Andrew Hales  |  Laura-Rose Lynch |  James Pelosi

McNab Building Services Pty Ltd v Demex Pty Ltd [2022] NSWSC 1441

Key takeout

An adjudicator should not make a determination based on material not raised by the parties in submissions or on matters to which the parties have not been given an opportunity to make submissions.

In order for a denial of procedural fairness to have occurred, the matter on which the parties are denied an opportunity to make submissions must be material or substantial.  Materiality is assessed by considering:

• the importance of the topic or issue on which there was a denial of an opportunity to make submissions and, in particular, its significance to the actual determination; and
• whether or not there were submissions which could properly have been made which might have affected the determination.

Facts

In January 2021, McNab Building Services Pty Ltd (builder) entered into a subcontract with Demex Pty Ltd (subcontractor) for the performance of earthworks and the remediation of land contaminated by asbestos.

On 31 May 2022, the subcontractor submitted a payment claim for $2.8 million for work up to 3 March 2022.  The subcontractor’s claim attached a table which identified volumes of material and also attached a range of supporting documents. Many of the supporting documents referred to the weight of the material removed from site rather than the volume of material in cubic metres.  This was an issue as the subcontract stipulated that the amount payable to the subcontractor was to be calculated by reference to volume rather than weight.

On 15 June 2022, the builder submitted a payment schedule challenging the amounts claimed by the subcontractor, proposing to pay nil and asserting that the subcontractor was required to pay the builder $1,348,654.64.

On 29 June 2022, the subcontractor lodged an adjudication application to which the builder responded.

On 28 July 2022, the adjudicator found that the amount of the progress payment to be paid by the builder to the subcontractor was $1,390,882.42.

In its adjudication application, the subcontractor submitted that the amount payable to it should be calculated on the basis of trucking dockets.  However, the subcontractor did not provide any indication of how records of the weight of truckloads of material exported from the site should be converted to volume, so as to calculate amount payable under the subcontract by reference to volume as opposed to weight.

The adjudicator accepted that it was appropriate to use the trucking dockets as a basis for the calculation. However, the adjudicator went further by applying conversion factors to convert the weight of material removed (as recorded in the trucking dockets) into cubic metres. The subcontractor had not used those conversion factors.  The adjudicator found one of the conversion factors he applied in a departures schedule agreed between the parties at the time of signing the subcontract, and the other from a document provided with the payment claim and checked against industry standards.  Neither party had contended in submissions before the adjudicator that the conversion factors applied by the adjudicator were appropriate, nor were submissions sought regarding their use.

Decision

Black J found that there was a substantial denial of procedural fairness and that the determination should be set aside on that basis.

His Honour held that the provision of procedural fairness would have been straightforward and would not have delayed a determination significantly.  In Black J’s view it would have required no more than the adjudicator disclosing his proposed approach to conversion of weight to volume and its basis to the parties, then allowing a short opportunity for submissions before adopting it, or not, after having had regard to the comments made. The calculation methodology adopted was essential to the determination’s outcome favouring the claimant.  There was a realistic possibility that had procedural fairness been provided, the approach taken by the adjudicator may have been different.