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“O, where is loyalty?” The duties of experts and conflicts of interest

In modern litigation, experts often simultaneously perform a number of different and apparently contradictory functions: they may receive confidential information from their client that they are not at liberty to disclose; they may prepare draft reports that will usually be privileged in the hands of their client, and may see other privileged documents during the production of such drafts; yet their overriding duty is to the court and they are required by CPR 35.3 to sign a statement to that effect in their report.

How are experts and the parties who appoint them to reconcile these contradictory functions? When will conflicts of interest arise and how can they be avoided? The courts have recently shed some light on these questions.

Conflicts of interest

First of all, what is a conflict of interest?

A useful practical test is provided in Conflicts of Interest by Hollander & Salzedo, where the authors quote Alan Peck, former managing partner of Freshfields, who said this:

“It’s not difficult to work out what a conflict is. You put yourself in the client’s shoes, and ask yourself ‘would he like you doing what the other client has asked you to do?’ If the answer is ‘no’, you’ve probably got a conflict.”

The foundation of the modern law of conflicts of interest is the decision of the House of Lords in Prince Jefri Bolkiah v KPMG. Prince Jefri was the youngest brother of the Sultan of Brunei and was formerly chairman of the Brunei Investment Agency (BIA). The auditors of BIA were KPMG, who had in the past accepted representations from Prince Jefri that certain substantial special transfers of funds from BIA had been made on behalf of the Brunei government. Further, one of Prince Jefri’s own companies had instructed KPMG’s forensic accounting department to conduct an investigation in connection with major litigation between 1996 and 1998. This litigation settled in March 1998. Prince Jefri was subsequently removed from his post as chairman of BIA and partners of Arthur Andersen took control of his companies. In June 1998, the Brunei government appointed a task force to investigate the activities of BIA and KPMG was asked to assist the task force in investigating the destination and present location of the money that had been the subject of the special transfers. It was apparent that the investigations might lead to civil or criminal proceedings against Prince Jefri. KPMG accepted the instructions, codenamed “Project Gemma”, without contacting Prince Jefri, and established an information barrier within the firm to protect Prince Jefri’s confidentiality. Prince Jefri sought an injunction restraining KPMG from continuing work on Project Gemma.

The House of Lords concluded that since KPMG was in possession of information confidential to its former client, which might be relevant to Project Gemma, the court should intervene to prevent that information from coming into the hands of anyone with an adverse interest (that is, the Brunei government’s task force), unless the court was satisfied that there was no real risk of disclosure.

Delivering the leading speech, Lord Millett noted that the case concerned a former client (because KPMG no longer acted for Prince Jefri) and stressed the distinction between this sort of case and those involving existing clients:

“… it is otherwise where the court’s intervention is sought by an existing client, for a fiduciary cannot act at the same time both for and against the same client, and his firm is in no better position.”

Given that KPMG’s fiduciary obligation of loyalty came to an end upon termination of its retainer, KPMG had no obligations to Prince Jefri as fiduciary and the issue was one of confidential information. Nonetheless, Lord Millett took the opportunity to set out the principles applicable to existing client conflicts as well. In summary, those principles are as follows:

  • Where a professional is asked to act at the same time for two clients with conflicting interests, the fiduciary obligations of loyalty owed to each will clash, and there is an existing client conflict. If the professional accepts instructions for both, the professional will then be in breach of their fiduciary duty to one or both clients and unable to carry out their obligations to both. The problem is one of conflict, not merely confidential information. The conflict is at firm, partnership or company level, not merely at the level of the individuals involved.
  • The professional who has an existing client conflict may not act without the informed consent of both clients, which may be obtained expressly or by implication.
  • The fiduciary obligation will come to an end upon termination of the retainer, after which there will be no basis for objection on that ground. If there is no relevant fiduciary obligation, the only basis for objection is risk of disclosure of confidential information.
  • Where conflict is between an existing client and a former client, there are no competing fiduciary duties because there is no fiduciary obligation of loyalty to a former client. However, there is an obligation to protect confidentiality, breach of which is classified as a breach of fiduciary duty.
  • The professional who receives relevant confidential information from a former client may not act for a new client whose interests conflict with those of the former client unless the firm can show that there is no real risk of disclosure of that information to the new client. If the conflict is a former client conflict, it does not matter whether the new retainer concerns the same or a related matter – the issue is one of confidential information.
  • The professional may be able to discharge this high burden by showing that internal measures are in place that will prevent disclosure, such as an information barrier, so as effectively to create a firm within a firm. However, such measures will rarely be effective if arranged on an ad hoc basis, rather than reflecting the organisational structure of the firm.
  • There is no difference in the normal case between the rules which apply to lawyers and those which apply to other professionals.

Experts treated differently from advisers?

Nonetheless, in a number of cases, the courts seem to have treated experts differently from advisers.

For example, in Meat Corp of Namibia Ltd v Dawn Meats (UK) Ltd, both sides tried to instruct the same meat industry expert, who first agreed in principle to act for the claimants and then withdrew owing to her other commitments. She subsequently accepted instructions from the defendants.

However, confidential information that formed the basis of the claimants’ action had been conveyed to her when the claimants had first tried to instruct her. The claimants maintained that the expert had been told of offers made by the defendants, the reasoning behind the offers, tactics concerning mediation and the claimant solicitor’s view of the litigation.

Declining to apply “the full rigours” of the Bolkiah test, which arose in part from KPMG’s “quasi-solicitor/client relationship” with Prince Jefri, Mann J distinguished the case from the Bolkiah line of authorities because the expert in question had not actually agreed to provide services to the claimants; the confidential information was disclosed in the course of enquiries as to whether the expert would act, was “fundamentally uninteresting” and the expert had undertaken not to discuss it anyway.

Similarly in Lloyd’s Syndicate v X, Teare J refused to apply Bolkiah or to injunct an expert from acting for the other side in reinsurance litigation where that expert had previously been shown the clause of the contract in question and had expressed his view on its meaning and the industry impact of the rival meanings. The complaint was again put by reference to confidential/privileged information and the judge drew a distinction between the very limited nature of the expert’s task in this case and the much broader litigation support services provided by KPMG in Bolkiah.

In Wheeldon Bros Ltd v Millennium Insurance Co Ltd, the defendant insurers instructed an expert to investigate the cause of a fire at a processing plant. The expert found that the fire was caused by combustible material under a conveyor and the insurers declined liability as a result. With the insurers’ agreement, the claimants then instructed the same expert to investigate whether they might have a claim against the manufacturer of the conveyor. The claimants later sought to prohibit the defendants from relying on this expert. Coulson J (as he then was) saw no problems with this arrangement. He said that CPR 35 modified the application of the rule in Bolkiah – the expert owed an overriding duty to the court which “trumps everything else”.

Perhaps unsurprisingly, each of the above cases turned on its own facts and the precise nature and extent of the tasks that the experts had agreed (or not agreed) to perform. It is clear that the duties owed by a litigation expert to their client will depend principally on the terms of the retainer (see Kelly v Cooper).

Extra-contractual duties

However, to assume that all relevant duties are prescribed by contract would be short-sighted. Duties may also arise at common law and, following the Court of Appeal’s decision in A Company v Secretariat Consulting Pte Ltd, it now appears that experts may, in certain circumstances, owe fiduciary duties to those who appoint them.

A fiduciary duty is essentially one of loyalty. According to the editors of Jackson & Powell on Professional Liability, it is a duty:

“… based upon the trust reposed by a client in his professional adviser, and in particular the trust that the professional will act solely in his client’s interests and not in his own. This is sometimes described as a ‘duty of loyalty’, but in effect it amounts to an inhibition: a professional should not put himself in a position in which his duty to act in his client’s interests is in conflict with his own interests, let alone prefer his own interests to those of his client should there be a conflict.”

Fiduciary duties generally arise in certain settled categories of relationship, such as between a trustee and a beneficiary, a solicitor and their client or an agent and their principal. While fiduciary duties may exist outside such established categories, the task of determining when they exist is not straightforward because there is no generally accepted definition of a fiduciary. In Sheikh Al Nehayan v Kent, Leggatt LJ (as he then was) explained that:

“… fiduciary duties typically arise where one person undertakes and is entrusted with authority to manage the property or affairs of another and to make discretionary decisions on behalf of that person. (Such duties may also arise where the responsibility undertaken does not directly involve making decisions but involves the giving of advice in a context … where the adviser has a substantial degree of power over the other party’s decision-making …). The essential idea is that a person in such a position is not permitted to use their position for their own private advantage but is required to act unselfishly in what they perceive to be the best interests of their principal. This is the core of the obligation of loyalty which Millett LJ in the Mothew case [1998] Ch 1 at 18, described as the ‘distinguishing obligation of a fiduciary’. Loyalty in this context means being guided solely by the interests of the principal and not by any consideration of the fiduciary’s own interests. To promote such decision-making, fiduciaries are required to act openly and honestly and must not (without the informed consent of their principal) place themselves in a position where their own interests or their duty to another party may conflict with their duty to pursue the interests of their principal.”

Leggatt LJ went on to stress that while the repose of a high degree of trust and confidence in a professional may point towards a fiduciary duty, the relationship must be assessed objectively. In other words, one must ask whether the nature of the relationship is such that the client is entitled to repose trust and confidence in the professional. The terms of the contract will of course be central to the determination of whether there is such an entitlement (per Coulson LJ in A Company v Secretariat).

A Company v Secretariat

In A Company v Secretariat, the respondent was the developer of a large petrochemical plant and let two sub-contracts relating to the construction of certain facilities at the plant. The sub-contractor responsible for both sub-contracts commenced arbitral proceedings against the respondent and the respondent appointed Secretariat Consulting Pte Ltd (SCL) to provide arbitration support and expert services. The respondent’s project manager then commenced a second, separate arbitration against the respondent and approached Secretariat International UK Ltd (SIUL) to provide similar services. SCL and SIUL were both part of the Secretariat group, so the respondent sought an urgent interim injunction to restrain SIUL from acting for the project manager in the second arbitration.

At first instance, O’Farrell J found that SCL owed the respondent a fiduciary duty that prevented SIUL from providing similar expert services to the project manager in a different arbitration against the same respondent arising out of the same development that involved the same or similar subject matter. (See Jennie Wild’s blog post.)

On appeal, Secretariat argued that the overriding duty that an expert undoubtedly owes to the court or arbitral tribunal would conflict with or negate any fiduciary duty to the client. It was said that an expert could not put the respondent’s interests first because they were obliged to put the interests of the court, or of justice, first. That submission was rejected. Coulson LJ stated that in fact:

“… the expert’s overriding duty to the court could be said to be one of the prime reasons why the expert may indeed owe a duty of loyalty to his client.”

This is because the expert’s duty to provide a report to the court or tribunal that is true to the best of the expert’s knowledge and belief makes a full and frank appraisal of the case a necessary part of the preparation for giving that evidence. Coulson LJ regarded such an appraisal as “the best possible way in which an expert can satisfy his professional duty to his client”. Males and Carr LJJ agreed.

However, the court did not go so far as to conclude that SCL owed the respondent a fiduciary duty for two main reasons. First, because:

“… the expression ‘fiduciary’ is freighted with a good deal of legal baggage and I can 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 close nature of a fiduciary’s relationship with the other party – the need for the fiduciary to be ‘on his side’ … – does not seem to me the most accurate way of describing what a litigation support professional/expert does and should do when instructed in litigation or a commercial arbitration.”

Second, because it was unnecessary to do so. The respondent’s contract with SCL contained 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”. SCL carried out a conflict check across the Secretariat group, confirmed that there was no conflict of interest and undertook not to create any such conflict in the future.

Was there a conflict of interest within the meaning of this express clause?

The answer was a unanimous “Yes”.

Secretariat sought to draw a distinction between testifying experts and those with a wider advisory role, arguing that SCL was merely a testifying expert. The court doubted the validity of this distinction but noted that experts with wide-ranging roles were far more likely to create conflicts of interest. SCL’s scope of work brought it into this category.

Although no rules of general application were formulated because all will depend on the circumstances and terms of an expert’s retainer, Coulson LJ did note that delay experts tend to have very wide-ranging advisory roles in construction and engineering disputes, where they are often engaged “to sift through the reams of factual material, looking for particular events on which to focus”. Technical experts or experts on foreign law, if they are giving evidence on a “minor and discrete” aspect of the claim, may not be taking on a wider advisory role.

However, a conflict of interest arose in this case because the overlaps between the services provided to the respondent by SCL and those that would have been provided to the project manager by SIUL were “all-pervasive”, for four reasons:

  • SCL was giving commercial advice to the respondent in relation to the first arbitration, whereas SIUL, if appointed by the project manager, would be giving commercial advice against the respondent in relation to the second arbitration.
  • The project manager was the respondent’s agent and representative during the project. The same expert firm could not act for the employer and simultaneously against the employer’s representative/agent/“alter ego” in respect of the same or similar disputes on the same project.
  • SCL was giving advice to the respondent concerning the design and construction of the petrochemical plant. SIUL, if appointed by the project manager, would be giving advice about the same matters.
  • SCL was giving advice to the respondent concerning the causes of delay to the project. SIUL, if appointed by the project manager, would be giving advice about the same matters.

Nevertheless, conflicts of interest are “a matter of degree”. The court’s reasoning suggests that a lesser degree of overlap between parties, role, project and subject matter might not have given rise to a conflict of interest. For example, if SCL and SIUL had separately advised two different sub-contractors with responsibility for different parts of the project, there may not have been sufficient overlap between the issues on which the experts were advising to create a conflict.

Can experts contract out of conflicts of interest?

Given the clear primacy of the terms on which experts are appointed, to what extent can expert firms contract out of conflicts of interest?

Such a course was expressly contemplated by the court in A Company v Secretariat, where it was acknowledged by Coulson LJ that an expert advisory group:

“… if it thought it commercially sensible to do so, [could] 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 had been undertaken, no such representations or undertakings were given in relation to any other group or entity in the … group.”

Males LJ added that:

“… [w]hether, if [an expert advisory group] does so, it will secure the instruction, is another matter.”

It is thought that experts could similarly contract out of any fiduciary duty of loyalty, although they would need to ensure that the clause purporting to do so identified with precision the obligations being excluded.

Can experts agree to act solely for one party?

In Meat Corp, the claimant argued that the expert had effectively contractually bound herself not to act for the defendant. Mann J did not find in the claimant’s favour on the facts on this point, but it is thought that the court would not have given effect to such an agreement in any event.

In this regard, Lord Denning MR said in Harmony Shipping v Davis, that there was no property in an expert witness – otherwise, a party could in theory “buy up” all the experts in a particular field to prevent them from acting for the other side. The court indicated that contract terms preventing experts from subsequently acting against their former clients would be unenforceable as contrary to public policy (although the decision should be treated with caution because there was no contract dealing with conflicts of interest in that case, either express or implied).

Further, the court held in Lilly ICOS Ltd v Pfizer Ltd that it would be contrary to public policy for an expert to contract that he will not act as an expert witness for the other party.

Final thoughts

In conclusion, although the duties owed by an expert to their client and to the court or arbitral tribunal may at first glance seem contradictory, they are in fact complementary. As the Court of Appeal explained in A Company v Secretariat, it will inevitably be in the client’s best interests for an expert conscientiously to fulfil their duty to the court/tribunal because evidence that is seen to be independent and unbiased will carry far greater weight than if the expert is seen to be lacking in objectivity. For a striking recent example of this principle in action, see Pepperall J’s judgment in Essex CC v UBB Waste (Essex) Ltd.

In considering whether an existing client conflict will arise, regard should be had to the overlapping factors in A Company v Secretariat – namely parties, role, project and subject matter – since conflicts of interest are a matter of degree.

Furthermore, provided the relevant contract terms are drafted with sufficient clarity, expert firms are free to restrict their duties, including fiduciary duties of loyalty, in whatever way they deem sensible (and commercially viable). However, on public policy grounds, it is thought that such firms could not bind themselves to act solely for one party or not to act against an existing client in the future.

Thanks to Adam Constable QC, Lucy Garrett QC, Sam Townend QC and Jennie Wild, whose research contributed to this article.

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