Claims Resolution Service Limited v Pfisterer

[2021] NZHC 1943

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2018-409-000649

[2021] NZHC 1943

BETWEEN

CLAIMS RESOLUTION SERVICE LIMITED
Plaintiff

AND

LUCIA RENATE PFISTERER

First Defendant

GRANT SHAND
BARRISTERS AND SOLICITORS

Second Defendant

Hearing:	On the papers
Judgment:	30 July 2021

JUDGMENT OF HINTON J

(Interest and costs)

This judgment was delivered by me on Friday, 30 July 2021 at 11 am pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors/Counsel:

Canterbury Legal, Christchurch. GCA Lawyers, Christchurch.

Darroch Forrest Lawyers, Wellington. ARB Barker QC, Auckland.

MS Smith, Wellington.

CLAIMS RESOLUTION SERVICE LTD v PFISTERER [2021] NZHC 1943 [30 July 2021]

Introduction

[1]In my judgment dated 21 May 2021, I made the following findings:1

I find that [Grant Shand Barristers and Solicitors (GSBS)] breached its fiduciary duty of loyalty and good faith to Mrs Pfisterer in continuing to negotiate the terms of settlement and filing a memorandum in Court after their instructions had terminated, but find against Mrs Pfisterer on the remedies sought and otherwise find against her affirmative defences and counterclaim.

Judgment is entered for [Claims Resolution Service Ltd (CRSL)] in the sum of $93,744.95.

[2]        The sum of $93,744.95 was owed by Mrs Pfisterer to CRSL under the contract she had signed with them. The amount is made up of CRSL’s commission and costs and GSBS’s fees and disbursements, incurred in settling her claim. CRSL had paid the GSBS invoices.

[3]I reserved the issues of interest and costs.

[4]        The parties have filed memoranda addressing both issues and also the matter of disbursements. I analyse the respective claims below.

Interest claimed by CRSL

[5]Clause 6 of the contract between CRSL and Mrs Pfisterer provides:

if there are outstanding charges owed by the client… CRS may:

…

d.    Recover from the client or deduct from or set off against any amount owing to the client all amounts for damage, loss, costs, or expenses (including solicitor-client costs and expenses) arising from the default or non- performance by the client including any accrued charges.

e.     Charge and the client must pay default interest on overdue amounts from the date payment falls due to the date of actual payment at the rate of 2% per month.

[6]        Mrs Pfisterer concedes that she is liable to pay interest to CRSL on “overdue amounts” in terms of cl 6e and there is no dispute that the overdue amount includes

1      Claims Resolution Service Ltd v Pfisterer [2021] NZHC 1088 at [172]–[173].

the amount already paid by CRSL to GSBS. The dispute is over whether interest should be at a compounding or simple rate of two per cent per month and from what date interest starts to accrue.

Whether interest is compounding

[7]        CRSL seeks interest at a compounding rate of  two per cent per month from  1 October 2017 until 21 May 2021 (judgment date). This equates to $125,917.22.

[8]        Mr Barker QC, counsel for CRSL, submits that the interest rate should be compounding as the Court of Appeal in Alington Group Architects Ltd v Attorney- General previously determined a similarly worded clause required compound interest.2 The rationale for this decision was that, giving effect to the meaning intended by the parties, it is difficult to see how interest at two per cent per month is not intended to attract interest on interest. The Court stated that if the parties had intended it to be simple interest, they could have provided for interest at a rate of 24 per cent per annum.3

[9]        Counsel for Mrs Pfisterer, Mr Lynn, submits that properly interpreted, the contractual interest should be simple, not compounding. He says that the Court’s decision in Alington can be distinguished, because in that case the Court referred to other aspects of the contract when interpreting the interest clause, and because the parties were commercial entities and it was a bespoke contract. Comparatively, the CRSL contract is standard form and directed at laypersons. Mr Lynn refers to Heartland Bank v Mahoney, where the Associate Judge stated:4

If Heartland had intended that default interest on unpaid instalments be added each month to the amounts unpaid so that default interest could be charged on default interest, I would expect the terms to say so expressly.

[10]      In reply submissions, Mr Barker submits the Court should not distinguish Alington. There is nothing in the contract that says interest is to be paid on a simple basis only. He points out that the relevant clause in Heartland Bank v Mahoney was

2      Alington Group Architects Ltd v Attorney-General [1998] 2 NZLR 183 (CA).

3      At 189, per Thomas J.

4      Heartland Bank v Mahoney [2021] NZHC 1363, at [26].

differently worded to that in Alington and cl 6e, and that other agreements between the parties in Heartland Bank made clear reference to compounding interest. Hence the conclusion that where compounding interest was not mentioned it should be simple. Mr Barker submits the issue is limited to interpretation, and the bargaining power of the parties is not relevant.

[11]      I prefer the conclusion reached in Heartland Bank albeit the facts differ. The nature of the contract is relevant to contractual interpretation especially on an issue such as this. This contract is a standard form document drawn up by a company providing services for what would generally be laypeople. There are a number of reasons why interest might be expressed monthly, including the fact that 24 per cent per annum would sound excessive in today’s market, and that it might be anticipated delay in payment would only be a matter of months. I consider, at least in a contract such as this, that if interest is to compound, it would need to be specified. Interest is to be assessed at a simple rate of two per cent per month.

Date interest runs from

[12]      Clause 6e says interest is payable on overdue amounts “from the date payment falls due”.

[13]Clause 3 of the contract states:

The client will pay the following charges:

a. Costs as they fall due according to the Partnership Program Service Agreement Schedule (annex)

…

c.   Commission in relation to monies received on behalf of the client or received by the client directly calculated at the rate of 8% of the final settlement amount…

d.     Costs for any third party services including without limitation legal fees and quantity surveyor fees. The client will be liable for these costs as and when they fall due under this Partnership Program as per attached Service Agreement Schedule (annex).

e.    Where any charges are not deducted out of payments received on behalf of the client, the client shall pay on invoice for such charges on the 20th of the month following invoice.

(emphasis added)

[14]      The Partnership Programme Service Agreement Schedule (the schedule) annexed to the contract says payment of CRSL’s fee and legal fees falls due on settlement of a claim.

[15]      Mr Barker submits payment of the $93,744.95 therefore fell due on settlement of the claim. GCA Lawyers settled Mrs Pfisterer’s claim on 7 September 2017. CRSL seeks interest from 1 October 2017, being the first day of the month after this settlement and after Southern Response paid Mrs Pfisterer.

[16]      Mr Lynn focuses on cl 3e of the contract which states that charges not deducted out of payments received on behalf of the client, will be payable on invoice on the 20th of the month following the invoice. Mr Lynn submits that interest on CRSL’s own costs and commission (totalling $47,568.60) therefore starts to accrue on 20 October 2017, the 20th of the month following settlement of Mrs Pfisterer’s insurance claim on 7 September 2017.

[17]      He says also that interest on GSBS’s fees and disbursements should start to accrue on 20 July 2018, the 20th of the month following CRSL’s payment of the GSBS costs as, according to Mr Lynn, the contract does not permit CRSL to charge interest on sums it has not paid.

[18]      In reply submissions on the first point, Mr Barker says due to the way interest is calculated, the same figure will be reached whether interest starts accruing from    1 October 2017 or 20 October 2017. On the second point, he counters that under cl 3d of the contract and the schedule, legal fees are payable by Mrs Pfisterer upon settlement. There is nothing in the contract to suggest that these charges were only payable by the client when CRSL paid GSBS. For these reasons, Mr Barker submits that no adjustment should be made to their original interest calculation.

[19]      I consider that cl 3e relates to third party charges and is designed to cover any leftover or additional charges not deducted out of payments received. It does not prevail over cls 3a, 3d and the schedule. For the reasons argued by Mr Barker, interest

runs on CRSL’s own costs and commission from 1 October 2017. Also as he says, it makes no difference if it runs as argued by Mr Lynn.

[20]      With regard to the GSBS fees, CRSL did not pay GSBS until 18 June 2018. Interest is only payable to CRSL. Although not stated in the contract, I consider it necessarily implicit in the case of third-party fees and charges (including solicitors’ fees) that interest does not run until CRSL has made payment. Interest is therefore to run on those fees from 18 June 2018.

Costs claimed by CRSL

[21]      Mrs Pfisterer accepts liability under cl 6d of the contract to pay CRSL’s solicitor-client costs and expenses arising from the default. The issue is the reasonableness of the costs.

[22]      CRSL says its actual costs, excluding GST, are $213,955. This includes costs from Canterbury Legal (the solicitors acting for CRSL), Mr Moss (counsel initially acting for CRSL), Mr Barker (counsel currently acting) and Mr Davis (second counsel). While working for CRSL in this proceeding, these lawyers also worked for CRSL in the Smith representative proceeding.5

[23]      The Court must be satisfied that solicitor-client costs are reasonable in order for them to be recoverable.6 CRSL says these costs are reasonable as they were all incurred in legal proceedings to recover the amount outstanding under the contract. CRSL offers to reduce the claim by 20 per cent to be “pragmatic and avoid a fine-grained analysis of every attendance”. This results in solicitor-client costs of

$171,164 (excluding GST).

[24]      Mr Lynn submits that for solicitor-client costs to be reasonable, they must be proportionate to the significance of the case,7 including the value of the claim, and be

5      There has been extensive litigation in that proceeding, see for example: Smith v Claims Resolution Service Ltd & Grant Shand Barristers and Solicitors [2019] NZHC 127; Claims Resolution Service Ltd & Grant Shand Barristers and Solicitors v Smith [2020] NZCA 664.

6      Frater Williams & Co Ltd v Australian Guarantee Corporation (NZ) Ltd CA288/92, 28 June 1994, at p 20.

7      Singh v Shetty [2019] NZHC 1181, at [44].

justifiable.8 He submits this requires scrutinising CRSL’s invoices with a degree of care. A number of items are challenged as follows.

[25]      Mr Lynn notes that Canterbury Legal’s invoices, which total $14,691.10, contain no narration. Mr Lynn says it is therefore impossible to scrutinise the reasonableness of those fees in light of the work being done simultaneously with CRSL’s barristers. He submits it is also unclear whether these costs include fees for the legal work for the Smith representative proceeding occurring at the same time.

[26]      In terms of Mr Barker’s invoices, one dated 6 November 2018 includes narrations for legal work on the Smith proceeding. Mr Lynn says it is unclear how much of the $12,960.50 invoiced was incurred in relation to that proceeding. Another invoice from Mr Barker is headed “CRS matter – Pfisterer and Representative Action”. Mr Lynn submits it is unclear how much of the invoiced amount relates to the Smith proceeding. He submits that Mrs Pfisterer cannot be expected to pay any amount related to the representative proceeding.

[27]      Mr Lynn also challenges charges for legal work invoiced by Mr Barker on the interlocutory application for discovery orders, as costs have already been addressed by the Court on that matter.

[28]      Mr Lynn challenges the invoices from Mr Moss, the barrister leading the file prior to Mr Barker, for work done after Mr Barker was engaged (amounting to

$10,902). Mr Lynn submits that it is not reasonable for Mrs Pfisterer to have to pay costs to Mr Moss in circumstances where Mr Barker, Mr Davis and Canterbury Legal were all acting.

[29]      Mr Lynn also challenges invoices from Mr Moss and Mr Davis around the time of the interlocutory applications, again on the basis costs have been decided. He says the narration of the invoices does not make it clear what proportion of the amount invoiced ($44,712) relates to that application.

8      Regan v Brougham [2020] NZCA 173.

[30]      Mr Lynn submits that this matter was not one of such factual or legal complexity that second counsel was necessary, particularly as Mr Davis did not examine or cross-examine any of the witnesses, nor did he present any opening or closing submissions for CRSL. Therefore, CRSL should not be entitled to recover the costs of second counsel.

[31]      In summary Mr Lynn submits the legal costs CRSL are entitled to recover should be fixed at $140,000, which I presume is also excluding GST.

[32]      CRSL filed reply submissions. Mr Barker says that determining the significance of the case by reference to the value of Mrs Pfisterer’s claim is not helpful, as this case was being run as a test case for the Smith representative proceeding, so it was “one of considerable significance”.

[33]      Time records for Canterbury Legal’s work were attached to the reply submissions and show that the work claimed is only in relation to this matter and that the work done for the Smith proceeding was recorded in a separate matter. Mr Barker submits the costs incurred by Canterbury Legal cannot be said to be unreasonable.

[34]      He notes that CRSL only seeks to recover 30 per cent of the costs covered by his 6 November 2018 invoice, as was clearly stated in the costs’ memorandum. Thirty per cent is what Mr Barker estimates related to attendances on this proceeding.

[35]      Mr Barker accepts that Mr Moss and Mr Davis’s invoices related to interlocutories should be removed. That involves a sum of $2,100. He also outlines the work done by Mr Moss to show there was no significant cross-over between counsel. He says, however, that these matters are more than accounted for in the 20 per cent concession.

[36]      Finally, Mr Barker submits that this case was sufficiently complex to require second counsel based on the volume of evidence, significance of issues and the fact that all parties had second counsel, including Mrs Pfisterer.

[37]I find:

(a)The final amount claimed for Canterbury Legal’s fees of $14,691.10 has been properly supported and strikes me as reasonable for a case of this nature.

(b)I also accept that Mr Barker will have done his best to fairly apportion fees related to the Smith representative action, but in overlapping cases such as these that is a very difficult exercise.

(c)I also note that much of the evidence and argument in this case, particularly on the part of Mrs Pfisterer’s counsel, was more broadly focused than just this case. Presumably some costs arrangement has been reached on Mrs Pfisterer’s behalf to reflect that.

(d)I am concerned as to invoices from Mr Moss subsequent to Mr Barker’s engagement but also concerned that costs are often higher than they would be otherwise where there is a change of counsel.

(e)Obviously, any costs related to the interlocutory applications should be excluded.

(f)I consider it reasonable to certify for second counsel given the volume of evidence, significance of issues and the fact that all parties including Mrs Pfisterer had second counsel.

[38]      Taking all of these matters into account and to ensure fairness to Mrs Pfisterer, I will round the costs calculation made by CRSL down by approximately 30 per cent, rather than the 20 per cent volunteered deduction, resulting in an award of solicitor-client costs of $150,000 (excluding GST) to CRSL.

Disbursements claimed by CRSL

[39]      CRSL claims disbursements of $5,061.15. It attaches a breakdown of the claimed disbursements to its memorandum.

[40]      Mr Barker submits that all the claimed disbursements are reasonable, necessarily incurred, and not disproportionate to the proceeding.

[41]      Mrs Pfisterer does not object to the disbursements claimed by CRSL subject to the question of whether travel and accommodation costs should be approved for an out of town counsel where it is not obvious that local counsel could not have been used by CRSL. I do consider in a case such as this, which had some profile, it was not unreasonable for out of town counsel to be engaged and I approve of these disbursements.

Costs claimed by GSBS

[42]      There is no provision for solicitor-client costs in respect of GSBS’s fees. GSBS seeks 2B scale costs of $65,008. Mrs Pfisterer accepts 2B scale costs are applicable, subject to a number of points.

[43]      Mr Lynn submits, similar to his submissions in respect of CRSL, that no allowance should be made for second counsel for GSBS. He submits that GSBS’ second counsel (Mr Thomson) had a very limited role in the trial and the costs GSBS are entitled to should be reduced by $5,975 accordingly.

[44]      Mr Lynn also submits that the wrong daily rate was applied to a number of steps prior to 1 August 2019. On that date, the daily recovery rate for Category 2 proceedings was increased,9 but this increase was not retrospective.10 Mr Lynn submits that any steps claimed prior to that date, must be based on the previous daily recovery rate. He calculates if the correct rate is applied to all the steps, the costs claimed would be reduced by $1,312.

[45]      GSBS claims costs on a 2B basis for two brief joint memoranda of counsel it did not draft. One relates to the interlocutory application to transfer the proceeding to the High Court. Mr Lynn submits this application succeeded by consent and costs should lie where they fall (this would reduce costs by $862). He submits that GSBS

9      High Court Amendment Rules 2019, r 11.

10     Regan v Brougham [2020] NZCA 173, at [9].

should only be awarded costs on a 2A basis for the other joint memorandum (reducing costs by $446) because GSBS did not draft it.

[46]      Mr Lynn also seeks a global discount  of  at  least  30  per  cent  to  reflect Mrs Pfisterer’s partial success because of my finding that GSBS did commit some breaches of their fiduciary duty to Mrs Pfisterer

[47]      Mr Lynn submits that accounting for all these factors, GSBS should be entitled to recover costs no greater than $40,000.

[48]      Mr Forrest, counsel for GSBS, responds to Mr Lynn’s submissions and argues that:

(a)Second counsel was necessary due to the range and complexity of the issues in the proceeding and the number of documents in the hearings. Without a second counsel, managing the bundle would have been unworkable.

(b)It is more predictable and certain if the scale is applied to all steps rather than reviewing the amount of work each step took. Therefore, costs should not be reduced to a 2A basis for the joint memorandum.

(c)There should be no global discount for partial success as Mrs Pfisterer won only on peripheral issues that had already been established in decisions of the Standards Committee.

[49]      Mr Forrest accepts that the wrong rate was applied to steps prior to 1 August 2019.

[50]As above, I consider second counsel was necessary in a case like this.

[51]      I would subtract the sum of $1,312 to ensure the correct daily rate is applied for each step. I agree costs should lie where they fall for the interlocutory application to transfer the proceeding. This results in a further reduction of $862. 2B scale costs

should be awarded for all steps in the proceeding as costs should be predictable and expeditious.11

[52]      I agree with Mr Forrest that any success on the part of Mrs Pfisterer was peripheral and no discount should be made.

[53]I therefore award costs in favour of GSBS of $62,834.

Disbursements claimed by GSBS

[54]GSBS seeks disbursements of $7,776.24.

[55]      Mr Lynn submits that $82 claimed for alcohol and $178.35 claimed for an external document hosting programme should be disallowed. Office expenses such as the hosting programme should not be allocated to clients, especially where free or subscription-based services such as Dropbox are available. Disbursements without these amounts total $7,515.89.

[56]      Mr Lynn does not challenge other disbursements subject again to the proviso that I first approve travel and accommodation costs for non-local counsel.

[57]      Mr Forrest concedes that the disbursements can be reduced to exclude a claim for alcohol, but submits the cost of an external document host is reasonable.

[58]      I do not consider it is reasonable to allocate the cost of a document hosting programme to an individual client, especially where a free service is available.

[59]I therefore fix disbursements at $7,515.89.

Conclusion

[60]      CRSL is awarded interest at a simple rate of two per cent per month. Interest will only accrue on GSBS’s fees and disbursements from the date CRSL paid GSBS.

11     High Court Rules, r 14.2(1)(g).

Interest will accrue from 1 October 2017 on CRSL’s commission and costs. The parties are to file a joint memorandum calculating the total interest sum.

[61]      CRSL is awarded solicitor-client costs of $150,000 exclusive of GST, and disbursements of $5,061.15.

[62]GSBS is awarded costs of $62,834 and disbursements of $7,515.89.

Hinton J