Smith v Claims Resolution Service Ltd
[2019] NZHC 1013
•9 May 2019
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2018-409-000643
[2019] NZHC 1013
BETWEEN KARLIE MARGARET SMITH
Plaintiff
AND
CLAIMS RESOLUTION SERVICE LIMITED
First Defendant
GRANT SHAND BARRISTERS AND SOLICITORS
Second Defendant
Hearing: 10 April 2019 Appearances:
M S Smith for Plaintiff
ARB Barker QC for First Defendant A B Darroch for Second Defendant
Judgment:
9 May 2019
JUDGMENT OF GENDALL J
SMITH v CLAIMS RESOLUTION SERVICE LIMITED [2019] NZHC 1013 [9 May 2019]
Introduction
[1] On 12 February 2019 I gave judgment in this proceeding granting leave to the plaintiff (Ms Smith) under r 4.24 of the High Court Rules for this proceeding to proceed as a representative action. In doing so, I declared in my judgment that this matter was to operate as an “opt in” proceeding and potential group members for the representative action were to have a period of four months to be informed about it and to decide whether to join.
[2] At para [49] of that 12 February 2019 judgment I indicated that the starting point for the “opt in” period and the effective date from which the orders I had made, together with further directions for the conduct of this proceeding as a representative action, were to be determined in a subsequent judgment I was to issue following the provision of memoranda from counsel for the various parties.
[3] At para [50] of that judgment I set out directions concerning the filing and service of those memoranda to address those specific matters.
[4] Memoranda of submissions on these issues have now been filed by counsel for the plaintiff (Ms Smith), counsel for the first defendant Claims Resolution Service Limited (CRS), and counsel for Grant Shand Barristers Solicitors (Shand Solicitors). In addition, at counsel’s request, a face to face hearing before me regarding the further directions required took place on 10 April 2019.
[5] I have now had an opportunity to consider all those written and oral submissions and give my decision concerning the further conduct of this proceeding and the matters related thereto.
[6] But before doing so, it is appropriate here to repeat some brief factual background to this whole matter so a full understanding of what is proposed may appear clearer.
Factual background
[7] Ms Smith, as a former client of CRS and Shand Solicitors sues the defendants in this action (leave for which has been granted to proceed as a representative proceeding) both on her behalf and on behalf of a group of other similar former clients (potential group members). As the owner of a home damaged in the 2010/2011 Canterbury earthquake sequence, Ms Smith engaged CRS to pursue her unresolved earthquake claim against her insurer. Her position is that CRS in turn engaged Shand Solicitors as her lawyers for the claim. She maintains that CRS, Shand Solicitors and other closely held companies related to CRS and its principal, Mr Bryan Douglas Staples (Mr Staples), had an undisclosed joint venture agreement. Ms Smith’s claims against CRS and Shand Solicitors allege breach of fiduciary duty and unconscionable bargain with respect to the joint venture and other arrangements, pursuant to which what were represented to be independent professional services were provided in breach of obligations owed to Ms Smith regarding her earthquake insurance claim.
[8] By way of further background to the present claim, following the Christchurch earthquake sequence, CRS had offered a widely advertised “No Win No Fee” funding proposition to home owners who contracted CRS and through it Shand Solicitors to assist them in resolving their outstanding earthquake insurance claims.
[9] Once a client like Ms Smith had contracted with the defendants, the client’s insurance claim appears to have been advanced in a number of what are said to be common ways. Shand Solicitors would provide legal representation, costings would be sourced from a quantity surveyor Mr Stephen Betts said to be intimately connected to the defendants, Earthquake Services Limited a related company would carry out damage assessments, and CRS would fund the proceeding on a commission basis.
[10] In her claim, Ms Smith makes a number of allegations against CRS and Shand Solicitors relating to these arrangements.
[11] I am told now that CRS and Shand Solicitors have sought leave to appeal to the Court of Appeal my earlier 12 February 2019 judgment. The parties however, as I understand it, have agreed that this appeal will not be pursued until my decision as
to the further progress of this proceeding the subject of this judgment is given. That is simply noted at this point.
Issues
[12] Essentially, this judgment addresses a number of matters. First, it is to set the form for a court-approved form of written communication/Notice of this proceeding to potential group members who might form part of the representative action. Secondly, it directs the mechanics for distribution of and responses to such a Notice. Thirdly, it touches on possible issues over security for costs to be provided by the plaintiff here. And lastly, it provides certain directions on ongoing broad case management issues for this proceeding.
Court approved written communication/Notice
[13] It is appropriate for this court to approve and direct the form of Notice to potential group members (the Notice) noting that appropriately worded content that is readily comprehensible to a non-lawyer audience is required. In the Court of Appeal decision in Saunders v Houghton1 the Court said that in addressing these issues, a Judge must bring “a critical and creative mind to bear on all aspects and implications of the initial representation order”.
[14] On all of this, Mr Smith, counsel for Ms Smith, has provided a draft Notice in his Memorandum to this Court. And, in addressing this draft, counsel for the defendants in turn have requested the addition of statements that:
(a)CRS and Shand Solicitors oppose the claim;
(b)Describe the funding arrangement proposed for the representative action and the requirement for an individual member to contribute;
(c)Concern the possibility of exposure to an adverse costs award in the event that the claim does not succeed; and
1 Saunders v Houghton [2009] NZCA 610 at [38].
(d)Address security for costs required to be paid by the claimants.
[15] That Ms Smith’s representative claim is opposed, as requested at [14](a) above, by the defendants is properly added here. An addition to this effect is included. I do not find it necessary, however, to publicise predictions as to funding and costs at this point. They are unclear until it is known how many people have joined the representative action, and to what extent external funding has been secured and its terms. These matters can be dealt with, if needed, at a subsequent case management hearing.
[16] Subject to these matters, on balance, no other major relevant objection of consequence is taken by CRS or Shand Solicitors to the bulk of Mr Smith’s draft Notice. Accordingly, I have followed it, although some minor changes have been made. I now direct that the Notice, being the written communication and notice of the proceeding to potential group members, is to take the following form:
Miss Karlie Smith is a former client of Claims Resolution Service Ltd (CRS) and Grant Shand Barristers and Solicitors (Grant Shand Solicitors). Miss Smith is bringing claims against CRS and Grant Shand Solicitors in the High Court at Christchurch.
The High Court has held that her claim can be treated as a “representative proceeding” for similar claims that might be made by other clients of CRS and Grant Shand Solicitors (the represented group). This means that issues decided in her claim are likely to resolve similar issues in claims by other members of the represented group.
Miss Smith’s home was damaged in the Canterbury earthquakes of 2010- 2011. She visited Earthquake Services Limited and later through it, engaged CRS to assist her with her unresolved earthquake claims against her insurer. CRS engaged Grant Shand Solicitors to act for Miss Smith in her claim against her insurer.
Miss Smith received what was described as an Independent Damage Assessment from Earthquake Services Ltd. Based on that damage assessment, she received a costing for the remediation of her home by a quantity surveyor, Stephen Betts.
Miss Smith is arguing that CRS, Grant Shand Solicitors and other closely held companies related to CRS, and its principal Bryan Staples, had an undisclosed joint venture arrangement; that joint venture arrangement gave rise to conflicts of interest and led to breaches of fiduciary duties by CRS and Grant Shand Solicitors and that the contract that Miss Smith entered into with CRS was an unconscionable bargain.
Miss Smith is seeking declarations from the High Court that her contract with CRS is void, and that she should not have to pay CRS or Grant Shand Solicitors any money for the work that they did for her.
Miss Smith is also seeking damages from CRS (of $10,000) and from Grant Shand Solicitors (of $15,000) for the alleged breaches of fiduciary duties by them, as well as out of pocket costs that have been incurred as a result of the actions of CRS and Grant Shand Solicitors.
CRS and Grant Shand deny the alleged undisclosed joint venture arrangement and they are defending the claims that Miss Smith is advancing on behalf of herself and others.
Miss Smith’s claims, and the orders that she is seeking from the High Court are set out in detail in the statement of claim at Appendix 1 to this notice. The statement of defence by CRS and the statement of defence by Grant Shand Solicitors are attached at Appendix 2 and Appendix 3. The details are also summarised by the High Court in its decision of 12 February 2019, at Appendix 4.
If you entered into a contract with CRS in circumstances similar to Miss Smith, and your claim was resolved in a way similar to Miss Smith’s, you may be able to join the group that Miss Smith represents. To be part of the group the following characteristics must apply to you:
You owned a house that was damaged during the Canterbury Earthquakes from 2010-2011;
You entered into a contract with CRS for claim resolution funding and advocacy services in respect of insurance claims against EQC and/or an insurer arising from the earthquakes;
You obtained what was described as an Independent Damage Assessment from Earthquake Services Limited and based on that damage assessment a costing for the remediation of your home was completed by a quantity surveyor, Mr Stephen Betts;
You were represented by Grant Shand Solicitors who was engaged by CRS to act and to bring a court case for you; and
You settled your insurance claim for significantly less than the sum that CRS and Grant Shand Solicitors said was the full and true value of your insurance claims.
If you believe your situation fits these five characteristics, please contact GCA Lawyers to obtain more detailed information.
GCA Lawyers can be contacted by: telephoning (03) 365 1347; emailing
[email protected]; or by completing the registration on GCA Lawyers’ website at of and responses to the Notice
[17] Ms Smith has requested that this Notice is to be published on the Shand Solicitors website. The second defendant says this is not appropriate. In response, Ms Smith says that the nature of any court approved communication is that it is a fair and balanced summary of the proceeding. Therefore, she maintains it is appropriate to be published on the lawyer’s website, particularly in circumstances where its content has been settled on the basis of legal input from all the defendants.
[18] I disagree, however. I am not satisfied that the message is relevant to prospective users of the Shand Solicitors website. It is unlikely too that disgruntled former clients of Shand Solicitors will be regularly checking the blog section of Shand Solicitors’ website. I do not order that any message be published on Grant Shand’s website.
[19] Instead, I make the following directions as to publication and dissemination of the Notice:
(a)At any time after 29 May 2019 Ms Smith and/or her instructed solicitors are to disseminate the Notice FIRST by having this published in the Press newspaper circulating in the Christchurch and Canterbury Regions and also the Press internet website and in any one or more of the New Zealand Herald (Auckland), the Dominion (Wellington), and the Otago Daily Times (Dunedin) newspapers, and also their respective internet websites; AND SECONDLY, by also placing the Notice on the internet website of Ms Smith’s lawyers, GGA Lawyers, Christchurch.
(b)In addition:
(i)By no later than 21 May 2019, CRS and Shand Solicitors are to procure the spreadsheet list of 178 potentially eligible clients and customers of CRS and/or Shand Solicitors (the Staples advised parties) referred to at paragraphs [31] and [32] in the affidavit of Mr Staples sworn 22 March 2019 (this to include
their full names, addresses and contact details) and by that date to provide this list to Ms Smith’s lawyers, GCA Lawyers, and to the Court.
(ii)Then, at any date after 29 May 2019, Ms Smith and her instructed lawyers are to forward by mail or email a copy of the Notice to each of the Staples advised parties at their respective nominated contact addresses.
[20] As I have noted above, this matter is to operate as an “opt in” proceeding and potential group members are to have four months to be informed about the proceeding and to decide whether to join. I direct therefore that the period during which any group member claimants are to confirm that they are opting into the proceeding is to end on 30 September 2019.
[21] I reserve leave to Ms Smith to apply to this Court for a variation to the date by which qualifying group member claimants must confirm that they are opting into the proceeding and give their consent to this, in the event the date of 30 September 2019 is impractical or gives insufficient time.
[22] Subject to paragraphs [20] and [21] herein, qualifying group members will have until 30 September 2019 to advise the Court they consent to being part of the proceeding.
[23] The draft form of that consent to “opt-in” to the proceeding (which may include an explanation of the various funding options) is to be prepared by counsel for Ms Smith and be submitted to the Court for prior approval.
[24] Ms Smith is to file and serve a list of names and addresses of the qualifying group members who subsequently elect to “opt-in” to the proceeding, when that occurs.
Funding
[25] CRS requests disclosure of any funding arrangement Ms Smith has in relation to the representative proceeding. Shand Solicitors makes a similar request.
[26] Counsel for Ms Smith responds by suggesting such submissions are misplaced. The defendants’ request is that any litigation funding arrangement and any costs exposure faced by those joining should be disclosed now to both the defendants and to potential group members. On the basis that it is not appropriate at this point, I reject this, however. I agree with counsel for the plaintiff that this information is best shared at the in-person case management conference which, as I will shortly direct, is to follow. At this time it can be fairly addressed in light of the knowledge of how many group members may “opt in”, what cost sharing arrangements they come to, and what external litigation funding (if any) has been secured.
Security for costs
[27] Ms Smith at this point proposes that security for costs of $15,000 should be paid into the trust account of GCA Lawyers within one month of the end of the four month “opt in” period. She also accepts and suggests leave should be reserved to CRS and Shand Solicitors to apply for an uplift of this amount if required by any material change in circumstances.
[28] CRS and Shand Solicitors both consider $15,000 inadequate, however. They suggest that the issue of security should be considerably more and this should be approached in three separate stages:
(a)The initiation of proceedings through to the end of interlocutories;
(b)The preparation of evidence;
(c)Trial including preparation for trial.
[29] They seek that the amount of security be broadly based on scale costs, with leave reserved for CRS to seek any uplift of increase as appropriate.
[30]Shand Solicitors say security for costs needs to be set on the following basis:
(a)Ms Smith be required to provide $50,000 for security for costs on the first step. This is $25,000 for each defendant and it is said is low in comparison with the scale costs which will apply, and also if shared by other likely group members;
and, in any event,
(b)Each member also to provide security for costs of $5,000 on joining the representative action.
[31] On security for costs issues generally, CRS claims that an extensive discovery process will be required here, that will be expensive and onerous, and that this should have a bearing on security.
[32] In response, counsel for Ms Smith is not so sure this will be the case. He suggests that initial discovery requests can be made under the Privacy Act. There is some debate, however, as to whether the Privacy Act is an appropriate vehicle for gaining the requisite information for group members to conduct the litigation.
[33] On this security for costs issue, what is apparent to me is that the dimensions of the claim brought by Ms Smith and ultimately other group members are likely to change once the “opt in” processes are completed. I consider therefore that the appropriate course of action now with regard to this application for security for costs is for it to be adjourned until after the closing date for the “opt in” procedure. All parties to this litigation can then update written submissions relating to security and these can be referred to me for an order to be made on the papers.
Outstanding debts
[34] CRS and Shand Solicitors seek that all “opt in” claimants should be required to pay what they say are outstanding fees owing to CRS and Shand Solicitors (plus a 10 per cent contingency) into a solicitor’s trust account as a condition of opting in. Ms Smith says this is unprincipled and arbitrary. I agree. No such order is to be made.
Case management conference after “opt in” closes
[35] Once the deadline for “opting-in” has passed, there will be an in-person case management conference (suggested to require one-half day) with all counsel (and I direct the Registrar to liaise with counsel to arrange this). The purpose of this case management conference is to discuss:
(a)The proper scope for discovery;
(b)Security for costs;
(c)Whether there are issues that can be determined by a separate question;
(d)If, when and how judicial settlement conferences might best be utilised;
(e)The future progression of this proceeding.
Award of costs on the R 4.24 application
[36] On the basis that her application has succeeded, Ms Smith seeks an award of scale 3B costs for the R 4.24 application. That differs from the scale 2B costs I understand she was seeking in earlier submissions. This is, she says, because of the increased complexity of those proceedings. The scale costs amount she originally sought is $15,510.
[37] Ms Smith further seeks an uplift of 10 per cent on these scale 3B costs on account of what she says are timetable breaches. With a 10% uplift the amount sought is $17,061.00.
[38]She also seeks disbursements of $2,679.27.
[39] Counsel for CRS and counsel for Shand Solicitors both appear to accept that Ms Smith is entitled to costs here and that an award on a category 3B scale basis is appropriate. Mr Barker for CRS, however, says that the 3B costs calculation for hearing time should be adjusted to 1.75 days to a corrected figure of $14,685. I agree. Further, both defendants contend that no uplift for the alleged timetable breaches is
appropriate here. That matter is clearly contested and, at this early stage of what is likely to be a lengthy proceeding, I am not prepared to award the 10 per cent uplift sought. As to the disbursements sought by Ms Smith, neither CRS nor Shand Solicitors take issue with this.
[40] Ms Smith is entitled to costs on her R 4.24 application on a category 3B basis totalling $14,685 together with disbursements totalling $2,679.27 and an order for payment of these amounts in equal shares by CRS and Shand Solicitors is now made.
...................................................
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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