Are liquidated damages excluded under the SOPA?

22 November 2021

Following recent case law, it appeared that claimants in an Adjudication could not recoup liquidated damages levied in a previous accounting period as it would be considered a claim for an excluded amount under section 10B of the Building and Construction Industry Security of Payment Act 2002 (Vic) (Act).1

However, the Supreme Court of Victoria has now further clarified this position in the decision of Goldwind Australia Pty Ltd v ALE Heavylift (Australia) Pty Ltd2 whereby the Court held that:

  1. failure to adjudicate an earlier payment claim for work done does not prevent a claimant from recovering payment for that work in a later progress payment; and
  2. a subsequent payment claim claiming work done, which may include an amount previously levied for liquidated damages, is not a claim for excluded amounts under section 10B of the Act.

What Happened?

Goldwind Australia Pty Ltd (Goldwind) engaged ALE Heavylift (Australia) Pty Ltd (ALE) to erect wind turbines at the Stockyard Hill Wind Farm in Victoria.

In September 2020, Goldwind issued a payment schedule deducting $484,100.92 for liquidated damages.

In February 2021, ALE issued a payment claim claiming payment for the works it performed in September that was not paid as a result of Goldwind deducting liquidated damages. Goldwind issued a payment schedule in response, seeking to deduct liquidated damages again.

Subsequently in March 2021, ALE applied for an adjudication under the Act claiming the costs of the works it performed in its February 2021 payment claim.

The adjudicator determined that ALE’s payment claim was for works done and was not a claim to recoup liquidated damages.

Goldwind sought an order for the adjudication to be quashed on the basis that the adjudicator had taken into account an excluded amount under section 10B of the Act.

What did the Supreme Court of Victoria say?

Stynes J held that the adjudicator did not err by characterising the claim for works performed and by taking it into account when determining the adjudication application.

Her Honour rejected the argument that if a claimant fails to immediately dispute the liquidated damages that it somehow changes the nature of the claim to a claim to “claw back” previously uncontested deductions.

Her Honour emphasised that Digby J’s reasoning in Shape was that the payment claim in question was for the reimbursement of the liquidated damages. In contrast, ALE’s claim was for payment of the works it performed.

As a result, Stynes J held that the Court was not bound by Shape in this circumstance as it would preclude ALE from recovering progress payments in a manner contrary to the text and purpose of the Act and, effectively, the payment schedule would create a baseline against which the next payment claim is assessed.

Why is this case important?

This decision is great for claimants as it takes away the pressure to dispute the liquidated damages as soon as they are applied. Instead, claimants can make a calculated decision as to when they should apply for an adjudication to recover payment for the works that have been performed but not paid due to the deduction of liquidated damages.

In contrast, this decision is problematic for respondents because in effect liquidated damages can be clawed back under the Act at any time.

HWL Ebsworth Lawyers has expertise in security of payment claims. Please contact Tara Nelson or Alan Chiang of our Construction and Infrastructure team with any enquiries.

This article was written by Alan Chiang, Partner, and Tara Nelson, Associate.

1See Shape Australia Pty Ltd v The Nuance Group (Australia) Pty Ltd [2018] VSC 808 (‘Shape‘); VCON v Oliver Hume & Anor [2020] VSC 767.
2[2021] VSC 625.

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