Hughes Aircraft Systems International v Civil Aviation Authority

[1995] FCA 434

CATCHWORDS

CONTRACT - tender evaluation process - whether failure to decide between tenderers in accordance with the agreed criteria may constitute a breach of contract -
Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council [1990] 1 WLR 1195 - whether claim is reasonably arguable.

PRACTICE AND PROCEDURE - preliminary discovery - whether all reasonable inquiries had been made - applicant had not exercised its rights under the Freedom of Information Act 1982 (Cth) - whether sufficient information available to enable a decision to be made to commence proceedings - applicant was in receipt of advice from Senior Counsel as to the prospects of success - whether preliminary discovery should be ordered - scope of discovery - discretion.

Federal Court Rules - O.15A r.6

Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council [1990] 1 WLR 1195

HUGHES AIRCRAFT SYSTEMS INTERNATIONAL v CIVIL AVIATION AUTHORITY
No G913 of 1994

Davies J
28 June 1995
Sydney

IN THE FEDERAL COURT OF AUSTRALIA                 ) 
  )       
NEW SOUTH WALES DISTRICT REGISTRY                )  NG 913 of 1994
  )     
GENERAL DIVISION  )     

BETWEEN: HUGHES AIRCRAFT SYSTEMS INTERNATIONAL

Applicant

AND:         CIVIL AVIATION AUTHORITY  

Respondent  

Coram:        Davies J
Date:          28 June 1995
Place:         Sydney

REASONS FOR JUDGMENT

This is an application brought by Hughes Aircraft Systems International ("Hughes") against the Civil Aviation Authority ("the CAA") under Order 15A rule 6 of the Federal Court Rules which provides:-

"6Where -

(a)there is reasonable cause to believe that the applicant has or may have the right to obtain relief in the Court from a person whose description has been ascertained;

(b)after making all reasonable inquiries, the applicant has not sufficient information to enable a decision to be made whether to commence a proceeding in the Court to obtain that relief; and

(c)there is reasonable cause to believe that the person has or is likely to have or has had or is likely to have had possession of any document relating to the question whether
the applicant has the right to obtain the relief and that inspection of the document by the applicant would assist in making the decision -

the Court may order that the person shall make discovery to the applicant of any document of the kind described in paragraph (c)."

The application arises from a tender process for The Australian Advance Air Traffic System ("TAAATS") in which Hughes, a wholly owned subsidiary of an international organisation, and Thomson Radar Australia Corporation Pty Limited ("Thomson"), a subsidiary of a competing international group, were tenderers. 

The procedures and the process for the selection of the successful contractor were originally specified in a document issued on 30 May 1991 which provided for the registration of interest, (the "ROI").  Subsequently, on 2 October 1991, the CAA altered the selection process.  By 18 December 1991, the initial evaluation teams had made a recommendation to the Board of the CAA that the Board recommend Hughes be named as the preferred contractor.  The Board rejected that recommendation and in the period intervening before 13 March 1992, further information was gathered regarding both Thomson's and Hughes' bids.  On 13 March 1992, the Board accepted a recommendation that Thomson be the preferred contractor and that Hughes be the alternate contractor.  It appears from a subsequent review of the tender process, however, that inadequate information and unsound conclusions regarding the risks associated with Hughes may have been presented to the Board. 

Following the decision, a Committee chaired by the Hon. Ian McPhee was established to review the tender evaluation process.  That Committee reported in
December 1992 and recommended that Hughes and Thomson should again be invited to undertake specification development phases, as contemplated in the ROI, and that their tenders be re-evaluated.  In accordance with the recommendation, Hughes and Thomson were invited to participate again. 

On 9 March 1993, each company entered into a specification development phase contract with the CAA.  Together with the contracts there was an agreement in letter form ("the TAP letter") which set out in specific terms the evaluation criteria to be applied by the CAA in the evaluation of the best and final offers.

Paragraph 2.5 of the TAP letter read:-

"2.5    Evaluation of TAAATS Best and Final Offers

2.5.1Criteria

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

Criteria  Priority

1.       Operational and Technical Performance,               1                  
  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."

On 19 July 1993, another document, a Request for Tender, which was issued by the CAA stated, inter alia:-

"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.

16.2.4If one proposal does have substantial advantages over the other, the recommendations 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)."

On 22 and 23 December 1993, articles appearing in the Sydney Morning Herald and the Australian Financial Review reported that the CAA's Tender Evaluation Committee had recommended to the Board of the CAA the acceptance of
Hughes' tender, it being substantially lower than Thomson's tender.  The Sydney Morning Herald mentioned a difference of $30m in the tenders.

On 23 December 1993, the Board of the CAA selected Thomson as the preferred contractor.  The Chairman of the CAA, General Peter Gration, announced:-

"... the Board has selected Thomson principally on the basis of its significant commitments to work with Australian industry in pursuit of substantial export and R & D opportunities.  Both companies met or exceeded expectations for Australian industry involvement however there were clear and substantial advantages for Australia and thus the aviation industry in favour of Thomson over Hughes."

The media release made no reference to price or other financial matters. 

On 12 January 1994, officers of Hughes were informed by officers of the CAA that Hughes' price had been calculated as $167.2m.  On 7 February 1994, the CAA issued a media release which announced that the contract price was $176,179,000.  Officers of Hughes have estimated that, using the exchange rate quoted by the CAA in that media release, the price payable under its tender would have been $160,832,472, and that the difference between that sum and the actual contract price would have been $15,346,528.

The difference between that $15m and the $30m referred to in the article of 22 December 1993 in the Sydney Morning Herald has led officers of Hughes to surmise that Thomson may have been given the opportunity of reducing its price, so as to be more competitive.  Moreover, the fact that, in his media release of 23 December
1993, General Gration made no reference to price, has led officers of Hughes to surmise that price was not given the priority which was accorded to it in the evaluation criteria.  This concern received some support from information given to officers of Hughes that the Board of the CAA had received letters from two Ministers of the Crown stressing the importance of Australian Industry Involvement.

An officer of Hughes was informed by Mr D.J. Roser, the Chief Executive Officer of the CAA, that the Tender Evaluation Committee had recommended to the Board that Hughes be selected as the contractor, though that report had been accompanied by a note which Mr Roser had authored.  Officers of Hughes have surmised, therefore,  that on this occasion, as on the occasion of the first decision of the CAA, the decision making process may not have proceeded along proper lines.

Hughes now seeks access to the following documents:-

1.The Best and Final offer submitted by Thomson to the CAA in relation to the TAAATS contract.

2.All subsequent revisions, variations and qualifications to the Best and Final offer prior to execution of the TAAATS Contract.

3.Correspondence or proposals from Thomson to the CAA or any of its officers employees during the period 1 December 1993 to 23 December 1993 concerning the pricing of its proposal to perform the TAAATS contract.

4.Correspondence during the period 1 December 1993 to 23 December 1993 from the CAA or any of its representatives to Thomson concerning the pricing of that company's TAAATS proposal.

5.Correspondence from the then Minister Griffiths to the CAA or its representatives during the period 15 November 1993 to 23 December 1993 concerning Australian Industry Involvement (AII) aspects of the TAAATS procurement.

6.CAA Technical Evaluation Committee or other internal CAA documents recording the final evaluated TAAATS prices for the Hughes and Thomson proposals prior to 6 December 1993.

7.CAA Technical Evaluation Committee Evaluation Report for TAAATS procurement.

8.Agendas of and documents submitted to the CAA Board of Directors concerning the TAAATS procurement at each of its December 1993 Board meetings.

9.Minutes of the CAA Board of Directors Meetings held in December 1993 and January and February 1994 as they pertain to the TAAATS procurement.

10.Copy of the TAAATS contract awarded to Thomson.

11.Complete copy of the Auditor's Report upon the TAAATS procurement process."

Paragraph (a) of Order 15A Rule 6 is satisfied.  Counsel for Hughes has mentioned several possible bases of claim, but it is sufficient for present purposes that, if Hughes were able to establish that the evaluation criteria were not fairly applied in accordance with the priorities stated in the criteria, Hughes would have a reasonably arguable case that the failure of the CAA to make a decision in accordance with the criteria was a breach of contract.  See Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council [1990] 1 WLR 1195.

The next issue is whether Hughes has made all reasonable inquiries.  The relevant information sought is entirely comprised in documents and the knowledge of the CAA and its officers.  Hughes could have, but has not, sought to obtain access to the records of the CAA by making an application under the Freedom of Information Act 1982 (Cth). Although I agree with counsel for the CAA that such a step would, in many cases, be the first step that ought to be taken, in the present case there would be so many exemptions to be considered that the application would be a lengthy one. An application to this Court under Order 15A Rule 6 provides a
speedier and more appropriate remedy.  I accept that Hughes has made all inquiries which it was reasonable for it to make before instituting this application.

The next issue is whether Hughes has sufficient information to enable a decision to be made.  The solicitors for Hughes have in fact written to the solicitors for the CAA setting out the substance of a claim made by Hughes against the CAA in respect of the matters I have mentioned.  There is, moreover, a brief advice from senior counsel for Hughes which states, inter alia:- "Hughes has good prospects of establishing that the CAA was guilty of false or misleading conduct in breach of s.52 of the Trade Practices Act" and "Hughes has reasonable prospects of establishing that the conduct of CAA and the tender process was in breach of contract."  Notwithstanding those matters, it seems to me that, on the present information available to it, Hughes would be unlikely to have sufficient information before it responsibly to commence a proceeding in this Court. 

I accept the evidence of Mr J.J. Higgins, General Counsel and Senior Vice President of Hughes Electronics Corporation, the parent company, that, in his opinion, access to the documents is necessary to furnish him with the evidentiary facts he requires in order to reach a decision whether Hughes will proceed to institute a claim for damages.  As Mr Higgins has pointed out in his affidavit, Hughes does not possess copies of the crucial documents or have actual knowledge of their contents.

The documents sought are documents in the possession of the CAA.  They are relevant documents, and inspection of the documents on behalf of Hughes would assist in enabling Hughes to make its decision whether or not to institute proceedings.

Paragraphs (a), (b) and (c) of O.15A r.6 are therefore satisfied. 

The Court has, however, a discretion.  I would not, at this stage, order discovery of documents which would be likely to disclose the technical matters set out in Thomson's tender, matters which would be likely to be confidential to Thomson. 

A date should be set for the further hearing of this matter.  Thomson should be advised of these reasons for judgment and of the orders which will be proposed by Hughes or by the CAA. 

There is no reason why the discovery should not be a staged process.  If, after the discovery of certain documents, it is thought that further discovery should be obtained, liberty to make application should be reserved.  I do not contemplate, at the moment, that discovery should be given of all those documents which, if proceedings are commenced, might be ordered to be disclosed under the ordinary discovery processes of the Court.  The matter to be resolved at the moment is whether there is material which would justify Hughes in commencing proceedings.

Subject to hearing further from counsel, my first impressions as to the matters set out in the schedule to the application are as follows:-

1.Paragraph 1 should be limited to the total price or to those items which together made up the total tender price.

2.Paragraph 2 should be similarly limited.

3.- 5.The documents described in paragraphs 3, 4 and 5 should be discovered.

6.A document or documents should be discovered insofar as it or they recorded the final evaluated TAAATS prices for the Hughes and Thomson proposals prior to 6 December 1993.

7.The CAA Technical Evaluation Committee Report should be discovered insofar as it dealt with the final evaluated prices, the Committee's evaluation thereof, the Committee's evaluation of Australian Industry Involvement matters, the final recommendation of the Committee and the structure of the evaluation made to arrive at that recommendation.

8.The documents specified in paragraph 8 should be limited to the agendas of the meetings and to the identification of the documents submitted to the meetings of the Board of Directors.

9.The minutes described in paragraph 9 should be disclosed.

10.The contract should be disclosed subject to any issues of confidentiality which may be raised by Thomson.

11.The auditor's report, referred to in paragraph 11, should be disclosed subject to issues of confidentiality which may be raised.

I shall not finalise my views or make any formal orders at the present time.  Counsel should bring in short minutes within 7 days setting out the orders which they propose for the further conduct of the matter.  Thomson should be given the opportunity to attend on that occasion.

I certify that this and the 9 preceding pages
are a true copy of the reasons for judgment herein of
the Honourable Justice Davies.

Associate:

Date:   28 June 1995

Counsel for the applicant:              R. Giles QC
  A. Robertson

Solicitors for the applicant:            Mallesons Stephen Jaques

Counsel for the respondent:            R.B.S. Mac Farlan QC
  Dr J. Griffiths
Solicitors for the respondent:           Freehill Hollingdale & Page
Date of hearing:  20 April 1995
Date of judgment:  28 June 1995