Australia: Standared of Government Conduct depends on nature of Contract

Procurement Update
Last Updated: 7 February 2010
Article by Scott Alden and Alyson Eather

The Facts

The New South Wales Land and Housing Corporation (the Corporation), a statutory body associated with the NSW Department of Housing (the Department), entered into two largely identical contracts with Willowdene Constructions Pty Limited (Willowdene) and Transfield Services (Australia) Pty Limited (Transfield) for the provision of maintenance services on Department-owned properties (head contracts). Both Willowdene and Transfield entered into subcontracts with CPR Property Pty Ltd (CPR Property) (second applicant), a sole director company owned by the first applicant, Mr Robert Hine (Hine).

Clause 16 of the head contracts gave the Corporation the power to prohibit Transfield and Willowdene from using any subcontractor which it reasonably regarded as 'incompetent, negligent or otherwise unsuitable'. On 24 March 2004, the Corporation prohibited its contractors from using CPR Property as a subcontractor, relying on the clause. Both Willowdene and Transfield immediately ceased to use the services of the company.

The Corporation prohibited its contractors from engaging CPR Property due to allegations of an improper relationship between CPR Property and a Corporation employee, which resulted in an apparently excessive amount of work being given to it. Several investigations were conducted into this relationship. As a result of ICAC and internal investigations into the allegations of a conflict of interest, the Department terminated the employee's contract. The Department also subsequently withdrew the direction to Willowdene prohibiting it from using CPR Property as a subcontractor in March 2006.

The hearing was run on the basis that the conduct of the Corporation was treated as conduct of the Department.


The applicants claimed that, amongst other things, the Department had:

  • Contravened section 42 of the Fair Trading Act 1987 (NSW) ('[a] person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive').
  • Breached a duty of care it owed to the applicants and made a negligent misstatement to both Transfield and Willowdene.

The applicants contended that, by reason of the Corporation's conduct, they had suffered loss and damage for which the Corporation and the State of New South Wales should be held liable.

Misleading and Deceptive Conduct Claim

The applicants argued that the Department had breached section 42 of the Fair Trading Act 1987 (NSW) as the written direction to Willowdene and oral direction to Transfield from the principal's representative represented to each that he, as the Department's representative, reasonably regarded CPR Property as unsuitable to warrant it being prohibited from carrying out work on the Department's properties. The applicants submitted that, because a prohibition is inherently permanent, the directions conveyed a message that CPR Property was unsuitable so as to warrant permanent preclusion from working as a subcontractor for the Department. According to the applicants, this representation was not true because it did not reflect the actual state of mind of the principal's representative at the time the directions were given.

The Department submitted that clause 16 of the head contracts permitted the principal's representative to form the opinion in any way he liked, provided the opinion was 'subjectively (that is honestly) reasonable'. The Department submitted that 'reasonableness' must be informed by the objects of the Corporation, particularly as specified in sections 5 and 12 of the Housing Act. The purpose of clause 16 should be understood as vesting in the Corporation a wide discretion to exclude from the State's properties any subcontractor that the principal's representative honestly regarded as unsuitable.

The Court found that clause 16 was not satisfied merely by the principal's representative having a 'subjectively reasonable' belief in the unsuitability of the subcontractor, in that he or she only had to honestly hold that view. Rather, Justice Jagot explained:

  • '[a] person's view is not reasonable merely because it is honestly held. For example, an honest but capricious and arbitrary view is not a reasonable view. A person reasonably regards some matter to be so where the opinion or view is reached by a process of reason. The view must thus be rational having regard to the circumstances known to the person at the time'.

This was not a particularly high standard in that it didn't require any sort of investigation to occur, or a particular standard of proof to be reached.

In any event, the Court held that the principal's representative did regard CPR Property unsuitable to work as a subcontractor on the Department's properties. This was so despite the fact that the principal's representative, who issued the directions, did not carry out any independent investigations, but rather had based his opinion on what he had heard at the meetings he attended regarding the issue.

Justice Jagot concluded that the opinion of the principal's representative was reasonable in that it was reached by a rational process, namely, the Department was undertaking an investigation into the allegations of misconduct, and the Department had 'sufficient cogent information' indicating the existence of an improper association. This information was found to warrant the principal's representative prohibiting CPR Property from working on the Department's properties.

His Honour did not accept that the word 'prohibit' necessarily conveyed a representation that CPR Property was unsuitable so as to warrant permanent preclusion from working on Departmental properties. He also said that the direction did accurately convey the state of mind of the principal's representative, and that of the Director-General and on this basis it was determined that the directions were not misleading or deceptive.

Duty of Care Claim

The applicants also claimed that the respondents breached a duty of care owed to the applicants, namely, to exercise reasonable care and skill in determining whether the contractual conditions of clause 16 had been fulfilled. According to the applicants, this duty required that there be sufficient objective grounds to justify the Department's exercise of its contractual rights. The applicants said that part of this duty included the Department investigating the matter properly before giving a direction under clause 16, such proper investigation to include giving Mr Hine an opportunity to be heard (which he was not).

In rejecting this claim, the Court noted that this case did not fall within any established category in which liability for negligence has been imposed, noting 'the fact that the harm suffered by the applicants (loss of profits from the business of CPR Property) was a reasonably foreseeable consequence of the issue of the directions under clause 16 of the head contracts does not mean that the respondents are liable in the tort of negligence to the applicants'. Rather, the relationship between them was purely commercial.

The Court found that no duty of care existed between the Department and CPR Property. Even if it did, the standard of the duty was what the terms of clause 16 of the head contracts required, namely, that the principal 'reasonably regards that person or subcontractor as incompetent, negligent or otherwise unsuitable', and that was found to have existed.

In rejecting the argument that the Department owed the subcontractor a duty of care, the Court noted that the nature of the duty of care owed by the Department cannot be 'affected by any generalised notion that government agencies should somehow be better or fairer than private entities in their commercial dealings with third parties'. The Court also noted that the '[t]he Department's purpose in retaining the contractor is not to ensure the subcontractor gets work and can profitably run a business. It is to ensure the work gets done properly and for a reasonable price'.

In conclusion, the Court found that the Department was 'pursuing its legitimate interest in ensuring the integrity of its systems for work and that public money was not either being misappropriated or at risk of misappropriation'. The Court was not willing to accept that in these circumstances the Department should have acted with the interests of the applicants in mind and, accordingly, the Department did not owe a duty of care to the applicants.


This case is particularly relevant in the context of modern developments which suggest that governments and their agencies may be subject to a different standard of conduct to the private sector. In the case of Hughes Aircraft Systems International v Airservices Australia (1997) 146 ALR 1, the Court found that, whilst the government was not in a fiduciary relationship with a tenderer, an implied term of fair dealing existed under the tender documents, under which the government was obliged to act fairly with all tenderers. This was found to be the case particularly due to the fact that the contract involved the expenditure of public money and the public being entitled to expect that government agencies will act as 'moral exemplars'. In 2004 the NSW Attorney General's Department issued the Model Litigant Policy for Civil Litigation, which was approved for adoption by all NSW government agencies in July 2008. In essence, the policy articulates principles that are intended to express the law and that direct the government bodies to act in a fair, honest and ethical manner in relation to the conduct of litigation.

In light of such developments, Hine v NSW Land and Housing Corporation is particularly significant, as the Court refused to find a duty of care between the government agency and a subcontractor under the particular contractual arrangements. Had this not been the case, the Court's decision could have further restricted government decision- making over contracts. Instead, the Court indicated that it is legitimate for a government agency to make decisions having regard to its own commercial interests and the integrity of its processes involving the use of public funds, rather than the commercial interests of others.

(The authors would like to acknowledge the assistance of Alison Ewart, solicitor, in relation to this article.)

© DLA Phillips Fox

DLA Phillips Fox is one of the largest legal firms in Australasia and a member of DLA Piper Group, an alliance of independent legal practices. It is a separate and distinct legal entity. For more information visit

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.