Diako Builders Pty Ltd v Compfam Pty Ltd [2021] VCC 784

(b) Diako has failed to establish that the payment claim does not contain excluded amounts.

4 For completeness, I note that Compfam had initially sought to oppose Diako's claim also on the ground that the contract was a domestic building contract within the meaning of the Domestic Building Contracts Act 1995 (Vic) ("DBC Act"), and thus excluded from the operation of the SOP Act (see s7(2)) ("s7 SOP Act issue"). However, it gave notice shortly before the hearing that it no longer sought to press that issue.

5 In my view, both grounds ultimately relied on by Compfam at the hearing of the proceeding are made out. I will order that Diako's summons is dismissed. I will also order that Diako pay Compfam's costs of and incidental to the proceeding, to be taxed on the standard basis in default of agreement, unless either party can rely on an offer of compromise or other grounds for a different costs order. I invite the parties to prepare draft orders to give effect to these reasons. I will determine any costs issues on the papers.**

**6 Diako relies upon two affidavits of Leon Diakoumakos (the sole director of Diako) of 9 March 2021 and 21 May 2021. It also filed and served an affidavit of Harry Diakoumakos affirmed 28 May 2021, but this related exclusively to the s7 SOP Act issue, and can therefore be disregarded. In opposition, Compfam relies on an affidavit of Carmelo Comperatore of 14 May 2021. Compfam filed and served a second affidavit of Mr Comperatore but, having decided not to press the s7 SOP issue, did not seek leave to rely on this affidavit at the hearing.

7 The form of the contract exhibited to the affidavits was incompletely signed. Therefore, to avoid any later uncertainty about proper execution of the contract, the parties consented to (and I accepted) the tender by the plaintiff of a fully executed copy of the contract (a MBAV standard form HC-7 (2018) domestic building "New Homes Contract") dated 6 September 2019, as exhibit "P1" ("contract").

8 Unless otherwise indicated, the facts of the proceeding are not materially in dispute. Compfam engaged Diako pursuant to the contract to construct three townhouses at the Site. Under the terms of the contract:

(a) Compfam agreed to make "Progress Payments" to Daiko, "in accordance with the agreed and completed Progress Payments Table as set out in item 23 of the Appendix" (clause 11.8);

(b) the parties agreed that the progress payments set out in s40 of the DBC Act did not apply and "instead the stages and percentages of the Contract Price and amounts payable" were as set out "Method B Table" in item 23.2 of the Appendix (clause 11.8, item 23.2 of the Appendix);

(c) Compfam acknowledged and executed the "warning" in the form prescribed by the regulations under the DBC Act, in relation to the departure from s40 of the DBC Act, and the adoption of the Method B Table (schedule, form 1);

(d) Compfam was to make payment within 7 days of receiving a payment claim, excluding a final payment claim (clause 11.9; item 12 of the Appendix); and

(e) if Compfam failed to make payment within time, Diako was entitled to interest at a rate of 10%, payable from the due date until the payment was paid in full (clause 11.10; item 15 of the Appendix).

9 The contract was subject to finance. On or about 2 October 2019, Compfam entered into a loan agreement with Perpetual Corporate Trust Limited (ACN 000 341 333) for a $1,551,800 loan, to finance the works. La Trobe Financial Services Pty Ltd ("La Trobe") was the lender's representative under the terms of the loan agreement. There were terms of the loan agreement under which La Trobe required a written acknowledgement from Diako that it understands that progress payments "will be made in line with Quantity Surveyor recommendations and not necessarily follow the progress draw schedule as outlined in" the contract.

10 On 16 October 2019, David Philipsen of Parker Finance (Compfam's finance broker) emailed Mr Diakoumakos in relation to the contract payment arrangements. The email requested that Mr Diakoumakos send a letter to the Quantity Surveyor acknowledging and agreeing to La Trobe's requirements for the written acknowledgement from Diako referred to in the loan agreement. On 31 October 2019, Diako sent a letter to the Quantity Surveyor confirming that La Trobe will make payments on a 'cost to complete' basis following quantity surveyor assessments and therefore (relevantly), these assessments may not necessarily follow the stages outlined in in the contract.

11 Work under the contract commenced in about February 2020. On 18 May 2020, Diako submitted its initial stage progress payment claim, based on the Method B Table of the contract. Mr Diakoumakos deposed that he did this because: "I had only been informed that the QS would control the manner in which payments would be made". On 29 May 2020, David Phillipsen of Parker Finance emailed Compfam and Diako noting that there seemed to be "a massive gap between the claim and the [QS progress] report". The email continued:**

"I think a large part of the issue is a misunderstanding of the claim process. Essentially, claims should be made on a monthly basis regardless of stage completion.

I have attached build contract payments stages and Leon's [Diakoumakos] letter acknowledging claims will be done on a cost to complete basis and not as per stages. Therefore, Leon you can make a monthly claim regardless of the stage you are at. Please refer to page 14 of the report showing evidence of these expectations from the QS." [emphasis in original]

**12 Thereafter, Diako issued (among others) three invoices to Compfam:

(a) INV-1299 dated 9 September 2020 in the sum of $87,453 (inc. GST);

(b) INV-1300 dated 8 October 2020 in the sum of $36,281 (inc. GST); and

(c) INV-1301 dated 8 October 2020 in the sum of $24,750 (inc. GST).

13 The "Description" in invoice numbered INV-1301 was as follows:**

"Variation for steel plies over excessively filled areas below unit 2 and 3 including extra steel in unit 2 slab as detailed by engineer." [emphasis added].

**14 Mr Diakoumakos gave evidence about the variation referred to in this description to the effectthat:

(a) in or about late July or August 2019, Mr Comperatore provided him with preliminary engineering drawings in order to prepare a quotation for the works;

(b) on 20 January 2020, Ante Protruder of Compfam's engineer, AKeng Pty Ltd ("AKeng"), emailed Mr Diakoumakos the engineering drawings for finalisation;

(c) shortly after Diako commenced the works in February 2019, it became apparent to Mr Diakoumakos that there were excessive amounts of fill on the site;

(d) on 20 March 2020, he attended a meeting on site with Mr Comperatore and said a variation to the foundations' design was required; Mr Comperatore "was not pleased but did not disagree";

(e) on 23 March 2020, Mr Diakoumakos brought the fill to the attention of Compfam's geotechnical engineer, Hard Rock Geotechnical Pty Ltd ("Hard Rock")

(f) Mr Diakoumakos next received an email from Jessica Pham of Hard Rock attaching a letter in which James Harrison, a geotechnical engineer, expressed an expectation that screw piles were the most practical option for construction in that area;

(g) on 25 March 2020, Mr Diakoumakos sent "Compfam's engineer" an email with handwritten annotations indicating the excessive fill on site;

(h) on 4 April 2020, Compfam's engineer sent Diako an email with further revisions to the engineering drawings, which Mr Diakoumakos forwarded to that day Mr Comperatore; and

(i) "this amendment to the engineering drawings was the basis of the variation the subject of [INV-1301]".

15 On 29 January 2021, Mr Diakoumakos sent an email to Mr Comperatore attaching what purported to be a payment claim under the SOP Act in the sum of $136,849.23 (inc. GST) ("payment claim"). The email stated: "Please find attached Final claim and outstanding invoices for the works carried out at 317 Gallaghers Road Glen Waverley". The payment claim comprised a covering letter and three of the invoices previously sent to Compfam; namely, invoice numbered INV-1299 dated 9 September 2020, and invoices numbered INV-1300 and INV-1301 both dated 8 October 2020. This was the first and only progress claim sent by Diako to Compfam pursuant to the contract that purported to be a payment claim under the SOP Act. All the previous progress claims had been stand-alone invoices, without any statement under s14(2) of the SOP Act that it was made under the Act.

16 The covering letter was headed "Final payment claim" and relevantly stated:**

"This Final Claim is issued for all amounts outstanding in respect of the Works at 17 Gallaghers Road, Glen Waverley undertaken pursuant to the Contract dated 6 September 2019

Amounts outstanding are comprised of unpaid invoices 1299, 1300 and 1301 amounting to $136,849.23 (after adjustment on account of part payment of Invoice 1299 in the amount of $11,634.77 received on 22 October 2020

...

All outstanding invoices are attached for your reference, which include a description of work undertaken in respect of amounts owing.

...

This is a payment claim made under the Building and Construction Industry Security of Payment Act 2002."

17 Compfam failed to issue a payment schedule or make payment. Accordingly, Diako now claims the sum of $136,849.23 (inc. GST) under s16(2) of the SOP Act.

**18 The SOP Act seeks to ensure that people who undertake to carry out construction work can recover progress payments for the performance of that work.[2] Section 4 defines construction contract as a "contract or other arrangement under which one party undertakes to carry out construction work, or to supply related goods and services for another party". The SOP Act applies to any construction contract whether written or oral, or partly written and partly oral.[3] Section 5 defines "construction work". There is no dispute that the works the subject of this proceeding is "construction work" within the meaning of s5.

19 Section 16(2)(a) of the SOP Act provides that a claimant may recover from a respondent any unpaid portion of an amount claimed in a payment claim where the respondent fails to submit a payment schedule within time (or at all) in response to the payment claim.

20 Section 14 of the SOP Act concerns the form and content of payment claims. Sections 14(2) and (3) provide that a payment claim:

(a) must be in the prescribed form (if any) and contain the prescribed information (if any) - neither is prescribed;

(b) must identify the construction work or related goods and services to which it relates;

(c) must indicate the amount of progress payment that the claimant claims to be due;

(d) must state that it is made under the SOP Act; and

(e) must not include any "excluded amounts" (being amounts referable to particular categories of variations).

21 Section 14(4) of the SOP Act addresses when a payment claim can be served, where it is not a payment claim in respect of a final, single or one-off progress payment. It provides that such a payment claim may only be served within:

(a) the period determined in accordance with the construction contract "in respect of the carrying out of the item of construction work or the supply of the item of related goods and services to which the claim relates"; or

(b) the period of 3 months after the "reference date referred to in s9(2) that relates to the progress payment".

22 Section 14(5), (6) and (7) of the SOP Act concern payment claims claim in respect of a final, single or one-off progress payment and are not relevant for present purposes. Section 14(8) provides that a claimant "cannot serve more than one payment claim in respect of each reference date under the construction contract". Section 14(9) provides that this limitation does not prevent the claimant from including in a payment claim an amount that has been the subject of a previous payment claim if the amount has not yet been paid.

23 Another important provision informing the formal requirements for payment claims is s9. Section 9(1) provides that "on and from each reference date under a construction contract" a claimant is "entitled to a progress payment under this Act calculated by reference to that date".

24 Section 9(2)(a) provides that a reference date is a date determined by or in accordance with the construction contract as:

(a) a date on which a claim for a progress payment may be made; or

(b) a date by reference to which the amount of a progress payment is to be calculated,

in relation to a specific item of construction work "carried out or to be carried out" or a specific item of related goods and services "supplied or to be supplied" under the contract. The rest of s9 concerns situations where the contract makes no express provision for reference dates.

25 Unless a payment claim answering the description in s14 of the SOP Act is served, there can be no application to a court under s16(2)(a)(i).[4] But the defences to a payment claim are limited. Generally speaking, they concern either the nature of the underlying contract or the form and service of the purported payment claim, and thus whether the payment claim is effective to trigger the procedures established by Part 3 of the SOP Act.[5] More particularly, the defences to a payment claim are, in substance, that the payment claim:

(a) does not relate to a "construction contract" (including because it does not involve carrying out "construction work");

(b) relates to a construction contract excluded from the operation of the Act under s7 (for example, a construction contract that forms part of a loan agreement, or one that is a domestic building contract under the DBC Act);

(c) fails to satisfy the formal requirements of s14(2) (for example, by failing to identify the construction work or failing to state that it is made under the SOP Act);

(d) was made when no valid reference date existed,[6] including where it is served before an applicable reference date or relies on a reference date that has already been used up by an earlier payment claim;[7]

(e) includes variations that are "excluded amounts" under s10B; and

(f) was not validly served on the respondent under either the terms of the contract or under s50.

26 Under section 47, nothing in Part 3 of the SOP Act precludes bringing or continuing proceedings under the construction contract, including where those proceedings deal with the same issues in dispute in the proceeding relying on Part 3. This section manifests the "pay now, argue later" policy of the SOP Act.[8] Thus, a judgment under ss16 and 17 is a provisional judgment in what it grants and what it refuses.[9] The statutory context both contemplates and permits inconsistent judgments.[10]

27 Further, in considering any purported defences to a payment claim, it is important to be mindful of s48 of the SOP Act. This section provides that the provisions of the SOP Act have effect despite any contractual provision to the contrary. It further provides that any provision in any contract purporting to exclude, restrict or modify the operation of the SOP Act or that may reasonably be construed as an attempt to deter a person from taking action under the Act, is void.

28 This court has endorsed the hearing of applications under the SOP Act on a summary basis by summons on originating motion with affidavit evidence.[11] Such claims are assessed on the balance of probabilities.[12] The court weighs with the quality of the evidence having regard to the fact that the legislation seeks to facilitate a swift but temporary remedy.[13]

29 Particular provision of the DBC Act and the regulations thereunder also play a significant role in the determination of this proceeding. In particular, section 40(2) to (4) of the DBC Act and regulation 13 of the Domestic Building Contracts Regulations 2017 (Vic) ("DBC Regulations"), which provide as follows:**

"40 Limits on progress payments

(2) A builder must not demand or recover or retain under a major domestic building contract of a type listed in column 1 of the Table more than the percentage of the contract price listed in column 2 at the completion of a stage referred to in column 3.

(3) In the case of a major domestic building contract that is not listed in the Table, a builder must not demand or receive any amount or instalment that is not directly related to the progress of the building work being carried out under the contract.

(4) Subsections (2) and (3) do not apply if the parties to a contract agree that it is not to apply and do so in the manner set out in the regulations.

13 Progress payments

(1) For the purposes of section 40(4) of the [DBC] Act, when parties to a major domestic building contract agree that section 40(2) and (3) of the Act do not apply to that contract, the manner of agreement is to include in the major domestic building contract -

(a) a warning in the form of Form 1 in Schedule 1, which is signed by the building owner before the building owner signs the major domestic building contract; and

(b) a clause in the form of Form 2 in Schedule 1, which is signed by the building owner and the builder before they sign the major domestic building contract."

**30 The written submissions of Mr Morrison, counsel for Compfam, dealt with this issue both on the basis that the payment claim was a "non-final payment claim" and, in the alternative, a "final payment claim" under s14 of the SOP Act. However, despite the language used in the payment claim itself, Diako's counsel Mr Blair eschewed any argument that it was a final payment claim, and Mr Morrison did not seek to argue that it should nevertheless be treated as one. It is therefore unnecessary for me to consider further whether the payment claim is "in respect of a progress payment that is final" within the meaning of s14(4) of the SOP Act.

31 In his written submissions, Mr Blair for Diako argued that the email from Mr Philipsen of Parker Finance dated 16 October 2019 and Diako's subsequent confirmation to the Quantity Surveyor, constituted an agreement by the parties to vary the contract to:**

"a. dispense with the progress payment regime established by Contract Appendix item 23.2(ii) save and except for the payment of the Deposit;

1. allow Diako to make progress claims on a 'cost to complete' basis; and

1. allow Compfam's financier's appointed quantity surveyor to control the frequency of payment."

**32 Mr Blair next referred to the further exchanges involving Mr Philipsen in May 2020 and, in particular, Mr Philipsen's email of 29 May 2020 confirming that: "claims should be made on a cost to complete basis regardless of stage completion...Therefore, Leon you can make a monthly claim regardless of the stage you are at" ("29 May instruction") He submits that, as a recipient of the email, Compfam knew of the 29 May instruction and said nothing to disabuse Diako of "the possibility that Diako was not to follow the instruction".

33 Mr Blair submitted that the alleged contract variation or, alternatively, the 29 May instruction:

(a) gave rise to a monthly reference date and "consequently on at least the first day of each month, a new reference date within the meaning of s9(2) of the SOP Act arose" - Daiko says the reference date for the payment claim was 1 November 2020; and

(b) together with Daiko's compliance with the 29 May instruction, meant that Compfam is now estopped from "asserting an entitlement to rely on any strict legal entitlement whether in the Contract or at law in order to deny the existence of a reference date arising from month to month".

34 In expanding on these submissions in oral argument, Mr Blair said that, by the contract variation, the parties replaced the Method B Table stages with time-based stages. The monthly reference date is implied into the variation, in substance because it is reasonable and gives business efficacy to the variation. Mr Blair also referred to the 20 business day default period in SOP Act s9, clarifying in reply submissions that he was not arguing that the default provisions applied. Rather, he cited this as informing what would be a reasonable time to imply into the alleged variation.

35 On the effect of s40 of the DBC Act on the alleged contract variation, Mr Blair pointed out that these provisions pre-dated the SOP Act and were therefore not enacted with the SOP Act in mind. Having validly "opted out" of the statutory regime in s40, it was open to the parties to further vary the timing of payment claims for the purposes of invoking rights under the SOP Act. I refer to this below as the "opt out" construction of s40 of the DBC Act. Mr Blair argued that decision in Cardona v Brown[14] relied on by Compfam could be distinguished, because in that case the parties had not elected to contract out of the s40 DBC Act regime.

36 Similarly, the decision of the Court of Appeal in Imerva Corporation Pty Ltd v Kuna[15] ("Imerva") could be distinguished. According to Mr Blair, it too was a case where (unlike the present) the court found that the parties had failed to exclude the payment schedule prescribed by s40 of the DBC Act. Here, the parties had validly varied the stages and percentages in the table in s40(2), and later moved from the Method B Table, to time-based payments. Diako was not relying on estoppel to negative the statutory regime - the parties had already contracted out of that regime. Rather, estoppel was available to prevent Compfam from now resiling from the month-by-month arrangement, and rely instead on the stages provided for in the Method B Table.

37 In considering these submissions, I start (as did Mr Morrison) with the proposition that the effect of the decision in Southern Han is that the onus is on Diako to show that the payment claim has a valid reference date. Diako's task in this regard is made more difficult because it must identify a reference date falling in the narrow window between 29 October 2020 (3 months before the payment claim was sent - see SOP Act s14(4)(a)), and 5 November 2020, when both parties purported to terminate the contract.

38 Against that background, I agree with Mr Morrison's submissions to the effect that Diako's reliance on a purported reference date of 1 November 2020, based on either a variation to the contract or an estoppel, is both contrived and legally unsustainable.

39 Turning first to the variation argument, I am not persuaded that the correspondence relied on by Diako amounts to an agreement to vary the contract by replacing the Method B Table with monthly payments, thus giving rise to monthly reference dates. There is nothing in the express terms of the acknowledgement letter of 31 October 2019 that could be said to amount to a variation of the contract. Indeed, it does no more than foreshadow that the assessments by the quantity surveyor "may not necessarily follow the stages outlined in the build contract" (emphasis added).

40 I therefore agree with Mr Morrison that the letter does not by its terms change the date of payment claims under the contract. Rather, it acknowledged how any payment claims would be paid as and when made. Put another way, by signing the acknowledgement, Mr Diakoumakis accepted that the manner of payment would be governed by the terms of the construction loan (that is, following quantity surveyor assessments), which may or may not accord with the "build contract". As Mr Morrison noted, even Mr Diakoumakos seemed to consider that the arrangement implemented by Mr Philipsen as changing only the manner in which payments would be made.[16]

41 Further, there is no evidence that Mr Philipsen (Compfam's finance broker) had actual authority to bind Compfam to any formal variation of the contract, or that Compfam otherwise adopted Mr Philipsen's statements as its own.

42 On the question of ostensible authority, I am satisfied that the evidence does not rise high enough to establish that Compfam relevantly held Mr Philipsen out as Compfam's agent in relation to the construction contract. Mr Blair pointed to the email from Mr Philipsen of 16 October 2019 and the statement that "I am arranging the finance" for Diako. But, in my view, this does no more than confirm that Mr Philipsen was Diako's finance broker.

43 I have seen nothing in the evidence that could reasonably be characterised as amounting to a representation that Mr Philipsen had Compfam's authority to vary the contract. In particular, the October 2019 correspondence merely states what Compfam's lender requires under the terms of its "approved construction loan". It is entirely equivocal on what this might mean for the "build contract". Further, as ostensible authority is a form of estoppel, it faces the same obstacle as Diako's broader estoppel argument discussed below.

44 Although these findings are sufficient to deal with the variation argument, it is appropriate that I consider briefly Compfam's further submission that the alleged variation is, in any event, precluded by s40 of the DBC Act.

45 Section 40 of the DBC Act and r13 of the DBC Regulations are directed to the objective of consumer protection and are to be construed accordingly, as discussed in Imerva.[17] However, I accept that Imerva was a case where (as the Court of Appeal found), the building owners had not properly executed the warning of change of legal rights prescribed by the regulations; thus, s40(2) and (3) continued to apply to the contract. Here, Compfam did execute the warning. But in doing so, it expressly provided that "instead" of the regime set out in the table in s40(2) of the DBC Act, the stages and percentages under the contract would be those comprehensively set out in the Method B Table.[18]

46 Thus, the question in this case is whether, on the proper construction of s40 of the DBC Act and r13 of the DBC Regulations, the prohibition on progress payments imposed under (relevantly) s40(2) transferred to the substituted regime of stages and percentages in the Method B Table. Or put more starkly, once the parties have agreed a substituted payment regime, can a builder demand, recover or retain under a major domestic building contract, more than the percentage of the contract price provided for under that substituted regime?

47 In the circumstances of this case (involving, as it does, reasonably sophisticated parties on both sides) that outcome may seem unexceptional. But if it applies in this case, it must also apply more widely, such as in the following scenario:

(a) a builder persuades an unsophisticated domestic building owner to agree in the manner set out in r13 that s40 is not to apply in some very minor respect;

(b) for example, because of problems with the build site, the builder argues that its base stage percentage should increase from 10% to 12.5%, but also agrees to reduce the frame stage by an equivalent percentage;

(c) the building owner signs the warning under r13 in the belief that they are conceding only a minor adjustment to their rights under the DBC Act; and

(d) on Diako's "opt out" construction of s40, the builder could thereafter "demand or recover or retain" payments by the building owner with impunity, regardless of whether those payments are more than the agreed adjusted percentages or, indeed, the percentages that were unchanged by the r13 agreement.

48 Mr Morrison was unable to refer me to any decisions of a court directly on point, and referred to only one decision in VCAT (namely Barbour v Australian Elegant Homes Pty Ltd[19]). In that proceeding (with facts not unlike the hypothetical scenario above), the learned Senior Member assumed (without discussing) that s40(2) continued to apply to the varied progress payment regime, finding as follows:**

"Pursuant to the decision in Imerva Corporation Ltd v Kuna, any subsequent oral or implied variation of the agreed progress payment schedule [that is, subsequent to the initial agreed variation] is not enforceable, as it was not made on the prescribed form and with the signed warning."[20]

**49 I am less confident. On a plain reading of s40(2), the prohibition is expressed to apply only to demands for payments exceeding the percentages in the table that forms part of the section. There is nothing in that section or elsewhere in the DBC Act that expressly extends the prohibition to a different set of percentages under a valid variation. More importantly, s40(4) provides in absolute terms that: "Subsections (2) and (3) do not apply if the parties to a contract agree that it is not to apply and do so in the manner set out in the regulations" (emphasis added).

50 On the other hand, the absolute terms of s40(4) can be said to be qualified by the requirement that the parties agree "in the manner set out in the regulations". In my view, this should be read as providing, in effect, that the "non-application" of s40(2) provided for in s40(4) is subject to the terms of the agreement made in accordance with the regulations.

51 Turning to the regulations, and the prescribed form of agreement in Form 2 under r13(1)(b) in particular, this expressly provides that the varied stages and payments apply "instead" of the progress payments set out in s40. The use of "instead" arguably has the effect that the varied table (in the present proceeding, the Method B Table) is for all purposes to be treated as replacing the table in s40(2). Thus, any further proposal for a variation is subject to the same restrictions in s40(4) which apply to the initial valid variation to the table in s40(2).

52 The question whether this construction should be preferred over the plain meaning of the s40 is a complex one. The summary nature of this proceeding and the fact that the question is not determinative of the outcome, mean that a more thorough analysis is not warranted. Having said that, in my judgment, the "opt out" construction is inimical to the object and purpose of the DBC Act and Regulations, as discussed in Imerva. The better view is that the legislature could not have intended that the protections afforded by s40 could be so easily thwarted. Accordingly, and consistently with s35(a) of the Interpretation of Legislation Act 1984 (Vic), I prefer the construction discussed above under which (in this case) the Method B Table substitutes for the table in s40(2) for all purposes.

53 I therefore agree with Mr Morrison that the payment stages and percentages in the Method B Table would not apply on the facts of this case, only if the parties agreed to move to monthly payments "in the manner set out in the regulations" as required by s40(4). This did not occur. It follows that any demand by Diako relying on the monthly payment regime (including, relevantly, the payment claim) is precluded by s40(2) of the DBC Act. Diako has not adduced any evidence that the purported 1 November 2020 reference date is supported by the completion of any milestone stage under the Method B Table.

54 As noted above, Diako also argues that Compfam is estopped by the variation agreement or, alternatively, the 29 May instruction, from now resiling from the month by month arrangement and relying instead on the stages provided for in the Method B Table. Mr Morrison argued (and I agree) that there are two difficulties with this argument. First, Diako has failed to establish any relevant detriment. The payment arrangement contemplated under Compfam's construction loan agreement and reinforced by the 29 May instruction, resulted in Diako being paid in advance of the dates provided for in the Method B Table. It was thus to its advantage.

55 In his oral submissions in reply, Mr Blair argued that the detriment is that, by accepting payments in accordance with the variation and the 29 May instruction, Diako was acting potentially in breach of s40(2) of the DBC Act, and thus exposing itself to claims for recovery from Compfam. In my view, this alleged detriment is wholly theoretical and is therefore insufficient to support a claim for estoppel. It also cannot be reconciled with Diako's argument that the principles relating to estoppel discussed in Imerva do not apply, as discussed below.

56 Second, and in any event, the Court of Appeal in Imerva dealt comprehensively with a similar argument in that case. In my view, the factual divergence between that case and the present does not justify a departure from the clear statement of principle in that case. Namely, that "there is no scope for a contravention of s40(2) to be met by a plea of estoppel".[21] And if my conclusion on the application of s40(2) to the Method B Table is wrong, then even Diako's theoretical argument as to detriment falls away. It cannot rely on the risks under s40(2) as supplying detriment and, at the same time, argue that the principles in Imerva do not apply because s40(2) is not engaged.**

Is the payment claim invalid because it contains excluded amounts?

**57 Diako contends that the payment claim does not contain excluded amounts. It says the variation referred to in invoice INV-1301 forming part of the payment claim was, on the facts summarised above, directed by Diako's engineering consultant, and discussed with Mr Comperatore before the works commenced. It says Mr Comperatore therefore knew the work was required, was about to take place, and acquiesced to the performance of the work. It argues that the variation is therefore a claimable variation within the meaning of s10A(2) or, alternatively, s10A(3) of the SOP Act.

58 At the hearing, Diako relied upon the reference "...as detailed by engineer" (and cross-referenced the engineering reports) as evidence that Compfam requested or directed the variation. It also argued that this satisfied the clear requirement following the recent decision of the Court of Appeal in Yuanda Vic Pty Ltd v Façade Designs International Pty Ltd[22] ("Yuanda"), that the court is required to be satisfied on the face of the payment claim that the payment claim does not contain any "excluded amounts".

59 Under s16 of the SOP Act, the plaintiff bears the onus of establishing the absence of excluded amounts.[23] In Yuanda, McLeish and Niall JJA held that the court must only examine the "face of the payment claim" (including the documents supporting the payment claim, which can be taken to mean documents referred to in the payment claim or served with it).[24] Their Honours held:**

"...the interpretation which best accords with the policy of the Act should be preferred. In our opinion, that is the more limited construction on which the primary judge relied. The enforcement process is not intended to be an inquiry into the merits of the claim. That is obvious from the prohibition on the respondent advancing a cross-claim or raising a defence. It is also apparent more generally from the 'pay now, argue later' scheme of the Act as a whole and, within that scheme, the provision for adjudication (and adjudication review) in respect of disputed excluded amounts. An interpretation which gives the Court a limited role is to be encouraged as consistent with the Act's preference for adjudication to resolve disputes about the contents of a payment claim." [25]

60 Sifris JA agreed and held that that the contrary interpretation is antithetical to the purpose of the SOP Act (the timely resolution of payment disputes).[26] His Honour reasoned that:

"The structure, intent and purpose of the Act and the procedure for payment and objections to payment in relation to excluded amounts are predicated on a relatively quick summary procedure for allocation of risk pending any final determination. A full investigation of alleged excluded amount or the suggested digging exercise are entirely contrary to the intended purpose. Rather, it is up to the respondent to identify, in the manner provided for, the excluded amount and set in train the adjudication process. If the respondent fails to do so, it is not open to the respondent to later contest and request a full investigation or digging exercise (a suggested lesser review) in relation to an alleged excluded amount that it should have raised earlier, particularly in circumstances where the enquiry is not directed to a final determination of the rights of the parties, but rather what interim accommodation is appropriate and indeed required based on a face of the claim consideration."

**61 Mr Blair argued in oral submissions that the reference in invoice INV-1301 to "Variation for steel plies over excessively filled areas below unit 2 and 3 including extra steel in unit 2 slab as detailed by engineer", sufficiently incorporated all of the underlying engineering drawings, emails and other documents discussed above, to meet the requirement for establishing on the face of the payment claim that there were no "excluded amounts". He submitted that to find otherwise was "too narrow an interpretation of Yuanda," and would set an unnecessarily high threshold. He argued that the principle discussed by Vickery J in Gantley Pty Ltd v Phoenix International Group Pty Ltd,[27] that payment claims should not be approached in an unduly technical manner, was still good law, and should guide the application of the principles in Yuanda.

62 I disagree. I do not cavil with the proposition that payment claims should not be approached in an unduly technical manner. However, accepting Diako's submissions requires much more than avoiding mere technicalities. In my view, it requires precisely the full investigation and digging exercise that the Court of Appeal in Yuanda has soundly rejected.

63 For example, the brief statement in the invoice says nothing about the authority of the engineer to bind Compfam to an agreement for the purposes of s10A(2) of the SOP Act, or to request or direct the work for the purposes of s10A(3). Further, the expression "as detailed by the engineer" fails to identify whether there were any documents comprising the "detailing". It certainly falls a long way short of identifying expressly any of the engineering drawings or other documents which it calls in aid, as contemplated by Yuanda.

64 All of these matters would need to be thoroughly investigated and findings of fact made before the court could be satisfied that the payment claim did not include excluded amounts. It would be necessary to "go digging" into the engineering drawings and other extrinsic evidence (such as what the engineers and Mr Comperatore allegedly said or did). That kind of digging or investigation is contrary to Yuanda, and inimical to the purpose of the SOP Act. As the Court of Appeal emphasised, the scheme of the SOP Act is that those investigations into excluded amounts are reserved for the adjudication process, not the more limited role envisaged for the court.

65 In the circumstances, Diako have failed to satisfy me that invoice INV-1301 does not include any excluded amount. Further, as Yuanda has also made clear, I cannot sever the impugned invoice from the payment claim as a whole,[28] and Diako did not seek to contend otherwise. It follows that Diako has failed to establish that the payment claim as a whole does not include any excluded amounts as required by s14(3)(b) of the SOP Act, and its claim under s16(2) of the SOP Act also fails on that ground.**

**66 For completeness, I note that Mr Blair sought a finding that Mr Comperatore was not a credible witness. I decline to make such a finding. First, it is unnecessary to do so. None of the relevant factual findings supporting my conclusions above turn on issues of credit. Second, without full argument and (possibly) cross-examination, there is an insufficient basis for me to make any adverse findings about any of the deponents, including Mr Comperatore.

I certify that these 19 pages are a true copy of the judgment of His Honour Judge Woodward delivered on 16 June 2021.

[1] The payment claim is described in detail in paragraph 15 below

[4] Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd [2016] HCA 52; (2016) 260 CLR 340 ("Southern Han") at [44].

[6] Southern Han [61]-[62]; Vanguard Developments v Promax [2018] VSC 386 [121] (Kennedy J).

[8] Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd & Anor [2009] VSC 156; (2009) 26 VR 112 [2] and [43]-[46].

[9] Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd & Anor [2009] VSC 156; (2009) 26 VR 112 [2] and [43]-[46] (Vickery J), cited with approval in Pearl Hill Pty Ltd v Concorp Construction Group (Vic) Pty Ltd [2011] VSCA 99 [11].

[10] Falgat Constructions Pty Ltd v Equity Australia Corp Pty Ltd [2005] NSWCA 49; (2005) 62 NSWLR 385 [22] (Handley JA, with whom Santow JA and Pearlman AJA agreed).

[11] 3D Flow Solutions Pty Ltd v LTP Armstrong Creek Pty Ltd [2018] VCC 674 [39]-[54]. See also SJ Higgins v The Bays Healthcare Group Inc [2018] VCC 805 [26].

[12] Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; (1992) 110 ALR 449, 449-450 (Mason CJ, Brennan, Deane and Gaudron JJ).

[13] 3D Flow Solutions Pty Ltd v LTP Armstrong Creek Pty Ltd [2018] VCC 674 [51]-[54].

[14] Cardona v Brown [2012] VSCA 174; (2012) 35 VR 538 at [74]

[15] [2017] VSCA 168

[16] Diakoumakos affidavit of 9 March 2021 at [12].

[17] For example, at [78] and [88].

[19] [2018] VCAT 1242

[22] [2021] VSCA 44.

[23] SOP Act s16(4)(a)(ii); John Beever [44], [131] and [132].

[24] [2021] VSCA 44 at [38] and [44].

[27] [2010] VSC 106.

[28] Yuanda Vic Pty Ltd v Façade Designs International Pty Ltd [2021] VSCA 44 [36] (McLeish and Niall JJA); [143] (Sifris JA).