Principal's right to claw back progress payments upheld in NSW

A recent decision in the NSW Court of Appeal provides important guidance for principals, contractors and subcontractors on the provisional nature of progress payments under security of payment legislation, and the circumstances in which overpayments may be recovered.  

CBEM Holdings Pty Ltd v Sunshine East Pty Ltd [2025] NSWCA 250 clarifies the interaction between the Building and Construction Industry (Security of Payment) Act 1999 (NSW) (SOPA), restitution claims and misleading and deceptive conduct under the Australian Consumer Law (ACL).  

Importantly, the decision confirms that approval and payment of progress claims under the SOPA do not make those final payments final and prevent principals from later recovering overpayments.

Background

CBEM Holdings Pty Ltd (Contractor) was engaged by Sunshine East (Principal) under a trade contract (Trade Contract) to undertake earthworks for a building project in Dural (Project).  

During the Project, the Contractor submitted four payment claims endorsed under the SOPA.  The Principal's construction manager assessed and approved the first three, which were paid by the Principal accordingly.  The fourth claim was not assessed and no payment schedule was issued within the statutory timeframe.  The Contractor obtained summary judgment, and the Principal became liable to pay the full amount of the claim.

In November 2022, the Principal terminated the Trade Contract.  In the four payment claims, the Contractor asserted that the works were 53% complete.  The Principal disputed that assessment of progress.  

The Principal commenced proceedings in the District Court seeking to recover the alleged overpayments on the basis that payments had been made by mistake and under compulsion of law.  The Principal also claimed damages under the Australian Consumer Law for misleading or deceptive conduct.

The primary judge upheld the Principal's claims, and the Contractor appealed.

Issues

The Court of Appeal considered a number of issues including:

1. whether the Trade Contract displaced the Principal’s right to recover overpayments;
2. whether payment claims constituted representations for the purposes of the ACL; and
3. whether restitutionary relief was available notwithstanding the approval and payment of claims under SOPA.

Held

As to the contractual construction and SOPA payments, the Court held that there was nothing in the express terms of the Trade Contract that displaced the Principal's right to recover overpayment.

The Court reaffirmed that progress payments made under SOPA are interim and provisional in nature.  Any contractual provision purporting to make such payments final would be inconsistent with SOPA and therefore ineffective.  

Accordingly, where a court determines that the principal has paid more than was contractually payable, the principal is entitled to recover the overpaid amount - that is, the difference between what was paid and what was properly owed under the contract.

As to payment claims and misleading or deceptive conduct, the Court held that a payment is not, of itself, a representation for the purposes of the ACL.  While a payment claim may contain representations of fact or opinion, it is not of itself a representation.  

There is a distinction between representations of fact and representations of opinion.   A statement that an item is completed is a representation of fact, and such a representation will ordinarily be misleading if it is not true.  By contrast, a percentage-based claim (for example, that an item is 75% complete) involves evaluative judgment or opinion.  If the claimant reasonably and honestly holds that opinion, it will not be misleading or deceptive, even if it later proves to be incorrect.

On the facts, the Court was not satisfied that the Contractor's payment claims amounted to misleading or deceptive conduct under the ACL.

As to the claim in restitution, although the ACL claim failed, the Court upheld the Principal's restitution claim.  The Court confirmed that a principal may plead a common money count claim in short form.  It was sufficient for the Principal to allege that it paid more than was contractually owed (in the mistaken belief that the amounts were payable), and seek recovery of the difference.  

Further, the Court rejected the argument that any lack of diligence by the Principal's construction manager in assessing the claim broke the causal link.  The Court agreed with the primary judge's finding that the submission of the payment claims by the Contractor was a cause of the overpayment and, therefore, a cause of the Principal's loss.

Key takeaways

The key takeaways are:

1. SOPA payments are provisional.  Approval and payment of progress claims do not make those payments final, any principals reserve the right to recover overpayments;
2. Percentage claims are usually opinions.  Claims expressed as percentages of completion will generally be treated as opinions rather than statements of fact, provided they are honestly and reasonably held.
3. Good records matter.  Contractors should maintain clear and reliable records to support progress claims, particularly where claims are expressed as a percentage of completion.

If you have any questions or would like to know more, please get in touch with our Construction and Infrastructure team.

Authors

Phillip Coady | Partner | +61 2 9020 5670 | pcoady@tglaw.com.au

Daniel Oh | Senior Associate | +61 2 9020 5674 | doh@tglaw.com.au

Claire Ascoli | Lawyer

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