South Waikato District Council v Roading and Asphalt Ltd

• Jurisdiction: New Zealand
• Judge: Heath J
• Judgment Date: 19 November 2013
• Neutral Citation: [2013] NZCA 566
• Docket Number: CA398/2012
• Court: Court of Appeal
• Date: 19 November 2013

BETWEEN

South Waikato District Council

Appellant

and

Roading and Asphalt Limited

Respondent

[2013] NZCA 566

Court:

O'Regan P, French and Heath JJ

CA398/2012

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal against the award by the High Court (“HC”) of damages to the respondent in respect of a tender for disposal of solid waste at a landfill site — HC held that by rejecting the respondent's tender and accepting a higher bid, the appellant Council acted contrary to its own terms of tender — respondent held the existing contract — tender documents indicated that bids would be “evaluated according to the Lowest Price Conforming method” — respondent had submitted the lowest tender but the appellant awarded the contract to another company — contrary to the standard model the Council reserved at Stage One an ability not to accept the lowest of any tender — Stage Two considered tenders on price but the tender document stated that the lowest or any tender would not necessarily be accepted — tender document also referenced the Waste Minimisation Act 2008 which encouraged diversion of the waste, for recycling or reuse by waiving the payment of a levy on it — whether the appellant was obligated to accept the lowest tender — whether the appellant had breached an implied duty to act fairly — whether the Council had breached s9 Fair Trading Act 1986 (misleading and deceptive behaviour).

Counsel:

J A MacGillivray and K E Sullivan for Appellant

P P Buetow and J M Hanning for Respondent

A The appeal is allowed.

B The judgment entered in favour of the Respondent in the High Court is set aside. In substitution, judgment is entered in favour of the Appellant on the claim against it.

C In this Court, costs are awarded in favour of the Appellant on the basis of a standard appeal, on a Band A basis, together with usual disbursements and a certificate for two counsel.

D If costs have been determined in the High Court, we set aside the determination. Costs in the High Court should be decided by the High Court consistently with the outcome of the present appeal.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Heath J)

Contents

The appeal	[1]
The tender methodology	[6]
The Stage Two evaluation process	[11]
The High Court judgment	[18]
Competing submissions	[25]
Analysis
Interpretation of the tender documents	[33]
Was the Council in breach of an implied duty to act fairly?	[45]
The Fair Trading Act claim	[50]
Damages	[57]
Result	[59]

The appeal

1 In May 2010, the South Waikato District Council (the Council) invited tenders for a contract for the disposal of solid waste at its landfill site in Tokoroa, and transfer station in Putaruru. The tender process was to be conducted in two stages. 1 Three companies tendered. One, EnviroWaste Services Ltd, was eliminated at the first stage. The other two were Roading and Asphalt Ltd (RAL) and Materials Processing Ltd (MPL). RAL had provided services for the Council's landfill sites at both Tokoroa and Putaruru between 2002 and 2007; when the landfill site at Putaruru closed in 2007, RAL continued to transport waste from the Putaruru transfer station to the landfill site in Tokoroa.

2 In accordance with the terms of tender, the Council was to determine whether to award the contract to either RAL or MPL. The tender documents indicated that bids would be “evaluated according to the Lowest Price Conforming method”. 2

Even though RAL had submitted the lowest tender, the Council elected to award the contract to MPL.

3 RAL sued, on various bases, alleging that the Council had breached the terms of the tender by not accepting the lowest bid. Damages were sought to compensate

RAL for expected loss of profits for the period of two years for which the contract was to run, and (on a loss of chance basis) for the discretionary third year, for which the contract might have been extended by mutual agreement

4 In a judgment delivered in the High Court at Hamilton on 8 June 2012, Keane J found in favour of RAL. 3 The Judge held that, in rejecting RAL's tender and accepting a higher bid, the Council acted contrary to its own terms of tender. Damages were awarded in favour of RAL in the sum of $330,634.00, plus GST and costs. Those damages were agreed, having been calculated by reference to the first two years. The Judge declined to award damages in respect of the discretionary third year.

5 The Council appeals against the finding of liability and the damages awarded against it. RAL cross-appeals, submitting that damages ought to have been ordered (on a loss of chance basis) for the third year of the contract.

The tender methodology

6 Within the relevant market, the “Lowest Price Conforming Method” of tendering is well understood. In its usual form, it has the following component parts: 4

• (a) Stage One: The Council identifies non-price attributes on which each tenderer is required to submit information. The Council evaluates those non-price attributes on the basis of a pass/fail method. A tender will be eliminated unless it gains a pass mark in respect of all categories.

• (b) Stage Two: Those tenderers who succeed in obtaining a pass for each of the attributes are then considered in relation to price. The lowest tender must be accepted.

7 Invitations to tender for the solid waste disposal operations at Putaruru and Tokoroa were advertised in the South Waikato News on 28 April 2010 and in the Waikato Times, on 1 May 2010. The advertisement stated:

Contract 640/374

SOLID WASTE DISPOSAL 2010/2012

Tenders are invited for solid waste disposal operations at the Putaruru Transfer Station and Newell Road Landfill in Tokoroa for a two year period.

Contract documents are available on receipt of a $50 document fee from the Council Office in Torphin Crescent, Tokoroa. Tenders, on the prescribed forms, addressed to the Chief Executive, South Waikato District Council, Private Bag 7, Tokoroa 3444, close in the Tender Box at the Council Office at 4 pm on Friday 21 May 2010. …

Lowest or any Tender not necessarily accepted.

D Hall

CHIEF EXECUTIVE

8 In cl 1.1.3 of its tender document, the Council identified six defined non-price attributes, for Stage One of its process:

1.1.3.1 Relevant Experience

Each Tenderer shall submit a record of the relevant experience, in particular technical experience, which would indicate their suitability for the work described in the specification. Where Sub-contractors are proposed to be engaged, their relevant experience shall also be supplied.

1.1.3.2 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.

1.1.3.3 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.

1.1.3.4 Resources

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

1.1.3.5 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.

1.1.3.6 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

9 Contrary to the standard model, 5 the Council purported to reserve to itself an ability not to accept the lowest or any tender. Consistent with the basis on which tenders had been invited, 6 Stage Two of the process was described in cl 1.1.4 of the tender document:

The second stage shall consist of determining which of the remaining (non-excluded) tenders 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.

10 The Council believed that the words “the lowest or any tender will not necessarily be accepted” reposed in it a wide discretion to accept or reject a surviving tender, whether or not it represented the lowest price. 7 That position is consistent with cl 1.3 of the tender document, headed “Form of Tender”. Relevantly, it provided:

We understand that the Principal is not bound to accept the lowest or any tender he may receive and accept the Basis of Tender Evaluation set out in Section 1.1 of these Specifications.

The Stage Two evaluation process

11 After the Stage One assessment, RAL and MPL were the surviving tenderers. RAL's tender price was $1,032,220; MPL's was $1,072,083. The difference between them was only $39,863. Although cl 1.1.4 of the tender document referred to the need to evaluate the price attribute, 8 on RAL's interpretation of the document all that was left to be done was for the Council to accept the lower of the two prices.

12 There was a good reason why the Council wanted to reserve to itself an ability to select a tenderer that had not offered the lowest price. It arose out of the impact of...