Over the past several weeks, a number of earthquakes have hit the Asia Pacific region. The resulting human suffering has shocked and distressed us all.
These events have also impacted severely on businesses, including the construction sector where they raise a number of key issues. In particular, they highlight the importance for contractors, consultants and owners of considering international best practice when operating in the region.
Numerous projects under construction in the region have been delayed, damaged or destroyed, with inevitable consequences in terms of time and cost. In addition, the earthquake events give rise to complex questions that highlight potential risks and liabilities facing all involved in the sector. These include the following:
- Where construction projects are carried out in known earthquake zones, will standard-form Force Majeure clauses necessarily provide relief from the cost and time consequences of earthquakes which, though uncontrollable, can clearly be anticipated? Must earthquake events be expressly mentioned for those clauses to be effective?
- To what extent will Force Majeure relief be available not only for the immediate impact of the event but also for longer-term consequences such as disrupted supply chains and logistical support (for example, damaged access roads and port facilities), the impact on material costs and the effects on labour markets?
- As the scale of the devastation has become apparent, there have been suggestions that building codes and regulations may not adequately reflect the earthquake risk in some areas. Do contractors and consultants working in a known earthquake zone have contractual or other duties to design or construct to a higher standard than required under the relevant code (for example, duties arising under fitness for purpose warranties and/or obligations to take reasonable care)?
- Where a contractor is instructed to proceed on the basis of a design which it suspects to be inadequate or unsafe, does it have duties to warn other parties (including the relevant authorities) of the danger? What if the design concerns a potentially hazardous facility (for example, a petrochemical plant or nuclear research reactor)? For international contractors, do obligations to warn arise under the law of their home jurisdiction and what are the consequences of this?
- Where buildings have not been designed or constructed in accordance with international best practice, could building owners and managers (for example, hoteliers) face liability in other jurisdictions if foreign occupants are injured? In particular, could large damages claims be brought in the US Courts?
The December 2004 Indian Ocean tsunami raised a variety of issues such as these. It was apparent at that time that, while some were already applying international best practice in the region, others had been less proactive or compliant and therefore faced greater risk. The extent of such risk could be significant (five years on, this is still playing out in our case work) and merits attention from anyone with possible exposure in existing works and in relation to future projects where recent events have tragically but clearly demonstrated the extent of seismic risk. As redevelopment and reconstruction gets underway, contractors, consultants and owners should be urgently considering where risks are likely to arise and what can be done to mitigate them. For many, it should be apparent that the most effective mitigation measure is to ensure that international best practice is followed at all times.