back to news

Procuring entities must be aware of their obligations under process contracts - Reminder for Government agencies and other entities when tendering

Caseflash 04 October 2012

Wagdy Hanna and Associates Pty Ltd v National Library of Australia [2012] ACTSC 126 (3 August 2012)

This case is a useful reminder for government agencies and other entities when tendering: the process contract, including implied obligations stemming from requests for tender (and other invitation documents), is alive and well. Procuring entities must be aware of their obligations under process contracts and in addition, adopt suitable mechanisms to ensure compliance. This case is also useful in illustrating the importance of accurately drafted deeds of release and settlement as well as implications for parties that commence proceedings in the face of a release provision.

In this case, the Supreme Court of the Australian Capital Territory examined (amongst other issues):

  • whether there was a process contract (that is, the contract developed from the terms and conditions of a request for tender or other invitation document);
  • whether a duty of confidentiality exists or can be implied in a tender process (i.e. whether as a procuring entity, there is an obligation to keep submissions confidential); and
  • whether the Deed Of Settlement (Deed) between the parties was breached due to Wagdy Hanna and Associates Pty (Wagdy) bringing this action in court (notwithstanding that the National Library of Australia (Library) was previously released from further claims).

Ultimately, the Library was able to successfully defend a claim by Wagdy that the Library had breached confidentiality obligations and obligations pursuant to a process contract. Wagdy was also found to have breached the terms of the Deed.

Facts

In 1996, the Library released a request for tender (RFT) for a storage facility and Wagdy submitted a response, which was ultimately unsuccessful. In 1998, Wagdy commenced proceedings in the Federal Court of Australia in relation to a breach of the tender process contract, notably, a breach of implied confidentiality obligations and misleading and deceptive conduct [1], negligence and estoppel. Subsequently in 1999 and following the discontinuation of Wagdy’s initial action against the Library, the parties entered into the Deed.

In the current proceedings and notwithstanding the Deed, Wagdy claimed that the Library had disclosed Wagdy’s confidential information to the preferred tenderer and consequently Wagdy had suffered loss and damage, including loss of profit stemming from failure to be awarded the contract. Wagdy argued that its tender submission for the storage facility purportedly contained unique information and further, that the ensuing building could not have been constructed in the way it was unless the successful tenderer was provided with the unique information contained in Wagdy’s tender submission. Wagdy therefore alleged that the Library must have disclosed Waddy’s confidential information to the successful tenderer.

Court’s findings

Process Contract – trends in the law

The Court was clear that, ‘having considered all the circumstances…there was here, a pre-tender contract’ [2].

This was based on the RFT which included a regime for the extension of the closing date of the RFT, evaluation criteria and a tender validity period. It was the inclusion of such terms and also the suggestion that the Library was required to adhere to this process that led the Court to conclude there was a process contract in this case.

Confidentiality

The Court unequivocally provided that there is no automatic duty of confidentiality and that this ‘must be imported by the circumstances [for example, marking a submission as ‘confidential’] or by the contract [for example, an express or implied term stipulating the procuring entity will keep all responses confidential]’ [3].

Based on the facts of this case (including the intention of the parties), the Court held there was an implied duty of confidentiality, i.e. notwithstanding that the RFT did not have an express clause regarding confidentiality.

Nonetheless, the Court was unable to find any evidence that the Library had breached this implied obligation of confidentiality (there was no suggestion that the preferred tenderer had altered its response or constructed the building based on disclosure of Wagdy’s confidential information and further, the court concluded that the information in question was not ‘unique’).

Damages

Due to the above findings, the Court deemed it unnecessary to examine what loss would be appropriate for Wagdy.

Settlement Deed

The focus of the Court was whether in bringing this subsequent action, Wagdy was in breach of the provision of the Deed which stipulated that each party:

shall [not] take or continue any action against the other in respect of the allegations and each party covenants not to sue the other in respect of any matter arising out of or in any way related to the discontinued proceedings.’ [emphasis added – the ‘discontinued proceedings’ being the proceedings commenced in 1998].

The Court held that the current case was conducted in contravention of the above and subsequently awarded damages on an indemnity basis against Wagdy (being the actual costs of defending the proceedings had the Deed not been breached and the proceedings not taken).

The finding of the Court in relation to this Deed is significant as it:

  1. reflects the importance and significance of carefully drafted release provisions in a settlement deed; and
  2. illustrates the court’s willingness to award damages for commencement of legal action by a party contrary to a release provision providing that no further action can be conducted.

In relation to the latter, the Court was careful to emphasise that the finding was in part based on the low prospects of success combined with the litigation that was commenced in contravention of the Deed.

Significance of this case

This case reinforces the trends that the courts have adopted when considering if a process contract exists between a principal and tenderer. This case also emphasises the importance of carefully considering and drafting deeds of settlement to ensure that no further action is taken and to provide parties with finality.

It also highlights the legal liabilities of principals when tendering (as well as the legal rights of a tenderer) - even if procurement documents do not contain express obligations in relation to confidentiality, an implied duty is likely to nonetheless apply.

[1] Pursuant to the now repealed Trade Practices Act 1974 (Cth) – replaced by the Competition and Consumer Act 2010 (Cth).
[2] Wagdy Hanna and Associates Pty Ltd v National Library of Australia [2012] ACTSC 126 (3 August 2012) at [223]
[3] ibid at [213]


Brian Ambler, Partner
Sydney

Caseflash 04 October 2012
back to news