Executive summary

In Façade Designs International Pty Ltd v Yuanda Vic Pty Ltd (No 3) [2026] VSC 316, the Supreme Court of Victoria considered whether to adopt a special Referee’s report under Order 50.04 of the Supreme Court (General Civil procedure) Rules 2025 (Vic). The dispute concerned a façade installation subcontract for a development at 447 Collins Street, Melbourne (Project).

The Court essentially adopted the special Referee’s report and rejected Yuanda Vic Pty Ltd’s (Yuanda) objections to the Referee’s conclusions on termination, unpaid contract work, variations and recoupment of paid variations.

The decision addressed the operation of the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOP Act) where a payment claim included an excluded amount and confirmed that the inclusion of an excluded amount did not, in the circumstances, prevent Façade Designs International Pty Ltd (FDI) from exercising a statutory right to suspend work.

Factual background

Multiplex Pty Ltd (Multiplex) was the head contractor for the Project and entered into a subcontract with Yuanda to manufacture, supply and install façade elements. Yuanda then entered into a further subcontract with FDI to install the façade elements.

A dispute arose in relation to Payment Claim 15 (PC15), which FDI submitted in September 2019 for $4,584,820. PC15 included a claim for interest, which was treated as an excluded amount under the SOP Act. Yuanda paid $1,115,455 and did not provide a payment schedule.

FDI issued a notice of intention to suspend work and ultimately suspended work. Yuanda then purported to terminate the subcontract. FDI denied that it had repudiated the subcontract and asserted that Yuanda’s conduct amounted to repudiation, which FDI accepted as terminating the subcontract.

The proceeding was referred to the Honourable Robert McDougall KC as special Referee (Referee). The Referee prepared a detailed report dated 29 July 2025 (Referee’s Report). FDI sought adoption of the report in full. Yuanda objected to adoption in part.

Issues

The main issues before the Court were whether:

1. FDI validly suspended and terminated the subcontract, or whether Yuanda validly terminated the subcontract;
2. FDI was entitled to payment for unpaid contract work performed before termination;
3. FDI was entitled to claim variations despite non-compliance with the formal variation procedure in cl 8 of the subcontract;
4. Yuanda could recover or reassess amounts already paid for variations; and
5. FDI was entitled to payment for unpaid variations.

Special Referee’s conclusions

The Referee concluded that:

1. FDI validly terminated the subcontract;
2. FDI was entitled to damages of $2,151,963 for unpaid contract work, subject to a set-off of $18,300 for defects;
3. FDI was entitled to $1,445,850.33 for certain unpaid variations;
4. FDI was entitled to damages for loss of profit, including $261,000 for work that would have been performed had the subcontract continued and $8,975 for certain variation work;
5. Yuanda was entitled to $18,300 for defects, to be set off against the amount otherwise payable to FDI; and
6. Yuanda’s delay claim and claim to recoup paid variations were rejected.

Decision

The Court:

1. adopted the Referee’s Report in relation to the issues challenged by Yuanda;
2. held that:
   (a) FDI’s suspension was valid;
   (b) Yuanda’s purported termination was ineffective and repudiatory; and
   (c) FDI was entitled to terminate the subcontract; and
3. accepted the Referee’s approach to:
   (a) FDI’s damages for unpaid contract work;
   (b) the waiver of the contractual variation procedures; and
   (c) the rejection of Yuanda’s claim to recoup paid variations.

Key findings

1. Adoption of the special Referee’s Report

The Court confirmed that, when considering whether to adopt a Referee’s Report, it has a broad discretion. A Referee’s factual findings are ordinarily not reopened, particularly where the Referee has conducted a detailed assessment of the evidence. However, where a party alleges an error of law, the Court must consider the issue.

The Court considered Yuanda’s objections to raise alleged legal errors but ultimately rejected those objections and adopted the relevant parts of the Referee’s Report.

2. FDI’s suspension under the SOP Act was valid

Yuanda argued that FDI was not entitled to suspend work because PC15 included an excluded amount. The Court rejected that argument.

The Court held that a payment claim containing an excluded amount may still be a valid payment claim, and that Yuanda’s failure to provide a payment schedule gave rise to liability under s 15(4) of the SOP Act. The Court accepted that the statutory criteria for FDI’s notice of intention to suspend and subsequent suspension were satisfied.

The Court also rejected Yuanda’s argument that a claimant must commence court proceedings or adjudication before exercising the right to suspend. The Court held that the right to suspend under ss 16 and 29 of the SOP Act was not contingent on FDI first taking one of those enforcement steps.

3. Yuanda’s termination was ineffective and repudiatory

The Court held that FDI’s suspension did not amount to repudiatory conduct. The Court also accepted that Yuanda’s notice of termination was ineffective under cl 18(b) of the subcontract because Yuanda had not allowed the contractual five-day period for FDI to remedy the alleged breach before terminating.

On that basis, Yuanda’s purported termination amounted to repudiation of the subcontract, which FDI was entitled to accept.

4. FDI was entitled to damages for unpaid contract work

The Court accepted the Referee’s assessment that FDI had completed 82% of the subcontract works. On that basis, the value of the work performed was $11,890,000, being 82% of the $14.5 million contract price. After deducting amounts already paid, the unpaid value of the subcontract work was $2,151,963, subject to the defects set-off.

Yuanda argued that FDI’s entitlement should be assessed differently, including by reference to principles considered in Mann v Paterson Constructions (2019) 267 CLR 560. The Court rejected Yuanda’s argument and held that the subcontract did not operate as a staged contract requiring completion of each floor before payment was available. The Court held that the subcontract contemplated progress payments by reference to percentage completion.

5. The variation procedure was waived

The subcontract contained a formal variation procedure in cl 8. Yuanda argued that FDI was not entitled to payment for variations because FDI had not complied with that procedure. The Court rejected that argument.

The Court accepted the Referee’s conclusion that the parties, by their conduct, had waived cl 8 and had proceeded according to alternative procedures for directing, claiming, assessing and paying variations. The Court also held that the “no oral waiver” clause in cl 24.6 did not prevent that conclusion, as the requirement for a written signed waiver could itself be waived by conduct.

6. Yuanda failed to establish a basis to recoup paid variations

Yuanda sought to recover approximately $3.155 million paid to FDI for variations. Yuanda argued that those payments were interim payments made under the SOP Act and could be revisited in the final determination of the parties’ rights.

The Court rejected Yuanda’s claim. It held that Yuanda had not established a legal basis for recoupment or restitution of the paid variations. The Court accepted that the parties had dealt with variations outside the formal cl 8 process, outside the operation of the SOP Act, and that Yuanda had not proved any vitiating factor or other basis requiring repayment.

Conclusion

The Court adopted the Referee’s Report in substance and rejected Yuanda’s objections.

The decision confirms that, on the facts of the case:

1. FDI validly suspended work under the SOP Act;
2. Yuanda’s purported termination was ineffective and repudiatory; and
3. FDI was entitled to damages for unpaid contract work and unpaid variations.

Key takeaways

1. The right to suspend under the SOP Act is not necessarily dependent on first commencing court proceedings or adjudication.
2. A party’s failure to comply with contractual notice or variation procedures may be overcome where those procedures have been waived by the parties’ conduct.
3. A party seeking to recover payments already made must establish a proper legal basis for recoupment or restitution. The fact that payments are said to be interim is not sufficient.

This article was written by Paul Graham, Partner, and Campbell Dawes, Solicitor.