Australian court: adjudication determinations should not be based on matters not raised by parties

The Supreme Court of New South Wales (NSW), in a recent case, has issued a reminder that adjudication determinations should not be made based on matters not raised by parties.

The decision was made concerning a challenge to a determination under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA) in the case McNab Building Services Pty Ltd (McNab) v Demex Pty Ltd (Demex). McNab was successful in its challenge of the determination, establishing that it was denied procedural fairness as the determination was based on matters not raised by the parties and to which the parties did not have an opportunity to make submissions.

If McNab had had the opportunity to make submissions on the relevant point, it might have discouraged the adjudicator from adopting the approach used. In support of this view, the lack of disclosed reasoning in the determination is noted. The matters in question were material to the determination as the adjudicator could not have reached the conclusion without them.

For claimants, they should be careful to explain how their claims are calculated, especially if any aspect is not straightforward. If any particular issue is not raised, it is possible to challenge the determination even if an adjudicator fills in the gaps.

For adjudicators, if the parties do not raise a point that is material to the outcome of a determination, they should ensure that an opinion on the issue is requested to be submitted and considered.

The case

McNab subcontracted remediation of asbestos-contaminated material and earthworks at a property in Tweed Heads West, NSW to Demex.

Demex made a payment claim under the SOPA for about AUD$2.8 million. It attached a table and a range of supporting documents to its claim. The claim sought payment for quantities of material removed from or brought to the property in excess of the amounts contemplated by the contract. Demex’s claim referred to the volume of additional material in cubic metres, but many of the supporting documents referred to the weight of the material in tonnage rather than volume.

McNab issued a payment schedule proposing to pay nil with respect to the claim and the dispute proceeded to adjudication under SOPA.

In the adjudication, Demex contended that the adjudicator should accept truck dockets as evidence of the amount of additional work carried out, which was contested by McNab. Neither party expressly identified applicable rates to convert the weight of the material recorded in the numerous truck dockets to volume.

The adjudicator determined that Demex was entitled to about AUD$1.4m in progress payment for the payment claim. When making the decision, the adjudicator chose to accept the truck dockets as evidence. The adjudicator went on to apply rates to convert the weight recorded in the truck dockets to volume.

One of the conversion rates used arose from the contract. The other conversion rate arose from a document provided in support of the payment claim and which the adjudicator indicated was checked by reference to industry standard tonnage to cubic metres conversion. Neither party submitted a conversion rate to the adjudicator and the adjudicator did not give either party an opportunity to make submissions on their application.

Mr. Justice Black found that McNab was denied procedural fairness because the adjudicator applied the conversion rates despite neither party raising them and did not give the parties notice of the intent to do so or an opportunity to make submissions.

Co-written by James Thyer of Pinsent Masons.