Lepionka & Company Investments Limited v Gibson Sheat
[2023] NZHC 1981
•27 July 2023
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2021-485-301
[2023] NZHC 1981
BETWEEN LEPIONKA & COMPANY INVESTMENTS LIMITED
Plaintiff
AND
GIBSON SHEAT
Defendant
Hearing: 29 May – 2 June 2023 Appearances:
J G Miles KC, S J Leslie and J A Laing for the Plaintiff
D P H Jones KC, C L Bryant and G J Luen for the Defendant
Judgment:
27 July 2023
Publicly released:
19 September 2023
JUDGMENT OF COOKE J
(Preliminary question)
Table of Contents
The facts[6]
LCIL’s arguments[41]
Were the requirements for a contract met?[43]
Was the agreement subject to contract?[48]
Assessment[54]
Contract subject to condition concerning independent advice[61]
The argument[62]
Were such duties still owed?[69]
Did Gibson Sheat meet its obligations?[74]
The arguments collectively[90]
Waiver[92]
Conclusion[93]
LEPIONKA & COMPANY INVESTMENTS LIMITED v GIBSON SHEAT [2023] NZHC 1981 [27 July 2023]
[1] In these proceedings the plaintiff, Lepionka & Company Investments Limited (LCIL) sues its former solicitors, Gibson Sheat, in negligence.1 It alleges that Gibson Sheat provided it with negligent advice in connection with lots it had purchased in a proposed lifestyle-block subdivision near Havelock North, Hawke’s Bay. It seeks damages for amounts in excess of $4 million.
[2] Contracts for the purchases of lots had been entered by LCIL in early 2014. Gibson Sheat were instructed in early 2015 when problems with the development emerged. LCIL then took steps to protect its position in reliance on Gibson Sheat’s advice. Issues then arose in relation to the advice that Gibson Sheat had provided. LCIL was by then in litigation with other entities associated with the subdivision. LCIL and Gibson Sheat engaged in a number of exchanges about the position in late 2015. In early February 2016 Gibson Sheat advised that it could no longer act for LCIL in the circumstances, and notwithstanding a Court of Appeal hearing that was shortly to take place. Replacement counsel were then instructed to appear for LCIL on the appeal.
[3] After the hearing the parties reached an agreement intended to resolve their differences, however. The key question now to be determined by the Court is whether that agreement involved a full and final settlement of any claims that LCIL had against Gibson Sheat.
[4] Gibson Sheat unsuccessfully applied for summary judgment on the basis that the proceedings had been so settled.2 The Court subsequently ordered that the question of whether the proceedings had been settled would be the subject of a separate question, however.3 That is the matter that has proceeded before me.
[5]There are essentially four key questions:
(a)whether an oral agreement was reached between the parties on 29 February 2016, intended to be final and binding, and covering all essential terms;
1 The statement of claim advances a claim in contract, and a claim in tort.
2 Lepionka & Company Investments Ltd v Gibson Sheat [2022] NZHC 242.
3 Lepionka & Company Investments Ltd v Gibson Sheat [2022] NZHC 1488.
(b)whether the oral agreement was conditional on the agreement being formally recorded in writing;
(c)whether the agreement was subject to LCIL receiving independent legal advice and confirming its agreement given Gibson Sheat’s professional obligations; and
(d)whether any pre-conditions to agreement, particularly any requirement for a formal written document, were subsequently waived.
The facts
[6] I begin by setting out the relevant facts. This will involve making factual findings. The hearing proceeded before me over the course of five days and the parties’ witnesses were cross-examined on their evidence. Ultimately, however, there is little in the nature of factual disputes between them of significance.
[7] The relevant land lies on the banks of the Tukituki River a little up the river valley from Te Mata Peak. A developer by the name of Garth Paterson was developing the land into lifestyle blocks. In January 2014 the LCIL interests agreed to purchase a number of lots in the development and paid deposits in the amount of $463,000.
[8] Mr Paterson’s entities had a mortgage with Westpac New Zealand Ltd (Westpac). In January 2015 Westpac issued default notices under the mortgage agreements. That put the LCIL purchases and the deposits at risk. In March 2015 Mr Stefan Lepionka of LCIL approached Mr David Wallace, a partner of Gibson Sheat for assistance. Mr Lepionka had been at school with Mr Wallace. Gibson Sheat was then instructed and it advised LCIL to adopt a particular strategy. This involved purchasing Westpac’s mortgage, taking possession of the development to complete the subdivision, and adopting the LCIL purchase contracts. This strategy apparently protected the LCIL purchase contracts and accordingly the deposits. LCIL duly took such action in reliance on Gibson Sheat’s advice in April 2015.
[9] Disputes then emerged with other parties involved in the subdivision, particularly Mr Coltart who had worked with Mr Paterson, another prospective purchaser, and Mr Paterson himself.
[10] Mr Coltart then made an offer to purchase the property in connection with issues he had raised. LCIL decided that an opinion should be sought from counsel about these other issues before the offer was accepted. In May 2015 a property law specialist, Mr John Greenwood, advised that the adoption of LCIL’s purchase contracts may have breached the duties of a mortgagee under s 176 of the Property Law Act 2007. LCIL then decided not to proceed by accepting Mr Coltart’s offer.
[11] A hearing then took place in the High Court in August in relation to LCIL’s application to remove caveats that Mr Coltart had lodged. In addition, injunction proceedings were brought by the entities associated with Mr Paterson.
[12] Further advice was then obtained by LCIL from Mr Justin Smith KC. On 12 October 2015 he provided oral advice that, whilst there were arguments to distinguish case law, there was a risk that the Court would find that it was inappropriate for LCIL to have used the mortgagee’s powers to protect LCIL’s position.
[13] The proceedings then continued. On 17 November 2015 Associate Judge Smith granted LCIL’s application to remove Mr Coltart’s caveats.4 The Court held that there was no bad faith directed towards Mr Coltart through the adoption of the LCIL purchase contracts.5 Mr Coltart lodged an appeal. Separate proceedings were also then brought by another entity.6 Mr Smith KC was then asked for further advice, particularly in relation to the new proceedings. On 9 December he provided a draft opinion indicating that LCIL was at significant risk.
[14] I accept Mr Lepionka’s evidence that Mr Wallace then phoned Mr Lepionka and advised him that he and one of his partners strongly disagreed with Mr Smith’s
4 Lepionka & Company Investments Ltd v Coltart [2015] NZHC 2849.
5 At [120].
6 This sentence was corrected under r 11.10 of the High Court Rules 2016.
opinion, and that he had got it wrong.7 By email dated 13 December 2015 Mr Lepionka formerly raised his concerns relating to Gibson Sheat’s advice, and the strategy, however.
[15] The following day Mr Wallace and his fellow partner Mr Edward Cox met with Mr Smith. Gibson Sheat’s position was discussed, including its obligations under the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (the Rules) and particularly rr 5.11 and 5.12 which regulate whether a solicitor can act when there is a potential claim against that solicitor by the client. At that stage, however, Gibson Sheat decided not to stop acting or inform LCIL to take independent advice under the Rules as the purchase offers then on foot could mean that LCIL suffered no loss resulting from any negligent advice. Gibson Sheat advised its insurers of a possible claim on or about 21 December 2015, however.
[16] On 21 December 2015 the Court of Appeal set down Mr Coltart’s appeal for hearing on 25 February 2016. Discussions then occurred between the parties, including in relation to the fees that Gibson Sheat was still billing LCIL. Work was required to deal with the appeal. By letter dated 10 February 2016 Mr Cox made a proposal to Mr Lepionka, copied to Mr Greg Horton in relation to fees.8 That letter also raised the conflict of interest. It stated:
If Gibson Sheet is to continue to provide legal services to you, there is a further matter that needs to be addressed and resolved. Your email of 13 December 2015 questions and puts directly in issue whether you have been wrongly advised by Gibson Sheat. This was canvassed further in our conference with you and your legal adviser, Greg Horton, on 15 December 2015.
…
We do not accept there is any proper basis to question or criticise our advice. However, having raised this matter we are required by Chapter 5.11 and 5.12 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (attached) to advise you to seek independent advice and that we may not act further until you have received that independent advice and the matters in dispute between us are resolved. Accordingly, to continue our engagement it will be necessary for Greg to confirm that you have taken independent legal advice and that any claim you may consider you have
7 Mr Wallace gave evidence that he could not recall most of the key conversations in issue, but contemporaneous documents support Mr Lepionka’s evidence.
8 Mr Horton was a solicitor and a trustee of one of the family trusts. In that capacity he provided day to day advice to Mr Lepionka, and Mr Horton’s firm was also instructed from time to time on specific legal work.
against our firm is fully and finally settled and resolved. In that event we may resume taking instructions to continue to act for you in this matter.
[17] Mr Horton responded very shortly thereafter saying that LCIL gave its informed consent to Gibson Sheat continuing to act. Mr Cox replied advising that Gibson Sheat could still no longer act once a claim was apprehended, and effectively reiterating that the claim needed to be resolved before Gibson Sheat could resume acting. Mr Horton responded advising that LCIL had provided informed consent, and that there was no current claim against the firm. Mr Cox was unmoved, however. He replied saying that a claim had been raised, and:
… please take urgent instructions as to LCIL’s position. If having taken independent legal advice from you, LCIL confirms that any claim it considers it considers it may have had against our firm is fully and finally settled and resolved then we can resume taking instructions to continue to act for it in this matter. We would welcome resuming work for Stefan in those circumstances. We look forward to hearing from you.
[18]Mr Horton responded:
So let’s be really clear here Ed, are you saying you are not and will not progress the appeal unless your client acquiesces to your terms?
Be really clear Ed.
[19] Mr Cox then reiterated the position on 11 February stating that there was a way through the situation if LCIL was independently advised by him (that is, Mr Horton) and was in a position to resolve the potential claim, but if it could not be resolved then Gibson Sheat could no longer act. He reiterated the position on 12 February indicating that an urgent response was required as Gibson Sheat would need leave from the Court of Appeal to withdraw as counsel. LCIL was under considerable pressure as a consequence.
[20] I again accept Mr Lepionka’s evidence that Mr Wallace then phoned him over the weekend and advised that to get matters back on track LCIL needed to make an offer to Gibson Sheat. Mr Lepionka discussed this with Mr Horton who then drafted up a proposed offer from LCIL to Gibson Sheat. That offer was then sent by Mr Lepionka to Mr Cox and Mr Wallace on the evening of Sunday 14 February. It proposed arrangements in relation to outstanding and future fees and included the following terms:
4. We will withdrawal litigation threat on GS, and accept your full and final terms in your letter.
5. We want a quick and clean legal resolution so that all parties can bring closure to this situation we all find ourselves in.
[21] That proposal was not accepted by Gibson Sheat, however. Bell Gully was instructed on short notice to act for LCIL on the appeal. Mr Mike Colson, then a Bell Gully partner, acted as counsel.
[22] Following the hearing on 25 February Mr Colson reported that the hearing had gone well and that LCIL was likely to succeed. He put the prospects of success at 70 per cent.
[23] On the day of the hearing Mr McHardy also submitted a new offer to purchase one of the lots with an indication he may be prepared to purchase one of the other of the lots. In evidence Mr Lepionka referred to this offer as a “real game changer and potential breakthrough”, and that he could tell from a conversation he then had with Mr Wallace that Mr Wallace was also very excited about the development as “it was his plan coming to fruition”.
[24] This further phone call between Mr Wallace and Mr Lepionka happened the day after the Court of Appeal hearing. I accept Mr Lepionka’s evidence that Mr Wallace expressed the view in this call that Gibson Sheat’s risk had now gone, and that Gibson Sheat would now make a counter-offer on its fees to enable the position to be resolved so that Gibson Sheat could resume acting. Mr Wallace denied he would have said this, but it is clear that Mr Lepionka understood that this was what Mr Wallace had said because that is what he reported by email to Mr Horton and his other trustee. I generally found Mr Lepionka to be a truthful witness. Mr Horton responded to the email with a guarded view, indicating that it seemed to him that Gibson Sheat remained pretty worried about their risk and that they would want to achieve a full and final settlement, but that this was “okay on the right fee deal”.
[25] Gibson Sheat did then make a further proposal by letter dated 26 February in the following terms:
1.As discussed, the Coltart appeal hearing went well and hopefully the judgment will reflect that and be available shortly.
2.If you are in agreement that LCIL has no claim now or to be brought in future in relation to Gibson Sheat’s advice, including in relation to LCIL’s acquisition of Westpac’s mortgage and the adoption of the LCIL purchase agreements, entry into the related agreement to complete the subdivision, the ensuing conduct of litigation and completion of LCIL’s instructions generally up to disengagement, we could (and would like to) recommence acting for you.
3.On that basis we could continue to work on your behalf in relation to the conveyancing and the outstanding litigation involving GLW and AFI subject only to our obligations under the LCCC Rules. The Coltart matter would remain with Bell Gully while it runs its course.
4.If we are able to each that agreement the only remaining issue is our outstanding fees. In that regard, we propose to deduct $100k from our outstanding involves. Please note this is not a concession that at any time our advice has been incorrect or wanting, and simply reflects your concerns and our discussions over the level of fees. That would be the complete fee arrangement with you.
[26] Messrs Lepionka, Horton and the other trustee then discussed the position and agreed on a response. By email dated 29 February LCIL made a counter-offer in the following terms:
Counter offer
1. Your $100k offer is not accepted. We would only accept a reduction of $131,651.00+GST.
2. Fee proposal/ estimate required on all future commercial actions excluding litigation (apart from GLW Liquidation) based on rates set out in your letter of offer. Regular fee updates and prior approval to exceed estimate by 10% or more.
3. All costs outside of that basis of Estimated Fee to be run through Greg and I for sign off. We don't want the clock on without our knowing.
4. We will withdrawal litigation threat on GS, and accept your full and
final terms in your letter.
5. Main litigation services conducted by BG. GLW liquidation to be provided by GS in conjunction with BG overall litigation strategy and services thereafter will be based on merits and on a case by case basis.
Please advise by close of play today or earlier if GS is in/out so we can proceed
accordingly either way.
[27] So the differences between the parties had narrowed to two matters — the size of the fee credit, and the extent of Gibson Sheat’s role going forward.
[28] There were then further email exchanges about the offers, followed by a telephone discussion between Mr Lepionka and Mr Wallace on 29 February. This telephone discussion is of central importance because the two men reached agreement on the outstanding issues. There is contemporaneous evidence of this discussion in the form of a handwritten file note made by Mr Wallace, which notes that the phone call happened at “4.25 pm(ish)”, and a follow up email from Mr Wallace to Mr Lepionka at 4.58 pm. The email records:
As per our discussion I confirm you and I have agreed Gibson Sheat will reduce our outstanding invoices by $105,000 plus gst on the terms 2-5 outlined in your email below and in paragraph 2 and 4 of our draft letter of 26/2/15 (copy attached). We will prepare a simple deed recording this.
On a personal note I am relieved to have sorted this out on terms acceptable to both parties.
Please let us have your instructions on what is required work wise so we can provide the estimates required.
[29] Paragraphs 2–5 were a reference to paragraphs of the email referred at [26] above, and the reference to paragraphs 2 and 4 is a reference to those paragraphs in the letter quoted at paragraph [25] above. So the recorded oral agreement had resolved the two outstanding matters, and the full and final settlement requirement referred to in both communications was specifically confirmed.
[30] Mr Lepionka replied by email at 8.47 that night thanking Mr Wallace for his email, expressing the hope that “this round” that they would have a “better experience and outcome dealing with [Gibson Sheat]” and giving instructions on what had to be done immediately, and requiring estimations by Gibson Sheat for that work. This effectively confirmed the agreement described in the email.
[31] I accept that Mr Wallace’s email had correctly recorded the oral agreement reached between Mr Wallace for Gibson Sheat, and Mr Lepionka for LCIL. It is consistent with the written file note of Mr Wallace, and the evidence of Mr Lepionka. Mr Wallace’s file note records Mr Lepionka making the counter-offer on fees as his final offer and:
I accepted the offer on basis that everything else was as per our letter + his email today. Stef agreed. I said I’d do a simple agreement recording our agreement.
[32] Mr Lepionka accepted that this file note largely reflected his recollection. Under cross-examination he said that the agreement was subject to a written contract, however. I will deal with that argument below.
[33] Mr Wallace responded to Mr Lepionka’s reply by email of 2 March commenting on the issues moving forward, including the risks. Mr Lepionka then made marked-up comments on Mr Wallace’s views in the email. He said in evidence that he was surprised that Mr Wallace had outlined a greater level of risk relating to the exercise of mortgagee powers than he had earlier expressed, but his comment on this risk in the marked-up comments was limited to him saying that it “Defeats the overall purpose and why we acted on GS plan to adopt S&P agreements”.
[34] Later that evening Mr Wallace sent Mr Lepionka a draft settlement agreement as he said he would. That agreement is mostly consistent with the terms of the oral agreement, although there are some aspects that are arguably not, and which I will deal with in greater detail below. No steps were taken by LCIL in relation to the draft, however.
[35] On 6 April the Court of Appeal indicated that the judgment on the appeal would be issued the following day. The following morning Mr Lepionka sent Mr Wallace an email about Gibson Sheat’s bills which he said seemed “extremely excessive … and not consistent with our agreement?”. Mr Cox asked Mr Wallace that day if the written agreement had been signed, and Mr Wallace checked with his secretary. Mr Wallace’s secretary then re-sent the email from Mr Wallace to Mr Lepionka with the draft settlement agreement.
[36] That afternoon the Court of Appeal delivered the decision in the appeal.9 Contrary to expectations it upheld Mr Coltart’s appeal based on the argument that the LCIL interests were using the mortgagee’s powers for a collateral and improper purpose of protecting LCIL’s position. This meant that Mr Coltart’s caveats could be sustained.
9 Coltart v Lepionka & Company Investments Ltd [2016] NZCA 102, [2016] 3 NZLR 36.
[37] Gibson Sheat did not follow up execution of the agreement after that point. Gibson Sheat’s insurer asked for a copy of the signed settlement agreement. But it is apparent that Gibson Sheat formed the view that pursuing the signing of the agreement might open up arguments about whether settlement had actually been achieved. The position was considered in April and again in June, but there was no further follow up with LCIL. The terms of the agreement were nevertheless performed, including by Gibson Sheat giving LCIL the fee credit that had been agreed upon.
[38] The substantive arguments relating to the legitimacy of the strategy LCIL had adopted on Gibson Sheat’s advice were later addressed in the underlying litigation. By judgment dated 14 December 2017 the High Court found that LCIL breached the duty of the mortgagee under s 179 when it adopted the Lepionka purchase contracts.10 The Court was unable to conclude whether LCIL failed to obtain the best price reasonably obtainable at the time of the adoption, however, as this would depend on further evidence.11
[39] I note that there was evidence that in subsequent discussions with Mr Lepionka in 2017 and 2021 Mr Wallace made certain admissions. The content of these discussions was disputed, and I make no findings about them. I have taken this evidence into account to the extent that it might bear on the question whether a binding agreement was reached, and its terms, but I do not find it necessary to make findings about these later discussions as I do not apprehend them to be directly relevant to the issues before the Court.
[40] Finally, it is also appropriate to record that Mr Paterson, in particular, became a most persistent litigant, to the point that orders were made against him under s 166 of the Senior Courts Act 2016.12 He sought to attend the hearing of this preliminary question, but I made confidentiality orders to protect LCIL’s privileged materials for the reasons out lined in my minute dated 30 May 2023 which effectively prevented him attending the hearing.13
10 AFI Management Pty Ltd v Lepionka & Company Investments Ltd [2017] NZHC 3116.
11 See summary at [494].
12 Paterson v Lepionka & Company Investments Ltd [2020] NZHC 2184.
13 Lepionka & Company Investments Limited v Gibson Sheat HC Wellington CIV-2020-485-301, 30 May 2023.
LCIL’s arguments
[41] The central question to be determined by the Court is whether there was a full and final settlement reached between the parties as a consequence of the oral discussion between Mr Lepionka and Mr Wallace on 29 February, and then confirmed in the email exchange between them immediately afterwards. LCIL advance three separate arguments to say there was no such agreement, although those arguments overlap. In particular LCIL say:
(a)That there was no intention to be bound following the oral agreement as the parties’ discussions demonstrated that there were key matters that would need to be finalised in formal contractual documentation — including the requirement that LCIL have independent legal advice on the settlement.
(b)There is also an inference, not displaced in the present case, that important contracts of this kind will be reduced to writing before they become legally binding.
(c)In any event, irrespective of the parties’ intentions, there is an implied condition arising as a matter of law that LCIL seek and obtain independent legal advice before such agreement could be binding.
[42] I will consider each of those arguments in turn, but it will also be important to address the arguments collectively given that they involve a substantial degree of overlap.
Were the requirements for a contract met?
[43] LCIL first argue that no binding agreement was reached on 29 February 2016 as the essential terms had not been sufficiently agreed and there was no intention to be bound. LCIL submitted that central terms were still being debated, particularly the question of LCIL’s receipt of independent legal advice.
[44] The test for the establishment of a contract was set out by the Court of Appeal in Electricity Corporation of New Zealand Ltd v Fletcher Challenge Energy Ltd in the following terms:14
The prerequisites to formation of a contract are therefore:
(a)An intention to be immediately bound (at the point when the bargain is said to have been agreed); and
(b)An agreement, express or found by implication, or the means of achieving an agreement (e.g. an arbitration clause), on every term which
(i)was legally essential to the formation of such a bargain; or
(ii)was regarded by the parties themselves as essential to their particular bargain.
A term is to be regarded by the parties as essential if one party maintains the position that there must be agreement upon it and manifests accordingly to the other party.
[45] I accept that the parties had an intention to be bound, and that all essential terms of the contract were reached in the oral agreement between Mr Wallace and Mr Lepionka. I do not accept that the additions in subsequent draft written agreement suggested a binding agreement had not already been reached. There are two terms in the written draft that departed from the oral agreement. Both can be seen as examples of Gibson Sheat seeking to crib additional terms in the written record of the settlement rather than the addition of essential terms, however. In particular:
(a)The written agreement included Mr Lepionka personally as a party in addition to LCIL. Although that was not an aspect of the oral agreement I do not see that much significance attaches to this proposed addition, and it does not mean that the essential terms had not been agreed orally. If Mr Lepionka personally was the client as well as LCIL then it would have been intended that he be bound by the settlement. It would defeat the whole purpose of the agreement if he were to say he personally retained the right to sue. The better view is, however, that he was not the client, and had no personal claim. So including him as a party was
14 Electricity Corporation of New Zealand Ltd v Fletcher Challenge Energy Ltd [2002] 2 NZLR 433 at [53].
not controversial, and did not evidence a lack of agreement to the essential terms of the earlier oral agreement.
(b)More importantly Gibson Sheat added, at their insurer’s instigation, a clause in the proposed written agreement that “LCIL and Stefan acknowledge that they have been told to take, and have taken, independent legal advice about any claims they consider they may have had against GS”. I do not consider that this was a term of the oral agreement, or that it could have been an operative term of the written contract. It was not an obligation on either party — it seeks to record what had already happened. It would have been better if it had been recorded in the draft recitals to describe the background to the agreement that had been reached. There is an argument about the impact that the obligations under the Rules which I address below. But I do not consider that any essential term was not reached as a consequence of these words in the draft agreement.
[46] So it is apparent that the essential terms of the agreement were reached by the parties on 29 February. I also accept that the parties clearly exhibited an intention to be bound by what had been agreed orally, and confirmed by the email exchange, particularly as they duly performed the agreement. I address this question more fully below in the context of LCIL’s two further arguments.
[47] LCIL’s arguments more squarely focus on two further related matters —that the agreement was subject to the execution of a formal written contract, and also that it was subject to the Rules being complied with (including a need for LCIL to have taken independent legal advice). I will deal with each of those questions in turn.
Was the agreement subject to contract?
[48] LCIL argue that the oral agreement reached on 29 February was conditional on the execution of a written agreement, and that the parties were not immediately bound by the oral agreement. It argues that a written agreement was a condition precedent to the formation of the contract.
[49] When dismissing Gibson Sheat’s summary judgment application Paulsen AJ held that there was scope for the inference that the parties would not be bound until a written agreement was signed.15 LCIL relies on authorities that have held that there is an inference that parties will not be bound by an apparent agreement until entry of a written contract in certain circumstances. In Carruthers v Whitaker the Court of Appeal held that there was no binding contract for the sale of a farm notwithstanding and oral agreement that had apparently been reached.16 Richmond J said:17
It is established by the evidence to which I have earlier referred that at the time when the parties instructed their respective solicitors they all had in mind only one form of contract which would govern the sale and purchase of the farm, namely, a formal agreement in writing to be prepared and approved by the solicitors. When parties in negotiation for the sale and purchase of property act in this way then the ordinary inference from their conduct is that they have in mind and intend to contract by a document which each will be required to sign. It is unreasonable to suppose that either party would contemplate that anything short of the signing of the document by both parties would bring finality to their negotiations. Furthermore both parties would expect their solicitors to handle the transaction in a way which would give them proper protection from the legal point of view.
[50] In Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd the Court of Appeal dealt with a potential business contract and reached a similar conclusion that no binding agreement was reached before a written contract was signed.18 Cooke J for the Court set out the above passage from the judgment of Richmond J and said:19
This case is in the different field of commercial contracts, where there is not by law the same need for signed writing as evidence, but in our opinion the natural inference is the same in the absence of factors to the contrary.
Unless that inference is displaced the result is that, even although all the terms to be included in the document have been agreed, there is no contract and each party has a locus poenitentiae until at least execution on both sides. It may be that exchange or delivery of executed documents is also necessary, but that need not now be decided. Cases can arise where, without execution of a document on one side or both, the parties act on it, so that an implied contract arises. Brogden v Metropolitan Railway Co (1877) 2 App Cas 666 is a leading illustration. But that is not this case.
15 Lepionka & Company Investments Ltd v Gibson Sheat, above n 2, at [77]–[78].
16 Carruthers v Whitaker [1975] 2 NZLR 667.
17 At 671.
18 Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd [1981] 2 NZLR 385 (CA).
19 At 389.
[51] Similarly LCIL relies on Verissimo v Walker where a prospective buyer and seller of a kiwifruit orchard had agreed on essential terms for the sale and purchase of that orchard, but they had not yet signed an agreement.20 The vendor then received a better offer from another buyer which the vendor accepted. The Court of Appeal upheld the High Court’s conclusion that while the essential terms had been agreed there was no contract as the parties had contemplated a formal written agreement. The Court held that the inference referred to in the authorities did not only arise in complex cases.21
[52] It is equally clear, however, that the parties can have an intention to be bound simply through exchanges, including the exchange of correspondence, and even when there is draft contractual documentation which is not signed. That was the case in Savvy Vineyards 3552 Ltd v Kakara Estate Ltd where the Supreme Court found that the failure to sign the agreements passed between the parties was not controlling, and that the whole course of conduct led to the inference that the terms of the agreement had been accepted.22 So whether there is an agreement to be bound prior to the entry of a formal written document depends on the particular circumstances of the case.
[53] LCIL say that the inference that a written contract was required arises in the present case, and that it has not been displaced. Such a written document was specifically referred to in the oral discussion. A written contract was then duly prepared and sent by Gibson Sheat, but never then executed. Moreover Gibson Sheat’s professional and ethical obligations affected its ability to reach any agreement, as there was a requirement for LCIL to seek and obtain independent legal advice — something that LCIL never did — a matter which had been raised by Gibson Sheat, and then specifically included in the draft agreement it prepared. In addition both Mr Lepionka and Mr Horton gave evidence that their understanding was that the agreement was subject to such a written contract.
20 Verissimo v Walker [2006] 1 NZLR 760.
21 At [34].
22 Savvy Vineyards 3552 Ltd v Kakara Estate Ltd [2014] NZSC 121, [2015] 1 NZLR 281 at [62] and [111].
Assessment
[54] I do not accept LCIL’s arguments, and conclude that the parties intended to be bound by the oral agreement from when it was reached, and which was then confirmed by email. This agreement was not subject to the execution of a written document. That is so for a series of related reasons which displace any inference that a formal written agreement was intended before the agreement became binding.
[55] First, the nature of the contractual arrangements between the parties was different from the cases where the inference was held to apply. This was not an agreement for the purchase of land, or the entry of a business contract. Gibson Sheat had been acting as LCIL’s solicitors on the issues that had arisen out of the subdivision in accordance with Gibson Sheat’s standard terms of engagement. It had had to withdraw because there was a significant issue about the advice that it had given, and which LCIL had relied upon. LCIL wanted Gibson Sheat to continue to act on these matters, but Gibson Sheat said that it could not do so unless the prospective claim in relation to its potentially erroneous advice was resolved. The parties then discussed what Gibson Sheat would need to offer LCIL in return for LCIL forgoing any such claim so that Gibson Sheat could resume acting. Agreement was reached on this, and then Gibson Sheat resumed acting. That is a different context from the arms-length contractual negotiations arising in the above cases where detailed contractual terms would be expected to be formulated by the parties’ lawyers. This different context also gives rise to the overlay of Gibson Sheat’s professional obligations under the Rules, and the requirement for independent advice which I address below. But the parties here were resuming a pre-existing contractual arrangement, and resolving a dispute that was necessary for that purpose. It was not a matter of entering a new contract of business or commercial significance where a formal written contract would be expected.
[56] LCIL also needed to reach a resolution promptly. The delay which would have been occasioned by negotiating documentation was inconsistent with the parties’ intention to reach an immediate deal. The key issue for LCIL was to have Gibson Sheat resume acting as soon as possible. Gibson Sheat also wanted to do so in order to assist their client out of a difficult situation. But the claim had to be resolved. In
the email of 14 February 2016, prior to the Court of Appeal hearing, Mr Lepionka advised Messrs Cox and Wallace that LCIL wanted “a quick and clean legal resolution so that all parties can bring closure to this situation we all find ourselves in” — a comment made immediately after saying that the agreement would involve the withdraw of the litigation threat and the acceptance of full and final terms. The urgency at that stage was in connection with the need for counsel to appear at the Court of Appeal hearing. The oral agreement reached was after the Court of Appeal hearing, but there was a similar pressing time issue. On the day of the hearing Mr McHardy had made a new offer which Mr Lepionka described as a game changer. LCIL needed to move promptly to deal with this offer to try and resolve what had become a very messy situation for it. In those circumstances, objectively construed, what was necessary was for the key terms for a resolution of the claim to be reached. It was not necessary for a formal written contract to be drawn up and signed before that resolution.
[57] That is also how the parties treated the suggested documentation of their oral agreement. In the discussion between Mr Lepionka and Mr Wallace on 29 February it was Mr Wallace who suggested that their agreement be documented at the end of the discussion. When doing so he did not suggest that this was a pre-condition to that agreement. Rather it is something he said that he would do following them agreeing on the outstanding issues for a resolution. That is consistent with the agreement being documented for the sake of good order. Mr Wallace emailed Mr Lepionka the following day recording what the terms of their agreement were. I consider that he did so in order to be sure there was no uncertainty about those terms. Mr Lepionka effectively confirmed these terms by his reply thanking him, and explaining what he now wanted done. The reference in Mr Wallace’s email to preparing “a simple deed recording this” is consistent with that deed being a matter of formal record of the agreement, not a pre-condition to it.
[58] The parties then immediately implemented the agreement. Gibson Sheat resumed acting and the fee credit was given. That is consistent with the parties having reached a binding agreement, and inconsistent with a written contract being required. Gibson Sheat had made it abundantly clear that it would only resume acting if there was a full and final settlement. The fact that it did so, and that the agreement was
performed, is consistent with a binding agreement having been reached notwithstanding that no written contract was signed. There was no suggestion from LCIL that the agreement was not in place. Indeed LCIL expressly raised an issue as to whether Gibson Sheat’s bills were being issued in a manner consistent with the agreement they had reached.
[59] There is also no reference in the exchanges between the parties leading up to the agreement, or after the oral agreement, to a requirement for there to be an executed written document. The written exchanges between the parties were extensive, explaining what each required to reach an agreement. The fact that neither party said that a written agreement would be required is significant, and reflects the realities of the position. Moreover when the draft agreement was sent there was no suggestion that there was a requirement to sign it before the agreement would be effective, and the parties did not treat it in that way. When the issue of a signed copy came up there was some uncertainty at Gibson Sheat as to whether the agreement had been signed or not, or what had happened to it. This reflects that it was a document that was to formally record what had already been agreed rather than what had to be executed for there to be any agreement at all.
[60] For these reasons I do not accept that it was necessary for the parties to sign a written contract before they intended to be bound by their agreement. They clearly exhibited an intention to be bound as a consequence of the exchanges leading up to their oral agreement then reached on 29 February, and which was confirmed in the email exchanges following that agreement.
Contract subject to condition concerning independent advice
[61] LCIL’s second, and related argument is that there was no binding agreement, as any agreement was subject to an implied condition that the requirements of the Rules had been met, and in particular that LCIL had sought and received independent legal advice on the entry of the agreement. LCIL argues it never obtained such advice, and the agreement was not effective as a consequence.
The argument
[62] The precise nature of LCIL’s allegation was unclear. LCIL had earlier contended that there was an implied term that LCIL obtain independent legal advice on the standard grounds for implying terms, but that was not its contention before me. Neither did LCIL pursue a claim of breach of fiduciary duty against Gibson Sheat, or respond to Gibson Sheat’s defence by an allegation that the entry of the agreement involved a breach of fiduciary duty. Rather it argued that the agreement it had reached was subject to a condition imposed as a matter of law. The implied or imposed term was not pleaded in its defence to Gibson Sheat’s counterclaim. Neither was such a term clearly formulated during submissions. LCIL’s closing submissions stated, however:
5.1 LCIL’s position is that, regardless of what the parties intended, the LCC Rules implied a by operation of law term into any settlement agreement, that prevented the agreement from taking effect until LCIL had taken independent advice and elected to proceed.
[63]The relevant obligation in the Rules is set out in the following terms:
Claims against lawyer
5.11When a lawyer becomes aware that a client has or may have a claim against him or her, the lawyer must immediately—
(a) advise the client to seek independent advice; and
(b) inform the client that he or she may no longer act unless the client, after receiving independent advice, gives informed consent.
5.12A lawyer may resume acting for a former client where the matter in dispute has been resolved.
[64] LCIL argued that the professional obligations under the Rules were implied, or imposed as a term of the contract. It referred to the decision of the British Columbian Court of Appeal which held that such professional obligations were implied into the contract of retainer between lawyer and client by the operation of law rather than the normal tests for implied terms of contract.23 LCIL then relied on a line of authorities concerning solicitors professional and ethical responsibilities including the decision
23 Macquirie, Hunter v Foote et al (1982) 43 DLR (3d) 354.
of the High Court of Australia in Maguire v Makaronis,24 and the decision of the Supreme Court of New South Wales in Naro Investments Pty Ltd v Benjamin & Khoury Pty Ltd.25 The principles in these decisions are reflected in the New Zealand authorities, including the decision of the Court of Appeal in Sims v Craig Bell & Bond.26
[65] I accept that the professional, ethical, and/or fiduciary obligations of lawyers might be considered to be implied into contracts entered between lawyer and client in some circumstances. I also accept that the authorities demonstrate that a lawyer’s duties are not necessarily met simply by the lawyer advising the client to obtain independent legal advice in the kind of circumstances arising in this case — that is where the client has a potential claim against the lawyer, and the lawyer and client are seeking to settle that claim so the lawyer can still act, or resume acting. In some circumstances the lawyer will have a duty to ensure that the client has actually obtained independent legal advice before entering a settlement agreement with the client or former client.
[66] Such an obligation is not expressly outlined by r 5.11. But in some circumstances the professional obligations may require the solicitor to go further than the strict terms of that rule and may extend to ensuring that independent advice has in fact been received, particularly before entering an agreement with the client. As Heath J said in Burgess v Monk, the “need for informed consent on the part of the client underpins rr 5.11 and 5.12”.27
[67] The more conventional contention would have been for LCIL to argue that the agreement reached between the parties was unenforceable as it was entered in breach of Gibson Sheat’s fiduciary obligations. But I accept that it may be possible the same argument to be advanced by a contention that there was an implied pre-condition of the agreement. I do not consider that it would be appropriate to dismiss LCIL’s argument on the technical ground that their argument is pleaded as one of an implied term of contract rather than breach of fiduciary duty as Gibson Sheat argued, however.
24 Maguire v Makaronis [1997] HCA 23, (1997) 188 CLR 499.
25 Naro Investments Pty Ltd v Benjamin & Khoury Pty Ltd [2021] NSWSC 262.
26 Sims v Craig Bell & Bond [1991] 3 NZLR 535 at 543–544.
27 Burgess v Monk [2017] NZHC 2618, (2017) PRNZ 712 at [51].
The substantive argument is still squarely raised for determination. But equally I do not consider that LCIL can improve the strength of the substantive argument by advancing it by way of implied or imposed term rather than as a breach of fiduciary duty. For LCIL’s argument to prevail it is still necessary for it to establish that Gibson Sheat’s obligations meant that there was a requirement for LCIL to have actually received independent legal advice before the agreement reached can be regarded as enforceable.
[68] The argument was based on rr 5.11 and 5.12 of the Rules, but it seems to me that any imposed or implied term would need to be based on Gibson Sheat’s obligations more broadly, whether based on the terms of the Rules or its ethical, professional and fiduciary duties.
Were such duties still owed?
[69] A preliminary issue arises out of the fact that Gibson Sheat had withdrawn as LCIL’s solicitors at the time that the agreement was entered, and a question arises whether it continued to have any fiduciary or professional duties in those circumstances.
[70] In one of the authorities relied upon by LCIL, Naro Investments, the New South Wales Supreme Court granted a solicitor summary judgment on a settlement agreement with the client notwithstanding the client’s argument that the agreement was entered in breach of fiduciary duty.28 There had been a dispute between the solicitor and its former client relating to the size of the fees. This was resolved by the agreement. So that case also involved the entry of a settlement agreement between the solicitors and the client which the solicitor then sought to enforce. In responding to the client’s argument that the settlement agreement was entered in breach of fiduciary duty Slattery J held that the solicitor ceased having any fiduciary duties to the client when the agreement was reached as it had withdrawn as the client’s lawyers. He said:29
28 Naro Investments Pty Ltd v Benjamin & Khoury Pty Ltd, above n 24.
29 At [28] (citations omitted).
… It is a well-accepted legal principle that a solicitor only owes a fiduciary duty to a client during the currency of the retainer and not after its termination.
[71] I accept that the fact that at the time the parties formed their oral agreement Gibson Sheat had withdrawn from acting, and that Bell Gully then acted for LCIL is highly relevant. But notwithstanding Gibson Sheat’s withdrawal as LCIL’s solicitors it seems to me that it had continuing fiduciary duties to LCIL. There is a period of time where obligations remain. This was reflected in the fact that Gibson Sheat continued to be involved in the handover to Bell Gully. Mr Cox provided help to Mr Colson in connection with the hearing in the Court of Appeal. Messrs Cox and Wallace were then provided with a copy of Mr Colson’s advice on the likelihood of success after the hearing. That involved the receipt of what would otherwise be confidential legal advice were it not for Gibson Sheat’s continued involvement. Mr Wallace also became aware of Mr McHardy’s offer because of his continued association with LCIL’s affairs.
[72] For these reasons Gibson Sheat continued to owe residual duties to LCIL. So the withdrawal is not a complete answer to the allegation. When Mr Wallace contacted Mr Lepionka the day after the Court of Appeal hearing such duties continued to exist. Put another way, the obligations in rr 5.11 and 5.12 of the Rules are likely to involve situations where the rules overlap, and the obligations, including fiduciary obligations, continue to operate.
[73] But I accept that Gibson Sheat’s withdraw is nevertheless highly relevant, particularly because LCIL now had other lawyers acting for it. This is a factor I return to below.
Did Gibson Sheat meet its obligations?
[74] It is important to understand the precise content of a lawyer’s duties. The true duty is the duty to act in the client’s best interests. Entering an agreement with a client under which the lawyer obtains a personal benefit is not consistent with that duty. But such an agreement can still legitimately be entered if the client is fully informed of all the facts and implications, and that the client’s agreement is freely given. Advising a client to take independent advice is a measure to ensure the relevant duty is met, rather
than being a formulation of what the duty is. In Witten-Hannah v Davis the Court of Appeal upheld a claim for breach of fiduciary duty against a lawyer when the lawyer had entered a contractual arrangement with the client.30 Richardson J said:31
… In discharging fiduciary responsibilities a solicitor cannot have a personal interest in a transaction unless the client is fully informed of all the facts and of all the implications for the client and then freely consents. In some circumstances and because of the insidious potential for conflict of interest, the discharge of that responsibility can only be established by ensuring that the client is independently advised. Ensuring independent advice is not a separate fiduciary duty but rather a means of discharging the responsibility of ensuring that the client is fully informed and freely consents to her solicitor’s participation in the transaction…
[75] That is why the obligation requires, in some circumstances, that the lawyer be sure that the client has actually taken independent advice. As explained by Slattery J in Naro Investments:32
Strictly a fiduciary does not have a duty to obtain the fully informed consent of the person to whom the fiduciary duty is owed but rather the existence of informed consent goes to negate what otherwise would be a breach of fiduciary duty… Fiduciaries ordinarily establish informed consent by proof of the giving of independent advice to the person to whom the fiduciary duty is owed.
What is required for fully informed consent is a question of fact in all the circumstances of each case and there is no precise formula which will determine in all cases if fully informed consent has been given…
[76] Here Gibson Sheat, who continued to have residual fiduciary duties to LCIL, was entering a contract with LCIL under which Gibson Sheat obtained a personal advantage. It could only do so when it had fiduciary duties if it ensured that LCIL was fully informed. The ultimate question is whether, in the circumstances of this case, Gibson Sheat did what was required to meet its responsibilities in this respect.
[77]For the reasons outlined below I conclude that it did.
[78] First it is apparent that Gibson Sheat stated repeatedly that it could not resume acting for LCIL unless the claim against it was resolved, and that LCIL needed to take independent legal advice before doing so. The latter requirement was emphasised
30 Witten-Hannah v Davis [1995] 2 NZLR 141.
31 At [149].
32 Naro Investments Ltd v Benjamin & Khoury Pty Ltd, above n 24, at [30]–[31] (citations omitted).
more than once. Gibson Sheat cannot be criticised for failing to meet this requirement of r 5.11. It is true that Gibson Sheat did not further reiterate the need for independent legal advice when negotiations resumed after the Court of Appeal hearing. But by then Gibson Sheat had withdrawn as counsel and it had facilitated Bell Gully being instructed to act for LCIL in its place.
[79] The second point is that LCIL can be treated as a reasonably sophisticated commercial operator. Mr Lepionka had been a successful businessman, and Mr Horton was an experienced commercial solicitor. The type of transactions that LCIL had entered demonstrated a degree of commercial experience. LCIL cannot be treated as a vulnerable client. It is true that it was under significant commercial pressure because of the difficult circumstances that had emerged. These were then compounded by Gibson Sheat’s advice that it had to withdraw as its solicitors. A key pressure point in that respect was the need of LCIL to find counsel to appear for it before the Court of Appeal. But the immediate pressure of that requirement had been addressed — Gibson Sheat had assisted LCIL to instruct Bell Gully, one of New Zealand’s leading law firms, and Mr Colson, a well-respected commercial litigator, and now a King’s Counsel, was acting.
[80] LCIL was also being closely advised by Mr Horton who was a practicing solicitor. His position was particularly focused on during cross-examination, and in argument. Gibson Sheat’s communications to LCIL before it withdrew included the advice that Mr Horton could provide the independent legal advice contemplated by r 5.11. LCIL argued that the definition of “independent advice” in the Rules mean that Mr Horton’s advice could not be regarded as being sufficient to meet this requirement. LCIL raised two matters. First, Mr Horton was really a client rather than the client’s solicitor as he was involved in these matters as a trustee of one of the Lepionka entities, not as a solicitor. Secondly, an issue potentially arose as to his joint liability with Gibson Sheat for the legal advice that had led to the position that LCIL was in.
[81] I do not see either point to be of significance. Whilst I accept that Mr Horton was one of the client’s representatives he was acting in his role as a trustee because he was an experienced commercial solicitor. His role as a trustee did not prevent him providing independent legal advice to LCIL. And whilst there was some suggestion
at the time by Gibson Sheat that his firm might be jointly liable with it, that suggestion was never taken very far, and there was ultimately no basis for it. It was clear that Mr Horton had initially advised LCIL to take advice from other solicitors about the situation, which is precisely why Gibson Sheat were initially instructed. He had no role in raising, or recommending the strategy that Gibson Sheat put forward. I do not see a basis for contending that either he, or his firm were also potentially liable.
[82] I do not accept that these matters mean that Gibson Sheat could not consider Mr Horton’s advice as meeting the requirements of r 5.11, or its obligations more broadly, to ensure that LCIL was fully informed before entering the agreement. Mr Horton was an experienced commercial solicitor, and there was no reason to think that he had a conflict. When Gibson Sheat said that LCIL should seek independent legal advice from him there was no response from him to say that he was not in a position to give such advice. I accept his evidence that he did not consider that he had the personal experience that would allow him to give legal advice about the full extent of the claims against Gibson Sheat, including the amounts that could be recovered under such claims. But that does not mean that he was not able to give the kind of advice contemplated by r 5.11. If he did not consider that he had sufficient personal experience on those matters he could have advised LCIL of that, and LCIL could then have received advice from another lawyer. Advice had been obtained by LCIL from Mr Smith KC and Mr Greenwood, and Bell Gully was now instructed by it. Mr Colson was acting as counsel and was fully informed of the case. Advice could have been obtained from him, in particular, if LCIL had wished to receive it.
[83] This was not a situation where Gibson Sheat was required to ensure that LCIL had actually obtained advice from someone other than Mr Horton, or that LCIL was following that advice. Gibson Sheat could properly proceed on the basis that Mr Horton was able to provide advice to LCIL and that other lawyers were available should LCIL wish to take more extensive advice. In Naro Investments Slatter J held that there is an inference of fully informed consent meeting a solicitor’s duty when there is the presence of independent solicitors advising the client.33 It seems to me that Gibson Sheat could also draw that inference in the present case. Mr Horton was
33 Naro Investments Pty Ltd v Benjamin & Khoury Pty Ltd, above n 24, at [32].
advising LCIL, Bell Gully was acting on the proceedings, and other lawyers independent of Gibson Sheat had given advice to LCIL about the circumstances that led to the issue about Gibson Sheat’s advice. It is not a situation where Gibson Sheat understood, or should have anticipated that LCIL was not properly informed.
[84] Neither do I accept that LCIL was not fully informed. LCIL knew that Gibson Sheat may have failed to give it adequate advice. Mr Greenwood and Mr Smith KC had both given advice that suggested that Gibson Sheat may have been wrong to suggest that LCIL embark upon the strategy that it did. LCIL also knew the implications of Gibson Sheat’s potentially erroneous advice. It was facing litigation in relation to what had transpired, and was aware of the implications of that litigation. LCIL was aware of the difficult position it was in, and why Gibson Sheat’s advice contributed to that situation. It knew it was abandoning any claim it had against Gibson Sheat associated with any losses arising from that situation by entering the settlement agreement, and that the only offer that Gibson Sheat was prepared to make as compensation was limited to a fee credit (albeit a reasonably substantial one) and a basis for future billing. That provided the necessary information for informed consent.
[85] I accept Mr Lepionka’s evidence that he did not understand that LCIL could sue Gibson Sheat for more than the fees that it had billed. Equally I accept Mr Horton’s evidence that he did not have sufficient expertise to know what kind of damages could be recovered in a claim against Gibson Sheat in this situation. The honesty of their evidence in this respect was challenged in cross-examination, and in submissions, but I nevertheless accept it. It would not have been obvious what losses Gibson Sheat could potentially be liable for. The strategy that Gibson Sheat had advised LCIL to adopt arose because LCIL had already paid deposits for acquiring property in the subdivision. Those deposits were accordingly at risk. It is not immediately apparent how the flaw in the proposed strategy created further financial losses that could be recoverable by way of a claim against Gibson Sheat. LCIL was already in a difficult position and there was always business risk associated with LCIL acquiring the mortgage, and effectively taking over the development in any event. One of the reasons why Gibson Sheat did not earlier raise its conflict with LCIL was that there did not appear to be a loss arising from any negligent advice. I also note that, after reaching conclusions in a lengthy judgment, Fitzgerald J held that she was not
able to conclude that there were any damages to be awarded for LCIL’s breach because it depended on what prices could be obtained for the property compared with the price that had effectively been paid by the adoption of the Lepionka purchase contracts.34 There was only a loss if the Lepionka purchases were under fair value, and if they were that was to Lepionka’s advantage. So the question of loss was a complex question.
[86] But the fact that Mr Lepionka and Mr Horton did not understand in any detail, and did not further investigate, the losses that they could potentially be claimed against Gibson Sheat is not determinative. If they had wanted further advice on that question it could have been provided by Mr Colson, somebody else at Bell Gully, or if necessary Mr Smith KC or Mr Greenwood. Mr Horton could have advised Mr Lepionka that they should really get such further advice before entering an agreement with Gibson Sheat. I do not accept he was not adequately positioned to provide at least that advice. More importantly, I do not accept that Gibson Sheat could not reasonably proceed on the basis that LCIL was positioned to obtain effective independent advice on these issues from Mr Horton and any other adviser that Mr Horton suggested should be asked.
[87] It is also important not to evaluate the agreement that was reached with the benefit of hindsight. At the time that the agreement was reached LCIL had succeeded in the High Court and Mr Colson had advised that the likelihood of success of upholding the judgment on appeal was as high as 70 per cent. If the Court of Appeal had indeed upheld the High Court then the settlement contained in the agreement might well have been regarded as a good one for LCIL. That is not how events ultimately played out. The Court of Appeal found against LCIL, as the High Court ultimately did in the substantive proceedings. But all settlements involve an assessment of risk. The fact that events did not transpire as hoped does not mean that it was not a good settlement, or that LCIL did not enter the agreement with open eyes. LCIL made a business decision about what was in its best interests, and in particular it considered that the proposed agreement with Gibson Sheat was the best way forward. It cannot legitimately get out of that agreement because it turns out not to be
34 AFI Management Pty Ltd v Lepionka & Company Investments Ltd, above n 10, at [351] and [362]– [367] and [494](f)–(h).
as good a settlement as it hoped, or by complaining that Gibson Sheat did not sufficiently insist on it getting independent legal advice before it was entered. I accept that Gibson Sheat did what was necessary in the circumstances.
[88] This does not mean that Gibson Sheat cannot be criticised. Gibson Sheat was slow in providing advice to LCIL on the existence of a conflict of interest and the implications of that conflict. I accept that Mr Wallace’s conduct leading up to the settlement agreement can also be questioned. When Mr Greenwood and then Mr Smith KC gave their advice, especially when Mr Smith gave the draft written advice, Mr Wallace responded by telling Mr Lepionka that Mr Smith was wrong. He was also opposed to Gibson Sheat withdrawing as solicitors. I have accepted Mr Lepionka’s evidence that Mr Wallace said words to the effect that the risks associated with his original advice had now gone when they spoke on 26 February — that is what Mr Lepionka recorded in his contemporaneous email to Mr Horton. What Mr Wallace said was a loosely formulated exaggeration, no doubt arising from Mr Colson putting the prospects of a successful judgment at 70 per cent. But the exaggerated comment was obviously not literally true.35 Mr Horton’s reaction, commenting that Gibson Sheat “remain pretty worried about their risk”, showed that. The risks were obviously not gone. The very entry of an agreement settling the potential claim also reflected this. Whatever may be said about Mr Wallace’s overall approach it does not mean that Gibson Sheat breached its obligations surrounding the entry of the agreement.
[89] These conclusions arise whether the claim is considered as a claim for breach of fiduciary duty (with the agreement being unenforceable as a consequence), or a claim that the agreement was subject to an implied condition that Gibson Sheat met its obligations. I also do not accept that there was an implied condition that LCIL receive independent legal advice on the conventional tests for implied terms. The key conclusion is that Gibson Sheat met its duties under the Rules, or arising as a matter of law, and that the agreement remains enforceable.
35 No claim for misrepresentation was, or could be advanced in these circumstances.
The arguments collectively
[90] As indicated above, the arguments advanced by LCIL involve a substantial degree of overlap, and raise many common factors. In those circumstances I have also stepped back and considered the arguments collectively to be sure that there was a full and final settlement on 29 February 2016 given what the parties intended, the importance of independent legal advice, and Gibson Sheat’s obligations.
[91] I am satisfied there was a full and final settlement. The parties had discussed what was necessary for that settlement in detailed terms. These had gradually narrowed to the key outstanding issues which were finally agreed in the oral discussion. Those terms were then confirmed in the email exchange. Whilst a written document was then prepared, as Mr Wallace said he would, neither party treated that document as of key contractual significance. They immediately implemented their agreement after they had reached the essential terms which enabled Gibson Sheat to resume acting. I also do not accept that Gibson Sheat failed to meet its obligations under the Rules or otherwise leading up to the agreement. Gibson Sheat made it very clear that LCIL needed to receive independent legal advice before a settlement could be reached. LCIL was being advised by Mr Horton, and other advisers were available if necessary. LCIL entered the agreement with the full appreciation of its significance, and without Gibson Sheat misusing its fiduciary position.
Waiver
[92] Given the above conclusions I do not need to address Gibson Sheat’s argument that, if there was a condition that the agreement needed to be documented and signed by the parties, it was waived as a consequence of the parties later conduct, and in particular the performance of the contract by LCIL and Gibson Sheat. It seems to me, however, that the relevant circumstances here are more relevantly considered by addressing whether the parties had reached a binding agreement notwithstanding that the draft agreement was not signed, rather than a contention that there was a requirement for signing that was subsequently waived. That was the approach adopted by the Supreme Court in Savvy Vineyards 3552 Ltd v Kakara Estate Ltd, and it is the
conclusion that I have reached here.36 I otherwise do not address the waiver arguments.
Conclusion
[93] For the above reasons I conclude that the parties did enter a binding agreement fully and finally settling LCIL’s claims against Gibson Sheat. LCIL’s claims against Gibson Sheat in these proceedings are accordingly dismissed.
[94] Gibson Sheat are likely entitled to costs which I will assess if they are not agreed. Any application for costs should be made by way of memorandum of no more than 10 pages length plus a schedule to be filed within 15 working days. Any memorandum in response is to be filed within a further period of 10 days, and also to be no longer than 10 pages with a schedule. I will then address costs on the papers.
[95] Finally I continue the interim suppression orders, and initially release this judgment only to the parties. Any application that passages should be redacted in the publicly released judgment should be made by memorandum filed and served within 15 days, and responded to within a further 10 days which I will also then address on the papers.37
Cooke J
Solicitors:
Bell Gully, Wellington for the Plaintiff Hesketh Henry, Auckland for the Defendant
36 Savvy Vineyards 3552 Ltd v Kakara Estate Ltd, above n 22.
37 Subsequent to the release of the judgment to the parties I followed Erceg v Erceg [Publication Restrictions] [2016] NZSC 135, [2017] 1 NZLR 310 and determined that no redactions were justified for the reasons set out in a minute dated 18 September 2023.
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