In the Victorian Supreme Court of Appeal decision of Imerva Corporation Pty Ltd v Kuna [2017] VSCA 168 the Court found that a builder could not enforce a payment for monthly progress payments as the owners had not signed the necessary statutory notice warning of a change from the method set out in the Act.

Under section 40 of the Domestic Building Contracts Act 1995 (Vic) a payment regime is set out which covers the deposit, base stage, frame stage, lock up stage, fixing stage and final payment.  Each of these categories is expressed as a percentage of the contract sum.

The parties are permitted to adopt a different form of payment method, for example monthly progress claims however, the owner must sign a notice acknowledging the change in the methodology of payment.  The particular notice is set out in the regulations to the Act.

The builder had carried out various works and had rendered seven payment claims when the parties fell into dispute and the contract was terminated.

In this case the parties had set out a different method of payment however the specified warning or notice had not been signed by the owners which left the altered payment regime unenforceable.  The Court also noted that initialling the bottom of the page of the contract did not satisfy the requirements of the Act.  Accordingly the Court found that the builder was not entitled to all the payments it had received as they exceed what would have been paid under the statutory regime and was required to repay the owners amounts paid in excess of the statutory payments set out in the Act.

Impact of decision

If the parties to a domestic building contract wish to change the statutory payment regime, the owner must sign the warning form which should be included in each contract.  Further, both the owner and the builder are required to sign a statement that the payments under section 40 of the Act are not being used but rather a different methodology of payment is to be adopted.  If either of these requirements are not signed then the payment claim procedure will be ineffective and default to the regime under the Act which may lead to the builder being forced to repay the owner amounts in excess of that entitlement.

Several of the standard form contracts do not contain the required clauses and need amendment.  Both the owners, principals and builders should review their contract documents to ensure that the necessary forms and clauses are contained in their contracts for compliance with the legislation.