Recently, the Victorian Court of Appeal (Court of Appeal) handed down its decision in Yuanda Vic Pty Ltd v Façade Designs International Pty Ltd  VSCA 44. The decision made a key finding regarding ‘excluded amounts’ which can have a significant impact on those in the construction industry that either issue or receive payment claims.
Specifically, the Court of Appeal found that if a payment claim includes a claim for an ‘excluded amount(s)’ under the Building and Construction Industry Security of Payment Act 2002 (Vic) (Act) the inclusion of an excluded amount prevents the claimant from recovering the claimed amount as a debt due in court proceedings even if the respondent did not issue a payment schedule.
What is an ‘excluded amount’?
The Act includes various prohibitions against the use of excluded amounts in calculating payment claims.
Briefly, excluded amounts include a claim:
- for a variation that is not a ‘claimable variation’ (i.e. a variation not instructed/or included within the original scope of work);
- relating to latent conditions, time-related costs and changes in regulatory requirements;
- for damages for breach of contract; and/or
- arising at law other than under the construction contract.
In April 2018, the respondent, Yuanda Vic Pty Ltd (Yuanda), and the claimant, Façade Design International Pty Ltd (FDI), entered into a supply and install agreement, whereby FDI agreed to carry out the façade elements at a commercial and residential tower construction at 447 Collins Street, Melbourne.
On 30 September 2019, FDI served a payment claim onto Yuanda in the sum of $4,584,820.68 (inc GST). Yuanda did not provide a payment schedule to FDI within 10 business days.
As a result of Yuanda’s failure to issue a payment schedule, FDI sought judgment of $4,584,820.68 as a debt due pursuant to section 16(2)(a)(i) of the Act.
Yuanda defended that application and argued that it was not liable for any part of the claimed amount as it included an allowance for interest, which is an excluded amount under the Act (as interest is a time related cost).
Primary judgment (overturned by the Court of Appeal)
At first instance, in Yuanda Vic Pty Ltd v Façade Designs International Pty Ltd  VSC 570, Justice Riordan held that FDI was entitled to recover the claimed amount less the sum of excluded amounts (being interest in the sum of $64,154.37).
Court of Appeal’s decision
Yuanda appealed Justice Riordan’s decision, arguing that section 16(4)(a)(ii) of the Act prohibits a claimant from obtaining judgment for any part of a claimed amount if it includes excluded amounts.
FDI submitted the decision in the first instance by Justice Riordan should not be overturned.
On appeal, the Court of Appeal by majority accepted Yuanda’s argument. The Court of Appeal held that:
- section 14(3) of the Act impacts the definition of ‘claimed amount’ and that section expressly states that the claimed amount ‘must not include any excluded amount’; and
- section 16(4)(a)(ii) precludes enforcement by court proceedings for any claimed amount that includes any excluded amount.
Accordingly, the Court of Appeal found that because FDI’s payment claim included a claim for an excluded amount (being the interest), the relevant court could not enter judgment for any part of the claimed amount.
Claimant’s must ensure that payment claims do not include any excluded amounts otherwise section 16(4)(a)(ii) of the Act will prevent the claimant from recovering the claimed amount as a debt due in court proceedings.
What if a payment claim includes a claim for excluded amounts?
If a payment claim includes a claim for excluded amounts it precludes the claimant from commencing court proceedings, however this does not mean that the payment claim is invalid. Under the Act, a claimant can make an adjudication application under section 18(1)(b) of the Act as opposed to commencing proceedings in the relevant court. If an adjudication application is made, an adjudicator must put excluded amounts to one side when making its determination, whereas the courts cannot. Accordingly, the amount determined by the adjudicator then becomes a statutory liability of the respondent which the claimant can then pursue in a court of competent jurisdiction.
To learn more about the decision, or for advice on claims for excluded amounts, please contact Darren Cain, Principal Lawyer and Head of Construction and Infrastructure, on (03) 8600 8835 or firstname.lastname@example.org.
Note: This update is a guide only and is not intended to constitute legal advice.