Clearing the air on contractual obligations: lessons learned from bushfire smoke and WHS-related delays

By Jennifer Wyborn, Charisse Matthews and Ali McMaster
05 Mar 2020
You should review your existing contracts to ensure liabilities in the event of WHS-related delays, including delays due to bushfire smoke, are clear and understood, and consider your approach to providing for such events in future contracts, in a way that allows you and other parties to meet your obligations under WHS law.

The hazardous smoke from Australia's bushfires that blanketed urban, regional and rural areas over the last several months has caused significant disruption to many workplaces. Some workplaces took steps to limit their opening hours, advised workers to stay home, or ceased work entirely.

As we've previously noted, in these conditions it can be necessary to limit or cease work to ensure worker health and safety, and to discharge your duties under work health and safety (WHS) laws. This is especially the case if you work in the construction industry and/or engage persons on construction sites, where many workers work outside, for extended periods of time and on tasks that require increased levels of exertion.

However, extreme weather conditions have highlighted the potential gaps and issues that can arise where stopping work for such events was not necessarily foreseen in the contract. Specifically, stopping work to ensure worker health and safety has the potential to cause delays to project completion. This is problematic where many contracts, including construction contracts, are set up so that the contractor is liable for delays to project completion, subject to certain exceptions such as where the event qualifies as a "force majeure". Usually, in the event of a force majeure, the contractor may be able to claim an extension of time or suspension of their contractual obligations for the period of the disruptive events.

Where such an exception is not available, contractors in this position may find themselves between a rock and a hard place. They can either stop work, cause delays, and risk liability for liquidated damages; or keep working, meet deadlines, but potentially put their workers' health and safety at risk and also expose themselves to damages.

The disruptions caused by bushfire smoke highlight the need to have clear contractual mechanisms and definitions for dealing with both natural disasters and the indirect impact of them. Below we discuss some general contractual principles that may be useful, as well as some other issues to keep in mind during contract negotiations.

Force majeure: where there's "smoke" there's "fire"….or is there?

Generally, force majeure clauses operate to excuse a party to a contract from performing their obligations, usually because of an event out of their control. Typically, where a force majeure event causes delays to project completion, the contractor will not be liable to pay liquidated damages because of these delays.

How a force majeure clause is drafted will affect the allocation of risk. If you are a Project Company/developer, you may wish to have a narrow force majeure clause, where there are fewer events that will excuse the principal contractor from performing their contractual obligations. Conversely, if you are the principal contractor, you may wish for a broader clause where performance obligations and liability for liquidated damages will be excluded in a greater number of situations.

What will qualify as a force majeure will differ depending on definitions used in the particular contract. However, definitions usually include specific qualifying events, such as a natural disaster, fire or a bushfire, war, invasions, or other "Acts of God". These events also usually need to be out of the party's control; have stopped the party from performing their contractual obligations; and are events that the party could not have prevented or remedied.

The recent effects of the bushfire smoke on Australian workplaces highlights the need to think carefully about what exactly is being included, and what might inadvertently be excluded, from the definition of a force majeure. For example, even if you have expressly included "fire" and/or "bushfire" in your list of events that would qualify, it is unclear that bushfire "smoke" alone, separate from fire itself, would fall into these categories.

This lack of clarity has the potential to cause disputes between parties who have different interests in particular constructions of such a clause. Such disputes can occur even where bushfire smoke has had a severe impact on a site, that was unable to be avoided and amounts to something that is "irresistible, unforeseeable, external to the person claiming discharge [making] … performance impossible and not merely more difficult”.[1]

By contrast, if a force majeure event was defined to include any "inclement weather" event that posed an unacceptable risk to worker health and safety, then hazardous bushfire smoke (or other extreme unforeseen weather events), which also met the other conditions of a force majeure would likely fall within this category. Similarly, if you preferred to exclude such weather events, it would best to make this clear. Alternatively, you could provide for a regime to negotiate an adjustment or extension to project completion dates or an extension of time for such events.

Regardless, any arrangement must consider worker health and safety and reflect an understanding that all parties to a contract will likely owe health and safety duties to workers on the ground.

Tips for future drafting: keep WHS front and centre

If worker health and safety is at risk, you need to think very carefully about how you and the other party (or parties) will manage this, both when entering into and during the life of a contract. This is because multiple parties can owe the same workers the same primary duty of care to take all reasonable care to ensure worker health and safety.

In the construction context, this means that both a project company/developer and a principal contractor can owe a duty of care to workers on the ground and even subcontractors. Although what each party will need to do to discharge this duty will depend on what exactly each influences or controls, if workers are exposed to hazardous conditions, the actions of all duty holders will be under the microscope. Further, all duty holders have a duty to consult, co-operate and co-ordinate activities with other duty holders, and can be held separately accountable for failures to do this.

If you haven’t already done so, you should consider building mechanisms to discharge these duties into your contracts, noting that the courts will take into account all avenues available to all parties in considering what was reasonably practicable for each to do to ensure worker health and safety. Just because a step is difficult or involves financial costs is unlikely, of itself, to excuse liability.

You should also be aware of increased scrutiny and regulatory willingness to crack down on failures to ensure worker health and safety. For example, in the ACT, an area that was heavily affected by bushfire smoke, Employment and Workplace Safety Minister Suzanne Orr has pledged funding of $8.7 million over four years to Worksafe ACT. Among other things, this funding will be used to hire more inspectors and provide additional support for workplace investigations. Similarly, there is a growing trend to target all entities in a supply chain. This can be seen with the recent announcement of the first prosecution under new "WHS-style chain-of-responsibility (CoR) provisions of the Heavy Vehicle National Law".

You should take steps now to understand what your contracts require of you. Further, in future, it would be advisable to take a broader view of what could potentially derail projects, and prepare for such events.

[1] Hyundai Merchant Marine Co Ltd v Dartbrook Coal (Sales) Pty Ltd (2006) 236 ALR 115, Kiefel J. Back to article

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.