Smith v Claims Resolution Service Ltd
[2019] NZHC 2738
•25 October 2019
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2018-409-000643
[2019] NZHC 2738
BETWEEN KARLIE MARGARET SMITH
Plaintiff
AND
CLAIMS RESOLUTION SERVICE LIMITED
First Defendant
GRANT SHAND BARRISTERS AND SOLICITORS
Second Defendants
Hearing: Determined on the papers Counsel:
M S Smith for Plaintiff
ARB Barker QC for First Defendant A B Darroch for Second Defendant
Judgment:
25 October 2019
JUDGMENT OF GENDALL J
This judgment was delivered by me on 25 October 2019 at 2:30 p.m. pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date: 25 October 2019
SMITH v CLAIMS RESOLUTION SERVICE LTD [2019] NZHC 2738 [25 October 2019]
Introduction
[1] On 12 February 2019 this court granted the plaintiff leave to bring a representative action against the first defendant Claims Resolution Service Limited (CRS) and the second defendants Grant Shand Barristers and Solicitors (Shand Solicitors). On 9 May 2019, the terms of that representative order were set out.
[2] CRS and Shand Solicitors seek leave of this court to appeal the 12 February 2019 and 9 May 2019 judgments to the Court of Appeal. They also seek an extension of time as the leave application was filed one day late.
The law
[3] Section 56 of the Senior Courts Act 2016 provides for jurisdiction for the Court of Appeal to hear appeals. It provides:
56 Jurisdiction
(1)The Court of Appeal may hear and determine appeals—
(a)from a judgment, decree, or order of the High Court:
(b)under the Criminal Procedure Act 2011:
(c)from any court or tribunal under any other Act that confers on the Court of Appeal jurisdiction and power to hear and determine an appeal.
(2)Subsection (1) is subject to subsections (3) and (5) and to rules made under section 148.
(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.
(5)If the High Court refuses leave to appeal under subsection (3), the Court of Appeal may grant that leave on application made to the Court of Appeal within 20 working days after the date of the refusal of leave by the High Court.
(6)If leave to appeal under subsection (3) or (5) is refused in respect of an order or a decision of the High Court made on an interlocutory application, nothing in this section prevents any point raised in the application for leave to appeal from being raised in an appeal against the substantive High Court decision.
[4] The decision granting leave to bring a representative action was a decision made on an interlocutory application. Under s 56(3) leave to appeal this decision is required from the High Court. If this court refuses leave then the Court of Appeal may still itself grant leave under s 56(5).
[5] Counsel referred me to authority on how s 56(3) is to be considered. In Finewood Upholstery Ltd v Vaughan¸ the Court characterised the leave requirement as a “filtering mechanism”1 and recognised the following considerations as relevant on an application for leave:2
(a)A high threshold exists for the granting of leave. An allegation of error of law or fact is generally insufficient. A plaintiff should raise an arguable error.
(b)Leave should only be granted where the circumstances warrant incurring further delay.
(c)The alleged error should be of general or public importance that requires determination, or otherwise be of sufficient importance to the applicant to outweigh the lack of any general or precedential importance.
[6] In Li v Chief Executive, Ministry Of Business, Innovation And Employment Palmer J broadly agreed with Fitzgerald J in Finewood that the “the requirement for leave to appeal interlocutory decisions should filter out appeals on unmeritorious grounds and insignificant points”3 His honour added that the wider purpose behind s 56(3) is to lessen tactical delays and enhance the efficiency of the administration of
1 Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679 at [13].
2 At [9].
3 Li v Chief Executive, Ministry Of Business, Innovation And Employment [2018] NZHC 1171 at [19].
justice.4 Palmer J suggested that an application to appeal an interlocutory decision under s 56(3) is likely to be granted in certain circumstances which he said involved:
[21]Pulling all these strands together, I consider the text, purpose, context and case law of s 56 suggests an application to appeal an interlocutory decision under s 56(3) is likely to be granted if:
(a)the appeal is not likely to be overtaken by the substantive hearing or cannot otherwise be considered as effectively in the context of an appeal of the substantive decision; or
(b)the appellant is likely to be prejudiced by a postponement to the substantive appeal; or
(c)the appeal may be dispositive of the case in law or as a practical matter; and
(d)the arguments in the appeal are capable of bona fide and serious argument; and
(e)the issue on appeal concerns a decision of sufficient significance to the parties or a question of law or general principle of sufficient importance as to outweigh the cost and delay of the appeal.
[7]Or, in short:5
… an application to appeal an interlocutory decision under s 56(3) is likely to be granted where: (a) there is good reason to consider it before, or separately to, the substantive appeal; and (b) it is sufficiently meritorious in substance and relates to a sufficiently important issue as to outweigh the cost and delay of appeal.
[8] These decisions have been approved in more recent judgments of the High Court.6
Extension of time
[9] Shand Solicitors submit that it is appropriate to grant the extension of time sought for this leave application. Counsel cites My Noodle Ltd Queenstown Lakes District Council and says the factors to be considered are:7
4 At [20].
5 At [22].
6 See Yu v Bradley [2018] NZHC 2312; Greenfields Internet Ltd v Rural Networks South Island Ltd [2019] NZHC 645; and NZ Fintech Ltd v Credit Corp Financial Solutions Pty Ltd [2019] NZHC 1210.
7 My Noodle Ltd Queenstown Lakes District Council [2009] NZCA 224.
(a)The reason for the delay;
(b)The length of the delay;
(c)The conduct of the parties; and
(d)The extent of any prejudice cause by the delay.
[10] Here, Shand Solicitors explain that the application was filed one day late and purely by error. No prejudice has been caused to the plaintiff. The amended opposition filed for Miss Smith does not oppose the application.
[11] I accept this and see no reason for the extension sought not to be granted. The extension of time, given that the leave application was filed one day late, is granted.
Submissions on leave
CRS’s submissions
[12] Before me CRS argued that a critical aspect of this application is that it effectively determines CRS’s substantive rights. It says that the representative order will mean that a finding against the defendants in the present case will bind the defendants in future cases that are brought by members of the class. The defendants will not be able to challenge those findings in subsequent proceedings brought by members of the representative group. It says that if the plaintiff is successful, it will have to accept that it does owe a fiduciary duty to members of the group, that it breached that duty, that transactions with members were unconscionable bargains, and that members of the group suffered a loss as a consequence of these actions.
[13] The second point CRS makes is that a representative order has significant procedural impacts. It says that while a representative order may increase timeliness it could also cause significant cost and delay. CRS also maintains that there are a number of potential members of the representative group who have not paid CRS fees that are due to it. It says the making of a representative order will act as a stay of those various proceedings. At the initial hearing CRS sought, unsuccessfully, that the parties
at least secure the amount of the fees that are claimed by CRS. On this aspect, CRS says too that the Court of Appeal may well grant security for costs.
[14] CRS contends also that any order will have a significant impact on its business. It says that if a number of these invoices are not paid as the class action proceeds that will affect its cashflow. The broader publication of the order will have an effect on CRS as well.
[15] CRS says this case also raises issues of public importance. It argues that this is the first example of a representative order in respect of what is effectively a common defence between members of the representative group. A critical issue in this case, it suggests, is on fees that have been paid to CRS or that have yet to be paid to it. The represented parties seek an affirmative defence that they should not have paid/have to pay CRS because of the various defences made in the claim. It says that is distinctly different to an ordinary claim which is based on some positive loss that is alleged. It says the impact of this is a stay of the various claims by CRS for the payment of its fees.
[16] CRS submits also that the arguments it made in its substantive submissions before this court were arguments of merit and properly made. It says they are issues on which the Court of Appeal may reasonably disagree with the High Court and leave to appeal is, therefore, appropriate here.
Shand Solicitors submissions
[17] Shand Solicitors supports the submissions of CRS and makes three core arguments.
[18] The first is that the claim involves allegations of breach of fiduciary duty and unconscionable bargain which will involve complex issues of fact and law. It says that each appeal is intensely factual and better dealt with separately. The allegations it adds essentially involve the allegation of a novel category of fiduciary duty and the testing of such a duty is better dealt with on one set of facts. It suggests the use of a representative action to pursue these claims will add complexity to the claim.
[19] It also contends that such a claim is novel in that these types of claims have not been determined previously within the added structure of a representative action. This is the first case, Mr Darroch suggests, where a representative action is being brought by clients alleging a breach of fiduciary duty by a solicitor. Shand Solicitors says that this will add complexity which is novel to this claim.
[20] Shand Solicitors says the arguments it raises are legitimate concerns which are properly advanced through an appeal. They say that the decision to grant leave for the representative action would more properly be advanced through an appeal. It concludes that the appeal will involve issues of general and/or public importance and is otherwise of sufficient importance to the defendants.
The plaintiff Miss Smith’s submissions
[21] The plaintiff opposes leave to appeal being granted here. She gives four reasons why the present application for leave should fail.
[22] First, the defendants’ proposed grounds of appeal, she claims, are not reasonably arguable. The plaintiff says her application for leave under r 4.24 did not raise novel or unique issues, and the judgments in issue reflect an orthodox and uncontentious application of the now well-settled r 4.24 jurisprudence. While it is true, as the defendants submit, that a representative proceeding of this particular nature has not previously been pursued in New Zealand, the theory of Miss Smith’s case here is not legally novel. To the contrary, her counsel, Mr Smith, argues it is based on elementary principles of equity.
[23] The plaintiff says the court is being invited to read into s 56(4) a further exception to the ‘rule’ in s 56(3) of the Senior Courts Act for any order or decision granting leave to bring a proceeding as a representative action under r 4.24. If Parliament intended r 4.24 decisions to go to the Court of Appeal as of right, or more easily than orders or decisions on other interlocutory applications, Mr Smith argues s 56(4) would have said so. The plaintiff contends the position ought to be that something unique should be present in a R 4.24 decision so as to justify the grant of leave. The plaintiff says there is no general or precedential value in a R 4.24 decision such as to justify the grant of leave to appeal the defendants seek here, nor any general
or public importance so as to warrant a further, appellate decision on the defendants’ arguments.
[24] The third reason is that the defendants will not be substantively prejudiced by a refusal of leave to appeal here. That is because case management steps and, ultimately, substantive hearings provide answers to the prejudices raised in the defendants’ leave applications and their associated legal submissions. More particularly:
(a)The case-law is clear that a representative action cannot be used in a way that deprives a defendant of a defence it could have relied on in a separate proceeding against one or more members of the class. Conversely, it could not be used to allow a member of the class to succeed where they would not have succeeded had they brought an individual claim. The representative proceeding can be expected to be case managed in a manner that conforms with these well-established principles.
(b)CRS claims accruing interest in its fees counterclaim against Miss Smith, and presumably against any other represented group member who opts in without paying to CRS money claimed by it to be owing. If CRS’s position (and its counterclaims) are found to be meritorious, the accrued interest that CRS seeks will address any prejudice associated with further delays in payment.
(c)Security for costs can be set (and it is envisaged that it will be in due course) on terms which appropriately protect the defendants’ interests, as stated in the later terms judgment.
[25] Miss Smith submits that the circumstances do not warrant the further delay here that would be associated with an appeal on the grounds the defendants are proposing. Given the unlikelihood that the Court of Appeal could find a one-day appeal fixture for this matter in 2019, that fixture would almost certainly take place over one year after the R 4.24 application was decided. There would be prejudice to
Miss Smith in an appeal against this background, and that prejudice would be compounded by CRS’s claim to accruing interest.
[26] Taken together, it is Miss Smith’s overall position that the interests of justice are not served here by granting the leave to appeal that is being sought by the defendants.
[27] In the alternative that leave might be granted here, the plaintiff seeks leave to cross-appeal two decisions:
(a)The decision at [14] of the 12 February 2019 representative action judgment, that the affidavits of Lucia Pfisterer and Toni Elliott were inadmissible; and
(b)The decision at [17] – [19] of the 9 May 2019 terms judgment, that the Court-approved opt-in notice did not need to be published on the relevant Facebook page/s.
Analysis
[28] Having considered the basis upon which the authorities say that leave to appeal should be granted, I have concluded that this is a case where leave ought to be granted.
[29] There is always an inherent tension in being the Judge who delivered the judgments at issue and then being required to consider whether those judgments raise arguable errors of law or fact. In my view, r 4.24 has been applied in an appropriate manner. I accept however, that for present purposes the claims and arguments being pursued by the defendants are not frivolous or of a vexatious nature that would enable me to dismiss them outright.
[30] While the authorities on r 4.24 representative actions are relatively well settled, I accept there is some novelty in that in this case their representative claim effectively constitutes a common defence between a number of members of the representative group to claims by the defendants. This issue, as I understand it, is not likely to have been considered by the Court in the past.
[31] On this aspect, the defendants are concerned that allowing a representative action is effectively a stay on proceedings. In relation to this, earlier I made provision for security for costs to be sought. The defendants are also seeking interest which would compensate them for the monies they claim not having been paid to them. A time consuming and costly appeal to the Court of Appeal on what may not be a strong basis is only likely to exacerbate cashflow issues of CRS and magnify the interest payable by the plaintiff. But, issues of principle nevertheless do arise here.
[32] Ultimately, I accept this is a case of significant importance to the defendants, as it is to the plaintiff. It decides finally, amongst other things, the question of whether the defendants should deal with disgruntled clients collectively or individually. While I am hesitant to grant leave, I bear in mind the authorities which state this is a filtering provision for cases with no merit or which are being used as an abuse of the courts processes. I do not think this is necessarily one of those cases.
[33] And I note also that if I do not grant leave to appeal, the defendants will have the ability to apply for leave directly from the Court of Appeal.
Conclusion
[34] By a reasonably fine margin here, I am prepared to grant leave to appeal to the Court of Appeal the judgments given by me on 12 February 2019 and 9 May 2019 in this proceeding. Leave is granted accordingly.
[35] I also grant leave to the plaintiff on her cross-appeal outlined at [27] above to appeal the:
(a)Decision at [14] of the 12 February 2019 representative action judgment, that the affidavits of Lucia Pfisterer and Toni Elliott were inadmissible; and
(b)Decision at [17] – [19] of the 9 May 2019 terms judgment, that the Court-approved opt-in notice did not need to be published on the relevant Facebook page/s.
[36]Costs, if sought, here are reserved.
...................................................
Gendall J
Solicitors:
GCA Lawyers, Christchurch
Canterbury Legal, Christchurch Darroch Forrest Lawyers, Wellington
Copies to:
Andrew Barker QC, Barrister, Auckland Andrew Butler, Barrister, Wellington Matthew S Smith, Barrister, Wellington Jai Moss, Barrister, Christchurch
Gary Davis, Barrister, Christchurch
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