Roading & Asphalt Limited v South Waikato District Council

[2012] NZHC 1284

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV 2010-463-473 [2012] NZHC 1284

BETWEEN  ROADING & ASPHALT LIMITED Plaintiff

ANDSOUTH WAIKATO DISTRICT COUNCIL Defendant

Hearing:         7, 8, 9 November 2011

Counsel:         P P Buetow & M B Lake for Plaintiff

J A Macgillivray & M S Crocket for Defendant

Judgment:      8 June 2012

JUDGMENT OF KEANE J

This judgment was delivered by  on 8 June 2012 at 3pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/ Deputy Registrar

Date:

Solicitors:

Kensington Swan, Auckland for Plaintiff

Tompkins Wake, Auckland for Defendant

ROADING & ASPHALT LIMITED V SOUTH WAIKATO DISTRICT COUNCIL HC HAM CIV 2010-463-473 [8 June 2012]

[1]      In April - May, 2010, the South Waikato District Council invited tenders for a contract for 'solid waste disposal operations at the Putaruru Transfer Station and Newell Road Landfill in Tokoroa for a two year period', capable of being extended to a third year. Tenders, complying with the Council's terms of tender, and taking into account the terms of the contract the Council   proposed entering into, were to be made in the form the Council prescribed by Friday, 21 May 2010.

[2]      The Council's terms of tender stated that it would evaluate tenders according to the 'Lowest Price Conforming Method', in two stages. First, each tender was to be assessed against six non-price attributes 'and no others', on a pass/fail basis - relevant experience, track record, technical skills, resources, management skills and methodology. At the second stage any tenders that qualified were to be rated according to price.

[3]      The terms of tender made it clear that the Council did not commit itself to accepting the lowest or any qualifying tender. The terms stated that 'the lowest or any tender will not necessarily be accepted'; and, in completing the tender document, tenderers confirmed that they understood that the Council was 'not bound to accept the lowest or any tender'.

[4]      The Council received three tenders, two of which survived the Council's scrutiny at the first stage. One came from Roading and Asphalt Limited, that had held the solid waste contract for eight years. The price it tendered was $1,032,220. The other came from Materials and Processing Limited, that then held the contract to transport residual waste from Putaruru to Tokoroa. It tendered $1,072,083.

[5]      Despite the fact that RAL had tendered the lower price, the Council decided to accept MPL's tender. On 31 May 2010 the Council   advised RAL that MPL's tender  had  been  accepted  because  'the  cost  to  Council'  of  the  MPL  bid  was

$1,000,265, plus GST. On 2 June it confirmed to RAL that MPL had  tendered

$1,072,083.50, exclusive of GST, but that the 'cost to Council' of MPL's bid was less than RAL's bid. It said this:

In its assessment of the tenders received, the Council took into account the

Contractors'  methodology;  and  the  net  cost  to  the  rate  payer  when

allowances were made for waste diversions, savings in landfill space and waste levies.

[6]      RAL immediately contended that, in accepting the MPL tender, the Council had breached the terms of tender. RAL accepted that the Council could decline to accept the lowest or any tender. But RAL contended that, if the Council chose to accept any tender, it had to be the lowest. The Council, by contrast, contended that its only duty was to evaluate tenders by the two stage process. It was then able, it contended, in the exercise of its discretion whether to accept the  lowest or any tender, to accept MPL's second lowest tender.

[7]      In this proceeding RAL contends, principally in contract, that the Council awarded the substantive contract in breach of the express terms of tender, and also in breach of an implied duty to treat all tenderers fairly and equally. It contends as well for breaches of the Fair Trading Act 1986 and the Local Government Act 2002. The Council accepts that its terms of tender did give rise to a contract with tenderers governing the tender process. It denies any breach and any want of fairness and equality.

[8]      The Council also accepts that, if RAL had been awarded the contract it would have earned  each  year  $165,317, plus GST; over the two  years of the contract

$330,634. It denies that, even if it is in breach, it caused RAL any such loss. RAL, the Council contends, would never have been awarded the contract. On that basis also it denies any liability to RAL for the third optional year of the contract.

[9]      RAL and the Council differ as to how satisfactory their relationship was in the eight years during which RAL held the solid waste contract. RAL relies on the fact that their three year contract had been extended for two years by option and then for three more years by yearly increments. The Council says, by contrast, that after the Waste Minimisation Act 2008 came into force in July 2009, and it became liable to pay a $10 levy for each tonne of waste deposited at the landfill, RAL showed no interest in diverting and recycling waste.

[10]     In the same vein, RAL contends that the priority the Council gave to waste diversion in the assessment of tenders was completely unheralded. Whereas, the

Council contends, RAL, more than any other tenderer, should have known that waste diversion was a Council priority of increasing importance. This case turns finally, I consider however, under all three causes of action, on two issues as to the terms of tender.

[11]     One of those issues is whether they entitled the Council to evaluate tenders according to the criterion it identified, 'the net cost to the ratepayer', allowing for

'waste diversions, savings in landfill space and waste levies'. The other is whether they gave the Council any ability to accept any tender apart from the lowest.

Council's decision

[12]   The Council awarded the solid waste contract to MPL relying on the recommendation of its Tenders Board on 31 May 2010. The Tenders Board itself gave no reason for its recommendation but, as the Council accepts, relied on the reasons set out in a memorandum to the Board, also dated 31 May 2010, from its Services Manager, Andrew Pascoe.

[13]     Mr Pascoe began his evaluation by saying that the contract was to be for two years only, because it was then anticipated that within two years the Council would have a materials processing facility at the Tokoroa landfill and a different type of operating contract would be required both for the landfill and that facility.

[14]     Mr Pascoe then set out the monthly rates tendered by RAL and MPL and the third  tenderer  to  operate  the Tokoroa  landfill;  the  principal  component  in  their tenders. They had been asked to propose three rates. The first rate was to assume that waste deposited at the landfill each month would be less than 500 tonnes, the second that it would be between 501 - 1000 tonnes, and the third in excess of 1000 tonnes. The critical rate, Mr Pascoe said, was the middle rate. At the time of tender the average amount of waste deposited at the landfill each month was 690 tonnes.

[15]     Only RAL, Mr Pascoe said, had tendered the same price for any volume below 1000 tonnes. MPL and the other tenderer had offered a lower rate for any volume below 500 tonnes. If then volumes at the tip face reduced, Mr Pascoe said,

RAL's tender offered no benefit to the Council. (Though RAL's single rate was lower than MPL's and the other tenderer's lowest rate.)

[16]     Mr Pascoe then spoke about a second, and as it turned out, more crucial feature of the tender calculation each tenderer had been required to make and that was the offsetting bonus each was entitled to claim for recyclable material diverted from the landfill each month. As to that he said this:

Within these rates is an item, 'bonus for approved material diverted from the landfill face and management on site as specified'. This item was in the contract to encourage the operator to recycle material that can be recycled and is going over the face at the moment. An estimate tonnage of 2,000 tonnes for Tokoroa and 600 tonnes for Putaruru was specified in the document, this was based on a best estimate on what can be recycled.

[17]     There  was  a  'large difference',  Mr Pascoe said,  between  the  bonus  rates claimed. RAL claimed $2.50 per tonne, $500 for Tokoroa and $1500 for Putaruru. By contrast, MPL claimed $21.86 for Tokoroa, $43,720, and $27.86 for Putaruru,

$16,716.22. Though MPL's claimed bonus exceeded that of RAL by $38,720, and that largely accounted for the extent to which its price for operating the landfill exceeded that of RAL also, $58,568, Mr Pascoe considered MPL had made the right call.

[18]     Mr  Pascoe's  first  reason  was  that  MPL thus  had  a  significantly  greater incentive than RAL to divert recyclable materials from the landfill and was likely to save considerably more landfill space than RAL. Saved landfill space, he said, had a distinct value to the Council. An economic analysis the Council had received just that month from Harrison Grierson, consultants, as to the relative costs of its options

for  waste  disposal,  he  said,  'puts  a  value  on  landfill  space  saved  of  $22/M3   =

$22/tonne allowing for future cost of capping.'

[19]     The second reason why Mr Pascoe considered MPL's bonus claim preferable was that it was more likely to reduce the Council's liability to meet the $10 per tonne waste levy imposed as from July 2009 by the Waste Minimisation Act 2008. As to that he said this:

In the contract document it stated that this rate was expected to be more than

$10 a tonne and the waste levy collected at the gate would be used to help

offset this cost, as Council would be collecting the levy at the gate and would not be required to pay Wellington the Waste Levy if we could prove that the material was diverted.

[20]     Mr Pascoe then compared and contrasted the two bonus claims made and what they said about the likely performance of the two tenderers, having regard to their histories:

The rate supplied by Materials Processing Limited is a similar rate to what Taupo District Council is paying. The rate supplied by Roading and Asphalt is regarded as being unrealistically low and is likely to be a disincentive to it diverting waste because it will be more costly than it is worth.

Roading and Asphalt Limited are currently diverting four tonnes a year and eight tonnes over two years which is negligible at any rate. This is made up of white-ware not dumped over the face, oil and batteries. Materials Processing Limited intends to be proactive and increase recycling volumes. Each Tenderers' methodologies are attached ...

[21]     Mr Pascoe  then  assumed  that  RAL would over  the two  year life of the contract divert from the landfill no more than 10 tonnes of recycled waste and that MPL, by contrast, would divert 1300 tonnes. The result was, he said, that, though RAL had tendered the lower price, the resulting net cost to the Council of its bid,

$1,025,425, was higher than the resulting net cost of MPL's bid, $1,000,265.

[22]   Against that background Mr Pascoe concluded his report with this recommendation:

Roading and Asphalt Limited is the existing landfill operator and has been encouraged to increase diversion of materials since the 17 March 2009, before the waste levy came into effect. They have not changed their operations and have not increased their diverted material. Materials Processing have a proven track record in diverting material for other beneficial use, their closest facility is at Kinleith. ...

... If Council want to progress with diverting material in accordance with Waste Minimisation and keeping pace with industry, it is recommended that the contract be awarded to Materials Processing, which will give Council a net cost benefit over Roading and Asphalt.

Council's evaluative power

[23]     The first issue is whether this analysis, on which the Council evidently relied when awarding the contract to MPL, accords with its terms of tender. As the Council

accepts, those terms prescribe precisely on what basis tenderers were to make their bids and how it was to evaluate the tenders it received.

[24]     The issue is more precisely whether, in the lowest price conforming method two stage analysis the Council obliged itself to make, it was nevertheless entitled to treat as relevant and decisive net cost savings from waste diversion and savings in landfill space. Was that inherent in the two stage process or did it involve an undeclared third stage analysis?

Principles of law

[25]     This issue of interpretation turns on the precise terms of tender, and those of the substantive contract to the extent that they apply. Such terms can vary considerably. The central terms in Pratt Contractors Limited v Palmerston North City Council,1 for instance, which are not unlike those in issue in this case, contrast markedly with those in Onyx Group Limited v Auckland City Council.2 The cardinal

principle is nevertheless clear. It is, as Gallen J said in Pratt, speaking of the lowest price conforming method to which the Council there also bound itself:3

That indicates in detail the precise way in which the Council will evaluate tenders and indicates in mandatory terms, the basis on which the contract will be entered into.

[26]     A related issue is whether the Council was also under an implied duty to treat tenderers fairly and equally and to comply closely with the terms of tender. That too turns primarily on the terms of tender, and any related conditions of the substantive contract.

[27]     The argument in favour of implying such a term is, as the Supreme Court of

Canada said in Martell Building Limited v Canada, this:4

Implying an obligation to treat all bidders fairly and equally is consistent with  the  goal  of  protecting  and  promoting  the  integrity  of  the  bidding process, and benefits all participants involved. Without this implied term,

1      Pratt Contractors Limited v Palmerston North City Council [1995] 1 NZLR 469.

2      Onyx Group Limited v Auckland City Council (2003) 11 TCLR 40.

3      Pratt at 479 - 480.

4      Martel Building Limited v Canada [2002] 2 S.C.R. 860 at [88].

tenderers,   whose   fate   could   be   predetermined   by   some   undisclosed standards, would either incur significant expenses in preparing futile bids or ultimately avoid participating in the tender process.

[28]     In the next paragraph the Court nevertheless emphasised that contracting parties are free to set their own terms and these may override ordinary considerations of fairness and equality:5

Nevertheless, the tender documents must be examined closely to determine the full extent of the obligation of fair and equal treatment. In order to respect the parties' intentions and reasonable expectations, such a duty must be defined with due consideration to the express contractual terms of the tender. A tendering authority has 'the right to include stipulations and restrictions and reserve privileges to itself in the tender documents'.

[29]     These statements of principle seem to me fairly to encapsulate the state of law in New Zealand. Similar statements of principle are to be found in the cases to which I have already referred. Such an implied duty was first recognised in Pratt Contractors Ltd v Palmerston North City Council. It has since been affirmed and applied, or not applied, depending on the terms in issue in the particular case; and the duty has been endorsed at the highest level.6

First stage

[30]     The  first  stage  of  the  tender  evaluation  the  Council  undertook  to  make according to the lowest price conforming method, was to determine:7

Tender  acceptability  when  assessed  against  each  of  the  six  non-price attributes and no others. Each attribute shall be scored on a pass/fail basis. Any  attribute  which  scores  a  fail  may  exclude  that  tender  from further consideration. Any tender which alters the scope or the end result may be excluded from further consideration.

[31]     The Council then defined each of the six non-price attributes8:

Relevant Experience

Each Tenderer shall submit a record of the relevant experience, in particular technical experience, which would indicate their suitability for the work

5 At [89].

6      Pratt Contractors Ltd v Transit New Zealand [2005] 2 NZLR 43 (PC).

7      Solid Waste Disposal Contract : 1.1.1, 1.1.2.

described in the specification. Where Sub-contractors are proposed to be engaged, their relevant experience shall also be supplied.

Track Record

Each Tenderer shall submit records that demonstrate their ability to complete projects to target performance levels on schedule and within budget. Similar information shall be provided for any proposed Sub-contractor.

Technical Skills

Each Tenderer shall submit details for the key personnel to be employed on the contract works. The details shall indicate each key personnel's proposed involvement  with  the  project  and  demonstrate  that  their  experience  and skills, in particular technical experience and skills with landfill operations, are compatible with the Contract.

Resources

Each Tenderer shall submit details of the plant, equipment, materials and facilities to be used on the project.

Management Skills

Each Tenderer shall describe the management methods and skills which will be applied in order to successfully carry out the contract works.

The skills will include the management, training given to staff at various levels and the systems developed for communication between staff and with the Engineer. Systems developed for recording, reporting and invoicing shall also be described.

Methodology

Each  Tenderer  shall  describe  the  methodology  proposed  to  achieve  the specified end result within the specified response period.

This methodology shall encompass, but not be limited to, the following:

-         waste diversion, and recovery of recyclables.

-         landfill operations including covering, compaction, site supervision.

-         kiosk operations, and security of takings.

-         communications.

-         reporting and invoicing.

-         quality assurance procedures.

-         management.

-         health and safety policy.

[32]     The focus of the first five of these non-price attributes was on the capacity of the tenderer to undertake the contract. The focus of the sixth was on how the tenderer proposed to undertake the contract. These attributes were not ranked in any priority. Nor were they weighted in any way. That is true also of the most specific of them, methodology, which called for the tenderer to describe how it would carry out 'waste diversion, and recovery of recyclables'. That was one of eight topics neutrally listed.

[33]     Consistently, also, the Council only reserved to itself the ability to pass or fail a tenderer at this stage on any one of these attributes. It did not reserve to itself the ability to compare tenderers against those attributes. This suggests that the first stage of the analysis was primarily to identify those tenderers whose price deserved to be considered at the second stage.

Second stage

[34]     The second stage of the process was then very briefly outlined in this way in the ensuing term:9

The second stage shall consist of determining which of the remaining (non- excluded) Tenderers has the lowest price.

The schedule of Tenderers' resources shall be considered when evaluating the price attribute.

The lowest or any Tender will not necessarily be accepted.

[35]     At this second stage the Council set out in a nearly literal sense to adhere to the lowest price conforming method. The purpose of this second stage, it said, was to identify which of the prices tendered by the qualifying tenderers was the 'lowest price', calculated though it did not there say so, according to the schedule of quantities, rates and prices that each tenderer was obliged to complete.

[36]     In reserving to itself the right, when 'evaluating the price attribute', to go further the Council  might seem to have reserved to itself a more wide ranging discretion. But it only did so in order to take into account the tenderer's schedule of resources, the fifth non-price attribute in the first stage, and that gave it very little

further latitude. It must already have assessed that attribute at the first stage and found it satisfactory. At the second stage the ranking of prices tendered had to remain primary.

[37]     In completing that schedule the tenderer had first to set out the principal component in its tendered price: its three price rates, depending on volume, for operating the landfill over the two years of the contract. That price was to be payable to the successful tenderer, according to the related description in the terms of tender,

for:10

... the day to day operations at the Landfill including daily applications of

'Daily Cover' on compacted layers of refuse, clearing silt from storm water detention ponds annually, maintaining open and piped storm water drains, on

site signage; and monitoring the leachate pond, and facilities. Payment of the

tendered lump sum per month will be deemed to cover the supply of all labour, plant and materials necessary for the operation of the landfill as set out in these documents inclusive of all work which may be required outside of the normal working hours. The Schedule provides for some variations in monthly tonnages as a contingency if Council gains or loses large customers.

[38]     The schedule component most relevant to this case, however, is the bonus tenderers were invited to claim 'for approved material diverted from the landfill face and management on site as specified'. This bonus assumed that over the life of the contract 2000 tonnes was capable of being diverted; and its purpose, according to the explanatory terms of tender, was to be this:11

It shall be in full compensation for the separation of waste product, management  on  site  (including  doubling  handling  as  necessary)  of  the various wastes, and transport off site at intervals not exceeding three months. Green waste mulched at the Tokoroa site may be used for daily cover, but will not attract the bonus as it remains on site. Note: the current largest component is 'green waste' followed by 'white ware', scrap steel, second hand goods, oils, batteries etc. It is anticipated the bonus will not be less than the current Government 'waste levy' of $10/tonne plus GST which is charged for all waste entering the landfill.

[39]     The purpose this  bonus  was  to  serve must  also  be set  against  the work specification in the substantive contract. Diversion and recycling was there first

referred to as an aspect of landfill operations, and was described as the 'acceptance

10     1.6.2.

and disposal of car bodies and whiteware'.12  In this context diverting and recycling was seen, not as a value in itself, but as a duty to exclude non-complying waste and that was later imposed as an express duty:13

The Contractor shall be responsible for separation of car bodies, whiteware and other bulky ferrous metal items including fencing wire and storage in the designated area. These materials are not to be disposed of in the fill.

[40]     The contractor, the term continued to say, was entitled to the proceeds of any ferrous metal sale and was to include any metal crushed for offsite disposal in its monthly return of diverted waste. To that extent this term implicitly recognised the contractor's right to a diversion bonus. But its main purposes was more likely to have been to reduce the Council's liability to pay the waste levy and, perhaps, to enable the Council to monitor the contractor.

[41]     A later term entitled, but did not oblige, the contractor to set up facilities for the separation and collection of recyclable materials. It too confirmed that the contractor was entitled to keep those materials. It also required the contractor to remove them from the landfill within three months. For the purpose of this term too the contractor had to make the monthly return, based on weighbridge accounts.14 In this  instance  one  purpose  of  the  monthly return  must  have  been  to  enable  the contractor to claim the diversion bonus.

[42]     There was nevertheless only one term of the substantive contract that referred to the Council's liability under the Waste Minimisation Act 2008; and that was by way of oblique reference in the term governing the contractor's duty to cover refuse daily.15 It said this:

The amount of cover material (measured over the weighbridge in tonnes) used from onsite and offsite sources shall be reported to Council each month by the contractor. Note: this information is being gathered by the Ministry for the Environment in confidence to assist with their knowledge on the practical application of the 'Waste Levy'.

12     A1.3o.

13     A2.23.

14     A3.1 - 3.9.

15     A2.3.

[43]     In sum, the contractor came under no explicit duty to divert waste from the landfill in order to minimise the Council's waste levy liability. It was left with a choice as to what extent it did so and the Council only sought to influence that choice by its bonus offer, but there too left the contractor to fix the bonus level. The contract imposed no duty at all on the contractor to save the Council landfill space. As to that, the documents the contractor received are completely silent.

Extent of Council's evaluative power

[44]     In  electing to  evaluate  tenders according to  the lowest  price conforming method, but in two stages, the Council unquestionably reserved to itself the right at the first stage to evaluate tenderers' non-price attributes.

[45]     At that first stage the Council was clearly entitled to assess the tenderers' capacity to carry out the contract to be awarded, against the attributes it identified, and the means by which the contractor proposed to do so; including the tenderers' capacity to divert and recycle waste and the likelihood that they would do so satisfactorily.

[46]     The Council did not at that first stage, however, expressly reserve to itself the ability to compare tenderers' proposals in that or any other respect. It only reserved to itself the ability to pass or fail each tenderer on each of the non-price attributes it identified. Only at the second stage of the analysis did the Council reserve to itself the ability to compare tenders but then principally, if not exclusively, only on the basis of price.

[47]     In the plainest sense, the Council reserved to itself at the second stage the right to assess qualifying tenders by the lowest price conforming method; that is to say by ranking the prices tendered in order to identify the 'lowest price'.  The Council might, in reserving to itself the ability to 'evaluate the price attribute' have assumed a wider discretion, but only marginally. Its primary focus had to have been price and price only.

[48]     Though, therefore, the Council did assume the ability to make a two stage analysis that involved non-price attributes, that analysis reduced to price as a single criterion. Whether the Council then retained a discretion, inherent in its immunity from any duty to accept the lowest or any tender, to accept a tender that was not the lowest, is the second issue in this case.

Conclusions

[49]     In awarding the contract to MPL, even though its tender to price was higher than that of RAL, the Council departed from its terms of tender to which RAL had been obliged to adhere and on which it is still entitled to rely.

[50]     RAL, like any other tenderer, was obliged to complete its tender in strict accord with those terms. It was obliged to take literally that, though its tender was to be assessed in two stages, what counted finally was 'the lowest price'. That had indeed been brought home to RAL in a graphic way. The Council's chief engineer enclosed with RAL's copies of the tender document, the terms of tender, and the substantive contract, a sharpened pencil.

[51]     RAL, I accept, did focus on being the lowest tenderer. But that proved not to be the Council's focus. Its fixed rather on one element in the schedule calculation, the bonus claim, to which it gave overriding significance for two purposes: to reduce its liability under the Waste Minimisation Act 2008, and to make savings in the cost of landfill space. The former was intelligible under the terms of tender and the substantive contract. The latter was  altogether new and rested on a cost saving estimate made by Harrison Grierson after tenders were received.

[52]     These two purposes, or criteria, were foreign to the Council's chosen method of assessment, as the Council had elected to define it. On that basis alone the Council is answerable to RAL for breach of the express terms of their preliminary contract. The Council also, in two respects, acted in breach of an implied term to treat all tenderers fairly and equally that, I think, had a natural place in this tender process.

[53]     Firstly, in evaluating the tenders on a basis not disclosed to the tenderers in the tender documents, the Council was inherently unfair. It not merely evaluated them on an undeclared basis, it did so inconsistently with the basis it had declared. While that worked to MPL's advantage, it worked to the distinct disadvantage of RAL. Had RAL been aware of the basis on which the Council finally assessed tenders, it almost certainly would have pitched its tender differently.

[54]   Secondly, in the evaluation the Council made it relied on Mr Pascoe's comparison of RAL's waste diversion record with that of MPL. That was not merely beyond the terms of tender. It was so highly unfavourable to RAL and so highly favourable to MPL that it had to involve a level of conjecture.

Council's award power

[55]     The  second  issue  is  intimately  related  to  the  first.  Did  the  Council,  in reserving to itself at the second stage the privilege not to accept the lowest or any tender, assume the ability to award the tender to a tenderer that was not the lowest? Did it reserve to itself the ability to award the contract on a basis other than price?

[56]     Of all the cases to which I have been referred on this issue Pratt Contractors Ltd  v  Palmerston  North  City  Council  comes  by  far  the  closest.  There  too  the tenderers were to be assessed in two stages, and ultimately according to the lower price conforming method. There too the issue arose whether the Council could award the contract to a tenderer other than the lowest.

[57]     In that instance the Council assumed a duty not expressly assumed in this case, 'The Principal shall only enter into a contract for the non-excluded tender with the lowest price.' As against that, each tenderer, as in this case, accepted in their tender document, 'we understand that the Principal is not bound to accept the lowest or any tender he may receive'. There too, as here, there was a privilege clause, though it was not set out explicitly in the terms of tender. It was incorporated by reference from the New Zealand wide standard contract.

[58]     In that case Gallen J had to decide two issues principally. The first was whether the Council, in undertaking this process of tender assessment, became obliged to award the contract to the lowest conforming tenderer. He decided that it did not. It could reject all tenders and, if it chose, retender. The second was whether, if the Council did elect to award the contract, it had then to award it to the lowest conforming tenderer. He held that it did.

[59]     In reconciling the contrasting terms of tender in that case, when deciding the first question, Gallen J remarked, 'to hold ... that a Council retains a power to reject all tenders, is not the same as allowing it to use such a power to select tenders.'16 In deciding the second issue, he said that while the Council did have the power to reject all tenders and to call fresh tenders, if it did decide to award the contract it retained no discretion. It then came under the explicit duty it had assumed:17

Once it determined to accept a tender, then I think it was obliged to do so on the basis on which it sought tenders ... Once the Council  purported to act within the tendering framework it was obliged, if it awarded a contract at all, to award it to the tenderer submitting the lowest conforming tender.

[60]     In  Maintec  Ltd  v  Porirua  City  Council,18   where  the  privilege  term  also figured, but there was no positive duty term, the Council rejected all tenders and re- initiated the tender process. The lowest tenderer sued. In that case Gallen J dismissed the claim, adhering to his decision in Pratt. The lowest tenderer would only have had a cause of action, he held, if the Council had awarded the contract to some other tenderer, whose tender was higher. It was fully entitled to reject all tenders.

[61]     I agree with Gallen J's analysis in those two cases and I adopt his reasoning in this case. There are no other cases that contain terms of tender that are as near to those in issue in this case. Indeed, it seems to me, that the terms here and those in Pratt, most especially, are materially indistinguishable.

[62]     There may be no positive duty term in this case but, as Gallen J held in

Maintec, that outcome is inherent in the lowest price conforming method. The privilege clause in this case may be an explicit term of tender as well as a feature of

16     Pratt Contractors Limited v Palmerston North City Council, above n 1, at 481 - 482.

17     At 487.

18     Maintec Ltd v Porirua City Council HC Wellington CP189/95, 19 October 1995.

the tender document. In Pratt the  privilege term may only be incorporated as a term of tender by reference from the incorporated New Zealand standard terms. But there too it was also a feature of the tender document. These distinctions are, I consider, merely incidental. What counts finally is what the terms say.

[63]     The Council contends, or is obliged to contend, that the privilege term in this case 'the lowest or any tender will not necessarily be accepted', gave it a fourfold discretion: (a) to select the lowest tender, or (b) to select a tender other than the lowest tender, or (c) to select none of the tenders, or (d) to make its selection on reasonable grounds. I am unable to agree that it extended that far.

[64]     The privilege term expressly contemplated options (a) and (c). It did not expressly contemplate options (b) and (d). Also, option (b) is inconsistent with (a) and option (d) is inconsistent with stage two of the Council's own evaluation process, the lowest cost conforming method. In short, the two further options the Council contends for are irreconcilable with the terms of tender as a whole.

[65]     If the Council   wished to enjoy the order of discretionary power it now contends for,  it was obliged to say so in its terms of tender. It had to incorporate a term like that incorporated in the Onyx case, which I set out as to the first part only:19

The lowest or any tender will not necessarily be accepted. The Principal reserves the right at its sole discretion:

(a)       To accept none or any of the tenders; or

(b)      To accept a tender which is not the lowest or the highest scoring.

[66]     Here as well, I consider therefore, the Council fell into breach of its own terms of tender and is answerable to RAL if, as a result, RAL suffered loss.

Consequent loss

[67]     RAL is only entitled to the losses it claims, its agreed loss of earnings for the two years of the contract, and any analogous loss for the third optional year, if I am

19     Onyx Group Limited v Auckland City Council, above n 2, at [11].

able to be satisfied to the balance of probabilities that, but for the Council's breaches of its terms of tender, it would have awarded the substantive contract to RAL.

[68]     The Council denies that it would ever have awarded the contract to RAL. If its only choice had been either to accept RAL's tender or to reject all tenders, it contends that it would have opted for the latter. Its concerns about RAL's tender were too fundamental to sort out by later negotiation.

[69]     RAL's failure to claim a realistic bonus for waste diversion, the Council contends, was entirely consistent with RAL's failure in the preceding 18 months to divert waste in any active way. RAL's bid did not meet, the Council contends, its then clear concern to limit its liability under the Waste Minimisation Act 2008. The Council also had a real interest, quite independently, in making savings of landfill space.

[70]     Mr Pascoe's report, I accept, does disclose that Council officers did have concerns about the extent to which RAL had been diverting waste since March 2009 when the Waste Minimisation Levy was becoming imminent. I am unable, on the evidence, however, to reach any safe conclusion about the extent to which this issue had been ventilated and pressed by the Council.

[71]     Mr Pascoe is clear that he did take this up with Mr Gates, RAL's managing director. Mr Gates does not recall this issue ever assuming the importance it has since assumed. What seems to me to be finally important is that, whatever Mr Pascoe may have said to Mr Gates, the Council never made its position clear to RAL in writing. In that sense the issue never did achieve the prominence that the Council now contends for.

[72]     Nor, on the evidence as a whole, is there anything cogent to suggest that at the time of tender the Council had any wish to exclude RAL as the contractor for the next  two  years.  In  the  preceding  three  years  the  Council  had  extended  RAL's contract by yearly increments. When the Council sent to RAL the tender documents, its chief engineer included a sharpened pencil. Not too much could be made of this.

But it is at least consistent with the inference that RAL remained a worthy contender for the next two years.

[73]     The contract for the next two years, moreover, was in a sense a stop gap measure. Mr Pascoe said in his report that the Council was likely within that time to have a materials processing facility at the landfill and that was likely to call for a different kind of contract. As the incumbent contractor, RAL would have remained a convenient choice, perhaps the most convenient.

[74]     RAL's tendered price, moreover, would have given the Council comfort. The

Council  had budgeted for a contract price of $1,228,000. RAL's tendered price was

$196,000 less. Even on the Council's net cost calculation, and even assuming that

RAL only diverted 10 tonnes of waste, the net cost to Council would have been

$1,025,425, some $203,000 less than the Council's budgeted price.

[75]     For these reasons I find to the balance of probabilities that, had the Council complied with its terms of tender, it would have awarded the contract to RAL for the next two years and thus that RAL has, as a result of the Council's breach of its terms of tender, suffered the agreed loss it claims for those two years, $330,634, plus GST.

[76]     I am not satisfied, by contrast, that RAL suffered any loss as to the third optional  year  of  the  contract. A third  year  had  to  be  mutually agreed  and  that depended not just on RAL's performance, but on whether by then the Council had constructed its materials processing facility at the landfill and what form of contract that then called for. Whether RAL would have obtained a third  year has to be speculative.

Outcome

[77]     I give judgment for RAL on its first cause of action, in which it alleges that the Council failed to award it the solid waste contract in breach of their preliminary contract. As a result of that breach, I conclude, RAL suffered the loss agreed over the two years of that contract, $330,634, plus GST. I award damages to RAL in that

amount. I need not consider RAL's two other causes of action, as each also depends on a breach of contract. They add nothing.

[78]     RAL is also entitled to an award of costs. If costs cannot be agreed RAL is to file a memorandum within 10 working days of the issue of this decision and the

Council is to file its memorandum in reply in the succeeding 10 working days.

P.J. Keane J