SCHELDE MARINEBOUW BV AND THE ATTORNEY-GENERAL AND TENIX DEFENCE PROPRIETARY LIMITED Hearing: 10 November 2004
[2004] NZHC 1231
•10 November 2004
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2004-485-1603
BETWEEN SCHELDE MARINEBOUW BV
Plaintiff
AND
THE ATTORNEY-GENERAL
First Defendant
AND
TENIX DEFENCE PROPRIETARY LIMITED
Second Defendant
Hearing:
10 November 2004
Appearances: G D S Taylor for Plaintiff
H S Hancock and R E Schmidt for First Defendant P R Jagose and P R McRae for Second Defendant
Judgment: 24 November 2004
In accordance with r 540(4) I direct the Registrar to endorse this judgment with the delivery time of 2.30pm on the 24th day of November 2004.
RESERVED JUDGMENT OF GENDALL J
[1] The plaintiff (“Schelde”) is a military ship building company based in the Netherlands. It has sued the Attorney-General and an Australian ship building company (“Tenix”) over the outcome of a tender for the supply of naval vessels to the New Zealand Navy.
[2] The primary cause of action seeks judicial review, alleging the Ministry of Defence failed to act even-handedly, made a reviewable mistake of fact, breached the legitimate expectation on the part of the plaintiff, and is estopped from entering into a contract with Tenix. Apart from seeking damages, the plaintiff also seeks a
SCHELDE MARINEBOUW BV V THE ATTORNEY-GENERAL And Anor HC WN CIV-2004-485-1603 [24
November 2004]
declaration that the contract entered into between the Attorney-General and Tenix, arising out of the tender process, was invalid. Furthermore, certain declarations, and orders that the Attorney-General recommence a new tender, or enter into contracts with certain of the other tenderers, are sought.
[3] The second and third causes of action pleaded seek damages in tort for breach of a duty to take reasonable care, and breach of the Fair Trading Act 1986.
[4] The matter before me is an application by the Attorney-General to strike out the second amended statement of claim or alternatively, that Schelde file security for costs. Tenix was joined in the proceedings by the plaintiff because it is said their rights are affected. It contends it should not be joined in the proceedings and supports the application to strike out.
Background
[5] In 2001 the Ministry of Defence was directed by Cabinet to review New Zealand’s Naval Service Fleet. Following this review it was decided that certain defence vessels be acquired. A tender process called “Project Protector” was initiated to the six short-listed companies within the ship building industry through an Invitation to Register (“ITR”). The largest vessel in the project was described as a Multi-Roll Vessel (“the MRV”) with a cost said not to exceed US$100 million. In May 2003, the Ministry issued to the six companies (including a consortium which included Schelde) a request for proposals (“the RFP”), to which Schelde and Tenix responded. It is pleaded that earlier, in about September 2002, after the closing date for proposals of interest to be submitted in response to the invitation to register an interest, a senior employee of Tenix told the agent for one of the other groups responding to the invitation to tender, that:
“(a)Tenix had submitted a Roll-on Roll-off type design because Tenix ‘had been informed by the Ministry that this is what the Ministry wanted’, and
(b)The Ministry had also indicated to Tenix they wanted something ‘nearer to NZ$100 million’ rather than the US$100 million stated in cl 1.6.1.a of the RFP.”
[6] It is pleaded that such information was not advised by the Ministry to Schelde. It pleads that in October 2003 it submitted a tender which complied with the RPF. It further pleads that Tenix submitted a proposal which provided for an MRV that had only a roll-on roll-off facility for ship to shore transfer, said to be a feature which did not comply with critical clauses of the Functions and Performance Statement (“FPS”) which the Ministry had supplied to all tenderers, and that the Tenix design did not meet the “specifications” and concept of operations of the “FPR” [sic FPS] and statement of requirements (“SOR”). It is pleaded that the FPS did not provide for a roll-on roll-off design as submitted by Tenix.
[7] The pleadings allege that in April 2004 the Minister of Defence advised Cabinet that Tenix had been identified as the preferred provider, the vessel proposed by it was to be preferred for various reasons and its proposal overall was better than others. Tenix as the preferred provider was required to give further information in relation to its bid. Negotiations between the Ministry and Tenix proceeded over a short time and Cabinet, through the Cabinet Policy Committee, approved a contract being entered into with Tenix, which occurred on 29 July 2004.
Causes of action – judicial review
[8] The plaintiff pleads that all matters leading up to the conclusion of the tender process and the Ministry’s entering into the contract with Tenix are subject to judicial review whether at common law, or under the Judicature Amendment Act 1972. It pleads that the Ministry had an obligation to deal with all those in the tender process “even-handedly” and that it breached that obligation by advising Tenix, but not the plaintiff, of the lower monetary cap and that a particular roll-on roll-off design was sought. It is further pleaded that the decision to enter into the contract with Tenix arose out of a mistake of fact because the MRV proposed by Tenix did not safely load and unload cargo in particular sea states as mandated, or required, by the FPR.
[9] Thirdly, the plaintiff pleads that it had a legitimate expectation that the tender “process would be conducted in accordance with the Attorney-General’s administrative law obligations”. It says that there was a legitimate expectation on
the part of the plaintiff that if the Ministry had availed itself of any of the specific provisions in the RFP which gave to the Crown certain contractual rights then it would not do so in a way as to make a significant difference to the requirements of the Ministry without advising all the tenderers.
[10]These contractual rights reserved to the Crown were:
“4. Rights, reservations and liability of Crown
4.1Crown reservations
4.1.1The evaluation of the Proposals and the selection of any Respondent is at the sole discretion of the Crown. The Crown reserves the right and will have, at all times, the right to:
4.1.1.aterminate the Project without assigning a reason;
4.1.1.bterminate the participation by any Respondent in the Project at any time without assigning a reason;
4.1.1.crun the Project and the processes in relation to the Project as it sees fit;
4.1.1.dreject or not consider further any Proposal it may receive from Respondents of other correspondents;
4.1.1.ereject or not consider any further Proposal if that Proposal is not submitted in strict compliance with this RFP;
4.1.1.freject or not consider any further Proposal if any of the Crown’s security clearances are not granted to, or are revoked in respect of, the Respondent or any of its subcontractors or representatives;
4.1.1.gliaise or treat with any company or Respondent at any time without necessarily liasing or treating with any other company or Respondent;
4.1.1.haccept or decline late Proposals at its discretion;
4.1.1.jextend the closing time; and
4.1.1.kamend or develop the Draft Contract.”
[11] It is pleaded that the Ministry breached the “legitimate expectation” of the plaintiff by telling Tenix something relevant to the invitation to tender which it did not tell others, and by entering into the contract in respect of the MRV which failed to comply with the “FPR” [sic FPS] in significant respects. The plaintiff pleads that by issuing the RFP, FPS and SOR, unless notice was given otherwise to all
tenderers, the Ministry breached a legitimate expectation. It pleads that as a result of the breach, the plaintiff suffered the loss of $5 million being a cost of preparing its response in tendering, as well as the chance to make a profit in supplying the Project Protective Fleet, or the MRV, to the navy. Damages of $5 million and a further $50 million assessed on the basis of the chance of being the successful tenderer, is sought.
[12] A second cause of action in negligence is pleaded, essentially that there was a duty on the Ministry, which it breached, to act “even-handedly”.
[13] The third cause of action pleads that the Ministry was acting in trade in terms of the Fair Trading Act 1986 and that its actions were deceptive and/or misleading in contrary to s9 Fair Trading Act 1986 and damages in similar amounts are claimed.
Strike out applications
[14] Both the Attorney-General and Tenix contend that the plaintiff’s pleaded claim could not possibly succeed, discloses no cause of action, is incapable of satisfactory amendment, and an abuse of the process of the Court.
Applicable principles
[15] Counsel accept the well-known principles relating to strike out applications. It is a jurisdiction to be exercised sparingly, and actions may only be struck out at an early stage such as this if they are so clearly untenable as they cannot possibly succeed; Attorney-General v Prince and Gardner [1998] 1 NZLR 262 (CA); R Lucas & Son (Nelson Mail) Ltd v O’Brien [1978] 2 NZLR 289 (CA); Takaro Properties Ltd (in receivership) v Rowling [1978] 2 NZLR 314 (CA). Strike out applications must proceed on the assumption that facts pleaded are true even though they may not be admitted. Indeed in this case no statement of defence has yet been filed. But if allegations are speculative and without any possible foundation they need not necessarily be accepted by the Court as assumed to be true simply because they are pleaded. Counsel for the Attorney-General submitted that strike out is still available at an early stage if it be inevitable that, despite reviewable
error being later established, any remedy would be refused in the discretion of the Court. I am inclined to the view that such matters of ultimate discretion, would rarely be exercised at the strike out stage. I think that would be a matter for the presiding Judge to decide whether or not to exercise his or her discretion, assuming grounds were established.
Justiciability – Defence of Realm
[16] Counsel for the Attorney-General submitted on an initial basis that the matter was not justiciable, because the Ministry was seeking to obtain naval vessels and judicial review is not available based where the subject matter of the decision related to “defence of the realm”. Counsel relied upon the decision in Curtis v Minister of Defence [2002] 2 NZLR 744 (CA) where challenge was made to a decision to disband the air combat force of the Royal New Zealand Air Force on the basis that the Minister of Defence had exceeded his powers. The judicial review proceedings were struck out, as the level of armament was a matter of policy for the Government being a political, and not legal, issue. Counsel relied upon the remarks of Tipping J in delivering the judgment of the Court of Appeal where he said at [23]:
“…decisions of the Executive government, here the Minister of Defence under s 7 of the Act, concerning the manner in which and the extent to which the armed forces are to be equipped, deployed and controlled, are not matters into which the Courts will generally go.”
[17] To the contrary, Mr Taylor, on behalf of the plaintiff, submitted that the challenge was not to a policy decision of the Ministry or Cabinet, deciding what ships, or types or numbers of ships the Government was to acquire; but rather the challenge was made to “the process by which that decision was reached”. Counsel submits that capabilities required of the MVA, and what was decided upon, were so far from that required as to represent mistake of fact. Mr Taylor submitted that there are many instances where defence of the realm issues have been the subject of judicial review, such as pension entitlements of the Defence Force, compensation for injury while on active service, and military disciplinary decisions. Whilst those can quite easily be distinguished from decisions relating to the type, size and construction of defence equipment, Mr Taylor however, relied upon a decision of C O Williams Construction Ltd v Blackman [1995] 1 WLR 102 (PC) which
suggests that distinctions between prerogative and statutory sources of power are no longer relevant in the judicial review field.
[18] If the subject-matter of the contract happens to be items related to defence it would not follow that the terms of such a contract with the Government could not be enforced. Nor that a “tender process” contract could not exist. In this case the plaintiff specifically disavows any claim under a process contract.
[19] I do not consider that the decision made, or the process involved, alters because of the nature of the subject matter, so as to make the decision one of “policy” necessarily free from scrutiny by way of judicial review on that ground. There may be some political aspect underlying the decision to grant a contract such as this, but the successful tenderer obtains its rights through a contractual process, just as the unsuccessful or disappointed tenderers have process contract rights.
[20] I am inclined to accept Mr Taylor’s contention. In my view, the process in this case does not come within the “defence of the realm” exception. To have a certain naval fleet may be a policy question, but with whom (and how) the Ministry might contract for the provision of such vessels is different. The point is certainly arguable and accordingly not so clear cut in the Ministry’s favour that striking out on this basis is justified.
Justiciability – Judicial Review arising out of the Tender Process?
[21] Mr Taylor submitted that the process by which the contract was let to Tenix is subject to judicial review under established principles. He says that the well known case of Mercury Energy Ltd v Electricity Corporation of New Zealand Ltd [1994] 2 NZLR 385 (PC) supports this view. The Privy Council there observed that a state-owned enterprise was a public body, and that its decisions may adversely affect the rights and liabilities of private individuals, such that, in principle, its decisions are subject to judicial review as well as the common law. Counsel referred to a number of decisions where judicial review of the tender process was allowed, such as Gregory v Rangitikei District Council [1995] 2 NZLR 208 and 3Rs
Recycling v Wairoa District Council (HC, Gisborne, CP2/02, 30 April 2002, Randerson J).
[22] The difficulty with the plaintiff’s case as pleaded is that the claim arises out of what essentially was a process contract, under which a request for tenders gives rise to process contracts imposing procedural obligations on the party calling for tenders. Those contracts may include an implied term to act fairly or to follow certain procedures; see Transit New Zealand v Pratt Contractors Ltd [2002] 2 NZLR 313 (CA).
[23] Where a process tender such as this exists the usual avenue for remedy, by someone who is aggrieved, lies in contract. Yet contractual remedies are not often designed to deal with concepts of unfairness, unreasonableness or natural justice, which may have an affect upon the substantive rights. In Transit New Zealand v Pratt Contractors Ltd (supra) the Court of Appeal said this at [98]:
“There is also danger in judicial scrutiny of judgments made in this area [contract] if the Court applies standards akin to those required in judicial review proceedings involving exercise of statutory powers. This concern was recognised by Finn J in Hughes Aircraft Systems International v Air Services Australia [[1997] 146 ALR 1; 76 FCR 151 (FCA)] (at p 42). Goddard J in this case found against Transit because of her finding of apparent bias of members of the first evaluation team, which is of course on the basis of a judicial review concept. We do not consider there is a contractual obligation on Transit to avoid conducting its evaluation in a way which would leave a statutory officer open to judicial review for apparent bias. It is only such conduct as demonstrates there was actual unfair dealing in the application of its contractual obligations which can amount to a breach of contract. Because of the public law perspective with which Goddard J approached these issues, it is not clear whether the findings go that far.”
[24] Andrew Beck in “Contract” [2003] New Zealand Law Rev 121 suggests that there may be a parting of the ways between contractual and public law remedies arising out of this decision. He said:
“There is, in effect, a distinction to be drawn between ‘process’ and a ‘process contract’. If a party wishes to rely on a breach of contract, it must follow the rules of contract law and will be limited to contractual remedies. If it wishes to litigate on a broader spectrum to challenge a decision-making process, it is free to embark on a judicial review.”
That is what the plaintiff has chosen to do here. But freedom to embark on judicial review proceedings does not necessarily mean that a remedy in that public law arena is available. It will surely depend upon the nature of the right and the manner by which it is breached through the decision-making process.
[25] Mr Taylor contended that since Mercury Energy Ltd v Electricity Corporation of New Zealand (supra) the approach has been directed away from a categorisation of approach towards broad inclusion of actions as being subject to judicial review where they are a decision made by a person or body empowered by Parliament or the governing law to reach that decision in the public interest. That approach is exemplified in Wilson v White (CA213/03, 20 August 2004) at [21]:
“The principle is that the Courts, in considering the amenability of administrative action to judicial review, are less concerned with the source of the power exercised by decision-makers (and in particular whether or not it was statutory) and now more ready than in the past to treat as reviewable the exercise of any power having public consequences…In all such cases the power must be exercised on public law principles.”
However, the power being exercised in the present instance, whilst public in one sense as it involves the expenditure of public monies for the provision of naval vessels, it is still circumscribed by the process tender and that of contract, with the process having only private consequences as between Ministry and the tenderer, the processes “private” between the contracting parties. The ultimate decision has public consequences, but that is not the issue given Mr Taylor’s submission that the plaintiff is not challenging the policy or the decision but simply the “process” by which the decision was reached.
[26] If a decision by Cabinet had simply been to allocate a contract or privilege to a party to provide defence equipment, without there being any pre-existing contractual tender process, then such a policy decision would hardly be justiciable. The difficulty for the plaintiff lies in the fact that the process by which Cabinet came eventually to make the decision to allocate the contract to Tenix arose itself out of contract. It is hard to see how the plaintiff can claim to have some rights which would avail it of judicial review remedy other than those arising out of the contract, except in the exceptional circumstances of the tort of conspiracy; fraud; or bribery;
or the tort of misfeasance in a public office where there is abuse of office leading to injury or loss to another.
[27] In this case the plaintiff’s relief is sought under Part 7 of the High Court Rules, being the review of an exercise of power which is in substance public and having important consequences. But the decision to award the contract to Tenix is, in my view, a commercial decision, and in the absence of those factors which I have just mentioned cannot be successfully challenged by judicial review. As was said by Lord Templeman in Mercury Energy Ltd v Electricity Corporation of New Zealand Ltd (supra) at 391:
“It does not seem likely that a decision by a state-owned enterprise to enter into or determine a commercial contract to supply goods or services will ever be the subject of judicial review in the absence of fraud, corruption or bad faith.”
[28] Gallen J’s remarks in Reckitt & Coleman (New Zealand) Ltd v Pharmaceutical Management Agency Ltd [1997] NZAR 464 at 475 do not detract from that principle. He there said:
“The decision itself, and the weight given to the factors which lead up to the decision, are matters for the decision-making authority not the Courts, but the decision remains in appropriate cases, open to consideration for irrationality in a Wednesbury sense and it, and in the process of leading up to it, may well be reviewable for fraud, corruption or bad faith.”
In this case there is no allegation of fraud, corruption or bad faith, it is simply a challenge to the decision-making process.
[29] I respectfully concur with the remarks of Eichelbaum CJ in Southern Community Laboratories Ltd and Anor v Healthcare Otago Ltd and Anor (HC, Dunedin, CP30/96, 19 December 1996, Eichelbaum CJ) which concerned a decision of a Crown Health Enterprise declining to accept a proposal in respect of pathology services. The claim was that the decision was in breach of statutory obligations and an unlawful exercise of the defendants’ powers. The Chief Justice said, at p16:
“…virtually every administrative decision made by or on behalf of a CHE must have at least the potential to impact directly or indirectly on the quality of health care services. That alone cannot be sufficient to attract the
availability of public law remedies….It would be easier enough to say that such a conclusion should await a full hearing…It cannot be said,…that the importance or significance of the decision took it out of the realm of the purely commercial, and into that of a reviewable quasi Governmental administrative decision….It relates to the CHE’s trading function….The decision is and remains, essentially, a commercial one. Lord Templeman’s dictum is directly in point….The more I study the statement of claim the clearer it has become that it is an attempt to incorporate administrative law concepts into a commercial decision-making process. It seems as a contention that the processes used by the first defendant were flawed and led to a particular choice of supplier when another would have been better. I can conclude that the issues raised are not justiciable and that the statement of claim should be struck out.”
[30] A similar theme is sounded in New Zealand Private Hospitals Association- Auckland Branch (Inc) & Ors v Northern Regional Health Authority (HC, Auckland, CP440/94, 7 December 1994, Blanchard J) where the Court was asked to restrain a defendant from proceeding further with the process of letting tenders for hospital care services. One of the causes of action related to an allegation of “unfairness” to providers in the valuation process used to assess tenders. The issue was whether there was the exercise of a power conferred by statute. Blanchard J said at p42-43:
“Here the statute has conferred upon Regional Health Authorities the function of making purchase agreements for health services and disability services. To carry out this function it will be necessary for Regional Health Authorities to enter into many such contracts and, similarly, to make decisions about terminating or changing contractual relationships. It would be quite intolerable if, in addition to rules of contract law and other principles of general law (including equity), a statutory body of this type, which is after all exercising a trading function, should also be subject to judicial review, including particularly an obligation to observe the principles of natural justice.”
[31] The decision of the England Court of Appeal in Mass Energy Ltd v Birmingham City Council [1994] Env LR 298 (UKCA) bears some distinct similarities. It was concerned with a challenge to the granting of a waste disposal contract, after a tender process, by the Birmingham City Council to a competitor of the appellant. The Council’s power or functions were derived from statute, the Environmental Protection Act 1990 which entitled the Council to invite tenders for any such contract and “to accept or refuse any tender for such a contract and accordingly to enter or not to enter into a contract”. The Council was bound to publish particulars to possible tenderers of the specification of the contract work. It
was argued by the appellant that the successful party’s initial tender did not comply with a specification and that a later or eventual proposal was not made until after date of submission for tenders not forming part of the tender process. It followed, so it was argued, that the contract was not as a consequence of following the proper tender procedure. In the Court of Appeal Glidewell LJ said at 306:
“first of all, is this a proper matter for judicial review at all?….
On its face, this is really a commercial dispute between a successful and an unsuccessful tenderer; a situation which is not, of course, at all uncommon. If there were no statutory requirement that the city council should enter into a contract for its waste disposal operations, and particularly the construction of the incinerator to be the subject of a contract entered into by tender, but if the Council had sought voluntarily to enter into a contract by tender deciding to adopt that process of its own volition, then in my view there would be no public law element in such a dispute at all. Mass Energy could then only hope to bring an action against the council on some contractual basis, for instance, if they could persuade a Court that there was some sort of implied term which entitled them to recover the wasted cost of tendering.”
And Scott LJ said, at 313 and 314:
“The application before us is for judicial review. It seeks a review of whether the Council has complied with its obligations under public law. But any process of contracting, any process of tendering by a waste disposal authority or by any private citizen or company, is apt to produce private rights. It is, I conceive, possible that the terms of an invitation to tender issued by a waste disposal authority may vest in the invitees who accept the invitation private rights of a contractual character. An individual who invites tenders may, by the terms of his tender, bind himself to those who accept the invitation not to entertain tenders made after a specified date, or not to permit any substantial alteration in tenders after that date, or to accept the tender containing the highest price, and so on.
The submission of a tender may constitute a contract between the tenderer and the invitor whereunder the invitor becomes contractually bound to observe the terms of the invitation to tender. A breach by the invitor of those terms may entitle a disappointed tenderer to some contractual remedy for breach of contract, whether damages or injunction, as the case may be.
….the aggrieved tenderer’s remedy lies in my opinion in private law not in judicial review. Judicial review should be confined to dealing with breaches by…authorities of their public law obligations.”
[32] In dealing with an argument of “legitimate expectation”, Evans LJ said this at 318-319:
“The Plaintiffs raised an alternative argument, which was to this effect: they were entitled to have and did have a legitimate expectation that the council would deal fairly as between tenderers in the course of this statutory process.
….
The Plaintiffs say that they were willing to renegotiate their price, or more specifically what is called the ‘profile of payments’….The council, however, was unwilling to do so and the Plaintiffs say that that was ‘unfair’.
I would agree that there was an element of unfairness in it…but the question is whether [the council] were bound to do so, I would add whether they were bound by statute to do so.
Consistently with my view of the effect of the Act, the council was entitled to deal with the tenderers on a commercial basis, subject only to the statutory restrictions as outlined. In commerce, life is not always fair,….
The council was entitled to act as a commercial animal at this stage when it was considering the tenders they had received. I find it impossible to say more than that the council were bound to act commercially. That, unfortunately, does not guarantee complete fairness and maybe the Plaintiffs did not receive it, but that is not a ground, in my view, for complaint under the Act.
Private law rights, of course, are different. It may be that what I have just said is another way of saying that, provided that the statutory requirements are complied with, this is not a case for judicial review.”
[33] In the present case, what the plaintiff did was to enter into a contractual relationship with the Ministry. Its rights and its remedies are contained in the contract, which specifically provides that the Ministry may act in the way it did (assuming accuracy of the pleadings). The plaintiff cannot seek to achieve by way of judicial review that which it cannot obtain by contract, where what it contends for is specifically excluded. Judicial review, whilst theoretically available, namely, where gross abuse of power exists, is untenable on the pleaded allegations. The plaintiff agreed that there could be uneven-handed treatment of various tenderers and could have no legitimate expectation otherwise. It also contends that there was mistake of fact in the type of MRV that the Ministry eventually contracted to be supplied. But the contractual terms specifically envisage that that possibility might arise. Challenges as to mistake of fact in compliance with the FPR relate to challenges to interpretation or application of the contractual documents. Unreasonableness, in the Wednesbury sense, is not pleaded. Its pleading of estoppel is based upon what it says are representations in the contractual documents. But equally, there are provisions which exclude there being any challenge.
[34] I am satisfied that the Attorney-General is correct in the submission that any rights the plaintiff had in the pleaded circumstances arose as contractual rights under the private law, and are not public law matters capable of judicial review. The plaintiff’s case, if it had a case, was in contract, but it has disavowed any such claim. Whilst I heard extensive and lengthy argument on the question of availability of prerogative remedies and mandamus I mean no disservice to the careful argument of all counsel by not dealing with that. The position in respect of the first cause of action in my view is clear – namely, that judicial review on the allegation as pleaded in the first cause of action, is clearly untenable and bound to fail.
Second cause of action
[35] This pleads the tort of negligence and alleges a failure to take reasonable care to ensure that the Ministry’s actions were even-handed, and that the Ministry chose a contract that complied with the tender’s original specifications. I am satisfied this cause of action should also be struck out. The duty as between the parties arises out of their contract. The duty between the parties to take care can be either express, or implied out of their contract. The imposition of a duty of care by enquiring into the degree of “proximity” or relationship between the parties, and whether wider policy considerations restrict or strengthen the existence of the duty, are matters which were discussed at length in submissions. But here the contract is such that a duty cannot be said to arise from it or be properly implied into it. Nor in my view can it be imposed separately in those circumstances. I accept the position is accurately stated by O’Regan J in Onyx v Auckland City Council (HC, Auckland, CP387-SD01, 2 September 2003) where His Honour was dealing with whether there was sufficient proximity between parties to pre-contractual tender negotiations to give rise to a duty of care. In accepting the defendant’s contention, O’Regan J said that:
“[53] Even if there is sufficient proximity in this case, policy reasons militate against the finding of a duty….By analogy it can be argued it would be a form of insurance for failed tenderers in the present situation.
[54] Onyx has argued for an alternative remedy based on contract, but failed, so while I accept there is no alternative remedies, I believe there are policy reasons against imposing a duty of care in circumstances where the
parties could have adopted a contractual framework for their relationship, but expressly chose not to do so.”
and:
“[60] There are strong policy reasons for declining to impose a duty of care where the relationship between parties is clearly documented, and where that documentation specifically rules out any legal or other obligations arising between the tenderer and the Council in relation to the tender process.”
[36] Such an approach has been endorsed by the Privy Council in New Zealand Meat Board and Anor v Paramount Export Ltd (in liquidation) and Anor [2004] UKPC 45 at 49:
“If the Meat Board’s allocations had been so unfair as to be unreasonable, they would no doubt have been open to judicial review. But their Lordships do not consider that there was a parallel private law liability in tort.”
[37] The RFP document in para 4.5 makes it quite clear that no duty of care arises in the particular relationship. It provides in para 45:
“The Crown will not be liable (whether in contract, tort or otherwise) for any direct or indirect costs, expenses or losses incurred or sustained at any time by any Respondent or any other person (directly or indirectly) under or in connection with this RFP, including:
· The preparation of any Proposal; or
· The selection or non-selection of any Respondent; or
· The termination of any Recipient’s participation in the Project; or
· The cancellation of the Project; or
· Any breach of confidentiality by the Respondent, its representatives or agents.”
[38] The contract could not be clearer that the parties exclude the existence of any duty in tort. I do not consider that it is tenable in the circumstances of this case to allege that by reason of proximity which only arose out of contract, a separate duty of care in tort existed. The pleading is simply an attempt to avoid the terms of the contract.
[39]This cause of action should be struck out.
Third cause of action under Fair Trading Act 1986
[40] The plaintiff pleads that the Ministry of Defence was acting “in trade” and pleads that its actions were deceptive and/or misleading contrary to s9 Fair Trading Act 1986 in that the Ministry failed to act even-handedly, made a mistake of fact in accepting the Tenix design and made representations in issuing the tender documents and requirements upon which the plaintiff relied.
[41] Mr Taylor relied upon the decision in Gregory v Rangitikei District Council [1995] 2 NZLR 208 where, in a tender context, McGechan J held that conduct of a council in keeping secret negotiations for sale of a property by private treaty, rather than informing the tenderers that the council had changed its intentions, was misleading or deceptive conduct for the purpose of s9 Fair Trading Act 1986.
[42] Counsel for the Attorney-General contended that the Ministry was not “in trade” and relied upon the approach adopted by the Court of Appeal in Glaxo New Zealand Ltd v Attorney-General [1991] 3 NZLR 129 relating to the Minister’s regulatory functions under the Social Security Act not being an “activity of commerce”. Counsel submitted the same approach applied here, and that the Ministry’s decision to let a contract for naval vessels was not part of ongoing business of the Ministry of Defence, its function not being the supply or acquisition of naval vessels. Counsel submitted that, in reality, what occurred was no more than being involved in a contractual tender process to acquire items for the use of the Ministry. To the contrary, Mr Taylor submitted the enquiry had to be not as to the general operation of the Ministry but to the particular action or refusal to act which was said to be in breach of the Fair Trading Act 1986. He argued that the question was whether the tender process was “in trade”. Regular purchase by the Crown of items of equipment, often by tender, is the engaging in conduct in the nature of an activity of commerce or undertaking relating to the acquisition of goods.
[43] I do not have to decide which of these competing views is to be preferred because I am satisfied on the pleadings this cause of action under the Fair Trading Act 1986 cannot stand. Principles, as they relate to s9, involve the establishment or proof of conduct which must contain a misrepresentation. An actual intention to
mislead is not necessary but causation must be established; that is, there must be a nexus between the conduct alleged and loss or damage alleged Gregory v Rangitikei District Council (supra) concerned the invitation by a council for offers by tender for a property. The plaintiff submitted a tender and was the highest bidder but no tenders reached the reserve. Although the plaintiff sought to negotiate further with the council, the latter concealed the fact that it was engaging in negotiations with a rival bidder. The plaintiff succeeded because the Court found that having created a clear public impression that it would sell, if at all, by tender, it was misleading and deceptive for the council to proceed to sell by private treaty without disclosure to other tenderers. But that case is quite different to the present. Here, the advice to all tenderers was clearly set out in the process contract and there could be no misunderstanding about its terms.
[44] As pleaded, the alleged deceptive or misleading conduct relates to matters which are covered by that contract; i.e. envisaged as possible events as contained in the contractual terms. Further, as pleaded, the hearsay gossip alleged to have occurred in September 2002, assuming it to be correct, put the plaintiff on notice. It enabled the plaintiff if it wished, to make enquiries of the Ministry and to tailor its tender proposal accordingly, given that this occurred prior to tenders being submitted. Causation could not be established on the pleadings, namely that loss or damage followed upon the conduct in September 2002 advising (assuming it to be correct) Tenix that the requirements of the Ministry might be different. The short point is that, as pleaded, the plaintiff knew that this was to be the case before it submitted its tender. The claim under the Fair Trading Act cause of action could not possibly succeed and I regard it as a make weight claim designed to avoid having to rely upon the contractual terms but which in fact have to be relied on (see for example para [57] of the second amended statement of claim) whether or not the Ministry was “in trade”. This cause of action cannot succeed and should be struck out.
Conclusion
[45] I am satisfied the strike out application should succeed in respect of each cause of action. The process and the decision to grant the contract to Tenix was
commercial and the relationship between Schelde and the Ministry as well as between Tenix and the Ministry was governed by contract. It makes little difference whether the Court would decline judicial review of the process on the grounds of “non-justiciability” of the exercise of a power or because the power itself is simply the entering into the tender contractual process. The point is that the process is not susceptible of assessment in terms of its legality other than by reference to the terms of the process contract which reserves to the Crown certain rights in which those who have participated and knew. Any remedy that might have been available to Schelde had to be found in the private law of contract, and not judicial review. The causes of action pleaded in tort and under the Fair Trading Act 1986 likewise cannot succeed as the pleadings stand.
[46] The defendants ought not be subjected to the litigation process involving what would be long delay, great expense (security of costs in the sum of $100,000 was mooted) and the Court’s processes should not be used in the pursuit of what is, as pleaded, in my view a hopeless case. It is better that the pleadings be struck out now, they being so untenable that they cannot succeed.
[47] The application by the Attorney-General to strike out the plaintiff’s second amended statement of claim is granted. All three causes of action are struck out.
[48] I am grateful to counsel for the thoroughness of submissions, perhaps illustrated by the fact that they referred me to a total of 52 decided cases and texts.
[49] Both defendants are entitled to costs and disbursements which I fix in respect of each on a Category 2B basis.
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J W Gendall J
Solicitors:
Stephens Lawyers, Solicitors, DX SP23531, Wellington for Plaintiff (Counsel acting: Mr G D S Taylor, Barrister, Wellington for Plaintiff) Crown Law Office, Wellington for First Defendant
Chapman Tripp, Barristers and Solicitors, DX SP20204, Wellington for Second Defendant
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