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Navigating stormy waters: experts' duties and conflicts of interest

  • Market Insight 4 三月 2021 4 三月 2021
  • 英国和欧洲

  • 专业实践

The recent Court of Appeal decision in Secretariat PTE Ltd & Ors v A Company [2021] EWCA Civ 6, upholding an injunction against a global expert services firm on the grounds of conflict of interest, has implications for all accounting firms offering dispute support and/or expert services.

Navigating stormy waters: experts' duties and conflicts of interest

Our arbitration colleagues have written on the judgment here. The case concerned a situation where a Singaporean entity from the Secretariat group ("SCL") was acting as expert for Company A in an arbitration concerning delays on a construction project and subsequently a UK entity from the Secretariat group ("SIUL") started to act against Company A, and as expert for a third party, in a separate but related arbitration concerning the same project.

At first instance, Company A was granted an injunction preventing SIUL from acting in the second arbitration. The Judge found that SCL- and on the facts the whole Secretariat group - owed a fiduciary duty of loyalty to Company A arising out of its engagement in the first arbitration, which had been breached by SIUL accepting the subsequent engagement against it in in the second arbitration.  This was the first time in the English jurisdiction that an expert had been found to owe a fiduciary duty to its client.

The Court of Appeal upheld the injunction, but on different grounds. The key points of interest in its judgment are as follows:

  1. The Court held that the Secretariat entities owed a contractual duty to Company A to avoid conflicts of interest. Importantly, the relevant clause in the retainer letter between SCL and Company A – confirming that there was no conflict and this would be maintained throughout the engagement – was construed as being given on behalf of all the entities in the Secretariat group. This was because prior to the retainer, SCL had run its conflicts search across the whole group (to Company A's knowledge). It was also material that Secretariat presented itself in numerous ways (including through its branding, email addresses and marketing materials) as a single global firm with regional offices. Further, the Court said the consequences of construing it as limited to a single entity were "commercially unrealistic".  
     
  2. Given the express contractual clause governing the position, it was not necessary for the Court to make a finding as to fiduciary duties (cf the first instance decision). However the issue was left open, with Coulson LJ saying that depending on the terms of the retainer, independent experts (or providers of litigation support services) may owe their client a duty of loyalty akin to a fiduciary duty, notwithstanding that they had an overriding duty to the Court.
     
  3. As to whether the contractual duty had been breached, the starting point was the services being provided by SCL and SIUL. Coulson LJ rejected the suggestion that there was a valid distinction to be made between a "testifying"/expert witness and a "roving"/advisory expert, save to comment that an expert with a wider advisory role was more likely to risk creating conflicts of interest.
     
  4. In this case there was a conflict of interest between SCL and SIUL's engagements because they were in respect of the "same or similar disputes on the same project" and the overlaps between them - of parties, role, project and subject matter- were "all-pervasive".  The Judgment makes clear that it should not be taken as saying that the same expert cannot act both for and against the same client – and indeed it is "inevitable" with large multinational companies that this is sometimes the case – but the conflict arises because of the degree of overlap between the two engagements here.

Implications for accounting firms

  • This judgment underscores the risk for professional firms offering expert and/or litigation support services of accepting instructions which place them in conflict of interest. Such a conflict can exist even where (as here) the relevant instructions were accepted by separate legal entities within an organisation in completely different parts of the world. While in some cases it might in theory be remedied by both clients' consent, this was not a situation which could be addressed or mitigated by the firm implementing Chinese walls (which can assist particularly with so-called "former client conflicts" where the concern is the protection of a former client's confidential information but not where, as here, there is an "existing client conflict").
     
  • Such a conflict may breach a contractual duty to the first client, which as this judgment demonstrates may be construed as binding not just the contracting expert entity but - depending on how the expert organisation conducts its conflicts procedures and presents its services – also other or all entities within the organisation.  Absent a contractual duty, this judgment has left open the possibility that it may still breach a fiduciary duty of loyalty to the first client - and of course an accounting firm will have its regulatory duties to avoid conflicts too.
     
  • As a result, firms – particularly those operating through multiple legal entities and in multiple jurisdictions – need robust/joined-up conflicts procedures and clear terms of engagement with their clients. Such terms might, for example, expressly provide that any commitment relating to conflicts is limited to the entity being instructed and does not bind any other entity in the group – though as the judgment observes, if a firm seeks to limit client protection in this way "whether … it will secure the instruction, is another matter."

 

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