Australia: Government success in tender proceedings overturned on appeal

Last Updated: 8 August 2016
Article by Scott Alden and Jarrad McCarthy

Secure Parking Pty Ltd v Woollahra Municipal Council [2016] NSWCA 154:

Last year Woollahra Council successfully brought a claim against Secure Parking in relation to Secure's refusal to proceed with a Tender for car park management of four of its car parks.1

Facts

The Request for Tender (RFT) was issued by Council in November 2010. Secure Parking Pty Ltd (Secure) lodged its tender and was notified on 15 March 2011 that the Council had accepted their tender. It was the Council's position that on 15 March 2011 it had made a binding contract with Secure for the management of the car parks and Secure disputed this. Having terminated the month-to-month arrangements that the parties were operating under since 2009, the Council gave notice on 9 March 2012 that it proposed to terminate the contract for repudiation unless Secure acknowledged the existence of that contract and commenced to perform its obligations under it. Secure refused to do this and the Council terminated the contract with immediate effect. The Council then brought proceedings seeking a declaration as to the existence of that contract and claiming damages. The Council also alleged that Secure had engaged in misleading and deceptive conduct before and during the tender process by representing, contrary to its true intentions, that it would enter into the contract if its tender was accepted.

Primary Decision

At first instance the primary judge upheld the Council's claim that a contract was made on 15 March 2011. His Honour held that the contract was on the terms of the draft management agreement, which formed part of the Invitation for Tender, as varied in relation to the Initial Bank Guarantee Amount for each car park. It was held that Secure's refusal to accept the existence of a contract allowed the Council to terminate that contract for repudiation and damages were awarded in the amount of $5,462,421. The primary judge rejected Secure's claim that the Council had engaged in misleading and deceptive conduct by not disclosing the details of a redevelopment to the car park as there could be no reasonable expectation of disclosure.

Appeal:

Binding contract on 15 March 2011?

The Council contended that following the tender process the parties were content to be bound immediately and exclusively by the terms on which they had agreed, whilst at the same time expecting to make a further contract in substitution, containing additional terms by consent. This is a class of binding heads of agreement which has been recognised by the Courts.2

Upon issuing a tender the Council provided prospective contractors with a draft management agreement, having a "DRAFT" water-mark on each page. The senior executives of Secure believed that because the version was marked "DRAFT", it was not in final form and, accordingly, Secure would be able to negotiate its terms if it was the successful tenderer. Clause 7 of the draft agreement required the successful tenderer to provide bank guarantees to the value of $155,000. After Secure submitted its tender the Council increased this amount to $577,500. To reflect the increase the Council sought to vary the draft agreement. The amendments to the agreement were set out in a letter from the Council's solicitors, however, whether the parties did actually agree to vary Secure's offer to increase the amounts of the bank guarantees was an issue of appeal.

In the opinion of the primary judge, the parties did agree to a variation of the terms of Secure's tender. This decision was reached following an analysis of the correspondence between the parties which demonstrated that the initial one month bank guarantee would be replaced by a two month performance bond. On appeal it was argued that the primary judge erred as his decision was based on an implied impression rather than an express acceptance or agreement with the new terms and conditions. Secure also argued that the primary judge erroneously proceeded on the basis of silence (ie. inaction) as constituting acceptance, which it cannot.

On appeal, the Court agreed with Secure's assertion that a reasonable bystander would not have regarded the conduct of the offeree, including this silence, as signalling acceptance. The mere exchange of emails indicating the possibility that the bank guarantee would be replaced by a performance bond was considered as a counter-offer, rather than an acceptance of a variation to the contract. It was not reasonable to proceed on the assumption that there was agreement to an increase in the bank guarantee as the terms of the tender purportedly accepted by the Council did not correspond with the terms offered by Secure.

Further, the parties accepted that it was necessary that they reach consensus as to the date on which Secure's management should commence. The terms of the draft management agreement confirm that the commencement date was to be a calendar date, rather than an event occurring on an unknown or uncertain date. It was also agreed between the parties that management of the carpark should not commence until the installation of car parking equipment had occurred. This ground of appeal was accepted as it was held that the primary judge had erred in concluding that a commencement date could be inferred from negotiations. The absence of any consensus between the parties as to a certain, fixed date for commencement was further reason to conclude that there was no binding contract for the management of the car parks between the parties.

The Court also rejected the argument that the parties intended to be bound immediately with the expectation that a further contract would be made. A conclusion that the amended agreement reflected the final terms of the contract was incorrect as the document included substantive changes which had not been agreed to by Secure. Neither the draft management contract nor the amended management contract could be regarded as forming part of the Council's acceptance of Secure's tender offer. Accordingly it was held that the parties had not satisfied the necessary 'offer and acceptance' requirements of a binding contract.

Council's entitlement to terminate

Secure submitted that the Council was not entitled to terminate the contract made on 15 March 2011 because the Council was not ready and willing to perform the contract. A party seeking to terminate an agreement on the basis of renunciation by the counter-party must establish that, up to that time, it was ready and willing to proceed with the contract and to perform the agreement for its part.3 Secure contended that when Council sought to terminate the contract, it was insisting on performance of the amended management agreement which included further changes that had not yet been consented to. It was argued that the primary judge erred in finding that the Council's continued insistence that Secure execute the amended management agreement did indicate a readiness and willingness to enter the contract. The Court of Appeal accepted Secure's argument and held that the Council was not willing and ready to perform the contract it sought to terminate, but rather was ready and willing to perform a varied contract that had not yet been agreed.

Misleading and Deceptive Conduct

Secure's claim also included an allegation that the Council engaged in misleading or deceptive conduct by failing to disclose the proposed redevelopment of one of the car parks which would increase the number of available parking bays from 110 to 500. The primary judge rejected this argument as Secure could not have had a reasonable expectation that Council would disclose all information in relation to the competitive threats or economic viability of the car parks. The disclosure of information was not required as the Council had published a considerable amount of information about the redevelopment on its website and it could have reasonably expected that anyone interested in the information would have been able to locate it. The Court of Appeal confirmed the decision of the primary judge in finding that there could be no reasonable expectation that all information would be disclosed directly to tenderers by the Council's representatives. As such, the Council did not engage in any misleading or deceptive conduct.

On appeal, the Council also cross-claimed that Secure engaged in misleading or deceptive conduct by representing that, in the event that its tender was successful, it intended to enter into an agreement to manage car parks from 1 June 2011. It was alleged that by making this representation, Secure engaged in misleading or deceptive conduct because, contrary to its representation, Secure's senior executives believed that the terms of the agreement could be negotiated if Secure's tender was accepted. The Court of Appeal recognised that the absence of a capacity or intention to perform a contractual promise may potentially give rise to misleading or deceptive conduct.4 Despite this, the facts of the case demonstrated that the correct appreciation of the content of the obligations set out in the draft management agreement did not amount to a representation that the parties would be bound to any contract. As such, there was no merit in an argument that the senior executives of Secure had an alternate intention in relation to the management agreement and therefore did not engage in misleading or deceptive conduct.

Conclusions

This is an important decision in the developing law in relation to tenders and contract formation in Australia. It provides guidance on the extent to which an RFT needs to be complete in order for it to be enforced, as well as potential claims for misleading and deceptive conduct open to all parties to a tender process.

Footnotes

1 Woollahra Municipal Council v Secure Parking Pty Ltd [2015] NSWSC 257

2 See Sinclair, Scott & Co Ltd v Naughton (1929) 43 CLR 310, 317; G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, 634-635.

3 Foran v Wight (1989) 168 CLR 385.

4 HWT Valuers (Central QLD) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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Authors
Scott Alden
Jarrad McCarthy
 
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