Ruling upholds finding of compliance with independent legal advice requirement
New Zealand’s Supreme Court has dismissed an application for leave to appeal sought by an investor that sued a firm of solicitors for professional negligence through the allegedly flawed advice it gave in connection with a real estate transaction.
In Lepionka & Co Investments Ltd v Gibson Sheat [2026] NZSC 51, the applicant investor paid a deposit of about $463,000 to purchase land. The seller faced difficulties. Due to the lack of security, the applicant risked losing the deposit.
The applicant asked the respondent firm for legal advice regarding that risk. The firm advised the applicant to take over the seller’s mortgage interests. Given a possible flaw in the firm’s advice, the applicant’s principal shareholder formally raised concerns.
On 26 February 2016, the firm offered to resume acting and to deduct $100,000 from the outstanding invoices if the applicant agreed not to commence a claim against it.
In its 29 February 2016 counter-offer, the applicant said it would withdraw its threat of litigation and accept the firm’s terms for a fee reduction of $131,651 plus taxes. The firm drafted a written agreement, which was never executed or pursued.
The applicant pushed through with filing a professional negligence suit. A question arose on whether the parties had settled the proceedings.
First, the applicant alleged that the oral agreement was unenforceable because it had not received independent legal advice regarding the existence and extent of the firm’s conflict of interest, including advice on the client’s ability to sue the lawyer and the prospects of recovering from the firm for losses arising from the negligent advice.
Second, the applicant asserted that the agreement was conditional on its execution in writing.
The High Court found performance of the terms of the informal 29 February agreement. The Court of Appeal of New Zealand dismissed the applicant’s appeal for essentially the same reasons. The applicant applied for leave to appeal.
In its proposed appeal, which reprised previously advanced arguments, the applicant contended that the appeal court wrongly found the 29 February agreement lawful and erroneously relied on the availability of advice from counsel engaged in associated litigation as fulfilling the requirement for independent advice.
The Supreme Court of New Zealand ruled that the applicant’s proposed appeal arguments repeated the unsuccessful arguments it had advanced before the courts below.
Regarding the applicant’s proposed appeal argument on the lack of independent advice, the Supreme Court found no likely miscarriage of justice in the civil context and no need to grant leave to appeal in the interests of justice.
The Supreme Court acknowledged a possible question of general or public importance in connection with the legal profession’s fiduciary obligations in the context of a dispute involving a foreshadowed professional negligence claim.
However, the Supreme Court did not consider this an appropriate case to address that issue. First, the Supreme Court noted that prior rulings addressed the relevant principles, as stated in rr 5.11 and 5.12 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008.
Second, the Supreme Court said it would not be likely to reach a conclusion different from the lower courts’ findings, given the clear terms of the firm’s 10 February 2016 communications to the applicant, which explicitly addressed the rr 5.11 and 5.12 requirements, as well as the applicant’s unambiguous response.
Third, the Supreme Court saw no error in the High Court of New Zealand’s finding that a senior commercial lawyer, who was a trustee of the family trust of the applicant’s principal shareholder, was independent enough to advise the applicant regarding the agreement.
The Supreme Court also found it unnecessary in the circumstances to rely on the other counsel’s availability to the applicant to meet the independent advice requirement.
Regarding the applicant’s proposed appeal argument on the lack of a formal written agreement, the Supreme Court saw insufficient prospects of success justifying further appeal or making the grant of leave necessary in the interests of justice.
Lastly, the Supreme Court ordered the applicant to pay the respondent firm costs of $2,500.
