this product is unavailable for purchase using a firm account, please log in with a personal account to make this purchase.

Property: Identifying the client

Every Issue

Cite as: March 2015 89 (3) LIJ, p.79

A 2014 case has put an entirely new spin on the risk for lawyers in acting for companies.

Property lawyers often act for corporations. Companies often buy and sell land; indeed some companies make a business of buying and selling land. Others buy and sell land merely as part of their overall business, such as the purchase of new business premises. As a result, property lawyers need to exercise caution and discretion to ensure that they clearly understand who the client is and who can give instructions to the lawyer.

Recognition of the separate legal identity of a company and the fiction of the corporate veil are centuries old. While that veil may be lifted in certain circumstances and directors made personally accountable for their actions, the general proposition still prevails – a company is a separate legal entity. However, a company can only act through the agency of its officers and this means that people, including lawyers, who interact with the company must, of necessity, take instructions from the directors or duly appointed agents.

The seminal judgment of Brooking J in the well known case of Spincode P/L v Look Software P/L [2001] VSCA 248 (Spincode) highlights the ethical problems for lawyers acting for companies and the potential for the lawyer to face a conflict of interests. In summary, the case involved an important client of the lawyer who decided to engage in a joint venture with others. A new company was formed with the client and the joint venturers being directors. Disagreements arose between the parties and court proceedings were issued. The lawyer who sought to represent the existing client against the new joint venture company was prevented from doing so on the basis that the lawyer had been involved in the establishment of the joint venture and therefore had a conflict of interest. Spincode has been the subject of discussion in many cases since, with some deviation from the basic principle in limited circumstances, but it is fair to say that Spincode stands for the general proposition that a lawyer who has acted for the participants in a joint venture cannot seek to act against one of those joint venturers in a subsequent dispute.

Another case has put an entirely new spin on the risk for lawyers in acting for companies. Prestige Lifting Services P/L v Robert Wood [2014] VSC 465 (Prestige) was not concerned with the lawyers ethical duties in the corporate environment, but rather the arguably more important issue of the lawyer’s right to claim legal costs. Prestige again involved warfare between the directors of the company. One director consulted the lawyer for advice about the alleged failures of another director and the lawyer accepted instructions from that director to act for that director personally and had a costs agreement signed by that director personally and also on behalf of the company.

The dispute escalated from an exchange of letters with the other director to Supreme Court injunctions proceedings, and eventually the director who had given the lawyer instructions resigned from the company, effectively “pulling the rug from under” the lawyer.

The departed director failed to pay the lawyer’s costs and so the lawyer sought recovery of his costs from the company and was successful in a Magistrates Court claim for those costs. The magistrate was satisfied that the departed director did have authority at the time of giving the instructions to the lawyer to do so on behalf of the company. It was important to the magistrate that an objection raised by the other director in the Supreme Court proceedings against the lawyer’s claim to represent the company was not pursued.

In the Supreme Court this finding was overturned. Ginnane J held that the company had not instructed the lawyer to act on behalf of the company and that the director’s instructions only constituted authority for the lawyer to act on behalf of the director personally. His Honour stated: “A director of a company with several directors usually has no actual authority to bind the company. I do not consider that the retaining of solicitors for a company is a power or duty customarily exercised or performed by one director, especially when its directors are in dispute about the control or conduct of the company”.

As a consequence the lawyer was not entitled to payment of the outstanding costs from the company and there was even a suggestion that the costs that had been paid by the company to the lawyer to date may need to be refunded by the lawyer to the company. Naturally enough, a costs order in respect of the proceedings would also be made against the lawyer – an expensive exercise indeed.

The lesson to be learned is the age old lesson of establishing who you act for and who your client is. In the coming age of electronic conveyancing we are being warned to check the identity of our clients but the first question, before identity, is always who is the client, then identify that person.


RUSSELL COCKS is author of 1001 Conveyancing Answers. For more information go to www.russellcocks.com.au.

Comments




Leave message



 
 Security code
 
LIV Social
Footer