A recent decision in New South Wales has made clear the extent to which contractors, under relevant safety laws, have duties to monitor their sub-contractors and ensure their sub-contractors are complying with their own duties.

Diona Pty Ltd v SafeWork NSW [2024] NSWIRComm 1068 has provided some important clarifications on the extent of safety responsibilities for various parties in a contractual chain.

The decision confirms that principal contractors are not responsible for all matters of safety on a worksite, especially tasks being undertaken by expert contractors. It is a timely reminder for duty holders not to follow the path of least resistance and instead to consider challenging statutory notices if they are issued incorrectly to the wrong party.

Though this decision concerns the successful appeal of an improvement notice issued under NSW’s Work Health and Safety Act 2011 (WHS Act) by the NSW safety regulator Safe Work NSW, the principles in the decision are applicable to all Australian jurisdictions and the obligations that arise out of each jurisdiction’s safety laws.

Diona Pty Ltd v SafeWork NSW [2024] NSWIRComm 1068

The facts

Diona was engaged by Hunter Water Corporation (the principal) to undertake high risk construction works, which included installing underground pipes. Diona was also appointed Principal Contractor of the project, with responsibility for carrying out the specified duties of a Principal Contractor under the Work Health and Safety Regulations 2017 (NSW), including health and safety coordination plan, signage, and induction.

Typical of common contracting arrangements, Diona engaged E&M Cahill Pty Ltd (Cahill), who in turn subcontracted Country to Coast Services Pty Ltd , to undertake some of the tasks relating to the underground piping.

During the pipe laying works, a worker for Country to Coast stepped into a designated exclusion zone and was struck by a pipe and seriously injured.

Importantly, the following evidence was uncontroversial:

• Diona was not involved in this work or supervising the work in any capacity.
• At the time of the incident, Diona’s Health Safety Environment and Quality Advisor was at the worksite but on a break, and there were no other Diona employees onsite.
• A safe work method statement (SWMS) had been prepared by Cahill in relation to the high risk construction works which were carried out as part of the pipe laying.
• Diona had reviewed and approved Cahill’s SMWS, but did not have its own SWMS in place.
• Prior to the incident, Diona had conducted 40 formal observations/inspections/Take-5’s and audits of Cahill and its employees onsite, and during these there were no material issues observed with Cahill’s onsite safety.

In response, SafeWork NSW issued an improvement notice to Diona (as the principal contractor) and no other enforcement notices were issued to any other parties. The improvement notice directed Diona to put in place the following measures to remedy Diona’s alleged non-compliance with the relevant NSW WHS laws:

1. 1. Diona must ensure that arrangements are in place to ensure compliance with the SMWS prepared by Cahill; and
2. 2. if high risk construction work is not carried out in accordance with Cahill’s SMWS, Diona must ensure that work is stopped immediately and resumed only in accordance with the SWMS.

Diona unsuccessfully applied for internal review of the notice, and then sought an external review at the NSW Industrial Relations Commission.

The arguments

The dispute was focussed on which entity should be held responsible in the circumstances and therefore issued with the improvement notice.

SafeWork NSW claimed that as the Principal Contractor, Diona was ultimately responsible for all safety matters on the project and it was appropriate to issue the notice to it.

Diona argued that SafeWork NSW had failed to take into consideration what was within its power as Principal Contractor to control, supervise or manage onsite, and what was reasonably foreseeable. Diona further argued that it was not acting in contravention of safety laws because it had systems of work in place to manage the risks to its subcontractors, including:

• a comprehensive WHS Management Plan outlining how contractors can ensure they comply with their WHS obligations (including preparation of SWMS);
• contractual terms defining the power to control supervise and manage designated work amongst the relevant parties.

The decision

The Commissioner made the decision to cancel the notice, for the following reasons:

• SafeWork NSW failed to make reasonable inquiries as to the relationship between the various parties before issuing the improvement notice, and therefore did not have sufficient information to form a reasonable belief that the notice was properly issued to Diona.
• The parties actually conducting the relevant construction activity were Cahill and Country to Coast.
• There had been no consideration by SafeWork NSW as to why Diona should bear all of (or even some of) the responsibility in this case.
• Even if proper inquiries had been made as to the relationships between all the parties, the Commissioner considered it ‘doubtful’ that a reasonable person would conclude that the improvement notice was properly issued to Diona. This is because of the expertise of Cahill and Country to Coast in undertaking the works, and that Diona was not actively involved in supervising the specific activities which were the subject of the improvement notice.

More generally, the Commissioner observed that drawing the line of responsibility between principals, contractors, subcontractors and sub-subcontractors was no easy task, but that

“ the inability to define responsibility explicitly through contractual terms, may have the perverse outcome that a more diligent principal will take up on themselves more legal obligation than a less diligent principal.

…

At most SafeWork NSW could only say that Diona was engaged in the pipe laying task because it had assessed the SWMS and had certain expertise – which if accepted, would lead to a perverse incentive for principal contractors to have less experience and be less engaged to avoid liability risks’.

That is to say, that principals and head contractors should carefully consider the level of control they assume when it comes to managing their sub-contractor’s onsite safety, including whether it would be appropriate to assess and review the sub-contractor’s SWMS in relation to high risk construction work. Doing so may in fact increase a duty holder’s risk exposure by taking on more liability than would otherwise be assigned/determined to be their responsibility under relevant safety laws. This is consistent with the High Court authority on this issue, that principals are entitled to rely on the expertise of expert contractors.

Key takeaways

This is an important decision, not because it necessarily establishes any new principles of law, but it reminds duty holders that:

• they should not necessarily accept a statutory notice from a Safety Regulator, and they should consider challenging a statutory notice where there are questions about whether the notice was issued to the appropriate entity;
• appointment as a Principal Contractor does not, in itself, give rise to responsibility for all safety issues involving contractors;
• they should ensure they clearly assign responsibility for safety to the appropriate parties and record this in site rules and contracts;
• they can and should rely on the expertise of contractors to manage safety issues under their control;
• they should carefully assess whether it would be appropriate to oversee a contractor onsite, or review and assess the adequacy of their contractors’ SWMS and/or other safety practices, particularly where they have engaged the contractor to perform works outside of their expertise.

We also recommend that duty holders should retain audit and review rights in their project contracts and exercise these rights from time to time.