Last week, the County Court of Victoria handed down its decision in Diako Builders Pty Ltd v Compfam Pty Ltd [2021] VCC 784, concerning an application by Diako pursuant to s. 16(2)(a)(i) of the Building and Construction Industry Security of Payment Act 2002 (SOP Act).
The Court’s decision acts as a timely reminder for builders that noncompliance with the Domestic Building Contracts Act 1995 (DBC Act) and Domestic Building Contracts Regulations 2017 (Regulations) can cost builders their entitlement to payment and may lead to civil penalties.
Trial summary
The following facts were undisputed at trial:
- on about 6 September 2019, Compfam Pty Ltd (Compfam) engaged Diako Builders Pty Ltd (Diako), under a domestic building contract (Contract);
- on 5 November 2020, the Contract came to an end (though the manner in which it came to an end is disputed);
- on 29 January 2021, Diako served a payment claim endorsed under the SOP Act (Payment Claim);
- the Payment Claim included an alleged variation described on its face as ‘Variation for steel piles over excessively filled areas below units 2 and 3 including extra steel in unit 2 slab as detailed by engineer’; and
- Compfam did not serve any payment schedule in respect of the Payment Claim.
The Court dismissed Diako’s application on the grounds that:
- there was no available reference date at the date of the Payment Claim, to the effect that the claim must fail; and
- the Payment Claim on its face sought to recover an excluded amount.
No available reference date
Under the Contract, the parties replaced the staged payments prescribed under ss. 40(2) and 40(3) of the DBC Act with progress payments in stages and amounts set out in the completed ‘Form 2 under Regulation 13(1)(b)’ contained at item 23.2 of the Annexure to the Contract (Payment Terms).
Diako argued that the parties had later varied the Payment Terms by agreement, allowing Diako to claim payment on a monthly basis (Alleged Agreement).
Compfam countered that the Payment Terms had not been varied because the Alleged Agreement did not comply with the requirements of s. 40(4) of the DBC Act and reg. 13 of the Regulations.
The Court accepted Compfam’s argument, finding that even if the Alleged Agreement constituted a variation to the Payment Terms (which it did not), it did not comply with the requirements of s.40(4) of the DBC Act and the Regulations.
It is worth noting that Compfam’s argument on this point has not been run previously, and uniquely applies to SOP Act claims under domestic building contracts.
Payment Claim on its face contained an excluded amount
The Court agreed with Compfam that the Payment Claim contained an excluded amount, and applied the decision of Yuanda Vic Pty Ltd v Façade Designs International Pty Ltd [2021] VSCA 44 (Yuanda) as follows:
- the Payment Claim’s reference ‘as detailed by the engineer’ fails to identify whether there were any documents comprising the ‘detailing’ and falls a long way short of expressly identifying any of the engineering drawings or other documents, as contemplated by Yuanda;
- as such, it would be necessary to ‘go digging’ into the engineering drawings and other extrinsic evidence, which is contrary to Yuanda and inimical to the purpose of the SOP Act; and
- also per Yuanda, the impugned variation invoice (INV-1301) cannot be severed from the Payment Claim as a whole, meaning its entire claim under s 16(2) fails.
Key takeaways
Variations to payment terms under a domestic building contract must comply with the DBC Act and Regulations. Noncompliance can cost builders their entitlement to payment and may lead to civil penalties.
If a payment claim under the SOP Act includes a variation, it must be expressly stated on the face of the payment claim how the variation constitutes a first- or second-class variation within the meaning of s.10A of the SOP Act. Failure to do so may prevent a party obtaining judgment on such a payment claim in Court.
More information
To learn more about the decision, or for advice on any other security of payment issue, please contact Darren Cain, Principal Lawyer and Head of Construction and Infrastructure, on (03) 8600 8835 or dcain@kcllaw.com.au, or Liam Murray, Senior Associate, on (03) 8600 8884 or lmurray@kcllaw.com.au.
Author
This Construction and Infrastructure case note was authored by Liam Murray, Senior Associate.
Note: This update is a guide only and is not intended to constitute legal advice. KCL Law acted for the successful defendant, Compfam Pty Ltd.