Security of payment: adjudicator’s decision that claimant entitled to ‘no amount’ until adjustment on completion of work void

In Parrwood Pty Ltd v Trinity Constructions (Aust) Pty Ltd [2020] NSWSC 208, the Supreme Court of New South Wales decided that a security of payment determination was void, because the adjudicator had not determined the amount of a progress payment to be paid to the claimant. The adjudicator had determined that “no amount” was owing to the claimant, on the basis that the claimant’s right to payment had not yet crystallised.

The dispute arose under a contract between a developer (Parrwood) and a builder (Trinity). Parrwood had exercised its right under the contract to take the work out of Trinity’s hands. Trinity then issued a payment claim, in response to which Parrwood served a payment schedule stating that the amount owed to Trinity was ‘nil’. Trinity referred the dispute to adjudication.

The adjudicator determined that the amount owing to Trinity was “no amount”. He did so on the basis that, at the time Trinity made its payment claim, Parrwood had validly taken the work out of Trinity’s hands. The consequence of Parrwood having done so was that, under the contract, payments were suspended until the total amount to be paid to Trinity had been adjusted to account for the work that had been taken out of its hands. The adjudicator decided that it was “premature” to determine the amount owing to Trinity, in circumstances where its entitlement would not be “crystallised” until that adjustment was done.

Ball J accepted Trinity’s submission that the adjudicator’s determination was void. His Honour found that the adjudicator had not done what was required under the Security of Payment Act, namely, to determine the amount of the progress payment (if any) to be paid by the respondent to the claimant (s 22 of the NSW Act; see s 23 of the Victorian Act). Rather, by concluding that Trinity’s right to a progress payment was suspended and that it would be “premature” to determine that amount until the adjustment was done, the adjudicator had failed to make a determination under the Act.

Ball J rejected Parrwood’s submission that the adjudicator should be understood as having concluded that no amount was due under the contract to Trinity in respect of its payment claim. The question, his Honour said, was not what the contract provided but what the Act required. The Act gave Trinity the right to make a payment claim and to have it adjudicated. To the extent that the contract purported to suspend that right, by making a payment claim conditional upon an adjustment, it was caught by the prohibition on contracting out of the Act (s 34 of the NSW Act; see s 48 of the Victorian Act).

William Thomas

Liability limited by a scheme approved under Professional Standards Legislation