Data

Date:: 30-06-1997
Country:: Australia
Number:: 558
Court:: Federal Court of Australia
Parties:: Hughes Aircraft Systems International v. Airservices Australia

Keywords

DISPUTE RELATING TO A BIDDING PROCEDURE - BETWEEN A CALIFORNIAN COMPANY AND AN AUSTRALIAN GOVERNMENT AGENCY - GOVERNED BY DOMESTIC LAW (AUSTRALIAN LAW)

DUTY OF GOOD FAITH AND FAIR DEALING - IMPLIED TERM IN TENDER PROCESS - FUNDAMENTAL PRINCIPLE OF INTERNATIONAL COMMERCIAL CONTRACTS (ART. 1.7 UNIDROIT PRINCIPLES)

Abstract

The dispute concerned a bidding procedure, which had arisen between a Californian company and an Australian government agency after the latter awarded the contract to another bidder. According to the claimant, the defendant had failed to conduct the tender evaluation fairly and in a manner that would have ensured equal opportunity to both bidders.

In considering whether such a duty was implied by law in pre-award contract contexts, the court, after stating that Australian judicial and scholarly opinion differed sharply on this matter, concluded in the affirmative. In support of its ruling, it stated that a general duty of good faith and fair dealing was not only recognised in a number of foreign jurisdictions but had also been propounded as a fundamental principle to be honoured in international commercial contracts (Art. 1.7 of the Unidroit Principles).

Fulltext

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THE IMPLIED TERM OF "FAIR DEALING"
As already noted, the term propounded is that:
"the [CAA] would conduct its evaluation fairly and in a manner that would ensure equal opportunity to Hughes and Thomson."
The particular language in which the term is couched partially reflects that in the RFT para 16.2.6 dealing with the independent auditor:
"An independent auditor has been contracted to verify that the evaluation procedures were followed, the evaluation was conducted fairly and the offers received due consideration."
Hughes places no little emphasis on that paragraph. The idea of a "fair process" had significant antecedents in the TAAATS II procurement. It informed the specific recommendations of the Macphee Report (para 12.1): "An essential ingredient in [the future of the procurement] is that the process must be restored to one of fairness between the tenderers ... Our recommendations apply to that part of the process in which fairness ceased." At the Restart Meeting the slide both shown to, and given, the companies concerning the "Objectives" of the TAAATS Evaluation Strategy stated (omitting the title):
" Conduct a fair and equitable evaluation - will allow the Tender Committee to make recommendation on contract to the Board. Respect and protect proprietary and confidential information. Conduct the evaluation in a manner which is auditable and defensible. Provide a basis for debriefing Companies" I would note in passing the conjunction in this of the first and third dot points. At the same meeting in his oral opening, Mr Roser referred directly to instating: "a process that is fair to both Companies, and gives both Companies an equal opportunity to be the successful contractor.

[... ]

Of course I will require both Companies to endorse the way ahead as being fair. Until I achieve that situation, we won't restart it." The letter of 5 February which, after some iterations became the 9 March letter, first began the use of the "fair evaluation" formula used in the independent auditor provision of the RFT noted above. The applicant propounds the term on three bases. First that the term is an express one; secondly, that it should be implied ad hoc; and thirdly, it should be implied in law in its own right or as a manifestation of a general implied term of good faith and fair dealing.
Express term
The applicant's submission here, as I understand it, is based on the construction that should be given the independent auditor provision (para 16.2.6) of the RFT in light of the surrounding circumstances. It is that, if the independent auditor was contracted to verify (inter alia) that "the evaluation was conducted fairly and the offers received due consideration", the provision itself both presupposed, and contained an acknowledgment of, the obligation of the CAA to conduct the evaluation fairly. It is suggested that a construction that did not recognize this obligation would make a commercial nonsense of the paragraph: cf Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 313-314.

The respondent, in contrast, submits that the provision had a clear and intelligible purpose and meaning: it dealt with the retainer of an independent auditor to verify that the evaluation was conducted fairly. I am invited to conclude that the provisions went no further than did their literal terms.

In my view the respondent's construction of para 16.2.6 is to be preferred. While para 16.2.6 might provide one of a range of circumstances of which account might be taken when considering whether the proposed duty should be implied ad hoc, it is not of itself a sufficient indication of the existence of such a duty as to justify construing it as a recognition of that duty. The paragraph might well suggest inquiry as to the obligation(s) assumed by the CAA in the evaluation. It does not of itself so certainly describe them as to provide their express source. It may well be the case that, from the totality of the circumstances, it would be possible to infer that the parties actually intended there to be such a term. It is unnecessary, though, for me to further explore this matter given (a) the very clear view I have arrived at that the term should be implied ad hoc, and (b) that the applicant's Submissions in Reply tend to merge inference and implication ad hoc in any event: cf Thompson and Morgan (United Kingdom) Ltd v Erica Vale Australia Pty Ltd, (unreported, FC FCA, per Gummow and Hill JJ, 19 April 1995). This, perhaps, is one of those cases where it is unnecessary to distinguish the two for practical purposes: cf Hawkins v Clayton (1988) 164 CLR 539 at 570.
(ii) Implication ad hoc
The applicant relies upon a composite of factors to justify this implication. They are (i) the independent auditor provision in the RFT and the expectation of fair evaluation it anticipates; (ii) the presence of other terms in the RFT that are specific manifestations of fairness and equal opportunity - reference was made to the RFT paras 16.1 (criteria), 16.2.1 (evaluation), 4 (the particularized manner in which tenders were to be submitted), 16.2.7 (confidentiality) and 16.2.8 (prohibitions on certain affiliations with tenderers); and (iii) the previous history including the cancellation of RADREP, the cancellation of TAAATS I because of perceived unfairness to Hughes, the Macphee Report, the parties' alleged contemplation that Hughes would not participate in TAAATS II unless the process was fair, and the repeated assurances of fairness given to Hughes (eg at the Restart Meeting). This, it was said, was no ordinary tendering process. The participation of the parties in it was predicated upon it being conducted fairly. In the very distinctive circumstances here, it is suggested, it clearly satisfied the implication rules.

The respondent for its part submits to the contrary: it is not reasonable or equitable to impose so "uncertain and nebulous" an obligation on a public body; it is unnecessary, because there are express terms dealing with specific aspects of fairness and these ought to be regarded as exhaustive: cf Hospital Products Ltd v United States Surgical Corporation, above; it is not obvious because of those other terms; it is not capable of clear and precise expression; and the history relied upon to support it is equally consistent with the parties proceeding on the basis that fairness would be dealt with by specific terms.
I would have to say I regard the case for this implication as overwhelming. Fairness in process and dealing was the a priori of this business relationship. I need not repeat the history here: Mr Roser's comments at the Restart Meeting were emblematic of what all parties were reasonably entitled to expect for the future. And their expectations were to be given the guarantee of an independent audit of compliance and fairness. Without the assurance of fairness, there would have been no contract. Such was Hughes' evidence. Despite the criticism mounted by the respondent of the term's "nebulous" language, it was the actual language of the parties: it was intended to convey meaning and to be relied upon. It was, relevantly, definite and capable of precise expression. And, in my view, it was "so obvious that [the parties] would clearly have agreed to its inclusion in the contract...had they directed their mind to it at the time": Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 at 241.

I am unable to accept the submission of the respondent that the specific "fairness" obligations identified in the RFT exhausted the obligation of "fairness" assumed by the CAA. The CAA clearly had a far more pervasive conception of the fairness it intended to have exhibited in the TAAATS evaluation - as witness the responsibilities of the independent auditor contained in Schedule I to its agreement with Mr Moten. More importantly, though, fairness in evaluation was, from the Macphee Report onwards, clearly perceived by the parties to be of encompassing importance. It would not be reasonable to conclude that they expected it to be limited to, and be measured by compliance with, a relatively small number of specific obligations in the RFT. It was intended to be an obligation in its own right.

It is important to recognize that, in the pre-award phase, the parties were engaged in a close working relationship over a significant period of time. Not one of them could have been unaware of the vulnerability to which Hughes and Thomson exposed themselves by agreeing to enter into that relationship. Unlike cases where parties are and remain at arm's length in the pre-award phase, the relationship here in its setting was one which renders unsurprising the making of the implication sought. It is one I am prepared to make.
(iii) Implication in law
My previous conclusion makes it strictly unnecessary to consider this basis of implication. Nonetheless I consider it appropriate to do so should my previous conclusion be incorrect.
(a) Good faith and fair dealing
The applicant's submission is that the proposed term is a manifestation of a general implied duty of good faith and fair dealing. I have, in consequence, been invited to embrace the conclusion of Priestley JA in Renard Constructions (ME) Pty Ltd v Minister for Public Works, above, at 268 that: "people generally, including judges and other lawyers, from all strands of the community, have grown used to the courts applying standards of fairness to contract which are wholly consistent with the existence in all contracts of a duty upon the parties of good faith and fair dealing in its performance. In my view this is in these days the expected standard, and anything less is contrary to prevailing community expectations."
The primary basis upon which I was asked to make this implication was unrelated specifically to pre-award contracts in procurement cases. Rather as suggested in the Restatement of Contracts, Second, Art 205, the implied duty existed in "every contract". I make this particular observation because, as later discussed, a duty to act fairly in some form appears to have been accepted in other Commonwealth jurisdictions in pre-award contract contexts: see Pratt Contractors Ltd v Palmerston North City Council, above, at 478, 483; Martselos Services Ltd v Arctic College (1994) 111 DLR (4th) 65; and see generally N Seddon, Government Contracts, 235ff.

The respondent in contrast has pressed upon me the judgment of Gummow J, then of this Court, in Service Station Association Ltd v Berg Bennett & Associates Pty Ltd (1993) 45 FCR 84. After considering North American jurisprudence's acceptance of an implied duty of good faith and fair dealing, his Honour observed, at 96: "Anglo-Australian contract law as to the implication of terms has heretofore developed differently, with greater emphasis upon specifics, rather than the identification of a genus expressed in wide terms. Equity has intervened in matters of contractual formation by the remedy of rescission, upon the grounds mentioned earlier. It has restrained freedom of contract by inventing and protecting the equity of redemption, and by relieving against forfeitures and penalties. To some extent equity has regulated the quality of contractual performance by the various defenses available to suits for specific performance and for injunctive relief. In some, but not all, of this, notions of good conscience play a part. But it requires a leap of faith to translate these well-established doctrines and remedies into a new term as to the quality of contractual performance, implied by law": (emphasis added) Needless to say I have been asked to remain in Gummow J's company and not take that leap.

Other Australian authority on this duty is indecisive. Notably, in the Full Court of this Court in News Ltd v Australian Rugby Football League Ltd (1996) 139 ALR 193 at 285, it was found unnecessary to consider whether such a duty should be implied in that case. The Court did not enter upon the question of whether our law recognized such an implication as a matter of law.
If the matter stood merely as one of choice between two conflicting views, I would, as a matter of comity, adhere to that of Gummow J: see Bank of Western Australia Ltd v Commissioner of Taxation (1994) 55 FCR 233 at 255 on "comity" and the cases referred to therein. This is an arena in which opinions, judicial and scholarly, differ often sharply: see eg I Renard, "Fair Dealing and Good Faith", in Saunders (ed), Courts of Final Jurisdiction, (Federation Press, Sydney, 1996). And it is difficult to disagree with Gummow J's characterization both of the methodology of Australian contract law while it remained subject to direct English control and of the role assumed by equity in regulating contract formation and performance.

Having said this, it is also appropriate to indicate that my own view inclines to that of Priestley JA. Of that inclination I would say only this. Fair dealing is a major (if not openly articulated) organising idea in Australian law. It is unnecessary to enlarge upon that here. More germane to the present question, the implied duty is, as is well known, an accepted idea in the contract law of the United States and, probably, of Canada: see E A Farnsworth, "Good Faith in Contract Performance" in J Beatson and D Friedmann (eds) Good Faith and Fault in Contract Law, (Clarendon Press, Oxford, 1995); for a convenient collection of some of the voluminous literature in the US debating the meaning of the implied duty see Farnsworth on Contracts, Vol 2, para 7.17a (Little, Brown & Co, Boston 1990); for an English view see eg Rt Hon Lord Justice Staughton, "Good Faith and Fairness in Commercial Contract Law" (1994) 7 Jo Contract Law 193; and see Livingstone v Roskilly [1992] 3 NZLR 230 at 237-238. Its status in civil law is well recognised: see eg H K Lcke, "Good Faith and Contractual Performance" in P D Finn (ed), Essays on Contract, (Law Book Co, Sydney, 1987); J F O'Connor, Good Faith in English Law, Ch 8 (Dartmouth, 1990). It has been propounded as a fundamental principle to be honoured in international commercial contracts: see eg. UNIDROIT, Principles of International Commercial Contracts, Article 1.7 (International Institute for the Unification of Private Law, Rome, 1994). Its more open recognition in our own contract law is now warranted: cf Sir Anthony Mason, "Contract and its Relationship with Equitable Standards and the Doctrine of Good Faith", The Cambridge Lectures, 1993 (8 July 1993); notwithstanding the significant adjustments this would occasion to some of contract law's apparent orthodoxies: see eg Lcke, above, 177ff.

I should add that, unlike Gummow J, I consider a virtue of the implied duty to be that it expresses in a generalization of universal application, the standard of conduct to which all contracting parties are to be expected to adhere throughout the lives of their contracts. It may well be that, on analysis, that standard would be found to advance little the standard that presently may be exacted from contracting parties by other means: cf the standard applied in Conoco v Inman Oil Co 774 F2d 895 at 908 (1985). But setting the appropriate standard of fair dealing is, in my view, another matter altogether from acceptance of the duty itself.

However, the matter of a term implied by law does not rest here. I raised directly with the parties the question whether the type of contract and/or the relationship of the parties (one of which was a State agency) may require the implication as a matter of law. Submissions were sought on this issue.
(b) As a legal incident of a particular class of contract. Given my earlier finding my conclusions here can be stated relatively shortly. I mean no disrespect to the detailed and helpful written submissions of the parties in adopting this course. As is now well accepted, quite apart from that form of implication which is necessary to give business efficacy to a particular contract, a term may be implied as a matter of law as a legal incident of a particular class of contract: on this distinction see Castlemaine Tooheys Ltd v Carlton & United Breweries Ltd (1987) 10 NSWLR 468 at 486ff. Notwithstanding the differences between the two forms of implication, there is justification for the conclusion of Priestley JA in Renard Constructions (ME) Pty Ltd v Minister for Public Works, above, at 260 that for particular contracts in particular settings "there may be a good deal of overlap between the two categories." This case exemplifies this overlap.

It is one in which I am prepared to find that, as a matter of law, a duty to deal fairly in the performance of the contracts I have found should be implied into those contracts. Irrespective of what should be taken to have been the intentions of the parties, both the type (or class) of contract and the relationship of the parties were such as gave the tenderers the right to expect, and the CAA the obligation to exhibit, fair dealing in the performance of the contracts.
There has been enduring uncertainty, if not controversy, as to the test to be applied - if there be a single test - in making an implication of law. For the more recent provenance of this form of implication it is unnecessary for present purposes to look beyond the House of Lords' decisions in Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555 and Liverpool City Council v Irwin [1977] AC 239. These, along with Scally v Southern Health and Social Services Board [1992] 1 AC 294, have been accepted as authoritative in this country: see Byrne v Australian Airlines Ltd (1995) 185 CLR 410 per McHugh and Gummow JJ; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales, above, per Mason J.

As the respondent emphasized in its submission, the central criterion manifest in those decisions for so implying a term is the requirement of "necessity". Explanation of this was in turn given by McHugh and Gummow JJ in Byrnes' case, above, at 450 where their Honours noted that:
"Many of the terms now said to be implied by law in various categories of case reflect the concern of the courts that, unless such a term be implied, the enjoyment of the rights conferred by the contract would or could be rendered nugatory, worthless, or, perhaps, be seriously undermined. Hence, the reference in the decisions to "necessity" ... This notion of "necessity" has been crucial in the modern cases in which the courts have implied for the first time a new term as a matter of law."

The respondent, understandably, emphasizes this and has submitted, in the language of McHugh and Gummow JJ in Byrnes' case, at 453, that the alleged process contracts would be "workable and effective" without the introduction into them of the implied term the applicant propounds.
It is strictly unnecessary to express a concluded view on that submission given the view I take of the "necessity test". Nonetheless I would indicate that the "workability and effectiveness" suggested could well be said only to exist in competitive contracts of this type if they contained the binding reassurance of fair dealing in their performance - the more so where the contract to be let involves the expenditure of "publicly owned" funds: US authority would seem to acknowledge this in the government procurement context, see eg Keco Industries Inc v US 492F 2d 1200 at 1205 (1974); see also E W Massengale, Fundamentals of Federal Contract Law, 211 (Quorum Books, NY, 1991). It is not at all surprising that, even absent the finding of a contract, courts have assumed that "obligations to act fairly" in the treatment of tenderers can still arise: see Pratt Contractors Ltd v Palmerston North City Council [1995] 1 NZLR 469 at 478; and see more generally N Seddon, Government Contracts, 235 ff. If the purpose of a tender process contract is to be accomplished, if contractor-tenderers are to be given an effective opportunity to enjoy the fruits of the bid and not to have that opportunity destroyed by the unfair dealing of the other party to the contract, a duty such as I have described would appear to me to be a presupposition of such a contract. In the tender process context such a duty seems little more than an appropriate adaptation of the duty to cooperate recognized in Butt v McDonald (1896) 7 QLJ 68 at 70-71. I need explore that analogy no further here.

It doubtless is the case that the "necessity test" - and its preoccupation with whether, absent the implication, the enjoyment of contractual rights could be rendered nugatory, worthless or be seriously undermined - addresses the broad range of instances where the issue of such an implication ordinarily arises: see eg the extended list of examples given in Glanville Williams, "Language and the Law", (1945) 61 LQR 71 at 403.
Having acknowledged this, I do not understand that test, at least so narrowly conceived, to provide a complete account of the reasons for which an implication of law can be made. In Simonius Vischer & Co v Holt & Thompson [1979] 2 NSWLR 322 at 348 Samuels JA suggested that the implication is founded in policy. Whether or not this be accepted unreservedly as a generalization, it clearly is the case that considerations of public policy can and do have an overt part to play in some instances in determining whether it is necessary that an obligation should be implied as a matter of law in a contract. The contractual obligation of secrecy imposed on professionals in virtue of their relationship with their clients and its varying scope from profession to profession are, I consider, illustrations of this: see eg Tournier v National Provincial & Union Bank of England [1924] 1 KB 461 at 474; Parry-Jones v Law Society [1969] 1 Ch 1 at 7, 9.

Perhaps the most significant illustration of the role considerations of public policy can have in the matter is to be found in Viscount Simonds' speech in Lister v Romford Ice and Cold Storage Ltd [1957] AC 555. In a passage often quoted from in this country when distinguishing implications of law from those necessary to give business efficacy to a contract, his Lordship observed (at 576):
"[T]he real question becomes, not what terms can be implied in a contract between two individuals who are assumed to be making a bargain in regard to a particular transaction or course of business; we have to take a wider view, for we are concerned with a general question, which, if not correctly described as a question of status, yet can only be answered by considering the relation in which the drivers of motor-vehicles and their employers generally stand to each other. Just as the duty of care, rightly regarded as a contractual obligation, is imposed on the servant, or the duty not to disclose confidential information ..., or the duty not to betray secret processes ..., just as the duty is imposed on the master not to require his servant to do any illegal act, just so the question must be asked and answered whether in the world in which we live today it is a necessary condition of the relation of master and man that the master should, to use a broad colloquialism, look after the whole matter of insurance. If I were to try to apply the familiar tests where the question is whether a term should be implied in a particular contract in order to give it what is called business efficacy, I should lose myself in the attempt to formulate it with the necessary precision. The necessarily vague evidence given by the parties and the fact that the action is brought without the assent of the employers shows at least ex post facto how they regarded the position. But this is not conclusive; for, as I have said, the solution of the problem does not rest on the implication of a term in a particular contract of service but upon more general considerations": (emphasis added)

In rejecting the implication sought in that case, Viscount Simonds then went on to consider among "the more general considerations" (inter alia) both the consequences within the employment relationship and the "social consequences" (at 579) that could or would flow from the implication sought.

Though his Lordship avoided tying the implication directly to the status of the parties, it probably is the case that the need to have recourse to "more general considerations" and not merely to "necessity" narrowly conceived is most apt to occur where the alleged implication is based upon the status or function of one or both of the contracting parties. And that this need does arise perhaps explains why on occasion the courts characterize the implied term "as a necessary incident of a definable category of contractual relationship": Scally v Southern Health and Social Services Board [1992] 1 AC 294 at 307 (emphasis added).

I have laboured this matter for this reason. Not only is the contract of a type in which, as I have indicated above, the tenderers could properly expect the other contracting party to act fairly in its performance, that other contracting party is an agency of government and as such can properly be expected to act fairly with those with whom it deals in such contracts. It is to this latter feature of the contractual relationship that I wish to draw attention. It has not been pleaded or argued that, because the CAA is a public body, its contract with Hughes is for that reason amenable to challenge on what for convenience I might call "public law" rather than on conventional contractual (ie "private law") grounds:

[...]

[1977] 1 NSWLR 449 on the "relevant relationship".
To say the matter is one of contract does not, though, exhaust the appropriate characterization of the parties to this contract. The CAA, as I have noted is a public body - a body whose owners are, ultimately, the Australian community whom the authority serves under and in accordance with its statutory mandate.

As with any agency of government - and I do not mean by this that it is thereby within "the shield of the Crown" - it has no private or self-interest of its own separate from the public interest it is constitutionally bound to serve: cf Attorney-General for the United Kingdom v Heinemann Publishers Australia Pty Ltd (1987) 10 NSWLR 86 at 191; see also Mercury Energy Ltd v Electricity Corporation of New Zealand, above, at 388; Webster v Auckland Harbour Board [1983] NZLR 646 at 649-650; Jones v Swansea City Council [1990] 1 WLR 54 at 71, 85. That public interest in the case of a body such as the CAA is to be determined from what is express or implied in the CAA Act itself. That Act of Parliament indicated the end of the CAA's service.
There is, I consider much to be said for the view that, having no legitimate private interest in the performance of its functions, a public body (including a state owned company) should be required as of course to act fairly towards those with whom it deals at least insofar as this is consistent with its obligation to serve the public interest (or interests) for which it has been created. I have no need here, though, to rely upon such a broad notion. That the law entertains expectations of fair dealing of government and of public bodies is manifest in some number of spheres. First and most obviously, there is the general application of the requirements of procedural fairness to "governmental executive decision-making": Haoucher v Minister of State for Immigration and Ethnic Affairs (1990) 169 CLR 648 at 653; see also Annetts v McCann (1990) 170 CLR 596 - though it needs to be acknowledged that these requirements can in limited circumstances extend to the decision making (characteristically to decisions to expel or to discipline members) of non-governmental bodies and associations: see Aronson and Dyer, Judicial Review of Administrative Action, 493-495, (LBC, Sydney, 1996).
Secondly, there is what Griffith CJ referred to in Melbourne Steamship Co Ltd v Moorehead (1912) 15 CLR 333 at 342 as:
"the old-fashioned traditional, and almost instinctive, standard of fair play to be observed by the Crown in dealing with subjects, which I learned a very long time ago to regard as elementary .

This proposition has received significant, recent judicial endorsement in this country most notably in the Full Court of this Court in SCI Operations Pty Ltd v Commonwealth of Australia, (unreported, FC FCA, per Beaumont and Einfeld JJ, 28 August 1996); see also Greiner v Independent Commission Against Corruption (1992) 28 NSWLR 125. I note in this particularly the observations of Mahoney J in his dissenting judgment (on grounds not presently relevant) in Logue v Shoalhaven Shire Council [1979] 1 NSWLR 537 at 558-559 in applying the proposition to a local authority - to "a corporation constituted by statute, and discharging public functions": "It is well settled that there is expected of the Crown the highest standards in dealing with its subjects: see Melbourne Steamship Co Ltd v Moorehead ..., per Griffith C.J. What might be accepted from others would not be seen as in full accord with the principles of equity and good conscience to be expected in the case of the Crown: see P. & C. Cantarella Pty. Ltd. v. Egg Marketing Board (N.S.W.) [[1973] 2 NSWLR 366 at 383-384]. In my opinion, a standard of conduct not significantly different should be expected of a statutory corporation of the present kind ... ."

This fair play principle has its most common manifestation in the "model litigant" standards exacted from the Crown in legal proceedings: see eg Director of Public Prosecutions for the Commonwealth v Saxon (1992) 28 NSWLR 263. Thirdly, and again litigation related, the rule in Ex parte James; Re Condon (1874) LR 9 Ch App 609 has been applied to public bodies (eg local authorities: R v Tower Hamlets London Borough Council; Ex parte Chetnik Developments Ltd [1988] AC 858) so as to ensure "high principled" action when mistaken payments have been received by them; see also SCI Operations Pty Ltd v Commonwealth of Australia, above.

In differing ways these instances reflect policies in the law, albeit in specific contexts, (a) of protecting the reasonable expectations of those dealing with public bodies; (b) of ensuring that the powers possessed by a public body, "whether conferred by statute or by contract", are exercised "for the public good": cf Jones v Swansea City Council [1990] 1 WLR 54 at 71; and (c) of requiring such bodies to act as `moral exemplars': government and its agencies should lead by example: Olmstead v United States 277 US 438 at 485 (1928); Joint Committee of Public Accounts, Social Responsibilities of Commonwealth Statutory Authorities and Government Business Enterprises, Report 315, esp para 2.21ff, (AGPS, Canberra, 1992). These policies I consider to be important in the present matter. I should add for the sake of completeness that I do not regard the decision of the Full Court of this Court in General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FCR 164 as having present bearing on the significance to be attributed these policies.

Given the view I earlier expressed that fair dealing is, in effect, a proper presupposition of a competitive tender process contract (especially one involving the disposition of public funds), and given that a public body is the contracting party whose performance of the contract is being relied upon, a necessary incident of such a contract with a public body is, I am prepared to conclude, that it will deal fairly with the tenderers in the performance of its tender process contracts with them. Before leaving this subject, it is appropriate to note, the following. First, a ground advanced by the respondent for not implying a general duty to deal fairly was that the RFT had itself specified particular obligations of fairness and that these should be taken to be exhaustive of the matter. Those obligations in my view should properly be seen as no more than particular manifestations of the general duty I have found to be implied. I see no inconsistency between the two nor between the implied term and the common intention of the parties as manifest in the contract. Secondly, and I emphasize this, the term I have found to be implied by law (which differs little, if at all in the circumstances, from that found to be implied ad hoc) relates to the CAA's performance of the RFT contract. That term is as I will indicate in Part XI of these reasons, distinctive in the obligation it imposes. Importantly it does not as such impose on the CAA under the guise of contract law, the obligation to avoid making its decision or otherwise conducting itself in ways which would render it amenable to judicial review of administrative action. Indeed I understood the applicant to disavow such a claim on its part, while insisting nonetheless that conduct which independently might found judicial review could be of such actual character in the circumstances as to constitute a breach of the implied term.
(...)

PART XI: FAIR DEALING

I have found that it was an implied term of the RFT contract that the CAA would conduct its evaluation of the tenders fairly and in a manner that would ensure equal opportunity to Hughes and Thomson. I also have found that, as a matter of law, a term would be implied into the RFT in any event that obliged the CAA to deal fairly with the tenderers in its performance of the RFT contracts.

Though formulated in somewhat different terms there would seem to be no operative difference between the two, at least as they relate to the matters to be considered in this Part. For ease in exposition, I will deal with the two compendiously as each imposes a duty on the CAA to deal fairly with the tenderers in its performance of its RFT contracts. I should add that there are as well Trade Practices Act claims raising fair dealing issues. In this instance I will consider these separately from the contract claim.
Before turning to the various allegations made that are said to constitute breaches of this duty, it is necessary to make some comment on the content of the duty itself. First, obviously, it prescribed a standard of conduct to be adhered to by the CAA in relation to the RFT and that standard was an objective one. Secondly the duty would only have been breached where, to state the matter negatively, the CAA was shown actually to have dealt unfairly with a tenderer in the manner of its putting the RFT contract into effect. It is this second matter that requires elaboration.
In Part IV: General Contract Issues, I indicated that the applicant has not attempted under the guise of the implied term to give contractual force or effect to the grounds of judicial review of administrative action generally or to the requirement of procedural fairness as it relates to bias in particular. It was open to the contractors so to contract. Such did not occur and no such contract has been pleaded.

Nonetheless, what the applicant has submitted is that the bias rules of procedural fairness provide a guide to the content of the contractual duty. In this I am invited to accept that a decision would involve unfair dealing if it was one in which a contractor-decision maker was so circumstanced as to give rise in the mind of the other contractor, to a reasonable apprehension of bias on the part of the decision maker. Analogical support for this was sought in Minister for Immigration, Local Government and Ethnic Affairs v Mok (1995) 55 FCR 375. The respondent for its part has submitted that the applicant is seeking to do indirectly (i.e. via the implied duty of fair dealing) what it has not done directly (i.e. via an alleged term concerned with the rules of procedural fairness). There is substance in this objection though it does not provide the answer to the submission. That answer is this. It is only conduct which is shown actually to constitute unfair dealing by the CAA with a tenderer in the performance of the RFT contract that can amount to a breach of the implied term. Conduct etc that merely gives rise to an apprehension (howsoever reasonable) that such might occur is not enough. Furthermore, whether or not even some level of demonstrated partial conduct will constitute a breach will depend on whether, in the circumstances, it occasions unfair dealing with a tenderer - although proof of such conduct would itself arouse real suspicion that such had occurred.

A. THE ALLEGATIONS OF UNFAIR DEALING: CONTRACT CLAIMS
All of the conduct particularized in the pleadings as constituting breaches of express and implied terms of the RFT are also relied upon as providing instances occasioning breaches of the fair dealing term. Additionally it is alleged that the manner in which the Attorney-General's Department provided legal advice to the CAA, Mr Moten and DITRD occasioned a breach of the term.
Given the findings I have already made, there are only three specific allegations to which it is necessary to refer here. These relate (i) to various allegations concerning Mr Yates; (ii) to DITRD's conduct in its AII evaluation/consultancy; and (iii) to the Attorney-General's Department's discharge of its legal advisory function. While the claim made concerning the CAA's alleged responsibility for Mr Moten's actions as independent auditor (see Part VII: Audit Failure) was advanced as an instance of unfair dealing, I do not regard it as necessary to examine that claim. Whatever the complaint the CAA might have in respect of the manner in which Mr Moten actually performed his audit function, given the nature of his function his conduct could only lead to unfair dealing by the CAA with Hughes if he so acted as to cause the CAA to deal unfairly with Hughes. There are grounds for concluding, as I have earlier indicated, that he was a cause of the Board's failure properly to apply the evaluation criteria and methodology. That failure occasioned a breach of an express term of the RFT. And that, in my view, exhausts the practical significance of his conduct in this matter. Before considering individually the three allegations noted above, I should refer to an omnibus submission made by the applicant. It is that while a significant number of individual instances of wrongdoing have been alleged, I should not treat these in isolation but should be prepared to evaluate them and the evidence supporting them in a "cumulative" way. As I understand this, its object seems to be that I should be prepared to find in the whole, if not necessarily in the parts, that an actionable wrong has been committed. I presume, if such is the intent of the submission, the wrong I am invited to find (given the pleadings) is that the duty of fair dealing has so been breached. The respondent invited me firmly to resist taking any such course.
While I would not wish to cast doubt on the view that unfair dealing in a given instance may be the product of the cumulative effect of specific actions which individually are not themselves unfair, this is not a case in which it is necessary to have resort to such an approach to establish actionable wrongdoing by the respondent. I already have found significant breaches of the RFT contract. It is inappropriate in my view to attempt to repackage the conduct constituting those breaches for the purpose of saying that, as far as it goes, it evidences as well a breach of the fair dealing duty.

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PART XIII: PRINCIPAL FINDINGS AND CONCLUSIONS
My observations here will be generalized, brief and highly selective. First, I have found that the processes leading to the award of the TAAATS contract were governed by a process contract, the principal terms of which were contained in the RFT. I also have found it to be an implied term of that contract that (inter alia) the CAA would conduct its tender evaluation fairly. I have determined as well that a term should be implied as a matter of law into a tender process contract with a public body (such as this was) that that body will deal fairly with a tenderer in the performance of its contract. Accordingly I have made such an implication into the RFT.
In this contractual setting, I have concluded that the CAA acted in breach of its contract with Hughes in that - (i) it failed to evaluate the tenders in accordance with the priorities and methodology prescribed in the RFT (paras 16.1 and 16.2); (ii) it failed to ensure that measures designed to achieve strict confidentiality of information contained in tenderers' proposals, were maintained (RFT para 16.2.7); and (iii) it accepted an out of time change to Thomson's proposed deed of AII commitment.
While there was evidence enough to warrant Hughes' allegation of a breach of the fair evaluation/fair dealing terms, I have not found it necessary to reach a conclusion on these given the breaches of contract that already have been made out.

Secondly, I have found that the CAA made, and (by its subsequent decisions and actions) falsified, certain representations as to the processes and methodology to be followed in the selection of the TAAATS contractor. These occurred in circumstances where Hughes was reasonably entitled to expect the CAA to disclose to it that the CAA did not intend to, and did not, adhere to what it had previously represented it would do.
In these circumstances I have concluded that the CAA engaged in conduct in contravention of s52 of the Trade Practices Act 1974 , that conduct relating substantially, though not precisely, to the same matters in respect of which I have found breaches of contract to have occurred. Additionally I have found that the CAA engaged in conduct in contravention of s52 in the representations it made to Hughes when de-briefing it on the basis of the CAA board's selection of Thomson as the TAAATS contractor. In each such instance of contravening conduct, I have found that Hughes relied upon that conduct. Thirdly, I have not found it necessary to make any findings on the applicant's claims in negligence and equitable estoppel. While the negligence claim in particular may have required examination of matters not expressly canvassed in these reasons, the claim itself achieved little prominence at the hearing and even less in submissions. Given the failures and failings of the CAA I have identified in my findings, little practical purpose would have been served by inviting further and detailed submissions on this claim and by engaging in a protracted examination of it.
Finally, bearing in mind the "splitting" of this proceeding, the orders I propose to make are that the parties file agreed short minutes of orders to reflect these reasons and if short minutes are not agreed, (i) the applicant to file and serve proposed minutes of orders along with written contentions supporting the orders, and (ii) the respondent to file and serve its written objections thereto.

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Source

Source:
- Internet document: http://www.lawnet.com.au/private/fct/1997/J970558.html

Abstract published in English and French:
- Uniform Law Review / Revue de droit uniforme, 1997, 812 - 813}}