Cubic Transportation Systems Inc v State of NSW

[2001] NSWSC 1195

CITATION:	Cubic Transportation Systems Inc v State of NSW & Ors [2001] NSWSC 1195
CURRENT JURISDICTION:	Common Law Division Administrative Law List
FILE NUMBER(S):	SC 30074/01
HEARING DATE(S):	20/12/01
JUDGMENT DATE:	21 December 2001
PARTIES :	Cubic Transportation Systems, Inc (Pl) State of New South Wales (1st Def) Transport Administation Corporation (2nd Def) Commonwealth Bank of Australia (3rd Def)
JUDGMENT OF:	Kirby J

COUNSEL :	G K Downes QC/R Carruthers (Pl) T Bathurst QC/Dr J Griffiths SC (Defs)
SOLICITORS:	Baker & McKenzie (Pl) Clayton Utz (Defs)
CATCHWORDS:	Serious question to be tried - Balance of convenience - Tendering - Suggested improper influence upon Committee evaluating tenders
LEGISLATION CITED:	Transport Administration Act, 1988
CASES CITED:	Hughes Aircraft Systems International v Air Services Aust (1997) 76 FCR 151
DECISION:	Orders - Ref para 42

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

KIRBY J

21 DECEMBER 2001

30074/01 - CUBIC TRANSPORTATIONS SYSTEMS INC v STATE OF NEW SOUTH WALES & ANOR

JUDGMENT

: On 14 December 2001, Cubic Transportation Systems Inc (“Cubic Transportation”) made application to the Duty Judge, Hidden J, for interlocutory relief against a number of defendants, including the New South Wales Government and the Transport Administration Corporation. His Honour, however, was not able to deal with the matter at that time. Leave was given to approach the Vacation Duty Judge. As a consequence, the matter was fixed before me on Thursday 20 December 2001 at 2.00 pm.

Background

2 The New South Wales Government determined that it would introduce what was termed “an integrated ticketing system”. The system would enable passengers on public transport to use one ticket for a journey across Sydney, whether by train, bus or ferry, or any combination of those means of transport. Similar systems have been introduced around the world with benefits both to the travelling public and Government.

3 In September 1997, the Public Transit Authority called for expressions of interest. A number of corporations responded, including Cubic Transportation. The project is substantial, requiring the commitment of massive money and time during the tender process, with commensurate potential rewards to the successful tenderer, including a long term maintenance contract. Consortiums were therefore formed to prepare tenders and participate in the tender process.

4 In May 1999, the Department of Transport issued what is termed “the initial call” for proposals. Again, Cubic Transportation responded, as did others. In July 1999, the Department issued what was termed “a Revised Call”. Four tenderers were short-listed, including Cubic Transportation. At about that time, Cubic Transportation entered a joint venture agreement with the Commonwealth Bank (the third defendant) to pursue the tender under the name of Smartpos.

5 In October 1999, Smartpos submitted its tender. Another consortium, Integrated Transit Solutions Limited (“Transit Solutions”) did likewise. However, no decision was made at that time. Rather, a call was made on 17 March 2000 by the Department of Transport for revised offers.

6 On 30 March 2000, both Cubic Transportation and Transit Solutions submitted revised offers as required by the Department. On 28 August 2000, Mr John Armstrong, the Project Director, wrote to the parties in these terms:

“I am writing to advise you that the evaluation process has now been completed and the Evaluation Committee’s recommendations have been prepared for consideration by the Government.
At this stage, I am unable to advise you on the timing of the Government’s decision making process.”

7 The letter included a reminder of the importance of maintaining the integrity of the tender process. Mr Armstrong added the following:

“Given the current status, it is inappropriate for contact to be made by your Consortium with members of the Integrated Ticketing Project team, or persons in Government who may be involved in the decision making process. Any inappropriate contact will immediately be referred to the Probity Auditor (Mr Warwick Smith of Deloitte Touche Tohmatsu).”

8 However, the Government apparently determined that the issue should be re-examined. On 14 June 2001, the Department wrote to Smartpos and, no doubt, to Transit Solutions, indicating that “pre-announcement negotiations” on various issues (including the valuable intellectual property rights in the system), would then take place over a ten week period.

9 On 10 August 2001, the Evaluation Committee’s recommendation went to Cabinet. On Sunday 12 August 2001, the New South Wales Government announced that Transit Solutions had been selected as the “preferred proponent”.

Meeting 17 August 2001

10 A meeting took place on 17 August 2001 at the Department of Transport. Mr John Armstrong was present, together with other officers from the Department of Transport. Mr Thomas Walker, the Managing Director of Cubic Transportation, was also present, as were other officers of that company. The meeting is crucial to the plaintiff’s application for relief. What is alleged to have been said by Mr Armstrong forms the basis upon which the plaintiff asserts that the tendering process miscarried. The suggestion is that the Government improperly influenced the recommendation made by the Evaluation Committee.

11 A number of persons from Cubic Transportation have filed affidavits. Each sets out his recollection of what was said by Mr Armstrong. The conversation, according to Mr Walker, was in these terms:

“28. I replied to him by saying words to the effect:
‘I had read about the decision in the paper and it was very surprising and shocking to me that the decision had been made in favour of ITSL.’
29. John Armstrong then replied to my comment with words to the effect:
‘It’s all been shocking and traumatising for all of us. Your guys. Our guys. Everyone involved in the process of the project.’”

12 Mr Walker attended a further meeting on 30 August 2001, described as a “debriefing” in respect of the project. Mr Armstrong was present, as was the Director General of the Department, Mr Michael Deegan. Mr Walker tackled Mr Armstrong once more. The conversation, according to Mr Walker, was in these terms:

“47. Michael Deegan started the meeting by saying words to the effect:
‘I believe the ITS tender was a fair and proper process. There were two very good tenderers.’
48. I then said words to the effect:
‘Smartpos has been involved in the tender process for a number of years. We have invested many millions of dollars. We have concerns with the whole process and we are astounded at the decision that was reached.’
49. John Armstrong then proceeded to give a history of project and then said words to the effect:
‘At the end of the pre-announcement negotiations phase, the assessment team came forward with a recommendation for the other consortium which was then approved by the Project Control Group consisting of 4 or 5 senior people in the Department of Transport. The recommendation was then taken up to the Cabinet subcommittee which then signed off on it.’
50. At this point, I then said words to the effect:
‘That’s not what you said at the meeting with State Rail two weeks ago.’
51. John Armstrong looked stunned at this comment and said words to the effect:
‘What do you mean?’
52. I then said words to the effect:
‘You said at that meeting that you were surprised that the decision was made with that result.’
53. He then said words to the effect:
‘No, you’re taking that out of context. I was talking about the fact that government took so long to make a decision. They had rejected the recommendation before, and then all of a sudden there was a decision and we had to go forward on that.’”

13 Mr Bengt Gosta Idestrom witnessed the first conversation on 17 August. His recollection of Mr Armstrong’s response was as follows:

“Well, I was surprised too, but what do you do when the Evaluation Committee had made up its mind and then the government steps in and tells you what to do. What do you do?”

14 The recollection of Mr Christopher Timmins, an electronics engineer, of the same conversation was as follows:

“Look, I’m as surprised as you were. We were told to do it now, and to do it with that guy.”

15 Mr Timmins also spoke to a member of the Evaluation Committee, Vipen Dogra. Mr Timmins’ affidavit recounts the following conversation with Vipen Dogra:

“35. During that discussion, I said to Tony Kambouris and Vipen Dogra words to the effect:
‘How could this sort of thing happen?’
36. Vipen Dogra then said words to the effect:
‘I don’t know.’
37. I then said words to the effect:
‘When were you aware of the decision?’
38. Vipen Dogra then said words to the effect:
‘Friday night. The decision was taken by higher up.’”

16 Mr Tom Shellien, the Fields Operation Manger of Cubic Transportation, deposed to his recollection of the conversation with Mr Amstrong on 17 August in these terms:

“14. ... John Armstrong said words to the effect:
‘You do your job. You do the evaluation and then you get told what to do.’”

17 The only material filed on behalf of the defendants is an affidavit on information and belief by the solicitor for the defendants, Miss Narelle Louise Smythe, in which Miss Smythe deposes to the following:

“2 I am informed by Peter O’Leary, Contract Manager for the Integrated Ticketing Project, and verily believe that:
(a) he was a participant in the Evaluation Committee;
(b) the Evaluation committee recommended Integrated Transit Solutions Limited (‘ITS’) for nomination as Preferred Proponent for the Integrated Ticketing System after evaluation of the Revised Offers; ....”

The Plaintiff’s Case

18 Cubic Transportation asserts that serious questions arise, first, as to the breach by the defendants of contractual obligations owed in respect of the tendering process and, secondly, the breach of obligations arising under administrative law principles.

19 Dealing, first, with the contractual arrangements between Cubic Transportation and the Government, the plaintiff points to the Government’s Code of Tendering, annexed to the affidavit of Mr Fyfe. The Transport Administration Act, 1988 includes the power to make regulations. Under the Public Sector Management (Goods and Services) Regulation 2000, the Government, whether the Minister, the Departmental Head or otherwise, must observe the Government’s procurement and tendering policies and code of practice. The code requires an objective evaluation of competing tenders by a committee appointed for that purpose. The code includes the following provision:

“ Evaluation of tenders
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. Tenders should be assessed in a consistent manner solely against the pre-determined tendering and selection criteria contained in the tender documents.”

20 The call for Revised Offers is said by the plaintiff to give rise to a contract between the Department and Cubic Transportation. The contract obliged the Corporation to consider the proposal in accordance with the terms of the call. The defendants deny any such obligation. Both parties identified the following provisions of “The Call” as supporting their respective cases.

21 Under the heading “Conditions of Proposal”, the following clause appears: (Clause 3.1.1)

“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.”

22 Clause 3.1.17, dealing with the Duration of Validity of Proposals is in these terms:

“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.”

23 Cubic Transportation point to the use in this clause of the language of contract. An irrevocable offer is given in consideration of the Principal agreeing to consider the Proposal. The plaintiff acknowledges that some meaning must be given to the words in parenthesis. It says that whatever they mean, they cannot mean that the plaintiff is deprived of its right to have the tender considered in accordance with the call.

24 The defendant responded by asserting that the Revised Call imposed no obligation upon the Principal to consider the Proposal. All the document gave was a chance to have the Proposal considered in accordance with the terms of the call. That matter, according to the defendant, is made clear beyond argument by Clause 3.1.1.

25 The plaintiff, in the alternative, relied upon an implied term of fair dealing (cf Finn J Hughes Aircraft Systems International v Air Services Australia (1997) 76 FCR 151). The defendant accepted that such a term may be implied in certain circumstances. Such a term may fill a vacuum in circumstances where the parties have not addressed an issue. Here, the tender documents excluded, according to the defendants, the obligation to consider the call. An obligation will not be implied where there is an express exclusion.

26 There is force in the defendants’ position. Nonetheless, the drafting of Clause 3.1.17 certainly gives rise to questions in my mind as to whether there was a contract between Cubic Transportation and the Department. Although, on first reading, Clause 3.1.1. may seem to be against such a construction, the words in parenthesis (“except in relation to the irrevocable offer described in Clause 3.1.17”) are capable of being read as creating a limited exception, which is then identified in Clause 3.1.17. However that may be, I believe that there is a serious issue to be tried.

27 Turning to the second basis, that is, administrative law principles, the position is, perhaps, clearer. The Revised Call established a procedure for evaluation. There was to be an Evaluation Committee (Clause 3.2.1). It was to include representatives of Government and members drawn from the private sector. It was to also include a Probity Auditor whose function was described in these terms:

“A Probity Auditor has been engaged by the Principal for the purpose of ensuring that the process is conducted in accordance with NSW Government Code. The Probity Auditor shall be advised of all meetings (including Evaluation Committee and subcommittee meetings) for the purpose of observing the conduct of the meeting.”

28 The Committee’s function was to evaluate the Revised Offers in accordance with Evaluation Criteria (Clause 3.2.1), and thereafter make a recommendation. The Revised Call set out the evaluation Criteria.

29 Participating in the tender process was, as I have mentioned, an exacting and expensive task. It is said that Cubic Transportation had a reasonable expectation that the terms of the Revised Call would be observed, such that if they were not observed, there would be an absence of procedural fairness, justifying relief.

30 The defendants did not dispute that, were the plaintiff to make good its allegation of improper influence upon the Evaluation Committee, that administrative law remedies may be available. The defendants denied, however, the major premise. That is, they denied that the conversation between Mr Walker and Mr Armstrong, in the various versions, established as a reasonable inference, that there had been improper influence upon the Committee. The defendants pointed to events immediately after the announcement on 12 August 2001. At a time when you would have expected complaints about the tendering process, if they had validity, none were made. Mr Walker did complain to the Director General, Mr Deegan, on 17 August 2001. However his complaint did not, in terms, allege improper influence (Aff Walker: para 34). Rather, he made general allegations about being “very suspicious of the process” and “not getting a fair go”. The Chairman of Cubic Transportation in California wrote to the Premier on 24 September 2001. He said nothing about improper influence. Rather, he reasserted that Cubic Transportation was in the best position to complete the job.

31 The plaintiff, in supporting its case, pointed to the absence of evidence on oath from those who had participated in the evaluation process. The defendant was served with the plaintiff’s affidavits on 10 December 2001. It had responded with one affidavit, that of its solicitor, Ms Smythe, given on information and belief. Miss Smyth’s affidavit simply asserted that Transit Solutions had been recommended by the Evaluation Committee. However, that, according to the plaintiff, supported its case. In the context of the conversation with Mr Armstrong, and the separate conversation with Vipen Dogra, the fact that the Evaluation Committee recommended Transit Solutions suggested that the Committee had been influenced in the recommendation it made.

32 My first impression of the conversation between Mr Walker and Mr Armstrong, as set out in Mr Walker’s affidavit, was that it provided a slender basis upon which to build a case of impropriety. However, the implication arising from that conversation became perhaps more substantial when taken in conjunction with the recollection of others, and the separate conversation with Vipen Dogra. The inference arising from this material, to my mind, was strengthened further by the failure of the defendants to assert the probity of the evaluation process, and deny influence. No documents from the Evaluation Committee have been revealed, although confidentiality may attach to at least some of those documents.

33 In the course of the hearing, I drew to the attention of counsel, Mr Bathurst QC, appearing for the defendants, my preliminary thoughts. Mr Bathurst, in these circumstances, made an application to re-open in order to place before the Court further evidence directed to the evaluation process. Mr Downes QC, for the plaintiff, indicated that he would oppose that course. The issue arose quite late in the day and time did not permit its further exploration. The parties were not available on Friday 21 December 2001 to complete the debate.

34 In the circumstances, I indicated that I would make a ruling at 2.00 pm the next day, Friday 21 December 2001, dealing, if necessary, with the application by the defendants to re-open their case.

Balance of Convenience

35 Being satisfied, as I am, that there are serious issues to be tried, what is the balance of convenience?

36 Unquestionably, there has been significant delay on the part of the plaintiff. The announcement was made on 12 August 2001. The application for relief was first made on 14 December 2001. In the meantime, the successful tenderer and the Government have expended significant energy and money (running to millions of dollars) in perfecting their relationship, and in preparation for the signing of the contract.

37 When the matter first came before the Court the defendants, through Miss Smythe, pointed to a specific detriment which could be expected to arise, were interlocutory relief granted. The irrevocable offer made by Transit Solutions would expire on 31 December 2001. The offer by the plaintiff, Cubic Transportation, also remained open until 31 December 2001 (even though it was not the preferred proponent), and it would then expire.

38 However, a supplementary affidavit was filed by the defendants in the course of the hearing, indicating that the time for expiry in respect of Transit Solutions had been extended until mid February 2002. It was not expected that the parties would be in a position to sign any agreement before the beginning of February 2002.

39 The plaintiff, meanwhile, indicated through its counsel that it would likewise (after consultation with the Commonwealth Bank) extend its irrevocable offer until March 2002.

40 In the circumstances, notwithstanding the delay, I believe the clear balance of convenience is to grant interlocutory relief until further order. I have in mind that, on 14 January 2002, or on a suitable day appointed by the Duty Judge, the application foreshadowed by Mr Bathurst in respect of further evidence could then be heard.

41 In the meantime steps should be taken, as a matter of urgency, to progress the matter. It is unlikely that the misgivings of the plaintiff will be dispelled until the documents, which would be available on discovery, have been inspected, and it is satisfied that the process was not tainted with impropriety. One possibility that occurs to me is that the defendants may choose to permit that inspection by laying their files open. On the other hand, there may be difficulties in undertaking that course of which I am not aware.

Order

42 I therefore make the following orders:

1. An order that, until further order, the first and second defendants be restrained by themselves, their officers, servants and agents, from entering into any contract with Integrated Transit Solutions Limited, or any related party of Integrated Transit Solutions Limited, for an Integrated Ticketing System as described in the Call.

2. That the plaintiff, by 4.00 pm Monday 24 December 2001, give the defendants, in writing, an acknowledgement by members of the Smartpos Consortium that the irrevocable offer made in connection with the Revised Call is extended until 1 March 2002.

3. That the application by the defendants to re-open their case in opposition to interlocutory relief, be adjourned to 14 January 2002, and be listed before the Duty Judge on that day.

4. That, on or before, 10 January 2002, the defendants file and serve any further evidence (whether affidavit or documentary) upon which it will rely if given leave to re-open.

5. That the plaintiff file and serve a Statement of Claim by 4.00 pm Friday 11 January 2002.

6. The plaintiff, by 4.00 pm Monday 24 December 2001, to give the defendants in writing an acknowledgement by the Commonwealth Bank of its guarantee of the undertaking as to damages by the plaintiff.

7. On or before 10 January 2002, the plaintiff and the defendants are to file and serve evidence, either affidavit or documentary, as to the parties to the Smartpos consortium.

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Last Modified: 12/24/2001