Decision on Security of Payment Act excluded amounts

4 minute read  12.03.2021 Nikki Miller, Tom Kearney, Duncan MacKenzie, Joseph Xuereb

Victoria's Court of Appeal has delivered an important judgment on the relationship between the excluded amounts regime and the debt enforcement provisions of the Building and Construction Industry Security of Payment Act 2002 (Vic) (Act).

Key takeouts

  • The inclusion of an excluded amount in a payment claim made under the Act will preclude a claimant from enforcing the claimed amount as a debt due in court proceedings where no payment schedule is issued.
  • This decision has added an additional layer of complexity to the strategic considerations facing parties who may seek to rely upon the Act in Victoria.
  • As the Act's excluded amounts regime is unique to Victoria, other jurisdictions will not be affected by this aspect of the decision.

A majority of the Victorian Court of Appeal has held that the inclusion of an excluded amount in a payment claim made under the Building and Construction Industry Security of Payment Act 2002 (Vic) (Act) will preclude a claimant from seeking to enforce the claimed amount as a debt due in court proceedings in circumstances where no payment schedule is issued.

This decision will likely have a significant impact on the practice of making statutory payment claims in Victoria. As the Act's excluded amounts regime is unique to Victoria, other jurisdictions will not be affected by this aspect of the decision.

Façade installation payment dispute overview

Façade Designs International Pty Ltd (claimant) was contracted by Yuanda Vic Pty Ltd (respondent) to carry out the installation of façade elements for construction works at 447 Collins Street, Melbourne.

On 30 September 2019, the claimant served on the respondent a payment claim under the Act for $4,584,820.68. On 2 October 2019, the respondent paid the claimant $1,115,455, leaving an unpaid balance of $3,469,365.58. No payment schedule was ever provided by the respondent.

The claimant commenced proceedings against the respondent to recover the unpaid balance pursuant to s16(2)(a)(i) of the Act (which enables claimants to recover unpaid amounts as a debt due in any court, as an alternative to proceeding to adjudication). The respondent disputed the claimant's entitlement to judgment on the basis that the payment claim included an excluded amount in contravention of ss14(3)(b) and 16(4)(a)(ii) of the Act. The claimant conceded that the payment claim included an excluded amount under the Act.

Decision of the Trial Judge

Section 16(4)(a)(ii) of the Act provides that judgment cannot be given in favour of the claimant unless the court is satisfied that the claimed amount does not include any excluded amount.

Riordan J at first instance held that this provision prevented a party from recovering an excluded amount at the time entry of judgment was sought, but that it did not prevent inclusion of an excluded amount in a payment claim at the time of service. As the claimant did not press its claim for an excluded amount in the proceedings, Riordan J concluded he was entitled to award judgment for the amount claimed. The respondent appealed this finding.

Decision of the Court of Appeal

The Court by majority (McLeish and Niall JJA; Sifris JA dissenting) allowed the respondent's appeal and dismissed the claimant's claim for judgment under s16(2)(a)(i) of the Act.

The majority considered that the text, context and policies of the Act each indicated that the phrase 'claimed amount' in s16(4)(a)(ii) was to be construed as 'the amount claimed in the payment claim'. Accordingly, the inclusion of any excluded amount in the amount claimed in the payment claim would prevent a claimant from seeking to enforce an unpaid amount as a debt due under s16(2)(a)(i) of the Act.

The majority held it to follow from their preferred construction of s16(4)(a)(ii) that as the amount claimed in the payment claim included an excluded amount (being a statutory interest component of $64,154.37) the Court could not enter judgment for any part of the payment claim.

Shortly stated, Sifris JA agreed with the construction of s16(4)(a)(ii) preferred by the trial judge.

Practical implications

An additional layer of complexity has now been added to the strategic considerations facing parties who may seek to rely upon the Act.

As construction contracts ordinarily permit progress claims to be made for amounts which constitute excluded amounts for the purposes of the Act, it is common for payment claims made under the Act to include excluded amounts (such as delay costs and disputed variations). This convention had previously been accepted by the Courts, which 'severed' excluded amounts from the claimed amount and entered judgment for the balance in applications made under s16(2)(a)(i).

In light of this decision, if a party anticipates that it may wish to rely upon s16(2)(a)(i) of the Act to recover unpaid amounts as a debt due in any court (remembering that such an avenue will only be available if the respondent fails to deliver a payment schedule), it must now ensure that its payment claim contains no excluded amounts otherwise its debt due proceedings will fail.

However, if the party anticipates that it will proceed to adjudication under the Act, the existence of excluded amounts in its payment claim will not be a bar to that course of action. It will also have the added benefit of crystallising the party's claim to the excluded amounts under the construction contract (this is on the basis that the payment claim serves a dual purpose and constitutes a claim under the payment regime in the relevant construction contract).

For more information or advice on this matter, please reach out to a member of our Projects, Infrastructure and Construction team.

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https://www.minterellison.com/articles/yuanda-vic-pty-ltd-v-facade-designs-international-pty-ltd