Conflicts and experts: Lessons from Arrassey v Nelsons

We often hear about conflicts of interest in both legal and non-legal settings, and how this can affect professionalism in certain industries. In the recent case of Arrassey Properties Limited v Nelsons Solicitors [2022] (Case No. F55YJ238), which concerned a property dispute, the judge completely disregarded the evidence of the Claimant’s expert valuer, due to an undisclosed conflict of interest.

So what is a conflict of interest and why is it important?

A conflict of interest describes a situation in which there are two or more competing interests, and serving one of those interests could damage or harm the other interest. It is the reason why directors cannot take on roles which would conflict with their duties towards their companies, and why a lawyer would generally not act for both a buyer and a lender in a transaction. In the latter scenario, the parties have conflicting interests and a lawyer cannot fulfil their duty to act in both clients’ best interests.

Expert evidence

When it comes to expert evidence in a legal case, there are strict rules on conflicts of interest. In the above case, Counsel appearing on behalf of the Defendant drew the court’s attention to aspects of the evidence of the Claimant’s expert witness which he considered to be “misleading and alarming”. This included the expert having a conflict of interest.

An expert witness’s  primary duty is to assist the court, and this overrides any duty they have to the party that is appointing or paying them.

What happened in Arrassey

In this case, the Claimant, a property investment company, had purchased four leasehold properties in order to let them out. The initial ground rent for the properties was £250-£350, however, the leases all contained a rent review clause. This clause stated that the reviewed rent was to be the greater of either:

1. The ground rent payable prior to the review date, multiplied by 150 per cent; or
2. The ground rent payable immediately prior to the review date, multiplied by the RPI published for the October before that review date and divided by the RPI published for the October before the review date.

The effect of this clause was that by the 10^th decade of the leases, the ground rent would be over £9,600 per annum, and in the last decade of the 250-year lease, it would be over £4.2 million per annum. If the RPI was high in those periods, these figures would be higher.

The Defendant to the claim was the firm of solicitors instructed by the Claimant in the purchase of the properties. The Claimant’s case was that the Defendant should have informed and advised the Claimant of the ground rent clause being a ‘hazard’, and that failure to do so constituted negligence. The Defendant’s case was that it did draw the Claimant’s attention to the rent review provisions and the Claimant company was capable of calculating the ground rent after each review, and that furthermore, there was no hazard as the provisions were not onerous.

The Claimant sought to avoid the onerous ground rents payable under the lease by utilising the statutory lease extension procedure, which enables leaseholders to extend the term of their leases and reduce the ground rent payable in exchange for payment of a premium. The Claimant then sought to recover the cost of those premiums from the Defendant.

The Claimant instructed Mr Balcombe as its expert witness in the case. Mr Balcombe was an employee of Strettons, a firm of Chartered Surveyors. Strettons had acted for the Claimant in relation to acquiring the extended leases from the landlord for the properties involved in the dispute, and had negotiated the very premiums that the Claimant sought to recover in the proceedings. There was therefore, clearly a conflict of interest, as the majority of the Claimant’s damages claim was made up of the costs of extending the leases and the professional fees of Strettons for advising on the extensions. When Mr Balcombe was asked about this, he stated that he was not employed by Strettons at the time they acted for the Claimant.

Although Mr Balcombe stated he had no knowledge of the costs of extending the leases, his report included Strettons’ fees for this, so he at least knew that Strettons had been paid for advice regarding the lease extensions. He was therefore on notice of the specific conflict of interest. Mr Balcombe should have mentioned this in his expert report and provided a reason as to why he considered that the conflict had no material bearing on his instructions.

The court found that Mr Balcombe’s failure to disclose the conflict of interest was a serious failure in his duty to the court, and it caused the court to question the entirety of Mr Balcombe’s evidence. The Claimant’s case was ultimately dismissed as the court preferred the evidence of the Defendant’s expert that the ground rent review clauses in the leases were not onerous.

Key takeaways

The above case demonstrates the importance of expert witnesses at trials understanding their duties to the court and complying with the Civil Procedure Rules and accompanying Practice Directions.

A conflict of interest, or a potential conflict of interest, is not to be taken lightly, and parties should be aware that failing to disclose a conflict can lead to the complete disregard of an expert’s evidence, with adverse consequences for the party which sought to rely on it.