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

LEPIONKA & COMPANY INVESTMENTS LIMITED v GIBSON SHEAT [2022] NZHC 1488 [27 June 2022]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYI TE KŌTI MATUA O AOTEAROATE WHANGANUI-A-TARA ROHECIV-2021-485-301[2022] NZHC 1488BETWEEN LEPIONKA & COMPANYINVESTMENTS LIMITEDPlaintiffAND GIBSON SHEATDefendantHearing: On the papersCounsel: M G Colson QC and S J Leslie for Plaintiff/RespondentC L Bryant and G J Luen for Defendant/ApplicantJudgment: 27 June 2022JUDGMENT OF GENDALL JIntroduction[1] The applicant (Gibson Sheat), which is the defendant in these substantiveproceedings, seeks an order for a separate trial to determine an affirmative defence andcounterclaim (the counterclaim) in advance of a trial of the substantive claims ofLepionka & Company Investments Limited (Lepionka) which is the plaintiff in thesubstantive proceedings. Gibson Sheat says Lepionka's claims were fully and finallysettled on 29 February 2016 or shortly thereafter. Lepionka for its part maintains theparties reached only a conditional settlement agreement on that date. That agreement,it is said, was conditional on Lepionka both obtaining independent legal advice andexecuting a deed of settlement. Lepionka contends it did neither of those things andtherefore the terms of the conditional agreement were never fulfilled.[2] The issue before me therefore is whether a separate trial should be ordered todetermine Gibson Sheat' counterclaim, on the basis that it is claimed a full and finalsettlement of Lepionka's claim has occurred. The following is by way of backgroundand is not generally in dispute.[3] In these proceedings, Lepionka sues Gibson Sheat, its former solicitors, forallegedly negligent legal advice given in 2015. The advice involved the assignmentof a mortgage. Lepionka says it followed Gibson Sheat's advice, and that advice wasnegligent. Lepionka contends, as a result of Gibson Sheat's advice, it has spent thelast 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 forwhich it was given.[4] Lepionka did not pay Gibson Sheat's fees for November and December 2015and at that time notified the firm of the potential for a claim against it. Mr Horton, along-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 Hortonconfirmed that Lepionka had taken independent legal advice and secondly, a full andfinal settlement was reached of all claims or potential claims that existed against thefirm. Over the following weeks, Mr Lepionka on behalf of Lepionka and Mr Wallaceon behalf of Gibson Sheat negotiated terms on which Gibson Sheat would resumework for the company. Those terms included a credit on outstanding fees, discountedrates for future work and a full and final settlement of all past claims or potentialclaims. Mr Lepionka and Mr Wallace agreed the terms of the settlement on29 February 2016. The settlement arrangement was confirmed in emails exchangedthat evening, to which Mr Horton was copied in.[5] Mr Wallace said he would send Lepionka a simple deed recording thesettlement terms. He did so on 2 March 2016. Lepionka did not comment on the draftdeed 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 settlementcorrespondence and the draft deed. Once again, there was no response.[6] In the meantime, Gibson Sheat resumed work for Lepionka at the agreedreduced hourly rates from 29 February 2016. On 18 March 2016, Gibson Sheat issueda credit note in respect of its earlier fees. This provided the agreed fee credit andreferenced the settlement agreement.[7] It was not until 1 June 2017 that Mr Lepionka told Mr Wallace he had beenadvised 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 on4 May 2020 and inviting the firm to participate in an alternative dispute resolutionprocess. An attempted mediation was unsuccessful. Lepionka commencedproceedings 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 theapplication.1 In dismissing Gibson-Sheat's summary judgment application, however,the Associate Judge held that, viewed objectively, the dealings and communicationsbetween Mr Wallace and Mr Lepionka showed the parties had agreed the essentialterms of a settlement on 29 February 2016.2 The Associate Judge also rejectedLepionka's claim that the parties did not intend to be bound by the settlement until ithad taken further independent advice.3[9] The Associate Judge said, however, that he was not satisfied he coulddetermine on a summary basis whether or not the parties intended at that time that theiragreement would be subject to execution of a formal deed.4 Associate Judge Paulsenexpressed that on a first impression, Lepionka's position as plaintiff "wasunappealing" and that it appeared to be "unrealistic (and unjust) for [Lepionka] toenjoy the benefits of the settlement agreement but deny it was bound by its terms".5The Associate Judge said there was "obvious force" in Gibson Sheat's arguments thatthe parties intended to be bound by their agreement regardless of whether a deed was1 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" forsummary judgment.6 Because the Court was being asked to objectively assess theparties' intentions at the time, the Associate Judge concluded the question would needto be determined following disclosure and a full hearing of the parties' evidence onthis issue.7[10] Accordingly, Associate Judge Paulsen accepted there was "scope for aninference 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 wasbecause he was not satisfied it was "unarguable" that on 29 February 2016, the partiesdid not intend to be bound until execution of a formal deed, which was an issue thatcould only be determined at trial.10 For completeness, however, the Associate Judgerecorded that Gibson Sheat had advanced its application for summary judgment on anarrow basis, and that it might be open to it to argue that, even if the parties did notintend immediately to be bound, that intention subsequently changed or the parties infact waived the requirement for a formal deed.11Split trial application — positions of the parties[11] As I have noted, Gibson Sheat has now amended its affirmative defence andcounterclaim accordingly. It submits, too, that the balance of convenience and theinterests 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 legalissues relevant to the counterclaim are narrow and defined in scope. It says all thatcan 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 orissue estoppel or conflicting findings of fact occurring here. Gibson Sheat says that if6 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 toplead in the alternative that the parties by their conduct: (a) accepted the terms of settlement agreedon 29 February 2016 and/or recorded in the draft deed; and/or (b) waived any requirement forexecution of a deed.it succeeds in its counterclaim, the proceeding will come to an end, resulting inconsiderable savings in time, cost and court resources.[13] Lepionka opposes the application. It maintains the interests of justice do notfavour the granting of the application, nor has Gibson Sheat advanced sufficientgrounds to displace the presumption that all matters should be determined in the onetrial here because normally this is the most expeditious and efficient manner fordealing with a proceeding like the present.[14] In particular, Lepionka maintains there are several common and overlappingissues here. Regardless of whether a split trial is ordered, it says the earlier context tothe settlement will need to be traversed in evidence and submissions advanced in orderto determine what the parties understood at the time. Similarly, Lepionka says that todetermine whether the claim was settled or whether it may have waived a requirementfor a written agreement to be executed, will require consideration of post-contractualconduct between February 2016 and at least June 2017. Lepionka contends that anysecond trial could be impacted by findings made in a first trial without full argumentand evidence and, given the same Judge might not be available for both trials, thiscould lead to inconsistent findings.[15] Lepionka also argues there will be adverse effects in the event a split trial isordered. It suggests very little time would be saved by a separate trial as there will bea need to call the same witnesses and traverse the same ground twice, and have allparties involved come back to speed on the issues for a second trial. Lepionkacontends there will be significant wasted and duplicated costs as a result. Lepionka'sdiscovery, I note, has already been ordered in relation to the entirety of Lepionka'ssubstantive claim. Lepionka adds that its entire claim will be able to be advancedwithout further delay once that discovery process is completed.12[16] On issues of delay, Lepionka suggests Gibson Sheat has already caused alengthy delay of two years in the resolution of this matter and its delay in bringing thepresent 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 trialsWhen justice requires, the court may order separate trials of causes ofaction and it may also direct the sequence of the separate trials andmake any supplementary order that is just.[18] The major consideration for the Court in exercising its broad discretion underr 10.4 is the balance of convenience to the parties and to the Court.13 The Court willnot 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 Ltdv Telecom Corporation of NZ Ltd, Fisher J described the potential difficulties involvedwith ordering split trials in the following way:15Split trials risk a number of difficulties. It is often difficult to define withsufficient precision the demarcation between those issues to be addressed atthe first trial and those left for the second It is not always easy to see whatmatters have become the subject of issue estoppel. It may be necessary toprepare issue estoppel schedules and hear argument as to their scope. A Judgemay inadvertently disqualify himself or herself by expressing views onmatters yet to be fully addressed at the second hearing Findings might beinadvertently made without the benefit of evidence and argument envisagedby a party as appropriate only for the second hearing. The second hearing canrequire the recalling of the same witnesses with needless extra time and costto the parties and the public. There is duplication of time spent by counseland the Court in re-acquainting themselves with issues imperfectlyremembered from an earlier trial and the time spent retraversing those mattersin Court. There can be multiple appeals before returning to the Court offirst instance to embark upon the second phase of the case. Even withoutappeals, there can be delay in embarking upon a second round of discovery13 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 trialand then the delay of obtaining a fixture for the second hearing. There can bedifficulties 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 bedifficulties over earlier views as to credibility and the status of the notes ofevidence from the first hearing.[20] His Honour was therefore of the view the difficulties together place "a heavyonus" on any party seeking split trials.16 Bearing this in mind, Fisher J went on tostate, however:17In the end, however, every case must be considered individually and thepossibility of a split trial should never be dismissed out of hand. The mostimportant single question is usually the interaction between the issuesintended 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 weremade. 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 Ultimatelyhis Honour was not satisfied the "inherent disadvantages of split trials" wereoutweighed by arguments in favour of a split trial in that case.19Risk of overlap and conflicting findings[22] The counterclaim in the present case, in my view, involves a narrow and clearlydefined set of facts and legal issues. The question for the Court determining thatcounterclaim will be whether there was a full and final completed settlement betweenthe parties. The Court will not have to assess the merits of Lepionka's substantiveclaim in order to resolve this question.[23] Lepionka does say, however, that both trials would require detailedconsideration of events occurring from March 2015 to June 2017. In particular, itcontends that in order to determine the counterclaim, the Court will have to investigatewhat the parties understood Lepionka's legal position, including its litigation risk, atthe time of the settlement, to be. Lepionka maintains this will require assessing alladvice given by Gibson Sheat from March 2015 to March 2016 or later and the Court16 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 toLepionka in terms of the risks it faced.[24] This, as I see the position, however, is not correct. While it is true the Courtwill have to investigate evidence as to the context and background of the settlementagreement, the question whether the parties agreed to the essential terms of a bargainwill be determined according to ordinary principles of contract formation, assessedfrom an objective standpoint.20 Whatever subjective impression either party had as tothe legal position, generally, of either party is irrelevant except to the extent theevidence establishes it illustrates whether a reasonable person would have thought afull and final concluded settlement had been reached. There is already no dispute thatthe parties agreed the terms of a settlement on 29 February 2016. The question fortrial will be whether that agreement was conditional on an executed deed and/orindependent legal advice.[25] I am also conscious of the risks in split trials of issue estoppel and conflictingfindings. In this respect, however, I am satisfied the issues on Gibson Sheat'scounterclaim here are narrow and confined. That the counterclaim issue is sufficientlydiscrete from the substantive claim the risk of issue estoppel arising in my view willbe minimal. In terms of conflicting findings too, as I see it, the evidence currentlybeing discovered will address different issues. Though there will be some overlap ofevidence, I accept it will be possible to "ring-fence" the issues relating to thecounterclaim as the Gibson Sheat suggests. This will ensure that any findings of factwill relate only to issues in dealing with the counterclaim. The evidence is also largelyuncontested. It is indeed likely, as I see it, that no such difficult findings of fact willhave to be made.[26] In my judgment, the risks of overlapping issues, issue estoppel or conflictingfindings are each low in this case. Though I am satisfied any overlap in evidencebetween the trials will be minimal, in any event, it will be expedient for counsel at trialon the counterclaim issue to be careful to restrict evidence to matters wholly necessaryto 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; andFirm 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 eventan applicant succeeds on its counterclaim, of course the proceeding will come to anend. 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 threeweeks. If so, this may be unlikely to be heard before 2024. The substantive case, itseems, does raise complex issues and will require an assessment of over seven yearsof litigation. In contrast, it appears, as I note, the counterclaim could be heard in oneor two days perhaps at the end of this year. Gibson Sheat says, too, there are likely tobe further preliminary applications in advance of any substantive trial. This mayinclude an application signalled to join third parties to the proceedings, as well as forparticular discovery, which later application is likely to be contested on the basis ofwhether or not there is privilege. Gibson Sheat maintains a split trial will not disturbthe progress of these issues, except if its counterclaim is successful, in which eventthey will no longer be necessary.[29] Lepionka, in response, submits Gibson Sheat's suggestion that a separate trialwill take one to two days is entirely unrealistic. It says the counterclaim hearing willinvolve at least four witnesses and evidence covering a two-year period and thereforesuggests a correct estimate would be five days' hearing time. Lepionka says a singletrial would only take a total of 10 days, so holding split trials will likely save five daysin hearing time if Gibson Sheat is successful on its counterclaim, but extend thehearing time by five days if it fails.[30] As noted above, I am satisfied the issues in relation to the counterclaim arenarrow and confined. In contrast, I accept the substantive claim will involveconsiderable evidence, analysis and findings. As appears also from comments ofAssociate Judge Paulsen in this summary decision as well, it seems to me the issueson the counterclaim will be resolved in a relatively straightforward fashion with theassistance of a little further evidence which was not provided for in the summaryjudgment application.[31] There is also some merit in my view in Gibson Sheat's point that a large partof the claim relates to a legal fees claim. Full discovery has already been ordered. Ifa separate trial is heard on the counterclaim issue alone, preparation and argument canbe restricted to matters which, if Gibson Sheat is successful on, will bring the entireproceedings to an end at that point. Any substantive trial by way of contrast wouldinvolve complex issues and a significant deal of preparation. In my view, it makessense to determine this preliminary issue first so that if the substantive trial is requiredthe parties can then prepare accordingly. Significant effort, time and cost would besaved in the event the counterclaim is successful.[32] Lepionka then suggests Gibson Sheat has failed to acknowledge the effectseparate appeals may have generally and on the trial process in particular. It says therecould be at least one appeal on a separate counterclaim trial.21 Lepionka suggests thesecond (substantive) trial accordingly might not occur until 2025, some 10 years afterthe events giving rise to the claim. As Fisher J said in Clear Communications Ltd vTelecom Corporation of NZ Ltd, the prospect of (multiple) appeals on the first trial isa relevant consideration.22 However, it is not a consideration which leads me to rejecta split trial here. Lepionka points to a potential delay between the events and the finaltrial. I note, however, it did not notify Gibson Sheat of a claim against it untilmid-2020, so in my view there is limited force in this suggestion, and, if thecounterclaim is ultimately found to have resulted in unwarranted additional delay orexpense, this can also be reflected in a final costs award. It is a risk Gibson Sheat mustalways weigh in applying for a split trial.[33] And overall, I am not convinced at this point that substantially more Court timewill be taken by holding separate trials.Conclusion[34] For all these reasons, I am satisfied that it is in the interests of justice here thatthe Court order separate trials in this proceeding. Much of the background is21 I note the respondent alludes to an appeal to the Supreme Court if unsuccessful on first appeal ofan unsuccessful first trial. As an aside, I am not sure such an appeal would be of such public orgeneral 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 narrowand confined. They will be assisted, too, by the provision of certain further evidencewhich 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 favoursa split trial in this case.[36] Gibson Sheat's application succeeds. An order is now made that its affirmativedefence and counterclaim is to be the subject of a separate trial in advance of any trialthat may proceed of Lepionka's substantive claim here.[37] The Registrar is directed to liaise with counsel for the parties to set thecounterclaim matter down for hearing as a separate trial at the earliest available andsuitable 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 ofGibson Sheat's counterclaim.Gendall JSolicitors:Bell Gully, Wellington for Lepionka/RespondentHesketh Henry, Auckland, for Gibson Sheat/Applicant