J.G. King Project Management Pty Ltd v Hunters Green Retirement Living Pty Ltd

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S EAPCI 2023 0110

J.G. KING PROJECT MANAGEMENT PTY LTD (ACN 095 695 079)	Applicant
v
HUNTERS GREEN RETIREMENT LIVING PTY LTD (ACN 107 006 520)	First Respondent
AND
SUSAN LEECH	Second Respondent

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JUDGES:	NIALL, KENNEDY and MACAULAY JJA
WHERE HELD:	Melbourne
DATE OF HEARING:	1 August 2024
DATE OF JUDGMENT:	12 December 2024
MEDIUM NEUTRAL CITATION:	[2024] VSCA 310
JUDGMENT APPEALED FROM:	[2023] VSC 536 (Attiwill J)

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BUILDING AND CONSTRUCTION – Notice of contention – Where final payment claims for amounts allegedly owing under building contracts – Where amounts claimed equivalent to the remaining monies retained by the principal as security – Whether the payment claims were payment claims for the purpose of the Building and Construction Industry Security of Payment Act 2002 (‘Act’) – Payment claims were made under a construction contract – Alternatively, payment claims were for ‘construction work’ for the purposes of the Act – Payment claims were valid payment claims for the purposes of the Act – No error by the judge.

BUILDING AND CONSTRUCTION – Whether contracts made ‘express provision’ for calculation of a claim for final payment under the Act – Whether, upon proper construction of contracts, unpaid amounts were due and payable under the Act absent a final certificate – Payment claims, as adjusted by adjudicator, were due and payable under the Act –Alternatively, s 48 of the Act would void contractual clauses if inconsistent with entitlement under the Act – Leave to appeal granted – Appeal allowed.

Building and Construction Industry Security of Payment Act 2002, ss 9, 10, 12, 23, 48.

Brodyn Pty Ltd (t/as Time Cost & Quality) v Davenport (2004) 61 NSWLR 421; Fifty Property Investments Pty Ltd v O’Mara [2006] NSWSC 428; Olbourne v Excell Building Corp Pty Ltd [2009] NSWSC 349; Abacus Funds Management Ltd v Davenport [2003] NSWSC 1027; Transgrid v Siemens Ltd (2004) 61 NSWLR 521; John Holland Pty Ltd v Roads & Traffic Authority of New South Wales [2007] NSWCA 19; Trysams Pty Ltd v Club Constructions (NSW) Pty Ltd [2008] NSWSC 399; SSC Plenty Road Pty Ltd v Construction Engineering (Aust) Pty Ltd [2016] VSCA 119; Saville v Hallmarc Construction Pty Ltd [2015] VSCA 318; S.H.A. Premier Constructions Pty Ltd v Niclin Constructions Pty Ltd [2020] QSC 307; EHome Construction Pty Ltd v GCB Constructions Pty Ltd [2020] QSC 291; Gantley Pty Ltd v Phoenix International Group Pty Ltd [2010] VSC 106; Cool Logic Pty Ltd v Citi-Con (Vic) Pty Ltd [2020] VCC 1261; Whitehorse Box Hill Pty Ltd v Alliance CG Pty Ltd [2022] VSC 22; Watpac Constructions Pty Ltd v Collins & Graham Mechanical Pty Ltd as Trustee for the CGM Unit Trust [2020] VSC 637, considered; EnerMech Pty Ltd v Acciona Infrastructure Projects Australia Pty Ltd [2024] NSWCA 162; Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, applied. Punton’s Shoes Pty Ltd v Citi-Con (Vic) Pty Ltd [2020] VSC 514, not followed; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; Protectavale Pty Ltd v K2K Pty Ltd [2008] FCA 1248, discussed.

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Counsel
Applicant:		Mr ND Hopkins KC with Mr AR Morrison
First Respondent:		Mr RG Craig KC with Mr BG Mason
Solicitors
Applicant:	Champions Lawyers
First Respondent:	Minter Ellison

NIALL JA:

I have had the benefit of reading in draft form the reasons for judgment of Kennedy JA and Macaulay JA. In my opinion, leave to appeal should be granted, the appeal should be allowed and the proceeding for judicial review against the adjudication determinations should be dismissed. The comprehensive account of the facts, contracts, legislative provisions and arguments found in the other judgments relieves me of the burden of rehearsing those matters and enables me to state my conclusions briefly.

Statement of the issues

The proceeding in the Trial Division was an application for judicial review of two adjudication determinations made under s 23 of the Building and Construction Industry Security of Payment Act 2002 (the ‘Act’). The determinations related to the construction of Stages 12 and 13 of a retirement village in Cranbourne East (‘contracts’). In summary, the adjudicator (the second respondent) held that the first respondent developer (‘principal’) was liable to pay to the applicant (‘builder’) an amount equal to the payments retained by it under the contracts less an adjustment in relation to certain of the claimed items.
The adjudicator reasoned as follows:
(a)The progress claims were for construction work, being the contract sum ($4,766,750.10 (including GST) for Stage 12 and $6,546,185.76 (including GST) for Stage 13) less amounts received.
(b)There was, in any event, no prohibition on claiming retention moneys in a claim under the Act.
(c)The principal was not entitled to withhold retention moneys under the Act.
(d)Clause 37.4 of the contracts provided a reference date for the claims, being within 28 days after the expiry of the last defects liability period and the satisfaction of the builder’s obligations under the contracts, which the adjudicator understood to mean the completion of the works in accordance with the plans and specifications.
(e)The contracts did not expressly provide for the calculation of the amount of the entitlement and the adjudicator therefore applied ss 10(1)(b) and 11(1)(b) of the Act.
(f)The adjudicator made some minor adjustments to the claims on the merits and otherwise upheld the claims.
(g)The adjudicator held that the contracts did not provide a date for payment and therefore applied s 12(1)(b) of the Act, with the consequence that the adjudicated amounts were payable 10 business days after the claims were served (being 2 September 2022).
The judge upheld a challenge to the adjudication determinations. There were four grounds of review:
(a)The claims were not in respect of construction work because they were claims for the return of security.
(b)No reference date arose in relation to the claims.
(c)The claims did not sufficiently identify the construction work and so did not constitute valid payment claims.
(d)The adjudicator erred in holding that the contracts did not provide for the calculation of the entitlement and wrongly held that the principal was not permitted to withhold the retention moneys.[1]
[1]Hunters Green Retirement Living Pty Ltd v J.G. King Project Management Pty Ltd [2023] VSC 536, [33] (‘Reasons’).
The judge held that the claims were valid claims with adequate detail and were for unpaid construction work.[2] The judge further held that the contracts set out how the amount of the progress claims was to be calculated, holding that cl 37.4 of the contracts provided the means of calculating an entitlement under the Act.[3] The judge held that, applying cl 37.4, the adjudicator was required to determine the moneys due and payable between the builder and the principal excluding any ‘excluded amounts’.[4] Given that, so the judge found, the final progress claims were not due and payable until 14 days after the final certificates were issued or any earlier recourse to them by the principal, which had not occurred, and therefore no money was payable.[5]
[2]Ibid [82].
[3]Ibid [198].
[4]Ibid [206].
[5]Ibid [207].
Thus the judge held that the release of security mechanism in cl 5.4 had to be satisfied before the entitlement to the final progress payments arose, and the adjudication determinations were quashed.[6]
[6]Ibid [209]–[218], [233].
In this Court, there are four main issues, the first of which is raised by a notice of contention:
(a)Were the final progress claims for the return of retention moneys held by the principal as security, and, if so, did this take them outside the scope of a valid progress claim under the Act?
(b)Did the contracts expressly provide for the calculation of progress payments so as to render s 10(1)(a) of the Act applicable?
(c)Did, as the judge found, cls 5.4 and 37.4 of the contracts permit the principal to withhold the balance of retention moneys until the issue by the superintendent (the principal)[7] of a final certificate under cl 37.4?
(d)If cls 5.4 and 37.4 had the effect found by the judge, were they invalid or inoperative by operation of s 48 of the Act?
[7]In accordance with the definition of ‘Superintendent’ in cl 1 and item 5 of Part A to the contracts.
I would answer question (c) in the negative and therefore grant leave to appeal and allow the appeal.

The scheme in overview

This matter concerns a claim for a progress payment under the Act. That the claim is a final progress claim adds a degree of detail that it will be necessary to address. The entitlement to which the claim is made is statutory. It does not involve an action in contract. It follows that the existence and nature of any entitlement to payment must be found in the terms of the Act.
In order for a claim to be made under the Act, there must be a construction contract. The existence of such a contract is a statutory precondition for the making of a claim for a progress payment under the Act.[8] It is not in dispute that there existed a construction contract between the parties.
[8]Brodyn Pty Ltd (t/as Time Cost & Quality) v Davenport (2004) 61 NSWLR 421, 440 [53(1)] (Hodgson JA, Mason P agreeing at 423 [1], Giles JA agreeing at 423 [2]); [2004] NSWCA 394; Fifty Property Investments Pty Ltd v O’Mara [2006] NSWSC 428, [17] (Brereton J); Olbourne v Excell Building Corp Pty Ltd [2009] NSWSC 349, [19]–[21] (Rein J).
Where it can, the Act uses the terms of the construction contract as a point of reference for the purpose of determining the timing and calculation of the statutory entitlement. So, for example, s 10(1) provides that, where the contract provides for the matter, the amount of a progress payment to which a person is entitled in respect of a construction contract is the amount calculated in accordance with the terms of the contract. And, if the contract makes no such express provision, s 10(2) explains how the entitlement is to be calculated. Similarly, s 9 provides that the entitlement is to be calculated by reference to a date (‘the reference date’) which is determined by or in accordance with the contract.
This extensive cross-referencing makes it easy to err by treating a claim for a progress payment as fundamentally one that gives effect to what the parties have agreed. That would be a mistake, at least for the reason that it is apt to incorporate contractual restrictions and limitations on the payment of a progress claim that are not recognised by, or that are qualified by, the Act. It would also be a mistake to treat the statutory entitlement as being affected by how the parties have acted or conducted themselves, especially where their conduct represents a departure from the terms of the contract, subject perhaps to the possibility of waiver or estoppel.[9] In applying the Act, one must guard against a natural predisposition to give overarching primacy to what the parties have agreed.
[9]Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140, [58] (Palmer J).
Notwithstanding that the Act has primacy, because of the cross-referencing it is convenient to start by outlining how the contracts provide for progress payments.

Progress payments under the contracts

Clause 37.1 provides that the builder shall give the superintendent a claim for a progress payment at certain intervals,[10] in a format reasonably required by the superintendent, which includes details of the value of the work done and other amounts owing to the builder, and which allows for deductions for any liquidated damages owing under cl 34.7. The superintendent is then required to issue a certificate (‘progress certificate’) that evidences the opinion of the superintendent as to the amount due pursuant to the claim and includes reasons for any difference between that amount and the claim as well as a further certificate evidencing an assessment of retention moneys and moneys due from the contractor to the principal. These certificates then lead to the builder issuing a tax invoice and payment by the principal. The principal is permitted to pay less that the invoiced amount if it exceeds the amount stated in the progress certificate and is also entitled to offset any amounts owing to it, before payment.
[10]In accordance with item 33, which provides for instalments as work is being carried out, at practical completion and at the time for making the final payment.
The contracts provide for the timing of the making of a claim, being the 25^th day of each month for ‘WUC’[11] done to the last day of that month during WUC, practical completion and the final payment claim. The contracts state that these dates are a ‘reference date’ for the purposes of the Act.[12]
[11]‘WUC’ is defined to mean ‘the work which the Contractor is or may be required to carry out and complete under the Contract and includes variations, included matters, remedial work, construction plant and temporary works …’ (cl 1).
[12]Although the contracts refer to the time prescribed in cl 37.2, the judge found that this was clearly intended to be a reference to cl 37.1: Reasons, [143].
Clause 37.4 deals with a ‘final payment claim’. That clause provides:
37.4 Final payment claim and certificate
Within 28 days after the expiry of the last defects liability period and the satisfaction of all of the Contractor’s obligations under the Contract, the Contractor shall give the Superintendent a written final payment claim endorsed ‘Final Payment Claim’ being a progress claim together with all other claims whatsoever in connection with the subject matter of the Contract. The Contractor must provide an executed deed of release before making the final payment claim.
Within 10 business days after the receipt of a valid payment claim, the Superintendent shall issue to both the Contractor and the Principal a final certificate evidencing the moneys finally due and payable between the Contractor and the Principal on any account whatsoever in connection with the subject matter of the Contract.
Those moneys certified as due and payable shall be paid by the Principal or the Contractor, as the case may be, within 5 business days after the Superintendent issues the final certificate.
The final certificate shall be conclusive evidence of accord and satisfaction, and in discharge of each party’s obligations in connection with the subject matter of the Contract except for:
(a)fraud or dishonesty relating to WUC or any part thereof or to any matter dealt with in the final certificate;
(b)any defect or omission in the Works or any part thereof which was not apparent at the end of the last defects liability period, or which would not have been disclosed upon reasonable inspection at the time of the issue of the final certificate;
(c)any accidental or erroneous inclusion or exclusion of any work or figures in any computation or an arithmetical error in any computation;
(d)unresolved issues the subject of any notice of dispute by the Principal pursuant to clause 42, served before the 7th day after the issue of the final certificate; and
(e)third party claims brought against the Principal thereafter for damage, injury or death.

Security under the contracts

Against the possibility that, at some point, the builder will be liable to the principal in relation to its performance of the contracts, the builder is required to provide security to the principal.
The contracts provide that the security can take one or more of a variety of forms being ‘cash, retention moneys, bonds, an interest bearing deposit in a bank, an approved undertaking or some other form approved by the party having the benefit of the security’. On execution, the parties to the contracts chose to use retention moneys as the form of security. Some matters of note include that:
(a)security is provided by the builder to secure its potential non-performance of the contracts, and the builder is under a contractual obligation to provide the security in the form and amount agreed;
(b)the security chosen allows the principal to retain an amount of money that is payable to the builder for work under the contracts; and
(c)the contracts provide for the release of or recourse to the security at the completion of the contracts and subject to the provision of final sign off, including a release.
Clause 5.4 provides for the ‘reduction and release’ of security and is in the following terms:
5.4 Reduction and release
Upon the issue of the certificate of practical completion and compliance by the Contractor with subclause 34.6A a party’s entitlement to security (other than in Item 14(e)) shall be reduced by the percentage or amount in Item 14(f) or 15(d) as applicable, and the reduction shall be released and returned within 14 days to the other party.
The Principal’s entitlement to security in Item 14(e) shall cease 14 days after incorporation into the Works of the plant and materials for which that security was provided.
A party’s entitlement otherwise to security shall cease 14 days after final certificate.
Upon a party’s entitlement to security ceasing, that party shall release and return forthwith the security to the other party.

The nature of retention moneys under the contracts

The relationship under the contracts between progress payments and retention moneys is not entirely clear. It seems plain that cl 37.1 contemplates that the progress claim will be gross of any retention amount. The claim is to include details of the ‘value of WUC done’ rather than a net figure, and it also refers to details of other moneys then due to the builder and a deduction for liquidated damages. There is no mention of retention moneys in the list of what may be included in the claim in cl 37.1. Further, the amount of the retention moneys is 10 per cent of each progress certificate, rather than a percentage of the claim. The superintendent is to include a certificate that assesses the retention moneys calculated by reference to the progress certificate. That certificate may, but need not, form part of a progress certificate.
The builder describes retained moneys as ‘already earned, though not yet payable’.[13] It identifies a distinction between an amount which is ‘due and payable’, in the sense that it is presently payable, and an amount that is merely ‘due’ but not payable until some future date. It says that the Act countenances a similar distinction, permitting a claim for a sum that is ‘due’ (s 14(2)(d)) as compared to one that will become ‘due and payable’ (s 12(1)) on a later date.
[13]Citing Re Tout and Finch Ltd [1954] 1 All ER 127, 135 (Wynn-Parry J).
What is clear is that the funds that are retained as security by the principal come from moneys that are otherwise payable to the builder in respect of work carried out by it under the contracts. The security is an amount retained from a progress payment that is withheld after the amount owing to the builder has been calculated under the contracts.
The builder did not dispute that, as the contracts were performed, the principal was entitled to retain an amount, being 10 per cent of each progress certificate. The contracts do not regulate what, if anything, the principal is to do with the funds it retains pending release or recourse.
In Punton’s Shoes Pty Ltd v Citi-Con (Vic) Pty Ltd, Digby J considered that retained moneys under a retention clause formed a separate fund that presumably neither party was immediately entitled to use as its own.[14] Interesting questions might arise as to how the contracts, including as supplemented or complemented by equity, might treat the retained funds in the hands of the principal. Such questions may be informed by the conduct of the parties and the extent to which they adhered to the contractual terms but, as has been noted, the Act operates to create a statutory entitlement including by reference to the terms of the construction contract rather than the conduct of the parties. However, the extent to which those questions arise depends on the operation of the Act, to which I now turn.
[14][2020] VSC 514, [109]–[110].

Payment claims under the Act

A person who has undertaken to carry out construction work or to supply related goods and services under the contract is entitled under s 9(1) to a progress payment under the Act. The amount of the entitlement is calculated under s 10, and, where the contract expressly provides, it is the amount calculated in accordance with the terms of the contract. The reference to calculation or valuation ‘in accordance with the terms of the contract’ is a reference ‘to the contractual mechanism for determination of that which is to be calculated or valued, not to the person who, under the contract, is to make that calculation or valuation’.[15]
[15]Abacus Funds Management Ltd v Davenport [2003] NSWSC 1027, [38] (McDougall J).
Section 12(1)(a) provides that a progress payment under a construction contract becomes due and payable on the day on which the payment becomes due and payable in accordance with the terms of the contract. If the contract does not expressly provide for a date, the amount becomes due and payable 10 days after the payment claim is made.[16]
[16]Act, s 12(1)(b).

The notice of contention

The principal seeks to uphold the judge’s order on the basis that the payment claims were for retention moneys and that the Act does not allow a claim for such funds to be made. As the notice of contention raises a jurisdictional issue, it is convenient to deal with it at the threshold.
The notice of contention is concerned with whether the final claims were ones that were capable of being made so as to enliven the Act, not with the merits of the claims. It is convenient to start with the form of the claims made and their proper legal character.

The claims in this case

The claims the subject of the proceeding are on their face final claims.
Given the parties’ arguments and the reasons of the adjudicator, it is necessary also to refer to the earlier claims.

The first claim in respect of Stage 12

At the time of the first claim in respect of Stage 12,[17] the builder had undertaken work on 21 lots and the common area. According to its invoice, which was accompanied by detailed spreadsheets, it had completed work to the value of $79,953.52, not including GST. The amount of the invoice, including GST, was $87,149.32.[18] However, allowing for retention (of 10 per cent of the value of the work, being $7,995.36), the amount said to be due on the invoice was $79,153.96. The invoice was paid by the principal and, as a result, it withheld $7,995.36 by way of security.[19]
[17]A similar process was adopted in relation to Stage 13.
[18]Reasons, [14].
[19]Ibid [17]–[18].
It seems plain that the builder claimed that the value of the work done to that point, calculated under the contract, was $79,953.52, not including GST. The judge held that, for the purposes of the Act, the builder claimed less than the invoiced amount.[20]
[20]Ibid [17(a)].
The invoice stated that it was a payment claim made under the Act. For the purpose of s 14(2)(d) of the Act, the invoice indicated the amount of the progress payment that the builder claimed to be due. Although the contract prescribed a process by which a progress claim would be made, including having the superintendent issue a progress certificate, these procedures were not in fact adopted.[21]
[21]Ibid [16]–[17].
Subsequent claims were in similar form and were paid.
On 28 June 2019, practical completion was certified by the superintendent for work on Stages 12 and 13.[22] The certificate of practical completion provided for the builder to provide an invoice for the return of 50 per cent of the retention moneys in relation to:
(a)Stage 12 in the sum of $115,948.66 (inclusive of GST); and
(b)Stage 13 in the sum of $176,055.67 (inclusive of GST).[23]
[22]Ibid [20].
[23]Ibid.
On about 3 July 2019, the builder issued invoices for ‘Retention Billed’ in the amount of $115,948.66 (inclusive of GST) for Stage 12 and $176,055.67 (inclusive of GST) for Stage 13. The invoices for Stages 12 and 13 were accompanied by schedules that stated that they were payment claims under the Act. The principal paid these invoices.[24]

The final claims

[24]Ibid [21].

On 19 August 2022, the builder sent to the principal:
(a)a document titled ‘Final Payment Claim’ for Stage 12 that stated that the ‘Current Contract Claim’ was $115,948.66 (inclusive of GST) and was a claim under the Act and a deed of release that stated the ‘Amount Claimed’ was $115,948.66 (‘Stage 12 Payment Claim’); and
(b)a document titled ‘Final Payment Claim’ for Stage 13 that stated that the ‘Current Contract Claim’ was $176,055.64 (inclusive of GST) and was a claim under the Act and a deed of release that stated the ‘Amount Claimed’ was $176,055.64 (‘Stage 13 Payment Claim’).[25]
[25]Ibid [22].
The claims included a schedule, headed ‘Final Payment Claim’. The table in that schedule stated that each item of work was 100 per cent complete. It provided a cumulative value and a total value of the completed works and the total amount previously paid for the works. It set out the ‘current contract claim’, being the difference between the total amount of the value of the completed works less the total amount previously paid. It stated that:
(a)the current contract claim in the Stage 12 Payment Claim was $115,948.66 (inclusive of GST); and
(b)the current contract claim in the State 13 Payment Claim was $176,055.64 (inclusive of GST).

Decision on notice of contention

The principal submits, by way of its notice of contention, that the final payment claims were not for construction work. The parties’ arguments as to the notice of contention, as well as the proposed grounds of appeal, are set out in the reasons of the other members of the Court.
There are two answers to the contention.
In my opinion, the final payment claims were for construction work. The amounts were for construction work that had been undertaken by the builder and in respect of which amounts were said to be owing and unpaid. The fact that the amounts remained unpaid and had been held by the principal as security does not preclude the claims from being claims for construction work.
It may be accepted that there are two different ways to characterise the earlier payment claims. On the one hand, they might be seen as claiming the full value of the work done but allowing the principal, with the agreement of the builder, to retain an amount as security. On the other, it might be said that the claims were only for the amount then payable under the invoice, which would leave the balance of work unclaimed. In my opinion, the better view is that, consistent with s 14(2)(d) of the Act, the claims specified the amount claimed as being the amount due on the invoice, representing the value of the work less the retained amount. In other words, the balance of the work, the value of which equates to the retention, was not the subject of the earlier claims and was first claimed in the final progress claims.
With great respect to the view taken by Macaulay JA, it does not matter for present purposes whether the building work had already been claimed pursuant to earlier progress claims. In my view, even if it had been claimed, it was not paid to the builder and s 14(9) of the Act permitted the builder to include in a subsequent payment claim an amount that has been the subject of a previous claim but which had not been paid.
In my opinion, it does not matter that the money the subject of the claims could also be characterised as money held by the principal as security. Even if it was held for that purpose, it did not lose its character as money owing for construction work done. It may be accepted that a claim for the release of other forms of security may not involve a claim for payment for construction work. So, for example, if the builder had provided a bank guarantee in the sum of 10 per cent of the contract price to be held as security, a claim for its release would not be a claim to be paid for construction work. That is a very different situation to a claim based on money withheld by the principal that was otherwise payable for work done.
Secondly, and in any event, s 10 of the Act couches the entitlement as being one ‘in respect of a construction contract’. As a result, a party to a construction contract can make a claim in respect of amounts owing under the contract. Those amounts do not have to be for construction work. EnerMech[26] so holds, I am unable to distinguish it and, out of comity,[27] it should be followed.
[26]EnerMech Pty Ltd v Acciona Infrastructure Projects Australia Pty Ltd [2024] NSWCA 162, [59]ff (Basten JA, Meagher JA agreeing at [1], Griffiths AJA agreeing at [90]).
[27]Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, 151–2 [135] (Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ); [2007] HCA 22.

Ground 1

I agree with Kennedy JA on ground 1.

Ground 2

Relevantly, the interplay between ss 9, 10 and 12 of the Act and the construction contracts yields the following result.
Section 9 of the Act gave the builder an entitlement to progress payments. Those payments were to be calculated in accordance with the contracts. The facility by which the principal was contractually entitled to retain funds to be used for the purpose of security did not affect how the entitlement was to be calculated under s 10, which is based on the value of the work. The purpose of the calculation is to ascribe, using the terms of the contracts, a value to the work, which then informs the statutory entitlement. That is to say, the contracts set out the value of the work or allow it to be calculated. For the purpose of the contracts and therefore s 10, the ability to retain funds affected neither the value of the work nor the calculation of the statutory entitlement.
The point can be illustrated by a simple example. Assume that the builder completes a section of work and makes a payment claim in respect of it. The contracts say how much the builder is entitled to charge for that work, that is, they allow the value of the work to be identified. The fact that part of the funds owing in respect of that work may be retained by the principal does not affect the value of the work for the purpose of s 10. To be clear, the value of the work is not reduced by the amount retained.
Seen in this way, s 9 confers the entitlement and s 10 allows that entitlement to be valued. It might seem surprising that the Act gives the builder an entitlement to be paid an amount that it has agreed should be held by the principal as security. However, once it is recognised that the Act confers a statutory entitlement that prioritises cash flow over other considerations and that the contracts provide the means for its calculation based on the value of the work, no incongruity exists.
Importantly, the Act also deals with when the statutory entitlement is to be paid. The answer to that question is found in s 12. Section 12 is concerned with when amounts become due and payable. It provides that a progress payment under a construction contract becomes due and payable on the date on which the payment becomes due and payable in accordance with the terms of the contract or, where the contract makes no express provision, 10 business days after a payment claim is made.
In addition to s 12, there are a number of indications that the Act is concerned with the timing by which progress claims are to be paid. Thus, s 14(2)(d) requires that the claim set out the amount of the progress payment that the claimant claims to be due. Where there is a dispute that leads to adjudication, the adjudicator is to determine the amount of the progress payment (if any) to be paid and the date on which that amount became or becomes payable.[28] The reference to a date on which the adjudicated amount ‘becomes payable’ suggests that the adjudicated amount might fall due on a future date.
[28]Act, s 23(1)(a), (b).
The possibility that, in relation to a progress claim, a construction contract allows the principal to retain some or all of the progress payment as security until some later date or circumstance gives rise to an important question of construction in respect of s 12. As I have already endeavoured to explain, a statutory progress payment reflects the value of the work done and the statutory entitlement is not reduced by the amount of any retention that the contracts require. On the other hand, it does not automatically follow that the amount of the retention moneys is immediately due and payable. Subject to the possible operation of s 48(1) of the Act, which prevents a contract from modifying or restricting the operation of the Act, a contract can determine when a progress payment, or part thereof, falls due and payable.
Here, the contracts allow for the issuing of a progress claim at specific intervals and allow the builder to issue a claim in respect of WUC performed up to the relevant interval. They allow for further progress claims at practical completion and at the time of the final payment claim. They also allow the principal to retain funds as security, and, as the builder accepted, the retained amounts were due but not yet payable at the time of the earlier progress claims.
The position with respect to the final payment claims raises other issues. The question becomes whether amounts earlier retained were due and payable immediately pursuant to the final payment claims or whether the amounts claimed were only due and payable after the issue of a final certificate. In turn, that involves consideration of cls 37.4 and 5.4 of the contracts.
The relationship between a final claim under the Act and cl 37.4 of the contracts is a difficult one.
It is important to observe that the Act allows for the making of a final payment claim for construction work carried out under a construction contract.[29] Subject to s 14(7), which deals with amounts that remain unpaid, once a final payment claim is served, no further payment claim can be served under the Act in respect of the construction contract to which the payment claim relates.[30] It is tolerably clear that the purpose of the final payment claim is to give the builder the opportunity to claim, by way of a statutory entitlement, for all the work done under the construction contract. That is not the same thing as a final accounting of all the contractual entitlements going between the parties, a point that is revealed by the fact that a statutory claim, including a final claim, cannot include excluded amounts.[31]
[29]Ibid s 14(1), (5).
[30]Ibid s 14(6).
[31]Ibid s 14(3)(b).
On receipt, and subject to strict time limits, the principal has an opportunity to contest the claim by way of a payment schedule[32] but, in calculating the amount owing, excluded amounts, which include, for example, time-related costs,[33] must not be taken into account and the overall process is designed to be summary in nature and undertaken without prejudice to the underlying contractual position. The potential divergence between a statutory claim and a contractual entitlement remains even in relation to a final payment claim under the Act.
[32]Ibid s 15.
[33]Ibid s 10B.
As was the case with the earlier progress claims, s 10 of the Act provided the means of valuing or calculating the amount of the statutory entitlement: the answer to ground 1 of the application for leave to appeal remains apposite. Turning then to cl 37.4, it says that the final payment claim under the contract includes a progress claim together with all other claims whatsoever in connection with the subject matter of the contract. Further, the process contemplated by the clause involves a bringing to account of all the claims and counterclaims under the contract with a view to reaching a binding determination of the contractual position by means of a certificate that provides conclusive evidence of accord and satisfaction and the discharge of each party’s obligations. In my opinion, cl 37.4 goes beyond that which is contemplated by a final progress claim under the Act.
The potential disjunction between a final progress payment under the Act and a final payment claim under the contracts means that the statutory claim may precede compliance with the contractual terms. That might lead to the possibility that, where the form of security chosen by the parties is retention moneys, the principal might be obliged to satisfy the statutory claim and pay over funds that had been held as security. I do not see that as involving a payment of security to the builder. Rather, it is a reflection that the sum held has two different characters. It was both the subject of a statutory claim for a progress payment and held as security. The contractual obligation to maintain security would remain unless and until it is the subject of recourse or released as permitted by cl 5.4, but that obligation does not stand in the way of a final claim to a progress payment under the Act.
It was not in dispute that cl 37.4 provides for the making of a final progress claim and that it supplied a reference date for the purpose of s 9 of the Act. Appling cl 37.4, the adjudicator’s task was to assess the amount owing in respect of the claims, which I have held were claims for construction work, having regard to the permissible material under the Act. In my view, the adjudicator performed that task and arrived at the amounts owing pursuant to the statutory claims. The contractual requirement that there be a final certificate before moneys are payable and the further restriction in cl 5.4 on the release of security did not bear on the value of the entitlement. The adjudicator was correct to so hold.
In my respectful opinion, the judge conflated the statutory entitlement that was to be calculated in accordance with the contracts and the separate question of when the statutory entitlement becomes due and payable. The former is determined by applying s 10 of the Act and the latter by applying s 12. The judge calculated the final progress payments in accordance with cl 37.4 by asking when the moneys were due and payable under the contracts.[34] The question when they were due under the contracts was relevant to s 12 but not to s 10.
[34]Reasons, [207], [209].
The question remains as to when the statutory entitlement was payable. The answer lies in s 12 of the Act.
The adjudicator held that cl 37.4 did not expressly provide for when the final progress claim was made. I agree. As already observed, cl 37.4 is concerned with a different issue, namely the final adjustment of all contractual entitlements, in respect of which the clause imposed some procedural requirements that were apt to yield a final and conclusive resolution of the contractual position. It does not expressly deal with when the final statutory claim is payable. It follows that the final claims, as adjusted by the adjudicator, were payable 10 days after service of the claims.[35]
[35]Act, s 12(1)(b).

Ground 3

If cl 37.4 requires that the amount owing by way of statutory entitlement be withheld until all of the contractual payments have been assessed and certified by the superintendent, then it would be inconsistent with the scheme of the Act and unenforceable to that extent by reason of s 48 of the Act. Consequently, if I were wrong as to ground 2, then I would uphold ground 3.

To require that a final claim under the Act can only be payable once the contractual obligations, including for example with respect to excluded amounts, are resolved; a release forthcoming; and a certificate issued would entail restricting the operation of the Act in a significant way and fall foul of s 48 of the Act.[36]
[36]Trysams Pty Ltd v Club Constructions (NSW) Pty Ltd [2008] NSWSC 399, [22]–[23] (McDougall J).

Conclusion

It follows that the judge erred in holding that the final payment claims were not payable until the final certificates were provided and cls 37.4 and 5.4 were satisfied. There was no error in the adjudication determinations that held that the claims were due and payable.

KENNEDY JA:

PART A: BACKGROUND

On 13 August 2018, the applicant (the ‘builder’) entered into two contracts with the first respondent developer (the ‘principal’) to construct stages 12 and 13 of a retirement village in Cranbourne East (the ‘contracts’).
Over the course of the contracts, the builder progressively issued progress claims in respect of the amount of value of the construction works completed. Each claim also contained a statement that it constituted a payment claim under the Building and Construction Industry Security of Payment Act 2002 (the ‘Act’). In each case the builder claimed lesser amounts than the total amounts invoiced by deducting amounts for ‘retention moneys’ under the contracts. This meant that the parties did not follow the detailed process identified in the contracts in respect of the making of progress claims. Nevertheless, the principal paid the amounts claimed up until the making of the (final) payment claims, described below.[37]
[37]Hunters Green Retirement Living Pty Ltd v J.G. King Project Management Pty Ltd [2023] VSC 536, [12]–[17] (‘Reasons’).
On 28 June 2019, practical completion was certified by the superintendent (the principal[38]). On 3 July 2019, the builder invoiced for ‘retention billed’ in the amount of 50 per cent of the retention moneys. The principal paid these amounts and also paid further invoices for works in July.[39]
[38]Clause 1 (definition of ‘Superintendent’) and Item 5 of Part A to the contracts.
[39]Reasons, [20]–[21].
On 19 August 2022, the builder served two documents on the principal:
(a)a document titled ‘Final Payment Claim’ for stage 12 that stated that the ‘Current Contract Claim’ was $115,948.66 (inclusive of GST) and was a claim under the Act together with a deed of release that stated the ‘Amount Claimed’ was $115,948.66; and

(b)a document titled ‘Final Payment Claim’ for stage 13 that stated that the ‘Current Contract Claim’ was $176,055.64 (inclusive of GST) and was a claim under the Act together with a deed of release that stated the ‘Amount Claimed’ was $176,055.64;

(collectively, the ‘payment claims’).

The payment claims each contain a schedule that, inter alia:
(a)states that it is a ‘Final Payment Claim’;
(b)lists about 30 items of contract works (including ‘piling’, ‘frame’, roofing’, ‘painting’, ‘robes’, and ‘floor coverings’) as being 100 per cent complete and gives a contract value for each item;
(c)provides a cumulative value and a total value of the completed works;
(d)provides a total amount previously paid for the works;
(e)provides a ‘current contract claim’, being the difference between the total amount of the value of the completed works less the total amount previously paid; and
(f)provides a ‘current variation claim’, being the difference between the total amount of the value of the completed variations less the total amount previously paid. In each payment claim this is $0.00.
The amounts stated in the payment claims are equivalent to the amounts of the remaining 50 per cent of the retention moneys under the contracts.[40] However, the amounts also constitute the remaining amount of the contract price (some 2.5%) due for the works performed under each contract, which had not been paid.
[40]Ibid [25].
There was no evidence before the judge that a ‘final certificate’ had been issued under cl 37.4 in respect of either of the contracts.
On 2 September 2022, the principal issued $NIL payment schedules in response to the payment claims, and disputed their validity.
On about 14 September 2022, the builder lodged adjudication applications under s 18 of the Act in respect of the payment claims with the Resolution Institute.
On 13 October 2022, the adjudicator Susan Leech (second respondent),[41] made two adjudication determinations under the Act (‘determinations’). She concluded that the amount due was $114,932.07 (including GST) in relation to stage 12, and $176,055.54 (including GST) in relation to stage 13.
[41]The second respondent filed a notice of intention not to respond or contest the application for leave to appeal.
The adjudicator first found that she had jurisdiction to determine the applications. She found, inter alia, that, on the face of the payment claims, they were ‘for construction work’. She also found that there was a ‘reference date’ which occurred on 19 August 2022.
The adjudicator then turned to calculating the amount of each progress payment that was due under the terms of the Act. She observed that she was required to calculate the amount of the progress payments by applying the express terms if available (citing s 10(1)(a) and (b) of the Act). However, she was not satisfied that such terms were available. In particular, she considered that the operation of the superintendent’s opinion was contrary to an express term. She stated:
In my view, … s 11(1)(b) of the Act has been the relevant provision to assess all of the progress payments under the contract to date. I am not satisfied that the withholding for retentions fits any of the categories of s 11(1)(b)(i), (ii), (iii) or (iv). Consequently, I am not satisfied that the [principal] has been entitled to withhold retentions at anytime from the point of the view of the Act. For this reason also, I find that the payment claim is not a claim for the return of retentions. From the point of the view of the Act, it appears to be a claim for work for which the [principal] has only made part payments for in the past.
The adjudicator proceeded to value the progress payment in each case by reference to the principal’s reasons for withholding payment on account of alleged defects. After making minor adjustments for defective works in respect of stage 12, the adjudicator determined the amounts due in each case. She further found that the contracts did not expressly provide for the due date for payment for the purpose of s 12 of the Act. She thereby applied s 12(1)(b) and found that the due date for payment was 2 September 2022, being 10 business days after the payment claims were served.
The principal subsequently commenced proceedings in the Trial Division seeking judicial review of the two determinations on the basis of eight grounds. Relevantly:
(a)two of the grounds (grounds 1 and 5) related to the principal’s notice of contention and alleged jurisdictional error. Those grounds concerned whether the payments claims engaged the Act’s processes;
(b)two other grounds (grounds 4 and 8) related to the builder’s application for leave to appeal and alleged non-jurisdictional error of law on the face of the record. They concerned whether the adjudicator incorrectly calculated the progress claim entitlements.
On 6 October 2023, the judge upheld grounds 4 and 8 and ordered, amongst other things, that the two determinations be quashed and that the moneys previously paid (into court) be returned to the principal.[42] In essence, the judge considered that the amounts the subject of the payment claims were not properly payable under the contracts until 14 days after the issue of a final certificate.
[42]The judge accepted that he had jurisdiction to review a security payment adjudication determination for non-jurisdictional error of law on the face of the record in circumstances where judgment has not been entered pursuant to s 28R of the Act. The parties made joint submissions to this effect, with which the judge agreed: Reasons, [174]–[176]. This was because of the operation of s 85(1) and 85(5)(a)–(c) of the Constitution Act 1975.
In making this decision the judge found that he had jurisdiction in that, contrary to the principal’s submission, the payment claims were for ‘construction work’ for the purposes of the Act. His reasons for quashing the determinations were then threefold: first, he found that the contracts did make express provision for the calculation of the progress payments to which the builder was entitled under the Act;[43] second, he considered that, upon a proper construction of the contracts, the unpaid amounts were not, at the reference date under the Act, payable to the builder absent a final certificate;[44] and third, he found that cl 5.4 was not void pursuant to s 48(1) of the Act (as the builder had contended).[45]
[43]Reasons, [198]–[205].
[44]Ibid [206]–[218].
[45]Ibid [219]–[220].
The builder now seeks leave to appeal in relation to each of these three critical aspects of the judge’s decision on the following three (alternative) proposed grounds of appeal:
1.Whether the contracts made ‘express provision’ for calculation of a claim for final payment
1.1The judge erred in law in finding in the Judgment at [198]–[205] that clause 37.4, on its proper construction, made express provision (within the meaning of [s] 10(1)(b) of the Act) for how the amount of any final payment was to calculated.
1.2 The judge ought to have found that:
(a)the contracts made no ‘express provision’ within the meaning of [s] 10(1)(b) of the Act (or s 11(1)(b) of the Act) for how the amount of any final payment was to be calculated or valued; and
(b)the valuation of any final payment was to take place in accordance with the default mechanism set out in ss 11(1)(b) and 11(2)(b) of the Act.
1.3If the judge had so found, then the identified ground to quash the determinations for non-jurisdictional error of law would not have arisen.
2.Whether the proper construction of clauses 5.4 and 37.4 required the final certificate to withhold the balance of retention moneys
2.1The judge erred in law in finding in the Judgment at [206]–[218] that clauses 5.4 and 37.4, on their proper construction, required the adjudicator to deduct a sum from the assessment of the claim for final payment to account for the final tranche of retention money as the time for release of that sum had not arisen at the relevant reference date.
2.2The judge ought to have found that clauses 5.4 and 37.4, on their proper construction, did not require the adjudicator to deduct a sum from the assessment of the claim for final payment to account for the final tranche of retention money, but rather that such amount was properly recoverable in the [builder’s] claim for final payment.
2.3If the judge had so found, then the identified ground to quash the determinations for non-jurisdictional error of law would not have arisen.
3.Whether the proper construction of clauses 5.4 and 37.4 offended s 48(1) of the Act
3.1 The judge erred in law:
(a)in finding in the Judgment at [219] that the relevant part of clause 5.4 was not void pursuant to s 48(2) of the Act; and
(b)in failing to address the [builder’s] alternative arguments with respect to the effect of s 48(2) of the Act, namely that the contracts were void to the extent they required the Adjudicator to adopt the Superintendent’s certificate in place of her own assessment as to whether retention was due ([builder’s] outline of submissions at [60]–[61], annotated list of issues at [14]).
3.2If clauses 5.4 and 37.4, on their proper construction, applied to a claim under the Act and required the adjudicator to withhold a sum from the assessment of the claim for final payment to account for retention money in circumstances where the superintendent had not issued the final certificate, then the judge ought to have found that:
(a)those provisions offended s 48(2) of the Act insofar as they:
(i)required the adjudicator to rely on the issue of a final certificate by the superintendent in assessing whether the final tranche of cash retention was due to be included in the assessment of the claim for final payment;
(ii)deferred the [builder’s] entitlement to recover the final tranche of retention money until after:
(A)the final payment claim under the Act had been made;
(B)that entitlement had been released or discharged by the mechanisms set out in clause 37.4 and the deed of release which was to accompany the final claim; and
(iii)prevented the final tranche of cash retention from ever being claimed in a payment claim under the Act; and
(b)to the extent the provisions offended s 48(2) of the Act, they were void and ought to be severed from the contracts.
3.3If the judge had so found, then the identified ground to quash the determinations for non-jurisdictional error of law would not have arisen.
By notice of contention, the principal, in turn, alleges that the judgment should be affirmed on the basis of the following ground:
1.The [builder’s] claims for progress payments, which were solely in respect of the release of retention moneys, were not claims for progress payments in respect of ‘construction work’ or ‘related goods and services’. In fact:
(a)The [builder’s] claims for progress payments at issue were solely in respect of the release of retention moneys in the [principal’s] possession.
(b)The judge incorrectly held at [112]-[113] that these claims were claims for progress payments in respect of ‘construction work’ within the meaning of s 5 of the Act.
(c)Consequently, the judge was incorrect to find that the [builder’s] claims for progress payments at issue may be the subject of a payment claim served pursuant to s 14 of the Act.
(d)The judge should instead have found that the [builder’s] claims for progress payments at issue were not in respect of ‘construction work’, and therefore did not constitute payment claims for the purposes of the Act, such that the first and fifth grounds of judicial review in the [principal’s] originating process should have been allowed.
It is first necessary to set out the relevant contractual terms and statutory provisions. I will then turn to a consideration of the notice of contention (prior to the application for leave to appeal) given that it raises a question of jurisdiction.

PART B: THE CONTRACTS

The contract documents constituted a formal instrument of agreement, amended general conditions of contract (designated as AS4902-2000), as well as annexures (item 16A of Part A). The contracts in respect of each stage are identical, save for details specific to the separate stages of construction.
Clause 2.1 provided that the ‘Contractor shall carry out and complete WUC in accordance with the Contract, the Principal’s disclosed policies and procedures and directions authorised by the Contract.’[46] ‘WUC’ was in turn defined to mean ‘the work which the Contractor is or may be required to carry out and complete under the Contract and includes variations, included matters, remedial work, construction plant and temporary works …’ (cl 1).
[46]The contracts have significant amendments that are tracked which make them difficult to read. In this judgment, where provisions from the contracts are set out, the original tracking has not been included.
Clause 2.1 also relevantly provided that the Principal was to pay the Contractor ‘the lump sum’ ‘adjusted by any additions or deduction made pursuant to the Contract’ in a case where the principal accepted a lump sum, rather than rates. In this case, the lump sum (or ‘contract sum’) in the case of stage 13 was ‘$6,406,597.96 (including GST)’ and in the case of stage 12, it was ‘$4,637,944.41 (inclusive of GST)’ (item 1A of Part A).
Both cls 37 and 5 are central to the dispute between the parties.
Clauses 37.1 and 37.2 of the contracts provided:
37      Payment
37.1     Progress claims
The Contract shall give the Superintendent claims for payment (‘progress claims’) progressively in accordance with Item 33 while WUC is being carried out, at practical completion and at the time for making the final payment.
An early progress claim shall be deemed to have been made on the date for making that claim.
Each progress claim shall be given in writing to the Superintendent and be in a format the Superintendent reasonably requires and shall include details of the value of WUC done and details of other moneys then due to the Contractor pursuant to provisions of the Contract and must include a deduction for any liquidated damages for which the Contractor is liable in accordance with clause 34.7.
37.2     Certificates
The Superintendent shall, within 10 Business Days after receiving such a progress claim, issue to the Principal and the Contractor:
(a)a progress certificate evidencing the Superintendent’s opinion of the moneys due from the Principal to the Contractor pursuant to the progress claim and reasons for any difference (‘progress certificate’); and
(b)a certificate evidencing the Superintendent’s assessment of retention moneys and moneys due from the Contractor to the Principal pursuant to the Contract. This certificate may be separate to, or form part of, a progress certificate.
If the Contractor does not make a progress claim in accordance with Item 33, the Superintendent may issue the progress certificate with details of the calculations and shall issue the certificate in paragraph (b).
Notwithstanding any other term of this Contract, the Principal is not obliged to make any payment until the Superintendent receives a progress claim that complies with this subclause 37.2.
The Superintendent shall, within 10 Business Days of receiving a progress claim that complies with this subclause 37.2, issue to the Principal and the Contractor a progress certificate in final form (‘progress certificate’).
The Contractor shall, within 10 business days of receiving a progress certificate, issue the Superintendent with a tax invoice which must be in the amount of the progress certificate
If the tax invoice submitted by the Contractor is in an amount greater than the amount permitted by this subclause 37.2, the Principal shall not be required to pay the Contractor an amount in excess of the amount of the tax invoice permitted by this subclause 37.2.
The Principal shall within the time indicated in Item 33A after the Superintendent receives a progress claim and tax invoice that comply with this subclause 37.2, pay to the Contractor the balance of the tax invoice after setting off such of the certificate in paragraph 37.2(b) as the Principal elects to set off. If that setting off produces a negative balance, the Contractor shall pay that balance to the Principal within the time indicated in Item 33A of receiving written notice thereof.
Neither a progress certificate nor a payment of moneys shall be an admission of liability or evidence that the subject WUC has been carried out satisfactorily. Payment other than final payment shall be payment on account only.
Item 33(a) of Part A provided that the times for submission of progress claims pursuant to cl 37.1 of the contracts is the 25^th day of each month for ‘WUC’ done to the last day of that month during WUC, practical completion and at the time for making the final payment claim.
The Contractor further agreed that ‘the time prescribed in clause 37.2 for the Superintendent to receive a progress claim is the “reference date” within the meaning and for the purposes of the [Act]’ (cl 37.7(a)). The judge found that this was clearly intended to be a reference to cl 37.1.[47]
[47]Reasons, [143].
Clause 37.4 then specifically dealt with a ‘final payment claim’ and provided:
37.4     Final payment claim and certificate
Within 28 days after the expiry of the last defects liability period and the satisfaction of all of the Contractor’s obligations under the Contract, the Contractor shall give the Superintendent a written final payment claim endorsed ‘Final Payment Claim’ being a progress claim together with all other claims whatsoever in connection with the subject matter of the Contract. The Contractor must provide an executed deed of release before making the final payment claim.
Within 10 business days after the receipt of a valid payment claim, the Superintendent shall issue to both the Contractor and the Principal a final certificate evidencing the moneys finally due and payable between the Contractor and the Principal on any account whatsoever in connection with the subject matter of the Contract.
Those moneys certified as due and payable shall be paid by the Principal or the Contractor, as the case may be, within 5 business days after the Superintendent issues the final certificate.
The final certificate shall be conclusive evidence of accord and satisfaction, and in discharge of each party's obligations in connection with the subject matter of the Contract except for:
(a)fraud or dishonesty relating to WUC or any part thereof or to any matter dealt with in the final certificate;
(b)any defect or omission in the Works or any part thereof which was not apparent at the end of the last defects liability period, or which would not have been disclosed upon reasonable inspection at the time of the issue of the final certificate;
(c)any accidental or erroneous inclusion or exclusion of any work or figures in any computation or an arithmetical error in any computation;
(d)unresolved issues the subject of any notice of dispute by the Principal pursuant to clause 42, served before the 7th day after the issue of the final certificate; and
(e)third party claims brought against the Principal thereafter for damage, injury or death.
…
37.6     Other moneys due
The Principal may deduct from moneys otherwise due to the Contractor
(a)      any debt or other moneys due from the Contractor to the Principal; and
(b)any good faith claim to money which the Principal may have against the Contractor whether for damages (including liquidated damages), under an indemnity or otherwise relating to the Works or the WUC,
whether under the Contract or otherwise at law.

A draft deed of release, as provided for in cl 37.4, was also contained in an annexure to each contract at Part F. The draft contained a number of warranties given by the ‘Contractor’, which included that ‘the Contractor ha[d] fully complied with all of its obligations under the [contract]’ (cl 2.1(a)) and that the works were ‘completed’ (cl 2.1(b)). Further that:
(c)the Contractor has given notice to the Principal or the Superintendent of all claims which it has against the Principal which are connected with or arise out of the Works Contract or the carrying out of the Works executed by the Contractor under the Works Contract; and
(d)the Contractor is not aware of any claim by any person which is connected with or arises out of the Works Contract or the carrying out of the Works executed by the Contractor under the Works Contract of which it has not given notice to the Principal or the Superintendent.
Clause 4 of the draft deed of release also provided for the terms of the release:
4. Release
4.1The total money due under or in any way connected with or arising out of the Works Contract or the carrying out of the Works executed by the Contractor under the Works Contract (including any moneys which might be due to the Contractor from the Principal by way of damages for negligence, breach of contract or other obligation) is the Amount Claimed.
4.2Upon payment by the Principal to the Contractor of the Amount Claimed, the Contractor hereby releases and indemnifies the Principal, the Superintendent, or any employee, agent, servant or other contractor to the Principal or the Superintendent, from and against all claims which the Contractor, but for the execution of this Deed, may have had.
…
The ‘Amount Claimed’ was defined to mean the amount referred to as such on the face of the deed (cl 1.1(a)).
Clause 5 of the contracts concerned security. The word ‘security’ was defined broadly in cl 1 to include cash, retention moneys, bonds, an interest bearing deposit in a bank, an approved undertaking, or some other form approved by the party having the benefit of the security.
Clause 5.1 required that ‘Security shall be provided in accordance with Item 14 or 15.’ Those items provided that only the builder was to provide security. Further that:
(a)security was to take the form of ‘retention moneys’ or two unconditional bank guarantees each for 2.5 per cent of the total contract sum (item 14(a) of Part A);
(b)security was to a maximum percentage of 5 per cent of the contract sum (item 14(b) of Part A); and
(c)if the security was provided in the form of retention moneys then it was to be 10 per cent of each progress certificate (item 14(c) of Part A).
Clause 5.2 made provision for recourse to the security as follows:
5.2 Recourse
Security shall be subject to recourse by a party (including by being converted into cash security that does not consist of cash, by a party who remains unpaid after the time for payment, including:
(a)any debt or other moneys due from the Contractor to the Principal; and
(b)any good faith claim to money which the Principal may have against the Contractor whether for damages (including liquidated damages), under an indemnity or otherwise relating to the Works or the WUC.
The Contractor shall not take any steps, including seeking an injunction or other order of any court, to prevent the Principal from calling upon or the issuer from paying under the security or to prevent the Principal from enjoying the benefit of the security. If the Principal calls upon the security and it is subsequently determined that the Principal was not entitled to do so then the Principal’s sole liability to the Contractor shall be to return or reinstate the security.
Clause 5.3 made provision for a party to substitute a different form of security.
Clause 5.4 further provided for the ‘reduction and release’ of security as follows:
5.4 Reduction and release
Upon the issue of the certificate of practical completion and compliance by the Contractor with subclause 34.6A a party’s entitlement to security (other than in Item 14(e)) shall be reduced by the percentage or amount in Item 14(f) or 15(d) as applicable, and the reduction shall be released and returned within 14 days to the other party.
The Principal’s entitlement to security in Item 14(e) shall cease 14 days after incorporation into the Works of the plant and materials for which that security was provided.
A party’s entitlement otherwise to security shall cease 14 days after final certificate.
Upon a party’s entitlement to security ceasing, that party shall release and return forthwith the security to the other party.
Item 14(f) of Part A was applicable and relevantly provided that the security was reduced by 50 per cent upon the certificate of practical completion.

PART C: STATUTORY FRAMEWORK

The main purpose of the Act is ‘to provide for entitlements to progress payments for persons who carry out construction work or who supply related goods and services under construction contracts’ (s 1).
The object of the Act is to ensure that any person who undertakes to carry out construction work or who undertakes to supply related goods and services ‘under a construction contract’ is entitled to receive, and is able to recover, progress payments in relation to the carrying out of that work and the supplying of those goods and services’ (s 3(1)).
The means by which the Act ensures that a person is entitled to receive a progress payment is by granting a statutory entitlement to that payment in accordance with the Act (s 3(2)). The means by which the Act ensures that a person is able to recover a progress payment is by establishing a procedure that involves:
(a)the making of a payment claim by the person claiming payment;
(b)the provision of a payment schedule by the respondent to a payment claim;
(c)the referral of any disputed claim to an adjudicator for determination;
(d)the payment of the amount of the progress payment determined by the adjudicator; and
(e)the recovery of the progress payment in the event of a failure to pay (s 3(2)).
The Act does not limit any other entitlement that a claimant may have under a construction contract, or any other remedy that a claimant may have for recovering that other entitlement (s 3(4)).
In SSC Plenty Road Pty Ltd v Construction Engineering (Aust) Pty Ltd (‘SSC Plenty Road Appeal Decision’),[48] Santamaria, Beach and McLeish JJA endorsed the following statement of Warren CJ and Tate JA (with whom Kaye JA agreed) in Saville v Hallmarc Construction Pty Ltd[49] regarding the operation of the New South Wales Building and Construction Industry Security of Payment Act 1999 (NSW) (the ‘NSW Act’) which also applied to the (Victorian) Act:
(1)[the Act] operates in a ‘rough and ready’ way to preserve the cash flow to a builder notwithstanding that the builder might ultimately be required to refund the money received and yet have an inability to repay;
(2)it imposes a mandatory regime regardless of the parties’ contract with extremely abbreviated time frames for the exchange of payment claims, payment schedules, adjudication applications and adjudication responses;
(3)at each stage of the regime for enforcement of the statutory right to progress payments, it lays down clear specifications of time and other requirements to be observed, rendering it not difficult to understand ‘that the availability of those rights should depend on strict observance of the statutory requirements that are involved in their creation’;
(4)as adjudication determinations are capable of being filed as a judgment for debt in a court of competent jurisdiction, a respondent to a payment claim should not be at risk of suffering a judgment where a temporal limitation has not been complied with by the claimant;
(5)a claimant has alternative remedies; ‘even if the door to adjudication is closed, the door to judgment remains open’.[50]
[48][2016] VSCA 119.
[49][2015] VSCA 318.
[50]SSC Plenty Road Appeal Decision [2016] VSCA 119, [51], quoting Saville v Hallmarc Construction Pty Ltd [2015] VSCA 318, [80] (Warren CJ and Tate JA, Kaye JA agreeing at [147]) (citations omitted). See also Saville v Hallmarc Construction Pty Ltd [2015] VSCA 318, [81] (Warren CJ and Tate JA, Kaye JA agreeing at [147]).
Subject to particular exemptions which do not apply, the Act applies to any construction contract, whether written or oral, or partly written and partly oral (s 7). ‘Construction contract’ means a contract or other arrangement under which one party undertakes to carry out construction work, or to supply related goods and services, for another party (s 4 (definition of ‘construction contract’)).
Part 2 of the Act concerns rights to progress payments. Section 9(1) of the Act provides for a statutory right to a progress payment:
(1)On and from each reference date under a construction contract, a person—
(a)who has undertaken to carry out construction work under the contract; or
(b)who has undertaken to supply related goods and services under the contract—
is entitled to a progress payment under this Act, calculated by reference to that date.
The term ‘progress payment’ is defined as a payment to which a person is entitled under s 9 of the Act (s 4 (definition of ‘progress payment’)). It includes, amongst other things:
(a)      the final payment for—
(i)       construction work carried out under a construction contract; or
(ii)      related goods and services supplied under the contract; …
Section 9(2)(a) of the Act provides for the meaning of ‘reference date’ where the contract makes express provision with respect to the matter as being:
(a) a date determined by or in accordance with the terms of the contract as—
(i)the date on which a claim for a progress payment may be made; or
(ii)a date by reference to which the amount of a progress payment is to be calculated—
in relation to a specific item of construction work carried out or to be carried out or a specific item of related goods and services supplied or to be supplied under the contract; …
The adjudicator considered that the reference date in this case was prescribed by cl 37.4, being ‘within 28 days after the expiry of the last defects liability period and the satisfaction of all of the Contractor’s obligations under the contract’. The adjudicator found that this occurred on the day that the builder delivered the deed of release.
Section 10 provides for the calculation of a progress payment under s 9 of the Act, as follows:
(1)The amount of a progress payment to which a person is entitled in respect of a construction contract is to be—
(a)the amount calculated in accordance with the terms of the contract; or
(b)if the contract makes no express provision with respect to the matter, the amount calculated on the basis of the value of—
(i)construction work carried out or undertaken to be carried out by the person under the contract; or
(ii)related goods and services supplied or undertaken to be supplied by the person under the contract—
as the case requires.
(2)Despite subsection (1) and anything to the contrary in the construction contract, a claimable variation[51] may be taken into account in calculating the amount of a progress payment to which a person is entitled in respect of that construction contract.
(3)Despite subsection (1) and anything to the contrary in the construction contract, an excluded amount[52] must not be taken into account in calculating the amount of a progress payment to which a person is entitled in respect of that construction contract.
[51]‘Claimable variation’ is defined and set out in s 10A of the Act.
[52]The term ‘excluded amount’ is defined in s 10B of the Act, and includes, amongst other things, any amount claimed for damages for breach of the construction contract or for any other claim for damages arising under or in connection with the contract (s 10B(2)(c)).
Section 11 provides for the valuation of construction work and related goods and services. Insofar as it concerns construction work it provides:
(1)Construction work carried out or undertaken to be carried out under a construction contract is to be valued—
(a)      in accordance with the terms of the contract; or
(b)if the contract makes no express provision with respect to the matter, having regard to—
(i)       the contract price for the work; and
(ii)      any other rates or prices set out in the contract; and
(iii)if there is a claimable variation, any amount by which the contract price or other rate or price set out in the contract, is to be adjusted as a result of the variation; and
(iv)if any of the work is defective, the estimated cost of rectifying the defect.
Section 12(1) of the Act provides that a progress payment under a construction contract becomes due and payable on the date on which the payment becomes due and payable in accordance with the terms of the contract, or if the contract makes no express provision with respect to the matter, on the date occurring 10 business days after a payment claim is made under Part 3 in relation to the payment.
Part 3 of the Act sets out the procedure for recovering progress payments. Section 14 of the Act provides for payment claims. Sections 14(1) and (2) of the Act provide:
(1)A person referred to in section 9(1) who is or who claims to be entitled to a progress payment (the claimant) may serve a payment claim on the person who, under the construction contract concerned, is or may be liable to make the payment.
(2)      A payment claim—
(a)      must be in the relevant prescribed form (if any); and
(b)      must contain the prescribed information (if any); and
(c)must identify the construction work or related goods and services to which the progress payment relates; and
(d)must indicate the amount of the progress payment that the claimant claims to be due (the claimed amount); and
(e)      must state that it is made under this Act.[53]
[53]Emphasis in original.
A payment claim in respect of a final progress payment may be served only within the period determined in accordance with the terms of the construction contract, or within 3 months of the relevant reference date if no such period applies (s 14(5)). A claimant cannot serve more than one final payment claim (s 14(6)), unless the amount has not been paid (s 14(7)).
A person on whom a payment claim is served may reply to the claim by providing a payment schedule to the claimant (s 15(1)). The matters that must be included in a payment schedule are set out in s 15(2).
Various consequences may flow depending on the content of any payment schedule. Relevantly, subject to strict time limits, a claimant may apply for adjudication of a payment claim if the respondent provides a payment schedule, but the scheduled amount indicated in the payment schedule is less than the claimed amount indicated in the payment claim (s 18(1)(a)(i)).
Pursuant to s 23(1), an adjudicator is to determine the amount of the progress payment (if any) to be paid by the respondent to the claimant, the date on which that amount becomes payable, and the rate of interest payable on that amount. In making that determination the adjudicator must consider the matters set out in s 23(2) and only those matters. If an adjudicator determines that a respondent is required to pay an adjudicated amount the respondent is required to pay that amount under s 28M or s 28N. Section 28R of the Act relevantly provides that if an authorised nominating authority has provided an adjudication certificate to a person under s 28Q, the person may recover as a debt due to that person, the unpaid portion of the amount payable under ss 28M or 28N.
Section 47(1) provides, inter alia, that nothing in Part 3 affects any right that a party to a construction contract may have under the contract; or under Part 2; or in respect of anything done or omitted to be done under the contract.
Section 48(1) provides that the provisions of the Act have effect despite any provision to the contrary in any contract. Section 48(2) provides:
(2) A provision of any agreement, whether in writing or not—
(a)under which the operation of this Act is, or is purported to be, excluded, modified or restricted, or that has the effect of excluding, modifying or restricting the operation of this Act; or
(b)that may reasonably be construed as an attempt to deter a person from taking action under this Act—
is void.

PART D: NOTICE OF CONTENTION

(1) Judge’s reasons

As already noted, the judge concluded that the payment claims were for ‘construction work’ for the purposes of the Act.[54] In forming this conclusion he relied on a finding made earlier in his reasons[55] that the payment claims were ‘claims for the unpaid amounts for the construction work retained by [the principal] as security in the form of retention moneys under the Contracts.’[56]
[54]Reasons, [111]. Grounds 1 and 5 of the originating motion alleged that the adjudicator committed jurisdictional error when concluding that the payment claims were ‘in respect of construction work’ within the meaning of s 5 of the Act and therefore constituted a ‘payment claim’ for the purposes of s 14(1) of the Act.
[55]Reasons, [82]–[91].
[56]Ibid [90], [112].
In the earlier passages cited he found that first, the payment claims claimed the unpaid amounts for construction work and were each stated to be a ‘Final Payment Claim’. Given the way the parties invoiced he did not accept that the payment claims reversed a set off, nor that the builder ‘separately provided’ the retention money to the principal.[57] Secondly, he considered there to be a direct and obvious relationship between the unpaid amounts for construction work and amounts held as security.[58] He stated:
The Payment Claims claim 100% of the construction contract sum less amounts paid. As observed by Henry J in Vannella Pty Ltd v TFM Epping Land Pty Ltd (Vannella),[59] where a party claims 100% of the construction contract sum, it must include retention moneys.[60]
[57]Ibid [83]–[84].
[58]Ibid [86].
[59]Vannella Pty Limited atf Capitalist Family Trust v TFM Epping Land Pty Ltd; Decon Australia Pty Limited v TFM Epping Land Pty Ltd; Vannella Pty Limited v TFM Epping Land Pty Ltd [2019] NSWSC 1379.
[60]Reasons, [88].
However, he also did not accept the builder’s submission that the payment claims were ‘balancing claims’. He considered that the absence of the term, ‘retention moneys’, did not alter the character of the amounts claimed.[61]
[61]Ibid [90].
The judge ultimately concluded that, upon a proper construction of the Act, a payment claim under the Act for ‘unpaid amounts for construction work retained by a respondent as security in the form of retention moneys under a contract’, is a payment claim for ‘construction work’ for the purposes of the Act. He relied on the following:
(a)there is a direct and obvious nexus between retention moneys and unpaid amounts for construction works;
(b)retention moneys are not ‘excluded amounts’ in s 10B of the Act;
(c)it is not relevant that ‘retention moneys’ are not listed in ss 5 or 6 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;
(d)this construction facilitates the main purpose of the Act. This is because such a construction provides for entitlements to final payments for persons who carry out construction work. This construction also facilitates the object of the Act. This is because 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 ss 10 and 11 of the Act and, as a result of ss 10(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 moneys under a contract may be a nil amount;
(e)a payment claim for unpaid amounts for construction work retained by a respondent as security in the form of retention moneys under a contract, may readily identify the construction work for the purposes of s 14(2)(c) of the Act;
(f)a payment claim under the Act for unpaid amounts for construction work retained by a respondent as security in the form of retention moneys under a contract, may readily identify the amount a claimant claims to be due for the purposes of s 14(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’ (emphasis added).[62]
[62]Ibid [113].

Unlike the previous invoices, to arrive at the amount claimed therein, the August 2022 payment claim did not add the approved variations to the original contract sum and compare that total with the total of all previous claims. Instead, it compared all amounts previously paid (other than for variations) with the original contract sum and showed a difference of $115,948.66 (GST inclusive). Variations, recorded separately, were treated as having been fully paid. In the result, a total claim including variations was made for $115,948.66 (GST inclusive). No reference was made to a retention sum.
Had the August 2022 claim been set out in the same format as the 8 July 2019 invoice (and all previous invoices), it would show, in the GST inclusive column, precisely the same details as appear in the first four lines of the 8 July 2019 invoice — that is, the amounts in respect of the ‘Original contract amount’, ‘Approved variations’, ‘Revised contract amount’ and ‘Value of Works Completed’. However, the fifth line — that is, ‘Less Value of the Previous Claims’ — would show the amount as $4,766,750.10 because it would, of course, take into account the $48,803.68 claimed in the 8 July 2019 invoice and subsequently paid.
To repeat, by making its claim for $48,803.68 on 8 July 2019, JG King brought its total claim for Stage 12 to $4,766,750.10; that is, as a consequence of that invoice, JG King had claimed the entire sum for all construction works (the original contract sum plus all approved variations) that it performed for Stage 12. It also follows that, if prepared in the same way that previous invoices had been prepared, the August 2022 claim would have shown that, by that date, the entire sum claimable for construction works for Stage 12 had previously been claimed. The ‘Amount due this Invoice’ would be nil.
Precisely the same analysis can be performed in relation to Stage 13. The conclusion is the same.

Did the adjudicator have jurisdiction to make an adjudication determination?

As the High Court stated in Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd,[172] unless a claim answering the description of a ‘payment claim’ in the Act is served by a claimant upon a respondent — thereby initiating the steps for the recovery of progress payments set out in pt 3 of the Act — there can be no adjudication application and, hence, no adjudication within the jurisdiction conferred by the Act. Although these statements were made in relation to the Building and Construction Industry Security Payment Act 1999 (NSW), they are equally applicable to the Victorian Act.
[172](2016) 260 CLR 340, 356 [44], (Kiefel, Bell, Gageler, Keane and Gordon JJ); [2016] HCA 52 (‘Southern Han’).
In Southern Han the debate concerned the feature of a payment claim that requires it to be tied to a ‘reference date’. In the present case, the feature of a payment claim that is in question is whether the payment claims must be, and if so were, ‘for construction work’. The alternative view — said to deny the claims made by JG King in August 2022 the character of being a ‘payment claim’ under the Act — is that the payment claims were for retention amounts and not for construction work.

Adjudicator’s decision

The adjudicator held that the payment claims made by JG King in August 2022 for Stages 12 and 13 were claims ‘for construction work’. The adjudicator went further and held that the Act did not permit Hunters Green to withhold retention amounts at any time during the contracts. Her conclusion is best represented in the following paragraph:
Accordingly, I find that the payment claim was for construction work on its face in contrast [to] the payment claims of Punton’s Shoes and Foursquare. I find that the wider case law is supportive of the view that amounts that may relate to retentions can be claimed in a payment claim. Furthermore, in the case of the current payment claim, I found that [Hunters Green] was not entitled to withhold retentions under the Act at any time during the contract. In the absence of express provisions in the Act, I am not satisfied that an uncertain basis of withholding can apply to invalidate the payment claim. In the absence of any other submissions to the contrary from [Hunters Green], I conclude that the content of the payment claim was valid.

Judge’s decision

The judge recorded the parties’ agreement in submissions made before him that,
upon a proper construction of the Act, a claim for a progress payment must be in relation to ‘construction work’ or ‘related goods and services’, within the meaning of the Act, to constitute a ‘payment claim’ for the purposes of s 14(1) of the Act’.[173]
[173]Reasons, [92]. It is important to note that the argument before the judge took place, and the judge’s decision was given, before the decision in EnerMech referred to below at [304].
The judge agreed with the parties’ analysis because, as he put it, amongst other things ‘a payment claim under the Act must identify the construction work or related goods and services to which the progress payment relates’.[174] The judge referred specifically to s 14(2)(c).
[174]Ibid, [92].
In substance, Hunters Green submitted that the two payment claims made in August 2022 were not for construction work but, instead, were for the return of retention monies which had lost their character as monies due for construction work. JG King argued that the money the subject of the payment claims had never lost the character of being monies due for construction work. These essential arguments were advanced by each party in numerous different ways.
For the purpose of the jurisdiction argument, the judge upheld JG King’s arguments and concluded that the payment claims were ‘for “construction work” within the meaning of the Act’.[175] The judge analysed arguments put to him about how previous authorities resolved whether the Act’s mechanisms accommodated a claim for the return of retention money. JG King submitted that the preponderance of authority recognised that a payment claim under the Act could be made in respect of retention money. It submitted that it was of no consequence that, unlike Acts in other States and Territories,[176] the Victorian Act did not expressly state that a payment claim may include a claim for money held by a respondent for security. Hunters Green disagreed with JG King’s analysis of the authorities. As a means of distinguishing decisions in other States, it placed weight on the specific provisions in the legislation of those other States that enabled claims to be made for security money.
[175]Ibid, [135].
[176]Referring to: Building and Construction Industry Security of Payment Act 1999 (NSW), s 13(3)(b); Building Industry Fairness (Security of Payment) Act 2017 (QLD), s 68(2)(b); Building and Construction Industry (Security of Payment) Act 2009 (ACT), s 15(3)(b); Building and Construction Industry Security of Payment Act 2009 (TAS), s 17(3)(b); Building and Construction Industry Security of Payment Act 2009 (SA), s 13(3)(b).
The judge acknowledged that the strongest authorities in favour of Hunters Green were the decisions of Digby J in Punton’s Shoes Pty Ltd v Citi-con (Vic) Pty Ltd[177] and Watpac Construction Pty Ltd v Collins & Graham Mechanical Pty Ltd.[178] In Punton’s Shoes, Digby J expressed the view that monies progressively deducted from payments for construction work to be held as security ‘formed a separate and distinct security fund to ensure performance by the Contractor’.[179] Further, Digby J said that:
any implied right or entitlement there may be in the Contractor to return of a portion of retention monies is different in character and distinct from either a claim under the Contract for the value of work carried out or an entitlement under the [Act] for the value of construction work carried out and related goods and services.[180]
[177][2020] VSC 514 (‘Punton’s Shoes’).
[178][2020] VSC 637 (‘Watpac’).
[179]Punton’s Shoes [2020] VSC 514, [110] (Digby J).
[180]Ibid.
The judge disagreed with Digby J’s analysis. In his reasons, the judge in this case made various findings about the relationship between amounts due for construction work and the retention money. They may be summarised as follows:
•The payment claims in the present case are claims for unpaid amounts for the construction work retained by Hunters Green as security in the form of retention monies under the Contracts;[181]
•Hunters Green did not pay JG King the full amount for the construction work because amounts were deducted for retention monies;[182]
•The deduction for retention money cannot be analysed as a set-off of mutual liabilities such that Hunters Green can be treated as having paid for the construction work and received back from JG King money to be retained for security;[183]
•Therefore, the payment claims were not made ‘solely to recover retention moneys’;[184]
•There is a ‘direct and obvious relationship’ between the unpaid amounts for the construction work and the amounts held by Hunters Green as security in the form of retention monies;[185] and
•The payment claims claim 100 per cent of the construction contract sum less amounts paid.[186]
[181]Reasons, [82].
[182]Ibid [83].
[183]Ibid.
[184]Ibid [84].
[185]Ibid [86].
[186]Ibid [88].
Having regard to these findings, his Honour reached his conclusion in favour of JG King’s position, saying:
I refer earlier in this judgment to the separate and distinct nature of the retention moneys as security. The Contracts make provision for the release and return of the final 50% of the retention moneys within 14 days of the issue of a final certificate upon a final payment claim under clause 37.4 of the Contracts. JG King had no contractual entitlement to the retention money as part of its entitlement to a final payment under clause 37.4 of the Contracts. I do not accept, however, … Hunters Green’s submission that JG King’s entitlement to receive the retention moneys is not an entitlement under the Act to receive payment for the value of construction work. This is because, as I have already said, there is a direct and obvious relationship between the unpaid amounts for the construction work and the amounts held by Hunters Green as security in the form of retention moneys under the Contracts.
…
In Punton’s Shoes and Watpac, Digby J expressed a contrary view. For the reasons I have just given, I do not agree, with respect, with Digby J on this matter.[187]
[187]Ibid [134].
For these reasons, the judge concluded that, for the purpose of analysing the jurisdiction of the adjudicator, the payment claims were for construction work within the meaning of the Act and thereby engaged the adjudication process under it. In short, he rejected the argument that the adjudicator had no jurisdiction to make an adjudication determination in relation to these payment claims.

Submissions on appeal

Between the date the judge delivered his Reasons and the hearing of the appeal, the New South Wales Court of Appeal delivered its decision in EnerMech Pty Ltd v Acciona Infrastructure Projects Australia Pty Ltd (‘EnerMech’).[188] EnerMech is particularly relevant to the question of the jurisdiction of an adjudicator under the New South Wales equivalent of the Act. Each party’s written submission was filed prior to the EnerMech decision, so it was addressed on oral submissions.
[188][2024] NSWCA 162.
In its written submission, Hunters Green placed strong reliance on the provision in clause 5 of the contract for the payment of, recourse to, reduction and release of any security provided under the terms of the contract. According to Hunters Green:
(a)A contractor’s entitlement to the ‘release’ of retention money is distinct from and not to be conflated with the contractor’s entitlement to payment for construction work — they are different entitlements of a different character;
(b)The setting off of amounts due to the principal for retention money from payments due for construction work is the legal equivalent of each party paying its respective liability to the other (meaning that, in effect, with the payment of each progress payment with the deduction of retention monies for security, the principal is to be taken to have paid the entirety of the amount claimed for construction work at that point);
(c)Contrary to the view that treating a claim for retention monies as a claim for money for construction work will enhance cash flow to contractors, and thereby facilitate the purpose of the Act, instead, that analysis will mean that, in future, principals will insist upon payment of security up front by either cash deposits or bank guarantees. This outcome will be detrimental to contractors’ cash flow.
In oral submissions, Hunters Green urged this Court to be wary about embracing the EnerMech decision due to what it submitted were differences between the Act and the equivalent New South Wales Act. As will be seen, the New South Wales Court of Appeal eschewed considering whether a payment claim was made ‘for construction work’ in deciding whether the claim conferred jurisdiction upon an adjudicator to make a determination. Instead, the Court focused on whether the payment claim was made ‘under a construction contract’. Hunters Green continued to submit that this Court should analyse whether the payment claim is ‘for construction work’ and, finding that it is not, hold that the adjudicator lacked jurisdiction. In any event, it submitted that the judge was permitted to review the adjudicator’s decision, even if jurisdiction had been validly conferred, and the judge’s decision setting aside the adjudication determination should be upheld by rejecting grounds 1, 2 and 3.
It is convenient to turn directly to JG King’s oral submissions made in reliance upon EnerMech.
EnerMech concerned a payment claim brought by the contractor for a progress payment of a little over $10 million. The principal disputed the claim by serving a payment schedule. An adjudicator gave a determination in favour of the contractor. A judge of the New South Wales Supreme Court quashed the determination on the basis that the claim was not a claim for payment on account of construction work or for related goods and services. Instead, it was, in substance, a claim for a credit of $9,230,157.40 in relation to amounts obtained by the principal by having recourse to security provided by the contractor under the contract.
The Court of Appeal allowed the contractor’s appeal, and restored the adjudicator’s determination. The Court did not find anything in the New South Wales Act that required a payment claim to be made ‘for construction work’. Rather, it held that the two critical elements are that there be a ‘construction contract’ and that there be consideration or amounts payable under it. If those elements exist, the payment claim is amenable to the jurisdiction of the adjudicator. Whether an amount is in fact payable will depend on the proper construction of the contract, identification of the work which has been carried out and a determination as to whether that work has already been paid for. The determination of these matters, the Court held, were not ‘preconditions to the validity of a claim’.[189]
[189]EnerMech [2024] NSWCA 162, [59], [61]–[62] (Basten AJA, Meagher JA agreeing at [1], Griffiths AJA agreeing at [90]).
Moreover, the Court found that the reasoning of the adjudicator in upholding the contractor’s claim on the basis that the claim was ‘for construction work’ was a matter for the adjudicator and not to be reviewed by the Court, even if legally erroneous.[190] That understanding was largely, if not wholly, driven by the Court’s conclusion concerning the equivalent of s 28R(5) of the Act in a proceeding to enforce an adjudicator’s certificate. In the present case, as noted, the parties agree that s 28R does not apply because no proceeding has been taken to enforce the adjudicator’s certificate. For that reason, no argument is advanced by JG King that the Court is prevented from reviewing any error made by the adjudicator within jurisdiction (that is, for non‑jurisdictional error).
[190]Ibid [79]–[82].
JG King relied on EnerMech to submit that, here, its claim was plainly made ‘under’ the construction contracts. The payment claims set out the value of the construction works completed and the amount paid to date, and claimed the difference. For that reason, it submitted that the adjudicator had jurisdiction and, on this basis alone, the notice of contention must fail.
JG King continued to rely also on its written submissions to address the alternative argument that, to have validity, the claim must be ‘for construction works’. It attacked the proposition that monies held on retention in some way lose their character as money payable for construction works. In the end, JG King argued that it does not really matter if the payment claims are construed as claims for the return of sums retained for retention or as ‘balancing claims’ at the final wash-up of the contract. Either way, it submitted, they are claims for payment for construction work. It submitted that the contract sum stipulated in the contract does not change or get reduced by the parties’ agreement that the principal can retain a proportion of the money for construction work as a form of security.
JG King’s line of reasoning (deployed both for the jurisdiction argument and on ground 2) was this: retention money is a form of security that temporarily delays payment otherwise due to the contractor. The money retained is ‘already earned, though not yet payable’.[191] It remains the contractor’s money and ‘part of the purchase price’. In this light, JG King submitted, a claim for retention money is a claim seeking payment for construction work or related goods and services already performed but not yet paid for.
[191]Referring to Re Tout and Finch Ltd [1954] 1 WLR 178, 187 (Wynn-Parry J).
Although other States and Territories have specific provisions that expressly incorporate claims for the return of monies held for security into the concept of payment claims, JG King submitted that this was simply to clarify any ambiguity. Those provisions did not enlarge the scope of permissible claims that were covered by the Act in any event. JG King criticised Hunters Green’s analysis of set off, insisting, instead, that the retention was merely a temporary withholding of payment otherwise earned for the construction work.

Consideration

In my view, although with some hesitation, I think that this Court should follow the decision in EnerMech and hold that the adjudicator had jurisdiction to make an adjudication determination. That is because the 19 August 2022 payment claims were claims for amounts of money claimed to be due ‘under’ the construction contracts. Even if it may be correct to say that the amounts claimed were not amounts ‘for construction work’ — as I think is the case, for the reasons set out below in respect of ground 2 — such a finding does not deny jurisdiction to the adjudicator so long as the other two elements just mentioned are present. The gateway to jurisdiction as determined in EnerMech is relatively broad.
I reach this conclusion with some hesitation, because the Court in New South Wales appeared to consider it relevant to its construction of the New South Wales Act that that Act expressly recognised a claim for the release of security as the legitimate subject of a statutory payment claim.[192] This is not the case in the Victorian Act. Without that kind of provision, I think there is a respectable argument that, to be a valid payment claim under the Act, the claim must be for an amount for construction works or related goods and services. Nevertheless, the balance of the reasoning of the New South Wales Court would otherwise apply to the construction of the Act, and I am not persuaded that it is ‘plainly wrong’[193] or distinguishable.
[192]EnerMech [2024] NSWCA 162, [20] (Basten AJA).
[193]Farrah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, 151–2 [135] (Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ); [2007] HCA 22.

I would therefore reject Hunters Green’s argument insofar as it seeks to impose a condition that a payment claim must claim money ‘for construction works’ in order to found the jurisdiction of the adjudicator. In doing so, however, I do not reject its argument — particularly germane to ground 2 — that JG King’s entitlement to be paid progress payments, including a final payment, must relate to an entitlement to payment for carrying out construction work or supplying related goods and services under the contract. That therefore brings me to JG King’s grounds of appeal.

Did the proper construction of cls 5.4 and 37.4 require that the final certificate withheld the balance of retention monies?

As already stated, I agree with Kennedy JA that ground 1 should be rejected. That is, I agree that the amount of any progress payment to which JG King was entitled in respect of the construction contracts could be valued in accordance with the terms of those contracts. That means that the adjudicator was bound to value the entitlement to a progress payment under the 19 August 2022 payment claims in accordance with the terms of the contracts and not in accordance with the method set out in s 11(1)(b) of the Act. That has the effect that the adjudicator was bound to take into account the contractual provisions relating to Hunters Green’s entitlement to withhold security.
Therefore, the critical ground to determine in my view is ground 2. I will not repeat the arguments that have been fully summarised by Kennedy JA. It should be apparent that what I have already written so far bears upon my analysis of this ground.
Unlike Kennedy JA, I would reject JG King’s contentions on ground 2 and uphold the judge’s conclusion, largely for the reasons he expressed.
First, I would adopt Digby J’s analysis in Punton’s Shoes and Watpac that, once deducted from money payable for construction work, the retention moneys formed a discrete and separate fund that was of a different character from the money due for construction work which was its financial source.[194] A ‘security’ is of a different nature to a sum of money due for construction work. Of course, there is a connection between security in the form of retention moneys and the money earned by construction work, because it was by performing construction work and becoming entitled to payment for it that the contractor had the means of financing the provision of security.
[194]See Punton’s Shoes [2020] VSC 514, [109]–[113] (Digby J), extracted by Kennedy JA at [162] above.
It does not matter whether the money was ‘deducted’ or, in the language of cl 37.2, ‘set off’ from the payments due on account of the construction work completed. By agreement between the parties, instead of the principal paying over the full amount for construction work and, simultaneously, the contractor paying over an amount of money to the principal on account of security, the same result was achieved by a deduction being made from the first payment. Nor does it matter, in my view, that the money was not placed in some discrete fund, but only represented as additional cash available to the principal compared to what it would have held if the amount was not retained.[195]
[195]For present purposes, it is unnecessary to decide what interests, legal or equitable, each party held in that fund during the currency of the contracts.
That mechanism should not obscure the true nature and effect of what was achieved by the retention of the money. A security could take a number of forms. Obviously, the form most advantageous to a contractor from a cash-flow perspective is the one that permits the contractor to finance the security over the life of the contract by the accumulation of small amounts of money deducted from earnings. But whether the security is provided up-front by cash, a deposit in a bank account or a bank guarantee, or progressively by retention moneys, it has the same character. It is a financial resource against which the principal can have recourse, in the event that the contractor becomes liable to the principal, to satisfy that liability. To insist that, for the contractor’s cash-flow benefit, the contractor is entitled to the statutory remedy to recover the security back as if it was due for construction work, is to overlook the nature of the retention money and the cash-flow benefit that by its nature it confers.
Pursuant to clauses 5.4 and 37.4 of the contracts, Hunters Green’s entitlement to the retention money by way of security would cease 14 days after issue of the final certificate. Hunters Green would immediately become bound to release and return the balance of the security to JG King. But the amount to be returned to JG King is the ‘release’ of a ‘security’; it is not a payment for construction work. The money ceased to have the character of money for construction work. JG King had already claimed and been paid for all of the construction work against which retention monies were deducted and, being so deducted, that money in the hands of Hunters Green assumed the character of a security. The contract fully dealt with the mechanism for any recourse to and release of that security, as security money. It did not purport to deal with the recourse to or release of that money as money for construction work.
JG King’s argument that the retention money reflects monies ‘earned but not yet payable’ may be accepted. So too may Hunters Green’s argument that the unreleased security remains, from JG King’s point of view, a ‘yet to be crystallised chose in action’ for the release of the security pending and subject to the determination of Hunters Green’s entitlement to have recourse to that security. Both characterisations are, in substance, the same thing. But, as at 19 August 2022, the retention monies remained intact as a security and were not ‘payable’ to JG King, nor had its chose in action for the release of that money (or the unused balance thereof) crystallised so as to be actionable.
Subject to the Act, the adjudicator was bound to consider the construction contracts from which the adjudication applications arose.[196] The contracts establish a distinct mechanism for dealing with security money, on the one hand, and money due for construction work (or related goods and services), on the other. In my opinion, the adjudicator was bound to apply cls 5.4 and 37.4 of the contracts. One outcome of applying those clauses to the payment claim was for the adjudicator to:
(a)determine that there was nil owing for construction work;
(b)determine the amount (if any) for which Hunters Green had any entitlement to have recourse to the security;
(c)determine that the final certificate must reflect that the balance of retention money in respect of each contract be withheld for 14 days after the date of the final certificate; and
(d)otherwise allow cls 5.4 and 37.4 to operate according to their terms.
[196]The Act, s 23(2)(b).
In any event, the adjudicator was in error in treating the payment claims as claims for construction work then due and payable. I reject the submission made by JG King that the effect of Hunters Green’s argument is that the most it could claim, and the superintendent’s final certificate would always provide for, only 97.5 per cent of the contract sum. As I have endeavoured to show, as at 8 July 2019, JG King had claimed every cent for which it was entitled on account of carrying out construction work. With Hunters Green’s payment of $48,803.68 soon after 8 July 2019, and accounting for JG King’s obligation to provide security by way of retention, JG King had been paid in full the money to which it was entitled on account of carrying out construction work. The adjudicator ought instead to have given full effect to the contractual provisions relating to the release of security.
The amounts determined by the adjudicator as being due and payable to JG King under the adjudication determination were not, in fact, then due and payable to JG King. The balance of security, in the form of the retained money, was not payable pursuant to an adjudication determination under the Act, but only by operation of cls 5.4 and 37.4 of the contract. If the adjudicator had jurisdiction to make an adjudication determination, she should at least have determined that the balance of retention monies was only due and payable to JG King 14 days after the issue of a final certificate. It was not payable immediately.
To the extent that there is any room to construe the terms of the draft release as being in conflict with cls 5.4 and 37.4 — which may be doubted — in my view the construction of the draft release must yield to the terms of the contract, not the other way round. Neither the accord and satisfaction provided in cl 37.4 nor the release can be construed as discharging the principal from its obligation to release the security (or balance thereof) 14 days after the date of the final certificate.
There is no merit in JG King’s argument, put by way of reply in its oral submissions, that there is only a ‘very small prejudice’ to Hunters Green if it loses the benefit of that 14-day period for retaining the security. This is hardly a case for complaining about finely balanced periods of time. This case has been fought on a point of principle for reasons that have not been explained to the Court but, that being the case, it is to be decided on a point of principle and not pragmatism. In principle, the retained monies were not to be released until 14 days after the final certificate. The adjudicator was wrong to decide otherwise. In my opinion ground 2 must fail.

Do cls 5.4 and 37.4 offend s 48(1) of the Act?

That brings me to ground 3.
As must be apparent from what I have already said, in my view the concept of retention monies as a form of security survives the legislation. Unlike cognate legislation in other states and territories, the Act does not expressly include among the amounts that may be the subject of a payment claim amounts held under a construction contract by a principal, as security or otherwise, that a claimant claims is due for release.
In my view, on its proper construction, the Act does not confer an entitlement on a contractor to immediately claim back money deducted to be retained as security each time a progress claim is made as money due ‘for construction work’. Interestingly, JG King did not argue that the Act had that effect. It accepted that the principal may retain that money because that is what the parties had agreed in the contracts. That is so. Equally, once all construction work has been completed and a final payment claim is made, a determination must be made for the amount due for construction work that does not impinge upon the principal’s entitlement to retain the security until such time as the contract says it must be released. Because that is also what the parties agreed in the contracts.
In other words, in the same way that retention monies may be deducted against each progress claim throughout the duration of the contract to be held as security, those accumulated monies remain outside of the scope of the contractor’s entitlement to be paid for construction work at the point of the final payment claim.
JG King sought to differentiate the position at the point of a final payment claim by characterising the process then applicable as the working out of a ‘balancing claim’ —that is, working out the value of work done, taking into account appropriate adjustments and the amount already paid, and declaring the balance owed. It did not satisfactorily explain why the contractual provisions applicable to security, and the parties’ respective entitlements to it, did not continue to apply at the final payment stage just as they had throughout the duration of the contract.
Even though it did not accept this proposition, the logical extension of JG King’s argument is that the Act would cause the provision of security by way of retention money to be ineffective. As acknowledged by Bond J in SHA Premier Constructions Pty Ltd v Niclin Constructions Pty Ltd,[197] and in the present case by the adjudicator, at every progress payment stage the Act would require the principal to pay the contractor for the full value of the completed construction work without any deduction for retention.
[197][2020] QSC 307, [75] (Bond J).
Section 47(1) of the Act provides that, subject to s 48, nothing in pt 3 of the Act affects the right that any party to a construction contract may have under the contract. Section 48(1) applies the provisions of the Act despite any provision to the contrary in any contract and sub-s (2) voids any contractual provision that purports to exclude, modify or restricts the operation of the Act, or has that effect.
There is no provision of these construction contracts, relating to security, that purports to exclude, modify or restrict the operation of the Act in permitting contractors to make and be paid for progress claims, whether throughout the works or at the final payment claim stage. Further, there is nothing about the contracts’ provisions for security which contradicts or works against the purposes of the Act. Under the construction contracts the principal was entitled to maintain the security until 14 days after issue of a final certificate. As JG King seems to recognise, deductions were legitimately made against progress payments throughout the duration of the works under contract because that is what the parties had agreed would happen. Nothing changed at the point of final payment. The parties agreed that the security be retained until 14 days after final certificate. There is nothing inimical to the operation of the Act in permitting the principal to retain the benefit of that security through to the date on which the contract said the principal was entitled to it.
In my opinion, s 47 preserves the principal’s right to security financed by the retention of money payable for construction works. At least under provisions of the contracts the subject of this proceeding, s 47 also preserves the principal’s right to hold that security until the terms of the contracts require that it be released.
For these reasons, I would reject ground 3.

Conclusion

In the result, I would grant leave to appeal but dismiss the appeal.

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[2024] VSCA 310

12 December 2024