Cubic Transportation Systems Inc v State of New South Wales - [2002] NSWSC 656

CITATION: Cubic Transportation Systems Inc & Anor v State of New South Wales & 2 ors [2002] NSWSC 656 revised - 27/02/2003

CURRENT JURISDICTION: Common Law Division - Administrative Law List

FILE NUMBER(S): SC 30074/01

HEARING DATE(S): 11/2/02, 12/2/02,13/2/02, 14/2/02., 15/2/02, 19/2/02, 20/2/02, 21/2/02, 22/2/02, 25/2/02, 26/2/02, 27/2/02, 28/2/02, 1/3/02, 4/3/02, 5/3/02, 6/3/02, 7/3/02, 13/3/02, 14/3/02, 22/3/02, 8/4/02, 9/4/02, 10/4/02, 11/4/02, 12/4/02, 15/4/02, 16/4/02, 17/4/02, 18/4/02, 19/4/02, 22/4/02, 23/4/02, 24/4/02, 26/4/02, 6/5/02, 7/5/02, 8/5/02, 9/5/02

JUDGMENT DATE: 26 July 2002

PARTIES :

Cubic Transportation Systems Inc (First Plaintiff)
Cubic Transportation Systems (Australia) Pty Limited (Second Plaintiff)
v
State of New South Wales (First Defendant)
Transport Administration Corporation Limited (Second Defendant)
Commonwealth Bank of Australia (Third Defendant)

JUDGMENT OF: Adams J at 1

COUNSEL :
Mr G Downes QC
Mr J Sackar QC
Mr A Searle
Mr T Moore
Mr J Halley
Ms K Sainsbury for the plaintiffs
Mr T Bathurst QC
Dr J Griffiths SC
Mr A Payne
Mr R Hollo for the defendants
Mr T Castle (ITSL, ERG)

SOLICITORS: Baker & McKenzie (Plaintiffs)
Clayton Utz (Defendants)

CATCHWORDS: Government tender - whether creates process contract - nature of contract - whether implied term of good faith - whether statements of tendering ethical codes part of cotnract - whether public law principles apply - duty of legal advisers to Government - whether conflict of interest - Chinese walls - whether rules of natural justice apply to Government advisers - whether rules of natural justice apply to evaluation committee - whether apprehended or actual bias material - duty of probity auditor - application of clean hands doctrine

LEGISLATION CITED: Administrative Decisions (Judicial Review) Act 1977 (Cth)
Coalmines Regulation Act 1982
Judicial Review Act 1991 (Qd)
Transport Administration Act 1988

CASES CITED: Alfabs Engineering Group Pty Limited v Regan [2002] NSWSC 316
AMT Helicopters Pty Limited v Brisbane City Council & Ors (unreported, QSC Wilson J, 17 March 2000)
Annetts v McCann (1990) 170 CLR 596
Blackpool & Flyde Aero Club v Blackpool Borough Council [1990] 1 WLR 1195
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 16 ALR 363
Burger King Corporation v Hungry Jacks Pty Limited [2001] NSWCA 187
Century Metals & Mining NL v Yeomans (1989) 40 FCR 564
Chu v Minister for Immigration and Ethnic Affairs (1997) 78 FCR 314
Cord Holdings Limited v Burke (unreported, SCWA, Smith J 22 January 1985)
CSI Operations Pty Limited v Commonwealth (1996) 69 FCR 346
D & J Consructions Pty Limited v Head & Ors (1987) 9 NSWLR 118
David Lee & Co (Lincoln) Limited v Coward Chance (a firm) [1991] 1 Ch 259
Devonport Borough Council v Robbins [1979] 1 NZLR 1
Ex parte James: re Condon (1874) LR 9 Ch App 609
FAI Insurances Limited v Pioneer Concrete Services Limited (1987) 15 NSWLR 552
Fuller Cruises Northland v Auckland Regional Council (unreported CP 488-96 Auckland, 4 June 1999)
Greiner v Independent Commission Against Corruption (1992) 28 NSWLR 125
Haoucher v Minister for Immigration and Ethnic Affairs (1990) 169 CLR 648 at 653
Hughes Aircraft Systems International v Air Services Australia (1997) 76 FCR 151
KC Park Safe (Brisbane) Pty Limited v Cairns City Council (1997) 1Qd R 497
Livesey v NSW Bar Association (1983) 151 CLR 288
Logue v Shoalhaven Shire Council [1979] 1 NSW 537 at 558-559, per Mahoney JA
Markholm Consruction Co Limited v Wellington City Council [1985] 2 NZLR 520
Melbourne Steamship Co Limited v Moorehead (1912) 15 CLR 333
Meyers v Casey & Ors (1913) 17 CLR 90
Minister for Immigration, Local Government and Ethnic Affairs v Mok (1994) 55 FCR 375
MJB Enterprises Limited v Defence Construction (1951) Limited (1999) 170 DLR (4th) 577
Newman v Phillips Fox (1999) 21 WAR 309
Ontario v Ron Engineering & Construction Eastern Limited (1981) 119 DLR (3rd) 267
Pratt Contractors Limited v Palmerston North City Council [1995] 1 NZLR 469
Prince Jefri Bolkiah v KPMG (a firm) [1999] 1 All ER 517
Rakusen v Ellis Munday & Clarke [1912] 1 Ch 831
Transit New Zealand v Pratt Contractors Ltd [2002] 2 NZLR 313
UK Lister v Romfod Ice & Cold Storage Limited [1957] AC 555
Wan v McDonald (1992) 33 FCR 491
White Industries Limited v The Electricity Commission of New South Wales (unreported, NSWSC 20 May 1987)

DECISION: Judgment for the defendants with costs

IN THE SUPREME COURT

OF NEW SOUTH WALES

COMMON LAW DIVISION

ADMINISTRATIVE LAW LIST

ADAMS J

FRIDAY 26 JULY 2002

30074/01 - CUBIC TRANSPORTATION SYSTEMS INC & ANOR v THE STATE OF NEW SOUTH WALES & 2 ORS

JUDGMENT

1 HIS HONOUR: The New South Wales Government, together with transport operators in the private sector, seeks to develop and implement an Integrated Ticketing System (variously called ITS or ITP) to provide a single fare medium for passengers using the greater Sydney metropolitan public transport system. Provision of the ITS is a portfolio project for the New South Wales Department of Transport (the Department) which is facilitating the project. The Sydney ITS is a very large undertaking which envisaged major input by private enterprise. In March 1998, the Department assumed responsibility for the conduct of the ITP procurement on behalf of all transport operators, both public and private. It established a Project Control Group (the PCG) to provide overall direction. Amongst other things, the PCG reviewed and, where appropriate, endorsed recommendations of the Project Manager (who later became the Project Director, without a change in responsibilities) working groups and the Evaluation Committee in accordance with the project objectives. The membership of the PCG comprised senior officers of the Department, the Public Transport Authority, the State Rail Authority (SRA), State Transit Authority (STA), representatives of the private operators, a nominee of the New South Wales Government Treasury and a representative of Bovis McLauchlan Pty Limited (Bovis). Bovis was appointed Project Manager in May 1998 following a competitive tender and in October of that year Mr John Armstrong was appointed Project Manager for the ITP as a consultant employed by Bovis. In January 2000, he was engaged by the Department as Project Director. Booz Allen Hamilton (Booz Allen) was retained in respect of technical issues, Messrs Clayton Utz on legal issues, Arthur Andersen Corporate Finance for commercial and financial issues and Deloitte Touche Tomhatsu (Deloitte) as Probity Auditor. The persons responsible for this last consultancy were Mr Rory O’Connor and Mr Warwick Smith. The Evaluation Committee was established by the PCG to assess tenders and make recommendations to it. The Evaluation Committee, chaired by Mr Armstrong, comprised representatives of the Department, SRA, STA, private operators and Bovis. Advising the committee were Mr Andrew Doery and Mr Martin Welsh of Booz Allen, Mr Ian Gillings of Arthur Andersen Corporate Finance, Mr John Shirbin, Mr Steven Klimt and Ms Kate Hasan from Clayton Utz and Mr Brian Smart from Bovis. The members of and participants in the PCG and the Evaluation Committee varied from time to time. Sub-committees were appointed to make recommendations to the Evaluation Committee. These sub-committees were called “Qualifications”, “Technical & Operations”, “Financial (Cost)”, “Legal and Commercial” and “Commercial Benefits” aspects of the Call.

2 The Initial Call for Proposals was issued on 15 May 1999 for the purpose of identifying a short list of appropriate Proponents. On 7 July 1999, a detailed Call for Proposals dated 2 July 1999 was issued to the Proponents who had been short-listed. On 12 July 1999, the Evaluation Committee recommended a further short list of Proponents comprising four companies including Integrated Transit Solutions Pty Limited (ITSL, jointly owned by ERG Limited (ERG) and Motorola Inc) and Cubic Transportation Systems (Australia) Pty Limited (Cubic), the second plaintiff in these proceedings and two other corsortia, one of which was led by Telstra Corporation Limited (Telstra) which withdrew on 2 September 1999. By arrangements that are not of present relevance the remaining Proponents comprised ITSL and a consortium ultimately named Smartpos (then called Smartrans but called Smartpos throughout the judgment) which was a partnership involving Cubic, the Commonwealth Bank of Australia and some others, whose identities are not relevant. On 22 October 1999, ITSL and Smartpos lodged detailed proposals for the project and, on 20 December 1999, the two Proponents were advised that a Call for Revised Offers (the Call) would be distributed. On 21 January 2000, the Evaluation Committee, as an interim step, ranked ITSL ahead of Smartpos and identified key issues to be resolved during the process following the Call. Proposals responding to the Call were received from Smartpos and ITSL on 31 May 2000. Certain clarifications were obtained and further financial and commercial rights offers were received on 21 July 2000. On 17 August 2000, the Evaluation Committee concluded its evaluation of the revised offers, ranking ITSL ahead of Smartpos. It recommended that ITSL be nominated as the preferred proponent and that Smartpos be kept as a “stand-by proponent”. Following reviews instigated by the PCG, the PCG endorsed the Evaluation Committee’s Final Report on 31 January 2001. On 20 March 2001, the Evaluation Committee decided to conduct a supplementary evaluation and further submissions were invited from Proponents. These submissions were received by late April 2001. On 7 May 2001, the Evaluation Committee concluded its supplementary evaluation, confirming the earlier recommendation that ITSL be nominated as the preferred proponent and this recommendation was endorsed by the PCG on 11 May 2001. In June 2001, the recommendation was put to Government, which decided to negotiate with both Proponents who were advised accordingly. A Negotiating Steering Committee was formed assisted by a negotiating team. They considered, in light of the negotiations, that the recommendation of the Evaluation Committee should stand and, on 6 August 2001, the PCG expressed the same view. On 10 August 2001, the Government decided that contract negotiations should proceed with ITSL as the preferred proponent and the parties were informed of this decision on the following day.

3 After a surprisingly lengthy delay, Cubic commenced proceedings against the State of New South Wales and the Transport Administration Corporation (usually referred to in the judgment as the Government), with the Commonwealth Bank of Australia as third defendant, in substance seeking prerogative relief restraining the Government from entering into a contract for the supply by ITSL of the Sydney ITS. The summons came on before hearing before Kirby J on 14 December 2001. The matters complained of concerned events alleged to have occurred at a meeting on 17 August 2001 at the Department between Mr Armstrong and other officers of the Department and Mr Thomas Walker, the managing director of Cubic with other officers of the company which allegedly justified the inference that there had been an improper influence by the Government in the recommendation process. It was submitted to Kirby J that this meeting was, as his Honour’s judgment states, “crucial to the plaintiff’s application for relief…[since what] is alleged to have been said by Mr Armstrong forms the basis upon which the plaintiff asserts that the tendering process miscarried.” Kirby J was satisfied, on the material then before him, that there were serious issues to be tried and determined that the balance of convenience justified a grant of interlocutory relief until further order. His Honour accordingly restrained the Government from contracting with ITSL and adjourned the application by the defendants to re-open their case in opposition to interlocutory relief to 14 January 2002 before the Duty Judge. On 11 January 2002, in accordance with Kirby J’s direction, the plaintiffs filed a Statement of Claim which, in substance, relied on the matters allegedly disclosed during the meeting of 17 August 2001. On 14 January 2002, the matter came on for hearing before Sperling J, the vacation duty Judge who was, of course, unable to conduct a substantive hearing. His Honour ordered expedition of the application for final relief and listed the proceedings in the first available Administrative Law List, namely 8 February 2002. In the meantime, arrangements were made by the Court for an expedited hearing and the matter was listed to commence before me on 29 January 2002. The plaintiffs submitted that, having regard to the issues and the need to assess a large volume of documents that was in the process of being made available to them by the defendants, the matter could not be heard until early March although the Court was able to commence the trial immediately. The Court had been informed, when the matter came on before Sperling J, that the trial was likely to take two or three days. The list Judge had been informed that it was thought the trial might take five days or so. This was not unreasonable having regard to the relatively simple issue identified in the Statement of Claim.

4 On 12 February 2002, the plaintiffs abandoned the suggestion which had previously been made in emphatic terms that Government at a high level had interfered with the evaluation process.

THE CALL FOR REVISED OFFERS

5 The first matter to be considered is whether the Call imposed obligations, contractual or otherwise on the Government and, if so, their nature and extent.

6 As I have mentioned, on 17 March 2000 the Call for Revised Offers was issued to the Proponents. It included provisions dealing with the background to and purposes of the Call, the project description, detailed instructions to Proponents and set out in very general terms the proposed evaluation process. The plaintiffs contend that the Call was an offer intended, if accepted, to create contractual obligations. The plaintiffs argue that this offer was accepted by the submission of the Smartpos tender and that the consideration moving from the plaintiffs was the preparation and submission of the tender or Smartpos agreeing not to revoke the offer constituted by its tender for at least twelve months from 30 May 2000, or both, whilst the consideration moving from the defendants was to consider the Smartpos tender in accordance with the Call. The plaintiffs rely, in particular, on the following provisions of the Call -

“ 3.1.1 ELIGIBILITY

This Call for Revised Offers is made to two preselected Proponents:

(a) Integrated Transit Solutions; and

(b) Smartrans.

Each Proponent agrees and acknowledges that notwithstanding anything contained in this Call (except in relation to the irrevocable offer described in Clause 3.1.17), no contractual relationship exists between the Principal, any Operator or its employees, agents, representatives or advisers, on the one hand and any Proponent, its agents, employees, representatives or advisers on the other hand in relation to the evaluation of revised Proposals, or otherwise in dealing with Proponent in relation to the ITS.

3.1.17 DURATION AND VALIDITY OF PROPOSALS
Each Proposal submitted in response to this Call will comprise an irrevocable offer by the Proponent to perform the undertakings and observe the representations and warranties set out in the Proposal. The irrevocable offer shall be given in consideration for the Principal agreeing to consider the Proposal (but it shall not be a term that the Principal must do so) in accordance with this Call. The irrevocable offer shall be valid for 12 months after receipt of such Proposal notwithstanding the selection of a preferred Proponent during such time. A Proposal cannot be withdrawn during that 12 month period except on written consent of the Department.”

7 Of course, these provisions are part of a document with a number of other important provisions and must be interpreted in that context. Accordingly, I turn to the Call document. Clause 1.1 specifies that the purpose of the Call is “to obtain revised pricing of the ITS,…achieve transparency of pricing for the ITS and identify and separate the value of related and unrelated benefits that may arise from any resultant commercial arrangements…” Clause 1.4 provides -

“ EVALUATION PROCESS
Proposals should be submitted in accordance with, and subject to, the conditions contained in the Instructions to Proponents. The Principal intends to enter into negotiations with a preferred Proponent or a number of Proponents prior to finalising an agreement(s).”

8 It is obvious that the contractor is intended to be the proponent selected following negotiations proposed to ensue after nomination of a preferred proponent, which is to be done by evaluation of the offers tendered pursuant to the Call.

9 Clause 2.2.2 deals with the contractual structure proposed for the purpose of the delivery of the ITS and thus, necessarily, following the negotiations ensuing after selection of the preferred proponent. Clause 2.2.2(a) provides that the Principal is to be a special purpose entity company having as its shareholders the participating operators and the Department. It is this company which is to enter into the contract with the contractor to provide the services and equipment as described in the project document. It is said that the Transport Administration Corporation, incorporated as I understand it, under the provisions of the Transport Administration Act 1988 is the Principal, but, having regard to the provisions of that Act, I am somewhat doubtful about this submission. However, nothing turns on this matter. Clause 2.2.2 deals with the Principal entirely in prospective language and, considered alone, implies that the company which is envisaged was not then in existence. However, as will be seen, the company is given functions in the Call processes. Thus, even if it did not exist in the form stated in clause 2.2.2(a) as at the date of the Call, other provisions of the document suppose that it will exist in time to exercise the functions assigned to it. For example, clause 2.3.1, relating to overall project milestones which sets out a timetable, reserves to the Principal the right to vary the timetable and add further milestone dates, clause 2.3.2 states that “the Principal intends to commence the Requirements Analysis and Definition Phase” before entering into the contract with the Preferred Proponent.

10 Part 3 of the Call deals with instructions to Proponents, commencing with paragraph 3.1.1 dealing with eligibility, which I have set out above. This clause is not easy to construe. The last paragraph of the clause appears to speak as at the date of the Call, namely 17 March 2000, in specifying an agreement and acknowledgment that ”no contractual relationship exists between” the specified parties (emphasis added). However, the “irrevocable offer” described in Clause 3.1.17 is an offer which can only arise after submission of the Proposal pursuant to the Call. Moreover, the subject matter, as to which the paragraph refers provides that there is “no contractual relationship”, is “in relation to the evaluation of the revised Proposals or otherwise in dealing with Proponent [a transcription error, I think, for ‘Proponents’] in relation to the ITS”. It therefore cannot mean merely that, hitherto, there is no contractual relationship. I think the sense of this paragraph cannot be limited to the question whether there was any contractual relationship extant as at the date of the revised Call. The plaintiff, of course, relies on the exception contained in the parenthesis and I will return to this matter in due course.

11 Clause 3.1.9 deals with variations to the Call, providing amongst other things that no warranties are given as to the accuracy of information, whether of existing ticketing systems or future requirements, has been supplied and that Proponents proceed at their own risk in this regard. The clause proceeds -

“The Principal, the Department and the Operators currently intend to proceed on the basis set out in this Call. However, the Principal reserves its right to cancel, vary, supplement or supersede this Call, any of its terms and any of the procedures set out in it at any time by written notice to each Proponent.

The Principal may, at any time before a Proposal is accepted in full and in its absolute discretion, decide:

a) not to proceed with acquiring the proposed ITS; or

b) to proceed with the proposed ITS on the basis of a scope of services of a different nature and size and otherwise on terms different (including terms materially or fundamentally different) from those set out in this Call and any documentation issued in relation to the Call.

The Principal may supplement, modify, replace, enhance or undertake other evolutions of the contemplated ITS which it considers necessary in its absolute discretion.

12 It will be seen that the reservation of the right to cancel, vary etc any of the terms and any of the procedures of the Call is limited to the Principal. However, since the Principal is to have as its shareholders the participating operators and the Department under clause 2.2.2, it is clear that action taken by the Principal under this clause would be taken on behalf of the Department and the operators. The role of the Department in the context of this clause is not clear. On one view, the only right to cancel, vary etc the terms of the Call is in the Principal so that the Department and the Operators do not have any such rights. This interpretation is supported by the consideration that, otherwise, the three groups of participants, namely the Principal, the Department and the Operators, could unilaterally and inconsistently vary the Call and its procedures, which would be an absurd result. Some doubt attends this conclusion, unfortunately, because of the terms of the concluding paragraph of the clause, which excludes claims by Proponents for losses and the like suffered as a result of the exercise by the Principal or each operator of rights reserved to them under the Call, and thus implies that the right to vary may be possessed by an Operator though, bizarrely, not the Department. Despite the apparent logic of this interpretation, I think that clause 3.1.9 should be read as giving the Principal the exclusive right to cancel, vary etc the Call and any of its procedures by the mode specified. After all (I regret to say), logic and consistency of expression do not seem to have been regarded by the draftsperson of this document as important. The interpretation which I prefer is strengthened, it seems to me, by the terms of clause 3.1.10 giving to the Principal alone the right to cancel, vary, supplement or supersede documentation or further information issued in relation to the Call and excluding claims by the Proponents in respect of the exercise of such a right, to the extent permitted by law.

13 The third paragraph of clause 3.1.10 provides –

“If a Proponent is in doubt as to the correct meaning of any part of this Call or finds any discrepancy, error or omission, the Proponent should immediately notify the person nominated in clause 3.1.11 and obtain clarification in writing from the Principal before lodging the Proposal. The Principal will not be liable in relation to any claim that a Proponent was disadvantaged by lack of information or inability to resolve ambiguities or any other issues.”

14 The ITP, although a fundamental change in fare collection and processing, was to make use, at least short term, of some existing technology, both hardware and software. These systems (called generally “the legacy systems”) had been, to a significant extent, supplied by ERG for STA and Cubic for SRA and comprised, of course, intellectual property of significant value. Access to information about those systems was needed by the Proponents for the purpose of their tenders. Accordingly, deeds of agreement relating to this access were executed by both Cubic and ERG. The significance, if any, of difficulties encountered by Cubic in obtaining adequate access to STA ferry information is one of the issues in the case, to which I will return in due course. I note at this point that the defendants rely on this clause, in part, to resist the plaintiffs’ claim under this head. I note, for now, that the lack of information referred to in the provision may simply relate to errors, omissions or uncertainties in the terms of the Call itself and not to the failure to provide other information necessary for the making of the offer, although this seems a rather trivial concern. Clause 3.1.11 provides that “all inquiries of the Principal regarding this Call must be directed…to the Project Director” who, as I have mentioned, was Mr John Armstrong. Whoever else, therefore, Mr Armstrong was acting for, I think it clear that he was the Principal’s agent.

15 Clause 3.1.13 is in the following terms –

“ DISCLAIMER

The Principal, the Operators and each of their officers, employees, consultants and representatives shall not be taken to make, or to have made any representation or warranty, express or implied, to any Proponent or any of its employees, agents or consultants:

(i) that any information of any nature whatsoever in relation to this Call, including the Accompanying Documents, whether provided in this Call or otherwise and whether provided on, before or after the date of this Call, is or will be, accurate or complete; and
(ii) that reasonable care has been or will be taken in completing, preparing or providing such information.”

This disclaimer of liability may be more significant, in respect to the legacy complaint than the third paragraph of clause 3.1.10.

16 On the face of it, clause 3.1.17 is designed to create contractual obligations, the most significant phrases in this respect being “irrevocable offer” and “in consideration for the Principal agreeing to consider the proposal”. Several difficulties attend this interpretation. Leaving aside the qualification in the parenthesis in clause 3.1.1, the agreement by the Principal to consider the proposal in accordance with the Call is necessarily subject to the reservations expressed in very general terms in clauses 3.1.9 and 3.1.10 of the right to cancel, vary, supplement or supersede, the Call or any of its terms or any of the procedures set out in the Call. It may be that variation or supersession of the terms and procedures of the Call can only be done where written notice is given to each Proponent but that this may be done “at any time” (although I am inclined to think it must occur before entering into the final contract for provision of the ITS). If clause 3.1.17 is considered in isolation, the plaintiff’s argument that its effect is that, although the Principal need not consider a proposal, if it does so it must do so in accordance with the Call, has some apparent merit . But, as is obvious, this by no means disposes of the issues in the present case. A further important consideration is that clause 3.1.18, relating to selection of the preferred Proponent, provides that the Principal envisages that it will negotiate with one or both of the Proponents “on commercial issues and key project documentation prior to the selection of a Preferred Proponent”. In light of this, it is perhaps not surprising that the clause goes on to state -

“ Notwithstanding anything contained in this Call, the selection of a Proponent as a Preferred Proponent does not bind the Principal to any contractual relationship whatsoever with the Preferred Proponent. To the maximum extent permitted by law, the Principal shall have no legal obligations whatsoever to any Proponent and, without limitation shall have no legal obligations to the Preferred Proponent unless and until he Project Documentation has been entered into and all necessary Government Approvals have been obtained. (Emphasis added.)

The Principal may discontinue negotiations at any time with the preferred Proponent or select another Proponent to be the preferred Proponent or enter into discussions with any other person or company.
The Principal may, in its absolute discretion, elect not to select any Proponent as a Preferred Proponent. It reserves the right to reject any or all Proposals.”

This provision is somewhat ambiguous. At first blush, it appears to be inconsistent with clause 3.1.17, given the unqualified denial of the existence of “any contractual relationship whatsoever” with cognate language used of the existence of “legal obligations”. Arguably, however, the preferable interpretation is that this clause is concerned with the effect of selection of a Proponent as a preferred Proponent rather than the procedure leading to that selection. A very real problem with this interpretation is the general and unqualified exclusion of all and any legal obligations to the Proponent who is not selected, which selection, of course, cannot create obligations at all events although, conceivably, it might breach an obligation. On balance, I prefer the interpretation - though it is indeed difficult to be certain - that this clause is intended to exclude all possible contractual obligations (and any other obligations not imposed by law) unless and until the final contract “is entered into” and the necessary approvals obtained from Government. As this is a general clause, this would perhaps permit clause 3.1.17 to be read as providing a particular and special exception as to “the Principal agreeing to consider the Proposal in accordance with [the] Call”. I will return to this possibility in due course. The defendants point also to clause 3.1.22 in this context, which provides -

“ COSTS TO BE BORNE BY PROPONENTS

All costs and expenses incurred by Proponents in any way associated with the development, preparation, submission, clarification, negotiation and documentation of Proposals and negotiation of Project Documentation, including but not limited to attending meetings, discussions, and providing any additional information required by the Principal and participating in the Requirements Analysis and Definition Phase, will be borne entirely and exclusively by the Proponents.
To the extent permitted by law, no Proponent shall have any present or future claims arising against the Principal, the Department, each Operator, and any of their employees representatives or advisers in relation to any losses of any nature whatsoever, including without limitation, any costs, losses, outgoings, claims, expenses, liabilities or damages incurred or suffered by the Proponent, its members or its related bodies corporate (as defined in the Corporations Law) in developing or pursuing a Proposal .” (Emphasis added.)

17 The plaintiffs in this case are seeking injunctive relief and damages although the latter is not the subject of the present judgment. The plaintiffs do not claim that Smartpos was entitled to be nominated as preferred Proponent. They submit that they were entitled as a matter of contract to a process of evaluation, the failure of which meant that the recommendation of ITSL as the preferred Proponent - indeed, any recommendation - should not have been made. Clause 3.1.22 simply means that, if it suffered losses relating to its involvement in the process in either obtaining or not obtaining a favourable recommendation or contract, it could not recover those losses. It does not protect the Principal, etc, from an action directed to the failure to make a valid recommendation because of flaws in the process.

18 The Call contains provisions relating to probity (3.1.27), in particular, the appointment of an independent Probity Auditor providing, however, that the Principal’s action following recommendations by the Auditor “will be at the Principal’s sole discretion”. That clause also requires Proponents to comply with the Code of Practice and the Code of Tendering for New South Wales Government Procurement but does not require the Principal to do so, perhaps because the Codes themselves assert that they specify requirements for the management of tenders by Government agencies in New South Wales. The plaintiffs rely heavily on this provision.

19 Clause 3.1.27, headed “NSW Government Code Requirements” requires the proponents to comply with the Codes of Practice and Tendering. It does not expressly or, in my opinion, implicitly place any requirement on the Government parties to do so. The Call provides for the evaluation process in Part 3.2. Clause 3.2.1 deals with the Evaluation Committee, which “will be responsible for assessing revised offers…in accordance with the evaluation criteria nominated in this section”, recommend a Preferred Proponent and assist with negotiation “with the Preferred Proponent culminating in the award of a contract”. This clause states that the role of the Probity Auditor is to ensure “that the process is conducted in accordance with NSW Government Code” (sic) which I take to be a reference to the Codes of Tendering and Practice and goes on to provide that the auditor “shall be advised of all meetings (including Evaluation Committee and subcommittee meetings) for the purpose of observing the conduct of the meeting”. Despite the specific language of clause 3.1.27 limiting compliance with the Codes to the Proponents, the better interpretation of this provision is that the Evaluation Committee is also bound by the Codes - to the extent that they apply - since, of course, the meetings are confidential and internal and do not involve the Proponents and the context of the need for the Probity Auditor to be present is that of ensuring compliance with the Codes. It follows that the Call does not oblige the Principal to comply with the Codes. Whether this obligation arises elsewhere is, of course, another matter.

(I interpolate the general observation that it seems almost impossible that the Call was drawn by a lawyer, having regard to the obscurities and confusion of even the most important provisions, of which this is one. Whether the conduct of the evaluation process by the various committees and subcommittees was governed by external documents, in particular, the Codes, should have been expressly stated and not left to implication or inference. If it was intended that the Codes should govern the whole process and not be confined to the Proponents’ conduct surely should have been included in clause 3.1.27, which expressly dealt with the application of the Code requirements. Part 3 of the Call is entitled “Instructions to Proponents” but also contains instructions to the Principal and the Evaluation Committee, amongst others. Fortunately, it is not necessary to deal with all the document’s problems. When it was cobbled together, it is difficult to believe that any responsible and literate person actually read it through.)

20 The clauses numbered 3.2 1 to 3.2.4 are headed “Evaluation”. These clauses are, I think, of vital importance in attempting to understand the obligations created by the Call. Clause 3.2.1 states explicitly that it is the Evaluation Committee which “will be responsible for assessing Revised Offers” and, by necessary implication, not the Principal. The Principal is not obliged to accept the assessment, in the sense that it may or may not enter into negotiations with the recommended Proponent and can vary the scope of the proposal, even fundamentally, or decline to pursue the proposal altogether (clause 3.1.9). There is nothing in the Call that suggests the Evaluation Committee is the agent or subject to the directions of the Principal. Indeed, the thrust of the Call is that, in exercising its functions, the Evaluation Committee is independent of the Principal in the sense that it must exercise its own judgment about the assessment of the proposals. Thus, clause 3.2.1 also provides that –

“The Evaluation Committee shall:
a) evaluate Revised Offers in accordance with the evaluation criteria nominated in this section;

b) recommend a Proponent for nomination as Preferred Proponent after evaluation of Revised Offers; and
c) assist with negotiations with the Preferred Proponent culminating in the award of a contract.”

Moreover, the succeeding clause 3.2.2 provides that “Revised Offers will be evaluated in accordance with the Criteria set out in 3.2.3 and 3.2.4”. Although clause 3.1.10 gives the Principal an unqualified “right to cancel, vary, supplement or supersede any documentation or further information issued in relation to the Call” without recourse by the Proponents, this does not give it the right to vary the criteria provided in the Call itself or to direct the Evaluation Committee in its deliberations. Thus, the Principal is not given by the Call any power to prevent an evaluation by the Evaluation Committee or to vary the criteria by which the assessment of the Committee is to be undertaken. This separation of functions (although it is not complete) between the Principal and the Evaluation Committee seems to me to be fundamental to the integrity of the Call process. Moreover, not only is there a distinction of functions, there is a distinction of identities. The plaintiffs’ submissions have, I think, wrongly assumed that the Principal and the Evaluation Committee are in large part interchangeable so far as the process of assessment and evaluation are concerned. This is, however, to ignore the distinctions expressly made in the Call itself. Accordingly, although clause 3.1.17 obliges the Principal “to consider the Proposal…in accordance with the Call” this obligation does not relate to the assessment of the Evaluation Committee. The Committee is to undertake this task under section 3.2. but, unlike the Principal under clause 3.1.17, is not bound by any contractual obligation. So far as is material, the obligation of the Principal is to assist the Committee in the ways specified in clause 3.2.1 and to consider the assessment and recommendations made by it and (subject to the true meaning of clause 3.1.18) this arises contractually. But it has no contractual obligation to conduct the assessment envisaged by section 3.2, let alone to apply any of the specified criteria to its own processes.

21 Clause 3.2.2 provides that the offers will be evaluated in accordance with the criteria, called “Qualifications Criteria” and “Technical, Operations and Commercial Criteria” which do not need to be set out for present purposes. It is sufficient to note that the criteria concern the merits of the proposals but make no reference to any process or procedure for assessing the merits. The final section of the Call is headed “Information to be submitted by Proponents” and deals with the form of the proposals, requiring compliance with the schedules to the Call to which no further reference need be made.

22 The Call refers to the role of the Evaluation Committee, but it does not provide for the mode of appointment or the qualifications of its members, although it envisages that they will “include representatives from both Government and private sector transport operators”. Nor is there any reference to the procedures by which the Evaluation Committee should undertake its evaluation or make its recommendation, except for the function given to the Probity Auditor to ensure, amongst other things, that the Codes of Practice and Tendering are complied with, to the extent that they apply.

23 There is no reference in the Call to the mode by which the Principal is to deal with any recommendation let alone any provision dealing with the Department or any other Government responsibility. Clause 1.4 refers to the “evaluation process” but simply requires proposals to be submitted “in accordance with, and subject to, the conditions contained in the Instructions to Proponents” (Part 3 of the Call) and states that the Principal intends to negotiate with a Proponent or Proponents before finalising an agreement or agreements.

24 The Call does not impose any relevant procedural requirements on the Principal concerning consideration of the proposals (although variations and the like must be notified in writing and confidentiality maintained), subject to the question whether clause 3.1.26 imposes an obligation to act with “probity and integrity”. (Whether there is, at all events, an obligation on the Department and the Principal to act in good faith is a matter with which I will deal in due course.)

25 Clause 3.1.26 of the Call states –

“PROBITY

The Government is committed to acting with integrity and probity and expects all participating parties to act with integrity and probity in relation to the Project. The Government requires that the Principal and Proponents have due regard to probity throughout all processes undertaken pursuant to this Call. The Principal has appointed an independent probity auditor to assist it in this regard.
Proponents who have any concerns about the conduct or probity of the Call process should promptly bring their concerns to the Probity Adviser’s attention who will investigate the matter and make an appropriate recommendation to the Principal. Any action taken as a result of such process will be at the Principal’s sole discretion.”

26 This provision is not cast in the language of contract. It refers to commitment and expectations, not obligations or undertakings, on the part of “Government” which is not, in terms, party to the Call (though reference is made to the role of the Department as a facilitator “on behalf of participating NSW Government and private sector operators, the development and implementation of an Integrated Ticketing System”). In so far as there is an obligation by the Principal and the Proponents to “have due regard to probity” that is stated as a requirement of the Government rather than an obligation of any contact. Be that as it may, this provision is reasonably read as expressing an intention on the Government that it will act in good faith and will require the Principal to do the same.

27 I have already called attention to the fact that clause 3.1.27 which expressly deals with the NSW Government’s Codes of Practice and Tendering, noting that it imposes compliance on the Proponents (as distinct from the other parties). It seems to me that it is also significant that the Call deals specifically with probity and specifically with the Government’s commitment to and requirements concerning probity in a separate clause which does not advert either expressly or implicitly to the Codes of Practice and Tendering. This strengthens the tentative view earlier expressed that it was regarded as unnecessary to refer to any obligation of the Government in this respect because the Codes themselves refer to Government policy. Despite the language of clause 3.1.17, however, I think it should be concluded (though the question is far from free of doubt) that the undertakings of Government and the derivative requirement on the Principal to act in accordance with the Codes are excluded from contractual obligation under the Call. Put in another way, the Codes state the Government’s intentions and, no doubt, aspirations but they are not intended to create contractual liability either in the Government or the Principal. This result follows, as it seems to me, from the terms of the Call itself although the Call is, as I have said, in a number of respects (not only those in respect of which I have drawn attention) badly drafted and represents a patchwork rather than a coherent and internally consistent expression of obligations. Thus, conclusions which are based upon an assumption of a coherent plan may be built upon foundations of sand. Even so, the clauses which I have referred to appear to reflect a general intention that what is to be done by the Principal and the Department is an intended course of action whilst the “obligations” on the Proponents must be satisfied in order for their Proposals to be considered though, as clause 3.1.17 expressly says, even this need not be done. Furthermore, even the Proponent’s “obligations” can be varied unilaterally by or through the Principal. A failure by the Proponents to comply with the Call therefore means that their bids will not, though even this is not completely certain, be considered. I am sceptical indeed that the Proponents were under any enforceable obligations of any kind, with the possible exception of the so-called “irrevocable offer” which must, I think also be attended with doubt although it is not altogether unreasonable to consider that the co-operation of the Principal with the Evaluation Committee and the provision of consultants and Probity Auditor to be substantial consideration fitting with relative but imperfect ease into the category of considering “the Proposal…in accordance with this Call” (vide clause 3.1.17). The Proponents are not under any obligation, of course, to submit a complying proposal or to give any information or even to co-operate with the Principal. They can withdraw at any time from the process. I also think that, as a matter of real enforceability, the so-called “irrevocable offer” is illusory. Indeed, so vague are the obligations on each side that, although the language of contract is used in the parenthetical exception in clause 3.1.1 and the second sentence of 3.1.17, the defendant’s submission that, construing the Call as a whole, the Principal did not undertake any legally enforceable obligations has much force. Be that as it may, the crucial issue in this case is whether the particular matters complained of by the plaintiffs demonstrate behaviour inconsistent with the Call since it is only if this has occurred that it is necessary to consider the possible application of clauses 3.1.17 and 3.1.26. I will return to this matter in due course.

28 The plaintiffs also submit that it is an implied term of the alleged contract that the defendants would conduct the evaluation of the proposals or cause their evaluation to be conducted fairly “and in a manner which would ensure equal opportunity” to each Proponent. Quite what is meant by “equal opportunity” in this context is not spelt out and I am unable to ascribe to it any different meaning to that already implied by a requirement of fairness (if there is one). It is submitted that the implication arises in a number of ways. The first of these is a general proposition that pre-award tender contracts with public bodies contain an implied term of fair dealing as a matter of general law, citing Hughes Aircraft Systems International v Air Services Australia (1997) 76 FCR 151 at 157; secondly, a term of fair dealing must necessarily be implied to give commercial efficacy to the contract in accordance with the general principle; thirdly, the term is implied from the terms of the plan for evaluation or revised proposals adopted by the Evaluation Committee and dated about 9 May 2000; fourthly, the term is implied by virtue of the terms of the supplementary plan for the evaluation of the revised offers adopted by the Evaluation Committee and dated about 19 April 2001 and lastly, the term is necessarily to be implied from the Codes of Tendering and Practice for NSW Government procurements. Since these Codes form part of the context (at least) in which the tender process was undertaken by all parties, it is convenient to deal with them before moving on to the other bases said to give rise to the implied fair dealing term. It is not argued otherwise than that the Codes apply according to their terms to the ITS tender. Part 4 of the Code of Tendering specifies “Ethical Principles” which are also outlined in the Code of Practice. So far as is relevant, Principle 1 states that “Parties must conduct the tendering process with honesty and fairness at all levels”, Principle 4 states “Parties must not engage in any practice, including improper inducements, which gives one party an improper advantage over another”, Principle 6 states “Conditions of tendering must be the same for each tenderer on any particular tender”, and Principle 10 states “Any party with a conflict of interest must declare that interest as soon as the conflict is known to that party”. Part 5 deals with the obligations of the party receiving tenders, in the Code called the “client”. Section 5.1 contains the following relevant provisions –

“Clients must be fair and ethical in their dealings with tenderers; clients should give careful consideration to their role and conduct in negotiations to ensure their behaviour reflects the ethical principles; in any tender related negotiations or evaluations, the client must deal fairly with all tenderers in a manner which reflects the ethical principles in section 4; and written records of all negotiations must be maintained by the client.”

29 I note, by way of parenthesis, that section 5.3 requires the tender documents to “clearly define the contractual obligations of the parties”, an aspiration which was far from satisfied in this case - though not a matter about which the parties complained. Section 5.4 states: “Probity is vital at all stages of the tendering process, including the receipt and processing of tenders”; and “Tenders should be assessed by people with relevant skills and knowledge, and who are free from any conflict of interest that might undermine the objectivity of the assessment…[and] in a consistent manner solely against the pre-determined tendering and selection criteria contained in the tender documents”. Section 6.1. provides: “The behaviour of all parties in the tendering process should be governed by the principle of fair dealing…[which] demands that all parties involved in the tender process are fair and ethical in their dealings with each other.”

30 The Code of Practice is expressed as an outline of “how the Government, as a major client, will conduct its procurement to achieve the best value for money whilst achieving economic, environmental and social outcomes for the community” and states that its implementation “will ensure that competition for Government business is fair, ethical and transparent.” It is to be read in conjunction with the Code of Tendering. Section 4.1 states that Government agencies, their employees and agents are required to implement the Code as part of their normal business activities. Those agencies, employees and agents are required, amongst other things, to “maintain high standards of probity in all their business dealings”. Section 5 restates the ethical principles stated in the Code of Tendering. Section 6.1 is a commitment to “best practice”.

31 The parties have referred to a number of recent decisions dealing with the contractual issues arising under tendering processes. The most recent of these is Transit New Zealand v Pratt Contractors Ltd [2002] 2 NZLR 313. The issues in the case were briefly outlined by McGrath J (delivering the judgment of the Court) as follows -

“[1] This appeal concerns an engineering contractor who twice submitted the lowest tender bid but did not get the contract. It addresses the tension inherent in the relationships between those who call for tenders for construction contracts and those who submit them. The former generally seek to retain the fullest freedom to decide whether or not to accept any tender, and if so which. The latter, who must commit time and expense to preparation of tenders, have the expectation that the competition for the contract will be conducted, and a contract awarded, in a principled way. That is especially so if they are dealing with a public agency.

[2] Traditionally the law of contract treated the tendering process as one of preliminary communication prior to contractual commitment. Since 1980 in a number of cases in Commonwealth jurisdictions, including New Zealand, there has been a fresh analysis of the nature of duties owed to each other by invitors and tenderers during the period prior to letting of constructions and engineering contracts. The trend in these decisions has been towards a greater readiness by the courts to recognise that parties may become bound by a preliminary contract to the processes that will be followed. The scope of the terms of such process contracts, express and implied, itself however can give rise to difficulties. At their heart lies the different interests of the parties in tender situation and the practical problems they can give rise to. This appeal demonstrates these matters.
[3] Following a trial in the High Court Goddard J held that Transit New Zealand (Transit) was in breach of the terms of a tender process contract it had entered into with Pratt Contractors Ltd (Pratt), including an implied term that Transit would act fairly in considering Pratt’s tender (CP221/97, Wellington, 6 September 2000). Transit now appeals against the High Court’s judgment.”

32 I would add to the tensions to which the first paragraph above refers that which is caused by the desire of the invitor to avoid any litigation as to the mode in which the tender is evaluated, which is an especially difficult risk to avoid if general notions of fair dealing are incorporated by implication into the agreement (to attempt a neutral term) to consider a tender, especially if the applicable standards of probity are thought to be cognate with the rules of natural justice applying to judicial decisions or decisions made pursuant to statutory authority rather than those that are reasonable commercial standards, namely honesty, fair dealing and a rational process directed to achieve the objects of the agreement. The tendering party, on the other hand, will generally want an opportunity to test the procedure by litigation if it has reason to suspect that, by some mode or other, a thumb has been placed on the scale, or simply if it has lost the contract. It will be a rare case indeed where the process of evaluating a tender for a large and complicated project is flawless and cannot be criticised for departing from the ideal. As here, litigation may (and usually will) provide an opportunity by way of discovery or other compulsory process to obtain detailed information on the process consideration of the tender, which, when examined by the sensitive and often microscopic lens, will reveal imperfections that a practical standard of reasonable commercial behaviour would treat with relative unconcern. As the history of the litigation in this case has shown, it was commenced with very serious allegations that were soon withdrawn in favour of claims in large part derived from documents disclosed by the Government, most of which did not relate to those allegations but which provided useful grist for the plaintiffs’ mill. In the end, most of the plaintiffs’ case comprised questions raised by Cubic well before the recommendation of the Preferred Proponent but in respect of which it had not sued until after it had abandoned its initial case. That is not to say that its ultimate case was not reasonably arguable but this will very rarely be otherwise: the true merits, one way or the other, will usually only be seen at the end of the trial. The prospect, therefore, that an invitor, especially a Government invitor, will act with excessive, expensive and inefficient defensiveness is real. This comes at a high price. The threat of litigation may (as it did, I think, in this case) distort and encumber the process. Of course, this highlights the necessity of ensuring that the call document is clear about actual undertakings and legal obligations. Aspirational statements may provide a warm inner glow but they are no substitute for unambiguous language targeted at actual risks with clearly stated consequences. Had such a call been issued in this case, this litigation may well not have ensued and, if it did, would have been far simpler to resolve.

33 Returning to Transit New Zealand, McGrath J said, dealing generally with the question of the formation of a “process contract” –

“[63] Historically the process of procuring tenders was not treated by the courts as contractual in nature. The freedom of the invitor to accept or reject any tender was regarded as fundamental to the tender concept. Invitations to submit tenders were almost invariably treated as preliminary communications which took place before any contractual offer was made. While tenderers might be involved in considerable work and expense in tender preparation they were understood to assume the full risk that no contractual entitlement would eventuate from their efforts. The position differed if there were a particular stipulation in the invitation to tender, such as one binding the invitor to accept the lowest (or, as the case might be, highest) offer, but otherwise the invitor was not regarded as having an intention to become contractually bound in any way prior to its acceptance of a particular tender.”

34 His Honour referred to Ontario v Ron Engineering & Construction Eastern Limited (1981) 119 DLR (3rd) 267 and MJB Enterprises Limited v Defence Construction(1951) Limited (1999) 170 DLR (4th 577), Blackpool & Fylde Aero Club v Blackpool Borough Council [1990] 1 WLR 1195, as well as Markholm Construction Co Limited v Wellington City Council [1985] 2 NZLR 520, Pratt Contractors Limited v Palmerston North City Council [1995] 1 NZLR 469 and Fuller Cruises Northland v Auckland Regional Council (unreported CP 488-96 Auckland, 4 June 1999, Paterson J), and, noting the emphasis upon the expressed terms and conditions of the tender Call as governing the implication of obligations of the invitor, though accepting the possibility that the invitation might give rise to contractual obligations, especially an obligation to at least consider a complying tender, went on to observe –

“[77] Whether a request for tenders gives rise to a process contract, once a conforming tender is submitted, is in all cases a question of whether all the elements of contractual formation are made out at that point. Analysis of the terms of the invitation to tender is the starting point. Where the request makes no express commitment concerning the manner in which tenders received will be addressed, that may indicate the invitation was no more than an offer to receive them. On the other hand, as Blackpool and Fylde Aero Club indicates, the rigorous and comprehensive expression of requirements to be complied with by tenderers may give rise to an implied promise by the invitor to consider a conforming tender if others are considered. The law does not, however, have a policy which inclines towards enforcement of implied promises by invitors, even if they are public bodies, and whether there has been a binding promise as to process is to be ascertained by applying general principles of contract law concerning contract creation and implied terms.
[78] The present case is an instance in which the terms of the successive requests for tender, and the documents they incorporated, expressed in mandatory terms a commitment to abide by a certain process which included criteria for tender evaluation. Transit plainly undertook to apply a particular approach to evaluation of tenders received, and not to accept a tender other than that obtaining the highest index under that approach. This aspect of the request for tenders further indicates that Transit, and those submitting tenders, would have understood Transit to be binding itself to follow the specified process – a strong indication of the contractual element of mutual intention to create legal relations. The fact that the request also reserved the right for Transit to reject all tenders does not displace that indication.”

35 McGrath J added to the matters set out above the statutory context in which Transit exercised its functions, being required by legislation to let contracts in accordance with competitive pricing procedures approved by its performance auditor and that the request for tender specified each attribute to be evaluated and the weighting it would carry in the evaluation, although further sub-categorising and weighting occurred in the assessment, which were not referred to in the tender request. One issue in the appeal concerned the extent to which Transit’s own procedures manuals formed part of its contractual obligations. Those provisions of the manuals incorporated in the request for tender imported reflective obligations but McGrath J held that there was no basis for holding that provisions in the manuals had been incorporated in the request for tender merely because they stated in mandatory terms certain administrative procedures to be applied by tendering authorities, including Transit, in the tender letting process. Observing that such provisions cannot be self-incorporating, his Honour noted that unless provisions in the manuals are implied contractual terms, they do not have contractual force. The question therefore arose whether there was an implied term to that effect and importing a general obligation to act fairly and reasonably in the administration of the tenders received. McGrath J pointed out that Transit had to deal with tenderers whose interests might well markedly conflict with Transit’s responsibilities and interests and qualitative judgments need to be made on aspects of tenders other than price. His Honour noted that provisions entitling an invitor to reject all tenders which are intended to give legitimate protection to the invitor’s interests “should not readily be eroded by an expansive approach to judicial recognition of implied terms” (para [90]), adding –

“[91] In this context the implied duty of equal treatment, that is, even handedness, should not be expanded by further implication to found obligations in relation to Transit’s administration of tenders over and above those actually stipulated in the conditions of tender unless they meet the general requirements for implied contractual terms, including necessity for business efficacy, as expressed in such decisions as Devonport Borough Council v Robbins [1979] 1 NZLR 1 and BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 16 ALR 363. The concept of fair dealing is more often likely to be of importance in considering whether there has been compliance with contractual terms in tender process administration, rather than as a source of new terms.
[92] It follows that there is no implied duty of good faith in the process contract in this case of a kind that would require Transit to comply with obligations expressed in manual provisions which have not been expressly incorporated in the request for tender so as to give them contractual force. This does not diminish the significance that may attach to those provisions in terms of the accountability regime under the Act or the importance Transit may attach to them in terms of its own internal administration. These, however, as we have already said, are separate matters from obligations Transit agrees to assume to tenderers in its process contracts.”

36 McGrath J referred to the decision of Finn J in the Federal Court of Australia in Hughes Aircraft Systems International v Air Services Australia (1997) 76 FCR 151, (1997) 46 ALR 1, with approval and it is to that case that I now turn. The circumstances in which this litigation arose were somewhat unusual. The Civil Aviation Authority was a public corporation, which sought tenders for a procurement contract. The plaintiff (Hughes) and another (Thomson) tendered for the contract and the Authority’s management first recommended to its Board that Hughes be selected but, on re-examination, recommended Thomson. A later consideration of the matter found that the tender process was unsound and unfair and recommended, amongst other things, that a fresh tender be conducted limited to Hughes and Thomson. They were informed that the Authority intended, amongst other things, to be fair to each of them and obtain their agreement to the tender process itself. All parties agreed on a document describing the new requirements and revised tender process, setting out evaluation criteria, defining the evaluation methodology, stating an independent auditor would be appointed and strict confidentiality would be maintained subject to the right in the Authority to obtain an independent evaluation from a third party evaluator with no affiliation to the tenderers. A request for tender was subsequently issued which was different from this document although their terms were markedly similar. The Authority failed to evaluate the tenders in accordance with the request for tender and departed from the scheme it specified in a number of significant respects including disclosure of confidential price information, and accepting an out of time change by Thomson as to one of the significant criteria without informing Hughes. The tender recorded the appointment of an independent auditor to verify that the evaluation procedures were followed, the evaluation was conducted fairly and the offers received due consideration. The plaintiff relied on a number of bases to support its action, including an argument that the agreed document and the revised tender gave rise to sequential and cumulative process contracts, in the end having the terms specified in the latter offer. The Authority denied that either of the documents gave rise to any contractual obligations and the procedures they specified were in the nature of administrative arrangements only. Finn J concluded that the document, in the circumstances (especially following an aborted tender process), constituted a “binding statement of the procedures to be followed”, giving particular weight to the fact that it had been “held out to the two prospective tenderers for their concurrence as providing the bases and conditions of their further participation in the phases leading to the award (if at all) of the…[procurement] contract” (76 FCR at 183). His Honour considered that the steps taken to obtain the tenderers’ agreement with the document and its terms being largely followed in the revised tender demonstrated that the Authority intended to bind itself to comply with the procedures proposed in order to entice the proposed tenderers to make what would be a significant commercial commitment to participate in the process and, in this regard, the mandatory language in which the document was expressed as being consistent with the imposition of binding obligations (76 FCR at 183-184). Finn J (76 FCR at 185) accepted as “squarely” stating the general issue in the cases dealing with pre-award contracts in tender cases, the statement by Gallen J in Pratt Contractors Limited v Palmerston North City Council ([1995] 1 NZLR 469 at 478-9)

that –

Whether or not the particular case falls into one category or the other will depend upon a consideration of the circumstances and the obligations expressly or impliedly accepted

37 Finn J concluded that “in the distinctive circumstances that obtained in this case…contractual obligations were accepted”. I agree with the submission of Mr Bathurst QC for the defendants that the circumstances in the case here differ markedly and significantly from those obtaining in Hughes. However, in dealing with the issues before him, Finn J made a number of general observations which, I think, are of assistance.

38 It is argued here, as it was in Hughes, that there was an implied obligation in the invitor to conduct its evaluation fairly and in a manner that would ensure equal opportunity to the tenderers. It was submitted by the plaintiff here that the proposed implied term is a manifestation of a general implied duty of good faith and fair dealing. Finn J said (76 FCR at 193) –

“As is now well accepted, quite apart from that form of implication which is necessary to give business efficacy to a particular contract, a term may be implied as a matter of law as a legal incident of a particular class of contract: on this distinction see Castlemaine Tooheys Limited v Carlton & United Breweries Limited (1987) 10 NSWLR 468 at 486 ff. Notwithstanding the differences between the two forms of implication, there is justification for the conclusion of Priestly JA in Renard Constructions (ME) Pty Limited v Minister for Public Works (1992) 26 NSWLR 238 at 260 that for particular contracts in particular settings ‘there may be a good deal of overlap between the two categories’. This case exemplifies this overlap.

It is one in which I am prepared to find that, as a matter of law, a duty to deal fairly in the performance on the contracts I have found should be implied into those contracts. Irrespective of what should be taken to have been the intentions of the parties, both the type (or class) of contract and the relationship of the parties were such as gave the tenderers the right to expect, and the CAA the obligation to exhibit, fair dealing in the performance of the contract.”

39 His Honour’s judgment goes on to refer to the test of “necessity” in implying a contractual term and discussed a number of cases dealing with this problem, which I do not think it necessary to repeat here. He pointed out that “considerations of public policy can and do have an overt part to play in some instances in determining whether it is necessary that an obligation should be implied as a matter of law in a contract”, referring in particular to Viscount Simon’s speech in UK Lister v Romford Ice & Cold Storage Limited [1957] AC 555 at 576 ff. His Honour added (at 76 FCR 195) -

“…Not only is the contract of a type in which, as I have indicated above, the tenderers could properly expect the other contracting party to act fairly in its performance, that other contracting party is an agency of government and as such can properly be expected to act fairly with those with whom it deals in such contracts. It is to this latter feature of the contractual relationship that I wish to draw attention…To say the matter is one of contract [as distinct from ‘public law’] does not, though, exhaust the appropriate characterisation of the parties to this contract. The CAA…is a public body - - a body whose owners are, ultimately, the Australian community whom the Authority serves under and in accordance with its statutory mandate.

…
There is, I consider, much to be said for the view that, having no legitimate private interest in the performance of its functions, a public body (including a state owned company) should be required as of course to act fairly towards those with whom it deals at least in so far as this is consistent with its obligation to serve the public interest (or interests) for which it has been created. I have no need here, though, to rely upon such a broad notion.”

40 Of course, the Authority in Hughes was an organization very different to the Principal in this case. It cannot be doubted that the Principal had its own distinct and substantial commercial interest in the ITP - witness, for example, the equity held by private operators - and that, crass though it might be, it wanted to make a profit as well as, no doubt, providing a better transport system for Sydney. The Government was entitled to place considerable (if, perhaps, not exclusive) weight on commercial considerations. Finn J referred to the expectation of the law that governments and public bodies will act fairly as manifested in the subjection of government decision making to the requirements of procedural fairness, of which examples are Haoucher v Minister for Immigration and Ethnic Affairs (1990) 169 CLR 648 at 653 and Annetts v McCann (1990) 170 CLR 596 and the general “standard of fair play to be observed by the Crown in dealing with subjects” (Melbourne Steamship Co Limited v Moorehead (1912) 15 CLR 333 at 342 per Griffith CJ; see also CSI Operations Pty Limited v Commonwealth (1996) 69 FCR 346 at 368 per Beaumont and Einfeld JJ, Greiner v Independent Commission Against Corruption (1992) 28 NSWLR 125 and Logue v Shoalhaven Shire Council [1979] 1 NSW 537 at 558-559, per Mahoney JA) and the application of the rule in Ex parte James: re Condon (1874) LR 9 Ch App 609 to public bodies to require “high principled” action when they receive payments by mistake. With these matters in mind, his Honour concluded (76 FCR at 197, omitting references) -

“In differing ways these instances reflect policies in the law, albeit in specific contexts, (a) of protecting the reasonable expectations of those dealing with public bodies; (b) of ensuring that the powers possessed by a public body, ‘whether conferred by statute or by contract’ are exercised ‘for the public good’…(c) of requiring such bodies to act as ‘moral exemplars’: government and its agencies should lead by example…These policies I consider to be important in the present matter.

…
Given the view I earlier expressed that fair dealing is, in effect, a proper presupposition of a competitive tender process contract (especially one involving the disposition of public funds), and given that a public body is the contracting party whose performance of the contract is being relied upon, a necessary incident of such a contract with a public body is, I am prepared to conclude, that it will deal fairly with tenderers in the performance of its tender process contracts with them.”

41 I would (with unfeigned respect) make the comment, however, that there is, as it seems to me, a very great gulf between the public policy considerations underlying cases such as Haoucher and Annetts v McCann, (supra) dealing with human and civil rights and those which should apply to determining the nature and extent of contractual obligations between Government and large commercial corporations. I confess to some feelings of scepticism that these contexts are usefully regarded as part of the same general notion as to how Governments should behave, especially where it is sought to enforce special obligations on Government negotiating as a contractor for goods and services. If the requirement of fair dealing is to be implied in “as a generalisation of universal application, [being] the standard of conduct to which all contracting parties are to be expected to adhere throughout the lives of their contracts” (76 FCR at 193, emphasis added), it is difficult to see that jurisprudence developed to protect human and civil rights and subject the executive to the requirement to act within its legislative remit will provide a useful point of reference as to whether such a term should be implied or, if so, its appropriate standard. In this respect, the implications of the statement by Gummow J in Service Station Association Association Ltd v Berg Bennett & Associates Pty Ltd (1993) 45 FCR 84 at 97 that -

“…it requires a leap of faith to translate these well-established [equitable] doctrines and remedies into a term as to the quality of contractual performance, implied by law”

(with which Finn J did not agree) must surely apply to public law doctrines developed to control “the insolence of office” ( Hamlet , Act III, Scene 1) and prevent unauthorised oppression of the subject. I think it is also important to note the real distinction between creating a contract by imposing a duty of fair dealing on the one hand and implying the duty in a contract otherwise subsisting, a distinction which public law notions are, to my mind, apt to blur.

42 I will come later to deal with the public law arguments of the plaintiffs but it is helpful, I think, to take up one particular argument proposed by Sackar QC on their behalf, having regard to the allegations of bias and conflict of interest by participants in the process. In this particular respect, Finn J said (76 FCR at 261) -

“…What the applicant has submitted is that the bias rules of procedural fairness provide a guide to the content of the contractual duty. In this I am invited to accept that a decision would involve unfair dealing if it was one in which a contractor-decision maker, was so circumstanced as to give rise in the mind of the other contractor, to a reasonable apprehension of bias on the part of the decision maker. Analogical support for this was sought in Minister for Immigration, Local Government and Ethnic Affairs v Mok (1994) 55 FCR 375.
The respondent for its part has submitted that the applicant is seeking to do indirectly (that is, via the implied duty of fair dealing) what it has not done directly (that is, via an alleged term concerned with the rules of procedural fairness). There is substance in this objection though it does not provide the answer to the submission. That answer is this. It is only conduct which is shown actually to constitute unfair dealing by the CAA with a tenderer in the performance of the…contract that can amount to a breach of the implied term. Conduct etc that merely gives rise to an apprehension (howsoever reasonable) that such might occur is not enough. Furthermore, whether or not even some level of demonstrated partial conduct will constitute a breach will depend on whether, in the circumstances, it occasions unfair dealing with a tenderer - - although proof of such conduct would itself arouse real suspicion that such had occurred.”

43 If I may say so with respect, I consider that his Honour’s view is correct. The apprehension of unfair dealing is not the same as unfair dealing itself. I do not consider that, in all the circumstances, there was here a duty in the defendants to ensure that a reasonable person would not apprehend the possibility of bias. In the nature of the case, at all events, it would be impossible to do so since it is obvious that the interests of the Principal and, for that matter, of the Government, were necessarily different from and in some respects opposed to, the interests of the tenderers whilst, in other respects, the interests of the Government and of the Principal, considered from a purely commercial point of view, were best served by a fair assessment of the better bid. Moreover, what would be the facts of which the fair minded person should be taken to be aware and would that person merely be a fictional member of the public or someone aware of the processes of a tender assessment? After all, the judicial context of the “apprehended bias” test is the fundamentally important public policy of maintaining the integrity - the observable integrity - of the administration of public justice in the minds of the public. The test was developed in a completely different context and for completely different purposes than the assessment by Government of its commercial interests or, indeed, the public interest. Neither Smartpos nor ITSL were seeking the application of public justice by a judicial tribunal to their competition, nor were they immigrants about to be deported, nor had the Government’s authority been constrained by legislation; in short, the public law issues giving rise to the prohibition of apparent bias are not material in a case such as the present, where - accepting that fair dealing was an obligation of the Principal - appearances are material only so far as they might demonstrate the actuality. Applying the distinction mentioned earlier between the Principal and the Evaluation Committee, and assuming (as I think to be mistaken) that the Evaluation Committee was under a contractual (or, indeed, any) obligation to the Proponents to act fairly, again the crucial question is whether there was actual unfairness or, as in point here, actual bias rather than an apprehension of bias, let alone the possibility of the reasonable apprehension of bias. Even the Code of Tendering went no further than requiring tenders “should be assessed by people with relevant skills and knowledge, and who are free of any conflict of interest that might undermine the objectivity of the assessment”, while Principle 10 of the Ethical Principles requires a party with a conflict of interest to declare that interest as soon as the conflict is known. It is difficult to think of a practical circumstance in which this Principle would apply, assuming that “party” has its usual meaning since it is obvious that, in most cases, the parties will necessarily have conflicting interests. By contrast, in Hughes, the relevant legislation provided for the disclosure of pecuniary interests by a member of the Authority’s board and the exclusion of that person from deliberations or decisions in respect to the matter as to which there was an interest (subject to an irrelevant exception). The public policy embodied in the provision of this kind being, as Finn J observed, “appearance-based risk avoidance” (76 FCR at 264), violation of which does not require any proof of an actual deflection from duty, is to be contrasted with the duty to deal fairly in a contractual setting which must be “a matter of proof not of presumption…[so that] proof of unfair dealing in fact is what is required”. Indeed, Finn J went on to say that, even if he had found that the conduct of one decision maker was improperly partisan and unfair to a tenderer, “the question would have remained whether that without more would have rendered the CAA liable for breach of the fair dealing term…[or] would it be necessary to show that his ‘improper’ vote was decisive in the decision to select the other tenderer”, his Honour not expressing a view as it was unnecessary to do so (76 FCR at 268).

THE LEGACY SYSTEMS

190 As I have already mentioned, the essence of the ITP is the provision of a single fare medium accepting a contactless smartcard for passengers using public transport in the greater Sydney area. Prior to the original Call for Proposals, both Cubic and ERG had provided equipment respectively to the SRA and the STA which was intended to remain in place when the project was implemented. This equipment was known as ‘legacy equipment’ or systems. As it was remaining, it is obvious that each of the Proponents needed to be aware to a greater or lesser extent of the legacy systems put in place by the other proponent since it was envisaged that the successful bidder would achieve what was called a “seamless migration” from the existing ticketing system to the new system. Not surprisingly, disclosure by each Proponent of information about the legacy systems to its competitor raised problems of confidentiality and intellectual property. Each of the Proponents, therefore, entered into separate deeds of confidentiality with the STA, SRA, Department and Principal which dealt with these issues. Relevant material was supplied by them to the Project team and kept in a secure room as part of this process of maintaining confidentiality.

191 At a meeting of members of the Project team with ERG and Cubic on 13 August 1999, these issues were discussed in considerable detail, shortly after which both Cubic and ERG executed the deeds of access, the purpose of which was obviously to enable each Proponent to be given such information about the competitors’ legacy systems as was necessary enable it to prepare a realistic bid. Unfortunately, differences soon arose concerning the extent of documentation which was to be disclosed. On 6 October 1999, Mr Walker wrote to the Department attaching a list of documents assembled in the secure room which demonstrated, he claimed, that the technical documentation from ERG available for viewing was insufficient to enable Cubic to give a reasonable estimate of the task of integrating the ITSL system with the ferry and bus legacy systems. Mr Walker said that Cubic had expected to be able to view documentation of equivalent scope to that which it had made available, though he did not state the basis for this understanding. Further information about the documentation sought was supplied to Mr Gunton on 12 October 1999 making, in addition, the following point –

“Until the information is provided, we are unable to complete the overall sizing and pricing of a totally integrated solution, unless we assume that we must replace all STA Bus and Ferry equipment/systems (and by extension, the systems/equipment recently provided by ERG to Westbus and other private operators). We believe that this ‘fall back’ position may not be the optimal approach for the DOT or the participating operators, and could leave CTS at a competitive disadvantage in the evaluation process.
…
“As it currently stands, we do not believe that a balanced competition currently exists and suggest an extension of time will be necessary to enable us to digest any information that may be provided.
If such an extension is not possible, an alternative approach, subject to your approval, could involve CTS submitting a system solution proposal which would exclude estimates for integrating legacy equipment and systems originally provided by ERG. This area would then be addressed once the information is made available post-proposal submission.”

192 It appears that Mr Walker also spoke to Mr Armstrong to suggest the possible solution described in the last paragraph quoted above. On 15 October 1999, Mr Gunton responded to Mr Walker stating, inter alia, that a particular Driver’s Console was not available at that stage since it was only installed in private buses and, as to the rest of the information sought, the Department was in the process of determining the precise details of the material requested and when it could be made available, confirming that a meeting was arranged for 18 October with representatives of ERG to enable this to be done. Mr Gunton added that the Department would accept a proposal which did not involve integrating legacy equipment that had been provided by ERG and permit Smartpos to reserve the right to amend its proposal subject to a number of conditions which are not presently material. It appears that, following the meeting on 18 October, ERG provided further confidential material to be controlled under the deed of access. ERG’s correspondent, Mr Fleming, stated that it was his understanding that, with this supply, the outstanding request for information was satisfied. On 22 October 1999 Mr Zentilomo wrote to Mr Gunton briefly setting out some difficulties with adequately considering the documentation which had been supplied within the time frame required for lodgement of the proposals but noting that, even as at the date of the letter, the necessary information had still not all been made available. On 10 November 1999, Mr Zentilomo informed Mr Gunton that Smartpos then believed they had been provided with access to sufficient information regarding the STA Bus system but that the information in the secure room as to the ferry system was still not adequate. Mr Zentilomo referred to communications between an ERG representative (Mr Horbatiuk) and Cubic’s engineering manager (Mr Cook) attempting to clarify the matters as to which documentation was still required. Mr Zentilomo reported that Mr Horbatiuk had indicated that he believed the information already provided should be sufficient for the purposes described by Mr Cook and requested ITSL to prepare a detailed written statement describing exactly what further information was necessary. A schedule of this material was attached to Mr Zentilomo’s letter to Mr Gunton. The letter concluded with the reservation that, “until the consortium has full access to information on both Buses and Ferries it must necessarily reserve the right to consider the way in which the information once available will affect our Proposal.”

193 On 22 November 1999, Cubic’s schedule of additional information was passed on to Mr Fleming and he was asked to provide the additional information for inclusion in the secure room within a week. Mr Fleming responded on 29 November 1999, in a letter stating –

“The Ferry AFC software system has been specified and designed using the tools of Powerbuilder Designer and are embodied in the system Source Codes. These source codes constitute core intellectual property and knowhow and we are not prepared to permit their disclosure to a direct competitor.

Notwithstanding, in our view, a competitive software engineer with powerbuilder designer expertise could make a reasonable assessment on the scope of effort required to incorporate smartcard functionality into the as built Ferry AFC system.
While we have and will continue to provide every assistance and co-operation to the Department on the Sydney Project, you no doubt would understand certain competitive limitation to this [sic]."

194 On 16 December 1999, Mr Gunton wrote to Mr Fleming confirming that the request for the additional information was being withdrawn but pointing out that by the deed of access ERG had granted to the Government parties “a licence to use the intellectual property subsisting in or relating to the automatic ticketing and fare payment systems for ferries provided for STA by your company for, among other purposes, the Call” [for the purpose of on-licencing to Cubic to enable preparation of its proposal] and pointing out that it “is irrelevant whether or not a proponent is a competitor of your company” as the rights in question were protected as provided in the deed. Mr Gunton therefore said that ERG’s assertion of the right to refuse disclosure of “core intellectual property” in the circumstances was rejected. On the same day, however, Mr Gunton wrote to Mr Zentilomo informing him that the Department did not propose to provide the information which had been sought upon the ground that it had been “advised that the information provided in the STA secure room is sufficient to allow you to scope and price your bid”.

195 Mr Gunton was unable to recall who it was that gave him this advice, although he believed that he had discussed the claim made by Mr Fleming with an appropriately qualified person, as Mr Gunton did not himself have any relevant technical expertise. He also believed that he spoke to Mr Armstrong about the matter. I am satisfied that it is very likely that Mr Gunton did indeed obtain the advice which he mentioned to Mr Zentilomo. Surprisingly, considering the tone of Smartpos’s correspondence, no response was made to Mr Gunton’s letter. Indeed, the matter does not appear to have raised its head again until the expiry of over three months when, on 24 March 2000 Mr Zentilomo wrote to Mr Armstrong asking him to forward copies of specified schedules for the purpose of allowing “us to decide what further information is available, particularly in respect to the performance and related matters (eg reliability)” and making an inquiry concerning spare parts for the ferry system. On 19 April 2000, Mr Armstrong supplied information as specified in four of the five schedules mentioned by Mr Zentilomo but stated, as to the exception (schedule 6, relating to ERG Transit Systems Call Centre Protocols on Operation, Escalation & Fault Reporting Procedure - On Line Equipment) that it was not proposed to provide it “because it has been identified by State Transit as being commercially confidential”.

196 I observe at this point that if ERG was concerned about the trustworthiness of Cubic in relation to its confidentiality undertaking, this scepticism was, as events were to prove, entirely justified. The fact is, that at the highest level involving Mr Walker and Mr Judge and others, the Smartpos consortium demonstrated that it was prepared to take advantage of highly confidential information that was passed to it quite improperly and, it appears, did not have any qualms in so doing.

197 On 1 May 2000, further specific information was sought by Mr Zentilomo but he did not take up, directly at least, Mr Armstrong’s refusal to supply the schedule 6 material. The plaintiffs complain that Mr Armstrong was not entitled to take this line in light of the deeds of access. However, the terms of the deeds of access did not oblige the Government parties to provide information but merely imposed obligations on keeping such information as was supplied confidential. On 2 May 2000, namely the day after Mr Zentilomo’s letter about STA information, Mr Judge noted at a strategy meeting with Mr Walker that a contingency plan was necessary for the “worst case”, the identified strategy being “approach - kill the tender”.

198 On 8 May 2000 Mr Fleming of ERG advised Mr Armstrong that it was unable to satisfy the request of Smartpos for the provision of certain performance and availability statistics since “there is currently insufficient longitudinal data to derive any statistically meaningful system performance/availability measurements”. On 12 May 2000 Mr Armstrong wrote to both Proponents concerning equipment performance for the STA Bus and Ferry system, supplying STA information about performance data for STA buses but advising, as to ferries, to the same effect as in Mr Fleming’s letter. It is submitted by the plaintiffs that Mr Armstrong merely “parroted” Mr Fleming’s explanation for refusing the request to supply statistical data for ferries. The evidence is unclear as to whether as assessment had been made within the Department or the Project team conveyed to Mr Armstrong that Mr Fleming’s point was well taken or whether it reflected Mr Armstrong’s own opinion. However, it seems to me very probable that it was at least assessed by the technical people as the letter was distributed to Mr O’Leary who in turn distributed it to the persons who would normally respond and Mr O’Leary then passed on to Mr Armstrong a draft of the letter which was ultimately sent. I find it very difficult to accept that Mr Armstrong would ever “parrot” a response without being satisfied of the fact, one way or another. On 17 May 2000 Mr Zerial (of STA) obtained legal advice concerning the Smartpos request for access to additional information that, although the Maintenance Contract entitled STA to provide the requested information (if it was in its possession) subject to the conditions set out in the contract, it was recommended that “due to significant commercial risks associated with delivering such information to a direct competitor of the Contractor, State Transit should not provide Smartpos with the requested information”. Further bus information was provided to the Proponents by Mr Armstrong on 17 May 2000.

199 On 24 May 2000 Mr Zentilomo wrote to Mr Armstrong referring to the history of the matter and identifying Smartpos’ essential concern as the “ability to provide a competitive response to this area of the tender, in the absence of the data usually provided”. Mr Zentilomo said that the consortium was therefore “forced, by commercial prudence, to either price with a contingency overhead or to seek caveats (such as the right to re-price when the required information is eventually made available) and added that the “requirement to commit to the expected KPI regime is impacted in a similar matter”. Mr Zentilomo’s letter concluded in the following way –

“Whilst we recognise their historical basis, nonetheless the above issues expose our consortium to a competitive disadvantage which the other proponent does not face (given the significant information provided recently by CityRail and related arrangements).

Given the historical nature of the problem and the late stage of the bid, the situation seems unlikely to be resolved in this revised Call tender stage.

Based on our discussion of 17 May 2000 with you, please confirm your advice that Smartpos should submit its proposal based on the following approach:

1. Rather than second guess post-contract commercial settlements, Smartpos will assume the Principal will ensure at the Principal’s cost unencumbered access to non-CTS provided legacy equipment, supply of all source code, APIs and other interface & technical information, technical support, as well as future availability of spares & replacement modules.

2. Based on the lack of any meaningful performance data for the STA Ferries system, Smartpos will assume that the various types of equipment achieve reliability levels equivalent to similar types of devices in the CityRail AFC system.

3. Based on the lack of access of adequate software specifications for the TP4000 and Ferry equipment, Smartpos will assume a level of ITS integration effort which is consistent with the effort estimated for similar types of CityRail & Wayfarer equipment (where relevant).

4. If it becomes a significant point in determining the winning bidder the DOT team will ensure that neither side is disadvantaged
Of course until both sets of information are provided, Smartpos’ prices for these areas of the scope of work will be subject to upwards or downwards adjustment.”

200 It will be seen that no further issues is raised as to the lack of the statistical information which was the matter directly refused in Mr Armstrong’s letter of 12 May 2000.

201 On 26 May 2000, Mr Armstrong replied to Smartpos’ letter of 24 May as follows –

“I confirm, as has been previously indicated to you, that in areas where Smartpos believes it is unable accurately to prepare and cost its bid on the basis that it has not been provided with sufficient information, Smartpos should submit its proposal reserving the right to vary it in relation to those areas. Whilst the Principal does not accept the comments you have made concerning the lack of information, I confirm that the Principal will be evaluating the proposals so as to ensure that, in its opinion, neither proponent is disadvantaged due to lack of access to information.”

202 It is submitted that equal access to appropriate data was, first, essential to a fair and equitable tender process and, second, the Principal had not complied with its obligation under the Call by not insisting that ERG supply the information that was sought. It seems to me that there are at least two answers to this claim. The first is that the plaintiffs have not sought to establish that, in fact, the absence of the material that was sought actually had a negative impact on its bid still less that, in the evaluation, it was disadvantaged due to lack of access to information. Nor have the plaintiffs sought to establish the significance to the tender as a whole of this alleged lack of information. Merely to repeat the allegation in correspondence that necessary information was lacking is, of course, not to establish the fact. I am not prepared to accept, on the evidence before me, that it was probable that significantly material information was withheld nor that Smartpos’ tender was disadvantaged by the approach taken to its bid in this regard, as outlined by Mr Armstrong. This is especially so since, following Mr Armstrong’s letter of 26 May, Smartpos did not suggest that the proposal was either unfair or unreasonable, a matter which the Principal is entitled to consider as very significant in respect of its own implied obligation of good faith. The assessment of the significance of the information that was sought is self-evidently a highly complex and technical matter. As it seems to me, the plaintiffs rely principally upon the inference said to arise from Mr Armstrong’s letter of 12 May 2000 that no such assessment was made by the Department. As I have already said, I do not think this inference should be drawn. Once it is accepted that it was probable that such an assessment occurred, the plaintiffs’ complaint about this matter must, as it seems to me, fail. The plaintiffs have established, of course, a request for the information but not that the information was important, still less have the plaintiffs shown that the defendants failed to ensure that Smartpos was not disadvantaged by making such adjustments to its tender as may have been necessary. Indeed, the plaintiffs have not even proved that any change to Smartpos’s tender was brought about by the alleged lack of information.

203 Moreover, there is evidence to the contrary in a letter from Mr O’Connor to Mr Robinson of 23 November 2000 dealing with issues raised by Smartpos. It contains the following information –

“A detailed analysis is included in the Project Director’s report concerning the history and implications of obtaining information on ticketing systems currently operating at SRA, STA and on private buses.

The following points are relevant in assessing whether Smartpos appear to have been unfairly disadvantaged because of the level of information available to them concerning ERG equipment currently being used by operators:

An audit report prepared by the technical consultant, Booz, indicates that sufficient information was available in the data rooms to allow Proponents, to “enable them to determine their technology solution for this project and to be able to adequately scope or price that solution.

Smartpos were provided with an opportunity to qualify their submission to the extent that it was unable to adequately scope or price work.

According to the Project Director, no price was identified in the Smartpos proposal for costs associated with integrating with currently operating ERG equipment. No cost was added to the Smartpos proposal by the project team to represent anticipated integration costs.

The Project Director’s analysis report confirms that Smartpos has not been adversely affected in the assessment of submissions by the level of information available that relates to ERG equipment currently in use by operators.

Conclusion
The level of detailed information concerning equipment currently in use by operators is different for each proponent. The project team however appears to have taken appropriate action to address this issue to ensure that neither proponent was disadvantaged because of the level of information available…”

204 On 8 February 2001, in a letter (to which I have already referred) addressed to Mr Deegan and dealing generally with probity and due diligence issues, Smartpos asserted, with respect to an alleged imbalance of technical and performance data –

“The fact that both bids have been assessed as technically complete does not dispose of our concern regarding the level of technical and performance data provided to Proponents in relation to busses and ferries compared to rail. This concern arises from the position of the competing proponent as an existing supplier of equipment and services. From this position we expect that our competitor is able to obtain independent access to data which might reasonably permit it to dispose of contingent risks in the course of preparing its bid. For example, such further data may permit a number of contingencies to be removed from business planning and so have a substantial effect on pricing. In short, this concern may have an effect on a number of areas of your evaluation and not solely on the technical completeness of bids.”

This is a tendentious submission. It does not suggest any particular area of inadequacy nor does it suggest the kind of data which ITSL may have been able to use to its advantage. This is somewhat surprising in light of the statement that as a possibility its position might have a substantial effect on pricing. This claim is clearly not confined simply to seeking access to information thought necessary by Smartpos to prepare its tender, but in substance, the whole of ITSL’s information on buses or ferries that possibly might affect the way ITSL priced its bid. The implicit suggestion that, after all, this is what Smartpos did with its rail information is immaterial, even if true. It cannot have thought that it could force ITSL to disclose more than it needed to because Smartpos disclosed as much as it thought it should. On the whole, I think that this letter was little more than the attempt to create a casus belli .

UNCLEAN HANDS

205 The defendants submit that the plaintiffs so conducted themselves that the Court should refuse the relief sought. It is not necessary for me to come to a final decision as to this matter since I have concluded, as to the substance of the plaintiffs’ claims, that their allegations fail and the defendants are entitled to judgment without reference to equitable defences. However, it seems to me that I should, at least, deal with the factual issues arising out of the defendants’ case on this point against the event that my conclusions as to the substantive case are incorrect.

206 The defendants submit that the plaintiffs undertook disgraceful disentitling conduct either on their own account or through the Second Plaintiff’s participation in the Smartpos consortium. It is submitted that I should find that the plaintiffs deliberately implemented actions designed to protract the selection process to provide an opportunity to overcome the Evaluation Committee’s preference for ITSL, deny ITSL success in the tender because it would significantly benefit its commercial competitor ERG and disadvantage the plaintiffs’ commercial interests in Australia and abroad and, if all else failed, “kill” the Sydney ITP completely to ensure that the plaintiffs maintained and extended their existing incumbent status with the SRA. The defendants submit that the plaintiffs clandestinely obtained and improperly took advantage of highly sensitive confidential information concerning the tender process without disclosing to the Probity Aditor or to the defendants that this information was being communicated to them, in breach of their obligations under clause 3.1.27 of the Call and the ethical principles and requirements of tenderers under sections 4 and 6 of the Code of Tendering. Furthermore, the defendants allege that the plaintiffs approached Mr Wildermuth for the predominant purpose of obtaining confidential information about the technical review and tender process generally, to which they were not entitled, under the pretence that such an approach was for another purpose, in breach of the obligations to which I have already adverted.

207 The first document that discloses Cubic’s approach is an email from Mr Stokes, an employee of Edelman Consulting, a public relations company retained by Smartpos in connection with its bid which attached a guide to an introductory media function which it was proposed should take place, inter alia, with the Minister for Transport, Mr Scully. On the hard copy of the email is a note concerning communications with Mr Scully made by, as it seems to me, Ms Jeannine Campbell, reporting a conversation with Mr Scully to the effect, amongst other things, that “we put some negatives into his ear about possible ERG complications”, commenting (as I read the note) that they had attempted to lay “a very delicate ambush for ERG” without saying what that ambush might be. At all events, by May 2000, Mr Walker and Mr Judge were considering the appropriate strategy if it appeared that Smartpos was not going to win the tender. The view of the Smartpos consortium was that, if it did not win the tender, it would be preferable that the Project not proceed at all rather than ERG win the contract to undertake it. Three months after this meeting, on 18 August 2000, Smartpos were aware that on the previous day, namely 17 August, the Evaluation Committee had recommended that ITSL be selected as the preferred proponent and details of the scoring which had led to this recommendation. I need hardly point out that this information could only have been passed on as the consequence of a highly improper breach of confidence. However, this was not the first occasion upon which confidential information came into the hands of Smartpos. Before 20 June 2000, Mr Walker had been supplied with sensitive and confidential information about the ITSL bid price from Mr Bernie Clarke of European and Australasian Business Consultants, a firm retained by Smartpos to assist with its bid. This information was passed on by Mr Walker to senior executives of the first plaintiff. Mr Walker conceded (and, at all events it is obvious) that the information could only have come to Mr Clarke in breach of a duty of confidence. Mr Walker did not inform the Probity Auditor or any other relevant person of this very serious matter. Furthermore, he attempted to take advantage of the information in developing a strategy for the consortium. He conceded that in each of these ways, he acted quite improperly. I am satisfied that Mr Judge was privy to this information and the use that was sought to be made of it. Furthermore, having regard to the fact that a flow of confidential information came to Smartpos through Mr Clarke, the only inference that can reasonably be drawn is that Smartpos either implicitly or explicitly directed or encouraged Mr Clarke to continue to obtain such information. I have mentioned the scoring information which was procured on the 17 or 18 August 2000. It included scoring against each criterion (technical and operations, financial, legal, qualifications), the weighting, the winner and, with respect to technical and operations, the differentiator which was the “central system, implementation plan”. As Mr Judge’s email of 18 August states, Smartpos took the view that it was necessary to “slow down” the decision making process and, in tandem with this, to procure that “the decision makers should call for an independent technical review of the proposals”. Mr Judge reported that the advice to Smartpos was that a review was unlikely without a clear rationale and that “due diligence and Peter Reeves” might be “seen as suitable grounds for a review”.

208 The information that had been supplied on 17 or 18 August 2000 had been passed to him, Mr Walker said, by a Mr Kambouris, a senior officer with the SRA who had previously been on the evaluation team. Mr Kambouris had, according to Mr Walker, also conveyed to him on earlier occasions, confidential information about the evaluation being undertaken by the Technical Sub-committee. Mr Kambouris was not, of course, represented in the proceedings before me. Nor was he called as a witness. I do not propose to make any finding against him. However, Mr Walker agreed that the information that was conveyed to him, in effect, was a breach of confidentiality and that Mr Kambouris was not entitled to give him the information.

209 On 14 November 2000 Mr Walker became aware that the Department had approached consultants for the purpose of conducting a review of the Sydney ITP proposals and the scope of the proposed review. He passed this information to other members of the consortium, including Mr Judge, noting “this is extremely confidential information”. Its source appears to have been a consultant who was approached by the Department to conduct the review. Mr Walker did not disclose it to the Probity Auditor or to the defendants, in breach, I think, of Smartpos’s ethical obligations. By December 2000, Mr Walker had become aware that the review was to be conducted by Mr Wildermuth, amongst others. The source of this information is not clear but a fair reading of the email from Mr Walker to Mr Zable, Mr Walker’s superior in America, is that the information was obtained in breach of confidence. Mr Walker stated that he and Mr Judge had arranged a meeting with Mr Wildermuth in the following week and, as “[we] have still not been officially informed by the Department that he is involved in the process…our justification for meeting him is based on the premise that we are visiting Singapore to learn about what is going on there”. The purpose of the meeting, as is clear from the email, was to attempt to improperly influence Mr Wildermuth in favour of the Smartpos bid. After a discussion of a number of issues, including the effect of the Sydney ITP on the SRA’s systems demands as supplied by Cubic, Mr Walker concluded –

“In light of this, I believe our best approach is to first find out what he can about what is in Bruno’s report, and if it is favourable to us, to support him by showing a flexible attitude about issues related to specification, implementation and scope. (Given his recent experience in Singapore, it is highly unlikely that he would recommend anything that a more deliberate, lower risk implementation strategy.) This may also give us some room to ask about flexibility in payments terms from the Government at the appropriate time.
If his report is not favourable to us, or does not recommend a re-submission, or does nothing that fundamentally changes the original recommendation, the competition is just about over anyway.”

210 Having regard to the ethical flexibility displayed by Mr Walker, it is, perhaps, not surprising that when he wrote to the Minister for Transport on 9 February 2001 with a number of complaints about the fairness and integrity of the evaluation trusting in “the Government’s clearly stated policy…applying the highest probity and ethical standards”, he criticised the Department’s response for failing to identify the “independent specialists” engaged to review the issues, stating that it was “significant that both the independence and specialist qualifications of this source of advice are asserted in the letter without information” and adding that “the professional standing of the reviewers remains a mystery”, knowing all the time who it was. The letter also complained that at “no time did any independent reviewer contact Smartpos”, a surprising complaint in light of the minute of 23 January 2001 to which I have referred.

211 The defendants submit that this conduct on behalf of the plaintiffs disentitled them to the relief sought, upon a number of grounds. The plaintiffs, on the other hand, argue that the plaintiffs’ causes of action or suits arose out of conduct of the defendants which was in no way induced by the actions of the plaintiffs and that the alleged misconduct had no “immediate and necessary relation to the equity sued for”: Dering v Earl of Winchelsea, at 319, cited with approval in Meyers v Casey & Ors (1913) 17 CLR 90 per Isaacs J at 123, where his Honour summed up the rule as: “No court of equity will aid a man to derive advantage from his own wrong, and this is really the meaning of the maxim” (17 CLR at 124). A number of other authorities are also relied on by the plaintiffs including FAI Insurances Limited v Pioneer Concrete Services Limited (1987) 15 NSWLR 552 where Young J helpfully (if I may say so with respect) discusses the application of the rule. Of course, the matter is one of substance not form. In this case, had the defendants been aware of the plaintiffs’ gross breaches of their obligations of honesty it is most unlikely that their bid would have been considered in the way in which it was. If it was permitted to continue, the evaluation process must have been very different since it would have proceeded on the necessary assumption that the consortium had not dealt honestly with the Government, rather a blow as to a number of criteria that depended on a level of commercial integrity. It seems most unlikely that, in that event, a recommendation would have been made in its favour. When to this is added the consideration that part of its strategic plan was, if possible, to prevent the Sydney ITP from going ahead at all if ERG was the successful contractor, this is evidence of such bad faith as to render it virtually impossible that it could be successful were the facts known.

212 The point of these proceedings is, broadly speaking, to prevent the defendants from entering into a contract with ITSL for the supply of the Sydney ITS and to require them to reconsider both tenders “according to law”. It is difficult indeed to see how the Court would be justified in directing the defendants to reconsider the plaintiffs’ tender when its lack of good faith and positive dishonesty have been so devastatingly exposed. To grant it relief would be to provide the very goal that it determined on in breach of its duty of good faith towards the defendants. If it were necessary for me to do so, I would have no hesitation in giving judgment to the defendants upon this ground alone.

213 Accordingly, there will be judgment for the defendants with costs.

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Last Modified: 02/28/2003

CITATION:	Cubic Transportation Systems Inc & Anor v State of New South Wales & 2 ors [2002] NSWSC 656 revised - 27/02/2003
CURRENT JURISDICTION:	Common Law Division - Administrative Law List
FILE NUMBER(S):	SC 30074/01
HEARING DATE(S):	11/2/02, 12/2/02,13/2/02, 14/2/02., 15/2/02, 19/2/02, 20/2/02, 21/2/02, 22/2/02, 25/2/02, 26/2/02, 27/2/02, 28/2/02, 1/3/02, 4/3/02, 5/3/02, 6/3/02, 7/3/02, 13/3/02, 14/3/02, 22/3/02, 8/4/02, 9/4/02, 10/4/02, 11/4/02, 12/4/02, 15/4/02, 16/4/02, 17/4/02, 18/4/02, 19/4/02, 22/4/02, 23/4/02, 24/4/02, 26/4/02, 6/5/02, 7/5/02, 8/5/02, 9/5/02
JUDGMENT DATE:	26 July 2002
PARTIES :	Cubic Transportation Systems Inc (First Plaintiff) Cubic Transportation Systems (Australia) Pty Limited (Second Plaintiff) v State of New South Wales (First Defendant) Transport Administration Corporation Limited (Second Defendant) Commonwealth Bank of Australia (Third Defendant)
JUDGMENT OF:	Adams J at 1

COUNSEL :	Mr G Downes QC Mr J Sackar QC Mr A Searle Mr T Moore Mr J Halley Ms K Sainsbury for the plaintiffs Mr T Bathurst QC Dr J Griffiths SC Mr A Payne Mr R Hollo for the defendants Mr T Castle (ITSL, ERG)
SOLICITORS:	Baker & McKenzie (Plaintiffs) Clayton Utz (Defendants)
CATCHWORDS:	Government tender - whether creates process contract - nature of contract - whether implied term of good faith - whether statements of tendering ethical codes part of cotnract - whether public law principles apply - duty of legal advisers to Government - whether conflict of interest - Chinese walls - whether rules of natural justice apply to Government advisers - whether rules of natural justice apply to evaluation committee - whether apprehended or actual bias material - duty of probity auditor - application of clean hands doctrine
LEGISLATION CITED:	Administrative Decisions (Judicial Review) Act 1977 (Cth) Coalmines Regulation Act 1982 Judicial Review Act 1991 (Qd) Transport Administration Act 1988
CASES CITED:	Alfabs Engineering Group Pty Limited v Regan [2002] NSWSC 316 AMT Helicopters Pty Limited v Brisbane City Council & Ors (unreported, QSC Wilson J, 17 March 2000) Annetts v McCann (1990) 170 CLR 596 Blackpool & Flyde Aero Club v Blackpool Borough Council [1990] 1 WLR 1195 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 16 ALR 363 Burger King Corporation v Hungry Jacks Pty Limited [2001] NSWCA 187 Century Metals & Mining NL v Yeomans (1989) 40 FCR 564 Chu v Minister for Immigration and Ethnic Affairs (1997) 78 FCR 314 Cord Holdings Limited v Burke (unreported, SCWA, Smith J 22 January 1985) CSI Operations Pty Limited v Commonwealth (1996) 69 FCR 346 D & J Consructions Pty Limited v Head & Ors (1987) 9 NSWLR 118 David Lee & Co (Lincoln) Limited v Coward Chance (a firm) [1991] 1 Ch 259 Devonport Borough Council v Robbins [1979] 1 NZLR 1 Ex parte James: re Condon (1874) LR 9 Ch App 609 FAI Insurances Limited v Pioneer Concrete Services Limited (1987) 15 NSWLR 552 Fuller Cruises Northland v Auckland Regional Council (unreported CP 488-96 Auckland, 4 June 1999) Greiner v Independent Commission Against Corruption (1992) 28 NSWLR 125 Haoucher v Minister for Immigration and Ethnic Affairs (1990) 169 CLR 648 at 653 Hughes Aircraft Systems International v Air Services Australia (1997) 76 FCR 151 KC Park Safe (Brisbane) Pty Limited v Cairns City Council (1997) 1Qd R 497 Livesey v NSW Bar Association (1983) 151 CLR 288 Logue v Shoalhaven Shire Council [1979] 1 NSW 537 at 558-559, per Mahoney JA Markholm Consruction Co Limited v Wellington City Council [1985] 2 NZLR 520 Melbourne Steamship Co Limited v Moorehead (1912) 15 CLR 333 Meyers v Casey & Ors (1913) 17 CLR 90 Minister for Immigration, Local Government and Ethnic Affairs v Mok (1994) 55 FCR 375 MJB Enterprises Limited v Defence Construction (1951) Limited (1999) 170 DLR (4th) 577 Newman v Phillips Fox (1999) 21 WAR 309 Ontario v Ron Engineering & Construction Eastern Limited (1981) 119 DLR (3rd) 267 Pratt Contractors Limited v Palmerston North City Council [1995] 1 NZLR 469 Prince Jefri Bolkiah v KPMG (a firm) [1999] 1 All ER 517 Rakusen v Ellis Munday & Clarke [1912] 1 Ch 831 Transit New Zealand v Pratt Contractors Ltd [2002] 2 NZLR 313 UK Lister v Romfod Ice & Cold Storage Limited [1957] AC 555 Wan v McDonald (1992) 33 FCR 491 White Industries Limited v The Electricity Commission of New South Wales (unreported, NSWSC 20 May 1987)
DECISION:	Judgment for the defendants with costs