Project manager plays Russian roulette with council and wins

April 1, 2011

Written By: Tim Bates

Tim Bates of Auckland law firm Legal Vision presents a case where a smaller party in a leaky building claim tested the willingness of a council to proceed against it after settlement was reached with other parties.

Leaky building claims often head down a well trodden track. Proceedings are issued in the courts or the Tribunal, interlocutory steps are disposed of, and a mediation is ordered prior to the matter proceeding to trial or adjudication.
One of the vexed questions smaller parties are left with is “do we contribute to a settlement offer just to be rid of this proceeding” or “do we stick to our position that there is no liability, pay nothing, allow the other parties to settle without us, and test the willingness of the others to proceed against us”.
ACC v Grigicevich started as a leaky building claim in the High Court, with a significant claim brought by the owners of some leaky buildings.
The council was named as the only defendant but soon joined in as third parties Mr Grigicevich (Mr G) and an architect.
The claim was settled by the council with the plaintiffs for $4.1 million, and with the architect for $15,000.
It is not clear from the High Court decision whether this settlement was via a mediation process or by some other method.

Third party claim
The plaintiffs walked away from the proceedings, but the council proceeded with its third party claim against Mr G for the sum of $3 million.
By way of background, Mr G became involved in the construction project as a project manager when the construction company that had started the job became insolvent, and the incumbent project manager fell sick.
Mr G contracted through his company but, in effect, he was to take over the project management of the development so that the project obtained its Code Compliance Certificate.
Mr G took over the project management role when the development was 70% to 75% complete.
The council argued that six of the defects had been partly Mr G’s responsibility. It was held that all six defects were patent (ie, they could have been identified by Mr G) at the time he began his project management work.
It was also held that he owed a duty of care to the owners to exercise his responsibilities as project manager to the development, to the standards to be expected of a reasonable, prudent and careful person in his position, so as to prevent damage to subsequent owners of the units.
The court held that he was not liable for patent defects that had been created before he came along to the site. There was neither duty nor causation present for liability to be found.
Mr G’s only duty arose in respect of those defects that he had responsibility for and supervised construction of.
In the alternative, the court held that even if he did owe a duty in respect of the patent defects, this was discharged by bringing them to the attention of the developer.
The court was then asked to rule upon whether, in fact, Mr G had a duty to identify the patent defects to the ACC inspector at the time a Code Compliance Certificate was applied for.
The court was uncomfortable with the duty of care being construed so narrowly so, instead, addressed the question as the following: Does a person who applies for a Code Compliance Certificate owe a duty of care (to end users) to take reasonable steps to discover patent construction defects and prevent them having effect?
The court ruled that Mr G had no such duty at the time he applied to the council for a Code Compliance Certificate.
This case is interesting as it shows a party who chose to defend the claim despite others settling, and succeeding entirely in defending its claim.
No doubt significant costs were incurred by this litigant in defending the claim, but costs were also awarded in its favour so a considerable amount of these would have been paid back.
However for a party to justify such a course, the defence would need to be very strong.

Note: This article is not intended to be legal advice (nor a substitute for legal advice). No responsibility or liability is accepted by Legal Vision to anyone who relies on the information contained in this article.