Claims Resolution Service Ltd v Smith

• Jurisdiction: New Zealand
• Judge: Clifford J
• Judgment Date: 18 December 2020
• Neutral Citation: [2020] NZCA 664
• Court: Court of Appeal
• Docket Number: CA583/2019
• Date: 18 December 2020

Between

Claims Resolution Service Limited

Appellants

and

Karlie Margaret Smith

Respondent

Between

Grant Shand Barristers And Solicitors

Appellant

and

Karlie Margaret Smith

Respondent

[2020] NZCA 664

Court:

Kós P, Cooper and Clifford JJ

CA583/2019

CA582/2019

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

Civil Procedure, Law Practitioners — appeal against a High Court decision which allowed the respondent's claims against the appellant's to be brought on a representative basis — whether all of the potential claimants shared a commonality of interest — whether notice of the opt-in procedure should be posted on the appellant's Facebook page

Counsel:

A R B Barker QC and G P Davis for Claims Resolution Service Ltd

A B Darroch and J W Thomson for Grant Shand Barristers and Solicitors

M S Smith and J A Tocher for Respondent

• A The application for leave to adduce further evidence is granted.

• B The appeals are dismissed.

• C The cross-appeals are allowed to the extent specified at [46].

• D The appellants are to pay the respondent one set of costs for a standard appeal on a band A basis and usual disbursements.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Clifford J)

Introduction

1 Ms Smith, the respondent, owns a home damaged in the Canterbury earthquake sequence of 2010–2011. Claims Resolution Service Ltd (CRS), the appellant in CA583/2019, provided services to Ms Smith to assist her to pursue her private insurer for the settlement of her claim for the damage caused by the earthquakes. A part of those services was the engagement of Grant Shand Barristers and Solicitors (Shand Solicitors), the appellant in CA582/2019, to assist in that process.

2 In her High Court proceedings Ms Smith claims that CRS and Shand Solicitors each separately owed her, and breached, fiduciary duties and that her contract with CRS was an unconscionable bargain. By way of relief Ms Smith claims damages and a declaration that the terms of the CRS contracts requiring her to pay commission, third party costs and expenses, including Shand Solicitors' legal fees, are void and unenforceable.

3 A large number of other Christchurch homeowners contracted with CRS for those services on similar terms and were represented by Shand Solicitors pursuant to those contracts. Gendall J granted Ms Smith leave pursuant to r 4.24 of the High Court Rules 2016 to bring her claims against CRS and Shand Solicitors on a representative basis: that is, not only on her own behalf but on behalf of all persons who, like her, engaged CRS and were represented by Shand Solicitors to help resolve their claims. 1 In a related decision the Judge set certain of the terms of that representative proceeding. 2

4 This is an appeal by CRS and Shand Solicitors against those decisions. 3 At the same time Ms Smith cross-appeals two aspects of the High Court's decisions: one ruling inadmissible for the purpose of her application for representative status evidence from other CRS/Shand Solicitors' clients, the other declining to require the advertising of her representative proceeding on CRS' Facebook page. 4

Background

5 Bryan Staples is the founder and sole director of CRS. In an affidavit in support of CRS' opposition to Ms Smith's application to bring a representative proceeding, he described the background to his decision to establish the CRS business in the following way:

I also saw how stressful the claims process was for people. No one was prepared for an event like this and most homeowners were completely out of their depth in dealing with EQC and their insurer. Most people had simply trusted that EQC assessors knew exactly what to do, and would accurately scope the damage and instigate a repair strategy that would meet their obligations. When it transpired that this was not the case, people were shocked and scared about what would happen to their homes, which for many were their main or only real asset. I observed so many people who simply did not know how to deal with the situations they were in, and had insufficient resources to engage the right people to help them.

6 Ms Smith was such a person. Following the earthquakes, she made claims to EQC. Following ECQ's payment of statutory compensation, Ms Smith's claim was passed to her private insurer, Tower Insurance Ltd. Tower said her house could be repaired. It provided her with uncosted scopes of work in early 2014. Ms Smith did not know whether those scopes of work were correct, or what it would cost to do those repairs. In an affidavit she swore in support of her application she explains:

I wanted my house back the way it was before the earthquakes. I was worried that I did not know if what Tower was saying was right.

At that time my son was being difficult to manage. My youngest boy … needs to have consistency in his life. My Mum lives in the same street. These were some of the reasons why I wanted my house fixed. I had no spare money and my income was low. I was worried that I could not afford to fix everything Tower said was wrong with my house.

7 Encouraged by a friend who knew Mr Staples personally, she engaged a company associated with Mr Shand and CRS, Earthquake Services Ltd (ESL), to prepare a report, known as an independent damage assessment, which would enable her to check what Tower were saying. In late July 2014 Tower offered Ms Smith a nett amount of $79,332.60 to settle her insurance claim on the basis of Tower's estimate of total repair costs of $208,342.39, less her $100 policy excess and EQC's contribution. Shortly afterwards, Ms Smith received ESL's assessment. ESL estimated Ms Smith's total repair costs to be $495,374.41. As Ms Smith comments in her affidavit:

I did not know what to do as this report was very different to what Tower had been telling me. The costs were over double what Tower had said. I was feeling desperate. I did not know who could help and I did not have any money to spend on a lawyer. I trusted Julie so when Julie suggested again that I get Earthquake Services to help me with my claim I went along with this suggestion.

8 Following a meeting with Mr Staples at Earthquake Services' offices, on 4 September 2014 Ms Smith signed a standard form agreement with CRS. By that agreement Ms Smith engaged CRS to act on her behalf “as set out in [the] agreement and in relation to [Ms Smith's] claim in respect of damage and loss to [her] property”. Simply put CRS would, in consultation with Ms Smith and by instructing other people including independent assessors, quantity surveyors, lawyers or service agents, help Ms Smith to progress and resolve her claim for the repair of her home with her insurer Tower. Ms Smith was to provide all relevant information to CRS, and generally cooperate with it to advance her claim. Ms Smith was to pay all costs and disbursements CRS incurred, including third party services for quantity surveyors and legal fees, and eight per cent commission on the final settlement value.

9 CRS offered its clients a number of payment options. Ms Smith elected the “Partnership” program: she was to pay an initial fee on signing of $2,500 plus GST, and some costs as they were incurred (such as court filing fees). But most costs, including legal fees and CRS' commission, would be paid on settlement.

10 The service agreement schedule annexed to that agreement indicated more than 98 per cent of all claims settled after legal proceedings had been commenced and court mandated settlement negotiations had taken place. Less than two per cent of claims went to trial.

11 As matters transpired:

• (a) Shand Solicitors filed High Court proceedings for Ms Smith against Tower in September 2016, claiming $545,755.43 from Tower on the basis of estimated repair costs of $674,999.90, together with $50,000 general damages and $25,000 temporary accommodation costs.

• (b) In May 2018, at mediation, Tower offered $380,000 to settle ($305,000 for repairs, $25,000 for accommodation costs and $50,000 for fees). Ms Smith accepted that offer.

• (c) In June 2018 CRS invoiced Ms Smith a total of $79,494.25 comprising:

  • (i) commission of eight per cent on the $330,000 settlement offer plus GST, being $30,360; and

  • (ii) fees of $49,134.25 including Shand Solicitors' legal fees (excluding disbursements) of $28,989.99.

• (d) Ms Smith pointed out that she had previously reached an understanding with Mr Staples that CRS' commission would be based on the amount by which the final settlement value exceed Tower's offer. As a result, the commission was reduced to $23,061.40, eight per cent of the $250,667.40 increase.

12 In her statement of claim against CRS and Shand Solicitors Ms Smith describes the arrangements she, and those on whose behalf she claims, made with CRS by saying they all:

• i.own a home that was damaged in the earthquakes;

• ii. contracted with CRS for claims resolution funding and advocacy services in respect of insurance claims against the Earthquake Commission and/or an insurer arising from the earthquakes;

• iii. obtained what were described as independent damage assessments from ESL, and based on those assessments costings for the remediation of their homes by Stephen Betts;

• iv. were represented by Shand Solicitors, in circumstances where Shand Solicitors were engaged by CRS to act for them and to commence and prosecute a civil proceeding for them;

• v. settled their insurance claims for significantly less than the sum that CRS and Shand Solicitors had identified and advocated to be the full and true value of their insurance claims.

13 Mr Staples and Mr Shand, Ms Smith says, established a joint venture to provide those services. That joint venture involved each of them personally and:

• (a) in Mr Staples' case, what Ms Smith describes as “the Staples closely held companies” including CRS, ESL, a company called 8D Ltd and their directors and shareholders; and

• (b) in...