There are a number of considerations to take into account when choosing whether to enforce an amount due under a payment claim through the courts or through an adjudication application. The Court of Appeal decision in Yuanda Vic Pty Ltd v Facade Designs International Pty Ltd [2021] VSCA 44 has now added a further consideration to the mix in cases where the payment claim includes excluded amounts. 

In this judgment, it was held that a court cannot give judgment for a payment claim if the payment claim includes any excluded amounts under the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOP Act). However, this does not prevent adjudicators from determining such claims. This decision therefore has significant implications for a claimant’s choice of forum under the security of payment regime in Victoria.   

Key takeaways

  1. If a payment claim includes any excluded amounts, or it may be disputed whether it includes excluded amounts, the claim cannot be enforced by a court as a debt due.

  2. In circumstances where a payment claim includes excluded amounts adjudication is recommended subject to s 18(2)(b) which requires the claimant to give the respondent notice and another opportunity to provide a payment.

  3. When preparing payment claims, claimants should err on the side of caution and avoid including excluded amounts where possible.

  4. While this decision arguably favours respondents, it serves as another reminder for respondents to submit timely payment schedules in order to protect their interests.

Relevant legal framework

The purpose of the SOP Act is to allow those who carry out construction work or supply related goods under a construction contract to efficiently recover progress payments. However, not all amounts are recoverable under this regime, with section 10B of the SOP Act preventing the inclusion of a number of “excluded amounts” in payment claims.

Under the SOP Act, if a contractor submits a payment claim, and the principal fails to either pay that amount or submit a payment schedule in response, the contractor has the option of either:

  • Making an adjudication application for the payment claim; or
  • Taking the claim to court to recover the amount as a debt due and payable under s 16(2)(a)(i).

The decision in Yuanda Vic Pty Ltd v Facade Designs International Pty Ltd [2021] VSCA 44 now raises further considerations for claimants choosing between these options.

Facts of the case

The Respondent, Façade Designs International Pty Ltd (Façade), entered a contract with the Applicant, Yuanda Vic Pty Ltd (Yuanda), to install façade elements manufactured by Yuanda to a building at 447 Collins Street, Melbourne.

On 30 September 2019, Façade provided a payment claim for $4,584,820.68 (including GST). It was undisputed that this claimed amount included interest, which is an excluded amount under s 10B(2)(d) the SOP Act.

Yuanda did not pay the amount or provide a payment schedule before the due date, and as such Façade sought to recover the amount in the Supreme Court as a debt due and payable. 

Primary decision

In the Supreme Court, Yuanda argued that Façade was not entitled to recover the amount of their claim, as the payment claim included an excluded amount.

This argument raised the issue of the proper construction of section 16(4)(a)(ii) of the SOP Act, which provides that:

“If the claimant commences proceedings under subsection (2)(a)(i) to recover the unpaid portion of the claimed amount from the respondent as a debt, a judgment in favour of the claimant is not to be given unless the court is satisfied… that the claimed amount does not include any excluded amount”.

The primary judge, Riordan J, held that the inclusion of an excluded amount in the payment claim did not prevent a court from awarding a judgment for the payment claim, provided the judgment itself did not include any excluded amounts.

Decision on appeal

Yuanda successfully appealed the decision to the Court of Appeal, where the majority (McLeish JA and Niall JA) held that Façade’s claim should have been dismissed on the basis that it included an excluded amount.

It was held that, under section 16(4)(a)(ii) of the SOP Act, if a claimed amount includes any excluded amounts at all, then a court cannot give a judgment on that claim.

Their Honours found that it was not possible, on a proper construction of the SOP Act, for a court to simply enter a judgment for an amount lesser than the amount of the payment claim to account for the excluded amounts, or apply the doctrine of severance to exclude these amounts.

However, it was found that the same did not apply for adjudication applications, and that the presence of excluded amounts would not prevent a claim being determined by an adjudicator. This was based on the more limited role of the court under the SOP Act, and the difference in the adjudicator’s powers under section 23 of the SOP Act and the powers given to the court under section 16 of the Act.

In dissent, Sifris JA agreed with the approach taken by the primary judge in allowing judgments to be entered for such payment claims, so long as the judgment did not include any excluded amounts.

The contents of this article does not constitute legal advice, are not intended to be a substitute for legal advice and should not be relied upon as such.  Litigious matters all have their own factual matrix and in no way does this article constitute advice relevant to your dispute, if any.