Hughes Aircraft Systems International v AirServices Australia
[1997] FCA 558
•30 JUNE 1997
CATCHWORDS
TENDER PROCESS - Government Agency - Applicant the unsuccessful bidder in an invited tender for the installation of a national air traffic control system - claims raised in contract, trade practices, estoppel and tort that selection of tenderer not in accordance with requirement that process be fair and according to defined procedures - whether respondent bound by a ‘tender process’ contract - whether respondent engaged in misleading conduct in relation to and following selection of the successful tenderer.
CONTRACT - Tender Process Contract - whether invitation to tender merely invitation to treat - importance of specific factual matrix - intention to contract - consideration - whether applicant’s agreement to participate in the circumstances sufficient - subsequent Request for Tender issued - whether RFT constituted a second tender process contract.
Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309
Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council [1990] 1 WLR 1195
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Fairclough Building Ltd v Borough Council of Port Talbot (1992) 62 BLR 82
Gregory v Rangitikei District Council [1995] 2 NZLR 208
Pratt Contractors Ltd v Palmerston North City Council [1995] 1 NZLR 469
Queen in Right of Ontario v Ron Engineering and Construction Eastern Ltd (1981) 119 DLR (3d) 267
Spencer v Harding (1870) LR 5 CP 561
Streamline Travel Service Pty Ltd v Sydney City Council (1981) 46 LGRA 168
Eisenberg M A, “Relational Contracts”, in Beatson and Friedmann (eds), Good Faith and Fault in Contract Law, (Clarendon Press, Oxford, 1995)
Fridman G H L, “Tendering Problems”, (1987) 66 Can Bar Rev 582
Seddon N, Government Contracts, (Federation Press, Sydney, 1995)
CONTRACT - Implication of Terms - pleaded term of fairness to be implied ad hoc - whether reasonable, necessary etc to imply ‘fairness’ - whether fair dealing also implied as a legal incident of a particular class of contract - significance of GBE as a party to contract - obligation to deal fairly in tender process contract where public body a party - whether Australian law recognises a duty of good faith and fair dealing.
Attorney-General for the United Kingdom v Heinemann Publishers Australia Pty Ltd (1987) 10 NSWLR 86
B P Refinery (Westernport) Pty Ltd v Shire of Hastings Council (1977) 180 CLR 267
Bill Acceptance Corporation Ltd v GWA Ltd (1983) 50 ALR 242 Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217
Butt v McDonald (1896) 7 QLJ 68
Byrne v Australian Airlines Ltd (1995) 185 CLR 410
Castlemaine Tooheys Ltd v Carlton & United Breweries Ltd (1987) 10 NSWLR 468
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226
Conoco v Inman Oil Co 774 F2d 895 (1985)
Greiner v ICAC (1992) 28 NSWLR 125
Hawkins v Clayton (1988) 164 CLR 539
Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310
Hospital Products Ltd v USSC (1984) 156 CLR 41
Jones v Swansea City Council [1990] 1 WLR 54
Keco Industries Inc v US 492F 2d 1200 (1974)
Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555
Liverpool City Council v Irwin [1977] AC 239
Livingstone v Roskilly [1992] 3 NZLR 230
Logue v Shoalhaven Shire Council [1979] 1 NSWLR 537
Melbourne Steamship Co Ltd v Moorehead (1912) 15 CLR 333
News Ltd v ARFL (1996) 139 ALR 193
Pratt Contractors Ltd v Palmerston North City Council [1995] 1 NZLR 469
Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234
Scally v Southern Health and Social Services Board [1992] 1 AC 294
SCI Operations Pty Ltd v Commonwealth of Australia, (unreported, FC FCA, per Beaumont and Einfeld JJ, 28 August 1996)
Simonius Vischer & Co v Holt & Thompson [1979] 2 NSWLR 322
Thompson and Morgan (United Kingdom) Ltd v Erica Vale Australia Pty Ltd, (unreported, FC FCA, per Gummow and Hill JJ, 19 April 1995)
Webster v Auckland Harbour Board [1983] NZLR 646
Farnsworth E A, “Good Faith in Contract Performance” in Beatson and Friedmann (eds) Good Faith and Fault in Contract Law, (Clarendon Press, Oxford, 1995)
Farnsworth on Contracts, (Little, Brown & Co, Boston 1990)
Glanville Williams, “Language and the Law”, (1945) 61 LQR 71
Lücke H K, “Good Faith and Contractual Performance” in Finn (ed), Essays on Contract, (Law Book Co, Sydney, 1987)
Massengale E W, Fundamentals of Federal Contract Law, (Quorum Books, NY, 1991)
O’Connor J F, Good Faith in English Law, Dartmouth, 1990
Renard I, “Fair Dealing and Good Faith”, in Saunders (ed), Courts of Final Jurisdiction, (Federation Press, Sydney, 1996)
Rose D, “The Government and Contract”, in Finn (ed), Essays on Contract, (Law Book Co, Sydney, 1987)
Sir Anthony Mason, “Contract and its Relationship with Equitable Standards and the Doctrine of Good Faith”, The Cambridge Lectures, 1993 (8 July 1993)
Skapinker D and Carter J W, “Breach of Contract and Misleading or Deceptive Conduct”, (1997) 113 LQR 294
Rt Hon Lord Justice Staughton, “Good Faith and Fairness in Commercial Contract Law” (1994) 7 Jo Contract Law 193
Unidroit, Principles of International Commercial Contracts, International Institute for the Unification of Private Law, Rome, 1994
TRADE PRACTICES - Misleading and deceptive Conduct - claim that representations made by respondent as to conduct of tender process were later falsified - representations of a continuing nature - whether applicant reasonably entitled to expect that respondent would disclose its failure to comply with representations - noncompliance with representations a matter peculiarly within respondent’s knowledge - representations relied upon also terms of contract pleaded.
Trade Practices Act (Cth) 1974, S52
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31
Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83
Kimberley NZI Finance Ltd v Torero Pty Ltd (1989) 11 ATPR 46-054
Nagy v Masters Dairy Ltd (1997) 19 ATPR 46-164
Spedley Securities Ltd (in liq) v Bank of New Zealand (1991) 13 ATPR 41-143
Trade Practices Commission v Optus Communications Pty Ltd (1996) 18 ATPR 41-478
Cheshire and Fifoot, Law of Contract, (7th Aust ed, Butterworths, Sydney, 1997)
STATUTORY CORPORATIONS - Constitutional Status - relationship between executive, parliament and government business enterprise - during selection process respondent received a letter from minister responsible for respondent - right of responsible minister to communicate with GBEs - provision in statute for minister to give express direction - no direction given - whether communication amounted to indirect direction - second letter received by board during selection consideration from non-portfolio minister encouraging ‘every consideration’ to be given to priority 4 - propriety of communications - whether respondent improperly took account of communications.
Air India v The Commonwealth [1977] 1 NSWLR 449
Ansett Transport Industries (Operations) Pty Ltd v Commonwealth (1977) 139 CLR 54
Horta v The Commonwealth of Australia (1994) 181 CLR 183
L’Huillier v State of Victoria [1996] 2 VR 465
Martselos Services Ltd v Arctic College (1994) 111 DLR (4th) 65
Mercury Energy Ltd v Electricity Corporation of New Zealand Ltd [1994] 2 NZLR 385
R v East Berkshire Health Authority, Ex parte Walsh [1985] 1 QB 152
Service Station Association Ltd v Berg Bennett & Associates Pty Ltd (1993) 45 FCR 84
Tickner v Chapman (1995) 57 FCR 451
Administrative Review Council, Government Business Enterprises and Commonwealth Administrative Law: Report No 38, (1995)
Aronson M, “Ministerial Directions: The Battle of the Prerogatives”, (1995) 6 Public Law Rev, 86-88
Bottomley S, “Regulating Government-Owned Corporations: A Review of the Issues”, (1994) 53 Aust Jo of Pub Admin 521
Hale, De Portibus Maris, 77, (c.1660)
McLean J, “Contracting in the Corporatised and Privatised Environment”, (1996) 7 Public Law Rev 223
Senate Standing Committee on Finance and Government Operations, Statutory Authorities of the Commonwealth, Fifth Report, Ch 6, 1982
Taggart M, “Corporatisation, Contracting and the Courts”, [1994] Public Law 351
Taggart M, “Corporatisation, Privatisation and Public Law”, (1991) 2 Public Law Rev 77
Zines L, The High Court and the Constitution, (4th ed Butterworths, Sydney, 1997)
STATUTORY CORPORATION - Construction of Statute - governance - role of board - fiduciary obligations - role of chief executive officer - disclosure of interest provisions - purpose of disclosure provisions.
Civil Aviation Act 1988 (Cth), s8; s9; s12; s32B; s45; s47(2)(b); s48; s84A
STATUTORY CORPORATION - Breach of Confidence - obligation on respondent to ensure strict confidentiality of tender information - applicant’s claim that CEO disclosed price information to responsible minister - consideration of minister’s powers of access to information of GBEs - whether CEO had authority to make disclosure - further claim that respondent improperly disclosed price information to employee of consultant (DITRD) - whether necessary for consultant to know price information to perform consultancy.
Public Service Act 1992 (Cth) s25(2)
Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223
Camelot Resources Ltd v MacDonald (1994) 14 ACSR 437
Commonwealth of Australia v John Fairfax & Sons Ltd (1980) 147 CLR 39
Elders Trustee & Executor Co Ltd v E G Reeves Pty Ltd (1987) 78 ALR 193
Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10
North and South Trust Co v Berkeley [1971] 1 WLR 470
R v Birmingham City Council; Ex parte O [1983] 1 AC 578
Re Quintex Ltd (No 2) (1990) 2 ACSR 479
Slater v Bissett (1986) 69 ACTR 25
Smith Kline & French Laboratories (Australia) Ltd v Secretary to the Department of Community Services (1991) 28 FCR 291
Spedley Securities Ltd (in liq) v Greater Pacific Investments Pty Ltd (in liq) (1992) 7 ACSR 155
Commission on Government, Report No 3, (1996, WA)
Reid G S and Forrest M, Australia’s Commonwealth Parliament 1901-1988, (MUP, Melbourne, 1989)
Report of the Royal Commission into Commercial Activities of Government and Other Matters, Part II, (1992, WA)
EQUITY - Fiduciary - parties not in a fiduciary relationship - applicant claim that neither respondent nor its agents would have affiliations which created a conflict of interest etc or which influenced decision without applicant’s consent - term pleaded a fiduciary hybrid - nature of fiduciary obligations as against obligations of good faith and fair dealing.
Bennetts v Board of Fire Commissioners of New South Wales (1967) 87 WN (Pt 1)(NSW) 307
Boulting v Association of Cinematograph, Television and Allied Technicians [1963] 2 QB 606
Bowes v City of Toronto (1858) 11 Moo PC 463
Commonwealth of Australia v O’Donohue [1979] VR 441
Government Insurance Office of New South Wales v Deputy Commissioner of Taxation (1992) 106 ALR 715
Hodgkinson v Simms (1995) 117 DLR (4th) 161
Molomby v Whitehead (1985) 7 FCR 541
CONFLICT OF INTEREST OR DUTY - Implied Terms - claim that tender process prohibited affiliations which engendered a conflict of interest or duty or which influenced respondent or board members - construction of ‘affiliation’ - consideration of ‘influenced’.
City of London Electric Lighting Co v London Corporation (1903) 72 LJ Ch 737
R v Justices of Sunderland [1901] 2 KB 357
State Bank of SA v Marcus Clark (1996) 19 ACSR 606
Transvaal Lands Co v New Belgium (Transvaal) Land and Development Co [1914] 2 Ch 488
US v Mississippi Valley Generating Co 364 US 520 (1961)
Morgan P M, “The Appearance of Propriety: Ethics Reform and Blifil Paradoxes”, (1992) 44 Stanford L Rev 593
Public Duty and Private Interest: Report of the Committee of Inquiry, AGPS, 1979
HUGHES AIRCRAFT SYSTEMS INTERNATIONAL (Applicant) v AIRSERVICES AUSTRALIA (Respondent)
No ACT G86 of 1995
FINN J
CANBERRA
30 JUNE 1997
IN THE FEDERAL COURT OF AUSTRALIA )
)
AUSTRALIAN CAPITAL TERRITORY )
) No ACT G86 of 1995
DISTRICT REGISTRY )
)
GENERAL DIVISION )
BETWEEN:HUGHES AIRCRAFT SYSTEMS INTERNATIONAL
Applicant
AND: AIRSERVICES AUSTRALIA
Respondent
COURT:FINN J
PLACE:CANBERRA
DATE: 30 JUNE 1997
MINUTES OF ORDERS
THE COURT ORDERS THAT:
the parties file agreed short minutes of orders to reflect these reasons;
if short minutes are not agreed: (i) the applicant to file and serve proposed minutes of orders along with written contentions supporting the orders; and (ii) the respondent to file and serve its written objections thereto.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
)
AUSTRALIAN CAPITAL TERRITORY )
) No ACT G86 of 1995
DISTRICT REGISTRY )
)
GENERAL DIVISION )
BETWEEN:HUGHES AIRCRAFT SYSTEMS INTERNATIONAL
Applicant
AND: AIRSERVICES AUSTRALIA
Respondent
COURT:FINN J
PLACE:CANBERRA
DATE: 30 JUNE 1997
REASONS FOR JUDGMENT
TABLE OF CONTENTS
PART I: INTRODUCTORY SECTION........ ........ ........ ...
ACRONYMS AND ABBREVIATIONS........ ........ ........ ..
2. PRINCIPAL ACTORS........ ........ ........ ........ ....
3. GENERAL CHRONOLOGY........ ........ ........ ........ .
Outline of Events........ ........ ........ ........ .
PART II: THE CAA AND ITS STATUTE........ ........ ......
PART III: THE CASE AS PLEADED AND PLEADING ISSUES......
The Four Bases of Hughes’ Principal Claim........ ..
2. The Seven Complaints........ ........ ........ .......
THE SPLITTING OF THE APPLICATION........ ........ ......
ISSUES NOT PLEADED........ ........ ........ ........ ....
PART IV: GENERAL CONTRACT ISSUES........ ........ ......
THE PROCESS CONTRACTS........ ........ ........ ......
Additional Chronological Material........ ........ .....
Conclusions........ ........ ........ ........ ........ ...
(i) The 9 March Letter........ ........ ........ ....
(ii) The RFT Contract........ ........ ........ ......
(iii) The Relationship of the Contracts........ .....
THE IMPLICATION OF TERMS GENERALLY........ ........ .
3. THE IMPLIED TERM OF “FAIR DEALING”........ ........ .
(i) Express term........ ........ ........ ........ ..
(ii) Implication ad hoc........ ........ ........ ....
(iii) Implication in law........ ........ ........ ....(a) Good faith and fair dealing........ ........
(b) As a legal incident of a particular class of contract........ ........ ........ ........ ........ .......
GENERAL TRADE PRACTICES ACT ISSUES........ ........ .
(i) The nature and basis of the claim........ .....
(ii) The interrelationship of the claims........ ..
PART V: EVALUATION/SELECTION PROCEDURE FAILURES......
The Role of the CAA Board in Selecting the TAAATS Contractor........ ........ ........ ........ ........ ...
The disenfranchisement argument........ .......
The “fetter” argument........ ........ ........ .
(ii) The CAA’s Obligation in relation to AII and its Compass........ ........ ........ ........ ........ ........ .....
A. Criteria Related Complaints........ ........ ........
Evaluation in Accordance with the Methodology and Priorities........ ........ ........ ........ ........ ...
Additional Factual Material........ ........ ........ ..
(ii) The Construction of the RFT Priority Ranking and Evaluation Methodology........ ........ ........ .......
(iii) The Board’s Decision........ ........ ........ ...
(iv) Conclusions........ ........ ........ ........ ....The Prospect of a Government Subsidy........ ...
B. DITRD Related Complaints........ ........ ........ ...
Permitting DITRD’s Role to Change........ ......
(a) Allowing DITRD to deal with the Board......
(b) Accepting submissions from DITRD on the price/AII balance........ ........ ........ ........ ........ ........ .
(ii) Reliance on DITRD........ ........ ........ ......
(iii) Warranting DITRD’s Evaluation........ ........ ..
PART VI: POLITICAL INTERFERENCE........ ........ ......
The Propriety of the Communications........ ....
(a) Minister Collins........ ........ ........ ..
(b) Minister Griffiths........ ........ ........
(ii) The Board’s Treatment of the Communications....
PART VII: AUDIT FAILURE........ ........ ........ ......
The Construction Question........ ........ ........ .
PART VIII: IMPROPER INTERESTS AND AFFILIATIONS.......
Mr Yates........ ........ ........ ........ ........ ..
2. The CAA........ ........ ........ ........ ........ ...
3. DITRD........ ........ ........ ........ ........ .....
PART IX: BREACH OF CONFIDENCE........ ........ ........
The Pleadings........ ........ ........ ........ ........
The Four Claims Made........ ........ ........ ........ .
1. The Disclosure to Senator Collins........ ........ .
(a) Factual Matters........ ........ ........ ......
(b) Legal Issues and Submissions........ ........ .
The TEC’s Disclosure of the Price Bids to Ms Clarke
(i) Additional Factual Material........ ........ ..
Submissions and Conclusion:........ ........ ........ ...
The Disclosure of Price Information by Ms Clarke to Other DITRD Officers and to the Secretary: the Disclosure to Minister Griffiths........ ........ ........ ........ ........ ....
Additional Factual Matters........ ........ ........ ...
Conclusions........ ........ ........ ........ ........ ..
4. The “Leaks” to Thomson........ ........ ........ ....
PART X: PRICE REDUCTION/AII VARIATION........ ........
The Price Reduction........ ........ ........ .......
2. The AII Variations........ ........ ........ ........
PART XI: FAIR DEALING........ ........ ........ ........ .
A. THE ALLEGATIONS OF UNFAIR DEALING: CONTRACT CLAIMS
1. Mr Yates........ ........ ........ ........ ........ ..
(i) Permitting an Interested Member to Participate in the Board Decision........ ........ ........ ........ .....
(ii) Being Influenced by The Preston Group Ltd Affiliation........ ........ ........ ........ ........
(iii) Dealing with and Giving Advice to Thomson....
Additional Factual Material........ ........ ........ ..
(a) The TPG Directorship........ ........ ........ .
(b) Dealings with the Tenderers........ ........ ..
(c) Alleged Advocacy for Thomson........ ........ .
The Alleged Unfair Dealing........ ........ ........ ...
2. DITRD........ ........ ........ ........ ........ .....
3. The Attorney-General’s Department........ ........ .
B. THE TRADE PRACTICES ACT CLAIMS........ ........ ....
PART XII: THE CONSEQUENTIAL TRADE PRACTICES ACT CLAIM
The Price Difference........ ........ ........ ........ .
PART XIII: PRINCIPAL FINDINGS AND CONCLUSIONS........
Hughes Aircraft Systems International (“Hughes”), a Californian company, was the unsuccessful tenderer in a two party bid for the award by the Civil Aviation Authority (the “CAA”) of the Australian Advanced Air Traffic System Acquisition contract, or TAAATS II as it was referred to at the time and in these proceedings. The successful tenderer was Thomson Radar Australia Corporation Ltd (“Thomson”). It is a subsidiary of a French company, Thomson-CSF (“TCSF”). Air Services Australia, a statutory corporation of the Commonwealth, is for present purposes the successor body to the CAA. It is admitted to be the appropriate respondent in this proceeding.
Put compendiously, the core of Hughes’ application is the claim that the CAA by contract, representation or promise obliged itself to conduct the tender process leading to the award of the TAAATS II contract fairly and in accordance with defined procedures and criteria. It is alleged that in a significant number of respects it failed to satisfy this obligation. Accordingly, damages have been claimed against the respondent (i) for a variety of breaches of contract; (ii) for misleading and deceptive conduct (Trade Practices Act 1974 (Cth), S52); (iii) for negligence in the administration of the tender process; and (iv) on the basis of equitable estoppel. It will be necessary to refer to the pleadings in this matter in some detail.
The proceeding itself raises a range of issues, legal and factual, of no little complexity. My reasons, inevitably, will reflect that complexity. To assist understanding I have considered it appropriate to preface these reasons with an Introductory Section. This will begin with a Glossary of Abbreviations and Acronyms. It will be followed by a description of the principal actors in the events with which this application is concerned. A General Chronology will then be provided.
PART I: INTRODUCTORY SECTION
ACRONYMS AND ABBREVIATIONS
Though the full and correct name or title of the person or thing referred to below will be set out where it first appears in these reasons, the following list is provided as a convenient reference source.
AIAAirport Industries Australia. This unincorporated association, which appears to have been formed in March 1993, had the purpose of acting as a network of representatives from industry, government business enterprises and Commonwealth departments to enhance the prospects of Australian companies winning air traffic management business particularly overseas.
AIIAustralian Industry Involvement. This was designated as the fourth major selection criteria in the award of the TAAATS II contract.
BAFOBest and Final Offer. The Request for Tender issued to Hughes and Thomson required the lodgment of a BAFO with the CAA. It was to be irrevocable for a period of 6 months from the BAFO closing date.
DITACDepartment of Industry, Technology and Commerce. This department and its successor (DITRD) were responsible for conducting the evaluation of the tenderers’ AII proposals and for advising the Tender Evaluation Committee on AII matters.
DITRDDepartment of Industry, Technology and Regional Development. DITAC mutated into DITRD during the tender process period.
Dubs Notes
Records of Board meetings prepared by Dr Rosalind Dubs who, at the relevant times, was Corporate Secretary of the CAA.
GBEGovernment business enterprise. The CAA for relevant purposes was a GBE.
Macphee Report
A Report entitled “Independent Review of the Civil Aviation Authority’s Tender Evaluation Process for the Australian Advanced Air Traffic System”. The Review, which reported in December 1992 was chaired by the Hon I Macphee AO and was set up by the relevant Minister under s12 of the Civil Aviation Act 1988 (Cth) to inquire (inter alia) into the soundness and fairness of the processes leading to the selection of Thomson as the preferred tenderer for the TAAATS I contract. The Report led to the rebid known as TAAATS II.
RADREPRadar Display Replacement Project. This project, in which Hughes and Thomson were competitors, was abandoned by the CAA in March 1991 in favour of the TAAATS concept. The CAA’s conduct of this was subject to strong criticism in the Macphee Report, para 3.4.2.
RASPPRadar Sensor Procurement Project. This was a contract being performed by Thomson for the CAA during the currency of the TAAATS II tender process. It was unrelated to TAAATS II.
RFTRequest for Tender. This was issued to Hughes and Thomson under cover of a letter dated 19 July 1993. It is Hughes’ case (inter alia) that on lodgment of the BAFO there was a contract between Hughes and the CAA upon the terms and conditions of the RFT and that that contract carried forward the contract alleged to be recorded in the 9 March 1993 letter (see below).
RFT CONTRACT
See RFT.
SDPSpecification Development Phase. This was the first phase in the TAAATS II procurement, the second being the TAAATS Acquisition Phase. Only the latter is of significance in this proceeding.
TAAATSThe Australian Advanced Air Traffic System. The objective of the TAAATS concept was to establish a single, integrated, Australia wide air traffic services system based on two centres, Brisbane and Melbourne. This was to replace the multi-generational systems located at some number of centres around Australia. Against a setting of detailed functional specification, the TAAATS contract was to be for a “turn-key” solution.
TECTender Evaluation Committee. This was a committee of senior managers of the CAA constituted for the purposes of the TAAATS II tender. Its function (inter alia) was to make a recommendation to the CAA board of the preferred contractor. It recommended Hughes.
Tender Process Contract
See 9 March letter below.
TPGThe Preston Group Pty Limited, a company that was part of the Thomson “team” for the purposes of Thomson’s AII bid. One of its directors, Mr Ronald Yates, was a member of the Board of the CAA.
9 March Letter
This letter, sent separately to, and later signed by, both Hughes and Thomson, detailed procedures and criteria for the award of the TAAATS II contract. It is Hughes’ case that the letter gave rise to what has been called the Tender Process Contract on Hughes’ agreeing to participate in the new tender process on the terms of the letter.
9 March Contract
See 9 March letter.
PRINCIPAL ACTORS
Attorney-General’s Department
-John Butler (solicitor with the Australian Government Solicitor engaged by CAA to advise on TAAATS II)
-Dennis Rose QC (Chief General Counsel)
CAA
(1)Board Members
-Leslie Fenton Ayres *
-Richard Lawrence Baillieu * (Until 31 December 1993)
-Henry Bosch *
-Peter Courtney Gration * (Chairman)
-Russell Ingersoll *
-John Hayward Mant *
-Douglas Roser * (Chief Executive Officer from July 1993 until December 1994)
-Michael Thomas Terrell *
-Ronald John Yates *
(2)Officers
-Dr Rosalind Vivienne Dubs * (Corporate Secretary)
-Peter William Hider * (TAAATS Project Manager and TEC member)
-David Williams (in-house legal adviser)
(3)Consultants/agents for TAAATS
-John Michael Moten * (TAAATS independent auditor)
DITAC/DITRD
-Beverley Anne Clarke * (public servant and DITRD officer in AII evaluation team for TAAATS contract)
-Neville Robert Stevens * (Secretary of DITRD until December 1993)
-Lorraine Tomlins * (public servant, Director, Aerospace Section)
Hughes
-Peter Arthur Funge * (TAAATS program manager)
-Robert Henry Kramp * (Group Vice-President and Manager, Command and Control Systems Division)
-Gary Wayne Osborn * (Air Traffic Control Unit)
Ministers
-Senator The Hon Bob Collins (Minister for Transport and Communications)
-The Hon Allan Griffiths (Minister for Industry, Technology and Regional Development)
*All persons marked with an asterisk gave evidence, oral and/or affidavit, in this proceeding.
GENERAL CHRONOLOGY
Outline of Events
Many of the particular allegations raised by the applicant require an examination of specific events. That examination will take place as and when each such allegation is considered. The purpose of this general chronology is to provide an overview, albeit lengthy, of the course of events with which this matter is concerned and a context for the more specific events that I will consider.
(1) In 1989, following the CAA’s release of a request for tender, Hughes, Thomson-CSF and a third company were selected to participate in the project definition of the Radar Display Replacement Project (RADREP). That Project, as its name partially suggested, was a piecemeal response to obsolescence in display systems in Sydney, Brisbane and Canberra. Its scope swelled dramatically over the next year. In March 1991 it was cancelled in favour of the TAAATS concept. I note in passing that while management had by then selected Hughes as the preferred RADREP contractor, that recommendation was never put to the CAA board.
(2) The TAAATS I procurement process began with the issue of a request for Registration Of Interest (“ROI”) dated 30 May 1991 to six selected tenderers, two of whom were Hughes and Thomson. Over time the tenderers were reduced to Hughes and Thomson. The tender process itself underwent significant periodic modification. On 18 December 1991 the CAA management recommended to the Board that Hughes be selected as the preferred tenderer. The CAA board deferred making a decision for reasons related to perceived “risk” (a technical term) if Hughes were selected. The resultant re-examination of the bids in relation to price and risk led to the recommendation of Thomson as the preferred contractor - a recommendation adopted by the CAA board on 13 March 1992.
(3) On 10 July 1992, Senator Peter Cook, the then Minister for Shipping and Aviation Support, initiated the Macphee Review pursuant to a statutory direction given under s12 of the Civil Aviation Act 1988 (Cth). The Report of the Independent Review of the Civil Aviation Authority’s Tender Evaluation Process for the Australian Advanced Air Traffic System (“Macphee Report”) of 11 December 1992 (to which piecemeal reference will be made), in concluding that the TAAATS I process was in significant respects unsound and unfair, made a variety of recommendations relating to the proposed TAAATS procurement. Adoption of the Report led to the TAAATS II tender. In particular the Report recommended that that tender be limited to Hughes and Thomson, each of which should be invited to participate in it. The Report contributed directly both to the criteria and to the processes adopted for the TAAATS II tender. While the CAA board officially accepted the Macphee recommendations, it is clear that some members at least were hostile to the inquiry and to some of its criticisms.
(4) In January 1993 the CAA invited Thomson and Hughes to participate in a further competition for the TAAATS contract. A formal meeting (“the Restart Meeting”) was held on 19 January 1993. A transcript of it was kept. Its objectives were to provide reassurance to the two companies as to the processes to be followed and to secure their concurrence in those processes.
(5) On 5 February 1993 the CAA wrote to Hughes and Thomson outlining its proposals for, and seeking acceptance of, its “general approach to the selection of a contractor for the TAAATS Project”. The matters particularised in this letter were later superseded by more detailed proposals but I would note that the letter particularised that:
(a) Australian Industry Involvement (“AII”) was to be an element in the tender evaluation and that the evaluation of AII would be undertaken by DITAC which would be a consultant to the Tender Evaluation Committee (“TEC”);
(b) the parties Best and Final Offers (“BAFOs”) would be evaluated in accordance with specified major and minor criteria (a priority order being given the major criteria), and that the evaluation would be in accordance with a defined evaluation methodology;
(c) an independent auditor, responsible to the Board, would be contracted to audit the conduct of the evaluation process; and
(d) strict confidentiality would be maintained.
(6) On 17 February, Mr Roser, then Acting Chief Executive of the CAA, wrote to Mr Stevens, Secretary of DITAC in terms (inter alia):
“The CAA has established a Tender Evaluation Committee, comprising myself and three General Managers, to oversight the evaluation process and to make recommendations to the CAA Board regarding the preferred tenderer for this project. I would like to invite your Department to participate in the selection and evaluation process as a Consultant to this Committee.
I would also like to invite your Department to undertake the evaluation of the AII aspects of the proposals from Hughes and Thomson.”
By letter of 2 March 1993, Mr Stevens accepted the CAA’s invitation and nominated Ms Clarke to represent his department as the TEC’s consultant.
(7) Negotiations between the companies and the CAA during this period occasioned further revisions to the tender process. On 3 March the CAA sent to each the draft of a letter specifying the selection criteria and tender process for the TAAATS acquisition. Comments on it were invited as the letter itself was to be “proposed for each Company’s agreement at signature of the SDP Contract”. It will be necessary to refer later to the Specification Development Phase (“SDP”) contract. It is of no present significance. The draft letter became the letter of 9 March. It is Hughes’ case that the terms of this letter had contractual force. Before referring to some of those terms it is necessary to backtrack slightly.
(8) On 8 March 1993, Ms Clarke for DITAC wrote to Hughes and to Thomson confirming “the details of the evaluation criteria and approach that [DITAC] will adopt in its evaluation of [AII] for TAAATS”. These were (inter alia) as follows:
“As DITAC and the CAA have already emphasised assessment of AII proposals should be regarded as a competitive process, and as such should not be regarded as simply a hurdle to be cleared. DITAC is seeking to maximise the strategic opportunities for competitive Australian based firms. DITAC does not expect AII proposals to have a negative impact on the installation timetable or the cost of TAAATS to the CAA. Proposals should be internationally competitive and make good business sense to the TAAATS contractor and its local partners.
. . .
The evaluation criteria for the TAAATS AII proposals, in ascending order of importance, are as follows:
The level of local content:
- civil works
- training
- hardware- software
Development of support and maintenance capability in-country:
- hardware
- software-the involvement of Australian based firms in future software maintenance and enhancement will be highly regarded.
Enhancement of skills and capability of Australian based subcontractors as a result of TAAATS:
-technology transfer from prime contractor to subcontractors
-extent of involvement of subcontractors in software development, systems integration and project management
-access to intellectual property by local subcontractors.
Exports:
-Australian based companies having responsibility for software maintenance and enhancements of systems installed in the region by the contractor
-teaming arrangements for TAAATS subcontractors into regional and other markets
-other ATC products and services
- developing country markets
- developed country markets
Collaborative arrangements with Australian based firms and institutions, for the research into and the development of future ATC products and services.
A long term commitment to establish a capability and a presence in Australia including the designation of Australia as the maintenance centre for systems installed in the region, and a strategic centre for the manufacture and development of ATC products and services for the international market.
The contractor should note that the scope of its AII proposal should be limited to Air Traffic Control products and services. DITAC will make an assessment of the contractor’s AII proposal against the above criteria taking into account:-
-the contractor’s past performance in Australia on AII in ATC related areas
-strength of longer term commitment to Australian subcontractors to TAAATS
-the extent of Australian value - added in individual AII proposals
-the likelihood of individual proposals coming to fruition.
Wherever possible the contractor should provide documentation to support its commitment to individual proposals.”
As with the 9 March letter, this was signed by both companies.
(9) The 9 March letter needs to be set out at some length. Insofar as it related to the TAAATS acquisition contract - it dealt with SDP matters as well - the following provisions are of note.
“2.1 General
. . .
The CAA reserves the right to modify the strategy at any time after consultation with each Company. Both Companies will be notified in writing of any such modifications.
. . .
2.3 Australian Industry Involvement
Companies are to develop Australian Industry Involvement Proposals which will be considered in the evaluation of their offers.
The Department of Industry, Technology and Commerce (DITAC) has stated that it has given to the Companies a letter dated 8 March, 1993 providing the same guidance to both on the matters to be addressed in the proposals, possible avenues for the Companies involving Australian Industry, and the relative merits of involvement strategies.
Companies should note that the CAA requires an in country Australian based software support capability to be established for the more important subsystems, such as radar and flight data processing and display.
DITAC will evaluate the offers and will provide copies of the proposals and DITAC’s evaluation report to the CAA.
Companies will provide DITAC with such information as DITAC may require and agree that the CAA can provide information held in the offers submitted to the CAA as would be required by DITAC in the evaluation of their proposals.
Companies will be required to enter into a Deed of Agreement with DITAC covering the implementation of the proposed Australian Industry Involvement Plans with DITAC. A draft Deed of Agreement will be circulated with the draft terms and conditions of the TAAATS Acquisition Contract. It is expected that the terms of both documents will be settled as part of the same process of negotiation of terms prior to the submission of Best and Final Offers. It is expected that the Deed of Agreement will be signed at the same time as the TAAATS Acquisition Contract.
2.4Best and Final Offers
The CAA will by letter request Companies to submit their Best and Final Offers for the TAAATS Acquisition Contract at the date indicated in Attachment C to the SDP Contract. This will be the final opportunity for submission of material describing their offers and the price and other conditions applying. This information will be used in the evaluation of the offers for the selection of the Contractor for TAAATS.
The price component of the Best and Final Offers is to be delivered by hand in paper form and on magnetic media in a separate sealed envelope directly to the Project Manager, TAAATS Systems Acquisition Project.
2.5Evaluation of TAAATS Best and Final Offers
2.5.1 Criteria
The CAA will evaluate the best and final offers for the TAAATS Acquisition submitted by the Companies during the Specification Development Phase with reference to the following criteria:
Major Criteria
CriteriaPriority
1.Operational and Technical 1
Performance, logistics support
and schedule
2.Price and other Financial Issues 2
3.Risk to Performance, Cost, and Schedule 3
4.Australian Industry Involvement 4
Minor criteria
.Acceptability of Technical/Operational specification of the Interim Radar Display System,
.Cost, delivery schedule of the Interim Radar Display System,
.Company and Sub-contractor credentials and claims as to ability to undertake a project of this magnitude
.Proposed project management procedures
.Proposed systems integration management procedures
.Reliability, maintainability and availability failure modes and backup modes including disaster recovery capabilities
.Potential for enhancement of the offered system
.Proposed installation, training, testing, and transition programs
.Performance in the demonstration of the proposed Interim Radar Display System
The CAA will not be disclosing any further information regarding the level of importance or relative weightings of the criteria.
2.5.2Methodology
The evaluation of proposals will be undertaken in accordance with a defined evaluation methodology. The methodology and CAA’s conformance with that methodology will be independently audited.
A qualitative assessment technique will be use [sic] for evaluation.
The proposals will be first evaluated against all of the above criteria except for Australian Industry Involvement and price/financial considerations. If one proposal does not have substantial advantages over the other, they will be considered equivalent and the recommendation will be made on the basis of Australian industry participation and price/financial considerations. If one proposal does have substantial advantages over the other, the recommendation will be made on a value for money basis taking into account the identified advantages, the Australian industry participation and the price/financial considerations.
The CAA will establish a Tender Evaluation Committee of senior CAA managers. A DITAC representative will provide advice on AII matters directly to the Tender Evaluation Committee.
An independent auditor will be contracted to verify that the evaluation procedures were followed, the evaluation was been [sic] conducted fairly and the offers received due consideration. The auditor will report to the Evaluation Committee prior to the final recommendation and be responsible to the CAA Board.
The CAA reserves the right to make available to a CAA selected third party a copy of the Companies’ proposals for evaluation purposes only. Strict confidentiality of the information contained in the proposals will be maintained.
The CAA will ensure that any third party involved in the evaluation process will not have any affiliation with any of the Tenderers for the TAAATS project.
CAA’s evaluation of the Response and the Pricing Schedule and the offer to supply the deliverables shall be in the absolute and unfettered control and discretion of CAA.”
Additionally, the 9 March letter indicated that the proposed acquisition “strategy” was outlined in detail in Attachment A. For its part that Attachment in dealing with the post-BAFO period stipulated:
“5. CAA E VALUATION
CAA evaluates the two offers strictly following the Evaluation plan referred to in the covering letter. The detailed evaluation will be completed in 4 weeks. The remaining 4 weeks comprise high level consideration of the results of the various evaluations.
FINALISATION OF CONTRACT
6.1Prepare Report for Tender Evaluation Committee
The results of the evaluation are prepared for presentation [sic] the Tender Evaluation Committee.
6.2 Executive and Board Approval
The evaluation is presented to the Tender Evaluation Committee in written form. Presentations to the Tender Committee are made by project manager and evaluators. The Tender Committee recommends a tender to the Board.
The board considers the Tender Evaluation Committee recommendation and selects the TAAATS contractor.”
(10) Consistent with the representations made in the letters of 5 February and 9 March, the CAA on 2 April 1993 entered into an agreement with a Mr John Moten who, as Independent Auditor, was required:
“to monitor the AAATS evaluation and selection process, for the purpose of ensuring that the process is appropriate and that it is conducted in as fair and unbiased a manner as is practicable.”
A schedule to the agreement specified in some detail the audit services to be provided. Mr Moten was to be available to attend and report to meetings both of the CAA board and of the TEC.
(11) By letter dated 7 April 1993, Senator Collins (who was minister with “[r]esponsibility for oversighting the CAA”) wrote to the CAA requesting that it “operate in accordance with Government procurement and industry development policies [for GBEs]”. Those policies apparently had first been published in their then operative form on 17 December 1992 in association with a press release by Senators Button and Bolkus. The object of those policies, as the press release indicated, was to:
“ensure agencies give local companies the maximum opportunity to compete for Government business consistent with the commercial objectives of GBEs and the need to obtain value for money.”
(12) Under cover of a letter dated 19 July 1993 the CAA issued a Request for Tender (“RFT”) to both Hughes and Thomson. It is Hughes’ case that the terms and conditions of the RFT had contractual force as and from the time Hughes submitted its BAFO on 5 October. Again it is necessary to set out some at least of the terms of the RFT. I preface this by noting that, while the terms of the RFT are substantially similar to those of the 9 March letter to the extent they cover common territory, differences in expression exist between the two. This has been a cause of difficulties.
The RFT required that tenders be lodged on or before 5 October 1993. Separate provision was made for lodging the price component: it was by the same date to be delivered directly to the Project Manager, TAAATS Acquisition Project. The RFT further provided (inter alia):
“5.3The CAA normally makes public the arrangement of contracts, including the contract price and intends to make public the arrangement of any contract flowing from this RFT, including the contract price after contract signature.
. . .
7.1Neither the lowest tender, nor any tender, will necessarily be accepted by the CAA. Acceptance of tender will be effected by the execution of a discrete Contract between the CAA and the Tenderer in the terms of the draft Contract.
7.2The CAA reserves the right to reject any offer which does not comply fully with the Clauses contained in the RFT and its Attachments.
. . .
7.4During the evaluation of the tenders pursuant to this tender process the CAA reserves the right to seek clarification in relation to any ambiguity or uncertainty from any or all of the Companies in relation to their offer to provide the Supplies. The CAA will not enter into any discussion or negotiation whatsoever concerning the price component of the Tenders during the evaluation of the offers and while the tender process is on foot.
. . .
7.5... Alterations will not be allowed after a Tender has been submitted.
. . .
16.Evaluation Criteria
16.1Criteria
16.1.1The CAA will evaluate the best and final offers submitted by the Companies with reference to the following criteria:
16.1.1.1Major criteria
CriteriaPriority
1.Operational and Technical
Performance, logistics support
and schedule 1
2.Price and other Financial Issues 2
3.Risk 3
4.Australian Industry Involvement 4
16.1.1.2Minor criteria
. . .
16.1.2The CAA will not be disclosing any further information regarding the level of importance or relative weightings of the criteria and the evaluation methodology.
16.2Methodology
16.2.1The evaluation of proposals will be undertaken in accordance with a defined evaluation methodology. The methodology and CAA’s conformance with that methodology will be independently audited.
16.2.2A qualitative assessment technique will be used for evaluation.
16.2.3The proposals will be first evaluated against all of the above criteria except for Australian Industry Involvement and price/financial considerations. If one proposal does not have substantial advantages over the other, they will be considered equivalent and the recommendation will be made on the basis of price and financial considerations and then Australian Industry Involvement.” (emphasis added)
I would interpolate at this point that the sentence emphasised differs from that used in the 9 March letter which provided that, where the proposals were considered equivalent “the recommendation will be made on the basis of Australian industry participation and price/financial considerations.” This difference was pointed out to the Project Manager, Mr Hider by Mr Moten, the Independent Auditor, on 16 July while the RFT was in draft. Mr Moten described the change as one of “emphasis”. Returning to the RFT:
“16.2.4If one proposal does have substantial advantages over the other, the recommendation will be made on the value for money basis taking into account the identified advantages, the price and financial considerations and then Australian Industry Involvement (AII).
16.2.5The CAA has established a Tender Evaluation Committee of senior CAA managers. A representative from the Department of Industry, Technology and Regional Development (DITRD) will provide advice on AII matters directly to the Tender Evaluation Committee.
16.2.6An independent auditor has been contracted to verify that the evaluation procedures were followed, the evaluation was conducted fairly and the offers received due consideration. The auditor will report to the Evaluation Committee prior to the final recommendation and be responsible to the CAA Board.
16.2.7The CAA reserves the right to make available to advisers and third parties (such as representatives of the Civil Air Operations Association of Australia) a copy of the Tenderer’s proposals or part of the proposals for evaluation purposes only. Measures designed to achieve the strict confidentiality of the information contained in the proposals will be implemented and maintained.
16.2.8The CAA will ensure that any adviser or third party involved in the evaluation process will not have any affiliation with any of the Tenderers for the TAAATS project.
16.2.9CAA’s evaluation of the Tenders (including the Pricing Schedule and the offer to provide the Supplies) shall be in the absolute and unfettered control and discretion of CAA.
. . .
Confidentiality
19.1[T]he CAA undertakes to maintain the confidentiality of information received in response to this request and will not release it to any competitor or potential competitor without written authority of the Company.
. . .
Australian Industry Involvement
21.1The entry into a contract pursuant to Clause 7.1 shall be subject to, and conditional upon, the Contractor executing a Deed of Agreement with the Commonwealth acting through the Department of Industry, Technology and Regional Development (DITRD) in relation to the Contractor’s Australian Industry Involvement obligations.
21.2Tenderers shall submit as part of the Tender proposal their;
a)proposed Deeds of Agreement they are prepared to execute on Contract award;
b)proposed Australian Industry Involvement Plan; and
c)other information supporting an evaluation of their proposals.
. . .
Amendment of RFT
34.1The CAA reserves to itself absolutely the right to vary or amend the terms and conditions of this Request for Tender upon giving the Companies timely and concurrent written notice of such variation or amendment.”
(13) On 19 July Ms Clarke of DITRD wrote to Hughes and Thomson outlining DITRD’s “base-line AII requirements for TAAATS”. These were related to the Government’s industry development and procurement policies for GBEs which, as noted in (11) above, were announced in December 1992. On 2 August, Ms Clarke again wrote to both companies reaffirming that the scope of the AII proposals was to be as in the 8 March 1993 letter: DITRD, apparently, had created some uncertainty in this matter. Then on 12 August she wrote what was intended to be a consolidation of the advice given to them on AII evaluation criteria and baseline requirements. The letter, which indicated that it was to supercede “all previous communication”, contained a draft of the deed of arrangement for AII that was to be negotiated with DITRD. I would also note that the letter reiterated the view of 8 March that:
“DITRD does not expect AII proposals to have a negative impact on the installation timetable or the cost of TAAATS to the CAA. Proposals should be internationally competitive and make good business sense to the TAAATS contractor and its local partners.”
(14) Hughes submitted its BAFO on 5 October 1993. It alleges that on and from this date it and the CAA were bound to a tender process contract on the terms of the RFT. This contract is said to be cumulative upon that created by acceptance of the letter of 9 March.
(15) The TEC met on a number of occasions between 15 and 18 November 1993 to determine the preferred tenderer. In the event the TEC’s recommendation was Hughes. This was formally reported to the Board by the TEC Report of 26 November 1993. Ms Clarke was present at the TEC meetings and she was at least by this time aware there was an expected contract price difference between the two BAFOs. It favoured Hughes and was in the order of $37 million. At the 18 November meeting Ms Clarke indicated that Thomson’s AII proposals afforded wider community benefits than Hughes’ and that if Thomson was to be accepted because of this, there probably would need to be a subsidy of some form from the Federal Government to the CAA. This view was put directly to the Board by DITRD at its meeting on 6-7 December.
(16) Between the 18 November TEC decision and the CAA board meeting of 6-7 December, Mr Roser, by then the CAA Chief Executive, briefed Senator Collins on the recommendation. A like briefing would seem to have been given to Minister Griffiths by DITRD officers. Legal advice was sought severally by Mr Hider and Mr Moten of John Butler of the Attorney-General’s Department concerning AII and the application of the evaluation criteria. By letters of 2 December to General Gration (Chairman of the CAA board) and Mr Roser, Minister Griffiths raised directly the importance of AII in the award of the TAAATS contract and concluded:
“One of the Government’s key objectives in encouraging the growth of our manufacturing and services sector, particularly in technology intensive activities, is to achieve our broader economic and social objectives. In this context, I would encourage the CAA to give every consideration to AII in reaching its final decision on the preferred tenderer.”
On 3 December, Senator Collins wrote to General Gration in the following terms:
“I take this opportunity to confirm as I have advised the Board previously the Government’s two major concerns regarding the TAAATS project.
The first priority is that we get an air traffic control system which is technically advanced and delivers safe and efficient radar services.
The other priority was to maximise opportunities for Australian industry involvement.
The Government recognises that the CAA has in place evaluation criteria to address these matters and formal advice to the Government in response to the findings of the Macphee Inquiry. This advice was well set out in the former Chairman’s letter to Senator Cook on 30 December 1992.
The Government appreciates the role the CAA has given to the Department of Industry, Technology and Regional Development in providing advice on the issue of Australian industry participation. I understand that the Minister for Industry, Technology and Regional Development has also written to you in this regard.
Of course the decision is clearly a matter for the CAA Board using all the evaluation criteria established for the tender process.”
Both letters were tabled at the CAA board meeting on 6 December.
(17) In a letter of 3 December to Senator Collins, Minister Griffiths raised the prospect of submitting to Federal Cabinet for its consideration the issue of the wider community benefit of the AII proposals for TAAATS. That letter (which I infer betrayed a knowledge of the substance of the differences between the two bids in price and on AII) was written with the object of procuring Cabinet’s view on whether Thomson should be preferred for “wider AII” reasons. There is no evidence that Minister Griffith’s request was acted upon in any way. The Board was informed during its meeting of 6 December (via Mr Roser) that Senator Collins, having obtained legal advice from Mr Dennis Rose QC of the Attorney-General’s Department, was apparently of the view that for the Government to interfere in the contract allocation would be an “extremely high risk proposal”.
(18) At the 6-7 December board meeting the TEC recommendation was not accepted. A majority of the Board expressed a preference for Thomson based upon the risk associated with the purported lack of provenness of Hughes’ Flight Data Processing solution. In the event, as recorded in the Board minutes, the Board resolved to:
request the TEC, through the Chief Executive, to reconsider its advice to the Board in the light of:
(a)the Board’s belief that the TEC was interpreting the Authority’s position on the AII issue too narrowly; and
(b)the advice of the Independent Auditor that the Authority was obliged to take the broader view given the process that had been laid out in the documentation sent to the companies; and
bearing in mind the advice given to the companies on 9 March 1993, the request for tender in July, the DITRD letter to the companies on 12 August, and legal advice subsequently taken, request from the Chief Executive advice on whether the broader assessment of the AII criterion favoured by the Board was consistent with members’ fiduciary duties under the Civil Aviation Act (R241/93).”
(19) On 14 December Thomson submitted a price reduction of $19.4 million to Mr Hider of the TEC. It was considered that $16.7 million of this was an inadmissible price variation. Mr Hider informed General Gration (and probably Mr Roser) of the letter. At the Board meeting of 23 December the Board was informed that one tenderer (unnamed) had submitted an impermissible variation that could not be taken into account.
(20) Again on 14 December Thomson sent to Ms Clarke a letter in response to her letter of 10 December, which upgraded Thomson’s export commitment by a sum in the order of $155 million. That upgrade was noted in DITRD’s subsequent report to the CAA board.
(21) On 15 December the TEC reconvened. Its recommendation remained unchanged. Its conclusions on the question of AII as reported to the Board were (inter alia) that:
“(3)The TEC notes the advice from DITRD that “In DITRD’s view the substantial benefits offered by the Thomson proposal to the wider community, and to the CAA itself outweigh the price disadvantage of the companies tender”.
(4)The TEC acknowledges that there are some direct benefits to the CAA in the extra commitment to research & development and exports associated with the Thomson offer, but considers that the benefits to the CAA are not nearly commensurate with the additional costs involved.
(5)The TEC notes also that the realisation of the extra benefits to the broader community postulated by DITRD to be associated with the Thomson offer are necessarily speculative, based on expectations of the size of markets and Thomson’s success in penetrating the markets.
(6)Accordingly, the TEC concluded that the extra costs to the CAA could not be justified in the context of the uncertainty associated with the realisation of the extra benefits to the broader community.”
(22) On 16 December 1993, Mr Dennis Rose QC provided legal advice to Mr Roser on AII. The question he answered is conveniently captured in the opening paragraphs of Mr Rose QC’s letter:
“2.You ask whether the Board, in evaluating the tenders, would be acting in a manner inconsistent with its duties under the Civil Aviation Act 1986 (“the CAA Act”) if it were to give weight to Australian Industry Involvement (AII) factors that would not be likely to benefit the CAA.
3.In my opinion, the answer is ‘No’. Indeed, not only may the CAA take such factors into account but it is legally obliged to do so.”
The emphasis in para 3 is in the original.
(23) The CAA board at its 23 December meeting again rejected the TEC recommendation and selected Thomson as the TAAATS contractor. The board minutes of that meeting indicate that (a) General Gration, at the outset, reminded members of Mr Rose QC’s advice; and (b) Mr Ron Yates declared a potential conflict of interest in that he was deputy chairman of The Preston Group Pty Ltd (“TPG”), a company involved in Thomson’s AII proposals. The minutes record (inter alia) that:
“The Board was reminded that in relation to assessment of AII, the RFT had specified that DITRD would provide advice to the Tender Evaluation Committee. Theirs was the most expert source of advice on AII available to the Board and more so than that of the TEC whose technical expertise lay elsewhere. The views of the TEC on the wider implications and benefits of AII should therefore be viewed accordingly.
. . .
The Board agreed with the TEC that there were no risk issues in relation to either company or the Authority’s project management of such magnitude that the project should not proceed. The Board also accepted the judgment of the TEC that the risks associated with both offers were essentially the same. Having previously endorsed the TEC assessment that both companies were substantially equal also on the operational/technical performance criterion, and noting the views expressed by members of the Board, the Board agreed that in accordance with the RFT procedures, it should proceed to consideration of the tenders on the basis of the remaining two criteria of price and AII.
The Board noted Government policy on Australian industry involvement and its considerable importance to Australian industry, and agreed that Thomson offered a significant advantage in this area. The Board further noted the net present values of total project cost for Hughes of $190.3M compared with $207.0M for Thomson.
Following discussion, and having regard to DITRD’s advice and the advice of Mr Dennis Rose QC, the Board decided that the substantial benefits offered by the Thomson AII proposal to the wider Australian community, and to the Authority itself, outweighed the price disadvantage of the company’s tender.”
(24) By letter of 24 December to Thomson, Mr Hider indicated that the “clarifications” (ie the price reduction) contained in the letter of 14 December would be accepted in calculating the contract price and this in fact occurred.
(25) On 12 January 1994 the CAA conducted a debriefing meeting for Hughes. At it Hughes’ officers were told that the Board’s decision was based on AII and that, while Thomson’s contract price would not then be disclosed, when it was later published they would see that, as to the price difference:
“at NPV levels, taking into account contract price, total Project costs and life cycle costs, there really was not a great deal in it. The variance was only a few percentage points. The difference between the prices at that level, NPV, was a few percentage points.”
The NPV reference is to net present value.
(26) Thomson’s signing of the TAAATS contract with the CAA and the AII Deed of Agreement with the Commonwealth, occurred at a signing ceremony on 7 February 1994.
(27) Hughes filed its application for preliminary discovery in this Court on 22 December 1994.
PART II: THE CAA AND ITS STATUTE
The CAA was constituted a statutory corporation by the Civil Aviation Act 1988 (Cth), s8 (“the Act”). Previously its functions had been discharged in a ministerial department. The general functions of the CAA as delineated in s9 included:
“(b)to provide air route and airway facilities;
(c)to provide air traffic control services, and flight service services, for, in either case, surface traffic of aircraft and vehicles on the manoeuvring area of aerodromes;
. . .
(m)any functions incidental to any of the foregoing functions.”
Additionally, sub-section (4) of s9 provided that:
“Subject to section 12, the functions to provide services and facilities may be performed at the discretion of the Authority.”
The CAA’s powers were conferred by s13. They include a power to enter into contracts. Significantly, a 1990 amendment to the Act repealed s13(3). That sub-section had precluded the CAA from entering into a contract involving the payment of more than $6 million without the approval of the minister.
The CAA was required, in the performance of its functions and the exercise of its powers, to consult where appropriate “with government, commercial, industrial, consumer and other relevant bodies”: s16.
The 1990 amending statute to which I have referred also created a more explicit governance structure within the CAA. A new s32A created a board of the CAA. Section 33(1) constituted the board of:
“(a) a Chairperson;
(b) a Deputy Chairperson;
(c) the Chief Executive Officer; and
(d) 6 other members.”
And s32B prescribed the “Purposes of the Board”. That section warrants quotation in full.
“32B. (1) The purposes of the Board are:
(a)to decide the objectives, strategies and policies to be followed by the Authority; and
(b)to ensure that the Authority performs its functions in a proper, efficient and economical manner.
(2) Anything done in the name of, or on behalf of, the Authority by the Board is to be taken to have been done by the Authority.”
I would note in passing that s40 of the Act imposed a relatively standard disclosure obligation on board members having a direct or indirect pecuniary interest in any matter considered by the board. It will be necessary later to consider the terms of this section.
One of the board members was to be the Chief Executive Officer (“the CEO”) of the CAA. That official’s position was created by the Act, s84. The CEO was to be appointed by the minister after recommendation from the board and held office during the board’s pleasure: ss84(1), 89. The duties of the CEO’s office as prescribed by s84A were as follows:
“84A.(1) The Chief Executive Officer is, under the Board, to manage the Authority.
(2) Anything done in the name of, or on behalf of, the Authority by the Chief Executive Officer is to be taken to have been done by the Authority.”
To the extent that the Act gave formal expression to the relationship that was to exist between the CAA and the minister administering the Act as a result of Administrative Arrangements Orders, this was to be found, for purposes of present relevance:
(a) in the minister’s powers to appoint board members including the CEO: ss33(4), 84; and to remove board members (other than the CEO) on specified grounds: s42, cf s89;
(b) in the power to give written directions to the CAA: s12; and
(c) in the powers to direct the board in relation to the CAA’s financial plan: see generally ss43-48; and to approve or vary the board’s recommendation of the dividend (if any) to be paid to the Commonwealth: s56.
Here it is necessary to venture in a little detail into some of the powers mentioned.
First, the general power to direct contained in s12. It provides:
“12.(1) The Minister may give the Authority written directions as to the performance of its functions or the exercise of its powers.
(2)Directions as to the performance of the regulatory functions shall be only of a general nature.
(3) Particulars of any directions given in a financial year shall be included in the annual report of the Authority for that year.
(4)The Authority must comply with a direction given under subsection (1).”
Secondly, directions and the CAA’s financial plan. In parallel with its s43 obligation to create a corporate plan, the board had the s44 obligation to develop a financial plan. When preparing that financial plan, the board was required by s45 to consider (inter alia):
“(b)the objectives and policies of the Commonwealth Government known to the Board;
(c)any directions given by the Minister under section 12;
. . .
(g)the need to earn a reasonable rate of return on the Authority’s assets (other than assets wholly or principally used in the performance of regulatory functions or the provision of search and rescue services);
(h)the expectation of the Commonwealth that the Authority will pay a reasonable dividend; and
(j)any other commercial considerations the Board thinks appropriate.”
By virtue of s47 of the Act the minister was empowered to direct the board to vary its financial plan in a variety of respects. Significantly, the CAA was entitled to reimbursement for complying with a s12 direction but not a s47 one, the latter being expressly excluded from the reimbursement regime created by s48.
Insofar as presently relevant s48 provided:
“48.(1) Where the Authority satisfies the Minister that it has suffered financial detriment as a result of complying with a direction given by the Minister under this Act, the Authority is entitled to be reimbursed by the Commonwealth the amount that the Minister determines, in writing, to be the amount of that financial detriment.
(2)The reference in subsection (1) to suffering financial detriment includes a reference to:
(a)incurring costs that are greater than would otherwise have been incurred; or
(b)forgoing revenue that would otherwise have been received.”
Finally, the minister’s powers in relation to dividends. The Act, s56 required the board each year to notify the minister in writing of the dividend (if any) it recommended that the CAA pay the Commonwealth. In making its recommendation the board was obliged to have regard to the matters specified in s45 - those of present relevance are set out above. The minister was then empowered to approve or vary the recommendation and in so doing had to have regard to (inter alia):
“the objectives and policies of the Commonwealth Government:” s47(2)(b)
As will be seen, as the AII issue crystallised in the deliberations of the TEC and the Board in November - December 1993, the issue of a s12 direction and s48 reimbursement or of a s56 dividend reduction emerged as muddying influences in the evaluation of the rival bids.
PART III: THE CASE AS PLEADED AND PLEADING ISSUES
To appreciate both the shifts that have occurred in the pleading of this case and the significance the pleadings have assumed, it is appropriate to refer at the outset to its history in this Court. Preliminary discovery having been ordered on 28 June 1995, Hughes filed its application and statement of claim on 22 December 1995. At the first directions hearing on 9 February 1996 the parties agreed to a timetable for the preparation of the matter with a view to a projected hearing in August 1996. There was inevitable movement in the dates fixed for particular steps. Nonetheless, the matter came on for hearing as projected on 5 August.
That day began, as did many during the 25 day hearing, with the calling on of subpoenas. This growing accretion of material led, inevitably, to the emergence of new issues. Mr Macfarlan QC, who appeared with Dr Griffiths for the CAA, made abundantly clear that the respondent intended to meet the case as pleaded; that the issues had been narrowed by extensive particulars; and that there would be no acquiescing in de facto alteration of the case as pleaded. He persisted in this stance, as he was quite entitled to, throughout the hearing. Its consequence, as was acknowledged by Mr Gyles QC who appeared with Mr Speakman for the applicant, was to precipitate periodic applications to amend the pleadings - the last (and unsuccessful) such application being made during the respondent’s address.
That the applicant’s ultimate pleading was the Fifth Further Amended Statement of Claim conveys some indication of this regular process of amendment. I adopted a generous approach to amendment, while proposing such steps (including adjournment) as seemed fair and reasonable to offset any apprehended prejudice to the respondent. It appeared to me desirable to facilitate in so far as was reasonably practical the fair ventilation of the issues that the applicant wished to raise against the respondent. Nonetheless, and perhaps because any variation to the case as originally pleaded was required to be expressed in an amendment, the pleadings themselves have assumed no little importance in this matter.
There is one matter relating to amendment to which I am obliged to refer. On 4 September, over the respondent’s objection, I allowed the applicant to further amend a paragraph of its then statement of claim (para 13A) dealing with an allegedly impermissible variation Thomson made to its AII proposals. That variation related to changes in commitment in the deed that would implement its AII plans: see on this Part X: Price Reduction/AII Variation. I indicated at the time that I would provide brief reasons for allowing the amendment in these reasons.
Notwithstanding the respondent’s submissions, I concluded that, though the course to the amendment was unusual (it was essentially the product of cross-examination of Ms Clarke) it nonetheless concerned what were matters of construction of documents already in evidence and that to allow the amendment would occasion no real prejudice to the respondent. I would note that both parties provided extensive written submissions on the subject matter of the amendment.
Before turning specifically to particular pleading issues, it is desirable to outline at least in synoptic form the case pleaded by Hughes against the CAA.
The Four Bases of Hughes’ Principal Claim
Put in general terms Hughes has made two quite discrete complaints against the CAA. The first, which I will call the “principal claim” relates to the conduct of the CAA up to and including the board meeting of 23 December 1993 at which Thomson was selected as the TAAATS contractor. The second, which I will call the “consequential Trade Practices Act claim” relates to the conduct of the CAA subsequent to that meeting and until the signing of the TAAATS contract on 7 February 1994. For ease in exposition I will defer enumeration of the consequential claim to Part XII in these reasons. It raises a discrete question as to whether the CAA at that later time engaged in conduct which contravened the Trade Practices Act s52.
The principal claim is formulated in four distinct ways involving four distinct types of cause of action. Those causes of action are (1) breaches of contract (or contracts); (2) a claim based on s82 of the Trade Practices Act in respect of contraventions of s52; (3) negligence; and (4) equitable estoppel. What, though, is common to the four claims as pleaded is the actual conduct allegedly engaged in by the CAA (or by those for whom it is said to be responsible) of which complaint is made. That conduct can conveniently be classified under seven distinct rubrics. I will particularise these here as they provide a convenient vehicle through which I will later consider Hughes’ various allegations against Thomson.
The Seven Complaints
The CAA failed to evaluate the tenders in accordance with the methodology and priorities set out in the 9 March letter or the RFT and this particularly by DITRD and in relation to AII: (”Evaluation and Selection Failures”);
2. The CAA took account of the communications made by or on behalf of Minister Griffiths and Minister Collins or else treated those communications as directions to the Board: (“Political Interference”);
3. The CAA failed to contract an independent auditor to verify, and failed to ensure that the auditor verified, that the tender process procedures were followed and that the evaluation was conducted fairly: (“Audit Failure”);
The CAA allowed a board member (Mr Yates), itself and DITRD to have improper interests in, or affiliations with, Thomson or the Thomson bid: (“Improper Interests and Affiliations”);
The CAA did not ensure strict confidentiality was maintained in respect of the tenders and permitted disclosure both of Hughes’ tender information to Thomson, and of Hughes’ and Thomson’s tender information to DITRD, Minister Griffiths and Minister Collins: (“Breach of Confidence”);
The CAA took account of the Thomson price reduction and AII variation submitted after the final submission of tender materials: (“Price Reduction/AII Variation”);
The CAA failed to conduct the tender evaluation fairly and in a manner that would ensure equal opportunity to Hughes and Thomson. For practical purposes the conduct relied upon to make this out is all of the particular actions and events that found the previous six complaints: (“Fair Dealing”).
When considered along with the extensive particulars provided of the various specific acts and omissions pleaded, there could not be any misapprehension of the actual conduct of the CAA with which Hughes took issue.
First, the contract claims. It was alleged that the 9 March letter and then the RFT on lodgement of the BAFOs constituted sequential and cumulative (to the extent the former was not inconsistent) contracts governing the tender process and the selection of a contractor. The conduct complained of was then alleged to constitute breaches of specified express and/or implied terms of those contracts.
Secondly, the Trade Practices Act claim. This was that the CAA, having made representations as to the tender process and as to steps to ensure its integrity and fairness, later acted inconsistently with those representations but did not disclose to Hughes that it proposed so to act and/or that it did so act. For its part Hughes claimed it had acted on the initial representations and, because it was unaware that the CAA had not implemented them, it did not take any steps to prevent the CAA’s actions or to compel it to adhere to the representations made. It had suffered loss and damage as a result. I would note that the representations said to have been made were relatively similar in purport to the contractual terms pleaded.
Thirdly, the negligence claim. This asserted that the CAA owed a duty of care to Hughes to administer the tender process of the 9 March letter and the RFT with reasonable care, but because of the same conduct complained of in the contract and Trade Practices Act claims, it breached that duty with resultant loss to Hughes.
Fourthly, equitable estoppel. The pleaded case was that, believing the CAA would conduct itself during the new tender process in the manner in which it represented or promised it would - and the representations and promises alleged are those relied on in the Trade Practices Act and contract claims - Hughes relied on those representations and promises. The CAA knew or ought to have known that Hughes would suffer loss if Hughes’ beliefs and expectations in this were not fulfilled. Yet, in the conduct complained of, the CAA did not fulfil those beliefs and expectations.
While not abandoning the negligence and estoppel claims Mr Gyles QC in his oral submissions indicated that if his client failed on the contract and Trade Practices Act claims it would be unlikely to succeed on these two. For this reason, but also because the submissions (oral and written) of both parties focussed almost exclusively on the first two claims, negligence and estoppel will receive only passing treatment in these reasons. They are, for practical purposes, superfluous claims.
THE SPLITTING OF THE APPLICATION
At the first directions hearing on 9 February 1996 it was ordered by consent that liability be tried and determined separately and in advance of any hearing on, and determination of, damages. While this order has had the effect of shortening considerably the length of the initial hearing, it has given some aura of artificiality to particularly the Trade Practices Act claims insofar as they are predicated upon the loss of opportunities to Hughes - opportunities (real or remote) with which, because of the course taken, I do not have to concern myself.
ISSUES NOT PLEADED
This case sits unhappily on two rather significant fissures in Australian jurisprudence. The one concerns the constitutional status and standing in our system of government of statutory corporations that by statute are subject to prescribed (hence, presumably, correspondingly limited) powers of ministerial direction. Do they fall within the Executive? Or are they a fourth arm of government? The other raises the extent to which the manner of scrutiny of the formally “non-governmental” action of a statutory corporation (ie entering into a “commercial” contract) can or should be affected by the considerations that it nonetheless is a public body that is so acting and that in so doing it is exercising a public function.
I have already rejected the TPG connection as having been an influence upon Mr Yates’ decision in favour of Thomson. It is, though, not open to question that Mr Yates had, and expressed, a preference for Thomson on grounds of risk from a relatively early date. Whether or not as a matter of judgment that preference was well or ill-founded is not, as such, an issue. The question is not one as to Mr Yates’ competence but as to his alleged partiality. There is no doubt that he considered himself to have relevant technical knowledge and he was apparently accorded some deference by his co-board members on that score.
The appropriate conclusion to draw is that his acts of apparent advocacy of Thomson during the tender process were referable to a technical judgment he had made as to risk and that this, of itself, was not a cause of unfair dealing to Hughes - the more so because in the end Mr Yates, unlike Mr Bosch and Mr Baillieu, did not decide the matter on the ground of risk.
It needs also to be said that Mr Yates’ dealings with the tenderers betrayed an insensitivity to issues of process. His actions were not improper in any operative legal way. Nonetheless they were foolish. But, as I noted at the outset, they do not provide reason for disbelieving his evidence.
I conclude, then, that the conduct of Mr Yates did not occasion a breach of the fair dealing term. There is, though, one additional matter to which I should refer. Even if I had found that in voting for Thomson he had conducted himself in an improperly partisan fashion that was unfair to Hughes as 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 Thomson? The respondent has submitted the latter relying upon the local government decision of Attorney-General for Victoria v Knox [1979] VR 513. As it is unnecessary for me to express a view on this matter I decline to do so.
DITRD
It is clear from my previous findings that DITRD caused or contributed to a number of breaches of the RFT contract or else precipitated actions which had no place at all in the process envisaged for the TAAATS procurement. DITRD had a significant destabilising effect on the proper performance of the RFT contract by the CAA. The outcome it sought was that at which the Board arrived: Thomson’s selection as the TAAATS contractor.
As I have found, in making that selection - a selection in which DITRD’s perceived expertise was particularly influential - the Board failed to apply the methodology and criteria of the RFT as contractually required. That breach of contract renders unnecessary the need to consider whether DITRD dealt unfairly with Hughes in a way for which the CAA is responsible. A finding that such in fact happened would be of no practical consequence given the breach already found. In these circumstances I refrain from considering this additional alleged breach of contract though I should add that, on the evidence before me, the allegation was a proper one for the applicant to raise.
The Attorney-General’s Department
In particularising this allegation of unfair dealing on the CAA’s part, the applicant claims that:
“The Civil Aviation Authority acted upon legal advice of the Attorney-General’s Department in circumstances where the Attorney-General’s Department gave legal advice to the Civil Aviation Authority (the “CAA”), to Mr Moten and to DITRD, so that legal advice was relied on in circumstances where there was conflict between the duties to which the Attorney-General’s Department owed to each of the CAA, Mr Moten and DITRD and in circumstances where there [sic] legal advice given favoured DITRD’s views in relation to Australian industry involvement.”
In its submissions the applicant has added Senator Collins and the Attorney-General to those advised by the Attorney-General’s Department (“the Department”) in TAAATS related matters.
In submissions I have, in effect, been invited to pass upon how, if at all, the ordinary rules relating to client conflicts and a lawyer’s duty of undivided loyalty (on which see eg G E Dal Pont, Lawyers’ Professional Responsibility, Ch 8, (LBC, Sydney, 1996)) apply to the Australian Government Solicitor (“the AGS”) - especially in light of the provisions of the Judiciary Act 1903 (Cth), s55E(9A).
Those rules serve to protect the interests of a lawyer’s client from sacrifice where the lawyer places himself or herself in the position of “serving two masters”. If, then, (i) those rules actually apply to the AGS in relation to non-litigious matters; (ii) the AGS, in addition to advising the CAA in a matter, also advised another legal entity with an adverse interest in that matter; and (iii) the CAA (a) was unaware of the second retainer, or (b) was aware of it but still an actual conflict of duties occurred within the scope of the CAA’s own retainer - the CAA would have ground for complaint against the AGS and this because its interests would have been imperilled ((a)) or sacrificed ((b)).
The substantial difficulty the applicant faces in this matter lies in demonstrating how rules designed for the protection of a lawyer’s client (here the CAA) can be turned against such a client for the benefit of a stranger to that lawyer-client relationship (ie Hughes).
The advice given the client in a situation of client conflict might well explain the client’s subsequent actions. And deficiencies in the advice may in this sense be a cause of the client acting improperly towards a third party (eg in breach of contract). But the complaint the third party has in such circumstances is not with the client conflict as such nor even with the advice given. It is with the subsequent action taken by the client.
In the present case the applicant nonetheless submits that the CAA breached the duty to deal fairly “by knowingly allowing AGS to continue to advise” in circumstances involving the AGS having conflicting duties to the CAA and to DITRD at least.
Consistent with what I have said above, even if there was such a conflict and the CAA had the knowledge alleged, I am unable to see how of itself this involves the CAA in any actual unfair dealing with Hughes. At best it would bespeak a situation where it had failed adequately to protect its own interests. Hughes may well have suffered in the Board’s decision-making in consequence of the inadequacy of advice sought by the CAA. But that is another matter altogether.
I reject this alleged breach of the duty of fair dealing.
B. THE TRADE PRACTICES ACT CLAIMS
The matters relied upon as giving rise to misleading and deceptive conduct parallel those referred to above in relation to the contract claim. I here rely upon the Additional Chronological Material referred to there. The twin allegations involving Mr Yates are that, contrary to representations made and not later corrected, (a) he was influenced by his position with TPG and (b) he had dealings with Thomson involving private advice as to how it could improve its prospects in the TAAATS tender. I reject both allegations. In the case of (a), I have found that the directorship of TPG was not an influence upon Mr Yates. In the case of (b) there is no discrete representation pleaded that was falsified by this conduct. In any event I have found that Mr Yates meeting with Thomson was not improper nor inconsistent with any express obligation assumed by the CAA. Insofar as he indicated to Thomson in Paris that its performance with RASPP could well influence the CAA’s attitude to Thomson’s TAAATS bid, he was making a statement of what was “blindingly obvious” as the respondent put it. I reject the allegation that this could, in any acceptable sense, be characterised as “advice” to Thomson as to how it could improve its prospects. Accordingly I am unable to accept either of these claims.
Insofar as further claims are made against the CAA on account of DITRD’s actions in addition to those claims already dealt with in previous Parts of these reasons, I consider it unnecessary to reach any decision on them for the same reason as I refrained from determining the parallel contract claims above.
The final claim to which I should refer expressly is based on an alleged representation by the CAA that:
“... in conducting the tender process the Civil Aviation Authority would act in conformity with the provisions of the Civil Aviation Act 1988 (Cth) and in particular the provisions of section 40 of that Act which relates to the disclosure by directors of pecuniary interests;”
No such representation was made expressly. I am unprepared to find an implied representation was made concerning s40 of the Act. Whatever the assumptions one may entertain as to how statutory bodies properly will conduct themselves, those assumptions cannot be transformed into representations merely because one would wish a statutory body so to conduct itself.
PART XII: THE CONSEQUENTIAL TRADE PRACTICES ACT CLAIM
The conduct complained of here relates to the actions of the CAA from 23 December 1993 until on or about 7 February 1994 when it entered into the TAAATS contract with Thomson. It is alleged, first, that the CAA:
“(a)represented to Hughes that the decision by the Board of the Civil Aviation Authority to award the TAAATS acquisition contract to Thomson had been taken on the basis of differences in Australian industry involvement;
(b)represented to Hughes that the difference in price between the Thomson and Hughes bids was only a few percentage points;
(c) failed to disclose to Hughes;
(i)that the Board of the Civil Aviation Authority had rejected the recommendation of the tender evaluation committee;
(ii) the Thomson price reduction;
(iii) the Thomson AII variation;
(iv)that the Civil Aviation Authority proposed to accept the Thomson price reduction and the Thomson AII variation;”
secondly, that representation (a) was wholly or partially false and that representation (b) was false; and thirdly, that Hughes relied to its loss and damage on the representations and the non-disclosure.
Various of the findings I have already made reduce this particular series of claims to a relatively narrow compass - the more so because, in consequence of the “splitting” of this application itself, my sole concern here is with whether a contravention (or contraventions) of s52 occurred.
Of the two representations challenged, only the second (relating to price difference) retains significance. The other (relating to the basis of the Board decision) must fall in light of the finding that a majority of the Board reached their decision on the basis of AII. Notwithstanding the apparent claim to the contrary in the pleadings, the applicant’s written submissions acknowledge that the representations made as to the basis of the decision would only be misleading or deceptive if a majority had decided on grounds other than AII.
As to the four matters raised by way of non-disclosure, only the last (acceptance of Thomson’s price reduction and AII variation) requires consideration. Of the other three matters referred to, I need only say that the one relating to rejecting the TEC’s recommendation seems premised upon the applicant’s view of what the tender process required of the CAA board when dealing with the TEC’s recommendation. That view I have rejected. I would merely add I can see no basis upon which this alleged non-disclosure could be said to be misleading or deceptive in the circumstances.
As the two matters that retain significance both bear generally on the same issue, it is convenient to deal with them in a composite way.
The Price Difference
I preface what I have to say here by indicating that at no time after the 23 December meeting and before the signing of the TAAATS contract, was Hughes informed either of Thomson’s price reduction or of the CAA’s intent to hold Thomson to it (as it in fact did) in the contract.
The representation giving rise to the present complaint was made at a debriefing meeting provided by the CAA to Hughes on 12 January 1994. The meeting was recorded and a transcript of it was put in evidence. I will set out in a little detail three excerpts from the transcript that embody the principal references made to price and price difference. By way of explanation of names “Peter” or “PH” refers to Mr Hider, “Doug” to Mr Roser, “Bob” to Mr Kramp and “Hughes” to a Hughes representative.
Excerpt 1
“PH[outlining the TEC’s report to the 23 December board meeting]:
... Price and financial issues: differences between the terms of the two proposed contracts are minor. The expected contract price for Hughes is $167.2 million, and for Thomson is $x million, a difference of $x million. We won’t tell you what those x’s are. We can make some comment on the magnitude of the difference if you wish. I’m simply quoting these numbers so that you know what we did with the Hughes numbers, and we’d be happy to explain how we came to those numbers, the trail from the BAFO goes through the clarifications, and so on, but it is obvious, we’re not going to tell you yet what the Thomson numbers are. You are going to have to wait until we see a contract number published. Hopefully, within a few weeks time. The estimated total Project cost: that is, the contract price plus CAA costs associated with the Hughes offer, is $190.3 million (NPV 10% per annum). That means that the net present value of the Project . . uh .. of the contract price, plus our costs, deflated at 10% per annum, and there’s a similar quote associated with the total Project cost, associated with the Thomson offer, and, again, that’s $x million, that we won’t tell you about.”
Excerpt 2
“DOUG:Bob, we’ve already indicated that .. um .. certainly, you’d be aware of the .. um .. contract price when we publish it, but Peter ... foreshadowed earlier that if you wish us to make a comment on the .. uh .. price difference, the fact is that, at NPV levels, taking into account contract price, total Project costs and life cycle costs, there really was not a great deal in it. The variance was only a few percentage points. The difference between the prices at that level, NPV, was a few percentage points.
(PAUSE)
HUGHES:A few is, like, more than 2 and less than 10?
(LAUGHTER)
DOUG:I would say .. I would say .. it ... that’s adequate, but it tends much more towards the 2 than the 10. “A few” has a particular concept to me, and it certainly isn’t 10.
HUGHES:All right.
(LAUGHTER)
PH:The .. the important point at this stage, of course, is, when we sign a contract, we’ll make those figures public, and you’ll obviously have access to them through that process, and make your own calculations. Uh ... We thought it was fair to give you at least some feeling for the expectation that it’s not a 20% price cut or a 40% price cut, it’s only percentage points.
BOB:I’m just .. uh .. understanding. If the numbers involved - are large, and coverage of these areas such as life cycle costs and what-have-you, you could have a more significant difference in ... let me just take one element, contract price. The percentage could be bigger, but then, if they’re equal in other areas, and basically increase the base of the number that you’re dividing by, you could reduce .. uh .. the .. uh .. as you say, it could be just a few percent difference overall, even if there were much more significant contract precedents.
(INDISTINGUISHABLE ASIDE)
PH:The comment that Doug made ... we’ve got the words written down, so we must be very careful about what we say ... that the level of the expected contract price, the total Project cost, and comparative life cycle cost at each of those levels, the difference is no more than a few percentage points.
BOB:At each of those three levels?
PH:At each of those three, and, as I said earlier, when we’ve signed our contract with your competitor, we’ll publish the contract price. I’m not sure what we’ll do with the total Project cost, but I imagine there’ll be sufficient public interest in that that would force us to make that public as well, and given that we’ve told you what our assessments of your contract ... expected contract price .. are and your total contract price and NPV 10%, you’ll see the numbers when they’re published, and I’m telling you to expect it to be within a few percentage points.
DOUG:I must make one comment, and I suppose it’s just really come to me, is the information we’ve just given you, it is absolutely vital that it doesn’t go outside this room. And if you think about that, you’ll understand why.
BOB:I would just like to paraphrase what I think you’ve said, just so that I’m sure of the communications. Uh ... I’ll take them one at a time, so, at the contract level, at present I ... the difference would be a few percent.
PH:Yep.
BOB:At the life cycle cost package level, at present value, the difference between the two would be a few percent?
PH:Yes.
BOB:At the total Project cost, likewise, at present that is ... the total Project cost would be a few percent?
PH:Yes.
BOB:Okay. Thank you.”
Excerpt 3
“BOB:Uh .. all right. Uh ... Now we’ll go to the last couple of questions. Um ... the ... uh ... wanted to back up on .. uh .. one. There was a statement made .. uh .. that the percentage differences of the contract price and other things were relatively small. Uh .. I just want to understand the definition of contract price. Uh ... does that include ... uh .. and let me just give the example, then you can comment. Let’s say we had a bigger advantage in contract price, but a disadvantage in the financing package. Would the two of those be added together to arrive at the statement that ... uh .. there wasn’t much difference in the contract price?
PH:Given the effect of the financing package in .. in present value terms, the difference and .. differences in the financing packages becomes evident when you calculate the net present value, that the two alternate cash ......
BOB:So, again, just for definition purposes, then, the statement that ... uh .. contract price ... would .. would it include both aspects of it?
PH:Uh .. contract price that we’ve quoted to you today ...
BOB:Yes.
PH:.. takes no account of your financing package, because it’s not a net present value contract price.
DOUG:.. we’ve given it to you? Down that list? Doesn’t take any account of the financing package.
PH:And, similarly, the contract price that we will publish, for your competitor, will be the contract price, that’s the dollars at the bottom line.
BOB:Are you saying that that level will be ... (TALKING OVER ONE ANOTHER)
PH:... that level there within a few percent of each other, and when you take all of the other .. uh .... the other point of comparison that we’ve offered in essence theres a ... the total Project cost level net present value ... uh .. that does take into account ...
BOB:The financing package went into the Project costs?
PH:No, the financing package comes in when we ... when we refer to net present values. Can we just go back .. (NOISE & COUGHING) ... let me just correct myself on one point.
BOB:Oh, okay.
PH:The .. the quote that we gave to you at net present value levels - contract price, total Project costs and life cycle costs - varied by only a few percent (NOISES .. PAUSE) Contract price net present value, 2%. I was actually incorrect in saying to you that the contract price to contract price, before you take the .. uh ... financing package into account, is still within that ... I’m .. I’m not going to tell you what the difference is.
BOB:No, I understand.
PH:But I’m not saying to you it’s .. it’s ..
BOB:Well, that ...
PH:It’s necessarily ... (TALKING OVER EACH OTHER)
BOB:.. the net present value level .. does it include the differences in finance?
PH:Whenever we say “net present value”, we certainly intend to include the effect of the financing packages.
BOB:Okay.
As .. as well as attendance string?? As well as the .....?
BOB:I just want to back up to paraphrase it once more, to be sure I understand .. um .. so, are the ... the statement that ... uh ... the contract prices are at the net present value or within a few percent of each other, would indeed include the impact or effect of the financing package?
PH:Yes.
BOB:As well as the actual .. uh .. bid on the .. uh ...
PH:Yes.
BOB:Scope and options?
PH:Yes.”
The CAA’s own price calculations, as evidenced in an annexure to a supplementary agenda to the 23 December board meeting, were relevantly as follows (omitting contemporary deletions from the document itself):
“. Expected Contract Prices, made up of the BAFO prices and the additions above, are:
- Hughes: $167.4 million
- Thomson: $201.8 million
- Variance: $34.3 million in Hughes’ favour.
....The ‘Net Present Values’ (NPV’s) of the expected Contract Price (10% p.a.), having regard to the payment schedules proposed by each of the contenders and taking account of savings from financing arrangements, amount to:
- Hughes: $138.6 million
- Thomson: $159.5 million
- Variance: $20.9 million in Hughes’ favour..The Net Present Values (NPV’s) of the Total Project Cost (10% p.a.), having regard to the payment schedules proposed by each of the contenders and taking account of savings from financing arrangements, amount to:
- Hughes: $190.3 million
- Thomson: $207.0 million
- Variance: $16.7 million in Hughes’ favour
...
. NPV’s of Comparative LCC’s [Life Cycle Costs] are:
- Hughes: $164.5 million
- Thomson: $186.0 million
- Variance: $21.5 million in Hughes’ favour.”
I should add that these figures took account of the “admissible” $2.7 million, but not the “inadmissible” $16.7 million, price reductions made by Thomson on 14 December.
Additionally I should make reference to Mr Roser’s evidence on this matter. In cross-examination, having been taken to the various ways in which the price difference could be expressed, he was asked:
“Q.[Mr Gyles QC]: ... The bids were never a few percentage points apart, whichever way you manipulated the figures, were they?
A. That’s right, yes.
Q. Why did you say that to them?
A.The comparison we were using obviously for public purposes was the contracted price that we would have with Thomson.
Q.And, Mr Roser, you knew that that was not the bid price, didn’t you?
A.That Thomson - you’re quite right, yes, I did, yes.
Q.So that the way you did it, I don’t mean only you, but the way you did it at the debrief, meant that Hughes were not told what the price difference in the bids were?
A.No, they were not.
Q.Why not?
A.That isn’t normal to tell companies that, Mr Gyles. And I don’t think there was any obligation on us to tell them that.
...
Q.Furthermore, the request for tender made clear that the contract price would be made public; is that right?
A.I can’t recall, but it is normal to make the contract price public, yes.
Q.That’s right. Contract price was to be made public; correct?
A.Yes.
Q.And this procedure, I suggest to you, which you devised, was very clear that there could be no, repeat ‘no’, negotiation on price after best and final offer, didn’t you? That was the procedure?
A.Yes.
Q.Therefore, it could be safely assumed that in this contract the contract price would be the best and final offer, save for a permissible option?
A.Yes.
Q.The device which was adopted here of Thomson revising their bid and having that taken into account meant that that assumption which Hughes must make was falsified, wasn’t it?
A.Not by the CAA.
Q.I beg your pardon? Who else was running this organisation, sir? I thought the CAA were the contracting party?
A.If Thomson reduced their price in that process, why shouldn’t we have taken account of it, if the decision was made their way?
Q.Mr Roser, your procedures simply did not permit of people to rebid, did it?
A.No, you’re quite right.
Q.It should have been tossed out the window back at them, shouldn’t it?
A.Yes, I suppose so.
Q.Yes, it should have been. And then there might have been an honest disclosure of the difference in price then, mightn’t there - difference in bids, I mean?
A.Yes.
Q.Let me suggest that the strategy which was adopted was to ‘ensure’ that the truth did not emerge before the contract was signed with Thomson in order to prevent Hughes stopping it; that is the truth, isn’t it?
A.It was never a conscious decision, Mr Gyles.”
The reference in that evidence to the RFT requiring disclosure of the contract price was to para 5.3 which indicated that the CAA intended to make the contract price public after signature.
This is a clear case of conduct that was misleading and deceptive. While the respondent has contended that the representations made at the debrief were to a comparison of proposed contract prices (rather than bid prices) and no more, I can only conclude that, in the context of a debriefing as to the outcome of a tender process involving the application of defined criteria and methodology, any reasonable tenderer in Hughes’ position would properly and incorrectly assume from the representations in the circumstances that (i) the difference referred to reasonably reflected the differences with which the CAA was working when it took its decision - and this even though the final contract price might later be augmented by the addition of “options”: see RFT para 22; (ii) that difference was not 8 per cent or more - and this was the lowest percentage difference of the various measures used; and (iii) the contract price when later revealed would not embody a post-BAFO price reduction which would make the actual contract price look much closer by comparison than would otherwise have been the case - and as was the case when the Board decision was taken.
My conclusion that the representation as to a “few percentage points” had a retrospective as well as a prospective character becomes the more inescapable when it is noted that Mr Roser used the past tense when referring to it in the second of the excerpts set out above. Indeed movement between tenses is a feature of the discussion of the difference in those excerpts. I cannot in consequence accept the respondent’s submission on this matter. Neither can I accept that 8 per cent is a “few” in the context of the explicit ‘much more towards the 2 than the 10’ comment made by Mr Roser. I should add that I regard the unrevealed inclusion of Thomson’s post-BAFO price reduction in the contract price as constituting an element in the conduct that was misleading and deceptive in the circumstances: see Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31.
Though acknowledging that a guilty intent is not a necessary element in a s52 contravention, the applicant has invited me to find that such was there in this case. Given my finding, I decline to express a view on this matter other than to say that, whatever the rationalisation resorted to by the CAA, the representations themselves suggest a certain deviousness on the CAA’s part. They perpetuated the concealment of irregularities in, and breaches of, the TAAATS process.
Hughes has pleaded, and Mr Kramp and Mr Funge have given evidence of, its reliance on the CAA’s contravening conduct. It did not take steps to prevent the CAA’s failure to evaluate, or to compel the CAA to evaluate, the tenders as required by the RFT contract. It did not take steps to prevent the execution of the TAAATS contract with Thomson.
Without expressing any views on those steps and their likely result, I find that Hughes did rely on the CAA’s conduct and in so doing failed then to challenge the actions
of the CAA.
PART XIII: PRINCIPAL FINDINGS AND CONCLUSIONS
My observations here will be generalised, brief and highly selective.
First, I have found that the processes leading to the award of the TAAATS contract were governed by a process contract, the principal terms of which were contained in the RFT. I also have found it to be an implied term of that contract that (inter alia) the CAA would conduct its tender evaluation fairly. I have determined as well that a term should be implied as a matter of law into a tender process contract with a public body (such as this was) that that body will deal fairly with a tenderer in the performance of its contract. Accordingly I have made such an implication into the RFT.
In this contractual setting, I have concluded that the CAA acted in breach of its contract with Hughes in that -
(i)it failed to evaluate the tenders in accordance with the priorities and methodology prescribed in the RFT (paras 16.1 and 16.2);
(ii)it failed to ensure that measures designed to achieve strict confidentiality of information contained in tenderers’ proposals, were maintained (RFT para 16.2.7); and
it accepted an out of time change to Thomson’s proposed deed of AII commitment.
While there was evidence enough to warrant Hughes’ allegation of a breach of the fair evaluation/fair dealing terms, I have not found it necessary to reach a conclusion on these given the breaches of contract that already have been made out.
Secondly, I have found that the CAA made, and (by its subsequent decisions and actions) falsified, certain representations as to the processes and methodology to be followed in the selection of the TAAATS contractor. These occurred in circumstances where Hughes was reasonably entitled to expect the CAA to disclose to it that the CAA did not intend to, and did not, adhere to what it had previously represented it would do.
In these circumstances I have concluded that the CAA engaged in conduct in contravention of s52 of the Trade Practices Act 1974, that conduct relating substantially, though not precisely, to the same matters in respect of which I have found breaches of contract to have occurred. Additionally I have found that the CAA engaged in conduct in contravention of s52 in the representations it made to Hughes when de-briefing it on the basis of the CAA board’s selection of Thomson as the TAAATS contractor. In each such instance of contravening conduct, I have found that Hughes relied upon that conduct.
Thirdly, I have not found it necessary to make any findings on the applicant’s claims in negligence and equitable estoppel. While the negligence claim in particular may have required examination of matters not expressly canvassed in these reasons, the claim itself achieved little prominence at the hearing and even less in submissions. Given the failures and failings of the CAA I have identified in my findings, little practical purpose would have been served by inviting further and detailed submissions on this claim and by engaging in a protracted examination of it.
Finally, bearing in mind the “splitting” of this proceeding, the orders I propose to make are that the parties file agreed short minutes of orders to reflect these reasons and if short minutes are not agreed, (i) the applicant to file and serve proposed minutes of orders along with written contentions supporting the orders, and (ii) the respondent to file and serve its written objections thereto.
I certify that this and the preceding 339 pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn.
Associate
Dated: 26 June 1997
Counsel for the applicant : R V Gyles QC
Solicitors for the applicant : M R Speakman
Mallesons Stephen Jaques
Counsel for the respondent : R Macfarlan QC
Solicitors for the respondent : Dr J E Griffiths
Freehill Hollingdale & Page
Dates of hearing : 5-8; 12-16; 19-23; 27-30 August 1996;
3-5, 9, 10, 16, 17 September 1996
Date of final written
submission : 31 January 1997
Supplementary questions : 11 March 1997
Date of final submission to
supplementary questions : 29 April 1997
Date of judgment : 30 June 1997
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