The case of Seabay Properties Pty Ltd v Galvin Construction Pty Ltd & Anor [2011] VSC 183

Significance of the case

Disputes over payment of contractors and subcontractors for construction projects can often involve complex and time consuming arguments about liability and specific contractual obligations. Through the introduction of a payment claim scheme which limits the types of claims that can be made during project construction, the Building and Construction Industry Security of Payment Act 2002 (Victoria) (the Act) gives contractor's easier and quicker access to payment.

The Seabay judgment clarifies the purpose of payment claims and the role of liquidated damages under the Act. The court acknowledged that the act is designed to ensure a speedy and simple "pay now and argue later" system whereby payments can be made to contractors so that work does not cease while disputes are resolved.  The case states that liquidated damages cannot be set off against a contractor's payment claim even if the contractor is obligated to pay such damages. It also reaffirms the specificity requirements of payment claims and sheds light on what constitutes early, bona fide submission of claims.

Background to the case

Galvin Construction Pty Ltd (Galvin) was engaged as the contractor by Seabay to construct an apartment block.

The work fell under both a construction contract and the Act.

Galvin had been submitting payment claims on a monthly basis to Seabay. Each payment claim was due to be submitted on the 30th of each month, or if the 30th fell on a weekend, then on the Friday prior to that weekend. On this particular occasion, Galvin submitted a payment claim early. The claim was due on the 29th of the month (since the 30th fell on a weekend) however Galvin submitted it one day earlier, on the 28th.

The payment claim set out the payment details for each trade and variation. For example, the Metal Work claim set out the following:

"Contract Amount: $956,400.

Previously Certified: $910,608.

Percentage of Work Done: 100%

This Claim: $956,400.

Total This Invoice: $45,792."

The payment claim also claimed payment in respect of variations and included documents to support each variation claim.

The total amount claimed by Galvin in this payment claim was $2,186,427.38.

Seabay issued a payment schedule in response to Galvin's claim which identified liquidated damages owed to Seabay (as a result of Galvin's failure to achieve practical completion by the Date for Practical Completion) and resulted in a negative figure payable to Galvin. Hence, Seabay's schedule stated that the total payable to Galvin was nil.

Galvin commenced adjudication proceedings under the Act and the adjudicator found that Seabay was not entitled to claim liquidated damages in a payment schedule as these were "excluded amounts" under the Act.

Seabay then brought the case before a court asserting that the adjudicator's decision should be overturned.

Arguments before the Court

Seabay argued that the adjudicator's decision was void on the following grounds:

  1. The adjudicator incorrectly took into account non-claimable variations claimed by Galvin;
  1. The adjudicator incorrectly failed to take into account the liquidated damages claimed by Seabay;
  1. Galvin submitted its payment claim prematurely and it was therefore void; and
  1. Galvin's claim failed to sufficiently identify the work that was the subject of the payment claim.

The Court's Findings

Ground 1: Incorrect Inclusion of Non-claimable Variations

Excluded amounts cannot be claimed by a contractor in a payment claim. Excluded amounts include amounts for variations, unless they are "claimable variations" as identified in s10B(2)(a).

Claimable variations are identified under s10B(2) and 10B(3) as either amounts which are agreed upon by the parties or are not agreed upon but involve variations to work under a contract that is valued at less than $5,000,000 or is valued at more than this but the contract does not provide a dispute resolution process.  In this case, the contract was valued at over $5,000,000 but it did contain a dispute resolution process and therefore s10B(3) did not apply. 

The court held that an agreement under s10B(2) is an agreement in place at the time of service of the relevant payment claim. The court further held that since the accuracy of a number of variations was not challenged by Seabay at the time of Galvin's service of its payment claim, this demonstrated that the parties had an agreement and therefore, that these variations were claimable variations.

Thus, to the extent that the variations constituted an agreed variation they were validly included in the payment claim and were not an "excluded amount".

The remaining variation claims which were not found to the be subject of an implied agreement should not have been included as they were excluded amounts.

To the extent that the excluded amounts were incorporated into the adjudicator's decision, they could be severed, leaving the remaining adjudicated amounts standing and valid.

Ground 2: Incorrect Exclusion of Liquidated Damages

This was not an issue of whether Galvin was liable for liquidated damages but rather how and when those damages were to be paid. The issue here related to whether these damages could be claimed in a payment schedule, or whether they had to be dealt with later by a court.

The court looked to the purpose of s10B which sets out which amounts are excluded from a payment claim. The court stated that arguments put forward by Seabay regarding the injustice of paying the claim when Galvin had incurred liquidated damages were not relevant to the purpose of the Act.

By seeking liquidated damages Seabay was clearly attempting to include, as part of its progress schedule, an amount relating to "time related costs" and a "claim for damages arising under the contract".  Both of these things are expressly stated as "excluded amounts" under s10B of the Act.

The court stated that the "excluded amounts" referred to in section 10B apply not only to claimants but also to respondents. Therefore, Seabay was not entitled to claim these payments and they were rightly excluded from the adjudicated amount.

Ground 3: The Premature Submission of the Payment Claim

The court held that a payment claim can be submitted prior to the date for submission provided that the claim is made in good faith.

In this case, the claim was only served one day early and at a time when all of the work that was included in the claim was completed. Therefore it was made in good faith and was not invalid.

Ground 4: Failure of the Payment Claim to Identify the Work Performed in the Claim Period

Sections 14(2)(c) and (d) require that a payment claim clearly identifies the work that is the subject of the claim. This requirement had been discussed in earlier cases and in referring to these cases the court agreed that the claim must:

  1. identify the relevant construction work to which the claim relates; and
  1. identify such work with reasonable specificity so that the other party is able to consider and respond to the claim.  

While this is generally an objective test, it is appropriate to consider the background knowledge of the parties when looking at how clearly a claim identifies the work.

The court looked at the fact that Seabay was able to provide a payment schedule in response to this claim and in fact provided a schedule which was 37 page-long. Furthermore, the claim was made in the same form as the previous 27 claims issued by Galvin, all of which had all been responded to by Seabay. Finally, the claim identified the categories of work undertaken, described the categories, identified the percentage claimed to be complete in respect of each of those categories, set out the value of the work for each category and identified the total value of the invoice.

The court found that together these factors demonstrated that the work performed by Galvin was properly identified. Thus, the court held that the adjudicator correctly concluded that these factors constituted a sufficiently specificity payment claim which was valid.