Demex Pty Ltd v McNab Building Services Pty Ltd [2023] NSWCA 261
Under the New South Wales Building and Construction Industry Security of Payment Act 1999, only a substantial denial of procedural fairness by an adjudicator is jurisdictional error, and on the facts there was none where the adjudicator adopted and confirmed conversion rates the claimant had applied without explanation.
What the court decided
McNab Building Services Pty Ltd subcontracted Demex Pty Ltd to carry out remediation earthworks in Tweed Heads [3]. It was common ground that the relevant work was to be claimed in cubic metres [3]. For much of its payment claim of some $2.8 million, Demex relied on dockets recording tonnes, and the claim converted those amounts into cubic metres without explaining in terms how [3].
The adjudicator determined that Demex was entitled to $1,390,882.42 [5]. He worked out for himself, by simple arithmetic on figures in the claim, the rates Demex had applied: 1.96 for imports and 1.6 for exports [5]. He said the import rate was reasonable in light of industry standards and found support for the export rate in a contractual document [5]. That document was the Departures Schedule to the contract, and he relied on item 40 in it [69], [70].
The primary judge, Black J, upheld McNab's procedural fairness challenge, declared the determination void and quashed it [6]. The Court of Appeal allowed Demex's appeal with costs [104]. Kirk JA wrote the reasons, and Mitchelmore JA and Adamson JA agreed [1], [105].
Kirk JA accepted that the general requirement of procedural fairness is attenuated in the context of the Act [30]. Consistently with earlier authority, only a substantial denial of procedural fairness by an adjudicator will be jurisdictional error under the Act [29], [32]. Because procedural fairness is a statutory implication, his Honour put this as a reduction in the content of the fairness the Act requires [30], [32]. Generally, invalidity would follow only from a significant departure from the ordinary requirements that could be characterised as causing "substantial practical injustice in all the circumstances" [32].
On the export items, it was necessarily implicit in the claim that Demex had applied some conversion factor, and the rate of 1.6 was readily calculable from its material [82], [83]. Experienced parties working to tight timeframes need not spell out every step of a payment claim [84]. McNab understood that some conversion rate had been applied, yet made no submission on what rates would be appropriate [86]. Even on a more general approach, McNab could not complain that it lacked a fair opportunity, and there was certainly no substantial denial [88], [89]. Kirk JA found it unnecessary to explore McNab's authorities on an adjudicator deciding on a basis neither party contended for, because that had not occurred [90].
Assuming that the use of item 40 was contestable, Kirk JA held that unforeshadowed reliance on it raised a question of procedural fairness but, in the circumstances and the statutory context, was not a substantial denial [92], [93]. In substance, the adjudicator used the item to confirm Demex's rate, and it was not procedurally unfair to do so [94]. Rejecting McNab's survey approach was enough to resolve the dispute, so going further to calculate and confirm the rate caused McNab no prejudice and created no realistic possibility of a different outcome [95], [96], [97].
The same answers applied to the import items [99]. Read fairly, the adjudicator's reasons used industry knowledge only to confirm the import rate, which caused no relevant unfairness in the circumstances of this case [102].
Why it matters
The decision confirms, consistently with earlier authority, a high threshold for setting aside a New South Wales adjudication determination for want of procedural fairness. On the conversion rates themselves, the Court found no unfairness even on a more general approach. On this reasoning, an experienced respondent that, like McNab, understands the claimant has applied a readily calculable conversion rate should address it rather than rely on its being unexplained.
Confirmatory use of the contract document and of industry knowledge was held not unfair in the circumstances of this case, even assuming the contract document's use was contestable. The decision does not settle the position where an adjudicator decides on a basis neither party put.
Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.