Experts have no fiduciary duty of loyalty to their clients, rules Court of Appeal

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Professional services groups which offer multiple services to clients across different business entities often face the risk of conflicts of interest.  The Court of Appeal has recently ruled however that these experts do not owe a general fiduciary duty of loyalty to their clients – however they must comply with any contractual undertakings given to avoid conflicts of interest.

Law firm CMS says the Court’s reluctance to extend fiduciary obligations to experts will be welcomed. “Fiduciary obligations extend beyond mere duties of loyalty and, if upheld by the Court of Appeal, this is likely to have been an area of uncertainty productive of further disputes,” it added.

The Appeal Court ruling was made in a case involving a conflict of interest at a global expert services business.  The developer of a billion dollar petrochemical plant had appointed both a consultant as project manager and a contractor to undertake two contracts worth over $100 million.  A dispute arose between the developer and contractor around project delay which was taken to arbitration.

The developer appointed SCL, an expert services business of the global Secretariat Group, to provide it with arbitration and litigation support.  As part of the instruction, SCL confirmed that it had no conflicts of interest.

Later the project manager also started an arbitration against the developer for unpaid fees. The developer counterclaimed regarding delays to the project. The project manager asked SIUL, another business of the Secretariat Group, to provide them with arbitration support.  A conflict check revealed that the developer had already appointed SCL, which wrote to the developer to inform it of the appointment and to explain that in its view, this was not a ‘strict’ legal conflict.

The developer applied to the Technology and Construction Court (TCC) for an injunction to prevent SIUL working for the project manager.  The TCC granted the injunction and went further, ruling that the Secretariat Group was in breach of its fiduciary duty of loyalty to its client.  This was the first time that the English courts had ruled that an expert owed a fiduciary duty to its clients.

At appeal the TCC’s decision that the Secretariat Group had a fiduciary duty to its client was overturned.  However the injunction to prevent SIUL working for the consultant was upheld on contractual grounds.

James Burgoyne of Brunel Professions says that conflicts can be difficult for major professional services firms.  “Had the Appeal judges upheld the TCC’s view that there was a fiduciary duty between expert and client, this would have made the process far harder to manage.  As it is, this ruling is case specific and was based on the terms of the contract between the expert and its client,” he added.

Reports about the case have been published by DWF and CMS Law-Now.

Professionalindemnity.com is owned by Brunel Professions, which is a leading professional indemnity insurance broker in the UK.  Click here to get a quote or call 0345 450 1074 to speak to a broker.

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