A reminder to lawyers of their professional duties

Pfisterer v Claims Resolution Service Ltd [2023] NZCA 511

In early 2014, Mrs Pfisterer, whose home had been significantly damaged in the Canterbury earthquakes, entered into a contract with Claims Resolution Service Limited (CRS), which offered a “no win, no pay” insurance claims resolution service. This was after negotiations with her insurer, Southern Response Earthquake Services Ltd (Southern Response) had stalled. Grant Shand Barristers and Solicitors (Shand Solicitors), to whom CRS referred most of its clients if proceedings were required, handled the claim filed by Mrs Pfisterer against Southern Response.

A breakdown in the relationship between the two began when Southern Response made a settlement offer on 24 April 2016. Shand Solicitors advised Mrs Pfisterer to accept. She initially agreed, and Shand Solicitors conveyed her acceptance to Southern Response. Then, shortly after, Mrs Pfisterer changed her mind and advised Shand Solicitors that she had decided not to accept the offer. Shand Solicitors advised Mrs Pfisterer that they had already informed Southern Response, and that the settlement offer had been accepted.

On 25 April 2016, Shand Solicitors emailed the High Court notifying it that the proceedings had settled. Shand Solicitors then corresponded with Southern Response to facilitate formal documentation of the settlement. Mrs Pfisterer terminated her retainer with Shand Solicitors, and instructed a new lawyer. On 7 June 2016, following a direction from the High Court, Shand Solicitors filed a memorandum explaining the position regarding the proceedings.

The settlement later reached by Mrs Pfisterer’s new counsel was essentially the same as that initially offered on 24 April 2016.

Mrs Pfisterer refused to pay the invoice issued by CRS, which included Shand Solicitors’ legal fees. CRS issued proceedings against her to recover what it was owed. In response, Mrs Pfisterer raised various affirmative defences and counterclaims, including breaches of fiduciary duties by both CRS and Shand Solicitors.

The High Court found largely in favour of the plaintiff. However, the High Court found that two of the alleged breaches of fiduciary duty by Shand Solicitors had been established, namely that Shand Solicitors had breached its fiduciary duty of loyalty and good faith to Mrs Pfisterer:

(a)    by continuing to negotiate the terms of settlement with Southern Response without instructions (and in fact contrary to instructions) after Mrs Pfisterer had advised that she no longer wished to settle; and

(b)    By breaching solicitor-client confidence by filing a memorandum with the High Court on 7 June 2016 regarding settlement, without instructions.

The High Court however declined to award any relief in respect of these breaches.

Mrs Pfisterer then appealed the High Court’s decision. One of the issues raised on appeal was whether the High Court had erred in not granting relief in respect of those breaches. 

The Court of Appeal (CA) upheld the High Court’s finding that the breaches of fiduciary duty were not causative of loss. The CA found that the costs Mrs Pfisterer incurred in instructing new lawyers was inevitable, and that any ongoing relationship would have been untenable even without the breach. The CA noted that Shand Solicitors could not “responsibly or ethically” have claimed to the Court or Southern Response’s counsel that Mrs Pfisterer had not accepted the settlement offer, “knowing or believing that to be untrue”.

Similarly, the CA found that the legal fees incurred by Mrs Pfisterer in responding to an accord and satisfaction defence raised by Southern Response were not as a result of any breach of fiduciary duty.

The CA also refused to grant an order that Shand Solicitors forfeit its remuneration for the period preceding its breaches of fiduciary duty. All of the fees charged related to services and attendances that pre-dated the breaches. In coming to its decision, the CA also considered that the breaches indicated a lack of loyalty, professionalism and poor judgement (rather than self-interest or a lack of honesty), and was not causative of any loss.

The CA also declined to grant a declaration that Shand Solicitors had acted in breach of fiduciary duty, holding that it was sufficient to uphold the High Court’s findings in respect of the breaches.

This case serves as a good reminder of the professional conduct standards lawyers must hold themselves to, particularly in relation to client instructions. While relief was not granted in this case given the lack of causative link to any loss, and forfeiture of remuneration was not ordered given the fees charged pre-dated the breach of fiduciary duty, this may not always be the case.

Article written by Jessica MacPherson and Farzana Nizam

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