FEDERAL COURT OF AUSTRALIA

Eden Construction Pty Ltd v State of New South Wales [2008] FCA 376

CONTRACT – inducing breach of contract – principal intending to accept tender hears adverse comments from informant on tenderer’s past performance – whether principal owes tenderer implied contractual obligation not to decline to accept tender without first giving tenderer opportunity to be heard – whether informant induces principal to breach an implied contractual obligation owed by principal to tenderer - Held: no implied obligation made out.

TORT – inducing breach of contract – principal intending to accept tender hears adverse comments from informant on tenderer’s past performance – whether principal owes tenderer implied contractual obligation not to decline to accept tender without first giving tenderer opportunity to be heard – whether informant induces principal to breach an implied contractual obligation owed by principal to tenderer - Held: no implied obligation made out.

Cubic Transportation Systems Inc v State of New South Wales [2002] NSWSC 656 referred to

Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151 distinguished

EDEN CONSTRUCTION PTY LTD v STATE OF NEW SOUTH WALES

NSD 102 OF 2008

LINDGREN J

20 MARCH 2008

SYDNEY

THE COURT ORDERS THAT:

1.                  The application be dismissed.

2.                  The applicant pay the respondent’s costs of the proceeding.

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

REASONS FOR JUDGMENT

INTRODUCTION

1                     The applicant (Eden) applies for an extension of time in which to file and serve notice of an appeal from the judgment of a Judge of the Court given on 9 May 2007: see Eden Construction Pty Ltd v State of New South Wales (No 2) (2007) ATPR 42.  On that date, the primary Judge, Graham J, answered a number of questions separately and before any other questions in the proceeding.  According to the application, the extension of time is required because the notice of appeal was not filed and served within the time limited by O 52 r 15 of the Federal Court Rules.  Order 52 r 15 provides, relevantly, that a notice of appeal must be filed and served within 21 days after the date when the judgment appealed from was pronounced.  In its written submissions, Eden states that its application is for “leave to appeal out of time”.  There is no right of appeal from an interlocutory judgment unless the Court or a Judge gives leave to appeal: see s 24(1)A of the Federal Court of Australia Act 1976 (Cth). 

2                     On 8 June 2007, his Honour made an order dismissing the proceeding and reserving the question of costs for argument.  Subsequently, on 20 June 2007, his Honour ordered that Eden pay the costs of the respondent (the State): see Eden Construction Pty Ltd v State of New South Wales (No 3) [2007] FCA 946. 

3                     Eden has not sought either an extension of time or leave to appeal in relation to anything other than the answering of the separate questions on 9 May 2007 (the draft notice of appeal would also seek a setting aside of the order as to costs).  It seems clear that the present application is deficient in that it seeks an extension of time in which to appeal from an interlocutory judgment and does not seek an extension of time in which to appeal from the final judgment. 

4                     Since I have come to the view for the reasons given below that no arguable question of law warranting the attention of a Full Court has been raised, and this would be a sufficient ground on which to dismiss any application for either an extension of time or leave to appeal, I will not discuss the deficiencies mentioned any further but will simply dismiss the application.  

5                     Unless otherwise specified, my references to the primary Judge’s reasons are a reference to his Honour’s reasons in Eden Construction Pty Ltd v State of New South Wales (No 2) (2007) ATPR 42.

BACKGROUND FACTS

6                     Eden is a pipe laying contractor.  The proceeding at first instance related, relevantly, to the Moruya Heads Sewerage project (Moruya Heads Project) and the Kremur Street Pumping Station project (Kremur Street Project).    Both projects are also relevant to the present application. The “Principal” in the case of the Moruya Heads Project was the Eurobodalla Shire Council and in the case of the Kremur Street Project was the Albury City Council.  In both cases the State’s Department of Public Works and Services (DPWS) was the project manager.

7                     The opening paragraph of his Honour’s reasons for judgment encapsulated the position as follows:

The primary concern of the parties in this matter is to have the Court determine whether the non-award of a civil engineering subcontract to the applicant, for the construction of gravity and rising mains and pipework at Moruya Heads, can be attributed to wrongful bad-mouthing of the applicant by the respondent’s Department of Public Works or one of its successor Departments (‘the Department’) in respect of the applicant’s performance of a contract with the Albury City Council for the Kremur Street Pumping Station (part of the Council’s Sewerage Works), to a wrongful placement of the applicant on the Department’s Provisional Contractors’ Review List, to a wrongful description by the Department of the applicant as a litigious contractor and as an unsuitable contractor and/or to a breach by the respondent of an agreement made 7 January 1994 said to have arisen from the settlement of a dispute between one of the applicant’s related companies and the Department in respect of a Norah Head civil engineering contract.

8                     On 31 May 1999, Allied Constructions Pty Ltd (Allied) invited Eden to quote for a subcontract on the Moruya Heads Project.  Apparently Eden did so and on the basis of Eden’s quote, Allied tendered to the DPWS for the job.

9                     Eden had previously been contracted to undertake construction and associated mechanical electrical work on the Kremur Street Project.  The contract for that Project was between the Albury City Council and Eden, and the performance of the contract was managed on behalf of the Council by the DPWS.  In connection with the Kremur Street Project, “Contractor Performance Reports” had been made within the DPWS which were in some respects adverse to Eden in terms of its management and quality of work. 

10                  At [361] of his reasons for judgment, the primary Judge referred to diary notes for 28 July 1999 of Mr Fred Brown, the contracts manager at Allied, which included the following:

John Hetherington [the Department’s Regional Superintendent for the South Coast region] rang re Moruya re Eden (42268490)

•    passed over on 2 recent projects for pipework due to Edens inability to demonstrate exper. in pipework

•    very poor “time” performance at recent project at Albury.

•    General performance at Albury unsatisfactory with unsatisfactory performance in 6 of 7 categories.

•    Previous dispute with Eurobodalla Shire Council.  DPWS would need to talk council around.

But not “barring” them at this stage.  Info given is strictly confidential.

11                  On 28 July 1999, Mr Brown had a conversation with Mr Chris Maher, the managing director of Allied, to the following effect (referred to by the primary Judge at [362]):

Brown:            I have just had an interesting meeting with the DPWS.  They went through various questions in relation to our tender and asked me who our subcontractor would be for pipelaying.  I told them that we had considered a number of contractors but were currently considering Eden.  DPWS said they were very unhappy with Eden and that the Eurobodalla Shire Council in particular would be very unhappy if we used Eden.

Maher:             I suggest that you meet Eden and get to the bottom of it.

12                  According to [363] of his Honour’s reasons, on 29 July 1999, Mr Maher had a further conversation with Mr Brown in which Mr Brown said:

I am now very unhappy with Eden.  I met with their Managing Director and he said to me that they don’t take crap from anyone and would litigate if they had to.  I gained the impression that Eden are very litigious.

13                  His Honour found (at [364]) that on 20 August 1999, Mr Maher wrote to the DPWS submitting a revised tender price for the Moruya Heads Project which was approximately 25% higher than the original tender amount.  The letter included the following:

We regret to advise that as a result of some information obtained subsequent to the close of tenders, we have determined that a subcontractor that we intended to use for the above project is not acceptable to us and can no longer be considered for the Project.

We have subsequently negotiated with other appropriate subcontractors.

As a direct result we have no alternative but to advise that we must increase our Tender Sum by $791,578.00

Our revised Tender Sum is $4,252,155.00.

Should this increase not be acceptable then we have no option but to withdraw our Tender.

It is with great regret and significant concern that we notify you of this increase.  We ask that you take into account the fact that we have never before in our long association with DPWS, been forced to take such action.

We trust that you will accept that we cannot proceed with a Contract based on the originally Tendered Sum as we would concede a huge loss to this Company.

With reference to those actions that are required resulting from our meeting of 27 July 1999 we confirm that a full response will be forwarded separately later today.

We again sincerely apologise for this late and significant revision.

14                  Finally, his Honour found (at [365]) that the principal reason for the increase in the tender price was the passing over of Eden as the intended subcontractor in favour of another company which had tendered a higher amount for the subcontract works.  Allied’s tender was accepted, notwithstanding a higher price (see [370] of his Honour’s reasons).

15                  It is necessary to refer back to the earlier Kremur Street Project.  The standard Conditions of Tendering for the Kremur Street Project, subject to which Eden had tendered, contained clause CT-3.04 which was as follows:

During the course of the Contract, the successful Tenderer’s performance will be monitored and assessed.  Performance assessment reports, including substantiated reports of unsatisfactory performance, can be taken into account by NSW government departments and agencies and may result in future opportunities for NSW government work being restricted or lost.

By tendering for this Contract, the Tenderer authorises the Principal to make available on request to any NSW government department or agency information including, but not limited to, information dealing with the Tenderer’s performance.  Such information may be used by the recipients for NSW government purposes including assessment of suitability for registration, pre-qualification, selective tender lists or the award of a contract.

The provision of information by the Principal to any other NSW government department or agency is agreed by the Tenderer to be a communication falling within Section 22(i) of the Defamation Act 1974 (NSW), and the Tenderer shall have no claim against the Principal or the State of NSW in respect of any matter arising out of the provision or receipt of such information, including any claim for loss to the Tenderer arising out of the communication.

In the evaluation of tenders, the Principal may take into account any information about the Tenderer which the Principal receives from any source.

16                  Eden’s contract for the Kremur Street Project was subject to standard General Conditions of Contract and Annexure, which included, in Annexure Part A, clause AB-0.19 which was as follows:

The Contractor authorises the Principal to make information concerning the Contractor available to other NSW government department or agencies.  Such information may include, but is not limited to, any information provided by the Contractor to the Principal and any information relating to the Contractor’s performance under the Contract.

The Contractor acknowledges that any information about the Contractor from any source, including substantiated reports of unsatisfactory performance may be taken into account by NSW government departments and agencies in considering whether to offer the Contractor future opportunities for NSW government work.

The Contractor acknowledges and agrees that the communication of such information by the Principal to any NSW government department or agency is a communication falling within Section 22(i) of the Defamation Act 1974 (NSW).

The Contractor releases and indemnifies the Principal and the State of NSW from and against any claim in respect of any matter arising out of such communications.  Without limitation of the above, the Contractor releases the Principal and the State of NSW from any claim it may otherwise have for any loss to the Contractor arising out of the Contractor’s performance under the Contract by the Principal, the communication of information relating to such assessment to any NSW government department or agency, or the use of such information by the recipient.

17                  On the present hearing the State relies on clauses CT-3.04 and AB-01.9 as showing that Eden had consented to DPWS’s disclosing information concerning its performance on the Kremur Street Project to Allied and as constituting a release and indemnity of the State in respect of any matter arising out of such a communication. 

18                  Eden had been invited to comment on the various adverse Contractor Performance Reports (referred to at [9] above) but had failed to do so.  In fact, the DPWS issued such an invitation to Eden in connection with its Contractor Performance Reports by letters dated 19 May 1998, 17 August 1998, 23 November 1998 and 15 February 1999.  Eden did write to the DPWS on 3 June 1999, but only to demand that all of the Contractor Performance Reports be withdrawn unconditionally on the basis that they were “flawed and not representative of the Contractors [sic] effort”.  The signatory, Mr Filardo, stated that the sole purpose of them was to disadvantage him and Eden. 

19                  The DPWS replied on 11 June 1999, declining to withdraw any of the Contractor Performance Reports.  The letter stated that at a meeting on 16 February 1999 on site, Mr Filardo had asserted to the writer (Kevin Ellison, Contracts Superintended Riverina/Western Region) that “the problems identified with time, safety and quality would be addressed immediately” yet the latest Contractor Performance Report dated 7 May 1999 did not reflect improvements in performance. 

20                  It will be recalled that Allied’s invitation to Eden to tender was issued on 31 May 1999 and that by September 1999 Allied had decided not to accept Eden’s tender on the Moruya Heads Project.

21                  There were further adverse Contractor Performance Reports on Eden on the Kremur Street Project.

THE PRESENT APPLICATION AND GROUNDS OF APPEAL

22                  The claims made by Eden have changed from time to time.  So did the questions that his Honour ordered be separately determined.  Only one of those questions now remains relevant, namely, question number 5.  When I say that only question number 5 remains relevant, that was not so at the time of the commencement of the hearing before me.  During the course of that hearing, Senior Counsel who appeared for Eden (he had not appeared for Eden previously and had been briefed only very shortly prior to the commencement of the hearing) indicated that he would wish to prepare amended grounds of appeal.  While this represented the last of numerous changes of position by Eden, I allowed him to proceed on the basis that the only grounds of appeal pressed were those in a proposed amended notice of appeal document which he handed up on the hearing. 

23                  Question number 5 and his Honour’s answer to it were as follows:

Q.5      Did the Respondent engage in deliberate use of unlawful means to wrongfully interfere with the Applicant’s trade or business, by the conduct which is complained of by the Applicant?

A.        No.

24                  The three grounds of appeal now pressed are as follows:

1.                  Graham J erred in failing to hold on the facts before him that a contract in the nature of a ‘process contract’ existed between the Appellant and Allied Constructions Pty Ltd.

2.                  Graham J erred in failing to hold on the facts as found by him that the elements of the tort of interference with contractual relations was made out in relation to the process contract between the Appellant and Allied Constructions.

3.                  The reasons for decision delivered by Graham J in relation to the issue of the tort of interference with contractual relations were inadequate and failed to disclose any reasoning process sufficient to justify his decision.

CONSIDERATION

25                  The obvious must be emphasised:  Allied did not accept Eden’s tender, and Eden has not sued Allied for breach of any kind of contract.  Eden contends that there was a “process contract” between Eden and Allied, and that the State unlawfully interfered with that contract.

26                  Eden refers to Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151 (Hughes)and Cubic Transportation Systems Inc v State of New South Wales [2002] NSWSC 656 (Cubic Transportation).  The facts of Hughes were vastly different from those of the present case.  In Hughes,there were two competing tenderers, the applicant in the proceeding being the unsuccessful one.  Finn J held that in the circumstances of the case, there was an implied contract that might be called a “process contract”, according to which Airservices Australia incurred implied contractual obligations in favour of the tenderers, including an implied obligation to conduct its evaluation fairly and in a manner that would ensure equal opportunity as between them. Cubic Transportation also concerned competing tenderers. 

27                  Eden’s case as now presented is that there was a process contract between Allied and Eden, and that the DPWS induced Allied to breach that contract by not accepting Eden’s tender.  Eden has not referred to evidence of any competing tenderer on the scene.  Indeed, Eden has not referred to any evidence of the terms on which it tendered to Allied.  So far as I know, the circumstances were simply that Eden tendered;  Allied was disposed but not bound to accept Eden’s tender;  and Allied decided not to do so for the reasons mentioned.

28                  The first reason why Eden’s present application fails is that Eden did not make the present claim at trial.  Notwithstanding the attempt by Senior Counsel for Eden to suggest otherwise, the fact is that the relevant parts of Eden’s amended points of claim alleged only that DPWS made representations to Allied and that as a result Allied did not engage Eden as its subcontractor on the Moruya Heads Project.  Eden did not make submissions to his Honour in support of the existence of a tender process contract.  A Full Court would not permit Eden to raise an entirely new case for the first time at the appellate level.

29                  Secondly, Eden has not pointed to any circumstances giving rise to the supposed implied tender process contract or suggested what the content of the implied contract would be.  These two matters are closely interrelated.  On the hearing, I raised the following question: what was the implied contractual obligation that DPWS is said to have induced Allied to breach?  However, in its post-hearing written submissions, Eden has not attempted to identify that obligation. 

30                  The evidence showed that Allied had heard bad things about Eden from the DPWS, and that Allied itself had become concerned over the attitude of Eden’s managing director, and so had ceased to be of a mind to accept Eden’s tender.  So, perhaps it might be suggested that the implied contractual obligation was that Allied would not pay any attention to anything damaging to Eden that it heard or decline to accept Eden’s tender on the basis of that information without giving Eden an opportunity to be heard, while remaining free to decline to accept it for other reasons.  I do not accept that the relationship of principal and tenderer gives rise as a matter of law to such an implied obligation, including in circumstances where a job is tendered for and the principal’s conduct evinces a present intention to accept the tender. 

31                  Thirdly, if we assume that the implied contractual obligation was of the kind that I have outlined, the State did not induce Allied to breach the supposed process contract.  Rather, the State merely provided the substratum on which Allied’s contractual obligation was enlivened.  Indeed, the implied contractual obligation, formulated as I have suggested, would assume as its starting point that Eden had been “bad mouthed” by someone.  The State would have had to do something further to induce Allied to breach the supposed process contract.

32                  Fourthly, it is clear that Eden had consented to the DPWS’s use of the information that it had gained from the Contractor Performance Reports in the way in which the DPWS apparently used that information.  Although the primary Judge did not have to deal with this point, it is plain that his Honour would have held that the standard clauses set out at [15] and [16] above provided a complete answer to Eden’s claim.

33                  In addition to the above reasons, there are discretionary reasons why an appeal by Eden should not be permitted to proceed.

34                  First, the present application is not Eden’s first attempt to obtain an extension of time in which to file and serve notice of an appeal.  On or about 4 July 2007, Eden made a similar application to the present one, and on 22 August 2007, Stone J dismissed that application and ordered that Eden pay the State’s costs of that proceeding: see Eden Construction Pty Ltd v State of New South Wales [2007] FCA 1317.  Eden did not raise the process contract argument before her Honour.  Stone J permitted Eden to appear by its managing director, Mr Filardo.  Eden applied for an adjournment of the hearing of its application on the ground that its impecunious situation had not permitted it to engage legal representation (see [35] ff below).  Although it is understandable that the present process contract argument was not raised by Mr Filardo, the fact remains that it was not raised, and that the State incurred the costs associated with resisting Eden’s application on that occasion.

35                  Secondly, there is evidence suggesting that Eden is insolvent, or, at least, would not be able to satisfy a costs order made against it on the appeal, or to provide security for the State’s costs of an appeal. 

36                  On 26 April 2006, Graham J ordered Eden to pay the State’s costs of Eden’s motion to file further amended points of claim.  His Honour also ordered that such costs might be taxed and should be payable forthwith: see Eden Construction Pty Ltd v State of New South Wales [2006] FCA 476.

37                  The State prepared and filed a party/party bill of costs pursuant to that order on 29 June 2006.  Eden attempted to file a notice of objection but it was rejected by the Court because Eden had not lodged security for the costs of taxation in accordance with O 62 r 46(3)(d) of the Federal Court Rules.  The amount that Eden was required to pay as security but did not was only $1,250.  On 12 September 2006, the Court certified the State’s party/party costs on the above motion to be $14,200. 

38                  On 22 September 2006, the State’s solicitors wrote to the then solicitors of Eden, Johninfo Lawyers, enclosing a copy of the certificate of taxation and demanding payment, but there was no response.  In the absence of a response, on 10 November 2006, the State obtained and had entered an order by the Court that Eden pay the State $14,200.

39                  On 1 February 2008, the State’s solicitors sent to Eden by prepaid post a statutory demand under s 459E of the Corporations Act 2001 (Cth) requiring payment in accordance with the Court’s order of 10 November 2006. 

40                  Payment in accordance with the statutory demand has not been made by Eden, nor has Eden applied to set aside the statutory demand.  There has been email correspondence between Bartier Perry, the solicitors for the State, and Erlington Boardman Allport, the present solicitors for Eden, in relation to the statutory demand, but these have not led to any kind of resolution. 

41                  In all the circumstances, even if I had thought that there was an arguable ground of appeal, I would nonetheless have dismissed the present application on the discretionary grounds that Eden did not raise the present point before Stone J, and would be unable to meet any order for costs if it should fail in the appeal or provide security for the State’s costs of the appeal.

CONCLUSION

42                  The application should be dismissed with costs. 

Associate:

Dated:         20 March 2008