If you invite or submit tenders for the supply of goods or services, there are some important considerations in relation to confidentiality that you need to bear in mind.

Tender participants that wish to disclose tender information received from a tenderer are not necessarily safe to do so merely because confidentiality obligations have not been agreed in writing and there has been no claim of confidentiality by the tenderer. This is because it is possible that an equitable duty of confidence may apply.

If the equitable duty applies, the disclosure of details in relation to the tender response of one tenderer to another may result in a breach of that duty and there may also be ramifications for the tenderer that seeks to use the information.

Steps can be taken by participants in a tender process to achieve their objectives, whether those objectives are to impose or exclude confidentiality obligations. Tender participants are encouraged to carefully consider how they structure their arrangements with respect to confidentiality to avoid claims from disgruntled tenderers.

A hypothetical case study

Consider this common scenario bearing in mind that these principles could equally apply in any industry:

Yummy Dipco, a manufacturer of hommus, calls for tenders for the supply of vegetable oil. Healthy Oilco, a wholesale supplier of vegetable oil, submits a tender to Yummy Dipco. Yummy Dipco responds by telling Healthy Oilco that its quote is higher than another of its competitors. Healthy Oilco asks Yummy Dipco who the competitor is and what price they have quoted. Yummy Dipco identifies the competitor as Cheapco and tells Healthy Oilco that its quote is $1.00 per litre. The price sounds suspiciously low to Healthy Oilco, but it begrudgingly reduces its quote to $1.00 per litre and then wins the tender based on its longstanding relationship with Yummy Dipco.

Is there anything wrong with this scenario?

Putting any competition law issues aside, a major concern that arises is that any disclosure of Cheapco’s tender information may result in a breach of the confidentiality obligations owed by Yummy Dipco to Cheapco.

Sources of Confidentiality Obligations

In the context of a tender, confidentiality obligations may arise from a variety of sources, including where:

  • there is an express contractual obligation of confidence;
  • there is an equitable duty of confidence; or
  • there is a tender process contract with an implied duty of confidence.

Contractual Obligations of Confidence

Contractual terms imposing obligations of confidence may be found in the tender invite, in the tender response or in a separate confidentiality deed or undertaking entered into by the parties.

Where there is an express contractual obligation of confidence, the obligations of the parties will depend on the precise terms of the contract. However, often confidentiality obligations are cast very broadly and may include all information disclosed by one party to the other and often include the fact that the parties are in negotiations at all.

If, for example, Yummy Dipco’s tender invite included a broad confidentiality obligation of this kind, the disclosure of the identity of Cheapco alone may be sufficient to amount to a breach of Yummy Dipco’s obligations to Cheapco.

Equitable Duty of Confidence

An equitable duty of confidence may arise in the context of a tender notwithstanding there has been no written or oral claim or agreement regarding confidentiality.

The following three criteria for the equitable duty of confidence to apply were set out by Megarry J in Coco v AN Clark (Engineers) Ltd [1969] RPC 41 and cited with approval by Gordon J in Krueger Transport Equipment Pty Ltd v Glen Cameron Storage & Distribution Pty Limited [2008] FCA 803:

  1. the information must be of a confidential nature;
  2. the information must have been communicated in circumstances importing an obligation of confidence; and
  3. there must be unauthorised use of the information to the detriment of the person communicating it.

Krueger had supplied a quote for the manufacture of trailers to Camerons, which included the detail of its quotation as well as drawings of its trailer concept. Camerons disclosed details of Krueger’s drawings to its competitor, Vawdrey. Vawdrey used those details to improve the design of its trailers and ultimately won the tender. Krueger successfully sued Camerons for breach of confidentiality.

  1. Necessary quality of confidence

The bar for establishing confidentiality is relatively low. Gordon J held in Krueger that confidentiality can attach to information that is not entirely novel or original, provided the information was not commonly or publicly know at the time of the alleged breach 1. It is not necessary to establish that information is entitled to some protectable intellectual property right. All that is required is ‘some product of the human brain’2 that has not been disclosed in the public domain.

Common examples of commercial information that may be considered confidential include customer lists, price lists, business proposals and marketing strategies3. Indeed, the authorities certainly leave it open for a Court to find that the identity of a tenderer, the price they have quoted for a private tender and other information in relation to the supply of goods or services may potentially possess the necessary quality of confidentiality assuming those details have not been disclosed in the public domain.

  1. Obligation of Confidence

The second element of the duty requires that the confidential information is disclosed to the recipient in circumstances whereby an obligation of confidence arises between the parties.

The decision in Krueger provides clear authority for the proposition that the tender relationship is one that may give rise to an obligation of confidence. Gordon J held that it was clear that Krueger created the information and communicated it to Camerons so that Krueger, and only Krueger, would win the business with Camerons.

  1. Unauthorised use and detriment

Once disclosure and use of the information by Vawdrey was established, Gordon J held that detriment was clearly suffered because Krueger lost the contract with Camerons as a result.

Going back to our case study, the difficulty that arises for both Yummy Dipco and Healthy Oilco is that it is hard to know with absolute certainty whether or not an equitable duty of confidence is in existence given that the equitable duty does not rely on anything in writing. Based on the decision in Krueger, Yummy Dipco and Cheapco should certainly assume there is a risk that a duty exists.

Tender participants should also bear in mind that the equitable duty will apply not only to the original confidant (i.e. Yummy Dipco), but equity will generally step in to also restrain any third party to whom the information is conveyed (i.e. Healthy Oilco). Therefore, a claim could be brought against Healthy Oilco even though there is no direct relationship between Healthy Oilco and Cheapco.

Of course, there may be evidentiary difficulties in pursuing these claims e.g: (1) for Cheapco to learn that its information has been disclosed; (2) for Cheapco to prove the disclosure by Yummy Dipco to Healthy Oilco; and (3) for Cheapco to prove that Healthy Oilco used its information. Having said this, the risks of a successful claim being made will be heightened where information is disclosed in writing or by email or where a tenderer modifies its proposal or the goods or services it supplies on account of its competitor’s information.

Tender Process Contracts

It is even more likely that an obligation of confidence will arise in more formal tender processes, as was highlighted by the decision of Wagdy Hanna and Associates Pty Ltd v National Library of Australia [2012] ASTSC 126.

In this case, an unsuccessful tenderer (Hanna) claimed the Library had disclosed its tender to the successful tenderer (Decoin). The question before the Court was whether the Library had an obligation of confidence to Hanna in the absence of any express confidentiality obligations or written claims of confidentiality.

The court found that a tender process contract existed between Hanna and the Library due to the detailed structure and process to be followed in the tender e.g. timetable, selection criteria etc. Most importantly, the Court found that there was an implied obligation of confidence owed by the Library under the tender process contract, which prohibited disclosure by the Library of drawings which formed part of Hanna’s tender.

Whilst the cases on tender process contracts generally arise in the government context, the principles could potentially apply to large private tenders.

Inducing a breach of contract

Tenderers that want to extract the details of their competitors’ tenders, should also bear in mind their duties not to induce a breach of contract. In our case study, Healthy Oilco could be liable if it has actual knowledge that its conduct would procure a breach of contract (e.g. if the tender invite provides for confidentiality, Healthy Oilco will have actual knowledge of Yummy Dipco’s confidentiality obligations) or if Healthy Oilco acts with reckless indifference as to the possibility of a breach of contract (e.g. in circumstances where Healthy Oilco should be reasonably aware that confidentiality obligations exist between Cheapco and Yummy Dipco).