Body Corporate 207624 v Grimshaw & Co – Court awards compensation for negligent advice
Although the lawyers at Grimshaw & Co (Grimshaws) achieved a $20.1 million settlement for their clients over a leaky building claim (Spencer on Byron) in 2014, the High Court has recently ruled they were negligent in providing advice to the Body Corporate.
In around 2002, there were significant leaking defects discovered in the Spencer on Byron (the Building). In 2007, the Body Corporate claimed repair costs against the building company and the North Shore City Council.
The Body Corporate instructed Grimshaws to act for it, and at the advice of Grimshaws, the Body Corporate encouraged individual unit title owners to join the proceedings as second plaintiffs. By 2010, there were more than 200 unit owners that had joined on. Around 50 unit owners remained as non-plaintiffs.
During the course of the litigation, the Unit Titles Act 2010 (UTA) came into force. Under this new Act, the ownership of common property was given to the Body Corporate, with the owners of units retaining an interest as tenants in common. In response to these new laws, Grimshaws drafted a Conduct and Distribution Agreement (CDA) between the Body Corporate and second plaintiff unit owners to govern the litigation process. It, however, did not give proper consideration or advice in relation to the appropriate distribution mechanism to be adopted for settlement proceeds in light of the new UTA.
In 2014, Grimshaws received $20.1 million in settlement funds. The settlement was to be distributed between second plaintiff unit owners only, as per the CDA. Non-plaintiff owners contested this, claiming that they were entitled to benefit from the settlement to repair the common property.
The Court agreed, noting that the non-plaintiff owners were members of the Body Corporate and were beneficially entitled to the common property as tenants in common. The scope of Grimshaws' duty of care was to review the CDA in light of the new UTA and to advise the Body Corporate of any legal risks to it in implementing the CDA. It was not necessary for the Body Corporate to provide explicit instructions to Grimshaws to review this. Therefore, it was found that Grimshaws, in failing to advise the Body Corporate of the risks that a “reasonably competent solicitor” should have done, had breached its duty of care.
Grimshaws attempted to claim that the significant change in unit ownership since commencement of litigation meant that the Body Corporate no longer had a standing to bring the claim. The Court disagreed.
The Body Corporate was successful in its claim, and Grimshaws was ordered to pay almost $3.3 million to the Body Corporate for its negligent advice.
This case highlights the complexity of building issues in multi-unit properties and demonstrates the importance of receiving up-to-date legal advice.
If you would like to know more about the issues arising from this judgment, please get in touch.
