Harris v Smith [2022] NZCA 313 (13 July 2022)

Last Updated: 19 July 2022

IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA

CA230/2022 [2022] NZCA 313

	BETWEEN	CONSTANTINE HARRIS AND SYLVIA CATHERINE HARRIS Applicants
	AND	KARLIE MARGARET SMITH First Respondent CLAIMS RESOLUTION SERVICE LTD Second Respondent GRANT SHAND BARRISTERS AND SOLICITORS Third Respondent SHARON MARGARET SMITH Fourth Respondent

Court:	Brown and Gilbert JJ
Counsel:	M S Smith and R L Lynn for Applicants No appearance for First Respondent A R B Barker QC and G P Davis for Second Respondent A B Darroch and B A Mathers for Third Respondent No appearance for Fourth Respondent
Judgment: (On the papers)	13 July 2022 at 3 pm

JUDGMENT OF THE COURT

1. The application for leave to appeal is granted.
2. Costs are reserved.

____________________________________________________________________

REASONS OF THE COURT

(Given by Gilbert J)

• [1] The first respondent, Ms Smith, engaged the second respondent, Claims Resolution Services Ltd (CRS), to assist with her insurance claim in respect of damage to her house caused by the Canterbury earthquake sequence of 2010–2011. The third respondent, Grant Shand Barristers and Solicitors (Shand Solicitors), was subsequently engaged to pursue legal proceedings against the insurer on Ms Smith’s behalf. The arrangements Ms Smith entered into with CRS and Shand Solicitors were similar to those entered into by numerous other insured homeowners also seeking resolution of their insurance claims at that time. Ms Smith was dissatisfied with these arrangements and the manner in which they were implemented. She claimed, among other things, that the contract with CRS was an unconscionable bargain and that CRS and Shand Solicitors breached the fiduciary duties they separately owed to her.
• [2] Because Ms Smith’s concerns were similar, if not the same, as those of many others who had engaged CRS and Shand Solicitors, she sought leave to bring proceedings against them as a representative proceeding. Leave was granted by Gendall J in a judgment delivered on 12 February 2019.^[1] This Court later dismissed appeals brought by CRS and Shand Solicitors against this judgment.^[2] In dismissing the appeal, this Court observed:

[34] ... Ms Smith, and those whom she represents, contracted with CRS and received services from Shand Solicitors and related entities on a broadly similar if not virtually identical terms and conditions. The shared position and experience of Ms Smith and those she will represent is also the basis for their shared vulnerability when contracting with CRS and dealing with those service providers.

[35] In those circumstances, the existence of a common interest in issues of law and fact is, in our view, virtually self-evident.

• [3] While it was understood at that time that there were some 178 potential members of the class, in the end, only 23 former clients of CRS chose to opt-in to the proceeding.
• [4] Around the same time Ms Smith commenced her proceedings, CRS and Shand Solicitors brought proceedings against Lucia Pfisterer for outstanding fees owed under materially similar arrangements (the Pfisterer proceedings). Ms Pfisterer defended these proceedings and counterclaimed alleging, among other things, that the contract she entered into with CRS was an unconscionable bargain and CRS and Shand Solicitors breached fiduciary duties owed to her. The proceedings were heard in the High Court at Christchurch in October 2020. In a reserved judgment delivered on 21 May 2021, Hinton J found that Shand Solicitors breached its fiduciary duty of loyalty and good faith to Ms Pfisterer but declined to grant any remedy.^[3] The Judge otherwise found against Ms Pfisterer’s defence and counterclaim. Judgment was entered for CRS on its claim.^[4] Ms Pfisterer has appealed against this judgment and the appeal is due to be heard by the Permanent Court on 7 September 2022. The same solicitors and counsel are acting in that proceeding as in the present representative proceeding.
• [5] Ms Smith no longer wishes to be the representative plaintiff. The applicants, Mr and Mrs Harris, applied to the High Court to be substituted. In a judgment delivered on 20 December 2021, Associate Judge Paulsen declined the application, concluding:^[5]

[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 representative 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.

• [6] The basis for these conclusions is explained earlier in the judgment, particularly the following passages:

[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 Solicitors]. 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. ...

[34] In a second affidavit, Mr Harris attaches an interim funding agreement with the trustees of BIT. ... 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. ...

...

[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 Solicitors] ...

• [7] The Associate Judge therefore declined to substitute Mr and Mrs Harris as representative plaintiffs and made an order revoking the representation order made by Gendall J in February 2019 and confirmed by this Court in December 2020.
• [8] Mr and Mrs Harris applied to the High Court for leave to appeal but this was declined by Associate Judge Paulsen in a judgment delivered on 13 April 2022.^[6]
• [9] Mr and Mrs Harris now apply to this Court for leave to appeal. In support of the application, Mrs Harris has filed an affidavit attaching a replacement funding agreement entered into with Business Integrity Trust on 16 May 2022 underwriting their exposure to any adverse costs award in the proceeding and any requirement to pay security for costs. This concern having been addressed, Mrs Harris deposes that she and her husband remain willing to be substituted as representative plaintiffs on an unconditional basis, irrespective of whether the proceeding is temporarily paused to await this Court’s decision in the Pfisterer appeal.
• [10] If leave is granted, Mr and Mrs Harris intend to argue on appeal that the Associate Judge erred in the following respects:

(a) determining their application to be substituted as representative plaintiffs without assessing the merits of their inter-related application for a temporary stay pending determination of the Pfisterer appeal;

(b) finding that they would not vigorously and capably prosecute the interests of the class so as to justify their substitution as representative plaintiffs;

(c) finding that the access to justice imperative was satisfied in the circumstances by permitting the opt-in class members to join as plaintiffs to the continuing non-representative proceeding, if and to the extent that proceeding remained on foot; and

(d) finding that it was in the interests of justice to make the orders.

• [11] The respondents oppose the application for leave to appeal. They contend that there is no arguable error in the High Court judgment, no issue of general or public importance arises and the interests of justice would not be served by granting leave, particularly given the further delays and consequent prejudice that would be caused to the respondents. The respondents emphasise the high threshold required to justify leave being granted to appeal against an interlocutory order.
• [12] It would not be appropriate for us to make any comment about the prospect of the proposed appeal succeeding. It is sufficient for present purposes to record that we do not accept the respondents’ submission that the proposed appeal is not seriously arguable. We also consider that the proposed appeal raises important issues of access to justice in the context of representative actions which are of general and public importance. We consider these issues have importance, not just for the present parties and the other represented plaintiffs, but potentially also for other representative proceedings. We also take into account the two important developments that have occurred since the High Court judgment, being the replacement funding agreement removing the obstacle to the commitment required from Mr and Mrs Harris and the proximity of the hearing by this Court of the Pfisterer appeal. In summary, we consider the interests of justice are best served by granting leave to appeal.

Result

• [13] The application for leave to appeal is granted.
• [14] Costs are reserved.

Solicitors:
GCA Lawyers, Christchurch for Applicants
Canterbury Legal, Christchurch for Second Respondent
Darroch Forrest Lawyers, Wellington for Third Respondent

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^[1] Smith v Claims Resolution Service Ltd [2019] NZHC 127.

^[2] Claims Resolution Service Ltd v Smith [2020] NZCA 664.

^[3] Claims Resolution Service Ltd v Pfisterer [2021] NZHC 1088 at [172].

^[4] At [173].

^[5] Smith v Claims Resolution Service Ltd [2021] NZHC 3561 [High Court judgment].

^[6] Smith v Claims Resolution Service Ltd [2022] NZHC 773.