Smith v Claims Resolution Service Ltd

[2021] NZHC 3106

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2018-409-643

[2021] NZHC 3106

BETWEEN

KARLIE MARGARET SMITH

Plaintiff/First Counterclaim Defendant

AND

CLAIMS RESOLUTION SERVICE LTD

First Defendant/Counterclaim Plaintiff

AND

GRANT SHAND BARRISTERS AND SOLICITORS

Second Defendant

AND

SHARON MARGARET SMITH

Second Counterclaim Defendant

Counsel:

G A Cameron and R J Lynn for Plaintiff/First Counterclaim Defendant and for Second 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

Judgment:

18 November 2021

(Determined on the papers)

JUDGMENT OF OSBORNE J

[Freezing order]

This judgment was delivered by me on 18 November 2021 at 11.00 am pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

SMITH v CLAIMS RESOLUTION SERVICE LTD [2021] NZHC 3106 [18 November 2021]

Introduction

[1]    Claims Resolution Service Ltd (CRS) is the first defendant and counterclaim plaintiff in this proceeding. CRS applies for a freezing order restraining the plaintiff/first counterclaim defendant, Karlie Smith, from dealing with her residential property or, alternatively, a portion of the proceeds of sale.

[2]    The application is made without notice upon the basis that requiring CRS to proceed on notice would cause CRS undue delay or prejudice.

This proceeding

[3]    The background to this proceeding lies in damage suffered by Ms Smith’s home in the Canterbury Earthquake Sequence. She entered into a contract with CRS for claims resolution funding and advocacy services and with the second defendant for legal representation in relation to a civil proceeding against her insurer.

[4]    Ms Smith asserts in this proceeding against the two defendants that she settled her insurance claim for significantly less than the sum the defendants had identified and advocated to be the full and true value of those claims. She alleges breaches of fiduciary duty by both CRS and the second defendant. She also asserts that her contract with CRS was an unconscionable bargain. She seeks declarations to that effect. She also seeks declarations that the contracts are void and/or that it would be inequitable for the defendants to recover money under those contracts.

[5]    The defendants each filed statements of defence. CRS included a counterclaim for monies it alleged are due and owing under its contract with the plaintiff, Ms Smith, (and the second counterclaim defendant, Sharon Smith).

[6] The counterclaim defendants deny liability by reason of the matters referred to at [4] above.

[7]    In February 2019, Ms Smith was granted leave for this proceeding to proceed as a representative claim on an opt-in basis.1

[8]    Subsequently, steps have been taken to advance procedural matters concerning the opt-in process, culminating in the Court’s approval of the opt-in consent notice in July this year.

[9]    At that time, it became apparent that Ms Smith no longer wished to continue the proceeding as representative plaintiff and to date no one has been substituted as plaintiff. (An opposed application in that regard has yet to be heard).

[10]   On 2 November 2021, Mr Cameron (solicitor for the plaintiff/first counterclaim defendant and for the second counterclaim defendant) filed an application (for first call on 2 December 2021) for orders declaring that he has ceased to act for the plaintiff. An affidavit has been filed explaining that on or about 22 July 2021 the retainer between Ms Smith and Mr Cameron’s firm was terminated.

Application for freezing order

[11]   CRS has now filed a without notice application for a freezing order restraining the sale of Ms Smith’s property or, alternatively, restraining the net proceeds of the sale of the property up to $200,000. CRS supports the application by an affidavit of its general manager, Leon Hendren. The application is also supported by CRS’s undertaking as to damages pursuant to r 7.54 High Court Rules 2016. The application, in accordance with form G 32 of sch 1 to the High Court Rules, contains counsels’ certificate.

CRS’s grounds of application

[12]   CRS makes its application under rr 32.2 and 32.5 High Court Rules upon the basis that:

1      Smith v Claims Resolution Service Ltd [2019] NZHC 2738 (an appeal against the granting of leave was unsuccessful: see Claims Resolution Service Ltd v Smith [2020] NZCA 664).

(a)it has (on its counterclaim) a good arguable case for payment of its unpaid invoices and interest of approximately $165,571.30 as at 11 November 2021. CRS refers to the failure of a plaintiff with substantially similar claims to those of Ms Smith in Claims Resolution Service Ltd v Pfisterer — with the plaintiff in that case being unsuccessful on her claims and CRS obtaining judgment on its invoice, contractual interest and indemnity costs;2

(b)Ms Smith has assets to which the freezing order may apply, being her residential property Lot 54 on Deposited Plan 37325 identified in Record of Title Identifier CB30K/1155 (the property). Alternatively, if the property has been sold the freezing order may apply to the proceeds of any sale;

(c)there is a real risk of dissipation of assets revealed through Ms Smith’s own correspondence and the lack of evidence of any other assets; and

(d)the balance of convenience favours the granting of a freezing order.

[13]   Mr Hendren deposes that the CRS/Smith contract provides for interest of 2 per cent per month (on unpaid invoices). He states the unpaid (initial commission) invoice is $72,195.65 (as admitted through the pleadings) and that contractual interest is accruing at $47.47 per day, a total at 11 November 2021 of $93,375.65.

[14]Mr Hendren notes the costs of this proceeding have yet to be quantified.

[15]   Mr Hendren identifies the similarity of the claims and counterclaims of Ms Smith with those of Ms Pfisterer in which Ms Pfisterer was found liable to pay CRS the counterclaimed sums.

[16]   Mr Hendren then refers to recent dealings with Ms Smith, following her decision that she no longer wished to continue as representative plaintiff.

2      Claims Resolution Service Ltd v Pfisterer [2021] NZHC 1088. The High Court judgment is the subject of an undetermined appeal to the Court of Appeal.

[17]   Mr Hendren exhibits emails sent by Ms Smith to Bryan Staples of CRS with statements indicating a lack of money or assets, and her intentions with what she has, as shown below:

(a)On 10 September 2021:

I would still like to sort my bill Bryan but I don’t have that sort of money or even can borrow that amount.

(b)On 6 November 2021:

... it my girl 21 on 10 December and we’re going on a big holiday and celebrating [sic].

(c)On 7 November 2021:

I have an unconditional sale on my home and I am in financial ruins I have done the best I can to do the right thing by you and I have outstanding bills to pay Bryan.

[18]   The reference to “my home” is evidently to the property, of which Mr Hendren exhibits the record of title.

[19]   Mr Hendren records that he is now concerned that Ms Smith plans to sell the property with the intention or effect of defeating CRS’s interest. Mr Hendren is concerned that if Ms Smith sells the property and uses the proceeds from the sale there will be no way that CRS can recover its debt.

[20]   Mr Hendren deposes his belief that, should a freezing order restraining the sale of the property not be made, then an order in respect of the sum of $200,000 should be made against the proceeds of sale to protect CRS’s interest.

[21]   Mr Hendren confirms that CRS does not know when the settlement of Ms Smith’s property sale is to occur. He states that Ms Smith is currently self-represented. Although she has not provided an address for service of her own, CRS is sending the

documents in relation to this interlocutory application to her email address on a

Pickwick basis.3

Freezing orders - the regime

[22]   Under r 32.2(1) High Court Rules, the Court may make a freezing order on or without notice to a respondent.

[23]   The three requirements for a freezing order, as recognised by the Court of Appeal in Shaw v Narain are:4

(a)a good arguable case;

(b)assets to which the freezing order can apply; and

(c)a real risk of dissipation of the assets.

[24]   The test in relation to the risk of dissipation has been identified as “not unduly exacting”, and requires identification of circumstances from which a prudent, sensible commercial person could properly infer a danger of default.5

[25]   There then remains an obligation upon the applicant, pursuant to r 32.2(3) to fully and frankly disclose to the Court all material facts, including:

(a)any possible defences known to the applicant; and

(b)information casting doubt on the applicant’s ability to discharge the obligation created by the undertaking as to damages.

3      Pickwick International Inc (GB) Ltd v Multiple Sound Distributors Ltd [1972] 1 WLR 1213 (Ch). See also Andrew Beck and others McGechan on Procedure (online ed,

Thomson Reuters) at [HR7.46.05].

4      Shaw v Narain [1992] 2 NZLR 554 (CA) at 548.

5      Raukura Moana Fisheries Ltd v The Ship Irina Zharkikh [2001] 2 NZLR 801 (HC) at [122].

Discussion

Good arguable case?

[26]   CRS’s counterclaim is based on a contractual entitlement flowing from a contract which, on their own pleadings, the counterclaim defendants (including Ms Smith) accept existed. By their statement of defence, the counterclaim defendants also accept that CRS carried out a number of advocacy and funding services for them between September 2016 and May 2018.

[27]   On that basis, the CRS claim standing on its own constitutes a good arguable case.

[28]   The counterclaim defendants’ principal defence to the CRS claim involves the same arguments — breach of fiduciary obligations when providing the services — as are central to Ms Smith’s statement of claim against the defendants. Counsel correctly assert that Ms Smith’s representative claim raises substantially the same questions of law as involved in Pfisterer.6 While I recognise that, without a trial in this case, the factual merits of the two cases cannot be compared, the fact that the issues of law involved in Pfisterer were resolved in favour of CRS is a further indication that CRS’s counterclaim is capable of serious argument.

[29]In short, the threshold test is satisfied.

Applicable assets?

[30]   The assets to which the freezing order would apply — either the property or (if its sale is completed) a maximum of $200,000 of the proceeds of sale — are clearly identified and are appropriate subject-matter for a freezing order.

Real risk of dissipation?

[31]   Ms Smith’s exhibited emails speak for themselves. They indicate that she is in financial ruin, has unconditionally sold the property and is on the point of dissipating

6      Pfisterer, above n 2.

proceeds of sale. There is nothing on the face of her emails to suggest that any aspect of that information is incorrect.

[32]   I am satisfied there is a real risk that Ms Smith will dispose of the property and/or the proceeds of its sale.

Balance of convenience and overall justice

[33]   The balance of convenience is clearly in favour of freezing the subject-matter for the time being. In the event the property sale has yet to be completed that will leave the parties able to apply to the Court to have the freezing order over the property lifted so as to have the secondary order (over the proceeds) activated. In the event it transpires the property sale has already been completed, with the consequence the secondary order over the proceeds is active, the parties will again have the opportunity to seek any appropriate amendment or rescission of the order.

[34]   In all these circumstances, the overall justice of the case also supports the granting of the freezing order sought.

Order

[35]I order:

(a)This order is to be drawn up in terms of Form G 38, sch 1, High Court Rules.

(b)The order is made in respect of the following assets:

(i)Lot 54 on Deposited Plan 37325, Record of Title Identifier CB 30K/1155, Canterbury Land Registration District (the property) and

(ii)the net proceeds of any sale of the property in the sum of

$200,000 to be held in trust pending the outcome of this proceeding.

(c)Leave is reserved to the plaintiff to discharge or vary this order on five working days’ notice.

(d)This order will have no effect after 9 December 2021 unless on that date it is continued or renewed.

(e)The proceeding, including this interlocutory application, is adjourned to 10.00 am, 9 December 2021 (Osborne J).

(f)The costs and disbursements of the interlocutory application to date are reserved.

Osborne J

Solicitors:

GCA Lawyers, Christchurch Canterbury Legal, Christchurch

Counsel: A Barker QC, Auckland

G Davis, Barrister, Christchurch Darroch Forest Lawyers, Wellington