SMITH v CLAIMS RESOLUTION SERVICE LTD [2022] NZHC 773

SMITH v CLAIMS RESOLUTION SERVICE LTD [2022] NZHC 773 [13 April 2022]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYI TE KŌTI MATUA O AOTEAROAŌTAUTAHI ROHECIV-2018-409-000643[2022] NZHC 773BETWEEN KARLIE MARGARET SMITHPlaintiff/First Counterclaim DefendantAND CLAIMS RESOLUTION SERVICELIMITEDFirst Defendant/Counterclaim PlaintiffAND GRANT SHAND BARRISTERS ANDSOLICITORSSecond DefendantAND CONSTANTINE HARRIS and SHARONMARGARET HARRISApplicantsHearing: 24 March 2022Appearances: No appearance for Plaintiff/First Counterclaim DefendantA R B Barker QC and G P Davis for FirstDefendant/Counterclaim PlaintiffA B Darroch and B A Mathers for Second DefendantM S Smith for C & S Harris, ApplicantsJudgment: 13 April 2022JUDGMENT OF ASSOCIATE JUDGE PAULSENThis judgment was delivered by me on 13 April 2022 at 11.00 ampursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate:[1] This judgment concerns an application by Mr and Mrs Harris for leave toappeal a judgment of 20 December 2021 in which I:1(a) dismissed an application by Mr and Mrs Harris to be substituted as therepresentative plaintiffs in this proceeding; and(b) revoked the representation order made in favour of the plaintiff,Ms Karlie Smith, under r 4.24 of the High Court Rules 2016 made byGendall J on 12 February 2019, on certain terms.[2] Specifically, the orders I made which Mr and Mrs Harris wish to challenge onappeal were:[69] The application by Mr and Mrs Harris to be substituted asrepresentative plaintiffs is dismissed.[71] There shall be an order revoking the representation order under r 4.24made by Gendall J on 12 February 2019 on the following basis:(a) Leave is granted to all persons who satisfy the group criteriaand have given valid and timely notice to opt-in to thisproceeding to be joined as plaintiffs to Ms Smith's continuingproceeding by filing and serving upon Ms Smith and thedefendants a statement of claim by 25 February 2022.(b) Ms Smith is required to seek leave of the Court to discontinueher proceeding. This requirement shall apply until26 February 2022 and after 26 February 2022 also shouldr 15.20(3) of the High Court Rules then apply.(c) GCA Lawyers are required to ensure that all persons whohave given notice to opt-in to this proceeding receive noticeof this judgment forthwith.The relevant principles[3] Sections 56(3) and (4) of the Senior Courts Act 2016 relevantly provide:1 Smith v Claims Resolution Service Ltd [2021] NZHC 3561.56 Jurisdiction(3) No appeal, except an appeal under subsection (4), lies from any orderor decision of the High Court made on an interlocutory application inrespect of any civil proceeding unless leave to appeal to the Court ofAppeal is given by the High Court on application made within20 working days after the date of that order or decision or within anyfurther time that the High Court may allow.(4) Any party to any proceedings may appeal without leave to the Courtof Appeal against any order or decision of the High Court(a) striking out or dismissing the whole or part of a proceeding,claim, or defence; or(b) granting summary judgment.[4] The principles that apply to an application for leave to appeal under s 56(3) areset out by the Court of Appeal in Greendrake v District Court of New Zealand.2 There,the High Court had made an order for joinder of an additional respondent. Anapplication for leave to appeal from the joinder decision was declined by the HighCourt.3 Declining leave to appeal, the Court of Appeal stated:4[6] In Finewood Upholstery Ltd v Vaughan, to which Dunningham Jreferred to in the leave decision, Fitzgerald J appropriately observed that therequirement for leave to appeal should serve as a filtering mechanism toensure that unmeritorious appeals of interlocutory orders, or appeals ofinterlocutory orders of no great significance to either the parties or moregenerally, do not unnecessarily delay the proceedings in which the orders weremade.5 The following considerations were recognised as relevant on anapplication for leave to appeal:(a) a high threshold exists;(b) the applicant must identify an arguable error of law or fact;(c) the alleged error should be of general or public importancewarranting determination or otherwise of sufficientimportance to the applicant to outweigh the lack of general orprecedential value;(d) the circumstances must warrant incurring further delay; and(e) the ultimate question is whether the interests of justice areserved by granting leave.2 Greendrake v District Court of New Zealand [2020] NZCA 122.3 Greendrake v District Court of New Zealand [2019] NZHC 2504.4 Greendrake v District Court of New Zealand, above n 2.5 Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679 at [13].[7] This Court in Ngai Te Hapu Inc v Bay of Plenty Regional Council6indicated that considerations similar to the principles applicable toapplications under the former s 24G of the Judicature Act 1908, as explainedin Meates v Taylor [Leave],7 apply to applications under s 56(5) stating:We agree that leave to appeal should only be granted where the significanceor implications of an arguable error of fact or law, either for the particularcase or for the applicant or as a matter of precedent, warrants the further delaywhich the appeal process would involve.Background[5] The plaintiff, Ms Karlie Smith, owned a home damaged in the Christchurchearthquake sequence. Claims Resolution Service Ltd (CRS) provided services toassist her to pursue her private insurer for settlement of her insurance claim. Thesecond defendant (Shand) was engaged in taking court proceedings on her behalfagainst the insurer as part of that process. Ms Smith settled her claim against herinsurer.[6] Ms Smith commenced this proceeding on 30 August 2018. She alleged thatCRS breached fiduciary duties owed to her and that her contract with CRS was anunconscionable bargain. She claimed damages and a declaration that the terms of thecontract requiring her to pay commission, third party costs and expenses, includingShand's legal fees, was void and unenforceable. CRS counterclaimed for monies italleges are owed to it under its contract with Ms Smith.[7] On 12 February 2019, Gendall J granted leave to Ms Smith under r 4.24 forthis proceeding to continue as a representative proceeding on an opt-in basis. Thatdecision was challenged by CRS and Shand, but their appeal was dismissed by theCourt of Appeal on 18 December 2020.8[8] On around 21 June 2021, Ms Smith advised her then lawyers, GCA Lawyers,that she no longer wished to continue as the representative plaintiff. Despite that, itwas agreed by counsel, and accepted by me, that while a suitable substituterepresentative plaintiff was found, the Court should continue to deal with an6 Ngai Te Hapu Inc v Bay of Plenty Regional Council [2018] NZCA 291.7 Meates v Taylor (1992) 5 PRNZ 524 (CA) at 526.8 Claims Resolution Service Ltd v Smith [2020] NZCA 664.application approving a form of opt-in notice as well as making other directions as toadvertising.9[9] The opt-in period expired on 29 July 2021. Ultimately, 23 persons opted in,albeit there are unresolved issues as to whether these persons satisfy the criteria formembership of the represented group.[10] Case management conferences were convened and adjourned to allow GCALawyers to identify a substitute representative plaintiff.[11] Of the 23 persons who had given notice to opt-in to the proceeding, onlyMr and Mrs Harris were prepared to replace Ms Smith as representative plaintiffs, buton a highly conditional basis. They were not prepared to be appointed asrepresentative plaintiffs unless:(a) the case was immediately stayed pending the hearing of an appeal froma decision of the High Court in Claims Resolution Service Ltd vPfisterer,10 where similar issues arose and which, it is anticipated, willinform an assessment of the merits of this litigation; and(b) they have no liability for costs and the matter is fully funded by a thirdparty.[12] Funding for this proceeding has not been obtained despite it having been onfoot for over three and a half years (and since February 2019 as a representativeproceeding). Both CRS and Shand sought details of how Ms Smith intended to fundthe proceeding, but she was not required to provide that information.11 In support oftheir application for substitution, Mr and Mrs Harris have provided some informationfrom a potential third party funder, BIT Trust. However, BIT Trust is not prepared tocommit to funding the claim, even if the Pfisterer appeal is successful. It will considerits position at that time.9 Smith v Claims Resolution Service Ltd [2021] NZHC 1708.10 Claims Resolution Service Ltd v Pfisterer [2021] NZHC 1088.11 Smith v Claims Resolution Service Ltd [2019] NZHC 1013 at [25] and [26]; Claims ResolutionService Ltd v Smith, above n 8, at [39] and [40].[13] In refusing to substitute Mr and Mrs Harris as representative plaintiffs, mycrucial findings were the following:[62] In my view, the interests of justice weigh heavily against granting thesubstitution order. Despite the access to justice considerations, whichI accept and give significant weight, the matter simply comes down tothis; Mr and Mrs Harris are not in a position to be substituted asplaintiffs given the highly conditional nature of their application.[63] In truth, Mr and Mrs Harris's substitution application is largelyillusory. They wish to accept the benefit of a substitution order whilereserving to themselves the right to withdraw their consent to act inaccordance with it if there is any costs risk to them. I agree withMr Barker's assessment that in practical terms they are wanting anoption to reactivate the representative proceeding at some stage in thefuture.[64] The making of such an order is not consistent with the objectives ofthe High Court Rules as it would delay the resolution of thisproceeding for, potentially, years and impose significant prejudice onthe defendants, particularly CRS. It is also not consistent with theprinciples upon which the Court grants leave under r 4.24 to the extentthat Mr and Mrs Harris are not in a position to advance the interestsof the represented group and may never be in that position due to theabsence of third party funding and their unwillingness to accept anypersonal risk for costs associated with the proceeding.[65] The application for substitution is therefore dismissed.[14] Since I issued my judgment:(a) Ms Smith has resolved all matters between her and the defendants andhas filed an application for leave to discontinue her proceeding. Nodecision has been made on her application while the Harris's areseeking leave to appeal; and(b) the Pfisterer appeal has been set down for hearing on 22 September2022. Mr Smith submits that it can be reasonably anticipated the Courtof Appeal's judgment will be issued before the end of 2022.[15] Following receipt of the Harris's application for leave to appeal, I granted aninterim stay of my judgment pending determination of the application.Are there errors in the judgment?[16] Mr and Mrs Harris rely on what they consider to be five arguable errors in thejudgment which, they say, justify the granting of leave to appeal. I will deal with eachseriatim.Prosecution of representative claims[17] The first alleged error, and I understand the principal focus of the proposedappeal, is that the judgment assumes that Mr and Mrs Harris's application for a stayof the proceeding (sought as a condition to their substitution as representativeplaintiffs) was without merit. They say that assumption is both significant and wrong.Mr Smith submits the decision whether or not to substitute Mr and Mrs Harris asrepresentative plaintiffs could not be considered independently of the application forstay, and if the application for stay was meritorious, substitution should have beengranted. For this reason, Mr Smith argues, I should have assessed the merits of theproposed stay before considering the application for substitution in light of thatassessment.[18] As to the merits of the stay application, it is said the granting of a stay wasappropriate as there is nothing unusual in a party to a proceeding (or their litigationfunder) having regard to a matter of significant precedential importance (here beingthe outcome of the Pfisterer appeal) in deciding whether to continue to prosecute aproceeding. New Zealand Courts have, it is argued, accepted that a stay in oneproceeding might be appropriate to allow for a judgment to be issued in a secondproceeding that will impact on the outcome of the first proceeding. 12[19] On this basis, it is submitted that my conclusion that the Harris's substitutionapplication was "illusory" was incorrect. Mr Smith submits the application was thatof any rational plaintiff or litigation funder, particularly one prosecuting the case inpart on behalf of others who have no prima facie obligation to contribute to adverse12 Lawrence Riverside Ltd v Colliers International New Zealand Ltd HC Auckland CIV-2006-404-4739, 30 June 2011 at [16]-[22].costs if the representative claim were to fail and where the costs risk that is beingundertaken is a substantial one.[20] While this argument is resourceful, it is illogical. It puts the cart before thehorse. The approach suggested would have required me to accept the counterfactualthat Mr and Mrs Harris were prepared to accept immediate appointment to representthe group members. That is not their position. They are not prepared to be appointedunless there is a stay of the proceeding and, even if the stay was granted, they are notprepared to commit to represent the group members if the condition of the stay (thehearing of the Pfisterer appeal) is satisfied. Their commitment to act in the interestsof group members is entirely contingent upon the litigation being fully funded by athird party regardless of the outcome of the Pfisterer appeal.[21] To put the matter another way, this proposed ground of appeal fails to addressthe fundamental objection to the Harris's application for substitution, which was itshighly conditional nature.Number of opt-in group members[22] The second alleged error is that I was wrong to consider that the relativelysmall number of opt in members tempered access to justice concerns. This groundappears to be based on a misreading of the judgment. In fact, I agreed with thesubmission for Mr and Mrs Harris that as a matter of principle the Court is to beconcerned with the impact of refusing to make a substitution order than the numberswithin the represented group.13 I also recognised the effect of revoking therepresentation order was that at least some of the represented group would not be able,through a lack of means and other factors, to pursue their claims.Access to justice imperative in joinder[23] Having decided that I would not grant the Harris's substitution application, toprotect the interests of group members, I granted them leave to be joined as plaintiffsto Ms Smith's continuing non-representative proceeding. Related to this, the third13 At [54].alleged error in the judgment is that the access to justice imperative underlyingrepresentative action litigation could not be satisfied by permitting group members tojoin as plaintiffs to the continuing proceeding.[24] In part, this submission proceeded on a now acknowledged misunderstandingas to the extent to which costs would be incurred by group members having to applyto be joined to Ms Smith's proceeding; although undoubtedly some costs will beincurred.[25] This proposed ground of appeal begs the question, what more could and shouldhave been done to protect the interests of the represented group? On that matter,Mr Smith said he does not disagree with the steps taken, except to the extent that theavailability of those protections informed my decision not to order substitution ofMr and Mrs Harris as representative plaintiffs.[26] Mr Smith's submission is based on an incorrect assumption. My ability toprotect the interests of group members by permitting them to join as plaintiffs toMs Smith's proceeding, did not influence my decision to refuse Mr and Mrs Harris'ssubstitution application. The order permitting joinder was necessary because therepresentation order was revoked, not because Mr and Mrs Harris were refusedsubstitution. Furthermore, Mr and Mrs Harris did not oppose the revocationapplication.Prejudice[27] The Harris's argue my assessment of the prejudice to CRS and Shand ifsubstitution was permitted is overblown. I do not see anything in this point andnothing new is raised. The prejudice to the defendants, particularly CRS, of indefinitedelay is self-evident.Relevance of Pfisterer[28] The final ground is that I was wrong to find that the Pfisterer appeal was notrelevant because of any findings of fact or law the Court of Appeal might make on theappeal. Again, this ground is based on a misreading of the judgment. I accepted therelevance of the Pfisterer appeal for this reason and because there was no prospect ofMr and Mrs Harris obtaining funding until it was determined.Conclusions as to existence of errors[29] For the reasons given, I do not accept that the proposed grounds of appeal arearguable.General public/precedential importance and importance to the parties[30] The Harris's then argue that the circumstances that arose here are novel andthe issues that had to be decided have not been considered in any detail before in thiscountry and that this justifies consideration by the Court of Appeal.[31] In fact, there is no issue of general importance arising because:(a) Counsel were agreed on the approach to be taken to the substitutionapplication and there is no suggestion that my statement of thatapproach was wrong or that Mr and Mrs Harris will now argue thatsome different approach to that question should be taken.14(b) The decision not to order substitution was based on facts specific to thisproceeding and the circumstances of Mr and Mrs Harris.(c) In so far as the application to revoke the representation order isconcerned, there was no opposition to that application. The decision torevoke the representation order necessarily followed from the refusalof the substitution application and there being no suggestion any otherperson was willing to act as the representative plaintiff;14 At [26].(d) The orders I made to protect the represented group were consequentupon the unopposed revocation application and there is no suggestionthat I could or should have taken further steps to protect those interests.[32] I acknowledge that my judgment has important consequences for the groupmembers individually. As a result of the revocation order, they will be deprived ofsome of the benefits of the representative action, but, as noted, that consequence wasinevitable in the absence of anyone among them being prepared to take responsibilityto be the representative plaintiff. Furthermore, they were not left without choices.They could pursue their own claims or they could have joined Mrs Smith's proceeding.Do the circumstances warrant incurring further delay?[33] This is addressed in the judgment. I did not grant the substitution order becauseof the highly conditional nature of Mr and Mrs Harris's application and because thefurther delay could not be justified having regard to the objectives of the High CourtRules and the prejudice to the defendants. Nothing has changed in this respect.Are the interests of justice served by granting leave to appeal?[34] Enhancing access to justice is one of the primary objectives of therepresentative action procedure, but not at the cost of inflicting injustice on otherparties. The Harris's stance that Ms Smith and the defendants should continue to beburdened by this litigation when there is no commitment from them to act as therepresentative plaintiffs is unprincipled and oppressive. I do not consider, therefore,the interests of justice are served by granting leave to appeal.Stay of proceedings[35] The Harris's also seek an extension of the stay of my judgment. They haveindicated that if I do not grant leave to appeal, they will apply to the Court of Appeal.I will allow a further stay so that application can be made.Result[36] The application for leave to appeal is dismissed.[37] The order I made granting an interim stay of the orders in paragraphs [71](a)and (b) of my judgment of 20 December 2021 shall be extended to allow the Harris'sto seek leave to appeal directly from the Court of Appeal. If no such application ismade within 20 working days of the date of this judgment, the stay shall lapse withoutfurther order.[38] I see no reason why the defendants would not be entitled to costs. However,should no agreement be reached on the matter within 10 working days, memorandaare to be filed which are to be no longer than five pages._______________________O G PaulsenAssociate JudgeSolicitors:Canterbury Legal (Sydney Austin), ChristchurchDarroch Forrest Lawyers, WellingtonGCA Lawyers, Christchurch