The limits of fiduciary duties

Claims Resolution Services Ltd v Pfisterer [2021] NZHC 1088

This proceeding arises out of a claim by Claims Resolution Services (Claims Resolution) against Ms Pfisterer for fees owing, for $93,700 (which included the legal fees paid to Grant Shand Barristers & Solicitors (GSBS)), for services it provided to assist her in resolving her insurance claim against EQC and insurance companies.  Ms Pfisterer counter-claimed a breach of fiduciary duty against both Claims Resolution and GSBS, amongst other claims, and argued that no money was owing.  The High Court found against most of her claims, as there were no conflict or loyalty issues at stake.

Background

Ms Pfisterer’s house was damaged as a result of the Canterbury earthquakes.  She had home insurance with Southern Response.  Ms Pfisterer spent over two years dealing with the Earthquake Commission (EQC) and Southern Response, trying to get coverage for her claim. 

In late 2013, Ms Pfisterer sought help from Earthquake Services, one of several companies (including Claims Resolution) established by Brian Staples to facilitate resolution of homeowners’ insurance claims against EQC and insurance companies.  These companies operated on a ‘no win, no pay’ basis, assisting with negotiations with EQC and providing other services, including referring clients to a lawyer where necessary.  Only when clients ‘won’, would they have to pay all legal and other costs incurred and a commission to Claims Resolution.  Most of the clients were referred to GSBS where litigation was required.

In January 2014, another of Mr Staples’ established companies estimated the cost to repair Ms Pfisterer’s house at $816,340 and a rebuild at $946,710.  However, in June 2014, Southern Response estimated the cost to rebuild at a much lower rate of $354,676 from which the EQC payment to Ms Pfisterer would also be deducted.

In July 2014, GSBS filed proceedings against Southern Response.  In January 2015, Ms Pfisterer obtained an updated assessment of costs to rebuild at $969,429. 

In August 2015, Southern Response offered a settlement of $467,000 to rebuild the house.  In April 2016, two days before the trial was due to begin, Southern Response offered to settle for $500,000 (in addition to the EQC payment), $25,000 for demolition costs and if Ms Pfisterer elected to rebuild, $303,346 for enhanced foundations.

GSBS called Ms Pfisterer to discuss the offer and although she initially accepted it, she emailed GSBS 30 minutes later having decided not to accept the offer.  However, GSBS had already communicated to Southern Response her acceptance of its offer.  Subsequently, GSBS emailed the High Court saying the dispute was settled and the hearing was not required.

Ms Pfisterer went on to hire other lawyers to try to negotiate a better deal with Southern Response on her behalf.  In September 2017, she settled with Southern Response on largely the same terms as the previous year’s offer and incurred $56,364 in legal fees to her new lawyers.

Claims Resolution brought a claim against Ms Pfisterer for $93,700 in fees (which included GSBS’s attendances).  Ms Pfisterer counter-claimed, amongst other claims, for a breach of fiduciary duty by Claims Resolution and GSBS, including that GSBS failed to obtain informed consent to act with potential conflicts of interest (relating to the alleged joint venture between Claims Resolution and GSBS), failing to advise on fees, commencement of litigation and litigation alternatives, and failing to obtain and follow instructions on settlement.

High Court judgment

The High Court found there was no breach of fiduciary duty by Claims Resolution or GSBS in relation to all the claims except GSBS’s failure to follow instructions on settlement.  The Court emphasised that even where a relationship was fiduciary, it did not necessarily follow that all obligations between the parties were fiduciary.  While the Conduct and Client Care Rules (Rules) were relevant, the Court stated that “a fiduciary duty arises where there is a potential conflict of interest, rather than just any breach of the Rules, negligence or error on the part of a solicitor”.

Therefore, although Claims Resolution and GSBS had a close referral relationship, there was no personal interest giving rise to a fiduciary obligation of disclosure or a case of divided loyalties, so it followed that there was no conflict of interest in GSBS acting for Ms Pfisterer.  Further, while GSBS’s failure to advise on fees or to obtain instructions to commence litigation or on settlement amounted to a breach of the Rules, there were no conflict or loyalty issues at stake so it did not constitute a breach of fiduciary duty.

However, the Court did find that GSBS breached its fiduciary duty of loyalty and good faith by continuing to negotiate the terms of settlement and filing a memorandum to the Court, as it acted not only without instructions but contrary to Ms Pfisterer’s instructions.  

Nonetheless, the Court emphasised that “even where a lawyer has breached a fiduciary duty it is still necessary to show it was causative of loss”.  The Court found that GSBS’s breach of duty had no causative effect and did not cause Ms Pfisterer’s loss.  Southern Response had agreed not to enforce the settlement agreement so it came to an end.  With no loss attributable to GSBS’s breach, Ms Pfisterer was therefore not entitled to the remedies that she sought.

Comment (Virginia Wethey)

Whilst these are not new principles, it is useful to have recent New Zealand authorities reaffirming these principles in clear and concise terms.

We are regularly engaged to defend professionals where a breach of fiduciary duty is alleged but the claim is for all intents and purposes a claim in negligence.     What is essential to a fiduciary duty is the duty of honesty and allegiance to protecting the client’s interests.  A closer examination of the fiduciary’s actions is required to assess whether there has been such a breach.  This decision also highlights that even where there is a breach of fiduciary duty, it is necessary to show that the breach in fact caused a loss.

Virginia Wethey is a Partner at Fee Langstone