The Victorian Supreme Court case of VCON v Oliver Hume & Anor  VSC 767 has confirmed the position in Victoria in relation to a claim for liquidated damages under the SOP Act, which is considered an excluded amount under the State’s security of payment regime.
SOP Act and excluded amounts
The Building and Construction Industry Security of Payment Act 2002 (Vic), known as the ‘SOP Act’, allows those who carry out work or supply goods under a construction contract to efficiently recover progress payments due under the contract. The main purpose of the SOP Act is to entitle persons who carry out construction work or supply related goods and services under construction contracts to progress payments.
However, under section 10B of the SOP Act, a payment claim must not include an excluded amount. Any amount claimed under a construction contract for compensation due to a time-related cost is an excluded amount. In the decision of Seabay Properties v Galvin Construction  VSC 183 (Seabay) Justice Vickery determined that time-related costs include liquidated damages and this position has been affirmed by Justice Stynes in the recent case of VCON v Oliver Hume & Anor  VSC 767.
The decision in VCON v Oliver Hume & Anor  VSC 767
Justice Stynes specifically determined whether a claim for liquidated damages is in fact a ‘time-related cost’ and thus an excluded amount.
In this case, the principal made a demand on two bank guarantees given as security on the basis of their entitlement to liquidated damages. The contractor subsequently issued a payment claim which included the amount demanded from the bank guarantees, arguing that the principal’s demand for this amount was unlawful under section 10B of the SOP Act.
The claim was adjudicated, with the adjudicator determining that that component of the contractor’s payment claim could not be taken into account in calculating the progress payment as it was a claim for liquidated damages, which is an excluded amount under the legislation.
The Supreme Court upheld the adjudicator’s decision that the payment claim issued by the contractor was a claim for an excluded amount under the SOP Act. The judgment confirmed not only that liquidated damages are an excluded amount, but that any attempt by a party to recoup liquidated damages levied in a previous accounting period is also a claim for an excluded amount, based on the decision in Seabay and Shape Australia Pty Ltd v Nuance Group (Aust) Pty Ltd  VSC 808. As the contractor’s payment claim was characterised as falling within the latter category, it was unlawfully claimed and the contractor’s case was dismissed.
The full judgment in this case can be read here.
This decision highlights the importance of understanding what amounts are considered excluded amounts under s 10B of the SOP Act, and reinforces the position that when issuing payment claims