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
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
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
AC Hall Airconditioning Pty Ltd v Schiavello (Vic) Pty Ltd
 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
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.
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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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