Can retention monies be claimed in payment claims under the sop act?

Executive summary

1. In the recent decision of Hunters Green Retirement Living Pty Ltd v J.G. King Project Management Pty Ltd [2023] VSC 536 the Supreme Court of Victoria held that contractors can claim retention monies under the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOP Act).
2. This is contrary to Punton’s Shoes Pty Ltd v Citi-Con (Vic) Pty Ltd [2020] VSC 514 (Punton’s Shoes) where the Victorian Supreme Court held that a payment claim for the return of retention money was not a valid payment claim in relation to construction work or the provision of related goods and services.

What happened?

3. Hunters Green Retirement Living Pty Ltd (Hunters Green), the developer, contracted JG King Project Management Pty Ltd (JG King), a builder, to construct 49 retirement village residential units across 2 contracts.
4. JG King agreed to provide security under the contract in the amount of 5% of the contract sum in the form of retention money, which was to be released at specified project milestones.
5. JG King submitted its ‘final payment claims’ in respect of each contract which stated:
   1. an amount for ‘Value of Works Completed’ which is the total value of the works completed to date;
   2. an amount for ‘This Claim Invoice’ which is the value of the works the subject of the invoice supported by an Excel spreadsheet that identified a trade breakdown in relation to the value of the works;
   3. an amount for ‘Retention Held’ which is the amount of retention money related to this invoice and stated an amount for ‘Less Retention Held’ which is the total amount of the retention money held to date;
   4. an amount for ‘Amount due this Invoice’. This is calculated by adding the amount for ‘This Claim Invoice’ and deducting the ‘Retention Held’, plus GST;
   5. an amount for ‘Invoiced to Date Inc GST’. This is calculated by adding the ‘Amount due this Invoice’ and the amount for ‘Less Retention Held’. For subsequent invoices this is calculated by adding all the amounts in the invoices to date for ‘Amount due this Invoice’ and then adding the amount for ‘Less Retention Held’; and
   6. stated it was a final payment claim under the Act.

(the Final Payment Claims).

6. JG King made two adjudication applications in respect of the Final Payment Claims. The adjudicator determined that JG King was entitled to payment of the Final Payment Claims in the amounts of:
   1. $114,932.07 (incl GST) for one contract; and
   2. $176,055.64 (incl GST) for the second contract.
7. Hunters Green appealed the adjudicator’s determinations on the basis, inter alia, that the Final Payment Claims did not relate to ‘construction work’ for the purposes of the SOP Act and therefore the Final Payment Claims were of no effect.

The decision

8. Attiwell J held that a payment claim under the SOP Act for unpaid amounts for construction work retained by a respondent (i.e. a principal or head contractor) as security in the form of retention monies under a contract, is a payment claim for ‘construction work’ for the purposes of the SOP Act because:
   1. there is a direct and obvious nexus between retention money and unpaid amounts for construction works;
   2. retention monies are not ‘excluded amounts’ in s10B of the SOP Act;
   3. it is not relevant that ‘retention monies’ are not listed in ss5 or ss6 of the Act. This is because those sections are limited to defining the actual ‘construction work’ and ‘related goods and services’. Those sections do not identify what may be claimed in a payment claim;
   4. such a construction ensures that any person who undertakes to carry out construction work under a construction contract is entitled to receive, and is able to recover, a progress payment in relation to the carrying out of that work. The calculation and/or valuation of the progress payment is governed by ss10 and ss11 of the Act and, as a result of ss10(1)(a) and 11(1)(a) and (b) of the Act, is to be calculated and/or valued in accordance with the terms of the contract if the contract makes express provision with respect to these matters. The actual calculation of a payment claim under the Act that is for, or includes, unpaid amounts for construction work retained by a respondent as security in the form of retention monies under a contract may be a nil amount;
   5. a payment claim for unpaid amounts for construction work retained by a respondent as security in the form of retention monies under a contract, may readily identify the construction work for the purposes of s14(2)(c)of the Act; and
   6. a payment claim under the Act for unpaid amounts for construction work retained by a respondent as security in the form of retention monies under a contract, may readily identify the amount a claimant claims to be due for the purposes of s14(2)(d) of the Act. Section 14(2)(d) of the Act provides that a payment claim “must indicate the amount of the progress payment that the claimant claims to be due”.
9. This is contrary to Punton’s Shoes where the Court held that a payment claim for the return of retention money was not a valid payment claim in relation to construction work or the provision of related goods and services under the SOP Act.
10. Regardless of Attiwell J’s determination that the amounts claimed were valid, the appeal was successful on other grounds concerning the adjudicator’s jurisdiction, ultimately quashing the adjudication determinations.

Key takeaways

11. This decision highlights the shift towards being able to claim retention money in a payment claim for unpaid amounts under a contract.
12. As a result, contractors should consider whether they are contractually entitled to claim retention money in their payment claims under the SOP Act.

This article was written by Paul Graham, Partner, Tara Nelson, Senior Associate and Nick Jarrett, Solicitor.