International Quarterly — Issue 29

An expert’s fiduciary duty of loyalty to their client - A v B [2020] EWHC 809 (TCC)

By Jesse Way, Associate, Fenwick Elliott

In this case, the claimant sought continuation of an injunction restraining the defendant from acting as experts for a third party in an ICC arbitration against the claimant.  The case is important because it clarifies the duty owed by experts to their clients.  

The claimant was a developer of a petrochemical plant (“the Project”).  The claimant engaged the first defendant (in Asia) to provide expert services with respect to an arbitration commenced by a contractor known as “the Works Package Arbitration” relating to the Project.  The first defendant’s scope of works included identifying and analysing delay events and the root cause for the delays.  In the Works Package Arbitration, the contractor claimed additional costs by reason of delays to its work, including the late release of Issued For Construction (“IFC”) drawings.  The IFC drawings were produced by the third party and the claimant’s position was that to the extent it was liable to pay the contractor any sums due to the late release of IFC drawings, these costs would be passed on to the third party.  

The first defendant (in Asia) started work on the Works Package Arbitration from June 2019.  

In the summer of 2019, the third party (producer of the IFC drawings) commenced arbitration proceedings against the claimant, known as “the EPCM Arbitration”, relating to the Project.   In October 2019, the third party approached the defendants to provide quantum and delay expert services (outside Asia) in connection with the EPCM Arbitration (bearing in mind in the Works Package Arbitration the third party’s release of the IFC was in issue).   

In other words, the third party had approached the defendants to provide expert services (outside Asia) against the claimant in the EPCM Arbitration in circumstances where the defendants were already providing expert services (in Asia) for the claimant in the Works Package Arbitration.  

A representative of the first defendant contacted solicitors for the claimant regarding the approach from the third party, stating there was no “strict” legal conflict on the basis that the third party’s contract with the claimant was for EPCM works, the first defendant’s engagement was in relation to evaluation of delays on the construction subcontract for non-process buildings, the work would be done in two separate offices, and the firm had the ability to set up physical and electronic separation between the teams. The claimant’s solicitors disagreed during a telephone conversation, after which the representative of the first defendant sent an email stating “We’ve had an internal discussion at length and do not consider it to be a true conflict.  I can explain more on a phone call, if need be.”  There was no further discussion of the issue.

It later came to light that an expert of the defendants was acting for the third party in the EPCM Arbitration.  After exchanges of correspondence between the parties, the claimants made an urgent ex parte application to the Court and an interim injunction restraining the defendants from acting for the third party in the EPCM Arbitration was granted.  The Court then had to consider in this case whether the injunction should be continued.  

The issues before the Court were:

  • whether the Court had jurisdiction to deal with the application on its merits and, if so, whether it should exercise such jurisdiction;
  • whether independent experts, who are engaged by a client to provide advice and support in arbitration or legal proceedings, in addition to expert evidence, can owe a fiduciary duty of loyalty to their clients; 
  • whether, on the evidence before the Court, the claimant was entitled to a fiduciary obligation of loyalty from the first and/or second and/or third defendants; 
  • whether there has been, or may be, a breach of any duty of loyalty or confidence; 
  • if so, whether the Court should exercise its discretion and grant the injunction.

The Court was satisfied it had jurisdiction and determined it would exercise its jurisdiction to determine the application.  Its reasons included the fact that the second defendant was domiciled in England and subject to the Courts of England and Wales, and that the claimant would obtain permission to serve proceedings on the other defendants under CPR 6.36 relying on grounds 2, 3 and 6(c) of paragraph 3.1 of Practice Direction 6B.  The defendants challenged the exercise of jurisdiction, relying on the exclusive jurisdiction agreement in a confidentiality agreement between the parties which provided that the Courts of the Abu Dhabi Global Market would have exclusive jurisdiction.  This was rejected on the basis that the claimant’s claim for relief was based on rights arising not from the confidentiality agreement but from the contract of engagement. 

As to the fiduciary duty, it was the claimant’s case that the engagement of the defendants to provide expert services gave rise to a fiduciary duty of loyalty and that the defendants were in breach of that duty by providing expert services to the third party where there was a conflict or potential conflict of interest.   The defendants’ position was that independent experts do not owe a fiduciary duty of loyalty to their clients as it is excluded by the expert’s overriding duty to the tribunal.  The Court referred to Bristol & West Building Society v Mothew [1998] Ch 1 (CA), where it was stated: 

“A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; ... he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal ... 

A fiduciary who acts for two principals with potentially conflicting interests without the informed consent of both is in breach of the obligation of undivided loyalty; he puts himself in a position where his duty to one principal may conflict with his duty to the other ... This is sometimes described as ‘the double employment rule’. Breach of the rule automatically constitutes a breach of fiduciary duty ...” 

The Court referred to other authorities and summarised the general principles to be taken from them, stating:

“i)  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: Harmony Shipping. 

ii)  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: Jones v Kaney. 

iii)  Where no fiduciary relationship arises, having regard to the nature and circumstances of the expert’s appointment, or where the expert’s appointment has been terminated, the Bolkiah test based on an ongoing obligation to preserve confidential and privileged information does not necessarily apply to preclude an expert from acting or giving evidence for another party: Meat Traders; A Lloyd’s Syndicate; Wimmera.”

The Court said that none of the authorities cited by the defendant supported their proposition that an independent expert does not owe a fiduciary obligation of loyalty to his or her client.  The Court also clarified the duty owed by independent experts, stating:

“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 may not align with the interests of the client. However, as with counsel and solicitors, the paramount duty owed to the court is not inconsistent with an additional duty of loyalty to the client. As explained by Lord Phillips in Jones v Kaney, the terms of the expert’s appointment will encompass that paramount duty to the court. Therefore, there is no conflict between the duty that the expert owes to his client and the duty that he owes to the court.”

In this case, the Court found that there was a clear relationship of trust and confidence such as to give rise to a fiduciary duty of loyalty.  This was because the first defendant was engaged to provide expert services in the Works Package Arbitration.  This included an expert report, complying with the CIArb Expert Witness Protocol and, furthermore, providing extensive advice and support throughout the arbitration proceedings.  

The Court confirmed that where a fiduciary duty of loyalty arises, it is not limited to the individual (i.e. the individual expert) but extends to the firm or company and the wider group.  The Court accepted that in this case the duty of loyalty was owed by the whole of the defendant group because (1) the first and second defendants were wholly owned subsidiaries of P Inc; (2) P Inc and the third defendant were owned in part by individual shareholders and in part by Q LLC; (3) there was a common financial interest by Q LLC and the unnamed shareholders in the defendants; and (4) the defendant group was managed and marketed as one global firm.  

The Court then turned to the issue of whether there was a breach of that duty of loyalty.  Whilst the defendants focused on the separation of the defendants as commercial entities, as well as physical and ethical screens, the Court stated that:

“… that addresses the risk that confidential information might be shared inappropriately. As clarified in the hearing, the claimant’s application is no longer based on the preservation of confidential information but on the obligation of loyalty. The fiduciary obligation of loyalty is not satisfied simply by putting in place measures to preserve confidentiality and privilege. Such a fiduciary must not place himself in a position where his duty and his interest may conflict.” (emphasis added)

The first defendant had been advising the claimant in defending the contractor’s claims in the Works Package Arbitration which included advising, analysing and giving opinions on the cause of the delays.  In the EPCM Arbitration, the claimant sought to pass on to the third party any claims due to the late release of the IFC drawings.  The arbitrations were concerned with the same delays and issues.  In those circumstances the Court held there was clearly a conflict of interest for the defendants acting for the claimant in the Works Package Arbitration and against the claimant in the EPCM Arbitration.  

The Court ultimately concluded that the injunction should be continued, stating:  

“i)  The defendant group owes a fiduciary duty of loyalty to the claimant arising out of its engagement to provide expert services in connection with the Works Package Arbitration. 

ii)  The defendant group is in breach of that fiduciary duty of loyalty by accepting instructions to provide expert services in connection with the EPCM Arbitration. 

iii)  Pending trial of this matter, the claimant is entitled to a continuation of the interim injunction to restrain the defendants from providing expert services to the third party in connection with the EPCM Arbitration.” 

The decision is very relevant to those in the construction industry.  Major construction disputes often involve an international element and almost always involve the appointment of experts in quantum, delay and other disciplines.  Given the globalised nature of expert services firms, the decision provides useful guidance as to when those firms can be appointed as experts on projects where they may be asked to provide expert services for parties involving multiple tiers of disputes.  

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