A recent decision of the Victorian County Court sends a reminder to those providing construction work and related goods and services in Victoria that, in certain circumstances, disputed variation claims can still be properly claimed under the Victorian security of payment legislation (BCISOP Act) including in respect of construction contracts entered into after 30 March 2007.

Excluded amounts

For construction contracts entered into after 30 March 2007, the BCISOP Act provides that certain disputed claims constitute “excluded amounts” and those amounts are not able to be prosecuted under the BCISOP Act. Disputed variation claims are not excluded amounts if they fall within the definition of either first or second class variations.

This aspect of Victoria’s security of payment legislation is unique compared to similar legislation in other states.

Second class variations

The requirements of a second class variation are:

  • the provision of work or supply of goods and services under the contract,
  • there being a request or direction for that work, goods or services by or on behalf of the person for whom the work was being carried out or the goods and services supplied, and
  • failure by the parties to the construction contract to agree on one or more elements of the variation (specific details are set out in the BCISOP Act).

Further, a negative pre-condition must also be satisfied: the consideration under the construction contract must be $5,000,000 or less (and in some circumstances $150,000 or less) or, if the consideration exceeds $5,000,000/$150,000, then the contract must not provide “a method of resolving disputes under the contract”.

AC Hall Airconditioning Pty Ltd v Schiavello (Vic) Pty Ltd [2008] VCC (26 November 2008)

In this decision, the claimant issued proceedings seeking summary judgment in circumstances where the respondent had not provided a payment schedule. The respondent resisted the award of summary judgment and argued that the relevant payment claim included excluded amounts in the form of non-claimable variations. The claimant argued that the disputed variations were second class variations and were therefore claimable.

In respect of those items for which all of the second class variation requirements were met the only remaining issue was whether the negative pre-condition was satisfied – that is, whether the contract did not provide a “method of resolving disputes”.

The contract in question contained a dispute resolution clause. However, Judge Shelton found that the dispute resolution provision did nothing more than re-state the parties’ existing inherent rights to have the dispute litigated. Judge Shelton determined the contract would have needed to provide for “a binding dispute mechanism separate from the Court system” in order for the disputed items to fall outside the definition of second class variations. Presumably, Judge Shelton was contemplating a binding expert determination clause or possibly even an arbitration clause in that regard.

On the facts before him, Judge Shelton determined that as the contract did not provide any such method, the disputed variations were claimable second class variations.

Moving forward

Assuming Judge Shelton’s decision stands, project participants would be well-advised to closely review the relevant factual circumstances in respect of each disputed variation claim including the contractual terms dealing with dispute resolution, when considering their recovery options or potential liability in respect of claims made pursuant to the BCISOP Act.