District Court New South Wales Medium Neutral Citation: Musgrave as Executor of the Estate of Mark Musgrave v SRM Lawyers Pty Ltd [2023] NSWDC 242 Hearing dates: 30 June 2023 Decision date: 30 June 2023 Jurisdiction: Civil Before: Newlinds SC DCJ Decision: Appeal brought by summons filed 5 February 2023 dismissed. Plaintiff to pay defendant's costs on an indemnity basis. Matter stood over to hear any application or a lump sum costs order. Catchwords: Legal costs – Conditional Costs Agreement – Cost Assessment Review Panel – Appeal Legislation Cited: Corporations Act 2001, s 232 Legal Profession Uniform Law Act (NSW) 2014 s 181 Legal Professional Uniform Law Application Act (NSW) 2014, s 82, s 89 Category: Principal judgment Parties: Julie Musgrave (plaintiff) SRM Lawyers (defendant) Representation: Counsel: J O'Sullivan (plaintiff) M Stevens (defendant) Solicitors: Penhall & Co (plaintiff) SRM Lawyers (defendant) File Number(s): 2023/4484 Publication restriction: None Decision under appeal Court or tribunal: Costs Review Panel Jurisdiction: Civil Date of Decision: 18 August 2022 JUDGMENT: ex tempore 1. HIS HONOUR: By a summons filed 5 January 2023, the plaintiff, who is the executor of the estate of the late Mark Musgrave, brings an appeal pursuant to s 89 of the Legal Profession Uniform Law Application Act (NSW) 2014, being an appeal from a determination made by a costs review panel established under s 82 of Legal Professional Uniform Law Application Act (NSW) 2014 as to an amount of legal costs certified to be paid by the plaintiff to the defendant, who is a firm of solicitors. 2. The appeal, brought under s 189 of the Act, is a hearing de novo, which requires me to form my own view as to the proper outcome of the issues that were before the review panel, without the need for me to identify error, either of law or fact. 3. The factual context in which this matter arises is complicated, but ultimately, because of the substantial agreement between the parties, the issue before me becomes very narrow. 4. Before the panel, the first defendant (the solicitors) relied upon what was described as a conditional costs agreement, dated 1 May 2019. 5. The requirements of conditional costs agreements are dealt with under section 181 of the Legal Profession Uniform Law Act (NSW) Act 2014. For reasons I do not need to record, it was found by the panel and not challenged on this appeal that the alleged conditional costs agreement did not comply with the provisions of the Act and, therefore, was not enforceable as such. However, the review panel, having found the conditional costs agreement to be void, went on to assess the solicitors' costs on what might be described as a "quantum meruit" basis. There is no challenge to that process or to the amount as determined by the panel. 6. The appellants' point on appeal, which was rejected by the panel, was that there was no obligation to pay costs at all, whether pursuant to a written costs agreement or pursuant to principles of unjust enrichment, because it was a term of the conditional costs agreement, as one might expect, that costs were only payable to the solicitors upon the occurrence of a particular state of affairs. 7. This appeal turns on the proper construction of the conditional costs agreement and whether, in the events that occurred, that condition was satisfied. 8. The relevant provision of the conditional costs agreement is as follows: "(b) Successful outcome of the matter Will only be entitled to receive payment of our legal costs from you in the event that you obtain a successful outcome. The successful outcome of the matter, as agreed with you, is resolution of Federal Court proceedings NSD1639/2018." 1. It can immediately be seen that the costs agreement has attempted to mirror the provisions of section 181 of the Legal Profession Uniform Law Act, where it provides, relevantly, "A costs agreement (a conditional costs agreement) may provide that the payment of some or all of the legal costs is conditional on the successful outcome of the matter to which those costs relate. [...] (2)(b) set out the circumstances that constitute the successful outcome of the matter to which it relates." 1. The structure of the legislation is that it requires the condition to be related to what is described as a successful outcome of the matter. The legislation then goes on to provide that the parties can agree as to what will constitute such a successful outcome. 2. The Federal Court proceedings were somewhat complicated. The claim was a claim by the trustee in bankruptcy of the bankrupt estate of Mark Musgrave (now deceased). The trustee was bringing proceedings based on Mr Musgrave being a shareholder of a company called WJN Investments Pty Ltd. 3. That was because Mr Musgrave, upon his bankruptcy, held shares in that company, which, pursuant to the operation of the Bankruptcy Act 1966, had vested in his trustee in bankruptcy. 4. The trustee in bankruptcy, no doubt seeking to unlock the value of those shares, brought a claim against the company, but more specifically against the other shareholders of the company (Julie Musgrave (Mark's sister) and Christopher Musgrave (Mark's cousin)). I am told that if that value could be unlocked it is anticipated sufficient money would flow to the Trustee to pay all creditors and remit a surplus to Mark Musgrave. 5. The claim was brought under the Corporations Act 2001, section 232, being that the affairs of the company were being conducted in such a way that was oppressive or unfair to Mr Musgrave and now to his trustee in bankruptcy. I do not need to delve any further into the strengths or otherwise of the claim. 6. Originally the defendant's lawyers had a non‑conditional costs agreement, which might be described as in the ordinary terms. 7. However, things changed when a cross‑claim was filed in the Federal Court proceedings, wherein, as cross‑claimants, the company, Julie, and Christopher Musgrave, brought a claim against Mark Musgrave's trustee in bankruptcy and Mark himself, seeking to, amongst other things, set aside the bankruptcy and claim damages against one or both of them. 8. Again, I do not need to go into too much detail, but the essence of the claim was that the bankruptcy had been triggered by Mr Musgrave filing his own petition in circumstances where he was not insolvent, and therefore his purpose in making himself bankrupt was an improper purpose or, to use the language of some of the cases, a fraud on the power to effect a bankruptcy order. 9. Underneath all of this, as I have said, was a contest between the Musgraves concerning the underlying value of the company. 10. At the time the conditional costs agreement was struck there was a claim going one way by the trustee seeking to wind up that company and a claim going the other way seeking to effectively take away the trustee in bankruptcy's ability to prosecute the claim and, importantly, also seek damages or equitable compensation against Mark Musgrave. 11. It is against that background that I must construe what the parties intended by the phrase "resolution of the Federal Court proceedings". 12. To my mind, the following is clear. First, in the context of the legislation, the whole of the clause and in the circumstances of a high‑level understanding of what the Federal Court case was about, it is obvious to me that when the parties spoke of a resolution, they were speaking of a successful resolution. It would not be satisfied simply by the case being finalised. 13. That does not add much to the task at hand. It really means what the parties did by their agreement was effectively pick up the words of the section, substituting "successful resolution" for "successful outcome". 14. Second: the parties linked that successful outcome or resolution to the Federal Court proceedings. Third: the parties were contemplating not just one outcome of the Federal Court proceedings but, if you like, a spectrum of potential resolutions, all of which might be described as successful. If the end result of the claim being brought by the trustee in bankruptcy at the time was it produced a payment of $1 million, that would be obviously successful. So too might an outcome that produced $100,000, and so too might have been an outcome that produced no more than the winding up. After all, that was the only relief sought. 15. For the plaintiff, it is submitted that last alternative ‑ that is, a plain winding up of the company ‑ would not have constituted a successful outcome. That is because it is said that the proper construction of the condition is that the parties intended resolution to only mean a result of the case that resulted in a flow of money to the trustee in bankruptcy. 16. In support of that submission, reliance is placed on a contemporaneous costs agreement between the same solicitors and the barrister acting on the matter, wherein the barrister did agree to an arrangement along those lines. However, as I pointed out in argument today, it strikes me that whatever arrangement that barrister and the solicitors came to in relation to the barristers fees has little, if any, bearing on the proper construction of the separate and distinct arrangement between the solicitors and their client, especially in circumstances where it is not even clear to me that the client was aware of the arrangement between the barrister and the solicitors. 17. The vice, in my view, in equating successful resolution of the Federal Court proceedings with a money flow to the trustee and then on to the bankrupt, is that the Federal Court claim itself did not seek a payment of money; it sought no more than the winding up of the company. Therefore, it was known to the parties at the time of the costs agreement that even if the case resulted in a successful winding up of the company, there would then have to be a series of steps, most if not all of which would be outside the control of the solicitors, to get to an end result where there was money paid to the trustee in bankruptcy which might have flowed through to the bankrupt, who, by this stage, had been discharged from his bankruptcy. 18. I think that it is highly unlikely that that is what the parties expected or intended. The words they chose to use are not such that even suggest such a result and I think the context of the claim being one to wind up the company strongly points in the other direction. 19. To date, I have dealt with the matter simply by reference to the claim. However, it needs to be remembered that the cross‑claim was also on foot at the time of the conditional costs agreement. The Federal Court proceedings were constituted by both the claim and the cross claim. As I have said, the cross claim made very serious allegations against Mark Musgrave, described in the pleading as fraud, and sought to take away the very standing of the trustee in bankruptcy to bring the claim. Ordinarily one would think that to obtain the dismissal of such a claim would equate to success. 20. Having done my best to construe the clause without reference to the actual outcome, I now apply my construction of the clause, which, as I have said, is that there will be a spectrum of results, some very different from others, all of which might be described as successful to the events that happened. The question is whether the end result of the Federal Court proceedings, which was a consensual dismissal of both the claim and the cross‑claim with no orders as to costs, amounts to a "resolution of the proceedings" for the purpose of the conditional costs agreement. In my view, the most important contextual pointer to whether the parties at the time of the agreement would have considered that to be a successful resolution is the actual allegations going both ways in the Federal Court proceedings. 21. Whilst the matter is not beyond doubt, in my opinion, an outcome which completely disposes of the cross‑claim and the serious allegations and claims made within it ought properly be seen, as the review panel did see it, as a resolution of the Federal Court proceedings, so as to engage the condition the parties had agreed to by paragraph (b) of the costs agreement dated 1 May 2019. I reject the submission by the plaintiff that the dismissal of both the claim and the cross claim amounted to a "draw" only as overly simplistic. 22. The upshot is that for slightly different reasons, I have come to the same conclusion as the review panel, and it therefore follows that the order I should make is simply to dismiss the appeal brought by summons filed 5 January 2023 and, unless there is a good reason not to do so, to order the plaintiff to pay the defendant's costs of the appeal. [DISCUSSION] HIS HONOUR: Is there any reason in those circumstances why I wouldn't order indemnity costs? O'SULLIVAN: Not that occurs to me, your Honour. HIS HONOUR: I should have said "any sensible one". EXHIBIT #DK2 LETTER FROM SRM LAWYERS TO PEN HILL & CO LAWYERS DATED 14/04/21 TENDERED, ADMITTED WITHOUT OBJECTION 1. The orders will therefore be: 1. The Appeal brought by summons filed 5 February 2023 is dismissed 2. The plaintiff to pay the defendant's costs on an indemnity basis. 3. Stand the matter over to hear any application for a lump sum costs order. Amendments 19 September 2023 - typographical error under Catchwords DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 19 September 2023