Project.
  4. The critical issues in both Arbitration 1 and Arbitration 2 concern the causes of delay in the design and construction of the Project.

 

Commercial Implications

The issues that arise in this case are potentially significant. Whilst Justice Coulson concludes that this case does not indicate that the same expert cannot act both for and against the same client, he confirms that determining a conflict of interest is a matter of degree. In the above circumstances, there were numerous overlaps: parties, role, Project and subject matter. Consulting firms should therefore give paramount attention in considering any potential overlaps (and the degree of the overlaps) in their previous instructions and potential new instructions.

In addition, consulting firms should note that a conflict of interest undertaking in one company's retainer may extend to a group that portrays itself as a collective. Accordingly, consideration of any potential conflicts may need to extend to the wider group.

 

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