The “pay now, argue later” philosophy of the Building and Construction Industry Security of Payment Act 1999 (NSW) (“SOPA”) is a cornerstone of the industry. It ensures cash flow but often leaves Principals fearing that money paid out on interim claims is gone for good. In a significant decision delivered on Monday, 24 November 2025, the NSW Court of Appeal has provided much-needed clarity on the “argue later” phase.

In CBEM Holdings Pty Ltd v Sunshine East Pty Ltd [2025] NSWCA 250, the Court confirmed that progress payments are inherently provisional. Crucially, it affirmed that Principals can recover overpayments through the common law remedy of restitution, even where the construction contract does not expressly state that payments are “on account.”

However, the judgment also delivered a shield to contractors, ruling that an overstated payment claim is generally a representation of opinion, not fact, making it difficult to prosecute as misleading or deceptive conduct under the Australian Consumer Law (“ACL”).

The Facts

The dispute concerned a residential project in Dural. The Principal (Sunshine East) engaged a Contractor (CBEM) for civil and earthworks under a Trade Contract.

The Contractor submitted four payment claims.

• Claims 1–3: The Construction Manager certified them, and the Principal paid them in full.
• Claim 4: was a claim for around $420,000. The Principal disputed it but failed to serve a Payment Schedule within the strict 10 business day window under SOPA.

The contract was subsequently terminated. At that point, the Contractor had claimed it had completed 53% of the works, while the Principal alleged that the work claimed for was not actually done, asserting that the contractor has been overpaid by approximately $450,000.

The Principal sued for recovery on two grounds:

1. Restitution: For money paid by mistake (Claims 1–3) or under compulsion of law (Claim 4).
2. ACL: That Contractor’s payment claims were misleading representations of fact.

The Decision

The Court of Appeal dismissed the Contractor ‘s appeal, effectively upholding the Principal’s right to recover the overpayment. The judgment serves as a critical guide on the interaction between contracts, SOPA, and restitution.

1.Restitution: The Safety Net for Principals

The Court rejected the contractor’s argument that the payments were final and binding once certified.

Justice Adamson and Justice Free reaffirmed that SOPA payments are inherently provisional. The “pay now” obligation does not extinguish the “argue later” right.

The Court found that the Principal could recover the funds based on:

• Regarding Claims 1-3, the Principal paid under the mistaken belief that the work had been performed.   The fact that they relied on their agent, the Construction Manager, did not bar them from recovering the money from the contractor.
• Regarding Claim 4, the payment was made because SOPA required it due to the failure to serve a payment schedule. Justice Free noted that once the true contractual entitlement is determined, the statutory compulsion falls away, and any excess money must be returned.

Justice Free highlighted the doctrine of “total failure of consideration.” Because the contract itemised specific works, the consideration was severable. If a specific item was paid for but not done, there was a total failure of consideration for that part, justifying restitution.

2.Misleading Conduct: A Win for Contractors

In a nuanced finding, the Court overturned the primary judge’s finding regarding the ACL.

The Court held that asserting a percentage of work is complete involves “evaluative judgment”. It is an opinion, not a hard fact. Therefore, unless the Principal can prove the contractor was dishonest or had no reasonable basis for the opinion, an overstated claim is not “misleading or deceptive conduct”.

This sets a high bar for Principals wanting to use the ACL to attack progress claims. Mere disagreement on value is not enough.

3. The “Properly Claimed” Clause

The Court paid close attention to the specific wording of the contract, which required the Principal to pay amounts “properly claimed”.

The Court held that “properly” is a substantive qualification. It implies that the entitlement to keep the money is conditional on the work actually being done and accurately valued. If the work wasn’t done, the money wasn’t “properly claimed,” and the Contractor had no right to retain it.

Key Takeaways

For Principals and Developers:

• Restitution is powerful: If you miss a payment schedule and are forced to pay an inflated SOPA claim, you have a clear legal pathway to get that money back via a claim for restitution.
• Check your contracts: Ensure your payment clauses link entitlement to work “actually done” or “properly claimed.”
• High bar for the ACL: Recovering overpayments via misleading conduct claims is difficult. Stick to contract and restitution claims.

For Contractors:

• Records are king: CBEM failed to disprove the quantum of overpayment because they had poor site records. They argued the rain washed the evidence away, but the Court held them to the independent expert’s lower valuation. Detailed site diaries and photos are your best insurance.
• Opinions must be honest: While the Court ruled that over-claiming is often just an “opinion,” this is not a licence to inflate claims fraudulently. Dishonesty remains actionable.
• Cash is provisional: Money received under SOPA is not yours to keep indefinitely. It is a provisional payment on account.