Demex Pty Ltd v McNab Building Services Pty Ltd

ild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd (2017) 95 NSWLR 82; [2017] NSWCA 151 Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) 264 CLR 1; [2018] HCA 4 Re Association of Architects of Australia; Ex parte Municipal Officers Association of Australia (1989) 63 ALJR 298; [1989] HCA 13 Re Refugee Tribunal; Ex parte Aala (2000) 204 CLR 82; [2000] HCA 57 Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd (No 2) (2016) 95 NSWLR 157; [2016] NSWCA 379 Stowers v Minister for Immigration and Border Protection (2018) 265 FCR 177; [2018] FCAFC 174 SZBEL v Minister for Immigration and Multicultural and Indigenous Affairs (2006) 228 CLR 152; [2006] HCA 63 Texts Cited: NSW Legislative Assembly, Parliamentary Debates (Hansard), 12 November 2002 at 6542 Category: Principal judgment Parties: Demex Pty Ltd (Appellant) McNab Building Services Pty Ltd (First Respondent) Chris Thompson (Second Respondent) Representation: Advocates: M Christie SC with J Hastie and D Ward (Appellant) F Hicks SC with D Byrne (First Respondent)

Solicitors: Shand Taylor Lawyers (Appellant) Level Field Lawyers and Consultants (First Respondent) File Number(s): 2022/344622 Publication restriction: Nil Decision under appeal Court or tribunal: Supreme Court Jurisdiction: Equity - Corporations List Citation: McNab Building Services Pty Ltd v Demex Pty Ltd [2022] NSWSC 1441 Date of Decision: 24 October 2022 Before: Black J File Number(s): 2022/235968

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

HEADNOTE [This headnote is not to be read as part of the judgment] The first respondent, McNab, subcontracted the appellant, Demex, to undertake remediation earthworks where large quantities of asbestos contaminated materials were removed offsite (export items) and clean fill was imported onsite (import items). Demex issued a payment claim under s 13 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) for work done. Under the contract, payment claims for relevant work done were to be measured in cubic metres. The evidence provided by Demex of the work done was largely 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. In due course it submitted the dispute for determination by an adjudicator. The manner of conversion was again not explained in terms in the adjudication application. In his determination the adjudicator readily calculated for himself the conversion rates that the appellant had applied for the import and export items (1.96 m3/tonne and 1.6 m3/tonne respectively) based on the information in the appellant's payment 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 indicated that he found support for the rate adopted by the appellant in a contractual document. McNab 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 declared that the Determination was void on that basis. Demex appealed that decision. The Court (per Kirk JA, Mitchelmore and Adamson JJA agreeing) allowed the appeal, and held as follows: As regards procedural fairness requirements under the Act:

1. The general attributes of procedural fairness required of an adjudicator acting under the Act must accommodate themselves to the terms and structure of the statutory scheme in question: at [12]. Minister for Immigration and Border Protection v SZSSJ (2016) 259 CLR 180; [2016] HCA 29; SZBEL v Minister for Immigration and Multicultural and Indigenous Affairs (2006) 228 CLR 152; [2006] HCA 63; Commissioner for ACT Revenue v Alphaone (1994) 49 FCR 576; Stowers v Minister for Immigration and Border Protection (2018) 265 FCR 177; [2018] FCAFC 17, considered.

Judgment

1. MITCHELMORE JA: I agree with Kirk JA.
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. 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. 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. 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. 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.

The requirement for procedural fairness under the Act

1. 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. 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. 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. 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.

The documents exchanged between the parties

1. 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. 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.

Demex's payment claim

1. 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.
2. The pertinent three of those items were as follows: 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. 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.
3. The coversheet to the payment claim stated (emphasis added): Please note that this was a BOQ [Bill of Quantities] contract, which is made clear in the schedule and made by you during the course of the tender because you provided the quantities we were to use for the purposes of the BOQ. Accordingly, the final quantities of all items were measured and claimed in accordance with the contract. Specifically, all Export Quantities have been collated and claimed under one heading and all Import Quantities and other measured work. All of the deliveries related to the Import & Export Quantities have been summarised in Appendices B and C and copies of all dockets have been provided as supporting evidence of the Imports and Exports.
4. 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.

Appendix B - imports

1. 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.
2. 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: 1 22188 2 24380.4 3 34616.88 4 12428.88 5 24380.4 6 1.961592678

1. 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.
2. 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.
3. 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.

Appendix C - exports

1. 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.

Respondent's payment schedule

1. 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.
2. 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.
3. 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.
4. 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.

Demex's adjudication application

1. 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.
2. Relevantly, the application contained the following paragraph, which was repeated in a number of places: At all material times, the Respondent was on the site and required the Claimant to diligently and expeditiously export ACM and import clean fill pursuant to the directions of the Respondent. The Claimant carried out; (a) The import of 34,616.88 m3 of clean fill during the period 8 March 2021 to 1 November 2021, for which the Claimant has provided dockets for each and every truckload. Each load is referenced in the Payment Claim Tab "B-Import" [clearly referring to Appendix B]. (b) The export of 35,101.02 m3 of ACM Material during the period 11 February 2021 to 25 August 2021, for which the Claimant has provided dockets for each and every truckload. Each load is referenced in the Payment Claim Tab "C-Export" [clearly referring to Appendix C].
3. 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".
4. The adjudication application also said the following with respect to imports, with an equivalent paragraph in relation to exports: The Claimant has provided copies of every delivery docket (for each truckload) of fill imported to the Site. These appear in the Payment Claim under the Tab labelled; "B-Import". The Respondent's claim that the amount claimed is not particularized is a non-sense [sic].

McNab's adjudication response

1. 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.
2. 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): (b) The cubic metre quantity, according to Demex, is determined by weight shown on truck dockets. How Demex accurately gets from weight to cubic metres is not clear (which is a matter addressed later in this response). … (g) Where the parties really differ is on the issue of how to measure quantities. Demex Relies on tonnage stated on thousands of truck dockets provided with the Payment Claim. McNab relies on survey which shows precisely the quantity of spoil excavated and fill imported by Demex. There is no better way of measuring volumetric quantity than survey. And in any case, there is evidence that the trucks were loaded with concrete and other hard and heavy materials. Even if the adjudicator could determine m3 based on weight (and McNab respectfully says he cannot so he should not) then those weights are unreliable. … (j) McNab respectfully submits that, when faced with a choice of assessing a progress claim for additional volumetric quantities based on tonnage or survey, the Adjudicator should choose the more reliable method which is survey.
3. 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): 6.4 The issue in dispute, and for the Adjudicator to determine, is the appropriate method of measurement for the work performed. Put simply, to evidence cubic metres performed: a) Demex relies on tip and truck dockets; and b) McNab relies on survey data. 6.5 In support of Demex's position, the Payment Claim includes approximately 4651 pages of tip dockets, truck dockets, and waste transport certificates (Tonnage Dockets). Demex repeatedly states in its submissions that "the Claimant has provided dockets for each and every truckload". 6.6 The Tonnage Dockets capture the tonnage of each truck load of material. However, it is unclear, and Demex's submissions are silent on, how the Tonnage Dockets evidence the purported quantities performed. 6.7 It is common ground that extra work performed (McNab says as a variation; Demex says as a remeasure) is to be valued on a cubic metre basis, and it is on this basis that the work has been claimed. However, where the parties depart is the method of measuring the cubic metres performed. … 6.13 In the Payment Claim and Adjudication Application, Demex does not take issue with the survey data used by McNab nor contend that survey is not the appropriate method of measurement for determining volumetric quantities. Also, most of the survey documents which are provided with this adjudication response and relied on by the parties are, in the most part, prepared by Magellan Space which was engaged by Demex. 6.14 Instead, Demex provides 4561 pages of Tonnage Dockets and expects the Adjudicator, without guidance, to tally the dockets and perform some sort of reverse calculation to convert the tonnages into cubic metre quantities. Demex has not explained how the Adjudicator should (or could) do this. 6.15 However, if the Adjudicator is persuaded to attempt to perform such calculations, McNab says the Tonnage Dockets are entirely inappropriate and unreliable as a measure of cubic meters removed from the ground. … 6.25 When valuing the work and determining the volumetric quantities performed, the Adjudicator should adopt the survey data in favour of the Tonnage Dockets and should be satisfied of the unreliability of the Tonnage Dockets to inform such quantities. In fact, the most accurate way to calculate a claim based on a cubic metre rate is survey.

Adjudicator's request for further submissions

1. On 13 July 2022 the adjudicator made a request for additional documents from the parties, which were subsequently received: 1. From the Claimant - a legible copy of Annexure 5.1 in the Formal Instrument of Agreement titled "Contract Amendments Departures Schedule"; 2. From the Claimant and the Respondent - written submission from each party confirming those documents which comprise the "Bill of Quantities" and the "Schedule of Quantities" as listed at item 6A of that part of the Subcontract titled "The Schedule".
2. 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. 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. 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.

Import items

1. The adjudicator said the following with respect to the claim for the import items (emphasis added): 234. The Claimant 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. I have before me by way of submissions, statutory declarations and numerous pieces of correspondence between the parties which substantiates the calculation of the claimed amount. 235. Accordingly, I do not agree with any of the reasons pressed by the Respondent in denying the Claimant its claimed amount in respect of this item and find that the Claimant has valued the item in accordance with the Contract such that its claim is valid pursuant to clause 31(b). 236. I am satisfied the Claimant is a demolition, civil and asbestos remediation contractor experienced in projects of this nature. I am satisfied that an experienced Claimant acting reasonably would not import that quantity of fill material without good reason and that the Claimant has complied with the Contract and is therefore entitled to make the claim. 237. As stated by the Claimant, the Respondent was on the Site and required the Claimant to diligently and expeditiously import clean fill pursuant to the scope of works under the Contract. The Claimant carried out the import of 34,616.88 m3 of clean fill during the period 8 March 2021 to 1 November 2021 for which the Claimant has provided dockets for each and every truckload. Each load is referenced in the Payment Claim Tab "B-Import" of the payment claim. I note the Respondent has not questioned the existence of the dockets in its Payment Schedule 238. The Claimant has used truck dockets to calculate the total quantity removed from the site. The calculation is supported by truck dockets showing loose m3 or tonnage per load. Each entry on the Payment Claim Tab "B-Import" is dated and provides the following: a) for VENM (Virgin Excavated Natural Material) from 8th March 2021 to 29th August 2021 a total imported quantity of 22,188 m3; b) for SCALP (clean crushed concrete material and the like) from 12th May 2021 to 1st November 2021 a total imported quantity of 24,380.40 tonnes. By quick and easy calculation, the Claimant has divided the tonnage of SCALP material by a precise conversion factor of 1.96 tonnes to m3 and thus calculated a volume of 12,428.88 m3 of imported SCALP. On review of industry standard tonnage to m3 conversion factors, I find that used by the Claimant to be reasonable. c) The total of the VENM and SCALP materials is 34,616.88 m3 as claimed by the Claimant. 239. However, unlike the Respondent, I do not rule truck dockets out as a measure of volume. It is used in the industry albeit it has obvious limitations. There is a consistent pattern and the Claimant's submissions are logical and plausible. These dockets are very important in this payment dispute because they provide a "memory" of the Project. They comprise contemporaneous records of what actually occurred during the period 8th March 2021 to 1st November 2021.

Export items

1. 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): 258. The Claimant 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. I have before me by way of submissions, statutory declarations and numerous pieces of correspondence between the parties which substantiates the calculation of the claimed amount. 259. Accordingly, I do not agree with any of the reasons pressed by the Respondent in denying the Claimant its claimed amount in respect of this item and find that the Claimant has valued the item in accordance with the Contract such that its claim is valid pursuant to clause 31(b). … 263. The delivery dockets, on the face of it, are for asbestos contaminated material transported by the Claimant from the Site address. The delivery docket entries all described contaminated material. The summary document showing all loads of asbestos contaminated material removed from the site is provided is generated by Cleanaway, a third party in this matter. As such, I am confident that the quantities described in the provided represent the contaminated material removed from the project address and confirm my agreement on the quantities. 264. Unlike the Respondent, I do not rule truck dockets out as a measure of volume. As with the previous item for "RAP- Option 4 - Import, place and compact clean material" there is a consistent pattern and the Claimant's submissions are logical and plausible. Again, these dockets are very important in this payment dispute because they provide a "memory" of the Project. They comprise contemporaneous records of what actually occurred during the period 11th February 2021 to 5th August 2021. Additionally, I also refer to item no. 40 of the Departures Schedule as included at Annexure 5.1 - Formal Instrument of Agreement Contract Amendments Departures Schedule. 265. Item no. 40 of the Departures Schedule records that the parties agreed an Excavated soil conversion rate. Item no.40 reads as follows, For clarity, DEMEX proposes that the excavated soil conversion rate is to be 1.6 Tonne per Cubic Metre. The Respondent confirmed its agreement by stating, Agreed. … 268. The agreement of the above departure within the Formal Instrument of Agreement Contract Amendments Departures Schedule has meaning and purpose. It is clear the parties agreed a means by which the asbestos contaminated material (excavated soil) was to be measured and quantified. This departure aligns with the quantity claimed by the Claimant in its payment claim. … 276. The Claimants calculation is straightforward and plausible. The tonnage to volume (m3) conversion it uses is that which is agreed by the Respondent by reference to item no. 40 of the Departures Schedule included in the Contract. Item no.40 reads as follows, For clarity, DEMEX proposes that the excavated soil conversion rate is to be 1.6 Tonne per Cubic Metre. 277. The records provided show a total tonnage of 56,209.64 tonnes. By applying the agreed conversion factor of 1.6 tonnes per cubic metre (m3) the total volume of asbestos contaminated material removed from site is 35,131.02 m3. This quantity includes 24,075.80 m3 and 30 m3 of material claimed under item 7.1 - Remediation Works (RAP Option 4) Off-site ACM Disposal. Therefore, 35,131.02 m3 - 24,075.80 m3 - 30 m3 = 11,025.22 m3.

The decision of the primary judge

1. 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.

Export items

1. 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].
2. His Honour said the following (at [18], emphasis added): Mr Hastie [counsel for Demex] also points out that about two-thirds of truck and tip dockets on which Demex relied to substantiate its claim recorded the weight of the material in tonnes with the balance recording the volume of the material in cubic metres. That emphasises the significance of the conversion from tonnage to cubic metres for the Determination. Mr Hastie also submits that the issues about quantification or measurement of imported and exported materials were squarely in dispute before the adjudicator and were the subject of the submissions by both parties, and the approach which the adjudicator adopted was that for which Demex contended. I accept that those matters were, in a general way, in dispute before the adjudicator, and that the adjudicator adopted the general approach for which Demex contended, by placing reliance on information contained in truck dockets in preference to the survey approach for which McNab contended. However, that submission does not come to grips with the difficulty identified in Mr Byrne's submissions [counsel for McNab], namely 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 and which he did not expose to McNab to allow McNab an opportunity to make submissions before he took that course.
3. 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].

Import items

1. 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].
2. 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]): It seems to me that the difficulty in the adjudicator's reliance on that information arises, not from the use of the information in itself, [but] from the adjudicator's failure to indicate that he proposed to do so and allow McNab an opportunity to make submissions, before reaching a conclusion adverse to McNab by reference to that information.
3. 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. 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. 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. 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. 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. 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. 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

Considering the conversion factor of 1.6 though not previously identified

1. 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. 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. 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. 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. 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.

Recourse to the contracted conversion rate

1. 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.
2. 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.
3. 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.
4. 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).

Procedural fairness with respect to the import items

Considering the conversion factor of 1.96 though not previously identified

1. The same answers apply in relation to the import items as for the equivalent argument with respect to the export items.
2. 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]).

Industry standards

1. 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.
2. 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. 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. The orders of the Court should be as follows: 1. Appeal allowed with costs. 2. Set aside orders 1, 2 and 4 made by the Supreme Court on 25 October 2022 and in lieu thereof order as follows: 1. Prayers 4-8 of the summons are dismissed. 2. Plaintiff to pay the defendants' costs.
3. ADAMSON JA: I agree with the orders proposed by Kirk JA and with his Honour's reasons for those orders.

Amendments 24 June 2024 - Corrected citation. 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: 24 June 2024