Security of Payment wrap-up across Australia

Below, we outline the key takeaways from recent Security of Payment (SOP) decisions (across Victoria, New South Wales, Queensland, Tasmania and the Northern Territory) and the practical implications of these decisions for contractors/subcontractors and principals.

Victoria

Re Roberts Construction Group Pty Ltd [2024] VSC 679

In the context of enforcement proceedings being taken to recover amounts owing under the SOP legislation, this case is a timely reminder of the importance of properly identifying the basis for the debt in a statutory demand.

This case concerned an application to set aside a statutory demand under the Corporations Act 2001 (Cth) (Corporations Act) due to a ‘genuine dispute’ regarding the existence of the debt. The debt arose under the Building and Construction Industry Security of Payment Act 2002 (Vic) (Vic SOP Act) by reason of a respondent having failed to pay the scheduled amount.

• The plaintiff, Roberts Construction Group, engaged the defendant, C & N McNamara Enterprises for joinery works. A payment claim for $32,500 was issued by the defendant. The plaintiff issued a payment schedule accepting the claimed amount in full, but did not pay the scheduled amount. The plaintiff subsequently issued a second payment schedule attempting to reduce the previously scheduled amount.
• Having not received payment, the defendant served a statutory demand for the debt claiming that such debt arose pursuant to section 17(2) of the Vic SOP Act. The plaintiff asserted that the statutory demand should be set aside on the basis that there was a genuine dispute between the parties about the debt, together with an offsetting claim under the Australian Consumer Law.
• The Court held there can be no genuine dispute as to the existence of a debt where the statutory demand for that debt arises under the Vic SOP Act. Once a payment claim is accepted by the issuing of a payment schedule, or is not disputed by a respondent’s failure to dispute the claim within the prescribed period, the debt arises. As such, unless the payment claim itself does not comply with the Vic SOP Act, then the grounds for setting aside a demand for a Vic SOP Act debt under section 459H of the Corporations Act are limited to offsetting claims.
• The Court then examined the form of the statutory demand served by the defendant. That statutory demand asserted that the debt was for shop drawings completed “pursuant to a construction contract dated 2 October 2023, and subsequently issued payment claim and tax invoice INV-0210 in the amount of $35,750.00”. Based on this reference, the Court concluded that the statutory demand was liable to be set aside because it did not clearly identify the nature of the debt as it did not specifically refer to the relevant payment schedule, the ‘scheduled amount’ or the provisions of the Vic SOP Act.

J.G. King Project Management Pty Ltd v Hunters Green Retirement Living Pty Ltd [2024] VSCA 310

This decision looks at the use of the Vic SOP Act and the Victorian treatment of payment claims for retained monies, with the Victorian Court of Appeal holding that payment claims for the return of retention amounts are still claims for construction work within the meaning of the Act.

• The adjudicators determined that the Developer, Hunters Green Retirement Living, was liable to pay the Builder, J.G. King, an amount equal to the payments retained by the Developer under the construction contracts (i.e. retention monies held as security), less an adjustment for certain claimed items. In reaching this conclusion, the adjudicators found that the progress claims were for ‘construction work’ and that there was no prohibition on claiming retention monies under the Vic SOP Act.
• The Developer sought review of the adjudication determinations, alleging that the payment claims were not in respect of ‘construction work’ but rather a claim for return of an amount held as security. The Victorian Supreme Court concluded that the claimed amounts were not claimable in the absence of final certificates having been issued.
• On further appeal by the Builder, the Court of Appeal held that there was no error in the adjudication determinations, and also that the claims were due and payable. Significantly, the Court of Appeal held that, while the money the subject of the claims could be characterised as money held by the principal as security, this does not mean that the money loses its character as money owing for ‘construction work’ performed.

This case again illustrates the remaining uncertainty of the treatment of retention monies under the Victorian SOP legislation. In our September and October 2024 Security of Payment ‘Wrap-Up Across the States’ alert, we discussed the Victorian Government’s 2024 endorsement of recommendations for changes to the Vic SOP Act, made following the 2023 Parliamentary Inquiry. One endorsed change is the introduction of an express provision entitling payment claims for retention money under the Vic SOP Act, and empowering adjudicators to decide whether, how much, and when retention money is to be returned. While there is still no update as to timing for introduction of these changes to the Vic SOP Act, once enacted, this new provision will provide clarity as to treatment of retention monies under the regime.

New South Wales

Kennedy Civil Contracting Pty Ltd v Linx Constructions Pty Ltd [2024] NSWCA 243

This case considered whether payments made by a respondent directly to a third-party subcontractor in respect of amounts set out in a payment claim can be brought to account in determining whether the claimant has met its payment obligations, or whether such matters constitute raising an impermissible cross-claim:

• Linx Constructions (Linx) engaged Kennedy Civil Contracting (KCC) for the performance of certain construction works. KCC issued a payment claim for approximately $147,000, which included approximately $78,000 for goods and services by a third-party subcontractor, Civilcast. Linx failed to provide a payment schedule within the required timeframe. KCC sought to recover the claimed amount as a debt under the NSW SOP Act. Linx subsequently made payments totalling $102,800, reducing KCC's claimed debt to approximately $45,000.
• KCC commenced proceedings to recover the unpaid portion. Linx’s defence was that it had satisfied part of the debt by paying approximately $30,000 directly to Civilcast. The main issue was therefore whether such attempted offsetting was a prohibited cross-claim.
• At first instance, the Court determined that the set off claim did not constitute a cross-claim but a “factual determination that is required to be made about the level of debt outstanding”. The Court therefore reduced KCC’s claim by the amount paid by Linx directly to Civilcast. KCC’s subsequent appeal was dismissed by the Supreme Court for similar reasons.
• On further appeal, the Court of Appeal emphasised the following matters:
  1. Payment to third parties: Under the Act, payment must be made to the claimant. As such, payments to third parties do not reduce the claimant’s entitlement under the NSW SOP Act unless those payments were directed by the claimant. The circumstances in this particular case were “somewhat unusual”, in that KCC accepted that the amount of the invoices to Civilcast were incorporated in one of the payment claims. As such, it was open for the Magistrate to find that if that debt was satisfied, KCC would accept that the payment claim would be reduced by payments to Civilcast.
  2. Prohibition on cross-claims: It is well established that the NSW SOP Act explicitly prohibits respondents from raising cross-claims or defences in proceedings to recover unpaid amounts when they have failed to provide a payment schedule. However, the Court accepted that Linx’s argument did not fit the definition of a ‘cross-claim’ as it did not seek independent relief, but merely contested the amount owed.

Hynash Constructions Pty Ltd v BRP Industries Pty Ltd [2025] NSWCA 14

Kennedy (above) can be contrasted with this later decision, which involved an attempt to credit amounts refundable to the respondent under the construction contract against the debts arising under the NSW SOP Act.

• Hynash Constructions (Hynash) was the head contractor for a stormwater harvesting project. Hynash subcontracted certain works to BRP Industries (BRP). Hynash paid BRP 10% upfront. On termination of the subcontract, Hynash was contractually entitled to reimbursement of any overpayment.
• BRP started works in October 2023. Hynash subsequently advised BRP that no further works could be performed and BRP terminated the subcontract. BRP thereafter served a payment claim on Hynash. Hynash neither paid nor served a payment schedule.
• BRP commenced proceedings in the District Court to recover the debt. The primary judge granted summary judgment. In doing so, the District Court held that Hynash was prevented from arguing that the deposit should be deducted from the debt.
• Hynash sought leave to appeal on the basis that the upfront payment did not constitute a defence or counterclaim prohibited by the NSW SOP Act, but rather a partial payment of the debt having arisen from the payment claim.
• The Court of Appeal determined that the case before them fell squarely within the prohibition in the NSW SOP Act for the following key reasons:
  • The upfront payment could not be characterised as a partial payment of the payment claim as it was made well before the payment claim was made.
  • If Hynash’s argument was accepted, a court would have to consider all payments made by a party such as Hynash to BRP to determine the “unpaid portion of the claimed amount”. This result would be irreconcilable with the prohibition under the NSW SOP Act.

Bettar Holdings Pty Ltd trading as Hunt Collaborative v RWC Brookvale Investments Pty Ltd as trustee for Brookvale Development Trust [2025] NSWDC 11

This decision reiterates the importance of identifying the specific construction work or related services to which the payment claim relates.

• Hunt created a document titled ‘Re: Brookvale Progress Claim’, which included the usual endorsement under the Act and a description of the work limited to “Hunt commenced construction/project management services on Brookvale from late October 2023 (6 weeks charged only)”. What followed was a list of positions, a person’s name for each position, a period of time for each name and a total payment for each person. Specific services were not identified.
• When review was sought on the basis that the payment claim did not identify the construction work or related services to which the progress payment relates, the Court said it was not sufficient to merely assert that the claim is in relation to construction work or related services. The payment claim was invalid because it did not identify the specific works to which it relates in a reasonable way.

Warrane Design Construct Fit-Out Pty Ltd v Woonona Bulli RSL Memorial Club Ltd [2025] NSWSC 123

This decision demonstrates the interplay between the Contractors Debts Act 1997 (NSW) (CDA) and the NSW SOP Act, and its effect on a principal’s payment obligations. A subcontractor’s service of debt certificates under the CDA and the making of subsequent payments by a principal impacted the amount a builder could recover in separate SOP proceedings against the principal.

• All Civil Solutions (Subcontractor) served debt certificates under the CDA on Woonona (Principal). In response, the Principal paid to the Subcontractor amounts that it would otherwise have paid to Warrane (Builder) for the works, who obtained an adjudication determination and subsequent judgment in respect of the works against the Principal.
• The Builder’s application raised considerations of the interaction between the NSW SOP Act and the CDA. The Court held that both statutes were intended by Parliament to operate concurrently and harmoniously, given the express reference in the CDA to the NSW SOP Act. Therefore, the judgment the Builder obtained in the SOP proceedings overstated the amount due to it by the outstanding balance under the debt certificates. Accordingly, the Court stayed part of the judgment against the Principal and required the Principal to pay the disputed amount into Court pending final determination of the SOP proceedings.

Queensland

Taringa Property Group Pty Ltd v Kenik Pty Ltd [2024] QSC 298

This decision looks at the distinction of form between variation submissions under a construction contract and payment claims under the Qld SOP Act.

• Taringa Property Group (TPG) and Kenik were parties to a construction contract for a retail complex. Prior to 8 September 2023, some 30 payment claims had been exchanged and dealt with by the parties. On 8 September 2023, Kenik sent TPG 12 separate emails containing 12 documents notifying TPG of various claims:
  • The first 11 documents followed a similar format and were delivered in quick succession. All documents were stated to be a ‘variation claim’ by their respective subject lines and covering correspondence. No supporting statement was enclosed as required by the Qld SOP Act.
  • The 12th document delivered hours later contained the subject line ‘Payment Claim 31’ and attached an invoice stating that Kenik requests payment of the claimed amount in accordance with the Qld SOP Act. The invoice was in identical form to the 30 previous payment claims that TPG had certified prior to 8 September 2023, expressed a reference date, and was accompanied by a register of the earlier variation claims and a single signed supporting statement. The adjudicator determined that this invoice was the payment claim and subsequently issued a determination in Kenik’s favour.
• On review, TPG submitted that each of the 11 variation claims served by email was a ‘payment claim’, such that the 12th document, the final invoice, was therefore an impermissible payment claim as there was no available reference date.
• Hindman J considered that whether a document amounts to a ‘payment claim’ turns on whether the claim purports in a reasonable way to identify the particular work in respect of which the claim is made. This assessment is done objectively, and with the benefit of the background knowledge of the parties.
• Her Honour found a substantial difference between the 11 variation claims and the 12th invoice such that the objectively viewed recipient would have considered there was only one payment claim and one demand for payment incorporating the amounts set out in the variation claims. This was reinforced by the parties’ prior course of conduct. Her Honour also observed that the first variation on its own would objectively not have amounted to a payment claim, as it did not demand payment, nor provide a due date or timeframe for payment to be made.

John Holland Queensland Pty Ltd v SecureFence Pty Ltd [2024] QSC 290

This case confirms the importance of adhering to the specific terms of the construction contract and consistent with some earlier decisions, reminds parties that remedies outside of contract may be beyond the jurisdiction of the SOP Act.

• SecureFence (Subcontractor) issued a payment claim for around $300,000 including increased material costs based on what was described as ‘Annexure E’. The respondent head contractor scheduled a nil value in the payment schedule.
• The adjudicator determined that the Head Contractor was liable to pay the Subcontractor $187,270 plus GST. When considering the ‘construction contract’ in the determination, the adjudicator determined that the Subcontractor had based its entitlement to payment not upon the subcontract (as allegedly varied), but rather on what was described as ‘Annexure E’. While Annexure E did not form part of the subcontract, the adjudicator determined as a matter of fact that the Head Contractor was estopped from refusing an entitlement to claim increased costs of materials under Annexure E.
• On review, the Court held that the adjudicator’s decision-making process was based on estoppel which involved conduct and a legal relationship outside of the subcontract. As a result, the adjudicator was not applying the ‘construction contract’ underlying the payment claim (i.e. Annexure E was the determined source of the entitlement in the determination, rather than the subcontract). The position may have been different if there had been a finding that Annexure E had been incorporated into the construction contract, or amounted to a variation of the construction contract.

Tasmania

Venture Spirits Pty Ltd v Adjudicate Today Pty Ltd and O'Brien (No 2) [2024] TASSC 76

This decision looks again at the challenge of reference dates that are tied to factually establishing achievement of particular milestones and the potential uncertainty that arises for both parties.

• The claimant, Jayspec Builders was entitled to issue a payment claim upon practical completion, which it asserted occurred on 8 June 2022. The respondent, Venture Spirits, denied that a reference date was available on the June 2022 date. The payment claim was issued on 24 February 2023.
• The adjudicator subsequently determined that, as a matter of fact, practical completion was achieved on 8 June 2022, however, he concluded that the relevant reference date was not that date, but instead 30 June 2022. The adjudicator determined that the claim was validly made in relation to an available reference date, and awarded the full amount claimed.
• On review, Brett J concluded that, while the relevant payment claim was in respect of a valid available reference date, the precise date determined by the adjudicator was incorrect. As a result, despite the existence of another valid available reference date, the determination was set aside because it had been made in respect of a reference date that was incorrect.

Northern Territory

Barkly Regional Council v Harvey Developments (NT) Pty Ltd & Anor [2024] NTSC 100

This decision is another illustration of the high materiality threshold to establish a lack of procedural fairness in an adjudication process.

• The Barkly Regional Council (Council) and Harvey Developments (HD) contracted for the design and construction of the Ali Curung Youth Centre. HD’s payment claims no. 7 and 8 were rejected by the Council, leading to adjudication.
• The adjudicator assessed the amount payable by the Council at $425,854.90. On review, the Council alleged it was denied procedural fairness because certain expert statements and the Council’s submissions as to an offsetting claim were not taken into account by the adjudicator.
• The Court held that even if the adjudicator failed to consider all of Council’s submissions, there was no denial of procedural fairness because the Council’s submissions were not material and would not have made a difference to the outcome. This is because the submissions concerned claims outside of the contract, which could not have been relevant given there was a valid and enforceable contract. Further, the Court held that the adjudicator impliedly had regard to the expert statements and the inference that they had not been considered could be disregarded.