Global expert services firm breaches conflicts undertaking by appointments in related arbitrations

Two related arbitrations regarding a petrochemical plant

The developer of a petrochemical plant (the Developer) was the respondent in two London-based arbitrations. The first concerned a claim by a sub-contractor (Arbitration 1). The second concerned a claim by the Developer’s project manager (the Project Manager) (Arbitration 2).

There was a clear overlap in the issues and claims arising in these arbitrations. In Arbitration 1, the sub-contractor claimed costs arising from delays to its work, which it alleged were caused by the late release of certain construction drawings by the Project Manager. In Arbitration 2, the Project Manager claimed and the Developer counterclaimed for sums related to the consequences of the Project Manager’s delay in issuing the construction drawings.

Different parts of global expert services group engaged as experts in both arbitrations

The Developer engaged Secretariat Consulting Pte Ltd (SCL) to provide expert services in Arbitration 1. Under SCL’s terms of engagement, SCL confirmed that it had no conflict of interest in acting for the Developer and would “maintain this position for the duration of [its] engagement”. From June 2019, the testifying expert (“K”) and his team began work, with a particular focus on the delay issues in the project.

In March 2020, the Project Manager engaged Secretariat International UK Ltd (SIUL), of the same corporate group as SCL, to provide expert services in support of its claims against the Developer regarding quantum in Arbitration 2. “M” was engaged as the testifying expert. The Developer’s objection that the Project Manager’s engagement of SIUL would give rise to a conflict of interest was ignored by the Project Manager and the Secretariat Group.

The Developer obtained an urgent interim injunction from the English court restraining the Secretariat Group from providing expert services to the Project Manager in Arbitration 2. The injunction was continued by Mrs Justice O’Farrell in April 2020. The Secretariat Group appealed and on 11 January 2021 the Court of Appeal handed down its judgment dismissing the appeal of the Secretariat Group, although for different reasons to the position taken by the court at first instance.

No fiduciary duty owed by expert witness

The first instance judgment focussed on the Developer’s argument that the Secretariat Group owed a fiduciary duty of loyalty to it, akin to the fiduciary duty of a lawyer to their client. The Developer argued that this duty was breached due to the existence of a conflict, or potential conflict, of interest for the Secretariat Group by the engagement of SIUL by the Project Manager. O’Farrell J determined that in circumstances where SCL was engaged to provide advice/support to the Developer and to prepare an expert report, there was the necessary relationship of trust and confidence to give rise to a fiduciary duty of loyalty, which extended to the rest of the Secretariat Group. It was the first time that an English court had determined that an expert in arbitration or litigation proceedings owed a fiduciary duty of loyalty to its client.

The Court of Appeal disagreed. Lord Justice Coulson, giving the lead judgment, said that he would be “reluctant” to conclude that a fiduciary duty of loyalty is owed by an expert to his client in circumstances where this was not a necessary finding to dispose of the appeal. Lord Justice Males was more definitive in his concurring judgment, stating that “an expert witness is not a fiduciary and does not owe fiduciary duties to his client”, save in circumstances far removed from the present case.  Although the relationship between a client and an expert witness may have some characteristics of a fiduciary relationship, the court determined that it is not the most accurate way of describing what an expert does when instructed in litigation or arbitration proceedings. 

Contractual duty to avoid a conflict of interest bound entire group

The Court of Appeal preferred instead to analyse the expert’s obligations based on the terms of the expert’s retainer. The terms of SCL’s retainer dealt expressly with conflicts of interest and required SCL to avoid conflicts for the duration of the retainer. Males LJ noted that it would be unusual nowadays in any substantial litigation or arbitration for an expert to be retained without a retainer that addresses conflicts.

The court held that SCL’s contractual undertaking to avoid a conflict of interest bound all of the companies in the group, including SIUL. Similarly, the first instance judge had found that a fiduciary duty of loyalty extended to the broader group.

On the specific facts in this case, the wide scope of the conflict check that had been carried out by Singapore-based SCL suggested that SCL was giving the undertaking in the retainer on behalf of all Secretariat entities. This was supported by the fact that the Secretariat Group was marketed and managed as one global group of companies and that its clients and SCL’s testifying expert did not distinguish the individual entity in the Secretariat structure that was retained.

Coulson LJ rejected the Project Manager’s argument that this finding had the effect of piercing the corporate veil; this was a question of commercial construction of the engagement terms that was informed by the factual background and the commercial reality of the parties’ positions.

Expert’s conflict of interest existed

The Secretariat Group argued that the appointment of SIUL and M did not give rise to a conflict, as M was to be instructed in a separate arbitration, M was an expert in a different discipline from K, and M was employed by a different company to SCL. The Court of Appeal, like the first instance judge, rejected these arguments, finding that a conflict of interest, which is a matter of degree, did exist.

The court stated that the overlaps in this case were “all pervasive”, as there was an overlap of parties, role, project and subject matter. For example, while SCL was giving advice to support the Developer, SIUL would be giving advice on the same or similar disputes and issues opposing the Developer. The court noted the breadth of the roles of SCL and SIUL, who were engaged to be more than simply “testifying experts”, which exacerbated the risk of a conflict of interest.  It was also relevant that the Developer considered that there was a conflict and that the Secretariat Group appeared to accept that there was, or might be, a conflict.

Comment

The facts of this case are distinctive, involving two live arbitrations and an expert services provider that was seeking to act for and against its client’s interests in relation to disputes concerning the same project and the same or a similar subject matter. However, the case is noteworthy for the guidance that it provides to experts and their clients in litigation and arbitration matters on the court’s approach to assessing a potential conflict of interest in a time when multi-jurisdictional expert services firms now regularly operate and market themselves as one firm.

The case clarifies that the obligation of loyalty owed by an expert to its client will be determined by the expert’s terms of engagement rather than the designation of the relationship as a fiduciary one. The decision to overturn the first instance judgment on this issue will be welcomed by experts, who will have feared the legal ramifications of the attachment of the “fiduciary” designation. They may, however, be less welcoming of the court’s decision to extend the duty to avoid conflicts to the whole of the Secretariat Group; this may trigger a rethink over how cross-jurisdictional expert groups market themselves and present their terms of engagement.

The court’s emphasis on the contractual position as the basis for assessing the scope of an expert’s duty to avoid conflicts of interest suggests that careful attention must be paid to the precise words proposed by an expert in its retainer. The users of expert services should be alert to expert groups seeking to limit the representations and undertakings that they offer in relation to conflicts of interest to the specific entity involved. While a party will need to accept that an expert that it has previously engaged may appear on the other side of a dispute in relation to a different project, it will wish to ensure that the expert and the expert’s group cannot be retained against its interests where the proceedings relate to the same or a related project.

Further information

This case summary is part of the Allen & Overy Litigation and Dispute Resolution Review, a monthly publication.  If you wish to receive this publication, please contact Amy  Edwards, amy.edwards@allenovery.com