FEDERAL COURT OF AUSTRALIA

Woodgate as Trustee of the Estate of the Late Mrs Marion McGuiness v Keddie [2007] FCAFC 129

CONDITIONAL COSTS AGREEMENT – costs agreement contingent on the successful outcome of District Court proceedings only – verdict set aside on appeal – costs need not be repaid – no failure of consideration – no unjust enrichment – whether voluntary payment 

CONDITIONAL COSTS AGREEMENT

Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337

Commissioner for Railways (NSW) v Cavanough (1935) 53 CLR 220

Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500

de Robillard v Carver [2007] FCAFC 73

Fostif Pty Ltd v Campbells Cash & Carry Pty Ltd (2005) 63 NSWLR 203

Pattison v Hadjimouratis (2006) 155 FCR 226

Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516

TCN Channel 9 Pty Ltd v Antoniadis (No 2) (1999) 48 NSWLR 381

Western Australian Bank v Royal Insurance Co (1908) 5 CLR 533

Woodgate v Keddie [2006] FCA 1728 

LES WOODGATE AS TRUSTEE OF THE ESTATE OF THE LATE MRS MARION MCGUINESS v RUSSELL W KEDDIE, TONY BARAKAT, SCOTT JOHN ROULSTONE, AND ROBERT PAUL PINZONE T/AS KEDDIES SOLICITORS & ATTORNEYS

NSD 113 OF 2007

GYLES, EDMONDS AND BUCHANAN JJ

16 AUGUST 2007

SYDNEY

THE COURT ORDERS THAT:

1.                  The appeal is dismissed.

2.                  The appellant pay the costs of the respondent as taxed if not agreed.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

GYLES J:

1                     I have had the advantage of reading the judgment of Buchanan J in draft.  I agree that the appeal ought be dismissed but for rather different reasons.  I will not repeat the background to the appeal set out by Buchanan J except insofar as it is necessary to explain my reasons.

Contract

2                     In my opinion, “successful outcome”, in the context of this case, means obtaining an award or a verdict in favour of the client, which survives an appeal.  Once the verdict was set aside in this case it was as if there had never been a verdict (Commissioner for Railways (NSW) v Cavanough (1935) 53 CLR 220 at 227–228; Pattison v Hadjimouratis (2006) 155 FCR 226 per Nicholson J at [14], Jacobson J at [51]–[53] and Lander J at [177]–[181]; and de Robillard v Carver [2007] FCAFC 73 per Buchanan J at [149]–[150] (agreed with by Moore and Conti JJ at [1])).  There are difficulties associated with the effect of the conditional costs agreement (the Agreement) on either construction of the contentious phrase.  Most significantly, the construction of the Agreement by the respondent (the Solicitors) means that, once a verdict was obtained in the District Court of any amount, the client became liable to pay (and could be sued for) costs and disbursements in accordance with the Agreement, even if an appeal were filed and no verdict monies were ordered to be paid pending disposition of the appeal.  That would amount to the Agreement reflecting a deferred loan rather than a no win no pay costs agreement.  I cannot accept that as a sensible construction of the Agreement. 

3                     Whilst I am clear that a verdict or judgment that has been set aside is not a “successful outcome” for relevant purposes, the difference of judicial opinion indicates that the phrase is ambiguous.  If that is the case, it is to be construed against the party who prepared and proffered the form of agreement, particularly, but not only, because of the solicitor/client relationship (Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 at 510; and Western Australian Bank v Royal Insurance Co (1908) 5 CLR 533 at 559, 574).  That would provide further support for the conclusion to which I have come.

4                     I should add that, in my respectful opinion, the second additional costs agreement of July 2001 between Mr McGuiness as administrator of the estate of the deceased and the Solicitors concerning conduct of the appeal did not vary the Agreement.  It was a “stand alone” arrangement. 

5                     It follows that the Solicitors had no contractual entitlement to receive the monies that they did in January 2000. 

Voluntary payment

6                     The difficulty for the appellant, however, is to find a principle to justify repayment of the amounts which were paid by the deceased to the Solicitors in January 2000 pursuant to the authority and the acknowledgement.  The acknowledgement spells out the position in relation to a potential appeal.  So far as the contemporaneous records show, the payments made were voluntary and informed.  No case of mistake was put forward.  It is possible that the deceased was under a misapprehension as to her legal responsibility for the costs but there may well have been no evidence available to establish that.  No case was sought to be made of undue influence or breach of fiduciary duty on the part of the Solicitors.  That may be understandable in the absence of instructions from the deceased. 

7                     Indeed, examination of the circumstances which existed in January 2000 indicates that the practical risk was being run by the Roads and Traffic Authority.  If the appeal were lost, then the verdict would stand and the Solicitors would be paid under the second conditional costs agreement and the deceased would receive any balance.  If the appeal succeeded, then the Roads and Traffic Authority would be left to obtain repayment of the monies paid to the deceased, who did not have the means to make repayment with the monies having been paid to her already disbursed.  The Roads and Traffic Authority would have no claim against the Solicitors (TCN Channel 9 Pty Ltd v Antoniadis (No 2) (1999) 48 NSWLR 381).

8                     The basis for return of the monies paid is not identified in the original application, and there were no pleadings.  It is not easy to discern the precise way in which the issue was put at trial.  The principal argument seems to have been that once the verdict was set aside, it was as if it had never existed, and all that had been done on that basis should be reversed, including the payment to the Solicitors.  That argument stretches the principle in question too far and is not repeated on appeal. 

Implied term

9                     It is submitted for the appellant that a term should be implied in the Agreement that the Solicitors repay the amounts received for costs and disbursements in the event that the verdict was overturned on appeal.  That basis may not have been persisted in at trial but was, in any event, rejected by the trial judge as it would not satisfy the tests laid down in Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 347.

10                  The term sought to be implied is inconsistent with my finding as to the construction of the contract favourable to the appellant.  The Agreement did not provide for payment of costs after the District Court verdict in the event of an appeal being filed.  In any event, it is not necessary to give business efficacy to the Agreement.

Restitution

11                  It is submitted for the appellant that the monies should be repaid on the ground of total failure of consideration because the basis for the payment, being a “successful outcome” in the sense of a verdict that withstands appeal, was falsified by the subsequent reversal of the verdict on appeal, relying upon Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516, particularly per Gleeson CJ, Gaudron and Hayne JJ at [16] and per Gummow J at [104]; and Fostif Pty Ltd v Campbells Cash & Carry Pty Ltd (2005) 63 NSWLR 203 per Mason P at [239].

12                  There is no failure of consideration in the relevant sense here.  The monies were expressly paid for services already rendered, not on account of something to be done in the future.  It is not relevant that ultimately no benefit was obtained from the services.  That is always the case where a party loses litigation.  The authorities referred to by the appellant’s counsel are not in point.

Conclusion

13                  One cannot but have a sense of disquiet about the circumstances, both as to the dealings between solicitor and client and as to the effect upon the other party to the litigation, the Roads and Traffic Authority.  However, a sense of disquiet does not amount to a cause of action providing any relevant remedy.  The appeal should be dismissed with costs.

Associate:

Dated:         16 August 2007

REASONS FOR JUDGMENT

EDMONDS J:

14                  I have had the advantage of reading the judgment of Buchanan J in draft.  I agree, for the reasons given by his Honour, that the appeal must be dismissed.

Associate:

Dated:         16 August 2007

REASONS FOR JUDGMENT

BUCHANAN J:

15                  The appellant is the trustee of the estate of the late Mrs Marion McGuiness.  On 8 June 1990 Mrs McGuiness tripped and fell on a manhole cover in Botany Road, Waterloo.  She was injured and later required extensive medical treatment.

16                  On 6 January 1995 she made a ‘conditional costs agreement’ with Keddies Solicitors, whose partners are the respondents to the appeal.  Keddies agreed to act for her, on the basis of the conditional costs agreement, in a legal action for damages against the Roads and Traffic Authority of New South Wales (‘the RTA’) arising out of her injuries.

17                  Mrs McGuiness succeeded in the action and was awarded $599,752.07.  The RTA applied for a stay of the judgment so it might consider whether to appeal.  A stay was granted on condition that it pay $300,000 in part settlement of the verdict.  $300,000 was paid by the RTA as ordered.  The RTA subsequently appealed against the whole of the verdict.  Before the appeal was commenced Mrs McGuiness paid her legal fees of $243,971.87, made up of Keddies’ fees of $145,455.00 and disbursements of $98,516.87, including $61,875.00 in barristers’ fees. 

18                  Mrs McGuiness died before the appeal was heard.  The appeal proceedings were conducted on behalf of her estate by her husband, as administrator of her estate.  The RTA’s appeal was successful.  The whole verdict was set aside, a verdict was entered for the RTA and an order was made that the $300,000 be repaid. 

19                  Mrs McGuiness’ estate became bankrupt and the appellant was appointed its trustee.  As trustee the appellant brought an action in this Court against the partners of Keddies to recover the sum of $243,971.87.  On 13 December 2006 a judge of this Court dismissed the trustee’s claim with costs (Woodgate v Keddie [2006] FCA 1728).  The trustee has appealed. 

20                  The principal issue before the primary judge and on appeal involved the construction of the conditional costs agreement.  The conditional costs agreement included the following:

1.                  The Work you require us to do is as follows:

In respect of your personal injury claim we will attend to performing the following work:

(a)               Obtaining instructions from you in respect of the circumstances of the injury.

(b)               If you have incurred wage loss as a result of the injury we shall write to your employer and obtain taxation returns and other material in support of your economic loss claim.

(c)                We shall write to your treating doctors, specialists and other medical providers for medical reports.

(d)               We shall refer you to appropriate specialists to be medically examined on an independent basis and obtain medical reports from them after consultation.

(e)                We shall attend the scene of the accident together with a barrister and a consultant expert in order to inspect and obtain photographs.

(f)                 We shall qualify appropriate experts to comment on the negligence/liability of the occupier of the premises where you injured yourself.  This expert will do the necessary tests and provide us with a report for use in court.

(g)               We shall draft Statements of Claim and file these in the Supreme or District Court on your behalf.

(h)               We shall draft any other documentation necessary to be filed in court to bring your matter on for hearing.

(i)                 We shall brief a barrister in order to assist in drafting or settling court documents if we feel it is required.

(j)                 We shall brief a barrister to appear on the hearing of your matter or pre-trial conference or any other court attendances we feel necessary.

(k)               We shall correspond with the insurance company’s solicitors and answer all further and better particulars on your behalf.

(l)                 We shall attend on your behalf in respect of all court attendances whether it is callovers, mentions, direction hearings, status conferences, pre-trial conferences, arbitrations or actual hearings.

(m)             We shall brief senior counsel (Queens Counsel) if we feel the circumstances of the injury, the complexity or the nature and/or quantum of the claim requires the use of senior counsel.

(n)               We shall issue subpoenae and/or require discovery of documents from the insurance company or the occupier of the premises where you injured yourself in order to obtain documents to assist us in the running of your matter.

(o)               We shall engage an accountant on your behalf if there is a claim for economic loss to do the calculations of your wage loss and loss of superannuation.

2.         For the purposes of clauses 3 and 4, the successful outcome of the Work undertaken is when we obtain an award or a verdict in your favour or a settlement in your favour.’

(emphasis added)

21                  Clauses 3 and 4 set out various charges which would be made in the event of a successful outcome.  The only fees Mrs McGuiness agreed to pay if her case was unsuccessful were medical report fees and filing fees.  (Although recovery of these fees was also in issue before the primary judge they have not been further pursued on the appeal.)

22                  The parties were agreed that the conditional costs agreement should be read together with a ‘Disclosure Document’ which addressed the same issues.  The disclosure document provides, after identifying the same work to be performed as set out in clause 1(a) to (o) of the conditional costs agreement:

‘1.        We will not charge you for the work that we have done on your behalf unless your matter has been successful.  By this we mean that an award or a verdict is entered in your favour or we achieve a settlement in your favour.  Because we will only charge you on the successful completion of the matter we will charge a premium of 25% of all of our costs and disbursements, the payment of which is conditional upon the successful completion of the work.’

(emphasis added)

23                  Neither document made any reference to the possibility of an appeal.  They each referred solely to work to be done in preparation for, and during the conduct of, a trial until a settlement or verdict resulted.

24                  In my view there are two questions which arise for resolution in this appeal.  The first is whether, upon the verdict at trial in favour of Mrs McGuiness being obtained and entered, Keddies became unconditionally entitled to payment of their costs upon a proper construction of the conditional costs agreement.  The second question, if the first is answered affirmatively, is whether the fact that the verdict was later set aside and judgment was given for the defendant, brought about a total failure of the consideration sustaining that contractual obligation.

25                  Part payment of the verdict was made by the RTA on 24 December 1999.  Keddies bill of costs was dated 6 January 2000.  Mrs McGuiness authorised payment of those costs on the same day, out of the verdict moneys held on trust by Keddies.

26                  The following day Keddies obtained from Mrs McGuiness an ‘acknowledgement’ in the following terms:

‘I Marion Amelia McGuiness HEREBY acknowledge to my solicitors Keddies of 9/299 Elizabeth Street Sydney the following in respect of my claim for personal injuries damages arising from fall upon a footpath in June 1990:

1.         receipt by me of trust account cheque, being PART verdict monies, in the sum of $26,000.00 – this payment is part of the verdict monies;

2.         The RTA has paid to my solicitors $270,000, and $30,000 (10% payment) to medicare (Health Insurance Commission) total $300,000.00;

3.         I will receive approx. $25,000 (balance of 10% payment) from medicare within the next 6-8 weeks;

4.         I am aware that my solicitors have been paid costs and disbursements for work in my case to date by their bill of costs dated 6.1.2000, approved by me on 6.1.2000;

5.         I note that my solicitors are unaware at this time as to whether the RTA will appeal the decision in my case;

6.         If the RTA does appeal I am aware that it is POSSIBLE that I may lose the appeal.  If I should lose the appeal, the following may occur:-

            (a)        I may not be awarded ANY damages, or

            (b)        I may be awarded a reduced amount of damages;

7.         If my damages are reduced or not awarded at all, I may be asked TO PAY BACK TO THE RTA the of [sic] monies received ie. $300,000.00;

8.         I understand that I may not be financially capable of paying these monies back to the RTA should I be asked;

9.         If I WIN an appeal lodged by the RTA, I may have my damages confirmed.  If this occurs I will be due then to receive

            (a)        The balance of my damages ie. $300,000; and

            (b)        Costs, which may total $150,000 –to– $250,000.

10.       I understand that the appeal may take 12 months or MORE to be decided, and that I may not receive further monies of award until after the appeal is heard.  I understand that the RTA has sought a STAY of payment of the balance of my award, and will ask the court (if an appeal is lodged) to continue the stay for the time it takes for the appeal to be heard.’

(emphasis added)

27                  It is enticing to measure Mrs McGuiness’ obligation to pay against her presumed capacity to do so and by reference to some underlying intent drawn from the nature and inferred purpose of a conditional costs agreement.  On such an approach capacity to pay by reference to moneys actually received and retained pursuant to a verdict reflects, it might be thought, a certain robust equity.  On this approach Mrs McGuiness would come under no obligation to pay any fees unless sufficient moneys were actually received and would be relieved of the obligation if they were removed from her on appeal.  An approach of this kind gives effect to an underlying premise that the legal fees would be met from the fruits of success but not otherwise.  However, resolution of the first question I identified is a legal issue.  It should not be unduly complicated by reference to differing factual scenarios.  Nor should the answer be provided by recourse to a personal view about the desirable features or operation of conditional costs agreements rather than by reference to the actual terms agreed by the parties. 

28                  It should be noted that the conditional costs agreement did not make payment conditional upon the amount of any verdict being actually received nor upon the verdict exceeding the costs.  In the present case the condition of partial payment of the verdict which was imposed as a condition for staying enforcement of the verdict, and the fact that it exceeded Keddies costs, made it possible and straightforward, in a practical sense for Mrs McGuiness to accommodate a request that Keddies’ fees be paid.  If the whole judgment had been stayed, for example, and nothing was paid immediately, she may not have had the resources to pay the fees, or borrow sufficiently to do so.  Keddies may not have rendered their bill of costs in that circumstance.  However, those considerations do not, in my view, indicate that some further condition remained to be satisfied before the contractual entitlement to receive the costs, and an obligation to pay them arose. 

29                  The appellant sought to argue that a term should be implied into the conditional costs agreement requiring repayment of fees in the event that a verdict successfully obtained was set aside on appeal.  As I understood it, the proposition depended on general equitable considerations of the kind earlier mentioned.  In my view the contention must be rejected.  None of the requirements for the implication of a term are present.  The suggested term is not necessary, not so obvious it goes without saying and, on the view I take of the conditional costs agreement, it contradicts express terms of that agreement.

30                  The primary judge took the view, and I agree, that:

‘There is no reference to “appeal” or “final” in clause 2.  “The Work” by reference to which the “successful outcome” relates, is described in detail in clause 1.  It is clear from that description that “the Work” covered by the costs agreement was trial work and not work for an appeal.  In context, the “verdict” which constituted a “successful outcome” was a verdict in the proceedings to which “the Work” related:  the District Court proceedings.’

31                  On a proper construction of the conditional costs agreement Keddies became entitled to payment of its costs (and to charge a premium of 25% on both its costs and on disbursements if it wished) upon obtaining a verdict or settlement in Mrs McGuiness’ favour in the District Court proceedings.  That entitlement was not, as a matter of construction, in any way conditional upon the size or adequacy of the verdict or upon its retention in the event of an appeal.

32                  Attention must then turn to whether the result of the appeal operated, in a sense independently of the conditional costs agreement and notwithstanding its terms, to nullify its contractual effect.

33                  The relevant orders on the appeal were:

‘(1)      Appeal allowed with costs;

(2)       Judgment of the District Court in favour of the plaintiff set aside and in lieu thereof order that judgment be entered for the third defendant in the action with costs;

(3)       Judgment for the appellant against Ronald John McGuinness, also known as Ronald John McGuiness, the administrator of the estate of the late Marion Amelia McGuinness, also known as Marion Amelia McGuiness, for $300,000 together with interest at judgment rates from 24 December 1999 to date.’

(emphasis added)

34                  The verdict in favour of Mrs McGuiness, from which Keddies’ entitlement to costs arose, has accordingly been set aside and replaced with a verdict for the RTA.  There was no further appeal.  That is now the final outcome of the case.  If the appeal is taken into account the case did not ultimately have a ‘successful outcome’. 

35                  The appellant’s approach to this question was to argue that, upon the outcome of the appeal, there was a total failure of consideration.  Reference was made to Roxborough v Rothmans of Pall Mall Australia Limited (2001) 208 CLR 516 (‘Rothmans’) and Fostif Pty Ltd v Campbells Cash & Carry Pty Ltd (2005) 63 NSWLR 203 (‘Fostif’).  The contention was that the precondition for payment of Keddies’ fees (a successful outcome for Mrs McGuiness) was falsified by the reversal of the verdict on appeal.

36                  I agree with submissions by counsel for the respondents who argued that there was no failure of consideration.  The conditional costs agreement established a successful outcome by way of a favourable verdict for Mrs McGuiness at trial as the condition upon which costs were payable.  That condition was satisfied.  It was not falsified or removed by the fact that the verdict was set aside on appeal.  That was a later event which did not alter the contractual position.  Accordingly, the appeal judgment did not bring about any failure of consideration.

37                  In my view Rothmans is distinguishable.  Conceptually, the decision in that case turned in large measure upon the circumstances that the state of affairs contemplated by the parties had altered (at [17]), the tobacco companies would be unjustly enriched if they did not repay to retailers the tax earlier declared illegal (at [25]) and that, as between the competing parties the retailers had the superior claim (at [27]).  None of these features may be identified in the present case.

38                  It cannot seriously be contended that the possibility of an appeal was beyond the contemplation of the parties.  The most that can be said is that the conditional costs agreement made no mention of what was to happen in the event of an appeal.  I have already expressed my view that on a proper construction it made effective provision in respect of proceedings relating to, and the outcome of, the trial.  The possibility of an appeal, or the arrangements to be made if an appeal was brought, were simply outside its agreed terms. 

39                  Gummow J posed the issue in Rothmans (at [104]) as follows:

‘In the present case, there has been no failure in the performance by Rothmans of any promise it made.  No question of repudiation by it of its contractual obligations arises.  The question is that stated by Deane J in Muschinski set out earlier in these reasons.  Is it unconscionable for Rothmans to enjoy the payments in respect of the tobacco licence fee, in circumstances in which it was not specifically intended or specially provided that Rothmans should so enjoy them?  The answer should be in the affirmative.  Here, "failure of consideration" identifies the failure to sustain itself of the state of affairs contemplated as a basis for the payments the appellants seek to recover.’

(footnote omitted)

40                  By contrast, in the present case, the state of affairs contemplated as the basis for the payment of Keddies’ costs was achieved.  The fact that no contingency concerning retention of the verdict on appeal was included in the bargain does not indicate a failure of consideration if an appeal was brought and succeeded.  That possibility was clearly not outside the range of matters the parties must be supposed to have had in mind as part of the overall environment in which the contract was made.

41                  There is equally no question of Keddies being unjustly enriched.  Payment of its costs was held in abeyance and was contingent upon satisfaction of a specified event.  Upon occurrence of the event its entitlement was perfected.  It was not thereby unjustly enriched.

42                  Nor can Mrs McGuiness be thought to have a superior claim.  On the view I take of the conditional costs agreement the legally superior claim was Keddies.  Postulation of a superior claim for Mrs McGuiness depends upon a view of the overall equity of the matter which proceeds upon general notions of perceived fairness rather than the identification of contractual rights and obligations.

43                  The decision in Fostif, if anything, reinforces my view that the appellant does not have a good claim in the present case.  Mason P said (at [238] – [239]):

‘238     In the restitutionary cause of action to recover money paid on the basis of total failure of consideration, “consideration” is not the criterion for enforceability of contractual promises. For one thing, the cause of action may be available in a non-contractual context. The word “consideration” in this context refers to the defendant’s failure to perform what was promised (Baltic Shipping Co v Dillon(1993) 176 CLR 344 at 350-1, 389), the failure to render the agreed return for the plaintiff’s payment (J W Carter, Carter on Contract, Vol 2 (2002) Australia, LexisNexis Butterworths, at 108,072 at [44-050]).

239      The failure is judged from the perspective of the payer (David Securities Pty Ltd (at 382), citing Rover International Ltd v Cannon Film Sales Ltd (No. 3) [1989] 1 WLR 912 at 923). That person is the party to the contract who is seeking restitution. But, for present purposes, the critical point is that it is the benefit bargained for as distinct from that subjectively contemplated by the plaintiff/payer that is critical. In other words, one must determine, in a contractual situation, what was… “[t]he state of affairs, which was within the contemplation of the parties as the basis of their dealings” (Roxborough(at 526[17]) per Gleeson CJ, Gaudron J and Hayne J); or “the state of affairs contemplated as a basis for the payments [sought to be recovered]” ((at 557[104]) per Gummow J). The right to restitution only arose when Hafalsified the common, objectively discernible basis of the earlier transaction.’

44                  Accepting, as his Honour observed, that the critical matter for evaluation and determination is the benefit bargained for, objectively ascertained, and that ‘total failure of consideration’ in this context refers to a failure to render the agreed return, I remain of the view that, on a proper construction of the conditional costs agreement, Keddies side of the bargain was effectively and finally discharged when Mrs McGuiness obtained her verdict at trial.  Keddies’ performance of its part of the contract did not include the performance of any work concerning an appeal and its entitlement to payment did not depend upon, or alter as a result of, the outcome of any appeal.

45                  In my view the appeal should be dismissed with costs.

Associate:

Dated:         16 August 2007