Parrwood Pty Ltd v Trinity Constructions

Supreme Court of NSW|2020-03-05|Before: Ball J

Solicitors: Addisons Lawyers (Plaintiff | First Cross Defendant) Colin Biggers & Paisley (First Defendant | Cross Claimant) File Number(s): 2020/30257

Introduction

By a summons filed on 29 January 2020, the plaintiff, Parrwood Pty Ltd, seeks a declaration that an adjudication determination (the Second Determination) made under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) by the second defendant, Ms Helen Durham (the Second Adjudicator), in favour of the first defendant, Trinity Constructions (Aust) Pty Ltd, in the sum of $401,109.73 in respect of a payment claim made on 6 September 2019 for the sum $2,023,645.76 (the Payment Claim) is void, together with ancillary relief.
By a cross-summons filed on 2 March 2020 without leave, Trinity seeks a declaration that an earlier determination (the First Determination) under the Act by Mr John O'Brien (the First Adjudicator) that no amount was owing in respect of the Payment Claim is void.

Factual background

The circumstances giving rise to the proceedings are not substantially in dispute.
By a contract dated 6 October 2017 (the Contract), Parrwood engaged Trinity to design and construct 59 apartments across two buildings in a development known as the Affinity Project, which is located in Caringbah, New South Wales, for a lump sum of $18,848,677.15.
The Contract was based on AS 4902-2000, the Australian Standard for General conditions of contract for design and construct. Clause 34.7 gives Parrwood a right to claim liquidated damages at the rate of $5,000 per day if the work under the Contract did not reach practical completion by the date for practical completion set out in the Contract. Clause 34.9 gives Trinity a right to claim delay damages for extensions of time resulting from a breach by Parrwood of its obligations under the Contract.
Clause 37.1 of the Contract provides that Trinity "shall claim payment progressively in accordance with Item 33". Item 33 provides for progress claims to be made on the 10th day of each month for work done to the date of the claim. However, it is common ground that the parties varied that date to the 25th day of each month.
Clause 39.2 of the Contract relevant provides: Contractor's Default If the Contractor commits a substantial breach of the Contract, the Principal may, by hand or by registered post, give the Contractor a written notice to show cause. "Substantial breaches" is defined to include a substantial departure from the program, a failure to use material or standards of work required by the Contract and knowingly providing documentary evidence containing an untrue statement.
Under cl 39.3, a notice to show cause was required, among other things, to identify the substantial breach and the time by when Trinity was required to comply with the notice (which was not to be less than seven clear days from the date the notice was received by Trinity).
Clause 39.4 provides: Principal's Right If the Contractor fails to show reasonable cause by the stated date and time, 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.
Clause 39.6 relevantly provides: Adjustment on completion of work taken out When work taken out of the Contractor's hands has been completed, the Superintendent shall assess the cost thereby incurred and shall certify as moneys due and payable accordingly the difference between that cost (showing the calculations therefor) and the amount which would otherwise have been paid to the Contractor if the work had been completed by the Contractor. The clause goes on to provide for a set off of the amounts owing to and by Trinity and the payment to or by Trinity of the balance.
On 23 July 2019 and 5 August 2019, Parrwood served on Trinity notices to show reasonable cause under cl 39.2 of the Contract. The details of those notices are not relevant to the present dispute. Following what is alleged to have been 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. For the purposes of the current dispute only, Trinity does not contest Parrwood's exercise of its rights under cl 39.4.
On 6 September 2019, Trinity served the Payment Claim.
On 20 September 2019, Parrwood served a payment schedule in response to the Payment Claim, stating the scheduled amount as $Nil.
On 4 October 2019, Trinity made an adjudication application to Adjudicate Today, the third cross-defendant, which nominated the First Adjudicator to adjudicate the Payment Claim. The First Adjudicator accepted his appointment on 11 October 2019.
On 15 October 2019, Parrwood served its adjudication response. On the same day, at the request of the First Adjudicator, Parrwood and Trinity agreed to extend the time by when the First Adjudicator was to determine the adjudication application until 15 November 2019. The First Adjudicator made his determination on that day. He determined that the amount owing to Trinity was "No amount". He did so on the basis that, at the time the Payment Claim was made (6 September 2019), Parrwood had validly exercised its right under cl 39.4 to take the work out of Trinity's hands, with the result that payments under the Contract were suspended until they became due and payable under cl 39.6. No amount was therefore payable in respect of the Payment Claim: 208. 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 [sic] 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. 209. In my view, any such Determination would be premature where the Claimant has not established an entitlement to any payment pursuant to his 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. Adjudicated Amount 210. 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. 211. I must decline therefore from determining that the Claimant has no entitlement to be paid for the amounts claimed or any amount or that the Respondent has any right to the setoffs claimed.
In reaching that conclusion, the First Adjudicator considered whether that interpretation of cl 39.4 attracted the operation of s 34 of the Act. He concluded that it did not. The suspension of payments under the Contract did not affect Trinity's right to make a progress claim. It merely affected when that payment was to be made. Consequently, cl 39.4 was not voided by s 34 of the Act. As the First Adjudicator explained in his determination: 188. In my opinion, the take out provisions (invoked by the Respondent so as an alternative to the entitlement to terminate the Contract) in clause 39.4 of the Contract and clause 39.6 of the Contract are not voided by section 34 of the Act. 189. They do not operate so as to prevent or restrict the Claimant's rights to make a progress payment claim under the Act or under the Contract. They operate to suspend the Claimant's entitlement to payment in the event of the Respondent having elected to take the remaining work out of the Claimant's hands for "substantial breach" of the Contract.
On 22 November 2019, Trinity purported to withdraw the adjudication application by notice served on the First Adjudicator and Adjudicate Today and made a new adjudication application to the third defendant, AAE Nominations Pty Ltd. AAE Nominations nominated the Second Adjudicator to adjudicate the Payment Claim, who accepted her appointment on 28 November 2019.
On 2 December 2019, Parrwood served its adjudication response in relation to the second adjudication application.
On 5 and 6 December 2019, at the request of the Second Adjudicator, Trinity and Parrwood agreed to extend the time by when the Second Adjudicator was to determine the adjudication application until 17 January 2020. A further request for an extension of time was made on 15 January 2020 to determine the matter on 20 January 20202. The parties agreed to that request and the Second Adjudicator made her determination on that day. She took the view that the First Adjudicator had failed to perform his statutory function because he declined to determine the Payment Claim. It followed that the determination of the First Adjudicator was void. Consequently, there was nothing preventing her from determining the claim herself, which she did.

The issues

At the heart of the dispute between the parties is the question whether the First Determination is void. A subsidiary question is whether the Court should entertain that question now. If the answer to both those questions is in the affirmative, then it appears to be accepted that the Second Adjudicator was entitled to determine the Payment Claim. If the First Determination was void, then the First Adjudicator failed to determine the application within the time allowed by s 21(3). Consequently, Trinity was entitled under s 26(2) of the Act to withdraw the application and make a new application provided it did so within the time specified in s 26(3), which is what it purported to do.
Parrwood also submits that Trinity is estopped from challenging the validity of the take out notice by the determination of the First Adjudicator. However, that submission depends on a finding that the First Determination is valid and binding. For that reason, it is difficult to see that the submission raises a substantially different question from the question whether the First Determination was void.
Apart from those issues, there is also a question whether the Payment Claim was invalid because it was accompanied by a supporting statement which Trinity knew was false or misleading in a material particular in the particular circumstances contrary to s 13(8) of the Act.

The subsidiary question

It is convenient to begin with the question whether it is open to Trinity to submit that the First Determination is void. Parrwood submits that it is not for two reasons. First, it submits that Trinity needs leave to file the Cross Summons and the Court ought to refuse that leave because the issue was only raised on 2 March 2020, when Trinity filed the Cross Summons without leave. Second, it submits that Trinity made an election when it chose not to challenge the First Determination shortly after it was made.
I do not accept either of those submissions. In my opinion, Trinity is entitled to leave to file the Cross Summons. Although it was filed late, it has been clear since Trinity purported to withdraw the adjudication application that its position was that the First Determination was void. That was the only basis on which it could withdraw the application; and since then the dispute between the parties has proceeded on the basis that Trinity was asserting that the First Determination was void. At most, the Cross Summons formalises the position as it existed before it was filed. Before the Cross Summons was filed, Parrwood asserted that the Second Determination was void on the basis that the Payment Claim had already been determined by the First Determination. Implicit in that assertion is an assertion that the First Determination was valid. It is plain from its List Response that Trinity took issue with that assertion. It specifically states in section B of its List Statement that one of the issues likely to arise is whether the First Adjudication Application is void.
After the First Adjudicator handed down his determination, both parties were faced with a choice. Trinity at that time could have commenced proceedings seeking a declaration that the First Determination was void. However, it was neither necessary nor sufficient to protect its position for it to do so. It was not necessary because it was open to Trinity to take the view that the determination was void and proceed on that basis - that is, on the basis that it had no effect at law. That is what it chose to do by purporting to withdraw its adjudication application. It would not have been sufficient because whether or not Trinity commenced proceedings, if it wanted to exercise the rights conferred by s 26 of the Act, it had to do so within the time limit prescribed by that section. There is no principle of law which has as its result the suspension of the time limit in s 26 pending the determination of court proceedings. It may be that if Trinity had commenced proceedings, it and Parrwood would have agreed to an extension pending the determination of those proceedings. But that possibility does not alter Trinity's rights as they stood when the First Adjudicator handed down his determination.
Similarly, Parrwood had a choice. Following the First Adjudicator's determination and Trinity's purported exercise of its rights under s 26 of the Act, it could have commenced proceedings seeking a declaration that the First Determination was valid. Alternatively, it could have waited to see what the outcome of the second adjudication application was. It chose the latter course. But had it adopted the first alternative, that would not have eliminated the need for Trinity to exercise its rights under s 26 of the Act within the time prescribed by that section, except again by agreement between the parties.
Mr Roberts SC, who appeared for Parrwood, submitted that Trinity ought to have commenced proceedings if it wished to assert that the first determination was void. He relied on the following passage from the judgment of Macfarlan JA (with whom Tobias AJA agreed) 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 purposed 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. [Emphasis added]
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.
As to election, in order for Trinity to make an election, it had to be faced with inconsistent rights: Bibby Financial Services Pty Ltd v Sharma [2014] NSWCA 37 at [115] per Gleeson JA. Parrwood submits that, assuming there was jurisdictional error, Trinity was faced with a choice between accepting the First Determination and waiting for another reference date or withdrawing and resubmitting its adjudication application. According to Parrwood, the second choice required it to take steps to have the First Determination set aside. As I have already explained, I do not accept that submission. The second choice did not require Trinity to take steps to have the determination set aside. It simply required it to act on the basis that the determination had no effect, which is what it did.

Was the First Determination void?

In my opinion, the First Determination was void.
It is not disputed that "on and from" 25 August 2019 Trinity became entitled to a progress payment under s 8 of the Act. As a result, Trinity became entitled to serve a payment claim in respect of that progress payment in accordance with s 13 and to apply for adjudication of that claim in accordance with s 17. That is what Trinity did. Under s 22, the adjudicator appointed to adjudicate that claim was required relevantly to determine the amount of the progress payment (if any) to be paid to the claimant and the date on which any such amount became or becomes payable. The First Adjudicator did not do the first of those things - that is, he did not determine the amount of the progress payment. Rather, he concluded that, as a result of decision to take the work out of Trinity's hands, the right to a progress payment was suspended until the mechanism in cl 39.6 operated and that consequently Trinity was entitled to recover no amount in respect of the Payment Claim. In reaching that conclusion, the First Adjudicator failed to comply with his statutory duty.
Parrwood seeks to answer the conclusion of the previous paragraph in a number of ways. It submits that the First Adjudicator did determine the amount of the progress payment. The fact that he determined it at nil does not mean that he did not determine the claim. Section 22(1) itself, and in particular the phrase "(if any)", makes it plain that it is open to an adjudicator to conclude that no amount is payable in respect of a payment claim. However, in my view, that is not an accurate representation of what the First Adjudicator did in this case. It is apparent from [208] of the First Adjudicator's reasons that the substantive dispute in relation to the Payment Claim was whether Trinity was entitled to delay damages and whether Parrwood was entitled to liquidated damages. The Adjudicator did not determine those issues. Rather, he decided that it would be "premature" to do so and therefore that he had to "decline … from determining that [Trinity] has no entitlement to be paid for the amounts claimed or any amount or that [Parrwood] has any right to the setoffs claimed" (at [211]).
Parrwood submits that in reaching that decision the First Adjudicator must be understood as concluding that no amount was due under the Contract in respect of the Payment Claim, which was a conclusion that the First Adjudicator was entitled to reach, even if it was wrong in law. I do not accept that submission. The question is not what the effect of the Contract was but what the effect of the Act was in the circumstances. As I have explained, s 8 of the Act gave Trinity a right to a progress payment on and from each reference date and ss 13 and 17 of the Act gave Trinity a right to make a claim in respect of that payment and to have that claim adjudicated. It is common ground that a reference date arose on 25 August 2019. Consequently, from that date Trinity had a right to make a progress claim and to have it adjudicated in accordance with the Act.
The First Adjudicator sought to answer this point by saying that the Contract as he interpreted it did not prevent or restrict Trinity's right to make a progress payment. It merely suspended Trinity's entitlement until a final adjustment of the parties' rights under cl 39.6. But the suspension of a right conferred by the Act is plainly a modification of that right. Consequently, if the First Adjudicator's interpretation of the Contract is correct, the Act took effect despite the effect of the Contract according to that interpretation.
Parrwood also placed considerable reliance on the following passage from the judgment of the High Court in Southern Han Breakfast Point Pty Ltd (In Liquidation) v Lewence Construction Pty Ltd (2016) 260 CLR 340; [2016] HCA 52 at [78], which also concerned a payment claim made under a contract based on AS 4902-2000: 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.
Parrwood interprets this passage as saying that the effect of the exercise of the rights under cl 37 included suspension of the right to make a progress claim, including a progress claim based on a reference date that arose before the suspension.
In my opinion, that is not a correct reading of the passage. In Southern Han, Lewence (the contractor), following an election to take the work out of the contractor's hands under cl 37, made a progress claim for all work done up until that time. One question in the case was whether a reference date had to have arisen under the contract as a precondition to the making of a valid payment claim and therefore a valid adjudication application and determination. The High Court held that it did. Another question was whether the payment claim made by Lewence was supported by a valid reference date. In considering that question, the High Court held that no reference date could arise under the contract after Southern Han (the principal) had elected to take the work out of Lewence's hands, since the effect of that election was to suspend all Lewence's rights to be paid under the contract. However, there is nothing in the judgment - and nothing in the passage quoted - to suggest that what the High Court said was intended to affect rights that had accrued under the Act before suspension. The point made by the High Court was that no reference date and no right to a progress payment could be pursued after suspension. It was not saying that no right could arise under the Act in respect of a right to a progress payment that arose before suspension. The right to make a payment claim in this case was such a right.

The supporting statement

Parrwood submits that the supporting statement served with the Payment Claim contained a false statement because, as the form of the statement required, it included a statement that all amounts due and payable to subcontractors had been paid when, in fact, three subcontractors - KIMY Air Conditioning Pty Ltd, Blue Drago Interior Pty Ltd and Saba Brothers Tiling Pty Ltd - were each owed substantial sums of money by Trinity. Parrwood submits that it can be inferred that that statement was made knowing that it was false or misleading in a material particular because supporting statements given in connection with previous payment claims identified those subcontractors as subcontractors who had been paid all amounts due and owing. Their omission from the Payment Claim could not, therefore, be regarded as an oversight.
There is a question whether compliance with ss 13(7) and (8) is a precondition to a valid payment claim: compare Sought After Investments Pty Ltd v Unicus Homes Pty Ltd [2019] NSWSC 600 at [35]; Greenwood Futures Pty Ltd v DSD Builders Pty Ltd [2018] NSWSC 1407 at [39]-[51]; Central Projects Pty Ltd v Davidson [2018] NSWSC 523 at [36]ff. However, it is not necessary to express a view on that question in the current case. Even accepting that compliance with ss 13(7) and (8) is a precondition to a valid payment claim, I do not accept that Parrwood has established that the supporting statement was knowingly false. That is a serious allegation and must be established by clear evidence: see Briginshaw v Briginshaw (1938) 60 CLR 336 at 362 per Dixon J. The First Adjudicator did not ultimately make a finding about the issue: see [113] - [114] of the First Determination. It appears that the three subcontractors were not disclosed in the supporting statement because they were not engaged by Trinity but instead were engaged by a related company. Parrwood has not led any other evidence from which it could be inferred that Trinity knew that the supporting statement was false. Consequently, I am not satisfied that Parrwood has discharged its onus of proof.

Orders

The orders of the Court are: 1. Give leave to the first defendant to file the Cross Summons filed on 2 March 2020. 2. The Summons is dismissed. 3. Declare that the adjudication determination of John O'Brien dated 15 November 2019 purportedly made under the Building and Construction Industry Security of Payment Act 1999 (NSW) in respect of Adjudication Application 2019ADJT523 lodged with Adjudicate Today is null and void. 4. The sum of $401,109.73 paid into Court on 31 January 2020 and any interest thereon be paid to the first defendant; 5. The plaintiff pay the first defendant's costs of the proceedings (including the cross-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 March 2020

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