Spotlight Pty Ltd v Maintek Roofing Pty Ltd & Ors

Background to the application

1. In or about April 2004, Spotlight entered into a registered lease with Fatseas in respect of premises in Nowra. Spotlight was the lessee and Fatseas was the lessor. The lease commenced on 6 April 2004 and terminated on 2 April 2011.
2. On 3 November 2007, there was a storm in Nowra which caused Spotlight substantial loss and damage valued at approximately $5 million. By way of further amended statement of claim filed on 1 September 2014, Spotlight claims negligence on the part of Fatseas as well as breach of the terms and conditions of that lease.
3. At the relevant time, Spotlight had an industrial special risks policy provided by Zurich Australian Insurance Ltd ("Zurich"). It is common ground that Zurich is conducting these proceedings in Spotlight's name and that GFM acts for Spotlight on the claim with instructions from Zurich. It is to be inferred that Zurich indemnified Spotlight in relation to most if not all of that claim and that the proceedings are a subrogated claim.
4. Spotlight also claims negligence as against the fourth defendant, a firm of architects, concerning the design of the roof's hydraulic system. Finally, Spotlight claims as against the fifth defendant, the insurer of the former first and second defendants, with respect to negligence regarding work conducted upon the roof of the premises.
5. Fatseas denies liability to Spotlight in its defence to the further amended statement of claim filed on 30 September 2014. Specifically, Fatseas contends that Spotlight was in breach of certain conditions of the lease, including a clause requiring it to keep the premises in a state of repair, a clause in which it agreed not to make any alteration to the premises without Fatseas' consent and a clause agreeing to regularly clean the gutters, downpipes and drains. Fatseas pleads in its defence that it is entitled to set-off any award of damages in its favour against any awards of damages against it in the plaintiff's favour.
6. Fatseas has filed two cross-claims in these proceedings. Only the second cross-claim is relevant to this application. The second cross-claim was filed on 23 November 2015 and names Spotlight as the sole cross-defendant. The cross-claim identifies various terms and conditions of the lease that Spotlight is said to have breached, being the same terms and conditions relied upon in Fatseas' defence. Loss and damage are particularised as comprising repair costs ($63,322.50), replacement of lining of roof ($154,054.40), professional fees ($31,683.10), claim preparation fees ($36,042.87) and loss of rent from November 2007 to July 2008 ($208,921.98). In addition, there is a claim for rent for the period 8 April 2004 to 7 April 2005 ($293,333.33). The total amount claimed is $787,358.18. In addition, there is a significant claim for interest.
7. Spotlight was also insured at the relevant times by Chubb Insurance Australia Pty Ltd ("Chubb"). That commercial public liability policy partially insured Spotlight in relation to the damages sought under the second cross-claim, but it does not cover the claim for rent. While the public liability policy with Chubb relies upon proving negligence, the Zurich policy does not.
8. The matter is not as yet listed for trial, but an estimate of two weeks was advanced during the hearing of this application.

The parties' submissions

1. Mr Weinberger of counsel submitted on behalf of the applicant that Zurich, GFM and Mr Gracie are "on the horns of a dilemma". It is in Spotlight's interest as plaintiff that, to the extent Spotlight was in breach of the lease and caused damage to Fatseas, such damage is not a matter of set-off but a matter that should be visited upon Spotlight separately as cross-defendant. If that were to be the case, Zurich's recovery (if successful) would not be reduced or extinguished. On the other hand, it was submitted, it is in Spotlight's interest (but not Zurich's) to contend that, to the extent that Spotlight is liable to Fatseas, any judgment in favour of Spotlight on the claim should be reduced.
2. It was submitted that the potential conflict is one that has arisen during the course of the proceedings and settlement negotiations rather than one that could be addressed at the time of closing submissions.
3. Mr Weinberger relied upon the recent decision of Adamson J in Buses and 4WD Hire Pty Limited v Oz Snow Adventures Pty Limited [2016] NSWSC 1017 ("Buses"). In Buses, her Honour granted leave for separate representation in what Mr Weinberger submitted was a case "closely analogous to the case at hand". Furthermore, he relied upon the Legal Profession Uniform Law Australian Solicitors' Conduct Rules 2015 (NSW) ("the Solicitors' Conduct Rules"). The Solicitors' Conduct Rules, specifically rr 4 and 11, require a solicitor to act in the best interests of a client and to avoid conflicts between the duties owed to two or more current clients. It was submitted that Spotlight's current solicitors are unable to comply with this requirement.
4. Although Chubb was not provided with a copy of the Zurich insurance policy, Mr Weinberger noted that in the particulars of loss it is pleaded that there was loss of stock worth $3.62 million and damage to plant and contents in the amount of $800,000. Thus is to be presumed that the damage was primarily to stock and contents. Spotlight's claim as plaintiff is in the sum of approximately $5 million, whereas Fatseas' claim is in the sum of approximately $2 million.
5. Mr Carey of counsel, on behalf of Fatseas, opposed the application on a number of bases. First, it was submitted that such an order would have an inevitable impact on the length and complexity of the trial. It was further submitted that there was potential for confusion and uncertainty. Mr Carey relied upon a number of authorities in support of a submission that the circumstances justifying such an order will be rare and that an application should be approached on the basis that it is unlikely that such leave would be granted.
6. Reliance was placed on the observation by Young JA in Elphick v Westfield Shopping Centre Management Company Pty Ltd [2011] NSWCA 356 at [3] ("Elphick") that it was "contrary to the proper practice in this court" for there to be separate representation "unless the court gives leave for it to occur". His Honour referred in Elphick to the decisions in Herbert v Badgery (1893) 14 LR (NSW) Eq 321 and Lewis v Daily Telegraph Ltd (No 2) [1964] 2 QB 601 in support of the principle that plaintiffs must be represented by the same solicitor. Reliance was also placed upon other decisions, which are discussed further below at [24]-[27]. In reliance upon the decision in Elphick, it was submitted on behalf of Fatseas that the fact that different insurers with different interests stand behind a party is of itself irrelevant.
7. Mr Carey sought to distinguish the factual scenario in this case from that in Buses. In that matter, confidential material was provided to the court that satisfied her Honour that there was an actual conflict which the different solicitors did not wish to reveal to each other. The conflict that the solicitors for Chubb, namely McCabes, assert in this matter does not involve any factual dispute. The potential conflict in this matter arises from a desire to advance different propositions relating to the question of the appropriate relief, given the existence of the right of set-off.
8. It was further submitted on behalf of Fatseas that it is highly unlikely that the Court would find both for Spotlight on its claim as plaintiff and for Fatseas on the second cross-claim. Mr Carey also submitted that the relevant test was not whether there was a potential or theoretical conflict but, rather, whether there was an actual conflict. He relied upon the decision in Buses in support of that submission.
9. Finally, Mr Carey submitted that the question of set-off does not create a difficulty in this matter because s 90 of the Civil Procedure Act 2005 (NSW) ("the CPA") gives the court a discretion to provide separate judgments where there is a claim by a plaintiff and a cross-claimant. He submitted that Fatseas has no objection to McCabes' being permitted to address the court at the close of the hearing on behalf of Chubb. He referred the Court to the commentary in Ritchie's Uniform Civil Procedure NSW (LexisNexis) at [9.10.35].
10. Mr Gracie of counsel, who appeared on behalf of the plaintiff with instructions from Zurich, conceded that there was a potential conflict concerning the question of set-off. He described his role on the motion as addressing the Court on behalf of GFM, who will be in the "gunsight". He noted that the defence to the second cross-claim was actually drafted by McCabes, but is signed by GFM because they are the solicitors on the record. Mr Gracie's position is that McCabes should be granted leave to file an amended defence to the second cross-claim because GFM will not plead set-off. He conceded that it is not in Zurich's interest to do so. If the orders sought were made, then leave would also be required for McCabes to file an amended defence as it would be necessary to plead the conflict relied upon. The conflict does not exist on the present pleadings. McCabes should then be responsible for the filing of any evidence believed to be germane to that issue.
11. Mr Gracie next addressed the appropriate approach to the prejudice to Fatseas caused by the costs implications of separate representation. He submitted that the factual issues are the same and that he could not envisage the need for McCabes to file any additional evidence. He did not oppose McCabes' separately representing the plaintiff on the second cross-claim, but submitted that, should such an order be granted, the parties ought to agree upon a protocol similar to the one suggested by Adamson J in Buses. In that way, there would be no doubt as to the basis upon which the Court granted the limited right to separate representation and the matter could progress productively.

Consideration

1. There is no specific provision in the CPA or the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") that authorises a party to be represented by two solicitors on the record simultaneously. In fact, as Garling J observed in Konneh v New South Wales (No 2) (2013) NSWSC 390 at [77], there are many rules of the court that are incompatible with the concept of a party's being represented by more than one solicitor simultaneously.
2. Reliance was placed by Fatseas upon the observation by Young JA in Elphick at [3] as well as upon the decisions in Lewis v Daily Telegraph Ltd (No 2), Konneh v New South Wales (No 2) per Garling J at [77] - [86], and AMP Capital Investors Pty Limited v Parson Brinkerhoff Australia Pty Limited; Retail Employees Superannuation Pty Limited v AMP Capital Investors Limited [2013] NSWSC 1633 ("AMP Capital Investors Pty Ltd v Parson Brinkerhoff Australia Pty Ltd") per Pembroke J at [19].
3. In Lewis v Daily Telegraph Ltd, to which Young JA refers in Elphick at [5], the Court held that there was no conflict of interest as between the two separately represented plaintiffs in that matter. Russell LJ observed (at 623) that, "In a proper case, an order may be made authorising severance in point of representation, but this must be, I think, rare and should only be done to avoid injustice." In Tindle v Ansett Transport Industries (1990) 21 NSWLR 492, the Court of Appeal held (at 500) that to permit separate representation in the circumstances of that case presented a real risk of serious injustice, but noted that, "We leave to one side such cases as those in which cross-actions are heard together."
4. In AMP Capital Investors Ltd v Parsons Brinckerhoff Australia Pty Ltd, Pembroke J considered an application for separate representation in the context of a potential conflict of interest. His Honour considered, at [11] - [18], that there was no actual conflict of interest in that matter in circumstances where senior counsel for the plaintiff conceded as much. Counsel for Fatseas in this matter relied upon his Honour's observations at [19(b)] of that decision as to why the application was made by solicitors who were at that time not connected with the proceedings, rather than by the solicitors then on the record. His Honour stated at [19(b)] that the approach taken to the application for separate representation was "highly irregular", given that the solicitors purporting to bring the application on behalf of the plaintiff had no current formal role in the proceedings.
5. Counsel for Fatseas also relied upon the decision in Carter & Ors v Marine Helicopters Ltd & Ors (1996) 9 ANZ Ins Cas 61-299, and in particular upon the practical difficulties (described at 76,347) that may arise should a party be separately represented. Those difficulties include the appropriate address for service, differences of approach with respect to interlocutory matters, and the potential for different views on the part of counsel as to what evidence to call.
6. I did not find these decisions of direct assistance beyond the fact that they illustrate that allowing separate representation should be rare and done only to avoid injustice. The difficulties that may result from such an order being made were articulated by Adamson J in Buses at [28] as follows: "Where there are two counsel appearing for a party, who are separately instructed, there is the potential for the party to be putting propositions which are inconsistent. This, in turn, has a substantial potential to create confusion, increased cost and prejudice to the administration of justice and, accordingly, is only warranted when the interests of justice require it. The authorities cited are redolent with references to the deleterious consequences of allowing separate representation such that the present application must be approached with a high degree of caution."
7. Guided by this note of caution, I am prepared to assume, as Adamson J did in Buses, that this Court has the power to order that the plaintiff can be separately represented in these proceedings. That power derives either from the Court's inherent jurisdiction or s 23 of the Supreme Court Act 1970 (NSW). In Buses, Adamson J was prepared to assume, at [27], that this Court has power to make such an order on that basis.
8. The dispute before me was not whether the Court has power to make such an order. Rather, Fatseas' position was that such a course is extraordinary and that the power should not be exercised in this case as it is not necessary to do so.
9. This application falls to be determined in the context of the above principles, as well as the relevant case management principles provided for in ss 56 - 60 of the CPA. In particular, I have had regard to whether an order for separate representation would be in accordance with the dictates of justice. This is a difficult question as there will be prejudice occasioned to Spotlight if I refuse the application and prejudice to Fatseas if I allow it. Leave should only be granted for the plaintiff to be separately represented in this matter if I am satisfied that that there is a conflict of interest for the solicitors representing Spotlight's interests as plaintiff (in which Zurich instructs GFM to appear) and Spotlight's interests as cross-defendant.
10. I have found the decision of Adamson J in Buses to be of particular assistance on this issue. Her Honour observed the following at [33]: "There are several situations in which a party might seek two sets of representation. The issues that can arise between an insurer and an insured in an action brought in the latter's name for the benefit of the former include the following: 1. The insurer does not insure a loss which its insured wishes to claim against a third party. 2. The insured brings a cross-claim on a different issue unrelated to the subrogated claim. 3. The insurer and its representatives (which have conduct of the proceedings on behalf of the named insured) are faced with a conflict of interest as between the rights of the insured and the rights of the insurer."
11. It was submitted on behalf of the applicant that, although the second of these matters arises in a de facto sense, the third is "on all fours". The conflict is the issue of set-off. Her Honour went on to observe at [36] that: "An actual conflict in this scenario has the effect of preventing a legal representative from acting, because of the nature and extent of the fiduciary duties owed by a solicitor to a client."
12. I have had regard to the decisions upon which the applicant relied concerning the applicable principles with respect to proceedings brought to restrain legal practitioners from acting for a party by reason of conflict of interest. The first of those decisions was UT (Aust) Pty Ltd v The Partners of Piper Alderman [2008] NSWSC 219, in which Barrett J observed at [29] that there are were three bases upon which a lawyer should be restrained from acting for a person. The first basis is when to act for that person is inconsistent with "the duty of loyalty owed by the lawyer to [a] client as an incident of the fiduciary relationship". The second basis was where there is a potential breach of the duty of confidence. The third is where restraint is necessary for the protection of the integrity of the judicial process and the due administration of justice. It was the third of these three bases upon which the applicant relied in this slightly different factual context.
13. A further decision I have had regard to is Dealer Support Services Pty Ltd v Motor Trades Association of Australia Ltd [2014] FCA 1065, in which the same three bases for restraining a solicitor from acting were discussed. In particular, the applicant relied upon what was said by Beach J at [37]: "The third potential basis for disqualification arises from the Court's inherent jurisdiction to ensure the due administration of justice, to protect the integrity of the judicial process and to restrain solicitors from acting in a particular case as part of its supervisory jurisdiction (Grimwade v Meagher [1995] VicRp 28; [1995] 1 VR 446 at 452 per Mandie J and fortified by Brooking JA in Spincode at [32]-[44], [48] and [60]). In this context, the test to be applied is "whether a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice required that [the solicitors] be so prevented from acting, at all times giving due weight to the public interest that a litigant should not be deprived of his or her choice of [solicitors] without good cause" (at 452 per Mandie J).
14. Although Adamson J found that there was an "actual" conflict in the circumstances of Buses, I am not satisfied that actual conflict must necessarily be established in every case before an order permitting separate representation may be made. As Mr Gracie pointed out, the duty to avoid conflict found in the Solicitors' Conduct Rules extends to potential conflict. Rule 4 sets out the fundamental ethical duties of a solicitor, which include acting in the best interests of a client. Rule 11 deals specifically with a conflict of duties concerning two or more current clients and r 11.2 provides that, if there is a "conflict or potential conflict" of the duty to act in the best interests of each client, the solicitor or law practice must not act, except in certain specified circumstances.
15. It seems to me that it would be an unsatisfactory result and inconsistent with the overriding purpose of the CPA to require the parties to wait for a potential conflict to materialise before seeking an order permitting separate representation. It would inevitably increase the costs of the litigation should an anticipated conflict not materialise until the final hearing, which conflict would then require the hearing to be vacated.
16. In any event, a practical difficulty for GFM has already arisen in this matter because they have not pleaded set-off in the defence to the second cross-claim already filed as it is contrary to the interests of their client Zurich to do so. As was submitted during the hearing of this application, Zurich seeks $5 million in its recovery action, not $3 million, which would be the result of a set-off. I note that it was accepted during the hearing of this application that it is not necessary for me to determine at this stage whether equitable set-off applies in this matter.
17. I also accept that there is inevitable prejudice to Fatseas should leave be granted for Spotlight to have separate representation on the second cross-claim and that this is a factor militating against a grant of leave. That prejudice includes the likelihood of increased costs caused by a number of matters, particularly the potential for cross-examination of Fatseas' witnesses by two counsel and the extra costs associated with dealing with two firms of solicitors throughout the litigation.
18. Furthermore, in circumstances where I am satisfied that a potential conflict of interest for GFM has already arisen concerning the proper pleading of the defence to the second cross-claim, I do not accept the submission on behalf of Fatseas that any conflict can be resolved by the delivery of separate judgments at the conclusion of the hearing under s 90 of the CPA.
19. I have weighed the prejudice to Spotlight as against the prejudice to Fatseas. Taking into account all of the above considerations, I am satisfied that the interests of justice favour the making of the order sought.
20. I do not propose to make the order for separate representation subject to any specific orders that would protect Fatseas' position. It was suggested during the hearing of this application that the parties could agree upon a protocol with the aim of limiting the future costs in this matter. Justice Adamson referred to such a protocol in Buses and a copy of the protocol upon which the parties in that matter were agreed was provided to the Court on this application. The matters set out therein include the specification of a single address for service and that only one counsel would be permitted to cross-examine the defendants' witnesses during the hearing in accordance with the convention outlined in GPI Leisure v Herdsman Investments (No. 3) (1990) 20 NSWLR 15 per Young J (as his Honour then was).
21. The parties should attempt to agree upon such a protocol. If no agreement is reached then it would be open to the parties to seek further orders from the Court in this regard. Matters pertaining to the conduct of the hearing would be most appropriately dealt with by the trial judge.

Costs

1. The applicant has been successful on its motion. Costs would normally follow the event. Despite this, Mr Weinberger submitted at the hearing of this motion that costs should be in the cause. Mr Carey submitted that the question of costs should be reserved. As amicus curiae Mr Gracie did not seek costs, but submitted that the appropriate order is costs in the cause.
2. I propose that costs be reserved in this matter. Given that I only heard the parties briefly on the questions of the costs of this application, I grant leave to approach my Associate within seven days should they seek a different order.

ORDERS

1. I make the following orders: 1. Grant leave to the second cross-defendant to have separate legal representation from the solicitors and counsel appearing on behalf of the plaintiff in the principal proceedings in order to defend the second cross-claim. 2. Unless an application for a different order is made in writing to my Associate within seven days, costs of the motion are reserved.

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