20                  To a significant extent, the resolution of this dispute turns on the ascertainment of the events that occurred from mid-1997 to early 1999, and the assessment of the context in which they occurred. Because of the pleading of estoppel and s 52 of the TPA and the related question of reliance, it is also necessary to understand the states of mind and beliefs of the parties during the above-mentioned period. The conclusions as to the states of mind and beliefs are, at least theoretically, capable of being of relevance to the assessment of contractual status and intent. To say as much is not to violate the objective theory of contract: Taylor v Johnson (1983) 151 CLR 422, 428, 429; Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309, 335, 336, and see generally Carter and Harland Contract Law in Australia (4^th Ed) [110] to [113] and [206]. What I have sought to do in relation to contractual formation is to find objectively what was said and done, how it was said and done, and the context in which it was said and done, in order to evaluate whether the parties can be taken, to the reasonable observer, by reference to their words and deeds, to have agreed to something, and whether they intended to be legally bound by what they had agreed. A finding as to what a participant or participants in a meeting or meetings thought the result of the meetings was may assist in understanding or drawing a conclusion about what did occur at the meeting or meetings. Care, of course, must be taken not to slide from a conclusion that a party thought that there was or was not a contract, to a conclusion that there was or was not a contract. I have sought to exercise that care: see generally Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 [298] to [300]; and Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540,548-51 (per Gleeson CJ, with whom Hope JA and Mahoney JA agreed). In the end, as shall be seen, little light in this case is shed on the question of what in fact happened by reference to beliefs or states of mind.

21                  The parties (and the applicant in particular) pressed their cases by reference to a careful appreciation of the facts. The facts can only be fully understood by a chronological appreciation of their development. Summary form or concentration on one particular event or one particular point in time can lead to distortion. The consequence of this is that there is no alternative to the setting out chronologically of the facts as they unfolded from late 1996 to early 1999. In coming to my findings as to the facts I have been assisted significantly by the submissions of the parties. Each side provided me with detailed submissions and a detailed factual narrative. To an extent, I have taken advantage of that assistance from the parties and incorporated parts of those narratives into my conclusions, without attribution. I would like to express my appreciation to the parties and their representatives for the care with which those submissions and narratives were prepared (care which was conformable with that displayed in the balance of the presentation of the case by both sides) and to say that my resort to the text of either narrative has not been, in any way, a substitute for my careful consideration of the appropriate factual findings.

Main witnesses

22                  At this point it is appropriate to identify the persons involved for both Clyde and Sebel and to say something by way of introduction about their evidence.

23                 Mr John Hancox was the Group General Manager of Clyde. He did not give evidence.

24                  Mr Reg Graham was an employee of Clyde at the time the 4GT Project arose. He started work on Clyde’s tender to the SRA in about February 1996, and was appointed Clyde’s “Executive Manager 4GT Project” in January 1997. Mr Graham was one of a number of Clyde officers and employees who together constituted Clyde’s Executive Management Committee through the relevant period, that is, between 1996 and mid-1999. The senior member of the Clyde Executive Management Committee was Mr Hancox. Also on the Committee were Mr Keith Edwards (Financial Director and Financial Group), Mr Tom Zube (Logistics Manager), Mr Kevin Thompson (Sales and Marketing Manager) and Mr Bob Cantwell (IT Manager).

25                  Mr Graham in [8] of his affidavit of 19 October 2000 described his responsibilities as Executive Manager of the 4GT Project for Clyde as including the following:

(a)               preparing the overall commercial strategy to enable Clyde to win the Tender;

(b)               developing a framework of what Clyde believed the SRA was seeking from tenderers for the 4GT Project in order that Clyde could formulate a tender that was competitive;

(c)                corresponding and meeting with the customer, the SRA;

(d)               co-ordinating and preparing both material and labour estimates;

(e)                selecting a partner and the sub-suppliers that Clyde was going to work with in preparing its Tender;

(f)                 finding the appropriate facilities for the manufacture to be carried out on the 4GT Project, including evaluation of sites and negotiations with local councils and authorities;

(g)               co-ordinating and preparing the maintenance pricing and offer;

(h)               co-ordinating the overall bid and arranging all board approvals.

26                  Mr Graham struck me as an honest man. He attempted, at all times, to be of assistance. However, as I later say, I think that there was a degree of after the fact rationalisation in some of Mr Graham’s evidence.

27                  Mr Graheme Sheldrick, a professional quantity surveyor of long and wide experience in tender evaluation and the management, administration and negotiation of major engineering and construction works, was the consultant “Logistics Manager” for Clyde’s tender to the SRA from September 1997 until October 1998, when he became the Commercial Manager for Clyde. Mr Sheldrick described his responsibilities up to October 1998 as “Logistics Manager” in [5] of his affidavit of 13 October 2000 as including the following:

(a)            calling for tenders and selection of sub-supplier submissions, including incorporation of the sub-supplier information into Clyde’s Tender offer to the SRA;

(b)            negotiations with sub-suppliers;

(c)             negotiations with the SRA;

(d)            preparation of Clyde’s Tender to the SRA;

(e)             co-ordination of the Clyde 4GT Project team for the purposes of providing responses to the SRA when requested.

28                  As can be seen from the above expressions by Messrs Graham and Sheldrick of their responsibilities, and as was otherwise clear from the evidence, Mr Graham was more closely involved at the practical technical level than Mr Sheldrick, whose responsibilities were directed to negotiation and documentation with parties such as Sebel.

29                  Mr Sheldrick, like Mr Graham, struck me as honest and attempting to be of assistance. However, also like Mr Graham, as I later say, I think that there was a degree of after the fact rationalisation in some of his evidence which at times, in Mr Sheldrick’s case, was a little forced.

30                  Sebel was a subsidiary of GWA International Limited (GWA). Mr Geoffrey McGrath was the managing director of GWA. His evidence in cross-examination was given cautiously and somewhat defensively. With some exceptions, that I have identified, I accept his evidence.

31                  Up to about August 1997, Mr Ian Paxton was the General Manager of Sebel. That position was in effect the managing director of Sebel. In that position, Mr Paxton reported to Mr McGrath. Mr Paxton did not give evidence.

32                  Mr Jones was at all material times the Major Projects Manager at Sebel. He was the person at Sebel who had senior day to day contact with Clyde. It is not oversimplifying matters to say that he had effective carriage of the Project at Sebel until about February 1999. He gave evidence for Clyde. I deal in some detail with his evidence in these reasons. Whilst I think that he attempted at all times to be truthful, his evidence, as I say later, had a certain after the fact construction to it. He deeply disagreed with the approach and conduct of Mr Doman. He thought it to be both unwise and unethical. Whilst in significant part I accept his evidence, especially where it conflicts with Mr Wright, I think, as I say later, a modicum of caution is to be exercised in dealing with the evidence of his state of mind.

33                  In August 1997, Mr Wright took over from Mr Paxton as Acting General Manager of Sebel. He remained in this position until late October or early November 1998, when the newly recruited Mr Doman took over as General Manager of Sebel. Mr Wright was involved in the decision to tender on the terms offered. He was a man of wide experience in manufacturing, and in Sebel’s business. He was a man whose experience ranged from the factory floor to executive level. He struck me as an acute, intelligent and tough businessman, able to sum up a situation swiftly and accurately and deal with it forcefully and directly. He gave his evidence in this manner. He had a long and close history of employment with Mr McGrath. They were close business associates. Unfortunately, there were aspects of Mr Wright’s evidence which were less than satisfactory. I deal with the detail of these aspects in due course. However, by way of necessary introductory comment, I have to say that I found his evidence at times stubbornly aggressive, almost as if he perceived himself in combat with the cross-examiner. That may not, of itself, be otherwise than to his credit, in a vigorously conducted cross-examination, if it had not been in respect of topics in connection with which he was plainly refusing to make concessions that documentation and commonsense demanded be made. He was especially adamant that at no time did Mr Jones ever give him reason to think that Sebel was in a position of effectively being the only likely seating supplier. I deal with the detail of this in due course, but, unfortunately, it is necessary to say that I do not think that Mr Wright’s evidence is at all reliable in this regard. It is unnecessary for me to express a view as to whether this was deliberate, or the result of after the fact rationalisation. It suffices to say at this point that I have reservations about the reliability of important parts of Mr Wright’s evidence.

34                  Mr Gabadou was, from commencing employment with Sebel in October 1997, its Operations Manager. He expressed the responsibilities involved in this position as follows:

In that role, I was in charge of the manufacturing operations of Sebel’s business, which meant that I was responsible for the research and development, production, quality assurance and despatch/purchasing departments of Sebel. I would report to the General Manager of Sebel, who was Sonny Wright at the time I joined.

35                  Mr Gabadou’s involvement in the Project began in January 1998, after Sebel had submitted its tender. I deal with his evidence later. At this point it need only be said that he gave his evidence in cross-examination in a careful, open and direct manner. When called on, and when appropriate, he gave concessions. When apparently clear on a matter he, without any defensive aggression, made his position perfectly clear. The cross-examination of him took the form of a direct and modulated dialogue in which the cross-examiner promptly reached the bedrock of a reliable recollection, clearly expressed. I accept Mr Gabadou’s evidence as reliable.

36                  Mr Doman was brought in as the new General Manager of Sebel and commenced in that position in early November 1998. It is fair to say that his business views on how underlying costs should be accounted for in projects of this kind caused an entire reversal of approach to the Project. To that extent, in large part, he was responsible for the affair which has led to this litigation. That is not said critically, but factually. This late, but in a sense central, position of Mr Doman in the mutual affairs of the parties led to a direct and vigorous (and entirely fair) cross-examination of him. Under this fire Mr Doman was at times evasive in his defence. I found some aspects of Mr Doman’s evidence less than persuasive, in particular his expressed view that he wanted Sebel to undertake the Project and his refusal to concede that he appreciated in February and March 1999 that he was reversing the costing methodology of tooling and design costs. I have dealt with his evidence, as necessary, later.

37                  It is unnecessary further to identify and comment on witnesses and actors at this point. A dramatis personae was provided by the applicant which, in the absence of correction by the respondent, I have taken as accurate. I have marked this document as exhibit A2. The parties have liberty to apply to oppose the admission of that document into evidence.

Factual narrative

38                  The SRA commenced the process of introducing the new generation of passenger train called the “Millenium train” in 1996.

39                  The third generation of passenger train, known as the “Tangara”, had been introduced in the 1980s. Before that, the last of the second generation trains, known as the “Double Deck Suburbans”, commenced service in the late 1960s. In 1996 the retirement of this thirty-five year old rolling stock was imminent.

40                  In 1996, Clyde decided that it would tender for the 4GT Project. Its tender was initially intended to be in conjunction with a French entity, GEC Alsthom, which specialised in the provision of electric traction machinery. GEC Alsthom later withdrew from the joint venture with Clyde, but indicated that it was prepared to supply the traction package to Clyde, if Clyde proceeded to tender on its own. Clyde informed the SRA of this development and the SRA responded by suggesting to Clyde that it submit a tender on its own. To that end, the SRA agreed to give Clyde an extension to 5 November 1997 to prepare its tender submission.

41                  Clyde commenced work on the Project in 1996.

42                  On about 30 October 1996 the New South Wales Minister for Transport issued a media release announcing that CityRail would soon invite tenders for the 4GT Project. The announcement stated that the specifications would require seats to be reversible (or rollover or walkover), more comfortable and vandal resistant.

43                  The tender for the 4GT Project was conducted by the SRA in three stages. The first stage was a pre-registration process in which the SRA chose a limited number of companies to tender. This process concluded in June 1997. The second was the preparation and submission of tender submissions which occurred from about July 1997 to 5 November 1997. The third was the tender evaluation which took place from 5 November 1997 until Clyde Engineering was awarded the tender in June 1998, formal contracts being signed on 8 October 1998. The evidence did not explore the precise nature of the legal relationship between Clyde and the SRA from June to October 1998. A media release on 30 June 1998 by Evans Deakin Industries Limited (EDI), Clyde’s parent company, stated that the SRA’s chief executive had announced that EDI was the “preferred supplier” of the 4GT trains.

44                  From about December 1996, it was clear to Clyde that the seating in the new trains was a very important consideration and that the SRA placed considerable importance on improving the seating in comparison to the Tangara train. In particular, the SRA made known its desire for reversible or walkover or rollover seats which had not been installed in the Tangara used in suburban areas, though such seats had been installed on trains travelling inter-city. Passenger comfort and vandal resistance were also said to be important. It was plain to Clyde that the seating was a very important part of its tender.

45                  On or about 4 June 1997, the SRA released a preliminary set of tender documents. These documents were issued as part of the pre-registration process approximately two months before the formal bid process began. These documents, known as “pre-registration documents”, contained the SRA’s specific requirements in a number of areas, including in relation to seating. The preliminary documents called for interest in respect of the design, manufacture, supply and possible maintenance and financing of the 4GT train.

46                  On about 17 June 1997, Clyde received a letter from the SRA informing it that its joint venture with GEC Alsthom was one of three organisations which would be invited to participate in the formal tender process. The other two organisations were ABB Daimler-Benz Transportation (Australia) Pty Ltd and A. Goninan Co Limited.

47                  The letter from the SRA to Clyde-GEC Alsthom dated 17 June 1997 stated that considerable emphasis was to be given to the maintenance phase of the contract.

48                  Meanwhile, in about late March 1997, Clyde had commenced working with an organisation called Transport Design International (“TDI”) to establish the design features of the train. Within this task, TDI began the design process to develop the general functionality and appearance of the proposed seating.

49                  Also, during the pre-registration period, when Clyde was working on seat design with TDI, Clyde sent letters to various potential sub-suppliers, including potential seating suppliers, seeking their expression of interest in participating in the 4GT Project. It was during this period, in approximately June 1997, that Clyde representatives first had informal communications with representatives of Sebel, to discuss the possibility of Sebel being the seating designer and supplier for the 4GT. Mr Graham of Clyde was aware that approximately fifteen years previously, when he was working for another company, Sebel had indicated a willingness to break into transport seating. The initial contact between Clyde and Sebel was through contacts between representatives of their respective parent companies, EDI and GWA.

50                  Mr Graham telephoned Mr Jones in approximately early June 1997 and a meeting was arranged at Clyde’s offices to discuss Sebel’s participation in the 4GT Project. The meeting, held shortly thereafter, was attended by Mr Jones and Mr Ken Payne (Sebel’s Research and Development Manager) on behalf of Sebel, and Mr Graham and Mr Rakesh Batra (Clyde’s then Logistics Manager for the 4GT Project – Mr Sheldrick’s immediate predecessor) on behalf of Clyde. At the meeting there was discussion about Sebel’s resources and ability to undertake the work on the 4GT Project, given that Sebel had not done any work on passenger seating before. It was agreed that Mr Graham and Mr Batra would attend Sebel’s premises for an inspection of its facilities.

51                  Sebel commenced work immediately on designing a seat. On 17 June 1997, Sebel prepared a design brief in relation to the Project. The design brief was signed by Mr Jones. The “Price Estimate” in the brief was $250 - $450 “per bum space”.

52                  On 20 June 1997, Mr Jones wrote to Mr Batra of Clyde. The letter enclosed a confidentiality undertaking duly executed and stated, amongst other things:

Following our meeting, we are pleased to confirm that Sebel Design is interested in working with Clyde Engineering in the development and subsequent manufacture of rail carriage seating.

……

We are confident that we have the resources and the ability to work with you on this project and look forward to a mutually rewarding association.

The letter also included statements as to Sebel’s history and good credentials.

53                  On 24 June 1997, Clyde sent Sebel a request for quotation for the supply of passenger seats. This request was superseded by a further request for quotation issued by Clyde to Sebel during the tender process in September 1997. The request was an invitation in respect of the “design, manufacture and/or supply” (not maintenance) on a free in store basis of 450 seats minimum per train for twenty train sets (with four trains per set).

54                  There then followed various internal meetings within Sebel in relation to the Project. On 11 July 1997 Mr Jones and Mr Payne, together with other Sebel employees, including Mr Sheldon King, a designer, met with Mr Greg Martens of TDI. At that meeting, Mr Martens presented TDI’s aesthetic concepts for the proposed train seat, together with a series of concept drawings that TDI had developed for the possible styling of the seats.

55                  The proposed inspection of Sebel’s factory by Clyde’s representatives took place on 17 July 1997. Various employees of Sebel were in attendance. Sebel’s General Manager at that time, Mr Ian Paxton, attended for part of the time. He indicated that Sebel felt it could go forward with the 4GT Project and he said that he thought it was a great opportunity to achieve Sebel’s objective of expanding its business. As Mr Graham recalled it, Mr Paxton also said that Sebel was very interested in getting into the ferry market and was very interested and keen on the 4GT Project.

56                  At the meeting of 17 July 1997 Mr Graham said the following:

We’re really looking for something unique in seating design, something new and innovative. We don’t want the same conventional designs that everyone else out there is doing in mass transit. We don’t want you to just re-engineer the Tangara seats. We want you to factor in a moving lumbar support.

This made clear the importance of the seat.

57                  During the course of the meeting Mr Paxton said words to the following effect:

Sebel wants to expand its business. Transport seating is an ideal area as it is the only part of the seating market that we are not in. We have experience on very large design, construct and install projects like the convention centres, Opera House seating and have developed a new design for education seating. We are working hard to expand our business. We really feel that we can go forward with the 4GT Project and will provide whatever support and resources are necessary to be successful as it is a great opportunity to achieve our objective of expanding the business.

58                  At one point during this tour Mr Jones said that the 4GT Project represented an opportunity for Sebel to break into new markets such as trains and ferries, and that Sebel was keen to work on a project and was committed to the Project.

59                  At the conclusion of the factory tour, Mr Jones said to the Clyde representatives, words to the effect of:

As you can see, we’d have no problem manufacturing the seats, we have all the resources and expertise that you could possibly need.

60                  There was some dispute in the evidence as to whether at this meeting Mr Graham, or someone on behalf of Clyde, stated that they were looking at a “ballpark” figure of something less than $400 per seat position. Mr Payne gave this evidence. Mr Graham did not recall it. Mr Jones recalled that in these early meetings (whether this meeting or a slightly later meeting) Mr Graham said to him that Sebel should be looking to a range of a maximum of $570 per seat space. Handwritten notes of the meeting of 17 July tendered, but otherwise unexplained, refer to “Target Price <$400/seat”. I do not think that the two recollections are necessarily mutually inconsistent. There appears to be support for Mr Payne’s recollection concerning this meeting in the note. Mr Jones gave evidence in [15] of his affidavit of 6 October 2000 that at one of the early meetings the following was said:

Jones: We’ve never been involved in any kind of public transport seating. We’ve got absolutely no idea what kind of figure we should be looking at tendering. Can you give us a ballpark indication of a range of figures that would be considered by Clyde?

Graham:You should be looking somewhere in the range up to a maximum of $570 per seat space.

61                  That Mr Graham gave this figure to Mr Jones early in the piece is confirmed by the evidence of Mr Drabsch (Sebel’s Commercial Manager before Mr Lange) who said in [16] of his affidavit:

At paragraphs 15 and 16 of his affidavit, Mr Jones refers to a top of the range price of $570. I had no contact with anyone from Clyde and do not know if that price came from them. However, I do recall it being mentioned by Neville Jones. I think that this was in a discussion with him, me and Sonny Wright where Mr Jones said words to the effect:

“$570 is the price we have to target to win the job”.

62                  Mr Graham’s recollection varied slightly. He gave evidence in [54] of his affidavit of 19 October 2000 that in about August 1997 the following exchange with Mr Jones took place:

Graham: For your information Clyde has established an average seat cost as a target for this contract. We are expecting to pay in the range of $450-500 per seat position. This has been established from European standards.

Jones: Thank you for that. I will give you an indication in the next few weeks of what we believe can be achieved as soon as our first cut pricing is completed.

63                  Mr Graham also then gave this evidence in [55] and [56] of that affidavit:

Some time later at another design meeting Neville Jones came back to me and said words to the following effect:

“Sebel cannot meet the target price you have given us but we can produce a seat along the lines you have requested for an average price of $500-550. We can offer this price because we believe this design can be the basis for other markets in the transportation business. It has been Sebel’s policy on other large seating projects to view the potential market for a type of seat and to amortise the fixed costs of research and development, design, tooling and testing over the total market and not just the individual project, eg: not just the 4GT contract. In this case I can build a seat for you that can be modified to suit ferries. We will develop the dies for this seat and then recover our costs by exploiting the full market opportunities. This is what we did with the Olympic stadium project.”

I was very happy as a result of this conversation as Sebel seemed able to design the novel seat and nearly meet our target price. This would provide Clyde with a competitive advantage given that other major elements of the train costing would be similar as between all competing tenderers.

I accept this evidence. This conversation made clear to Clyde the relationship between Sebel’s ownership of intellectual property and the likely tender price.

64                  Whilst there was some temporal and sequential inconsistency between Mr Graham and Mr Jones, I find that at least by August 1997 Mr Graham had indicated to Mr Jones that an upper figure of about $550 to $570 per seat space would be acceptable to Clyde.

65                  On the day following the meeting at the Sebel factory on 17 July 1997, Clyde (Mr Batra) sent a facsimile to Sebel (Mr Payne) thanking it for the tour of the facility. It appears from that transmission that Clyde by that time had already provided Sebel with some documentation in relation to the Project. Additional documents, being further TDI sketches, were provided by Clyde to Sebel shortly afterwards.

66                  By 17 July 1997, Sebel had produced design photographs of the seats. Sebel then started to consider what it might cost to build a seat for the 4GT Project. It began by costing the existing rollover seat from the inter-city Tangara series. Mr John Martin (a Sebel engineer) prepared a series of sketches of the components in that seat and then listed those components in a bill of materials. Those materials were then costed by Mr Matthew Leary, a junior engineer at Sebel, and Mr David Manz, Engineering Manager of Sebel. They did so by measuring the materials to be used, and the processes involved. The total cost for that seat (an existing Tangara 2 person walkover seat) was $811.33, or $405.66 per seat space.

67                  Having done that work, Sebel then explored how it might be able to redesign the Tangara walkover mechanism so as to reduce cost. Mr Martin prepared sketches of a revised mechanism and a bill of materials, and those materials were costed by Mr Leary and Mr Manz. The total cost for that seat (an existing Tangara 2 person walkover seat as redesigned by Sebel) was $563.41, or $281.70 per seat space.

68                  The costing estimates prepared by Mr Manz were based on a 2 seat walkover seat. A 3 seat walkover seat would cost marginally less per seat space, while a 1 seat walkover seat would be more costly per seat space. Fixed seating (ie. seats without a rollover or walkover mechanism) would be less costly per seat space.

69                  In a letter dated 18 July 1997 Clyde indicated the types of seats then anticipated in each train. They were a 2 seater walkover, a 3 seater walkover, a 1 seat fixed, a 3 seat fixed, a 5 seat fixed and a tip up seat. These elements changed in due course.

70                  During the period July to September 1997 there were various meetings between representatives of Sebel and Clyde, including employees of TDI. Those meetings were for the purpose of exploring seat designs and mechanisms, pricing options, resource allocations and development schedules. Representatives of Sebel and Clyde worked closely together on all aspects of seating and mechanism design, with Sebel submitting several design options to Clyde before mutually settling upon one preferred design to progress further. Clyde did not engage in any similar process with other seating manufacturers. The 4GT Project became a significant part of the day-to-day work for several Sebel staff, particularly for Mr King from Sebel’s Research and Development Department and for one of Sebel’s junior engineers, Mr Leary, both of whom spent substantial proportions of their time on the 4GT Project.

71                  As was evident to Clyde, Sebel was enthusiastically developing a design and committing such resources to the Project as were required to develop a design carefully and expeditiously.

72                  Mr Graham recalled telling Mr Jones during one of the meetings held in the period after July 1997 that there would be a refurbishment of existing trains in the near future and that would be a good potential market for Sebel to aim for, and that Mr Jones responded by saying that Sebel had spoken with train and ferry people and it looked like those markets were worth exploring. I accept this evidence. Mr Graham also recalled a telephone discussion in about July or August 1997 between Mr Ron Paul (then Chairman of Clyde’s parent company, EDI), Mr McGrath and him. Mr Graham’s evidence was that Mr McGrath said that he was aware of the 4GT Project, that it was a prime opportunity for Sebel to expand its business into transport, that Sebel was keen to extend its seating range to include rolling stock and ferries and that Sebel was keen and he would ensure that every effort was put into preparing a competitive tender. Mr McGrath’s evidence was that he said no more than that he would ask Sonny Wright, Sebel’s Acting General Manager, to look into the matter. I prefer Mr Graham’s evidence. It is more in keeping with how the “Sebel side” of these early exchanges was exhibiting real enthusiasm.

73                  On or about 22 July 1997, the SRA released its tender specification documents for the 4GT Project. A revised, final set of these documents was issued on 29 August 1997.

74                  From July 1997 onwards, and in particular August and September, Sebel undertook extensive research about the existing art in train seating. Sebel was aware that an entirely new design was required. I infer that Clyde had passed on to Sebel what the SRA had said about seating, and its importance, in the new train.

75                  In about late August or early September 1997, Mr King came up with the idea of using gears, including a moveable lumbar support, rather than a linkage system, for the walkover mechanism for the seat. Shortly after doing so, Mr King left Sebel and started working for a company called Design & Industry Pty Ltd (“D&I”). As Sebel wished to retain his services, it engaged D&I to assist it in the design work subsequently undertaken in relation to the seat.

76                  The new seat design prepared by Mr King in August and September 1997 was then costed by Mr Leary and Mr Manz. In a Sebel inter-office memo of 1 October 1997 from Mr Leary to Mr Jones, the estimated costing was set out as $382, on the basis of $80 tooling cost per seat, and on the basis that no maintenance costs had been allowed for. Thus, the direct cost of the seat was calculated at this time as $302.

77                  In August or September 1997, prior to Clyde sending Sebel the superseding request for quotation on 10 September 1997, Mr Graham had a conversation with Mr Jones to the following effect:

Before working with Sebel, Clyde had already obtained Expressions of Interest from other seating suppliers. My view is that Clyde needs to obtain tenders from other suppliers but we will continue to work closely with you.

78                  Mr Graham sought in his evidence to explain why these other requests for quotation were obtained. He said:

Clyde sent requests for quotations to a number of seating suppliers. One reason that I wanted to call for tenders for seats other than from Sebel is that if the market had known that Clyde was dealing with only one seating manufacturer it would have informed the market place of my strategy and focus. There is so much networking done by those involved in our relatively small industry that I was concerned that this information could potentially disadvantage Clyde. Furthermore, Clyde has the policy to gain three competitive quotes.

79                  The applicant submitted that this evidence supported a finding that Clyde requested these other quotations only “as a matter of internal compliance”. This submission was related to the central factual element of the applicant’s case that Sebel at all times knew that it was the only seating supplier being considered by Clyde. It is sufficient, at this point, to note that the words of Mr Graham to Mr Jones do not contain any assurance of exclusivity or any explanation that the other tenders were being sought as a matter of form only or merely for “internal compliance”. Sebel was told that there would be other tenderers, but that Clyde would continue to work closely with Sebel. Nor did Mr Graham explain to Mr Jones the matters referred to at [78] above.

80                  Clyde proceeded to send the request for quotation to various sub-suppliers for each of the components for the train. In relation to the seating component, it sent requests to three other suppliers: Austral Pacific, Trimtech and Transform.

81                  The request for quotation addressed to Sebel took the form of a letter dated 10 September 1997 with various enclosures. In that request for quotation, Clyde stated that it had been short-listed to tender for the 4GT Project and that the scope of work for the head contractor under the Project would involve “the Design, Build, Maintenance and Financing of double deck electric suburban rail cars”. Whilst Clyde thus described the head contract for the 4GT Project, Sebel was only invited to submit a quotation for the “design (where applicable), manufacture and/or supply of” the seats.

82                  Notwithstanding the absence of a request for a quotation on maintenance, that matter was discussed between Mr Graham and Mr Jones. Mr Graham said at [86] of his affidavit of 19 October 2000 that the following exchange took place between him and Mr Jones some time before Sebel submitted its tender in October 1997:

Mr Graham: Neville, we need an offer from your company for maintenance of the seats over the life of the contract, what service you can provide, the life of the components, and their cost of replacement. If Clyde is successful we would prefer that the maintenance be included. We can discuss the details of this at that time, based on the offer you submit.

Mr Jones: We would be pleased to include maintenance in the contract and we will forward a submission to you shortly as a basis.

I accept this evidence.

83                  The question of the extent to which the parties had, by early 1999, agreed on issues of maintenance was a matter of dispute. It is therefore necessary to trace the development of this issue during the unfolding of events.

84                  The request described the scope of work as follows:

85                  The three stages referred to in the column headed “Total Qty” were explained in the body of the request for quotation. Stage 1 was for the supply of eighty cars, which would make up twenty train sets (one train set consisting of four cars). Both of Stages 2 and 3 would only proceed at the SRA’s option, Stage 2 being for the supply of fifteen train sets (sixty cars) and Stage 3 also being for fifteen train sets (sixty cars).

86                  The request required tenderers to meet the technical requirements set out in Engineering Specification Tender Inquiry No P163-06 which was SRA Specification No 4GT-S96 0301, which required (in section 3.3) all passenger seating to meet the requirements of CityRail Specification FE 038-92.

87                  The request also stated:

1. Prices are to be quoted for each individual type of seat detailed in the scope of work. The split up of different types is preliminary and subject to change during the design development of the car.

[emphasis added]

88                  The request for quotation included a document headed “Attachment 1 Conditions of Tendering”. Condition C to that document, headed “Price Basis”, was in the following terms:

C. Price Basis

All prices to be submitted should be on a Rise and Fall basis in accordance with Clause 3 of Clyde Engineering’s Special Conditions of Contract 4GT Project. The base date for the Project is defined as 5 September 1997.

Prices are to be submitted in Schedule 1 to the Request for Quotation in the tables provided. If additional space is required, extra sheets may be photocopied and attached. The split up of the unit price is to be submitted in Schedule 1A for the purposes of indexation for Rise and Fall calculations.

Suppliers are also required to submit a Fixed Price option for Stage 1 only (20 train sets) in Schedule 1B. This price will be firm for the duration of Stage 1 and will not be subject to Rise and Fall or Exchange Rate variation.

The prices should be in Australian currency and should exclude sales tax.

Where imported goods are involved, Suppliers may submit prices in foreign currencies as an option.

89                  Clause 3.1 of the Special Condition of Contract was in the following terms:

3.1         All prices to be submitted will be subject to rise and fall from the base date defined as 5 September 1997.

90                  Condition D to that document, headed “Validity Period” provided that “all offers must be valid for acceptance up to 30 September 1998”.

91                  The request for quotation also included copies of “Clyde Engineering General Conditions of Contract” and “Special Terms and Conditions 4GT Project”. Sebel was requested to indicate whether any of the terms set out in that document were terms it was not prepared to accept.

92                  Clause 2 of the General Conditions of Contract was in the following terms:

2.         The Contract

2.1  The Purchase Order constitutes an offer to purchase and not an acceptance of any offer to sell the Equipment. The Purchase Order shall only be accepted in accordance with its terms and without modification, addition, deletion or alteration thereof unless agreed to in writing by Clyde and duly signed. In the absence of written acceptance or other written confirmation by the Supplier, the Supplier will be deemed to have accepted the Purchase Order upon delivery of the security deposit (if any in accordance with clause 7.1 or upon expiry of 21 days after the date of the Purchase Order whichever occurs first.

2.2  The Contract is the entire agreement between the parties in relation to the design (if required by the terms of the Contract), manufacture and delivery of the Equipment and shall be deemed to have superseded, excluded and cancelled (so that they shall not be part of or be used in the interpretation of the Contract) any qualifications, understanding, arrangements warranties, statements, agreements, reservations or restrictions contained in any:

(a)        invitation or offers;

(b)        precontractual negotiations, discussions or documents whatsoever; or

(c)         collateral agreement or warranty;

which in any way relate to the subject matter, or part of the subject matter, of the Contract, or the intentions of any of the parties.

93                  The words and phrase “Contract”, “Equipment” and “Purchase Order” were defined in cl 1.1 as follows:

“Contract” means the contract between Clyde and the Supplier for the supply of the Equipment formed by acceptance of the Purchase Order by the Supplier and includes these General Conditions of Contract, any Special Conditions of Contract and all attachments, documents and schedules thereto or hereto;

…

“Equipment” means the goods to be supplied by the Supplier described in the Purchase Order to which these Conditions of Contract are annexed or of which they form part;

…

“Purchase Order” means Clyde’s purchase order form to which these Conditions of Contract are annexed or of which they form part but excludes any terms and conditions printed on the back of the form;

94                  Clause 12 of the Special Terms and Conditions provided that suppliers would be required to comply with the various terms and conditions of the head contract (being the contract for the supply of trains between Clyde and the SRA) on a back-to-back basis. One term identified was cl 9.3 of the proposed head contract, under which Clyde would be obliged to assign to the SRA all rights, title and interest in any intellectual property specifically created for work under the contract.

95                  That clause was, relevantly, in the following terms:

9.3      Rights granted to the Principal

The Contractor:

(a)                  assigns to the Principal all rights, title and interest in any Intellectual Property in the Contract Documentation and any other Intellectual Property produced under the provisions of the Contract or specifically created for the work under the Contract from the Date of the Deed of Agreement or its creation (whichever is later); and

(b)                  grants to the Principal a permanent, irrevocable, royalty-free, non-exclusive licence to use any other Intellectual Property incorporated into the work under the Contract or otherwise used in connection with the work under the Contract for any purpose whatsoever which:

(i)            arises upon the creation of those things the subject of it;

(ii)          may be sub-licensed;

(iii)        will survive termination of the Contract on any basis; and

(iv)        entitles the Principal, any sub-licensee or any assignee to alter or enhance anything licensed with any Intellectual Property in the alterations or enhancements vesting in the Principal; and

(c)                   must do all further things necessary to assign the rights, titles and interests referred to in the preceding paragraph (a) and to obtain the Principal’s right to the licence referred to in paragraph (b) and the Contractor is responsible for any payment, including any royalty fees, in connection with the granting or the obtaining of the licence.

96                  Other clauses of the head contract made relevant by cl 12 of the Special Terms and Conditions concerned insurance. Clause 12.3 stated:

Suppliers and their subcontractors will be required to meet the provision [sic] of these clauses. The amount of Public and Products Liability Insurance cover required is $100 million and the amount of Professional Indemnity Insurance cover required is $30 million as stated in Attachment A of the Head Contract.

Consequently, Clause 33 Suppliers Insurance of Clyde Engineering General Conditions of Contract is not applicable.

97                  Also, cl 12.5 of the Special Terms and Conditions in the request for quotation, dealing with the application of head contract provisions made the question of maintainability relevant to the contractual responsibility for design. Sebel was required to design for a planned service life of each train car of at least thirty-five years. It is unnecessary to set out the detailed provisions in cl 2.5 of the special conditions and cll 3.7 and 3.8 in volume 2 of appendix 5 which dealt with Sebel’s contractual responsibility concerning a reliability programme, modelling and predictions in respect of reliability of performance, analysis of failure modes and criticality analysis of the seat and its parts, a reliability demonstration, and a maintainability programme. These matters required Sebel to deal with issues related to reliability, life expectancy and maintenance, but this was in connection with the design and manufacture of a suitable seat. The applicant in particular relied on the following provisions of cll 3.8.1 and 3.8.2 in volume 2 of appendix 5, which provisions do not it seems to me take the matter any further than I have indicated.

3.8.1        Maintainability is a characteristic of design. It is used to describe the ease with which failures can be repaired and time required to perform schedule maintenance and replacement procedures. Mean Time To Repair (MTTR) is a quantitative measure orf maintainability. … The contractor (ie Sebel) will implement a maintainability program as part of the contract. …

Maintainability characteristics will be an important consideration in the evaluation process, because of the impact of repair times on life cycle costs and on the potential availability which can be achieved in service.

…

3.8.2        The contractor will be required to provide the estimated MTTR for repair of a selection of most common faults and for completion of inspection and replacements required as part of the scheduled maintenance program.

98                  Also included in the request for quotation (whether initially on 10 September 1997 or later supplied) was a request for the supply of data in respect of “Life Cycle Costing”. The relevant document, headed “Specification for Life Cycle Costing Data to be Supplied”, noted that one of the SRA’s objectives was to minimise the life cycle costs over the expected life of the 4GT trains and that Sebel was required to provide information in a particular format so that the information could be standardised and equipment life cycle cost could be evaluated. The document stated that the SRA required Clyde to submit with its tender to the SRA a preliminary reliability predictions report, a preliminary maintainability predictions report and life cycle cost estimates, and that in order to allow Clyde to compile these reports, Sebel was requested to provide certain information in its scope of supply. The data requested included a spare parts list seeking manufacturing source and costs, costing for corrective maintenance, frequency, duration and costing for scheduled maintenance and life cycle costing for each major part. The document also stated:

You should assume, for the purpose of compiling this data only, that you are tendering for a subcontract to Clyde Engineering for the maintenance of your supply items at the designated maintenance facility at Eveleigh NSW for an initial period of 5 years. Should you be so contracted, you would be required to provide all necessary skills and labour, tools, spares, test equipment and other documentation to allow the work to be competed [sic] in the maintenance availability.

99                  The same document also requested the following information relevant to maintenance:

·               The extent of ongoing support over thirty five (35) year maintenance period specified for the equipment specified.

·               The approach to guaranteeing the performance of the equipment to the standards specified over the maintenance periods of 15 years + 10 years + 5 years + 5 years (35 years).

·               Any special tools and test equipment required to be held at servicing and maintenance depots for either maintenance or repair work to be listed and priced separately.

·               List of “day one” recommended spares and current price of each item along with minimum stock levels to be held in inventory.

·               Listing of float spares for Equipment overhaul and current price of each item.

100               The request for life cycle costing information was not a request for Sebel to tender for a maintenance contract. This was accepted by both Mr Graham and Mr Jones.

101               The Special Terms and Conditions contained in the tender request also required Sebel to develop or supply and maintain an appropriate range of operating and maintenance manuals for the seating.

102               Included in the material sent to Sebel as part of the request for quotation was a drawing prepared for Clyde by TDI identified as drawing TD-1784-SK49. The drawing had marked on it the following:

(a) the estimated overall internal saloon width of 2910mm;

(b) SRA requested aisle width of 470mm absolute minimum;

(c) seat width of 450mm absolute minimum; and

(d) seat pitch of 850mm.

103               Further, at page 3 of SRA Engineering Specification 4GT-S96 0301 being the engineering technical specification governing the seat design at this stage, it was stated:

Clause 3.4.1 – design is to be based on concept ergonomic layout drawing TD-1784-SK49.

104               In respect of the load requirements that the seats had to meet, specification 4GT-S96-0301 provided as follows:

(a) At Appendix 1, clause 3.6.1.1.6 provided

Loads on car body attachments. The car body structure and attachments shall withstand a 4g longitudinal, 2g lateral and 2g vertical acceleration over and above gravitational acceleration acting on any bracket, fixing, partition, interior or external fittings or anchorage without exceeding the critical design stresses for any member.

The above components shall also be designed using a fatigue methodology which prevents fatigue failure over the life of the 4GT.

(b) Clause 2.4 provided the following shock loads:

All equipment – not axle mounted:

Vertical 3g

Lateral – 3g

Longitudinal – 6g.

(c) Clause 2.1.56 of Appendix 1 defined passenger as:

For design and testing purposes passengers shall include 5^th percentile Australian female to 95^th percentile Australian male. The average mass of a passenger to be 70kg...

105               Paragraph 4.1(i) of FE 038-92 – dealing with testing – required the seat back to be capable of being walked over fore and aft for at least 15,000 cycles.

106               The relevance of these various elements of the tender request and specifications will become apparent in due course.

107               On or about 24 September 1997, Sebel engaged D&I to prepare a three dimensional computer animated image of the walkover seat. At or by this time, the Sebel Project team made, or had made, a decision that Sebel would try to sell the new seating to other markets beyond the 4GT Project. Mr Jones believed that a successful seating product from the 4GT Project could be used in future bus seating projects, ferry projects and other train contracts. Mr Wright had similar views. Sebel’s senior management team therefore decided that Sebel would seek to retain all intellectual property in the seating design, so that Sebel could continue to use the design in future projects. A consequence of this decision and of what underlay it, was the costing decision that tooling costs, and design or research and development costs would not be expensed directly to the Project and thus would not be included as part of Sebel’s tender price. Such costs would be capitalised and amortised over time in the balance sheet and the profit and loss account of Sebel.

108               By about late September 1997, Sebel’s basic concept design was completed.

109               Mr Jones gave evidence that a meeting to determine the bid price and other matters took place in Mr Gabadou’s office, with Mr Gabadou present. I infer that this meeting was in late September or early October, but probably before 3 October. Mr Gabadou denied this, pointing out that he only joined Sebel in October 1997. I accept Mr Gabadou’s evidence in this respect. In any event, Mr Jones, Mr Payne (Sebel’s then Manager of the Research and Development Department) and Mr Manz, an Engineering Manager, were present at a meeting for this purpose. Some work had already been done on the make-up of the price prior to that meeting. At the meeting, a figure of approximately $560 per seat space (average) was calculated, being a figure that would, in the view of those present at the meeting, provide a satisfactory commercial return to Sebel after the costs of production (and taking into account the intended future use of the seating in other projects). Mr Jones said that in arriving at this figure they assumed that Sebel would absorb the tooling and research and development costs for the reasons just referred to. At this time, it was ordinary practice and policy within Sebel for costs such as research and development and tooling to be amortised over a period (five years in respect of a major project such as the 4GT Project) where Sebel intended to use, or could see opportunities that may arise to use, the product of the design and research and development over several future projects.

110               These costings, calculations and discussions were based on the concept of a single “price per seat space”. This was so even though some seats would be more expensive than others to manufacture (for example fixed seats would be less expensive to manufacture than walkover reversible seats), and even though the exact configuration and number of each type of seat was not yet settled.

111               The next day Mr Jones worked through the figures which had come out of that meeting with Mr Drabsch (Sebel’s Commercial Manager), and the figures were then taken by Mr Jones and Mr Drabsch to Mr Wright, Sebel’s Acting General Manager. The figures were then worked through on a whiteboard with Mr Wright. During the course of this meeting, Mr Jones gave evidence that the following discussion occurred:

Wright: I think we should reduce the seat price to $538 per space.

Jones: We’re not in a competitive situation here. We don’t have to bid down to win this.

Wright: Yes, but I don’t want this to blow the deal for Clyde. We will give them the lower price of $538 because we have to make sure Clyde gets its tender so that we get ours.

[emphasis added]

112               Mr Wright contested this conversation in two respects. First, he said that he did not think that he would have voluntarily reduced the price. However, in cross-examination he accepted that he could not deny that he would have reduced the bid price to try and get the deal. Secondly, he vehemently rejected the proposition that Mr Jones said that Sebel was not in a competitive situation on this tender. The following exchange took place between Mr Wright and the cross-examiner, in forceful terms (from Mr Wright):

Mr Foster Yes and don't you remember that Mr Jones told you at this meeting that Sebel was not in a competitive situation on this tender?

Mr Wright There was not one single time when Neville Jones told me that, not one. In fact, for the whole duration of my time there, I had constant dispute with Neville about trying to get a commitment from Clyde to the effect that we were the preferred tenderer and in fact I believe then as I believe to this day that our job in this was to compete in Clyde with somebody else and not with the SRA as has been portrayed.

Mr Foster Weren't you ever told that from about late 1997 there was no other seating manufacturer in the game?

Mr Wright No, never.

Mr Foster Never told that?

Mr Wright Never told that.

Mr Foster You say you were not told at this meeting words to this effect that Sebel was not in a competitive situation on this tender or here?

Mr Wright Absolutely not, in fact, everything in Neville's conduct and Clyde's conduct as related by Neville to me indicated quite the reverse.

Mr Foster Well, everything in their conduct, what have you got in mind when you give that answer?

Mr Wright I have in mind constant pressure on Neville Jones.

Mr Foster From who?

Mr Wright From myself.

Mr Foster Constant pressure, over what period of time?

Mr Wright Over the period till the October. Try to understand we were spending money trying to understand what was going on, why wouldn't Clyde, I believed then as I do now, that Clyde had alternative prices and alternative proposals. In fact, I couldn't conceive that Clyde would go in on a $150,000,000 job without and rely completely on us.

[emphasis added]

113               If Clyde was, to Sebel’s knowledge, relying solely on Sebel for the seating, that was said by Clyde to permeate how one looks at the conduct of the parties. Mr Wright was an acute and experienced man. His keen and vehement delivery of this evidence indicated that he appreciated the importance of it.

114               I accept Mr Jones’ evidence. It was directly corroborated by the other person at the meeting, Mr Drabsch, who was called by Sebel. Mr Drabsch not only generally recalled the conversation as deposed to by Mr Jones, but also, when gently taxed with the matter in cross-examination, said the following:

Mr Foster: Do you remember there got to a point where Mr Wright said that there should be a seat price of an average $538 per seat space at this meeting?

Mr Drabsch: No, I don't recall that specific price.

Mr Foster: You wouldn't deny that either, would you?

Mr Drabsch: No, I know there was some discussion that we should pitch it in at slightly lower than what we were calculating.

Mr Foster: A suggestion made by Mr Wright?

Mr Drabsch: That's correct.

Mr Foster: Did not Mr Jones say when that suggestion was made that there wasn't any need to do that because Sebel was not in a competitive situation in relation to this tender?

Mr Drabsch: Mr Jones did make that statement.

Mr Foster: And did Mr Wright come back and say, well I don't want to blow the deal for Clyde. We will give them the lower price, whatever it was, because we have to make sure Clyde gets its tender so that we get ours or words to that effect?

Mr Drabsch: Mr Wright would have said words to that effect.

Mr Foster: In other words, help the head contractor because you are sliding in under him and you'll get the job?

Mr Drabsch: Well, provide assistance to make sure that Sebel win the job.

115               From the manner in which Mr Wright gave his evidence and what I take to be his natural acuteness, I conclude that Mr Wright was well aware of the apparent importance of this evidence. I prefer the clear and unequivocal evidence of Mr Drabsch and Mr Jones.

116               It will be necessary, in due course, to assess the importance of this evidence in the light of the evidence as a whole. For now, it is sufficient to conclude that in about September 1997, in finalising the costing, Mr Jones expressed the view to Mr Drabsch and Mr Wright (but not Mr Gabadou) that there was no need to reduce the tender price from $560 as Sebel was not in a competitive situation. In answer Mr Wright expressed the view that he wanted to reduce the price to maximise the chance of Clyde winning the tender and so to make sure, as far as was possible, that Sebel won the job. This conversation took place against a background of Clyde and Sebel knowing of the importance of the seating in the new train.

117               There is no evidence that, at this point, Mr Wright queried or contested what Mr Jones said. Mr Graham, of course, had indicated the need for Clyde to canvas other tenderers. However, this conversation, as it was plainly recalled by Mr Drabsch and Mr Jones, reflected a view of at least Mr Jones that, even if there were to be other tenderers invited, Clyde was working closely with Sebel in a way which made it apparent that there was not at the time any real competition. Sebel had, as was known to Clyde, already developed ideas for a design and had expressed enthusiasm and confidence in its ability to design and manufacture the seating. Mr Jones was communicating his view, to which there was no demur from Mr Wright, that there was no real competition at this point.

118               Messrs Jones, Wright and Drabsch together agreed that the figure of $538 per seat space would be the basis of Sebel’s tender to Clyde. Both Mr Wright and Mr Jones formed the view that the price gave Sebel an acceptable margin.

119               Mr Wright gave evidence about the approach taken to the non-inclusion of tooling and design or research and development costs in the bid price. He said that he did consider tooling costs and research and development costs, but was not particularly concerned about seeking to recover those costs when formulating the bid price. Critical to his thinking at that time was his personal view that if Sebel was successful with Stage 1 of the 4GT Project, then it was almost guaranteed to get Stage 2. It was only a question of timing. He thought that only Stage 3 was truly optional. He thought that if Sebel was successful on Stage 1 and the seats lived up to expectations, the continuing use of Sebel’s seats in subsequent stages would be compelling to Clyde and the SRA. He also thought there was potential to use the seats on rail projects in Victoria and that the technology could be applied to seating for high-speed catamaran ferries. It was his view that, in the light of these new market segment opportunities, it was appropriate to amortise the tooling and research and development costs over five years.

120               The legitimacy of the approach of amortising tooling and research and development costs was supported by the evidence of Mr Drabsch, the Sebel Commercial Manager who was a certified practising accountant.

121               Mr Jones’ evidence, which I accept, was that Sebel’s senior management was involved in the preparation of the quotation, that they brought to bear a breadth of expertise which gave Sebel the requisite expertise to formulate its tender, that he obtained the necessary authority within Sebel before lodging the tender, that a great deal of time was spent and a great deal of discussion was undertaken within Sebel before submitting the final tender and that it was very carefully prepared. I accept this evidence.

122               From the evidence of Mr Manz, Mr Payne, Mr Wright, Mr Drabsch and Mr Jones I conclude that in coming to the average price per seat of $538 Sebel officers displayed a careful, logical, reasonable and entirely appropriate approach. No criticism whatsoever can be made of their approach. Minds might differ about whether some or all of the tooling or research and development costs should have been included in the seating price, but this was a business decision and one which these men were well qualified and able to make.

123               Mr Sheldrick deposed that a meeting took place between representatives of Clyde and Sebel on 3 October 1997 at which Mr Jones gave a presentation about the costing of Sebel’s proposed seats and made reference to a price of between $540 and $550 per seat. I accept this evidence.

124               At about this time, in late September or early October 1997, Mr Jones spoke to Mr Graham and informed him that Sebel had been approached by another prospective tenderer. Mr Graham’s evidence about the conversation, which I accept, was as follows:

To the best of my recollection we had a general meeting in regards to the seat design and then Mr Jones said to me that he had received information or a request for a submission of a tender from another supplier similar to Clyde, one of our competitors and he had said that they had an internal meeting and had decided that because EDI or Clyde had worked extensively and very closely with Sebel in developing the seat up to this point in time, that they elected that they would not provide a tender to this other company and had decided that they would go exclusively with Clyde.

125               Thus, Sebel agreed to tender exclusively to Clyde, in part at least based on the close co-operation of Clyde with Sebel. Though not going directly to the question of what Clyde says was the mutually understood exclusivity of Sebel as a tenderer from Clyde’s point of view, it is conformable with such an understanding, and it does underscore the co-operation between Clyde and Sebel at this point.

126               Sebel submitted its quotation to Clyde on 23 October 1997. The covering letter of 23 October 1997 included the following:

The new seating concept would be designed and tooled by Sebel and we would reserve the right to be able to offer this for other projects outside of the 4GT submission.

127               The paragraph quoted above reflected what Mr Jones had told Mr Graham in about August ([63] above). Those comments of Mr Jones about Sebel’s retention of the intellectual property had elicited no dissent from Mr Graham, as one would have expected, if it were anticipated by him to be a problem, given Sebel’s leading role at this time in respect of seating. Likewise, there was no demur to this paragraph of the tender. The approach reflected by the paragraph underpinned, at least in part, the approach to tooling and research and development costs which formed the basis of the tendered prices. This was apparent from the tender response itself. In Schedule 1B setting out the pricing (see [129] below) Sebel expressly stated that there was no charge for “design/development” and “tooling” would be “absorbed by Sebel”. Schedule 1B also identified the non-conforming aspects of the tender. The retention of “intellectual property and tooling” was made clear. Thus, Clyde was aware of a direct relationship between the tender price and Sebel’s retention of intellectual property. However, for this to be given effect there would need to be some adversion to cl 12 of the Special Conditions of Contract and cl 9.3 of the proposed head contract dealing with the apparent complete assignment of the intellectual property in the seats, see [95] above. In due course, there was.

128               The question of the intellectual property was recognised by Sebel in the tender documents as one of the two major areas of non-compliance in respect of commercial matters. Another explicitly recognised area of commercial non-compliance was in respect of cl 3.1 of the Special Conditions (see [89] above). Only a fixed price for Stage 1 was submitted – for the duration of the first stage of the project. Also, the tender was non-complying in that the validity date of the offer was 31 March 1998, not 30 September 1998 as called for.

129               Sebel’s response only provided pricing for Stage 1. The pricing was set out in Schedule 1B to the tender. The prices provided for the seven categories of seat configurations contained in the request for quotation as follows:

130               In addition to the prices for the seat configurations, Schedule 1B also provided for a further $1,009,000 in fixed costs being $30,000 for testing, $10,000 for the operating and maintenance manuals, (see [101] above) and $969,000 for specific public liability and public indemnity insurance as called for in the tender (see [96] above).

131               It was apparent to anyone in the position of Clyde and Sebel, given the discussion about price on a per seat space basis that had taken place and from the form of Schedule 1B, that the Sebel tender was set at about $538 per seat space average, derived by using a price of $552 per reversible seat space and $490 per fixed seat space, and leaving aside the costs referred to at [130] above.

132               Mr Jones gave evidence in [25] of his affidavit of 6 October 2000 that:

Sebel’s bid specified a fixed unit price for each of the types of seating. Those unit prices were arrived at by adjusting the seat-space figure of $538 upwards or downwards in a fairly arbitrary manner according to the type of seating referred to, in an attempt to arrive as close as possible (using round numbers) to an overall average seat-space price of $538. Thus, the unit price per seat-space allocated to each one-person reversible seat was $552, and the price allocated to each one-person fixed seat was $490. The total number of seat spaces of various kinds specified in the bid was 9,520. The total value for all of those seats was $5,113,880, giving an average seat-space price of $537.17.

133               I accept this evidence. The mathematics that he describes would have been apparent to Mr Graham and Mr Sheldrick.

134               At par 3.5.6 of its tender response, Sebel stated that its seating was to have an average weight of 19kg per seat place. Sebel, subsequently to 23 October 1997, also provided some drawings of the seats which formed part of its tender.

135               Sebel included in its tender response a completed schedule called for by the “Specification for Life Cycle Costing” (see [98] above) and included notes on life cycle assessment and maintainability. The information included pricing for spare parts, corrective maintenance and scheduled maintenance. The notes included the following adjacent to the heading “Ongoing Support”:

Sebel will provide service and parts back up for the life cycle period.

136               The various contractual provisions concerning design, reliability and maintainability (see [97] and [98] above) were all “noted” by Sebel.

137               Mr Edwards (a director, the Company Secretary and the Chief Financial Officer of the applicant) gave evidence in an affidavit dated 22 March 2002, which was not the subject of cross-examination, that the information provided by Sebel in its tender response as to cost of parts and life cycle estimates ([98] above) was used by Clyde in compiling its tender to the SRA on maintenance.

138               Clyde submitted that whilst the tender was not one made by Sebel in respect of maintenance, it contained important information concerned with that subject matter which the parties understood was to help Clyde formulate its tender to the SRA in respect of maintenance. Further, it was submitted that the parties had expressed a mutual willingness to have Sebel, ultimately, undertake maintenance obligations, though, as can be seen from Mr Graham’s words at [82] above, such a maintenance contract was not a necessary accompaniment to the design and supply of the seating – though it was preferred that it be such. I agree with these submissions. Some groundwork had been laid for such a tender on maintenance and Mr Jones had expressed a willingness to provide for maintenance in due course.

139               The other three seating suppliers that had been requested to provide quotations duly provided those quotations in September and October. Whilst tenders and prices were received by Clyde from these three seating manufacturers, no discussion of any substance was held with any of those manufacturers by Clyde. Mr Graham gave evidence, which I accept, that Clyde did not speak or write to the other tenderers from late 1997. He spoke to someone from Austral Pacific in mid-1998, after that company had contacted him. He did not take up any aspect of that company’s tender in that conversation. (See [240] and [241] below.)

140               Mr Sheldrick received the offers from all potential sub-suppliers and prepared a cost comparison document for Mr Graham. In this document Mr Sheldrick indicated his preferred choice. In respect of seating, it was Sebel. Mr Sheldrick’s evidence was that with fixed costs of testing ($30,000), manuals and technical documentation ($10,000) and insurance ($969,000) the average price per seat space was $643.10. This was higher than expected based on Mr Jones’ estimate earlier in the year ([63] above). However, the conformity with the estimate, absent those costs extrinsic to the manufacture of the seats, was also clear.

141               Mr Graham says that he reviewed the cost comparison document Mr Sheldrick had prepared. Mr Graham said that he saw that cost comparison document in slide form and in turn presented the slides to Clyde’s Group General Manager, Mr Hancox, the Sales and Marketing Manager, Mr Thompson, and the CEO of EDI, Mr Ross Dunning. Mr Graham says that Clyde then selected Sebel as its “preferred seating supplier”. This choice of Sebel as Clyde’s “preferred seating supplier” was not expressly made known to Sebel in any correspondence at this time.

142               In late October 1997, Sebel reduced its quote by $549,000 after Clyde accepted Sebel’s existing public and product liability insurance. Sebel also indicated at this time that the tender price would be further reduced if Sebel did not have to provide separate professional indemnity cover. Mr Sheldrick at this time amended his comparative costings and reduced Sebel’s quote by $969,000, which reduced Sebel’s quoted price from $6,122,280 to $5,153,280 (including the $40,000 for testing, manuals and technical documentation) being $541.30 per seat space or $257,664 per four car train set, and being $537.11 per seat space, if the $40,000 for testing, manuals and technical documentation were excluded.

143               The evidence of Mr Sheldrick as to his evaluation of the tenders, of Mr Graham as to what he said to Mr Jones by way of his expectations as to price ([62] and [63] above) and of Mr Jones as to what Mr Graham said as to his expectations as to price ([60] above) make clear that the businessmen dealing with this tender viewed average price per seat space as an accurate and useful way of assessing the price of the tender. They understood that there was an overall average price calculated by reference to identifiable different prices for reversible and fixed seating. The parties were also aware (the request for quotation having said so) that the “split up of different types of seat”, that is the seating configuration of the train, was preliminary only, and was subject to change during the design development of the train car.

144               It was also apparent from the face of Schedule 1B of the tender response that the prices of the reversible and fixed seat units (x3, x2 and x1 reversible and x5, x3 x1 fixed) were calculated using a single price for each individual seat ($552 for reversible and $490 for fixed) and multiplying each such price by the number of seats in the unit.

145               With the likely change to configuration, it could be anticipated that the overall average price per seat space may change, up or down in a small amount, depending on the number of fixed and reversible seats, and assuming the prices for each fixed and reversible seat continued to be used and remained constant. To look at the tender in this fashion was both logical and in accordance with the discussions of the parties. This was not the only way of breaking up Sebel’s tender, but along with the cost for such four car train set, it utilized commercial integers well understood and used by both parties in dealing with each other. Nevertheless, the tender request did not call for, and the tender response did not expressly offer, a price per reversible seat or per fixed seat or an overall guaranteed average price per seat space.

146               By letter dated 28 October 1997 from Mr Sheldrick to Mr Jones, Sebel was requested to confirm that Sebel’s offer was valid until 30 September 1998 and to supply pricing for Stages 2 and 3. By a letter from Mr Jones to Mr Sheldrick later that same day, Sebel confirmed that its offer was valid until 30 September 1998 and that pricing for Stages 2 and 3 would be the same as the Stage 1 pricing, subject to a CPI increase from 1 July 2000.

147               I will deal in due course with the contractual relevance of the tender validity date. Some evidence was given about this. Mr Jones gave evidence that he inserted the original date, 31 March 1998, to reflect the fact that his understanding was that the head contract for Stage 1 was expected to be awarded by the SRA around February 1998 and Mr Jones understood that the validity of Sebel’s bid needed to extend for a time longer than the date upon which a final decision was made by the SRA as to which company would be awarded the head contract for Stage 1. Mr Sheldrick and Mr Graham were asked about the relevance of the validity date or validity period. Mr Sheldrick gave evidence that it was his understanding, at the time he requested this extension of the validity period of Sebel’s quote, that if Clyde did not accept Sebel’s tender by 30 September 1998 and if Clyde did not negotiate an extension of the validity period, then after 30 September 1998 Sebel would be free to vary or withdraw its tender. Graham also accepted this was his understanding at that time.

148               The parties, in particular Clyde, sought to use these subjective views in support of their respective positions on the formation, or not, of a contract by October 1998. All I need say at this point is that how Mr Jones or Mr Graham or Mr Sheldrick thought the tender validity date operated and what its contractual purpose was is irrelevant to the question of contract formation. There was no communication between the actors about the purpose of the date. Extensions were called for in writing and given. The private subjective understandings of these men about this may assist in understanding their respective states of mind in the s 52 and estoppel cases, but they are irrelevant to the contract case.

149               Under cover of a letter dated 28 October 1997, Sebel provided Clyde with a large amount of marketing material in relation to Sebel and its parent GWA. This information was provided by Mr Jones in response to a request from Mr Graham, and in the knowledge that it would be used as part of Clyde’s tender to the SRA to highlight the attributes of Sebel.

150               Mr Graham gave the following evidence in [65] and [66] of his affidavit of 19 October 2000:

[65] Much of the documentation that Sebel had provided us with as part of their offer was included in Clyde’s Tender submission to the SRA. Sebel knew that I was submitting their documentation to the SRA because during the process of finalising the Tender documentation I said words to the following effect to Neville Jones:

“It is very important that we have your general arrangement drawings of how you see the seat design working and being constructed for inclusion in our Tender documents.”

Neville Jones replied with words to the effect:

“We are working long hours on them and intend to finalise 3-dimensional coloured pictures which will include an exploded view of all components to show that we have a workable design. We will be able to meet your deadline.”

[66] Sebel was the only seating manufacturer identified in Clyde’s Tender to, and ultimately contract with, the SRA. Sebel knew this because during the conversation referred to in the previous paragraph I said words to Neville Jones to the effect:

“Clyde will be recommending your company in our Tender submission. That is why I need the detailed drawings”

I accept Mr Graham’s evidence of these communications with Mr Jones.

151               Thus, by this time, shortly prior to 5 November 1997 when Clyde submitted its tender to the SRA, Mr Jones believed, from what he had been told or observed, that there was no substantial competitor to Sebel in the supply of seating. Though he knew that other tenders had been called for and presumably been submitted, he knew that there had been close co-operation and consultation between Sebel and Clyde in relation to the development of the seat, he knew that Clyde was including in its own tender to the SRA the drawings and pictures, including exploded views of all components to reveal a workable design, latterly provided to Clyde by Sebel and he knew that Clyde was intending to recommend Sebel in its tender to the SRA. Mr Jones gave evidence in [33] of his affidavit of 6 October 2000 as follows:

From very early on in the tender process a close working relationship had developed between Reg Graham and myself, and our discussions were always completely open and frank. From my conversations with Reg Graham I was of the view that if Clyde was awarded the head tender with the SRA, Sebel would be responsible for the seating.

I accept this evidence.

152               Mr Jones also gave the following evidence in [34] of the same affidavit:

I was also aware from the manner in which the many meetings with Clyde about seat and mechanism design were conducted that Clyde was not engaged in a similar process with any other tenderers for seating. As a result it was clearly apparent to me that Clyde had effectively put “all of its eggs in one basket” in relation to seating. At one of the earliest meetings, Reg Graham said to me words to the following effect:

“We’re not at all happy with the stuff that other seating manufacturers have given us. We’re really looking for new and innovative and seating and Sebel is the only one offering that.”

I accept this evidence.

153               The two sentences in [34] of his affidavit emphasised at [152] above were objected to. I admitted them subject to relevance and objection. I deal at the end of these reasons and in Exhibits A, A1 and M1 with my rulings on all such evidence admitted on this basis. As to these sentences, I admit them. Whilst less probative than direct conversation alone, there was direct conversation evidence relevant to this topic: see the balance of [34] of Mr Jones’ affidavit and the evidence of Mr Graham at [150] above. In this context I see no vice in the witness giving what is in a sense an opinion based on his own observations at meetings. It is akin to saying: X looked embarrassed. Also, I think that s 78 of the Evidence Act 1995 (Cth) makes these sentences admissible. Mr Jones was an experienced commercial man. He attended meetings. He observed conversations and demeanour and he drew from that an opinion as to the behaviour of others. Each of pars 78(a) and (b) of the Evidence Act is satisfied if one views the evidence as opinion evidence of the fact. It was not said that Clyde was engaged in a similar process with other tenderers. This evidence merely reveals that the way the meetings were conducted, this man gained that impression. Whether or not the “all eggs in one basket” metaphor is entirely helpful is another matter. Mr Jones was close to the Project. He was enthusiastic about it. He had developed a close working relationship with Clyde, especially Mr Graham. He was told that Sebel would be recommended in the tender and its up to date detailed drawings and design would be used. He had the view that, at this stage, Sebel was under no real competition. He was also aware of the critical place of the seating in Clyde’s tender. At [39] of his affidavit of 6 October 2000 he said:

I was also aware that seating was one of the most critical factors in Clyde’s bid. In particular, I believed that as the seating would be the closest point of contact between the SRA’s trains and its passengers, the part of the bid that dealt with seating (together with the decision about the external design of the train) would be the aspect of the bid that would involve the most influential and “emotional” considerations by the SRA. For this reason I was aware that the seating aspect of the bid would be critical to Clyde’s success in being awarded the SRA tender.

I accept this evidence of Mr Jones.

154               Mr Gabadou began his employment with Sebel in October 1997. I will come to his evidence in a little more detail later. However, he indicated that at no stage was it his view that Clyde had “put all its eggs in one basket”. It may be that Mr Jones, at this stage at least – in early November 1997, had not spoken to Mr Gabadou about these matters. However, I have no doubt that Mr Jones told Mr Wright about these matters and, given their manner of close communication, Mr Wright told Mr McGrath about them. This was, in significant respects, confirmed by the Sebel Management Report for December 1997. This document (Confidential Exhibit D), which was drafted by Mr Wright for the consumption of Mr McGrath and the Sebel and GWA boards and which was probably prepared in January 1998, attached a picture of the Clyde design of the 4GT train with an accompanying picture of seating. Under the latter picture there was typed “Sebel Design Passenger Seating”. Mr Wright, who prepared the report, said that he had no recollection as to how the picture came to be attached to the document or the purpose for which it was attached. I find that Mr Wright appended this to the report, appreciating at the time and intending to pass on to the board (he already having probably told Mr McGrath), that Sebel’s seats were included in Clyde’s tender to the SRA.

155               Returning to the matter chronologically, having made the decision internally to choose Sebel as preferred supplier of passenger seating, and having made various decisions about sub-suppliers of other components, Clyde continued to prepare its own tender to the SRA.

156               As part of that process, Mr Sheldrick gave Clyde’s cost estimator, an employee by the name of Mr John Oliver, a copy of Sebel’s response. Mr Oliver was the Clyde employee responsible for preparing the overall cost structure for the 4GT Project in terms of man-hours and materials.

157               A number of these cost estimates were placed into evidence. However, the cost estimate documents immediately prior to 5 November 1997, reflecting the cost breakdown of the pricing tendered by Clyde to the SRA, showing precisely how the pricing information in the Sebel tender was used by Clyde in its tender, was not available. No such document was produced on discovery and no such document was tendered. Subsequent cost estimates were in evidence and cross-examination took place in respect of them. Mr Oliver was not called to give evidence. Because the events connected with these cost estimates commenced prior to Clyde submitting its tender to the SRA, some mention should be made at this stage of these estimates. Mr Graham accepted the description of the cross-examiner that the cost estimate documents prepared by Mr Oliver contained “the most reliable and accurate estimate [that could then be made] for the various costs which would be incurred as [he] expected by Clyde in performing the contract which [Clyde] hoped to get from the [SRA]”. The applicant described these documents as estimates of what Clyde thought it might “end up paying”. The difference in emphasis in respect of the characterisation of these documents is important for a factual issue as to whether Clyde was, during 1998, deliberately and consciously refusing to commit unequivocally to Sebel, in order that it might renegotiate the tendered price. Such a conclusion, if it were the case, would be of significance to the issues in the case, in particular the estoppel and s 52 cases. I will return to the topic in due course. It is only necessary to mention, at this point in the chronology, that prior to Clyde submitting its tender to the SRA, the board of EDI, Clyde’s parent company, directed that Clyde tender to the SRA for major sub-systems, including seating, at 2.5% below the quoted price in order to make the tender more competitive. Mr Sheldrick said he heard of that fact from Mr Graham. Mr Graham gave evidence that the discussion about a 2.5% reduction was something which took place prior to Clyde submitting its tender to the SRA.

158               Sebel submitted that this board instruction was tantamount to an instruction to enter into major sub-contracts, including seating, only after negotiating a 2.5% reduction on the tender price. I will reserve further consideration of the EDI board direction until the point at which I deal with Clyde’s reliance on Sebel’s price and belief in the existence of a commitment from Sebel. However, from the existence of the board direction and the later cost estimates, I conclude that in preparing and putting forward its tender to the SRA, Clyde did not use the exact figures provided by Sebel, but in all likelihood reduced them by something in the order of 2.5%. That is not to say, however, that the Sebel price played no part in the calculation of Clyde’s tender price. Mr Sheldrick gave evidence that he gave the Sebel tender to Mr Oliver. Mr Sheldrick also gave evidence (at [39] of his affidavit of 13 October 2000) by reference to a cost estimate spreadsheet that the figures contained therein were taken directly from the Sebel tender reduced by the 2.5% EDI board directive and a saving on duty on fabric by the anticipated use of a local supplier. However, the spreadsheet there identified by Mr Sheldrick was not a pre-November 1997 document, but one created in December 1998. Under cross-examination, Mr Sheldrick also accepted that, even if that spreadsheet (or an earlier version of it) had been used for the purpose of compiling Clyde’s tender to the SRA, he had made various errors in the calculations set out in [39] of his affidavit. In that paragraph, he had said that the figure of $247,707 as it appeared on that spreadsheet represented the cost for seating for a four car train set and that this figure had been based on Sebel’s response. When he was asked to look at the spreadsheet in further detail in the witness box he agreed that the figure of $247,707 included amounts referable to the driver’s seat, the observer’s seat and the inspector’s seat, being seats that did not form any part of Sebel’s response, and that if one wanted to work out from the spreadsheet what Clyde was then estimating the cost would be for the supply of passenger seating, one would delete the cost of those additional seats from the total seating cost. If the amounts referable to those additional seats are excluded, the total estimated cost for the seating configurations upon which Sebel had tendered was $239,711 and not $247,707.

159               I will leave further analysis of these cost estimates for now. However, I am satisfied that Mr Oliver had Sebel’s tender before him and had reference to it in creating Clyde’s tender to the SRA, though reducing it by 2.5%. In that sense he, and Clyde, used Sebel’s pricing. Given the significantly greater prices of the three other tenderers exhibited by Mr Sheldrick’s comparative tender analysis, I am content to find that Clyde used Sebel’s price in its tender, though reducing it by 2.5%. Whether the 2.5% reduction was a reflection merely of the assumption of a commercial risk brought about by a desire to obtain a large contract, or whether it was indicative of a board instructed intention later to seek cost reductions from all suppliers, including Sebel, is a matter to which I will return.

160               For Sebel’s part, Mr Jones said that Sebel had no idea how its price was used by Clyde in the formulation by Clyde of its tender to the SRA. Mr Jones said the following:

Mr Jackman: Now, just in terms of the prices, did you think that Clyde was using for the purpose of its own cost estimate in formulating Clyde’s tender the exact prices which Sebel had specified in its tender response of 23 October ‘97?

Mr Jones: I have no idea what they did with the pricing that we submitted to them.

Mr Jackman: You made no assumption about whether Clyde was using the exact prices you had submitted or some other prices, is that right?

Mr Jones: I had no knowledge of what they did.

161               However, Mr Jones believed, as was the fact, that Clyde had relied on and used the Sebel design in its tender.

162               On 5 November 1997, Clyde submitted its tender to the SRA. The Clyde tender was not provided to Sebel. The Clyde tender included the following information on Sebel:

(a) The Executive Summary named Sebel as its major partner for seating:

In the area of seating, Clyde worked exclusively with SEBEL to develop a seat design which is simultaneously stylish, comfortable – whilst offering a high level of resistance to vandalism. Included in the proposal are seats which offer individual seating, lumbar support, a unique patented ‘roll-over’ concept for directional seating and a low level of maintenance. We have offered seating that will provide an exceptional level of customer comfort and satisfaction.

This confirmed the fact, which was in any case uncontested, that, as a matter of fact, Clyde did not deal with the other seating tenderers.

(b) It included, within volume 10 of its tender to the SRA, in section 8 entitled “Passenger Seats”, the following:

·           a letter from Sebel to Clyde dated 28 October 1997 setting out details on Sebel;

·           the Annual Report 1997 for Sebel’s parent company, GWA; and

·           a promotional brochure on Sebel entitled “Auditoria Furniture”.

(c) In Volume 5 Book 3 of the tender by Clyde to the SRA dated 5 November 1997 the following drawings were included, each being a drawing provided by Sebel and put on to a Clyde drawing format and described as a “Sebel Design”:

·            drawing PD03071 entitled “3 Seater Walk Over Seat”;

·            drawing PD03072 entitled “2 Seater Walk Over Seat”;

·            drawing PD03073 entitled “3 Seater Fixed Seat”;

·            drawing PD03074 entitled “2 Seater Fixed Seat”;

·            drawing PD03075 entitled “Walk Over Train Seat”.

It was not in dispute that these drawings were marked, along with all other drawings submitted by Clyde to the SRA, as being subject to a claim to copyright by Clyde.

163               Mr Graham was cross-examined about this claim to copyright by Clyde. He accepted that the claim was false, by which I took him to be accepting that the claim had no foundation. He said that it was not intentional. However, he then went on to say that he knew in November 1997 the claim to be false. However, this was during a part of the cross-examination in which he was asked about knowing in November 1997 what these Clyde drawing documents contained. Later he said the following.

Mr Jackman: Yes, and you understood that it was incorrect in November '97, didn't you?

Mr Graham: Well, I can't really - I understood that yes, they had the intellectual property or they reserved the intellectual property, but as I mentioned the way in which these drawings were transcribed on to a Clyde format, it is something that actually happened in the heat of the moment in putting the tender together where this particular copyright is on every Clyde drawing and it is a standard format. Now unfortunately, you are pointing out that it was incorrectly shown.

…

Mr Jackman: Is what you are saying, that the claim to copyright ownership in the bottom left hand corner is something that was careless?

Mr Graham: I suppose in hindsight, definitely, it is correct to say that it should not have applied on this particular drawing as I can see at present.

His Honour: Mr Graham, did you appreciate in November 1997, when these documents went off to the SRA?

Mr Graham: Yes.

His Honour: That included amongst them was the drawings which made claims about copyright which were not correct?

Mr Graham: At the time, your Honour, I don't remember looking at that detail, but now that it is pointed out, I agree that it should not have been on that drawing. There was nothing sinister about Clyde having put that on this particular document at all. It is just the process of placing a Sebel drawing, a Kanor drawing, whatever, on to a Clyde drawing, so that we had a reference document for all our drawings, the PD drawings, for an estimate. It is just a matter of course how it happened.

164               Taking all his evidence on this matter, I find the Clyde claim of copyright occurred unintentionally, in that neither Mr Graham nor Clyde intended to make a false claim to the SRA and it probably arose in error.

165               One contributing factor to the error may have been that Mr Graham said that he and Mr Jones had discussed the question of intellectual property and that Mr Jones had said that the SRA’s requirement for some rights to allow them to maintain the trains would not be a problem. Mr Graham explained this as follows:

Mr Graham: As I understood, SRA had difficulty on previous contracts where sub-suppliers or major sub-suppliers either don't exist any longer or product cannot be purchased and with this contract they wanted to make sure that because it was a contract for thirty five years, the life of the train, that all major suppliers would assign and maintain the intellectual property to be available to them for reasons of maintenance and modification that might happen to the train.

Mr Jackman: As you understood the position in October and November 1997, the SRA's requirement reflected in clause 12.2 and 9.3 concerning assignment of intellectual property was not limited simply to maintenance, was it?

Mr Graham: My understanding was that it was all there for their reference for maintenance or modification to the train through time.

166               Mr Graham had also spoken to the SRA about intellectual property. He gave the following evidence:

His Honour: Did you have any discussions with representatives of the SRA about what they were seeking to achieve by intellectual property provisions? The answer to that is yes or no to the best of your recollection?

Mr Graham: Yes, I did have.

His Honour: I don't want to explore what the conversations were but I want to ask you this, unless either counsel have an objection. What commercial problem did you understand the SRA was seeking to solve, or what commercial purpose did you understand the SRA was seeking to advance in the provisions concerning intellectual property, after you had had such discussions as you did have with people from the SRA?

Mr Graham: Your Honour, it's based around the train configuration of each of the sub-systems on the train, which there are approximately 12 major sub-systems, the doors being a sub-system, the seats and so on. And what their concern was, that ---

His Honour: As you understood it?

Mr Graham: As I understood, that as product wore out ---

His Honour: It needed to be replaced?

Mr Graham: It needed to be replaced. And it was their desire to make sure that sub-suppliers maintained available intellectual property and - which is design and capability to re-manufacture components for the train, so that there wasn't a big cost in refurbishing the train because that particular product wasn't available any longer.

…

His Honour: Just so that I understand and I don't want to understand what the conversations were, but after you had that clarification from the SRA, did you have discussions with Sebel representatives about that subject matter?

Mr Graham: Yes, your Honour, we had to because ---

His Honour: Yes, thank you.

Mr Jackman: And when do you say those conversations with Sebel took place?

Mr Graham: It would have been I believe around the time of tender or just after. Possibly November 1997.

Mr Jackman: I suggest to you, Mr Graham, that you've got no real recollection of those discussions with Sebel. What do you say about that?

Mr Graham: I clearly remember that we did have a discussion because Sebel approached this contract a little differently in saying that they would not pass over intellectual properties and rights and so it was necessary that we have a discussion and therefore we asked for clarification of SRA and after I mentioned that, we believe - or I believe that there wasn't a problem with them going forward with Sebel maintaining the intellectual property.

167               Mr Graham said that this occurred at about the time of the tender, or just after it, that is about November 1997. I accept Mr Graham’s evidence. I reject the suggestion made to Mr Graham that he was dishonest or at least consciously less than frank with the SRA about these claims of copyright. I infer that by November 1997, and, I think in all likelihood before 5 November 1997, though not reduced to written terms, the SRA had been told of Sebel’s ultimate rights to intellectual property ownership and was content as long as the SRA, through Clyde, was entitled to sufficient rights, whether by licence or otherwise, to manufacture replacement seats or parts as the need arose in the future for the undertaking of the maintenance of the trains. I also find that Clyde, through Mr Graham, discussed these matters with Mr Jones. The likelihood is that both Mr Jones and Mr Graham appreciated at the time that the commercial requirements of both Sebel and the SRA were compatible through the use of some licensing arrangement. I find that in all likelihood the structure of such an arrangement was discussed between Messrs Graham and Jones.

168               That these conversations between the SRA and Mr Graham and Mr Graham and Mr Jones probably occurred is borne out by the relevant parts of Clyde’s tender to the SRA. Clyde’s tender to the SRA, in referring to cl 9.3 of the special conditions (see [95] above) stated that Clyde proposed partial compliance only. Amendments to clause 9.3 were propounded by Clyde which reflected Sebel’s desire for ultimate intellectual property rights, with a preparedness to grant a licence to the SRA to support the maintenance of the trains. The Clyde tender response contained the following:

Clause 9.3 Rights Granted to Principal

Delete sub-clause (a)

Sub-clause (b) to be amended as follows:-

‘grants to the Principal a permanent royalty free non-exclusive licence to use any Intellectual Property incorporated into the work under the Contract or otherwise used in connection with the work under the Contract for maintenance and repair of the sets or the Maintenance Facility and any modification to be conducted in Stage 1, Stage 2 or Stage 3.’

Sub-clause (c) delete the following words:-

‘assign the rights, titled and interests referred to in the proceeding paragraph (a) and’

169               The contract entered into by Clyde with the SRA appears to have been developed along these lines – see [253] below.

170               Returning to the contents of the Clyde tender to the SRA, the tender included coloured pictures of the seats supplied by Sebel. These were the pictures the subject of the discussion referred to at [150] above. The tender also included within volume 6, the following under the heading “Volume 6 External and Internal Styling for the 4GT”:

Seats

A high seating capacity has been identified as a major feature of the new trains and Clyde have recognised the need to obtain this capacity without a loss of comfort. To achieve these objectives, Clyde and TDI have worked with Sebel Design to formulate a new seat concept that will satisfy the needs of the SRA and the passengers that will use the 4GT. Key features of the unique seating design are outlined below.

171               Schedule B7 of Clyde’s tender listed Clyde’s proposed major suppliers responsible for equipment supply in excess of 5% of the design and build price for Stage 1, namely GEC Alsthom. Sebel was not included. Its price was under the 5% level. Later, on 12 June 1998, at the SRA’s request, Clyde amended schedule B7 of its tender to the SRA to include its proposed major suppliers responsible for equipment supply less than 5% of the design and build price for Stage 1. Sebel was included in schedule B7 at this point. At the foot of schedule B7 (in November 1997 and as amended in June 1998) Clyde reserved all rights to modify nominated suppliers/consultants/sub-contractors or their scope of services so as to satisfy the needs of the Project on a best endeavours basis.

172               Mr Jones said in his affidavit of 6 October 2000 that shortly after Clyde submitted its tender to the SRA, Mr Graham telephoned him and said words to the effect:

We’ve just put in the bid for the 4GT Project. Sebel is in there as the seating supplier. Keep your fingers crossed.

173               Sebel submitted that this conversation was an alternative to the conversation referred to by Mr Graham in [66] of his affidavit of 19 October 2000, as to which see [150] above. I find that both conversations took place.

174               Mr Jones gave evidence of the importance of this conversation to him in [31] of his affidavit of 6 October 2000. He said:

These words were very important to me because it indicated to me that Clyde had made a decision that Sebel was the only seating supplier for them and I realised that if Clyde was awarded the head contract with the SRA then Sebel would be supplying the seating. It also indicated to me that Clyde had relied upon Sebel’s bid in putting together Clyde’s tender to the SRA.

175               I admitted these two sentences conditionally. I admit them as evidence of what Mr Jones thought at the time. I find that Mr Jones informed Mr Wright of the substance of what Mr Graham told him, as set out at [172] above, and that Mr Wright passed that on to Mr McGrath.

176               Following the submission of Clyde’s tender to the SRA on 5 November 1997, the SRA entered the next stage of its tender process, stage 2, the tender evaluation stage.

177               From time to time, the SRA’s Tender Evaluation Committee asked a number of questions of Clyde about its bid, including the seating component. Where such questions were received by Clyde in relation to the seating component, they were referred to Sebel for response. The substance of Sebel’s answer to Clyde was then provided by Clyde to the SRA. It would appear from the material tendered that this was done by Clyde incorporating the information on to its letterhead, rather than merely forwarding Sebel’s response to Clyde, to the SRA. Further, representatives of Clyde particularly Mr Graham, met with representatives of the SRA to discuss aspects of Clyde’s tender, including seating. On 10 December 1997, Mr Graham gave a presentation to the SRA that summarised and discussed Clyde’s bid. The discussion lasted about one hour and included discussion about the passenger seating to be provided by Sebel. Mr Graham showed the SRA large size colour photographs prepared by Sebel of the fixed and walkover seating.

178               Mr Graham said that in early 1998 he telephoned Mr Jones and said to him words to the effect:

I am sorry about the delay in letting you know what is happening but the SRA has delayed in making its decision. I note from my conversations with the SRA that they love Sebel’s seat and I think Clyde is firming up as the favourite. The SRA are asking the right sort of questions, if you know what I mean.

I accept this evidence.

179               I have little doubt that Mr Jones passed on such news to others at Sebel, including Mr Wright, and I so find.

180               In January and early February 1998, Clyde became concerned with some delays in Sebel responding to requests for information relating to current design status and “best possible delivery schedule”. On 21 January and 3 February 1998, facsimiles in identical form were sent by Mr Sheldrick to Mr Jones of Sebel. Both facsimiles included the following statements:

As you are no doubt aware, our submission relies very heavily on the passenger seating feature and the client has registered a high level of interest.

…

We seek your continued co-operation in securing this project and ask that you respond as a mater of urgency to our facsimiles of 20 January 1998 and 21 January 1998.

The letters reflect the real reliance that was being placed on Sebel’s design and co-operation.

181               At about this time, Sebel sought to engage further design and research assistance. Mr Gabadou approached Invetech to assist in this regard, and in particular to develop a scale model of a three seat unit by 27 February 1998 and prototypes of various units by the end of June 1998.

182               It was submitted by Clyde that by February 1998, when the design brief to Invetech was drafted under Mr Gabadou’s supervision, there had been changes to the configuration of the seating of which Sebel was aware, which changes later became formally embodied in the revised specification in December 1998. This was contested by Sebel. To identify these changes it is necessary to move forward to December 1998, by which time Clyde had executed a contract with the SRA. A new specification concerning seating numbered ES-982 and replacing FE-038-92 had been provided to Clyde, by the SRA, and, in turn, was provided by Clyde to Sebel in December 1998. Under the latter specification sixty-four fewer 3 seater reversible units, sixty-six fewer 2 seater reversible units, two more 1 seat reversible, four more 1 seater fixed and 246 more 3 seater fixed units were required, no 5 seater fixed units with or without two fold up seats were required and 2 seater fixed and tip up were required in some numbers (these latter two seaters not having been called for by the 1997 specification). A comparative table was exhibited to one of Mr Wright’s affidavits. Relevantly it revealed the changes as follows:

183               The evidence entitles a safe conclusion that regular and close contact between Mr Jones and Mr Graham took place during 1997 and 1998 and that as any amendment to the SRA’s requirements or likely requirements about seating, including the configuration of the seating, became known, they were passed on to Sebel, even if they had not yet been formalised into an amended specification. It is to be recalled that the request for tender in respect of the seating stated: “The split up of different types is preliminary and subject to change during the design and development of the car.”

184               In February 1998 Sebel, under the supervision of Mr Gabadou, prepared a design brief for Invetech. This design brief was for continuing design work, including assistance in the production of full size working prototypes. The design brief was prepared with the SRA’s prototype requirements in mind. Mr Gabadou gave evidence, which I accept, about what he understood the SRA to want in terms of the prototypes, as follows:

Mr Gabadou: …my understanding at the time is that we were required to make those prototypes because they wanted to see the seat but also they wanted to have a full size prototype of each type to put into their mock up carriage. So my understanding is that the mock up carriage was going to be ready in June as well. I actually was surprised why there didn't seem to be anything there and those seats in my mind were just to do that. We were only required to do one and that was my understanding for the mock up.

His Honour: One seat?

Mr Gabadou: One seat of each, one of each type.

Mr Foster: One of each type - - -

His Honour: One unit in a sense.

Mr Foster: One of each type of seat that was ultimately to be put into the train?

Mr Gabadou: Yes, that's correct.

Mr Foster: And this was meant to be a list of each type of unit that was meant to be put in the train?

Mr Gabadou: Yes.

185               The “list of each type” to which the cross-examiner referred in this passage was a list in an Invetech report as follows:

·        3 seat walk-over unit

·        2 seat fixed unit

·        3 seat vestibule unit

·        1 seat tip-up unit

186               This reflected the instructions in the design brief which were as follows:

A scale model of a 3 seat unit is to be presented by 27 February 1998 with prototypes of a 3 seat walkover unit, a 2 seat fixed unit and 3 seat unit for the vestibule and a single tip up seat are required to be completed by 30 June 1998.

187               Importantly, there was no 5 place fixed seat required, and there was a 2 place fixed seat required. However, the 1 place tip up was also required. The December 1998 specification called for 2 place tip ups.

188               Sebel pointed to other evidence which tended to indicate that the configuration of the seating as found in the December 1998 specification changed after February 1998. Cost estimate spread sheets of Clyde, apparently produced in July and late October 1998 identified the seats as per the original specification. Mr Graham gave some evidence relevant to this matter when being cross-examined about a cost estimate sheet apparently created on 22 December 1998. The following exchanges took place:

Mr Jackman: The first item is three person passenger seat reversible, do you see that?

Mr Graham: Yes.

Mr Jackman: But it's now 68 seats - I think it means 68 units, doesn't it, rather than 68 seats?

Mr Graham: Yes, that's correct.

Mr Jackman: Previously it had been 72, is that right?

Mr Graham: Correct.

Mr Jackman: Do you see there if you go down to the 6th line under the heading, passenger and crew seating, there's an entry for two person to passenger seat fixed, do you see that?

Mr Graham: Yes, two - yes, two passenger fixed, yes.

Mr Jackman: Now, that's not something which Sebel had been asked to tender on up to this date, 22 December, '98, was it?

Mr Graham: No, I think you're correct.

Mr Jackman: Do you remember in the previous cost estimates that I showed you there were entries for five seat units?

Mr Graham: Yes.

Mr Jackman: You notice here that there are no five seat units?

Mr Graham: No, that's correct.

Mr Jackman: So, we're looking here at a different set of configuration for passenger seating from the one which Sebel had tendered on?

Mr Graham: Yes, this was in the best and final as I recollect but all of these slight variations that took place during that period of time were confirmed verbally with Sebel through just verbal discussion.

Mr Jackman: Well, you've told us - - -?

Mr Graham: Because that's where we had the situation that if you had a five seater you divided by five, it's one, which is slightly different to what you said. I know the documentation doesn't say that but through discussion and there were very many discussions that's how this was formulated.

Mr Jackman: Now, these new configurations reflect what was in specification ES982, don't they?

Mr Graham: Yes, that would be right.

…

Mr Jackman: So this document in December '98 picks up changes in ES982?

Mr Graham: Yes, that's correct.

Mr Jackman: And ES982 was something which you provided to Sebel with the draft contract documentation on 22 December, '98?

Mr Graham: Correct.

Mr Jackman: So up to this time you didn't have a tender from Sebel for the ES982 configurations, did you?

Mr Graham: Not a written quotation, no.

Mr Jackman: Well, you hadn't discussed ES982 with Sebel, had you?

Mr Graham: We had verbally that there were changes in the seat configurations from the point of view that behind the cab because the cab had been extended we had to go from a two seat tip up to a single seat and issues like that, there were a number of minor, but there was nothing confirmed because it was all based on the original estimate because we were working together on this.

Mr Jackman: Now, you don't give evidence in any of your affidavits about those conversations do you, Mr Graham?

Mr Graham: But these are minor discussions over the phone, there are numerous of them and they're not all reported but we did have - because we had meetings that were continuing on on a regular basis right through this time, through changes to the configuration of the train and Sebel were well aware of all of these adjustments.

Mr Jackman: You didn't have by 22 December, '98 a tender price from Sebel for these changes did you, Mr Graham?

Mr Graham: Not a formal, no, that's correct.

Mr Jackman: Nothing that you could regard as binding on Sebel did you?

Mr Graham: Well, I don't agree with that. I believe that we had a formal submission from them that in general the configuration of the train at that time we had a firm quotation.

[emphasis added]

I accept this evidence of Mr Graham.

189               Mr Jones gave the following evidence:

Mr Jackman: And the likelihood of changes down the track was something which you discussed openly with Clyde Engineering representatives in 1997 and 1998, isn’t it?

Mr Jones: There were some changes that started to evolve in conjunction with the changes that Clyde were making to their design because they were also in a similar position to us that they had a concept but it just hadn’t been built.

Mr Jackman: In ’97 and ’98, Clyde make it clear to you that there was likely to be change in the way that the train carriage was laid out, is that right?

Mr Jones: Yes, we were aware that there were changes. I think from memory there was [sic] indications of some changes in the seating configurations back in the early part of ’98.

Without looking at the documents I can’t tell you exactly but I think it was in the early part of ’98.

Mr Jackman: And for your part you spoke on a number of occasions with Clyde Engineering representatives about the likelihood of changes in the product which Sebel was going to hopefully supply to Clyde as part of the 4GT project?

Mr Jones: When you say changes to the product, there was no change essentially to the product. The changes the seat concept was the seat concept. The changes were more likely the configuration of the seat, the fixing perhaps of the seat…

…

Mr Jackman: And you went through ES982 with care?

Mr Jones: Yes.

Mr Jackman: And you ascertained changes that that [sic] had to the total price which Sebel was tendering for a contract for the supply of seating with Clyde?

Mr Jones: Yes, I had to work through the prices and pick up all the changes in the documentation. Some of those changes had been flagged to us prior to that date, as early as March ’98, some of those changes had been flagged, and there were changes that were flagged to us during the course of discussions with the Sebel design teams and the Clyde design teams. The issue of the maintenance was the only, you might say, new item in that sense but it only called for Sebel to provide components. It didn’t actually call for us to provide the maintenance and were asked to price for maintenance and to do that there was discussion had to take place between Sebel and Clyde to determine the likely nature of the maintenance components that would be required.”

[emphasis added]

I accept this evidence of Mr Jones.

190               I conclude from the above and other references in the evidence that Clyde told Sebel during 1998, probably as early as January or February, that there would, in all likelihood, be changes to the configuration of the train seating, which would involve the inclusion of 2 seater fixed and the exclusion of 5 seater fixed. Mr Oliver did not incorporate those changes into his cost estimates until December 1998. I cannot conclude why. He may not have been told. He may have wanted to wait for an official (SRA sanctioned) variation to the specifications. Given that Sebel, no doubt through Mr Jones, was told of the changes and given the lack of any difficulty expressed, I conclude that the configuration changes were seen by Mr Jones and Sebel as not affecting the Sebel tender. This conforms with the view, expressed later by Mr Jones when asked to comment formally on the “new” specification in December 1998, that the changes had no effect on the offer.

191               On 5 February 1998, Mr Gabadou met with Mr Richard Stephens of Invetech. At the meeting Mr Stephens indicated that for Invetech to carry out the work requested by Sebel, it would cost between $500,000 and $720,000, plus $30,000 to $40,000 for materials.

192               In a facsimile to Mr Sheldrick from Mr Jones dated 6 February 1998, Sebel confirmed that “a small scale working model of the walkover train seat will be available for inspection first week of March 1998, full fixed prototypes of each [my emphasis] of the different types of seating will be ready by mid June 1998” and “the earliest indication that we can give you in regard to availability of the first product would be fourteen (14) months from receipt of order”. The terms of this facsimile, in particular the use of the word “each” supports the conclusion which I have reached above that the seating configuration of the train had changed by February 1998.

193               On 9 February 1998, Invetech prepared a “Proposal for 4GT Train Seat Design” for submission to Sebel. A budget for the works was included which was broadly in line with earlier indications ([191] above). Over the period from 9 February 1998 to early March 1998, Invetech and Sebel engaged in further discussions in relation to the work that Invetech would carry out. On 5 March 1998, Mr Gabadou recommended to Mr Wright that Invetech be retained for Stage 1 of the development. It was not until 19 May 1998 that Invetech was formally retained, although Invetech carried out work and issued bills in the interim.

194               As it had promised, Sebel presented the small-scale model to Clyde at the beginning of March 1998. Clyde expressed a number of comments in relation to that model and set those concerns out in a facsimile of 10 March 1998 to Sebel. In response to these comments (which were seen by Mr Gabadou as criticisms) Sebel, through Mr Gabadou, held further discussions with Invetech and proceeded to arrange for a further model to be built and presented to Clyde. At the same time, Sebel and Invetech proceeded with the development of the full-scale prototypes that Sebel had agreed to provide by June 1998.

195               Mr Jones gave evidence, in [37] of his affidavit of 6 October 2000, which I accept, that in about March 1998 Mr Graham said to him the following:

The feedback we’re getting from the SRA is that Goninan’s bid is really just Tangara all over again, with slightly modified seating. They’re really enthusiastic about our approach to Sebel for a whole new seat design, they’re really happy that you’re involved.

I understood the reference to “Goninans” to be a reference to the Newcastle company named A. Goninan & Co, which I understood from conversations and rumours within the industry participants at that time to be the only other tenderer to the SRA for the 4GT Project.

196               Again, I find that Mr Jones passed such news on to others at Sebel, including Mr Wright.

197               In March 1998, the SRA decided to proceed to a second stage of the tender evaluation process with two out of the three tenderers. Clyde was one of those two tenderers selected for the final evaluation stage. The SRA wrote to Clyde (Mr Graham) on 23 March 1998 to inform it of this development. In that facsimile the SRA also requested Clyde to execute a document called a “Process Protocol”. The terms of this document are considered in more detail below. Clyde executed the Process Protocol on 24 March 1998 and returned it by facsimile to the SRA on the following day.

198               Clyde sent a similar document also called a “Process Protocol” to its various tenderers, including Sebel, for execution. This document was based on that sent by the SRA. The Process Protocol sent by the SRA to Clyde was amended so as, in effect, to insert Clyde for the SRA and to insert the name of the tenderers for Clyde. The covering letter from the SRA to Clyde was amended only slightly also.

199               There was no evidence that Sebel knew that Clyde intended to enter into the Process Protocol with the SRA in the same (or for that matter any other) form. There was no evidence that Sebel had any basis to think that the Process Protocol sent to it mirrored the arrangement between Clyde and the SRA.

200               The letter dated 24 March 1998 from Clyde enclosing the Process Protocol to Sebel was in the following terms:

Clyde Engineering has been advised that the Principal has determined to proceed to the next stage of the evaluation process (Stage 2) with two tenderers.

Clyde Engineering is one of those tenderers. At the conclusion of Stage 2, the principal anticipates being in a position to sign an agreement with the selected tenderer.

Subject to your compliance with matters set out below we will invite you to participate in Stage 2.

As a condition of your participation in Stage 2, Clyde Engineering requires you to execute a Process Protocol, a copy of which is enclosed. Could you please arrange for the enclosed document to be executed and returned to this office by 3.00pm Wednesday, 25 March 1998.

[emphasis in original]

Stage 2 will involve an intensive period of activity for all parties and Clyde Engineering will need both the commitment and co-operation of your organisation to meet and achieve the objectives of stage 2.

Without limiting the detail contained in the following Process Protocol, it is envisaged that during this period:

(a) there will be a series of further clarification of commercial/financial and technical issues, or otherwise;

(b) there will be a consolidation of the contract to integrate the tender documents (as revised) with your tender and the subsequent clarifications of your tender;

(c) Clyde Engineering will then produce a final form of consolidated contract which will be available to be signed by the parties, if Clyde Engineering decides to accept your tender, subject only to Clyde Engineering’s internal approvals to proceed with the formal award of the contract; and

(d) that Stage 2 is planned to be completed within the relatively tight timeframe.

[emphasis added]

Should you execute the enclosed document and return it to this office by 3.00pm on Wednesday, 25 March 1998, we would then propose to communicate with you to work through some of the more detailed issues in the Stage 2 evaluation process, once the issues have been identified by the Principal.

201               The Process Protocol, in form, was to be executed as a deed poll. It was not executed as a deed by Sebel. The recitals were as follows:

A.        Clyde Engineering has invited several tenderers, including the Tenderer, to submit tenders for the Project in accordance with the Specification.

B.        Tenders for the Project closed on the Closing Date.

C.       Following the Closing Date, Clyde Engineering proceeded to evaluate the tenders received, including that of the Tenderer, in accordance with the Specification.

D.       Clyde Engineering has concluded the first stage of tender evaluation and has decided in accordance with the Tender Documents, to select tenderers, including the Tenderer, to be involved in the second stage of tender evaluation (“Stage 2”).

E.        As consideration for Clyde Engineering agreeing to select it under the Tender Documents, the Tenderer has agreed to enter into, and be bound by the terms of, this Protocol, which sets out the procedure which Clyde Engineering proposes to follow during Stage 2.

202               The operative part of the Process Protocol contained, relevantly, the following clauses:

1.         General Agreements.

The Tenderer acknowledges and agrees that:

a)             it is one of the tenderers for the Project which Clyde Engineering will select under the Tender Documents to be involved in Stage 2;

b)             the selection of the other tenderers by Clyde Engineering under the Tender Documents will be subject to other tenderers agreeing to enter into, and be bound by, a protocol on the same terms and conditions as this Protocol;

c) the terms and conditions of the Tender Documents apply to and are part of Stage 2;

d) the Tenderer will participate in the procedure set out in Clause 2 on the terms and conditions of the Tender Documents;

without limiting paragraphs (c) and (d):

(i) Clyde Engineering is not bound to accept any tender for the Project or otherwise enter into any contractual relationship with any tenderer for the Project;

(ii)          Clyde Engineering may at any time discontinue the procedure set out in clause 2 and involve only the tenderer or other selected tenderers in Stage 2 or otherwise select another tenderer in accordance with the Tender Documents to be involved in Stage 2;

(iii)        Clyde engineering will not be liable to the Tenderer for any costs, losses or expenses incurred by the Tenderer in participating in the procedure set out in clause 2 or otherwise arising out of or in connection with the tender process for the Project or the procedure set out in clause 2; and

(iv) nothing in this Protocol will limit any discretion of Clyde Engineering under the Tender Documents.

[emphasis added]

2. Proposed procedure for Stage 2

2.1         This clause 2 sets out Clyde Engineering’s proposed procedure for Stage 2.

2.2         Following the date of this Protocol, Clyde Engineering will do one or more of the following from time to time:

(a)          communicate with representatives of the Tenderer to obtain further information in relation to, and otherwise clarify, aspects of the Tenderer’s tender for the Project including, without limitation, aspects of any information or other correspondence received by Clyde Engineering from the Tenderer after the Closing Date;

(b)          require the Tenderer, within a specified time and in a specified format to provide Clyde Engineering in writing with further information or clarification in relation to aspects of the Tenderer’s tender for the Project including, without limitation, aspects of any information or other correspondence received by Clyde Engineering from the Tenderer after the Closing Date:

(c)           put forward to the Tenderer proposals for amendments to the contract documentation for the Project (including, without limitation, as to pricing structure) and require the Tenderer to respond to these within a specified time and in a specified format; and

(d)          issue to the Tenderer amended contract documentation for the Project (which may not be the same as that issued to any other tenderer) (including, without limitation, a full set of contract documentation) and require the Tenderer to indicate within a specified time and in a specified format whether it agrees to the amended contract documentation and, if not, the precise reasons as to why it does not (including, without limitation, requiring the Tenderer to provide alternative drafting amendments).

2.3         The amended contract documentation for the Project referred to in clause 2.2(d) will be intended to reflect:

(a)          the correction of errors and omissions identified after the Closing Date:

(b)          specific proposals and qualifications acceptable to Clyde Engineering included in the Tenderer’s tender for the Project and information or other correspondence received by Clyde Engineering from the Tenderer after the Closing Date; and

(c)           the information, clarifications and other responses received by Clyde Engineering under clause 2.2 to the extent they are accepted by Clyde Engineering.

2.4         It is Clyde Engineering’s current intention that at the conclusion of the overall evaluation process, Clyde Engineering and the Tenderer will have agreed upon a full set of contract documentation for the Project prepared in accordance with clause 2.3, which, if Clyde Engineering decided to accept the Tenderer’s tender for the Project, both parties would execute immediately. The tenderer[sic] however acknowledges and agrees that the timing of the tender evaluation process remains within the sole discretion of Clyde Engineering.

[emphasis added]

2.5         The Tenderer will in good faith:

(a)                       attend and participate in any meetings required by Clyde Engineering under clause 2.2(a);

(b)                       provide all information, clarifications and responses required by Clyde Engineering under clause 2.2 within the time periods and in the formats specified by Clyde Engineering; and

(c)                       to the extent required by Clyde Engineering, adhere to, and not resile from, any representation made by it in its tender for the Project or in communications with Clyde Engineering after the Closing Date.

[emphasis added]

…

3. Definitions

In this Protocol:

“Closing Date” means the closing date nominated in the Tender Documents.

203               It was accepted by the parties that the “Closing Date”, as defined in the Process Protocol, was 5 November 1997.

204               Neither the covering letter dated 24 March 1998 nor the Process Protocol was a document of no consequence. The Process Protocol was required by Clyde to be signed promptly. It was plainly intended to regulate the positions of Clyde and each of its tenderers, in a large and complex tendering relationship. It set out a detailed regime governing the procedure henceforth, including the procedure for the formation of any contract between Clyde and the other party. The importance of the Process Protocol to the legal relationship between Clyde and Sebel can be seen by the fact that Clyde sues upon it.

205               Mr Jones gave the Process Protocol to Mr Schroder (Sebel’s company secretary and a director) and asked him to sign it. Mr Schroder asked Mr Jones whether it needed to be signed under seal and Mr Jones said it did not. Mr Schroder said that he asked Mr Jones where the Sebel tender was at that time, and Mr Jones said to him that the tender process was still going, that there were still some issues that Sebel was talking to Clyde about and that the Process Protocol was a document Clyde wanted Sebel to sign in order to continue with the process. Mr Schroder says that, in the light of that explanation, it seemed to him that the documents did not commit Sebel to anything new, and he signed it. Mr Jones has a different account of these events. I do not think that the resolution of any differences matters. I am prepared to accept Mr Schroder’s recollection as substantially accurate.

206               On 25 March 1998, the Process Protocol was returned by Sebel to Clyde under cover of a facsimile from Mr Jones. It is not in dispute that even though the Process Protocol stated that it was a deed, it was not. The facsimile from Mr Jones to Mr Sheldrick returning the executed deed stated:

As requested we are faxing our executed Process Protocol in relation to RFQ.079. The documents have been signed by the Company Secretary, Ken Schroder.

If you require this to be signed by a Director as well then it will have to be forwarded to our head office in Brisbane and will take two to three days before it can be returned to you.

We would point out that the design of the train seat forwarded by Sebel for this project to Clyde is a protected design and should Sebel not be selected as seating supplier then that design cannot be offered.

[emphasis added]

207               Clyde did not take up the offer of having the Process Protocol executed by a director also. According to Mr Sheldrick, he thought that the document executed by Mr Schroder was satisfactory. He considered that if an agreement was signed by a company secretary it was binding on the company and did not seek legal advice as to whether this was correct or not. Mr Sheldrick put the document on file.

208               Mr Sheldrick gave evidence that, by sending the Process Protocol to Sebel for execution, he wanted Sebel to acknowledge and agree that nothing in that document would limit any discretion of Clyde under the tender documents. This evidence should be understood, however, in the context of Mr Sheldrick's views, discussed later, that at least by the time of the correspondence of 13 October 1998 there was an agreement in place between Clyde and Sebel. He viewed the Process Protocol as part of the relevant documentation leading to the formation of contractual relations.

209               Mr Graham, on the other hand, would not accept that the Process Protocol reflected Clyde’s intention with Sebel at the time. He said that at the time he had the view, contrary to subcl 1(i), that Clyde did have a commitment to use Sebel if Clyde were to be successful in winning the head contract. This view was bound up with his views, dealt with later, as to contract formation in October 1998. I have difficulty with this evidence about his view of the Process Protocol. I do not think that at the time (late March 1998) Mr Graham had a view inconsistent with the Process Protocol. No doubt he believed that if Clyde won the head contract Sebel would be the seating supplier. That Clyde had been dealing only with Sebel in the detailed way it had, that Sebel had produced a design about which the SRA was enthusiastic, that Sebel’s price was acceptable and that Sebel seemed as enthusiastic as did Clyde for the tender to be won, and for a mutually fruitful business relationship, all underpinned his expectation as to future events and a future relationship. However, I do not accept that at this time he had turned his mind to the question of Clyde’s legal obligations to use Sebel. In any event, there was no evidence that he expressed himself to anyone at Sebel about such views, even if he had them. No comment was made by anyone from Clyde to Sebel, or Sebel to Clyde, that might have had the effect of undermining the content or the apparent importance of the sending and signing of the Process Protocol to the parties’ relationship and the mutually intended process of contractual formation.

210               Mr Graham and Mr Jones worked closely together, especially at the design and technical level. Each no doubt viewed the Project with enthusiasm and optimism. Each thought, at this time, that if Clyde were awarded the tender, Sebel would be supplying the seating. Mr Sheldrick was charged with the responsibility for Clyde of dealing with correspondence such as the Process Protocol. The Process Protocol was not a collateral piece of paper marginalised by the force of other events or overtaken by other communications. It was intended on its face, and was taken by the parties, to be a document regulating the relationship between the parties in a formal, but real, way, in particular in the movement and procedure in the direction of contract formation. That is how, to an objective observer, it would have seemed.

211               At one point in his evidence, Mr Jones said that he understood that Clyde was, through the Process Protocol correspondence, sending him the clear message that it was not bound to accept any tenderer for the Project or otherwise enter into any contractual relationship with any tenderer. This was plainly in accordance with the form of the document.

212               However, Mr Jones also gave evidence that he thought at the time that, from reading the document, the effect of the Process Protocol was that if Clyde were awarded the head contract then Clyde would form a sub-contract with Sebel. He said that at the time he felt very confident that in signing the Process Protocol Sebel were committing to Clyde and that:

Clyde was, subject to getting the contract with the SRA, …committing to Sebel.

I do not accept this evidence. Mr Jones plainly recognised that Clyde was sending Sebel the clear message that it was not bound to accept any tender. The last sentence of Mr Jones’ facsimile of 25 March 1998 ([206] above) makes that clear. Mr Jones no doubt believed that if Clyde won the tender then Sebel would be awarded the sub-contract for the supply of seats. But this evidence that he thought at the time the Process Protocol committed Clyde to do so was I think an after the fact rationalisation, and I do not accept it. Mr Jones had a similar expectation as to the future as had Mr Graham and for the same reasons, but I find that he recognised the importance of this document in stating the formal and real relationship, legally, between the parties. In response, by his facsimile of 25 March 1998, he stated the formal, though real, legal position of Sebel in respect of its intellectual property rights. Notwithstanding the close, cordial and enthusiastic co-operation, Clyde was making clear its legal position in the Process Protocol: that it was not bound to accept any tender from Sebel and that the parties would proceed to contract formation as set out in the Process Protocol. Likewise, Sebel said in response that if it did not get the job, Clyde could not use Sebel’s design.

213               Mr Jones spoke to a number of people at Sebel about the letter and the Process Protocol. I infer that his understanding about what Clyde was making clear about its legal position was passed on to Mr Gabadou and Mr Wright. Thus, from late March 1998 onwards, whatever the position concerning the reality of competition from other tenderers and whatever the expectation of people such as Mr Jones and Mr Graham about the future, the mutually expressed (and understood) position was that Clyde was not bound to accept Sebel’s tender.

214               Sebel submitted that, insofar as the Process Protocol suggested that Clyde had not yet decided to accept Sebel’s tender, it did not accurately reflect Clyde’s intention at that time. Sebel contests that on the basis of subcl 1(i) of the Process Protocol. I do not think that the Process Protocol evidences an intent about who was to be the seat supplier contrary to that claimed by Clyde. At this point, the intention of Mr Graham was that if Clyde won the tender, Sebel would provide the seats. No one at Clyde had a different view. Given the close co-operation up to this point and the clear preference for Sebel, indeed its effective practical exclusivity, the existence of that intention is not surprising. However, the Process Protocol, in terms, kept Clyde’s legal position uncommitted. To the extent that it was submitted that the Process Protocol and covering letter did not reflect Clyde’s intention about the future process towards the formation of any contract, I reject that. Clyde made clear the importance of the Process Protocol to Sebel and at no time expressed anything detracting from that importance. It is certainly the case that the balance of the communications and conduct to this point which I have earlier described made clear to Sebel that Clyde had used its design in its tender, that Clyde had relied on the Sebel design, and that if Clyde won the SRA tender, Sebel would in all likelihood be supplying the seats. The Process Protocol did not weaken these probabilities, nor otherwise change the underlying conduct up to this point. What it did do was to make plain the bilateral legal position at this time. The effect of that bilateral legal position is one of the proper construction of the Process Protocol in its context.

215               Issues in relation to the design of the seat continued to be discussed during March and April 1998. On 27 March 1998 Clyde (Mr Sheldrick) sent a facsimile to Sebel (Mr Jones) reporting on discussions that had taken place with the SRA in relation to seating. Clyde said that the SRA had raised a number of concerns and that seat prototypes needed to be supplied as early as possible in order to approve the design. Clyde requested Sebel to bring forward the delivery date of prototypes from the end of June to May 1998.

216               On 31 March 1998, Invetech produced a document entitled “Product Requirements Specification” which listed, as the documents “applicable to the 4GT train seat development”, engineering drawings for seats which included drawings for a 2 seat fixed unit and had no drawings for a 5 seat fixed unit. This supports and confirms the conclusions, which I have reached that the significant variations to the configuration of the train that were later embodied in a varied specification in December 1998 were known to Sebel and Clyde by early 1998.

217               At about this time (late March 1998) Mr Gabadou developed a more detailed tooling and manufacturing program. He gave that program to Mr Jones, who in turn sent it to Mr Sheldrick in a facsimile dated 7 April 1998 in which he advised Clyde that Sebel had engaged Invetech to assist with the Project. The facsimile contained Sebel’s Train Seat Development Program, setting out the key milestones for the preparation of the seat mock-ups.

218               Clyde submitted that the extent of this work by Mr Gabadou and Sebel at this time reflected a recognition of all those at Sebel (including Mr Gabadou) that Sebel had been selected by Clyde as the seating supplier, and that in the event that Clyde was successful with the SRA, Sebel would “ipso facto” supply the seats. I think that this overstates and oversimplifies the matter. Mr Gabadou’s views are dealt with later. He gave evidence, which I accept, that he thought Sebel was the preferred tenderer, not the exclusive tenderer. He and Mr Wright were certainly prepared to expend significant effort and resources winning this job. I do not think, however, that the degree and extent of the work done by Sebel at this time should lead me to reject the evidence of Mr Gabadou.

219               By facsimile dated 14 April 1998 from Mr Jones to Mr Sheldrick, Sebel provided Clyde with its tooling and manufacturing program for the new train seat. The covering letter stated, amongst other things:“This program assumes that Sebel would receive an instruction to proceed by 1^st July 1998. Should this instruction be delayed then the program would naturally be delayed.” A copy of the tooling and manufacturing program was provided to the SRA by Clyde under cover of a letter dated 16 April 1998.

220               A further issue in relation to seat design (important for the resolution of this case) arose in late April 1998. Clyde (Mr Sheldrick) sent a fax to Sebel (Mr Jones) noting that the SRA planned to increase the number of testing cycles nominated in FE 038-92 from 15,000 to 75,000. In a facsimile, Clyde asked whether this would affect Sebel’s offer in any way. Mr Jones said that he showed this facsimile to Mr Payne (then Manager of the Research and Development Department at Sebel) and asked whether the increase would be a problem, and that Mr Payne had said it would not. Mr Payne had a different recollection. He said that he did not think Mr Jones showed him Clyde’s facsimile of 27 April 1998, but that Mr Jones might have mentioned the contents of it to him, and that whilst he cannot recall, he might have said that there were no problems looking at it from a purely technical point of view because, as he understood it, the test was simply a test of the bearings and swivel areas without a load. I prefer Mr Jones’ recollection. I do not think that Mr Jones would have written back to Clyde as he did, had he not cleared the matter with Mr Payne in the way he described. Mr Jones sent a facsimile to Mr Sheldrick on the following day, 28 April 1998, in which he stated that he did not foresee any problems in the increase in testing cycles and that there certainly would be no price implications.

221               During May 1998, representatives of Clyde continued to meet with, and answer questions from, the SRA. Any questions from the SRA about seating were referred to Sebel for response. Sebel and Invetech continued to work on the seat design and design meetings were held.

222               By letter dated 7 May 1998 from the SRA to Clyde, Clyde was required to provide to the SRA further information in relation to Clyde’s tender for maintenance and cleaning of the trains based on new parameters. Clyde was requested to complete and return certain schedules. On 8 May 1998, Mr Sheldrick sent a facsimile to Mr Jones requesting Sebel to provide that part of the information requested by the SRA as related to the seating, namely replacement costs for the various seating components. Sebel was requested to complete a schedule relevantly identical to that requested of Clyde by the SRA. Mr Jones responded with a completed schedule on 13 May 1998 and Clyde supplied these figures (along with other information requested) to the SRA under cover of a letter dated 18 May 1998. Sebel’s response to Clyde was a breakdown of its earlier tender prices for seating components and it detailed the labour, materials and overhead price for each component.

223               On 2 June 1998, Clyde (Mr Sheldrick) sent a facsimile to all of its major tenderers, including Sebel (Mr Jones) advising of Clyde’s intention to prepare a “Draft Consolidated Document”, containing full contract terms. The letter to Sebel stated:

As you may be aware, Clyde Engineering has recently completed the Stage 2 evaluation process with SRA and is awaiting the deliberations of Government.

In anticipation of being chosen as the Selected Tenderer and in accordance with the Process Protocol (issued March 1998), duly executed by you and in view of the large number of qualifications, comments and further information received from you, Clyde Engineering will over the next few weeks prepare a Draft Consolidated Document.

The Draft Consolidated Document will generally encapsulate amended technical requirements, statement of work undertakings, spare parts supply requirements, maintenance provider requirements related to your equipment, commercial conditions and costing schedules.

Clyde Engineering intends to regard the provisions of the Draft Consolidated Document as essentially non-negotiable and Clyde Engineering does not envisage any material amendments being made to the Draft Consolidated Documents prior to signing with the successful tenderer.

You will be asked to review the Draft Consolidated Document, complete the necessary schedules and advise what effect (if any) it has on your current offer. If you seek to qualify your tender by amendment to the Draft Consolidated Document you are advised that any such qualification will be priced by Clyde Engineering and that your price will be adjusted by the amount of Clyde’s determination of the value of that qualification.

Following the evaluation of tenders and responses to the information provided by you and others as a result of the Draft Consolidated Document and pursuant to clause 2.2 of the Process Protocol, Clyde Engineering believes it will select a preferred tenderer with whom it will enter into the “final consolidation of contract” phase.

It is emphasised that this correspondence only reflects Clyde Engineering’s intention the [sic: at the] date of this correspondence. It is not intended in any way to limit Clyde Engineering’s rights or any other discretion it may have.

[emphasis added]

224               The letter, once again, was a statement by Clyde of the then current position and Clyde’s intentions. Whilst it was sent to other potential suppliers, that commonality of form does not affect its place as a clear express statement by Clyde of the present position and its future intentions. The conduct of the parties before or after 2 June did not negative or neutralise anything in the letter. Again, however, nothing in the letter undermined the expectations of people such as Mr Graham and Mr Jones that if Clyde won the SRA’s tender, Sebel would be supplying the seats. What it did was express the formal legal position of the parties in terms of bilateral procedure, leading to the formation of any contract.

225               Mr Jones gave the following evidence in cross-examination as to the effect of the letter on his understanding:

Mr Jackman: Now going back to… [the letter of 2 June], the second paragraph of that letter used an expression in the context of Clyde's intention to negotiate a contract that the subject to agreement of contractual, quantitative and pricing issues, do you see that?

Mr Jones: Yes.

Mr Jackman: And that sent a clear message to you as you understood it that there was not yet agreement on contractual issues, do you agree, to begin with?

Mr Jones: Yes.

Mr Jackman: And it sent a clear message as you understood it that there was not yet agreement on quantitative issues?

Mr Jones: Yes, I would agree with that.

Mr Jackman: And it sent a clear message to you as you understood it that there not yet agreement on pricing issues?

Mr Jones: All of those issues really combined, you can't - how can I put it - the pricing issue in my mind, if you were asking me if the price was fixed, the price was fixed. The final pricing would be associated with the quantity nature of the contract. The price could not be, how can I say it, finalised until the break up was actually confirmed of the number of seats and the types of seats.

Mr Jackman: When you say you thought the price was fixed, do you mean by that that you thought the price was fixed in accordance with the price that had been set out in your tender of 23 October 97?

Mr Jones: Correct.

226               Mr Jones also said in his affidavit that he understood from the facsimile of 2 June 1998 that the Draft Consolidated Document referred to therein would simply encapsulate all of the information that had already been exchanged between Clyde and Sebel in relation to the tender and the requirements of the 4GT Project. Mr Jones also understood that the terms of the Draft Consolidated Document were essentially non-negotiable. Mr Jones did not object to this process as it was consistent with Mr Jones’ understanding that Sebel was prohibited by the Process Protocol from resiling from any of its earlier representations to Clyde including the tender prices in its bid, and the basis for them, without Clyde’s consent.

227               Although that letter spoke of the drafting of Draft Consolidated Documentation over the next few weeks, a Draft Consolidated Document was not sent by Clyde to Sebel until 22 December 1998, more than six months later.

228               On 12 June 1998 the SRA requested Clyde to amend schedule B7 of Clyde’s tender submission to include further information relating to current proposed major suppliers responsible for equipment supply less than 5% of the design and build price for Stage 1. The SRA’s request also required Clyde to include its “fall back” position in each case. Previously, schedule B7 only included those suppliers above 5% of the Stage 1 design and building price - of which there was only one, GEC Alsthom. By letter dated 12 June 1998 to the SRA, Clyde amended schedule B7 as requested. Suppliers were listed in seven categories, including seating. Sebel was the only sub-contractor included for seating. In contrast, two potential sub-contractors were listed in four of the remaining six categories. The approximate value of the seating for Stage 1 was listed as $5M. Again, as with the earlier version of schedule B7, Clyde expressly reserved all rights to modify nominated suppliers or their scope of services to satisfy the needs of the Project on a best endeavours basis. The document reflects the fact that Clyde intended to use Sebel to supply the seating, if it (Clyde) won the (SRA) tender.

229               The seat prototypes that Sebel and Invetech had been working on were presented to Clyde in June 1998. After that presentation, Mr Sheldrick sent a facsimile to Mr Gabadou in the following terms:

Clyde wishes to take this opportunity to thank you and your team for their proactive approach related to the development of passenger seat design for the 4GT Project.

Your presentation today of the 2 seater mock-up was indeed impressive and professional.

As commented by Reg Graham we were surprised and pleased to note the advanced stage of your current development.

We trust our quantitative comments were well received and constructive, and we look forward to the receipt of the engineering data mentioned and your formal presentation of the seating mock-ups at the end of this month.

230               From Mr Gabadou’s perspective, the delivery of the prototypes was something of an anti-climax. After the pressure that he felt had been applied to deliver the prototypes ahead of schedule, the criticism of the model in March 1998 and all the work by Sebel and Invetech, Mr Gabadou was surprised to hear and see Clyde say that it did not expect to see such advanced prototypes, and to discover that Clyde was not then in a position to be able to fit the prototypes into a mock up carriage, which was not ready. It was Mr Gabadou’s impression that, on delivery of the prototypes, the time pressures appeared to have evaporated and Clyde had not needed the prototypes as urgently as it had been telling Sebel in the previous months. He said that at the time he felt that Sebel had been “burned”.

231               On 24 June 1998, the Tender Evaluation Committee of the SRA met and recommended Clyde as the preferred tenderer for the 4GT Project, ahead of Goninan. On 25 June 1998, the SRA Board met and approved Clyde as the preferred tenderer for the 4GT Project. On 29 June 1998, the Budget Committee of Cabinet gave approval for the funding of the first stage of the 4GT Project.

232               On 29 or 30 June 1998, Clyde was announced by the New South Wales Government as the preferred tenderer for the 4GT Project. Press releases were issued by both the New South Wales Government and Clyde.

233               The Clyde press release included the following:

Today the State Rail Authority chief executive, Simon Lane announced that Evans Deakin Industries Limited (EDI) is the preferred supplier for a $200 million contract to supply passenger trains for the State Rail Authority’s suburban rail network.

…

Furthermore, Clyde designed the seats so that they will be stylish and comfortable while also offering a high level of resistance to vandalism.

…

Partners GEC Alsthom Transport will supply electric traction and control equipment for the trains. In Europe, GEC Alsthom has supplied more than 4.000 vehicles of this type.

Transport Design International (TDI) is an international interior design consultancy that provides a range of design services for rail, marine and air transport manufacturers and operators.

SEBEL exclusively designed a seat that simultaneously delivers style and comfort while offering a high level of resistance to vandalism for the Clyde 4GT.

[emphasis added]

234               Whilst the description of Sebel having exclusively designed the seat was in the past tense, in comparison to the statement that GEC Alsthom Transport “will supply electric traction”, given the nature of the document I do not think that it can be disputed that it was a statement, by Clyde, to the world, that Clyde intended to use Sebel as the seat supplier.

235               However, Clyde did not at this time send a letter to Sebel stating this. A part-time employee of Sebel, who had been Mr Jones’ secretary, telephoned Mr Jones and said:

There’s something in the paper about Clyde being preferred tenderer on the train project. I’ll send it in to you.

236               Sebel’s Management Report for June 1998 (Confidential Exhibit E), prepared in about July by Mr Wright, stated on page 4 under the heading “Major Projects”:

Clyde Industries had been awarded the 4GT contract for the NSW rail system inclusive of Sebel’s new ‘mass transit seat’.

237               Mr Jones gave evidence, in [38] of his affidavit of 6 October 2000, which I accept, that in about mid-1998 Mr Graham said to him words to the effect:

The SRA really likes the seat and they’re talking about putting them onto the existing Tangarra [sic] trains as well as the 4GT trains.

238               I deal elsewhere with the evidence of Mr Wright about the June Sebel Management Report. At this point it suffices to say that by July 1998, Sebel (Mr Jones, Mr Wright and the boards of Sebel and GWA) knew that the Clyde tender, which was now officially preferred, included the Sebel designed seating. It was not an abuse of language to say that Clyde “had been awarded the contract”.

239               To say, as the June 1998 Sebel Management Report did, that the preferred or winning tender had Sebel’s seats “included” in it may say something about the present and the future: that Clyde is presently intending to use the Sebel seating and that Sebel seating will, in all likelihood, be used in the train. It may also say something about the contractual position of the parties. I will deal with this in due course. It is only necessary at this point to say that these matters about the state of Clyde’s intention and the probabilities as to the future do not, of themselves, lead one to the conclusion that Clyde and Sebel must have intended to enter their own contract at the time of, and by the act of, Clyde binding itself formally to the SRA.

240               On 9 July 1998, after Clyde had been announced as the preferred tenderer for the Project, Mr Graham received a letter from Saydair Commercial Seating, a member of the Austral Pacific Group. Saydair requested a meeting with Clyde to discuss Saydair’s products. Mr Sheldrick of Clyde responded to this request by facsimile dated 10 July 1998. The response stated, amongst other things:

As you have eluded [sic] in the penultimate paragraph of your facsimile, Clyde already has a selected seating manufacture [sic] for the 4GT project.

241               As Sebel’s submissions pointed out, that facsimile was not communicated to Sebel; and the facsimile said nothing about a supply contract having been entered into with Sebel. Also, it should be noted that Clyde had not said to Sebel in any document sent to it that it was the “selected seating manufacturer”. Clyde submitted that if it would say this to Saydair, it was “inconceivable that Clyde would refuse to tell Sebel in October that it had selected Sebel as its seating supplier”. In one sense that is right. Clyde no doubt may well have thought that Mr Jones believed Sebel was the only effective contender for the seating, that its design had been relied on by Clyde in its tender and that if Clyde won the tender Sebel would get the job. They would have been correct in so believing. However, there is no evidence that by 9 July 1998, that was statedas a framework upon which to assess the state, and formation, of the legal relations of the parties. The parties dealt with those matters in the letter of 24 March 1998, the Process Protocol and the letter of 2 June 1998.

242               By facsimile dated 17 July 1998 from Mr Sheldrick to Mr Jones, Sebel was requested to confirm the validity of its tender up to and including 30 October 1998. This was confirmed by facsimile from Mr Jones to Mr Sheldrick dated 20 July 1998. This request, of itself, made clear that the status of the relations between the parties was one of open tender offer up to the nominated date, and no more, at this time.

243               Mr Sheldrick was asked about his understanding of the effect of this extension at the time. Mr Sheldrick gave the following evidence about this, and about the one further extension sought and given (up to 27 November 1998):

Mr Jackman: It was your understanding when you did that, that if Clyde didn't accept Sebel's tender by 30 October '98 and if Clyde had not negotiated a further extension of the validity period then after 30 October '98 Sebel would be free to vary or withdraw its tender?

Mr Sheldrick: Again they could have.

Mr Jackman: There was another extension of the validity period to 27 November '98 wasn't there?

Mr Sheldrick: There was.

Mr Jackman: At the time had you asked Sebel to extend the validity of its tender to 27 November '98 your understanding was that if Clyde had not accepted Sebel's tender by 27 November '98 and had not negotiated a further extension of the validity period then after 27 November '98 Sebel would be free to vary or withdraw its tender?

Mr Sheldrick: They could have.

244               Mr Graham’s view was not as clear. I deal with his views on the question later when I deal with his understanding of the contractual position. In short, he believed that by October 1998 and perhaps earlier, Sebel was legally committed either by Clyde having by then, committed itself to the SRA or by then having accepted Sebel’s tender, making further extension of the tender validity period thereafter unnecessary. Mr Graham’s evidence in this regard was not pellucid. To the extent that he was of the view that Sebel was not free to withdraw its offer after Clyde bound itself to the SRA, with or without the communication of that fact to Sebel by Clyde, Mr Graham may well have had in mind a contractual structure in relation to tendering which is reflected in the Canadian authorities discussed later. In any event, Mr Graham did have the view that it was unnecessary to request a further extension of the tender validity period beyond 27 November 1998.

245               Stopping at this point, I do not think that there is any doubt that (in 1998) Clyde intended to use Sebel as its seating supplier. There was, in a sense, no choice to be made. Clyde had dealt only with Sebel from October 1997. Also, Sebel was aware that its seating was included in the tender, and, at the very least, that it was the preferred and likely supplier. It was not aware of the complete absence of communications with the other tenderers on seating, but it did know that its design had been used in the tender, that the SRA liked it and that Clyde was relying on the Sebel tender.

246               Yet Clyde did not reflect this exclusive tendering relationship, whether called “preferred” or “exclusive”, in any document concerned with the creation of legal relations. It did not express its legal relations with Sebel in those terms. Further, it is not the case that this question of legal relations was left in abeyance, falling behind the activity and agreements of the business people handling commercial matters “at the coalface”. Carefully drawn documents had been sent by Clyde to Sebel with the bilaterally understood intention of dealing with the legal positions of the parties: the first extension of the tender validity period to 30 September 1998, the letter of 24 March 1998, the Process Protocol, the letter of 2 June 1998 and the request on 17 July 1998 for the further extension of the tender validity period.

247               Sebel submitted that this absence of a clear statement by Clyde as to Sebel’s preferred position had an explanation. Sebel submitted that Clyde deliberately, during 1998, held back from any unequivocal statement of commitment to Sebel in order not to weaken its bargaining position in an anticipated future negotiation with Sebel on price. I will deal with this submission more fully later. At this point it is convenient to deal with one factual element of this submission – the cost estimates of Clyde of July 1998.

248               Clyde produced a detailed estimated costing schedule for the 4GT Project on 10 July 1998. Sebel was described in a column in the right hand side of that page as “first preference supplier”. Transform was noted as second preference, and Austral as third preference. I place little store by the listing of the three tenderers in a document such as this, dealing with the whole train project. It does not weaken the balance of the evidence which shows that Clyde did, at this time, intend to use Sebel. Turning to the cost estimate itself, the configuration of the seating was still as per the original tender specification. The total of the cost estimated per four car set for the passenger seating configuration described in that cost estimate schedule, was $249,274. This was a different figure from Sebel’s tender price, which was $257,664. The figures for seating units are 2.5% below Sebel’s tendered equivalent for each 4 car train. For example, 3 person reversible seats (seventy-two units) was estimated to cost $116, 251 rather than $119,232, a difference of exactly 2.5%. The July 1998 cost estimates thus have the seating included at 2.5% below tender. This accords with the board instruction referred to earlier. I infer that the occasion for creating this cost estimate was the working up of Clyde’s “best and final” offer for the SRA leading up to the anticipated signing of the contract.

249               In August 1998, Mr Ron Doman was formally appointed to the position of General Manager of Sebel. He did not, however, take up the day to day running of the business until November 1998. Mr Wright remained as Acting General Manager until then.

250               By facsimiles dated 19 and 20 August 1998 Clyde requested that Sebel confirm, and Sebel so confirmed, the validity of its tender up to and including 27 November 1998. This was the last occasion on which Clyde wrote to Sebel seeking such an extension. The request was in the following terms:

I refer to your tender submission for the above project and all correspondence exchanged to date, please note that the current validity of your tender expires on 30 October 1998.

As you may be aware the tender evaluation process has been further extended due to actions by the Principal. You are therefore requested to confirm the extension of the validity of your tender up to and including Friday 27 November 1998.

Please ensure your response reaches this office by 1500hrs Tuesday, 20 August 1998.

[emphasis added]

251               During the period 30 June 1998 to early October 1998, officers of Clyde were involved in discussions with representatives of the SRA finalising the formal contract documentation (technical and legal) between them in relation to the 4GT Project. During this time, little contact took place between Clyde and Sebel.

252               On 8 October 1998, Clyde executed formal contract documentation with the SRA to design, manufacture and supply trains for Stage 1 of the 4GT Project.

253               The contractual provision dealing with intellectual property was as follows:

9.3    Rights granted to the Principal

The Contractor:

(a)               assigns to the Principal all rights, title and interest in any Intellectual Property in the Maintenance Documentation from the Date of the Deed of Agreement or its creation (whichever is later);

(b)               grants to the Principal a permanent, irrevocable, royalty-free, non-exclusive licence to use any Intellectual Property in the Contract Documentation (other than the Maintenance Documentation) for the purposes of:

(i) the commissioning, operation, maintenance, modification, repair, replacement, refurbishment, testing, other upgrading and re-building of railway cars (including the Cars) used or to be used by the Principal / or any person for or on behalf of the Principal) on the New South Wales heavy railway system;

(ii)               the commissioning, operation, maintenance, modification, repair, replacement, refurbishment, testing, other upgrading and re-building of any facility (including the Maintenance Facility) used or to be used by the Principal (or by any person for or on behalf of the Principal) for the purposes of the New South Wales heavy railway system; and

(iii)             if the Principal terminates the Contract under Clause 33.3, completing the uncompleted part of the work under the Contract,

which

(iv)             arises upon the creation of those things the subject of it;

(v)               may be sub-licensed;

(vi)             will survive termination of the Contract on any basis; and

(vii)           entitles the Principal or any sub-licensee to alter or enhance any Intellectual Property the subject of the licence; and

(c)                must do all further things necessary to perfect the:

(i) assignment of the rights, title and interest under paragraph (a); and

(ii) Principal’s right to the licence under paragraph (b),

and the Contractor is responsible for any payment, including any royalty fees, in connection with the granting or the obtaining of the licence under paragraph (b).

Any Intellectual Property in the alterations or enhancements contemplated in sub-paragraph (b) (vii) will vest in the Principal upon creation.

254               This provision, at least cl 9.3(b), had its origins in the suggested clause contained in Clyde’s partially conforming tender (in this respect) referred to at [168] above. Clause 9.3(b) in the SRA contract developed, in some detail, the terms of the licence for maintenance. It also extended the licence to enable the SRA to use the design should Clyde’s contract be terminated under the head contract’s termination clause. Also, perhaps importantly, the clause gave the SRA (or any sub-licensee of the SRA) the right to alter or enhance any intellectual property the subject of the licence; and it provided that ownership in those alterations or enhancements vested in the SRA.

255               It is not clear to me that clause 9.3(a) would impinge upon Sebel’s intellectual property, in the light of the definition of “Maintenance Documentation”.

256               In due course, in December 1998, this provision found its way into the revised contractual documentation sent by Clyde to Sebel.

257               After the agreement with the SRA had been signed, and on or about 8 October 1998, Mr Graham rang Mr Jones and said to him words to the effect:

Congratulations Neville, we’ve just signed the deal with the SRA. I’ll confirm it in writing shortly

Mr Jones replied:

That’s great.

258               In [56] of his affidavit of 6 October 2000 Mr Jones set out what he said was his understanding as at 8 October 1998, as follows. I have numbered the sentences to aid comprehension of the next paragraph.

(1) As I knew that Sebel had been specifically named as the supplier of seating in Clyde’s bid, my understanding from that moment onwards was that Sebel was definitely going to be providing the seating to Clyde as Clyde had won the contract with the SRA, and that Sebel would do so on terms in accordance with our tender bid. (2) I knew from commercial experience that those terms were quite likely to be renegotiated and altered by agreement with Clyde and the SRA over time right up until the completion of the entire 4GT Project, as it was likely the scope and requirements of the 4GT Project would change during the design phase. (3) I also knew that there were several technical issues that would still have to be resolved, and that it was likely that these issues would not be resolved for quite some time (often such issues are not resolved until the design is complete or the manufacturing is well under way). (4) Nevertheless, I also understood that Sebel was not entitled unilaterally to withdraw or depart from the terms of its original bid, including the offer to supply seating for the train project at the bid price, as we, amongst other things, had executed the Protocol Deed agreeing to adhere to the representations we had made in our tender offer. (5) I understood that any change to the terms of the bid would need to [be] renegotiated with the consent of Clyde and presumably the SRA. (6) I … understood that Sebel’s bid was to be fixed to give enough time for the SRA to make its decision on the head contract and for the sub-suppliers to be chosen by Clyde.

I admitted this paragraph conditionally. I allow it as evidence of Mr Jones’ understanding of events (and so relevant to Sebel’s understanding).

259               The first sentence can be accepted as uncontroversial, in a common sense way, as an expression of his views, given what had passed between the parties. He had been working closely with Clyde. He knew Clyde had used Sebel’s tender. He had expected, from the time in 1997 at which he appreciated that there was no substantial competition, that if Clyde won the tender, Sebel would be providing the seats. The second and third sentences can also be seen as uncontroversial. The fourth, fifth and sixth sentences are a little elusive. They deal with Sebel being bound and posit a circumstance which had not arisen. I do not accept that on 8 October 1998 Mr Jones turned his mind to the question of unilateral withdrawal or changing of the bid by Sebel. In cross-examination Mr Jones agreed with the following proposition:

Mr Jackman: And what Mr Graham said to you, according to your recollection, went no further than this "Congratulations Neville, we have just signed the deal with the SRA, I will confirm it in writing shortly" and then you responded "that's great"?

Mr Jones: That is the gist of the conversation.

Mr Jackman: And that meant in your mind that you were a significant step along the way to reaching a supplier contract for the passenger seating didn't it?

Mr Jones: Yes.

260               I do not accept that the fourth, fifth and sixth sentences reflected his contemporaneous state of mind. They reflect, it seems to me, views which Mr Jones might have expressed had he been faced with the issue of Sebel withdrawing or amending its bid, matters which had not arisen in any way. This evidence is, it seems to me, an after the fact reconstruction, involving the implicit positing of an hypothesis which at the time was non-existent.

261               Mr Graham also agreed in cross-examination as to the terms of the conversation:

Mr Jackman: … Can I put to you a version of that conversation and ask whether it accords with your recollection. You said to Mr Jones: "Congratulations Neville we've just signed the deal with the SRA. I will confirm it in writing shortly." Mr Jones replied: "That's great." Do you agree with that version or was your recollection - - - ?

Mr Graham: Well, that sounds to be the same discussion, yes, very similar.

262               On 13 October 1998, Clyde (Mr Graham) sent a letter to Sebel (Mr Jones). The letter stated:

As you may be aware, Clyde Engineering was selected in June, 1998 as the preferred tenderer for the design, build and maintain of 20 Fourth Generation Train Sets over fifteen (15) years, and on Thursday 8th October 1998 successfully executed the Deed of Agreement with the State Rail Authority for this Contract.

I am pleased to advise that it is our intention to negotiate a contract with Sebel Design for the supply of passenger seating and for maintenance support of passenger seating subject to agreement on contractual, quantitative and pricing issues.

Sebel Design’s support and performance will be an important ingredient to the success of the project. I look forward to a mutually rewarding contract and to ongoing opportunities.

263               Clyde submitted that this was a standard form letter sent by Clyde to all major sub-contractors, including Sebel. It was. However, this was not stated to Sebel at the time so as to give the letter a special context as between these parties. Nor was there any communication between officers of Clyde and Sebel to the effect that the letter should not be taken as a statement of Clyde’s then current position. As between Clyde and Sebel, the letter must be taken to mean what it says, objectively, though in the context of the parties’ mutual dealings to that point.

264               Before coming to the evidence of the understanding of various persons at this point, some comments can be made about the letter of 13 October 1998. There was no express acceptance of the tender of Sebel submitted on 23 October 1997, whether as amended by subsequent discussion and representation, or not. An “intention to negotiate a contract” can be understood in the light of the Process Protocol as being the agreement upon a full set of contract documentation as referred to in, and contemplated by, cll 2.2, cll 2.3 and 2.4 of the Process Protocol, pars (b) and (c) of the letter of 24 March 1998 under which the Process Protocol was sent to Sebel, and as referred to in the letter of 2 June 1998. Those documents, in particular par (d) of the covering letter of 24 March 1998, leave open the possibility of a binding agreement prior to formal signing, a circumstance which would not be unusual in contracts of this kind which may need ongoing attention by the parties to the underlying work. Nevertheless, it should be said that cl 2.4 of the Process Protocol did not anticipate much time between any such acceptance by Clyde of Sebel’s tender and formal signing – “if Clyde… decided to accept… both parties would execute immediately”. It might be said that Clyde had “decided to accept” Sebel’s tender already, but there had been no explicit act of contractual acceptance to accompany the words and conduct which exhibited, certainly at the levels of Mr Jones and Mr Graham, a mutual understanding that Sebel would be providing the seating. Further, the process anticipated by the above correspondence and the Process Protocol of supplying Consolidated Draft Documentation was posited as occurring before any acceptance by Clyde.

265               Also, it should be noted that the final paragraph of the letter dated 13 October 1998 made clear the expectation, and reinforced the earlier expressions and implications by words and conduct, that Sebel would be supplying the seating.

266               The views of the participants about this letter and circumstances by the time of its receipt by Sebel were as follows. Mr Jones in [58] of his affidavit of 6 October 2000 gave the following evidence about his understanding:

...I understood the reference in that letter to Clyde’s “intention to negotiate a contract with Sebel Design for the supply of passenger seating”, to be a reference to the finalisation of formal documents which would record those matters relating to the supply of seating that had already been set out in Sebel’s tender. I understood that it also referred to the formalisation of various incidental or technical matters which had not been discussed in any detail prior to that time. Formal documentation would be necessary for all of these matters, however I understood that Sebel was already bound to adhere to all of the terms in its tender to Clyde, including the pricing of the seats to be supplied.

[emphasis added]

267               I admitted this evidence conditionally. I allow it as evidence of his understanding of events (and so relevant to Sebel’s understanding). I have some difficulty with the last part of the last sentence, from the word “however”. I accept, as is plain, that at this point, if not before, Mr Jones was firmly of the view that Sebel would be providing the seating, now that Clyde had signed a contract with the SRA. I doubt, subject to the exchanges with Mr Gabadou shortly after this time, that on 13 October 1998 he was thinking in terms of Sebel being bound to adhere to the terms of its tender. The question of Sebel being able or unable to withdraw was of no currency. What was relevant was whether Sebel would be getting the job, and whether Clyde was committed to Sebel. Whilst he was aware of the terms of the Process Protocol and in particular the obligation on Sebel in cl 2.5 to adhere to its tender, I think that this part of the paragraph of his affidavit reflects the influence of the course of later events and the preparation for the litigation, rather than his contemporaneous beliefs as at 13 October 1998. I make no criticism of Mr Jones or anyone else by saying this. In oral evidence in chief, Mr Jones put it in a way which, I think reflected his thinking at the time. He said the following:

Mr Foster: First of all, when you got the letter, that is the letter of 13 October 1998, what was your reaction?

Mr Jones: I regarded the letter as a letter of intent and it was in my understanding as good as getting an order and an indication that Sebel had the job and I recall that evening I had a little celebration of my own because it was the culmination in my view of a lot of hard work at Sebel and I cracked a bottle of champagne.

268               This evidence was taken up in cross-examination in particular in connection with Mr Gabadou’s views and what flowed from them. Before concluding my views on Mr Jones’ evidence about the state of affairs in October 1998, the views of Mr Gabadou and what flowed from them need be set out.

269               Mr Gabadou had overseen the design and development work of Sebel on the seat from January 1998 onwards. As I have already said, he struck me as a conscientious, intelligent and skilled man. He had a more cautious, and perhaps more detached, view of events than Mr Jones. I have already indicated that he felt that Sebel had been “burned” on the prototypes, spending significant time and money on them, to the apparent surprise of Clyde, after Clyde had, to his mind, criticised the earlier model and put pressure on Sebel for the early production of the prototypes. Also, he said that he did not, at this stage, think that Sebel necessarily “had the job”. He gave the following evidence dealing with the first quarter of 1998:

Mr Foster: And you also understood at that time, didn't you, that if Clyde got the contract for the SRA, Clyde had indicated to Sebel that Sebel would have the seating job as Clyde's subcontractor?

Mr Gabadou: No. I believed that we were the leading contractor in regards to the seating, and that they liked our design, and that we were the preferred contender, but in my mind there was absolutely no doubt that during that phase we were not the only ones and that they had other options for the seating.

Mr Foster: And what was the basis of your thinking that?

Mr Gabadou: Because it was very early in the process. I mean, they had a product which was an existing product which had been cheaper for the tender which was an existing product that we could have used. There were other seating suppliers who would have been very keen to get onto the project, just like for the stadium seating. I mean, you've got many suppliers that compete. I don't think that we were the only ones, by no means.

Mr Foster: You made an assumption that you weren't the only ones, is that what you're saying?

Mr Gabadou: Correct, based on what I've seen most of the time. Exactly.

270               These views were based on his experience, not what Mr Jones had told him. As to this he said:

Mr Foster: But from what Neville Jones had told you, you had formed the view that at the very least Sebel was the preferred seat supplier in Clyde's eyes at that time, that is in January/February 1998?

Mr Gabadou: Well, that our seat basically was the one the designer preferred. Correct.

271               The word “designer” has not been corrected by the parties as an error. However, it probably is an error. I took and take the answer to be a concurrence with the question.

272               Mr Gabadou’s caution regarding possible competition may be explained by a greater innate caution in dealing in commercial matters, by his distance from dealing with Clyde and by his absence from the 1997 meetings which, it seems to me, laid the foundations for Mr Jones’ view that Sebel was not under any real competition.

273               He gave further evidence in cross-examination dealing with the time of the preparation of the prototype – in April and May 1998. He said:

Mr Foster: And the better the quality of the prototypes the better their chance?

Mr Gabadou: Well the better the quality, yes, for sure. And also so far as, again, I was still convinced that we were not the only one in the race and as far as Clyde choosing the seat supplier I knew that the better job we would do the better chance we would have.

274               He gave further evidence in cross-examination dealing with the time of the delivery of the prototypes – in June 1998. He said:

Mr Foster: But at that point, that is having done the prototype and knowing that the award of the head contract was imminent, you wanted something in writing from Clyde to the effect that Sebel would get this job or have this job if Clyde got the head contract, is that right?

Mr Gabadou: It's not at that time that I mentioned that. At the time during that period of July before the contract was awarded I just mentioned to Neville [Jones] I was not going to do further development till we knew whether even Clyde had the contract and whether we were the supplier. I only mentioned to have something in writing once we were told by Clyde that they wanted to enter into a contract with us and so I said okay, as soon as we have the contract we will be able to start and then they said it's going to take some time because we want to have that contract with Sebel flow on from the contract we have with the SRA so there is going to be some time and I said, okay, I need a commitment from them first before I start putting in any more resources.

275               This further exchange took place with the cross-examiner:

Mr Foster: Didn't Mr Jones in this period, that is March, April, May, June 1998, give you the impression that he thought Sebel had the job?

Mr Gabadou: My understanding even from discussion with Neville [Jones] is that as I said earlier, I think the position hadn't changed, is that we were the preferred contender because of our design and I think that the supply of the prototypes and the comment they had made you know was reinforcing that. But that was not - they still had other options.

Mr Foster: That's an assumption you made, he never told you that?

Mr Gabadou: Correct, yes.

276               Mr Gabadou saw the letter of 13 October 1998. He did not see it as a “letter of intent” as Mr Jones says that he (Mr Jones) did. Mr Gabadou gave the following evidence in [34] of his affidavit:

The letter of 13 October 1998 confirmed that Clyde had signed a contract with the SRA and that they intended negotiating a contract with Sebel. By this time however, I felt that Sebel had been burned on the prototype. We had spent $140,000 or so developing a design and preparing a model to a level which Clyde had indicated that they wanted and wanted quickly, but which on presentation of the model to them it had become apparent that they did not require and following which nothing had happened for months. I therefore wanted a written commitment from Clyde to Sebel and to know what was to happen from then onwards before doing more work on the seat development. Consequently, following receipt of the letter of 13 October 1998 I said to Neville Jones words to the following effect during the course of a conversation I had with him about the letter:

“A promise to negotiate a contract is not enough. You can tell Clyde that I will not spend one dollar more without a written contract or at least a letter of intent from them and a clear indication of what it is that they want. There are a lot of outstanding technical issues such as the deceleration requirements and the fixing to the floor.”

[emphasis added]

277               I admitted part of this paragraph conditionally (from the words “Consequently, following receipt” to the end of the paragraph). I allow it as evidence of Mr Gabadou’s views and understanding at the time. The conversation is not evidence of the truth of the matters there stated, but it is evidence of the belief and state of mind of Mr Gabadou: Ritz Hotel Ltd v Charles of the Ritz Ltd (1988) 15 NSWLR 158, 179; and PD v Australian Red Cross (New South Wales Division) (1993) 30 NSWLR 376, 379.

278               There was a dispute between Mr Gabadou and Mr Jones as to whether the last sentence (emphasised in the extract at [276] above) was said by Mr Gabadou. Mr Jones said that he said:

There are still outstanding issues to be worked through.

279               Given that Mr Gabadou was concerned with technical issues, and in the light of his otherwise open, frank and direct evidence, I find that Mr Gabadou did refer to outstanding technical issues at this point, as he recalled.

280               Mr Gabadou wanted a letter of intent. He did not see the letter of 13 October 1998 as amounting to such. Mr Gabadou’s concern was the continuing expenditure of money by a favoured or preferred tenderer or supplier in circumstances where contractual arrangements had not (to his mind) been formulated. He may well have had in mind cl1(iii) of the Process Protocol in this respect. Mr Gabadou’s concern was reflective of a common problem facing tenderers. The “letter of intent” is a known instrument in contracts of this kind, one function of which is to assist the recovery of money expended in the interim by the tenderer or supplier if contractual arrangements cannot be reached. See for example British Steel Corporation v Cleveland Bridge and Engineering Co Ltd [1984] 1 All ER 504; Dorter and Sharkey Building and Construction Contracts in Australia: law and practice (2^nd Ed) [1.170] pp 543-44; Goff and Jones The Law of Restitution (4^th Ed) Ch 25; Carter “Ineffective Transactions” in Finn (ed) Essays on Restitution; Mason and Carter Restitution Law in Australia p 367; and Dietrich Restitution: A New Perspective pp 124-25. Protection of this kind was probably what Mr Gabadou wanted. He did not think that Clyde was yet legally committed to Sebel. Sebel had spent large sums of money and had further work to do. Given that Clyde now had the contract, he wanted a document to protect Sebel’s position in respect of its expenditure, at least further expenditure. In his affidavit he said that the following exchange with Mr Jones took place:

I recall that not long after this conversation Neville Jones returned to me and we had a conversation using words to the following effect:

[Jones]: I have met with Clyde. There is to be no letter of intent. There are still things to be sorted out under the head contract.

[Gabadou]: I am not going to repeat what we did for the prototype. I will not spend money on the project without a contract.

281               I admitted this paragraph conditionally. I allow it for the reasons I admitted [34] of his affidavit, see [277] above.

282               Mr Jones disputed part of the conversation. In [73] of his affidavit of 21 December 2001, he said that he said to Mr Gabadou:

I’ve met with Clyde. They can’t give us a letter of intent. They say that they will be sending us a contract.

283               I see little difference between the two versions. I accept that Mr Jones said that Clyde said that they would be sending a contract. It is likely that he also said that they (Clyde) had things to be sorted out under the head contract. Under neither version did Mr Jones tell Mr Gabadou that Clyde had said that a letter of intent was not necessary because Clyde had accepted Sebel’s tender by the letter of 13 October and the parties already had a contractual relationship.

284               In cross-examination Mr Gabadou dealt further with this time and circumstance. He said of the conversation with Mr Jones, the latter having returned from seeing Clyde:

Mr Gabadou: …And Neville [Jones] came back and said "they don't want to enter into or sign a letter of intent, they will only sign a contract with us and that contract will have to flow from the head contract that they have with the SRA".

Mr Foster: And so what he ostensibly told you was that there would be no letter of intent but rather they are going to sign a contract with you?

Mr Gabadou: That he would sign a contract, yes.

Mr Foster: And that was in the context of your having asked him to try and get at least a letter of intent from Clyde at that time?

Mr Gabadou: That's because Clyde were requiring him for more information about the design and specification etcetera and as I said ..... was resisting putting any more resources on that projects until we knew we were going to be the supplier.

Mr Foster: Well it was fairly obvious to you at that point, that is when you spoke to Mr Jones at the time you did which is recorded in paragraph 35, that Sebel had the job, wasn't it?

Mr Gabadou: No. The only thing that he said in the letter from Clyde is that they intend to negotiate a contract with us. It doesn't say that we are the ones and that is it.

Mr Foster: But when Mr Jones came back to you he told you that they were going to sign a contract with you, didn't he?

Mr Gabadou: No. He told me that they would not sign the letter of intent. The only thing they would sign was the contract that means that no written commitment by Clyde would be signed before a contract.

Mr Foster: But he told you that they were going to send a contract, didn't he?

Mr Gabadou: We knew that they were going to negotiate with us a contract and they had - - -

Mr Foster: No, don't worry about the letter. I am asking about what Mr Jones told you at the time you spoke with him which you have dealt with in your paragraph 35. Do you understand that?

Mr Gabadou: Yes.

Mr Foster: And I am putting to you that he told you in response to your prior request that what Clyde had told him was that they would be sending a contract for Sebel to do the seating for this project?

Mr Gabadou: I don't recall whether he used those words. What I know is that he said that they would discuss a contract with us and that they wouldn't commit to anything before that discussion had finished and a contract had been signed.

Mr Foster: That’s not what is in paragraph 35, is it? What you said?

Mr Gabadou: What I just said is more detailed.

…

Mr Foster: He told you that in response to your request he had spoken with Clyde and they indicated to him that Sebel would be receiving a formal contract for this work?

Mr Gabadou: I don't recall that he said that. I recall that he said that we would negotiate a contract. That there would be - as I said, to me the issue was whether we were going to get a commitment from Clyde and in what form. Whether it was a written commitment from Clyde and he told me that there wouldn't be any written commitment from Clyde before a contract was finalised.

Mr Foster: Well you haven't said anything like that in paragraph 35, have you?

Mr Gabadou: Well that is what I am saying, yes. I have met with Clyde but there has been no letter of intent which is the response to what I had required and I was thinking okay well I'm not going to go any further until we get something.

Mr Foster: But you appreciated at the time you had the conversation with Mr Jones recorded in paragraph 35 that Clyde had already signed a formal contract with the SRA didn't you?

Mr Gabadou: Yes, that is correct.

Mr Foster: And your understanding was at that time was, I suggest, that that was done on the basis that the seats for this project would be Sebel seats?

Mr Gabadou: No, no. That we were the preferred seat supplier.

Mr Foster: Did you seriously think there was any prospect at all that someone else might get the seating subcontract for this job at this time?

Mr Gabadou: Yes, definitely.

Mr Foster: Did you have any actual basis for thinking that, to your perception?

Mr Gabadou: Again, based on what we see on most contracts of that nature. The supplier is decided very late in the piece, quite often.

[emphasis added]

285               I accept that Mr Jones told Mr Gabadou that Clyde had indicated to him that Sebel would be receiving a formal contract. The essence of Mr Gabadou’s recollection was that Mr Jones told him that Clyde would give no written commitment before finalisation of a contract. Mr Jones was certainly told that there would be no letter of intent. Mr Jones was cross-examined about the request he made of Clyde. He said that he spoke to either Mr Graham or Mr Sheldrick, but that it was more likely to be Mr Sheldrick. Mr Sheldrick did not recall the conversation. I find that he spoke to Mr Sheldrick. Mr Jones’ evidence was as follows:

Mr Jackman: And may we take it that in that conversation with either Mr Sheldrick or Mr Graham you asked them for a letter of intent?

Mr Jones: I asked them would it be possible to get a letter of intent, and I was told that the documents would be - the sub-contract documents were being prepared and they would be sent to us.

Mr Jackman: That is right, and there wouldn't be a letter of intent. You would receive a draft contract in due course?

Mr Jones: That's correct.

286               Whilst I have complete faith in the fact that Mr Gabadou was attempting to tell me the truth with as much precision as possible (and without any hint of exaggeration), I think that his recollection set out above, that Mr Jones said that Clyde said that there would be no commitment from Clyde before a contract was finalised, should not be taken as what Mr Jones said or as what Mr Sheldrick said to Mr Jones. I find that Mr Sheldrick said to Mr Jones and Mr Jones said to Mr Gabadou essentially as Mr Jones recalled it, with the qualification set out at [283] above: that is, that there would be no letter of intent, that a contract would be forwarded to Sebel and that there were matters in connection with the head contract to settle before that could occur. In accepting Mr Jones in this way, I find that there was no express statement by Mr Sheldrick to Mr Jones that Clyde would not commit to Sebel before signing the contract documentation. However, neither did Mr Sheldrick say that there already was a contract between the parties or that there already was a contractual commitment by Clyde to Sebel.

287               Nevertheless, I accept Mr Gabadou as to what he (Mr Gabadou) took to be the effect of what Mr Jones said to him: that Clyde would not commit to Sebel until the contract was signed. In the light of the letter of 24 March 1998, the Process Protocol, the letters of 2 June 1998 and 13 October 1998, the request for a letter of intent and its answer (which was not – “Why a letter of intent? We have accepted your tender.”), Mr Gabadou’s lack of direct contact with Clyde and his absence from the 1997 discussions, his views can be seen as objectively reasonable.

288               Mr Jones, on the other hand, held the views expressed at [267] above. The refusal of Clyde to provide the letter of intent did not dull his views as to what was likely to eventuate – that Sebel would be providing the seating. I do not think that in October 1998 Mr Jones was thinking about the matter in terms of Sebel’s contractual commitment. Rather, the news that Clyde had signed meant to him, as he said, that “Sebel had the job”. The news told him of Clyde’s commitment – it was “as good as getting an order”. Mr Jones said that in making the request he:

was really endeavouring to do the right thing by Michael Gabadou because Michael was an executive of the company.

289               Mr Jones also said:

Mr Jones: I regarded it as a letter of intent. Mr Gabadou was the one who didn't regard it as a letter of intent.

Mr Jackman: If you regarded it as a letter of intent, can you please explain to the Court why you asked Mr Sheldrick or Mr Graham after receipt of the 13 October letter, whether you could have a letter of intent?

Mr Jones: Michael Gabadou was responsible for the R & D side of the Sebel organisation, and any costs incurred by that department he had to account for. He had expended a considerable amount of money in getting to the stage of producing prototypes and he did not see this as being as good as an order. That was my understanding of what he said to me. As far as I am concerned, I regarded this like I said yesterday as good as an order and very typical of documents that Sebel would receive on other projects.

…

Mr Jackman: And can I ask you again please, when Mr Sheldrick or Mr Graham said to you in a conversation shortly after 13 October '98, that there would not be a letter of intent, it was obvious to you then that Clyde Engineering did not regard the 13 October letter as a letter of intent, don't you agree?

Mr Jones: No, I don't agree. It says it is an intention to negotiate.

290               Mr Gabadou and Mr Jones differed in the extent to which they had confidence in Clyde’s commitment to Sebel. Sebel’s commitment to Clyde at this time was not an issue.

291               Mr Graham gave the following evidence in [81] and [82] of his affidavit:

[81] On or about 13 October 1998, Clyde wrote to Sebel, as well as other sub-suppliers informing them that Clyde had been awarded the 4GT contract. A copy of this letter is at page 275 of RKG-1. The purpose of this letter was to inform sub-suppliers that Clyde was now in a position to finalise the formal contract with them. The sub-suppliers had previously been sent the Conditions of Tendering and other documents which set out the commercial terms on which they were required to supply.

[82] On 13 October 1998 I was absolutely certain that Clyde had an enforceable agreement with Sebel for the supply of passenger seating on the 4GT Project. The terms were those contained in the Conditions of Tendering that had been sent to Sebel as well as in Sebel’s offer which was accepted by Clyde in its letter to Sebel of 13 October 1998. All that remained, to my mind, was for Clyde and Sebel to enter into formal legal documents recording these terms. In addition, it was necessary for some of the terms to be varied to reflect changed requirements of the SRA, but it was my belief that if Sebel and Clyde could not reach agreement on these variations then both of them were bound by Sebel’s offer as accepted by Clyde on 13 October 2000 [sic].

[emphasis added]

292               The third sentence of [81] (emphasised) and the whole of [82] were admitted conditionally. On further reflection, I would, had it not been for some cross-examination, have rejected the third sentence of [81] and admitted [82]. The latter goes directly to Mr Graham’s understanding and belief as to relations at this time between the parties, a matter relevant to the questions of estoppel and s 52, in particular reliance. The former, in terms, is directed to a slightly different topic: his purpose in sending a letter. However, in the light of what he said in cross-examination it is appropriate to admit it, together with [82] as going to his understanding of the state of affairs between the parties. Under cross-examination, Mr Graham gave the following evidence about the letter of 13 October 1998 (which he signed):

…

Mr Graham: Yes, this is a standard document that we created. That we sent to all sub-suppliers.

Mr Jackman: Now, please read to yourself the second paragraph of that letter. Did that second paragraph, beginning with the words:

I am pleased to advise that it is our intention to

negotiate a contract.

Did that paragraph set out truthfully, what your intention was at that time?

Mr Graham: No, it didn't. As I explained yesterday that it was our intention. Sorry, I will rephrase that. We believed we had a firm commitment from Sebel. This particular document here was accepting their offer, albeit that the words could have been better, I accept that. Saying that we will go forward with a consolidated document and yes it does include the word "negotiate".

…

Mr Jackman: Mr Graham, at the time that you signed and sent this letter, you did not want Sebel to think, did you, that it had a concluded bargain in terms of its tender response of October 1997 for the supply of passenger seating for the 4GT project?

Mr Graham: Sebel knew they had a binding offer with us and this particular letter was a letter of formality as it was to other suppliers and it confirmed acceptance of their offer and that setting out what the next stage was being the consolidated document.

Mr Jackman: At the time your sent this letter you did not want Sebel to think that it had a concluded bargain in terms of its tender response of October 1997 for the provision of passenger seating for the 4GT project, did you?

Mr Graham: I don't agree with that.

[emphasis added]

293               It was at this point that the cross-examiner suggested that one of the things Mr Graham or Clyde (to his knowledge) wanted to do was to negotiate Sebel down by 2.5% conformably with the board instruction referred to earlier; and that in furtherance of that purpose (undisclosed to Sebel) he and Clyde did not want Sebel to think that their tender had been unequivocally accepted. Mr Graham’s evidence was that later Clyde would have asked Sebel if they could improve their price if it was possible, but he denied that he did not wish Sebel to think they had a contract, in furtherance of this aim. He said:

Mr Jackman: Yes, and you knew that as an experienced commercial person that you had no realistic prospect of negotiating Sebel's price down by 2 1/2 percent if you led them to believe that they actually had a concluded bargain with you?

Mr Graham: I believed they did have a concluded bargain. This request to try and improve the price if at all possible was as a result of changes that took place from the time of tender and up until this particular stage where we are now.

…

Mr Jackman: Yes. You knew, as an experienced commercial person, that you had no realistic prospect of negotiating Sebel's price down by 2 1/2 percent if you led them to believe that they already had a concluded bargain for the supply of passenger seating?

Mr Graham: But they already knew they had a concluded bargain in that when they tendered we told them that we had accepted their offer. That doesn't stop us at any time being a major supplier, major head contractor, from approaching Sebel or any other sub-supplier and asking them is there any possibility that you could improve your price. This is an extremely tight contract and that was the vein in which we approached it.

[emphasis added]

294               Mr Graham further explained his view of the existence of a binding contract on a number of occasions during the course of his cross-examination. In the context of being asked about the lack of any further extension of the tender validity period beyond 27 November 1998, Mr Graham said:

Mr Jackman: Let's take the period January to June 1998, do you agree during that period that if you hadn't accepted Sebel's tender during the validity period and you hadn't, assume for the moment you hadn't negotiated an extension to the validity period, then once the validity period expired Sebel would be free to vary or withdraw its tender in the period January to June '98?

Mr Graham: January to June '98? Yes, we extended the validity in accordance with our validity being asked to be extended by SRA in a mirror arrangement.

Mr Jackman: And you agree with what I put to you as reflecting your understanding in the period January to June '98 about the significance of the validity period?

Mr Graham: Yes.

Mr Jackman: Now, let's take the month of July 1998. You understood in July 1998 that if you did not accept Sebel's tender and you did not negotiate for an extension of the validity period then once that validity period expired Sebel was free to vary or withdraw its tender?

Mr Graham: You were saying at July? Could I just ask that question again, up to July 1998?

Mr Jackman: Yes?

Mr Graham: In July 1998 Clyde had been accepted as a preferred tenderer. Now, prior to this period of time we had worked, as I explained I think yesterday, very closely with Sebel and Sebel were very very well aware that if Clyde were successful with this particular contract that they would be successful also in the manufacture of the seats. During that period of time, in May, we had signed a protocol deed between Clyde with SRA and then we had passed that onto all of our major sub-suppliers to form a back to back relationship and Sebel in doing that, together with their knowledge and their validity also being open until November, as we had done, we had moved that forward, I know I believe that Sebel were not in a position to not honour that contract as soon as Clyde had been awarded the contract.

Mr Jackman: Let’s just be a little more precise. Clyde was awarded the contract on 8 October 1998?

Mr Graham: That's when we signed the formal contract …[t]he issue being that Sebel were well aware they had worked extremely closely with us, we had assured them that if Clyde were successful and on the signing of the contract with SRA that Sebel would be successful, or we would be placing the order with Sebel formally to manufacture the seats. Now, in October we signed finally the formal contract with SRA. That then triggered that Sebel were well aware that they had been successful with the contract and I rang Neville Jones to inform him of that situation.

Mr Jackman: So, are you saying in essence as you understood the position, that very soon after 8 October you were in effect in your understanding accepting Sebel's offer?

Mr Graham: Yes, there was a binding commitment there by Sebel with Clyde.

…

Mr Jackman: If you assume that you had not accepted Sebel's tender in October '98 then in the ordinary course once the 27 November came and went, Sebel would be free to vary or withdraw its tender?

Mr Graham: No, that wasn't the case in this particular situation because we had accepted their tender at the stage of tender in October and we had told Sebel very clearly that we had put all of their documentation into the tender and theirs was the only seat supplier.

Mr Jackman: So the reason you give for the general rule about the meaning of validity periods not applying in October '98 in that as you saw it you had accepted Sebel's tender?

Mr Graham: By installing it into the contract is one element. We then religiously extended the validity until Clyde was successful one way or the other and we were successful being nominated in June and then it was a matter of us formally signing the final contract with SRA that then triggered that Sebel was then successful.

Mr Jackman: And so the reason you give for not asking for an extension of the validity period after 27 November ‘98, is that in your view you had actually reached an agreement, binding agreement with Sebel in October ‘98, is that right?

Mr Graham: I believe in two or three occasions. The first being in October ‘97, when we accepted their offer. Then by the extensions of the validities on I think four occasions or three occasions and then the signing of the protocol deed and then our final winning of the contract.

Mr Jackman: And it may be difficult for you to imagine this, Mr Graham, but if you were of a different view, namely that you had not reached a binding agreement with Sebel by say the end of October ‘98, then you would have asked them to extend the validity period beyond 27 November ‘98, is that right?

Mr Graham: No, I can't imagine that because it wasn't the set of circumstances. We had worked so closely with Sebel, in effect partnering with them on the seats and they were very well aware as I was that we had a commitment from them and you know, in my view there was no question of a validity extension being required after the November date.

Mr Jackman: In short, Mr Graham, it was your belief that there was a binding agreement between yourself and Sebel, at least by October ‘98, which was the reason why you did not ask for any extension of the validity period beyond 27 November ‘98, correct?

Mr Graham: Yes, I believe we had a binding agreement.

Mr Jackman: And that is the reason why you did not ask for a further extension?

Mr Graham: That's correct.

Mr Jackman: Thank you?

Mr Graham: Because in the set of circumstances I didn't believe it was necessary.

Mr Jackman: Let me finish it here, and that was for the reason that you thought you had a binding agreement by October ‘98?

Mr Graham: Correct.

…

Mr Jackman: I suggest to you, Mr Graham, that you saw no point in getting Sebel to confirm the validity of the offer set out in schedule 1(B) of its initial tender response after 10 November '97, because what you wanted from them was an offer in terms of the configurations set out in ES982?

Mr Graham: No, I don't agree to that. We had an offer from Sebel which substantially met all of the requirements of the specification. Yes, as we worked through the specification and the evaluation, there were some changes that caused some variations to occur. These were relatively minor and so the commitment was there. We had a base and all this document was doing was confirming to Sebel the actual numbers of each individual seat that was required.

[emphasis added]

295               In being asked about his views as to the existence of a contract in January to March 1999 Mr Graham said:

Mr Jackman: Your view was that in the period January to March '99 Sebel had not made a binding commitment to you to supply the seats at a particular price?

Mr Graham: No, I believe they hadn't honoured their commitment by the discussions that took place because we had a tender from Sebel, we included that tender in our offer, we re-confirmed - validated their tender right up until we were successful and Sebel were well aware that if we were successful they would be successful. I believe that that was a binding commitment.

296               When asked about his views after 1 April 1999 he said:

Mr Jackman: After 1 April 1999 your perception of Sebel's conduct was that it could be fairly characterised as the withdrawal of an offer to supply passenger seating and not characterised as reneging on any binding commitment to supply that passenger seating?

Mr Graham: I believed it was industrial blackmail because we had a very firm commitment with Sebel. We had worked together right through this period of time and here we were, we had won the contract then all of a sudden Sebel don't want to honour. They want to step out of that and increase their price by twofold. That was not the commitment we entered into in October 1997 and had continued to work through this whole period right up until March/April of 1999.

297               In being asked about his concern over Sebel’s behaviour in February 1999 in not replying to correspondence:

Mr Jackman: And did that email set out the view that you actually held, namely, that you were extremely concerned at Sebel's lack of response to that letter?

Mr Graham: I was concerned.

Mr Jackman: Extremely concerned, weren't you?

Mr Graham: I was very concerned that - I've got to say if I had a supplier who I believed was going to honour their commitment it was Sebel because in all responses and discussions all the way through from June of '97 through to January-February of '99 there had been nothing bar co-operation and dedication by Sebel to Clyde and to delivering the seats as we had discussed and all of a sudden there had been this change which I couldn't understand so, yes, I was concerned. What was the reason for the change and that's why we went forward because Neville Jones wasn't available at one stage, he was very sick and so we spoke to the general manager to try and get a response.

[emphasis added]

298               Mr Graham also said the following:

Mr Jackman: Mr Graham, I don't expect you to remember the question I put before lunch, can I put the question to you: as an experienced businessman, in early 1999 you intended that it would not be until the execution of a written contract that Clyde and Sebel would enter binding legal relations in respect of the supply of passenger seating for the 4GT project; correct?

Mr Graham: In my terminology, Clyde relied on Sebel's tender price in 1997 and included the price as a basis in our tender, and I believed that there was a binding commitment there because we had put forward to SRA Sebel as the seat manufacturer.

…

Mr Jackman You were of the view, weren't you, that it was only the traction package and the brakes sub-contracts which were committed at that point, isn't that right?

Mr Graham: Well, what I'm really saying is we believe we had commitment because in order to contract in our business you must rely on your sub-suppliers providing you with an honourable and executable tender that they will commit to and honour. Now, we believed that we had these sub-suppliers committed at the time we tendered to SRA. What had to then happen was that any negotiations or discussions through with the SRA that changed any minor items or performance criteria in the specification that they would be discussed with the relevant sub-contractors and sub-suppliers. Then it was a matter of formalising that commitment that we had been given with these minor adjustments and signing a formal document.

299               Taking Mr Graham’s evidence as a whole, including his affidavit evidence, the following can be said, and which I find. He worked closely with Mr Jones. He was frank with him. He told him from 1997 that Clyde was relying on Sebel and that Clyde would include, and had included, Sebel in Clyde’s tender. He at all times thought that Clyde would use Sebel. He thought Sebel was committed to Clyde to provide seating pursuant to the tender as modified by the discussions and agreements which had taken place since October 1997. He thought that the binding nature of that commitment arose by Clyde having incorporated Sebel’s tender into its (Clyde’s) tender, by Sebel’s offer being open as at the date Clyde bound itself to the SRA and (separately) by what he saw as Clyde’s acceptance of Sebel’s tender by its letter of 13 October 1998. These matters led him to think that Sebel was legally bound. He gave no evidence that he took, or failed to take, any step which otherwise he would not, or would, have taken, or have caused to be taken, or not taken, had it not been for some act, omission or utterance of Sebel. His view was based on what he saw as the adequacy of what Clyde did in the context of an unrevoked tender offer. Whilst Mr Graham recognised Sebel as a party which had always showed enthusiasm and a desire to be awarded the tender, his view that Sebel was bound was founded on his view as to the adequacy of that which had been done by Clyde. I reserve for later discussion the question whether Mr Graham intended to hold back any communication to Sebel about the contract and Clyde’s commitment in order to improve a future negotiating position. In any event, Mr Sheldrick was the person responsible for the terms of such correspondence.

300               One aspect of the above evidence requires further comment. The first emphasised passage in the transcript at [294] above contains the following:

We had assured them that if Clyde were successful and on the signing of the contract with the SRA that Sebel would be successful, or we would be placing the order with Sebel formally to manufacture the seats.

301               I think this passage illustrates the after the fact rationalisation of some of Mr Graham’s evidence. It is true that the whole relationship between Sebel and Clyde had been conducted on a basis of mutual co-operation such that Mr Jones was in no doubt that if Clyde won the contract Sebel would be supplying the seats, ie that Clyde would award it the contract. However, there was no communication saying so. The communications that there were, dealing with the procedure to reach contractual relations were to the contrary of such elemental simplicity. There was no evidence of any conversation or other communications (any “assurance”) from Clyde to Sebel in which Clyde undertook to grant a contract to Sebel (and thus in a sense to accept its tender), if Clyde won the head contract. The terms of the Process Protocol were to the contrary. Hence Mr Graham’s perception, I think, that he needed, in his evidence, to say that the Process Protocol was contrary to his then understanding of legal relations. I do not think he thought that to be the case in March 1998 (see [209] above).

302               In October 1998, he thought that by the communications which had been made by Clyde to Sebel, at least by the time the 13 October 1998 letter was sent, Clyde had done what it needed to do to bind Sebel, such that no further request needed to be made for an extension of the tender validity date.

303               Mr Sheldrick’s views were similar. He drafted the letter of 13 October 1998 (although Mr Graham signed it). He was responsible for most of the communications which concerned the relationship between the parties – the letter of 24 March 1998 and the enclosed Process Protocol, the letter of 2 June 1998 and the extensions of the validity period. It was his responsibility within Clyde to attend to documentation of the steps of the tender and contractual process. He said in [67] of his affidavit of 13 October 2000:

To my mind, Clyde’s Conditions of Tendering and General Conditions of Contract in response to which Sebel had submitted the Sebel Offer, as well as the Process Protocol and the correspondence exchanged between Clyde and Sebel during the tender process, governed the relationship between Clyde and Sebel. The Sebel Offer was accepted by Clyde on 13 October 1998. All that was required to be negotiated were minor changes or legal niceties, but if agreement could not be reached on these I considered that both Clyde and Sebel were bound by the Conditions of Tendering, General Conditions of Contract, the Process Protocol and other correspondence. The terms and conditions, technical specifications, price, quantity and delivery dates were all specified in these documents and unless varied in subsequent negotiations between Sebel and Clyde, were all firm. As discussed below, the one term that was not final at this time was the maintenance component in respect of the seats, however, I considered that Clyde was carrying the risk resulting from the fact that it had made commitments to the SRA about maintenance but had not yet negotiated maintenance arrangements with Sebel.

[emphasis added]

304               Mr Sheldrick’s evidence in cross-examination was a little less compact. He said the following:

His Honour: Mr Jackman was asking you a series of questions. He was using an expression "by this letter". Now, what he is seeking to do I think and he said it a moment ago and what I asked you was, did you intend as at 13 October, assuming that was about the time [you] drafted the letter, that the sending of the letter in this form would bring about the creation of some binding legal relationship between Sebel and Clyde about the seating for the train?

Mr Sheldrick: Yes, as well as the maintenance aspect.

Mr Jackman When you say “as well as the maintenance aspect” you didn't think that sending this letter on 13 October 1998 would in itself give rise to a binding agreement between Sebel and Clyde both for the supply of seats and for maintenance support in relation to that passenger seating did you?

Mr Sheldrick: I thought the intention was to say to Sebel, it's all go, here we go.

…

Mr Jackman: You didn't think, did you, that this letter itself created a binding agreement between Sebel and Clyde for the supply of passenger seating, did you?

Mr Sheldrick: No, it was meant to indicate that it was all go, and there was going to be a consolidated document.

His Honour: And did you understand that to reflect, in your understanding, a binding legal relationship?

Mr Sheldrick: Sorry, could I have that again, your Honour? I'm a little confused.

…

His Honour: … You have given a qualification and said, no, it wasn't a binding legal relationship of the kind Mr Jackman put in his question, and then you said, "I understood it was a," and I've lost the precise words now, but it was all go, in effect. And what I want to understand is whether what you understood in that respect, you thought to be a binding legal relationship of some kind?

Mr Sheldrick: I thought there was a relationship, an agreement already in place from the submission of their tender, and the process protocol and the letter [ex]change. And this was just expressing the fact that it was all go and we would have a consolidated agreement all fully signed off, which is normal practice.

…

Mr Jackman: Yes. When you drafted this letter of 13 October 1998 you did not intend to convey to Sebel the message that on this day, 13 October 1998, Clyde intended to bind itself, in terms of a legally and forcible agreement, to an acceptance of Sebel's tender which had been lodged back in October '97?

Mr Sheldrick: I did, subject to, as it says in it, the quantitative and pricing issues that were yet to be finalised.

Mr Jackman: Right. Now, pricing and quantitative issues were fundamental to any binding commitment on the part of Sebel to supply seats, and on the part of Clyde to pay for those seats; correct?

Mr Sheldrick: Arguably, yes.

Mr Jackman: Well, there's no doubt about it, is there?

Mr Sheldrick: It all comes back to a matter of cost, Mr Jackman.

Mr Jackman: Quite. And cost had to be negotiated and resolved, as you understood it, prior to Clyde committing itself to Sebel by way of an agreement for the supply of seats?

Mr Sheldrick: I'm sorry, what is the question?

Mr Jackman: Right. As you understood it, in October 1998 issues of cost had to be resolved between Clyde and Sebel before there would be, in your understanding, any legally enforceable commitment on the part of Sebel to supply the seats, and on the part of Clyde to pay for those seats?

Mr Sheldrick: In terms of an executed contract, and the quantity, that is correct.

Mr Jackman And in terms of any kind of legally enforceable agreement, in your understanding it would be correct, wouldn't it?

Mr Sheldrick: Yes, possibly.

Mr Jackman: Well - - - ?

Mr Sheldrick: I'm confused by all this, Mr Jackman.

[emphasis added]

305               At this point Mr Sheldrick’s evidence was becoming somewhat frayed. He himself said that he was confused. After a short break the following passages completed his evidence on this topic:

Mr Jackman: Mr Sheldrick, on or about 13 October 1998 when you drafted this letter did you actually turn your mind to the question of whether this letter would give rise to legally binding arrangements between Sebel and Clyde?

Mr Sheldrick: Yes.

Mr Jackman: What legally binding arrangement in your understanding when you drafted this letter did you think this letter would give rise to?

Mr Sheldrick: A formal executed contract documents.

Mr Jackman: That was something that would happen down the track after sending this letter, that is the execution of the formal contract documents?

Mr Sheldrick: --- That's correct.

Mr Jackman: Between this letter and the execution of the formal contract there would be negotiation as you understood it when you wrote this letter, negotiation between Clyde and Sebel on contractual quantitative and pricing issues?

Mr Sheldrick: Correct.

Mr Jackman: With a view to reaching agreement on those issues?

Mr Sheldrick: Correct.

Mr Jackman: And then documenting that agreement?

Mr Sheldrick: Correct.

Mr Jackman: And having the parties sign it?

Mr Sheldrick: Correct.

306               Whilst there was a degree of confusion in Mr Sheldrick’s evidence, I find, taking it as a whole, including his affidavit evidence, and in the context of the balance of the evidence, the following to be the case. As at 13 October 1998, he did think that Sebel was bound by its tender so that no further request for an extension of the tender validity period needed to be made. There were pricing and quantitative matters to finalise, but these were not essential as they flowed out of the configuration and other changes, all of which had been discussed with Sebel. This circumstance of Sebel being bound arose, he thought, from the documentation that had passed between the parties, from and including Sebel’s tender, up to and including the letter of Clyde of 13 October 1998. Like Mr Graham, he did not do anything, or omit to do anything, which he would otherwise not have done or have done, or caused to be done or not done, on the faith of, or in reliance upon, any act, omission or utterance of Sebel. Sebel was bound, in his view, by reason of the correspondence which had passed and for which he had largely been responsible.

307               It is now necessary to turn to Mr Wright. I have already referred to some parts of Mr Wright’s evidence. Mr Wright gave some inconsistent and somewhat confused evidence about when it was that he first knew that Clyde had been selected by the SRA as the tenderer or preferred tenderer. He was adamant in his recollection that it was not until October 1998; at which time, he said, he became angry that Clyde was advertising its success with Sebel seats and not giving a commitment to Sebel. He said that he expressed that anger to Mr Jones in blunt and forceful terms. He was unable to give any rational or coherent explanation for what he wrote in the June 1998 Sebel Management Report ([236] above) on that basis. I do not accept his evidence in this regard. As I said at [238] above, by July 1998 Mr Wright knew that the Clyde tender was the preferred tender for the SRA contract. Mr Wright, I find, passed that on orally to Mr McGrath, and told the board of Sebel and GWA by the June Management Report which was drafted some time in July 1998.

308               I also find that in July 1998 Mr Wright knew that Sebel’s seats were included in Clyde’s tender. Mr Wright had been told by Mr Jones, in September 1997, that there was no real tender competition. Mr Wright had included a photograph of Sebel seats in the December 1997 Management Report ([158] above). He attempted assiduously and aggressively in his evidence to suggest that he was never aware that Sebel was Clyde’s only or preferred seating supplier. At one point in his evidence, in dealing with the December 1997 Management Report, for the preparation of which he was responsible, he gratuitously suggested that his then secretary and Mr Jones later had a relationship. The implication which he seemed to be seeking to raise was that Mr Jones, behind his back, took advantage of his (Mr Jones’) friendship with Mr Wright’s secretary to attach this page without Mr Wright’s knowledge. Needless to say, no such suggestion was made to Mr Jones in cross-examination. It was an incident which reflected the pressure under which Mr Wright found himself to explain matters inconsistent with his evidence; and it did not reflect well on his credit.

309               Clyde put the submission about Mr Wright’s evidence concerning the June Management Report that Mr Wright’s evidence in this regard was:

…evasive, unsatisfactory and influenced by a deliberate desire on his part to resist making the concession as to his knowledge which he was plainly obliged to make.

Unfortunately, it is necessary to say that I accept this submission.

310               Mr Wright also gave evidence that he became angry with Mr Jones by about October 1998. In [30] and [31] of his affidavit of 24 May 2001 Mr Wright stated the following:

[30] …During the period that I was General Manager, I grew increasingly frustrated that Clyde would not make any commitment to Sebel, yet they kept making demands of us in terms of the further development of the design, such as the provision of models and prototypes, which was costing Sebel money.

[31] If the things which Neville Jones describes in paragraphs 34 to 38 of his affidavit happened, I was not aware of them. I held regular meetings with Neville on another project during the course of 1998 and the 4GT seat project would some time come up. I understood from what Neville told me during those discussions that the message that we were receiving from Clyde was that Sebel was not the only tenderer and that they would give us no commitment. I had a number of heated discussions with Neville Jones about that issue as were spending a lot of money on the development of the seat, yet Clyde would not commit to us as even their preferred supplier. We had appointed external design engineering consultants, Invetech, to assist in the development of the seat. The design costs which we were incurring from them could only be capitalised if Sebel were successful. If we did not get the seating contract, I would have to take the design costs directly to the profit line. Those costs were exceeding $140,000 towards the end of my term. There were also considerable internal expenses being incurred. I recall being particularly angry with Neville when an article appeared in the newspapers about the 4GT project which showed a picture of Sebel’s seat. From what Neville was telling me we were under competition, but there was Clyde showing Sebel’s seat in its press release.

311               In his affidavit in reply of 21 December 2001 Mr Jones dealt with, paragraph by paragraph, the affidavits filed on behalf of Sebel, including this affidavit of Mr Wright. Mr Jones’ affidavit contained [69] with a heading as follows:

Paragraph 30 of the Wright Affidavit

69. I have read paragraph 30 of the Wright Affidavit. I say that at all times I conveyed to Mr Wright, as well as others within Sebel such as Mr Gabadou, the comments and observations made to me by Clyde representatives in relation to the progress of the Sebel bid. I also refer to paragraphs 55 to 59 of my previous affidavit.

312               Paragraphs 55 to 59 of his “previous affidavit” (that of 6 October 2000) dealt with the following:

(a) [55] the telephone call from Mr Graham on 8 October 1998 ([257] above);

(b) [56] Mr Jones’ understanding and belief after this telephone call ([258] above);

(c) [57] the fact that on 9 October 1998 Mr Jones saw a newspaper article in the Daily Telegraph discussing the signing of the contract and Mr Wright also copied to him and Mr Gabadou a newspaper article dealing with the contract;

(d) [58] the receipt of the letter of 13 October 1998 and Mr Jones’ understanding and beliefs at that time ([262] and [266] above); and

(e) [59] the receipt of a facsimile from Clyde on 9 November 1998.

313               Mr Jones did not directly contradict [31] of Mr Wright’s affidavit. However, affidavits are not pleadings, and it is dangerous to prepare or treat them as such. From [69] of the affidavit in reply it is plain (as I would infer in any event) that Mr Jones passed on what he was told by Clyde officers about the Sebel bid to Mr Wright, at least, and probably Mr Gabadou. Thus, I find that he passed on to Mr Wright that Sebel was to be, and was, included in Clyde’s tender, that Clyde had relied on Sebel, that the SRA liked Sebel’s seats and that Mr Graham had rung him to say that Clyde had signed a contract with the SRA. I reject the evidence of Mr Wright that he was not aware of the matters described in [34] to [38] of Mr Jones’ affidavit of 6 October 2000; I find that Mr Jones informed Mr Wright, contemporaneously, of the matters there discussed, being:

(a)           that in 1997, soon after the commencement of the dialogue between Clyde and Sebel, Mr Graham said what is set out at [152] above, that only Sebel was proffering an innovative design;

(b)          that in late January and early February 1998, Clyde informed Sebel that its submission to the SRA relied heavily on Sebel’s seating feature and that the SRA had registered a high level of interest;

(c)           that Clyde was presenting Sebel’s design work to the SRA as the proposed seating design for the train;

(d)          that in March 1998, Mr Graham had said that the feedback Clyde was getting from the SRA was that the Goninan bid was a repeat of the Tangara and that the SRA was enthusiastic about the new seat design and was very happy that Sebel was involved (see [195] above); and

(e)           that in mid-1998, Mr Graham said that the SRA really liked the seat and it was talking about putting them onto the existing Tangara trains as well as the new 4GT trains (see [237] above).

314               I reject Mr Wright’s evidence in [31] of his affidavit that he understood from what Mr Jones told him in 1998 that Sebel was not the only (implicitly real and effective) tenderer. Mr Jones was not of that view. He did not say that to Mr Wright or Mr Gabadou (as the latter conceded). The things Mr Jones was being told were to the contrary, in terms of preference for, and use of, the Sebel design. Mr Jones passed on to Mr Wright what he was told by Clyde.

315               What I am prepared to accept is that whilst Mr Wright was aware of all the encouraging communications from Clyde which gave rise to the reasonable expectation in Mr Jones that if Clyde won the tender, Sebel would be providing the seating, Mr Wright was also aware of the written correspondence, in particular the Process Protocol, none of which contained any express binding commitment to Sebel by Clyde. Mr Wright was an experienced and acute man. He had many years’ experience both at the factory floor and the executive level. He had engaged in many tenders and negotiations. He retained a commercial cynicism, borne of experience no doubt, which was not entirely overcome by the reassuring news regularly passed on by Mr Jones. Also, Mr Gabadou, whom, no doubt, Mr Wright viewed as a competent and cautious executive, had the view that Sebel was entitled to some more certainty as to its position. Mr Gabadou was somewhat irritated about the fact that Sebel had spent large sums of money in circumstances where he thought that that expenditure had been, to a degree, unnecessary. He wanted a commitment, which he did not see in the letter of 13 October 1998, or in what Mr Jones brought back by way of an answer to the request for a letter of intent. Mr Gabadou probably passed on his views to Mr Wright. It should be remembered that Mr Gabadou’s views as to what Clyde was saying were somewhat stronger than that which I have found Mr Jones was in fact told by Mr Sheldrick and passed on to Mr Gabadou (see [287] above). Mr Gabadou no doubt passed on to Mr Wright what he had taken from Mr Jones’ report on his return: that Clyde had said that there would be no commitment from it until a formal contract was signed.

316               I am prepared to accept that Mr Wright was, in October, as was Mr Gabadou, irritated by the situation with Clyde. If both Mr Gabadou and Mr Jones had given Mr Wright their views, as they probably did, he may well at that point have become, like Mr Gabadou, somewhat vexed. Mr Gabadou struck me as a cautious and analytical man with an even disposition. Mr Wright struck me as having a more volatile and aggressive disposition. If, after all the encouragement Sebel had received during 1997 and 1998 and which had been passed on to him by Mr Jones, and after all the time, effort and money that Sebel had expended, and over three months after full prototypes had been delivered, Mr Wright was told of Mr Gabadou’s views (including his fear of a competing tender) and what, to Mr Gabadou’s understanding, Clyde were now saying about no commitment until formal contracts were signed, including a refusal to give a letter of intent, Mr Wright may well have become angry and spoken in blunt terms to Mr Jones after the latter had returned without a letter of intent. Mr Wright gave evidence that in October he spoke to Mr Jones and asked him what was going on (in the context of Sebel’s participation in Clyde’s tender):

Mr Wright: My conversation with Mr Jones at the end of or during October, not the end of October during October was really revolved around when I'd seen the report in the paper. In which case I got Neville Jones in and asked him what the… is going on.

Mr Foster: Right so it was the media announcement- - -?

Mr Wright: Yes.

Mr Foster: - - - in October that got you to get him to come in?

Mr Wright: I spoke to Neville Jones every day.

Mr Foster: And you said what to him on this occasion?

Mr Wright: Neville Jones? On this occasion? On this occasion I asked Neville Jones what was going on.

Mr Foster: And what did he say?

Mr Wright: I can't remember his exact words. They were words to the effect that he still didn't know what the situation was. He still couldn't get a commitment from Clyde. I couldn't believe it.

…

His Honour: I took it from the way you answered a moment ago that you called him to come and see you to ask what was going on and I think you said a moment ago what the was going on. Now was I correct in taking that, please correct me if I am wrong, it was in effect without spelling it out for the transcript writer but it was fairly blunt, what the something, was going on with this contract? ---

Mr Wright: To say the least your Honour.

His Honour: To say the least. There was a word after the?

Mr Wright: Yes.

His Honour: And you saw Jones everyday but this was in effect calling him into your office to find out what was going on in no uncertain terms with this contract, with this job?

Mr Wright: Yes.

317               Such a conversation may well have taken place; its bluntness was (if I may say so, without intending any disrespect to Mr Wright) something I could see Mr Wright exhibiting to Mr Jones. However, I think it more likely to have taken place somewhat later in October 1998 after Mr Jones’ return from the request for a letter of intent; though I do not reject that it may have been on or about 9 October 1998. I am prepared to accept that by October 1988 Mr Wright wanted a written commitment. I see more basis for anger on his part when he was told of Mr Gabadou’s understanding of what Clyde told Mr Jones, than on 9 October at the news of Clyde signing the contract with the SRA.

318               I am prepared to accept that from time to time Mr Wright encouraged Mr Jones to get a written commitment from Clyde. It may have been, especially in the light of the Process Protocol, that Mr Wright was anxious in 1998 for some expression in writing of Sebel’s “preferred tenderer” status. From what Mr Jones was telling him, Sebel plainly was in that position, at the very least. He may well have encouraged Mr Jones to have that position formally expressed in writing. However, that does not gainsay the fact that Mr Wright also knew (Mr Graham having told Mr Jones and Mr Jones in all probability having told him) that other seating tenders had been called for by Clyde. It was plain, as Mr Gabadou said, that Sebel was effectively in the position of the preferred tenderer, with an enthusiastic prospective principal (the SRA) and a co-operative (in terms of technical development) prospective head contractor (Clyde) which was relying significantly on Sebel’s tender. However, like Mr Gabadou, Mr Wright’s experience and commercial caution perhaps refused to let him accept at the time that Sebel was exclusive in the strict sense, that is, in terms of a binding commitment from Clyde, until he saw it in black and white. That I am prepared to accept. It should never be forgotten that both Mr Gabadou and Mr Wright lacked the personal contact with Mr Graham and the Clyde representatives that Mr Jones had, and they had to understand what was going on without the benefit of access to Mr Graham’s evidence and Clyde’s documents that I have. From that removed perspective, they no doubt brought their experience and commercial caution to bear. With this in mind, I accept that Mr Wright, by October 1998, was of a similar view to Mr Gabadou: that Clyde had not expressed any written legal commitment to Sebel, though both Messrs Gabadou and Wright were of the view that in practical terms Sebel was the preferred tenderer and in all likelihood would provide the seating for the 4GT train. Each, however, had a nagging concern about another tenderer, given what they saw as the lack of written commitment by Clyde to Sebel and an apparent lack of willingness in Clyde to express any commitment.

319               Mr Wright gave evidence that he took two things from what he saw as Mr Jones’ inability to secure a commitment from Clyde in October. First, he took it as an indication that Sebel was competing with someone else for the provision of seats to Clyde. Secondly, he thought that even if Clyde did prefer the Sebel seat it would not commit to Sebel because it wanted to “screw Sebel on price”. I am prepared to accept that, after Mr Jones came back from Clyde in October 1998 without a letter of intent, and after Mr Wright spoke to Mr Gabadou as I infer he did, Mr Wright harboured the nagging concern that there was another tenderer and he entertained a suspicion about a possible price renegotiation.

320               Returning to the chronology, on 29 October 1998 Clyde produced a further cost estimate schedule. The figures used in that schedule were the same as those used in the 10 July 1998 schedule, and represented a discount of 2.5% on the Sebel tender price.

321               After October, and until December, 1998 Clyde went about dealing with the SRA and commencing to build the train. It was submitted by Clyde that after 13 October 1998 Clyde, Sebel and Invetech continued to work extensively together on the seating design. Invetech had by this time built a full set of prototypes for the passenger seating as it was then designed. These prototypes were delivered by Sebel in June 1998. There is little evidence of further design work in the latter months of 1998. There was evidence of Invetech doing some work on drawings and designs in February and March 1999 for a fee of $1,630. Mr Gabadou described this in cross-examination as follows:

Mr Gabadou: That was not a further development work that they were doing there. They were just detailing some of the work that had been done basically, section site to use, etc, that's all.

…

Mr Foster: But you were aware of that work being done by them at that time, weren't you?

Mr Gabadou: I don't recall whether I was actually aware of that. It was a fairly minor issue there in regards to what was requested from them in regards to the work and Bernard Fehon would have had the authority to make that decision.

Mr Foster: And you see it's described as extra work, do you see that?

Mr Gabadou: Yes, it is extra work because it was not obviously part of the scope of work they had sent.

Mr Foster: Initial agreement?

Mr Gabadou: Yes.

322               There was some evidence that Invetech wrote a program of work in October or November 1998. (See [382] below.) However, I find that with the original design, drawings and prototype having been completed by June, Sebel thereafter waited until December for the formal documentation to arrive. On the evidence before me I cannot conclude that there was design activity from mid-1998 until December 1998. I cannot conclude, as submitted by Clyde, that work at Sebel on the seat design proceeded unabated from July to December 1998.

323               On 1 November 1998, Mr Doman formally took up the position of General Manager of Sebel. Mr Wright ceased to be Acting General Manager. He returned to his position at GWA.

324               In November 1998 there was an internal Research and Development Department meeting at Sebel. The meeting did not specifically concern the Project. Mr Jones recalled Messrs Doman, Gabadou, Fehon and various others being in attendance. He also recalled Mr Doman saying that all projects had to be considered as stand alone ventures and that they should provide a return to Sebel in their own right, including research and development costs and tooling costs. Mr Jones said that he told Mr Doman that he thought that was ridiculous and that Sebel could not do business like that. Mr Doman could not recall that meeting, but agreed that he certainly held the view that Mr Jones said he expressed. I accept the evidence of Mr Jones. Mr Doman said that he had been brought in to lift Sebel’s financial performance. Sebel had been seen by the GWA board as underperforming. One of the ways he went about the analysis of Sebel’s performance was to look closely at the financial returns from projects on a stand alone basis. In effect, he saw change as very much within his remit. He said that it was his view that if capital expenditures were required for a project then an acceptable positive return on those expenditures should come from that project.

325               On 10 November 1998 Clyde finalised Engineering Specification ES-982, being the engineering specification for the passenger seating. The specification was prepared by Clyde having regard to the engineering specifications in the agreement between Clyde and the SRA. ES-982 provided for a seating configuration different from that in the specification on which Sebel’s tender was based. I have set out the changes in configuration at [182] above.

326               On 22 December 1998, two further cost estimates schedules were produced at Clyde, both were stamped “draft”. I infer that Mr Oliver, the estimator, was responsible for their production. It will be recalled that the cost estimates of July 1998 and November 1997 (the latter not being in evidence) included the Sebel train seating at a price 2.5% below Sebel’s tender price.

327               The 22 December 1998 cost estimates were now based on the reconfigured specification ES-982. The first of the 22 December cost estimates had a reduction in seating to $239,711 per 4 car train set (the July estimate was $249,274, 2.5% below the tendered $257,664) including $110,063 for the 3 seater reversible seats therein. Some of this reduction in December can be accounted for by the changed configuration; but there appears to have been a reduction beyond this. In the second cost estimate schedule produced on 22 December 1998 there was a further reduction to $234,915 for a 4 car seat and $107,861 for the 3 seater reversible seats therein.

328               Under cover of a letter dated 22 December 1998 from Mr Sheldrick to Mr Jones, Clyde provided to Sebel the Consolidated Contract Documentation foreshadowed in the letter dated 2 June 1998. A minor variation to these documents was sent by Clyde the following day. The covering letter of 22 December 1998 was in the following terms:

Further to your Tender Submission and all the post tender correspondence exchanged to date, we confirm providing herewith the following:

Volume 1 : General Conditions of Contract and Contract Schedules

Volume 2 : Statement of Work

Volume 3 : Engineering Specification

Volume 4 : Drawings and Project Deliver Schedule

As to Volume 1 and Volume 2, the Consolidated Document contains those amendments that the Principal has been prepared to accept and are to be considered as non-negotiable.

As to Volume 3 the Consolidated Document contains the Principal’s requirements and Clyde’s requirements and shall be considered as non-negotiable, although some non-material amendments may be accommodated during design development.

You are also requested to complete the Contract Schedules (also supplied in electronic format) in line with your Tender Submission and the post tender correspondence, and confirm in finite detail, with associated clause references, what effect, if any, there has been on your offer.

Confirmation of your offer is required no later than 1200 hrs, Friday 15 January 1999. We appreciate the timing of the issue of this information, and resourcing difficulties you may have during this period. Should you have any queries of a technical nature our engineers will be available from the 4^th January 1999.

[emphasis added]

329               The terms of the letter conformed with the procedure set out in the letter of 24 March 1998, the Process Protocol, and the letter of 2 June 1998.

330               Included in ES-982 were the following:

(a) Clause 3.5.3.10.6 which provided for the seat width not to exceed 450mm (This was of no surprise or difficulty to Sebel because it had designed the seat to a width of 450mm.);

(b) Clause 3.1.5.10 which referred to the shock loads on body attachments, repeating the requirements of SRA Specification No 4GT-S96-0301;

(c) Clause 3.1.4.3 provided that the seats have a maximum average mass of 19kg per seat place;

(d) Clause 3.1.4.3.1 provided:

Although a maximum mass target has been specified, the sub-contractor shall put in place a program to minimise the mass of each of these seat designs.

(e) Clause 3.1.5.8 provided that the minimum design life for the seating was thirty five years;

(f) 9,388 seat places were required to be produced; and

(g) Clause 3.5.3.10 which provided that the seat be tested to 75,000 cycles.

331               The proposed contract sent to Sebel on 22 December 1998 was different in a number of respects from the contract for which Sebel had submitted a tender in October 1997. One important difference was that the contract now dealt with ongoing maintenance obligations, for thirty-five years. Another difference (as referred to earlier) was the changed configuration of the seating. A further difference was the incorporation of a clause dealing with intellectual property conformably with the clause in the head contract referred to at [253] above.

332               First, as to the question of maintenance, the contract sent to Sebel on 22 December 1998 was a contract for the design, build, supply “and maintenance” of seating for the 4GT trains. I have already considered the question of the dealing by Sebel and Clyde with questions and data relating to maintenance and to their expectation that maintenance would be provided by Sebel, in addition to design and supply of the trains. The inclusion in the Draft Contract of provisions concerning maintenance thus came as no surprise to Sebel. It is undoubted that the maintenance obligations were serious. Mr Edwards said that it was a major part of the contract. Mr Graham gave the following evidence in cross-examination:

Mr Jackman: It was an important prerequisite as you saw it for the finalisation of this contract that Sebel provide the prices for maintenance support as requested in your draft consolidated documents?

Mr Graham: Yes, it was important. If at all possible we wanted to have the major suppliers responsible for their own product. However, in this particular case Clyde had formulated an estimate for maintenance and if for some reason Sebel did not finally agree or come close to that particular estimate that we had made at that time, Clyde may have decided to go forward itself with the maintenance but as far as the contract was concerned that was complete.

333               It is unnecessary to set out the individual terms of the Draft Contract concerning maintenance. It is sufficient at this point to say that two kinds of maintenance were contemplated: “routine” and “reimbursable” (equivalent to “scheduled” and “corrective” maintenance about which Sebel provided data in its tender response). Routine maintenance was the ordinary kind of work required to keep the seats in good order; and reimbursable maintenance related to out of the ordinary work arising from vandalism, collisions and such like. The maintenance was required for at least 15 years and up to 35 years. Payment for routine maintenance was a defined “Usage Component” which was calculated by adding a “Base Component”, being a monthly sum identified in a schedule, to a “Variable Component” based on a rate identified in a schedule as dealt with in a formula provided for in the contract, less an “Availability Component”, a “Disruption Component” as defined in the contract and sums due to Clyde because of Sebel’s fault, plus a fee for the maintenance of a spare car. The schedules concerning maintenance called for by the Draft Contract provided the raw information on pricing to which these various formulae applied.

334               I will return to the question of maintenance and its relevance to the applicant’s claims later in dealing with the state of consensus between the parties by late February or early March 1999.

335               Secondly, as to the change in seating configuration, I have already indicated that this had been made known to Sebel earlier in 1998. Mr Graham said that he had discussed changes in seat configuration with Sebel prior to 22 December 1998. Sebel was aware of the changes to the configuration well prior to 22 December 1998 and there had been no indication that the changes would make a difference to Sebel’s base price per seat which he thought Sebel had used as part of its tender. The prototypes delivered in June reflected at least some changes to the configuration. Mr Graham thought Sebel’s response to the changed configuration would be to apply the base price per seat to the number of seats in the new ES-982 configuration. It was submitted by Sebel that this last evidence of Mr Graham was at odds with Clyde’s own cost estimate schedules of late December 1998. However, it accorded with what Mr Jones did in January 1999 in preparing his response to the 22 December 1998 correspondence.

336               However, it was the case that Sebel had not, prior to 22 December 1998, submitted a price for the ES-982 configuration the subject of the 22 December 1998 draft contract. Thus Sebel was asked in the letter of 22 December 1998 what effect on its offer there was arising from the documentation. No doubt any qualification or amendment to the offer would be looked at in the manner envisaged in the third last paragraph of the letter of 2 June 1998, see [223] above.

337               A third difference between the terms of Clyde’s request for tender of 1997 and the draft contract documents of 22 December 1998 concerned intellectual property. I have already outlined the position up to the inclusion in the Draft Documentation of a clause (clause 9.3) conformable with the equivalent clause in the head contract. I will not repeat the terms of that clause. (See [253] above.)

338               However, clause 9.3 was noticed at the time by Mr Jones. It did not gain his approval. He said the following in oral evidence in chief:

Mr Foster: Could the witness be shown volume 10 of the tender bundle and I ask you, Mr Jones, to have a look at 3193? There at 3193 and 3194 is a clause 9.3 in this proposed formal contract which deals with intellectual property, see that?

Mr Jones: Yes.

Mr Foster: Did you notice that clause particularly when you received this document?

Mr Jones: Yes, I believe I did look at this particular clause but I felt that because we had made this abundantly clear in our earlier tender that this was - and it was understood in my view by Clyde - my feeling was that this inclusion here was perhaps because they may not have been thorough enough to look at this in relation to the preparation of this contract because this is an area that, as I said, we'd made clear on at least two previous occasions.

Mr Foster: And it would appear from looking at this document and from what you have said that what was to be done precisely with intellectual property had not as at the date this document came to you been finally resolved?

Mr Jones: No, it had not.

…

Mr Foster: What would you have done to sort out this, as at December, unresolved problem?

Mr Jones: Previous experience at dealing with those sort of issues would have been that this would have been a management decision at Sebel and then it would have become an item for negotiation with Clyde Engineering.

Mr Foster: Would you have negotiated with Clyde Engineering over that?

Mr Jones: Yes.

…

Mr Foster: Had you ever had a contract fall over, over intellectual property?

…

Mr Foster: Had you ever had a contract fall over?

Mr Jones: No.

…

Mr Foster: Did you yourself regard this question as a deal breaker in this particular case?

…

Mr Jones: No.

Mr Foster: Did you believe at the time, that '97, '98 and into early '99, that Sebel's position on intellectual property was a rational one?

Mr Jones: Yes.

Mr Foster: And a reasonable one?

Mr Jones: Yes.

Mr Foster: But as at January 1999 Sebel was keen to get this job, wasn't it?

Mr Jones: Yes.

Mr Foster: Were it necessary to sort out the question of what was to happen with intellectual property would you have approached that task, from your perspective, in a genuine endeavour to resolve any differences between you and Clyde?

Mr Jones: As I said earlier it wasn't really just my decision, but being involved and running the project my approach would have been to take this particular issue forward to the rest of the Sebel executive group and work out how we would approach the problem and how we might go about resolving it. If I can explain, on the Sydney Olympic Stadium there were contractual issues that were in the sub contract documents that were not acceptable to Sebel and we negotiated those changes in conjunction with Multiplex who were the builders and we came to a mutually agreeable position in relation to those changes. Those changes did not cover IP matters but they covered other contractual matters.

His Honour: If the question of licensing in any intellectual property design or patent or other had arisen licensing exclusively or non exclusively had arisen in the end of 1998 and 1999, who would have been involved in making decisions as to whether any license of Sebels intellectual property should be given and this is a general question. Don't worry about this job, I mean was there someone, was it a board decision or was it a management decision, to your understanding?

Mr Jones: To my understanding it would have been a matter that would have been dealt with within Sebel executive management which at that time was the general manager, the commercial manager and the manufacturing manager, together with myself in terms of I was the one dealing with the project.

I accept this evidence. Thus, it is plain that the question of intellectual property required further discussion and agreement between Clyde and Sebel.

339               Fourthly, there were a significant number of terms and conditions (both general and special) which were in different form to that contained in the 1997 tender. Some terms were new. There was no evidence that these changes had been discussed between Sebel and Clyde before 22 December 1998.

340               Further cost estimates were printed up by Clyde on 23 December 1999. As I have said, two cost estimates had been produced on the previous day. The two cost estimates dated 23 December 1998 were produced within a little over an hour of each other. Mr Oliver, the estimator and Mr Graham signed the first as preparing and approving the document, respectively. The second was prepared and signed by Mr Oliver and signed as “received” by Mr Graham. These estimates, not stamped as drafts, reflected the same seat costings as appeared on the two (different) cost estimate schedules on the previous day.

341               Early January 1999 or late December 1998 saw a resumption of the demands by Clyde on Sebel in terms of technical co-operation in respect of the seats. In December 1998 request was made for drawings of the latest version of the reversible seats. A further request was made on 5 January 1999 by Mr Thomson, one of the Clyde engineers, for drawings. He also passed on further questions from the SRA.

342               On 15 January 1999 Mr Jones responded to Mr Thomson’s request of 5 January 1999 in the following terms:

Thank you for your fax dated 5^th January. We are arranging for our Design Department to forward the drawings for the prototype seat. In regard to the queries raised by the State Rail Authority in their letter dated 4^th January our response to the various points are as follows:

[Thereafter there were set out eight answers to specific technical issues raised.]

Sebel would like to set up a regular project co-ordinated meeting with Clyde and will contact you to arrange suitable times.

343               On 18 January 1999 Mr Thomson responded to this letter from Mr Jones. He pointed out various relevant provisions of the contract specification. The facsimile also stated:

The idea to set up a regular meeting between Sebel and Clyde is a sound one and we would wish to start this as soon as possible. With this in mind, could you contact me as soon as possible to arrange the first meeting and we can then work out an agenda and list of attendee’s [sic].

344               By letter dated 18 January 1999, signed by Mr Jones, Sebel provided various schedules called for by Clyde’s correspondence of 22 December 1998. The covering letter stated:

We are pleased to supply the following schedules for your consideration. The important points to note in regard to these schedules are:

1.         The price for seating remains as previously quoted and prices are firm for the duration of Stage 1 (20 train sets). Prices for Stages 2 and 3 will be subject to rise and fall.

2.         Not included in the pricing schedules is the additional charge for public liability and public indemnity insurance. We indicated in our original bid that to provide the level of insurance as set out in the documents then and additional charge of $969,000 to cover the additional premium would be required.

3.         Cost of testing and maintenance operation manuals have been included.

4.         Schedule B2.2.1 – Base & Variable Components for Maintenance Stage 1, Stage 2 and Stage 3. We have not completed this section because we are not in a position at this stage to estimate likely component usage.

5.         Schedule B6.3 – Customs Duty and Primage, Stage 1, 2 and 3. We have listed here only the cost for 1 meter of fabric as at this stage we are unable to estimate usage for maintenance. Bearing in mind the suppliers Reatex have indicated the fabric should last in excess of 10 years.

To enable us to complete these two sections it would be necessary for us to have some discussion.

6.         We have reviewed the contract documents and indicate that it has no effect on our offer.

Please do not hesitate to contact us if there is any further information that you require.

[emphasis added]

345               Schedule B2.1.1 contained prices for the seating for each of the twenty train sets to be delivered as part of Stage 1. The price for seating per train set was stated to be $248,264. The price for one particular train set was stated to be $314,560 because it included an extra car. The reduction in price from $257,664 (in the original tender) to $248,264 thus reflects the effect of the reconfiguration of the seating. (Thus, the two figures in Clyde’s cost estimates prepared on 22 and 23 December 1998 of $239,711 and $234,915 can be seen as 3.445% and 5.368% below the reconfigured Sebel tender price.)

346               Mr Jones gave oral evidence as to how he arrived at the prices in Schedule B2.1.1. The effect of that evidence was as follows:

(a) He prepared a worksheet by way of a foolscap sheet of paper and he put down the seating requirements for the two different types of cars: motor car and trailer car.

(b) The seating requirements were as set out in the material sent to Sebel on 22 December 1998.

(c) Mr Jones then determined the break up of those seats as per the schedule and he calculated from the tender price in October 1997 the cost of those seats and extrapolated that across to create the calculation shown in schedule B2.1.1 for each of the twenty train sets.

(d) Mr Jones recognised that the 5 person fixed seats and a couple of other associated fixed seats were no longer part of the requirement manifested. Mr Jones did not simply delete those prices. As the pricing was calculated by working out a per seat price and then extrapolating that per seat price into various unit prices, Mr Jones simply divided the 5 seater price used in Sebel’s tender response by five and then multiplied it by three to get the price of a fixed 3 seater unit.

(e) Schedule B2.1.1 did not include the $30,000 figure for testing or the $10,000 for manuals included in the October 1997 tender response. These amounts were, however, included in the schedules .

347               When Mr Jones said in his covering letter dated 18 January 1999 “[t]he price for seating remains as previously quoted”, he was referring to the per seat space prices in Sebel’s tender response in October 1997 – as is obvious from the process that Mr Jones went through to derive the prices attached to the 18 January 1999 letter. That is to say he applied precisely the same prices (reversible or fixed, as the case may be) per seat space as he had included in Sebel’s tender response in October 1997 to the revised and final configurations. Given that Clyde itself had discussed the seating as a per seat space basis I have no doubt that the approach of Mr Jones and the basis for the make up of the 4 car sets would have been evident to Clyde on examination of the schedule. In any event a breakdown was set out in a later schedule, schedule B2.1.5, which enabled a calculation to be made that $552 per seat space was used for reversible seats, $490 per seat space for fixed seats and $510 for the tip up seats.

348               Schedules for supply of Stages 2 and 3 were completed (subject to rise and fall): schedules B2.1.2 and B2.1.3. A schedule breaking up the cost per car was given for Stages 1, 2 and 3 (the latter two being subject to rise and fall): schedule B2.1.4. A breakdown of prices per train set was given: schedule B2.1.5. A schedule providing details for the rise and fall calculations called for by provisions of the General Conditions of Contract was given: schedule B2.1.7.

349               Schedule B2.2.1 concerning base and variable components for maintenance, as the covering letter indicated, was not completed and concerned maintenance of Stages 1, 2 and 3.

350               Schedule B2.2.2 dealing with unit cost for reimbursable maintenance work was provided.

351               Schedule B2.2.3 dealing with pricing basis for variations, reimbursable maintenance work and modification work was provided.

352               Other schedules for custom duty and primage (B6.1 and B6.3), major suppliers, sub-contractors and consultants (B7) and period for practical completion (B19) were provided.

353               The 18^th of January 1999 was also the date of the first monthly report of Clyde to the SRA under their contract. Mr Graham apparently drafted this report. One of the topics dealt with was “major supplier contracts”. Under that heading the following appears in the Report:

3. Major Supplier Contracts

As reported in Section 2: Engineering, the finalisation of the major supplier contracts is well behind schedule due to the following:

(a)        The delay in preparation of technical specifications.

(b)        The preparation of terms and conditions on a back-to-back arrangement including maintenance has been lengthy due to legal drafting and other commercial documentation necessary to be actioned for SRA including SDR.

The level one contract is now complete and can be quickly adjusted for the various major sub-suppliers.

Level two and three contracts will be completed in drafting by the end of January and are being finalised by Peter Urch and Ron Busby.

·              Finalisation of Alstom [sic] Contract has been lengthy and it is anticipated that Friday, 22 January 1999 the contract will be finalised.

·              Sebel responded to the seat contract Monday, 18 January 1999. We anticipate signing by week 1 February.

·              Brake suppliers including bogie components and compressor to respond by Friday, 29 January 1999. Anticipate final selection and contract by the 2^nd or 3^rd week of February.

·              Surveillance contract will be issued for final pricing by Monday, 25 January 1999.

·              Stainless steel contract will be issued by 4^th February 1999.

It is extremely important that we finalise the major suppliers so design input can be sourced from them. Currently a number of suppliers are not prepared to work with Clyde and advise until they secure the contract.

[emphasis added]

354               On 27 January 1999 Clyde provided the SRA with a progress report (No. 7) under the contract. Under the heading “Project Resources” the following appeared:

5. Project Resources

5.1        Selection of subcontractors (B7)

Traction supplier subcontract finalised

Seating and Braking Subcontracts are under evaluation.

[emphasis added]

355               On 28 January 1999 Mr Jones sent Mr Thomson a facsimile suggesting that “our first design review meeting” take place on 8 February 1999.

356               On 3 February 1999 Mr Sheldrick sent a facsimile to Mr Jones in response to his letter of 18 January 1999. In it he asked that Sebel submit a completed schedule B2.2.1 setting out its price for maintenance work and that Sebel review the costings it had set out in another maintenance schedule, namely schedule B2.2.2.

357               On 3 February 1999 Mr Jones sent a facsimile to Mr Sheldrick setting out the principles which Sebel contended should apply in respect of maintenance of the trains.

358               On 8 February 1999 Mr Fehon, a research and development manager from Sebel, met with Mr Martin Pemberton of TDI to discuss the possibility of TDI (rather than Invetech) completing the design work for Sebel. TDI approached Sebel, in effect, touting for an additional role beyond the assistance that it had already given Clyde, no doubt assuming that Sebel would be providing the seating.

359               Also, 8 February 1999 was the date of the second monthly report by Clyde to the SRA under their contract, again apparently drafted by Mr Graham. This report dealt (as had the first) with the subject of “Major Supplier Contracts”. Under this heading there appeared the following:

3. Major Supplier Contracts

·               Alstom [sic] Contract signed of Friday, 22 January 1999, with the final outcome being in line and slightly positive with our estimate for both build and maintenance.

·               Mr Cisco Cuebelo has been appointed as Project Manager for the Alstom [sic] contract, this will be extremely important due to its size and complexity.

·               Sebel contract is incomplete due to a number of schedules, re: maintenance not being issued. Finalisation is now scheduled for week 15^th to 19^th February. Sebel are however under way with their project.

·               Brake supplier bids had to be extended a further two (2) weeks due to maintenance closing date 15^th February 1999.

·               Surveillance tenders close end February.

·               Stainless steel tenders close 18^th February for Stage 1.

·               The supply of technical specs are now flowing at a respectable level, our goal is to have all five (5) major contracts signed by end of March.

[emphasis added]

360               On 17 February 1999, not having received a response to Clyde’s request on 3 February 1999 for the completion of the schedules, Clyde (through Mr Sheldrick) wrote the following to Sebel (for Mr Jones):

We refer to previous correspondence Ref. LN40/L0801/GS:lb of 3 February 1999 and wish to place on record that as at today’s date we have not received a satisfactory response from Sebel to matters raised.

As you may well appreciate Clyde Engineering consider the finalising of commercial and costing matters as an important prerequisite to the execution of subcontract arrangements and you are requested to contact the undersigned to arrange a meeting to finalise outstanding matters.

361               Though Mr Sheldrick signed this letter, Mr Graham requested that it be sent. The evidence in cross-examination of Mr Graham about it was not entirely satisfactory. I infer from the fact that he said he requested it be sent and the balance of his evidence about it, that, at the time it was sent, Mr Graham was aware of its contents. His cross-examination on the letter was as follows:

Mr Jackman: You regarded it as a significant matter to indicate to Sebel at finishing of commercial and costing matters as set out in the 2 February letter were an important requisite to the execution of subcontract arrangements. Do you agree?

Mr Graham: That's what the letter says.

Mr Jackman: And that's the view you held, isn't it, at the time?

Mr Graham: Well it's the view, the view is that we could not understand why Sebel had a complete change in regard to their original commitment from their CEO that they were keen to proceed with this contract. They had given our board a recommendation that they would proceed, that they would do everything possible and we had worked all the way through and here I was in a situation where I was unhappy that we were sliding behind our commitment in finalising these particular details.

Mr Jackman: The letter expresses the view that you actually held at the time, isn't that right?

Mr Graham: We had a response by Sebel that pricing had been sorted out, commercial issues were extremely close but there had been a hold up on the maintenance and this letter was to reinforce and gain a response why is this so?

Mr Jackman: Did it or did it not express the views that you genuinely held in mid February '99?

Mr Graham: No, I don't believe it was. In essence it was a follow up letter to move Sebel into action because the contract was moving forward and for some reason Sebel has appeared to lose some interest in the contract and what I was trying to do here was to generate a response to move Sebel on.

362               I think, with respect to Mr Graham, that some of these answers were less than direct. I think one needs to be careful about his last answer quoted. It understates the position, I think. I do not accept that the letter of 17 February 1999 was contrary to the views that he contemporaneously held. He did think that Sebel was committed to Clyde. That was why the tender validity period had not been extended, but, nonetheless, it was important to finalise the commercial and costing matters and execute the subcontract arrangements. Hitherto he had been dealing with a co-operative, enthusiastic “partner” which he had taken into his confidence and which, thus far, had seemed certain to be providing the seating. Indeed, he thought it committed. But Clyde had kept Sebel waiting since mid-1998; it had refused a letter of intent; and now, though Mr Jones had responded to the letter of 22 December 1998, time was passing in finalising what plainly could be described as “commercial and costing matters”.

363               Two days later, on 19 February 1999, Mr Sheldrick sent an email to the secretary of the now General Manager of Sebel, Mr Doman, which was in the following terms:

I have been trying to contact Neville regarding our correspondence of 3 Feb ’99 (L0801) and correspondence of 17 Feb ’99 (L0861). We are extremely concerned at your lack of response. Would you kindly ask Neville to contact me or Reg Graham as a matter of urgency.

364               Mr Doman’s secretary replied an hour and a half later that Mr Jones was ill and suggested that Mr Gabadou or Mr Fehon could be contacted during Mr Jones’ absence.

365               The email from Mr Sheldrick discloses a degree of concern which is illuminating. True it was that two weeks had passed from Clyde’s request on 3 February 1999. Clyde was evidently under some pressure from the SRA to finalise contractual arrangements – it was a subject with which the two monthly reports (see [353] and [359] above) concerned themselves. The email was sent to the secretary of Mr Jones’ superior – his boss. This is indicative to me of some agitation on the part of Clyde. Indeed, when asked about it Mr Graham (who, I find, knew of its contents at or about the time it was sent) said what is set out at [297] above.

366               One aspect of this evidence, including the passage set out at [297] above which concerns me is his explanation as to why “we spoke to the general manager”. The email, in its terms, does not betray a knowledge that Mr Jones was sick. That, I think, was information of which Mr Graham probably became aware on receipt of the reply to the email. I think that Mr Graham in this evidence sought to play down the fact that the communications of Clyde at this time tend to reveal an edge of agitation. However, immediately after the passages of cross-examination set out at [365] above, he said the following:

Mr Jackman: And you were extremely concerned weren't you at the lack of provision of information to deal with maintenance supply issues by Sebel?

Mr Graham: We've actually received some documentation from Sebel setting out their suggested pricing and we had made some further suggestions to them and they had gone away to review that, so we had started down the process a couple of weeks before this letter, if my recollection's correct but then it appeared to stop when Neville Jones was away.

Mr Jackman: You weren't happy with the information that you had received by 19 February '99, were you?

Mr Graham: No, that's not correct. It wasn't that I wasn't happy with it, it was just that we hadn't completed this exercise.

Mr Jackman: And that was a cause of extreme concern, correct?

Mr Graham: Well, as executive manager of this project it was extremely important that all of the major sub-suppliers were very clear in what they were producing and the direction forward, what the program was, and where we had achieved on the seating up until the signing of the contract was extremely good because Sebel had gone away, they had developed the seat, they had a subcontractor build some prototype seats which we showed to the SRA. The SRA made some comments on those seats, and Sebel went away to make those modifications. So that was all happening. Invetech had been employed, and the program was proceeding. But then all of a sudden, here, we can't get a response to finalise the consolidated document. So yes, it was of concern to me.

Mr Jackman: And the adjective "extreme" is a correct description of the level of your concern, isn't it, as at mid-February '99? Is it the 19th?

Mr Graham: I agree I was extremely concerned because here we have one of our major clients, or suppliers, sorry, who is supplying and developed a seat that we have submitted to the SRA, and we acknowledge that they have all of a sudden become disinterested. So, yes, it's got to - it was of extreme concern to me that they weren't proceeding.

[emphasis added]

367               Mr Graham was struggling at this time to minimise what appeared, from the written communications, to be a nervous agitation of Clyde in 1999 over the commercial arrangements, and their finalisation. I think, with respect to Mr Graham, he was attempting in his evidence to place a calming gloss on communications which bespoke, by their content and context, a significant degree of contemporaneous concern and agitation about the “commercial” arrangements.

368               I think these reactions have some significance. The possibility of such an important supplier becoming “disinterested” (by which I took him to mean, and take him to have meant, “uninterested”) and a concern that Sebel was not “proceeding” threw up for mental consideration the question of Sebel’s legal commitment. If, as was put in evidence before me, Mr Graham and Mr Sheldrick were of the clear contemporaneous views that Sebel was legally bound to its tender and that its tender had in fact been accepted by Clyde in its correspondence, in particular through the letter of 13 October 1998, I venture to think that this agitation and “extreme concern” would not have been as acute as it appears to have been. There may have been an irritation at some delay in finalisation of the formalities (though a reasonable perspective on the delay from the presentation of the prototypes in June 1998 to mid-February 1999 would mollify any such irritation), but I do not think that there would have been this level of extreme concern and agitation.

369               From this I conclude that neither Mr Sheldrick nor Mr Graham were as clear or confident at this time about the contractual position of Sebel as exhibited in their evidence to me. Nevertheless, I cannot conclude from this material that they did not think Sebel to be committed. If they, or at least if Mr Sheldrick, had not thought that, they or he would undoubtedly have sought an extension of the tender validity period previously, beyond 27 November 1998. They did think Sebel was committed; they thought so for the reasons I have earlier described; and at this time their agitation betrayed I think a fear as to the position.

370               Meanwhile, in January 1999, Mr Doman, the new General Manager of Sebel, began to turn his attention to the Project. Mr Doman said in his affidavit that in about January 1999 he repeatedly asked Mr Jones for a review of the Project documentation and for Mr Jones to set out for Mr Doman the present status of the Project . Mr Doman and Mr Jones were in some dispute as to whose fault it was that Mr Doman had difficulty in apprising himself, and took some time to apprise himself, of the detail concerning the Project. I do not think it necessary to deal with this, save to say that I doubt that Mr Jones failed to attend to any responsibility or duty requested of him by Mr Doman. In any event, Mr Doman said in cross-examination that it was not until his review of the file immediately prior to a meeting on 25 February 1999, with Messrs Jones, Gabadou, Fehon and Lange to review the Project, that he had any knowledge of substance about the detail of the Project.

371               On 12 February 1999 there was an internal Sebel Research and Development Department meeting. Messrs Gabadou, Fehon, Lange, Jones and others were in attendance. There are various accounts of this meeting. Mr Jones’ recollection was that, amongst other things, Mr Doman was also present at the meeting and asked Mr Jones to get all the documentation on the Project together and for him to give it to Mr Fehon to do a full cost schedule for the Project, including tooling and project manager costs. Mr Doman thought that Mr Jones was confusing this meeting with the meeting held on 25 February 1999, referred to above and described below. Mr Fehon did not recall the 4GT Project featuring prominently at this meeting of 12 February 1999. The minutes of the meeting indicate that Mr Doman was not present at the meeting, but was sent a copy of the minutes. I think that Mr Jones was mistaken in his recollection of Mr Doman’s attendance at this meeting.

372               There was also a contest in the evidence between Mr Jones and Mr Doman as to whether they had a particular discussion at about 12 February 1999. Mr Jones said that he produced a cost schedule of the kind he said that Mr Doman had asked for on 12 February 1999, which schedule demonstrated that Sebel’s profit margin would be around 4% on the Project (expensing tooling and design costs). His evidence was that Mr Doman looked at the schedule and said that Sebel was going to have to put the price up, to which Mr Jones responded that there was no chance of doing that as Sebel had already agreed on the price. No document was identified as the schedule created by Mr Jones. Mr Doman said that he did not recall Mr Jones giving him any such costs schedule, and that he did not believe he would have said the words attributed to him by Mr Jones. Mr Doman said that he had no recollection of Mr Jones ever telling him that he thought Sebel was “locked into the deal”, that it was his understanding that there was no contract, but that he was looking for ways to negotiate a contract.

373               Again, I do not think it necessary to deal with this comprehensively. My finding that Mr Doman was not at the Research and Development Department meeting on 12 February 1999 substantially undermines this evidence of Mr Jones. However, it may well be that at this time, before the strategic planning meeting which commenced on 14 February 1999, and before Mr Jones’ illness which also began on about 14 February 1999, he and Mr Doman had a conversation in which Mr Doman indicated the need to review all aspects of Sebel’s participation in the Project, including price. Mr Jones may well have then told Mr Doman that he had already “agreed a price” with Clyde. It is highly likely that at some point in early 1999 Mr Jones said something such as that to Mr Doman. However, in the light of all the evidence, including the evidence of events in February and March to which I will come, I do not think that at this time Mr Jones said to Mr Doman, or, at the least, made clear in any communication to Mr Doman, that Sebel was bound by contract to a previously agreed price.

374               Between 14 and 17 February 1999, a “strategic planning” meeting was held at Sebel attended by senior executives. There was discussion of different topics and only passing reference was made to the 4GT Project.

375               On Monday 22 February 1999 Mr Sheldrick telephoned Mr Doman. Mr Doman’s contemporaneous note of the conversation was in the following terms:

Graham [Sheldrick] phoned to complain about the lack of resolution of the contract to be signed between Clyde Ind and ourselves over the train seat. He said the tender documentation had been sent to Neville Jones and he had raised additional points covering areas of concern on 3/2, 17/2 and finally by email, 19/2 without resolve. He rang to get me involved to expedite the matter. A subsequent check with Jonathan Lange shows he has no involvement. I said to him I would call back when I had pursued the matter internally.

376               On the same day, Monday 22 February 1999, Mr Sheldrick sent a memorandum to Mr Graham in which he stated “As you are aware, Clyde is experiencing considerable frustration with Sebel regarding finalisation of subcontract arrangements. Sebel’s tender response was received on 18 January 1999… Sebel’s tender was evaluated and tender queries forwarded on 3 Feb ’99 (ref L0801), no response has been received”. Mr Sheldrick described the lack of response to the correspondence of 17 and 19 February 1999 and described discussions he had had with Mr Fehon and Mr Doman about Clyde’s concern.

377               After receiving the telephone call from Mr Sheldrick, Mr Doman spoke to Mr Lange (Sebel’s then Commercial Manager). Mr Doman expected Mr Lange to know what was happening on the Project and was surprised to discover that Mr Lange had had no involvement in it. (It should be noted that Mr Lange had only recently assumed the position of Commercial Manager.)

378               On 24 February 1999 Mr Sheldrick sent another facsimile to Mr Doman stating that Clyde was“extremely concerned with Sebel’s slow action regarding outstanding matters”. He called for Sebel’s proposed schedule to finalise outstanding matters. Upon receipt of this facsimile Mr Doman telephoned Mr Sheldrick. He was told by a secretary that Mr Sheldrick was unavailable and left a message saying that he was surprised by the urgency of the matter and was awaiting the return of Mr Jones from sick leave and that Mr Jones had the relevant correspondence.

379               Mr Jones returned from sick leave on 25 February 1999. On the same day, Mr Doman requested a secretary to deliver the Project files to him (Mr Doman). That was done. Mr Doman apparently then reviewed the documents. Later that day, Mr Doman met with Messrs Jones, Gabadou, Fehon and Lange to review the Project. Mr Fehon made notes of the meeting. Mr Doman prepared a memorandum by way of minutes of the meeting.

380               Before dealing with that meeting, it should be noted that in the days prior to it Mr Fehon (Sebel) and Mr Thomson (Clyde) had arranged a meeting dealing with design review for Friday 26 February 1999 at which members of Clyde’s Engineering Department and Sebel’s Research and Development Department were to attend. On 25 February 1999 Mr Thomson sent Mr Fehon an agenda for the meeting which was in the following terms:

Seat Design Review Agenda

1.         Introductions.

2.         Sebel to give a brief status report on the design of each type of seat.

3.         Discussions on the designs to include:

·      Reversible Seats – General.

·      Reversible Seats – Mechanism.

·      Fixed Seats (upper & lower deck).

·      Fixed Seats end saloons.

·      Tip-up Seats – General.

·      Tip-up Seats – Mechanism.

4.         Interface between Clyde and Sebel scope of supply.

5.         Specification issues.

6.         Programme and Deliverable’s [sic].

7.         Testing Programme.

8.         Ergonomic Requirements.

Minutes of the meeting will be taken and circulated for agreement and sign off.

381               From Clyde’s Engineering Department’s point of view, the position of Sebel’s design was described by Mr Thomson in an internal memorandum dated 23 February 1999, as follows:

I have managed to arrange the first design review for the passenger seats with Sebel this Friday at 1.30 at Sebel’s premises. We have received some drawings from Sebel that outline the development of the reversible seats but that is all. I will arrange for a set of questions referring to the current design and some questions we have on the other seat designs to be put together. I will also put an agenda together for the meeting. As requested, I have asked John and Phil to come along and have copied this to Graheme to see if he has any issues he would like to take up.

382               Prior to 25 February 1999 Mr Fehon was in contact with Invetech and on 24 February 1999 Invetech sent Mr Fehon a program of work which had been written three months earlier. These matters confirm the conclusion that in February 1999 Sebel and Clyde were recommencing design and technical co-operation that had been in abeyance for some time. (See [322] above.)

383               Returning to the meeting at Sebel on 25 February 1999, the notes of Mr Doman recorded that the meeting lasted one hour. Messrs Doman, Gabadou, Jones, Fehon and Lange attended. According to the notes of Mr Doman, pricing for Stage 1, $538 per seat place, and for Stage 2, “$538 plus inflator to a formula”, was discussed. According to the minutes, there were four contentious issues in relation to the Project which were discussed at the meeting:

▪ insurance certificates – supplied,

§                     schedules are inconsistent however our deduction is 81 cars versus 80 cars with $66k difference, and

§                     design costs – deliberately left out as it is our intellectual property. TDI, a design company set up by Clyde, is claiming it is their design, and it is fair to say they provided sketchings at the start however engineering was done by Invetech on our behalf. We have already supplied a set of drawings to Clyde.

§                     Maintenance is unclear as we are not advanced enough in the design process – needs discussion with Clyde.

[emphasis added]

384               It was clear from the evidence that the sentence emphasised in this passage contained a misunderstanding as to what Mr Fehon told the meeting. TDI was not claiming that it was its design. Mr Doman overstated in the minute what had been said by Mr Fehon. Also, the question of maintenance was clearly not at a point of finalisation. As will be apparent below, Mr Jones met Mr Sheldrick the following day, 26 February 1999, to deal with the out-standing schedules referred to in the letter of 18 January 1999, which schedules concerned maintenance.

385               Mr Doman said that at this meeting he first became aware or came to appreciate that only Stage 1 of the 4GT Project was guaranteed. I accept this evidence.

386               A decision appears to have been taken at this meeting of 25 February to avoid further supply of technical detail and avoid further research and development work until the contract was “signed off”. Mr Jones was requested to prepare a marketing plan, Mr Fehon and Mr Gabadou to undertake a costing of the seat as the design currently stood and Mr Lange to prepare financial calculations of returns based on that costing.

387               Mr Fehon gave evidence, by affidavit and in cross-examination, about the meeting, as, to a lesser extent, did Mr Gabadou. I accept their evidence. Quite a deal of time was spent bringing Mr Doman “up to speed” regarding the Project. Mr Fehon raised an issue regarding design. Mr Fehon had only recently begun to work on the Project. He had learnt that TDI had had some involvement in the design. This had “rung alarm bells” with him and he raised the issue. Mr Fehon had shortly before the meeting reviewed “in-depth” the draft contract which had been sent to Sebel by Clyde, insofar as it contained technical requirements. He had become somewhat concerned. His concern was not as to Sebel’s ability to deal with the technical requirements, but to do so in a timely way, as called for by the draft contract. In cross-examination he said the following:

Mr Foster: But is it fair to say that your concern was that because there were a number of detailed technical requirements that had to be met, Sebel would not be in a position to meet those within the time frames that you thought they had to?

Mr Fehon: Yes, I was very concerned that it was not achievable in the time frame that was being specified in that, yes.

Mr Foster: And that was the concern you had?

Mr Fehon: That's right.

Mr Foster: Then there was this meeting on 25 February, and you expressed your concerns about meeting the technical requirements within the time frame at that meeting, did you?

Mr Fehon: Yes.

388               At this meeting there was no statement that there were design or technical issues of difficulty, as such, as opposed to questions of timing.

389               There does not appear to have been any statement at the meeting by Mr Jones that Sebel was contractually bound. The notes of meeting (said by Mr Fehon to be substantially accurate, with the exception of the TDI matter) state:

Seat has been designed by Invetech and is at a conceptual stage.

A contract has been supplied by Clyde Ind for comment. Jonathan to obtain a legal overview of the document. Nevilles [sic] comments by next meeting as well.

390               Legal advice as to the terms of the draft contract was sought shortly thereafter, on 9 March 1999.

391               Mr Doman had formed a view by this meeting on 25 February 1999 that the research and development and tooling costs should be expensed to the Project. He made this view known to those at the meeting. That was also Mr Gabadou’s view, if Sebel was only guaranteed Stage 1. Mr Doman sought to convey in his cross-examination that he did not know that the expensing of such costs was contrary to the costing in Sebel’s tender. I reject that. There may or may not have been detailed documentation of the analysis and consideration undertaken in 1997, but there was ample information to enable those at Sebel to understand how these matters were treated in coming to the tender price. Mr Jones made known at this time that this was contrary to what had been done. I have no doubt that Mr Gabadou was also aware of that. Mr Doman’s evidence in cross-examination in this regard was marked by a deliberate non-responsiveness.

392               The calling for costings and a financial analysis by the Commercial Manager, Mr Lange, and Mr Doman’s expressed view as to the expensing of tooling and research and development costs, indicated to all at the meeting that a fundamental review of Sebel’s position was to be undertaken, which review could well result in a significant reversal or change of direction in relation to the Project. In all likelihood Mr Gabadou expressed the views he held, which included the fact that, as far as he was concerned, Clyde had refused to commit to Sebel. Mr Jones at this time must have appreciated the shift in thinking that was taking place. If he then viewed Sebel as contractually obliged to provide the seats at the tender prices, one would expect this to have been clearly expressed at this meeting. There was no evidence that it was. I conclude that it was not. If it had been, it is likely to have been contested by Mr Gabadou.

393               The next day, 26 February 1999, there was a design review meeting between representatives of Clyde and Sebel, including Mr Richard Stephens of Invetech. At that meeting various design and timetabling issues were discussed. From the evidence of Mr Fehon I conclude that the discussions did not reveal any known design difficulty.

394               Also on 26 February 1999, there was a meeting between Mr Sheldrick and Mr Jones. What occurred at the meeting was summarised by Mr Sheldrick later in a memorandum to Mr Graham. He said the following about his meeting with Mr Jones which he said was “to discuss aspects of Sebel’s submission”:

Sebel will withdraw requirements on currency exchange as detailed in Schedule B6.1 and B6.3.

Sebel will review and complete Schedule B2.2.1.

Sebel will review and complete Schedule B2.2.2

Sebel will review and mathematically correct all other Schedules

Sebel will review Public Liability Insurance and submit $100m certificates

Sebel will undertake Maintenance in accordance with Clyde’s requirements

Sebel will submit all outstanding information by 5 March 1999-03-24 [sic].

395               The letter was consistent with a handwritten memorandum of Mr Sheldrick made at the time of the meeting. His note also has at the end: “Formulate DOCS for execution 5/3/99”.

396               Mr Sheldrick gave the following evidence about this last entry:

The notes also record that Neville Jones informed me at the meeting that Decklin Brennan would now be Sebel’s Project Manager for the 4GT Project, and that the final contract documents would be formulated for execution on 5 March 1999.

397               At or about the end of February 1999 Mr Gabadou gave Mr Fehon his files for review. From his review of the files and talking to Mr Gabadou, Mr Fehon came to understand that the tender costings had been based on a pre-existing seat used in the Tangara and then on an initial Sebel design. He said that he expected to see more detailed costings than appeared in the file. Whilst he may have expected to see more documentation, I do not take that as, or intended to have been, a criticism of how the 1997 costings were arrived at. As I have earlier found, the original costing was prepared carefully and the treatment of tooling and research and development costs was, at the very least, rational and reasonable.

398               By the end of February 1999, within Sebel, there had been activated a wholesale review of the Project and its costings. Mr Wright had moved on. Mr Jones had indicated late the previous year of his desire to retire. A new General Manager with a board mandate for change had arrived. His view, on first analysis of the matter, was that underlying research and development and tooling costs should be expensed to Stage 1, as the only part of the contract at the time to be awarded. One may criticise this view. The approach of Mr Wright and others in 1997 had not only been in accordance with Sebel’s policy at the time, but it was also founded on an optimistic, though rational, business judgment, based on knowledge of the seating business. Nevertheless, Mr Doman’s view was also a business judgment that was rational and open to him.

399               Mr Doman gave evidence that by about late February 1999 he began to develop some uncertainty about Sebel’s ability to sell the seat being developed for the Project elsewhere in the world. His concern arose, he said, because, as far as he was aware, New South Wales was the only place where reversible seating was used. His evidence was that he intended to proceed with the Project notwithstanding this concern. Quite what Mr Doman had to base this view on, given his paucity of experience in the seating business, was not made clear. I do not think that at this stage, late February, he had these views. He had a view about appropriation and attribution of expenditure, which had some support from Mr Gabadou. He had a mandate for change. He put in train a wholesale review of the Project. That is the point at which February ended. By this time, no one had said to him unequivocally that there was a contract. A review of the files would not have thrown up any document reflecting Clyde’s acceptance of Sebel’s tender. Mr Gabadou did not think that Clyde had committed itself to Sebel. In all likelihood Mr Gabadou had passed this on to Mr Doman. Mr Jones may well have said what he recalls saying on 12 February 1999 (see [371] to [373] above) at some point in February. It is likely that this occurred on 25 February 1999. Mr Jones recalled the following exchanges:

Mr Doman: What’s the status of the train seating project?

Mr Jones: It’s all on track. We’re just finalising the documentation now.

Mr Doman: Bernie [Fehon], what’s your view about this project?

Mr Fehon: I don’t think Sebel has the expertise, I just don’t think we can do it.

Mr Jones: That’s just ridiculous, that’s not right at all. We’ve already come this far, we’ve made prototypes that have been given to the SRA and they love them.

400               Mr Fehon’s evidence, which I accept, was that he said on 25 February 1999 that he did not think that Sebel could deliver the technical requirements in the time set out in the draft contract.

401               Mr Jones also at some stage, whether on 25 February 1999 or earlier, probably had an exchange with Mr Doman of the kind of which he gave evidence in his affidavit:

Mr Doman: All of our projects have to be considered as stand-alone ventures. They should provide a return to Sebel in their own right, including R&D costs and tooling costs.

Mr Jones: That’s ridiculous, we can’t do business like that. If that was our approach then we would never have got the education department work or the Olympic stadium work.

Mr Doman: Yes well we lost our shirt on the Stadium project.

402               He also may well have told Mr Doman that he had “agreed a price” with Clyde.

403               However, no one told Mr Doman at or before the end of February 1999 that all this work of costing review was wasted because Sebel was committed to Clyde to supply the seats at a price based on the tender price, or as calculated by Mr Jones in preparing the response to the correspondence of Clyde of 22 December 1998.

404               In cross-examination, Mr Doman accepted that by the end of February 1999 there were strong indications that Sebel had been selected by Clyde as the sub-contractor for seats. Mr Doman said, however, that he did not have an appreciation as to whether there were other potential seat manufacturers. Mr Doman was aware that Sebel was being asked to sign the contract and that if it signed the contract it had the job. He did not understand there to be a “Dutch auction”. Mr Doman knew that Clyde had signed a contact with the SRA and he must have known that in doing so Clyde had relied on Sebel’s tender. However, I accept that he thought that there was no binding agreement between Clyde and Sebel.

405               In Progress Report No 9 to the SRA dated 1 March 1999, Clyde described the selection of sub-contractors at that time in the following terms:

5.1      Selection of subcontractors (B7).

Seating and Braking Subcontracts are under evaluation. Communication, Surveillance, Doors and Couplers currently out to Tender.

406               In its monthly report (No 3) to the SRA dated 8 March 1999, under the heading “Major Supplier Contracts”, Clyde said the following about Sebel’s position:

Sebel

§      Contract nearly finalised.

§      Awaiting some pricing for maintenance and supply of spares.

§      Anticipate contract signed within one (1) week.

§      Meetings proceeding with engineering and progress acceptable.

407               Sebel placed emphasis on these and similar reports by Clyde to the SRA. (See [353] and [359] above.) They are indicative of a view that there was no contract with Sebel. However, I am not persuaded that I should reject the evidence of Mr Graham and Mr Sheldrick that they thought in 1998 and 1999 that Sebel was committed. What these reports do show however is that there were aspects of the detail of the final terms of the arrangements based on the 22 December 1998 documentation which were yet to be finalised. This is important in respect of the contract pleaded (Contract C) said to arise by reference to agreement on the final draft documentation sent on 22 December 1998.

408               On 9 March 1999, Mr Doman met with Mr Stephens of Invetech. He was not accompanied by any of Sebel’s technical people associated with design. It was, of course, natural that Mr Doman would want to understand any technical issues. However, this meeting with Mr Stephens had a wider commercial purpose for Mr Doman. He wanted to obtain from Invetech as many technical issues as he could to enable a re-negotiation of the price of the seats with Sebel. At the same time, he wanted to understand the parameters of any technical hurdles which remained. Though Mr Doman at times said, without any specificity, that his technical people had referred to difficulties, I find that by this time, in early March 1999, he had not been informed of any substantive technical hurdles by his own design staff, except as to timing by reference to the paths set out in the draft contractual documentation.

409               Mr Doman drafted and circulated a memorandum of his meeting with Mr Stephens. It records that Invetech raised two “significant technical items” which were said to have changed. They were described as follows in the notes:

Clyde testing for the product has increased from 15,000 in our tender reply to 75,000 in the proposed agreement. The impact test case is a worst case test and it is ill defined in terms of the load.

410               Mr Stephens also cast doubt on the timing of the Project (echoing Mr Fehon’s concerns). Mr Stephens believed September (1999), as opposed to July/August (1999), was more feasible. Mr Stephens estimated $500,000 to $1M as an estimate to complete the Project. These were not much outside the ranges of figures supplied by Invetech in early 1998. (See [191] and [193] above.) All Mr Stephens said on this occasion was that these technical issues might have an effect on cost and design.

411               Mr Doman did not at any time thereafter instruct Mr Stephens to ascertain whether they would have such an effect.

412               Mr Doman also gave evidence that on other occasions in March 1999 he spoke with Mr Stephens about the changes to seating configuration and what the December specification said about weight. There was no evidence that Mr Stephens said that these would cause any cost or design difficulties, other than some passages in Mr Doman’s affidavit, which I take to be qualified by his acceptance that all Mr Stephens said to him was that there might be effects on design and cost. Again Invetech was not retained (by Mr Doman or anyone else at Sebel) to assess this.

413               When the change from 15,000 to 75,000 cycle testing was brought to Mr Fehon’s and, through him, to Mr Jones’ attention, Mr Jones forgot that he had dealt with the matter a year earlier. At the time it was raised with him in early 1999, Mr Jones was distracted with work on another job; he wrote a letter to Clyde, at Mr Fehon’s request, raising the matter couched in terms which would indicate that this was the first time that the matter had been raised with him. Of course, it was not: see [220] above.

414               I accept that Mr Doman thought, at this time, that there were some unresolved technical issues. In one sense it was plain that there was technical work yet to do. The memorandum of Mr Thomson on 23 February 1999 made that clear. (See [381] above.) However, Mr Doman was interested in this topic, not so as to understand the finite limits and importance of any technical question, but to understand their existence and description in order to place these matters in a negotiating context (framed with discussion with Clyde in mind) when he received the costings and projections from Messrs Fehon, Gabadou and Lange.

415               In about the second week of March 1999, the costings prepared by Mr Gabadou and Mr Fehon were produced for Mr Doman’s consideration. Then, Mr Lange provided him with calculated returns on investment based on different scenarios, but in each case on the basis of a seat price of $538, which had been calculated afresh by Mr Gabadou and Mr Fehon based on direct cost, not including research and development and tooling. The direct costs of the seat were calculated with some care and came to much the same figure as arrived at, based on the pre-prototype design, in 1997. (This further evidenced the care and accuracy with which the original tender assessment was made by Sebel.) Mr Lange’s calculations were as follows:

(a) The first calculation was on the basis that Sebel would only supply seats for Stage 1 of the Project and that tooling and design costs would total $1.68M. On that basis, Mr Lange calculated a return on investment of 4.6%.

(b) The second calculation was on the basis that Sebel would only supply seats for Stage 1 of the Project and that tooling and design costs would total $2M. On that basis, Mr Lange calculated a return on investment of -4.4%.

(c) The third calculation was on the basis that Sebel would supply seats for all three stages of the Project and that tooling and design costs would total $1.68M. On that basis, Mr Lange calculated a return on investment of 60.3%.

(d) The fourth and final calculation was on the basis that Sebel would supply seats for all three stages of the Project and that tooling and design costs would total $2M. On that basis, Mr Lange calculated a return on investment of 48.5%.

416               These calculations reveal that crucial to the question of rate of return on investment, which I accept was Mr Doman’s most important consideration, were two factors: the size of the cost of tooling and research and development, and the number of the stages of the 4GT Project that might be won. The latter was the vital consideration; because whatever the size of the tooling and research and development, a satisfactory return would be obtained if all three stages were obtained. (I leave aside the rational considerations of people such as Mr Wright in 1997 in viewing the tooling and research and development over a wider perspective.)

417               As I have said, I accept that Mr Doman, by this time, thought that there were some technical issues to be resolved; however I do not accept that he thought that there was any real risk that the job was technically beyond Sebel. No one had told him that. Such technical risk as there was, was encompassed in the range of tooling and design costs in the costings, conscientiously assessed by Mr Fehon and Mr Gabadou. Thus, I do not accept Mr Doman’s evidence in [36] of his affidavit that he thought that “Sebel’s involvement… had considerable risk due to the outstanding technical issues”. He did think (correctly) that the Project would be uneconomic or unacceptable (assessed on a stand-alone basis at an average price per seat space of $538) if Sebel only received Stage 1. This too was Mr Gabadou’s fear. To this end, calculations were done to assess what would be an acceptable rate of return, if Stage 1 only were obtained. On this basis, to achieve a return of about 25%, the price would have to rise to $660 per seat space or $708 per seat space depending upon whether the tooling and design costs were $1.68M or $2M. Mr Doman’s evidence was that these calculations were done at this time in early March, as well as later in March. I accept that.

418               At this point, in early March, Mr Doman sent Mr Jones to see Mr Graham to embark on negotiations about price. In [38] of his affidavit Mr Doman described the two options that he told Mr Jones to take to Mr Graham:

(1)      to see if he could obtain guarantees for Stages 2 and 3 which would allow us to preserve the seat price of $538 per seat space; or

(2)      if we could agree an increased price for Stage 1 and a discounted price for the subsequent stages if awarded.

419               At about this time, Mr Doman spoke to Mr McGrath about the Project. Mr McGrath spoke regularly to Mr Doman. There had been poor profit results for Sebel in January and February 1999 and a write-down of $2M from a stock overstatement. Mr McGrath described the position in [10] and [11] of his affidavit as follows:

[10] …As a result of this deteriorating position, I was putting Ron [Doman] under a lot of pressure to get the business performing again and I was aware from what Ron said to me, as well as the strategic planning session, that he was looking very closely at costs and what business Sebel was in.

[11] In relation to the 4GT seat project, Ron said to me that in excess of $140,000 had been spent on the project so far and the specification had changed from what Sebel originally tendered on, both of which I did not appreciate. He had also done various calculations which showed very low rates of return on investment or even negative returns on the tendered price which he discussed with me. I cannot recall the details of the figures we discussed. A debate developed between Ron and I about the amortisation of intellectual property and R&D/tooling costs, particularly in relation to the 4GT seat project – should they be amortised over only stage 1 or over a number of years.

420               I accept this evidence. Mr Doman was under real pressure. Mr McGrath was no doubt, from what I saw of him, a direct and demanding task-master. Mr Doman knew that he had a mandate for change, that he was expected to look at costs and returns of Sebel most critically and that the assessment of him as General Manager by the GWA Board, in part at least, depended upon his decisive handling of the Project.

421               On 12 March 1999 a Mr Bentley from Thomson Bentley & Partners sent Mr Lange a ten page letter providing legal advice on the terms of the 22 December 1998 draft contract. This advice had been sought on 9 March 1999.

422               On 15 March 1999, Mr Thomson and Mr Graham of Clyde met with Mr Fehon, and Mr Martens of TDI. At the meeting, Clyde was told that Sebel would place “no design resource” on the Project until “contract negotiations have been resolved”. The minutes of the meeting do reflect some technical issues being discussed, but none appears to have been reflective of any serious difficulty.

423               On 16 March 1999, Mr Jones saw Mr Graham. Mr Doman had left Australia on the day before. Mr Doman did not return until 23 March 1999. It was at this meeting that Mr Jones informed Mr Graham that Mr Doman did not think that Sebel could justify the investment in tooling and research and development that the Project required. Mr Jones raised the possibility of Sebel increasing the price for Stage 1 from that previously quoted, and then discounting the pricing for Stages 2 and 3. Mr Graham replied that if Sebel were to do this then Clyde would be in an extremely difficult position; Clyde would have no seating and no time to source an alternative which was acceptable to the SRA. Mr Graham suggested that an urgent meeting be called between Mr Doman and Mr Hancox. Later that day, Mr Jones sent a facsimile to Mr Doman at his hotel in London reporting on the outcome of the meeting with Mr Graham, in the following terms:

Today I met with Reg Graham of Clyde Engineering.

I outlined Sebel’s position regarding the implications of justifying the investment in tooling and design costs against Stage 1.

I then explored with Reg possible options:

1.             Guarantee for stage 2 and 3.

2.             Increase price on Stage 1 and discount prices on Stages 2 and 3.

Reg responded as follows:

2.             There were no guarantees from SRA for Stages 2 and 3.

Clyde’s proposal to SRA included price incentives for SRA to take up Stage 2 and 3 by certain dates and he being party to all the SRA meeting was confident that subject to reliability and performance of the first 5 car sets then SRA would proceed with Stage 2 with commitment by around 2001.

There is no guarantee at all for Stage 3.

3.             Option two is not an option for Clyde.

Reg indicated that if Sebel withdrew then Clyde would be in a very invidious position with no seat and no time to source an acceptable (to SRA) alternative.

He wants to arrange an urgent meeting with you and John Hancox GM of Clyde.

Other points Reg raised were:

·           Stage 1 represents replacement only of SRA’s old stock and that they were under pressure to maintain services with existing stock.

This position will deteriorate with the opening of the “Airport” line and the Parramatta to Chatswood Loop.

So Clyde believe for these reasons Stages 2 and 3 will proceed.

·           SRA are very keen on the Sebel seat and have had preliminary discussion with Clyde to use it as a replacement for Tangara seats which are due in next 4-5 years

SRA would like all their rolling stock to be of similar internal appearance.

When would be available for a meeting with Clyde?

[emphasis added]

424               During his oral evidence, Mr Doman confirmed that the reply to Mr Jones from Mr Graham concerning the guaranteeing of Stages 2 and 3 answered the request he wanted made. It is plain that Mr Jones did not ask for a conditional guarantee that if Clyde won either or both Stages 2 and 3, it would use Sebel. The answer given by Mr Graham that there were no guarantees for Stage 2 and 3 was in response to a question about a guarantee of Stages 2 and 3. That unconditional guarantee obviously could not be given. A conditional guarantee was what Mr Gabadou wanted. However, it was neither what Mr Doman told Mr Jones to ask for, nor what Mr Jones did ask for. Sebel submitted that Mr Jones was told to ask for the conditional guarantee. He was not. Indeed, the facsimile is framed almost upon the assumption that if Clyde won Stages 2 and 3, Sebel would be supplier.

425               On the same day, 16 March 1999, Mr Jones sent another facsimile to Mr Doman saying that Clyde was quoting on seating for the Victorian Railways and had asked Sebel for an indicative price, wanting a quote for the 4GT seat. The requirement was said to be 56,700 seats by 2004 which, at $535 per seat space average, was a $30M contract. There was no apparent answer to this from Mr Doman in evidence.

426               On 16 March 1999, at an Executive Management Committee meeting at Clyde, Mr Graham said (according to notes probably made by Mr Hancox):

Placing of major sub-contracts is a major issue as only traction package and brakes are committed. … Seat order in jeopardy due to new management at Sebel.

427               The reference to the brake supplier being “committed” should be understood as referring only to the choice of a “preferred tenderer”. On 15 March 1999 Mr Graham signed a letter from Mr Hancox to the unsuccessful brake tenderer which was in the following terms:

We regret to advise that Clyde Engineering has chosen Sab Wabco D&M Engineering as the preferred tenderer for the above mentioned subcontract and is proceeding with negotiations in that regard.

In the event that said negotiations do not result in a contract, Clyde Engineering may renew discussions with your company.

We thank you for your considerable efforts in tendering.

428               Whilst one needs to be careful in drawing too much from a communication in a context of another body of negotiations, it can be concluded that in this Project where there was more than one tenderer, the choice of a “preferred tenderer” might have been a basis to conclude that the supplier was “committed”, but it did not negate the possibility of reverting to another tenderer if negotiations with the “preferred tenderer” did not result in a contract.

429               Sebel placed some emphasis on these matters and the reference to the seat order being in jeopardy in support of the proposition that Mr Graham and Mr Sheldrick did not believe there to be an existing contract with Sebel. As I have said elsewhere, there is some force in these submissions, but overall, taking into account all the evidence, and in particular the fact that the tender validity period was not sought to be extended after 13 October 1998, I accept that Mr Graham and Mr Sheldrick thought that Sebel was legally committed to Clyde by this time.

430               While Mr Doman was overseas, Mr Jones spoke with Mr Eric Harrison, the Commercial Manager at Sebel’s parent company GWA, who was working at Sebel’s offices in Sydney for a few days. He sought a way around the operation and consequences of Mr Doman’s view regarding the Project. Mr Jones and Mr Harrison had a conversation which included words to the following effect:

Mr Jones: Ron Doman wants us to allocate all of our tooling and R&D costs to the train seating project, so that it won’t be viable. This just isn’t how we work, it doesn’t make sense to look at this as a one-off project. We have a guaranteed order for the first stage, plus it now looks likely that we’ll get the second stage, plus Clyde are now asking us to tender for a project in Melbourne.

Mr Harrison: Let me think about it, I’ll have to get back to you.

Mr Jones: Clyde is going to be really pissed off if we try to pull out now.

431               Several days later, Mr Jones had another conversation with Mr Harrison in which words to the following effect were stated:

Mr Jones: Have you had a chance to think about the Clyde matter yet?

Mr Harrison: You’ll have to speak to Ron Doman when he gets back.

432               The matter was thus for Mr Doman, in conjunction with Mr McGrath, to decide upon.

433               Meanwhile, concern was mounting at Clyde. On 23 March 1999, a management meeting of the Clyde “Railway Services Group” took place. Mr Hancox attended, as did Mr Graham. The minutes record the following:

Sebel have a problem re: internal costing of design and tooling amortised over 200 cars. Not performing at present, new GM has concerns, and is not supporting project. This seat design is very important to the project. Meeting arranged this week with Sebel.

434               Mr Jones said that on 24 March 1999 Mr Doman instructed him to prepare a one page summary of what had happened on the Project. Mr Doman’s evidence was that he asked Mr Jones to lay out for him the background to the process that had been engaged in to that point and what it was that was being contemplated for the Project for the future. Mr Doman said that he was asking for much more than Mr Jones’ review of the contract documents that had been sent in December 1998.

435               Whilst I prefer Mr Jones’ recollection about this, that Mr Doman asked in effect for an executive summary, I also think that by this time, Mr Doman, having obtained some idea of the remaining technical issues (at least by description) and having obtained a clearer understanding of specific financial projections based on up to date costings, now wanted to obtain a better grip on the contractual position and the course of negotiations. From Mr Doman’s review of the files alone, and without the benefit of Mr Jones’ explanation of the history of the matter, Mr Doman’s understanding was that there was no contract between Sebel and Clyde at that time. Any such view would have been reinforced if he had spoken with Mr Gabadou about the topic, which in all probability, he had done.

436               Mr Jones gave evidence that in preparing the document requested of him by Mr Doman he tried to set out all the significant matters which had occurred and were occurring on the Project, and that one thing he was trying to do, at around this time, was to persuade Mr Doman to proceed with the Project.

437               The one page document dated 24 March 1999 began with first contact in June 1997. In it, Mr Jones did not state that Sebel was contractually bound to supply seats to Clyde. The document described the position from the time before submission of the tender in October 1997, as follows:

Over the next few months a series of meetings were held between Sebel, Clyde and T.D.I. to develop design concepts, engineering detail and materials. A quotation was submitted on 24 October 1997 based on the specification information available at that time and Sebel (Sheldon King’s) design concept.

Early in 1998 we were asked to confirm our offer and supply a prototype. As Sheldon King had left the Company in late 1997, it was agreed with Sony [sic] Wright that in order for us to meet our commitments in regard to the design we should engage Invetech. Invetech were briefed and engaged to proceed with the design and manufacture of the prototypes.

Also of concern were questions raised by Clyde and our engineers in regard to strength and durability of Sheldon King’s rollover mechanism. Invetech came up with the solution to this problem.

The project went into limbo awaiting a decision from State Rail. In June 1998 Clyde advised that they had completed the evaluation process with State Rail and were regarded as the preferred supplier. Clyde advised they were advised in October 1998 that they had been successful in winning the State Rail contract and it was their intent to negotiate a contact with Sebel.

In October 1998 Clyde also asked us to confirm our pricing. This was done after discussions with Michael Gabadou and on the basis that the design of the seat had changed and was regarded as being more efficient to manufacture.

Late in December 1998 we received the sub-contractor’s documents from Clyde and have been working our way through these since.

The letter does not expressly say that Clyde had signed a contract with the SRA, but Mr Doman knew that by this time, and it could be inferred from the summary. Mr Jones was unable to explain why, if he truly thought that Sebel was contractually committed to provide seats to Clyde at that time, he made no mention of that in the document. His evidence was that the question of whether Sebel was subject to a binding commitment to supply seats to Clyde was not something that came to his mind when preparing the document. That, in my view, is a powerful indication that at the time he did not think that Sebel was so committed.

438               After Mr Jones provided this document to Mr Doman, there were discussions between the two of them. There is some dispute between the parties as to what was said. Mr Doman says that he spoke to Mr Jones on 24 March 1999 and asked Mr Jones to provide a further and more detailed report on the Project, and when that report was not provided to him by the afternoon of 25 March 1999, he asked Mr Jones to cancel the meeting which had, by this time, been arranged between him and Mr Hancox for 26 March 1999, because he did not feel that he had been given enough information on any of the issues or on Mr Jones’ view about what was happening. Mr Jones’ version was that Mr Doman said that Sebel was going to have to raise its price or walk away, that Mr Jones’ summary was not enough, and that he instructed Mr Jones to prepare a full summary of everything that had happened so far. Mr Jones said that it was only at this time, and on Mr Doman’s instruction, that he arranged for a meeting between Mr Doman and Mr Hancox for 26 March 1999, and that later, on the afternoon of 25 March 1999, Mr Doman instructed him to cancel the meeting on the basis that Mr Jones had not provided him with the full summary requested.

439               I do not think it matters precisely when the meeting between Mr Doman and Mr Hancox was arranged. It was arranged some time on 23, 24 or 25 March 1999. It is more likely that it was arranged before Mr Doman received Mr Jones’ one page document. It must have been evident to Mr Doman upon reading Mr Jones’ one page document that there was a considerable history to this relationship, that he had not yet grasped the detail of that history and that he was under-prepared to deal with Mr Hancox. This was critical, because he knew by now, in part through the recent documents, that Clyde said that they had relied on Sebel’s tender, that they had signed with the SRA and that they were in an invidious position. However, at the same time there was no statement, certainly no unequivocal statement, before him from anyone at Sebel that Sebel was contractually committed. At this point, driven by the pressure of Mr McGrath for change and improvement in Sebel’s financial performance and a belief that Sebel could legally still negotiate, Mr Doman decided that he would raise the price or walk away. However, whether it was his, or Mr Jones’, fault does not matter, the fact was that on 25 March 1999 he felt unprepared to deal with Mr Hancox in terms of the detailed history of the matter.

440               Mr Jones said that he decided that he was not going to take any part in the decision to attempt to force Clyde to pay more for the Sebel seating. He said that in his thirty-five years with Sebel, he had never treated any customer in this manner. Mr Jones was of the view that Mr Doman’s conduct was unwise and harmful to Sebel and ethically and morally wrong. I accept this evidence. He did not cancel the meeting with Mr Hancox. He met Mr Hancox himself on 26 March 1999. Mr Graham was present.

441               At the meeting on 26 March 1999, the following discussion took place:

Mr Hancox: Where’s Ron Doman?

Mr Jones: He’s not coming. He said he wasn’t going to come to a meeting where you know more about the project than he does, and that I hadn’t briefed him properly.

Mr Hancox: Do you mean to tell me that this is the biggest job Sebel has got on and the GM hasn’t even got the time to read the file?

Mr Jones: Apparently. Ron Doman is saying that every project is to be stand-alone. That means one of three things needs to happen. One, the price has to go up. Two, you guarantee future work on this project. Three, you pay for all our tooling and development. Otherwise, Sebel will just walk away.

Mr Hancox: You can’t do that, we have an agreement in place. We’d just sue you.

Mr Jones observed that Mr Hancox was visibly angry at this point as he said this.

Mr Jones: I know. Off the record, I don’t agree with Doman’s approach. The fact that I’ve come here this morning means that I probably won’t have a job this afternoon. In all my years with Sebel we’ve never reneged on a deal. I’m very sorry this has happened, it’s not my way of doing business. Doman should be here now. I don’t think he’s discussed this properly with GWA – it might be appropriate for someone from here to speak directly with GWA. I don’t think they know what’s going on – I don’t think they’d allow it if they did. I’m sorry, I know we’re pulling the rug out from under you. If there’s anything I can do to help, just give me a call.

Mr Hancox: I appreciate you being honest with us. I’m sorry it has come to this. If you do get the sack you should keep in touch with us.

442               Mr Graham’s account of the meeting was slightly different. He says he spoke with Mr Jones before the meeting and Mr Jones said that the price would have to go up because of a change in Sebel’s approach to the amortisation of costs, that Mr Jones disagreed with this and felt he would probably be sacked for speaking out. Mr Graham says Mr Hancox then joined the meeting, heard what Mr Jones had to say and asked Mr Jones whether he had discussed it with Mr Wright, and that Mr Jones then responded by suggesting that Mr Hancox send a letter to Mr McGrath. I do not see any fundamental conflict and I accept Mr Jones’ account of the meeting.

443               When Mr Jones returned to the Sebel offices, his employment was ended. Whether this was as a result of Mr Jones resigning prior to going to the meeting, or being sacked for so doing, does not need to be resolved.

444               Later on 26 March 1999, Mr Hancox sent a facsimile to Mr McGrath of GWA (copied, among other people, to Mr Doman). The facsimile set out a history of the matter. It was not entirely accurate. It referred to a “Letter of Intent” issued “on Sebel” in November 1998. This is probably the letter of 13 October 1998. It may have been a reference to the letter of 22 December 1998. The letter does not unequivocally state that a contract exists and when it arose. Given the importance attached by the parties in the evidence to the question of understanding or belief it is appropriate to set the letter out in full:

I am writing to request your assistance to resolve an issue regarding Sebel’s quotation for the supply of passenger seats for the Fourth Generation Train Project which Clyde Engineering is supplying to the State Rail Authority of NSW.

The background to this subcontract for seating is possibly familiar to you, but I will restate it and our concerns.

Clyde submitted a tender to the SRA in November 1997. Our approach to this project was to provide a train which met or exceeded the customers expectation at a competitive price as we had strong competition from A. Goninan & Co, who were perhaps the favourite and also from ADtranz, the world’s largest supplier of trains.

Sebel responded to the challenge and provided Clyde with an excellent design at a competitive price. Artwork was provided and prototypes built which were shown to SRA during the tender evaluation period. Clyde produced a brochure and video incorporating the Sebel design. Sebel’s price was used in the make up of our tender.

The contract was awarded to Clyde on 8^th October 1998. Evans Deakin, our parent company, issued a press release at that time, nominating GWA and Sebel as the seat supplier.

Clyde issued a Letter of Intent on Sebel in November 1998 so that design could proceed, and requested a final tender in line with the Contract commercial and technical requirements.

Sebel submitted that final tender on 18^th January 1999 with a full set of price schedules other than for maintenance pricing.

Clyde sought clarification of Sebel’s tender on a number of minor commercial issues, but information has not been received. Repeated requests for these responses have been formally ignored.

The Letter of Intent was issued so that design could proceed. Two (2) meetings with our engineering staff have been extremely disappointing. Clyde has been advised at the last meeting that no work will proceed until the contract was finalised. However from Clyde’s point of view, the contract is essentially finalised requiring only minor issues to be resolved.

Clyde was made aware on 15^th March 1999 that Sebel was rethinking its position in relation to the contract. We understand that the concern is that the current order is for 81 cars with an option for up to 200 cars, whereas Sebel amortised non-recurring costs over 200 cars. This position was known at the time of submitting the tender, was discussed and understood by Clyde and Sebel. We further understood that Sebel was taking a broad view of the market potential and was prepared to quote accordingly.

Recently Sebel requested a meeting to discuss the project and that meeting was set for 10:00am today, with Sebel’s General Manager – Mr Ron Doman and Neville Jones who has been our contact throughout. Mr Doman did not attend the meeting and is requesting it be rescheduled for sometime next week (date not stated).

We are now well behind our schedule for design of the cars which relies on amongst other things, the input from Sebel. The postponement of today’s meeting further exacerbates our problem.

We have serious concerns about Sebel’s intentions.

We ask that Sebel’s position be clarified without further delay and that GWA ensures that Sebel will proceed with the contract on the terms represented in their tender.

445               On the afternoon of 29 March 1999, Mr Doman rang Mr McGrath. They discussed Mr Hancox’s facsimile. They also talked about the return on investment calculations Mr Lange had undertaken, see [415] and [417] above. Together they agreed that Sebel should not proceed with the Project on the terms proposed. Mr McGrath’s recollection is that he spoke with Mr Doman and asked him to look at the situation and try and come to some accommodation with Clyde.

446               Mr Doman had already spoken to Mr McGrath earlier in March. At that time, Mr Doman told Mr McGrath that he thought that Mr Wright had got the original costings wrong, that in excess of $140,000 had been spent on the Project so far by Sebel, and that there had been changes to the specification, being the size of the seat, the walls of the carriage and the inclination of the seat, about how the seat was fixed and the number of testing cycles. Mr Doman led Mr McGrath to believe that the differences had substantial cost consequences to Sebel. Mr Doman had no basis to say that. He either did not understand or misstated the technical information before him. Mr Doman did not tell Mr McGrath that the money that had been spent up to March 1999 was in line with original expectations and that there was no basis to conclude that any of the so-called changes would (as opposed to might) have design and cost implications. Mr McGrath and Mr Doman had what Mr McGrath described in his affidavit as a debate (by which Mr McGrath said in cross-examination he meant a philosophical debate) about the amortisation of research and development and tooling costs. Mr Doman expressed the view that these costs should be charged to Stage 1 of the 4GT Project. Mr Doman told Mr McGrath of the work Invetech had been doing and the scope of technical matters still to be dealt with. He did not tell Mr McGrath that Clyde had signed a contract with the SRA using Sebel’s design (although Mr Wright may well have told Mr McGrath this in October 1998), that Mr Jones had advised Clyde in January 1999 that the specification, as finally given to Sebel, did not cause Sebel to change its prices from that which had previously been quoted or that he (Mr Doman) proposed to try and have Clyde agree to a doubling of the price.

447               On 31 March 1999, Mr Doman met Mr Hancox at Clyde’s premises. Before he went to the meeting, Mr Doman had Mr Lange produce further financial figures, in addition to those produced in respect of Stage 1 only earlier in March and on 29 March – see [415] and [417] above. These further figures were based not only on the expensing of tooling and design costs, but they also had built into them overhead and general office expenses, as if a physically separate premises and business were to be set up. These calculations produced costs of $931 and $1,025 per seat space for Stage 1 only, depending on the amount of the tooling and research and development costs. (Mr Lange’s documents in evidence were dated 1 April 1999; but it is likely that such calculations were probably done before the meeting with Mr Hancox on 31 March 1999 because the price of $1,025 was then used on the basis of a separate entity. Mr Fehon’s recollection was that this costing was done on 1 April. This may be so, in which case the letter of 1 April 1999, to which I now come, may be a mixture of recording what occurred and giving further details after the meeting.)

448               The meeting on 31 March 1999 was summarised by Mr Doman in a facsimile to Mr Hancox of 1 April 1999. Mr Hancox did not give evidence. Mr Doman said that the facsimile “confirmed the details” of the meeting. The facsimile of 1 April 1999 was in the following terms:

I confirm our discussions yesterday, where I informed you that Sebel Furniture Ltd does not wish to proceed with the finalisation of design and supply of the 4 GT train seat, under the present commercial arrangements. I would like to confirm the details of several options, discussed broadly yesterday, and I would reconfirm with you that it is not our desire to disrupt the train seat development program, hence I remain available at short notice to discuss the matter further.

The option details are as follows:

1. Purchase of Intellectual Property and Design

Sebel will relinquish all rights and assign ownership of the design to Clyde Industries or its nominee, including, drawings, prototypes, relevant files and information in written or electronic form, for a sum of A$490,000. We are prepared to negotiate the form of payment under these circumstances.

Clyde or its nominee, would then be able to finish the design work, and subcontract the manufacture to an alternative third party.

2. Sebel Design and Manufacture Train Seat for Stage 1 Only

As advised Sebel (GWAIL) would establish a separate legal entity to continue development with Clyde Industries and to ultimately manufacture at a separate size the requirements of stage 1 of the contract with SRA NSW. This separate legal entity would be adequately manned and resourced to meet both the project design phase and the manufacturing phase.

The price for the 9388 seats under stage 1 would be A$1,025 per seat. This would make the Supply Price for 9388 seats for Stage 1, A$9,622,700.

In terms of timing for the project, with Sebel involvement, we could not meet the Critical Design Review date of July, however it is expected that a September date could be achieved. Earlier design reviews could occur through this design process stage to provide Clyde Industries assurance of progression. There are some other timing issues on Contract Deliverables (Attachment A), which would need adjustment prior to signing the Deed of Agreement.

At your request we will look at Stages 2 & 3, as inclusions in the total project, and the effect on seat pricing to Clyde Industries for those additional seats.

[emphasis in original]

449               Apart from anything else, this letter makes plain that there were no design issues of significance other than a timing question, not encompassed by the assessments made of tooling and research and development costs.

450               On the same day Mr Doman sent another facsimile to Mr Hancox in the following terms:

Following your request to include Stages 2 and 3 in the total 4GT Train Seat Project, I can confirm the price for Stages 2 and 3 would be A$550.00 per seat.

I trust this is sufficient information for you to make a determination on the best way to proceed with the project. I will be away on Tuesday but available from Wednesday for further discussions.

451               On or about 6 April 1999 Mr Hancox rang Mr Doman again requesting a breakdown of the $490,000 offer to purchase the intellectual property and design.

452               Thereafter there were unsuccessful without prejudice discussions.

453               On 6 April 1999, Mr Doman sent a memorandum to Mr McGrath, providing a brief report on the current status of negotiations. The memorandum stated as follows:

In October 1997, Sebel lodged a Tender with Clyde Industries and subsequently Clyde Industries won the NSW State Rail Authority’s tender process for the design, development and building of the fourth generation Tangara train as a subcontractor Sebel had developed in conjunction with Invetech a train set which was acceptable to both Clyde Industries and the State Rail Authority.

In this process Sebel spent $178,030 including $147,000 directly with Invetech who developed the seat to a prototype stage. Invetech outlaid a further $32,000 dependent upon Sebel successfully concluding negotiations of the supply of the train seat to Clyde Industries.

Clyde Industries was notified of its success in November 1998 and set out to negotiate a Deed of Agreement with Sebel. During this process Sebel has confirmed pricing for the seat at $538 per seat.

One item of significance which has unfolded is the design specification and testing of the seat. In April 1998, Neville Jones was informed that the cycle testing for the seat was to be increased from 15,000-75,000. In April 1998 he confirmed with Clyde that there would be no price increase as a result of this change. However, in March 1999 he raised the issue with Clyde Industries after it was raised internally with Sebel. Obviously he had forgotten his previous sign off on this critical fact.

Invetech’s current design is based on the 15,000 cycle testing and we do not know the impact of this change on the design.

Sebel has not signed the Deed of Agreement. The design specification does still lie on the table from the point of view that this was raised in March by Neville Jones but bear in mind he had previously signed off on this without any technically [sic] impact on what we can gather.

Option 1 – Stage 1 only – complete inhouse manufacture with minimal overhead increase

1. Seat Price $538.00

…

4.         Design cost $750,000

5.         Tooling cost $750,000

…

8. ROI + 4.6 %

Option 2 – Stage 1 only – complete inhouse manufacture with minimal overhead increase and higher design/tooling cost

1. Seat Price $538.00

…

3. Design cost $820,000

4. Tooling cost $1M

…

8. ROI – 4.4%

Option 3 – Stage 1 only – complete inhouse manufacture with minimal overhead increase to 25% ROI.

1. Seat Price $660.00

…

3. Design cost $750,000

4. Tooling cost $750,000

…

8. ROI + 24.9%

Option 4 – Stage 1 only – complete inhouse manufacture with minimal overhead increase and higher design/tooling cost to get 25% ROI

1. Seat price $708.00

…

3. Design cost $820,000

4. Tooling cost $1,000,000

…

8. ROI + 24.9%

Current Status with Clyde Industries

The attached faxes to John Hancox represents [sic] our current offer to Clyde Industries. The position that Sebel has taken to date is that we do not want to develop this train seat inhouse as it is a complete distraction from our present rejuvenation plans. The resources required in order to develop the seat are significant. The subcontract agreement proposal includes a critical design review of the seat design (in full detail including prototypes, fire tests, weights etc.) in July 1999. Bernard Fehon and Invetech agree that this is not possible. The earliest would be September.

Our offers to Clyde Industries are basically two options. One for the outright purchase of the intellectual property and design for $490,000. This figure was arrived at after looking at both direct and indirect costs associated with the project to date. The rollover mechanism is being applied for patent but we do not have confirmation of this at the moment.

The second option is for us to stand the total business apart from Sebel the [sic] financial impact of doing this is significant taking the train seat price to over $1,000 in order to achieve a 25% ROI. The details of the financial model for this option is as follows:

[Thereafter a break up of the stand alone basis price of $1,025 was given.]

Summary

The present status is that I have had one meeting with John Hancox where I told him that we would not proceed under the present financial arrangements. At one stage he asked me whether we had considered our legal position, and I merely replied that it was not in either parties [sic] interests to pursue this avenue. Subsequent to the meeting I have provided you with the faxed attachments and we await their response.

I believe from Sebel Furniture Limited’s stand point this project is a complete deviation and wrong timing for a sophisticated project of this nature. It would tax our resources enormously at a time when the health of the business is foremost in everybody’s mind. That is why the offer to Clyde Industries is so heavily pitched towards their purchase of the intellectual property and design either for themselves or a nominated third party.

454               On 7 April 1999, a letter of demand was sent by Clyde’s lawyers, Gilbert and Tobin, to Mr Doman. The letter complained in essence about three matters, as follows:

1.         breach of contract, the provisions of which are contained in the proposal submitted by Sebel to Clyde Engineering dated 23 October 1997 and as confirmed in subsequent contractual documentation and correspondence including the letter from Sebel to Clyde Engineering dated 18 January 1999;

2.         breach of the terms of the Deed Entitled “Fourth Generation Train – Specification Number S96/0301 –RFQ079-Process Protocol (the Protocol Deed);

3.         conduct amounting to misleading and deceptive conduct pursuant to Sections 52 and 53 of the Trade Practices Act 1974.

455               A chronology set out in the letter did not mention Clyde’s letter to Sebel dated 13 October 1998.

456               During April and May 1999 discussions and communications between the parties took place. One of Mr McGrath’s notes at that time was to the effect: “moral obligation to make it”. Mr McGrath gave a somewhat tendentious explanation of the note. By this stage (9 April 1999) I find that he thought that Sebel had a moral obligation to make the seat. This reflected something Mr Jones said in his cross-examination, when being asked about his summary memorandum of 24 March 1999. The following exchange took place between Mr Jones and the cross-examiner:

Mr Jackman: And you very much wanted to persuade Mr Doman to proceed with the tender, didn’t you?

Mr Jones: I thought we had a moral obligation and an ethical obligation to proceed.

457               At this point, dealing with commercial morality, Mr McGrath was asked in cross-examination about a distinction between seeking to negotiate a better price and then pulling out of the Project, and pulling out of the Project and then renegotiating the price. He appeared to understand the difference between the two in the context of these events. (I am not sure I do, in the context of these events.) In any event, Mr McGrath said that he would have regarded the latter as inappropriate conduct on the part of a senior executive within his organisation, to an extent immoral and in bad faith. Mr McGrath also said that if Sebel had got a commitment from Clyde along the lines that Sebel was not just the preferred seating supplier (with others under consideration), but the only seating supplier, he would have regarded Sebel as bound to supply the seats as long as there was only minor change to the specification.

458               It should be noted that Mr McGrath said that to him in March 1999 the critical technical issue was what he saw as a major change from 15,000 to 75,000 testing cycles. He could only have thought that important from what Mr Doman was telling him. Mr Doman had no basis to conclude that that change was in fact a problem. Consultation with Mr Payne, as Mr Jones had undertaken in March 1998, would have elicited the lack of any difficulty.

459               That takes the matter chronologically up to the period of the parting of the ways of the parties.

Further factual discussion

460               Before turning to the legal submission of the parties it is appropriate to examine further some factual issues, drawing and elaborating upon the above factual history. These topics are: (a) the extent of any of the technical difficulties outstanding as at March 1999, in particular as brought about by the specification changes in December 1998; (b) the views of the parties as to the existence of obligations and as to the relationship of the parties; and (c) the state of consensus between the parties about the documentation sent to Sebel on 22 December 1998.

The extent of the technical difficulties

461               Sebel submitted that a number of technical issues remained outstanding at February 1999. This was put forward, at least in part, in support of the submission that the parties had not reached a point of agreement. These matters included delivery times for design reviews, location and positioning of the seating in the carriage, the change from 15,000 to 75,000 cycles, the deceleration requirements, the fixing of the seating to the walls and floor of the carriage, the pitch of the seat and the load interface of the seat with the carriage.

462               Sebel put forward Mr Payne, an employed mechanical engineer, as a witness. He dealt with some of these issues. From June 1997 to May 1998 he was the Manager of Sebel’s Research and Development Department. From May 1998 to May 2000 he was Sebel’s Senior Design Engineer. He remains at Sebel, once again holding the position of Manager of the Research and Development Department. Without wishing to be disrespectful to Mr Payne, I gained the impression during his evidence that he appreciated what Sebel’s interests in the litigation were and that any concession against those perceived interests had to be extracted from him only with a display of both precision and determination.

463               In his affidavit of 22 January 2002, Mr Payne sought to identify certain matters which, from a technical perspective, were of concern to him. These technical matters arose both from the December 1998 specification and the way in which the Project had in part (post Sebel’s departure) been undertaken.

464               The first matter raised by Mr Payne was the configuration of the seating and the way in which certain panelling had been in fact used in the design of the seats which have been placed in the train. Mr Payne identified the necessity to go outside Sebel’s skills for what he saw as a change to that which he had anticipated under the tender. I see no relevant technical difficulty extant in March 1999 which might have affected the willingness of the parties to contract. The specifications (in the tender and in December 1998) may have had sufficient vagueness about them as to provoke future dispute on variations. However, no-one identified these matters during 1998 or 1999 as matters of such seriousness that they could not be dealt with in the ordinary course of design development after contract. Indeed configuration, as I have found, was discussed in 1998 well before the delivery of the new specification.

465               Mr Payne also referred to the width of the seat. This was a hypothetical difficulty only. Sebel had in fact designed the seat to the width in fact called for by the December 1998 specification.

466               Mr Payne referred to the loads. He said that Sebel had not been provided with certain information. In cross-examination he said the following:

Mr Payne: Just how the structure of the train was going to take the seat. We needed to know the fixing areas the size of the bearing members so we could distribute those loads evenly across the floor of the train without making the floor of the train buckle.

Mr Foster: But you were designing the seat throughout the latter part of 1997 and 1998 with the details that you had from the specification in mind, weren't you?

Mr Payne: Yes. Couldn't complete those designs without the structural members of the train being known.

467               This may be so, but it does not detract from the fact that even after contracting, in a job of this kind, there will almost certainly be design and detail variations, which may call for changes or design work. Such work will then be assessed by reference to the provisions of the governing contract dealing with variations.

468               Mr Payne then dealt with the weight of the seat. Once again he had resort to what Clyde had asked its designer to do after Sebel’s departure. It raised no difficulty of a technical kind as at March 1999.

469               None of the matters raised by Mr Payne forms a basis for concluding that any aspect of what he raised evinced an objective factor tending against the readiness of the parties to contract from 1998 onwards. There was certainly no lack of available certainty in design to tend against an objectively formed contract, if the circumstances otherwise threw that up. None of the enquiries of Invetech in 1999 threw up any such difficulty.

470               Mr Fehon’s only real concern was a temporal one.

471               Mr Gabadou’s evidence did not raise matters which could not have been expected to be dealt with in post contract design variations.

472               The cycle testing question had been considered by Mr Payne in 1998 and thought not to be a problem.

473               The fact was that if Clyde had asked Sebel to sign a written contract in August 1998 Sebel would have gladly done so. Mr Wright said as much. None of the discussions between Mr Graham and Mr Jones in 1999 or between the Clyde and Sebel technical people revealed any difficulty about design of a kind to affect or impede the parties entering a contract based on either the earlier or later specification.

The views of the parties as to the relationship and obligations

474               I have already made comment on some aspects of the evidence of the witnesses. I do not wish to repeat unnecessarily what I have said. Important for the estoppel and s 52 cases, and, on one way it was put, the contract case, were the beliefs and understandings of the parties, from time to time, about matters going to Sebel’s obligation to proceed.

475               Without for one moment implying any dishonesty on the part of Mr Jones, Mr Graham and Mr Sheldrick, it is fair to say that each of them gave evidence from an after the fact perspective which tended, I think, to lead them to rationalise matters into legal constructs in order to deal with what they genuinely saw at the time (when it arose in March 1999), and now see, as unethical conduct of Sebel. This episode has cost Clyde some millions of dollars. A court case has been fought at not inconsiderable expense. Mr Graham and Mr Sheldrick were handling matters from Clyde’s point of view. Mr Jones put a significant effort over a long period of time in developing and nurturing a significant commercial opportunity for Sebel. He developed a close working relationship with Mr Graham. He was, I think, embarrassed by what he saw as Sebel’s unwise and unethical conduct. These considerations must be borne in mind in weighing the evidence of these men, in particular the evidence that at the time each thought that Sebel had entered a legally binding obligation to provide the seats pursuant to the original tender.

476               I draw a number of conclusions about Mr Jones. First, he did not at any time state to Mr Doman that Sebel was contractually committed to Clyde. If he had really thought so at the time I think he would have said so. Saying, as he may well have done, that he had “agreed a price” did not do so. It must have been plain to him by late February that Mr Doman was considering walking away from the Project. If he thought Sebel was contractually bound I think he would have said so, in words of one syllable. Secondly, Mr Jones most definitely believed, until Mr Doman’s views became known, that Sebel and Clyde would enjoy a contractual and business relationship in the 4GT Project. He believed that Sebel was the only real tenderer and had always been so. He believed, and had confidence, in the virtual certainty of Sebel providing the seating. Thirdly, no real occasion arose for him to turn his mind to the existing legal relationship of Clyde and Sebel until Mr Gabadou asked for a letter of intent. Mr Jones was not told by Mr Sheldrick that there was already a contract or that Clyde had accepted Sebel’s tender by the letter of 13 October 1998; he was told that a contract (in the form of documentation) would be provided shortly. Mr Jones did not see what Mr Sheldrick said to him as undermining his expectation as to the likely certainty of the relationship, but also he did not see it as a statement of a presently binding legal commitment. If he had done so, he no doubt would have said this to Mr Gabadou in October 1998, Mr Wright in October 1998 and Mr Doman in January, February or March 1999. In any event, at the time of the request for the letter of intent the commitment of Sebel was not an issue. Fourthly, Mr Jones thought that Sebel in March 1999 was breaking a moral and ethical commitment to Clyde and that it was behaving in a way that he had never seen Sebel exhibit before in relation to a customer. Fifthly, I do not think that in 1998 or 1999 he had a specifically formed belief about the state of legal relations between the parties. His views were as I have described.

477               As to Mr Graham and Mr Sheldrick, there is much to point to the view that in 1998 and 1999 they similarly thought along lines of the likelihood that Sebel would supply the seats, rather than of the existence of legal relations. Some of the communications and notes in 1998 and 1999, have a tendency to indicate that Clyde did not view Sebel as contractually bound. However, Mr Graham and Mr Sheldrick knew of the tender validity period. It was not extended past 27 November 1998, after 13 October 1998. I find that this was not an oversight. Mr Sheldrick’s job was to attend to such contractual matters. He struck me as a man of careful habits. His documentation reflects that. Neither Mr Graham nor Mr Sheldrick thought it necessary to extend the tender validity date. It is important to recall why they said that they had that view. Each said that he thought that what had passed between the parties hitherto, in particular, if not exclusively, the correspondence sent by Clyde, had bound Sebel and made any extension of the tender validity period unnecessary. Neither refrained from some more clear overt act to bind Sebel on the faith of any representation of Sebel or of anything Sebel had done. They were both content to rest their conclusions on what had passed between the parties up to and including October 1998 as contractually binding Sebel to provide seating pursuant to its October 1997 tender. The agitation exhibited by both in February 1999 is perhaps explicable on the basis that whilst each had thought Sebel to be bound, making the extension of the validity period unnecessary, each nevertheless was unnerved by a looming problem, in respect of which they could foresee that they would be seen as the responsible parties at Clyde.

478               It is important at this point to deal with the submissions of Sebel about Clyde’s intentions concerning future possible price negotiations. Much of the force of the submissions derives from the cost estimates and the cross-examination thereon. Mr Graham initially accepted the description of those estimates as the most reliable and accurate estimate that Clyde could set out for the various costs Clyde would incur, that is that it intended to incur, in performing the proposed contract with the SRA. In the light of the evidence of a board instruction that, at least, dealt with how sub-contract prices were to be dealt with in Clyde’s tender to the SRA, Sebel submitted that I should find that the board instruction and Clyde’s intent was to seek to reduce Sebel’s prices from those set out in the October 1997 tender. This explained, according to the submission, why Clyde did not expressly and clearly accept Sebel’s tender and why Clyde refused Mr Jones’ request for a letter of intent: Clyde did not wish to commit itself to Sebel, for to do so would prejudice its future negotiating position with Sebel.

479               The evidence about this was less than complete. Mr Graham accepted that it was possible that he may, in the future, have asked Sebel if it could improve on its price; but he denied that he had any actual intention to do so. He said the Sebel price was acceptable. Neither Mr Graham nor Mr Sheldrick had put to them that the board instruction required them to go back at some stage to renegotiate the price of Sebel’s seating to any particular level. However, there was no satisfactory explanation of the various figures in the cost estimates. Mr Oliver was not called to give an explanation of their creation and the reasons for the figures included. I am left with the uneasy feeling that there was more to the inclusion of the various figures in the costings than the evidence disclosed. I am unable to take the matter any further. Having seen Mr Graham, I accept his evidence as truthful that he had no intention to renegotiate price. I do not find that there was a board instruction that this be done. I am not able to conclude what the cost estimates were intended to achieve or disclose. Given the alternative prices in the draft estimates of 22 December 1998 and the signed estimates of 23 December 1998 it is difficult to accept that they were what Mr Graham at one point accepted: the most reliable estimate of what Clyde expected to pay Sebel. When Mr Graham appreciated the intended context of these words by the cross-examiner there was a degree of debate about their importance. Without further explanation beyond that which I was given, I cannot make a finding as to the purposes of inclusion of the different figures in the cost estimates. Whilst I am prepared to accept Mr Graham’s evidence about not having an actual intention to renegotiate Sebel’s prices, I cannot draw that conclusion about others at Clyde who did not give evidence. Though, it must be said, the evidence is not sufficient for me to infer that others, such as Mr Hancox, had that intention.

480               What has troubled me, to a degree, is why Clyde was not clearer in its communications with Sebel, on and after 8 October 1998, if Mr Graham and Mr Sheldrick were of the view that Clyde and Sebel were committed to each other legally, by way of enforceable contract. I have found that Mr Graham and Mr Sheldrick thought Sebel was bound. Whether they were right or wrong about that is a matter for me to decide. However, what is plain is that they did not seek to make clear to Sebel in writing, or indeed orally, that there were binding legal relations between the parties. It is not a good enough explanation for the absence of this kind of communication for Clyde to submit that the matter was so obvious that it went without saying. It did not. Mr Jones asked for a letter of intent – something understood in this industry as a form of commitment. It was not refused as unnecessary on the explanation that the parties were committed. It was refused in the context of the delivery of documents in accordance with a regime set out in the letters of 24 March 1998, 2 June 1998 and the Process Protocol, all of which maintained a careful and deliberate process leading up to contractual formation at, or sometime shortly prior to, the execution of final documentation.

481               I think that the probable explanation of this was the desire of Mr Sheldrick and Mr Graham to maintain uniformity of written treatment of all prospective sub-contractors. Sebel was given the standard letters sent to all. Precisely why this was done with a party whom Messrs Graham and Sheldrick thought was legally committed is not clear. They may have entertained a view that Sebel was committed, but that Clyde had a certain freedom of action. In one sense that did not really arise because at no relevant time did Clyde have any intention of using any seating supplier other than Sebel. Why Clyde did not make its communications with Sebel clearer can be left as an unanswered unnecessary question. It sent and made the communications it did. They are to be judged objectively in the context in which they occurred to assess the existence or not of agreement and an intention to be legally bound.

482               As to the actors at Sebel, other than Mr Jones, Mr Gabadou did not think there was a contract. He thought, from what he had been told by Mr Jones upon the latter returning from his request of Clyde to issue a letter of intent, that Clyde would not commit itself to Sebel until execution of a written contract. He thought (not from what Mr Jones said to him) that there was another tenderer, though he thought that Sebel was “preferred” and, as I have described, his view about another tenderer can perhaps be described as a nagging doubt. He probably passed these views on to Mr Doman.

483               Mr Wright knew that Clyde had used Sebel’s design in its tender and he knew in 1997 that Sebel was not in a truly competitive position. However, he thought (like Mr Gabadou) that Clyde had not legally committed itself in a binding way to Sebel. He had a nagging doubt about another tenderer and thought that there may be further price negotiations. If he had read the Process Protocol and Clyde’s correspondence of 24 March 1998, 2 June 1998 and 13 October 1998 which as General Manager, I infer he did, and understanding what Mr Gabadou thought, he was entitled to hold these views.

484               Mr Doman, I accept, did not believe there to be a contract binding Sebel. No one told him that that was the case, nor was it his view that that was the case. He did know from what he had been told that Clyde had relied on Sebel, had bound itself to the SRA and was now saying that Sebel’s changed attitude would put Clyde in an invidious position. He was prepared to use these circumstances better to position Sebel in gaining a price increase. In the light of what he knew as to Clyde’s position, I find that he appreciated that the request for a doubling of the price for Stage 1, if persisted with, would probably terminate the relationship. It is unnecessary for me to pass upon the competence of Mr Doman’s handling of the matter. On the understanding of the business and the Project that he had in March 1999, his approach was underpinned by his view of the need for the Project to pay for itself on a stand-alone basis. On this basis, he decided in March not to proceed any further with the Project at the price hitherto quoted. This was done in what he saw as the interests of Sebel. He was also seeking to act decisively in his first display of executive authority under the stern gaze of Mr McGrath and the GWA board. He was aware of Clyde’s position (as they stated it) as being without a replacement for such a major component. He saw that as Clyde’s problem. In the absence of any binding commitment by Sebel (in his view) he saw Sebel as in a position to dictate terms to Clyde. Mr Doman insisted that he was at all times willing that Sebel undertake the Project. However, that evidence must be interpreted as Mr Doman being so willing only on restated terms, after Clyde was bound to the SRA, which restated terms he must have known would be unacceptable to Clyde.