QUAY STEVEDORING SERVICES LTD v ENZA LIMITED [2001] NZCA 300 (15 November 2001)

IN THE COURT OF APPEAL OF NEW ZEALAND

ca214/00

	between	quay stevedoring services ltd
		Appellant

	and	ENZA limited
		Respondent

Hearing:	17 September 2001
Coram:	McGrath J Fisher J William Young J
Appearances:	A M Powell and G Bains for the Appellant C S Chapman and D S Gooneratne for the Respondent
Judgment:	15 November 2001

judgment of the court delivered by mcgrath j

Introduction

[1] The appellant, Quay Stevedoring Services Limited, a company incorporated in 1994, brought the proceeding the subject of this appeal against the respondent, ENZA Limited, claiming breach of a tender process contract in relation to the provision of stevedoring services for loading cargoes of the respondent's fruit at Nelson and Picton during the 1996 season.This appeal is against the judgment of Ellis J (CP 17/96, Nelson, 8 September 2000) holding that no such contract was concluded because the respondent's request for quotations was an invitation to treat, rather than an offer which on acceptance by submission of a tender gave rise to a process contract.

Background facts

[2] The appellant had been successful in 1994 obtaining a contract for 35% of the stevedoring work at Port Nelson for the respondent's export apple crop during the 1995 season.The remaining 65% of the work was undertaken under a contract entered into by the respondent with Tasman Bay Stevedoring Co Ltd (Tasman Bay). That company had obtained contracts in previous years to do the work, but sharing it in some of those seasons.

[3] On 5 October 1995 the respondent wrote to the three suppliers of stevedoring services inviting each to quote for stevedoring work at Nelson and Picton for the 1996 season.Quotations were to be provided by noon on 20 October 1995 with a break-down indicating first, the all in cost per carton for breakbulk loadings at Nelson and secondly the all in cost per pallet for palletised loadings at Nelson.In each case the quote could be for all or part of the predicted crop, stating rates and percentages.Quotes for the all in costs for breakbulk loadings and for palletised loadings at Picton were also sought.The letter requesting quotes also stated:

The lowest or any tender need not be accepted.

[4] The letter enclosed tender documents including the respondent's Stevedoring Code of Practice, 1996 Stevedoring Contract Terms and Conditions, and Minimum Performance Specifications. The letter also stipulated that tenderers had to indicate if they were tendering for the respondent's entire stevedoring requirements for 1996 or only a specified portion.The respondent reserved the right for the respondent to apportion stevedoring in order to best meet its loadout and cost requirements.The 1996 Stevedoring Contract Terms and Conditions, included provisions concerning general requirements, supply of equipment and labour, cardboard requirements, dunnage, vessel loading delays, responsibilities of the respondent, insurance, liability for damage to fruit, payment, force majeure, confidentiality of product information and, under the heading "Confidentiality of Tenders" the following:

The rates, terms and conditions of all tenders shall remain confidential between the tenders and ENZA.

The Terms and Conditions finally provided:

THE LOWEST OR ANY TENDER WILL NOT NECESSARILY BE ACCEPTED.

TENDERS CLOSE AT 12.00 HOURS ON 20 OCTOBER 1995.

[5] On the morning of 20 October 1995 Mr Bensemann, managing director of the appellant, called on Mr Findlater, area manager of the respondent to hand him his quote.Mr Findlater opened it and in response to a question from Mr Bensemann said that the tender was "a bit on the high side".Later Mr Bensemann returned to the respondent's office making a revised tender at the same prices tendered for the 1995 contract.He said that he had been advised those prices were as low as he could go.

[6] The respondent received quotations from the appellant, Tasman Bay and two other companies.The appellant finally quoted its cost for services at Nelson in a range from 32 cents per carton, if it received a contract for 40% of the crop, dropping to 30.5 cents per carton for 85% to 100% of the crop.Its equivalent prices per pallet at Nelson were from $8.09 to $8.10 for differing percentage shares. For services at Picton the price range was 34 cents to 35 cents per carton and $8.45 to $8.50 per pallet respectively.The rates it offered exceeded those successfully tendered in 1994 for the appellant's share of the contract for the 1995 season.

[7] The rates offered on 20 October 1995 by Tasman Bay for 100% of both the breakbulk and the palletised stevedoring work at both Nelson and Picton was 27.3 cents per carton and $7.68 cents per pallet.The tendered rates rose to 30.5 cents per carton and $8.18 cents per pallet for 70% of the work at both ports.Thus the prices the appellant had tendered for different proportions of the contract were still considerably more than the prices submitted by Tasman Bay, especially in relation to Tasman Bay's tender for 100% of the proposed contract.

[8] The appellant had obtained its 35% of the 1995 season contract after reducing its tender price in the course of negotiation with the respondent following the tender closing date.Post tender negotiations of that kind were known to be the respondent's local practice. No exception had been taken to it, no doubt in part because the respondent had agreed that each tenderer's quoted price was to be kept confidential.

[9] Tasman Bay's letter of 20 October 1995 included the following term:

Additional offer

Tasman Bay Stevedoring Co. Ltd. offers to retain the rates quoted for 100% of ENZA's stevedoring work for two years, 1996 and 1997, based upon TBSC and ENZA entering into a two year contract.

[10] On 27 October 1995 Mr Wanklyn an employee of the respondent reported to Mr Findlater making a comparison of the various tenders including one involving a possible 65%/35% split of the contract between Tasman Bay and the appellant. Mr Wanklyn concluded in the report in respect of Tasman Bay's quotation for 1996:

Including the above points, from pure numbers point of view, 100% (Tasman Bay) is the cheaper option by approximately $100,000.

[11] Discussions between the respondent and Tasman Bay then followed in relation to the additional offer to hold prices for a contract also covering the 1997 season.On 2 November 1995 Tasman Bay's offer was revised when its general manager wrote to the respondent as follows:

Please allow me to advise that our quotation submitted on 20 October 1995 is revised as follows:

1. Additional offer:

If Tasman Bay Stevedoring Co. Ltd. were to obtain 100% of ENZA's stevedoring work for 2 years, 1996 and 1997, based upon TBSC and ENZA entering into a 2-year contract, then the price per carton, for each year, would be $27 cents per carton and the price per pallet for each year would be $7.60.

I also refer to item 2.5. of our letter of 20 October and advise that the rate of $27.40 per gross man hour for recovery of labour delays is reduced to 24.00.

All prices quote exclusive of GST.

[12] The respondent then decided to accept Tasman Bay's revised offer of 2 November 1995, thus entering into a contract with Tasman Bay for a 2 year period.It wrote to Tasman Bay on 5 March 1996 confirming its acceptance.

High Court judgment

[13] In the High Court Ellis J held there was no preliminary contract binding the respondent to a process in dealing with the appellant's tender.That it seems was in part because the Judge regarded the respondent's invitation to tender as merely an invitation to treat.The appellant's tender in response to the invitations accordingly did not create tender process obligations for the respondent.Plainly the respondent was not required to accept any tender.

[14] In any event the Judge's view was that there was no unfairness or irregularity by the respondent which would be in breach of any such process obligations.The appellant had plainly been undercut by Tasman Bay's tender for 100% of the 1996 cargo.As the appellant's price was close to that of Tasman Bay for a 70% share the respondent had to factor into its decision the future cost of the possible loss of the appellant from the stevedoring services market.In the end the respondent decided the overall cost saving achieved by giving 100% of the business to Tasman Bay was determinative.

[15] He held that for the respondent to take up Tasman Bay's additional and alternative offer of a two year contract was not unfair in the circumstances. The appellant had by then lost the 1996 contract on a proper consideration of prices tendered for that season.

Issues on appeal

[16] Mr Powell for the appellant argued in this Court that the invitation to quote for the 1996 season gave rise to contractual obligations as to the manner in which the process of letting a contract or contracts would be conducted.He submitted there were features of the process which indicated the parties had a contractual interest in how letting of a contract would proceed.He pointed to the commercial context, the size of the contracts being proposed, the selection of tenderers who were invited to quote, the considerable work required from them to submit a tender and the settled process that the respondent had followed over a period of years in relation to contracting for these services. Formal terms and conditions of tender had accompanied the letter inviting quotes.For these reasons there was a process contract along the lines of those recognised in Pratt Contractors Ltd v Palmerston North City Council [1995] 1 NZLR 469 and Blackpool and Fylde Aero Club v Blackpool Borough Council [1990] 1 WLR 1195.

[17] It was next said that it was an implied term of the process contract that only complying tenders would be considered and it was in breach of that term for the respondent, having sought tenders on the basis of a single season contract or contracts to accept a tender submitted for two seasons.Tasman Bay's two year proposal the appellant argued, had distorted the process and breached the process contract.Damages were claimed for that breach by the appellant on loss of a chance principles.

Decision

[18] It is well established in contract law that a person contemplating a contract in a commercial endeavour may enter into a prior contract in relation to the process that will be followed.Whether such a preliminary contract is brought into existence itself, of course, turns on whether the necessary elements of offer and acceptance, coupled with an intention by the parties to enter into a binding contract, are shown to exist.An illustration of the principle in New Zealand is Markholm Construction Co Ltd v Wellington City Council [1985] 2 NZLR 520 where Jeffries J held that advertisements by a council offering to sell sections "by ballot" for stipulated prices and terms were an offer which was accepted by each person who completed and submitted the council its form referred to in the advertisements by the stipulated time.In other instances of invitations to tender for a contract the necessary element of intention to enter into a contract in relation to the process is absent.In these cases the status of the initial proposal will be no more than an invitation to treat which is unable to give rise to contractual obligations.

[19] Unless the terms of the invitation are explicit on whether there is to be a process contract the Court's initial inquiry must be into whether such an intention to contract is indicated by the circumstancesIn Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council [1990] 1 WLR 195 the Court of Appeal held that a request for tenders for a concession to operate pleasure flights by a local authority which owned and managed an airport gave rise to a process contract with each of those who submitted tenders.The indications of an intention to be bound seen as of particular importance in that case were the format of the request for tenders, the fact that the invitation was limited to a small group of operators and the formality of the manner of submission of tenders to the council, (they had to be provided in an official envelope). Together these requirements were seen as pointing to compliance with these requirements being a condition of tender validity and thus expressing an intentionto create binding legal obligations as to the process.

[20] There were some similar indications of intent to commit to a process in the present case.The group invited to tender was small, the respondent had a settled approach to seeking quotations each year, tenders were to be kept confidential and considerable effort was required to participate in the process.The process, however, also contemplated that after tenders were received the respondent would undertake negotiations with the preferred tenderer, including over its price, before a contract or contracts were entered into for the season.This was known to all tenderers including the appellant. We see some difficulties in reconciling that particular element of flexibility in the respondent's procedure with an intention by the parties that the respondent would be contractually bound to follow a particular process. However it is not necessary finally to decide that question as we are satisfied for the reasons we now set out that even if the appellant's contention there was a process contract is right the obligations that it imposed on the respondent were not breached on the facts of this case.

[21] In Blackpool and Fylde Aero Club Ltd Bingham LJ held that each of those invited to tender who submitted a conforming tender by the deadline was contractually entitled to have his tender opened and considered, in conjunction with all other conforming tenders, or at least that his tender would be considered if others were.He held such a term was implied in the tender process contract.In that case as in this the party issuing a request for tenders had reserved the right not to accept any particular tender. Accordingly the obligation under the process contract could not extend any further such as to accepting the lowest price or indeed any tender. Nevertheless the plaintiff was able to prove the Council was in breach. Through an omission to clear the Town Hall letter box at the specified time the Club's tender was recorded as being late and was not considered.The plaintiff was accordingly entitled to damages for that breach.

[22] If there was a process contract entered into by those who submitted tenders to the respondent which were in accordance with the stipulated framework, the terms of that contract were in our view restricted.At best the appellant was contractually entitled to have its tender considered alongside those of others tendering on that basis for services to be provided for the 1996 year.Tasman Bay's tender met the requirements.It also included an additional option.In the context of the reservation by the respondent of the right not to accept any particular tender and the flexible process of negotiation tenderers knew would follow selection of a preferred tenderer, we are satisfied that inclusion of the additional element in its tender by Tasman Bay was not in breach of any process contract.Rather it was implicit that the respondent would have the right to look at contractual options other than those on which it had called tenders.For this reason no question arises of any contractual requirements of fairness and equity of the kind spoken of by Gallen J in Pratt Contractors Ltd v Palmerston North City Council [1995] 1 NZLR 469, 481.

[23] It is also clear that the respondent did consider the appellant's offer alongside those of others submitted which quoted for the 1996 year.As we have indicated we regard the tender of Tasman Bay to be among them.By considering the appellant's tender the respondent discharged all contractual duties it may have owed the appellant.The prices submitted by the appellant were not the lowest prices submitted and understandably the appellant did not figure in the respondent's negotiation of arrangements covering both the 1996 and 1997 years. It was however the respondent's right to proceed on that basis.

[24] For these reasons, which are in general agreement with those of Ellis J, we would dismiss the appeal.

[25] The respondent is entitled to costs in the sum of $3000 together with reasonable disbursements which, failing agreement, will be fixed by the Registrar.

Solicitors

Duncan Cotterill, Nelson, for Appellant

Buddle Findlay, Wellington, for Respondent