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Court of Appeal finds experts had conflict of interest that breached client retainer

Insights / / Court of Appeal finds experts had conflict of interest that breached client retainer

Secretariat Consulting Pte Ltd & others v. A Company [2021] EWCA Civ 6

The Court of Appeal has agreed with the lower Court that separate entities within an international group of companies should not be permitted to act as experts for different parties in related arbitrations. It, therefore, upheld the injunction that had been granted by the judge against the entire expert group. However, while the judge had granted the injunction on the basis that for the experts to act in the two arbitrations would breach a fiduciary duty of loyalty owed to the Claimant client, the Court of Appeal founded its decision on a conflict of interest that breached the terms of the confidentiality agreement with the Claimant.

The background facts

Briefly, the Secretariat Group of companies comprised separate entities operating in different jurisdictions, all of which acted as delay and quantum experts in construction arbitrations. The Claimant company, a developer of a large petrochemical plant, had appointed the Singaporean entity, Secretariat Consulting Pte Ltd (“SCL”), to act as its expert in an arbitration against certain sub-contractors in relation to the project (“Arbitration 1”). The retainer included a confidentiality agreement and a conflict check was carried out across the whole Secretariat Group. SCL expressly confirmed in writing that it had no conflict of interest in acting for the Claimant.

The third party project manager, TCP, subsequently commenced a separate arbitration against the Claimant in respect of unpaid fees relating to the project (“Arbitration 2”). The Claimant counterclaimed against TCP, alleging that they had failed to manage/supervise the sub-contractors properly, further that they were responsible for certain delays on which the sub-contractors were relying in Arbitration 1.

TCP retained Secretariat International UK Ltd (“SIUL”), the UK entity of the Secretariat Group, as its expert in Arbitration 2. The Claimant contended that this was a conflict of interest and obtained an injunction against the entire Group, which effectively prevented SIUL from continuing to act for TCP in Arbitration 2.

In granting the injunction, the judge at first instance stated that the Claimant was owed a fiduciary duty of loyalty not just by SCL but by the Secretariat Group as a whole. The Group was managed and marketed as one global firm and there was a common financial interest between the different entities. It was, therefore, unrealistic to limit this duty of loyalty to SCL. Further, the fiduciary duty had been breached because there was a significant overlap in the issues in the two arbitrations and there was plainly a conflict of interest for the Group in acting for the Claimant in Arbitration 1 and against the Claimant in Arbitration 2.

The Group appealed.

The Court of Appeal decision

The Court of Appeal dismissed the appeal and upheld the injunction, but on somewhat different reasoning to that of the judge.

Noting that there was no prior English authority on the issue of whether an expert owed a fiduciary duty of loyalty to his client, the Court of Appeal was reluctant to conclude that there was such a duty in circumstances where it did not have to do so to decide the appeal. In its view, however, such a fiduciary duty might have unforeseen ramifications and might not be the most accurate way to define the relationship between a client and an expert. It, therefore, assumed that the experts in this case did not owe the Claimant a fiduciary duty and considered instead the effect of the express provision dealing with conflicts of interest in the parties’ confidentiality agreement. As to whether SCL owed the Claimant a contractual duty to avoid conflicts of interest for the duration of its retainer, the Court of Appeal concluded that the terms of the parties’ agreement meant that it did.

The Court of Appeal further found that this contractual duty extended to the other Secretariat entities. Among other relevant considerations, the way in which the Group marketed itself and dealt with its correspondence and other administrative matters meant that there was no clear outward differentiation between the different Group entities and the individual experts working for those entities. The Court of Appeal stated ultimately that as the conflict check was carried out across the whole Secretariat Group, the undertaking given by SCL in its retainer bound all the Group companies. They were all providing the same form of litigation support and expert services.

The Court of Appeal decided that this contractual duty had been breached. Based on the scope of their retainer, both SCL and SIUL had a wide expert advisory role vis a vis their clients that extended beyond merely giving evidence at the arbitration hearings. If an expert was involved in numerous aspects of  the preparation of a client's case before it was presented, then that increased the risk that there would be a conflict of interest with that same expert being employed by another party to carry out the same or similar wide-ranging role, but this time against the interests of that client. The Secretariat entities were delay and quantum experts who, as highlighted by the Court of Appeal, were traditionally retained at an early stage in construction disputes to provide wide-ranging support and advice in the hope that their assistance would help to settle the case so that there would be no hearing at all. They were rarely engaged merely as testifying experts.

The Court of Appeal acknowledged that conflict of interest was a matter of degree. However, given the overlap of parties, role, project, and subject matter in this case, there was a clear conflict of interest.

 Comment

This dispute was decided ultimately on its own particular facts and by reference to the relevant retainer. In concentrating on the experts’ contractual duty to avoid a conflict of interest, the Court of Appeal has left open the question of whether a fiduciary duty of loyalty can exist in other expert/client relationships, for example where the retainer does not impose a contractual duty of confidentiality or does not adequately deal with conflicts of interest.

The Court of Appeal did, however, state specifically that delay experts are often key to assisting an arbitration team to focus on the relevant factual issues. In that context, it would arguably be inapt for the same firm of experts to be putting forward factually inconsistent cases on delay in related or similar arbitrations.

In industries such as construction, shipping and energy, where experts can be confined to a few well-known names, it is important to get your expert instructed quickly and to ensure that any retainer or agreement includes provisions on conflicts of interest and confidentiality – which is usually the case nowadays.

Vernon Sewell

Vernon Sewell Partner

Frances Drain

Frances Drain Senior Associate

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