Parrwood Pty Ltd v Trinity Constructions (Aust) Pty Ltd [2020] NSWCA 172
In 2020 the New South Wales Court of Appeal held, under the Building and Construction Industry Security of Payment Act 1999 (NSW), that a contractor's statutory entitlement to a progress payment, which arose on a reference date before the principal took the work out of the contractor's hands, was not extinguished by that take-out. It also held that an adjudicator who expressly declined to determine the amount of the progress payment had committed jurisdictional error and that the contractor did not have to obtain a court declaration that the first determination was void before it applied for a second adjudication.
What the court decided
Parrwood Pty Ltd (the principal) and Trinity Constructions (Aust) Pty Ltd (the contractor) entered into a design and construct contract based on AS4902-2000 [2]. Under clause 39.4, if Trinity failed to show reasonable cause, Parrwood could by written notice take the whole or part of the remaining work out of Trinity's hands and suspend payment until it became due and payable under clause 39.6 [2]. Parrwood did so on 3 September 2019 but did not terminate the contract [3]. The primary judge, Ball J, recorded that, for the purposes of the dispute, Trinity did not contest Parrwood's exercise of that power [1], [3]. Under the contract as varied, 25 August 2019 was a reference date, and on 6 September 2019 Trinity served a payment claim referable to it [4]. The reference date therefore came before the take-out, but the payment claim came three days after it [5].
The first adjudicator, Mr O'Brien, found that the reference date survived the take-out and that the payment claim was valid [7], [8]. He gave the adjudication amount as "No amount" [7]. He said that he must decline to determine that Trinity had no entitlement to be paid the amounts claimed or any amount [9]. Trinity then purported to withdraw its application and made a new one, and the second adjudicator, Ms Durham, determined $401,109.73 [11]. Ball J dismissed Parrwood's summons and declared the first determination void [12].
On appeal, Parrwood's first contention was that any error by Mr O'Brien fell short of jurisdictional error [14]. Its alternative contention was that the second determination should also have been declared void because Trinity had not first gone to court for declaratory relief [14]. Parrwood said that this gave rise to a binding election or an abuse of process [14]. The Court (Meagher, Leeming and Payne JJA, in joint reasons) dismissed the appeal with costs at the end of oral submissions and gave its reasons later [1].
On the first point, the Court held that section 22(1)(a) required Mr O'Brien to determine the amount of any progress payment that Parrwood had to pay [20]. Mr O'Brien's view that clause 39 left Trinity with no contractual entitlement to payment did not permit him to disregard that obligation [22]. Parrwood contended that the part of his reasons under the heading "Adjudicated Amount" was in substance a determination that Trinity was entitled to nothing [25]. The Court rejected that reading, because that part treated his satisfaction that Trinity had established no entitlement as the reason for declining to determine the amount [25]. His reasons did not determine the amount, and he expressly and repeatedly said that he was not doing so [26]. The Court held that he was wrong in law to take that course [27]. An error of law alone would not have vitiated the determination, but what mattered was that the error led him not to perform the task that section 22(1)(a) required [27]. The Court described the error as a clear case of "misconception of function amounting to jurisdictional error" [27].
The Court also rejected Parrwood's contention that clause 39 had validly brought about the result that Trinity could not make a progress claim [28], [31]. Parrwood relied on Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd and on Westbourne Grammar School v Gemcan Constructions Pty Ltd, a Victorian decision to similar effect [28], [29]. The Court accepted that, on materially identical provisions, Southern Han had settled that after a valid take-out notice the contractor's rights to claim progress payments were suspended, so that the entitlement under section 8 would thereafter no longer arise [30]. Those decisions did not apply here, because Trinity's entitlement under section 8 had already arisen on 25 August 2019, before the take-out [31]. In the Court's view, section 34 made void any provision in the contract that purported to exclude, modify or restrict the operation of the Act [31]. The Court said that neither the contract nor a later exercise of contractual powers could alter or extinguish the rights the Act had created on 25 August 2019 [33]. To hold otherwise would "invert the relationship between statute and contract" [31].
On the second point, Parrwood contended that Trinity had to obtain a declaration that the first determination was void before it could apply again [38]. Parrwood relied on a passage in Cardinal Project Services Pty Ltd v Hanave Pty Ltd from the reasons of Macfarlan JA, with whom Tobias AJA agreed [38]. The passage did not support that contention, and the Court agreed with the primary judge's reading of it [40], [41]. The Court said it was "improbable in the extreme" that the Act barred a contractor from using its statutory rights until a court had declared the earlier determination void [42]. Parrwood conceded that there was no express prohibition, and the Court held that there was no basis for an implied one [42]. Nor, the Court held, was there an election or an abuse of process [45].
Trinity also contended that the time limits in section 26 required it to apply again promptly, and the Court said that the decision in Cardinal supported that contention [44]. Parrwood did not challenge the correctness of that decision, so the Court expressed no concluded view on that decision [44]. In remarks that were not necessary to the result, the Court said there was "much force" in the dissenting approach of Basten JA in that case to the construction of section 26 [44]. On the second point, the Court said it was sufficient to rest its decision on the absence of any obligation on Trinity to approach a court before applying again [45].
Why it matters
The Court of Appeal applied the New South Wales Act in the form that governed this contract and its August 2019 reference date. The Court held that Trinity's entitlement under section 8, which had already arisen on the reference date before the take-out, was not lost when Parrwood later took the work out of Trinity's hands [31], [33]. Trinity did not contest the take-out for the purposes of the dispute, and the Court distinguished Southern Han because the entitlement had arisen before the work was taken out [3], [31]. The jurisdictional error holding concerned an adjudicator whose reasons expressly and repeatedly declined to determine the amount, and the Court expressed no view on the wider limits of jurisdictional error by adjudicators [19], [26]. The Court held that a contractor that rightly treated a determination as void did not need a court declaration before applying for a fresh adjudication [43], [45]. The decision concerns the New South Wales Act, and Victorian readers should check the Building and Construction Industry Security of Payment Act 2002 (Vic) first.
Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.