The English Court held that an expert owed a fiduciary duty of loyalty to a client

A relationship of trust and confidence may also arise between the independent expert and their client

11 November 2020 | by LexisNexis Hong Kong

Introduction

In A Company v X [2020] EWHC 809 (TCC), the English court held that an expert owed and breached a fiduciary duty of loyalty to the client. The court continued the injunction in favour of the claimant, restraining the defendants from acting as experts for a third party in ICC arbitration proceedings against the claimant.

Facts

The claimant was a developer of a petrochemical plant (the “Project”), who entered into contracts with third party group companies (the “Third Party”) for engineering, procurement and construction management services related to the Project (“EPCM Contracts”).

Arguments were made between the contractor and the claimant about the delays to two contract works. The contractor then brought ICC arbitration proceedings against the claimant in London (the “Works Package Arbitration”). In these proceedings, the contractor claimed for additional costs incurred due to the delay to its works plus the late release of Issued For Construction (“IFC”) drawings. The IFC drawings were made by the Third Party. If the claimant was liable to pay additional sums to the contractor due to the late issue of IFC drawings, the claimant would seek to pass on those claims to the Third Party.

The claimant then found an expert witness company based in Asia (the “1st Defendant”) for expert services regarding the Works Package Arbitration and signed a confidentiality agreement. K was assigned by the 1st Defendant to provide such expert services to the claimant for the works on the Works Package Arbitration.

The Third Party brought claims against the claimant in arbitration for sums due under the EPCM Contracts (“EPCM Arbitration”). The claimant counterclaimed against the Third Party regarding the delay and disruption to the Project, which also involved any extra sums payable by the claimant to the contractor caused by the Third Party’s failure to manage and supervise the contractor.

The Third Party later approached the defendants for their help to offer quantum and delay expert services (outside Asia) in relation to the EPCM Arbitration together with a conflict check. The 1st Defendant concluded that they did not consider in engaging with the Third Party for a separate dispute on the same project and working for the claimant constituted a conflict of interest.  The 1st Defendant further explained that they had the capacity to set the engagements up in a way that there was the required physical and electronic separation between the teams. However, the claimant disagreed with such assertions and sought continuation of interim injunction against the 1st Defendant for working with the Third Party relating to the EPCM Arbitration. Accordingly, this would be in breach of the rule that a party owing a duty of loyalty to a client must not, in the absence of informed consent, agree to act or actually act for another client in a way that was inconsistent with the interests of the first client. The defendants contended that independent experts did not owe a fiduciary duty of loyalty and that there was no conflict of interest.

Judgment

The English court held that an independent expert owed a fiduciary duty of loyalty to their clients. Further, a relationship of trust and confidence may also arise between the independent expert and their client in offering litigation or arbitration support services. So, the defendant group was incorrect to state that the independent expert did not owe a fiduciary duty of loyalty to their clients and there was no conflict of interest.

In this case, the court concluded that the 1st Defendant clearly had a relationship of trust and confidence to the claimant and that a fiduciary duty of loyalty arose. Here, the 1st Defendant was involved in offering expert services to the claimant for the Works Package Arbitration, plus advised and helped the claimant throughout the arbitration proceedings. As such, where a fiduciary duty of loyalty was established, this duty extended to the company and may also include broader groups. In this case, a fiduciary duty of loyalty was owed by the defendant group, and not only by the 1st Defendant.

The court then established that the duty of loyalty or confidence was breached. It stated that a fiduciary duty was not limited to just putting in place measures to safeguard confidentiality and privilege information, but a fiduciary duty was extended to cover interests that may be in conflict. In this situation, the 1st Defendant had significantly involved in the Works Package Arbitration as well as providing advice, analysis and opinions as to the cause of delays to the Project. On the other hand, the EPCM Arbitration concerned with the same delay works and so both actions had substantial overlaps. So, there was an inevitable conflict of interests for the defendants to work for and against the claimant in both arbitration proceedings.

Finally, the court granted an interim injunction to the claimant. Following, Zockoll v Mercury [1998], the court should only grant an injunction if it is likely that the claimant would succeed at trial in which the court has the discretion whether or not to exercise such measures based on where the balance of justice lies. Therefore, the court continued the injunction and restricted the defendants from providing expert services to the Third Party regarding EPCM Arbitration.


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