On 4 July 2016, the New South Wales Court of Appeal handed down a unanimous decision in Secure Parking Pty Ltd v Woollahra Municipal Council [2016] NSWCA 154 (Secure Parking). The case is a significant reminder to councils of how contracts are formed in the context of tendering under s 55 of the Local Government Act 1993 (LG Act) and Part 7 of the Local Government (General) Regulation 2005 (LG Regulation).

The decision provides a salient reminder for councils undertaking tender processes under s 55 of the LG Act, that a contract may be formed through issuing a letter of acceptance to a successful tenderer, following resolution by council – despite the absence of an executed agreement.

However, in overturning the decision of Ball J in the Supreme Court, the Court of Appeal emphasised that for a contract to be formed through the issue of a letter of acceptance, there must be correspondence between the tender offer made to council and acceptance of the offer.

Background

Woollahra Municipal Council (Council) issued an invitation for Tender for the operation and management of any or all of four carparks owned by it in November 2010. Three of the car parks are located in Double Bay and one is located in Bondi Junction. In response to a request for tender process conducted under s 55 of the LG Act, Secure Parking Pty Ltd (Secure) submitted a tender to Council on 16 December 2010 for the management of all four car parks.

The invitation for Tender document was divided into three sections. Section 1 set out the ‘Conditions of Tender’. Section 2 consisted of ‘Tender Schedules’ identified by the letters A to G. Section 3 consisted of three attachments. The first contained provisions dealing with the completion of the draft management agreement. The second was the draft management agreement, having ‘DRAFT’ water-marked on each page. The third contained historical statistics concerning the use of the car parks.

The draft management agreement required that bank guarantees be provided by the operator of the car parks. This was later discussed between representatives of Council and Secure at a meeting in February 2011 following the submission of tenders. Secure’s representatives asserted that the company could not provide a bank guarantee and offered to provide a performance bond as an alternative.

Council sought to vary the guarantee amount in the tender on 28 February 2011, requesting the equivalent to three months of the total guaranteed income in Secure’s tender. Secure responded that it was “happy however to agree a Performance Guarantee Bond for the amount of two months”. Council’s representative replied stating “I will put a requirement of two months Bank Guarantee ($385,000) in my report to Council”. Secure did not respond to that email from Council.

The signed tender response form put forward by Secure, acknowledged Secure’s acceptance of the following requirement:

3.1 Completion of Management Agreement

3.1.2 The successful Tenderer/s must within fourteen (14) days after the date of the Council’s written notification of acceptance of a Tender, agree on a commencement date for the Management Agreement, sign the Management Agreement and deliver to the Council the signed Management Agreement together with evidence of the insurances and the initial Bank Guarantee required under the Management Agreement.

On 14 March 2011, Council resolved to accept Secure’s tender offer, notifying Secure of that acceptance the following day. Although the parties did not thereafter sign or otherwise enter into any formal agreement, Council’s position was that on 15 March 2011, it had made a binding contract with Secure for management of all the car parks. A dispute then arose between Secure and Council as to whether a binding contract of the management of the car parks had been made.

By letter dated 8 June 2012, Council purported to terminate the contract and commenced proceedings seeking a declaration as to the existence of the contract and it being validly terminated, as well as a claim for damages.

Lower court decision

Council’s claim, that a contract had been made upon its acceptance of Secure’s tender offer on 15 March 2011, was upheld by Ball J in the Supreme Court. His Honour determined that the terms of the offer and acceptance included an agreed variation by which Secure would provide a bank guarantee for an increased amount of guaranteed income. Ball J held that Council was entitled to terminate the contract for repudiation when Secure refused to acknowledge the existence of, or perform its obligations under, that agreement, and assessed damages for loss of the benefit of that contract at $5,339,592, and for the cost of undertaking a second tender process at $122,829.

Secure appealed the decision of Ball J to the New South Wales Court of Appeal.

Issues

There were six issues before the Court of Appeal, including:

  • whether the primary judge erred in holding that Secure had varied its tender offer so as to increase the Initial Bank Guarantee Amounts to two months guaranteed income
  • whether the primary judge erred in holding that Council’s communicated acceptance of Secure’s tender corresponded with that offer
  • whether the primary judge erred in not holding that no contract was made because of the absence of agreement as to the Commencing Date of the management period for each car park
  • whether the primary judge erred in not holding that Council was not entitled to terminate the management contract because it was not ready and willing to perform it and was insisting that Secure execute a written form of agreement that did not accurately record the terms of the contract
  • whether the primary judge erred in not holding that Council had engaged in misleading or deceptive conduct by not disclosing to Secure that the Woolworths redevelopment proposal included a car park of 500 parking bays
  • whether the primary judge erred in not holding that Secure had engaged in misleading and deceptive conduct by representing, contrary to its actual intention, that it intended to enter into and perform an agreement in accordance with the terms of the tender conditions.

In effect, the Court of Appeal had to determine whether a binding contract had been made, whether the Council was entitled to terminate that contract and whether both parties had engaged in misleading or deceptive conduct. The unanimous judgment of the Court was delivered by Meagher JA.

Was a contract formed?

To determine whether a contract existed between the parties, the Court had to consider whether Secure varied its tender to provide a bank guarantee and if the failure to agree a commencement date for the car park management was fatal to the existence of a binding contract.

S 55 of the LG Act requires that Council undertake the tender process before entering into any car park management contract and that the tendering be conducted in accordance with Part 7 of the LG Regulation. The Court noted that the primary judge correctly proceeded on the basis that these statutory provisions formed part of the context in which the Invitation for Tender was issued and the tender process conducted.

Clause 176 of the LG Regulation enables a person who has submitted a tender to vary the tender at any time before a council accepts any of the tenders that it has received for a proposed contract, by providing the council with further information by way of explanation or clarification or by correcting a mistake. If such a variation takes place, the council must provide all other tenderers whose tenders have the same or similar characteristics with the opportunity to provide the information or correct the mistake or anomaly. Relevantly, a council must not consider a variation of a tender made in accordance with clause 176 if the variation would substantially alter the original tender. This clarification procedure limits councils and tenderers from negotiating terms of the tender offer. The consequences of failing to agree on a particular change has the effect that there is no variation to the tender.

In accordance with clause 178(2), a council must ensure that every contract it enters into as a result of a tender accepted by a council is with the successful tenderer and in accordance with the tender (modified by any variation under clause 176).

Council contended that the variation to the Initial Bank Guarantee Amounts was made by Secure at its request, so as to correct a mistake or anomaly, as contemplated by clause 176. Council also contended that its acceptance of Secure’s tender should be construed consistently with its having sought to comply with clause 178 and, accordingly, as having been made on terms which matched Secure’s offer, or its offer as varied.

The Court determined that a reasonable bystander in the position of the parties would have understood that there was a difference in substance between what was sought by Council, in asking for a variation of the proposed agreement so as to increase the amount of guaranteed income given by bank guarantee, and what was offered by Secure, in agreeing to increase the amount of guaranteed income on the basis of a performance bond. Secure had done nothing by its silence to vary its offer and there was no agreement made by the mere exchange of those email communications.

Regarding whether Council’s acceptance of Secure’s tender corresponded with the offer, the Court concluded that the tender purportedly accepted by Council included the provision of Initial Bank Guarantees for two months’ guaranteed income, which did not correspond with the terms offered by Secure. It followed that the parties did not reach any consensus that was capable of supporting the contract alleged by Council to have been made on 15 March 2011.

Further, the Court held that as at 15 March 2011, there was no consensus between the parties as to the commencement date. It had been accepted by both parties that agreement as to commencement date was essential to the formation of a binding contract. No term, express or implied, of any proposed management agreement provided for how that date should be determined in the absence of any such consensus. The absence of agreement as to the commencement date provided an additional reason for concluding that no contract for the management of the car parks was made on Council’s notification of its acceptance of Secure’s tender.

Could Council terminate the contract?

Meagher JA determined that even if the Court had concluded that there was a contract on the terms of the draft management agreement, or that agreement as varied to provide for a bank guarantee of two months’ guaranteed income, Council would still not have been entitled to terminate the contract. This was because Council was not ready and willing to perform the contract due to its continued insistence that Secure execute the amended management agreement.

Did the parties engage in misleading or deceptive conduct?

Meagher JA concluded that Secure’s acknowledgement in its tender offer, that it understood and accepted the terms and conditions of the tender, said nothing about its understanding of the scope and content of the obligations which in law it was undertaking. No representation was made by Secure in the terms contended for, and as such there was no misleading or deceptive conduct on their part.

For Council, the Court concluded that in the face of the information that was publicly available regarding the Woolworths redevelopment, there was no basis for a reasonable expectation on the part of Secure that any information relevant to the viability and profitability of the car parks for which tenders were invited (that information being the number of parking bays that would exist in a nearby, redeveloped car park), would be disclosed directly to tenderers by Council’s representatives. There was also no reasonable expectation that the information would be disclosed upon Council’s receipt of Secure’s tender offer. Accordingly, the Court held that Council did not engage in misleading and deceptive conduct.

Why is this decision important?

The decision by the Court of Appeal emphasises the need for a council to carefully consider the potential consequences of resolving to accept a tender where the final terms of the contract are not entirely resolved.

That is because once a letter of acceptance is issued following a council resolution, and there is correspondence between the tender and the acceptance, then a contract may have been formed. If a matter is then unable to be satisfactorily resolved, council may be unable to walk away from that tenderer without wrongfully repudiating the contract.

On the other hand, if council’s intention is to form a contract (like Woollahra Municipal Council in Secure Parking), there may be uncertainty as to whether council can rely on that contract having been formed in the absence of an executed agreement.

If following a tender process, a council wishes to proceed with a particular tenderer but there remain unresolved matters (that could not be addressed through the variation process under clause 176 of the LG Regulation), then generally speaking the council should not resolve to accept that tender. Instead, it would be prudent for the council to resolve to decline to accept all tenders and negotiate with one or more tenderers (in accordance with clause 178 of the LG Regulation).

The full decision of the Court of Appeal in Secure Parking Pty Ltd v Woollahra Municipal Council [2016] NSWCA 154 can be read here.