Interim Injunction Extended For Breach of Duty of Loyalty

In A Company v X, Y and Z [2020] EWHC 809 (TCC), Mrs Justice O’Farrelle DBE of the English Technology and Construction Court (QBD) delivered a judgement finding that the claimant was entitled to a continuation of an interim injunction to restrain the defendants from acting as experts for a third party in an ICC arbitration proceeding against the claimant by reason of the defendants having acted for the claimant in a separate arbitration relating to the same project.

The claimant argued that the defendants breached their duty of loyalty to the claimant because, in the absence of informed consent, the defendants agreed to act or actually acted for a second client in a manner which was inconsistent with the interests of the claimant. The defendants opposed the continuation of the interim injunction on the grounds that the claimant’s application was misconceived; independent experts, submitted the defendants, do not owe a fiduciary duty of loyalty to their clients and there was no conflict of interest.

The following issues arose for determination:

  • whether independent experts, who are engaged by a client to provide advice and support in arbitration or legal proceedings, 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 had been, or could be, a breach of any duty of loyalty or confidence;

Facts

The claimant was the developer of a petrochemical plant project. The defendants are global expert firms. In around 2012, the claimant entered in various contracts with various companies for engineering, procurement and construction management (“EPCM”) services. The claimant also entered into various contracts with a contractor for the construction of facilities in connection with the project.

Disputes arose between the contractor and the claimant concerning delays. The contractor commenced ICC arbitration proceedings against the claimant (“1st Arbitration”). The claimant approached the first defendant with the view to engage it to provide expert services. On 15 March 2019, they signed a confidentiality agreement, where the claimant formally engaged the first defendant. By a letter dated 13 May 2019, the claimant engaged the first defendant to provide expert services in connection the ICC arbitration.

In the summer of 2019, a third party commenced ICC arbitration proceedings against the claimant (“2nd Arbitration”)”. In about October 2019, the defendants were approached by the third party to provide quantum and delay expert services in connection with the 2nd Arbitration. The defendants notified the third party that they were engaged by the claimant on a separate dispute on the same project (without revealing any further details) but that they did not consider it as a conflict.

In February 2020 discussions took place between the claimant and the third party, regarding the scope of issues in the 2nd Arbitration. During various emails and discussions, the claimant stated that the use of the experts from the same firm, albeit different experts, was a breach of the fiduciary duty that arise out of the contract of engagement signed by the defendants and the claimant.

In March 2020, the claimant issued an urgent ex parte application (with informal notice given to the defendants). Interim relief was granted until the return date, 31 March 2020.

The Judgment

The Court summarised the general principals applicable to expert witnesses in arbitration proceedings:

i) In principle, an expert can give expert evidence in arbitration or legal proceedings by any party, even in circumstances where that expert has provided an opinion to another party;

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; and

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.

It was noted by the court that none of the authorities cited by the defendants supported their proposition that an independent expert does not owe a fiduciary obligation of loyalty to his or her client. 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 this case, the first defendant was engaged to provide expert services for the claimant, instructed to provide an independent expert report. However, it was also engaged to provide extensive advice and support for the claimant 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.

Where a fiduciary duty of loyalty arises, that duty is not limited to the individual concerned but would also extend to the firm or company and may extend to the wider group. For firms within a corporate structure with common financial interests and management, the court extended the fiduciary duty of loyalty to the entire group. In this case, the first defendant and the second defendant, as wholly owned subsidiaries of P Inc. and the third defendant, both owned in part by individual shareholders and in part by Q LLC. Thus, there was a common financial interest by Q LLC (and the un-named shareholders) in the defendants. The Court considered that the defendant group was managed and marketed as one global firm and there was also a common approach to identification and management of any conflicts by the defendants.

In these circumstances, the court concluded that it was unrealistic to conclude that any duty of loyalty is limited to the first defendant; it was owed by the whole of the defendant group. The court also held that the fiduciary obligation of loyalty was 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.

For these reasons, the court concluded that:

i) The defendant group owed a fiduciary duty of loyalty to the claimant arising out of its engagement to provide expert services in connection with the 1st Arbitration.

ii) The defendant group was in breach of that fiduciary duty of loyalty by accepting instructions to provide expert services in connection with the 2nd Arbitration.

iii) Pending trial of this matter, the claimant was entitled to a continuation of the interim injunction to restrain the defendants from providing expert services to the third party in connection with the 2nd Arbitration.

See also the review of this case by McNair Chambers.

About Phillip Rompotis

Phillip practices as a barrister and arbitrator in Hong Kong. He has over 25 years’ litigation and arbitration experience in commercial disputes relating to construction & engineering, financial services, joint venture & shareholders agreements, technology, trusts, property and landlord & tenant. He is a Fellow of the Chartered Institute of Arbitrators, the Hong Kong Institute of Arbitrators, the Singapore Institute of Arbitrators, the Malaysian Institute of Arbitrators, and a member of various lists/panels of arbitrators.

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