Demex Pty Ltd v McNab Building Services Pty Ltd  NSWCA 261
The recent NSW Court of Appeal decision in McNab Building Services Pty Ltd v Demex Pty Ltd  NSWCA 261 considered an appeal of a NSW Supreme Court decision quashing an Adjudicator’s decision under the Building and Construction Industry Security of Payments Act 1999 (NSW) (SOP Act). The decision considered the application of the principles around procedural fairness in adjudication.
McNab Building Services Pty Ltd (Respondent) entered into a subcontract with Demex Pty Ltd (Claimant) for the removal of asbestos from a construction site in Tweed Heads in the north of New South Wales (Works).
During the course of the Works the Claimant submitted a payment claim for approximately $2.8 million. The contract provided for payment for excavated material calculated based on the volume of material. In support of its claim, the Claimant provided documentary evidence supporting its claim which referred to the weight of the material removed rather than the volume. The Claimant did not expressly articulate how it converted the weight to volume as required by the contract.
In its payment schedule the Respondent scheduled an amount of nil. In response to the Respondent’s assessment of nil, the Claimant subsequently lodged an adjudication application.
In determining the appropriate factor to be applied to the conversion of weight to volume, the adjudicator identified and relied on a conversion factor for excavated soil in the departures schedule forming part of the contract. The Claimant did not make any submissions on the method of conversion, however the Respondent made submissions as to why this was not the correct method of conversion.
Notwithstanding the Respondent’s submissions, the adjudication determination found that the Respondent was liable to pay the Claimant the amount of $1,390,882.00 (Adjudication Determination).
The Respondent appealed the Adjudication Determination in the NSW Supreme Court on the basis that:
- the Respondent was denied procedural fairness; or
- the Adjudicator made a jurisdictional error in respect of the Adjudication Determination.
The NSW Supreme Court determined that the Adjudicator had adopted a position that was not put forward by either of the parties and failed to request the parties’ submissions on these matters. As a result, the Court quashed the Adjudication Determination on the basis that the Adjudicator had denied the Respondent natural justice (SC Decision).
The Claimant appealed the SC Decision to the NSW Court of Appeal on the basis that:
- the primary judge erred in concluding that the adjudicator breached the requirements of procedural fairness in the manner found; or
- if there was any breach of procedural fairness, it was not material in the requisite sense.
In determining the first point of appeal, the NSW Court of Appeal found that procedural fairness is afforded to a party as long as the party is given a reasonable opportunity to present his case. It was determined that the Respondent could not rely on the argument that the Respondent was not given a fair opportunity to address the conversion rate issue because the conversion rate was not spelt out in express terms by the Claimant. The Court found that it was clear that the Respondent understood that the Claimant had applied some conversion rates to get from weight to volume and that a reverse calculation could be performed to identify what that was. Accordingly, the Respondent had been given a reasonable opportunity to present its case.
The NSW Court of Appeal allowed the Claimant’s appeal determining that procedural fairness had been afforded to the Respondent thereby upholding the Adjudication Determination.
Procedural fairness requires only that a party be given a reasonable opportunity to present their case and not that the relevant court or tribunal ensure that a party takes the best advantage of the opportunity to which he is entitled. It is incumbent upon the parties to take full advantage of the knowledge they have of their opponent’s claim and formulate their response accordingly.
If you would like to discuss this article with us further, please contact Brett Vincent, Partner, or Maddy Manousaridis, Associate on (02) 9261 5900.