Smith v Claims Resolution Service Limited
[2022] NZHC 773
•13 April 2022
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2018-409-000643
[2022] NZHC 773
BETWEEN KARLIE MARGARET SMITH
Plaintiff/First Counterclaim Defendant
AND
CLAIMS RESOLUTION SERVICE LIMITED
First Defendant/Counterclaim Plaintiff
AND
GRANT SHAND BARRISTERS AND SOLICITORS
Second Defendant
AND
CONSTANTINE HARRIS and SHARON MARGARET HARRIS
Applicants
Hearing: 24 March 2022 Appearances:
No appearance for Plaintiff/First Counterclaim Defendant A R B Barker QC and G P Davis for First Defendant/Counterclaim Plaintiff
A B Darroch and B A Mathers for Second Defendant M S Smith for C & S Harris, Applicants
Judgment:
13 April 2022
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 13 April 2022 at 11.00 am pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
SMITH v CLAIMS RESOLUTION SERVICE LTD [2022] NZHC 773 [13 April 2022]
[1] This judgment concerns an application by Mr and Mrs Harris for leave to appeal a judgment of 20 December 2021 in which I:1
(a)dismissed an application by Mr and Mrs Harris to be substituted as the representative plaintiffs in this proceeding; and
(b)revoked the representation order made in favour of the plaintiff, Ms Karlie Smith, under r 4.24 of the High Court Rules 2016 made by Gendall J on 12 February 2019, on certain terms.
[2] Specifically, the orders I made which Mr and Mrs Harris wish to challenge on appeal were:
[69]The application by Mr and Mrs Harris to be substituted as representative plaintiffs is dismissed.
…
[71]There shall be an order revoking the representation order under r 4.24 made by Gendall J on 12 February 2019 on the following basis:
(a)Leave is granted to all persons who satisfy the group criteria and have given valid and timely notice to opt-in to this proceeding to be joined as plaintiffs to Ms Smith’s continuing proceeding by filing and serving upon Ms Smith and the defendants a statement of claim by 25 February 2022.
(b)Ms Smith is required to seek leave of the Court to discontinue her proceeding. This requirement shall apply until 26 February 2022 and after 26 February 2022 also should r 15.20(3) of the High Court Rules then apply.
(c)GCA Lawyers are required to ensure that all persons who have given notice to opt-in to this proceeding receive notice of this judgment forthwith.
The relevant principles
[3]Sections 56(3) and (4) of the Senior Courts Act 2016 relevantly provide:
1 Smith v Claims Resolution Service Ltd [2021] NZHC 3561.
56 Jurisdiction
…
(3)No appeal, except an appeal under subsection (4), lies from any order or decision of the High Court made on an interlocutory application in respect of any civil proceeding unless leave to appeal to the Court of Appeal is given by the High Court on application made within 20 working days after the date of that order or decision or within any further time that the High Court may allow.
(4)Any party to any proceedings may appeal without leave to the Court of Appeal against any order or decision of the High Court
(a)striking out or dismissing the whole or part of a proceeding, claim, or defence; or
(b)granting summary judgment.
[4] The principles that apply to an application for leave to appeal under s 56(3) are set out by the Court of Appeal in Greendrake v District Court of New Zealand.2 There, the High Court had made an order for joinder of an additional respondent. An application for leave to appeal from the joinder decision was declined by the High Court.3 Declining leave to appeal, the Court of Appeal stated:4
[6] In Finewood Upholstery Ltd v Vaughan, to which Dunningham J referred to in the leave decision, Fitzgerald J appropriately observed that the requirement for leave to appeal should serve as a filtering mechanism to ensure that unmeritorious appeals of interlocutory orders, or appeals of interlocutory orders of no great significance to either the parties or more generally, do not unnecessarily delay the proceedings in which the orders were made.5 The following considerations were recognised as relevant on an application for leave to appeal:
(a)a high threshold exists;
(b)the applicant must identify an arguable error of law or fact;
(c)the alleged error should be of general or public importance warranting determination or otherwise of sufficient importance to the applicant to outweigh the lack of general or precedential value;
(d)the circumstances must warrant incurring further delay; and
(e)the ultimate question is whether the interests of justice are served by granting leave.
2 Greendrake v District Court of New Zealand [2020] NZCA 122.
3 Greendrake v District Court of New Zealand [2019] NZHC 2504.
4 Greendrake v District Court of New Zealand, above n 2.
5 Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679 at [13].
[7] This Court in Ngai Te Hapu Inc v Bay of Plenty Regional Council6 indicated that considerations similar to the principles applicable to applications under the former s 24G of the Judicature Act 1908, as explained in Meates v Taylor [Leave],7 apply to applications under s 56(5) stating:
We agree that leave to appeal should only be granted where the significance or implications of an arguable error of fact or law, either for the particular case or for the applicant or as a matter of precedent, warrants the further delay which the appeal process would involve.
Background
[5] The plaintiff, Ms Karlie Smith, owned a home damaged in the Christchurch earthquake sequence. Claims Resolution Service Ltd (CRS) provided services to assist her to pursue her private insurer for settlement of her insurance claim. The second defendant (Shand) was engaged in taking court proceedings on her behalf against the insurer as part of that process. Ms Smith settled her claim against her insurer.
[6] Ms Smith commenced this proceeding on 30 August 2018. She alleged that CRS breached fiduciary duties owed to her and that her contract with CRS was an unconscionable bargain. She claimed damages and a declaration that the terms of the contract requiring her to pay commission, third party costs and expenses, including Shand’s legal fees, was void and unenforceable. CRS counterclaimed for monies it alleges are owed to it under its contract with Ms Smith.
[7] On 12 February 2019, Gendall J granted leave to Ms Smith under r 4.24 for this proceeding to continue as a representative proceeding on an opt-in basis. That decision was challenged by CRS and Shand, but their appeal was dismissed by the Court of Appeal on 18 December 2020.8
[8] On around 21 June 2021, Ms Smith advised her then lawyers, GCA Lawyers, that she no longer wished to continue as the representative plaintiff. Despite that, it was agreed by counsel, and accepted by me, that while a suitable substitute representative plaintiff was found, the Court should continue to deal with an
6 Ngai Te Hapu Inc v Bay of Plenty Regional Council [2018] NZCA 291.
7 Meates v Taylor (1992) 5 PRNZ 524 (CA) at 526.
8 Claims Resolution Service Ltd v Smith [2020] NZCA 664.
application approving a form of opt-in notice as well as making other directions as to advertising.9
[9] The opt-in period expired on 29 July 2021. Ultimately, 23 persons opted in, albeit there are unresolved issues as to whether these persons satisfy the criteria for membership of the represented group.
[10] Case management conferences were convened and adjourned to allow GCA Lawyers to identify a substitute representative plaintiff.
[11] Of the 23 persons who had given notice to opt-in to the proceeding, only Mr and Mrs Harris were prepared to replace Ms Smith as representative plaintiffs, but on a highly conditional basis. They were not prepared to be appointed as representative plaintiffs unless:
(a)the case was immediately stayed pending the hearing of an appeal from a decision of the High Court in Claims Resolution Service Ltd v Pfisterer,10 where similar issues arose and which, it is anticipated, will inform an assessment of the merits of this litigation; and
(b)they have no liability for costs and the matter is fully funded by a third party.
[12] Funding for this proceeding has not been obtained despite it having been on foot for over three and a half years (and since February 2019 as a representative proceeding). Both CRS and Shand sought details of how Ms Smith intended to fund the proceeding, but she was not required to provide that information.11 In support of their application for substitution, Mr and Mrs Harris have provided some information from a potential third party funder, BIT Trust. However, BIT Trust is not prepared to commit to funding the claim, even if the Pfisterer appeal is successful. It will consider its position at that time.
9 Smith v Claims Resolution Service Ltd [2021] NZHC 1708.
10 Claims Resolution Service Ltd v Pfisterer [2021] NZHC 1088.
11 Smith v Claims Resolution Service Ltd [2019] NZHC 1013 at [25] and [26]; Claims Resolution Service Ltd v Smith, above n 8, at [39] and [40].
[13] In refusing to substitute Mr and Mrs Harris as representative plaintiffs, my crucial findings were the following:
[62]In my view, the interests of justice weigh heavily against granting the substitution order. Despite the access to justice considerations, which I accept and give significant weight, the matter simply comes down to this; Mr and Mrs Harris are not in a position to be substituted as plaintiffs given the highly conditional nature of their application.
[63]In truth, Mr and Mrs Harris’s substitution application is largely illusory. They wish to accept the benefit of a substitution order while reserving to themselves the right to withdraw their consent to act in accordance with it if there is any costs risk to them. I agree with Mr Barker’s assessment that in practical terms they are wanting an option to reactivate the representative proceeding at some stage in the future.
[64]The making of such an order is not consistent with the objectives of the High Court Rules as it would delay the resolution of this proceeding for, potentially, years and impose significant prejudice on the defendants, particularly CRS. It is also not consistent with the principles upon which the Court grants leave under r 4.24 to the extent that Mr and Mrs Harris are not in a position to advance the interests of the represented group and may never be in that position due to the absence of third party funding and their unwillingness to accept any personal risk for costs associated with the proceeding.
[65]The application for substitution is therefore dismissed.
[14]Since I issued my judgment:
(a)Ms Smith has resolved all matters between her and the defendants and has filed an application for leave to discontinue her proceeding. No decision has been made on her application while the Harris’s are seeking leave to appeal; and
(b)the Pfisterer appeal has been set down for hearing on 22 September 2022. Mr Smith submits that it can be reasonably anticipated the Court of Appeal’s judgment will be issued before the end of 2022.
[15] Following receipt of the Harris’s application for leave to appeal, I granted an interim stay of my judgment pending determination of the application.
Are there errors in the judgment?
[16] Mr and Mrs Harris rely on what they consider to be five arguable errors in the judgment which, they say, justify the granting of leave to appeal. I will deal with each seriatim.
Prosecution of representative claims
[17] The first alleged error, and I understand the principal focus of the proposed appeal, is that the judgment assumes that Mr and Mrs Harris’s application for a stay of the proceeding (sought as a condition to their substitution as representative plaintiffs) was without merit. They say that assumption is both significant and wrong. Mr Smith submits the decision whether or not to substitute Mr and Mrs Harris as representative plaintiffs could not be considered independently of the application for stay, and if the application for stay was meritorious, substitution should have been granted. For this reason, Mr Smith argues, I should have assessed the merits of the proposed stay before considering the application for substitution in light of that assessment.
[18] As to the merits of the stay application, it is said the granting of a stay was appropriate as there is nothing unusual in a party to a proceeding (or their litigation funder) having regard to a matter of significant precedential importance (here being the outcome of the Pfisterer appeal) in deciding whether to continue to prosecute a proceeding. New Zealand Courts have, it is argued, accepted that a stay in one proceeding might be appropriate to allow for a judgment to be issued in a second proceeding that will impact on the outcome of the first proceeding. 12
[19] On this basis, it is submitted that my conclusion that the Harris’s substitution application was “illusory” was incorrect. Mr Smith submits the application was that of any rational plaintiff or litigation funder, particularly one prosecuting the case in part on behalf of others who have no prima facie obligation to contribute to adverse
12 Lawrence Riverside Ltd v Colliers International New Zealand Ltd HC Auckland CIV-2006-404- 4739, 30 June 2011 at [16]-[22].
costs if the representative claim were to fail and where the costs risk that is being undertaken is a substantial one.
[20] While this argument is resourceful, it is illogical. It puts the cart before the horse. The approach suggested would have required me to accept the counterfactual that Mr and Mrs Harris were prepared to accept immediate appointment to represent the group members. That is not their position. They are not prepared to be appointed unless there is a stay of the proceeding and, even if the stay was granted, they are not prepared to commit to represent the group members if the condition of the stay (the hearing of the Pfisterer appeal) is satisfied. Their commitment to act in the interests of group members is entirely contingent upon the litigation being fully funded by a third party regardless of the outcome of the Pfisterer appeal.
[21] To put the matter another way, this proposed ground of appeal fails to address the fundamental objection to the Harris’s application for substitution, which was its highly conditional nature.
Number of opt-in group members
[22] The second alleged error is that I was wrong to consider that the relatively small number of opt in members tempered access to justice concerns. This ground appears to be based on a misreading of the judgment. In fact, I agreed with the submission for Mr and Mrs Harris that as a matter of principle the Court is to be concerned with the impact of refusing to make a substitution order than the numbers within the represented group.13 I also recognised the effect of revoking the representation order was that at least some of the represented group would not be able, through a lack of means and other factors, to pursue their claims.
Access to justice imperative in joinder
[23] Having decided that I would not grant the Harris’s substitution application, to protect the interests of group members, I granted them leave to be joined as plaintiffs to Ms Smith’s continuing non-representative proceeding. Related to this, the third
13 At [54].
alleged error in the judgment is that the access to justice imperative underlying representative action litigation could not be satisfied by permitting group members to join as plaintiffs to the continuing proceeding.
[24] In part, this submission proceeded on a now acknowledged misunderstanding as to the extent to which costs would be incurred by group members having to apply to be joined to Ms Smith’s proceeding; although undoubtedly some costs will be incurred.
[25] This proposed ground of appeal begs the question, what more could and should have been done to protect the interests of the represented group? On that matter, Mr Smith said he does not disagree with the steps taken, except to the extent that the availability of those protections informed my decision not to order substitution of Mr and Mrs Harris as representative plaintiffs.
[26] Mr Smith’s submission is based on an incorrect assumption. My ability to protect the interests of group members by permitting them to join as plaintiffs to Ms Smith’s proceeding, did not influence my decision to refuse Mr and Mrs Harris’s substitution application. The order permitting joinder was necessary because the representation order was revoked, not because Mr and Mrs Harris were refused substitution. Furthermore, Mr and Mrs Harris did not oppose the revocation application.
Prejudice
[27] The Harris’s argue my assessment of the prejudice to CRS and Shand if substitution was permitted is overblown. I do not see anything in this point and nothing new is raised. The prejudice to the defendants, particularly CRS, of indefinite delay is self-evident.
Relevance of Pfisterer
[28] The final ground is that I was wrong to find that the Pfisterer appeal was not relevant because of any findings of fact or law the Court of Appeal might make on the
appeal. Again, this ground is based on a misreading of the judgment. I accepted the relevance of the Pfisterer appeal for this reason and because there was no prospect of Mr and Mrs Harris obtaining funding until it was determined.
Conclusions as to existence of errors
[29] For the reasons given, I do not accept that the proposed grounds of appeal are arguable.
General public/precedential importance and importance to the parties
[30] The Harris’s then argue that the circumstances that arose here are novel and the issues that had to be decided have not been considered in any detail before in this country and that this justifies consideration by the Court of Appeal.
[31]In fact, there is no issue of general importance arising because:
(a)Counsel were agreed on the approach to be taken to the substitution application and there is no suggestion that my statement of that approach was wrong or that Mr and Mrs Harris will now argue that some different approach to that question should be taken.14
(b)The decision not to order substitution was based on facts specific to this proceeding and the circumstances of Mr and Mrs Harris.
(c)In so far as the application to revoke the representation order is concerned, there was no opposition to that application. The decision to revoke the representation order necessarily followed from the refusal of the substitution application and there being no suggestion any other person was willing to act as the representative plaintiff;
14 At [26].
(d)The orders I made to protect the represented group were consequent upon the unopposed revocation application and there is no suggestion that I could or should have taken further steps to protect those interests.
[32] I acknowledge that my judgment has important consequences for the group members individually. As a result of the revocation order, they will be deprived of some of the benefits of the representative action, but, as noted, that consequence was inevitable in the absence of anyone among them being prepared to take responsibility to be the representative plaintiff. Furthermore, they were not left without choices. They could pursue their own claims or they could have joined Mrs Smith’s proceeding.
Do the circumstances warrant incurring further delay?
[33] This is addressed in the judgment. I did not grant the substitution order because of the highly conditional nature of Mr and Mrs Harris’s application and because the further delay could not be justified having regard to the objectives of the High Court Rules and the prejudice to the defendants. Nothing has changed in this respect.
Are the interests of justice served by granting leave to appeal?
[34] Enhancing access to justice is one of the primary objectives of the representative action procedure, but not at the cost of inflicting injustice on other parties. The Harris’s stance that Ms Smith and the defendants should continue to be burdened by this litigation when there is no commitment from them to act as the representative plaintiffs is unprincipled and oppressive. I do not consider, therefore, the interests of justice are served by granting leave to appeal.
Stay of proceedings
[35] The Harris’s also seek an extension of the stay of my judgment. They have indicated that if I do not grant leave to appeal, they will apply to the Court of Appeal. I will allow a further stay so that application can be made.
Result
[36]The application for leave to appeal is dismissed.
[37] The order I made granting an interim stay of the orders in paragraphs [71](a) and (b) of my judgment of 20 December 2021 shall be extended to allow the Harris’s to seek leave to appeal directly from the Court of Appeal. If no such application is made within 20 working days of the date of this judgment, the stay shall lapse without further order.
[38] I see no reason why the defendants would not be entitled to costs. However, should no agreement be reached on the matter within 10 working days, memoranda are to be filed which are to be no longer than five pages.
O G Paulsen Associate Judge
Solicitors:
Canterbury Legal (Sydney Austin), Christchurch Darroch Forrest Lawyers, Wellington
GCA Lawyers, Christchurch
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