Demex Pty Ltd v McNab Building Services Pty Ltd

1. [1]

   MITCHELMORE JA: I agree with Kirk JA.

2. [2]

   KIRK JA: This appeal concerns whether or not the adjudicator of a dispute under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) afforded a party procedural fairness. The primary judge held that he did not.

3. [3]

   The first respondent to the appeal is McNab Building Services Pty Ltd, which subcontracted the appellant, Demex Pty Ltd, to undertake remediation earthworks at a site in Tweed Heads. As part of the works undertaken by Demex, large quantities of asbestos contaminated materials were removed (exported) offsite and clean fill was imported. In May 2022 the appellant issued a payment claim under s 13 of the Act for an amount of some $2.8 million (inclusive of GST). It is common ground between the parties that under the contract between them claims for relevant work done were to be measured in cubic metres. However, for a significant proportion of the payment claim in question the evidence the appellant provided in support of its claim took the form of dockets expressed in terms of weight (tonnes). Those amounts had then been converted into cubic metres in the payment claim. The manner in which the conversion had been undertaken was not explained in terms by Demex either in its payment claim or in its subsequent adjudication application.

4. [4]

   In its payment schedule responding to the payment claim, McNab argued that it had no liability to pay any amount claimed, and that in fact Demex owed it an amount of nearly $1.35 million. In its subsequent adjudication response it criticised the approach adopted by Demex in calculating its entitlement but did not proffer any alternative approach to converting weight into volume.

5. [5]

   The adjudicator – the second respondent in the appeal – determined that the appellant was entitled to $1,390,882.42 (including GST) on the payment claim. He calculated for himself the conversions rate that Demex had applied for the import and export amounts (of 1.96 m3/tonne and 1.6 m3/tonne respectively), that being a matter of simple arithmetic based on information in Demex’s claim. As regards the import conversion rate, he stated that the rate used was reasonable in light of industry standards. As regards the export conversion rate, he found support for the rate adopted by Demex in a contractual document.

6. [6]

   The respondent challenged the determination in the Supreme Court, alleging jurisdictional error by breach of procedural fairness in relation to the approach taken by the adjudicator to the conversion rates. The primary judge, Black J, upheld the challenge: McNab Building Services Pty Ltd v Demex Pty Ltd [2022] NSWSC 1441. In subsequent orders his Honour declared that the determination was void and quashed it. Demex now appeals that decision.

7. [7]

   Properly understood, a substantial departure from the general requirements of procedural fairness is required before jurisdictional error of the kind alleged here will be made out. No such departure occurred here. The appeal should be upheld.

8. [8]

   In what follows I first address the relevant legal principles relating to procedural fairness in the context of the Act. I then summarise the adjudicator’s determination, the primary judge’s findings and the issues raised on appeal, before considering whether the adjudicator had denied the respondent procedural fairness by accepting Demex’s conversion rates with respect to the import and export items.

The requirement for procedural fairness under the Act

1. [9]

   There was no dispute in this matter that the adjudicator was obliged to accord the parties procedural fairness in exercising his powers of adjudication under the Act. There was, however, a dispute as to the scope of the obligation.

2. [10]

   A requirement to accord procedural fairness under the Act was recognised by this Court in Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421; [2004] NSWCA 394 at [55]-[57] per Hodgson JA, Mason P and Giles JA agreeing. That early decision is one to which five members of the High Court attributed particular significance in Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) 264 CLR 1; [2018] HCA 4 at [52] (Probuild HCA). Other decisions of this Court have also recognised the obligation: eg Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd (No 2) (2016) 95 NSWLR 157; [2016] NSWCA 379 at [3]; Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd (2017) 95 NSWLR 82; [2017] NSWCA 151 at [99]-[113] (Probuild v DDI).

3. [11]

   That recognition gives effect to the principle of statutory construction that “a statute conferring a power the exercise of which is apt to affect an interest of an individual is presumed to confer that power on condition that the power is exercised in a manner that affords procedural fairness to that individual”, where that presumption “operates unless clearly displaced by the particular statutory scheme”: Minister for Immigration and Border Protection v SZSSJ (2016) 259 CLR 180; [2016] HCA 29 at [75]. Although there is thus a strong presumption against wholesale displacement of the obligation, the statutory context is nevertheless “of critical importance when considering what procedural fairness requires”: SZBEL v Minister for Immigration and Multicultural and Indigenous Affairs (2006) 228 CLR 152; [2006] HCA 63 at [26].

4. [12]

   Speaking generally, procedural fairness requires that those liable to be affected by a decision be given the opportunity of first being heard. That opportunity, in turn, “would ordinarily require the party affected to be given the opportunity of ascertaining the relevant issues and to be informed of the nature and content of adverse material”: Commissioner for ACT Revenue v Alphaone (1994) 49 FCR 576 at 590-591 per Northrop, Miles and French JJ, as quoted approvingly in SZBEL at [32]; see also SZSSJ at [83]. That entitlement “also extends to require the decision-maker to identify to the person affected any issue critical to the decision which is not apparent from its nature or the terms of the statute under which it is made”: Alphaone at 591-592; see further Kioa v West (1985) 159 CLR 550 at 586-587 per Mason J, [1985] HCA 81.

5. [13]

   That being said, as the High Court explained at [48] in SZBEL:

6. [14]

   Overall, the “underlying purpose of the requirements of notice or disclosure as aspects of procedural fairness … is to provide an opportunity for meaningful participation by the potentially aggrieved person and to enable the person fairly to respond to adverse matters”: Stowers v Minister for Immigration and Border Protection (2018) 265 FCR 177; [2018] FCAFC 174 at [44] per Flick, Griffiths and Derrington JJ. The practical and purposive nature of the legal doctrine was also manifest in the following statement by the High Court in SZSSJ (at [82], citation omitted):

7. [15]

   These general attributes of the doctrine must then accommodate themselves to the terms and structure of the statutory scheme in question. Here the following interrelated aspects of the scheme are important.

8. [16]

   First, the material which the adjudicator is to consider is limited by s 22(2) of the Act:

9. [17]

   Further, under s 21(2) the adjudicator is not to consider an adjudication response if made after the end of the period set for lodging such a response. The boundaries of the dispute are thus closely delineated by the Act, limiting the extent to which unforeseen issues may arise: note also Ceerose Pty Ltd v A-Civil Aust Pty Ltd (2023) 112 NSWLR 225; [2023] NSWCA 215 at [75]-[77]. That being said, it is still possible that an adjudicator may in fact take account of matters not raised by the parties, giving rise to a possible procedural fairness issue.

10. [18]

    Secondly, the timeframe for raising and resolving claims under the Act is tightly confined. In general once a payment claim has been served (pursuant to s 13 of the Act) the respondent has no more than 10 business days to serve any payment schedule in response (under s 14), the claimant may then make an adjudication application within 10 business days after receiving any payment schedule (s 17(3)(c)) and the respondent may serve an adjudication response by the later of five business days of receiving the application or 2 business days after receiving notice of an adjudicator’s acceptance of the application (s 20). As regards the role of the adjudicator, they are required “to determine an adjudication application as expeditiously as possible”, and (in cases where the respondent is entitled to lodge an adjudication response) in any event to do so within 10 business days after either receiving any adjudication response or, if no response is received, after the end of the period in which the respondent was entitled to lodge a response (s 21(3)). The period may be extended by agreement between the claimant and respondent (s 21(3)(b)).

11. [19]

    Under s 21(4) the adjudicator may require further written submissions (and may set deadlines in that regard), may call a conference of the parties and may carry out an inspection. In Probuild v DDI, McColl JA noted at [108] that the power to call for further submissions gives an adjudicator a means to raise an issue about which neither side had made contentions. That being said, doing so does not lead to any automatic extension of time; whether or not an extension applies will depend upon the agreement of the parties. This power is thus consistent with there being a duty to provide procedural fairness, but has limited force in reducing the strength of the imperatives against requiring strict standards of procedural fairness.

12. [20]

    As was observed in the joint judgment in Probuild HCA, the time limits imposed by the Act “have been rightly described as imposing ‘brutally fast’ deadlines on the claimant, the respondent and the adjudicator to ensure the prompt resolution of payment disputes” (at [40], citation omitted). As the joint judgment went on to observe (at [41], citation omitted), in the limited time available the adjudicator must:

13. [21]

    Moreover, the adjudicator is required not only to consider these matters but to reach their conclusions and write up reasons for their determination (unless the parties agree reasons are not required – s 22(3)(b)), all within the 10 business days generally available to them. And this occurs in a context where such disputes involve “often extremely complex claims involving very substantial volumes of documents”: Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd (2010) 78 NSWLR 393; [2010] NSWCA 190 at [208] per McDougall J. These very demanding requirements weigh significantly against an argument that strict standards of procedural fairness must be observed.

14. [22]

    Thirdly, the decision of the adjudicator is only an interim one; it does not affect any right that the parties may have under the construction contract: Act, ss 3(4) and 32; Probuild HCA at [39]-[40]. The decision of the adjudicator may be reversed in subsequent proceedings where the merits of the issues are determined in a full hearing in a court or tribunal. Of course, it is possible that insolvency will have intervened in the meantime in such a way as to make any money paid under the Act practically unrecoverable. Even so, the fact that the decision of the adjudicator is not in general the final word on the dispute again reduces the imperative for rigorous standards of procedural fairness to apply. Such adjudications “are not intended to be scrutinised in the same way as considered final determinations”: Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd [2012] 1 Qd R 525; [2011] QCA 22 at [3] per McMurdo P.

15. [23]

    Fourthly, the nature of the decision-maker is relevant. Section 18 of the Act addresses the eligibility of adjudicators, indicating they should have “such qualifications, expertise and experience as may be prescribed by the regulations for the purposes of this section”. The provision does not require that they be lawyers. The reference to “expertise and experience” contemplates that eligibility may be set by reference to adjudicators having practical industry experience and/or qualifications in disciplines relevant to building disputes. Illustrating that potentiality, cl 19 of the current Building and Construction Industry Security of Payment Regulation 2020 (NSW) makes just such provision.

16. [24]

    Adjudicators may be expected to bring their experience and expertise to bear in making their determinations. That is the point of setting such eligibility requirements. Thus, for example, this Court has held that there is good reason for leaving determination of the scope and nature of the payment claim to the adjudicator, because “[t]he scope and nature of the payment claim will often be … open to be elucidated and evaluated with the benefit of the adjudicator's specialised knowledge”: Downer Construction (Aust) Pty Ltd v Energy Australia (2007) 69 NSWLR 72; [2007] NSWCA 49 at [88]. This characteristic of the scheme is liable to mean that adjudicators may invoke reasons based upon their experience and expertise. That is not to suggest that there are no procedural fairness limits on them doing so. Rather, it illustrates that this is a decision-making process far removed from, say, the exercise of judicial power, and courts should be wary of restricting the use of such expertise and experience.

17. [25]

    These considerations – especially the first three – manifest the purpose of the statutory scheme, which was explained in Probuild HCA as follows (at [36], citations omitted):

18. [26]

    These intentions reflect a recognition that “[c]ash flow is the lifeblood of the construction industry” (NSW Legislative Assembly, Parliamentary Debates (Hansard), 12 November 2002 at 6542).

19. [27]

    In this context, “the purpose of the legislative scheme is best served by restricting the scope of intervention by the courts”: Chase Oyster Bar at [55] per Spigelman CJ. As five members of this Court recently said in BSA Advanced Property Solutions (Fire) Pty Ltd v Ventia Australia Pty Ltd (2022) 108 NSWLR 350; [2022] NSWCA 82 at [25]:

20. [28]

    Such considerations led the High Court in Probuild HCA to confirm what had been held years before in Brodyn, that is, that the possibility of judicial review for error of law on the face of the record was implicitly excluded by the Act. That was so even though an “intention to alter the settled and familiar role of the superior courts must be clearly expressed”, and no provision of the Act in terms excludes that jurisdiction: Probuild HCA at [34] (citation omitted). The intention to do so was manifest with sufficient clarity by taking account of the text, context and purpose of the Act as a whole.

21. [29]

    As regards the requirement of procedural fairness, in Brodyn Hodgson JA said at [55] that “the reasons given above for excluding judicial review on the basis of non-jurisdictional error of law justify the conclusion that the legislature did not intend that exact compliance with all the more detailed requirements was essential to the existence of a determination”. His Honour went on to say that what he regarded as essential included that there be “no substantial denial of the measure of natural justice that the Act requires to be given” (ibid); see similarly Grocon Constructors Pty Ltd v Planit Cocciardi Joint Venture (No 2) (2009) 26 VR 172; [2009] VSC 426 at [143]-[144] per Vickery J; Brolton Group Pty Ltd v Hanson Construction Materials Pty Ltd [2020] NSWCA 63 at [53]. In Probuild v DDI, McColl JA referred to what Vickery J said in Grocon, and said that “[t]he exiguous time limit the [Act] imposes on the adjudicator and the interim nature of an adjudication determination also inform the requirement of procedural fairness in any adjudication” (at [107]).

22. [30]

    These statements indicate that the general requirement of procedural fairness that might ordinarily be applied to a decision-maker exercising statutory power is attenuated in the context of the Act. That conclusion is supported by the imperatives identified above and, in essence, should be accepted. That being said, given the evolution of Australian administrative law, it is strictly speaking erroneous to say that the question is whether there was “no substantial denial of the measure of natural justice that the Act requires to be given”. The High Court has held that the requirement for procedural fairness is a statutory implication, failure to comply with which is jurisdictional error: eg Re Refugee Tribunal; Ex parte Aala (2000) 204 CLR 82; [2000] HCA 57 at [39]-[41]; Plaintiff S10/2011 v Minister for Immigration and Citizenship (2012) 246 CLR 636; [2012] HCA 31 at [97]; SZSSJ at [82]. If the Act requires that a particular measure of procedural fairness be provided, then it is that standard which must be met, otherwise the decision will be invalid. Whether procedural fairness has been afforded turns first on a matter of statutory construction to determine what measure of procedural fairness the Act impliedly requires.

23. [31]

    However, as Basten JA recognised in Cardinal Project Services Pty Ltd v Hanave Pty Ltd (2011) 81 NSWLR 716; [2011] NSWCA 399 at [60], there are different ways of achieving the same result: “for example, the content of procedural fairness may be diminished, taking into account the factors which his Honour referred to, so that it is substantially less demanding than that which would be required in a judicial proceeding in a civil court”. His Honour was in dissent in that case, but that does not affect the force of the point made.

24. [32]

    Consistently with the effect of what was said in Brodyn, and with the arguments put by the appellant in this case, it should be understood that only if there has been a substantial denial of procedural fairness by an adjudicator in determining an adjudication application will there be jurisdictional error under the Act. Put another way, the content of the requisite procedural fairness is reduced: note Cardinal at [60]. What this means in practice will turn on the particular circumstances of cases. But generally a conclusion of invalidity would only be reached if there was a significant departure from what would ordinarily be the requirements of procedural fairness for a person exercising a statutory power, and where that departure could be characterised as leading to substantial practical injustice in all the circumstances. This approach reflects the fact that the Act provides for a “rough and ready” process (Chase Oyster Bar at [208]), not intended readily to be held invalid on judicial review.

25. [33]

    McNab referred the Court to the decision of Doyle J in Ausenco Operations Pty Ltd v Ferretti International Ottoway Pty Ltd [2020] SASC 46. As his Honour noted at [61] in that decision, “it is not always clear whether an adjudicator has determined a matter on a basis which was not contended for by the parties, or which had not otherwise been put in issue”, saying that “[w]hether this is so will often depend upon the level of abstraction or specificity at which one articulates the issues in dispute”. He added at [62] that beyond the extremes, “it is difficult to generalise as to the level of abstraction or specificity at which the obligation to afford procedural fairness must be addressed in a particular case”. Even so, consistently with approach just stated, a reviewing court should view sceptically arguments involving high degrees of specificity in this regard.

26. [34]

    The primary judge stated at [9] that it “was common ground between the parties that a denial of procedural fairness in an adjudication, if material or substantial, would require an adjudication determination to be set aside” (citation omitted). Insofar as what is set out above is different from the standard the primary judge applied, it is first one of emphasis in relation to what is meant by substantial. That notion has practical significance. Further, there is a difference between considering whether there has been a departure (substantial or otherwise) from the standard of procedural fairness required and whether or not any such departure is material in the sense recently emphasised by the High Court. Whilst both involve issues of relative significance, which may overlap, conceptually the former looks to whether or not there has been a departure from the type of fairness that the Act requires. The latter involves asking a (hypothetical) factual question, looking to what would have occurred but for that departure in the sense of asking whether it deprived the challenger of a realistic possibility of a different outcome: MZAPC v Minister for Immigration and Border Protection (2021) 273 CLR 506; [2021] HCA 17 at [2], [85].

The documents exchanged between the parties

1. [35]

   In early 2021 Demex was engaged by McNab to perform remediation earth works for the “Wollomi Warehouse project” in Tweed Heads. In their subsequent dispute, Demex described the agreement as a bill of quantities contract, whilst McNab described it as a lump sum contract. The significance of the disagreement was that the amount of asbestos contaminated material that was in fact removed by Demex, and the amount of fill that was imported to the site, greatly exceeded what had originally been envisaged. However, at least by the time of its adjudication response, McNab accepted that additional work had been performed beyond what had originally been foreseen; that Demex was entitled to be paid for this additional work; and it accepted the rates at which Demex was claiming for the imports and exports (which were expressed in terms of $/m3).

2. [36]

   Following the usual course, there were four documents exchanged between the parties prior to the adjudicator’s determination: Demex’s payment claim; McNab’s payment schedule disputing the amount claimed; Demex’s adjudication application; and McNab’s adjudication response. The adjudicator also requested two additional documents.

3. [37]

   On 31 May 2022 Demex issued a payment claim to McNab for the sum of $2,812,880.87 (inclusive of GST). Appendix A to the claim set out a series of items claimed for payment, identifying amongst other things the quantity claimed, the rate payable (relevantly in $/m3), the value of what was claimed, what had previously been paid, and the net claim made.

4. [38]

   The pertinent three of those items were as follows:

   1. (1)

      item 4.0 for the importation of 34,616.88 cubic metres of clean fill, for which an amount of $371,149.07 was said to be owing after taking account of previous payments; and

   2. (2)

      items 6.0 and 7.1 for the export of 35,131.02 cubic metres of asbestos contaminated material offsite, for which an amount of $659,115.89 and $485,139.28 respectively were said to be owing in light of previous payments.

5. [39]

   The coversheet to the payment claim stated (emphasis added):

6. [40]

   The dockets supplied as evidence of the claims were extensive. In its adjudication response McNab referred to having been supplied with some 4651 pages of tip dockets, truck dockets and waste transport certificates.

7. [41]

   Appendix B to the payment claim is labelled “Import Quantities Tracking”. It consists of two long tables. The first relates to entries dealing with import of VENM, that is, virgin excavated natural material. This table is expressed in m3, and totals 22,188 m3. The second table addresses SCALP, that is, clean crushed concrete material and the like. It is expressed in tonnes, totalling 24,380.40 tonnes.

8. [42]

   At the end (and outside) of the first of these two tables there are the following numbers, which I have labelled 1 to 6, although they are not so labelled in the document, and they are accompanied by no explanation:

9. [43]

   The first number is the total VENM imported, expressed in m3, as is evident from the final entry of the first table. The second is the tonnes of SCALP imported, as is evident from the final entry of the second table. The third number is the total quantity of imports claimed, expressed in m3, which correlates to the number identified as such in the table of items in Appendix A. The fourth number is the SCALP claim expressed in m3 rather than tonnes. That can readily be deduced because it represents the difference between the total import quantity claimed (34616.88 m3) and the amount of VENM claimed (22188 m3). The fifth number repeats the second; it is not apparent why.

10. [44]

    The sixth number represents the conversion rate that Demex has used to move from tonnes of SCALP to m3. Some conversion figure was necessarily employed by Demex to convert from tonnes to m3. That figure could readily be deduced by dividing the 24380.4 tonnes of SCALP that Demex listed in Appendix B by the 12428.88 m3 that it was attributing to SCALP. That being said, the application of this rate was not explained or identified in terms.

11. [45]

    In this Court senior counsel for McNab accepted that, at least “with hindsight”, one could determine that the sixth figure represented the conversion rate employed by Demex. He also accepted that McNab’s payment schedule and adjudication response manifest a high degree of sophistication.

12. [46]

    Appendix C to the payment claim is labelled “Export Quantities Tracking”. It contains a great many entries, at the end of which there is a total figure given of 56,209.64. This figure is in tonnes. That fact is not expressly noted in the table, although it would have been apparent from the supporting dockets. The Appendix A items for exports stipulates a cubic metre quantity of 35,131.02. The conversion factor that was applied from weight to volume is implicitly 1.6, as is readily calculated by dividing the tonnes claimed by the m3 claimed. However, again, the application of this rate was not explained in terms.

13. [47]

    On 15 June 2022 McNab issued a payment schedule disputing the payment claim. McNab asserted that it owed Demex no money, saying in fact it was the other way around. The payment schedule is 41 pages long and manifests a degree of sophistication, including by quoting a High Court case. It is on McNab letterhead but it seems likely that, at the least, some lawyer has had input into its contents.

14. [48]

    McNab made various attacks upon the payment claim, including by alleging that it did not meet the requirements of s 13(2) of the Act, in that it did not properly identify the construction work to which it relates, nor the amount that was said to be due.

15. [49]

    With respect to the amounts claimed for the import and export items, it said in relation to each that Demex had not “particularised the additional quantities and McNab has no possible way of determining to what construction works the amount claimed purportedly relates”. Senior counsel for McNab submitted that at least the first half of this complaint encompassed a concern about how the amounts claimed had been calculated, including because of conversion rates. It is not necessary to determine if that is so.

16. [50]

    McNab did not complain in terms that Demex had not explained how it had converted part of its claim relating to imports, and all of its claim relating to exports, from the tonnes listed in the supporting documents and the relevant tables into the m3 listed in Appendix A to its payment claim.

17. [51]

    Demex’s adjudication application was served on 30 June 2022. It includes a 44 page submission prepared by a law firm, which responded to the arguments raised in the payment schedule.

18. [52]

    Relevantly, the application contained the following paragraph, which was repeated in a number of places:

19. [53]

    Senior counsel for McNab accepted in this Court, by reference to this paragraph, that “it is implicit within this material that by some mathematical equation the number of tonnes has been sought to be recovered in cubic metres”, adding that “indeed, the respondent understood that”.

20. [54]

    The adjudication application also said the following with respect to imports, with an equivalent paragraph in relation to exports:

21. [55]

    McNab’s adjudication response is dated 7 July 2022. It is some 82 pages long (with single line spacing), detailed, sophisticated, and contains developed legal arguments including by reference to case law. It responds to, and challenges, the adjudication application on a number of bases.

22. [56]

    In the introduction there is a paragraph with a chapeau stating “[t]o get to the heart of the matter”, followed by ten subparagraphs, which include the following (footnotes omitted; emphasis in the original):

23. [57]

    Part 6 of the response is headed “Basis for Measuring Quantity: Survey vs Tonnage”. It includes the following (footnotes omitted; underlining in original; emphasis in italics added; the matter in bold was italicised in the original by the adjudicator):

24. [58]

    These submissions were then referred to later in the adjudication response when particular attacks were made on the claimed amounts for the import and export items.

25. [59]

    What emerges from these and related passages is the following:

    1. (1)

       The key difference between the parties, in McNab’s submission, was about how to measure quantities. Demex was relying on truck dockets based on weight whereas McNab was relying on survey data. Truck dockets were said to be problematic because there is no clear correlation between weight and volume where the asbestos contaminated material removed included heavy materials such as concrete and rocks. McNab provided the Adjudicator with an expert report from a surveyor in support of its argument.

    2. (2)

       Secondarily, it was put that Demex has not explained how it had, or how the adjudicator could, convert tonnages into cubic metres. Even if the adjudicator could determine volume based on weight, McNab said he should not do so. The reason why he should not do so is not stated in terms. In part it seems to be because he could not do so in the absence of an explanation from Demex. But the response then contemplates that perhaps the Adjudicator could do so but should not, which seems to lead back to the primary concern about survey data being a more reliable approach.

26. [60]

    McNab clearly understood that Demex had applied some conversion rate to get from weight to volume, as its senior counsel acknowledged (see above at [45] and [53]). That is implicit in its statement at [6.14] that Demex seemingly expects the Adjudicator to “perform some sort of reverse calculation to convert the tonnages into cubic metre quantities” – that is to say, the Adjudicator must reverse some calculation performed by Demex. As explained above at [43] and [46], that calculation can be performed with ease. McNab’s failure to undertake and critique such calculations – although it was clearly aware that they could be done – stands in stark contrast to the sophistication of the rest of the document.

27. [61]

    Further, McNab proffered no further and alternative submission as to why, if the Adjudicator was to consider a conversion approach as adopted by Demex, some particular conversion rates were or were not appropriate.

28. [62]

    On 13 July 2022 the adjudicator made a request for additional documents from the parties, which were subsequently received:

29. [63]

    At the same time the adjudicator also requested an extension of time by 5 business days, to which the parties agreed.

The adjudicator’s determination

1. [64]

   On 28 July 2022, three weeks after receiving the adjudication response, the adjudicator provided his determination. It is some 100 pages long. He determined that $1,390,882.42 (including GST) was owed by McNab to Demex, being about half the amount that Demex had claimed. He allowed the amounts that Demex had claimed for the import and export items in substantial part. He directed that the parties bear the costs of the adjudication application equally.

2. [65]

   The adjudicator addressed a range of arguments raised by McNab, including for example that the payment claim did not comply with s 13 of the Act. He addressed the issues now in contention as follows.

3. [66]

   The adjudicator said the following with respect to the claim for the import items (emphasis added):

4. [67]

   It can be seen that the adjudicator considered that Demex had provided sufficient information and methodology as to how it arrived at the amount for the works claimed. He rejected McNab’s arguments that use of truck dockets was unreliable as a measure of volume such that a survey method should be adopted. He calculated for himself the conversion rate that Demex had applied to the SCALP materials, which he described as a “quick and easy calculation”. He then stated that he found that conversion factor to be reasonable on review of industry standards.

5. [68]

   The adjudicator separately considered the value of the two items which together comprise the export items (items 6.0 and 7.1). The adjudicator said the following in relation to item 6.0, which the adjudicator then also relied upon with respect to item 7.1 (emphasis in italics added; the matter in bold was italicised in the original by the adjudicator):

6. [69]

   Again, as for the import items, the adjudicator indicated that Demex had provided sufficient information and methodology as to how it arrived at the amount claimed, and rejected McNab’s attack on the use of truck dockets as a measure of volume. It is apparent that he himself calculated the conversion rate that Demex had applied to the export materials, saying that that calculation was “straightforward and plausible”. He concluded that that rate was the one that had been agreed by the parties by virtue of item 40 in the Departures Schedule.

7. [70]

   Earlier in his reasons the adjudicator had referred to the Departures Schedule document discussed by him in the above extract, which was one of the two additional documents that had been requested by him. He indicated that it was a contractual document, and noting that in light of item 40 in that document, “the Works performed by the Claimant required volumes of excavated material to be removed from site and the Respondent has agreed that in respect of the excavated materials that the excavated soil conversion rate is to be 1.6 Tonne per Cubic Metre” (emphasis in the original).

The decision of the primary judge

1. [71]

   In the Supreme Court proceedings McNab relevantly alleged that the adjudicator had denied it procedural fairness by applying the conversion rates of 1.96 and 1.6 to the import and export items respectively, doing so “on a basis for which neither side contended” and without the adjudicator having notified his intention to do so. Further, it was alleged that he had failed to provide procedural fairness by taking into account “industry standard tonnage to m3 conversion factors” to the import items which had not been referred to by either party. The primary judge accepted those contentions. He did not find it necessary to address another ground raised by McNab (and no notice of contention has been filed in that regard). His Honour addressed export items first.

2. [72]

   The primary judge stated that the adjudicator’s application of the conversion factor of 1.6 tonnes per cubic metre was not an approach that had “previously been identified by Demex, and was identified and applied without any intervening step which would have allowed McNab to comment on its correctness”: at [16]. His Honour did accept that that rate was “arguably implicit in its calculations”: at [23]. Insofar as that rate was applied based upon item 40 in the Departure Schedule, his Honour considered that application of that item was contestable: at [22].

3. [73]

   His Honour said the following (at [18], emphasis added):

4. [74]

   His Honour acknowledged that even though the Act provided for a compressed period of time for the adjudicator to make his determination, procedural fairness “required no more than the adjudicator disclose his proposed approach to converting tonnage to volumes and its basis to the parties and allow a short opportunity for submissions before adopting it, or not, after having had regard to the comments made”: at [21]. The primary judge concluded that the denial of procedural fairness was material as there was a realistic possibility that the adjudicator would have reached a different decision if his proposed application of the conversion factor had been disclosed and the subject of further submissions: at [23].

5. [75]

   The primary judge indicated that the adjudicator’s determination was the first time that the conversion factor of 1.96 was described and he had done so “without undertaking any intervening step that would allow McNab to make a submission as to the correctness of that identification or the correctness of that methodology”: at [33].

6. [76]

   With respect to the adjudicator having regard to “industry standard tonnage to m3 conversion factors”, which was not provided to him by either party, the primary judge said (at [34]):

7. [77]

   His Honour considered that McNab’s challenge to the use of the conversion factor for the import items succeeded on both bases, that is, use of the factor where “[t]he basis on which a conversion factor of 1.96 (or the more precise factor referred, without description, in Demex’s supporting documents) should be applied was not identified at any point prior to the Determination”, and that use of industry standard conversion factors was also not identified prior to the determination: at [35]. Each of those matters was considered to be material in the relevant sense.

Demex’s appeal

1. [78]

   Demex contends that the primary judge erred in concluding that the adjudicator breached the requirements of procedural fairness in the manner found. It also contends in the alternative that if there was any breach of procedural fairness that it was not material in the requisite sense. One of its submissions in that respect is that any breach was not material because the conversion issue dispute was not raised in McNab’s payment schedule, and s 20(2B) of the Act precludes a respondent to a payment claim from including any reasons for withholding payment in its adjudication response which had not been included in the payment schedule. Oddly, Demex does not raise that point as one of its answers to the findings of breach of procedural fairness per se. Given my conclusions below, it is not necessary to consider the s 20(2B) issue further.

2. [79]

   One of the arguments McNab raised in this Court was that Demex was seeking to depart from certain claimed findings of fact by the primary judge without having addressed those in terms in its notice of appeal. His Honour’s decision was based upon documents, not the testimony of witnesses. This Court has no disadvantage considering those documents when compared to the position of the primary judge. Insofar as any findings of fact are challenged, that is amply encompassed by Demex’s grounds of appeal directed to his Honour’s conclusions on procedural fairness.

3. [80]

   As regards each of the export and import items, McNab maintains that the adjudicator departed from the requirements of procedural fairness in two ways:

   1. (1)

      in applying the two conversion factors when (to quote McNab’s submissions) “there was no mention of that conversion factor in the Payment Claim, Payment Schedule, Adjudication Application or Adjudication Response”; and

   2. (2)

      in relying on material relating to the conversion ratio in a way that had not been foreshadowed, namely item 40 in the Departure Schedule as regards the export items and industry standards as regards the import items.

4. [81]

   In this Court the parties followed the primary judge in addressing the export items first. I will do the same.

Procedural fairness with respect to the export items

1. [82]

   It is correct that the application of the conversion factor of 1.6 was not explained in terms by Demex in its payment claim and adjudication application. However, as explained above, that Demex applied a conversion factor was necessarily implicit in its payment claim and again in its adjudication response. Senior counsel for McNab accepted as much.

2. [83]

   That the conversion factor Demex applied was 1.6 was readily calculable from the material supplied by it, as was explained above at [46]. As the adjudicator indicated, Demex’s “calculation is straightforward and plausible” (see above at [68]). It was entirely reasonable for the adjudicator to conclude that Demex had provided sufficient information and methodology as to how it arrived at the amount claimed.

3. [84]

   In Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140, Palmer J said at [76] that a “payment claim and a payment schedule are, in many cases, given and received by parties who are experienced in the building industry and are familiar with the particular building contract, the history of construction of the project and the broad issues which have produced the dispute as to the claimant’s payment claim”. As explained above, it is apparent that McNab’s responses to the payment claim and adjudication application were ones of some sophistication. Given experienced parties, and the tight timeframes under the legislative scheme, there is no requirement that every step in a payment claim or adjudication application must be spelt out in express words.

4. [85]

   The primary judge accepted at [18] that issues of quantification of imported and exported materials were “in a general way, in dispute before the adjudicator, and that the adjudicator adopted the general approach for which Demex contended”. That understates matters. Although Demex had not explained in terms what conversion rate it was using, it was obvious that it was employing conversion rates to translate those of its truck dockets in tonnes into a volumetric claim, which rates could be calculated with ease.

5. [86]

   As elucidated above at [59]-[61], it is clear that McNab understood that Demex had applied some conversion rates to get from weight to volume and that a reverse calculation could be performed to identify what that was. McNab could, if it wished, readily have said what the rates were that Demex had applied and attacked them as, for example, being arbitrary or having no proper basis. Yet McNab provided no submission as to why, if the Adjudicator was to consider a conversion approach was appropriate (contrary to McNab’s primary position), some particular conversion rates were or were not appropriate. Instead, it put to the adjudicator that he should not perform such a calculation. As explained, that point seemed to be founded on its main argument, namely that relying on truck dockets to perform the conversion was unreliable and that the appropriate method was a survey approach.

6. [87]

   At the very least, McNab was given the opportunity of ascertaining the relevant issues: cf Alphaone at 590-591. As Gaudron J said in Re Association of Architects of Australia; Ex parte Municipal Officers Association of Australia (1989) 63 ALJR 298; [1989] HCA 13 (at 305, Dawson J agreeing):

7. [88]

   This passage was quoted approvingly in Broken Hill Cobalt Project Pty Ltd v Lord (2022) 254 LGERA 274; [2022] NSWCA 271 at [153] by Ward P, with whom Mitchelmore JA and I agreed; see also Media Niugini Ltd (t/as EMTV) v International Management Group of America Pty Ltd [2023] NSWCA 33 at [15] per Leeming JA. Here, McNab should have – and did – reasonably apprehend that the issue of the conversion rate was a live one. It was provided an opportunity for meaningful participation enabling it fairly to respond to adverse matters: cf Stowers at [44].

8. [89]

   Thus even on a more general approach to procedural fairness, McNab cannot complain that it was not given a fair opportunity to address the conversion rate issue because it was not spelt out in express terms by Demex. As regards the statutory scheme here, it certainly cannot be said that there has been a substantial denial of procedural fairness in this regard, taking account of all of the circumstances.

9. [90]

   McNab referred to a line of case law, beginning with the decision of McDougall J in Musico v Davenport [2003] NSWSC 977 at [107], to the effect that if the adjudicator decides a dispute on a basis that neither party has contended for then procedural fairness would require that the adjudicator notify the parties in order to provide them the opportunity to put submissions on the issue. It is not necessary to explore that line of authority here, as that is not what occurred. As explained, the application of a conversion rate was implicit in Demex’s claims, and this was understood by McNab, but it chose to make no further alternative submission about what rate should be applied. The adjudicator decided the issue in a way implicitly contended for by Demex, which McNab disputed in general but without proposing any specific alternative approach beyond its survey method.

10. [91]

    McNab placed some reliance by analogy on the decision of Doyle J in Ausenco Operations. As is implicit in his Honour’s analysis, decisions about whether or not procedural fairness has been supplied are fact-specific (see at [62] and [80]-[82]). That decision turned on its facts and does not assist in resolving the issues in this matter.

11. [92]

    It is apparent that the adjudicator did attribute some significance to the fact that item 40 in the Departures Schedule stated a conversion rate of 1.6. For current purposes it is sufficient to assume, contrary to the submissions of Demex, that the primary judge was correct to conclude that the application of that item to this issue was contestable.

12. [93]

    Relying on a document in support of a conclusion where that potential reliance had not been foreshadowed by either party or the decision-maker does give rise to a question about whether procedural fairness has been accorded. However, in the circumstances of this case, and taking account of the statutory context, the adjudicator’s invocation of item 40 does not represent a substantial denial of procedural fairness such as to constitute jurisdictional error.

13. [94]

    Whilst the adjudicator did attribute significance to having identified this item in a contractual document, in substance he used it to confirm that the conversion rate applied by Demex was appropriate. So much is illustrated by his saying that “[a]dditionally, I also refer to item no. 40 of the Departures Schedule” (at [264], as quoted above at [68]; emphasis added). McNab was on notice of the use of a conversion rate which was readily calculable by anyone, let alone an entity of its sophistication, and chose to make no submissions on what that rate should be. In those circumstances it was not procedurally unfair for the adjudicator to refer to a contractual document as a means of satisfying himself that Demex’s approach was defensible.

14. [95]

    The primary judge said at [18] that “the adjudicator’s preference for Demex’s approach was then extended by his adopting conversion factors on a basis which had not previously been identified by Demex”. The adjudicator gave reasons for rejecting McNab’s submissions and accepting, in substance, the approach taken by Demex. The adjudicator concluded in his determination with respect to the export items that Demex “has demonstrated that it has an entitlement in accordance with the Contract and has provided sufficient information and methodology as to how it arrived at the amount for the works claimed”; that “[a]ccordingly, I do not agree with any of the reasons pressed by the Respondent in denying the Claimant its claimed amount”; and that “[u]nlike the Respondent, I do not rule truck dockets out as a measure of volume” (see above at [68]). He thus rejected McNab’s approach. That sufficed to resolve the relevant dispute (and the adjudicator made the same comments in relation to the import items, for which the same analysis applies).

15. [96]

    The adjudicator went further than necessary in himself calculating the conversion rate applied by Demex and satisfying himself that that rate was reasonable. That he did so caused McNab no prejudice as McNab was no worse off than it would have been if the adjudicator had not addressed the issue, let alone in circumstances where it had had reasonable notice of the issue and had chosen to make no submissions on the point. It cannot be said that there was substantial practical injustice in all the circumstances.

16. [97]

    That conclusion can also be expressed in terms of materiality. Where the adjudicator was not required to address the issue in order to resolve the dispute, going further than required to confirm Demex’s position created no realistic possibility of a different outcome.

17. [98]

    The primary judge acknowledged the compressed time period for decision-making under the Act but said that “the provision of procedural fairness in this matter would have been straightforward, and would not have delayed a determination by any substantial time” (at [21]). In my view that gives insufficient weight to the statutory context I have explained above, with its imperatives against readily finding jurisdictional error. Where only 10 business days are generally allowed for the determination to be made, even a delay of a few further days is significant in the context of this statutory scheme. And it is always easy to say in hindsight in any particular case that if only a further opportunity to be heard had been given, then the claimed problem could have been avoided. But to accept too readily that an adjudicator’s reasoning process goes beyond what was reasonably regarded as in play is to encourage litigation seeking to identify such errors, at the cost of the quick, interim decision-making that the Act seeks to achieve.

Procedural fairness with respect to the import items

1. [99]

   The same answers apply in relation to the import items as for the equivalent argument with respect to the export items.

2. [100]

   For the import items there was the further factor that the conversion factor was actually identified in the payment claim in the manner described above at [42]-[44]. The fact that it was the conversion factor was not made clear, but simple calculations would readily have confirmed it as such. That being said, given the absence of explanation of this number I would not attribute great significance to its presence. The more important point is that, as the adjudicator said, the conversion rate employed could be ascertained by “quick and easy calculation” (see above at [66]).

3. [101]

   The points made above with respect to the adjudicator’s invocation of item 40 in the Departures Schedule as regards the export items also apply here, save that here McNab’s arguments are even weaker.

4. [102]

   A fair reading of the adjudicator’s reasons is that he only employed his industry knowledge in a confirmatory way, saying “[o]n review of industry standard tonnage to m3 conversion factors, I find that used by the Claimant to be reasonable” (see above at [66]). As explained above at [23]-[24], adjudicators may be expected to bring their experience and expertise to bear in making their determinations. To confirm the reasonableness of this aspect of claim based upon his experience gives rise to no relevant unfairness in the circumstances of this case.

Orders

1. [103]

   The appeal should thus be upheld. McNab had paid the adjudicated sum, along with some interest, into court. One of the orders the primary judge made on 25 October 2022 to give effect to his judgment was that the money that had been paid into court be paid out to McNab or its solicitor (being order 3). It is not known if that occurred. Assuming it did, there is now no point in setting that order aside as to do so would have no effect. The orders this Court will make otherwise reflect what was sought by Demex in its notice of appeal. If some variation of these orders is needed then the parties are able to apply for such pursuant to UCPR r 36.16.

2. [104]

   The orders of the Court should be as follows:

   1. (1)

      Appeal allowed with costs.

   2. (2)

      Set aside orders 1, 2 and 4 made by the Supreme Court on 25 October 2022 and in lieu thereof order as follows:

3. [105]

   ADAMSON JA: I agree with the orders proposed by Kirk JA and with his Honour’s reasons for those orders.