In allowing the Crown's appeal, the Court of Appeal in Attorney-General v Problem Gambling8 has provided clarity on when judicial review is available for public sector procurement decisions. Those within the central and local government sector can take comfort from the decision that public law procedural standards will not be applied to procurement processes and decisions in the absence of specific legislative provisions.

The decision on appeal was a successful challenge by the Problem Gambling Foundation of the Ministry of Health's (Ministry) tender process for the provision of services to reduce problem gambling, on judicial review in the High Court. The High Court decision was a departure from the longstanding principle that the courts were reluctant to intervene in the conduct of the public sector when making commercial procurement decisions.

The Court of Appeal reinstated the previous leading decisions of Lab Tests Auckland v Auckland District Health Board and Mercury Energy Ltd v Electricity Corp of New Zealand Ltd, confirming that judicial review of commercial contracting decisions by public sector agencies will not be available unless:

  • There is fraud, corruption, or bad faith; or
  • The agency has failed to follow statutory requirements; or
  • The relevant commercial decision raises extra public law issues.

Departing from the High Court's decision in Telco Technology Services Ltd v Ministry of Education, the Court of Appeal confirmed that judicial review will not be available to a disappointed commercial party unless they can raise issues relevant to the public interest.

The Court of Appeal clarified that the Mandatory Rules of Procurement by Departments (since replaced by the Government Rules of Sourcing) do not have force of law. While the Ministry was bound by the Mandatory Rules, they were an administrative guide -- and cannot be enforced by disappointed tenders through judicial review. As such, a breach of them does not automatically give rise to illegality that invalidates a decision.

The Court of Appeal confirmed that the appropriate standard for procurement decision-makers is fairness, good faith, honesty and a willingness to consider information that might change the decision-maker's mind.

The High Court had erroneously applied the judicial standard of apparent bias established in the Saxmere9 case to members of the panel considering the tenders. This effectively required that panel members have no knowledge beyond a general nature of the gambling sector as there was a real possibility that the members selected might not bring an impartial and unprejudiced mind to the evaluations. The Court of Appeal considered this a higher standard than that imposed on those fulfilling a judicial function creating an `unworkable standard', which was not in the public interest.

The Court of Appeal rejected this reasoning and held that prior knowledge or prior dealing with a party of one of the panel members would not cause a fair-minded lay observer to reasonably apprehend that the panel members might not bring an impartial mind to the evaluation.

The Court of Appeal decision should be of comfort to all public sector agencies carrying out procurement processes. The decision restores the narrow scope of judicial review of public sector contracting decisions. It allows public sector agencies the flexibility to make their own commercial decisions, while ensuring that in the event of a serious departure from a procurement process, judicial review will be an available remedy.