‘Legal minefield’: Builders fear wave of post-COVID litigation

A potential wave of legal claims over hundreds of millions of dollars of building work disrupted by Melbourne’s COVID-19 lockdowns could cripple the sector and damage the state’s economic recovery.

The building industry’s peak body, the Master Builders Association, says the issue of liquidated damages – compensation payments for building jobs delivered late – presents a “legal minefield” for everyone in the sector from the multibillion-dollar corporate construction giants to the smallest of subcontractors and suppliers.

Master Builders Victoria chief executive Rebecca Casson.Credit:Scott McNaughton

The building industry was allowed to keep working, with some restrictions, for most of 2020 but was ordered into “pilot-light mode” in August and September, with sites only allowed to have 25 per cent of their workforce on the job.

When February’s five-day “circuit-breaker” lockdown was imposed, the industry estimated the shutdown cost more than $450 million in economic activity each day, including $63 million in lost wages.

The disruption has delayed completion of large and small projects and although the MBA says it is not aware of any claims for liquidated damages being lodged so far, it fears there could be big trouble on the way for the industry.

MBA legal advisers are concerned that government-ordered partial shutdowns of building sites and other construction activity may not be considered an “act of God”, or “force majeure”, under many contracts, leaving builders liable to pay out claims over projects disrupted by the pandemic.

Master Builders Victoria chief executive Rebecca Casson has approached state Attorney-General Jaclyn Symes and Treasurer Tim Pallas, advocating a special “COVID-19 contracting framework”, which Ms Casson said would help protect builders against what she feared could be a wave of claims.

“It’s completely understandable that certain projects missed deadlines, but it does leave a legal minefield for everyone involved in the contracting chain about where liquidated damages might be apportioned,” she said.

The association’s proposal works around a mediation model, aimed at resolving disputes without litigation or sending a business or contractor broke.

“Without this process we may see builders penalised through no fault of their own, which could be devastating for the future of their business, jobs and Victoria’s economic recovery,” Ms Casson said.

Leading construction law specialist Professor Paula Gerber, of Monash University Law School, said many construction contracts were ambiguous at best about liability for pandemic-related delays.

“Not all of our standard form construction contracts have force majeure clauses,” Professor Kerber said.

“The courts tend to interpret force majeure clauses very strictly, so they may not cover COVID-19, but what we want to see in the construction industry is certainty. We don’t want to have to take a test case to court to see whether in fact COVID-19 is covered by the force majeure clause or not.”

Professor Gerber said that in the unusual circumstances of the pandemic, the call for state government intervention was appropriate to provide certainty. She cited the building industry’s struggles with mental health matters, an issue she said was linked to extreme pressure placed on workers by contractual arrangements.

“Often we’re reluctant to have the government in commercial contractual arrangements … but when you have something like a one-in-100-year pandemic, we don’t know what is and isn’t covered by construction contracts. I think it is appropriate for the government to provide that certainty,” she said.

Removing some stress, by removing the threat of liquidated damages during a global pandemic, was likely to have a positive effect on mental health in the building sector, and that would be very welcome, Professor Gerber said.

Mr Pallas’ office was approached for comment on Tuesday.

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