The UK Technology and Construction Court recently granted the continuation of an injunction restraining three group companies which belong to the same global expert services group (“the Expert Group”) from providing expert services to a third party in an arbitration, on the ground that they owe fiduciary duties of loyalty to an existing client of the Expert Group .
For confidentiality reasons, the Court did not disclose the identities of the parties to the injunction proceedings.
In essence, the injunction proceedings concern two arbitrations in relation to the same project. In the first arbitration, Defendant X (based in Asia), as part of the Expert Group, was acting for the Employer against a Contractor. In the second, Defendant Y (based elsewhere), also a part of the Expert Group, was acting for the EPCM Contractor against the Employer. Defendant Z was another group company, but its role is unclear from the judgment.
This decision has major ramifications for experts providing expert services to their clients, particularly for large international organizations, and for clients engaging expert and arbitration support services.
The claimant (“the Employer”) was a developer of a petrochemical plant (“the Project”) and entered into:
(i) two contracts with a contractor (“the Contractor”) for the construction of facilities relating to the Project; and
(ii) a separate contract with another contractor (“the EPCM Contractor”) for engineering, procurement, and construction management services in relation to the
Disputes arose between the Contractor and the Employer, and the Contractor commenced an arbitration (“the Works Package Arbitration”) against the Employer, claiming for additional costs incurred by reason of delays to its work. One of the alleged causes of these delays was the late issue of drawings prepared by the EPCM Contractor. The Employer intended to pass on those claims to the EPCM Contractor if it was liable to pay additional sums to the Contractor as a result of the EPCM Contractor’s late issue of drawings. The Employer engaged Defendant X to provide delay expert services for the Works Package Arbitration. It is particularly important to note that Defendant X was also engaged to provide arbitration support services. An individual expert was assigned by Defendant X to provide these services.
Later, disputes also arose between the EPCM Contractor and the Employer, and the EPCM Contractor commenced an arbitration (“the EPCM Arbitration”) against the Employer, claiming sums due and owing under the EPCM contract. The Employer counterclaimed delay and disruption, including any additional sums payable by the Employer to the Contractor caused by the EPCM Contractor’s alleged failure to manage and supervise the Contractor.
Subsequently, the Employer was notified that the EPCM Contractor had approached the Defendants for the provision of quantum and delay expert services in connection with the EPCM Arbitration. The Employer was told that the Defendants did not consider there was a conflict because the disputes related to different contracts and that the Defendants could arrange separate teams by setting up electronic and physical barriers. The Employer disagreed and, most significantly, did not consent to the engagement of Defendants by the EPCM Contractor in the EPCM Arbitration.
The Employer was later told that the EPCM Contractor had engaged Defendant Y to provide expert services in the EPCM Arbitration.
The Employer thus applied for an injunction to restrain the Defendants from providing expert services for the EPCM Contractor. Interim relief was granted. The Employer thereafter applied for the continuation of the injunction.
One of the major issues that the court had to deal with was whether independent experts, who are engaged by a client to provide advice and support in arbitration or legal proceedings, in addition to providing expert evidence, can owe a fiduciary duty of loyalty to their clients.
The Court’s Ruling
The Court held that:
(a) In 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 this case, Defendant X was engaged to provide expert services for the Employer in connection with the Works Package Arbitration and it was also engaged to provide extensive advice and support for the Employer throughout the arbitration proceedings. In those circumstances, a clear relationship of trust and confidence arose, such as to give rise to a fiduciary duty of loyalty.
(b) An independent expert owes duties to the court that may not align with the interests of the client but the expert’s paramount duty to the court is not inconsistent with an additional duty of loyalty to the client. Therefore, the Defendants’ argument that an expert does not owe a fiduciary duty of loyalty to its client because that would be inconsistent with the expert’s independent role was not accepted.
(c) The fiduciary duty of loyalty is not limited to individuals. Instead, such duty extends to the firm or may even extend to a wider group. Even though the Defendants tried to argue that there were physical and ethical separations in place, the Court was of the view that there is still a risk that confidential information might be shared inappropriately.
(d) Further, the fiduciary obligation of loyalty is not satisfied simply by putting in place measures to preserve confidentiality and privilege. Rather, such a fiduciary must not place himself in a position where his duty and his interest may conflict.
(e) Since both arbitrations were concerned with the same delays and there is a significant overlap in the issues, there was plainly a conflict of interest for the Defendants in acting for the Employer in the Works Package Arbitration and against the Employer in the EPCM Arbitration.
(f) The Defendants owed a fiduciary duty of loyalty to the Employer arising out of the engagement to provide expert services in connection with the Works Package Arbitration, and therefore the Defendants were in breach of that fiduciary duty of loyalty by accepting an instruction to provide services for the EPCM Arbitration.
In light of the above, the Court granted a continuation of the injunction, restraining the Defendants from providing expert services to the EPCM Contractor against the Employer in the EPCM Arbitration.
In modern practice, it is common to find individual experts working under the same firm or group. Where a fiduciary duty of loyalty arises, it is not limited to the individual concerned. It extends to the firm or company and may extend to the wider group. Further, the Court held that the duty and obligation owed by the expert to the client cannot be satisfied simply by separation of teams and physical and electronic barriers being put in place.
Expert service providers should, therefore, not just conduct a comprehensive search to ensure that there is no direct or potential conflict of interest before accepting any appointment, they should also consider whether they have any fiduciary relationships with existing clients that preclude the engagement.
Parties who wish to engage experts should also be cautious, especially when engaging an expert who belongs to a global firm with a large team of experts.
Since English decisions remain persuasive precedents in Hong Kong courts, the above decision is relevant in Hong Kong. However, it is understood that the decision may go to appeal.
Albert Wong, Associate