The NSW Court of Appeal’s decision in AJ Portelli Medical Pty Ltd ATF A J Portelli Medical Trust v Black Sheep Building Pty Ltd [2026] NSWCA 99 provides important guidance on the operation of the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act). The Court considered whether:

• a claimant must establish that construction work was performed before a valid payment claim can be made; and
• specialist disability accommodation comprising private bedrooms and ensuites with shared living facilities constitutes “residential building work” under the Home Building Act 1989 (NSW).

The Court reaffirmed the SOP Act’s “pay now, argue later” philosophy, holding that a respondent’s failure to serve a payment schedule within time gives rise to a statutory debt regardless of any later dispute as to the underlying entitlement. The decision also clarifies that specialist disability accommodation with shared facilities does not comprise “self-contained units” or “dwellings” for the purposes of the Home Building Act, meaning such developments are not “residential building work” requiring home warranty insurance.

The decision is a timely reminder of the importance of serving payment schedules, carefully drafting contractual payment provisions, and identifying a genuine triable issue when seeking to challenge summary judgment.

Background

The proceedings concerned an appeal of a summary judgment on two payment claims issued by the respondent, Black Sheep Building Pty Ltd (Black Sheep) and was not paid in full by the applicant, A J Portelli Medical Pty Ltd atf A J Portelli Medical Trust (Portelli). Black Sheep was contracted by Portelli for the design and construction of four buildings designed to accommodate residents with disabilities, described as “high physical support accommodation”.

Black Sheep issued two payment claims, in August and September 2025, pursuant to the SOP Act (Payment Claims). Portelli did not pay the claimed amounts in full and did not serve a payment schedule in response to either payment claim. Black Sheep sought summary judgment in the Supreme Court, asserting an entitlement to recover the unpaid portions of both Payment Claims as a debt due, pursuant to sections 14 and 15(2)(a)(i) of the SOP Act. The primary Judge was satisfied that there were no triable issues and granted summary judgment in favour of Black Sheep for the unpaid portions of the payment claims plus interest.

Portelli sought leave to appeal on two grounds as follows:

Ground 1: The Payment Claims were not validly served under section 13 of the SOP Act

The first argument was that the Payment Claims were not properly served on Portelli and therefore did not enliven a liability under section 14 of the SOP Act. Portelli’s argument relied on the submission that a payment claim is not validly made unless it has been established as a matter of objective fact, and not merely as a matter of assertion by the claimant, that construction work was carried out within the relevant time period.

Portelli also argued that the claims were served prematurely, contrary to the time permitted for service under subsections (1A) and (1B) of section 13 of the SOP Act.

Ground 2: The development constituted ‘residential building work’ under the HBA

The second argument relied on a submission that Black Sheep was not entitled to progress payments under the SOP Act as:

• the development involved the construction of “self-contained units” and therefore was considered to be “residential building work” within the meaning of the Home Building Act 1989 (NSW) (HBA); and
• Black Sheep failed to hold the mandatory home warranty insurance required under the HBA for such works that were being performed and therefore, Black Sheep were barred from claiming progress payments.

Decision on appeal

The Court of Appeal granted leave to appeal but ultimately it was dismissed.

The Court found that Portelli’s submission that a precondition for a valid payment claim is that the claimed work was in fact carried out, was “contrary to the plain words of the SOP Act and well established principles about the nature of the scheme that the Act creates“¹. The Court stated that a liability will arise where a respondent does not provide a payment schedule within the applicable time limit and this liability may be claimed as a debt due. This will differ when a payment schedule has been served and there is an adjudicated determination². The Court also went on to say that an assessment of the actual work done “in the context of any ultimate dispute about entitlement to retain money paid pursuant to payment claims” will be done³. In short, “that debt arises from the Act as a consequence of the lack of response to a claim being made, and not because the claimant demonstrates the underlying contractual entitlement to the amount in question“⁴.

Further, the Court rejected Portelli’s submission that the payment claims were issued prematurely on the basis that there are only two possibilities when reading subsections 1A and 1B of section 13 of the SOP Act together, being, when a contract makes provision for serving the payment claim “in any particular named month at a date earlier than the end of the month“,⁵ or the default position, that is, service on and from the last day of the month. The Court confirmed that the former position is not abrogated by conditional special conditions, such as in this case where Black Sheep could engage a Quantity Surveyor.⁶

Finally, the Court dealt with the remaining statutory construction question regarding the meaning of “self-contained units”. Portelli characterised the construction in two alternative ways. The first was that each building (which housed five disabled residents and a nurse along with shared common facilities) acts as a single “self-contained unit”. The second was that each of the five bedrooms that housed the disabled residents was a “self-contained unit”.⁷ The Court rejected both of these constructions as “a highly unlikely characterisation, premised on an improbable construction” and rejected that either gave rise to a serious triable issue.⁸ The Court emphasised that individual bedrooms with ensuite bathrooms did not meet the statutory definition of self-contained units, as other facilities (such as kitchens and living areas) were located elsewhere in the accommodation. The Court explicitly stated that this “is not analogous to a family sharing a single residential unit, or a group of residents in a shared unit. The better analogy is with institutional forms of accommodation, such as residential colleges and boarding houses“⁹.

Further, Portelli sought to argue that summary disposal was inappropriate on the basis that expert evidence could be adduced to bear on the meaning of “self-contained unit” as a non-legal phrase with a technical meaning.¹⁰ Again, the Court rejected this argument, citing Portelli’s failure to demonstrate that there was a substantial question of fact to be determined, stating that Portelli’s argument is “no more than speculative“.¹¹

Key takeaways

(1) Importance of payment schedules

The primary Judge’s decision granting (and subsequent upholding of) the summary judgment in favour of Black Sheep highlights the importance of serving a payment schedule if a respondent disputes a payment claim.

The appeal case reinforces the central importance of payment schedules for any party responding to a payment claim. Where a recipient wishes to resist payment or dispute a claim, “the appropriate response under the SOP Act is to serve a payment schedule which indicates the amount in dispute and the respondent’s reasons for withholding payment“¹². For principals, the practical reality is that the SOP Act operates on a “pay now, argue later” basis, and that should remain front of mind when responding to a payment claim. Parties remain free to dispute a payment claim, but this case confirms that the dispute must first be articulated in a payment schedule.

(2) High threshold for appealing a summary judgment

Further, the case is a useful reminder that an appeal from a summary dismissal requires more than mere speculation about the existence of a triable issue. Although it is not incumbent on a party “to approach the issue as if it is a final hearing“¹³, a “realistic prospect” must still be established.¹⁴

(3) Entitlement to issue payment claim

This decision reinforces the “pay now, argue later” philosophy underpinning the SOP Act and provides useful appellate guidance on the issuing and service of payment claims. The Court confirmed that a claimant is not required to establish, as a precondition to a valid payment claim, that the relevant work was in fact performed. Instead, the SOP Act operates on the basis of the claimant’s asserted entitlement, with any dispute to be addressed through a payment schedule and adjudication process.

(4) Drafting timing provisions in contracts

This case also highlights the critical role that contractual timing provisions play in the operation of the SOP Act, reinforcing the importance of carefully drafting and scrutinising payment claim clauses in contracts to ensure they are clear, effective and compliant with the statutory regime.

(5) “Residential Building Work” under HBA and insurance requirements

The decision provides valuable clarification for the NDIS and specialist disability accommodation sector as the Court rejected the proposition that accommodation comprising private resident rooms and ensuites with shared kitchen, dining and living facilities amounts to a “self-contained unit” or “dwelling” under the HBA. This means that such developments are not categorised as “residential building work”, with the result that builders are not required to obtain mandatory home warranty insurance before seeking progress payments under the SOP Act.

This article was written by Matthew Graham, Partner, Shaniece Haifa, Associate, and Rafael Priest, Graduate. 

¹AJ Portelli Medical Pty Ltd (ACN 669 583 475) ATF A J Portelli Medical Trust v Black Sheep Building Pty Ltd (ACN 665 735 197) [2026] NSWCA 99, [38].
²Ibid (n 1) [40].
³Ibid (n 1) [40].
⁴Ibid (n 1) [43].
⁵Ibid (n 1) [51].
⁶Ibid (n 1) [52].
⁷Ibid (n 1) [66]-[67].
⁸Ibid (n 1) [67].
⁹Ibid (n 1) [67]
¹⁰Ibid (n 1) [71].
¹¹Ibid (n 1) [72].
¹²Ibid (n 1) [43].
¹³Ibid (n 1) [73].
¹⁴Ibid (n 1) [73].