Construction companies can suspend works despite invalid payment claims, Victorian court confirms

In the case of Façade Designs International Pty Ltd v Yuanda Vic Pty Ltd, the court upheld a referee’s conclusion that a subcontractor was entitled to suspend works under the Building and Construction Industry Security of Payment Act 2002 (Vic) (Act) despite the relevant payment claim including “excluded amounts”. The decision underscores the strict consequences of failing to serve a payment schedule and reinforces the “pay now, argue later” philosophy underpinning security of payment legislation.

This approach is consistent with earlier case law from the Victorian appeal court, including a 2021 case between the same parties, which confirms that liability can arise under the Act notwithstanding the inclusion of excluded amounts, even though such amounts may not ultimately be recoverable.

While the ‘new’ Act, which came into effect on 15 April 2026, abolished the concept of “excluded amounts”, the same principles are likely to apply to certain payment claims made under the ‘new’ Act, where they contain items which do not fall under the definition of “construction work” or “related goods and services”.  

Validity of payment claims and the statutory trigger for liability

The dispute arose from a subcontract for façade installation works on a major Melbourne project. The subcontractor issued a payment claim which included, among other things, interest, being an amount that falls within the category of “excluded amounts” under the Act. The contractor targeted by the payment claim neither served a payment schedule nor paid the claimed amount, and the subcontractor subsequently suspended works, relying on its statutory rights.

The contractor contended that this suspension was invalid because the payment claim itself was defective. One of the contractor’s arguments was that a claim which includes excluded amounts should not trigger the statutory consequences that follow non‑compliance, particularly where the Act expressly prohibits the inclusion and recovery of such amounts. On that analysis, it would be inconsistent with the statutory scheme to permit reliance on an invalid claim as the basis for suspension.

The court rejected that contention. It confirmed that where no payment schedule is served, liability arises under section 15(4) of the Act for the full claimed amount, even if the claim includes excluded amounts. Once that statutory liability arises, the preconditions for suspension are met. The validity of the claim at a final or substantive level does not prevent the machinery of the Act from operating in the interim.

This aspect of the decision highlights a central feature of the regime: the trigger for statutory consequences is procedural non‑compliance, not the substantive correctness of the claim.

Suspension as a protective right rather than an enforcement tool

A further argument advanced by the contractor was that suspension should be treated as one of several enforcement mechanisms available under the Act, alongside adjudication and court proceedings. On that basis, it was said that the prohibition on recovering excluded amounts should operate equally to prevent suspension being based on claims that include such amounts.

The court did not accept that characterisation. It endorsed the view that suspension is not merely an enforcement mechanism but performs a broader protective function. In particular, it allows a construction company to cease work where it remains unpaid, thereby avoiding the accumulation of further costs and exposure.

This distinction is important. Whereas adjudication and court proceedings are directed toward determining and enforcing payment rights, suspension operates as a form of commercial self‑protection. It follows that the availability of suspension is tied to the existence of statutory liability, rather than being contingent on the company pursuing formal enforcement processes or establishing the ultimate validity of the claim.

On that approach, a construction company is not required to strip out excluded amounts or otherwise perfect its claim before exercising the right to suspend, provided the statutory gateway conditions under the Act have been satisfied.

The consequences of failing to engage with the statutory process

The decision also serves as a reminder of the significance of the payment schedule mechanism. The Act provides a clear opportunity for companies targeted by payment claims to identify and dispute components of those claims, including any excluded amounts, or items claimed which are not construction work or related goods and services. Where that opportunity is not taken, the resulting statutory consequences are strict.

The court emphasised that any apparent unfairness in allowing suspension on the basis of an invalid claim is, in substance, the product of the company’s own failure to respond. Had a payment schedule been served, the dispute would have been directed into adjudication, where excluded amounts would be removed from consideration. By failing to engage with the process, the contractor instead exposed itself to the full operation of the statutory regime.

The decision therefore reinforces a well‑established but sometimes overlooked principle: under security of payment legislation, procedural discipline is critical. Even technically well‑founded objections may be lost if they are not raised within the framework and time limits prescribed by the Act.

Implications for industry participants

The case has practical implications for both those making payment claims and those targeted by them under the Victorian regime.

For companies targeted by claims, the message is clear. The inclusion of excluded amounts in a payment claim, or any other claims which might not be caught by the Act, does not provide a safe basis for inaction. A failure to serve a compliant payment schedule may result in statutory liability arising in full, together with the contractor facing the prospect of suspension. The appropriate course remains to issue a schedule identifying any disputed or excluded amounts and to preserve the right to contest them through adjudication or later proceedings.

For those making payment claims, the decision confirms the strength of the statutory framework. While care should still be taken in preparing payment claims, the inclusion of claims which might not be caught by the Act will not necessarily deprive the claim of its practical effect where the other side fails to engage with the process. The statutory scheme prioritises the continuation of cash flow and will operate even where the claim is open to later adjustment.

More broadly, the decision reflects the continued rigidity of the “pay now, argue later” model. The Act is designed to keep money flowing through the contractual chain, and it does so by attaching significant consequences to procedural non‑compliance. Substantive disputes about entitlement are deferred, rather than resolved, at the point of payment.

The decision reflects an ongoing trend of the courts in most jurisdictions of minimal intervention under security of payment regimes. Courts are becoming less and less inclined to interrogate the claims made in payment claim where there is no payment schedule. The requirements of a payment claim are relatively undemanding and if the payment claim complies, it is not for the court to intervene of a statutory debt in respect of interim rights. However, this decision demonstrates that the Act for companies targeted by payment claims is about who holds the cash while there is a dispute. The failure to pay a statutory debt can lead to suspension and cause significant delay and costs to a project.

The clear response from the court in this decision to the contractor’s complaint that the payment claim should not have included claims which are not caught by the Act – say it in a payment schedule.