Further Guidance on Conflicts of Interest in International Arbitration: The Role of Experts

A recent English Court of Appeal judgment provides important guidance on the role of expert witnesses in international arbitration, with an emphasis on potential conflicts of interest and duties owed by expert witnesses to their clients.


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Further Guidance on Conflicts of Interest in International Arbitration: The Role of Experts

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The English Court of Appeal in Secretariat v A Company [2021] EWCA Civ 6 upheld an injunction granted by the English Technology and Construction Court (TCC)[1], preventing an international consulting firm from providing expert witness services for opposing sides in two separate but closely related international construction arbitrations.  This is the first occasion on which the Court of Appeal has been required to adjudicate (i) duties imposed on an expert concurrently engaged in two potentially conflicting retainers, and (ii) whether those duties shackle all relevant entities within the expert organisation.

Background

Company A, the developer of a large petrochemical plant, is the respondent in two separate ICC arbitrations involving delay and disruption claims brought against it by a subcontractor (Arbitration 1) and the project manager (Arbitration 2), respectively.  Company A retained Secretariat Consulting Pte Ltd (SCL), a Singapore-based entity within the Secretariat group, to provide arbitration support and delay expert services in Arbitration 1.  The retainer terms included a confidentiality agreement and conflicts of interest clause, confirming that SCL had no conflicts of interest and that would remain so for the duration of its engagement. 

Several months after its Arbitration 1 retainer, Secretariat notified Company A that Secretariat International UK Ltd (SIUL), a UK-based entity within the Secretariat group, had been approached by the project manager to provide arbitration support and quantum expert services in Arbitration 2.  Company A objected to this arrangement on the basis that it constituted a conflict of interest.  Even so, SIUL was retained by the project manager in Arbitration 2, while SCL continued its engagement for Company A in Arbitration 1.       

In March 2020, Company A made an urgent ex parte application to the TCC for an interim injunction against Secretariat.  The injunction was granted, thereby preventing SIUL from further working in Arbitration 2.  The first instance judge continued the injunction on the basis that SCL owed a fiduciary duty of loyalty to its client extending to the Secretariat group, which it had breached by virtue of SIUL accepting the Arbitration 2 engagement.  Accordingly, the key issue on appeal was whether SCL owed a contractual duty to Company A to avoid conflicts of interest and, if so, whether this duty extended to the other Secretariat group entities.

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Decision

In lead judgment, with which the other justices agreed, Lord Justice Coulson dismissed Secretariat’s appeal and maintained the injunction.  The Court held it was unnecessary to uphold the first instance finding as to fiduciary duties, expressing reservations regarding the implications of such a finding given that the term “ʽfiduciary’ is freighted with a good deal of legal baggage” unnecessary to carry into a relationship between a client and an expert.  Rather, the Court based its decision on the express terms of the retainer between SCL and the respondent which, construed in context, prohibited conflicts of interest for the full engagement duration. 

Whilst the retainer was concluded by a specific company within the Secretariat group, the Court held that SCL’s undertaking bound all the Secretariat entities.  One of the key reasons being that the conflict check undertaken prior to confirming the engagement had been carried out across all companies in the Secretariat group.  The arrangements by which Secretariat managed its business were also relevant:

“[i]n considering what the parties would reasonably have understood, it is significant that companies within the group share the same name and are managed and marketed as a single global firm.  They have a single website for the group as a whole, treating it as a single business in various jurisdictions […] the undertaking given by Secretariat Consulting not to accept instructions which would give rise to a conflict of interest can readily – and in my judgment must – be understood as having been given on behalf of the group as a whole.”

The Court held that the overlap of parties, roles, projects and subject matter was “all-pervasive” and a clear conflict of interest arose resultant of SIUL’s accepting the Arbitration 2 engagement.  The overlap meant that the two Secretariat experts could plausibly find themselves supporting opposing positions on the same or substantially similar issues.  The Court also considered whether the nature and scope of the services had any bearing on the existence of a conflict of interest.  Although the Court rejected the argument that a strict distinction could be drawn between a “testifying” expert and an expert with a wider advisory role, it acknowledged greater conflicts of interest risks arising where an expert had been involved in the preparation of the client’s case from an early stage.   

Notably, the Court stressed that existence of a conflict of interest is a matter of degree, and that its observations in the present case should not be taken as concluding that the same expert cannot act both for and against the same client in relation to a different project. 

Observations

This important decision provides useful guidance on the relationship between clients and experts, bringing to light several issues of particular interest to cross-border disputants involved in major international projects:     

  • Hot on the heels of the UK Supreme Court’s seminal judgment in Haliburton v Chubb [2020] UKSC 48, which concerned conflicts of interest in context of an arbitrator’s continuing duty of disclosure[2], Secretariat v A Company likewise affirms the serious ramifications arising from potential conflicts of interest for any participants to an international arbitration.  Prompt disclosure of any such conflicts is therefore essential. 
  • The Court of Appeal decision, while rooted in English practice and procedure, is nevertheless of broader import in international arbitration practice.  By couching its decision in terms of the parties’ individual contractual arrangements, rather than in terms of a freestanding duty of loyalty, the Court emphasised the need for conflicts of interest to be clearly addressed in an expert’s engagement.  
  • The steady rise in global firms offering expert services in multiple jurisdictions around the world – a trend particularly prevalent in relation to expert services in construction disputes – means that this decision will likely have a significant impact on the manner in which these services are structured, marketed and procured. 
  • The Court’s reasoning indicates that standard undertakings to avoid conflicts of interest included in engagement agreements between global expert services firms and their clients are likely to be interpreted to apply globally across all companies in the group.  Whether those firms will amend their express terms of engagement to avoid this adverse result, and whether clients will accept such amendments, remains to be seen. 
  • As the Court noted, there were no direct authorities addressing the issue of whether an expert owes a fiduciary duty of loyalty to his client.  Although the Court of Appeal declined to formulate the client/expert relationship as a fiduciary one, it left the door open by opining that such a relationship “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,” which duty is not contradicted by the expert’s obligations to the court or tribunal.  The Court’s objection (for now at least) to import fiduciary duties into expert witness engagements, and the potential uncertainty that may have ensued, will doubtless be of widespread relief to parties involved in international disputes.
 

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[1] Per O’Farrell J, [2020] EWHC 809 (TCC).

[2] Now the leading judgment on arbitrator conflicts at English law and arguably one of the most momentous decisions impacting upon international arbitration in the last decade.


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