IN THE COURT OF APPEAL OF THE REPUBLIC OF VANUATU
(Appellate Jurisdiction)

CIVIL APPEAL CASE No.10 OF 2011

BETWEEN:

ROBERT EDGAR SUGDEN
First Appellant

AND:

SYDNEY PATRICK MCGREAL of North Efate
Second Appellant

AND:

GRAHAM HENRY SMITH
CHERYL MARIE SMITH and SCOTT BRADLEY SMITH
Respondents

Coram: Hon. Justice J. von Doussa
 Hon. Justice O. Saksak 
 Hon. Justice D. Fatiaki
Hon. Justice R. Spear
 Hon. Justice P. Heath

Counsel: Mr R. Sugden appearing for himself
 Mr G. Nakou appearing for the Appellant, Mr McGreal
 Mr D. Thornburgh for the Respondents 
 
Date of hearing: 12th July 2011
Date of judgment: 22nd July 2011

JUDGMENT

1.	This appeal is brought by leave against two Interlocutory Orders made by the Hon. Justice Weir on 11 May 2011. The learned primary Judge posed two preliminary issues raised by applications then before him:

(i) Whether Mr Sugden can continue to act for the Claimant (Mr McGreal) in any capacity as solicitor or counsel because of any personal interest.

(ii) In the event it is found that he is unable to act in any capacity, can he be joined in the proceedings, and if so, in what capacity.

2.	Both preliminary issues were answered in the negative, and orders were made accordingly which effectively excluded Mr Sugden from further involvement as a lawyer in the substantive proceedings. Mr Sugden has been the lawyer on record for Mr McGreal since the inception of the substantive proceedings, and throughout the dealings of the parties which are the subject matter of the proceedings.

3.	By the Notice of Appeal both Mr Sugden and Mr McGreal appealed against the Order refusing Mr Sugden leave to be joined as a party, and Mr McGreal appealed against the Order restraining Mr Sugden from appearing on his behalf. When the appeal was called Mr Nakou announced his appearance for Mr McGreal but indicated his wish that Mr Sugden address arguments on both aspects of the appeal. This occurred. There is also a cross-appeal by the respondents against the primary judge’s decision to reserve the question of costs. They contend that costs should have been awarded in their favour and personally on an indemnity basis against Mr Sugden.

BACKGROUND – THE SUBSTANTIVE PROCEEDINGS

4.	By a written Agreement made in or about November 2007 (the exact date is not recorded), the respondents agreed to sell to Mr McGreal all the shares in a local Vanuatu Company, Louman Agricultural Pastoral and Industrial Ventures Limited (“the Company”), for AUD$1,100,000.00. The Company was included in the Agreement as a party. The Agreement provided for a deposit and payment of the balance of the principal by installments over an extended period, to be finally paid on or before 20 December 2008 (the Completion Date). The Company was the registered owner of leasehold interests in land on Efate, and was in the process of seeking approval for a subdivision which would result in 43 separate allotments. The Agreement provided that upon payment of the deposit the purchaser (Mr McGreal) would take possession and control of the Company’s business, land and assets and that the vendors (the respondents) would vacate and give up the same. This happened. Signed transfers of the shares and other documents necessary to complete the transfer of the shares at the Completion Date were to be handed to and held by the vendors’ solicitors pending completion.

5.	The transactions did not proceed as anticipated by the Agreement. There were disputes about the sufficiency of documents handed over to the vendor’s solicitors and about the continuing role of the first respondent as a director of the Company. The appellant was not able to pay the balance of the principal by 20 December 2008. The Agreement was varied on 19 November 2008 so as to extend the Completion Date until 30 June 2009. Even then further delay occurred in payment due under the Agreement, and a further dispute arose as to whether completion under the Agreement, which was intended to trigger the resignation of the first respondent as a director, occurred on the payment of the bare outstanding principal, or whether payment was necessary of both the outstanding principal and penalty interest which had accrued thereon. On this point Mr McGreal asserted that completion occurred on payment of the bare principal sum and that penalty interest could be paid later so long as payment occurred within a reasonable time.

6.	Proceedings were commenced by Mr McGreal in the Supreme Court on 24 March 2010 which, after some amendments, claimed specific performance of the Agreement, a mandatory injunction requiring the respondents to render all reasonable assistance to enable Mr McGreal to obtain transfer of the shares and the resignation of the first respondent as a director, and for damages for delay in completion.

7.	The respondents in their defence denied the entitlement of Mr McGreal to the relief claimed. They asserted that under the Agreement completion occurred only when the principal sum of the vendor’s finance together with interest was paid. As interest had not been paid at relevant dates there had been no delay as alleged. The response also asserted that part of the consideration of the Agreement was the transfer to them of four specified allotments intended to be created under the proposed subdivision. Their initial Defence and Counterclaim sought declarations of entitlement to these allotments. However on 25 February 2011, the counterclaim was amended to seek in the alternative damages from the appellant of AUD$800,000.00 being the alleged value of the four allotments. 

8.	The Amended Counterclaim for damages brought forth an allegation from Mr Sugden in a proposed amendment to the Reply and Defence to Counterclaim that the relevant special condition in the Agreement relating to the four allotments was not binding on Mr McGreal or the Company as it lacked consideration, and in any event was void as the clause purported to give away an asset of the Company in breach of the fiduciary duties of the first respondent as the director of the Company, and was ultra vires the power of the Company.

9.	The commencement of the Supreme Court proceedings was preceded by much correspondence between Mr Sugden on Mr McGreal’s behalf, and Geoffrey Gee & Partners acting on behalf of the respondents. In a letter dated 12 March 2010, Mr Sugden disclosed that the sum of AUD$462,821.64 to be paid on account of principal by Mr McGreal was being borrowed by him from Mr Sugden who in turn was borrowing the money from Bred Bank. This disclosure that Mr Sugden was a lender to Mr McGreal caused the respondents’ solicitor to write to Mr Sugden on 30 March 2010, as soon as the Supreme Court proceedings were served, saying:

“As you are personally involved in this matter, which is clear from your correspondence stating that Mr McGreal is borrowing the money from you to fulfill the contract, please advise if it is your intention to brief the matter out to another Firm or instruct another Firm to act given the clear conflict. You are a material witness that we will be calling at trial and you should not be acting. We place you on notice that if you do not withdraw from the record within seven (7) days, we will be bringing an application seeking an order of same.

We place your Firm on notice not to destroy any Emails and/or correspondence between yourself or Mr McGreal in relation to the loan process and/or Agreement thereunder in relation to your financing to the Claimant.”

10.	Mr Sugden did not withdraw. Pleadings and disclosure took place and many interlocutory applications followed including the application by the respondents to restrain Mr Sugden from further acting. 

11.	By the time the last mentioned application came on for hearing, other events had overtaken issues raised in the pleadings. Interest on the principal (save for a small amount in issue arising from differing calculations) had been paid. The first respondent had resigned as a director. The outstanding issues that remained were reduced to a claim for the small balance of interest, the status of the four allotments of land, damages claimed by Mr McGreal for delay in completion, and a claim for costs of the proceedings.

12.	It will be necessary to return to consider what could be involved in the trial of these issues later in the judgment.

THE JUDGMENT UNDER APPEAL

13.	The primary Judge noted that Mr Sugden had announced to him that he would not act as counsel for Mr McGreal (he would not act in a barristerial role) but that he wished to continue acting as solicitor for Mr McGreal. He argued that there was no reason why he should not do so, seeking to draw distinctions between the role of a barrister in the strict sense, and the role of a solicitor in a divided profession. Mr Sugden said arrangements would be made for another lawyer to appear as counsel at the trial.

14.	The primary Judge rejected Mr Sugden’s arguments, saying they ignored the reality of the situation for reasons that he then gave. He noted that for the first time in the proceedings the proposed amendment to the Reply and Defence to Counterclaim, filed on 10 May 2011, raised the validity of the special condition relating to the four allotments. The primary Judge described this contention as novel and in stark contrast to Mr McGreal’s sworn statement that the agreed transfer of the four allotments formed part of the consideration for a reduction in the overall purchase price. He noted the conflict in perception between what Mr Sugden was now submitting was the correct interpretation of the special condition and what Mr McGreal had previously attested to. He noted the respondents’ submission that Mr Sugden is a material witness required by the respondents for cross-examination on a number of issues. He considered that credibility could well be a crucial factor in determining the status of the four allotments. For these reasons he held that it would be contrary to the interests of justice that Mr Sugden remain as a solicitor on the record, prepare the case for trial, listen to all the evidence, then give evidence himself. He concluded that Mr Sugden did not merely have an interest in the proceedings, he clearly had a conflict of interest.

15.	The application by Mr Sugden that he be joined as a party was founded on an assertion that he was not a mere lender to Mr McGreal, but that Mr McGreal entered into the Agreement as the nominee for himself and Mr Sugden to the intent that they would each ultimately become beneficial owners of 50% of the share holding. 

16.	The primary Judge was not satisfied that this assertion was established by the evidence before the Court. In particular the Judge noted that there was no mention of such an interest in any of the statements filed as evidence for use at trial. If it were a correct statement of the position Mr Sugden should have been joined as a co-claimant in the proceedings from their inception. Further, Company accounts filed for the 2010 year did not disclose such an interest held by Mr Sugden, and an affidavit filed by Mr McGreal dated 9 September 2010 indicated that Mr Sugden was no more than a financier. The primary Judge held on the available evidence that Mr Sugden was no more that a creditor. His rights are limited to his powers under the loan agreements. Mr Sugden had not established an entitlement to be joined as a party.

17.	The primary Judge also rejected an alternative argument advanced by Mr Sugden that because he lent money to Mr McGreal, including for the purposes of the Agreement, he had an interest sufficient in law to entitle him to be heard at trial. In support of this extraordinary proposition Mr Sugden had relied on passages from judgments of this Court in Futjisu (NZ) Ltd v. International Business Solutions Ltd [1998] VUCA 13 and Dinh v. Polar Holdings Limited, Civil Appeal Case No.16 of 2006. The primary Judge held, correctly in our view, that the observations of the Court of Appeal in those decisions were confined to cases where an actual party to the proceedings had not been given an opportunity to be heard and provided no authority for Mr Sugden’s proposition. On this appeal, this argument was rightly abandoned by Mr Sugden.

THE COURT’S JURISDICTION

18.	The Supreme Court undoubtedly had jurisdiction to make the restraining orders sought by the respondents. In Etmat Bay Estates Limited v. Kalsal & ors, Civil Appeal No.01 of 2011 the Court of Appeal said:

“10. Section 49(1) of the Constitution gives the Supreme Court unlimited jurisdiction to hear and determine any civil or criminal proceedings, and such other jurisdiction and powers as may be conferred on it by the Constitution or by law. Vanuatu Courts are able to draw freely on the common law, (Swanson v. the Public Prosecutor, Criminal Appeal Case No.6 of 1997 p.20). We have no doubt the Supreme Court has the unfettered ability shared by other Common Law Courts to control its own processes except as limited by specific legislation. It is within the inherent jurisdiction of superior Courts to deny the right of audience to counsel when the interests of parties so require it; Everingham v. Ontario [1993] 88 DLR (4th) 755, 761, Black v. Taylor [1993] 3 NZLR 403, 418. This can be seen as part of the jurisdiction to ensure that procedures are not abused. An associated concern that lies behind the jurisdiction to deny counsel audience is that justice should not only be done, but should manifestly and undoubtedly be seen to be done; R v. Sussex Justices, ex parte McCarthy [1924] KB 256, 259, Black v. Taylor, p.408.

11. Before it exercises this jurisdiction, a Court must give due weight to the public interest that a litigant should not be deprived of his or her counsel without good cause. The right to the unfettered choice of counsel is important. The Court must be vigilant to ensure that the jurisdiction is not exploited by parties who, for tactical reasons, wish to expose opposing parties to the discouraging and expensive task of being forced to find new counsel. Any consideration of an application to discharge counsel must recognize the realities of legal practice. The Courts should not be too ready to prevent a party from being represented by counsel of its choice."

19.	The Court of Appeal went on to note that a number of cases have emphasized the importance of maintaining the appearance that the parties are being subjected to a fair process. The Court cited several decisions that were directly relevant to the point in issue in that Appeal, namely whether a lawyer on the record should be restrained from further acting because of the risk of misusing confidential information received by the lawyer when acting on another occasion for a different party in the proceedings. In particular the Court referred to a passage from D & J Constructions PTY Ltd v. Head [1987] 9 NSW LR 118 where at 123 Bryson J observed:

"Cautious conduct by the Court is appropriate because the spectacle or the appearance that a lawyer can readily change sides is very subversive of the appearance of justice being done. The appearance which matters is the appearance presented to a reasonable observer who knows and is prepared to understand the facts." 

20.	We emphasize the observation in Etmat that a Court must be vigilant to ensure that the jurisdiction is not exploited by parties who, for tactical reasons, wish to expose opposing parties to the discouraging and expensive task of being forced to find new legal representation. Applications to invoke this jurisdiction are likely not only to expose the parties to additional costs and inconvenience, but to seriously delay the due prosecution of the case, and to defeat the efficient management of the Court list. If used other then for proper purposes, such application could also have the undesirable effect of preventing a litigant from promoting or defending a claim on legitimate grounds. 

21.	The submission by Mr Sugden that in the exercise of this jurisdiction the Court should draw a distinction between the role and functions of a lawyer when fulfilling the barristerial role of an advocate before the Court, and that of a lawyer acting as an instructing solicitor cannot be accepted in this jurisdiction. To attempt to draw such a distinction in the case of lawyers who are members of a fused profession where admission is to the roll of barristers and solicitors is not realistic especially in a jurisdiction where the number of practising lawyers is small. Even in a jurisdiction where there are many practitioners, and an observance in practice between the role of solicitors and the role of barristers practicing solely at the bar, a conflict between the interest of a client and the personal interest of the solicitor will usually require that the solicitor cease to act. 

22.	As a general rule where there is a real conflict between the interest of a lawyer, whether a solicitor or barrister, and that of a client, the lawyer is disqualified from further acting for the client. The exception to this general rule is where the conflict, though real in a practical sense, is of a minor nature, the client is fully informed about the nature, extent and the potentials of the conflict, and after receiving independent legal advice decides to continue the retainer of the lawyer. In so far as the nature and extent of the conflict lies within matters known to the lawyer and not the client, for the client to be fully informed there must be a full and frank disclosure by the lawyer. 

23.	In assessing whether a conflict is such that it can be accommodated by full disclosure and independent advice, or whether it is of a magnitude that requires the lawyer to withdraw in any event, all the circumstances of the case and of the parties themselves must be considered. Issues such as the age, health, social and educational standing and linguistic abilities of the client, and the comparative positions of power and authority of the lawyer and the client will be important.

CONSIDERATION OF THE ISSUES IN THE APPEAL

24.	It is convenient to deal first with the joinder issue. The fact that a person has a financial interest in the outcome of litigation, is not sufficient to entitle that person to become a party. See News Ltd v. ARL [1996] 139 ALR 193 at 298. If it were otherwise, for example, any creditor of a litigant could become a party to the litigation with a view to supporting the case of the debtor. The arguments of Mr Sugden before the primary Judge recognized the likelihood that the primary Judge would take this view and for this reason he sought to rely on the allegation of a 50% beneficial interest in the Agreement as the basis for being joined as a party.

25.	We agree with the learned primary Judge that Mr Sugden failed on the evidence then before the Court to establish as a probability that he held such an interest. Indeed, assessed against that evidence we consider the assertion that Mr Sugden had such an interest lacked credibility. 

26.	The Agreement itself and other documents that came into existence around the time the parties reached agreement, at least in so far as those documents are known to the Court, make no reference to such an interest. The first known mention of the interest did not occur until after Mr Sugden's role as lawyer for Mr McGreal was challenged. The assertion was inconsistent with Mr McGreal's affidavit of 9 September 2010, prepared by Mr Sugden well after the proceedings were on foot but before the respondent had formally made application to restrain Mr Sugden from further acting. Notwithstanding obligations of disclosure which rest on Mr McGreal, and in turn on his lawyer in so far as he held relevant documents, no documents whatsoever have been disclosed that make any reference to Mr Sugden having such an interest. We find it inconceivable that there would be no documents coming into existence between Mr Sugden and Mr McGreal, and with proposed lenders in relation to the loans, which at least referred to, if not confirmed, an agreement of the type now asserted by Mr Sugden. We also find it inconceivable that there would be no record of arrangements dealing with where, when and how Mr Sugden and Mr McGreal, for their respective interests, would contribute to the several payments due under the Agreement, how they would allocate the shareholding to be acquired, and how the fruits of the transaction would ultimately be shared. 

27.	 We agree with the primary Judge that the information available to him failed to establish the alleged interest. In our opinion the order refusing the joinder of Mr Sugden as a party was correctly made.

28.	We turn now to the question whether Mr Sugden should be restrained from continuing to act for Mr McGreal either because he is a potential witness, or because of conflicting interests. 

29.	We have previously noted that issues that were alive when the proceedings were commenced have diminished with the passage of time. That there was delay in completing the Agreement is not in dispute. Which side bears the legal responsibility for the delay, in our opinion, turns on the construction of the written Agreement. As a construction question, oral evidence is neither required nor admissible. The construction question is simply whether completion was dependent upon the payment of the penalty interest as well as the outstanding principal. It is not for this Court presently to determine the construction question, but it should be said that the argument made on Mr McGreal's behalf defies commercial good sense and appears to be contrary to the reasoning of the Supreme Court of Fiji in the case of Ben v. Suva City Council [2008] FJSC 17 (24 July 2008). Only if these obstacles are overcome will Mr McGreal have an entitlement to damages for delay. The assessment of those damages would in essence involve comparing the rates of interest actually paid by Mr McGreal under several existing loan agreements and the rates which could have been available from other lenders had completion earlier occurred. We think it is unlikely that Mr Sugden would be a necessary or useful witness on these questions, but if it turned out that evidence from him is required, a change of representation for Mr McGreal at that late stage in the action for the limited remaining issues is one that should be capable of achievement without exposing the respondent to significant additional costs. We are not persuaded that Mr Sugden should be excluded at this stage from further acting because of the assertion by the respondents that he will be a witness required for cross-examination at trial. 

30.	Whether Mr Sugden should be restrained from further acting because of conflict of interest is a more substantial question. As we have already observed the assertions of a disqualifying interest is one that must be judged having regard to all the circumstances of the case and recognizing that the mere fact that a lawyer is owed money more likely to be repaid if the litigation succeeds is not alone enough to disqualify the lawyer. Lawyers sometimes advance Court fees and act for clients on a contingency basis where payment of their fees will ultimately depend upon a successful outcome for their clients. In these circumstances, the interests of the lawyer and the client are running in parallel, and it is not suggested that these interests constitute a disqualifying conflict. 

31.	However, where the client's financial obligations to the lawyer move beyond fees and disbursements in relation to the conduct of the proceedings, additional considerations are likely to arise, and the greater the financial indebtedness of the client to the lawyer, the greater will be the chance of there being a real conflict of interest.

32.	Where discharge of the indebtedness to the lawyer is deferred pending the outcome of litigation in which the lawyer is acting, and more so where payment is dependent upon success, there may well be the potential for conflict to arise in the closing stages of the litigation, either when a question of settlement arises, or when judgment is given. However, until that point is reached the interest of the lawyer and the client are usually identical in that they are both working toward the success of the client's case. Whether the potential for conflict at the later stages disqualifies the lawyer before the potential becomes an actuality, is, again, a question to be decided having regard to all the circumstances. The question is likely to turn on the relative extent of the financial interest of each in the outcome of litigation, the likelihood of conflict arising having regard, among other things, to the likely merit of the case, and the ease with which the conflict, if it arises, can then be managed without disrupting the due completion of the litigation. Such considerations as the age, health and relative sophistication of the lawyer and the client will be important, as will the appropriateness of any arrangements agreed in advance between them as to the way in which potential conflict will be managed. The frankness with which the lawyer addresses the potential for conflict, and ensures that his client is fully informed will also be important. Where the relative interest of the lawyer is considerable having regard to the subject matter of the litigation and the wealth of the client, the interests of justice referred to in Etmat will usually require that the lawyer cease acting for the client forthwith, and not continue acting in the hope that everything will turn out for the good.

33.	In the present case, the interest of Mr Sugden in the outcome of the proceedings is very considerable. Mr McGreal in his affidavit of 9 September 2010 disclosed loans of AUD$462,821.04 from Mr Sugden, AUD$50,000.00 from Mr Sugden's daughter and AUD$300,000.00 from Mrs J.E. Sugden. A futher loan of AUD$200,000.00 by Bred Bank secured by Mr McGreal's property at Emua, North Efate is also disclosed. The loan documents describe this as a loan to Mr McGreal and Mr Sugden. One interpretation of the disclosed documents is that Mr Sugden is a surety for this loan.

34.	No information is given to the Court whether additional monies have been advanced in the meantime. All these loans are interest bearing and presumably have continued to accrue unpaid interest from dates in early 2010, late 2007 and 2008 respectively. Moreover, it is reasonable to assume from the known financial position of Mr McGreal that Mr Sugden is carrying Mr McGreal's costs of the proceedings, or at least most of them. Unfortunately, Mr Sugden has not given the Court details of the extent of Mr McGreal's present indebtedness to him and his family, or about arrangements in place for the funding of the litigation.

35.	The evidence shows that Mr McGreal is in a very poor and fragile state of health due to chronic heart disease. It is of concern to the Court that the Court has not been given any details of what arrangements exist between Mr Sugden and Mr McGreal about how the litigation is to proceed should Mr McGreal's health deteriorate or if he dies, or how in these events the indebtedness to Mr Sugden is to be discharged or secured. An open possibility that concerns us is that no such arrangements have been agreed, and that Mr Sugden, as a matter of self help, could take over the proceedings for his own benefit, and perhaps also take over the benefit of the Agreement, to the disadvantage of Mr McGreal and his successors. The Court should not be left with the concerns of this kind where the function of the Court is to ensure that in the litigation process justice is not only done but be seen to be done.

36.	Mr Sugden's disclosures to the Court (both before and at the appeal hearing) of relevant information about his relationship with Mr McGreal is so lacking in detail that we are left with the unfavorable impression that Mr Sugden has been less than frank with the Court, and possibly also with Mr McGreal, in addressing the issues we have mentioned. 

37.	It is also a matter of concern to the Court that after Mr Sugden received the letter of 30 March 2010 from the respondent's solicitors (the letter referred to in paragraph 9 above), instead of directly addressing the issue of conflict in a professional way he wrote a reply which resorted to personal abuse directed to the respondent's solicitor and other members of his firm. This lack of objectivity and professional propriety raises a doubt about the objectivity and quality of the advice being given by Mr Sugden to Mr McGreal about the real issues in the case. 

38.	Another very serious issue of concern is that after the orders under appeal were made, Mr Sugden continued to act for Mr McGreal by preparing a further application to the Supreme Court seeking to set aside the orders of the primary judge in so far as they ruled that Mr Sugden could not be a party. This was on the ground that the respondents misled the Court by representing to the Court that they did not know Mr Sugden was a partner of Mr McGreal in the purchase of the shares. Particulars of the alleged falsity assert that two of the respondents and their solicitor were told by Mr Sugden when the Agreement was being negotiated that Mr Sugden was to be a 50% partner in the purchase of the shares, and that partners of the solicitor also gained that knowledge from later events. 

39.	This most recent allegation of a partnership is yet another shift in ground. To allege a partnership agreement is conceptually quite different to Mr Sugden having a 50% ownership interest in the shares. 

40.	The late assertion by Mr Sugden that he is entitled to a 50% beneficial interest in the shares to be acquired under the Agreement did not seem credible on the evidence before the primary Judge. If the assertion is not correct, that it was made in an attempt by Mr Sugden to retain the role of presenting Mr McGreal's case at trial is itself sufficient reason to require in the public interest that Mr Sugden be restrained from further acting for Mr McGreal. On the other hand, if there is other evidence which was not made known to the primary judge supporting Mr Sugden's assertion of a 50% interest as a partner, or otherwise, an equally serious concern arises from Mr Sugden's failure to disclose it to the Court in a timely manner. The lack of frankness in not doing so, having regard to his very considerable financial interest, is also a sufficient reason justifying the Court to restrain him from further acting. 

41.	In our opinion, the circumstances demand that the interests of Mr McGreal be considered and handled separately from those of Mr Sugden. We consider that Mr McGreal should be separately represented on all questions remaining under the Agreement and in the litigation. If the Court were not to so order, and at the end of the day his dealings with Mr Sugden and the litigation have an outcome which is disastrous for him, we consider an objective observer in the community, knowing the facts, would fairly conclude that the Court failed to ensure that the legal system achieved a just outcome for Mr McGreal. That justice is not only done but is seen to be done is an essential consideration for the Court in exercising the jurisdiction recognized in Etmat.

42.	In our opinion the Order restraining Mr Sugden from further acting as a lawyer (even in a partial role as solicitor) was correctly made.

43.	We think the conflict of interest between the financial interest of Mr Sugden and those of his client is so extensive and substantial that it could not be adequately addressed by allowing the relationship to continue upon Mr McGreal receiving independent legal advice.

44.	The Order made in the Supreme Court restrained not only Mr Sugden but also the firm Hudson & Co from continuing to act for Mr McGreal. On the appeal it was suggested by Mr Sugden that Hudson & Co should not be restrained so that even if he has a conflict, other lawyers in that firm could continue to act for Mr McGreal. The exact relationship of Mr Sugden with Hudson & Co has not been made clear to the Court. A letterhead for the firm Hudson & Co in evidence includes Mr Sugden's name as both a Partner and as an Associate of the firm. However whether he is one or the other makes no difference. As a general rule, if a lawyer working in a firm of lawyers should not act for a client because of conflicting interests, no other lawyer in that firm should continue to act for the client. That general rule should be applied rigidly even in the case of small firms and in small jurisdictions like Port Vila. It is a rule that exists for the protection of the client. In our opinion, the Order excluding Hudson & Co was rightly made.

45.	In the course of the appeal, reference was made to the recently gazetted Rules of Etiquette and Conduct of Legal Practitioners, Order No.106 of 2011. These Rules are, at least for the most part, reflective of the common law principles concerning the conduct of lawyers. In argument reference was made to Part 5 of the Rules which deals with conflict of interest and in particular to Rule 32(3) which provides:

"A lawyer must not act for a client in any transaction in which the lawyer has an interest unless the matter is not contentious and the interests of the lawyer and the client correspond in all respect."

46.	In the present case "the matter", an expression which encompasses the issues in the proceedings, is contentious. Having regard to the state of health of Mr McGreal and the extent of his indebtedness to Mr Sugden (which it seems continues to grow with the costs of the proceedings and as interest accrues), the interests of the lawyer and the client do not in all respects correspond.

47.	For these reasons, the appeal by Mr Sugden and the further appeal by Mr McGreal upon which no additional argument was addressed by Mr Nakou will be dismissed.

THE CROSS APPEAL

48.	On the cross-appeal the respondents contend that an order should have been made by the primary Judge in the respondents' favour for indemnity costs against Mr Sugden personally, not only in respect of the application to restrain him from continuing to act, but for the substantive action itself from 30 March 2008 when objection was taken by the respondents to Mr Sugden acting in the proceedings.

49.	In our opinion the claim for costs of the substantive proceedings from 30 March 2008 is premature. There remain live issues yet to be determined in the proceedings. A trial on those issues may well proceed on the pleadings as they presently stand. The removal of Mr Sugden from the scene at this stage may not add to the costs of the respondents, and the respondents' entitlement to costs, if any, will fall to be determined having regard to the ultimate outcome of the proceedings.

50.	The respondents' application for costs of the application seeking the restraining orders against Mr Sugden and Hudson & Co stands on a different footing. That application involved a discrete issue separate from the merits of the substantive claim. The application was made necessary by Mr Sugden's refusal to withdraw. In our opinion the respondents should be awarded the costs of the application the subject to this appeal. In these circumstances the general rule in Rule 15.1(2) of the Civil Procedure Rules No.49 of 2002 that costs are payable by the unsuccessful party, should be applied.

51.	We consider the circumstances of this case warrant an order that the respondents recover their costs of the application against Mr Sugden personally and on an indemnity basis. Mr Sugden's refusal to withdraw and instead defending the application where he should have realized the application would succeed put the respondents to unnecessary costs. His attempt to circumvent the application by alleging he held a 50% interest in the shares of the Company was a misuse of the litigation process. 

52.	For similar reasons, the respondents should recover their costs of this appeal against Mr Sugden and on an indemnity basis. The case falls within powers of the Court under Rule 15.5(5), paragraphs (b) and (c).

53.	Mr McGreal is a nominal appellant, and although he is formally represented by Mr Nakou we do not think in the circumstances an order for costs should be made against him. Rather, there should be no order in respect of Mr McGreal's costs of the appeal or on the application in the Court below. There may be issues about those costs between him and Mr Sugden, but the Court is not sufficiently informed about their relationship to deal with that issue. See Harley v. McDonald [2002] 1 NZLR 1 (PC) at [45] – [51].

OTHER ISSUES

54.	The learned primary Judge noted in his reasons for judgment that there were two outstanding applications besides that with which he was concerned. One concerned the application by Mr McGreal to file an Amended Reply and Defence to Counterclaim so as to raise the issues concerning the enforceability and validity of the special condition relating to the four allotments. The other application, made by Mr Sugden on the Company's behalf, sought an order joining the Company as a defendant to the counterclaim.

55.	In the course of argument in this appeal, the respondents indicated that they would consent to the Amended Reply and Defence to Counterclaim. They indicated that when the matter is next before the Supreme Court they will formally consent to the application, and at the same time will notify the Court of the terms of a proposed Reply to the Defence to Counterclaim which will traverse the allegations of enforceability and invalidity. Hopefully orders can be made there and then which will complete the pleadings without further delay.

56.	On the issue of joinder of the Company, as orders are sought by the respondents for a declaration of entitlement to the four allotments which will issue in the name of the Company, it is appropriate that the Company be joined and therefore bound by the outcome of the proceedings. The respondents have also indicated their agreement to the joinder, and will formally give the necessary consent when the matter is next before the Supreme Court. As the joinder of the Company is in the nature of a formality, it seems to us that only minor amendment, if any, may be necesary to the pleadings. The joinder should not be allowed to cause delay.

RESULT

57.	The appeal is disposed of by the following formal orders:

1. The appeal from the orders made on Points 1 and 2 of the appellant's application by Hon. Justice Weir on 11 May 2011 is dismissed.

2. The cross-appeal is allowed. The orders made on 11 May 2011 are varied by setting aside the reservation of costs and in lieu thereof substituting an order that the respondents (the defendants in the Court below) recover their costs of the application to be assessed on an indemnity basis against Robert Edgar Sugden personally.

3. That the respondents recover their costs of this appeal against Robert Edgar Sugden to be assessed on an indemnity basis.

4. That there be no order as to the costs in the Court below in relation to the applications decided by the Hon. Justice Weir on 11 May 2011 or on this appeal either for or against the second appellant, Sydney Patrick McGreal.

DATED at Port-Vila, this 22nd day of July 2011

BY THE COURT

Hon. J. von Doussa J

Hon. O. Saksak J

Hon. D. Fatiaki J

Hon. R. Spear J

Hon. P. Heath J