FEDERAL COURT OF AUSTRALIA

PRACTICE AND PROCEDURE - notice of motion for determination of several questions of liability prior to trial, pursuant to Federal Court Rules, O 29, r 2 - principles governing the circumstances in which questions should be determined before trial - proposal for staged determination of issues of liability - principles to be applied.

Federal Court Rules, O 29, r 2.

The Wik Peoples v Queensland (Fed Ct/Drummond J, 26 May 1994, unreported).

GMB RESEARCH & DEVELOPMENT PTY LIMITED v THE COMMONWEALTH OF AUSTRALIA & ANOR

NG 328 of 1997

Sackville J

Sydney

28 August 1997

THE COURT ORDERS THAT:

1.         The notice of motion filed by the respondents on 23 July 1997 be dismissed.

2.         Costs of the motion be costs in the cause.

3.         The applicant prepare short minutes of order giving effect to the agreement between the parties and the Court’s ruling on disputed issues in relation to the applicant’s notice of motion filed on 23 June 1997.

Note:                Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

Background

The applicant in the principal proceedings (“GMB”) is a supplier of computer software for records and information management systems.  It has instituted proceedings against the first respondent (“the Commonwealth”) and the second respondent (Mr MacDonald).  The latter was, at material times, the head of the Office of Government Information Technology (“OGIT”), within the Commonwealth Department of Finance.

According to GMB’s case, pleaded in a further amended statement of claim filed on 21 July 1997, OGIT, on or about 8 October 1996, circulated to the public a Request for Proposal for Whole of Government Records Management System (“RFP”).  GMB provided a response to the RFP on 22 November 1996, but was not selected to proceed to the second stage of the evaluation process.  GMB alleges, inter alia, that eleven other tenderers were selected to proceed to the second stage of the evaluation process, notwithstanding that they failed to comply with the mandatory requirements of the RFP.  The relief sought by GMB includes damages for what is said to be the Commonwealth’s breach of contractual obligations owed to GMB and its misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) (“TP Act”).

Two notices of motion filed in the proceedings were made returnable before the Court on 28 August 1997.  The first was filed by GMB on 23 June 1997.  The motion sought a number of orders, including leave to file and serve an amended application; leave to serve a notice to answer interrogatories; an order requiring the respondents to give discovery of certain categories of documents; and an order that all issues of liability and the nature of relief be determined separately and before the determination of any issue of quantum.

The second notice of motion was filed by the respondents, on 23 July 1997.  As amended, the motion sought an order pursuant to Federal Court Rules (“FCR”), O 29, r 2, that questions identified in a schedule to the motion be separately decided, before any further trial of the proceedings.  The schedule listed a series of questions, framed by reference to a number of paragraphs or particulars in GMB’s further amended statement of claim, filed on 21 July 1997.

At the hearing on 28 August 1997, Mr Campbell QC (who appeared with Mr Lancaster for GMB) and Mr Bennett QC (who appeared for the respondents) agreed that the respondents’ motion should be dealt with prior to GMB’s motion.  Mr Bennett’s written submissions in support of GMB’s motion did not press all the questions identified in the schedule.  Accordingly, the list of questions proposed by GMB for separate determination was somewhat shorter than had originally been indicated.

After hearing argument from Mr Bennett, I formed the clear view that the questions identified in the schedule to motion (in its modified form) were not suitable for separate determination.  For his part, Mr Bennett, while not abandoning the motion, supported an alternative approach.  Under this approach, all issues in the case except damages (which the parties agreed should be determined separately) and except what I shall describe as the “mandatory RFP requirements question” would be dealt with at the first stage of the case.  The mandatory RFP requirements question would be dealt with at the second stage (if necessary), while damages would be dealt with (again if necessary) at the third stage. 

In substance, the mandatory RFP requirements question is whether the Commonwealth wrongly permitted the eleven tenderers, other than GMB, to proceed to the second stage of the evaluation of responses to the RFP, notwithstanding that (as GMB alleges) those tenderers failed to comply with certain mandatory requirements specified in the RFP.  It is part of GMB’s case that, by allowing the other tenderers to proceed to the second stage, the Commonwealth breached its contractual obligations to GMB and, having regard to representations made by the Commonwealth or on its behalf, engaged in misleading and deceptive conduct in contravention of the TP Act.

At the hearing, I delivered a brief ex tempore judgment.  In that judgment, I concluded that the respondents’ motion should be dismissed.  I also expressed the view that the alternative approach adopted by the respondents, although having some apparent attractions, should not be implemented.  I indicated that I would provide a somewhat more detailed statement of my reasons for reaching these conclusions.  My reasons are contained in this judgment.

In relation to GMB’s motion, the parties reached agreement on some issues and I made rulings on disputed issues.  In particular, the parties agreed that issues of liability should be determined separately from any assessment of damages.  I asked Mr Campbell to bring in short minutes of order to give effect to the parties’ agreement and my rulings on the disputed issues.  I do not think it necessary to refer further to GMB’s motion.

The Pleadings

The first claim pleaded by GMB is in contract.  It alleges that, by reason of the submission and acceptance of GMB’s response to the RFP, a contract was concluded between it and the Commonwealth (par 8).  It is said that the express terms of the contract included a provision that proposals which failed to meet any mandatory criteria would be excluded from further consideration (par 9(d)).

Paragraph 10 of the statement of claim, as amended, alleges that the following were implied terms of the contract:

“(a)     fairly evaluate the applicant’s Response;

(aa)     evaluate all responses to the RFP fairly and in a manner that would ensure equal opportunity to the applicant and other persons who submitted responses;

(b)       exercise reasonable care while evaluating the applicant’s Response;

(c)        evaluate all responses to the RFP in the same way (including by applying the same criteria, by subjecting the responses to the same standards and by applying the criteria and standards consistently).”

This form of pleading owes more than a little to the recent judgment of Finn J in Hughes Aircraft Systems International v Air Services Australia (1997) 146 ALR 1 (Fed Ct/Finn J).  In addition, par 11 alleges that the contract included an implied term that, if GMB’s response met the mandatory criteria, it would pass to the next evaluation stage, namely, “the Proof-of-Concept test”.

GMB claims that its response met the mandatory RFP requirements (par 12).  Paragraphs 12A, 12B and 12C plead an alternative case to that made out in par 12.  In substance they allege that if, contrary to GMB’s case, the RFP imposed certain mandatory requirements which GMB did not fulfil, the responses from the eleven named tenderers to the RFP also failed to comply with each of those mandatory requirements.  The significance of the allegations in pars 12A, 12B and 12C to the claim in contract is that, if made out, they would, or might, demonstrate that the Commonwealth breached the implied terms pleaded in pars 10(a), (aa) and (c), and (perhaps) the express terms pleaded in par 9(d).  This emerges from par 13, which alleges that, in breach of its contract with GMB,

“(c)     [the Commonwealth] did not fairly evaluate [GMB’s] Response;

...

  (e)      [the Commonwealth] did not evaluate all responses to the RFP fairly and in a manner that would ensure equal opportunity to [GMB] and other persons who submitted responses;

  (f)      [the Commonwealth] did not evaluate all responses to the RFP in the same way (including by applying the same criteria, by subjecting the responses to the same standards and by applying the criteria and standards consistently);

  (g)     [the Commonwealth] decided to vary a requirement in the RFP during the course of consideration of responses to the RFP, and did not require [GMB] to provide revised pricing on the variation and did not permit [GMB] to vary its original response to the relevant requirement.”

The particulars to par 13, inter alia, repeat the allegations made in pars 12A, 12B and 12C.

Paragraph 14 addresses similar issues, by alleging that the Commonwealth failed to evaluate all responses to the RFP fairly and in a manner that would ensure equal opportunity to GMB and other persons who submitted responses.  Again the particulars refer, inter alia, to the facts and matters in pars 12A, 12B and 12C.

The significance of pars 12A, 12B and 12C is not, however, confined to GMB’s pleaded contract claim.  GMB’s TP Act claim rests on allegations that the Commonwealth made representations relating to evaluation of responses to the RFP.  These representations are said to have been made at an industry briefing held on 15 October 1996; in the RFP itself; and by reason of the Commonwealth’s conduct (including the “circumstances in which [GMB’s] Response was submitted to [the Commonwealth]”) (pars 18, 19, 20, 20A).  GMB alleges that the representations made by the Commonwealth included some to the effect of the implied contractual terms reproduced earlier (par 20A).  It also says that the Commonwealth represented that the representations it had made would continue to apply until such time as the Commonwealth notified GMB that they would no longer continue to apply.

GMB pleads that the Commonwealth engaged in misleading and deceptive conduct (par 23).  The particulars to this allegation include allegations that the Commonwealth did not evaluate all responses to the RFP fairly or in the same way.  The particulars also allege that the proposals of the eleven tenderers identified failed to meet the mandatory criteria, in the manner pleaded in pars 12A, 12B and 12C, yet the Commonwealth continued during and after the Proof-of-Concept phase, to evaluate the responses of those tenderers.  It is also pleaded that the Commonwealth at no stage notified GMB that it (the Commonwealth) proposed to act contrary to the representations it had made (par 23B).

The statement of claim goes on to plead a cause of action in negligence and one based on what is said to be a failure to accord procedural fairness.  The pleadings also claim relief on the grounds that the Commonwealth’s decision was unreasonable and that the Commonwealth had acted inconsistently with assumptions made by GMB in circumstances where the Commonwealth knew or ought to have known that its conduct would cause detriment to GMB.  I do not think it necessary to specify in detail the allegations made to support these claims.

The Principles

Both Mr Campbell and Mr Bennett agreed that the principles governing the circumstances in which a question should be determined before trial under FCR, O 29(2), are conveniently and accurately set out by Drummond J in The Wik Peoples v Queensland (Fed Ct, 26 May 1994, unreported), at 3-4:

”The principles governing the circumstances in which a question arising in an action should be determined before the trial of the action under O 29(2)(a) are well settled.  By O 29, r 1, the term ‘question’ includes any question or issue of fact or law in any proceeding, the distinction being between decisive ‘issues’ and non-decisive ‘questions’:  see Landsal Pty Ltd v REI Building Society (1993) 113 ALR 643 at 647.  Pursuant to O 29(1), the procedure is available for the preliminary determination of a question or issue ‘whether raised by pleadings, agreement of parties or otherwise”.  For the procedure to be appropriate it is no longer necessary that the decision on the preliminary question must be conclusive of that issue, whichever way it is decided: it is enough that, if it is decided in one way, that will be decisive of the issue.  Carl Zeiss Stiftung v Herbert Smith & Co [1969] 1 Ch 93 at 98; Orison Pty Ltd v Strategic Minerals Corp N.L. (1987) 77 ALR 141 at 149-150.  The procedure can be appropriate even though a decision on the preliminary issue or issues will not determine the litigation: it is enough if the determination will ‘substantially narrow the field of controversy’.  See CBS Productions Pty Ltd v O’Neill (1985) 1 NSWLR 601 at 606 and O 29(4).  Whether the procedure is appropriate in a particular case will in large part depend upon the Court being satisfied that, even if it will not put an end to litigation, a determination of the preliminary issue in one way will substantially shorten the trial or result in a significant saving in time or money.  CBS Productions Pty Ltd v O’Neill, supra, at 607; Famel Pty Ltd v Burswood Management Ltd [1990] ATPR 51,084 at 51,086 and 51,087.  The attitude of the parties is also relevant in deciding whether to use the procedure.  TVW Enterprises v Duffy (unreported, Toohey J, 28 March 1985); Blurton v Minister for Aboriginal Affairs (1991) 29 FCR 442 at 449.”

The Questions in the Motion

As I have said, the amended motion filed on behalf of the respondents listed a number of questions framed by reference to paragraphs in the statement of claim.  Allowing for the questions not pressed by Mr Bennett, the schedule listed some twelve separate questions said to be suitable for separate determination.  However, in the course of argument Mr Bennett accepted that other questions would need to be included in the list if the respondents’ objective were to be achieved.  The objective was to avoid dealing with the mandatory RFP requirements question unless it became necessary to do so.

Mr Bennett relied particularly on affidavits sworn by Mr Moldrich, an information management expert.  Mr Moldrich prepared a report in which he expressed the view that GMB’s response to the RFP failed to meet three specified mandatory criteria.  Mr Moldrich also expressed the view that, if he were required to provide reports on the responses to the RFP submitted by the eleven tenderers identified in par 12A of the statement of claim, he would require a minimum of two days to consider each of the responses, that is, twenty two days.  To prepare a report on the responses in similar detail to that of his report on GMB’s response would require at least a total of forty days’ work.  If the responses of the eleven tenderers were “complicated” he would require “substantially more time”, but he could not estimate how much more time.

Mr Bennett submitted that Mr Moldrich’s evidence showed that a consideration of the mandatory RFP requirements question by the Court would require the parties to undertake expensive preparation and add considerably to the length of any hearing.  For this reason, he contended that it was appropriate to approach the case by endeavouring to postpone that question until it became clear that it was necessary to decide it.

Mr Moldrich was not cross-examined.  Although I am a little sceptical of the estimate of forty days’ work required to prepare reports on the responses of the eleven tenderers, I accept that the mandatory RFP requirements question will require the parties to undertake considerable preparation and that, of necessity, they will be required to incur expenses commensurate with the preparation required.  I also accept that the need to address the mandatory RFP requirements question will add to the length of the hearing.  However, it is very difficult, as both counsel agreed, to estimate the additional time required to deal with this question.  Particularly is this so when it is borne in mind that on both of the approaches propounded by Mr Bennett, it would be necessary at the first stage of the litigation to consider whether GMB’s response complied with the mandatory RFP requirements.  Perhaps the most that can be said at this stage is that it may well add four to five days to the hearing, although this estimate must be acknowledged to be very rough.

The principal difficulty with the questions formulated in the schedule to the notice of motion is that it is very difficult to separate the issues they raise from other issues requiring resolution.  The point can be illustrated by the first two questions listed in the schedule.  They are the following:

“1.       Do paragraphs [12A, 12B and 12C] disclose any cause of action for breach of contract or any element of the cause of action?

2.         Do paragraphs 13(e)-(g) disclose any cause of action or element thereof?”

In my view, it is not feasible to consider whether the alleged failure of the eleven tenderers to meet the mandatory RFP requirements discloses an element in GMB’s cause of action for breach of contract, without first ascertaining the nature and scope of the Commonwealth’s contractual obligations to GMB.  In particular, it is necessary to ascertain whether any contract between GMB and the Commonwealth existed and, if so, whether it included the implied terms alleged in par 10.  Mr Bennett recognised this difficulty and sought to add further questions to the list, asking whether the implied terms alleged in par 10 (or some sub-pars of par 10) had been made out.

In my view, once this is done, any benefits of a separate determination of some questions are significantly reduced, if not eliminated altogether.  It would become necessary to consider a substantial number of questions, many of which would involve detailed consideration of the course of events leading up to the submission of the responses to the RFP and the evaluation process.  It seems likely that this inquiry would give rise to significant contested factual issues. Depending on the outcome of the first stage of the litigation, there would need to be a second stage of the trial examining further contested issues.  The second stage would need to consider further expert evidence concerning the mandatory RFP requirements, this time in relation to the responses of the other eleven tenderers.

Question 2 in the schedule to the motion, which is framed by reference to par 13(e)-(g) of the statement of claim requires consideration to be given to whether the Commonwealth evaluated all responses to the RFP fairly and according to the same criteria.  The allegations made in par 13(e)-(g) are, however, reproduced in the pleading as particulars to par 23 (see par 23(iva), (ivb), (ivc) and (ivd)).  Paragraph 23 alleges that the Commonwealth, by its conduct (including its alleged failure to evaluate responses to the RFP fairly and in the same way), engaged in misleading and deceptive conduct in contravention of s 52 of the TP Act.  For some reason not made clear in argument, the Commonwealth’s schedule (as amended by Mr Bennett) included only particular (ivd) to par 23, but not the others.  Nor did it include par 20A, which alleges that the Commonwealth represented, inter alia, that it would evaluate all responses to the RFP fairly and in the same way.  It is very difficult to see how question 2 in the schedule could be addressed without ascertaining what representations (if any) were made by the Commonwealth.  If both questions are to be addressed together, it would be necessary to determine whether the Commonwealth made the representations alleged, either expressly or by implication.  This in turn would require consideration of contested factual issues that will undoubtedly take substantial court time (and preparation by the parties) to resolve.  It is therefore difficult to see how deciding question 2 separately, assuming such a course to be feasible, would substantially narrow the area of controversy, shorten the trial or result in substantial savings of money.

For these reasons, I formed the view that the list of questions contained in the schedule to the Commonwealth’s motion should not be made the subject of orders for separate determination, pursuant to FCR, O 29, r 2.

The Alternative Approach

When it became clear that the approach suggested in the motion faced difficulties, Mr Bennett suggested the alternative approach, to which I have already referred.  Under this approach, the mandatory RFP requirements question would be excluded from the first stage of the case.  The first stage would address all issues other than the mandatory RFP requirements question and damages.  According to Mr Bennett, only if GMB made out its case on implied terms, or representations to the same effect as the implied terms, would it be necessary to proceed to the second stage of the case, that is, consideration of the mandatory requirements question.  The third stage of the case would involve the assessment of damages.

The alternative approach has the advantage that it may render it unnecessary to consider whether the eleven tenderers did or did not comply with the mandatory RFP requirements. There is, therefore, a chance that the parties would save costs, since their respective experts would not need to address the mandatory RFP requirements question if GMB failed at the first stage.  Moreover, there would be some savings in Court time if GMB failed on the other issues, although, as I have explained, it is difficult to estimate the extent of that saving.  I think that these are significant matters to take into account in deciding whether an order should be made for the determination of separate questions.

However, the potential advantages of the course proposed need to be considered against its potential disadvantages.  The first stage of the litigation would not be confined to narrow questions of construction of any contract between the Commonwealth and GMB.  Rather, it would be necessary to explore the history of the dealings between the parties to ascertain, inter alia, whether the circumstances support the implied terms and the representations alleged by GMB.  Moreover, it would be necessary to address whether GMB itself complied with the mandatory RFP requirements.  The latter inquiry would require expert evidence to be adduced, presumably from the same experts whose evidence would be required in relation to the mandatory RFP requirements question.  On the alternative approach propounded by Mr Bennett, the issue of GMB’s compliance with the mandatory requirements would be canvassed at the first stage of the litigation, even if the Court were ultimately to rule that GMB had failed to establish any of the alleged implied terms or representations on which it relies.

The second stage of the litigation may not be necessary if the Court were to find, at the conclusion of the first stage, that there were

·      no express or implied terms in any contract between the Commonwealth and GMB requiring the Commonwealth, in effect, to evaluate all responses fairly and according to the same criteria; and

·      no representations made by the Commonwealth to the same effect.

On these findings, the Court would not need to consider whether the eleven tenderers complied with the mandatory RFP requirements for the purpose of deciding whether the Commonwealth breached the implied terms of any contract with GMB or engaged in misleading or deceptive conduct.

However, as Mr Campbell pointed out, depending on the Court’s findings on other issues, it probably would still be necessary to consider whether the eleven tenderers complied with the mandatory RFP requirements, for the purpose of assessing GMB’s damages.  GMB’s claim includes damages for being deprived of “the valuable opportunity of its product...being selected as an integrated solution for inclusion as record management systems for use across the Commonwealth” (particulars to par 15).  In assessing the value of that lost opportunity the compliance (or otherwise) of other tenderers with the mandatory RFP requirements is likely to be a material consideration.  Thus, if GMB shows that the Commonwealth breached its contractual obligations or engaged in misleading and deceptive conduct towards GMB, the assessment of damages is likely to require consideration, albeit in a somewhat different form, of the mandatory RFP requirements question.

It is true that neither the second nor third stages of the litigation would become unnecessary if the Court found, for example, that there was no contractual relationship between the Commonwealth and GMB and that the Commonwealth made no representations of the kind alleged in the statement of claim.  In these circumstances it would not be necessary to consider whether the eleven tenderers had complied with the mandatory RFP requirements, since even if they had not so complied the Commonwealth could not have incurred any liability to GMB and there would be no occasion to assess damages.  Of course, assuming that the Court made these findings, the first stage of the litigation would still have to canvass issues (notably whether GMB itself had complied with the mandatory RFP requirements) that would not be necessary for the Court to decide.  But the second and third stages of the litigation could be avoided.

Against this possibility, it is necessary to take into account the consequences if GMB were successful in establishing that there was a contract between the Commonwealth and GMB, containing some or all of the implied terms alleged in the statement of claim, or that the Commonwealth had made some or all of the representations alleged by GMB.  On this assumption, there would need to be three separate stages of the litigation.  The first would neither be simple nor short, since a large number of complex factual and legal questions would need to be explored, including (as I have noted) the question of whether GMB’s response complied with the mandatory RFP requirements.  The second stage of the litigation would also neither be simple nor short, since it would be necessary to consider whether any or all of the eleven tenderers had complied with the mandatory RFP requirements.  The same experts that had given evidence at the first stage would presumably need to be recalled to canvass that question.  In my view, not only would the parties incur the inevitable additional expense of preparing afresh for a second hearing on issues of liability, but there would be significant overlap between the evidence adduced at the first stage and that at the second.  Furthermore, it would seem that, regardless of the result of the second stage, a third stage of the litigation would be required, namely, the assessment of damages.  This would involve, for reasons I have already given, consideration of the mandatory RFP requirements question, albeit in a different form.  Neither Mr Bennett nor Mr Campbell suggested that the second and third stages of the litigation could be combined into a single hearing and, on the material before me, I cannot conclude that such a course would be appropriate.  In my opinion, if the alternative approach were to be adopted, there is a substantial risk that the litigation will actually be prolonged, the costs to the parties increased and the demands on Court time greater.

In the absence of agreement between the parties, I do not think it appropriate to adopt the alternative approach suggested by Mr Bennett.  The better course is for all questions of liability to be determined at the one hearing, with damages to be assessed (if necessary) at a separate hearing.  Accordingly, I propose to dismiss the Commonwealth’s motion.  I think that the costs of the motion should be costs in the cause.

Associate:

Dated:              28 August, 1997