If the ceilings going to be done it needs to go up first, then the top sheet on the wall goes up so it can be pushed up tight to the ceiling.
On the 12'1/2" wall install the rock first on the shorter wall, that will get rid of that 1/2" you need to make up.
If I had to rock a wall that was 8'-1-1/2" tall I would order wider sheetrock from a real rock supply house or add 2 X 4 blocking in each stud bay, install the rock to the wall leaving a gap at the botton then just add a 1" filler strip at the bottom so the base board will lay flat. What ever you use as a filler needs to be 1/2 up off the floor.
Make sure you have nailers in the inside corners to attach the drywall to.
Even if you had of just installed paneling you needed to install drywall to keep it from bowing between the studs.