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Does an expert owe a fiduciary duty when providing expert services?

14th May 2020

Does an expert owe a fiduciary duty when providing expert services?

A Company v XYZ [2020] EWHC 809 (TCC)

This was an application by the Claimant for the continuation of the injunction granted by the Court on 23rd March 2020, restraining the Defendants from acting as experts for a third party in ICC arbitration proceedings against the Claimant.

Background

The Claimant is the developer of a petrochemical plant (“the Project”). In 2012, the Claimant entered into contracts with the third party for engineering, procurement and construction management (“EPCM”) services in connection with the Project. In 2013, the Claimant also entered into contracts with a contractor for the construction of facilities in connection with the Project. The contractor commenced ICC arbitration proceedings against the Claimant based on a dispute concerning delays to the works (“the Works Package Arbitration”).

In the Works Package Arbitration, the contractor claims 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 is that if, and to the extent that, it is liable to pay additional sums to the contractor under the Package A and Package B contracts as a result of the third party’s late issue of the IFC drawings, the Claimant will seek to pass on those claims to the third party.

The Claimant approached the first Defendant with a view to engaging it to provide expert services and on 15 March 2019 the first Defendant signed a confidentiality agreement. By letter dated 13 May 2019 the Claimant engaged the first Defendant to provide expert services in connection with the Works Package Arbitration.

In the summer of 2019, the third party commenced ICC arbitration proceedings against the Claimant for sums due and owing under the EPCM agreements (“the EPCM Arbitration”). 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 to provide quantum and delay expert services in connection with the EPCM Arbitration.

Upon learning that the third party sought to instruct the Defendants for expert services, the Claimant made an ex parte application for an injunction to stop the defendants acting for the third party. This application was made on the ground that the provision by the Defendants of services to the third party (in relation to the EPCM Arbitration) is a breach of the rule that a party owing a duty of loyalty to a client must not, absent informed consent, agree to act or actually act for a second client in a manner which is inconsistent with the interests of the first.

Interim relief was granted until 31st March 2020, where another hearing could take place, allowing for formal notice to be served to the Defendants and further evidence to be filed to the Court.

Issue

The central issue to the continuation of the injunction was whether experts who are engaged by a client to provide advice and support in arbitration or legal proceedings owe a fiduciary duty of loyalty to their clients; and if so, has it been breached in the circumstances.

The Claimant’s case was that the engagement of the Defendants to provide expert services gave rise to a fiduciary duty of loyalty. The defendants have breached that duty of loyalty by agreeing to provide expert services to the third party in circumstances where there is a conflict, or potential conflict, of interest.

The Defendants oppose continuation of the interim injunction on the grounds that independent experts do not owe a fiduciary duty of loyalty to their clients. Even if a duty was owed, there is no conflict of interest because the fiduciary duty to the client was excluded by the expert’s overriding duty to the tribunal.

Law

The definition of a fiduciary is set out in Bristol & West Building Society v Mothew [1998] Ch 1 (CA), a case concerning the fiduciary obligations owed by a solicitor acting for both parties to a property transaction. As Lord Justice Millett stated at page 18 of Bristol:

“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.”

In Jones v Kaney [2011] 2 AC 398 (SC) Lord Phillips explained that there is no conflict between the duty that an expert owes to his client and the duty that he owes to the court when giving evidence. His Lordship compared the responsibilities of an expert and advocate when at court: “The advocate must disclose to the court authorities that are unfavourable to his client. [Similarly] [t]he expert witness must give his evidence honestly, even if this involves concessions that are contrary to his client’s interests.”

Decision

In light of the expert services provided for the Claimant in connection with the Works Package Arbitration, the Court held that ‘there was a clear relationship of trust and confidence, such as to give rise to a fiduciary duty of loyalty’ [para 54].

Applying Jones v Kanes, as there is no conflict between the duty that the expert owes to his client and the duty that he owes to the court, the duty to the court cannot preclude the fiduciary duty the expert owed to a client in the interests of another.

Therefore, the Defendants were in breach of their fiduciary duty by agreeing to work for the third party and against the claimant in the EPCM Arbitration whilst also acting for the Claimant in the Works Package Arbitration.

The Court stipulated that the ‘fiduciary obligation of loyalty is not satisfied simply by putting in place measures to preserve confidentiality and privilege’ [para 60]. Thus, despite the Defendants signing a confidentiality agreement with the Claimant, acting for the third party against the claimant breaches defendant’s fiduciary duty because the defendants would place themselves in a position where their duty and interest may conflict.

The Court emphasised, as explained in Zockoll v Mercury [1998] FSR 354 at pp.364-366, that it should only grant the injunction if it is likely that the claimant will succeed at trial. The court has a discretion whether or not to issue the injunction based on where the balance of justice lies. As the cases relied on by the Defendants in opposition to the application do not support their position, the Court considered that the Claimant is likely to succeed at trial and the balance of justice lies in continuing the injunction.

Commentary

This case emphasises that once in a position where a fiduciary duty is owed, one cannot simply create a contract or promise to not breach one’s obligations in order to act for another. An expert cannot bypass their fiduciary obligation by signing a confidentiality agreement, even with the terms stating there is no conflict of interest. The fiduciary obligation still persists, and the expert would be in breach if agreeing to provide expert services for opposing clients. As stated at paragraph 60 of A Company v XYZ, ‘such a fiduciary must not place himself in a position where his duty and his interest may conflict.’ It is this single-minded loyalty owed to a principle that is paramount for a fiduciary and underpinning the rationale for the strict liability against a fiduciary. There cannot be the potential for a conflict of interest and experts must be aware of a potential conflict before providing their services to clients.

The Court stressed that where a fiduciary duty of loyalty arises, it is not limited to the individual concerned and extends to the firm or company, and may extend to the wider group: Marks & Spencer Group plc v Freshfields Bruckhaus Deringer [2004] EWCA Civ 741; Georgian American Alloys v White & Case [2014] EWHC 94 (Comm). Therefore, considering the incorporation of umbrella or subsidiary companies, it is even more important that experts actively seek to ensure there is no conflict.

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Sally Wollaston
Sally Wollaston
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