The Supreme Court of Victoria has held that retention moneys can be claimed by contractors as part of a 'payment claim' under the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOP Act).
This decision in Hunters Green Retirement Living Pty Ltd v JG King Project Management Pty Ltd  VSC 536 contrasts with previous authority in Punton's Shoes Pty Ltd v Citi-Con (Vic) Pty Ltd  VSC 514 (Punton's Shoes).
JG King Project Management Pty Ltd (JG King), a builder, contracted with Hunters Green Retirement Living Pty Ltd (Hunters Green) to build 49 retirement units across two contracts.
Under the contracts, JG King provided security to Hunters Green in the form of retention moneys which were to be returned to JG King at specified project milestones. The retention moneys were progressively deducted from each invoice issued by JG King. As a result, JG King received lesser amounts from Hunters Green than the invoiced amounts.
For JG King's 'Final Payment Claims' in respect of each contract (Payment Claims), each of the claims:
- stated a 'current contract claim', which was the difference between the total amount of the value of the completed works less the total amount previously paid
- amounted to the final 50 per cent of the retention moneys still held by Hunters Green.
Hunters Green disputed the Payment Claims. Although an adjudication determination found in favour of JG King, Hunters Green appealed to the Supreme Court arguing (among other grounds) that the Payment Claims did not relate to 'construction work' and thus were not 'payment claims' under the SOP Act.
'Construction work' under the SOP Act
Attiwell J found that the Payment Claims were in relation to 'construction work' for the purposes of the SOP Act.
In particular, His Honour stated that the Payment Claims were claims for the unpaid amounts for the construction work retained by Hunters Green as security in the form of retention moneys. As amounts had been deducted for retention moneys, Hunters Green had not paid JG King the full amount for the construction work over the course of the contracts.
The Payment Claims, each being a 'Final Payment Claim' for the contracts, consequently balanced the accounts between Hunters Green and JG King. They were not "made solely to recover retention moneys", as submitted by Hunters Green.
His Honour further noted that claims for the unpaid amounts are 'payment claims' under the Act because:
- there is a direct and obvious connection between the retention moneys and unpaid amounts for construction works
- retention moneys are not "excluded amounts" under section 10B of the SOP Act
- it is not relevant that 'retention moneys' are not listed in sections 5 or 6 of the SOP Act because those sections are limited to defining the actual 'construction work' and 'related goods and services', and they do not identify everything that may be claimed in a payment claim.
This contrasts with Punton's Shoes and subsequent applications of that decision, 1 which found that the return of retention moneys upon the issue of the Certificate of Practical Completion was not a progress payment entitlement in relation to work carried out by the contractor.
His Honour further noted that the Payment Claims had claimed 100 per cent of the construction contract sum less amounts paid. Vannella Pty Ltd v TFM Epping Land Pty Ltd 2 had held that where a party claims 100 per cent of the construction contract sum, the claim must include retention moneys.
His Honour considered both the "separate and distinct nature" of the retention moneys and JG King not having an express contractual entitlement to the retention moneys as part of its entitlement to a final payment.
However, for the reasons above, he nevertheless concluded that the Payment Claims were for 'construction work' within the meaning of the SOP Act.
Identifying the 'construction work'
His Honour found that the Payment Claims sufficiently identified the relevant 'construction work' for the purposes of section 14(2)(c) of the SOP Act.
Payment claims must be specific enough to enable its recipient to determine whether to pay the claims or dispute the claims with reasons. This requirement is a "relatively undemanding test". 3
His Honour considered that, in the context of their past dealings with each other, JG King had provided sufficient information in the Payment Claims. A reasonable building practitioner in the position of Hunters Green would have understood the Payment Claims as claims for the unpaid amounts for the construction work retained as security.
Principals and contractors should be mindful that claims for retention moneys may be made as 'payment claims' which engage the processes under the SOP Act.
1 See, eg, Watpac Construction v CGM  VSC 637 and Foursquare Construction Management Pty Ltd v Chevron Corporation Pty Ltd  VCC 1928.
2 Vannella Pty Limited atf Capitalist Family Trust v TFM Epping Land Pty Ltd; Decon Australia Pty Limited v TFM Epping Land Pty Ltd; Vannella Pty Limited v TFM Epping Land Pty Ltd  NSWSC 1379.
3 Nepean Engineering Pty Ltd v Total Process Services Pty Ltd (in liq)  NSWCA 409  (Santow JA).
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