Litigation costs were the killer in Stefan Lepionka’s foray into a Hawkes Bay lifestyle subdivision. Attempts to recover these costs from Auckland law firm Gibson Sheat claiming allegedly negligent advice were dismissed by the Court of Appeal.
His claim against Gibson Sheat was settled back in 2016, with an out of court settlement allowing a $105,000 fee reduction, the Court of Appeal ruled.
The court heard detailed evidence of move and counter-move after Mr Lepionka feared his $4.63 million purchase of lots in an intended Hawkes Bay subdivision was at risk. He paid a $463,000 deposit up front in 2014; this money immediately at risk with Westpac as first mortgagee calling up the property developer’s loan, threatening a forced sale of all lots.
To protect his investment, a company he controlled called Lepionka & Co Investments Ltd bought out the Westpac mortgage, taking over all rights held by the bank.
Gibson Sheat provided legal advice on how this deal should be structured.
Threats of legal action against Lepionka Investments followed from others with a vested interest in the intended development: financiers, purchasers of other lots and the property developer himself.
Their major complaint centred on allegations of a conflict of interest: Mr Lepionka as one purchaser was now also exercising rights as a secured creditor with power to override their existing rights.
As events panned out subsequently, Lepionka Investments was held to have improperly benefited from its exercise of Westpac’s rights.
But that was for the future.
More pressing was the legal dilemma now facing Gibson Sheat. It was in an ethical bind: giving legal advice to Mr Lepionka personally (seeking to protect his position as a purchaser) and also acting for his company Lepionka Investments (exercising rights as a mortgagee); their legal interests and obligations had diverged.
Unravelling this conflict arose at a time when a court hearing date loomed, challenging how Lepionka Investment was exercising its powers as secured creditor.
A dance of death ensued.
Gibson Sheat said it wanted billing arrears paid and advised it could no longer act for Lepionka Investments because of the conflict.
Mr Lepionka’s legal adviser questioned whether Gibson Sheat was bailing at this late stage with a court hearing scheduled simply in order to hold Mr Lepionka to ransom.
Failure to recognise from the outset that there would later be a conflict of interest meant Gibson Sheat was negligent in the advice first given, Mr Lepionka claimed.
Negotiations followed.
A number of offers and counter-offers were exchanged by email.
Gibson Sheat agreed: it would write off some of its unpaid fees; reduce billing rates for its further work; and resume preparation for the then upcoming court hearing.
Mr Lepionka agreed to abandon a claim for negligent advice and asked Gibson Sheat to ‘get back on the tools’ and progress the upcoming court hearing.
Law Society ethical rules recognise the hazards of lawyers’ personal involvement when faced with claims against them by clients. There is a clear conflict of interest when lawyers, who owe a duty of loyalty to their clients, are potentially negotiating against their clients’ best interests in reaching any settlement.
Law Society rules require clients get independent advice.
Nearly a decade on, Lepionka Investments looked to resume its negligent advice claim against Gibson Sheat seeking to recover its extensive litigation costs, arguing no independent legal advice was ever received to finalise settlement of his negligent advice claim.
In addition, their email exchanges stated any final settlement agreement would be put in writing and signed by all sides. This was never done, Mr Lepionka said.
No formal written agreement was needed, the Court of Appeal ruled. The essential terms of their agreement were spelt out in email exchanges.
Mr Lepionka did get sufficient independent advice, the court ruled.
He discussed the proposals and counter-proposals with lawyers outside Gibson Sheat.
This was sufficient independent advice for a businessman with Mr Lepionka’s business experience and expertise.
He and three other shareholders previously established beverage company Charlie’s Group; sold in 2011, with Mr Lepionka’s share valued at some $18 million.
Lepionka & Co Investments td v. Gibson Sheat – Court of Appeal (12.09.25)
25.204