Lepionka & Company Investments Limtied v Gibson Sheat

[2022] NZHC 1488

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2021-485-301 [2022] NZHC 1488

BETWEEN

LEPIONKA & COMPANY INVESTMENTS LIMITED

Plaintiff

AND

GIBSON SHEAT

Defendant

Hearing:	On the papers
Counsel:	M G Colson QC and S J Leslie for Plaintiff/Respondent C L Bryant and G J Luen for Defendant/Applicant
Judgment:	27 June 2022

JUDGMENT OF GENDALL J

Introduction

[1]    The applicant (Gibson Sheat), which is the defendant in these substantive proceedings, seeks an order for a separate trial to determine an affirmative defence and counterclaim (the counterclaim) in advance of a trial of the substantive claims of Lepionka & Company Investments Limited (Lepionka) which is the plaintiff in the substantive proceedings. Gibson Sheat says Lepionka’s claims were fully and finally settled on 29 February 2016 or shortly thereafter. Lepionka for its part maintains the parties reached only a conditional settlement agreement on that date. That agreement, it is said, was conditional on Lepionka both obtaining independent legal advice and executing a deed of settlement. Lepionka contends it did neither of those things and therefore the terms of the conditional agreement were never fulfilled.

LEPIONKA & COMPANY INVESTMENTS LIMITED v GIBSON SHEAT [2022] NZHC 1488 [27 June 2022]

[2]    The issue before me therefore is whether a separate trial should be ordered to determine Gibson Sheat’ counterclaim, on the basis that it is claimed a full and final settlement of Lepionka’s claim has occurred. The following is by way of background and is not generally in dispute.

[3]    In these proceedings, Lepionka sues Gibson Sheat, its former solicitors, for allegedly negligent legal advice given in 2015. The advice involved the assignment of a mortgage. Lepionka says it followed Gibson Sheat’s advice, and that advice was negligent. Lepionka contends, as a result of Gibson Sheat’s advice, it has spent the last six years in litigation and has incurred over $5 million in losses. Gibson Sheat, for its part, denies Lepionka’s allegations. It says its advice achieved the purpose for which it was given.

[4]    Lepionka did not pay Gibson Sheat’s fees for November and December 2015 and at that time notified the firm of the potential for a claim against it. Mr Horton, a long-term adviser of Lepionka, acted for it in the dispute. On 10 February 2016, Gibson Sheat notified Lepionka it could not continue acting for it until first, Mr Horton confirmed that Lepionka had taken independent legal advice and secondly, a full and final settlement was reached of all claims or potential claims that existed against the firm. Over the following weeks, Mr Lepionka on behalf of Lepionka and Mr Wallace on behalf of Gibson Sheat negotiated terms on which Gibson Sheat would resume work for the company. Those terms included a credit on outstanding fees, discounted rates for future work and a full and final settlement of all past claims or potential claims.  Mr  Lepionka  and  Mr  Wallace  agreed  the  terms  of  the  settlement  on 29 February 2016. The settlement arrangement was confirmed in emails exchanged that evening, to which Mr Horton was copied in.

[5]    Mr Wallace said he would send Lepionka a simple deed recording the settlement terms. He did so on 2 March 2016. Lepionka did not comment on the draft deed or sign it. That day, it seems, Mr Lepionka decided not to progress the settlement. He did not notify Gibson Sheat of this or assert at that time there was no settlement. On 7 April 2016, Gibson Sheat again sent Lepionka a copy of the settlement correspondence and the draft deed. Once again, there was no response.

[6]    In the meantime, Gibson Sheat resumed work for Lepionka at the agreed reduced hourly rates from 29 February 2016. On 18 March 2016, Gibson Sheat issued a credit note in respect of its earlier fees. This provided the agreed fee credit and referenced the settlement agreement.

[7]    It was not until 1 June 2017 that Mr Lepionka told Mr Wallace he had been advised by independent counsel with respect to bringing a claim against Gibson Sheat. Lepionka wrote to  Gibson  Sheat  putting  it  on  notice  of  its  claim  by  letter  on 4 May 2020 and inviting the firm to participate in an alternative dispute resolution process. An attempted mediation was unsuccessful. Lepionka commenced proceedings against Gibson Sheat on 28 May 2021.

Summary judgment application

[8]    Gibson Sheat responded by applying for summary judgment on 30 July 2021. On 22 February 2022, Associate Judge Paulsen in this Court dismissed the application.1 In dismissing Gibson-Sheat’s summary judgment application, however, the Associate Judge held that, viewed objectively, the dealings and communications between Mr Wallace and Mr Lepionka showed the parties had agreed the essential terms of a settlement on 29 February 2016.2 The Associate Judge also rejected Lepionka’s claim that the parties did not intend to be bound by the settlement until it had taken further independent advice.3

[9]    The Associate Judge said, however, that he was not satisfied he could determine on a summary basis whether or not the parties intended at that time that their agreement would be subject to execution of a formal deed.4 Associate Judge Paulsen expressed that on a first impression, Lepionka’s position as plaintiff “was unappealing” and that it appeared to be “unrealistic (and unjust) for [Lepionka] to enjoy the benefits of the settlement agreement but deny it was bound by its terms”.5 The Associate Judge said there was “obvious force” in Gibson Sheat’s arguments that the parties intended to be bound by their agreement regardless of whether a deed was

1      Lepionka & Company Investments Ltd v Gibson Sheat [2022] NZHC 242.

2 At [58].

3 At [91].

4 At [80].

5 At [71].

later signed, but could not be satisfied of this to the “high standard required” for summary judgment.6 Because the Court was being asked to objectively assess the parties’ intentions at the time, the Associate Judge concluded the question would need to be determined following disclosure and a full hearing of the parties’ evidence on this issue.7

[10]   Accordingly, Associate Judge Paulsen accepted there was “scope for an inference to be drawn” along the lines of Lepionka’s case,8 but that further evidence “may illumine the issue”.9 He refused summary judgment on this basis. This was because he was not satisfied it was “unarguable” that on 29 February 2016, the parties did not intend to be bound until execution of a formal deed, which was an issue that could only be determined at trial.10 For completeness, however, the Associate Judge recorded that Gibson Sheat had advanced its application for summary judgment on a narrow basis, and that it might be open to it to argue that, even if the parties did not intend immediately to be bound, that intention subsequently changed or the parties in fact waived the requirement for a formal deed.11

Split trial application — positions of the parties

[11]   As I have noted, Gibson Sheat has now amended its affirmative defence and counterclaim accordingly. It submits, too, that the balance of convenience and the interests of justice here favour a separate trial of its counterclaim.

[12]   Gibson Sheat contends the key facts are not in dispute and the factual and legal issues relevant to the counterclaim are narrow and defined in scope. It says all that can be ring-fenced and determined separately from Lepionka’s substantive claim. This, according to Gibson Sheat, would avoid any possible risk of a cause of action or issue estoppel or conflicting findings of fact occurring here. Gibson Sheat says that if

6      Lepionka & Co Investments Ltd v Gibson Sheat, above n 1, at [74].

7 At [74].

8 At [77].

9 At [79].

10 At [80].

11 At [80]. Gibson Sheat has now amended its affirmative defence and counterclaim accordingly to plead in the alternative that the parties by their conduct: (a) accepted the terms of settlement agreed on 29 February 2016 and/or recorded in the draft deed; and/or (b) waived any requirement for execution of a deed.

it succeeds in its counterclaim, the proceeding will come to an end, resulting in considerable savings in time, cost and court resources.

[13]   Lepionka opposes the application. It maintains the interests of justice do not favour the granting of the application, nor has Gibson Sheat advanced sufficient grounds to displace the presumption that all matters should be determined in the one trial here because normally this is the most expeditious and efficient manner for dealing with a proceeding like the present.

[14]   In particular, Lepionka maintains there are several common and overlapping issues here. Regardless of whether a split trial is ordered, it says the earlier context to the settlement will need to be traversed in evidence and submissions advanced in order to determine what the parties understood at the time. Similarly, Lepionka says that to determine whether the claim was settled or whether it may have waived a requirement for a written agreement to be executed, will require consideration of post-contractual conduct between February 2016 and at least June 2017. Lepionka contends that any second trial could be impacted by findings made in a first trial without full argument and evidence and, given the same Judge might not be available for both trials, this could lead to inconsistent findings.

[15]   Lepionka also argues there will be adverse effects in the event a split trial is ordered. It suggests very little time would be saved by a separate trial as there will be a need to call the same witnesses and traverse the same ground twice, and have all parties involved come back to speed on the issues for a second trial. Lepionka contends there will be significant wasted and duplicated costs as a result. Lepionka’s discovery, I note, has already been ordered in relation to the entirety of Lepionka’s substantive claim. Lepionka adds that its entire claim will be able to be advanced without further delay once that discovery process is completed.12

[16]   On issues of delay, Lepionka suggests Gibson Sheat has already caused a lengthy delay of two years in the resolution of this matter and its delay in bringing the present application is both inexplicable and prejudicial.

12     Full discovery was ordered by Associate Judge Johnston in a minute dated 23 March 2022.

Relevant law

[17]Rule 10.4 of the High Court Rules 2016 provides:

10.4     Court may order separate trials

When justice requires, the court may order separate trials of causes of action and it may also direct the sequence of the separate trials and make any supplementary order that is just.

[18]   The major consideration for the Court in exercising its broad discretion under r 10.4 is the balance of convenience to the parties and to the Court.13 The Court will not make an order for separate trials if there is a real risk that:14

(a)the matters to be traversed in each trial may substantially overlap;

(b)issues of res judicata or conflicting findings may result from the trials; and/or

(c)substantially more Court time will be taken by separate trials.

[19]   The threshold for ordering a split trial is high. In Clear Communications Ltd  v Telecom Corporation of NZ Ltd, Fisher J described the potential difficulties involved with ordering split trials in the following way:15

Split trials risk a number of difficulties. It is often difficult to define with sufficient precision the demarcation between those issues to be addressed at the first trial and those left for the second … It is not always easy to see what matters have become the subject of issue estoppel. It may be necessary to prepare issue estoppel schedules and hear argument as to their scope. A Judge may inadvertently disqualify himself or herself by expressing views on matters yet to be fully addressed at the second hearing … Findings might be inadvertently made without the benefit of evidence and argument envisaged by a party as appropriate only for the second hearing. The second hearing can require the recalling of the same witnesses with needless extra time and cost to the parties and the public. There is duplication of time spent by counsel and the Court in re-acquainting themselves with issues imperfectly remembered from an earlier trial and the time spent retraversing those matters in Court. There can be multiple appeals … before returning to the Court of first instance to embark upon the second phase of the case. Even without appeals, there can be delay in embarking upon a second round of discovery

13     Goodship v Minister of Fisheries (2000) 15 PRNZ 256 at [8].

14 At [13].

15     Clear Communications Ltd v Telecom Corporation of NZ Ltd (1998) 12 PRNZ 333, at 335.

and other interlocutory matters and amended pleadings following the first trial and then the delay of obtaining a fixture for the second hearing. There can be difficulties in ensuring that the same Judge is available for the second hearing. […] If a different Judge has to preside at the second hearing there can be difficulties over earlier views as to credibility and the status of the notes of evidence from the first hearing.

[20]   His Honour was therefore of the view the difficulties together place “a heavy onus” on any party seeking split trials.16 Bearing this in mind, Fisher J went on to state, however:17

In the end, however, every case must be considered individually and the possibility of a split trial should never be dismissed out of hand. The most important single question is usually the interaction between the issues intended to be traversed at the first hearing and those for the second.

[21]   It is important, as I see it, to note the context in which these comments were made. In the Clear Communications case, there was a major overlap which was “likely to make a division into two clearly discrete topics a difficult one.”18 Ultimately his Honour was not satisfied the “inherent disadvantages of split trials” were outweighed by arguments in favour of a split trial in that case.19

Risk of overlap and conflicting findings

[22]   The counterclaim in the present case, in my view, involves a narrow and clearly defined set of facts and legal issues. The question for the Court determining that counterclaim will be whether there was a full and final completed settlement between the parties. The Court will not have to assess the merits of Lepionka’s substantive claim in order to resolve this question.

[23]   Lepionka does say, however, that both trials would require detailed consideration of events occurring from March 2015 to June 2017. In particular, it contends that in order to determine the counterclaim, the Court will have to investigate what the parties understood Lepionka’s legal position, including its litigation risk, at the time of the settlement, to be. Lepionka maintains this will require assessing all advice given by Gibson Sheat from March 2015 to March 2016 or later and the Court

16     Clear Communications Ltd v Telecom Corporation of NZ Ltd, above n 15, at 335.

17     At 335.

18     At 336.

19     At 337.

will have to evaluate the correctness of that advice and the potential consequences to Lepionka in terms of the risks it faced.

[24]   This, as I see the position, however, is not correct. While it is true the Court will have to investigate evidence as to the context and background of the settlement agreement, the question whether the parties agreed to the essential terms of a bargain will be determined according to ordinary principles of contract formation, assessed from an objective standpoint.20 Whatever subjective impression either party had as to the legal position, generally, of either party is irrelevant except to the extent the evidence establishes it illustrates whether a reasonable person would have thought a full and final concluded settlement had been reached. There is already no dispute that the parties agreed the terms of a settlement on 29 February 2016. The question for trial will be whether that agreement was conditional on an executed deed and/or independent legal advice.

[25]   I am also conscious of the risks in split trials of issue estoppel and conflicting findings. In this respect, however, I am satisfied the issues on Gibson Sheat’s counterclaim here are narrow and confined. That the counterclaim issue is sufficiently discrete from the substantive claim the risk of issue estoppel arising in my view will be minimal. In terms of conflicting findings too, as I see it, the evidence currently being discovered will address different issues. Though there will be some overlap of evidence, I accept it will be possible to “ring-fence” the issues relating to the counterclaim as the Gibson Sheat suggests. This will ensure that any findings of fact will relate only to issues in dealing with the counterclaim. The evidence is also largely uncontested. It is indeed likely, as I see it, that no such difficult findings of fact will have to be made.

[26]   In my judgment, the risks of overlapping issues, issue estoppel or conflicting findings are each low in this case. Though I am satisfied any overlap in evidence between the trials will be minimal, in any event, it will be expedient for counsel at trial on the counterclaim issue to be careful to restrict evidence to matters wholly necessary to determine the counterclaim and not pre-emptively any further.

20     See Bathurst Resources Ltd v L&M Coal Holdings Ltd [2021] NZSC 85, [2021] 1 NZLR 696; and

Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432.

Savings in time, cost and court resources

[27]   Often, a significant reason in favour of granting split trials is that, in the event an applicant succeeds on its counterclaim, of course the proceeding will come to an end. This is likely to result in considerable savings in time, cost and Court resources. The parties here, however, dispute the extent to which there will be such savings.

[28]   Gibson Sheat says Lepionka’s claim will require a trial of at least two to three weeks. If so, this may be unlikely to be heard before 2024. The substantive case, it seems, does raise complex issues and will require an assessment of over seven years of litigation. In contrast, it appears, as I note, the counterclaim could be heard in one or two days perhaps at the end of this year. Gibson Sheat says, too, there are likely to be further preliminary applications in advance of any substantive trial. This may include an application signalled to join third parties to the proceedings, as well as for particular discovery, which later application is likely to be contested on the basis of whether or not there is privilege. Gibson Sheat maintains a split trial will not disturb the progress of these issues, except if its counterclaim is successful, in which event they will no longer be necessary.

[29]   Lepionka, in response, submits Gibson Sheat's suggestion that a separate trial will take one to two days is entirely unrealistic. It says the counterclaim hearing will involve at least four witnesses and evidence covering a two-year period and therefore suggests a correct estimate would be five days’ hearing time. Lepionka says a single trial would only take a total of 10 days, so holding split trials will likely save five days in hearing time if Gibson Sheat is successful on its counterclaim, but extend the hearing time by five days if it fails.

[30]   As noted above, I am satisfied the issues in relation to the counterclaim are narrow and confined. In contrast, I accept the substantive claim will involve considerable evidence, analysis and findings. As appears also from comments of Associate Judge Paulsen in this summary decision as well, it seems to me the issues on the counterclaim will be resolved in a relatively straightforward fashion with the assistance of a little further evidence which was not provided for in the summary judgment application.

[31]   There is also some merit in my view in Gibson Sheat’s point that a large part of the claim relates to a legal fees claim. Full discovery has already been ordered.  If a separate trial is heard on the counterclaim issue alone, preparation and argument can be restricted to matters which, if Gibson Sheat is successful on, will bring the entire proceedings to an end at that point. Any substantive trial by way of contrast would involve complex issues and a significant deal of preparation. In my view, it makes sense to determine this preliminary issue first so that if the substantive trial is required the parties can then prepare accordingly. Significant effort, time and cost would be saved in the event the counterclaim is successful.

[32]   Lepionka then suggests Gibson Sheat has failed to acknowledge the effect separate appeals may have generally and on the trial process in particular. It says there could be at least one appeal on a separate counterclaim trial.21 Lepionka suggests the second (substantive) trial accordingly might not occur until 2025, some 10 years after the events giving rise to the claim. As Fisher J said in Clear Communications Ltd v Telecom Corporation of NZ Ltd, the prospect of (multiple) appeals on the first trial is a relevant consideration.22 However, it is not a consideration which leads me to reject a split trial here. Lepionka points to a potential delay between the events and the final trial. I note, however, it did not notify Gibson Sheat of a claim against it until mid-2020, so in my view there is limited force in this suggestion, and, if the counterclaim is ultimately found to have resulted in unwarranted additional delay or expense, this can also be reflected in a final costs award. It is a risk Gibson Sheat must always weigh in applying for a split trial.

[33]   And overall, I am not convinced at this point that substantially more Court time will be taken by holding separate trials.

Conclusion

[34]   For all these reasons, I am satisfied that it is in the interests of justice here that the Court order separate trials in this proceeding. Much of the background is

21    I note the respondent alludes to an appeal to the Supreme Court if unsuccessful on first appeal of an unsuccessful first trial. As an aside, I am not sure such an appeal would be of such public or general importance as the Supreme Court would require before granting leave to appeal further.

22 Clear Communications Ltd v Telecom Corporation of NZ Ltd, above n 15, at 335.

undisputed and I am satisfied the issues on Gibson Sheat’s counterclaim are narrow and confined. They will be assisted, too, by the provision of certain further evidence which I understand is in the process of being discovered in any case.

[35]   I find the balance of convenience to the parties and to the Court clearly favours a split trial in this case.

[36]   Gibson Sheat’s application succeeds. An order is now made that its affirmative defence and counterclaim is to be the subject of a separate trial in advance of any trial that may proceed of Lepionka’s substantive claim here.

[37]   The Registrar is directed to liaise with counsel for the parties to set the counterclaim matter down for hearing as a separate trial at the earliest available and suitable date, and to make appropriate timetabling directions to lead up to this hearing.

Costs

[38]   Costs are reserved for determination at the conclusion of the hearing of Gibson Sheat’s counterclaim.

Gendall J

Solicitors:

Bell Gully, Wellington for Lepionka/Respondent Hesketh Henry, Auckland, for Gibson Sheat/Applicant