Claim for retention moneys considered a “payment claim” capable of SOPA adjudication

The Supreme Court of Victoria in Hunters Green Retirement Living Pty Ltd v JG King Project Management Pty Ltd [2023] VSC 536 considered (amongst other things) whether a contractor’s claims for the return of retention moneys were “payment claims” for the purposes of ss 9(1) and 14(1) of the Building and Construction Industry Security of Payment Act 2002 (Vic) (the Act).

The Act provides that any adjudication application must be referable to a “payment claim” (s18(1)), and a payment claim must be able to identify specific “construction work” or “related goods and services” to which it relates (ss 9(1), 14(1)).

Hunters Green contracted with JG King to build retirement units for a developer. The contract obliged JG King to provide security to Hunters Green in the form of retention moneys and nominated two specific project milestones at which Hunters Green would pay JG King the retention moneys in 50% increments. At the end of the project, JG King issued Hunters Green two documents (one for each stage of the project) entitled “Final Payment Claim”, which included an itemised breakdown of the works. Each claim:

• recorded a ‘current contract claim’, which amounted to the difference between the total value of the works and the amount already paid; and
• claimed an amount equal to the unpaid retention moneys.

Hunters Green disputed each claim. At adjudication, the adjudicator made determinations in JG King’s favour, which Hunters Green later appealed to the Supreme Court of Victoria. One of the Hunters Green grounds of appeal was that JG King’s ‘payment claims’ were not in respect of construction work, and accordingly, were invalid for the purposes of ss 9(1) and 14(1) of the Act.

Ultimately, Attiwill J found that the payment claims were claims for “construction work” for the purposes of the Act. His Honour considered that there was a “direct and obvious nexus” between the retention moneys and the unpaid amounts for the construction works. He noted the “separate and distinct nature of the retention moneys as security”, and the fact that they were subject to separate repayment requirements in the contract, meaning JG King was not entitled to the retention money as part of its contractual entitlement to a final payment. However, his Honour considered that the existence of a “direct and obvious nexus” meant that the payment claims were nonetheless for “construction work” and the Act applied. In reaching this decision, his Honour further noted that such a construction is consistent with the main purpose of the Act, as it ensures a person who undertakes construction work under a contract will be able to recover a related payment.

In light of this decision, Victorian contractors should be aware that where a security takes the form of retention moneys from progress payments, the Act may operate to enforce a payment claim which includes a claim for those moneys.

The full decision can be found here.