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Where Does Your Loyalty Lie? Experts and Their Fiduciary Duty of Loyalty

In the case of A Company v (1) X (2) Y (3) Z [2020] EWHC 809 (TCC) a consulting firm was recently blocked from providing expert witness services in an ICC arbitration over a petrochemical plant. The High Court of England and Wales found that the consulting firm was conflicted because an affiliate of the firm had been instructed by the opposing side in another ICC case related to the same project. In reaching its decision, the High Court considered whether independent experts engaged to provide advice and support in arbitration proceedings owed their client a fiduciary duty of loyalty and whether they can advise two opposing parties.

 

Facts

The Claimant, as the owner of a petrochemical plant (the “Project”), entered into agreements with third-party group companies (the “EPCM Contractor”) for engineering, procurement and construction management (“EPCM”) services in relation to the Project. In 2013, the Claimant entered into two contracts with another contractor (the “Construction Contractor”) for the construction facilities in connection with the Project.

Disputes arose between the Construction Contractor and the Claimant in connection with the construction works and the Construction Contractor initiated an ICC arbitration against the Claimant. The Claimant subsequently engaged X to provide expert services in relation to the arbitration. The Claimant and X entered into an engagement agreement in May 2019. X, Y and Z were all part of the same consultancy firm, based in different countries.

In October 2019, the EPCM Contractor approached the consulting firm, X, to provide expert services in relation to an arbitration the EPCM Contractor had commenced against the Claimant for services they had provided for the Project (the “EPCM Arbitration”). X informed the Claimant that engaging the services of Y and Z would not present a conflict of interest because: (1) X was based in a different country to Y and Z; (2) the EPCM Arbitration was different to the arbitration with the Construction Contractor; and (3) the consulting firm had physical and electronic barriers that protected confidential information. The Claimant disagreed and further expanded the scope of its instructions to X to include providing expert witness services in respect of the EPCM Arbitration. Ultimately, Y and Z began working for the EPCM Contractor.

On 20 March 2020, the Claimant issued an urgent ex parte application for an injunction to prevent the consulting firm, including X, Y and Z, from acting for the EPCM Contractor. The Claimant argued that engaging the consulting firm, X, in May 2019 to provide expert services gave rise to a fiduciary duty of loyalty. Due to the similarity of the two arbitrations, the three Defendants were breaching that duty by agreeing to provide expert services to the EPCM Contractor.

The Defendants disagreed, arguing that independent experts do not owe a fiduciary duty of loyalty and even if they did, an expert’s overriding duty to the tribunal supersedes his or her duty to the client.

 

Do Experts Owe a Duty of Loyalty?

In determining whether the Defendants owed a fiduciary duty of loyalty, Justice O’Farrell considered the definition of a fiduciary as set out in Bristol & West Building Society v Mothew [1998] Ch 1 (CA)

“The distinguishing obligation of a fiduciary is the obligation of loyalty… A fiduciary… must not place himself in a position where his duty and his interest may conflict…

A fiduciary who acts for two principals with potentially conflicting interests without the informed consent of both is in breach of the obligation.”

Justice O’Farrell drew a distinction between existing client conflicts where there may be a potential breach of a fiduciary duty and former client conflicts, where the issue is over the misuse of confidential information. The test was laid down in Prince Jefri Bolkiah v KPMG [1999] 2 AC 222 (HL). To act for and against the same client would lead to a conflict of interest and breach of the fiduciary duty of loyalty, unless both parties provide consent. However, once the expert’s retainer ends they will no longer owe that duty of loyalty, but must still protect their former client’s confidential information.

Justice O’Farrell considered circumstances where a duty of loyalty did not exist. In Wimmera Industrial Minerals Pty Ltd v Iluka Midwest Ltd [2002] FCA 653, it was found that there was no implied duty of loyalty to a client where the client is aware that the expert is providing consultancy services to others, including the opposing party. Further, in the case of Meat Corporation of Namibia Limited v Dawn Meats (UK) Limited [2011] EWHC 474 (Ch), there was no duty of loyalty where the expert had been consulted but not retained by the claimant and was subsequently instructed by the defendant.

On the issue of the overriding duty of an expert to the court, Justice O’Farrell did not consider there to be a conflict between this duty and an expert’s duty of loyalty to its client. In Jones v Kaney [2011] 2 AC 398 (SC), the Supreme Court stated that an expert has a paramount duty to the court or tribunal, which may require the expert to act in a way which does not advance the client’s case. The client is, however, aware of this as the expert’s obligations are set out in the Civil Procedure Rules. Therefore, there is no conflict.

 

The High Court Decision

Justice O’Farrell found that the consulting firm, X, owed a fiduciary duty of loyalty because it was engaged to provide extensive advice and support for the Claimant throughout the arbitration proceedings with the Construction Contractor. Its advice further concerned the same delays and covered issues with significant overlap to the arbitration with the EPCM Contractor.

Citing Bolkiah and Marks & Spencer Group plc v Freshfields Bruckhaus Deringer [2004] EWCA Civ 741, Justice O’Farrell found that the duty of loyalty is not limited to the individual expert concerned, but extends to the firm or company.

Accordingly, Justice O’Farrell found that the fiduciary duty applied to the Defendants for three reasons:

  1. The Defendants are controlled by a common shareholder and share a common financial interest
  2. They are managed and marketed as one global firm
  3. They have a common approach to identification and management of any conflicts, having the discretion to pick and choose to whom they provide their services

On this basis, it was found that the Defendants had breached their duty by accepting instructions to provide expert services to the EPCM Contractor. It is not relevant whether the Defendants could protect confidential information from the EPCM Contractor. Since a fiduciary duty of loyalty existed, by accepting instructions from an adverse party, the Defendants had placed themselves in a position where their duty and interest may conflict.

 

Commercial Implications

This case underlines the importance of engaging experts on clear terms and highlights the weight a court will place upon the services actually provided. To avoid any contention around implied duties, consideration should be given to express obligations of loyalty in an engagement letter. In addition, it is important to state the scope, breadth and depth of advice or support the expert is being engaged to provide. Clear language can avoid future arguments as to whether the expert owes a fiduciary duty of loyalty.

Consulting firms that provide expert services should bear in mind that the act of accepting instructions from opposing parties could lead to a conflict of interest and a breach of the fiduciary duty of loyalty. Moreover, the obligation of loyalty may well extend to a group that portrays itself as a collective. Such portrayal arises through a common financial interest, marketing strategy, discretionary selection of clients and management of conflicts.

 

Guy Holden (White & Case, Trainee Solicitor, London) contributed to the development of this publication.

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