Besieged Wivenhoe Dam operator Seqwater has withdrawn allegations against Maurice Blackburn Lawyers, after claiming their private investigator posed as a flood inquiry official to extract information from dam personnel.
Maurice Blackburn is investigating a potential billion-dollar class action against the government over last year's floods, and Seqwater went on the attack on Wednesday before being forced into an embarrassing backdown.
Seqwater, which operates Wivenhoe and Somerset dams, wrote a stern letter to Maurice Blackburn on Wednesday alleging their private investigator Bob Munt had misrepresented himself as being from the flood Commission.
Mr Munt conducted taped interviews with area coordinator Rohan Thorogood and dam operator Anthony Dagan.
However, Seqwater alleged that Mr Munt got that access only because he misrepresented himself.
The letter went on to explain that the commission had asked that day for a statement from Mr Dagan and it appeared Mr Munt tried to capitalised on that request.
"The conduct of the individual from your firm is unacceptable," the letter, widely circulated by Seqwater, said.
"(You will) desist contacting witnesses from our client on the mistaken premise that it is representing the commission of inquiry."
Commissioner Justice Cate Holmes was concerned by the letter and raised the issue in the inquiry on Wednesday afternoon.
Darryl Rangiah, SC, instructed by Maurice Blackburn and representing Fernvale residents, told the inquiry the law firm had engaged Mr Munt to locate and interview Mr Dagan, which he did on Tuesday as stated.
But he did not misrepresent himself.
"Mr Munt did not say or represent in any way that he was from or associated with the commission ... and clearly said he was an investigator from Maurice Blackburn," Mr Rangiah told the inquiry.
Maurice Blackburn produced for the inquiry tapes of the interviews supporting their case.
They have now requested an apology.
"Given that you have seen fit to make public your ill-founded allegation of impropriety on the part of this firm ... we now invite you to likewise, publicly retract that allegation," principal Damian Scattini wrote.
"Your apology would probably be in order but we will leave that to your sense of professional courtesy."
Just seconds before the inquiry wrapped up for the day Brian O'Donnell, QC, for Seqwater, said after listening to the tapes the organisation "withdraws the allegations".
Justice Holmes said: "It sounds as though there is nothing in it."
Seqwater's media spokesman did not reply to AAP calls asking if an apology would be issued.
Seqwater is under fire at the inquiry over allegations four of its dam operators did not adopt the correct water-release strategy when they said they did and colluded to make a fictitious final report.
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