By now everyone is aware of the near collapse of a crane in Richmond last week. The damage was caused by severe winds, which resulted in the arm of a 35 metre crane bending backwards, leaving it in a precarious position and at risk of falling onto nearby properties. The incident forced residents to evacuate their homes for two full days whilst an exclusion zone was established to ensure no loss of life if the crane were to fall. Richmond traders on Lennox Street and Bridge Road (within the exclusion zone) are currently considering civil action after being forced to close their doors until the damaged crane was dismantled.
The crane is located on a Lennox Street construction site owned by developer Rescom and intended for the building of a multi-storey luxury apartment complex. Whilst the cause of the collapse is being investigated by WorkSafe, initial reports suggest that the arm of the crane was not left in a position to allow safe movement in windy conditions, resulting in its compromised position. It has been reported that this was potentially due to error by an employee of the crane operator.
Now that the damaged crane has been removed, the question turns to who is liable for the loss and damage caused by this incident? The answer to this question is not as straight forward as it may seem, particularly in this situation.
As a general rule, the residents who were forced out of their homes and the traders who could not open their doors for business are likely to look to the developer for recovery, because in most instances the developer owns the land and (hopefully) has deep pockets.
The developer will then look to recover its loss and damage from the head contractor it engaged to carry out the works. The head contractor will in turn look to recover its loss and damage from the crane operator. The crane operator will ultimately look to recover all or some of its loss and damage from insurance.
This “passing” of liability down a contractual chain is quite common. However, there are a number of factors which complicate this chain of recovery in the current circumstances.
The head contractor, in this case Project Group Construction, is currently in voluntary administration. It is understood that work onsite was being performed by subcontractors as the project awaits the appointment of a new head contractor. Therefore, given Project Group Construction’s current financial situation, it is highly unlikely that the developer will be able to recover against the head contractor.
Assuming there is a contract between the developer and the crane operator, then the developer will have grounds in contract for a claim against the crane operator. However, if the cause of the incident was due to employee negligence (as has been reported), then it is highly likely that the crane operator’s insurance may not respond to any claim. If so, then the crane operator’s ability to satisfy any claim made by the developer would be limited to the crane operator’s balance sheet.
If the assets of the crane operator are insufficient to cover the developer’s loss, then the developer may be the party left bearing the liability.
This situation may become even more problematic if any of the contracts contain limitation on liability provisions. These provisions, which are common in the construction industry, operate to further limit rights of recourse down the contractual chain. Ultimately, the burden of loss may be spread across all parties in the contractual chain.
Whilst the near collapse of the crane caused two days of pain for the residents and traders of Richmond, the financial implications are likely to be felt for a long time to come.
This incident highlights the importance of contractual protections in project documents that deal with situations that may arise in the course of a construction project, and in particular the all too common insolvency event of the main contractor. If you have any concerns or queries regarding your position, please contact Stephen Natoli on 03 9321 9796.
Authors: Stephen Natoli & Christabel Teo
Stephen Natoli, Partner
T: +61 3 9321 9796
Kyle Siebel, Partner
T: +61 3 9321 9877
Scott Alden, Partner
T: +61 2 8083 0419
Christine Jones, Partner
T: +61 2 8083 0477
Helena Golovanoff, Partner
T: +61 2 8083 0443
Troy Lewis, Partner & National Head of Construction and Infrastructure
T: +61 7 3135 0614
Stephen Burton, Partner
T: +61 7 3135 0604
Suzy Cairney, Partner
T: +61 7 3135 0684
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this publication is accurate at the date it is received or that it will continue to be accurate in the future. We are not responsible for the information of any source to which a link is provided or reference is made and exclude all liability in connection with use of these sources.
Published by Stephen Natoli