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Telco Technology Services Limited v Ministry of Education [2014] NZHC 213 (19 February 2014)

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Telco Technology Services Limited v Ministry of Education [2014] NZHC 213 (19 February 2014)

Last Updated: 26 February 2014


IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY



CIV-2014-485-001474 [2014] NZHC 213

UNDER the Judicature Amendment Act 1972

IN THE MATTER of an Application for Judicial Review

BETWEEN TELCO TECHNOLOGY SERVICES LIMITED

Applicant

AND MINISTRY OF EDUCATION Respondent

Hearing: 17 February 2014

Counsel: V L Heine and B A Davies for Applicant

A Williams with C Fleming and R Wanigasekera for

Respondent

Judgment: 19 February 2014



JUDGMENT OF COLLINS J



Introduction

[1] Telco Technology Services Ltd (Telco) has applied for an interim injunction. The interim injunction seeks to prevent the Ministry of Education (the Ministry) from giving effect to its decision to appoint another company to be solely responsible for implementing the final phase of The Schools’ Network Upgrade Project (the project).1

[2] I have decided to grant an interim injunction because Telco has established:

(1) There is a serious question to be tried in relation to its application for judicial review.

1 Referred to in the contract documents as the SNUP project.

TELCO TECHNOLOGY SERVICES LIMITED v MINISTRY OF EDUCATION [2014] NZHC 213 [19

February 2014]

(2) An interim injunction is necessary to preserve Telco’s position.

(3) The overall justice of the case favours the granting of an interim injunction.

[3] Telco has established that it is seriously arguable it tendered on the basis that the Ministry’s Request for Proposals (RFP) said it intended to appoint two or three suppliers to complete the final phase of the project. After the tender process concluded the Ministry advised Telco only one supplier would be appointed. The basis on which Telco would have costed its proposal is likely to have been significantly different had it known the Ministry was willing to appoint one supplier. There is a serious question as to whether or not the Ministry’s RFP for the project created a procedural expectation that if only one provider was going to be appointed Telco would be given the opportunity to amend its proposal to reflect this change.

[4] Telco is likely to suffer from the lack of opportunity to have tendered for the final phase of the project on the basis that the Ministry was willing to appoint one supplier.

[5] Issuing an interim injunction will cause some delay, uncertainty and inconvenience. However, I am satisfied these consequences can be mitigated appropriately and that the overall justice of the case favours the granting of an interim injunction.

Context

[6] Telco provides information, communications and technology services to schools in New Zealand. Since 2010 Telco has been one of two companies appointed by the Ministry to deliver the first five phases of the project which is designed to provide 97.7 per cent of schools in New Zealand with ultrafast broadband by December 2015. Telco’s contract under the first five phases of the project is due to expire during the course of 2014.

[7] On 26 August 2013 the Ministry issued its RFP for the delivery of the final phase of the project. It is estimated that approximately 6002 schools will be provided with the technology systems and services to be integrated into the ultrafast broadband system by December 2015.

[8] Telco was one of several companies invited by the Ministry to provide a proposal by 24 September 2013 for the final phase of the project.

[9] The Ministry’s RFP contained the following provisions:

(1) Clause 1.1 Purpose of this RFP

...

The Ministry intends to select two to three PM3 Services providers for the final phase of the SNUP project.

(2) Clause 1.5.3 Geographic Coverage

...

The Ministry expects to select more than one project management services suppliers. When answering questions related to capacity Tenderers should answer on the basis of a maximum 50 per cent of the available schools.

(3) Clause 2.1.4 Format of Proposals

The format for proposals is detailed in Section 4.0 of this RFP. The Ministry reserves the right not to accept proposals that do not provide the requested information, or do not follow the response format.

(4) Clause 2.1.7 Non-Compliance

Each Tenderer should carefully read this RFP to ensure its proposal complies with the Ministry’s procedural instructions and the terms of this RFP. The Ministry is not required to accept any proposal for evaluation, and may elect not to evaluate any proposal, that does not comply with such procedural instructions and/or terms.

(5) Clause 2.2.3 Evaluation Criteria

Each proposal that passes the initial assessment will be evaluated against the following SNUP evaluation criteria.


2 Telco says there are 595 schools involved in the final phase of the project. Some of the

Ministry’s evidence refers to 605 schools.

3 Project Management.

...

(a) organisation offers a credible solution to the Ministry.

...

(u) the degree to which a proposal offers innovation that would deliver additional benefits and/or value, which may include addressing the opportunities identified within this RFP, and other ideas or mechanisms for achieving the desired outcomes.

(6) Clause 3.1.11 Ministry’s Rights

...

The Ministry reserves the right to:

...

amend the closing date, or any other date in the RFP process by the issue of a written amendment notice before or after the closing date;

amend this RFP or any associated documents or any condition or procedure in the RFP process, by the issue of a written amendment notice;

...

consider or reject any alternative proposal at the Ministry’s

sole discretion;

...

negotiate and conclude any number and type of contracts with any Tenderer(s) to the exclusion of others, in respect of any of the Requirements (on the basis of the proposal or any alternate basis);

...

run this RFP in such manner as the Ministry may see fit. (7) Clause 3.1.16 Amendments and Clarifications

Where the Ministry amends any date in the RFP process, this RFP or any associated documents, it may issue any amendment to this RFP by way of written amendment notice. A copy of each amendment notice will be given to each affected Tenderer.

[10] The RFP also asked tenderers to answer 28 questions set out in cl 5.2 under

the heading “Project Manager Questions”. Questions [25] and [27] asked:

[25] What additional information not previously provided do you believe enhances the value of your proposal?

...

[27] Would you be willing to take a primary role in the SNUP upgrades, organise all subcontractors, provide and manage all warranties, in return for exclusive 2 year’s SNUP work and for 3 years beyond?

[11] On 24 September 2013 Telco submitted its proposal in which it confirmed it had the capacity to deliver the services sought by the Ministry to 50 per cent or more of the schools that were to be upgraded in the final phase of the project.

[12] Telco explained in its proposal that its pricing for the project was based on it receiving a minimum of a 50 per cent share of the schools covered by the final phase of the project and that its proposed minimum 50 per cent share:

(1) would contain an even allocation of schools based on geographic distribution; and

(2) would contain an even allocation of schools based on pupil numbers.

[13] Mr Mitchell, the managing director of Telco, has explained that Telco needed to make some assumptions about the size, location and existing infrastructures of the schools which were to be allocated under the final phase of the project. This is because a school’s geographical location, size and its existing infrastructures could significantly impact on the cost of providing schools with the services the Ministry was seeking. The cost and risk to a provider would increase if that provider were allocated a smaller number of schools. Conversely, the greater the number of schools allocated to a provider, the lower the costs and risks to the provider for each school. Therefore, both the price per school and the overall tender price were dependent on the total number of schools allocated to a tenderer.

[14] In response to Questions [25] and [27] in cl 5.2 of the RFP, Telco said:

(1) There was no further information it wished to provide to enhance its proposal.

(2) That it would consider a primary role in the project upgrades nationwide as the sole exclusive national provider.

[15] On 4 November 2013 the Ministry sent Telco nine additional questions designed to seek clarification of aspects of Telco’s proposal. Those questions appear to have been predicated on the successful tenderer being allocated either 33 per cent or 50 per cent of the schools affected by the final phase of the project.4

[16] Telco responded to those nine questions on 14 November 2014. In its response Telco referred to its having assumed a 50 per cent allocation of the remaining schools in each region and an equitable allocation based on school role size.

[17] Telco also said on 14 November 2013 that the final phase of the project provides a “swings and roundabouts” opportunity under which the tenderer is dependent upon a range of large and urban schools in order for the total service delivery to be profitable. If the allocation of the majority of smaller schools in non- urban areas was unfairly weighted then the delivery of the project would be uneconomic. Telco emphasised the equitable allocation of schools did not need to be precise or scientific so long as it was undertaken in good faith and was fair to the project providers.

[18] Telco also said on 14 November 2013 that it was bearing large overheads and if less than 50 per cent of the schools were allocated or if the more profitable larger schools were not equally allocated, then its overheads would be absorbed across fewer schools resulting in an increased price per school. Telco said the inverse was also true, if significantly more than 50 per cent of the schools were allocated to Telco it would be reasonable to expect a reduction in the price per school, particularly for

very large and extra large schools in urban locations.


  1. Question 2 asked: “How many Full Time Equivalents (FTEs) will you commit to achieve delivery of half of the estimated 595 schools between April 2014 and December 2015?

Question 9 asked: “Regarding your response to TD15 ... that your pricing is based on a minimum 50 per cent share of the total school numbers please state what your pricing would be if you were offered approximately one-third of the remain schools. If your pricing changes, please explain why it would need to change.”

[19] On 29 November 2013 the Ministry told Telco it had been shortlisted for the project, that the Ministry had also shortlisted a number of other tenderers and that it was seeking to explore a range of options. These options would be considered at a meeting that was to be held on 10 December 2013.

[20] On 4 December 2013 the Ministry sent Telco an agenda for the 10 December meeting, including a number of questions for discussion at the meeting.

[21] There is a dispute between the parties as to what precisely was said at the

10 December meeting. That dispute will probably need to be resolved at the hearing of the substantive proceeding. Suffice for present purposes to note that Telco maintains it was not requested to provide a price based on receiving a 100 per cent allocation of all remaining schools. The Ministry says that the recollections of Telco’s representatives at that meeting are not correct.

[22] On 19 December 2013 Telco provided the Ministry with further information explaining its pricing for “large”, “very large” and “extra large” schools. Telco did not provide a costing on the basis of a 100 per cent allocation of the available schools. Mr Mitchell has explained Telco did not do so because it had received no suggestion from the Ministry that it intended to allocate the schools in the final phase of the project on the basis of a 100 per cent allocation to one provider.

[23] On 20 December 2013 the Ministry advised Telco that its proposal had been rejected.

[24] Since notifying Telco that it was not successful, the Ministry has entered into contract negotiations with a single preferred tenderer on the basis that tenderer will receive a 100 per cent allocation of all remaining schools. It is anticipated that these contract negotiations will be completed by the end of February 2014.

Causes of action

[25] Telco has pleaded two causes of action, namely: (1) Judicial review; and

(2) Equitable estoppel.

Judicial review

[26] Telco’s claim for judicial review is based on its contention that the Ministry breached Telco’s legitimate procedural expectation that the Ministry would issue an amendment to the RFP if the Ministry was considering appointing only one supplier to complete the final phase of the project. Telco’s case is that:

(1) The Ministry clearly stated Telco’s proposal should be prepared on the basis that two or three providers would be appointed to complete the final phase of the project.

(2) The Ministry would follow a fair procedure by notifying all tenderers of any material changes to the appointment of suppliers for the final phase of the project. Procedural fairness required the Ministry to give Telco and other tenderers the opportunity to submit a proposal based on the possibility one supplier would be appointed.

(3) Telco reasonably expected and relied upon the Ministry to comply with fair processes when considering the tender process.

(4) Telco suffered by not being given the opportunity to submit a tender based on the possibility only one supplier would be appointed.

Equitable estoppel

[27] Telco pleads that it is unconscionable for the Ministry to be permitted to resile from its representations about the basis on which tenderers for the final phase of the project would be considered and that the Ministry should now be estopped from appointing a single supplier.

Ministry’s position

[28] The Ministry opposes the issuing of an interim injunction. The Ministry says there is not a serious question to be tried in relation to either of the causes of action pleaded by Telco.

[29] In relation to Telco’s claim for judicial review the Ministry says:

(1) Telco’s dispute arises in the context of commercial dealings between the Ministry and tenderers for the final phase of the project and as such there is limited scope for judicial review.

(2) It said it only “intended” to appoint two or three providers, not that it

would appoint two or three providers.

(3) It “did not represent that it would not appoint a single provider”.5

(4) It represented it would consider all tenderers provided on the basis of a 50 per cent share of schools in the final phase of the project. The fact that the final decision was awarded to one supplier does not mean that all tenderers were not compared on the basis of a 50 per cent allocation of schools.

(5) The RFP gave it considerable flexibility to appoint one supplier. In particular, the Ministry says cl 3.1.11 of the RFP6 reserved the right to consider alternative proposals and to negotiate and conclude any number and type of contracts with any tenderer(s).

(6) It expressly asked in Question [27] of the RFP7 whether tenderers would be willing to be an exclusive supplier and Telco answered this

question in the affirmative.




5 Ministry’s notice of opposition of 14 February 2014.

6 See paragraph [9](6) of this judgment.

7 See paragraph [10] of this judgment.

[30] In relation to Telco’s claim based on equitable estoppel the Ministry says it did not promise that “it would not select a single provider”8 and there is no pleading to support the proposition that the Ministry acted unconscionably.

[31] The Ministry also says that the balance of convenience does not favour the granting of an interim injunction because:

(1) An interim injunction is not necessary to preserve Telco’s position because it still has to deliver services to 198 schools under the earlier phases of the project.

(2) The Ministry says issuing an interim injunction will delay the completion of the project and that another 25 service providers who have been provisionally selected for the supply of services that are dependent on the implementation of the final phase of the project will be adversely affected.

(3) The Ministry will incur considerable additional costs in running a further tender process for the final phase of the project if an interim injunction is granted.

Reasons why there is a serious question to be tried in relation to Telco’s

application for judicial review

[32] I shall address this aspect of my judgment by answering the following questions:

(1) Is Telco’s claim amenable to judicial review?

(2) Did the Ministry create a procedural expectation? (3) Were Telco’s expectations reasonable?

(4) Did Telco rely on the Ministry’s representations to its detriment?


8 Ministry’s notice of opposition of 14 February 2014.

Is Telco’s claim amenable to judicial review?

[33] The Ministry submits that in Lab Tests Auckland Ltd v Auckland District Health Board [Medlabs]9 the Court of Appeal strongly cautioned invoking judicial review in the context of a commercial dispute.

[34] The Court of Appeal held that the Courts may intervene by way of judicial review in relation to contracting decisions made by public bodies in a commercial context in limited circumstances. The Court’s ability to judicially review a decision hinges on the context within which the dispute arises.10 In my assessment, judicial review is available in a commercial tendering context where the Crown may have breached procedural expectations in a material way to the detriment of a tenderer.

[35] In Medlabs, the Court of Appeal accepted that judicial review is available where an insider with information and a conflict of interest used that information to disadvantage its rivals in connection with a tender process. It held, however, that the High Court had not given proper weight to the commercial context in that case and that the District Health Boards (DHBs) were not in breach of their public law obligations because they had followed the relevant statutory procedures concerning

conflicts of interest and the use of inside information.11

[36] The Court of Appeal wanted to avoid the imposition of onerous procedural obligations over and above the statutory framework that governed the decision- maker in that case. The Court of Appeal wished to do this to enable public authorities to have flexibility to make commercially viable decisions. The Court also noted that the statutory context was critical to determining that the DHB’s decision was not judicially reviewable because the DHBs adhered to the detailed statutory provisions relating to conflicts of interest and use of confidential information in that

case.12




9 Lab Tests Auckland Ltd v Auckland District Health Board [2008] NZCA 385, [2009] 1 NZLR

776 (CA).

10 At [56]-[59].

11 Diagnostic Medlab Ltd v Auckland District Health Board [2009] NZSC 10, (2009) 19 PRNZ

217 at [5].

12 Medlabs, above n 9, at [91].

[37] In the present case, there is no obvious statutory framework which regulated the way the Ministry was to conduct the tender process. The legislative provisions cited in submissions were s 4 of the Public Finance Act 1984, s 34 of the State Sector Act 1988 and the Education Act 1989. However, those legislative provisions are of a general nature and did not specifically govern the process followed by the Ministry in this case. Accordingly, the vacuum created by an absence of specific legislative provisions may be filled by public law principles such as natural justice and procedural fairness.

[38] In addition, the present case does not simply involve commercial principles. It is reasonably arguable that the Ministry breached its fundamental procedural obligations when it failed to give Telco the opportunity to be assessed on a fair and equal basis with the successful tenderer. Further, it is also reasonably arguable Telco believed that the Ministry would assess all tenderers on a fair basis and relied on the Ministry’s representations to its detriment. This is a public law concept that prevails over the commercial nature of this case. Any breach of procedural obligations by the Ministry may well have produced an unfair assessment of all tenderers in the present case.

[39] Medlabs can also be distinguished on another basis. The Court of Appeal found that the complexity of the issues in that case were more analogous to those in private law disputes and therefore beyond the bounds of judicial review.13 In the present case, however, the dispute is not particularly complex. The principal issue is whether the Ministry failed to abide by the procedure it set out for itself in its RFP when selecting a provider for the final phase of the project. Telco is invoking public

law to hold the Ministry accountable for what it said it would do but which, according to Telco, it failed to do thereby causing the Ministry to reach a decision that was fundamentally unfair to Telco.

[40] While there is a need for considerable caution when considering an application for judicial review in a commercial context I have concluded Telco has,

nevertheless, a claim that is amenable to judicial review.



13 Medlabs, above n 9 at [343].

Did the Ministry create a procedural expectation?

[41] Telco accepts that it must ultimately establish the existence of a clear and unambiguous representation by the Ministry that created an expectation the Ministry would comply with fair processes.14

[42] I am satisfied that Telco has established a seriously arguable case the Ministry did create a procedural expectation that if the tender process was changed in a material way, then all affected tenderers would be given the opportunity to amend their proposals to reflect the Ministry’s changes in order to keep the tender process fair to all tenderers.

[43] I am persuaded cls 1.1 and 1.5.3 of the RFP created the expectation the Ministry was intending to appoint two or three providers in relation to the final phase of the project. I am also satisfied that cls 3.1.11 and 3.1.16 of the RFP created an expectation that if the Ministry was going to materially change the basis on which the final phase of the project was to be decided, then it would issue an amendment to the RFP to give all tenderers an opportunity to have their proposals considered on a fair and equal basis.

[44] In my assessment, changing the number of providers from two or three to one single provider was a material change to the way the final phase of the project was to be delivered. Had Telco been informed of the material change, it is likely that they and the other tenderers would have made significant changes to the way they priced their proposals.

[45] For present purposes I find that the Ministry’s submissions that it did not make a clear representation about procedural fairness are not persuasive. As the Ministry’s arguments to the contrary will need to be considered more fully at the substantive hearing, I will note for present purposes that the Ministry’s arguments which I have summarised in paragraph [29] of this judgment have not displaced Telco’s position that it is seriously arguable that the Ministry created a legitimate

procedural expectation.

14 Attorney-General of Hong Kong v Ng Yuen Shiu [1982] 2 AC 629, [1983] 2 All ER 346 at 638;

Talleys Fisheries Ltd v Cullen HC Wellington CP287/00, 31 January 2002.

[46] In my assessment, for the purposes of Telco’s interim injunction I am satisfied there is a serious issue to be tried as to whether or not the Ministry clearly represented it was going to appoint two or three suppliers to carry out the final phase of the project. I am also satisfied there is a serious issue to be tried that if the Ministry was only going to appoint one supplier it created a legitimate expectation that it would give Telco and other affected tenderers the opportunity to amend their proposals to reflect the Ministry’s change so as to enable their proposals to be assessed on a fair and equal basis.

Were Telco’s expectations reasonable?

[47] Telco has established there is a seriously arguable case that it was reasonable for Telco to expect the Ministry would issue an amendment to the RFP if there was to be a material change to the basis upon which a provider was to be appointed for the final phase of the project.

[48] There are three reasons why I have reached this conclusion:

(1) Mr Mitchell explained Telco’s prior experiences of tendering with the Ministry led it to believe the Ministry would follow the procedures set out in the RFP and those processes “would only be changed with written notice to all the participants”.15 Mr Mitchell’s evidence on this point was not challenged by the Ministry.

(2) Clauses 1.1, 1.5.3, 3.1.11 and 3.1.16 of the RFP are reasonably capable of being interpreted to mean the Ministry was intending to appoint two or three providers for the final phase of the project and that if the Ministry’s intentions changed it would issue an amendment to the RFP.

(3) The Ministry’s questions of 4 November 2013 appeared to have been

predicated on the basis of successful tenderers being allocated either

33 per cent or 50 per cent of the remaining schools. This reinforced


15 Affidavit of KFM Mitchell, 10 February 2014 at [30].

Telco’s assessment that the Ministry would amend the RFP if the Ministry was considering appointing only one supplier for the final phase of the project.

Did Telco rely on the Ministry’s representations to its detriment?

[49] Telco has established that it is seriously arguable that it relied on the

Ministry’s representations to its detriment.

[50] I have reached this conclusion for the following two reasons:

(1) Mr Mitchell’s evidence is that Telco relied on its expectations that if the Ministry was going to materially change the basis on which it would appoint suppliers for the final phase of the project then Telco and other tenderers would be notified of this change through a written amendment to the RFP.

(2) The change which the Ministry implemented was material. Had Telco known that only one provider might be appointed by the Ministry it is highly likely Telco would have significantly changed the basis upon which it priced its proposal.

[51] In summary, I have concluded Telco has established that it is seriously arguable that the four key ingredients in its claim for judicial review can be established. It is therefore not necessary for me to consider at this stage Telco’s claim based on equitable estoppel.

Reasons why an injunction is necessary to preserve Telco’s position

[52] An interim injunction is reasonably necessary16 to preserve Telco’s position

because:

(1) The evidence at this stage suggests there is a risk Telco’s tender may

not have been considered on the same basis as the successful tenderer,

16 Carlton & United Breweries Ltd v Minister of Customs [1986] 1 NZLR 423 (CA) at 430 per

Cooke J.

and that Telco was denied the opportunity to compete on a fair basis for the final phase of the project.

(2) The Ministry’s decision to appoint a single provider for the final phase of the project means Telco will now have to lay off staff in the short term. Those specialist staff are unlikely to be able to be re- employed by Telco if it is ultimately found the Ministry’s decision to appoint a single provider has to be quashed. At that stage Telco is unlikely to have the resources and capacity to be able to deliver the final phase of the project.

[53] I appreciate that issuing an interim injunction may:

(1) cause delays to the Ministry’s ability to have the project completed by

December 2015;

(2) cause uncertainties to the currently successful tenderer; and

(3) create problems for other companies that have been provisionally appointed to provide services that flow from the appointment of the supplier of the final phase of the project.

[54] However, while these consequences are a concern, they can be mitigated in two ways:

(1) I will do whatever I can to ensure the substantive proceeding is heard and determined promptly. I have arranged to hear the substantive proceeding from 17 to 19 March 2014 inclusive. I will also provide counsel the opportunity to seek directions from me on 24 February in order to ensure the parties are ready to have the substantive case heard in four weeks’ time.

(2) If it wishes to do so, the Ministry may immediately re-open the tender process and amend the terms of the RFP so that all affected tenderers have the opportunity to re-submit their proposals on the basis that the

Ministry may consider appointing one provider for the final phase of the project.

Reasons why the overall justice of the case favours the granting of an interim injunction

[55] I am satisfied I should exercise my discretion in favour of Telco’s application

because the overall justice of the case favours the granting of an interim injunction. [56] My reasons for reaching this conclusion can also be succinctly stated:

(1) If after the proceeding is fully considered it is decided Telco is entitled to relief, then the remedies that are considered should not be fettered by the Ministry and the current successful tenderer having continued to implement the Ministry’s decision to appoint a single supplier.

(2) Issuing an interim injunction reduces the uncertainty for all affected parties who would otherwise suffer from a period of greater uncertainty while they await the hearing and determination of the proceeding.

(3) The delays and costs associated with issuing an interim injunction can be mitigated by the Ministry immediately re-opening the tender process if it wishes to do so and amending the RFP so as to make it clear to all affected tenderers that the Ministry may appoint one supplier for the final phase of the project.

Conclusions

[57] An interim injunction is issued preventing the Ministry from giving effect to its decision to appoint another company to be solely responsible for implementing the final phase of the project.

[58] This order does not prevent the Ministry from re-opening the tender process and amending the RFP to make it clear to affected tenderers that the Ministry would consider appointing a single supplier for the final phase of the project.

[59] The hearing of Telco’s substantive proceeding will commence on 17 March

2014.

[60] Counsel have the opportunity to seek directions on 24 February 2014. If counsel wish to have a hearing in relation to pre-trial directions they should notify

the Registrar immediately.














D B Collins J








Solicitors:

Chapman Tripp, Wellington for Applicant

Crown Law Office, Wellington for Respondent


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