Background

The plaintiff, Hunters Green Retirement Living Pty Ltd (Principal) and the defendant, JG King Pty Ltd (Builder) entered into two contracts (Contracts) for the construction of 49 retirement village residential units. Under the Contracts, the Builder provided security to the Principal in the form of retention moneys.

Pursuant to the terms of the Contracts, the Builder issued final payment claims in respect of each of the Contracts 28 days after the expiry of the last defects liability period, purportedly under the SOP Act, which claimed the return of the remaining security still held by the Principal (Final Claims). The Final Claims did not claim any other amounts aside from the outstanding security.

The Principal disputed the Final Claims which led the parties to refer to the dispute the adjudication, in which the adjudicator issued a determination in favour of the Builder. The Principal commenced proceedings in the Supreme Court seeking an order quashing the adjudication determination.

Decision

The Principal submitted that the Final Claims did not relate to ‘construction work’ as required under section 5 of the SOP Act, as the Builder’s contractual entitlement to retention moneys could not be conflated with its statutory entitlement to receive payment for the construction work it performed. The Principal further submitted that in any event, no reference date arose under the SOP Act pursuant to which the Final Claims could be made.

The Builder submitted that a claimant that is entitled to the return of security should be allowed to use the machinery of the SOP Act to recover those outstanding amounts. The Builder further submitted that valid reference dates for the Final Claims arose under the Act as the preconditions for those claims as set out in the Contracts had been satisfied (i.e. 28 days had passed since the expiry of the last defects liability period).

The Court held that the Final Claims were valid claims under the SOP Act as they are claims for unpaid amounts for construction work, in the form of security. The Court further commented that retention moneys are not excluded amounts under the SOP Act.

The Court further held that the Final Claims were made in relation to a valid reference date under the SOP Act, as the Final Claims were made on a date determined by the terms of the Contracts. The Court further confirmed that the Final Claims fulfilled the SOP Act’s requirement to sufficiently identify the construction work to which the claims relate as a reasonable building practitioner in the Principal’s position would have understood the Final Claims were for the unpaid amounts for the construction work retained by the Principal as security in the form of retention moneys under the Contracts.

Conclusion

Parties should be mindful that claims for outstanding security owed to a claimant may constitute valid payment claims under the SOP Act. If there are doubts surrounding the validity of a payment claim that a Builder intends to issue or which has already been issued, legal advice should be sought as soon as possible. This is especially the case where advice needs to be sought on the validity of reference dates and whether or not work constitutes construction work for which the SOP Act applies.

Further information / assistance regarding the issues raised in this article is available from the authors, Bill Papastergiadis, Melbourne Managing Partner, Partners Nathan Cutts and Phillip Vassiliadis or your usual contact at Moray & Agnew.