Parrwood Pty Ltd v Trinity Constructions

Background

1. The active parties to the appeal are Parrwood and Trinity. They entered into a design and construct contract for a residential development. Parrwood was the Principal; Trinity the Contractor. The contract was based upon AS4902-2000 and contained familiar provisions including, in cl 37.1, an entitlement upon Trinity to "claim payments progressively in accordance with Item 33". It was common ground that that item, as varied, permitted payment claims to be made on the 25th day of each month. The contract also contained cl 39, dealing with the contractor's default. Clause 39.2 authorised Parrwood to give Trinity written notice to show cause if Parrwood contended that Trinity had committed a substantial breach of the contract, and cl 39.4 provided that if Trinity failed to show reasonable cause: "the Principal may by written notice to the Contractor: (a) take out of the Contractor's hands the whole or part of the work remaining to be completed and suspend payment until it becomes due and payable pursuant to subclause 39.6; or (b) terminate the Contract."
2. No later than July 2019, a dispute arose between the parties. Parrwood served notices to show reasonable cause on 23 July and 5 August 2019 pursuant to cl 39.2. Following what it contended was a failure by Trinity to show cause, Parrwood exercised its right under cl 39.4 on 3 September 2019 to take the work out of Trinity's hands. It did not purport to terminate the contract. The primary judge recorded that for the purposes of the current dispute, Trinity did not contest Parrwood's exercise of its rights under cl 39.4.
3. In accordance with cl 37.1 and item 33 (as varied), 25 August 2019 was a reference date giving rise to an entitlement under s 8 of the Building and Construction Industry Security of Payment Act 1999 (NSW) to a progress payment. On 6 September 2019, Trinity served a payment claim referable to that date.
4. Pausing there, it will be seen that the reference date preceded the exercise by Parrwood of its right under cl 39.4 but Trinity's payment claim came three days after Parrwood exercised that right.
5. Parrwood's response to the payment claim was to serve a payment schedule stating the scheduled amount as "NIL". There ensued two applications for adjudication.

First adjudication

1. The first was made by Trinity on 4 October 2019 to Adjudicate Today Pty Ltd which nominated Mr John O'Brien. On 15 November 2019, he issued a determination of some 32 pages. The first page stated that the "Adjudication Amount" was "No amount". The reasons stated that: 1. the adjudicator was satisfied that Parrwood had validly served the Take Out Notice on 3 September 2019 (at [173]); 2. the Reference Date of 25 August 2019 survived the Take Out Notice; and 3. Parrwood's exercise of the take out power did not prevent Trinity from serving a valid Payment Claim relying upon that Reference Date (at [201)].
2. On that basis, the adjudicator said (at [204]) that he was satisfied that the Payment Claim was a valid Payment Claim under the Act and that he had jurisdiction to determine the Adjudication Application. The adjudicator then gave the following reasons (at [205]-[209]) which reflected earlier reasons concerning the effect of cl 39 and s 34: "However, as I have determined above, I am satisfied that clause 39 of the Contract does not contravene the provisions of section 34 of the Act and is not voided by application of the section. The Contract is still on foot. Clause 39 of the Contract governs the Claimant's entitlement to payment. For reasons given in detail above, I am satisfied that the Respondent was entitled to take the action it did pursuant to the Contract. On that basis, I am satisfied that the Respondent is entitled to rely on the terms of the Contract to "suspend payment" and so to postpone any potential payment to the Claimant until such time as the Works have been completed and the Superintendent has assessed the Claimant's entitlements, if any, pursuant to clause 39.6 of the Contract. The Claimant is not thus denied the opportunity of challenging that assessment by pursuing a further claim under the Act and pursuant to the Contract, which has not been terminated, following completion of the Works should it choose to do so. Having regard therefore to my conclusion that the Claimant is not entitled under the Contract to any payment for the monies claimed in the Payment Claim until such time as the provisions of clause 39.6 of the Contract have been implemented, irrespective of the views of I have formed concerning those issues, I make no determination as to whether the Claimant is entitled to Delay Damages as claimed in the Payment Claim or whether the Respondent is entitled to LDs as claimed in the Payment Schedule. In my view, any such Determination would be premature where the Claimant has not established an entitlement to any payment pursuant to this Payment Claim and where, under the Contract, the parties entitlements will not be fully crystallised until completion of the final reckoning by the Superintendent pursuant to clause 39.6 of the Contract. At that stage, any postponement of the Claimant's rights under the suspension afforded by clause 39.4 of the Contract will be at an end."
3. The adjudicator then, under the heading "Adjudicated Amount", gave the following reasons (at [210]-[211]): "Accordingly, I am satisfied that, of the monies claimed in the Payment Claim, the Claimant has established no entitlement under the Contract to be paid any amount pursuant to the Payment Claim although that does not extinguish the Claimant's potential rights to be paid for the value of its Works upon completion of the Works, pursuant to clause 39.6 of the Contract. I must decline therefore from determining that the Claimant has no entitlement to be paid for the amounts claimed [sic] or any amount or that the Respondent has any right to the setoffs claimed."
4. The remaining portions of the reasons dealt with the due date for payment, interest and adjudication fees. At [212] the adjudicator said "[n]otwithstanding that I have not determined any Adjudicated Amount in favour of the Claimant pursuant to the Payment Claim, I am still required under the Act to determine the due date for payment", and the adjudicator proceeded to determine 27 September 2019 as that date. Similarly, under the heading "Interest", the adjudicator wrote "[n]otwithstanding that I have not determined any Adjudicated Amount in favour of the Claimant pursuant to the Payment Claim, I am still required under the Act to determine the rate of interest", and went on to determine that rate as the rate determined by s 101 of the Civil Procedure Act 2005. In relation to the payment of adjudication fees, the adjudicator observed that "the Claimant has established no entitlement pursuant to the Payment Claim", was satisfied that it was "appropriate for me to exercise my discretion under the Act" and determined that 100% of the adjudication fees were payable by Trinity.

Second adjudication

1. On 22 November 2019, Trinity purported to withdraw the adjudication application by notice served on Adjudicate Today and Mr O'Brien, and made a new adjudication application to AAE Nominations Pty Ltd, which nominated the second respondent (Ms Durham) to adjudicate the same payment claim. Ms Durham took the view that the first adjudicator had failed to perform his statutory function because he had declined to determine the amount of the progress payment, and proceeded to issue a determination on 20 January 2020, in the amount of $401,109.73.

Procedural history

1. By summons and cross-summons filed on 29 January and 2 March 2020 in the Technology & Construction List, the parties sought relief that the first and second adjudication determinations were void. There were additional issues litigated before the primary judge which need not be summarised. After a short hearing on 5 March 2020, the primary judge delivered judgment on 11 March 2020 dismissing Parrwood's summons and declaring in accordance with Trinity's cross-summons that the adjudication determination of Mr O'Brien was null and void: Parrwood Pty Ltd v Trinity Constructions (Aust) Pty Ltd [2020] NSWSC 208. Subsequently, the sum of $401,109.73 as determined by Ms Durham's determination was paid to Trinity.
2. Parrwood has appealed from that judgment. While there are three grounds of appeal, there are essentially two points and in oral submissions, grounds 2 and 3 were, appropriately, treated together.
3. Parrwood contends first that the primary judge erred in finding that the first determination was void, essentially on the basis that to the extent there was any error made, it fell short of jurisdictional error. Alternatively, assuming that the first determination was void, Parrwood contends that the second determination should have been declared void, because Trinity had proceeded to obtain a further determination without first approaching a court for declaratory relief. This was said to give rise to a binding election or an abuse of process.

Legislative scheme

1. The scheme created by the Act has been described in many cases including Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd (2016) 260 CLR 340; [2016] HCA 52 at [3]-[19] and Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) (2019) 99 NSWLR 317; [2019] NSWCA 11 at [71]-[91]. For present purposes, an abbreviated summary will suffice.
2. Section 8 gives rise to an entitlement to a progress payment "[o]n and from each reference date" while s 9 provides that the amount of a progress payment to which a person is entitled is to be calculated by reference to the contract. Section 13 authorises a person "who is or who claims to be entitled to a progress payment" to serve a payment claim. Section 13(4) provides that a payment claim may be served only within the period determined by or in accordance with the terms of the contract, or 12 months after the construction work was done, whichever is the later. A person on whom a payment claim is served may reply by a payment schedule and, where there is a dispute between claimant and respondent, a claimant may apply under s 17 for adjudication of a payment claim. Sections 19, 20 and 21 deal with the appointment of and procedure before an adjudicator. Section 22 defines the task required to be performed by an adjudicator. Relevantly, s 22 provides: "22 Adjudicator's determination (1) An adjudicator is to determine: (a) the amount of the progress payment (if any) to be paid by the respondent to the claimant (the adjudicated amount), and (b) the date on which any such amount became or becomes payable, and (c) the rate of interest payable on any such amount. … (3) The adjudicator's determination must: (a) be in writing, and (b) include the reasons for the determination (unless the claimant and the respondent have both requested the adjudicator not to include those reasons in the determination). (4) If, in determining an adjudication application, an adjudicator has, in accordance with section 10, determined: (a) the value of any construction work carried out under a construction contract, or (b) the value of any related goods and services supplied under a construction contract, the adjudicator (or any other adjudicator) is, in any subsequent adjudication application that involves the determination of the value of that work or of those goods and services, to give the work (or the goods and services) the same value as that previously determined unless the claimant or respondent satisfies the adjudicator concerned that the value of the work (or the goods and services) has changed since the previous determination."
3. An adjudicator's determination may give rise to an adjudication certificate (s 24) which in turn may be filed in a court of competent jurisdiction and give rise to a judgment (s 25). Section 26 provides as follows: "26 Claimant may make new application in certain circumstances (1) This section applies if: (a) a claimant fails to receive an adjudicator's notice of acceptance of an adjudication application within 4 business days after the application is made, or (b) an adjudicator who accepts an adjudication application fails to determine the application within the time allowed by section 21 (3). (2) In either of those circumstances, the claimant: (a) may withdraw the application, by notice in writing served on the adjudicator or authorised nominating authority to whom the application was made, and (b) may make a new adjudication application under section 17. (3) Despite section 17 (3) (c), (d) and (e), a new adjudication application may be made at any time within 5 business days after the claimant becomes entitled to withdraw the previous adjudication application under subsection (2). (4) This Division applies to a new application referred to in this section in the same way as it applies to an application under section 17."
4. Section 34 provides that: "34 No contracting out (1) The provisions of this Act have effect despite any provision to the contrary in any contract. (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."

Was the first determination vitiated by jurisdictional error?

1. An adjudicator's determination is final, even if it contains errors of law on its face: Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) 264 CLR 1; [2018] HCA 4. However, a determination may be impugned for jurisdictional error and the history of the Act is replete with such challenges. It is not necessary for present purposes to express any view as to the metes and bounds of jurisdictional error by an adjudicator. This is a clear case.
2. The obligation imposed by s 22 upon Mr O'Brien was to determine the amount of the progress payment (if any) to be paid by Parrwood to Trinity. Section 22(1)(a) defines this as the "adjudicated amount". Section 22(1)(b) and (c) also required the adjudicator to determine the date on which any such amount became or becomes payable and the rate of interest payable on any such amount.
3. As noted above, Mr O'Brien determined the due date and the rate of interest. However, save perhaps in one respect, his reasons make it plain that he did not determine the adjudicated amount.
4. The adjudicator took that view because he was satisfied that cl 39 of the contract had been validly exercised, did not contravene the provisions of s 34, and had the effect that Trinity was not entitled under the contract to the payment for any monies claimed in the payment claim. That view did not entitle him to disregard the command in s 22(1)(a) to determine the amount of the progress payment (if any).
5. Yet repeatedly in his determination, in the paragraphs reproduced above, Mr O'Brien made it plain that he was not determining any adjudicated amount being the amount of the progress payment (if any). That is what he said he was doing in [208] ("I make no determination as to whether the Claimant is entitled to Delay Damages") and in [209] ("Any such determination would be premature …"). It is also what Mr O'Brien said he had done in [212] ("[n]otwithstanding that I have not determined any Adjudicated Amount…") and by the same words when dealing with interest.
6. All of the above is also consistent with Mr O'Brien stating that the "Adjudication Amount was "[n]o amount". It will be noted that he did not state that the adjudication amount was "nil" or "$0".
7. Mr Roberts SC who appeared with Mr Byrne in this Court, as they had at first instance, for Parrwood, emphasised [210] and [211] under the heading "Adjudicated Amount" reproduced above. These paragraphs, unlike those that precede and follow, do not expressly refer to the adjudicator not determining that adjudicated amount. Mr Roberts invited this Court to read those paragraphs as amounting in substance to a determination that Trinity was not entitled to any progress payment. He invoked authorities to the effect that the adjudicator's reasons were to be read in light of their being written in haste and by a non-lawyer (PPK Willoughby v Eighty Eight Construction [2014] NSWSC 760 at [59]; Iskra v MMIR Pty Ltd [2019] NSWCA 126 at [49]). We readily accept that the reasons are to be read in accordance with those authorities. But the two paragraphs relied on point clearly in the same direction as the balance of the reasons, namely, that the adjudicator was not determining the amount of the progress payment. The sentence which is [210] is not expressed to be a determination. Rather, it states that the adjudicator was satisfied that Trinity had established no entitlement to be paid. That sentence is immediately followed by [211] which commences, "I must decline therefore from determining…". The ordinary meaning of the adjudicator's language is that the state of satisfaction in [210] is the reason ("therefore") for declining from determining the amount (if any) that the claimant is entitled to be paid. That reading of those paragraphs accords with what immediately precedes them, namely, that the adjudicator was of the view that it would be premature to make any such determination, and with what immediately follows them. The words "[n]otwithstanding that I have not determined an Adjudicated Amount", repeated in the ensuing paragraphs, are inconsistent with the gloss sought to be put upon [210] and [211] by Parrwood.
8. In short, all of the adjudicator's reasons point to his not having performed the task which s 22(1)(a) required him to perform. As Mr Pesman SC, who appeared in this Court and at first instance, put it, normally cases of constructive failure to exercise jurisdiction require an analysis of the substance of the reasoning process, as opposed to its form. But in the present case, substance and form aligned. Not only did the adjudicator not determine the amount of the progress payment, he explicitly and repeatedly said that he was not making any such determination.
9. As will be seen below, the adjudicator was wrong in point of law in taking that course. The mere fact that his reasons disclose error of law does not vitiate the determination. However, this error of law led to the adjudicator not doing the very thing he was required by s 22(1)(a) to do, namely, determine the amount of the progress payment to be paid by Parrwood to Trinity. That is as clear a case as one might find of misconception of function amounting to jurisdictional error.
10. The next limb of Parrwood's submissions was that the parties had by cl 39 validly brought about the result that Trinity was not entitled to make a progress claim. Reliance was placed upon what was said in Southern Han at [78]: "The suspension of payment was a suspension of the totality of the rights conferred and obligations imposed in relation to payment by cl 37. The rights so suspended included Lewence's right to make a progress claim under cl 37 for work carried out up to the time of the work being taken out of its hands."
11. Parrwood also relied upon what was said to similar effect in Westbourne Grammar School v Gemcan Constructions Pty Ltd [2017] VSC 645 at [74]-[76].
12. Southern Han is an authoritative decision on materially identical contractual provisions. It is settled law that after the valid service of a take out notice, the contractor's rights are thereafter suspended, including the right to claim progress payments under cl 37, which in turn has the result that the statutory entitlement under s 8 will thereafter no longer arise. Westbourne Grammar School is to the same effect.
13. But those decisions do not apply to the present case. Here, on and from 25 August 2019 - before Parrwood exercised its rights under cl 37 - Trinity enjoyed an entitlement under s 8 of the Act. Under s 13 of the Act, Trinity was entitled to make a payment claim based on the reference date of 25 August any time in the next 12 months. Further, s 34 had the effect that any provision in the contract which purported to exclude, modify or restrict the operation of the Act was void. It cannot be the case that a statutory entitlement to make a progress claim, which Trinity undoubtedly enjoyed on, say, 1 September 2019, ceased or was modified or extinguished after 3 September 2019 by dint of Parrwood exercising some right under the contract. That would invert the relationship between statute and contract.
14. Parrwood sought to rely upon the proposition that the rights created by the Act depended upon a contract between the parties, and in some respects could be modified by the terms of that contract. As much may be accepted as a general proposition. Parrwood sought to say, in various ways, that the reference date of 25 August 2019 became invalid, or ineffective, following the service of the take out notice.
15. Purely as a matter of contract, two parties may as between themselves agree to proceed on a particular and even counterfactual basis. But the obstacle confronting this submission is the effect of statute. After 25 August 2019, not only had Parrwood and Trinity as a matter of contract agreed that that date was a date on which Trinity could make a payment claim. Section 8 applied then and there and gave Trinity a statutory entitlement to invoke the procedures under the Act. Nothing in the contract, and no exercise of powers under the contract thereafter could alter or modify, let alone extinguish, the rights created by statute on 25 August 2019.
16. The foregoing broadly corresponds to the concisely expressed reasons of the primary judge at [36]-[42], with which we are entirely in accord.

Was Trinity precluded from applying for the second determination?

1. Upon the assumption that the adjudicator had committed jurisdictional error, Parrwood submitted that the determination was not entirely void. As Sackville AJA said in Seymour Whyte, "[c]haracterising a determination affected by jurisdictional error as invalid does not necessarily mean that the determination has no legal consequences": at [165]. More generally, as Gaudron and Gummow JJ observed in Minister for Immigration and Multicultural Affairs v Bhardwaj (2002) 209 CLR 597; [2002] HCA 11 at [46]: "In our view, it is neither necessary nor helpful to describe erroneous administrative decisions as 'void', 'voidable', 'invalid', 'vitiated' or, even, as 'nullities'. To categorise decisions in that way tends to ignore the fact that the real issue is whether the rights and liabilities of the individual to whom the decision relates are as specified in that decision. And, perhaps more importantly, it overlooks the fact that an administrative decision has only such force and effect as is given to it by the law pursuant to which it was made."
2. Thus while a decision made outside jurisdiction may yet have some status in law, it is "a decision in fact which is properly to be regarded for the purposes of the law pursuant to which it was purported to be made as 'no decision at all'": Hossain v Minister for Immigration and Border Protection (2018) 264 CLR 123; [2018] HCA 34 at [24].
3. Parrwood pointed to the consequences under the statute of the determination by Mr O'Brien, including that it might lead to an adjudication certificate and in turn a court judgment. So much may be accepted.
4. But that is by the way. The only question that matters is whether upon receipt of Mr O'Brien's determination, it was open to Trinity to apply for a further determination. Parrwood submitted that it could not. Parrwood insisted that Trinity was obliged to go to court and obtain a declaration that the first determination was void. Indeed, Parrwood submitted that even if both parties agreed that the determination was void, nonetheless they had to go to court and obtain a consent declaration before a further application could be made for an adjudicator's determination. Parrwood relied upon what Macfarlan JA had said (with the agreement of Tobias AJA) in Cardinal Project Services Pty Ltd v Hanave Pty Ltd (2011) 81 NSWLR 716; [2011] NSWCA 399 at [101]: "If a claimant took the view that a purported determination was void because, for example, the claimant had been denied procedural fairness, it would be open to it, on the primary judge's construction of s 26(3), to lodge a new adjudication application within days of receipt of the purported determination. If the respondent did not agree that the determination was void, the dispute might have to be resolved by litigation. Nevertheless the claimant would have preserved its right to lodge a new adjudication application. If litigation did ensue, the parties could avoid the possibly unnecessary expense of procuring a determination pursuant to that new application by agreeing, as contemplated by s 21(3)(b), to extend the time for the determination to be made."
5. We do not accept these submissions.
6. First, as a matter of authority, Cardinal does not assist Parrwood. As the primary judge held at [33]: "In my opinion, this passage does not support the proposition for which Mr Roberts contends. The point that Macfarlan JA makes is that, if proceedings were commenced, the costs of a second adjudication application may be avoided if the parties agree to an extension pending determination of the court proceedings. His Honour is not saying that it is necessary for a party who asserts that a determination is void to commence proceedings for a declaration to that effect."
7. That is, with respect, the unambiguous meaning of the passage on which Parrwood relies. A court's determination is a possible solution to the problem where there is a dispute as to whether a purported determination was void. On no reading was Macfarlan JA saying that it was necessary to go to court before applying for a second adjudication.
8. Secondly, that accords with principle. The premise of this ground is that the first adjudication is vitiated by jurisdictional error, and liable to be declared void by a court. It is improbable in the extreme that the Act contains some prohibition upon the contractor availing itself of the valuable rights it enjoys under that statute in those circumstances, until such time as a court has declared the earlier determination void. Mr Roberts conceded there was no express prohibition, and there is no basis whatsoever on which some implied prohibition can be created.
9. True it is that if the contractor takes that course and it turns out that the first adjudication is valid, then the steps taken subsequently will be wasted and liable to be set aside. Mr Roberts emphasised the potential for confusion and uncertainty and wasted costs in support of his submission. That merely illustrates how a court's decision can resolve such a dispute in a way that a series of determinations by adjudicators never could. But the potential for confusion and uncertainty and wasted costs does not prevent a contractor who as it turns out rightly proceeds on the basis that the first purported adjudication is void from exercising its statutory rights.
10. One part of Trinity's submissions went further, and contended that in light of the time limits in s 26, it was required to make a further application for adjudication promptly after receipt of the first adjudicator's decision. That submission is supported by what was held in Cardinal Project Services Pty Ltd v Hanave Pty Ltd (2011) 81 NSWLR 716; [2011] NSWCA 399. When the appeal was heard, Parrwood clarified (contrary to what might be inferred from its written submissions) that it was not seeking to challenge the correctness of Cardinal Project. In those circumstances, it is neither necessary nor appropriate to express any concluded view as to that decision. However, there is with respect much force in Basten JA's dissenting approach to the construction of s 26, especially when read in light of what was said more recently in Hossain at [24].
11. It is sufficient for present purposes to rest our decision on the absence of any obligation upon Trinity to approach a court before applying for the second adjudication. It would be highly unusual if unresolved claims as to persons' rights in any way prevented the application of statute, especially where the person who enjoyed the statutory entitlement rightly contended that the adjudication was void. There was thus no choice facing Trinity between inconsistent rights and no scope for an election to be made. Still less was there an abuse of process. After all, the premise of this ground is that the first adjudication was void; how can there be an abuse of process in applying for a second adjudication in those circumstances?
12. The primary judge's reasoning was to substantially the same effect. For those reasons, the appeal should be dismissed.

Orders

1. There is no reason to displace the ordinary operation of UCPR r 42.1. It was uncontroversial that Trinity has already received the payment as determined by the second adjudicator's decision, and so no further order was required.

Amendments 11 August 2020 - [28] In the first sentence, "progress payment" changed to "progress claim". DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 11 August 2020