Security of payment in Victoria — retention monies claimable as a payment claim

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

To many in the construction industry, including lawyers working in that space in Victoria, it has long seemed counter-intuitive that contractual retention monies could not be claimed as a payment claim under the Building and Construction Industry Security of Payment Act 2002 (Vic) (Act). At best, such claims carried real risk of failure.

Although the Victorian government has recently indicated support for reforms allowing payment claims to include claims for retention, the Victorian Court of Appeal has beaten the government to it.

Claims for the return of retention monies are valid payment claims

Principals and contractors now have greater clarity. A recent Victorian Court of Appeal decision effectively recognises that retention monies fall within the ambit of payment claim entitlements under the Act.

Significantly, the Court of Appeal also clarified whether it is possible for a principal to set preconditions for payment, for example the issuance of a final certificate at the end of a defects liability period.

In the relevant case, J. G. King constructed a retirement village in Cranbourne East. Practical completion was certified on 28 June 2019 and J. G. King claimed practical completion retention monies held in the usual way, which Hunters Green returned.

On 19 August 2022, J. G. King submitted final payment claims including claims for the remaining 50% of the retention moneys. The Superintendent did not issue a final certificate. Hunters Green’s payment schedules certified nil owing, which J. G. King challenged in adjudication.

While the adjudicator largely found in favour of J. G. King, this was overturned by the Court consisting of a single judge. The Court took the view that because the final progress claims were not due and payable until 14 days after the final certificates were issued, no retention monies (including the release of the final tranche of security) were payable.

The Court of Appeal’s decision

J. G. King appealed to the Court of Appeal.

Hunters Green argued that the retention monies were not ‘for construction work’ and therefore could not form part of a payment claim.

The Court of Appeal disagreed and held consistently with equivalent recent authority in New South Wales that the retention monies held still were ‘for’ construction work, in that they were for construction work that had been undertaken and that remained unpaid.

The fact that those monies could be characterised as security was not determinative. In essence, it was money owing for construction work done.

The Court found that:

• the Act provides for progress payments ‘in respect of’ (s 10 and 14), and ‘under’ (s 9 and 14) a construction contract and are not limited to amounts ‘for construction work’;
• the lack of the final certificate did not prevent J. G. King from making a payment claim under the Act for the release of security; and
• if clause 37.4 required that the retention monies be withheld until all the claims had been assessed and certified by the superintendent, this would be inconsistent with the Act and would be unenforceable to that extent under s 48 due to that requirement purporting to exclude, modify or restrict the operation of the Act.

Concluding remarks

It remains to be seen whether the Court’s clarification will encourage principals to request, front-end, that bank guarantees be provided in lieu of retention where they otherwise might not have been requested.

Contact us

If you are an individual or business in the construction industry and would like to make a claim for contractual retention monies under a payment claim, please contact a member of our Construction & Projects team.