Chapter 12 Liquidated damages clauses and security of payment legislation
The law in Victoria is that liquidated damages cannot be taken into account when assessing the amount of a payment claim made under the Building and Construction Security of Payment Act 2002 (Vic). This is because these amounts constitute ‘excluded amounts’ for the purposes of s 10B of the Victorian Security of Payment Act. This is so even where the construction contract provides otherwise: Seabay Properties Pty Ltd v Galvin Construction Pty Ltd  VSC 183.
The law in New South Wales is that liquidated damages can be taken into account when assessing the amount of a payment claim made under the Building and Construction Security of Payment Act 1999 (NSW) so long as the construction contract contains a provision which enables that calculation to be made in assessing a progress payment: J Hutchinson Pty Ltd v Glavcom Pty Ltd  NSWSC 126.
Seabay Properties Pty Ltd v Galvin Construction Pty Ltd  VSC 183
- Seabay (principal) and Galvin (contractor) entered into an amended AS 4300-1995 contract for the construction of an apartment building in Geelong for $19,957,300.
- Galvin submitted a payment claim.
- Seabay’s payment schedule stated the amount owing as ‘Nil’. The assessment showed that this included a deduction for liquidated damages for delay in completion of the works.
- An adjudication was commenced under the Victorian Security of Payment Act and the adjudicator determined that Seabay was not entitled to deduct an amount for liquidated damages as it was an ‘excluded amount’ pursuant to s 10B of the Victorian Security of Payment Act.
- ‘Excluded amounts’ in s 10B of the Victorian Security of Payment Act apply to both payment claims and amounts deducted by a respondent in payment schedules.
- The sum deducted by Seabay for liquidated damages for delay was an ‘excluded amount’ either because it was an amount claimed under the contract for compensation for ‘time-related costs’ or an amount claimed for ‘damages for breach of … contract or … for damages arising under or in connection with the contract’.
- Galvin was entitled to the amount identified in its payment claim without any deduction for liquidated damages.
- Claims for liquidated damages are to be resolved under the general law, supported by court or arbitration proceedings, rather than adjudication.
J Hutchinson Pty Ltd v Glavcom Pty Ltd  NSWSC 126
- Hutchison (as builder) and Glavcom (as subcontractor) entered into a subcontract for the design, fabrication and installation of joinery for a hotel redevelopment.
- Glavcom served on Hutchison a payment claim for $2,948.510.80.
- Hutchison served a payment schedule in response for –$6,322,578.96 which included a significant deduction for liquidated damages for delay.
- Both parties accepted that the subcontract did not contain a provision which identified how progress payments were to be calculated.
- The court held that because of this, the amount of the progress payment was to be determined in accordance with s 9(b) of the NSW Security of Payment Act.
- This section provides that the amount is to be ‘calculated on the basis of the value of construction work carried out or undertaken to be carried out by the person’.
- Section 9(b) ‘says nothing about set-off’ and does not entitle a respondent to deduct liquidated damages by way of set-off against the amounts due to a claimant for work it has done.
- Hutchison was therefore not entitled to deduct liquidated damages in its payment schedule.
- If the parties wish to allow for rights of set-off in the calculation of progress payments, they can do so by including such a provision in the construction contract.
Updated January 2020