In VCON Pty Ltd v Oliver Hume & Anor [2020] VSC 767, the Victorian Supreme Court has provided another example of how Victoria's "excluded amounts" regime, which is unique amongst Australia's security of payment legislation, operates to restrain both principals and contractors from agitating claims for time-related compensation adjudications.

The first defendant principal made a demand on bank guarantees for liquidated damages that it asserted were payable by the plaintiff contractor. In turn, the contractor included the amount of the principal's call on the bank guarantees in a payment claim (PC 26), arguing that the principal's recourse to that sum was unlawful on the basis of s10B of the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOP Act). In the adjudication that followed, the adjudicator determined that the liquidated damages component of the claim could not be taken into account by reason that it constituted an "excluded amount" under the SOP Act.

Following the earlier decision of Justice Digby in Shape Australia Pty Ltd v Nuance Group (Aust) Pty Ltd [2018] VSC 808, Justice Stynes noted that "any attempt by a party to recoup liquidated damages levied in a previous accounting period is a claim for an excluded amount that must not be taken into account in calculating the amount of a progress payment."

The contractor contended that the effect of the drawdown on the bank guarantees was to reduce the payment to the contractor in a manner proscribed by the SOP Act. Her Honour rejected that submission, noting that both the provision of and entitlement to call on security were matters arising under the relevant contract.

The contractor pursued two further submissions: first, it sought to characterise the liquidated damages element of its claim as a claim for work performed under the contract, rather than an "excluded amount". Secondly, the contractor sought to raise an issue estoppel based on the treatment of preceding payment claims and an earlier adjudication.

Her Honour made short shrift of the first of those submissions, stating there was "no way to characterise the LD claim other than as an attempt to recoup monies converted on account of liquidated damages".

The issue estoppel submission was premised on the following:

liquidated damages certified by the Superintendent under the contract had been deducted in accounting periods preceding PC 26, namely in payment claims 23 and 24; a subsequent payment schedule responding to payment claim 25 did not seek to account for any of the liquidated damages certified by the Superintendent in those earlier payment periods; and similarly, an adjudication determination in respect of payment claim 25 - made on 8 January 2020 - did not take account of any liquidated damages.

The principal called on the bank guarantees on 12 and 22 January 2020. The contractor argued that the fact the 8 January 2020 determination made no allowance for liquidated damages precluded the principal from thereafter seeking to claim or recover liquidated damages.

Again her Honour rejected that argument, relevantly noting that the first adjudication determination neither addressed nor made a decision about "the parties’ contractual entitlements to assert or resist a claim for liquidated damages or to have recourse to the Bank Guarantees". Hence, no issue estoppel could be said to have been created in respect of those matters.