An Arbitrator’s Duty to Avoid Conflicts of Interest
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In Secretariat Consulting Pte Ltd v A Company  EWCA Civ 6, England’s Court of Appeal held that, depending on the terms of the retainer, the relationship between a provider of litigation support services/expert and his or her client, may have one of the characteristics of a fiduciary relationship, namely a duty of loyalty or, to put it another way, a duty to avoid conflicts of interest. In this case, there was a contract with an express clause dealing with conflicts of interest and since a fiduciary duty of loyalty would not add to or enhance the obligations arising from that clause, considering the issue further was unnecessary for the disposition of the appeal.
The respondent, the developer of a large petrochemical plant (Project) engaged a project manager (the third party) for engineering, procurement and construction management (EPCM) services for the Project. Amongst its responsibilities as project manager, was the provision of Issued For Construction Drawings (IFC Drawings) which tell the contractors what to build. As part of the Project, the respondent had two subcontracts relating to the construction of certain facilities at the plant with a subcontractor, known as Package A and Package B. Disputes arose between the respondent and subcontractor and the subcontractor brought claims in Arbitration 1 against the respondent. One of the principal elements of the subcontractor's claim was the additional costs due to delay and disruption, which the subcontractor alleged was the result of the late release of the IFC Drawings.
In March 2019, the respondent's solicitors approached Secretariat Consulting Pte Ltd (SCL), a Singapore subsidiary of the Secretariat group (which group provides litigation support services and act as delay and quantum experts in construction arbitrations) to provide arbitration support and expert services in Arbitration 1, in connection with the causes of delay and disruption to packages A and B. The first stage of the proposed retainer was the completion of a Confidentiality Agreement, entered into between the respondent's solicitors and SCL dated 15 March 2019, which contained a provision (clause 4) stating : "Under no circumstances shall [SCL] at any time, without the prior written approval of [the respondent's solicitors] acknowledge to any third party what is or is not a part of the Confidential Information, nor shall [SCL] acknowledge to any third party the execution of this Agreement, the terms and conditions contained herein or the underlying discussions with [the respondent's solicitors]".
The second stage was a conflict check. Having received the Confidentiality Agreement, the respondent's solicitors wrote to K (the individual at SCL who was going to be the lead expert and who had signed the Confidentiality Agreement) asking him to confirm that he was not conflicted to act as independent expert witness in the matter, which he did.
In August 2019, the third party commenced Arbitration 2 against the respondent claiming unpaid fees under the terms of its management contract, including a claim for fees which they said had been wrongly disallowed by the respondent, in part because of the delay in the issue of the IFC drawings. The respondent counterclaimed for the cost consequences of what it alleged was the third party's failure to manage/supervise the subcontractor, and for the delays in the issue of the IFC drawings.
In October 2019 Secretariat International UK Ltd (SIUL) was approached by the third party to provide arbitration support and expert services in respect of quantum in Arbitration 2. SIUL ran a conflict check (which involved all entities in the Secretariat group) which revealed the engagement of SCL by the respondent. K wrote to the respondent's solicitors stating that since the third party's contract with the respondent was for EPCM works for the full complex, and their engagement was in relation to the evaluation of delays on the construction subcontract for non-process buildings, their view was that working on the two matters (in different offices) would not constitute a 'strict' legal conflict and that his firm also had the ability to set the engagements up in a manner so that there was the required physical and electronic separation between the teams.
Not only did K and his team at SCL continue to work on behalf of the respondent in connection with Arbitration 1, but also, without any further reference back to the respondent or its solicitors, M (the lead consultant at SIUL) began to do the same for the third party in Arbitration 2. On 5 March 2020, the respondent's solicitors wrote to K to say that they would like to expand the scope of their instructions to include expert witness services in the matter of an arbitration in which the respondent was defending claims brought by the third party. Then, on 10 March 2020, the third party wrote to the tribunal in Arbitration 2 to confirm that M of Secretariat had been engaged as the third party's quantum expert and was already working. On 12 March 2020, the respondent's solicitors wrote to SCL to say that there was a conflict which could give rise to a risk that SIUL might use the respondent's confidential information.
Decision of the Technology and Construction Court
The Technology and Construction Court granted an injunction preventing SIUL from doing any further work in Arbitration 2. It held that SCL owed its client (the respondent) a fiduciary duty of loyalty, which meant that SIUL could not provide similar expert services to a third party, who was making a claim in another arbitration against the same respondent arising out of the same project and concerned with the same or similar subject matter. It said that where a fiduciary duty of loyalty arises, it is not limited to the individual concerned, but also extends to the firm or company and may extend to the wider group. The court distinguished the issue of confidential information and said that 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. This was the first time in the English jurisdiction that an expert had been found to owe a fiduciary duty to its client.
Appeal to the Court of Appeal
The issues before the Court of Appeal were as follows.
Did SCL owe a fiduciary duty of loyalty to the respondent?
The parties agreed that there is no English authority on the issue of whether an expert owes a fiduciary duty of loyalty to his client.
The Court said that the fact that fiduciary duties are usually found to arise in settled categories of relationship, which have not hitherto been held to encompass the relationship between a professional expert and his or her client, does not mean that the possibility that a fiduciary duty of loyalty was owed in the present case should automatically be rejected. However, it said that the lack of any prior authority was a factor which the court must bear in mind.
Although the Court accepted that the expert's overriding duty is to the court or tribunal, it did not accept that such a duty means that the expert cannot in law owe a fiduciary duty of loyalty to his client. However, the Court was reluctant to conclude that there was such a duty, which may have many unseen ramifications, unless it were necessary for the disposition of the appeal, because the expression "fiduciary" is freighted with a good deal of legal baggage and the Court could certainly see an argument that it might be inapt to import all of that baggage into a relationship between a client and an expert. The Court said that in the present case, no purpose was served by designating the relationship as a fiduciary one because there was a contract with an express clause dealing with conflicts of interest and a fiduciary duty of loyalty would not add to or enhance the obligations arising from that clause. Considering the issue further was therefore unnecessary for disposition of the appeal.
Accordingly, the Court concluded that, depending on the terms of the retainer, the relationship between a provider of litigation support services/expert and his or her client may have one of the characteristics of a fiduciary relationship, namely a duty of loyalty or, to put it another way, a duty to avoid conflicts of interest. However, unlike the Technology and Construction Court, the Court of Appeal did not consider it necessary or appropriate to find the existence of a freestanding duty of loyalty in the present case.
The remaining issues were considered by the Court of Appeal on the assumption that SCL did not owe a fiduciary duty to the respondent.
Did SCL owe a contractual duty to the respondent to avoid conflicts of interest?
The Court of Appeal held that the conflicts clause in SCL's retainer had two consequences, namely (i) SCL confirmed that there was no conflict of interest at the time of the agreement, and (ii) they also undertook that they would not create any such conflict of interest in the future. On that basis, the court said, SCL owed the respondent a clear contractual duty to avoid conflicts of interest for the duration of their retainer.
Was that duty also owed to the respondent by other Secretariat entities?
The Court held that the conflict check having been carried out across the Secretariat group, the undertaking given by SCL in its retainer bound all the companies in the group. They were all providing the same form of litigation support/expert services.
Was there a conflict of interest as a result of SCL's engagement in Arbitration 1 and SIUL's subsequent engagement in Arbitration 2?
The Court held that in light of the services being provided by SCL and SIUL, there was a conflict of interest between SCL acting for the respondent and SIUL acting for the third party because:
The Court said that none of this should be taken as saying that the same expert cannot act both for and against the same client. Of course, an expert can do so. Large multinational companies often engage experts on one project and see them on the other side in relation to a dispute on another project. That is inevitable. But a conflict of interest is a matter of degree, the Court said, and the overlaps of parties, role, project and subject matter made it plain that in the present case, there was a conflict of interest.
The Court said that the result in this case was a reflection of the terms of the original retainer. It was perfectly possible for a group like Secretariat, if it thought it commercially sensible to do so, to make plain that its representations as to conflict of interest and its undertakings for the future were based solely on the entity involved, and that, despite the scope of the conflict check that they had undertaken, no such representations or undertakings were given in relation to any other entity in the Secretariat group.
It is not uncommon for clients to engage a big consulting firm to provide expert witness services to them, although the appointment of the expert witness is a personal one. The consulting firm may require clients to sign detailed terms of engagement. This case highlights the need for the clients to check the terms of engagement of the consulting firm carefully to ensure that another expert of the same or associated firm will not be acting in other cases which may constitute a conflict of interest.
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