Mr A Verspaandonk of Counsel instructed by Macpherson and Kelley Lawyers

Mr J Shaw of Counsel instructed by Maddocks Lawyers

1 The applicant and the respondent are tenants in common of a property (holding 25% and 75% shares respectively) at 38 Lonsdale Street, Dandenong. Maddocks acted for both parties in respect of the purchase of the property in April 2003, and also in relation to the finance obtained by the parties from GE Finance for that purchase. Instructions in respect of those matters were provided to Mr Jones of Maddocks by Mr Daryl Shave, director of the respondent. Clause 18 of the loan agreements between each of the parties and GE Finance provides a mechanism for either party to purchase the other party's entire interest in fee simple in the property[1].

2 On or about 9 July 2003, Mr Shave instructed Mr Jones of Maddocks to prepare an agreement to protect his interests in the event of a default by the applicant in repaying the mortgagee ("the Rescore Agreement"). Mr Jones opened a separate file ('the Corporate Advice file") in relation to this matter. He drafted the Rescore agreement, and on 10 July 2003 sent a copy of it to Mr Spiker by email under cover of letter advising that Maddocks acted on behalf of Mr Shave in relation to that particular matter and inviting Mr Spiker to seek independent legal advice concerning the document. Mr Spiker did not receive the email. Mr Jones obtained the assistance of another partner of Maddocks, Kevin Phelan, to assist with the Corporate Advice matter.

3 The sale of the property settled on 14 July 2003. Prior to the settlement, there was a lengthy meeting at the offices of Maddocks, attended by Mr and Mr Shave, Mr and Mrs Spiker, Mr Frances Genobile (an accountant), and Mr Phelan. Mr Phelan was attending the meeting in relation to the settlement. Agreement could not be reached between the parties concerning the proposed Rescore Agreement[2]. At the meeting, Mr Phelan told Mr Spiker he did not act for him in relation to the Rescore Agreement. The GE loan documents, which were prepared by Corrs, were signed at the meeting. The Rescore Agreement was not signed at that time. Mr Phelan signed a solicitor's certificate in relation to the guarantee documents. Later that day, settlement of the purchase occurred at another office in the city, attended by Mr Shave, Mr Spiker at Mr Phelan. Maddocks' invoices with respect to the purchase of the property were sent to both the applicant and the respondent. Mr Jones played no further part in the Rescore Agreement. Maddocks' invoices with respect to the Rescore agreement were directed to Mr Shave, sole director of the respondent.

4 On 17 July 2003, Mr Phelan advised GE's solicitors, Corrs, that he did not act for Mr Spiker.

5 Mr Spiker deposed that he first received the Rescore agreement in early 2004. He signed it in September 2004. Although undated, the Rescore agreement signed by Mr Spiker was received by Maddocks on 22 September 2004. Maddocks did not provide the applicant with any legal advice concerning the Rescore Agreement.

6 The applicant brought a partition application in the Supreme Court on 1 March 2006. On 3 May 2006, the applicant filed an application with this Tribunal ("the substantive proceeding") seeking an order for sale of the property pursuant to section 225 of the Property Law Act 1958, and for distribution of the proceeds of sale between the parties according to their interests in the property.

7 By notice dated 13 June 2006 signed on its behalf by Maddocks, the respondent purported to exercise its option under the Rescore agreement. On 16 June 2006, the applicant's solicitors wrote to Maddocks and requested that Maddocks cease acting for the respondent. Maddocks refused the request.

8 At the hearing of the substantive application on 17 August 2006, the respondent, represented by Maddocks, argued that the applicant had, by signing the Rescore agreement, bargained away its rights to any order by the Tribunal pursuant to section 225 of the Property Law Act 1958. The matter was adjourned by the Tribunal.

9 On 22 August 2006, the applicant's solicitors again requested that Maddocks cease to represent the respondent in the substantive proceeding. By letter dated 4 September 2006, Maddocks refused, rejecting any allegation of acting in a conflict of interest.

10 By Application dated 8 September 2006, the applicant seeks an order that the respondent be restrained from continuing to retain Maddocks solicitors to represent it in this proceeding. The application is opposed.

11 It was common ground that the Tribunal has the power to make the order sought[3]. The application requires the Tribunal to balance the competing considerations - one party's right to be represented by solicitors of its choice against another party's right not to have its (former) solicitors acting against it in the same or substantially the same proceeding[4].

12 It was also common ground that the relevant legal principles are those enunciated by Brooking J in Spincode[5], and subsequently adopted by numerous Judges in the Trial Division of the Supreme Court of Victoria[6]. These principles can be simply stated.

13 The court will restrain a legal practitioner from continuing to act for a party to litigation if :

a

there is a danger of misuse of confidential information of a former client; or

b

where a solicitor breaches the independent equitable obligation of loyalty which forbids the solicitor from acting against a former client in the same or a closely related matter[7]; or

c

a reasonably informed member of the public would conclude that the solicitors should be prevented from acting[8].

14 It was common ground that the first of these principles is not relevant to this case. It was also common ground that there was no prospect that solicitors from Maddocks would be witnesses in the substantive proceeding.

15 In relation to the second of the principles enunciated in Spincode, the respondent says that the conveyancing matter is connected to but not closely related to the substantive proceeding. In particular, the respondent says it is common for solicitors to act for both purchasers in the conveyance and financing of the purchase. In this case, the Rescore Agreement, signed 14 months after the purchase, related not to the purchase of the land, but to the regulation of the relationship between the co-owners. Mr Spiker was informed that Maddocks acted solely for the respondent in relation to the Rescore Agreement, and had ample time in which to seek independent legal advice in relation to the agreement. For this reason, the respondent says the application should be dismissed. The respondent relies on the case of Equuscorp Pty Ltd v Acehand Pty Ltd[9].

16 In Equuscorp, Balmford J refused to grant an injunction, on the basis that the conveyancing and provision of letters undertaken by the solicitors was not closely related to the dispute in the substantive litigation over the subsequent scheme (in relation to which the solicitors in question had not acted).

17 It was submitted on behalf of the applicant that Equuscorp should be distinguished on the basis that in the substantive proceeding in this case the respondent now argues for an erosion of the rights which the applicant obtained in the purchase.

18 The applicant says that the retainer by the applicant in respect of the purchase the GE loans, the retainer by the Spikers personally in respect of the GE facilities and the substantive proceeding are closely related matters. Maddocks acted contemporaneously on behalf of the applicant to acquire its rights as co-owner and on behalf of the respondent in preparing the Rescore agreement. The rights acquired by the applicant upon purchase are allegedly compromised by the GE facilities and the Rescore Agreement. Maddocks acted in relation to the GE facilities (for both parties) and the Rescore Agreement (for the respondent alone), and has "changed sides" and should not be permitted to act. Finally, the applicant says that a reasonably well informed member of the public would consider that Maddocks should cease to act as this has the appearance of impropriety.

19 In relation to the proper administration of justice, the respondent says that Maddocks informed the applicant that they did not act for it in relation to the Rescore agreement, and that it should obtain independent advice. The applicant had several months to consider its position and obtain such advice. There has not been any changing of sides in this respect. A reasonable member of the public would not lose confidence in the judicial system if Maddocks continues to act for the respondent.

20 The first question for determination is whether the conveyance of the land (and execution of the GE loan agreements) for which Maddocks was retained on behalf of both parties is the same matter or is closely related to the substantive proceeding. On the authorities, this question requires an examination of the substance of the relationship, and should not be determined by the "taking of fine distinctions"[10].

21 On balance, I consider on the material before me that the proceedings are related in that they concern the same land, but are otherwise not the same or closely related matters. While the substantive proceeding concerns the same land as the conveyance and GE loan agreements, the substantive proceeding does not concern the conveyance at all. There is no issue in the substantive proceeding about the purchase of the property from the vendor, nor about the property interests which flowed to the co-owners from the purchase, nor about the validity of the GE loan agreements, in relation to which Maddocks acted on behalf of both parties. Nor does it appear that there is any issue about the validity of the Rescore Agreement (in respect of which Maddocks acted solely for the respondent). Rather, each of the GE loan agreements and the Rescore Agreement provide a mechanism for either party to purchase the other party's entire interest in fee simple in the property. The substantive proceeding concerns whether the procedure set out under the Rescore Agreement is in motion and prevents the Tribunal from making the orders sought by the applicant.

22 The Rescore Agreement was executed some 16 months after the settlement of the purchase of the property. Mr Spiker had ample opportunity to seek independent legal advice prior to signing the agreement. During that period, Maddocks did not communicate with him about the agreement. However, it was common ground that discussions concerning proposed provisions of the Rescore Agreement occurred as early as July 2003. This contemporaneity does not, in my view, alter the conclusion I have reached that the proceedings are not closely related. This is partly because it was made clear to Mr Spiker at the meeting that Mr Phelan was there only in relation to the settlement and could not advise him in relation to the Rescore Agreement. In this sense, there has been no changing of sides by Maddocks.

23 Secondly, I do not consider on the facts of this case that allowing Maddocks to continue acting will undermine the appearance that justice is being done in the substantive proceeding. As Bryson J put it in D & J Constructions Pty Ltd v Head[11]:

The appearance which matters is the appearance presented to a reasonable observer who knows and is prepared to understand the facts. The court should weigh the facts and assess the risks in the eye of reality, theoretical risks should be disregarded.

24 Intervention on this ground is exceptional, and is only to be undertaken after giving due weight to the public interest in a litigant not being deprived of a lawyer of his or her choice[12].

25 I consider that the reasonable observer knows that it is common practice for solicitors to act for both co-purchasers in a conveyance, and in relation to the execution of mortgage documents prepared by others which provide the funds needed for the purchase. The observer would see that Maddocks acted for both parties only for the purchase of the property. The observer would also see that Maddocks acted solely for the respondent in relation to the Rescore Agreement, told Mr Spiker that this was so, and that Mr Spiker had 14 months after the settlement of the purchase of the property to object to Maddocks' role in acting solely for the respondent in relation to the Rescore Agreement. There was no communication between Maddocks and Mr Spiker about the Rescore Agreement after July 2003 until Mr Spiker executed the Rescore Agreement and provided it to Maddocks. There was no objection from Mr Spiker to Maddocks acting solely for the respondent in the preparation of the Rescore Agreement. Without any contact from Maddocks, Mr Spiker sent the executed agreement to Maddocks in late September 2004. In these circumstances, the reasonable observer would not regard Maddocks as having changed sides at all, much less in relation to the dispute which now involves the co-owners.

26 Finally, the reasonable observer would see that that the substantive proceeding does not concern the conveyance at all, nor the property rights flowing to the co-owners, but rather concerns the dispute between co-owners as to whether the applicant can obtain an order for the sale of the property on terms to be determined by the Tribunal in circumstances where there are in place agreements between the parties providing for the purchase by each co-owner of the other co-owner's interest in the property.

27 For these reasons, I find that the circumstances of this case do not justify depriving the defendant of the right to be represented by solicitors of its choice. The application will be dismissed. I will reserve the question of costs.

[1] I note that Maddocks had also acted for each of the parties in commercial matters prior to April 2003.

[2] There is some issue as to whether Mr Spiker had a copy of the proposed agreement with him at the meeting. Mr Spiker said he did not. Mr Phelan said he did. In any event, Mr Spiker agreed, at paragraph 25, that "there were discussions about the Respondent wanting some agreement, but no agreement was reached on that day".

[3] See Victorian Civil and Administrative Tribunal Act 1998, ss. 40-44, 63, 80(1), 97, 98(3), and 123.

[4] See Australian Liquor Marketers Pty Ltd v Tasman Liquor Traders Pty Ltd [2002] VSC 324 at [25].

[5] Spincode Pty Ltd v Look Software Pty Ltd & Ors [2001] VSC 287.

[6] See for example: Australian Liquor Marketers Pty Ltd v Tasman Liquor Traders Pty Ltd [2002] VSC 324.

[7] Intervention may also be justified on this ground in the exercise of a Court's supervisory jurisdiction over its own officers: See Pinnacle Living Pty Ltd v Elusive Image Pty Ltd [2006] VSC 202 at [14].

[8] Intervention in this case is part of the overriding jurisdiction to intervene so as to protect the due administration of justice: See Pinnacle Living Pty Ltd v Elusive Image Pty Ltd [2006] VSC 202.

[9] [2003] VSC 186.

[10] See Village Roadshow Limited v Blake Dawson Waldron [2003] VSC 505 at [44].

[11] (1987) 9 NSWLR 118 at 123.

[12] See Kallinicos v Hunt [2005] NSWSC 1181.