English Court holds that an expert can owe a fiduciary duty of loyalty to a client

In the recent case of A Company v X,Y, Z [2020] EWHC 809 (TCC), England’s Technology and Construction Court granted an injunction restraining the Defendants (a global expert  firm) from acting in an arbitration, due to breach of the fiduciary duty of loyalty to the client. It held that where independent experts are engaged by a client to provide advice and support in arbitration or legal proceedings, in addition to expert evidence, they can owe a fiduciary duty of loyalty to their clients. Here, that duty had been breached as there was plainly a conflict of interest for the Defendants to act for the Claimant in one arbitration and against them in another arbitration concerning the same delays in a construction project and with a significant overlap in the issues. This was the case, despite two separate offices of the Defendant firm being appointed (one in London and one in Asia). The Court said that where a fiduciary duty of loyalty arises, it is not limited to the individual concerned, but extends to the firm or company and may extend to the wider group. Here it was owed by the whole of the Defendant group.

Background

The Claimant, the developer of a petrochemical plant (the Project), entered into agreements with third party group companies (the Third Party) for engineering procurement and management services in connection with the Project (EPCM Agreements). The Claimant subsequently entered into two contracts with a contractor for the construction of facilities in connection with the Project.

Disputes arose between the contractor and Claimant concerning delays to the works and the contractor commenced ICC arbitration proceedings against the Claimant in London (the Works Package Arbitration). In the Works Package Arbitration, the contractor claimed additional costs incurred by reason of delays to its works, including the late release of Issued For Construction (IFC) drawings. The IFC drawings were produced by the Third Party pursuant to its EPCM agreements with the Claimant. The Claimant's position was that if, and to the extent that, it was liable to pay additional sums to the contractor as a result of the Third Party's late issue of the IFC drawings, the Claimant would seek to pass on those claims to the Third Party.

The Claimant engaged an expert witness company based in Asia (the 1^st Defendant, X) to provide delay analysis expert services in connection with the Works Package Arbitration. K was the individual expert assigned by X to provide the expert services to the Claimant and he started work on the Works Package Arbitration from June 2019.

In the summer of 2019, the Third Party commenced ICC arbitration proceedings against the Claimant in London (EPCM Arbitration) in which the Third Party claimed sums due under the EPCM Agreements. The Claimant brought counterclaims against the Third Party in respect of delay and disruption to the Project, including any additional sums payable by the Claimant to the contractor caused by the Third Party's alleged failure to manage and supervise the contractor.

In October 2019 the Defendants were approached by the Third Party’s solicitors to provide (outside Asia) quantum and delay expert services in connection with the EPCM Arbitration. X took the view that working on the two matters (in different offices) would not constitute a "strict" legal conflict and that they had the ability to set the engagements up in a manner so that there was the required physical and electronic separation between the teams and there would therefore be no conflict of interest. M was the individual expert assigned by X to provide the expert services to the Third Party in respect of the EPCM Arbitration. The Claimant disagreed and obtained an interim injunction to prevent the Third Party from using M, which it now sought to continue on the ground that provision by the Defendants of services to the Third Party in connection with the EPCM Arbitration was a breach of the rule that a party owing a duty of loyalty to a client must not, without informed consent, agree to act or actually act for a second client in a manner which is inconsistent with the interests of the first.

Issues before the Court

Do independent experts engaged by a client to provide advice and support in arbitration or legal proceedings, in addition to expert evidence, owe a fiduciary duty of loyalty to their clients?

It was the Claimant’s case that the Defendant’s engagement gave rise to a fiduciary duty of loyalty on their part and they were in breach of such by agreeing to provide expert services to the Third Party, given the conflict of interest or potential conflict of interest. The Defendants argued that independent experts do not owe a fiduciary duty of loyalty to their clients, since experts have an overriding duty to the tribunal and a fiduciary duty would be inconsistent with the independent role of an expert.

The Court distilled the following general principles from the legal authorities cited by the Defendants:

• In principle, an expert can be compelled to give expert evidence in arbitration or legal proceedings by any party, even in circumstances where that expert has provided an opinion to another party.
• When providing expert witness services, the 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.
• Where no fiduciary relationship arises, having regard to the nature and circumstances of an expert’s appointment, or where the expert’s appointment has been terminated, the ongoing obligation to preserve confidential and privileged information does not necessarily apply to preclude an expert from acting or giving evidence for another party.

The Court said none of those authorities supported the Defendant’s argument that an independent expert does not owe a fiduciary duty of loyalty to his client.  It said that as a matter of principle, the circumstances in which an expert is retained to provide litigation or arbitration support services could give rise to a relationship of trust and confidence. In common with counsel and solicitors, an independent expert owes duties to the court that might not align with the interests of the client. However, the paramount duty owed to the court is not inconsistent with an additional duty of loyalty to the client. The terms of the expert's appointment will encompass that paramount duty to the court and therefore, there is no conflict between the duty that the expert owes to his client and the duty that he owes to the court.

Was the Claimant entitled to a fiduciary obligation of loyalty from the Defendants?

Yes. The Court said that the 1st Defendant was engaged to provide expert services for the Claimant in connection with the Works Package Arbitration. The 1^st Defendant was instructed to provide an independent expert report and to comply with the duties set out in the CIArb Expert Witness Protocol as part of the engagement. However, it was also engaged to provide extensive advice and support for the Claimant throughout the arbitration proceedings and in those circumstances a clear relationship of trust and confidence arose, such as to give rise to a fiduciary duty of loyalty. The Court said that where a fiduciary duty of loyalty arises, it is not limited to the individual concerned, but extends to the firm or company and may extend to the wider group. Here it was owed by the whole of the Defendant group.

Had the duty of loyalty or confidence been breached?

Yes. The Court said that the fiduciary duty of loyalty is not satisfied simply by putting in place measures to preserve confidentiality and privilege. A fiduciary must not place himself in a position where his duty and his interest may conflict. The 1^st Defendant had been advising and assisting the Claimant in the formulation and presentation of its defence to the contractor's claims in the Works Package Arbitration, including the provision of advice, analysis and opinions as to the cause of delays to the Project. In the EPCM Arbitration, the Claimant sought to pass on to the Third Party any claims arising from late provision of the IFC drawings. The arbitrations were concerned with the same delays and there was a significant overlap in the issues. There was, the Court said, plainly a conflict of interest for the Defendants in acting for the Claimant in the Works Package Arbitration and against the Claimant in the EPCM Arbitration.

Should the Court exercise its discretion and grant the injunction?

Yes. The Court said that in circumstances where the grant of the injunction, albeit an interim injunction, will in effect provide the claimant with the whole relief which it seeks in the claim, the court should only grant it if it is likely that the claimant will succeed at trial. However the court has a discretion whether or not to issue the injunction based on where the balance of justice lies. On the material before it, the Court was satisfied that the Claimant was likely to succeed at trial and that the balance of justice lay in continuing the injunction

Accordingly, the Court continued the injunction restraining the Defendants from providing expert services to the Third Party in respect of the EPCM Arbitration.

Comments

Issues of conflict seldom arise in engaging expert witnesses. They will usually take a conservative approach in deciding whether to accept instructions acting for the opposite party. In this case, the individuals acting as expert were different, although they were from the same company. The Court did not accept that setting up a “Chinese Wall” between the two experts was good enough. One important feature in their engagement was that the company was not only providing expert witness services, but also arbitration support services to their clients. The boundary between these two types of services is often not clear in Hong Kong.