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South Waikato District Council v Roading and Asphalt Limited [2013] NZCA 566 (19 November 2013)

Last Updated: 26 November 2013

     
IN THE COURT OF APPEAL OF NEW ZEALAND
BETWEEN
 Appellant
AND
 Respondent
Hearing:
24 July 2013
Court:
O'Regan P, French and Heath JJ
Counsel:
J A MacGillivray and K E Sullivan for Appellant P P Buetow and J M Hanning for Respondent
Judgment:


JUDGMENT OF THE COURT

  1. The appeal is allowed.
  2. 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.
  1. 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.
  1. 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.

____________________________________________________________________

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]
[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 the Waste Minimisation Act 2008. That statute came into force on 1 July 2009. Part 3 required the Council to pay a levy on all waste disposed of at its facilities.[9] However, if the Council were able to divert the waste, for recycling or reuse, within six months of it coming under its control, the levy would be waived.[10] A reduction in outgoings, resulting from compliance with that obligation, would make the Council’s costs of waste management more economical.
[13] Although the tender document did not refer to the Waste Minimisation Act, the Council did draw the issue to the prospective tenderers’ attention. It incorporated a “bonus” for diverting approved material from the landfill face, and managing that process on site. On the basis of an anticipated quantity for removal of 2,000 tonnes, that part of the tender document that contained the Schedule of Quantities, Rates and Prices stated:
Item
Description
Unit
Quantity
1.3
Bonus (in addition to Item 1.1) for approved material diverted from the landfill face and management on site as specified
Tonnes
2,000
[14] Clause 1.6 of the tender document provided a description of the scheduled items and summary of activities. With reference to Item 1.3,[11] cl 1.6.4 provided:

1.6.4 Item 1.3 Provides for a bonus to be claimed (on receipt of weighbridge dockets) each month for nominated waste ‘diverted’ permanently from the landfill face. It shall be in full compensation for the separation of waste product, management on site, (including double handling as necessary) of the various wastes, and transport off site at intervals not exceeding 3 months. Greenwaste mulched at the Tokoroa site may be used for daily cover, but will not attract the bonus as it remains on site. Note: The current largest component is ‘greenwaste’ followed by ‘whiteware’, scrap steel, second hand goods, oils, batteries etc. It is anticipated the bonus will not be less than the current Government ‘waste levy’ of $10/tonne plus GST which is charged for all waste entering the landfill.

(emphasis in original.)

[15] The tender submitted by RAL referred specifically to waste diversion and recovery of recyclables. It demonstrates that RAL was well aware of the importance of this issue. By way of illustration, part of RAL’s tender stated:

Waste diversion and recovery of Recyclables:

Roading and Asphalt Ltd consider this a very high priority and if successful would consider erecting a building in conjunction with the Council. Meanwhile the refuse passes the recycling bins and goes over the weighbridge. The kiosk staff directs the recyclables to designated areas we have for them ie:-

Oils

Batteries

White ware

Steel

Gas bottles

If there are any other recyclables that the operator sees he will divert to the appropriate place. Our aim is always to reduce the volume of refuse going into the landfill and filling up the airspace.

[16] At the Stage Two level, the Council evaluated the tenders from RAL and MPL by reference to an economic analysis undertaken by Harrison Grierson Consultants Ltd. That analysis was based on the amount of diverted tonnage of waste, measured against savings to the Council. The Council’s Services Manager, Mr Pascoe, wrote, in a memorandum to his Chief Executive:[12]
Issues

The tender to operate the Tokoroa Landfill and the Putaruru Transfer Station is for a two year duration only, as it is anticipated that at the end of the two years Council will have a materials processing facility (MRF) at the landfill, which could require a different type of operating contract for both the landfill and the MRF.

The contract called for three operation rates for the Tokoroa Landfill depending on the volume of refuse disposed of in the landfill; the rates supplied by the tenders are shown in table A. The contract total was based on the middle range as the landfill volume is 690 tonnes a month at the moment.

[RAL] have supplied the same rate to operate the Tokoroa Landfill for the middle and lower range, so there is no benefit to the reduction in refuse disposed of at the landfill.

Table A
Contractor
Less than 500 Tonnes per Month
501 to 1 000 Tonnes per month
Over 1 000 Tonnes per Month
Saving in Levy Payment
Saving in Landfill Space

Roading & Asphalt Ltd
$1,032,220.00
$1,032,220.00
$1,080,220.00
$26,000
$57,200

Materials Processing Ltd
$1,036,954.04
$1,072,083.56
$1,107,213.32
$26,000
$57,200

EnviroWaste Services Ltd
$1,219,086.00
$1,254,894.00
$1,310,094.00
$26,000
$57,200

Within these rates is an item “Bonus for approved material diverted from the landfill face and management on site as specified”. This item was in the contract to encourage the operator to recycle material that can be recycled and is going over the face at the moment. An estimate tonnage of 2,000 tonnes for Tokoroa and 600 tonnes for Putaruru was specified in the document, this was based on a best estimate on what can be recycled. This item has a large difference between the rate supplied by [RAL], the rate supplied by [MPL] and [the third tenderer]. The difference can be seen in table B.

The Economic Analysis by Harrison and Grierson puts a value on landfill space at $22/m³ = $22/tonne allowing for future cost of capping.

Table B
Contractor
Rate Tokoroa per Tonne
Amount for Tokoroa
Rate Putaruru per Tonne
Amount for Putaruru

Roading & Asphalt Ltd
$2.50
$5,000.00
$2.50
$1,500.00

Materials Processing Ltd
$21.86
$43,720.00
$27.86
$16,716.00

EnviroWaste Services Ltd
$15.00
$30,000.00
$15.00
$9,000.00

In the contract document it stated that this rate was expected to be more than $10 a tonne and the waste levy collected at the gate would be used to help offset this cost, as Council would be collecting the levy at the gate and would not be required to pay Wellington the Waste Levy if we could prove that the material was diverted. The rate supplied by [MPL] is a similar rate to what Taupo District Council is paying. The rate supplied by [RAL] is regarded as being unrealistically low and is likely to be a disincentive to it diverting waste because it will be more costly than it is worth.

[RAL] are currently diverting 4 tonnes a year and 8 tonnes over two years which is negligible at any rate. This is made up of white-ware not dumped over the face, oil and batteries. [MPL] intends to be proactive and increase recycling volumes. Each tenderer’s methodologies are attached as Appendix 4. [The third tenderer] did not attend the site meeting and have incorrectly tendered on this item.

The table C assumes that [RAL] will divert 10 tonnes and [MPL] diverts 1300 tonnes (Half the target) of 2600.

Table C

Contractor
Roading & Asphalt
Materials Processing
Diverted Tonnage
10
1300
Less than 500 Tonnes per Month
$1,025,745.00
$1,006,736.04
501 to 1 000 Tonnes per Month
$1,025,745.00
$1,041,865.56
Over 1 000 Tonnes per Month
$1,073,745.00
$1,076,995.32
Saving in space @ $22
$220.00
$28,600.00
Saving in Levy payment
$100.00
$13,000.00
501 to 1000 Nett cost to Council
$1,025,425.00
$1,000,265.56

There is Nett cost benefit to Council with [MPL]. The benefits of diverting material is the reduction in levy payment and it prolongs the life of the landfill.

Discussion

[RAL] is the existing landfill operator and has been encouraged to increase diversion of material since the 17 March 2009, before the waste levy came into effect. They have not changed their operations and have not increased their diverted material. [MPL] have a proven track record in diverting material for other beneficial use, their closest facility is at Kinleith. [The third tenderer] stated diverting the material at the gate that SWAC recycle. As they did not attend the site meeting they did not have a clear understanding of the tender.

[The third tenderer] is quite a bit higher than the other two, therefore the award of the contract is between [RAL] and [MPL]. If Council want to progress with diverting material in accordance with Waste Minimisation and keeping pace with industry it is recommended that the contract be awarded to [MPL], which will give council a Nett cost benefit over [RAL].

...

(emphasis added.)

[17] The problem in this case arises out of a disconnect between the lowest price offered by a tenderer and the net economic benefit flowing to the Council, as a result of acceptance of a particular tender. In most situations, acceptance of the lowest price offered will provide the most economic means by which the Council can achieve its goals. In this case, because of the Council’s ability to avoid payment of the waste disposal levy,[13] the lowest price was not necessarily going to achieve the best economic outcome.

The High Court judgment

[18] Keane J was careful to differentiate the Council’s obligations between those arising at the first and second stages of the tender process. He held that the Council “unquestionably reserved to itself” the right to evaluate non-price attributes at the first stage of the process. That was because the Council was entitled to assess the capacity of the particular tenderer to carry out the contractual terms, within the scope of the attributes identified by the Council.[14] Keane J said:

[46] The Council did not at that first stage, however, expressly reserve to itself the ability to compare tenderers’ proposals in that or any other respect. It only reserved to itself the ability to pass or fail each tenderer on each of the non price attributes it identified. Only at the second stage of the analysis did the Council reserve to itself the ability to compare tenders but then principally, if not exclusively, only on the basis of price.

[47] In the plainest sense, the Council reserved to itself at the second stage the right to assess qualifying tenders by the lowest price conforming method; that is to say by ranking the prices tendered in order to identify the ‘lowest price’. The Council might, in reserving to itself the ability to ‘evaluate the price attribute’ have assumed a wider discretion, but only marginally. Its primary focus had to have been price and price only.

[48] Though, therefore, the Council did assume the ability to make a two stage analysis that involved non-price attributes, that analysis reduced to price as a single criterion. Whether the Council then retained a discretion, inherent in its immunity from any duty to accept the lowest or any tender, to accept a tender that was not the lowest, is the second issue in this case.

[19] In relation to the Stage Two issue, Keane J framed the issue for determination as:[15]

[24] ... whether, in the lowest price conforming method two stage analysis the Council obliged itself to make, it was nevertheless entitled to treat as relevant and decisive net cost savings from waste diversion and savings in landfill space. Was that inherent in the two stage process or did it involve an undeclared third stage analysis?

[20] On Keane J’s view, once a tender had passed muster under Stage One, the determination of which tender should be accepted involved a simple comparison between the prices offered in the competing tender documents. No evaluative exercise was required. The Judge found that, in purporting to reserve to itself, at the second stage, the right not to accept “the lowest or any tender”, the Council had gone outside the terms on which it had invited tenders to be made.[16]
[21] The Judge considered that approach had been settled by Gallen J’s judgment in Pratt Contractors Ltd v Palmerston North City Council,[17] a case in which the Palmerston North City Council had invited tenders on the basis of the “Lowest Price Conforming Method”. Keane J found that the importance that the Council placed on the waste minimisation levy in this case was not made clear to RAL in writing, and there was nothing to suggest that, at the time of tender, the Council desired to exclude RAL as a contractor for the next two years. Indeed, the Council had extended annually RAL’s contract over the preceding three years.[18]
[22] As an additional basis for a finding of liability, the Judge held that, in two respects, the Council had acted in breach of an implied term “to treat all tenderers fairly and equally”. This implied term has also been characterised as being part of a process contract.[19] In reaching that view, Keane J said:[20]

[53] Firstly, in evaluating the tenders on a basis not disclosed to the tenderers in the tender documents, the Council was inherently unfair. It not merely evaluated them on an undeclared basis, it did so inconsistently with the basis it had declared. While that worked to MPL’s advantage, it worked to the distinct disadvantage of RAL. Had RAL been aware of the basis on which the Council finally assessed tenders, it almost certainly would have pitched its tender differently.

[54] Secondly, in the evaluation the Council made it relied on Mr Pascoe’s comparison of RAL’s waste diversion record with that of MPL. That was not merely beyond the terms of tender. It was so highly unfavourable to RAL and so highly favourable to MPL that it had to involve a level of conjecture.

[23] Having held the Council liable for breach of contract, the Judge considered what damages should be awarded. His starting point was that RAL was only entitled to recover “its agreed loss of earnings for the two years of the contract, and any analogous loss for the third optional year”, if he were satisfied on a balance of probabilities that “but for the Council’s breaches of its terms of tender, it would have awarded the substantive contract to RAL”.[21]
[24] On the question of damages, Keane J concluded:

[74] RAL’s tendered price, moreover, would have given the Council comfort. The Council had budgeted for a contract price of $1,228,000. RAL’s tendered price was $196,000 less. Even on the Council’s net cost calculation, and even assuming that RAL only diverted 10 tonnes of waste, the net cost to Council would have been $1,025,425, some $203,000 less than the Council’s budgeted price.

[75] For these reasons I find to the balance of probabilities that, had the Council complied with its terms of tender, it would have awarded the contract to RAL for the next two years and thus that RAL has, as a result of the Council’s breach of its terms of tender, suffered the agreed loss it claims for those two years, $330,634, plus GST.

[76] I am not satisfied, by contrast, that RAL suffered any loss as to the third optional year of the contract. A third year had to be mutually agreed and that depended not just on RAL’s performance, but on whether by then the Council had constructed its materials processing facility at the landfill and what form of contract that then called for. Whether RAL would have obtained a third year has to be speculative.

Competing submissions

[25] For the Council, Mr MacGillivray submitted that Keane J had erred in finding that the terms of the tender document were materially indistinguishable from those considered by Gallen J, in Pratt Contractors Ltd v Palmerston North City Council. Mr McGillivray contended that, on its true construction, cl 1.1.4 and 1.3[22] reserved a general discretion to the Council to determine to which tenderer to let the contract (irrespective of the contract price offered), or to decide not to accept any offer at all.
[26] Mr MacGillivray also challenged Keane J’s conclusion that the Council breached an implied term of the tender document, to treat all tenderers fairly and equally during the selection process. He submitted that, given the express terms of the tender document, there was no room for superimposition of such an implied obligation or (if it were found to exist) a finding that it had been breached.
[27] In addition, the loss of profits awarded for the two years of the contract being offered by tender was put in issue. Mr McGillivray submitted that RAL could not demonstrate, on a balance of probabilities, that it would have been awarded the contract had the alleged breaches not occurred.
[28] Mr Buetow’s primary contention is that the lowest price conforming method set out in the tender documents was couched in mandatory language and was so specific that it would be inconsistent for the Council to retain a discretion to award the tender to a tenderer who was not the lowest non-excluded tenderer. He argues that at the second stage, the Council was not entitled to consider non-price attributes again, and if waste minimisation was such a critical element of the tender, the Council should have made that clear to all tenderers.
[29] While it was open to the Council to fail RAL under Stage One if its waste minimisation proposal was inadequate, Mr Buetow argues that once RAL has passed Stage One, waste minimisation is no longer a relevant consideration in Stage Two.
[30] Mr Buetow also argues that the Council breached an obligation to act fairly by not following the process it set for itself. In particular, he contends that the Council did not apply the same discretionary judgment to both parties, by assuming that RAL would only divert 10 tonnes of waste, yet assuming that MPL would divert 1,300 tonnes.
[31] On a separate claim under the Fair Trading Act 1986, Mr Buetow contended that, as a result of representations made in the tender document and the fact that a “sharpened pencil” had been sent in the mail to a director of RAL by a Council representative, there was a factual foundation on which a Fair Trading Act claim for misleading or deceptive conduct in trade could be proved. That, he submitted, supported a finding of liability, independent of the interpretation and implied term arguments. That contention was resisted by Ms Sullivan, for the Council, who submitted there was no room for the Fair Trading Act to apply on the facts of this case.
[32] On the cross appeal, Mr Buetow submitted that the Judge should also have awarded damages on a loss of chance basis for the discretionary third year of the contract. Ms Sullivan responded to this point by submitting that the Council would not, on the evidence, have been likely to have extended the contract, even if it had initially been awarded.

Analysis

Interpretation of the tender documents

[33] Because Keane J put much store on Gallen J’s reasoning in Pratt Contractors Ltd v Palmerston North City Council,[23] it is necessary to identify precisely what was decided in that case. Gallen J was confronted with a form of tender which, at its foot, contained a provision stating:

We understand that the Principal is not bound to accept the lowest or any tender he may receive ...

and incorporated by reference condition 107.1 of NZS 3910, to the same effect.[24] The addendum to the conditions of the tender added:[25]

The Principal shall only enter into a contract for the non-excluded tender with the lowest price.

[34] Gallen J took the view that once it had issued a tender document, it was not open for the Palmerston North City Council to accept a tender at other than the lowest price, because that was the basis on which it sought tenders. He held that, when the Council made the decision not to reject all tenders, or to call for a re-tendering, it breached its contract with the tenderer.[26]
[35] In reaching that view, Gallen J rejected a submission that the request for tenders amounted to no more than an invitation to treat. Instead, he held that a contract was entered into once a tender was made and that it required the Council to act in accordance with its tender documents, as well as under an implied obligation to treat the tenderers fairly and equitably.[27] That view was based on the fact that there had been more than a “mere calling for tenders”. He held that there was an additional requirement for a tenderer to register an interest, in accordance with extensive, detailed and substantial tender documents. The Judge had regard to “the commercial reality ... that a tenderer is obliged to expend substantial amounts of time and money in preparing a complex tender ....”[28]
[36] In Maintec Ltd v Porirua City Council,[29] Gallen J reconsidered his earlier judgment in Pratt. In Maintec, he found that a claim for breach could not be established, because the Council had elected not to award a contract to any of the tenderers. That, the Judge found, did not breach the promise to award the tender to the lowest bidder, because no tender was in fact let.
[37] In comparing the reasoning employed in Pratt and Maintec, Keane J said:[30]

[59] In reconciling the contrasting terms of tender in [Pratt v Palmerston North City Council], when deciding the first question, Gallen J remarked, ‘to hold ... that a Council retains a power to reject all tenders, is not the same as allowing it to use such a power to select tenders.’[31] In deciding the second issue, he said that while the Council did have the power to reject all tenders and to call fresh tenders, if it did decide to award the contract it retained no discretion. It then came under the explicit duty it had assumed:[32]

Once it determined to accept a tender, then I think it was obliged to do so on the basis on which it sought tenders ... Once the Council purported to act within the tendering framework it was obliged, if it awarded a contract at all, to award it to the tenderer submitting the lowest conforming tender.

[60] In Maintec Ltd v Porirua City Council,[33] where the privilege term also figured, but there was no positive duty term, the Council rejected all tenders and re-initiated the tender process. The lowest tenderer sued. In that case Gallen J dismissed the claim, adhering to his decision in Pratt. The lowest tenderer would only have had a cause of action, he held, if the Council had awarded the contract to some other tenderer, whose tender was higher. It was fully entitled to reject all tenders.

[61] I agree with Gallen J’s analysis in those two cases and I adopt his reasoning in this case. There are no other cases that contain terms of tender that are as near to those in issue in this case. Indeed, it seems to me, that the terms here and those in Pratt, most especially, are materially indistinguishable.

[62] There may be no positive duty term in this case but, as Gallen J held in Maintec, that outcome is inherent in the lowest price conforming method. The privilege clause in this case may be an explicit term of tender as well as a feature of the tender document. In Pratt the privilege term may only be incorporated as a term of tender by reference from the incorporated New Zealand standard terms. But there too it was also a feature of the tender document. These distinctions are, I consider, merely incidental. What counts finally is what the terms say.

[38] In Pratt, the Council’s argument that it was not bound to accept the lowest tender was based on a statement at the foot of the form of tender and a condition of NZS 3910, which was incorporated by reference.[34] Gallen J summarised the Council’s position:[35]

[Counsel for the Council] relied upon the general law that where invitations to treat are involved, “it is generally unnecessary for the building owner or employer to state that he does not bind himself to accept the lowest tender” — a quotation from 4(2) Halsbury’s Laws of England (4th ed) at para 313. That may not apply to a situation where the relationship is one of contract as distinct from a mere invitation to treat. He relies however upon the fact that at the foot of the form of tender, which is the basis for the tender itself, the tenderer accepts “We understand that the Principal is not bound to accept the lowest or any tender he may receive” and also on condition 107.1 of NZS 3910 which is incorporated by reference, that the lowest or any tender will not necessarily be accepted. He says that whether or not the plaintiff met the requirement for the tender and had the lowest tender, there was no obligation on the Council to accept that particular tender.

[39] With respect to Keane J, we consider that the tender documents in this case were such as to differentiate them materially from those used by Palmerston North City Council. In our view, the following factors evidence the differences and allow us to distinguish Pratt:
[40] While, as Gallen J rightly observed, it is necessary for much time and expense to go into preparation of a tender of this type, it must be assumed that the tenderer has, in fact, read the terms of the tender document and tendered on that basis. In the actual tender submitted by RAL, it dealt explicitly with waste diversion and the recovery of “recyclables”.[47] In our view, RAL must have understood the importance of the “bonus” element of the tender.
[41] We consider that the question of liability in this case turns on the wording of the invitation to tender and the tender documents to which RAL responded.[48] Did the Council make it clear that it reserved an ability to award the contract to a tenderer who had not offered the lowest price?
[42] The premise on which RAL’s case is based is that there was no evaluative exercise to be undertaken, because once the Stage One assessment had been completed it was simply a matter of the Council choosing the lower price. That approach does not sit well with the actual terms of the tender document. First, there were various references to the Council’s ability to accept any tender (whether the lowest or otherwise), or not to accept any of them. Second, that premise conflicts with the need for an evaluative exercise to be undertaken in relation to the “price attribute” and the emphasis given to the nature of the “bonus”, if the successful tenderer could manage waste disposal in a manner that would avoid payment of the levy created by the Waste Minimisation Act.
[43] In our view, the Council deliberately adopted a more nuanced approach to the assessment of tenders so that, in light of the incentives created by the Waste Minimisation Act, it could assess the value of any tender submitted, as opposed to letting the tender on the sole basis of cost.[49]
[44] Mr Buetow put an argument suggesting that any evaluative exercise of the “price attribute” was limited to the “Schedule of Tendered Resources”, and did not enable the Council to take into account other considerations. While the relevant clause was drafted infelicitously, we do not believe that it can properly be interpreted in that way. The relevant part of cl 1.1.4 of the tender document[50] required the Council to consider two factors – the tenderers’ respective prices and the Schedule of Tenderers’ Resources. It did not exclude other factors from consideration “when evaluating the price attribute”. An evaluative exercise, involving an assessment of comparative value by reference to a series of criteria is very different from a mechanical requirement to pick the lowest of the prices offered.[51]

With respect, we conclude that Keane J erred in placing too much emphasis on the generic nature of the tender methodology,[52] at the expense of the specific contractual terms on which the Council was seeking bids. In doing so, the Judge was deflected from his task of interpreting the specific tender documents. On their true interpretation, we have found that the Council did reserve itself the right to accept a tender other than at the lowest price offered.[53] The tender documents were there to be read by all prospective tenderers, each of which was entering into contractual relations with the Council on the same terms.[54]

Was the Council in breach of an implied duty to act fairly?

[45] The next question is whether, notwithstanding our view on the interpretation of the tender documents, the Council was nevertheless in breach of an implied obligation to treat tenderers fairly and equally. This obligation is one that arises out of the “process contract” by which tenderers respond to particular requirements that have been put into the market by (in this case) a Council.
[46] In Pratt Contractors Ltd v Transit New Zealand,[55] the Privy Council characterised the “process contract” as including an obligation of good faith that was implied into a tender document. The Privy Council acknowledged that “the implied duty to act fairly and in good faith” had been “the subject of a good deal of discussion in Commonwealth authorities”.[56] Their Lordships considered the extent of the duty on the particular facts of the case, given that its existence had been “accepted ..., in general terms” before them.[57]
[47] In delivering the advice of the Privy Council, Lord Hoffmann was careful to distinguish between the type of obligation arising in a process contract in the nature of a tender, and judicial review of administrative decisions. In addressing the extent of the implied duty in the context of a tender, he said:[58]

[47] ... The duty to act fairly meant that all the tenderers had to be treated equally. One tenderer could not be given a higher mark than another if their attributes were the same. But Transit was not obliged to give tenderers the same mark if it honestly thought that their attributes were different. Nor did the duty of fairness mean that Transit were obliged to appoint people who came to the task without any views about the tenderers, whether favourable or adverse. It would have been impossible to have a [tender evaluation team] competent to perform its function unless it consisted of people with enough experience to have already formed opinions about the merits and demerits of roading contractors. The obligation of good faith and fair dealing also did not mean that the [tender evaluation team] had to act judicially. It did not have to accord Mr Pratt a hearing or enter into debate with him about the rights and wrongs of, for example, the Pipiriki contract. It would no doubt have been bad faith for a member of the [tender evaluation team] to take steps to avoid receiving information because he strongly suspected that it might show that his opinion on some point was wrong. But that is all.

[48] Mr Buetow submitted that RAL was treated unfairly because the Council (wrongly) assumed that it would divert only 10 tonnes of waste for recycling, whereas MPL was likely to divert 1,300 tonnes. We do not consider that the Council can be criticised for its interpretation of RAL’s tender. The Council assessed the tender criteria honestly, and in terms of a detailed economic analysis undertaken by Harrison Grierson Consultants Ltd.[59] There is no question of MPL being treated more favourably, for reasons extraneous from the tender process. We find no breach of any implied obligation on this score.
[49] In this case, as in Pratt Contractors Ltd v Transit New Zealand,[60] it was accepted that a process contract did exist and that the Council had an obligation to act fairly and honestly. Like the Privy Council, we regard that issue as “somewhat controversial”[61] and leave open the question whether it is an invariable obligation assumed by any party that calls for tenders.

The Fair Trading Act claim

[50] Having found against RAL on the interpretation and process contract claims, it is necessary to consider whether Keane J’s judgment can be upheld on another ground, namely liability under the Fair Trading Act 1986.
[51] Section 9 of the Fair Trading Act provides:

9 Misleading and deceptive conduct generally

No person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

[52] Mr Buetow relied on the following factors to establish a claim under the Fair Trading Act:

Around [13 May 2010] I also recall receiving, by post, a with compliments slip, which simply stated: ‘from Mick Jones’. Attached to this with compliments slip was a pencil that had been sharpened. I took this to mean that Roading and Asphalt needed to put in a low price. That is what years of contracting had told me ‘sharpen your pencil’ meant.

(c) A site visit held on 17 May 2010. Messrs Jones and Pascoe represented the Council at that visit, and representatives of two other tenderers were also present. Mr Gates stated that this was a visit to which cl 1.2.1 of the tender document referred:

1.2 CONDITIONS OF TENDERING

...

1.2.1 SCHEDULE TO CONDITIONS OF TENDERING

...

2. (103.1) Tenderers are advised a site meeting will be held on Monday 17th May at 9am at the Putaruru Transfer Station, and 10.30am at Tokoroa Landfill to answer any queries. Site visits outside this general meeting can be arranged with Mick Jones ... prior to 19th May.

[53] As to the first point, we have already held that the tender documents made it clear that the Council reserved the right to accept a tender, other than the lowest.[62] In light of that finding, there is no basis on which the content of the tender documents can give rise to a claim for misleading or deceptive conduct in trade.
[54] The second point is no more than a makeweight. No company in the position of RAL could possibly have regarded receipt of a “sharpened pencil” as a representation that it would be awarded the contract if it were to offer the lowest price. To us, this incident appears to evidence nothing more than a light-hearted attempt by the Council officer to emphasise the need for RAL to undertake its own costings carefully.
[55] In relation to the third point, we remain unclear why complaint is made about the way in which the site visit was conducted. Both RAL and MPL had the same information available to complete their tender; if anything, because of its prior history at the sites, RAL was better informed. More importantly, RAL was aware of the importance of the Waste Minimisation Act to the Council. We refer to a letter dated 17 March 2009 in which Mr Pascoe, the Council’s “Services Manager”, drew the existence of the waste minimisation levy to the attention of RAL. He wrote:

...

17 March 2009

...

As you are aware the Waste Minimisation Levy comes into effect on 1 July 2009, which is a $10 + GST charge payable to the Government on all product that goes over the tip, including cover.

Council would like to work with Roading & Asphalt on ways to get beneficial use of the sludge at the landfill to reduce the volume of imported cover material.

The Tenders Board has authorised staff to negotiate a payment to Roading & Asphalt per tonne of produce that is removed from the landfill for recycling, which is to be taken back to the Tenders Board for approval.

Please give the recycling some thought and next time you are in Tokoroa a meeting will be set up to discuss the issue.

....

[56] No representations were made to RAL that could have led it to believe that it was in any better position than other tenderers to have its tender accepted. The alternative claim under the Fair Trading Act cannot succeed.

Damages

[57] Given our conclusions, it is unnecessary for us to address the question of damages. However, we make one brief point in relation to the claim arising out of the possible extension of the contract into a third year.
[58] Had we found a breach of contract, we would have agreed with the Judge’s view that no damages could flow in respect of that possible extension. As the Judge said, whether the contract would have been extended was dependent not only on RAL’s performance during the first two years but also on whether, by that time, the Council had constructed a processing facility at the landfill; and, if so, what form of contract was then required. We agree with the Judge that the question whether RAL would have obtained a third year is “speculative”.[63]

Result

[59] For those reasons, we allow the appeal. The judgment entered in favour of RAL in the High Court is set aside. In substitution, we enter judgment on RAL’s claim in favour of the Council.
[60] The Council is entitled to costs in this Court on its successful appeal. They are awarded for a standard appeal, on a Band A basis, and usual disbursements. We certify for two counsel.
[61] We are unsure what orders (if any) were made as to costs in the High Court. We set aside any that may have been made and leave those costs to be dealt with in the High Court in a manner that reflects the outcome of this appeal.







Solicitors:
Tompkins Wake, Hamilton for Appellant
Kensington Swan, Auckland for Respondent

[1] See [6] below.

[2] See [6] and [39](b) below.

[3] Roading & Asphalt Ltd v South Waikato District Council [2012] NZHC 1284 [High Court judgment].

[4] This summary is taken from Gallen J’s explanation of the process in Pratt Contractors Ltd v Palmerston North City Council [1995] 1 NZLR 469 (HC) at 472.

[5] See [6] above.

[6] See [7] above.

[7] This type of provision is known as a “privilege clause”.

[8] See [9] above.

[9] Waste Minimisation Act 2008, s 26(1).

[10] Section 26(3).

[11] Set out at [13] above.

[12] In this document the initials “MRF” are used to describe the “materials processing facility”. The initials do not reflect those words but we have left the text of the document as originally drafted by the author.

[13] See [12] above.

[14] High Court judgment, above n 3, at [44] and [45].

[15] At [24].

[16] At [63].

[17] Pratt Contractors Ltd, above n 4.

[18] At [70]–[73].

[19] At [52]. See also, Pratt Contractors Ltd v Transit New Zealand Ltd [2003] UKPC 83, [2005] 2 NZLR 433 (PC) at [45]–[47].

[20] At [53] and [54].

[21] At [67].

[22] Set out at [9] and [10] above.

[23] Pratt Contractors Ltd, above n 4.

[24] At 481.

[25] At 480.

[26] At 487.

[27] At 480–481.

[28] At 479.

[29] Maintec Ltd v Porirua City Council HC Wellington CP189/95, 19 October 1995.

[30] Roading and Asphalt Ltd v South Waikato District Council [2012] NZHC 1284 at [59]–[62].

[31] Pratt Contractors Limited, above n 4, at 481–482.

[32] At 487.

[33] Maintec Ltd v Porirua City Council HC Wellington CP189/95, 19 October 1995.

[34] See [33] above.

[35] At 481.

[36] See [7] above.

[37] Clause 1.1.1 of the tender document.

[38] See [9] above.

[39] See [6] above.

[40] That was a reference to cl 1.1.3.4 which stated: “Each Tenderer shall submit details of the plant, equipment, material and facilities to be used on the project”.

[41] Set out at [9] above.

[42] Set out at [10] above.

[43] Item 1.3 set out at [13] and cl 1.6.4 set out at [14] above.

[44] See [15] above.

[45] To which cl 1.6.4 of the tender document refers, set out at [14] above.

[46] Clauses 1.6.5, 1.6.7, 1.6.11.

[47] See [15] above.

[48] See [7], [9] and [10] above.

[49] See generally, MJB Enterprises Ltd v Defence Construction (1951) Ltd [1999] 1 SCR 619 at [46] per Iacobucci J, for the Court.

[50] Set out at [9] above.

[51] The nature of the evaluative exercise can be gleaned from the report prepared by the Council’s Services Manager as part of the Stage Two analysis, set out in full at [16] above.

[52] See [6] and [20] above.

[53] See [39] above.

[54] Although the analogy is not perfect, tender documents can be seen as falling within the class of “public documents” for interpretation purposes. The interpretation of such documents is usually undertaken without reference to extrinsic evidence, involving knowledge held by either the person issuing the document or anyone relying on it. The rationale for this approach is explained in Opua Ferries Ltd v Fullers Bay of Islands Ltd [2003] UKPC 19, [2003] 3 NZLR 740 (PC) at [20]–[25].

[55] Pratt Contractors Ltd (PC), above n 19.

[56] At [45].

[57] Ibid.

[58] At [45]–[47].

[59] See [16] above.

[60] Pratt Contractors Ltd (PC), above n 19.

[61] At [45].

[62] See [39] and 0 above.

[63] At [76].

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