Smith v Claims Resolution Service Ltd
[2021] NZHC 3561
•20 December 2021
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2018-409-000643
[2021] NZHC 3561
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
SHARON MARGARET SMITH
Second Counterclaim Defendant
Hearing: 2 December 2021 Appearances:
K M Smith, self-represented Plaintiff/First Counterclaim Defendant
A R B Barker QC and G P Davis for First Defendant/Counterclaim Plaintiff
A B Darroch for Second Defendant
M S Smith and R J Lynn for C and S Harris (in relation to their application to be substituted as representative plaintiffs)
No appearance for Second Counterclaim DefendantJudgment:
20 December 2021
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 20 December 2021 at 4.00 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
SMITH v CLAIMS RESOLUTION SERVICE LTD [2021] NZHC 3561 [20 December 2021]
[1] The plaintiff, Karlie Smith (Ms Smith) obtained a direction under r 4.24 of the High Court Rules 2016 to bring her claim against the defendants, (Claims Resolution Service Ltd (CRS) and Grant Shand Barristers and Solicitors (Shand) respectively) as a representative proceeding.1 She no longer wishes to be the representative plaintiff. The proceeding has not advanced for some months while Ms Smith’s former lawyers, GCA Lawyers, identified someone prepared to be substituted as the representative plaintiff.
[2] Prospective representative plaintiffs have now been found and they apply for substitution. However, they require as a condition of their appointment that the Court grants a stay pending a decision of the Court of Appeal in Pfisterer v Claim Resolution Service Ltd & Grant Shand Barristers & Solicitors (CA355/2021) (the Pfisterer appeal) without which they will not be able to obtain funding for this proceeding.
[3] CRS and Shand oppose the substitution application. Further, if notwithstanding their opposition a substitution order is made, they say the substituted representative plaintiffs should be responsible for the costs of the proceeding to date. If no substitution order is made, CRS and Shand apply to revoke the representation order.
[4]This judgment, then, concerns applications:
(a)by Constantine and Sylvia Harris (Mr and Mrs Harris) for orders they be substituted as the representative plaintiffs in this proceeding on the condition that the proceeding is stayed pending the outcome of the Pfisterer appeal (the substitution application); and
(b)by CRS and Shand for an order revoking the representation order made on 12 February 2019 directing Ms Smith to bring this proceeding as a representative proceeding (the revocation application).
Smith v Claims Resolution Service Ltd [2019] NZHC 127 and
Claims Resolution Service Ltd v Smith [2020] NZCA 664.
[5] Ms Smith appeared at the hearing. She is now representing herself. GCA Lawyers have been granted leave to withdraw as her solicitors on the record. Ms Smith did not directly support or oppose either application. She simply wants this proceeding behind her so that she can get on with her life. GCA Lawyers are now acting for Mr and Mrs Harris.
The facts
[6] Ms Smith owned a home damaged in the Canterbury earthquake sequence of 2010–2011. CRS provided services to assist her to pursue her private insurer for settlement of her claim for damage caused to her home by the earthquakes. Shand was engaged in taking court proceedings against Ms Smith’s insurer as part of that process. Ultimately, Ms Smith settled her claim and her court proceeding was discontinued.
[7] In this proceeding, commenced on 30 August 2018, Ms Smith alleges CRS and Shand breached fiduciary duties owed to her and that her contract with CRS was an unconscionable bargain. She claims damages and a declaration that the terms of the CRS contract requiring her to pay CRS commission, third party costs and expenses, including Shand’s legal fees, is void and unenforceable. CRS has counterclaimed for monies it alleges are owed to it under its contract with Ms Smith (and the Second Counterclaim Defendant).
[8] Around this time a number of other former CRS clients were defending proceedings commenced by CRS for the recovery of monies said to be owed pursuant to CRS contracts. Some of those proceedings are presently stayed awaiting the outcome of this proceeding. Among the people pursued by CRS was a Lucia Pfisterer. Ms Pfisterer raised affirmative defences and counterclaims for misleading and deceptive conduct, unconscionable bargain, breach of contract by CRS and breach of fiduciary duty by both CRS and Shand.2 That proceeding, which was not stayed, features later in this summary of events and in the discussion of the applications before me.
2 Claims Resolution Service Ltd v Pfisterer [2021] NZHC 1088.
[9] On 12 February 2019, Gendall J granted leave to Ms Smith under r 4.24 of the High Court Rules for this proceeding to continue as a representative proceeding on an opt-in basis.3 In a later judgment, Gendall J set certain terms of the representative proceeding.4
[10] Both CRS and Shand appealed against those decisions arguing, among other things, that Ms Smith’s claim does not provide an appropriate vehicle for a representative proceeding. The appeal was dismissed by the Court of Appeal on 18 December 2020.5 The Court of Appeal considered that Ms Smith and those whom she represented contracted with CRS and received services from Shand on similar if not virtually identical terms and had a shared vulnerability. It considered, in those circumstances, the existence of a common interest in issues of law and fact was virtually self-evident.6
[11] The Court of Appeal also refused to vary Gendall J’s decision declining disclosure of the way in which Ms Smith’s claim would be funded. It agreed with Gendall J that the issue of funding could not be meaningfully dealt with until it was known how many people would join the representative proceeding and to what extent, if any, external funding had been secured and its terms.7 It said that issue could be dealt with at a subsequent case management stage. As will be seen, the absence of funding is a live issue.
[12] On 4 May 2021, Ms Smith applied to the High Court for approval of the content of the opt-in notice and associated advertising of the claim (as well as other directions). That application was set down for hearing on 29 June 2021.
[13] On 21 May 2021, Hinton J issued judgment in the proceeding between Ms Pfisterer, CRS and Shand.8 Hinton J entered judgment for CRS and against Ms Pfisterer for its fees. Her Honour found that Shand breached its fiduciary duty of loyalty and good faith to Ms Pfisterer in one respect, but Ms Pfisterer was not granted
3 Smith v Claims Resolution Service Ltd, above n 1.
4 Smith v Claims Resolution Service Ltd [2019] NZHC 1013.
5 Claims Resolution Service Ltd v Smith, above n 1, at [25].
6 At [34]-[35].
7 At [40].
8 Claims Resolution Service Ltd v Pfisterer [2021] NZHC 1088.
relief. Hinton J otherwise found against Ms Pfisterer on her affirmative defences and counterclaims. Ms Pfisterer has appealed from that decision. Her appeal is yet to be set down for hearing.
[14] On 21 June 2021, Ms Smith advised GCA Lawyers that she no longer wished to continue as the representative plaintiff. When Ms Smith’s application for approval of the opt-in notice came before me on 29 June 2021, counsel were agreed that it should proceed nevertheless, with Ms Smith remaining as the representative plaintiff while a substitute representative was found.
[15] I issued judgment on Ms Smith’s application on 8 July 2021 approving a form of opt-in notice as well as making other directions as to advertising.9 The opt-in period expired on 29 July 2021.
[16] On 29 July 2021, GCA Lawyers advised the Court that 23 persons had completed an opt-in notice and they no longer had instructions from Ms Smith. They sought an adjournment of two months to determine whether any represented party wished to replace Ms Smith as the representative plaintiff.
[17] On 25 August 2021, a case management telephone conference was convened. Ms Smith joined the telephone conference and confirmed she did not wish to continue as the representative plaintiff. Despite opposition, GCA Lawyers were given until 7 October 2021 to advise whether a new representative plaintiff had been identified with a further conference to be convened on 13 October 2021.
[18] On 7 October 2021, GCA Lawyers advised the Court there were two persons who were considering being representative plaintiffs and further time was sought to allow them to make the appropriate application.
[19] On 11 October 2021, CRS and Shand applied to revoke the representation order and determine costs against Ms Smith.
[20]At a further case management conference on 13 October 2021, I directed that:
9 Smith v Claims Resolution Service Ltd [2021] NZHC 1708.
(a)any opposition by Ms Smith to the application by CRS and Shand to revoke the representation order should be filed by 29 October 2021;
(b)any application to appoint a replacement representative plaintiff should be filed by 29 October 2021; and
(c)the applications were to be heard on 2 December 2021.
[21]On 29 October 2021, the substitution application was filed.
The Court’s powers
[22] Counsel agree the Court has power to make an order substituting a representative plaintiff and revoking a representation order.10 Despite the absence of a detailed regulatory framework governing the conduct of representative proceedings, they identified several sources of these powers.
[23] Mr Smith submitted the Court’s powers are inherent in its ability to make a representation order in the first instance. Alternatively, he submitted there are provisions in the High Court Rules that can be called in aid. He referred to r 4.56(1)(b) of the High Court Rules under which a person may be added as a plaintiff if that person’s presence may be “necessary” to adjudicate on and settle all questions involved in the proceeding. As far as the application for a stay is concerned, Mr Smith referred to r 10.2 and the Court’s powers to postpone a trial on any terms it thinks just. In so far as there is no specific provision in the High Court Rules dealing with the revocation of a representation order, Mr Smith referred me to r 1.6 pursuant to which the Court may adopt an approach best calculated to promote the objectives of the High Court Rules.
[24] Mr Barker QC submits the Court’s powers derive from its general supervisory jurisdiction over representative proceedings. He relies on Saunders v Houghton.11
10 Nireaha Tamaki v Baker (1902) 22 NZLR 97 (SC) referred to in Southern Response Earthquake Services Ltd v Ross [2020] NZSC 126 at [77].
11 Saunders v Houghton [2009] NZCA 610, [2010] 3 NZLR 331.
There, the Court of Appeal noted a Judge must bring a critical and creative mind to bear on all aspects and implications of an initial representation decision.12 And:13
If the representation order is granted, in whatever form, the judge must maintain as the case develops a continuous appraisal of whether it should be sustained, varied, or rescinded. The more the judge learns about the case the more discriminating and confident that continuing appraisal will be. Indeed all elements of the representation and security orders and the approval of the funder and its terms should be regularly reviewed.
[25] In Southern Response Earthquake Services Ltd v Ross, the Supreme Court noted the scope to utilise the existing High Court Rules in the exercise of its protective and supervisory jurisdiction over representative proceedings as follows.14
Further, as the Law Society also notes, managing competing claims has created difficulties even in those jurisdictions with detailed statutory regimes. For example, in Australia’s federal jurisdiction, absent a statutory mechanism to deal with competing class actions, the Federal Court has used its case management powers to deal with these issues. In New Zealand the courts can draw on the ability to provide for notice under r 4.24(b), the ability to consolidate proceedings under r 10.12, and the ability to stay proceedings under r 15.1. Finally, r 1.6 addresses the situation where the High Court Rules do not make provision for a case. In those situations, r 1.6(2) provides that the court is to proceed in a manner that the court considers is “best calculated to promote the objective” of the Rules; namely, to secure the just, speedy and inexpensive determination of any proceeding. The court in exercising its supervisory powers can also draw r 1.6(2) in aid.
…
[89] In terms of the court’s supervision of these matters more generally, we accept that absent a more detailed regulatory framework, there will inevitably be some uncertainty as issues proceed through the courts … We accept it is not an ideal situation for either plaintiffs or defendants. But a number of these issues will need resolution whether or not the status quo is retained and, so long as the concern not to work injustice is kept in mind, r 4.24 should continue to be interpreted to meet modern requirements. The question of proportionality of cost to the size of the claim and burden on the defendant will be relevant in terms of the objective of the Rules; namely, to secure the just, speedy and inexpensive determination of proceedings.
[26] Counsel agree that regardless of the source of the Court’s powers, in deciding whether to substitute a representative plaintiff or revoke a representation order the Court is exercising a broad interests of justice discretion that must be employed having
12 At [38].
13 At [40].
14 Southern Response Earthquake Services Ltd v Ross, above n 10, at [88] and [89]. (footnotes omitted).
regard to the overriding objective of the High Court Rules, and the principles upon which the Court operates in granting leave under r 4.24. I agree with that approach.
The objectives and principles
[27] The primary objective of the High Court Rules is to “secure the just, speedy and inexpensive” determination of a proceeding.15
[28] The three objectives of r 4.24 are said to be improving access to justice, facilitating the efficient use of judicial resources, and strengthening incentives for compliance with the law.16
[29] The importance of access to justice was noted by the Court of Appeal in Ross v Southern Response Earthquakes Services Ltd where the Court said:17
Whichever approach is adopted, many class members are likely to fail to take any positive action for a range of reasons that have nothing at all to do with an assessment of whether or not it is in their interests to participate in the proceedings. Some class members will not receive the relevant notice. Others will not understand the notice, or will have difficulty understanding what action they are required to take and completing any relevant form, or will be unsure or hesitant about what to do and will do nothing. Even where a class member considers that it is in their interests to participate in the proceedings, the significance of inertia in human affairs should not be underestimated. If there is some potential advantage for class members in participating in the proceedings, and no real prospect of any disadvantage, then it should be made as easy as possible for them to participate. The courts should be slow to put unnecessary hurdles in the path of class members, depriving those who fail to take active steps to participate in the proceedings of the opportunity to have their claims determined by the courts, and of the possibility of obtaining some form of relief if their rights have been infringed.
[30]The general principles governing the application of r 4.24 were summarised in
Cridge v Studorp Ltd as follows:18
[11] The rule derives from an equitable procedure designed to facilitate the disposition of cases where the parties were so numerous the proceedings would be unmanageable if all were named. The rule has been considered in
15 High Court Rules 2016, r 1.2.
16 Southern Response Earthquake Services Ltd v Ross, above n 10, at [40].
17 Ross v Southern Response Earthquake Services Ltd [2019] NZCA 431, (2019) 25 PRNZ 33 at [98] (footnotes omitted) referred to by the Supreme Court in Ross v Southern Response Earthquake Services Ltd, above n 10, at [40].
18 Cridge v Studorp Ltd [2017] NZCA 376, (2017) 23 PRNZ 582. (footnotes omitted).
several cases including the leading decision of the Supreme Court in Credit Suisse Private Equity LLC v Houghton (Credit Suisse). The principles governing the application of the rule are well-established and can be conveniently summarised as follows:
(a)The rule should be applied to serve the interests of expedition and judicial economy, a key underlying reason for its existence being efficiency. A single determination of issues that are common to members of a class of claimants reduces costs, eliminates duplication of effort and avoids the risk of inconsistent findings.
(b)Access to justice is also an important consideration. Representative actions make affordable otherwise unaffordable claims that would be beyond the means of any individual claimant. Further, they deter potential wrongdoers by disabusing them of the assumption that minor but widespread harm will not result in litigation.
(c)Under the rule, the test is whether the parties to be represented have the same interest in the proceeding as the named parties.
(d)The words “same interest” extend to a significant common interest in the resolution of any question of law or fact arising in the proceeding.
(e)A representative order can be made notwithstanding that it relates only to some of the issues in the claim. It is not necessary that the common question make a complete resolution of the case, or even liability, possible.
(f)It must be for the benefit of the other members of the class that the plaintiff is able to sue in a representative capacity.
(g)The court should take a liberal and flexible approach in determining whether there is a common interest.
(h)The requisite commonality of interest is not a high threshold and the court should be wary of looking for impediments to the representative action rather than being facilitative of it.
(i)A representative action should not be allowed in circumstances that would deprive a defendant of a defence it could have relied on in a separate proceeding against one or more members of the class, or conversely allow a member of the class to succeed where they would not have succeeded had they brought an individual claim.
Mr and Mrs Harris and their request for a stay
[31] Mr and Mrs Harris contend they qualify as group members and gave timely notice to opt-in to the proceeding. They therefore assert they may be substituted as the representative plaintiffs.19
[32] The notable feature of the substitution application is that it is conditional. Mr and Mrs Harris do not wish to be substituted as representative plaintiffs if the Court is not prepared to also order a stay of the proceeding pending the outcome of the Pfisterer appeal. The reason is Mr and Mrs Harris are not prepared to accept any personal liability for the costs of the proceeding or the risk of a costs liability to CRS and Shand. They require their costs risk to be fully underwritten.
[33] In his first affidavit, Mr Harris says that while through their lawyers an agreement in principle has been reached with Business Integrity Trust (BIT) to underwrite the costs of the proceeding, this has not been finalised and they anticipate the funding being offered will require their lawyers to obtain an adjournment or a stay of this proceeding until a decision in the Pfisterer appeal is released. He says, he understands the Pfisterer appeal raises very similar issues to this proceeding. He also says:
If we are appointed as representative plaintiffs but further underwriting is not available following a decision on adjournment or stay then [Mrs Harris] and I are presently not willing to continue as representatives.
[34] In a second affidavit, Mr Harris attaches an interim funding agreement with the trustees of BIT. Under it, BIT has agreed to underwrite to a limit of $20,000 any adverse costs exposure of Mr and Mrs Harris to obtain an adjournment of this proceeding until the release of the decision in the Pfisterer appeal. BIT has accepted no liability beyond that point. The terms of the interim funding agreement do not state that BIT has agreed to underwrite the costs of the proceeding in principle or otherwise. It states as follows:
19 There is no dispute that Mr and Mrs Harris cannot be substituted unless they are members of the represented group. See Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group [2017] NZCA 489, [2018] 2 NZLR 312 at [32] and [33].
BIT and the Potential Representatives (through GCA Lawyers) will discuss terms of further BIT support for the Potential Representatives’ case during the term of this agreement but it is acknowledged that there is no current obligation on BIT to provide further support and no restriction on the Potential Representatives from seeking support elsewhere.
The substitution application
Are Mr and Mrs Harris representative of the group?
[35] In his first affidavit, Mr Harris sets out the basis upon which he and Mrs Harris qualify as group members. It is also to be noted they were listed by CRS on a spreadsheet of 178 potentially eligible clients for opting into the proceeding. I understand from Mr Barker’s submissions it is accepted that Mr and Mrs Harris “tick the boxes” as members of the represented group. The argument that was developed was that Mr and Mrs Harris do not fairly represent the group members.
[36] Different approaches have been taken in other jurisdictions to the issue of the extent to which a representative plaintiff must adequately represent the members of the represented group. The Law Commissioner’s recent issues paper titled Class Actions and Litigation Funding notes some New Zealand cases have indicated a plaintiff in a representative proceeding must show they will fairly and adequately represent the group, whereas in Australia, which has a detailed statutory regime, there is no certification requirement but provision the Court may discontinue a proceeding if a representative plaintiff is not able to adequately represent the members of the group.20
[37] The first matter relied upon by CRS and Shand was that Mr and Mrs Harris have entered into a full and final settlement with CRS and compromised their claim. This is disputed and I agree with Mr Smith that the fact an affirmative defence may be available to CRS does not disqualify Mr and Mrs Harris as group members or for appointment as representative plaintiffs because it should not affect the presentation of the case on the common issues.
20 Law Commission Class Actions and Litigation Funding Ko ngā Hunga Take Whaipānga me ngā Pūtea Tautiringa (NZLC IP45, 2020) at [11.4] – [11.9].
[38] CRS and Shand also argue Mr and Mrs Harris are substantively not a good proxy for Ms Smith or the represented group. Mr Barker compared the evidence of Ms Smith, filed in support of her application for leave to bring the representative proceeding, and Mr Harris’s affidavits, filed in support of the substitution application. Ms Smith’s affidavit gives the impression that she lacked commercial sophistication and was in a vulnerable position vis-à-vis CRS and Shand. She said that she was never asked or consulted about the appointment of experts, including Shand. Ms Smith advanced her application on the basis she was representing a large group of vulnerable persons who had no realistic prospect of bringing their claims against CRS and Shand individually. The vulnerability of Ms Smith and group members was highlighted by the Court of Appeal in its judgment dismissing the appeal against the making of the representation order.21
[39] In comparison, Mr Harris is a company director. He does not share Ms Smith’s lack of commercial sophistication. It can be expected Mr and Mrs Harris have considerably greater financial means than Ms Smith. Mr and Mr Harris owned two houses damaged by the earthquakes and in respect of one they engaged CRS to administer their claim, but for the other they engaged Shand directly. They had direct contact with experts and commissioned their own experts’ reports. They were sufficiently empowered to challenge CRS over its fees and negotiate a settlement to pay a discounted amount.
[40] CRS and Shand also argue Mr and Mrs Harris have a substantially weaker claim than Ms Smith because, for instance, it is difficult to see how they could ever establish, given their degree of commercial sophistication, their financial resources and personal circumstances, that their contract with CRS was unconscionable. Mr Barker submits the courts have emphasised that the resolution of a claim by a representative plaintiff should not be to the prejudice of the claims of group members22 and that findings on the determination of Mr and Mrs Harris’s claim could prejudice group members.
21 Claims Resolution Service Ltd v Smith, above n 1, at [28] at [34].
22 Referring to Lloyd v Google [2021] NZSC 50 at [71] and [72].
[41] It appears Mr and Mrs Harris may have been less vulnerable than Ms Smith when dealing with CRS and Shand. I accept their claim may be weaker than Ms Smith’s claim in some respects, but I do not consider that alone is a strong enough reason to reject the substitution application. The theory of the case to be advanced is not peculiar to Ms Smith’s circumstances. Mr and Mrs Harris have filed a draft statement of claim which indicates the matters they rely on are materially the same as Ms Smith has relied upon to date. It also appears to have been the Court of Appeal’s view that there was a sufficient common interest between group members arising from the shared experience of having their homes damaged by the Christchurch earthquakes, the difficulty processing insurance claims, the emotional stress and strain occasioned by that, and the similar terms upon which the group members contracted with CRS and Shand. In respect of these matters, Mr and Mrs Harris are in the same position as Ms Smith and the other group members. It is also the case that there will likely be stage 2 hearings for most group members addressing issues such as breach, reliance and loss. The individual circumstances of group members will be taken into account at that time.
[42] I agree with Mr Smith’s submission that the Court should not over-emphasise the importance of having the best representative plaintiff take the lead. Such a requirement will likely result in challenges that deter group members from assuming the role. The thrust of Mr Smith’s submission is the Court should adopt a flexible approach that promotes efficiency and economy and not processes that are prescriptive, complicated and expensive. That is consistent with the Courts’ rulings to the effect the r 4.24 procedure should serve the interests of expedition and judicial economy and that the requisite commonality of interest requirement is not a high threshold.23 Further, the submission that group members might be prejudiced by having a weaker plaintiff advancing the claim on their behalf loses some force when the only alternative may be that there is no plaintiff prepared to do so.
[43] However, as the Law Commission’s issues paper also notes the Canadian Supreme Court and courts in the United States have taken the view that, while a proposed representative does not have to be the best possible representative, the Court
23 See Credit Suisse Private Equity LLC v Houghton [2014] NZSC 37, [2014] 1 NZLR 541 at [151].
must be satisfied they will at least “vigorously and capably prosecute the interests of the class”.24 Mr and Mrs Harris do not satisfy such a requirement given the conditional nature of the substitution application for the reasons that follow.
The substitution application is highly conditional
[44] It is to be inferred from the fact BIT requires Mr and Mrs Harris to apply to adjourn this proceeding until the Pfisterer appeal is determined that any further funding is dependent upon a successful outcome being achieved by Ms Pfisterer. The corollary is that should the appeal not be successful, or not successful to an extent satisfactory to BIT, it will not provide funding. But, more than that, there is no commitment from BIT to provide funding even if Ms Pfisterer is successful on her appeal. One could expect a range of commercial considerations, quite unrelated to the outcome of the Pfisterer appeal and its precedential value, will bear on BIT’s decision. There is also the possibility the Pfisterer appeal is never heard because, for instance, the parties settle. There is also no commitment from Mr and Mrs Harris that once the Pfisterer appeal is heard they will vigorously and capably promote the interests of the represented group.
[45] All of this leaves the Court in the unsatisfactory position where it is asked to substitute Mr and Mrs Harris as representative plaintiffs knowing the chances are good they will later withdraw their consent to act in that capacity. There is no suggestion there is anyone else from the represented group willing to take their place should that occur. It is to be presumed, however, that at that juncture the search for someone to take the role of plaintiff will begin afresh, with the consequent uncertainties, delay and prejudice that will involve for CRS and Shand (with which I deal below).
[46] Mr Smith submits Mr and Mrs Harris are not attempting to avoid a future costs liability but rather to ensure that such liability that is incurred is met to the benefit of CRS and Shand. I do not accept this submission. Mr and Mrs Harris’s only concern is to avoid any personal liability for costs.
24 Law Commission, above n 20, at [11.6] citing Western Canadian Shopping Centres Inc v Dutton 2001 SCC 46 [2001] 2 SCR 534 at [41] and Joseph M McLaughlin McLaughlin on Class Actions (online ed, Thompson Reuters) at [4.27].
[47] Mr Smith also submits, insofar as CRS and Shand argue that Mr and Mrs Harris should have a responsibility for costs of the proceeding prior to a substitution order being made, an approach that is both fair and just is to make the grant of leave to substitute Mr and Mrs Harris as representative plaintiffs subject to a further condition they are to agree to meet a specified past costs liability within a defined period of time. It is said this would enable them to make an informed decision as to whether they wish to be the representative plaintiffs. I do not accept this submission either. Mr and Mrs Harris have made their position clear they will not accept any costs risk. The imposition of such a condition would serve no purpose.
Access to justice
[48] Representative proceedings promote access to justice. They ensure the efficient use of judicial resources. They allow the pursuit of what would otherwise be unaffordable claims beyond the means of individual claimants. They are also said to deter potential wrongdoers by disabusing them of the assumption that minor but widespread harm will not result in litigation.25
[49] It might be thought that access to justice considerations are more directly relevant to the revocation application. They are a factor in this context because Mr Smith accepts if Mr and Mrs Harris are not conditionally substituted as representative plaintiffs it is likely the representative nature of the proceeding will come to an end. Mr Smith submits the 23 parties who have chosen to opt-in to the proceeding will lose the ability to have their claims heard26 or, at least, they will lose the efficiency and forensic advantages the representative proceeding offers them.27 He submits the constitutional status of the access to justice principle means this should be accorded significant weight in the balancing exercise.
[50] Mr Smith also refers to the position of former CRS clients defending claims in the District Court which are presently stayed or adjourned on account of this representative proceeding. He submits they too will lose benefits they presently enjoy,
25 Cridge v Studorp Ltd, above n 18, at 11(b).
26 Claims Resolution Service Ltd v Smith, above n 2, at [37].
27 See for instance Gendall J’s “common thread” analysis in Smith v Claims Resolution Service Ltd, above n 1, at [35]-[36].
such as efficiencies associated with the determination by the High Court of issues that are also relevant to those cases. I do not think this is a significant factor. On the common issues that arise, those former clients of CRS already have the benefit of Hinton J’s ruling on Ms Pfisterer’s claim.
[51] For Shand, Mr Darroch submits the Court should be cautious about accepting a submission that group members are not in a position to pursue their claims individually through a lack of financial resources. He argues, while the Court of Appeal appeared to accept this was the case, that was based upon the evidence and circumstances of Ms Smith whereas Mr and Mrs Harris have not disclosed their financial position nor is there evidence about the financial means of other group members.
[52] For CRS, Mr Barker highlights that this proceeding was filed in a “blaze of publicity” and was promoted on the internet and in a TVNZ Sunday programme highly critical of CRS and its director, Mr Staples. In granting and upholding the representation order, both the High Court and the Court of Appeal relied on the expected large size of the represented group.28 The Court of Appeal referred to the potential 178 members of the group and that a number of persons had provided affidavits in support of Ms Smith’s application confirming their intention to opt-in as members of the group.29 In the end, only 23 former clients of CRS have chosen to opt-in to the proceeding. Some of those who gave evidence in support of Ms Smith’s application ultimately did not opt-in nor did some of those persons who had sought a stay of proceedings in the District Court (although I understand this may have been because they did not qualify as group members.)
[53] Mr Barker submits the number of claimants is small and based on the evidence of Mr Staples, most of the persons who have chosen to opt-in do not qualify as group members. Mr Barker submits the Court is left with significant uncertainty as to how many persons meet the criteria of the represented group, but it is likely to be a single digit number. Mr Barker also argues the representative nature of the proceeding offers limited efficiency and forensic advantages as the claims of individual group members
28 Smith v Claims Resolution Service Ltd, above n 1, at [2] and [35].
29 Claims Resolution Service Ltd v Smith, above n 1, at [18].
will not be finally resolved by a decision on the representative proceeding. Each of the claims will require a level of individualised assessment and a stage 2 hearing. Taking these matters into account, Mr Barker submits the substitution application provides the Court with an opportunity to consider afresh the issue of whether the proceeding is appropriately dealt with as a representative proceeding, which he argues it does not.
[54] I accept that if the representation order is revoked for want of a willing plaintiff, at least some members of the represented group will choose not to, or will be unable to, pursue their claims through a lack of means, inertia or other factors. That raises a genuine access to justice concern. This concern is tempered to an extent by matters relied upon by CRS and Shand, particularly the relatively small number of group members some of whom may well have the ability to pursue their claims individually. However, those matters can only be taken so far. I agree with Mr Smith’s submission that as a matter of principle the Court should be more concerned about the impact on group members of its refusal to make a substitution order than on the numbers in the represented group.
[55] Further, I am presently in no position to make a determination that persons who have given notice to opt-in to the proceeding do not qualify as members of the group. It cannot be expected that each group member would provide evidence they satisfy the criteria for the represented group, particularly as the role of group members is passive30 and only some of them are represented by GCA Lawyers. Further, the evidence of Mr Staples concerning the position of persons who have given notice to opt-in must be considered cautiously when he acknowledges CRS has lost some of its files and its information is not complete.
Prejudice
[56]The Supreme Court in Southern Response Earthquake Services Ltd v Ross
referred to the observation in R J Flowers Ltd v Burns that the traditional concern to
30 See Law Council of Australia Case Management Handbook (2014) at [13.15(b)], [13.85]-[13.87] and [13.92].
ensure that representative proceedings are not to be allowed to work injustice must be kept constantly in mind and:31
[41] We also note that the concern not to work injustice on a defendant is met at least in part by the requirement that applicants under r 4.24 have to satisfy the court as to the requisite common interest. Further, the usual armoury provided by the High Court Rules will apply. For example, the proceeding can be struck out or stayed upon filing but before service or before trial if it is an abuse of process or likely to cause prejudice and delay…
[57] CRS argues the effect of granting the substitution order will be to further delay the proceeding to its significant prejudice. This case has been proceeding now for over three years. As the Pfisterer appeal has yet to be set down for hearing it is unlikely to be determined until late 2022. Assuming the appeal is successful, Mr and Mrs Harris will then need to resolve funding issues with BIT (or some other funder) before the case can progress. Once they are resolved, the parties will need to determine security for costs issues, discovery and any other interlocutory applications that arise. Once the case is set down for hearing the parties could be waiting a further year before the trial commences. I agree with Mr Barker it is unlikely the case would be heard until mid to late 2024. That will be six years since the claim was filed and a lot longer than that since CRS and Shand dealt with the affairs of group members.
[58] Mr Staples has referred to the reputational damage that has been suffered by CRS, not only as a result of the filing of the claim but because of the manner in which it was promoted. He says the cost of the legal defence has been $600,000 in respect of which there is no insurance. Further, some former customers of CRS who are either members of the represented group or have obtained a stay of proceedings in the District Court have not paid CRS substantial sums owed to it. Mr Staples says there are seven such former clients and about $500,000 is owed (excluding interest and costs). The costs of the proceeding and the non-payment of such sums must be an enormous burden. I also accept the prospects CRS will recover sums that may be found to be owed to it recedes as time goes on.
[59] Mr Smith argues a large part of the delay to date was caused by the appeal taken by CRS and Shand from the decision granting Ms Smith leave to bring her claim
31 R J Flowers Ltd v Burns [1987] 1 NZLR 260 (HC) referred to in Ross v Southern Response Earthquake Services Ltd, above n 17, at [38].
as a representative action. However, he accepts CRS and Shand will be prejudiced by further delays. Against that, he argues they will not incur further legal fees during the period of a temporary stay and the burden of delays are also shouldered by those clients of CRS who have not paid fees as they may ultimately be held liable for interest on those sums.
[60] I accept that some delay has been caused by CRS and Shand appealing Gendall J’s decisions. Otherwise, I am of the view granting the substitution order will significantly prejudice CRS and Shand. The opportunity to restore their reputations will be delayed for a long time. The financial consequences for CRS may be severe. While it is true that ultimately some group members may be ordered to pay interest on amounts found to be owed to CRS, that is a risk they have chosen to take. For its part, CRS has not chosen to delay receipt of payment of such sums. I do not, therefore, accept that such group members and CRS are shouldering the burden of prejudice resulting from delays equally. Furthermore, it is only CRS that takes the risk that such amounts, including interest, may never be recoverable due to the passage of time.
The relevance of Pfisterer
[61] Submissions were presented on the relevance of the Pfisterer appeal. Mr Smith argued the decision is likely to be of significant relevance and benefit in relation to findings on common questions of law and fact that arise. That view was shared by Mr Darroch. Mr Barker argues the decision of Hinton J in the High Court demonstrated that most of the issues arising are likely to be determined on the facts of each claimant’s case. For present purposes, the Pfisterer appeal is plainly relevant, not because of any findings of fact or law that are made by the Court of Appeal, but because until the decision is released there is no prospect of funding.
My assessment
[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.
The revocation application
[66] No opposition to the revocation application has been filed. Both CRS and Shand consider if the substitution application fails it must follow the representation order should be revoked. In circumstances where Ms Smith does not wish to continue as the representative plaintiff and there is no one else prepared to fulfil that role, nor any suggestion that such a person may be identified from within the represented group, I agree with that assessment.
[67] I did not understand there to be any difference of view that upon the revocation of the representation order Ms Smith’s substantive proceeding remains on foot. The persons who satisfy the group criteria and have given valid notice to opt into Ms Smith’s representative proceeding should be allowed to retain such benefit as they can from the steps taken to date and protected in respect of any limitation issues that
may arise upon the revocation of the representation order. Having regard to the principles in Credit Suisse Private Equity LLC v Houghton32 and Cridge v Studorp Ltd33 the interests of those group members will be adequately protected if leave is reserved to them to be joined as plaintiffs to Ms Smith’s proceeding.
[68] In regard to costs on the revocation application (and of the representative proceeding to date), the position of CRS and Shand is that they should be reserved pending the filing of memoranda. I will make such directions.
Result
[69] The application by Mr and Mrs Harris to be substituted as representative plaintiffs is dismissed.
[70] CRS and Shand are awarded costs on Mr and Mrs Harris’s application on a 2B basis plus reasonable disbursements as fixed by the Registrar.
[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;
32 Credit Suisse Private Equity LLC v Houghton, above n 23.
33 Cridge v Studorp Ltd, above n 18.
(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.
[72] Costs of and consequent upon the granting of the revocation application are reserved. Should CRS and Shand seek costs they may file memoranda by 1 February 2022. Ms Smith shall have until 22 February 2022 to respond. Having received the memoranda I will consider whether to determine the application on the papers or to conduct a hearing.
O G Paulsen Associate Judge
Solicitors:
Canterbury Legal (Sydney Austin), Christchurch Darroch Forrest Lawyers, Wellington
GCA Lawyers, Christchurch
Copy to: Ms K M Smith
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