Posted on November 28, 2025 by Thuy Pham and Megan Hawley 4

Court of Appeal Addresses Misleading and Deceptive Conduct in Payment Claim Disputes

In a recent decision of the NSW Court of Appeal, the Court has clarified important interactions between the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA) and the Australian Consumer Law (ACL) and confirmed the key legal principles concerning the recovery of overpayments to construction contractors pursuant to payment claims made under SOPA.

Overview of SOPA

The regime of the SOPA is to provide protections for subcontractors by, among other things, allowing subcontractors to receive progress payments and to serve claims in respect of those payments. It is a “pay now, argue later” system, with the primary aim of keeping the money flowing by enforcing timely payment.

SOPA provides that a person who, under a construction contract, has undertaken to carry out construction work or to supply related goods and services, is entitled to receive a progress payment. The process of claiming payments is set out in the Act, which includes the contractor serving a payment claim on the person who, under the construction contract concerned, is or may be liable to make the payment.

Once a valid payment claim is made, the respondent to the claim has 2 options under the Act:

1. paying the claimed amount in full; or
2. providing a valid payment schedule within the stipulated timeframe for a lower amount.

The payment schedule must set out the principal contractor’s reasons as to why it proposes to pay the lower scheduled amount as opposed to the claimed amount. However even if reasons have been given, a claimant of a payment claim is still entitled to apply for adjudication if the respondent proposes a scheduled amount that is less than the claimed amount, regardless of the merits of the respondent’s reasons. This is because the payment schedule is not to be used as a means to withhold payment, in light of the ‘pay now, argue later’ approach underpinning the Act.

This regime can cause difficulties for councils, as the principal contractor under the Act, in determining whether payments should be made to contractors pursuant to the payment claim, when there are clear indications that works have not been completed to the extent alleged under those payment claims. Councils also can also encounter difficulties when the project manager engaged by Council mistakenly or negligently approves a payment claim instead of responding with a valid payment schedule for a lesser amount.

While the decision of the Court of Appeal does not change the fundamental principles of SOPA, it clarifies options for councils and principal contractors to recover overpayments made pursuant to a payment claim under the Act.

Facts

In this case, CBEM, a sub-contractor, performed civil and stormwater earthworks for a construction project at Dural. The principal contractor, Sunshine, engaged ASY as the construction manager. ASY was also appointed agent for Sunshine to assess and approve payment claims.

CBEM submitted 4 payment claims under SOPA. In these claims, CBEM asserted that 53% of the contracted works had been completed. Sunshine however argued that the actual percentage completed was considerably lower.

Sunshine subsequently terminated the contract with CBEM before completion of works and brought proceedings in the District Court seeking restitution and damages for misleading and deceptive conduct under the ACL.

The District Court accepted Sunshine’s claim and awarded it $452,961.44, substantially accepting Sunshine’s expert evidence that CBEM had only performed about 25% of the works, not 53% as claimed.

On appeal to the NSW Court of Appeal, among other things, CBEM argued that:

1. The contract between Sunshine and CBEM is the complete and exhaustive code governing payment claims. Once ASY was satisfied and approved a claim and the claim was paid, that approval was final and binding.
2. The payment claims stating that 53% of works had been completed were representations of opinion, not representations of fact. The former is not misleading merely because the representation is wrong.
3. Even if the payment claim triggers liability under the ACL because it contained representations of fact, ASY’s failure to properly assess those claims broke the causal chain in the ACL claim. In other words, the representations by CBEM did not cause the loss or damage suffered by Sunshine.

Findings

The Court held that the contract was drafted against the background of SOPA, whereby any agreement between the principal contractor and the sub-contractor to undercut the process set out by the SOPA is void to that extent by virtue of the Act. The statutory regime preserves parties’ rights to pursue civil proceedings to determine the correct financial position between them after provisional payments are made. Section 32 of SOPA explicitly preserves these rights and permits restitution orders. This ground of appeal was rejected.

Regarding the ACL claims, the Court held that payment claims were representations of opinion, not fact. Adamson JA held that a payment claim is not itself a representation, but may contain representations that are facts or opinions. Representations of 100% completion would be representations of fact to the effect that the item is completed. Representations of less than 100% completion are representations of opinion since it implies an evaluative judgment is required as to whether the proportion is 75%, 60%, 80% or some other figure. A representation of opinion is not misleading or deceptive merely because it is wrong, provided the maker reasonably and honestly held the opinion. In this case, CBEM claimed 53% completion. This required evaluative judgment and was therefore a representation of opinion. The primary judge made no finding that the opinion was dishonest.

While this ground was successful, ultimately the appeal was dismissed because Sunshine won on the restitution claims. The Court recognized multiple vitiating factors supporting restitution in this case:

1. Sunshine paid the claims under the mistaken belief that the work had been performed as claimed.
2. The payments were paid under statutory compulsion –  Sunshine had no option to withhold payment because no payment schedule was served within the timeframe required by SOPA.
3. CBEM had received money to which it was not entitled under the contract. It had no contractual entitlement to retain payments for work not performed. Section 32(3) of SOPA expressly contemplates that courts may order restitution of amounts paid under SOPA.
4. Alternatively, because the contract provided severable items of work, there was a total failure of consideration for unperformed items.

Regarding causal link, the Court held that even if ASY was less than diligent in assessing claims, its conduct (at most a concurrent cause) does not break the causal link between CBEM’s payment claim and the respondents’ payment of it. CBEM’s submission of the claim was an operative cause of the overpayment.

Implications 

The case is significant in confirming a number of key principles governing progress payments in construction contracts, including:

1. Progress payments are provisional, not final.
2. Restitution rights, including on grounds of total failure of consideration, mistake and compulsion, are preserved even after payment has been made.
3. Representations in payment claims may be subject to misleading and deceptive claims under the ACL.
4. Construction managers’ approval of payment claims does not prevent principals from challenging overpayments subsequently.
5. Retention of expert evidence of actual work performed is useful for supporting restitution claims.

The decision emphasizes that payment claims, though assessed by construction managers, do not create irreversible financial outcomes. Principals retain meaningful remedies if actual work performed falls short of claimed work, and contractors cannot rely on defects in assessment processes to insulate themselves from liability for overstated claims.

The full text of the Court of Appeal’s judgment can be found here: CBEM Holdings Pty Ltd v Sunshine East Pty Ltd [2025] NSWCA 250.

If you have any questions regarding this article, please contact Megan Hawley on 02 8235 9703 or Thuy Pham on (02) 8235  9731.