McNab Building Services Pty Ltd v Demex Pty Ltd

[2022] NSWSC 1441

Supreme Court

New South Wales

Medium Neutral Citation:

McNab Building Services Pty Ltd v Demex Pty Ltd [2022] NSWSC 1441

Hearing dates:

7 October 2022

Date of orders:

24 October 2022

Decision date:

24 October 2022

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

Plaintiff succeeds in its claim. Parties to bring in short minutes of order to give effect to this judgment.

Catchwords:

BUILDING AND CONSTRUCTION — Adjudication — Natural justice — Where the adjudicator applied a conversion factor in his determination which was not raised by the parties and to which the parties did not have an opportunity to make submissions — Whether there was a breach of procedural fairness in the adjudicator’s application of that conversion factor

Cases Cited:

- Brodyn Pty Ltd t/as Time Cost and Quality v Davenport (2004) 51 NSWLR 421

- Hossain v Minister for Immigration and Border Protection (2018) 264 CLR 123

- John Goss Projects Pty Ltd v Leighton Contractors (2006) 66 NSWLR 707

- Minister for Immigration and Border Protection v SZMTA (2019) 264 CLR 421

- Musico v Davenport [2003] NSWSC 977

- MZAPC v Minister for Immigration and Border - Protection (2021) 95 ALJR 441

- Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) 264 CLR 1

- Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd (2016) 260 CLR 340

- TWT Property Group Pty Ltd v Cenric Group Pty Ltd [2020] NSWSC 72

Category:

Principal judgment

Parties:

McNab Building Services Pty Ltd (Plaintiff)
Demex Pty Ltd (First Defendant)
Chris Thompson (Second Defendant)

Representation:

Counsel:
D Byrne (Plaintiff)
J P Hastie (First Defendant)

Solicitors:
Level Field (Plaintiff)
Shand Taylor (First Defendant)

File Number(s):

2022/235968

Judgment

Nature of the application and background

1. These proceedings concern a challenge to an adjudication determination (“Determination”) made on 28 July 2022 under s 22 of the Building andConstruction Industry Security of Payment Act 1999 (NSW) (“SOPA”) in favour of the First Defendant, Demex Pty Ltd (“Demex”) against the Plaintiff, McNab Building Services Pty Ltd (“McNab”), for $1,390,882.42 inclusive of GST. By its Summons filed on 10 August 2022, McNab seeks a declaration that the Determination is void and an order that it be quashed, and an order restraining Demex from taking any steps to enforce the Determination. By its Technology and Construction List Statement filed on 10 August 2022 (“TCLS”), McNab identifies the grounds for the application, which involve an allegation that it was denied procedural fairness or that the adjudicator made a jurisdictional error in respect of the Determination.

Background

2. McNab relies on the affidavit dated 12 August 2022 of its solicitor, Mr Thomas Cranitch, which largely exhibits relevant documents. Demex in turn tendered an additional bundle of documents. The relevant facts are largely uncontentious and emerge from the pleadings and documents in evidence.

3. In January 2021, McNab and Demex entered into a subcontract (“Subcontract”) by which Demex agreed to undertake remediation works in respect of asbestos contaminated material and earthworks at a property in Tweed Heads West in New South Wales for a subcontract sum of $2,198,745.21 exclusive of GST. Clause 1.1 of the Subcontract provided that McNab and Demex had contracted as contractor and subcontractor respectively to perform the Works (as defined) by reference to particular documents, which included Annexure 5.1 “Formal Instrument of Agreement Contract Amendments Departures Schedule” (“Departures Schedule”) (Ex D1, 631). The adjudicator subsequently requested a copy of that Departures Schedule which included, as item 40, a reference to “excavated soil conversion rate”, which Demex proposed would be 1.6 tonne per cubic metre, to which McNab agreed.

4. Demex commenced work in respect of the Subcontract in early 2021. By a “Payment Claim 14” dated 31 May 2022 (Ex P1, CB 293; Ex D1, CB 637) under s 13 of the SOPA (“Payment Claim”), Demex claimed an amount of approximately $2.8 million inclusive of GST for work up to 3 March 2022. I will refer to the components of that claim below. The claim attached a table which identified volumes of material and also attached a range of supporting documents. While those claims were made by reference to volumes of material in cubic metres, many of the supporting documents on which they rely referred to the weight rather than the volume of that material. That issue was addressed in the Determination and gives rise to the difficulties which I note below.

5. On 15 June 2022, McNab served a payment schedule (Ex P1, CB 300) under s 14 of the SOPA on Demex (“McNab Payment Schedule”) challenging the amounts claimed under the Payment Claim. McNab there indicated that it proposed to pay the amount of nil and contended that Demex was liable to pay McNab $1,348,654.64 including GST. I will refer to its response to the components of Demex’s claim below.

6. By its adjudication application dated 29 June 2022 under s 17 of the SOPA (Ex P1, CB 341) (“Adjudication Application”), Demex identified the works involved as the removal of soil which was contaminated with asbestos contaminated material (“ACM”) and the procurement, transport to site and placement of clean fill. Demex also there referred to the “extra over rate” applicable under a bill of quantities for off-site ACM disposal and for the import, placement and compacting of clean material, in each case calculated by cubic metre. I refer to then components of that work below.

7. McNab then lodged its adjudication response under s 20 of the SOPA (Ex P1, CB 399) (“Adjudication Response”). After requesting further submissions and obtaining a short extension of time to decide the matter, the adjudicator made the Determination on 28 July 2022 (Ex P1, CB488) and found that the amount of the progress payment to be paid by McNab to Demex was $1,390,882.42.

8. McNab commenced these proceedings on 10 August 2022. On 29 September 2022, the Court made orders, by consent, that McNab pay into Court the sum of $1,462,108.71 (being the adjudicated amount, with interest from 30 June 2022 to 31 December 2022, in addition to 50% of the adjudicator’s fees) and, on McNab’s undertaking as to damages, restrained Demex from taking any steps to enforce the Determination, including obtaining an adjudication certificate under s 24 of the SOPA. At the hearing, that order was extended to a period of two business days after delivery of this judgment.

The applicable principles

9. 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: Musico v Davenport [2003] NSWSC 977 at [107]; Brodyn Pty Ltd t/as Time Cost and Quality v Davenport (2004) 51 NSWLR 421 at [57]; John Goss Projects Pty Ltd v Leighton Contractors (2006) 66 NSWLR 707; TWT Property Group Pty Ltd v Cenric Group Pty Ltd [2020] NSWSC 72 at [110]-[111]. Mr Byrne, who appeared for McNab, also referred to High Court authority in respect of the materiality threshold, as requiring that there was a realistic possibility that the decision-maker’s decision would be different if the breach had not occurred: Hossain v Minister for Immigration and Border Protection (2018) 264 CLR 123; Minister for Immigration and Border Protection v SZMTA (2019) 264 CLR 421; MZAPC v Minister for Immigration and Border Protection (2021) 95 ALJR 441. Mr Byrne also referred to Nathanson v Minister for Home Affairs [2022] HCA 26 as authority for the proposition that an applicant need not establish the nature of additional evidence or submissions that might have been presented at a hearing, had it been procedurally fair, to succeed in a challenge for procedural fairness.

10. I also have regard to Mr Hastie’s submissions as to the basis on which procedural fairness applies in an adjudication, as follows:

“It is uncontroversial that an adjudicator is obliged to afford parties natural justice and procedural fairness. Indeed, compliance with those requirements is essential to the validity of an adjudication determination. It was observed by Hodgson JA in Brodyn Pty Ltd v Davenport & Anor [above] (at [55]) that a valid adjudication determination required:

“…no substantial denial of the measure of natural justice that the Act requires to be given….if there is a substantial denial of natural justice, then in my opinion a purported determination will be void…”.

More has been said on the topic in judgments of this Court, including the decisions of McDougall J in Musico v Davenport [above], John Goss Projects v Leighton Contractors [above] and Watpac Constructions v Austin Corp [[2010] NSWSC 168].

It is important to observe that Hodgson JA spoke of the “measure of natural justice that the Act requires to be given”. That reflects the need, recognized by authority, to determine the content of the requirement by reference to the statutory scheme in which the decision falls to be made. In Watpac, McDougall J said (at [142]) that:

“Any entitlement to natural justice must accommodate the scheme of the Act, including the extremely compressed timetable provided for the submission of payment schedules, adjudication applications, and adjudication responses; and the limited time (subject to the consent of the parties, which they may give or withhold at their will) for an adjudicator to determine an application. It must also accommodate the fact that, in many cases, claimants and respondents will prepare their documents themselves, and will not avail themselves of legal advice in doing so.”

Similar observations were made by the Court of Appeal in Probuild Constructions (Aust) v DDI Group Pty Ltd [(2017) 95 NSWLR 82]. In that case, McColl JA emphasized (at [101]) that the content of the requirement of natural justice turned on the scheme of the [SOPA]. Natural justice is concerned with avoiding “practical injustice”. Her Honour went on (at [107]) to observe that:

“The exiguous time limit the [SOPA] imposes on the Adjudicator and the interim nature of an adjudication determination also inform the requirement of procedural fairness in any adjudication. Having regard to the fact that the [SOPA] provides for the “speedy, interim only determination by adjudicators of disputed claims under construction contracts … adjudications are not intended to be scrutinised in the same way as considered final determinations”.

One of the features of the [SOPA] which informs the content of natural justice which an adjudicator is required to afford a party is the prohibition, in s 20(2B), on a responding raising a matter for withholding payment that has not been stated in a payment schedule.” [footnotes omitted]

11. I also accept that materiality is relevant in determining whether a failure of an adjudicator to ask for submissions on a matter not raised by the parties will amount to a denial of procedural fairness and, as Mr Hastie submits:

“Not every failure of an adjudicator to ask for submissions on a matter not raised by the parties will amount to a denial of natural justice. The denial of natural justice must be material or substantial. Materiality is assessed by considering:

(a)   the importance or otherwise of the topic or issue on which there was a denial of an opportunity to make submissions and, in particular, its significance to the actual determination; and

(b)   whether or not there were submissions which could properly have been made which might have affected the Determination.

After emphasizing the word “substantial” in the judgment of Hodgson JA in Brodyn, McDougall J said in John Goss Projects [above] (at [42]) that any denial of natural justice must be material. Principles of natural justice “…could not require an adjudicator to give the parties an opportunity to make submissions on matters that were not germane to his or her decision”.

A similar point was made by Applegarth J in John Holland Pty Ltd v TAC Pacific Pty Ltd [[2009] 1 Qd R 302]. After agreeing with the approach taken in John Goss Projects [above], his Honour observed (at [35]) that attention needed to be given to both “the critical issue or factor on which the decision turns and the way in which the Adjudicator decided it” [footnotes omitted].

Items 6.0 and 7.1 – Export of ACM from site

12. McNab contends (TCLS [17]) that the adjudicator’s finding in respect of the costs applicable to ACM removed from the site, which applied a conversion factor of 1.6 tonnes per cubic metre to convert the loose tonnage per truck load to a cubic meter volume for the purposes of the Subcontract, was made on a basis for which neither party contended and without notifying the parties of his intention to adopt that approach or allowing an opportunity to make submissions. McNab also relies on this matter (TCLS [19]) to contend that it was denied procedural fairness in respect of the adjudication.

13. It is necessary to trace the documents setting out this claim in order to determine it. The schedule to Demex’s Payment Claim (Ex P1, CB 297) identified its second claim as $1,006,161.58 for item 6.0 (described as “Existing stockpiles (RAP – Option 4) – Off-Site ACM disposal (m3)”), calculated on the basis that it had exported 24,075.80 m3, of which an amount of $900,655.02 was in dispute; and identified Demex’s third claim as $2,090,742.47 for item 7.1 (referable to remediation works for areas 1-5), calculated on the basis that it had exported 24,075.80 m3 of ACM at a rate of $86.84 per m3, of which an amount of $1,163,204.43 was in dispute. In the McNab Payment Schedule, McNab there contended (Ex P1, CB 3127), in respect of item 6.0, that Demex “has not particularised” the “extra over quantity” and McNab had “no possible way of determining to what construction works the amount claimed purportedly relates”; and advanced the same contention in respect of item 7.1. I also understand these contentions to identify, again correctly, that Demex’s Payment Claim did not indicate how, inter alia, it converted tonnages referred to in supporting documents to the volume in cubic metres on which its Payment Claim was based.

14. Demex’s Adjudication Application again recognised, in respect of item 6.0, that McNab had withheld payment on the basis that, inter alia, Demex “has not particularised the amounts claimed” and responded that:

“[Demex] has provided copies of every tip docket (for each truck load) of ACM exported from the Site. … [McNab’s] claim that the amount claimed is not particularised is a non-sense.” (Ex P1, CB 372)

However, Demex did not there provide any indication of how records of the weight of truckloads of ACM exported from the site should be converted to volume amounts, so as to calculate amounts payable under the Subcontract by reference to volume rather than weight. The information provided in the claim in respect of item 7.1 adopted the same format. By its Adjudication Response, McNab then identified Demex’s claim as directed to its exporting 35,101.02 m3 of ACM rather than 10,681 m3 of ACM required by the Contract, and as involving a claim that it was entitled to be paid over the quantities according to the rates listed on the bill of quantities. Similar submissions were put by McNab in respect of items 6.0 and 7.1 to those which I have noted in respect of item 4.0 above.

15. In the Determination (Ex P1, CB488), the adjudicator determined the total of virgin excavated natural material (“VENM”) and “SCALP” materials removed by Demex to be 34,616.88 m3 as claimed by Demex, and indicated he did not rule out truck dockets as a measure of volume (at [237]-[239]). He valued the work done on the basis of the volume claimed by Demex, with an adjustment. In respect of item 6.0, the adjudicator observed (at [262]) that Demex used truck dockets to calculate the total quantity removed from the site, and rightly recognised that the documents relied on referred to the net weight of the truck load rather than the volume and then observed (at [263]) that:

“The delivery dockets, on the face of it, are for asbestos contaminated material transported by [Demex] 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 generated by Cleanaway, a third party in this matter. As such, I am confident that the quantities described in the provided [sic] represent the contaminated material removed from the project address and confirm my agreement on the quantities.”

16. The adjudicator then repeated the observation (at [264]) that he did not rule out truck dockets as a measure of volume and relied on item 40 of the Departures Schedule to apply a soil conversion factor of 1.6 tonne per cubic metre to undertake that conversion. That approach had not previously been identified by Demex, and was identified and applied without any intervening step which would have allowed McNab to comment on its correctness. The adjudicator then repeated the proposition at ([276]) that conversion from tonnage to volume reflected the amount in the Departures Schedule, and there assumed that the agreed conversion factor applicable to excavated soil could properly be applied in respect of ACM, again without seeking submissions as to that matter. In respect of item 7.1, the adjudicator again derives the volume of ACM removed from site by applying the agreed conversion factor of 1.6 tonnes per cubic metre to records of the weight removed contained in trucking documentation. He there relies on the reasoning set out in paragraphs 255–264 of the Determination, to which I have referred above. Paragraphs 287–289 of the Determination in turn recorded that:

“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 contained material removed from site is 35,131.02m3. This quantity includes 11,025.22m3 of material claimed under item 6.0 – Existing Stockpiles (RAP Option 4) Off-Site ACM Disposal. Therefore, 35,131.02m3 - 11,025.22m3 = 24,105.80m3.” (emphasis in original)

The Determination here identified and applied that approach without any intervening step which would allow McNab to comment on its correctness.

17. Mr Byrnes, who appears for McNab, submits that McNab was denied procedural fairness in how the adjudicator calculated the volume used to value the work by converting tonnages contained in the trucking documents to volume to which the rates specified in the Subcontract applied. Mr Byrnes submits that neither party contended in submissions before the adjudicator that the factor of 1.6 should be applied to convert tonnage of SCALP to volume or that that conversion had been agreed between the parties. He submits that the adjudicator decided that claim on a contention not raised by either party.

18. Mr Hastie, who appears for Demex, notes that the volume of material exported in relation to items 6.0 and 7.1 was part of a larger total volume of exported material subject to Demex’s Payment Claim, of 73,638.46m3, corresponding to a total weight of exported material of 56,209.64 tonnes. Mr Hastie contends that all of the exported material was asbestos contaminated soil, and I accept that that is at least a premise of aspects of the adjudicator’s approach. Mr Hastie 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, 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.

17. Mr Hastie submits that issues as to quantification and the measure of the exported and imported material were not raised in the McNab Payment Schedule and McNab was not entitled to raise those matters before the adjudicator under s 20(2B) of the SOPA. It does not seem to me that that is an answer to the absence of procedural fairness in respect of the Determination. McNab had identified, in that Payment Schedule, the lack of clarity in Demex’s quantification of the amounts claimed, and that was sufficient to allow it to raise those matters with the adjudicator for the purposes of s 20(2B) of the SOPA. It also seems to me that it would not be open to a claimant under the SOPA to omit to identify the basis on which its payment claim is calculated; and then contend that, because the challenging party could only respond in its payment schedule by indicating that it did not know what the basis of that calculation was, it was not then open to the challenging party to raise that matter in the adjudication, where the basis of that calculation was not disclosed at any point in that process.

18. Mr Hastie also outlines, and I bear in mind, the process adopted by the SOPA to facilitate the prompt payment of amounts due in respect of construction work and the quick and expeditious resolution of disputes in relation to payment. Mr Hastie also refers to the recognition of those matters in the case law: Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd (2016) 260 CLR 340 at [3]ff; Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) 264 CLR 1 at [39]. Mr Hastie points out, and I bear in mind, that a respondent to an adjudication application has a compressed period of time to deliver an adjudication response under s 20 of the SOPA and that s 20(2B) of the SOPA provides that:

“The respondent cannot include in the adjudication response any reasons for withholding payment unless those reasons have already been included in the payment schedule to the claimant.”

21. Mr Hastie also points out, and I also bear in mind, that an adjudicator has a similarly compressed period of time to deliver his or her decision under s 21(3) of the SOPA and that, in making a determination, an adjudicator must only consider the matters set out in s 22(2) of the SOPA. However, the provision of procedural fairness in this matter would have been straightforward, and would not have delayed a determination by any substantial time, where it would have 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.

22. Mr Hastie seeks to support the adjudicator’s approach on the basis that the rate applied by the adjudicator was revealed in the Departure Schedule which formed part of the Subcontract and that all of the exported material was ACM for the purposes of the application of that schedule. The difficulty with that submission is, however, that each of those propositions is contestable; each of them is an essential premise of the adjudicator’s approach; and neither of them were specifically exposed by either Demex’s submissions or by the adjudicator to allow McNab to respond to them for a decision adverse to McNab was made by reference to them. I also do not accept Mr Hastie’s submission that the denial of procedural fairness in that respect was not material or substantial, where I have not accepted the submission that McNab was precluded from making submissions under s 20(2B) of the SOPA, and where the identification of the applicable conversion factor was a necessary step in reaching a conclusion favourable to Demex, which the adjudicator could not have reached without applying the conversion factors on the basis which was first identified in the Determination. Mr Hastie’s further submission that it is to be doubted whether McNab could have made any meaningful submission, because “it had already identified that it was unable to identify the rate which Demex had been [sic] used” seems to me to identify not a lack of materiality in that denial of procedural fairness, but the significance of that denial in the relevant circumstances.

23. It seems to me that McNab was deprived of procedural fairness in respect of these aspects of the Determination. Demex had not identified, at any point prior to the Determination, the basis on which it contended either that a conversion factor of 1.6 should be applied, although that was arguably implicit in its calculations, or the basis of that calculation in an application of item 40 of the Departures Schedule dealing with removed soil. It seems to me that there was a realistic possibility that, had the adjudicator disclosed that he would apply that conversion factor to the determination of items 6.0 and 7.1, and allowed McNab an opportunity to make submissions as to that approach, McNab could have dissuaded him from taking that approach. I can more readily reach that view where the adjudicator did not explain why he had not been persuaded by McNab’s submissions as to the unreliability of trucking data, though it is not apparent that he had formed any reasoned view, and there is an open question whether he could or would have maintained it not withstanding further submissions put by McNab directed to his approach to items 6.0 and 7.1.

Item 4.0 – Import of clean material

24. McNab contends (TCLS [18]) that the adjudicator’s finding which applied a conversion factor of approximately 1.96 tonnes per cubic metre, again to translate the tonnage per truck load to a cubic metre volume for the purposes of the Subcontract, was also made on a basis which neither party contended and without notifying the parties of the adjudicator’s intention to do so or allowing an opportunity to make submissions on the issue. McNab relies on these matters (TCLS [19]) to contend that it was denied procedural fairness in respect of the adjudication. McNab also contends (TCLS [21]) that, in determining the adjudicated amount, the adjudicator took into account matters which he was not entitled to take account under s 22 of the SOPA, namely an “industry standard tonnage to m3 conversion factor” that had not been referred to by either party and a conversion factor of 1.96 for clean washed concrete material that had not been referenced by either party. This proposition was largely subsumed in the procedural fairness case put by McNab.

25. It is again necessary to trace the documents setting out this claim in order to determine it. A schedule (Ex P1, CB297) to Demex’s Payment Claim referred to three items that are in issue, the first being namely a claim for $847,767.39 for item 4.0 described as “RAP – Option 4 – Import, place and compact clean material (m3)”, calculated on the basis that it had imported 34,133.08 m3 of material, and the amount of $507,895.17 was disputed. One of the supporting documents (Ex D1, 659) provided by Demex in support of the Payment Claim, in respect of SCALP import, refers to a figure of 1.961592678, without stating what it is or how it is to be applied. That figure, which the adjudicator abbreviates as “1.96”, was later applied in the Determination to convert from the weight of SCALP to volume.

26. In the McNab Payment Schedule, McNab contended, in respect of item 4.0, that Demex:

“has not particularised the additional quantities and McNab has no possible way of determining to what construction works the amount claimed purportedly relates” (Ex P1, CB 314)

I understand that contention to identify, correctly, that Demex’s Payment Claim did not indicate how, inter alia, it converted tonnages referred to in supporting documents to the volume in cubic metres on which its Payment Claim was based.

27. Demex’s Adjudication Application then referred (Ex P1, CB 369) to the import of 34,616.88 m3 of clean fill during the period 8 March 2021 to 1 November 2021, again without indicating how that figure was derived from weight records contained in the supporting documents. Demex there also recognised that McNab had withheld payment on the basis, inter alia, Demex had not particularised the amounts claimed, and again referred to delivery documents for truckloads of fill imported to the site, without indicating how weight information in those delivery documents was to be converted to volume information.

28. By its Adjudication Response (Ex P1, CB 399), McNab identified Demex’s claim as directed to importing 34,616.88 m3 of clean fill rather than the amount of 13,878 m3 of clean fill required by the Subcontract McNab contended the cubic metre quantities claimed by Demex “bear no correlating to the cubic metres of work it performed” (at [6.3]) and noted that Demex relied on tip and truck dockets and McNab relied on survey data to establish the quantities involved. McNab there noted that the 4,651 pages of tip dockets, truck dockets and waste transport certificates on which Demex relied:

“captured the tonnage of each truck load of material. However, it is unclear, and Demex’s submissions are silent on, how the Tonnage documents evidenced the purported quantities performed.” (at [6.6])

29. McNab in turn submitted that survey data would provide a more reliable basis for measuring any additional volumes and went on to observe that:

“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.

However if the Adjudicator is persuaded to attempt to perform such calculations, McNab says the Tonnage Documents are entirely inappropriate and unreliable as a measure of cubic metres removed from the ground.” (at [6.14]-[6.15])

30. McNab in turn contended that the tonnage of material removed did not have a linear correlation to the cubic metres of that material due to the varying type of natural material in the ground, the moisture content of the material, and other material being removed with the natural material. McNab also referred to evidence of boulders and demolished concrete waste among the stockpiles of ACM removed from the site, and noted that a cubic metre of concrete or rock would be considerably heavier than a cubic metre of compacted soil and earth material. McNab submitted that:

“In circumstances where the evidence shows the tonnage is captured by the Tonnage Documents include material such as rock and concrete, it is practically impossible to convert the tonnage back to a cubic metre quantity.”

31. McNab in turn referred, in respect of item 4.0, to the volume claimed by Demex and pointed out that it was based on truck documents which specified weight rather than volume; that survey data could be used instead; and attacked the amount claimed on several other bases.

32. In the Determination, the adjudicator noted (at [101]ff) the submissions made by McNab that survey was preferable to trucking dockets to measure the amount of volume removed and imported, and noted McNab’s reference to evidence that the trucks were loaded with concrete and other hard and heavy materials, without undertaking any reasoned assessment of that submission. In dealing with item 4.0, he noted (at [238]) that Demex had used truck dockets to calculate the total quantity removed from the site, and noted that VENM was recorded on those truck dockets in metres cubed and for SCALP, which he described as clean crushed concrete material and the like, the information was recorded as tonnes and:

“By quick and easy calculation, [Demex] 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 [Demex] to be reasonable.”

33. The adjudicator’s reference to the manner of the calculation, using a conversion figure factor of 1.96 tonnes, did not precisely reflected the figure which was been contained in Demex’s calculation schedule, but not there identified. This appears to be the first occasion on which Demex’s methodology was described, so that the adjudicator identified and adopted that methodology 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.

34. Mr Byrne submits that neither party contended that a conversion factor of 1.96 was appropriate, and that the adjudicator had regard to “industry standard tonnage to m3 conversion factors” which were not provided to him by either party and that deprived McNab of procedural fairness. Mr Hastie put the same submissions in respect of imported fill as he put in respect of exported material and I have addressed those submissions above. Mr Hastie also submits that the adjudicator could properly have regard to “industry standard” tonnage to m3 conversion material. 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, 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. I also do not accept Mr Hastie’s submission that that matter is not material, because it was used by the adjudicator as a “check” on the conclusion which he adopted by reference to the 1.96 rate; it cannot be assumed that, if that check had been rebutted, after allowing McNab an opportunity to make submissions about it, then the adjudicator would have relied on that rate without any other apparent support, beyond the fact that Demex had adopted it in its calculation. Assuming that, as Mr Hastie contends, adjudicators are entitled to bring their own expertise to bear in discharging their function under the SOPA, it seems to me that procedural fairness requires that the application of that expertise be exposed to the parties in respect of a material issue, so they have an opportunity to make a submission as to whether it is correctly applied to the relevant facts.

35. It seems to me that McNab’s challenge in respect of item 4.0 succeeds on both bases on which it relied. The 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 to allow McNab to make submissions as to its basis. The industry standard conversion factors, on which the adjudicator relied, were also not identified to allow McNab an opportunity to make submissions as to whether they existed or were in fact adopted as industry standard conversion factors, or supported the conversion factor which the adjudicator applied in the particular circumstances. Each of those matters were material, where the adjudicator could not have reached the conclusion he reached without applying them, and there is no reason to think the adjudicator could not have been dissuaded from that course had McNab been afforded an adequate opportunity to make submissions about it, particularly given the absence of disclosed reasoning as to why they were applied.

Claim for failure to consider survey data

36. McNab also contends (TCLS [20]) that the adjudicator failed properly to consider the Payment Schedule and submissions made by McNab which he was required to consider under s 22(2) of the SOPA and, in particular, failed to have regard to the direct evidence of the volume of material by way of survey data, for which McNab contended.

37. Mr Byrnes submitted that, in breach of s 22(2) of the SOPA, the adjudicator also failed to consider McNab’s submission that the use of tonnage documents was inappropriate for that calculation. The administrator had noted but did not undertake any reasoned analysis of McNab’s submission that survey data should be used. However, it is not necessary to determine this challenge to the Determination given the conclusions which I have reached above on other grounds.

Severance

38. By its Technology and Construction List Response (“TCLR”), Demex also contends that, if it is found that parts of the Determination are void, then only those parts of the Determination should be set aside. That question does not arise given the findings that I have reached above which have the result that the adjudicator’s determination of all issues raised in these proceedings is vitiated by the matters of which McNab complains.

Orders

39. I direct the parties to bring in agreed short minutes of order to give effect to this judgment within one business day, by 4pm on 25 October 2022, or otherwise their respective orders and short submissions as to differences between them. I can extend the timing for those orders if the Defendant is prepared to extend the undertaking it has given to allow more time to deal with that matter.

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Decision last updated: 26 October 2022