Cubic Transportation Systems Inc & Anor v State of New South Wales & 2 ors

Cubic Transportation Systems Inc & Anor v State of New South Wales & 2 ors - [2002] NSWSC 656 - NSWSC 2002 case summary — Zoe

[4]

Mr T Bathurst QC Dr J Griffiths SC Mr A Payne Mr R Hollo for the defendants Mr T Castle (ITSL, ERG) SOLICITORS : Baker & McKenzie (Plaintiffs) Clayton Utz (Defendants) CATCHWORDS : Government tender - whether creates process contract - nature of contract - whether implied term of good faith - whether statements of tendering ethical codes part of cotnract - whether public law principles apply - duty of legal advisers to Government - whether conflict of interest - Chinese walls - whether rules of natural justice apply to Government advisers - whether rules of natural justice apply to evaluation committee - whether apprehended or actual bias material - duty of probity auditor - application of clean hands doctrine Administrative Decisions (Judicial Review) Act 1977 (Cth) LEGISLATION CITED : Coalmines Regulation Act 1982 Judicial Review Act 1991 (Qd) Transport Administration Act 1988 Alfabs Engineering Group Pty Limited v Regan [2002] NSWSC 316 AMT Helicopters Pty Limited v Brisbane City Council & Ors (unreported, QSC Wilson J, 17 March 2000) Annetts v McCann (1990) 170 CLR 596 Blackpool & Flyde Aero Club v Blackpool Borough Council [1990] 1 WLR 1195 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 16 ALR 363 Burger King Corporation v Hungry Jacks Pty Limited [2001] NSWCA 187 Century Metals & Mining NL v Yeomans (1989) 40 FCR 564 Chu v Minister for Immigration and Ethnic Affairs (1997) 78 FCR 314 Cord Holdings Limited v Burke (unreported, SCWA, Smith J 22 January 1985) CSI Operations Pty Limited v Commonwealth (1996) 69 FCR 346 D & J Consructions Pty Limited v Head & Ors (1987) 9 NSWLR 118 David Lee & Co (Lincoln) Limited v Coward Chance (a firm) [1991] 1 Ch 259 Devonport Borough Council v Robbins [1979] 1 NZLR 1 Ex parte James: re Condon (1874) LR 9 Ch App 609 FAI Insurances Limited v Pioneer Concrete Services Limited (1987) 15 NSWLR 552 Fuller Cruises Northland v Auckland Regional Council (unreported CP 488-96 Auckland, 4 June 1999) Greiner v Independent Commission Against Corruption (1992) 28 NSWLR 125 CASES CITED : Haoucher v Minister for Immigration and Ethnic Affairs (1990) 169 CLR 648 at 653 Hughes Aircraft Systems International v Air Services Australia (1997) 76 FCR 151 KC Park Safe (Brisbane) Pty Limited v Cairns City Council (1997) 1Qd R 497 Livesey v NSW Bar Association (1983) 151 CLR 288 Logue v Shoalhaven Shire Council [1979] 1 NSW 537 at 558-559, per Mahoney JA Markholm Consruction Co Limited v Wellington City Council [1985] 2 NZLR 520 Melbourne Steamship Co Limited v Moorehead (1912) 15 CLR 333 Meyers v Casey & Ors (1913) 17 CLR 90 Minister for Immigration, Local Government and Ethnic Affairs v Mok (1994) 55 FCR 375 MJB Enterprises Limited v Defence Construction (1951) Limited (1999) 170 DLR (4th) 577 Newman v Phillips Fox (1999) 21 WAR 309 Ontario v Ron Engineering & Construction Eastern Limited (1981) 119 DLR (3rd) 267 Pratt Contractors Limited v Palmerston North City Council [1995] 1 NZLR 469 Prince Jefri Bolkiah v KPMG (a firm) [1999] 1 All ER 517 Rakusen v Ellis Munday & Clarke [1912] 1 Ch 831 Transit New Zealand v Pratt Contractors Ltd [2002] 2 NZLR 313 UK Lister v Romfod Ice & Cold Storage Limited [1957] AC 555 Wan v McDonald (1992) 33 FCR 491 White Industries Limited v The Electricity Commission of New South Wales (unreported, NSWSC 20 May 1987) DECISION : Judgment for the defendants with costs

[7]

1 HIS HONOUR: The New South Wales Government, together with transport operators in the private sector, seeks to develop and implement an Integrated Ticketing System (variously called ITS or ITP) to provide a single fare medium for passengers using the greater Sydney metropolitan public transport system. Provision of the ITS is a portfolio project for the New South Wales Department of Transport (the Department) which is facilitating the project. The Sydney ITS is a very large undertaking which envisaged major input by private enterprise. In March 1998, the Department assumed responsibility for the conduct of the ITP procurement on behalf of all transport operators, both public and private. It established a Project Control Group (the PCG) to provide overall direction. Amongst other things, the PCG reviewed and, where appropriate, endorsed recommendations of the Project Manager (who later became the Project Director, without a change in responsibilities) working groups and the Evaluation Committee in accordance with the project objectives. The membership of the PCG comprised senior officers of the Department, the Public Transport Authority, the State Rail Authority (SRA), State Transit Authority (STA), representatives of the private operators, a nominee of the New South Wales Government Treasury and a representative of Bovis McLauchlan Pty Limited (Bovis). Bovis was appointed Project Manager in May 1998 following a competitive tender and in October of that year Mr John Armstrong was appointed Project Manager for the ITP as a consultant employed by Bovis. In January 2000, he was engaged by the Department as Project Director. Booz Allen Hamilton (Booz Allen) was retained in respect of technical issues, Messrs Clayton Utz on legal issues, Arthur Andersen Corporate Finance for commercial and financial issues and Deloitte Touche Tomhatsu (Deloitte) as Probity Auditor. The persons responsible for this last consultancy were Mr Rory O'Connor and Mr Warwick Smith. The Evaluation Committee was established by the PCG to assess tenders and make recommendations to it. The Evaluation Committee, chaired by Mr Armstrong, comprised representatives of the Department, SRA, STA, private operators and Bovis. Advising the committee were Mr Andrew Doery and Mr Martin Welsh of Booz Allen, Mr Ian Gillings of Arthur Andersen Corporate Finance, Mr John Shirbin, Mr Steven Klimt and Ms Kate Hasan from Clayton Utz and Mr Brian Smart from Bovis. The members of and participants in the PCG and the Evaluation Committee varied from time to time. Sub-committees were appointed to make recommendations to the Evaluation Committee. These sub-committees were called "Qualifications", "Technical & Operations", "Financial (Cost)", "Legal and Commercial" and "Commercial Benefits" aspects of the Call. 2 The Initial Call for Proposals was issued on 15 May 1999 for the purpose of identifying a short list of appropriate Proponents. On 7 July 1999, a detailed Call for Proposals dated 2 July 1999 was issued to the Proponents who had been short-listed. On 12 July 1999, the Evaluation Committee recommended a further short list of Proponents comprising four companies including Integrated Transit Solutions Pty Limited (ITSL, jointly owned by ERG Limited (ERG) and Motorola Inc) and Cubic Transportation Systems (Australia) Pty Limited (Cubic), the second plaintiff in these proceedings and two other corsortia, one of which was led by Telstra Corporation Limited (Telstra) which withdrew on 2 September 1999. By arrangements that are not of present relevance the remaining Proponents comprised ITSL and a consortium ultimately named Smartpos (then called Smartrans but called Smartpos throughout the judgment) which was a partnership involving Cubic, the Commonwealth Bank of Australia and some others, whose identities are not relevant. On 22 October 1999, ITSL and Smartpos lodged detailed proposals for the project and, on 20 December 1999, the two Proponents were advised that a Call for Revised Offers (the Call) would be distributed. On 21 January 2000, the Evaluation Committee, as an interim step, ranked ITSL ahead of Smartpos and identified key issues to be resolved during the process following the Call. Proposals responding to the Call were received from Smartpos and ITSL on 31 May 2000. Certain clarifications were obtained and further financial and commercial rights offers were received on 21 July 2000. On 17 August 2000, the Evaluation Committee concluded its evaluation of the revised offers, ranking ITSL ahead of Smartpos. It recommended that ITSL be nominated as the preferred proponent and that Smartpos be kept as a "stand-by proponent". Following reviews instigated by the PCG, the PCG endorsed the Evaluation Committee's Final Report on 31 January 2001. On 20 March 2001, the Evaluation Committee decided to conduct a supplementary evaluation and further submissions were invited from Proponents. These submissions were received by late April 2001. On 7 May 2001, the Evaluation Committee concluded its supplementary evaluation, confirming the earlier recommendation that ITSL be nominated as the preferred proponent and this recommendation was endorsed by the PCG on 11 May 2001. In June 2001, the recommendation was put to Government, which decided to negotiate with both Proponents who were advised accordingly. A Negotiating Steering Committee was formed assisted by a negotiating team. They considered, in light of the negotiations, that the recommendation of the Evaluation Committee should stand and, on 6 August 2001, the PCG expressed the same view. On 10 August 2001, the Government decided that contract negotiations should proceed with ITSL as the preferred proponent and the parties were informed of this decision on the following day. 3 After a surprisingly lengthy delay, Cubic commenced proceedings against the State of New South Wales and the Transport Administration Corporation (usually referred to in the judgment as the Government), with the Commonwealth Bank of Australia as third defendant, in substance seeking prerogative relief restraining the Government from entering into a contract for the supply by ITSL of the Sydney ITS. The summons came on before hearing before Kirby J on 14 December 2001. The matters complained of concerned events alleged to have occurred at a meeting on 17 August 2001 at the Department between Mr Armstrong and other officers of the Department and Mr Thomas Walker, the managing director of Cubic with other officers of the company which allegedly justified the inference that there had been an improper influence by the Government in the recommendation process. It was submitted to Kirby J that this meeting was, as his Honour's judgment states, "crucial to the plaintiff's application for relief…[since what] is alleged to have been said by Mr Armstrong forms the basis upon which the plaintiff asserts that the tendering process miscarried." Kirby J was satisfied, on the material then before him, that there were serious issues to be tried and determined that the balance of convenience justified a grant of interlocutory relief until further order. His Honour accordingly restrained the Government from contracting with ITSL and adjourned the application by the defendants to re-open their case in opposition to interlocutory relief to 14 January 2002 before the Duty Judge. On 11 January 2002, in accordance with Kirby J's direction, the plaintiffs filed a Statement of Claim which, in substance, relied on the matters allegedly disclosed during the meeting of 17 August 2001. On 14 January 2002, the matter came on for hearing before Sperling J, the vacation duty Judge who was, of course, unable to conduct a substantive hearing. His Honour ordered expedition of the application for final relief and listed the proceedings in the first available Administrative Law List, namely 8 February 2002. In the meantime, arrangements were made by the Court for an expedited hearing and the matter was listed to commence before me on 29 January 2002. The plaintiffs submitted that, having regard to the issues and the need to assess a large volume of documents that was in the process of being made available to them by the defendants, the matter could not be heard until early March although the Court was able to commence the trial immediately. The Court had been informed, when the matter came on before Sperling J, that the trial was likely to take two or three days. The list Judge had been informed that it was thought the trial might take five days or so. This was not unreasonable having regard to the relatively simple issue identified in the Statement of Claim. 4 On 12 February 2002, the plaintiffs abandoned the suggestion which had previously been made in emphatic terms that Government at a high level had interfered with the evaluation process.

[13]

9 Clause 2.2.2 deals with the contractual structure proposed for the purpose of the delivery of the ITS and thus, necessarily, following the negotiations ensuing after selection of the preferred proponent. Clause 2.2.2(a) provides that the Principal is to be a special purpose entity company having as its shareholders the participating operators and the Department. It is this company which is to enter into the contract with the contractor to provide the services and equipment as described in the project document. It is said that the Transport Administration Corporation, incorporated as I understand it, under the provisions of the Transport Administration Act 1988 is the Principal, but, having regard to the provisions of that Act, I am somewhat doubtful about this submission. However, nothing turns on this matter. Clause 2.2.2 deals with the Principal entirely in prospective language and, considered alone, implies that the company which is envisaged was not then in existence. However, as will be seen, the company is given functions in the Call processes. Thus, even if it did not exist in the form stated in clause 2.2.2(a) as at the date of the Call, other provisions of the document suppose that it will exist in time to exercise the functions assigned to it. For example, clause 2.3.1, relating to overall project milestones which sets out a timetable, reserves to the Principal the right to vary the timetable and add further milestone dates, clause 2.3.2 states that "the Principal intends to commence the Requirements Analysis and Definition Phase" before entering into the contract with the Preferred Proponent. 10 Part 3 of the Call deals with instructions to Proponents, commencing with paragraph 3.1.1 dealing with eligibility, which I have set out above. This clause is not easy to construe. The last paragraph of the clause appears to speak as at the date of the Call, namely 17 March 2000, in specifying an agreement and acknowledgment that "no contractual relationship exists between" the specified parties (emphasis added). However, the "irrevocable offer" described in Clause 3.1.17 is an offer which can only arise after submission of the Proposal pursuant to the Call. Moreover, the subject matter, as to which the paragraph refers provides that there is "no contractual relationship", is "in relation to the evaluation of the revised Proposals or otherwise in dealing with Proponent [a transcription error, I think, for 'Proponents'] in relation to the ITS". It therefore cannot mean merely that, hitherto, there is no contractual relationship. I think the sense of this paragraph cannot be limited to the question whether there was any contractual relationship extant as at the date of the revised Call. The plaintiff, of course, relies on the exception contained in the parenthesis and I will return to this matter in due course. 11 Clause 3.1.9 deals with variations to the Call, providing amongst other things that no warranties are given as to the accuracy of information, whether of existing ticketing systems or future requirements, has been supplied and that Proponents proceed at their own risk in this regard. The clause proceeds - "The Principal, the Department and the Operators currently intend to proceed on the basis set out in this Call. However, the Principal reserves its right to cancel, vary, supplement or supersede this Call, any of its terms and any of the procedures set out in it at any time by written notice to each Proponent. The Principal may, at any time before a Proposal is accepted in full and in its absolute discretion, decide:

[18]

12 It will be seen that the reservation of the right to cancel, vary etc any of the terms and any of the procedures of the Call is limited to the Principal. However, since the Principal is to have as its shareholders the participating operators and the Department under clause 2.2.2, it is clear that action taken by the Principal under this clause would be taken on behalf of the Department and the operators. The role of the Department in the context of this clause is not clear. On one view, the only right to cancel, vary etc the terms of the Call is in the Principal so that the Department and the Operators do not have any such rights. This interpretation is supported by the consideration that, otherwise, the three groups of participants, namely the Principal, the Department and the Operators, could unilaterally and inconsistently vary the Call and its procedures, which would be an absurd result. Some doubt attends this conclusion, unfortunately, because of the terms of the concluding paragraph of the clause, which excludes claims by Proponents for losses and the like suffered as a result of the exercise by the Principal or each operator of rights reserved to them under the Call, and thus implies that the right to vary may be possessed by an Operator though, bizarrely, not the Department. Despite the apparent logic of this interpretation, I think that clause 3.1.9 should be read as giving the Principal the exclusive right to cancel, vary etc the Call and any of its procedures by the mode specified. After all (I regret to say), logic and consistency of expression do not seem to have been regarded by the draftsperson of this document as important. The interpretation which I prefer is strengthened, it seems to me, by the terms of clause 3.1.10 giving to the Principal alone the right to cancel, vary, supplement or supersede documentation or further information issued in relation to the Call and excluding claims by the Proponents in respect of the exercise of such a right, to the extent permitted by law.

[23]

16 On the face of it, clause 3.1.17 is designed to create contractual obligations, the most significant phrases in this respect being "irrevocable offer" and "in consideration for the Principal agreeing to consider the proposal". Several difficulties attend this interpretation. Leaving aside the qualification in the parenthesis in clause 3.1.1, the agreement by the Principal to consider the proposal in accordance with the Call is necessarily subject to the reservations expressed in very general terms in clauses 3.1.9 and 3.1.10 of the right to cancel, vary, supplement or supersede, the Call or any of its terms or any of the procedures set out in the Call. It may be that variation or supersession of the terms and procedures of the Call can only be done where written notice is given to each Proponent but that this may be done "at any time" (although I am inclined to think it must occur before entering into the final contract for provision of the ITS). If clause 3.1.17 is considered in isolation, the plaintiff's argument that its effect is that, although the Principal need not consider a proposal, if it does so it must do so in accordance with the Call, has some apparent merit . But, as is obvious, this by no means disposes of the issues in the present case. A further important consideration is that clause 3.1.18, relating to selection of the preferred Proponent, provides that the Principal envisages that it will negotiate with one or both of the Proponents "on commercial issues and key project documentation prior to the selection of a Preferred Proponent". In light of this, it is perhaps not surprising that the clause goes on to state - " Notwithstanding anything contained in this Call, the selection of a Proponent as a Preferred Proponent does not bind the Principal to any contractual relationship whatsoever with the Preferred Proponent. To the maximum extent permitted by law, the Principal shall have no legal obligations whatsoever to any Proponent and, without limitation shall have no legal obligations to the Preferred Proponent unless and until he Project Documentation has been entered into and all necessary Government Approvals have been obtained. (Emphasis added.)

[25]

The Principal may, in its absolute discretion, elect not to select any Proponent as a Preferred Proponent. It reserves the right to reject any or all Proposals." This provision is somewhat ambiguous. At first blush, it appears to be inconsistent with clause 3.1.17, given the unqualified denial of the existence of "any contractual relationship whatsoever" with cognate language used of the existence of "legal obligations". Arguably, however, the preferable interpretation is that this clause is concerned with the effect of selection of a Proponent as a preferred Proponent rather than the procedure leading to that selection. A very real problem with this interpretation is the general and unqualified exclusion of all and any legal obligations to the Proponent who is not selected, which selection, of course, cannot create obligations at all events although, conceivably, it might breach an obligation. On balance, I prefer the interpretation - though it is indeed difficult to be certain - that this clause is intended to exclude all possible contractual obligations (and any other obligations not imposed by law) unless and until the final contract "is entered into" and the necessary approvals obtained from Government. As this is a general clause, this would perhaps permit clause 3.1.17 to be read as providing a particular and special exception as to "the Principal agreeing to consider the Proposal in accordance with [the] Call". I will return to this possibility in due course. The defendants point also to clause 3.1.22 in this context, which provides - " COSTS TO BE BORNE BY PROPONENTS All costs and expenses incurred by Proponents in any way associated with the development, preparation, submission, clarification, negotiation and documentation of Proposals and negotiation of Project Documentation, including but not limited to attending meetings, discussions, and providing any additional information required by the Principal and participating in the Requirements Analysis and Definition Phase, will be borne entirely and exclusively by the Proponents.

[28]

19 Clause 3.1.27, headed "NSW Government Code Requirements" requires the proponents to comply with the Codes of Practice and Tendering. It does not expressly or, in my opinion, implicitly place any requirement on the Government parties to do so. The Call provides for the evaluation process in Part 3.2. Clause 3.2.1 deals with the Evaluation Committee, which "will be responsible for assessing revised offers…in accordance with the evaluation criteria nominated in this section", recommend a Preferred Proponent and assist with negotiation "with the Preferred Proponent culminating in the award of a contract". This clause states that the role of the Probity Auditor is to ensure "that the process is conducted in accordance with NSW Government Code" (sic) which I take to be a reference to the Codes of Tendering and Practice and goes on to provide that the auditor "shall be advised of all meetings (including Evaluation Committee and subcommittee meetings) for the purpose of observing the conduct of the meeting". Despite the specific language of clause 3.1.27 limiting compliance with the Codes to the Proponents, the better interpretation of this provision is that the Evaluation Committee is also bound by the Codes - to the extent that they apply - since, of course, the meetings are confidential and internal and do not involve the Proponents and the context of the need for the Probity Auditor to be present is that of ensuring compliance with the Codes. It follows that the Call does not oblige the Principal to comply with the Codes. Whether this obligation arises elsewhere is, of course, another matter. (I interpolate the general observation that it seems almost impossible that the Call was drawn by a lawyer, having regard to the obscurities and confusion of even the most important provisions, of which this is one. Whether the conduct of the evaluation process by the various committees and subcommittees was governed by external documents, in particular, the Codes, should have been expressly stated and not left to implication or inference. If it was intended that the Codes should govern the whole process and not be confined to the Proponents' conduct surely should have been included in clause 3.1.27, which expressly dealt with the application of the Code requirements. Part 3 of the Call is entitled "Instructions to Proponents" but also contains instructions to the Principal and the Evaluation Committee, amongst others. Fortunately, it is not necessary to deal with all the document's problems. When it was cobbled together, it is difficult to believe that any responsible and literate person actually read it through.)

[32]

Moreover, the succeeding clause 3.2.2 provides that "Revised Offers will be evaluated in accordance with the Criteria set out in 3.2.3 and 3.2.4". Although clause 3.1.10 gives the Principal an unqualified "right to cancel, vary, supplement or supersede any documentation or further information issued in relation to the Call" without recourse by the Proponents, this does not give it the right to vary the criteria provided in the Call itself or to direct the Evaluation Committee in its deliberations. Thus, the Principal is not given by the Call any power to prevent an evaluation by the Evaluation Committee or to vary the criteria by which the assessment of the Committee is to be undertaken. This separation of functions (although it is not complete) between the Principal and the Evaluation Committee seems to me to be fundamental to the integrity of the Call process. Moreover, not only is there a distinction of functions, there is a distinction of identities. The plaintiffs' submissions have, I think, wrongly assumed that the Principal and the Evaluation Committee are in large part interchangeable so far as the process of assessment and evaluation are concerned. This is, however, to ignore the distinctions expressly made in the Call itself. Accordingly, although clause 3.1.17 obliges the Principal "to consider the Proposal…in accordance with the Call" this obligation does not relate to the assessment of the Evaluation Committee. The Committee is to undertake this task under section 3.2. but, unlike the Principal under clause 3.1.17, is not bound by any contractual obligation. So far as is material, the obligation of the Principal is to assist the Committee in the ways specified in clause 3.2.1 and to consider the assessment and recommendations made by it and (subject to the true meaning of clause 3.1.18) this arises contractually. But it has no contractual obligation to conduct the assessment envisaged by section 3.2, let alone to apply any of the specified criteria to its own processes.

[40]

27 I have already called attention to the fact that clause 3.1.27 which expressly deals with the NSW Government's Codes of Practice and Tendering, noting that it imposes compliance on the Proponents (as distinct from the other parties). It seems to me that it is also significant that the Call deals specifically with probity and specifically with the Government's commitment to and requirements concerning probity in a separate clause which does not advert either expressly or implicitly to the Codes of Practice and Tendering. This strengthens the tentative view earlier expressed that it was regarded as unnecessary to refer to any obligation of the Government in this respect because the Codes themselves refer to Government policy. Despite the language of clause 3.1.17, however, I think it should be concluded (though the question is far from free of doubt) that the undertakings of Government and the derivative requirement on the Principal to act in accordance with the Codes are excluded from contractual obligation under the Call. Put in another way, the Codes state the Government's intentions and, no doubt, aspirations but they are not intended to create contractual liability either in the Government or the Principal. This result follows, as it seems to me, from the terms of the Call itself although the Call is, as I have said, in a number of respects (not only those in respect of which I have drawn attention) badly drafted and represents a patchwork rather than a coherent and internally consistent expression of obligations. Thus, conclusions which are based upon an assumption of a coherent plan may be built upon foundations of sand. Even so, the clauses which I have referred to appear to reflect a general intention that what is to be done by the Principal and the Department is an intended course of action whilst the "obligations" on the Proponents must be satisfied in order for their Proposals to be considered though, as clause 3.1.17 expressly says, even this need not be done. Furthermore, even the Proponent's "obligations" can be varied unilaterally by or through the Principal. A failure by the Proponents to comply with the Call therefore means that their bids will not, though even this is not completely certain, be considered. I am sceptical indeed that the Proponents were under any enforceable obligations of any kind, with the possible exception of the so-called "irrevocable offer" which must, I think also be attended with doubt although it is not altogether unreasonable to consider that the co-operation of the Principal with the Evaluation Committee and the provision of consultants and Probity Auditor to be substantial consideration fitting with relative but imperfect ease into the category of considering "the Proposal…in accordance with this Call" (vide clause 3.1.17). The Proponents are not under any obligation, of course, to submit a complying proposal or to give any information or even to co-operate with the Principal. They can withdraw at any time from the process. I also think that, as a matter of real enforceability, the so-called "irrevocable offer" is illusory. Indeed, so vague are the obligations on each side that, although the language of contract is used in the parenthetical exception in clause 3.1.1 and the second sentence of 3.1.17, the defendant's submission that, construing the Call as a whole, the Principal did not undertake any legally enforceable obligations has much force. Be that as it may, the crucial issue in this case is whether the particular matters complained of by the plaintiffs demonstrate behaviour inconsistent with the Call since it is only if this has occurred that it is necessary to consider the possible application of clauses 3.1.17 and 3.1.26. I will return to this matter in due course. 28 The plaintiffs also submit that it is an implied term of the alleged contract that the defendants would conduct the evaluation of the proposals or cause their evaluation to be conducted fairly "and in a manner which would ensure equal opportunity" to each Proponent. Quite what is meant by "equal opportunity" in this context is not spelt out and I am unable to ascribe to it any different meaning to that already implied by a requirement of fairness (if there is one). It is submitted that the implication arises in a number of ways. The first of these is a general proposition that pre-award tender contracts with public bodies contain an implied term of fair dealing as a matter of general law, citing Hughes Aircraft Systems International v Air Services Australia (1997) 76 FCR 151 at 157; secondly, a term of fair dealing must necessarily be implied to give commercial efficacy to the contract in accordance with the general principle; thirdly, the term is implied from the terms of the plan for evaluation or revised proposals adopted by the Evaluation Committee and dated about 9 May 2000; fourthly, the term is implied by virtue of the terms of the supplementary plan for the evaluation of the revised offers adopted by the Evaluation Committee and dated about 19 April 2001 and lastly, the term is necessarily to be implied from the Codes of Tendering and Practice for NSW Government procurements. Since these Codes form part of the context (at least) in which the tender process was undertaken by all parties, it is convenient to deal with them before moving on to the other bases said to give rise to the implied fair dealing term. It is not argued otherwise than that the Codes apply according to their terms to the ITS tender. Part 4 of the Code of Tendering specifies "Ethical Principles" which are also outlined in the Code of Practice. So far as is relevant, Principle 1 states that "Parties must conduct the tendering process with honesty and fairness at all levels", Principle 4 states "Parties must not engage in any practice, including improper inducements, which gives one party an improper advantage over another", Principle 6 states "Conditions of tendering must be the same for each tenderer on any particular tender", and Principle 10 states "Any party with a conflict of interest must declare that interest as soon as the conflict is known to that party". Part 5 deals with the obligations of the party receiving tenders, in the Code called the "client". Section 5.1 contains the following relevant provisions - "Clients must be fair and ethical in their dealings with tenderers; clients should give careful consideration to their role and conduct in negotiations to ensure their behaviour reflects the ethical principles; in any tender related negotiations or evaluations, the client must deal fairly with all tenderers in a manner which reflects the ethical principles in section 4; and written records of all negotiations must be maintained by the client."

[46]

32 I would add to the tensions to which the first paragraph above refers that which is caused by the desire of the invitor to avoid any litigation as to the mode in which the tender is evaluated, which is an especially difficult risk to avoid if general notions of fair dealing are incorporated by implication into the agreement (to attempt a neutral term) to consider a tender, especially if the applicable standards of probity are thought to be cognate with the rules of natural justice applying to judicial decisions or decisions made pursuant to statutory authority rather than those that are reasonable commercial standards, namely honesty, fair dealing and a rational process directed to achieve the objects of the agreement. The tendering party, on the other hand, will generally want an opportunity to test the procedure by litigation if it has reason to suspect that, by some mode or other, a thumb has been placed on the scale, or simply if it has lost the contract. It will be a rare case indeed where the process of evaluating a tender for a large and complicated project is flawless and cannot be criticised for departing from the ideal. As here, litigation may (and usually will) provide an opportunity by way of discovery or other compulsory process to obtain detailed information on the process consideration of the tender, which, when examined by the sensitive and often microscopic lens, will reveal imperfections that a practical standard of reasonable commercial behaviour would treat with relative unconcern. As the history of the litigation in this case has shown, it was commenced with very serious allegations that were soon withdrawn in favour of claims in large part derived from documents disclosed by the Government, most of which did not relate to those allegations but which provided useful grist for the plaintiffs' mill. In the end, most of the plaintiffs' case comprised questions raised by Cubic well before the recommendation of the Preferred Proponent but in respect of which it had not sued until after it had abandoned its initial case. That is not to say that its ultimate case was not reasonably arguable but this will very rarely be otherwise: the true merits, one way or the other, will usually only be seen at the end of the trial. The prospect, therefore, that an invitor, especially a Government invitor, will act with excessive, expensive and inefficient defensiveness is real. This comes at a high price. The threat of litigation may (as it did, I think, in this case) distort and encumber the process. Of course, this highlights the necessity of ensuring that the call document is clear about actual undertakings and legal obligations. Aspirational statements may provide a warm inner glow but they are no substitute for unambiguous language targeted at actual risks with clearly stated consequences. Had such a call been issued in this case, this litigation may well not have ensued and, if it did, would have been far simpler to resolve.

[50]

35 McGrath J added to the matters set out above the statutory context in which Transit exercised its functions, being required by legislation to let contracts in accordance with competitive pricing procedures approved by its performance auditor and that the request for tender specified each attribute to be evaluated and the weighting it would carry in the evaluation, although further sub-categorising and weighting occurred in the assessment, which were not referred to in the tender request. One issue in the appeal concerned the extent to which Transit's own procedures manuals formed part of its contractual obligations. Those provisions of the manuals incorporated in the request for tender imported reflective obligations but McGrath J held that there was no basis for holding that provisions in the manuals had been incorporated in the request for tender merely because they stated in mandatory terms certain administrative procedures to be applied by tendering authorities, including Transit, in the tender letting process. Observing that such provisions cannot be self-incorporating, his Honour noted that unless provisions in the manuals are implied contractual terms, they do not have contractual force. The question therefore arose whether there was an implied term to that effect and importing a general obligation to act fairly and reasonably in the administration of the tenders received. McGrath J pointed out that Transit had to deal with tenderers whose interests might well markedly conflict with Transit's responsibilities and interests and qualitative judgments need to be made on aspects of tenders other than price. His Honour noted that provisions entitling an invitor to reject all tenders which are intended to give legitimate protection to the invitor's interests "should not readily be eroded by an expansive approach to judicial recognition of implied terms" (para [90]), adding - "[91] In this context the implied duty of equal treatment, that is, even handedness, should not be expanded by further implication to found obligations in relation to Transit's administration of tenders over and above those actually stipulated in the conditions of tender unless they meet the general requirements for implied contractual terms, including necessity for business efficacy, as expressed in such decisions as Devonport Borough Council v Robbins [1979] 1 NZLR 1 and BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 16 ALR 363. The concept of fair dealing is more often likely to be of importance in considering whether there has been compliance with contractual terms in tender process administration, rather than as a source of new terms.

[52]

36 McGrath J referred to the decision of Finn J in the Federal Court of Australia in Hughes Aircraft Systems International v Air Services Australia (1997) 76 FCR 151, (1997) 46 ALR 1, with approval and it is to that case that I now turn. The circumstances in which this litigation arose were somewhat unusual. The Civil Aviation Authority was a public corporation, which sought tenders for a procurement contract. The plaintiff (Hughes) and another (Thomson) tendered for the contract and the Authority's management first recommended to its Board that Hughes be selected but, on re-examination, recommended Thomson. A later consideration of the matter found that the tender process was unsound and unfair and recommended, amongst other things, that a fresh tender be conducted limited to Hughes and Thomson. They were informed that the Authority intended, amongst other things, to be fair to each of them and obtain their agreement to the tender process itself. All parties agreed on a document describing the new requirements and revised tender process, setting out evaluation criteria, defining the evaluation methodology, stating an independent auditor would be appointed and strict confidentiality would be maintained subject to the right in the Authority to obtain an independent evaluation from a third party evaluator with no affiliation to the tenderers. A request for tender was subsequently issued which was different from this document although their terms were markedly similar. The Authority failed to evaluate the tenders in accordance with the request for tender and departed from the scheme it specified in a number of significant respects including disclosure of confidential price information, and accepting an out of time change by Thomson as to one of the significant criteria without informing Hughes. The tender recorded the appointment of an independent auditor to verify that the evaluation procedures were followed, the evaluation was conducted fairly and the offers received due consideration. The plaintiff relied on a number of bases to support its action, including an argument that the agreed document and the revised tender gave rise to sequential and cumulative process contracts, in the end having the terms specified in the latter offer. The Authority denied that either of the documents gave rise to any contractual obligations and the procedures they specified were in the nature of administrative arrangements only. Finn J concluded that the document, in the circumstances (especially following an aborted tender process), constituted a "binding statement of the procedures to be followed", giving particular weight to the fact that it had been "held out to the two prospective tenderers for their concurrence as providing the bases and conditions of their further participation in the phases leading to the award (if at all) of the…[procurement] contract" (76 FCR at 183). His Honour considered that the steps taken to obtain the tenderers' agreement with the document and its terms being largely followed in the revised tender demonstrated that the Authority intended to bind itself to comply with the procedures proposed in order to entice the proposed tenderers to make what would be a significant commercial commitment to participate in the process and, in this regard, the mandatory language in which the document was expressed as being consistent with the imposition of binding obligations (76 FCR at 183-184). Finn J (76 FCR at 185) accepted as "squarely" stating the general issue in the cases dealing with pre-award contracts in tender cases, the statement by Gallen J in Pratt Contractors Limited v Palmerston North City Council ([1995] 1 NZLR 469 at 478-9) that - "Authority makes it clear that the starting point is that a simple, uncomplicated request for bids will generally be no more than an invitation to treat, not giving rise to contractual obligations, although it may give rise to obligations to act fairly. On the other hand, it is obviously open to persons to enter into a preliminary contract with the expectation that it will lead in defined circumstances to a second or Principal contract… Whether or not the particular case falls into one category or the other will depend upon a consideration of the circumstances and the obligations expressly or impliedly accepted ." (Emphasis added.)

[57]

40 Of course, the Authority in Hughes was an organization very different to the Principal in this case. It cannot be doubted that the Principal had its own distinct and substantial commercial interest in the ITP - witness, for example, the equity held by private operators - and that, crass though it might be, it wanted to make a profit as well as, no doubt, providing a better transport system for Sydney. The Government was entitled to place considerable (if, perhaps, not exclusive) weight on commercial considerations. Finn J referred to the expectation of the law that governments and public bodies will act fairly as manifested in the subjection of government decision making to the requirements of procedural fairness, of which examples are Haoucher v Minister for Immigration and Ethnic Affairs (1990) 169 CLR 648 at 653 and Annetts v McCann (1990) 170 CLR 596 and the general "standard of fair play to be observed by the Crown in dealing with subjects" (Melbourne Steamship Co Limited v Moorehead (1912) 15 CLR 333 at 342 per Griffith CJ; see also CSI Operations Pty Limited v Commonwealth (1996) 69 FCR 346 at 368 per Beaumont and Einfeld JJ, Greiner v Independent Commission Against Corruption (1992) 28 NSWLR 125 and Logue v Shoalhaven Shire Council [1979] 1 NSW 537 at 558-559, per Mahoney JA) and the application of the rule in Ex parte James: re Condon (1874) LR 9 Ch App 609 to public bodies to require "high principled" action when they receive payments by mistake. With these matters in mind, his Honour concluded (76 FCR at 197, omitting references) - "In differing ways these instances reflect policies in the law, albeit in specific contexts, (a) of protecting the reasonable expectations of those dealing with public bodies; (b) of ensuring that the powers possessed by a public body, 'whether conferred by statute or by contract' are exercised 'for the public good'…(c) of requiring such bodies to act as 'moral exemplars': government and its agencies should lead by example…These policies I consider to be important in the present matter.

[58]

Given the view I earlier expressed that fair dealing is, in effect, a proper presupposition of a competitive tender process contract (especially one involving the disposition of public funds), and given that a public body is the contracting party whose performance of the contract is being relied upon, a necessary incident of such a contract with a public body is, I am prepared to conclude, that it will deal fairly with tenderers in the performance of its tender process contracts with them." 41 I would (with unfeigned respect) make the comment, however, that there is, as it seems to me, a very great gulf between the public policy considerations underlying cases such as Haoucher and Annetts v McCann, (supra) dealing with human and civil rights and those which should apply to determining the nature and extent of contractual obligations between Government and large commercial corporations. I confess to some feelings of scepticism that these contexts are usefully regarded as part of the same general notion as to how Governments should behave, especially where it is sought to enforce special obligations on Government negotiating as a contractor for goods and services. If the requirement of fair dealing is to be implied in "as a generalisation of universal application, [being] the standard of conduct to which all contracting parties are to be expected to adhere throughout the lives of their contracts" (76 FCR at 193, emphasis added), it is difficult to see that jurisprudence developed to protect human and civil rights and subject the executive to the requirement to act within its legislative remit will provide a useful point of reference as to whether such a term should be implied or, if so, its appropriate standard. In this respect, the implications of the statement by Gummow J in Service Station Association Association Ltd v Berg Bennett & Associates Pty Ltd (1993) 45 FCR 84 at 97 that - "…it requires a leap of faith to translate these well-established [equitable] doctrines and remedies into a term as to the quality of contractual performance, implied by law"

[61]

The respondent for its part has submitted that the applicant is seeking to do indirectly (that is, via the implied duty of fair dealing) what it has not done directly (that is, via an alleged term concerned with the rules of procedural fairness). There is substance in this objection though it does not provide the answer to the submission. That answer is this. It is only conduct which is shown actually to constitute unfair dealing by the CAA with a tenderer in the performance of the…contract that can amount to a breach of the implied term. Conduct etc that merely gives rise to an apprehension (howsoever reasonable) that such might occur is not enough. Furthermore, whether or not even some level of demonstrated partial conduct will constitute a breach will depend on whether, in the circumstances, it occasions unfair dealing with a tenderer - - although proof of such conduct would itself arouse real suspicion that such had occurred." 43 If I may say so with respect, I consider that his Honour's view is correct. The apprehension of unfair dealing is not the same as unfair dealing itself. I do not consider that, in all the circumstances, there was here a duty in the defendants to ensure that a reasonable person would not apprehend the possibility of bias. In the nature of the case, at all events, it would be impossible to do so since it is obvious that the interests of the Principal and, for that matter, of the Government, were necessarily different from and in some respects opposed to, the interests of the tenderers whilst, in other respects, the interests of the Government and of the Principal, considered from a purely commercial point of view, were best served by a fair assessment of the better bid. Moreover, what would be the facts of which the fair minded person should be taken to be aware and would that person merely be a fictional member of the public or someone aware of the processes of a tender assessment? After all, the judicial context of the "apprehended bias" test is the fundamentally important public policy of maintaining the integrity - the observable integrity - of the administration of public justice in the minds of the public. The test was developed in a completely different context and for completely different purposes than the assessment by Government of its commercial interests or, indeed, the public interest. Neither Smartpos nor ITSL were seeking the application of public justice by a judicial tribunal to their competition, nor were they immigrants about to be deported, nor had the Government's authority been constrained by legislation; in short, the public law issues giving rise to the prohibition of apparent bias are not material in a case such as the present, where - accepting that fair dealing was an obligation of the Principal - appearances are material only so far as they might demonstrate the actuality. Applying the distinction mentioned earlier between the Principal and the Evaluation Committee, and assuming (as I think to be mistaken) that the Evaluation Committee was under a contractual (or, indeed, any) obligation to the Proponents to act fairly, again the crucial question is whether there was actual unfairness or, as in point here, actual bias rather than an apprehension of bias, let alone the possibility of the reasonable apprehension of bias. Even the Code of Tendering went no further than requiring tenders "should be assessed by people with relevant skills and knowledge, and who are free of any conflict of interest that might undermine the objectivity of the assessment", while Principle 10 of the Ethical Principles requires a party with a conflict of interest to declare that interest as soon as the conflict is known. It is difficult to think of a practical circumstance in which this Principle would apply, assuming that "party" has its usual meaning since it is obvious that, in most cases, the parties will necessarily have conflicting interests. By contrast, in Hughes, the relevant legislation provided for the disclosure of pecuniary interests by a member of the Authority's board and the exclusion of that person from deliberations or decisions in respect to the matter as to which there was an interest (subject to an irrelevant exception). The public policy embodied in the provision of this kind being, as Finn J observed, "appearance-based risk avoidance" (76 FCR at 264), violation of which does not require any proof of an actual deflection from duty, is to be contrasted with the duty to deal fairly in a contractual setting which must be "a matter of proof not of presumption…[so that] proof of unfair dealing in fact is what is required". Indeed, Finn J went on to say that, even if he had found that the conduct of one decision maker was improperly partisan and unfair to a tenderer, "the question would have remained whether that without more would have rendered the CAA liable for breach of the fair dealing term…[or] would it be necessary to show that his 'improper' vote was decisive in the decision to select the other tenderer", his Honour not expressing a view as it was unnecessary to do so (76 FCR at 268).

[62]

44 In the end, though not without misgivings, I consider that the language of contract in clauses 3.1.1 and 3.1.17 of the Call is such that the conclusion that a contract of some kind was intended is correct. However, giving full weight to the general but emphatic language of clause 3.1.1 denying the existence of any contractual relationship "in relation to the evaluation of revised Proposals, or otherwise in dealing with Proponents in relation to the ITS" it seems to me that the parenthetical exception relates entirely to a contractual obligation on the Principal to comply with the Call and, in particular, to consider the bids in light of the assessment of the Evaluation Committee, which it is to assist in the ways specified in section 3.2, appoint a Probity Auditor and consider any advice given by the Auditor as to probity concerns. The words in clause 3.1.17, "in accordance with this Call" do not require the Principal to assess or evaluate the bids in any particular way except, as I have said, in light of the assessment made by the Evaluation Committee, still less do they import the Codes into the Call as part of the obligations of the Principal or the Government. If there are to be implied terms of good faith and reasonableness (the formulation adopted by the Court of Appeal in Burger King Corporation v Hungry Jacks Pty Limited [2001] NSWCA 187 at [159]), "they are to be implied as a matter of law" (ibid at [164]), which requires that it be "both reasonable and necessary" to do so (ibid at [167]). Of course, the implied term must be necessary for fulfilment of the explicit or necessarily implied contractual obligations (ibid at [173]), which must, accordingly, be identified. In addition to those that I have already mentioned, may be mentioned (so far as presently relevant) participation in the interactive process referred to in clause 3.1.24, and the provisions of clause 3.1.10 relating, amongst other things, to the provision of information (despite the exclusion of warranties as to accuracy in clause 3.1.9, which would not cover the provision, at least recklessly or knowingly, of misleading or inaccurate information on a significant matter). I am satisfied that the nature of the contractual obligations of the parties in the context of this tender, requires the implication of a term of reasonableness and good faith, especially because (so far as the Principal is concerned) of the broad powers the Call reserves to it to vary the Call and the processes under it. That is not to say that specific reservations of unqualified powers must be read down but I think that they cannot be exercised capriciously or dishonestly (cf Far Horizons Pty Ltd v MacDonalds Australia Ltd [2000] VSC 310 (Byrne J) at [120], cited with approval in Burger King at [159]). As to the content of the implied term, Court of Appeal observed that "the Australian cases make no distinction between the implied term of reasonableness and that of good faith" (Burger King at [169]). I think that the obligation of the Principal and of the Government was to act honestly, reasonably and fairly. However, that does not mean that the Principal "is not entitled to have regard only to its own legitimate interests" in exercising its obligations and powers under the contract but "it must not do so for a purpose extraneous to the contract": Burger King at [185]). The effect of my conclusion that the Codes are not part of the Principal's or the Government's contractual obligations will, I think, be minimal (if it has any significance at all) since the sections of the Codes which are said to apply are, I think, merely elaborations of what would at all events be contained within the requirement of acting reasonably and in good faith which I have identified above.

[66]

48 Considered baldly, it may be that the defendants promised fair dealing in connection with the assessment of the bids. Indeed, I have already found that this was an implicit term of the contract although it is, of course, necessary to look at the whole of the circumstances, including, in my view, the Codes of Tendering and Practice, in order to ascertain whether a promise was made as alleged. At the same time, the terms of the Call are material not only in the inquiry whether a promise of fair dealing was made but also in respect of any limit to or qualification in the terms of the promise. Thus (to take one example), as I have already said in relation to the contractual argument, the promise of the Government and the Principal was to enable an assessment to be made by an Evaluation Committee undertaking to apply the criteria specified in the Call and to provide assistance by appointment of a Probity Auditor and other advisers. There was no promise, as I see it, that the Principal would conduct that assessment or that it would be governed by any recommendation of the Evaluation Committee. Even assuming that the Evaluation Committee acted as the agent of the Principal, that relationship was qualified by the requirement in clause 3.2.2 of the Call that the Committee should evaluate the proposals in accordance with the specified criteria and, implicitly, no others which, in effect, prevented the Government or the Principal from putting a finger on the scales, though (of course) they were entitled to provide the Committee with any information that they considered was relevant to its consideration of those criteria. The plaintiffs allege a number of specific instances which they submit are in breach of the proposed promise. In order to make good their case under this head, it does not seem to me that it is sufficient for the plaintiffs to show that the alleged shortcomings are not fair dealing; they must show that there was reliance by them on a promise, if not to refrain from doing the precise things alleged, to refrain from doing the kinds of things alleged. In other words, as I see it, there must be a reasonable, though not necessarily a precise, link between the matters complained of and the alleged reliance, especially where the matters complained of are known whilst the procedure in question is proceeding. It is obvious that what will be fair or not fair depends greatly on the particular context in which the issue of fairness arises and, absent deceit or deliberate wrongdoing, very much depends upon matters of fact and degree. In this case, the defendants also allege that the conduct of the plaintiffs in a number of respects should cause the Court to refuse relief. Put crudely - and, perhaps, inaccurately - the plaintiffs should not have the benefit of a requirement that the Government should act with probity when it was in deliberate and calculated breach of its own obligations in that regard, a breach which was fundamental to such contract as there was and, if known, would have entitled the Government or the Principal to cease any further consideration of Smartpos' proposal. There is no doubt that the plaintiffs have been guilty of reprehensible conduct. Indeed, it is not sought to argue otherwise, although issue is taken with the application of the so-called defence of unclean hands in the particular circumstances of this case in which, it is alleged, the misbehaviour and the alleged breaches of the claimed promise do not bear such a relationship as would justify the application of the doctrine. I will return to this matter in due course.

[68]

50 The third way in which the plaintiffs put their case is that the invitation to tender and the proposed conduct of the tendering procedure generated a legitimate expectation about the process to be followed in dealing with the Proponents' bids, relying principally on Century Metals & Mining NL v Yeomans (1989) 40 FCR 564. The headnote sufficiently states the factual context - "A government Minister commissioned an inquiry into proposals to re-open mining operations on Christmas Island. The inquiry was conducted by the liquidator who was responsible for winding up the affairs of the Government-owned company which had previously conducted the operations. The Minister promised that the inquiry would provide an independent, impartial and thorough assessment of the merits of the competing commercial proposals. The liquidator recommended to the Minister that one of the proposals be accepted. The Minister acted on this recommendation. The appellant (whose proposal was not accepted) applied for judicial review of the decisions made by the liquidator and the Minister." 51 The Full Federal Court (Fisher, Wilcox and Spender JJ) held that the decisions were reviewable under the Administrative Decisions (Judicial Review) Act 1977 (Cth), that the liquidator was obliged to accord natural justice to the appellant and that the Minister's assurances gave rise to a legitimate expectation that they would be honoured and, in particular, the repeated statements by the Minister that the decision would be preceded by an "impartial" assessment required that would be made by a person whose mind was uncommitted in fact and which appeared to be uncommitted. Accordingly, as the inquiry was not independent, impartial or thorough in assessing the merits of the competing commercial proposals the decision of the liquidator to make the recommendation and the Minister's decision to act upon it constituted denials of natural justice. The particular complaints that were made of the liquidator's approach was that, as the Court accepted, his inquiry was not a thorough one and he had also earlier expressed views (acceptable to the relevant Government department and likely to have been the basis for his selection) adverse to the appellant and to the proposal to resume mining. Dealing with the latter issue, the Court held that, whilst the test of bias applicable to judicial proceedings (as propounded, eg, in Livesey v NSW Bar Association (1983) 151 CLR 288) "will not usually be appropriate in connection with administrative decisions…in this unusual case, the test applicable to judges is relevant…[and] accordingly, the liquidator should have been regarded, and should have regarded himself, as being disqualified to conduct the assessment": 40 FCR at 597-598. The Court pointed out - "…If a Minister, though not legally bound to do so, chooses to announce that a particular decision will be preceded by an 'impartial' assessment, members of the public are entitled to expect that the person who will make that assessment will bring to that task a mind which is both uncommitted in fact and which appears to be uncommitted". Here, the Code of Tendering required that the assessment should be made by persons "free of any conflict of interest that might undermine the objectivity of the assessment": s 5.4 Evaluation of tenders. This fell far short of the Minister's declarations in Century Mining . Moreover, so far as two of the persons (Mr France and Mr Reeves) against whom allegations are made by the plaintiffs in this regard were concerned, in no sense did they have any conflict of interest. Nor is it alleged against them that they had, let alone expressed, pre - determined views on the merits of the proposals or the Proponents. It is alleged that there was a reasonable apprehension that they were biased against Smartpos. 52 Whatever may be the applicability of the rules of procedural fairness to the circumstances of the present case, I do not consider that the plaintiffs' imputations against particular participants, which rest entirely upon alleged perceptions of bias, attract the judicial rule. None of the relevant persons were in remotely the same position as the liquidator in Century Mining, who was the sole relevant decision maker (so far as the recommendation to the Minister was concerned) and who had expressed opinions which the Court held made it "impossible properly to regard him as an impartial assessor" (40 FCR at 598).

[70]

However, statutory corporations and bodies such as local authorities which depend entirely upon statutory sources for their powers may stand in a different position from the Crown…Court review of such decisions was available even before the Judicial Review Act 1991 (Qd) if mandatory procedures laid down by legislation for the formation of such contracts were not complied with…" 54 Dealing with the possible application of the rules of natural justice to attend the process, Thomas J noted White Industries Limited v The Electricity Commission of New South Wales (unreported, NSWSC, Yeldham J 20 May 1987 and Cord Holdings Limited v Burke (unreported, SCWA, Smith J 22 January 1985) in which it was held that, in the circumstances of those cases, a tenderer was not entitled to procedural fairness in the making of the relevant decision by the Government agency. His Honour expressed the view that the scope of the term "legitimate expectation" is "deliberately left wide so that courts may intervene in appropriate cases, but not so wide as to unnecessarily inhibit ordinary reasonable activities by governments and by statutory authorities (ibid at 497), going on to say - "It seems to me that the authorities' right to reject is an essential part of the process of tendering, and that every tenderer knows this…Also, virtually every tender involves the tenderer in a degree of expense, and in the usual course such expenses are something that the tenderer must be prepared to forego. That is not to say that tenderers are not entitled to fair play, but the rules of the game are fairly basic ones. From the tenderer's point of view it is something of a gamble and a tenderer is looking for a valuable benefit. Even conduct raising the tenderer's hopes will not necessarily deprive an authority of the right of summary rejection." 55 In citing the judgment of Yeldham J in White Industries, Thomas J quoted the following passage with approval - "In my opinion the plaintiff, in the position of a tenderer, was not entitled to expect or require that the principles of natural justice…should be observed in relation to it. I regard the nature of the power to contract by the acceptance of any one of a number of tenders to be inconsistent with an obligation to observe the principles of natural justice. A potential "right" to gain a beneficial contract is not subject to the rules of natural justice ."

[73]

58 On the assumption that rules of procedural fairness do circumscribe the procedures of the Government, their content must be related to the nature of the exercise being undertaken. As I have said, this was primarily a commercial one. The Government is entitled, indeed obliged, to consult its own responsibilities on behalf of the State of New South Wales and to entirely disregard the commercial interests of the tenderers. This is not to say that it can act capriciously, but its judgment as to what is reasonable in the circumstances is not to be gainsaid simply because it is possible to identify an arguably better way of proceeding. Taking as an example the question of bias on the part of a participant in one of the assessing committees, it is difficult to see why, in principle, the Government should not be entitled to consult any persons it regards as qualified to give it useful information, even if that person has a firm view about, shall we say, the business efficiency of one of the tenderers or the personal competence of its management. Nor does it seem to me, where such a consultation occurred, would it have been necessary for the Department or the Principal to have disclosed to the tenderer the content of any adverse reports and invited a response to it. In the circumstances, the Government (by which I mean the officials charged with responsibilities in respect of assessing the tenders) might reasonably have the view that maintenance of confidentiality of information like this is necessary in order to ensure candour. I appreciate, of course, that the plaintiff does not allege bias of this kind. I merely cite this example as demonstrating that the content of any requirement of procedural fairness must depend upon the circumstances in which it is said to operate. In Alfabs Engineering Group Pty Limited v Regan [2002] NSWSC 316 (Palmer J), the plaintiff commenced proceedings seeking orders that notices issued under the Coalmines Regulation Act 1982, the practical effect of which was to prohibit coalmine operators from using the plaintiff's special polyethylene bags as explosion suppression barriers (for which they were designed) until such time as the defendant, Chief Inspector of Mines in the Department of Mineral Resources was satisfied, by the provision of further information, that the bags were effective. The defendant had indicated to the plaintiff that he was concerned about the effectiveness of the bags but did not inform it that he was considering issuing a notice. Palmer J rejected the submission that a reasonable person, knowing the facts of the case, would have a reasonable apprehension of bias on the part of the defendant: Livesey v NSW Bar Association (1983) 151 CLR 288 at 293 - 294. It will be seen that this test is somewhat higher than that applicable to judicial officers where the inquiry is whether a reasonable person, knowing the facts of the case, might have a reasonable apprehension of bias. Be that as it may, his Honour added - "[39] In any event, in my opinion a purely administrative decision is in a very different category from a decision of a judicial or quasi-judicial tribunal. The decision of the judicial or quasi-judicial tribunal is, as a general rule, made in the course of a public proceeding in order to ensure that justice is not only done but is 'manifestly and undoubtedly seen to be done': R v Sussex Justices; Ex parte McCarthy [1924] 1KB 256, at 259 per Lord Hewart CJ. A decision by an administrator in the position of Mr Regan is not subject to the same requirements of transparency because such an administrator is usually not administering, or purporting to administer, justice in the same sense as the judicial or quasi-judicial tribunal. Often administrators must make policy decisions where there is no guidance from established legal principle and notions of 'justice' must be entirely subjective. Where such a decision requires that natural justice be afforded to an affected party, there is only one test as to the validity of the decision and that is whether or not natural justice has been afforded as a matter of fact."

[75]

60 It is important to bear in mind that the discussion of this question in Chu and the long line of immigration cases occurs in a context where the administrative decisions can have devastating consequences for the individuals involved concerning, as they do, not only where they can live but the future well-being of their families. It is one thing to make decisions about administering the law and quite another about administering a commercial contract, even if the Government is a party. The former process is very far removed from commercial competition to make a profit out of a Government contract. Leaving aside the Century Mining situation or cognate circumstances, it is difficult to see how the possible (not even the probable) apprehension of bias in a decision-maker should, without more, be the test by which the integrity of the tendering process should be determined. In one respect, at least, namely the right of Government to take advice from any source which it thinks appropriate, even if that source may be regarded as having "pre-judged" the subject matter, I cannot see a basis at all for judicial interference. Once a qualification such as this is allowed to operate, the scope of any objection on the ground of apprehended as distinct from actual bias must be seen as extremely narrow, if it exists at all. This is not to say that the relevant decision-maker ought not to be required to act bona fide and deal fairly with the parties but to require him or her to be concerned with the reaction of even a reasonable onlooker to their mode of proceeding seems to me to add an entirely unnecessary burden to the task of assessing which of a number of highly complicated tenders, involving technical and commercial issues of considerable complexity, is the better from the point of view of the interests of the invitor. The Codes of Tendering and Practice, relied on by the plaintiffs as establishing the extent and content of the contractual obligation of fair dealing, as I have pointed out above, do not advert to any of the rules of procedural fairness except in respect of a conflict of interest, which must be declared as soon as it is known (Principle 10 of the Ethical Principles) and requiring that tenders should be assessed by persons "who are free of any conflict of interest that might undermine the objectivity of the assessment" (s 5.4 of the Code of Tendering). No reference is made to any apprehension or perception of a conflict of interest. In my view, a fair interpretation of the Codes, having regard especially to their avowed aspirational, if not didactic, purpose, is that these provisions should be considered as at once stating the rule and marking the limits of the relevance of personal characteristics of the participants in the tendering process. In this case the plaintiffs allege conflicts of interest arising in three distinct areas. I propose to discuss the relevant legal issues after dealing with the facts giving rise to them.

[82]

The ITS technical solution represents a lower risk to the Principal in terms of the project being delivered to schedule and the operational performance of the Integrated Ticketing System being achieved. The use of the core MASS System and the ongoing development of this system for other ticketing projects significantly reduces the extent of hardware and software development required. The Smartpos technical solution is unproven in an operational environment, and both hardware and software will require considerable development and integration before the Integrated Ticketing System will be ready for implementation. This represents a greater risk to the Principal." 64 The higher weighted average score earned by ITSL resulted mainly from the assessment by the Sub-committee of ITSL's technical solution as superior, since it represented "a lower risk to the Principal in terms of the project being delivered to schedule and the operational performance of the Integrated Ticketing System satisfying operator requirements". In briefly stating the result of the report, I have considerably over-simplified the discussion and analysis which it contains. The report is almost 150 pages long and contains a great deal of highly technical information, a significant proportion of which is an assessment of comparative technical solutions. The narrative which I have quoted is therefore based on technical information as to which there is no explanation in the evidence and which the plaintiffs submit it is unnecessary to understand in order to deal with their complaints under this head. For reasons to which I refer later, this submission is not persuasive as to a number of important issues. Thus, whilst it is not difficult to appreciate that a tested complicated system is preferable to an untested one, the nature and extent of that advantage and thus the measure of the nature and significance of the difference, are matters that obviously require considerable technical expertise. However, it is, I think, fair to say, that the advantage was regarded by the Sub-committee as substantial and, in the end, decisive. Reports from the Technical Sub-Committee and the other sub-committees were considered by the Evaluation Committee, which issued its final report on 17 August 2000. At this time, the committee comprised, for the Department, John Armstrong (chair) and Peter Gunton, for State Rail Authority, Dick Day, Vipen Dogra and David Enever, for the State Transit Authority, Paul Dunn and Dorian Zerial, for the private operators, Eddie Croft, Darryl Mellish and Anthony Haworth, with Bovis represented by Peter O'Leary; as advisers to the committee were Andrew Doery (alternate Martin Walsh) from Booz Allen, Ian Gillings from Arthur Andersen Corporate Finance, John Shirbin (with Steven Klimt and Kate Hasan) from Clayton Utz, and Brian Smart from Bovis. The committee recommended that ITSL be nominated as the Preferred Proponent and that negotiations with that Proponent should be undertaken "until the scope, risk profile and cost of the project satisfy the Business Case and meet Operator requirements and as per the MOU [Memorandum of Understanding] signed in 1999." The Report summarised the assessment of the Technical Sub-committee that ITSL's technical solution was the better "as it represents a lower risk to the Principal in terms of the project being delivered to schedule and the operational performance of the Integrated Ticketing System satisfying Operator requirements." A number of key issues were identified as necessary to be addressed with the Preferred Proponent during the negotiations phase. I do not intend to set them out here. It is sufficient to observe that they are numerous, comprehensive, complex and highly technical. They do not refer to MASS in terms although it is impossible for me to assess whether any particular issue or issues concern the adequacy or reliability of the system and the extent of customisation. The Report contains a detailed analysis of the Technical Sub-committee's assessment, noting in particular the "fundamental difference in the design concept used by the two Proponents". Simply put, ITSL offered a core product (MASS) which was proposed to be adapted to the requirements of the ITS and described as "a tightly integrated end to end system, which is implemented by replacing any software in ticketing devices that are being re-used…[with] standard MASS interfaces…used throughout the system." On the other hand, Smartpos proposed "a system that will be custom-built", comprising "the integration of a number of existing and newly development (sic, presumably "developed") software modules drawn from a number of sources and suppliers to provide…functionality…[while] the existing software modules proposed…have been developed and currently operate on a range of platforms". The Evaluation Committee concluded that the design concept proposed by ITSL was preferable, stating, "MASS has been designed as a robust and highly cohesive and integrated ticketing system". No attempt was made by the plaintiffs to suggest that this conclusion was mistaken and, indeed, such a challenge was impossible to undertake in the context of this litigation. Quite what it imports as a technical description, as distinct from the ordinary English meaning of the words, it is not possible for me to say. That it was intended to convey a substantial technical content is clear enough.

[88]

67 ITSL achieved higher scores than Smartpos in respect of qualifications, legal issues and financial considerations although by very small and possibly statistically immaterial margins. It performed significantly better, however, in respect of the technical and operations criteria, most markedly in the criteria measuring system implementation. I do not doubt that the proposed use of MASS was a significant factor in achieving this score, although the fact that it was to some extent and would, by the time of initiating the project in Sydney, be a tried system was, if the main, not the only advantage, as the quotations set out above show, as is also evident from tables 11 and 12 to the Technical and Sub-committee Report. The tables refer to the use of MASS "by a number of other ticketing projects overseas (under the head "System Architecture") and the implementation of a "large scale smartcard system in an operating environment" in Hong Kong where ERG also had "previous experience in modifying other manufacturers' ticketing equipment" (under the head "System Implementation") as strengths but also notes as weaknesses that two of ERG current projects, Singapore and San Francisco, were behind schedule and there was some risk that insufficient resources may be available for development of the Sydney ITS. The tables also show that, so far as scoring was concerned, much more was involved than the level of field equipment maturity and its effect on the system development effort analysis and other connected parameters. At the same time, I think it important to observe that, whilst scores were an important, probably the most important method of analysis, in the end, as the Evaluation Committee report demonstrates, the conclusion as to which Proponent had the better Proposal was very much a matter for professional judgment. Concentration on scoring should not overlook the obvious point that the criteria and sub-criteria were not only linked in various ways of greater or lesser significance but also themselves represented to a significant extent individual judgment calls: in judicial jargon, matters of fact and degree. Accordingly, I think it right to accept that the pre-existence of MASS as a field tested system to some extent - an extent which was understood to increase substantially by the time Sydney's project was to be implemented - was a very important factor in gaining for ITSL the recommendation of both the Technical Sub-committee and the Evaluation Committee. Indeed, Mr Armstrong thought that 20% to 30% of the total scores could be attributed to the representations made by ERG as to MASS, although it is difficult to define precisely what this answer means. As I say, however, this aspect was a very important advantage for ITSL.

[94]

"Although generally supportive of the Evaluation Committee recommendations, PCG members wish to review the Evaluation Committee report in detail before giving formal endorsement to the recommendations. Comments are to be provided as soon as possible." 70 There was some controversy in the trial about whether this paragraph accurately stated the PCG's position but I do not intend to enter into it as, in the circumstances (especially ultimate approval by the Committee), it does not seem to me to be a significant point. A subsequent meeting on the same day of the Chief Executives, which included a substantial number of the persons who had been present at the meeting of the Project Control Group, also received the sanitised version of the Evaluation Committee report. Mr Simon Lane, then Chief Executive of SRA, informed the meeting, in effect, that his organisation would need to ensure that the software for the Preferred Proponent had been developed before it would be prepared to sign a contract and asked whether it was possible to impose a condition that the Principal would not sign a contract until "they've got San Francisco working" (indicating, by the way, that he was aware, not surprisingly, that the Preferred Proponent was ITSL, no doubt, amongst other things, because of the reference to MASS). Mr Armstrong's response to this query was that it was difficult to link performance on one contract to that on another but that it would be possible to make completion of an undertaking in the tender a pre-condition to the contract. The minutes of the meeting note the same points were made by Mr Armstrong as he had made previously to the PCG and conclude by noting - "The CEO's meeting supported the Evaluation Committee recommendations. This support to be confirmed by CEO's having had an opportunity to review the Evaluation Committee report. Any comments to be provided as soon as possible." 71 On 21 August 2000 Mr Zentilomo, the Smartpos Project Director, wrote to the ITP's probity auditor, Mr Warwick Smith, setting out a number of concerns relating to the assessment process. The thrust of the letter is summarised in the following paragraphs - "This lack of detailed investigation creates two areas of difficulty. First, given that there appears to have been little checking of Smartpos' major reference sites, we are not satisfied our proposal has been fairly assessed. Secondly, there would appear to be grounds to doubt that the evaluation as a whole (ie, of both bidders' claims) has been sufficiently robust. Smartpos believes that these issues should be rectified before proceeding further with the choice of preferred proponent. Furthermore, given the nature of the issues and the importance of the decision, and other probity related concerns addressed in separate correspondence to you, it would in our view be appropriate to carry out an independent review of the proposals, including a detailed investigation of central system software, Proponents' credentials, capabilities, available resources and the current status of relevant projects". 72 A copy of this letter was forwarded to the Minister for Transport. On 28 August 2000 Mr Ian Robinson, then Executive Director - Policy and Development, wrote a minute to Mr Armstrong stating, amongst other things -

[101]

76 On 28 August 2000, Mr Armstrong wrote to Mr Smith concerning issues that had been raised by Mr Zentilomo in the letter which I have already referred to and another of the same date concerning the role of Mr Reeves. The former letter, it will be recalled, sought an independent review of the proposals. Mr Armstrong considered that such a review was unnecessary and gave detailed reasons supporting that opinion. On the face of it, those reasons appear to be both bona fide and persuasive. However, Mr Robinson asked Mr Armstrong to prepare terms of reference for a technical review which was completed about 30 August 2000 with Mr Gunton's assistance. The evidence as to why the technical review was thought to be necessary is unclear. Mr Robinson, though employed by the Department at the present time, was not called to give evidence. The plaintiffs submit that the Court is entitled to draw the inference that the Government or, at least, Mr Robinson, considered that it was necessary to commission an independent technical report to ensure that all technical issues had been adequately addressed. The plaintiffs submit that this is an important issue since it was not a case of Mr Armstrong, as project director, wishing to have greater certainty but rather, Mr Robinson and the Department not being satisfied with the evaluation undertaken to date on technical issues. It is argued that it was therefore important for Mr Armstrong to ensure that all relevant information that might be obtained in the course of the independent review was conveyed to the "relevant decision-makers in the Department". I think this line of reasoning is rather facile. As I have already pointed out, and as Mr Armstrong made clear in his letter to the Probity Auditor, he did not think that a review as requested by Smartpos was necessary. He thought that the evaluation process had been "fair and robust". Some criticism is made of the circumstance that, despite this point of view, Mr Armstrong was asked, together with Mr Gunton, to prepare the terms of reference for the review. I do not think that there is anything in this criticism. (I interpolate to ask - rhetorically, of course - why it is that lawyers think they are the only people capable of objectivity in their professional work?) Given his position as Project Director, it was completely appropriate that Mr Armstrong should be involved in this process.

[104]

78 Before these terms of reference were settled (the above quotations being taken from a document of early November 2000) a number of significant events had occurred. On 1 September 2000, Mr Zentilomo wrote to Mr Smith complaining about Mr Reeves and about information that the Evaluation Committee had recommended a Preferred Proponent to the Government "without completing sufficient capability due diligence" and reiterating Smartpos's request that a "comprehensive independent review" be undertaken. Copies of this letter were sent to the CEOs of the Department, STA and SRA. On 8 September, Mr Armstrong, Mr O'Leary, Mr Doery and Mr Zerial had a telephone conference with Mr Bruno Wildermuth regarding progress on the Singapore Integrated Ticketing System in which ERG was the major contractor. Mr Wildermuth had more than thirty years' experience with automated ticketing for public transport and thirty years' working experience with large-scale public transport projects. He was (and is) considered a leading expert on advanced automatic ticketing systems for public transport in the South East Asia region, where he was then involved with several integrated ticketing systems, including Singapore and Hong Kong and studies for integrated ticketing in Bangkok and Kuala Lumpur. His firm, Wildermuth Consulting, included amongst other clients, the STA. So far as is immediately relevant, Mr Wildermuth was representing the Government of Singapore in relation to the implementation of ERG's MASS system for Singapore's integrated ticketing project. Mr Armstrong's understanding was that at this time ERG were in the throes of completing MASS in Singapore. Consequently, it is obvious that Mr Wildermuth's views as to the maturity of the MASS system and the extent of its implementation in Singapore were important. According to a contemporaneous file note of the conversation with Mr Wildermuth on 8 September 2000, he said that MASS was substantially delayed, with no date fixed for pilot tests (which were to have been conducted in August) and commented, generally, that ERG were "developing MASS to be everything to all people and as a consequence…trying to do too much - MASS has grown too big to be finalised, needs to be scaled down." His view was, though, that the quality of the product was acceptable but the problem is "getting it delivered on time". Mr Armstrong thought that, as a result of this conversation, a number of the important features which the Evaluation Committee had taken into account in respect of MASS in favour of ITSL's bid seemed to "have question marks over them", in particular, ERG's ability to deliver MASS on time. Mr Armstrong understood that it was Mr Wildermuth's view that what had given rise to the delay was that the system had not been developed as far as it had been represented (at least to Mr Wildermuth) that it had. However, Mr Armstrong was sceptical about this explanation since he thought that Mr Wildermuth was unclear as to the interface between MASS and the customised layer of software so that it was difficult to discern whether the delays were caused by customisation as distinct from the development of MASS itself. This was Mr Armstrong's understanding of the observation made by Mr Wildermuth to the effect that ERG was attempting to develop generic solutions to cover too wide a range of problems rather than reducing the core of MASS and solving Singapore's problems by additional customisation. Furthermore, Mr Armstrong gathered that ERG had been dilatory in producing explanations for the delays. There is no basis for a suggesting that these opinions were not justified, still less that they were otherwise than completely bona fide. Moreover, as Project Director, Mr Armstrong had a responsibility to assess this information as best he could, guided, of course by those (like Mr Doery) whose technical expertise in this are was very much greater. A further conversation with Mr Sylvester Prakasam (IT Manager for Singapore's Land Transport Authority ("LTA"), working with Mr Wildermuth overseeing the implementation of Singapore's ticketing project) confirmed Mr Wildermuth's account, with additional detail about MASS, Mr Prakasam saying that although it was "ideally a fantastic product" it was "just too ambitious". He added that, despite ERG's considerable effort in developing the generic MASS system, it had not put sufficient resources into developing the specific requirements for the Singapore system. Indeed, he thought that it was impossible for ERG to be able to generate MASS within the next year or so, with the LTA being informed by ERG that elements of MASS ("a baseline") would be installed and then progressively updated as development proceeded. Mr Prakasam suggested that it was unwise to "rely on MASS too much". For all these problems, Mr Prakasam compared ERG favourably to CTS, especially so far as developing back end systems were concerned - this being, as I understand it, by far the most important element of the ITP tender. Mr Armstrong conceded that the information from Mr Wildermuth and Mr Prakasam indicated that developmental problems with MASS might well be rather greater than had been appreciated at the time of the August report of the Evaluation Committee. Despite this, it did not alter Mr Armstrong's view that ITSL's bid was the better, although it did cause him concern. On 11 October 2000, Mr Doery spoke again with Mr Wildermuth about the extent of MASS developments. Amongst other things, Mr Wildermuth informed him that the smartcard system was operational in Singapore with the existing back end system being used to process transactions, LTA doing "most of the integration themselves, with ERG supplying readers and cards". This meant that delays in the development of MASS had not affected the roll out of smartcard. Mr Wildermuth also informed Mr Doery that he understood that software testing for San Francisco's ITP was due to commence in November and San Francisco was still aiming for a February 2001 start date, although Mr Wildermuth suspected that this timetable would not be met.

[105]

79 On 16 October 2000, Mr Armstrong returned a telephone message from Mr Fogarty. Mr Bob Trimmer (SRA) was present at the time. Mr Fogarty asked Mr Armstrong how the process was going and was told that the matter was still being considered by Government, he could not advise as to timing but it was still moving ahead. Mr Fogarty informed Mr Armstrong about rumours concerning investigating a team member for probity and conducting an independent technical review as a result of a protest over the process by a Proponent. He also informed Mr Armstrong that, at a public forum on smartcards as part of a transport conference in Melbourne, a speaker on behalf of Smartpos criticised the use of smartcards for transport upon a number of grounds. Mr Fogarty also claimed that Smartpos were "allegedly saying that they accepted the Sydney bid as lost and were now spoiling, and also allegedly knew costing and other information from the bid evaluation". Mr Armstrong informed Mr Warwick Smith (the Probity Auditor) of these matters and expressed the view that the behaviour of Smartpos was sufficient to disqualify them from the bid and asked whether a threat to do so was appropriate and at all events, asked for advice "as to the best way to shut these people down", which I interpret as meaning stop them from engaging in such public criticism of the project. The plaintiffs complain about Mr Armstrong's behaviour but I do not see anything wrong either with his attitude or with his discussing the question with the Probity Auditor. Although the information as to inside knowledge was less "validatable", it may well have led to very serious consequences indeed, had the circumstances in which the information was received been exposed. Maybe Mr Smith did take this matter up. No evidence was given about it, if he had. It is also pointed out by the plaintiffs that Mr Armstrong's conversation with Mr Fogarty was inconsistent with Mr Robinson's directive and also stated something about timing to the effect that the matter was the subject of current consideration. In no sense could this information be regarded as confidential or improperly conveyed and I do not accept that Mr Armstrong acted inappropriately so far as any compromise to the integrity of the bid process is concerned.

[121]

91 On 9 March 2001, Smartpos wrote to Mr Deegan declining to agree to the presentation proposal. Mr Zentilomo, writing for Smartpos, pointed out with disarming candour that there was a material change so far as ITSL was concerned arising out of the changed relationship between Motorola and ERG but that Smartpos had no material changes to present. Mr Zentilomo argued that a change such as arose from the ERG/Motorola "break up" (which appears to me to significantly overstate this issue and its significance on the Proposal and was rightly abandoned by the plaintiffs in the course of the trial as a ground of complaint) meant that ERG's bid was no longer compliant with the Call and, accordingly, the Government had no choice but to accept Smartpos's proposal. This overlooked a number of considerations, including material provisions in the Call which gave the Government complete discretion about accepting non-complying bids (assuming ITSL's bid to be non-complying). Mr Zentilomo's frankly tendentious letter demonstrates the inappropriateness of giving the Proponents a veto. Mr Thomas Walker was, at the material time, Managing Director of the second plaintiff. His evidence was that he saw the invitation to conduct presentations as "a trap for us in that it was trying to enable our competitor to…change…their consortium, which we considered to be a material change". It was entirely reasonable, of course, that Smartpos should be entirely focused on its own interests but, not surprisingly, those of the State of New South Wales were very different. The Smartpos veto could not prevent the Evaluation Committee from seeking further information under clause 3.2.4 of the Call, which is set out above. Accordingly, Mr Zentilomo's argument, if accepted, would have represented the triumph of form over substance. In his evidence, Mr Armstrong drew a distinction between the supply of information on the one hand and the proposed presentation on the other, in that the latter was information which the Evaluation Committee was bound under the Call to take into account whereas it was not bound to take into account information received pursuant to an inquiry. I think that this is to take transparency and legalistic consistency too far. If the Evaluation Committee made an inquiry of a Proponent and received material information as a result, I do not see how it could properly ignore that information although, of course, it would need to evaluate its cogency and reliability. At the same time, I accept that Mr Armstrong did indeed think that there was a distinction between the two procedures of the kind he described. 92 On 9 March 2001, Mr Fogarty telephoned Mr Armstrong to seek confirmation of the presentation date, given that the proposed date had passed and his next availability was 20 March. Mr Fogarty was told that the presentations were not likely to go ahead as Smartpos had not agreed to the Department's terms. Mr Fogarty told Mr Armstrong that he had prepared a lot of material, in particular, relating to ITS/Motorola/ERG and was told by Mr Armstrong that "he was free to submit information to the Department but that such information would not form part of the ITS bid in relation to the Call". Mr Armstrong's note states that, at the time of the conversation, Mr Gunton, Mr O'Leary, and Mr Turner were present. The plaintiffs submit that I should not accept the accuracy of this note and put forward a number of reasons which, the plaintiffs submit, "suggest very strongly" that Mr O'Leary, Mr Gunton and Mr Turner were not present during the conversation. I do not propose to discuss this matter in detail. I do not think that the matters raised by the plaintiffs should lead me to disbelieve Mr Armstrong. This is especially so since the suggestion that Mr Armstrong's note was unreliable - in a sense that attacked his honesty - was never put to him. 93 On 13 March 2001, the Evaluation Committee met and, amongst other things, it was agreed that the Project team should prepare a report for the Evaluation Committee to enable consideration of whether matters which had arisen since August 2000 affected the recommendations, but that Proponents would not be asked to submit information for this report. It was noted that the Evaluation Committee would need to decide whether re-scoring by the sub-committees was required. The next meeting of the Evaluation Committee was scheduled for 20 March 2001. On 15 March 2001, Mr Armstrong received a facsimile from Mr Fogarty to which were attached copies of slides providing an update on the status of the ITSL consortium and of current projects in which ERG was involved. Mr Fogarty said that, in view of "mixed press coverage and comments attributed to our competitors" he wished to confirm a number of matters, including Motorola's continuing half interest in ITSL. Mr Fogarty said that he also wished to clarify the status of current ERG projects and referred to a contract in Denmark, and briefly to the projects in Singapore, Rome, San Francisco and Berlin. Updated financial information on ERG was supplied together with certain other information. No direct reference was made to MASS. Copies of this material were provided by Mr Turner to Mr Gillings of Arthur Andersen and Mr Shirbin of Clayton Utz.

[131]

represent a superior technical solution to that proposed by Smartpos." 96 The report stated that, with one exception, no material used to prepare the report was sought from the Proponents, but came from various other sources. The exception referred to was the information concerning the ERG/Motorola relationship which ERG was asked to clarify. At the meeting of the Evaluation Committee on 20 March 2001, the draft interim report of the various sub-committees, including that of the Technical Sub-committee of 19 March 2001, was tabled and distributed to the Evaluation Committee participants and advisers. A brief note in the Minutes stated that the report had "been prepared by a consulting team including Peter O'Leary, Andrew Doery, Bob Trimmer and Peter Reeves" and added that the "information is based on public domain documents together with discussions with transport operators from various reference sites". Although the minutes state, "Proponents were not contacted as part of the exercise", I do not read this as in any sense sinister, since the report that was tabled expressly stated that ERG had been contacted in respect to its alliance with Motorola. No criticism was directed at the omission of this point which, I think, was simply an oversight. The draft Minutes, apparently prepared by Mr O'Leary, referred to a summary by Mr Armstrong of the main components of the report, the three main issues being raised described as the change to the ERG/Motorola alliance, progress in developing MASS and that there appeared to be no material changes concerning Smartpos. Mr O'Leary's draft contained the following statement - "Discussions with representatives of the Singapore and San Francisco systems since the last meeting have indicated that the full MASS software suite may not be used on those projects. This has caused some concern within the project team as the evaluation made certain assumptions about proving up this developing software which, at the time of the evaluation, had yet to take place." 97 The plaintiffs draw attention to the phrase "the full MASS software suite may not be used" in Singapore and San Francisco and the notes made by Mr O'Leary at the meeting that MASS had been "abandoned in Singapore and San Francisco", that Wildermuth had said that Singapore was "not using MASS" and that Sydney "would be a guinea pig for MASS", whilst Mr Klimt's handwritten note states, "No MASS anywhere else, using modified HK (Singapore, Rome, San Francisco)" with Mr Krallis' notes of the meeting stating in effect that (as, of course, he understood it) there was a distinction between the Hong Kong system and MASS with the latter potentially not being offered for Sydney. The plaintiffs submit that the source of the information that some of MASS may be used in Singapore and San Francisco is a meeting involving Mr Fogarty of ERG, Mr Gunton, Mr O'Leary and Mr Armstrong on 20 March 2001 which occurred after the meeting of the Evaluation Committee but before the draft Minutes were prepared and following a meeting between Mr Fogarty and Mr Deegan, Director-General of the Department. There is some uncertainty as to what occurred during these meetings but I do not think that anything important turns on this. In general, it seems clear that Mr Fogarty intended to bring to the attention both of Mr Deegan and the Project team significant matters concerning the ITSL bid which would have been communicated had the vetoed presentation occurred. There is no doubt that Mr Fogarty left with the Project team a package of material entitled "Integrated Transit Solutions Information Pack" comprising printouts of the slides of a Powerpoint presentation preceded by a three page index to those slides. The slides seem to me to convey information at a high level of generality and, considering the current stage of the evaluation process did not present much more than a tendentious account of ITSL's solutions, including, in particular, the status of MASS. It was not, and could not be, suggested that this could have done any more than trigger inquiries if they were not at all events already in progress. It is self evident that the status of MASS was a continuing issue and that the blandishments of ITSL would not be accepted at face value. Much was made by the plaintiffs of the description of this information as a "presentation" but I simply do not accept that there was any real advantage in Mr Fogarty's personal presentation, however otherwise charming he may have been (as to which there is, anyway, no evidence). Mr Sackar QC for the plaintiffs did not suggest to any of the members of the project team that there was anything especially persuasive about what Mr Fogarty said although he did put it that what he said came with particular weight as he was, after all, ERG's CEO. This was not accepted by Mr Armstrong and is not accepted by me. It is not surprising, however, that any information that he conveyed as to the status of MASS would have been regarded as useful. This strikes me as entirely reasonable and proper. Mr O'Leary took notes of the meeting. I do not doubt their essential reliability but although they present a significantly different picture than that conveyed by Mr Armstrong's account, I do not accept the plaintiffs' submission that this reflects on Mr Armstrong's credit as a witness. More particularly, I reject the submission that the discrepancies arose because of a deliberate decision on Mr Armstrong's part to reduce the apparent significance of the meeting with Mr Fogarty. Mr Armstrong gave evidence for nine days, of which eight were spent under searching cross-examination. It is obvious from what I have already said about the facts that the matters with which he was concerned covered a long period of time and involved complex technical, management and policy problems. I considered him to be an impressive witness and nothing in his cross-examination or the subsequent evidence has led me to doubt his candour. I think the truth is that his perspective on the meeting with Mr Fogarty was significantly different to that of the other members of the Project team who were present and that this is reflected in the differences in emphasis and detail in Mr Armstrong's note for file made on 22 March 2001 and Mr O'Leary's contemporaneous notes. Mr Armstrong's note expressly states that Mr Fogarty tabled the material that would have been submitted had the presentation taken place, pointed out the references to MASS and noted that, especially for that reason, copies of the presentation were made available to the relevant Project team members involved in the evaluation. I do not think it remarkable that Mr Armstrong's note did not advert to the particular information about MASS which Mr Fogarty gave in addition, since it must have been obvious that the Project team would follow up in detail the precise maturity MASS had achieved and the extent to which, if at all, it was to be used in Sydney. At the same time, I accept Mr Armstrong's evidence to the effect that the technical relationship between MASS and the Hong Kong back end system was a matter outside his expertise to sufficiently evaluate for the purposes of assessing its significance and that, in his judgment, Mr Fogarty also did not have adequate expertise to meaningfully elucidate the problem. Mr Sackar QC sought to overcome this difficulty by adverting to the general and descriptive language of these solutions as they appeared in the various reports but a detailed reading of the analyses in the reports betrays at almost every point the complicated, rocky reefs of technical detail immersed in the relatively smooth waters of narrative. In short, the plaintiffs' submissions concerning this subject matter so markedly over-simplify the technical facts as to mask rather than expose the issues with which the Technical Sub-committee and the Evaluation Committee were wrestling. Returning, then, to Mr Armstrong's note of 22 March, his concern, to briefly set out the events leading to the Fogarty meeting in order "to reiterate the existing process for the treatment of material for assessment of Proponent bids" and then to discuss the issues arising out of the receipt of information not contained in the proposals, demonstrate his focus at the time and represent I think, his concern as Project Director to ensure that the evaluation process was conducted with propriety. As I have already said, I think that this concern was somewhat legalistic and artificial but I have no doubt that he took the propriety of the process seriously and that this explains the form and content of the note in question. In short, I regard the plaintiffs' criticisms of Mr Armstrong concerning this matter to be little more than captious.

[132]

98 To take a step back to 21 March 2001, members of the Project Team consulted Mr Wildermuth by telephone on this day concerning MASS and the Singapore ITS. Mr Doery took notes of the conversation. Mr Wildermuth said that it had become apparent by June 2000 that MASS development was not going to meet the project schedule and ERG eventually agreed to use a modified Hong Kong system, subject to a rigid development schedule which had so far been met. Mr Wildermuth said that components of MASS were being used in the front end and intermediate systems in Singapore, but definitely not the back end system. He was unable to be more specific. Mr Wildermuth said that the extent of customisation of MASS that was required for the Singapore ITS was greater than had been estimated by ERG. He said that, although ERG originally described MASS as a "core product" plus a customised layer for each city, this latter component in Singapore was a major undertaking and, in the end, not much of the core product was left. Mr Wildermuth was asked what appears to me (in the context of the debate here) to be a most significant question, namely, what were "the differences between MASS and the modified Hong Kong system in terms of functionality and features". In pointing to this question as important, I do not overlook the almost insurmountable problem of giving adequate meaning, as a layperson, to the words "functionality" and "features". Mr Wildermuth said that he was not in a position to answer this question and suggested asking ERG. So far as "configurability" is concerned, Mr Wildermuth said the systems are "the same" with both using "a parameter-driven approach" with LTA yet to see "how much configurability was actually delivered", a matter which was shortly to be tested. Another matter which seems to me to be important is that Mr Wildermuth said, with respect to "changes to service delivery models from MASS to modified Hong Kong system" that there "have been no changes to the system's specification…[although] some features will not be available for the initial roll out only". Mr Wildermuth also confirmed his earlier information that Singapore would not change over to MASS in the future. The plaintiffs submit that the source of one or more of the questions asked of Mr Wildermuth during this conference was information received from Mr Fogarty on the previous day. I think that this is likely to have been the case, but I am certainly not satisfied that the questions, perhaps differently phrased, would not at all events have been asked. After all, the matters to which I have referred logically followed from Mr Wildermuth's own technical review and the earlier conversations with him. On the same date as this conversation, the Technical Sub-committee met. The minutes of the meeting noted Mr O'Leary's information about the meeting with Mr Fogarty and the latter's advice that "Sydney was definitely getting MASS and that Singapore and San Francisco would be getting a subset of MASS", that Mr Fogarty delivered some presentation material and was to send the Department a clarification letter later in the week. The Sub-committee agreed "not to review the presentation material or any clarification letter…until advice re the process had been obtained from Deloittes". Mr Doery is reported as having said that the Singapore and San Francisco projects were no longer using MASS and this "increased risk to the Sydney project in terms of encountering problems with the system during development and initial operation and meeting schedule". He added that the "use of MASS in these projects ahead of Sydney was a significant factor in the assessment of MASS, and the impact of this change needs to be considered carefully by the T[echnical] & O[perations] sub-committee". The Sub-committee met again on 22 March 2001. Mr Armstrong had not been present at the meeting of the previous day and was not present on this occasion. The Sub-committee agreed, in effect, that there would be a re-evaluation of a specified number of sub-criteria but that all of those criteria did not have to be re-evaluated or re-scored if it was thought not to be necessary. The minutes noted that "following advice from Deloittes and John Armstrong…the additional clarification material provided by PF would not be reviewed or considered in the re-evaluation". The evidence does not state who, if anyone, from Deloittes gave that advice; Mr Smith was on leave at the time and Mr O'Connor could not recall having been made aware of the provision of material by Mr Fogarty and rather thought that it is a matter that he would recall, if it had occurred. Mr O'Leary, who the minutes of the previous day's meeting note as having been given the task of obtaining Deloitte's advice about the matter, had no recollection of doing so, and thought it highly likely that he had spoken to Mr Armstrong. In light of the categorical language in the minute and the extent of the evidence on the point, I am unable to determine whether advice as stated in the minute was either sought or obtained but, given the contemporaneity of the document, I think it more likely than not that it did occur, even though the relevant persons do not recall this happening. Mr Armstrong said (and I accept) that he did not have any concerns about considering the information supplied by Mr Fogarty and I think that this opinion was correct. This suggests that the minutes, so far as they report Mr Armstrong's position, may be mistaken, although he may have thought that not using the Fogarty material was a sensible precaution. I do not think anything significant turns on this point.

[136]

102 The information supplied by Mr Fogarty, considered as a whole, certainly appears to be at odds, in a number of respects, with the information that had been received from Mr Wildermuth and Mr Meiman. On 23 March 2001, the Technical Sub-committee met again and "noted legal advice since the last meeting…that it was appropriate to review the material submitted by ITS to determine if there were any issues raised which required investigation by the Sub-committee". The Sub-committee concluded that the material did not raise any new issues and "confirmed the information already obtained regarding developments with MASS". Mr Armstrong was not present at this meeting but he was cross-examined about the apparent inconsistency between the notes of the Wildermuth consultations on the one hand and the Fogarty material on the other, conceding that there was an obvious inconsistency. I have found it difficult to assess the true significance of this matter, in part arising from the uncertainty as to the meaning of the phrase "information already obtained". I find it difficult to accept that the highly qualified members of the Sub-committee would have made an obvious error of the kind to which Mr Armstrong agreed and am inclined to the view that the minute is badly expressed in the sense that its meaning to an outsider may well not be the meaning which it would have conveyed to a person present at the meeting and who had undertaken the review to which the note refers. In other words, the most reasonable conclusion is that there is an error in expression rather than that the Sub-committee had misunderstood the purport of the clarification material submitted by ITS. Of course, even if there were a mistaken view taken of the purport of the ERG information that would not, of itself, have any bearing on the issues which I have to decide. The meeting of the Sub-committee, the minutes of which are presently under discussion, was convened to review the draft supplement to the Sub-committee's evaluation report of 10 August 2000. That report, so far as is relevant, states - 5.0 Developments Which Changed the Sub-committee's Assumptions about the Proponent's Offers

[149]

103 The plaintiffs severely criticise this report in two respects: firstly, rather than focusing on "abandonment of MASS" in Singapore and San Francisco, the report approaches MASS as not being implemented as a "full suite" in Singapore and San Francisco; and, secondly, unlike the draft interim report of 19 March 2001, no mention is made of the possible use of a "modified Hong Kong" system for the Sydney ITP. I consider that both these criticisms are ill-conceived. Firstly, it is clear from what Mr Wildermuth on 21 March 2001 (referred to above) that components of MASS were indeed being used in Singapore but only for the front end and intermediate systems. It will be seen from the section of the supplementary report set out above that, so far as the back end system is concerned, the Sub-committee makes it clear that the "modified Hong Kong back end system (including clearing house) is to be utilised". The use of the phrase "full suite" is not sinister at all in this context. The supplementary report expressly points out ERG's information that the Sydney ITP "will be the first implementation of the full suite of MASS software (front end and back end systems)". The plaintiffs' submission correctly notes that the supplementary report does not discuss the prospect of using a modified Hong Kong system in Sydney and argues, I think rightly, that it is reasonable to infer that this change was brought about or at least instigated by Mr Fogarty's information, but the suggestion that this averted "the crisis of confidence in MASS" is a gross over-statement. The significance of the apparent distinctions between "central system software", "back end systems", "front end and intermediate systems" is easy to see as a matter of language and in a sense of describing different stages of the processing structure but where one ends and the other commences and which elements of the structure fall within one description or another are not able to be sensibly assessed by the uninstructed lay mind. The significance of these changes was a matter for the Sub-committee to assess and there is no suggestion that it was not competent to do so. To the contrary, it seems to me obvious that the Sub-committee was more than adequately competent to understand the true significance of the information which had been conveyed by all informants including, if you like, Mr Wildermuth and Mr Meiman on the one hand and ERG on the other together with (it should not be forgotten) all the other information which the Sub-committee had acquired during the long drawn out evaluation process. In the result, the report noted, under the rubric "Change to Scores" - "Back End Systems, Smartcard Base Management and Clearinghouse Services and Functions - The change in scores for these sub criteria reflects the assessment that MASS will be less mature when developed and implemented for the Sydney project, and as a consequence, the risk of problems in the development and operation of the Central System is increased.

[163]

106 On 26 March 2001 Mr Deegan wrote to both consortia informing them that, because both Proponents had not agreed to making the proposed presentations, they "will not be taking place". In a separate letter of the same date, Mr Deegan invited the Proponents to provide any further information which they believed was relevant to the evaluation of their proposals, referring to clause 3.1.24 of the Call, to which I have already referred. To my mind this was not only fair, it was necessary. It is submitted by the plaintiffs that these letters were designed to legitimise the receipt of information from Mr Fogarty on 15, 20 and 22 March 2001. Whether this was a motive or not I am not prepared to find. What is clear is that the Call entitled the Department or the Principal to seek information and it was obvious that further information was required. Furthermore, it gave clear notice to Smartpos that it was not in a position to veto the receipt of further information from ITSL, a situation which, as I have said, should not have arisen at all events. It is submitted by the plaintiffs, as I understand it, that although it may have been proper for the Principal to seek information under clause 3.1.24 of the Call, as this was not the mechanism by which the Fogarty information came forward, it should not have been considered by the Sub-committee and thence by the Evaluation Committee. I do not accept this submission. First, as I have pointed out, at the meeting with Mr Fogarty on 20 March 2001, he was asked by Mr Armstrong to put the information which he wished to supply in writing and forward it in due course. I consider that this was a request under the Call. Secondly, at all events, it seems to me that the submission confuses form with substance. The mere fact that the information from Mr Fogarty , as it were, pre-empted the inevitable inquiry does not seem to me to be a matter of substantial departure from the Call which gave the Principal a very wide discretion (subject to fairness) to vary the process. There is no evidence that Smartpos was inhibited in providing any further information that it thought might have been useful and the plaintiffs' submission did not articulate (quite rightly) any complaint that, in the circumstances as a whole, the receipt and consideration of the Fogarty material was unfair.

[164]

107 In response to Mr Deegan's letter of 26 March 2001, ITSL submitted material on 3, 6 and 19 April. Whilst this was being done, the Evaluation Committee met on 9 April and the Technical Sub-committee on 10 April. The ITSL material provided on 3 April was substantially identical to that which had already been provided by Mr Fogarty to Mr Armstrong on 15, 20 and 22 March 2001. On 6 April 2001, ITSL provided additional information concerning ERG's Rome project. On 9 April 2001, the Evaluation Committee convened and the minutes record substantial changes to the draft minutes of its meeting of 20 March 2001. I do not consider that this was anything but proper. The minutes also note that a supplementary plan for evaluation of the revised offers was to be finalised and endorsed by the PCG "to document the current process". The Technical Sub-committee, meeting on 10 April 2001 "confirmed its view (established during the evaluation completed in August 2000) that a detailed review of the development status of MASS should be conducted [with the] timing to be confirmed (currently post announcement of Preferred Proponent)" and that the participants should submit any clarification questions to the team leader (Mr Doery) as soon as possible. On 12 April 2001, Mr Armstrong wrote to ITSL seeking clarification of a number of aspects of the information about MASS which had been provided on 3 April. This information was supplied by ITSL on 19 April 2001. On 12 April 2001, Mr Deegan wrote to Mr Zentilomo responding to the matters raised by Smartpos concerning the evaluation process. Mr Deegan stated, amongst other things - "I am satisfied that the Department and the evaluation team have acted fairly and with integrity throughout the evaluation process. The process was designed to be thorough and impartial; the evaluation has been and continues to be carried out with thoroughness and impartiality. " 108 The letter attached a detailed reply by the Department to the issues raised by Smartpos. Those issues are identified in the first seven paragraphs of the reply. Paragraph 1 summarised Smartpos's allegations that there had been an absence of sufficient due diligence, paragraphs 2 and 3 summarised the allegations about Mr Peter Reeves and Mr Robert France (to which I will come in due course), paragraph 4, the allegation that it was not provided with sufficient technical and performance data concerning, amongst others, ferries, paragraph 5 states Smartpos' request for confirmation that ERG had not been informed that it had been selected as the Preferred Proponent and its complaint that ITSL had been provided with information about the status and timing of the evaluation that had not been provided to Smartpos and paragraph 7 summarised a number of comments on the technical nature of the project. Paragraph 6 stated -

[165]

"By letter dated 2 March 2001, the Director General invited each Proponent to give a presentation to the evaluation team. By letter dated 9 March 2001, Smartpos declined to participate in such a presentation for reasons set out in that letter. Smartpos's letter dated 23 March requests a 'response' to its letter dated 9 March 2001. In its 9 March 2001 letter, Smartpos made submissions on the relevance and significance of reported changes to the relationship and ERG and Motorola." 109 The plaintiffs submit that this was a "partial disclosure" and was inaccurate in that it did not disclose to Smartpos the receipt of information from Mr Fogarty on 15, 20 and 22 March 2001. I do not agree that this paragraph is in the slightest degree misleading. The matters in the paragraphs to which I have referred all dealt with Smartpos complaints and did not purport to be, nor could it be implied that they were, anything more. There was no prohibition on Smartpos providing information at any time to the Project team if it thought that the material was relevant to its bid and there was no reason for Smartpos to suppose that ITSL had not provided information additional to its proposal. The crucial question was whether that information was dealt with properly by the Project team. I have already stated my conclusion that the Fogarty material was dealt with appropriately and I do not accept that it was necessary, either under the specific terms of the Call or for reasons of fairness, to inform Smartpos of the sequence of events which followed from their veto of the presentations. I repeat that, in my view, Mr Fogarty did not make a presentation in the sense proposed in the letters of invitation. I reject the plaintiffs' invitation to draw the inference that Mr Armstrong and Mr Deegan set out to present a sanitised version to Smartpos of what had occurred and the allegation that the reply was a "partial disclosure" amounting to "a half truth". Not surprisingly, the plaintiffs do not submit that either Mr Deegan or Mr Armstrong were under an obligation to disclose the receipt of information from Mr Fogarty on 15, 20 and 22 March 2001. They plainly were not.

[196]

116 On 11 May 2001, the PCG resolved - "That a Preferred Proponent be nominated and that subject to the approval of the Cabinet Standing Committee on the Budget, negotiations be entered into" and, in particular, that "specified functionality and performance of central system software be demonstrated by Proponents as a condition precedent to contract negotiations being finalised." 117 On 7 June 2001, the Budget Committee of Cabinet noted the progress that had been made in developing the Project and directed the Department to negotiate with each Proponent "in order to obtain certainty of critical items and processes in accordance with the Call". Amongst the critical items were intellectual property rights and central system software developments. The negotiations were to be conducted by a negotiating team reporting through a Negotiation Steering Committee to the Minister for Transport and the Treasurer. At this stage, therefore, the Budget Committee had demurred from the recommendation endorsed by the PCG to the effect that ITSL should be nominated as the Preferred Proponent with whom negotiations should proceed, by requiring negotiation with both Proponents. A Due Diligence Review Team was appointed, managed by Mr Doery to perform the due diligence on the back end software. A document was prepared setting out the objective and scope of the process containing, as an appendix, a summary of the claims by the Proponents as to the state of development of their software solutions. On 14 June 2001, Mr Deegan wrote to Smartpos setting out the Government's decision and a detailed account of the process which was to be implemented in the current phase of the tender. A similar letter was sent to ITSL. On 29 June 2001, Mr Armstrong sent Mr Fleming of ITSL a number of requests from the Due Diligence Team, not surprisingly, dealing with MASS amongst other things. On 3 July 2001, Mr Fleming answered each of the questions which had been posed. Further information was sought from Mr Fleming on 6 July 2001 and responded to on 11 July 2001. At a project co-ordination meeting of 3 July 2001 attended by Messrs Armstrong, O'Leary, Doery and a number of others, Mr Doery is noted as having said (although the notes are not altogether easy to decipher) that the MASS schedule that had been submitted in April "is misleading", (as I read the note) in that MASS "is now being developed under the Manchester Project", with testing to take place in three months; in addition, "low levels of MASS" are being used in Singapore and "we need to get hold of this". Mr Doery apparently informed the meeting that "Manchester functionality is a subset of what the Sydney system will be". The conclusion of the meeting was noted as "ITS lead has been eroded further than the erosion that occurred in April" and a summary of the issues were "development" so far as ITSL was concerned and "integration" so far as Smartpos was concerned. It was noted that the Steering Committee needed a "technical paper on the differences between the bids". It was also noted that - "The decision-makers do not have the background that we do and hence need to be provided with some certainty that MASS will be OK, even though it is not fully developed". 118 It is not altogether clear whether this was a personal note of Mr Turner (whose notes provide the basis for this discussion) as distinct from an agreement of the meeting. 119 A programme for presentations and demonstrations of the ITSL back end system was proposed to occur between 17 and 20 July 2001 by ITSL in a letter of 11 July 2001. On 16 July 2001, Mr Doery spoke to Mr Wildermuth about progress on Singapore's ITP. Amongst other things, Mr Wildermuth told Mr Doery of significant problems which were being encountered with the enhanced Hong Kong system, which had been designed for Hong Kong requirements rather than Singapore requirements with an inflexible design, although Singapore had to accept the limitations "with the knowledge that a number of things will need to be modified post implementation". Mr Wildermuth added that, after MASS was abandoned for Singapore, the "focus within ERG changed to modifying the HK system to meet the Singapore schedule" and that MASS was not worked on "for a while". Mr Wildermuth also "claimed that Cubic has as much experience in producing systems as ERG".

[202]

122 As I have mentioned, a meeting of the PCG was planned for 6 August 2001. That meeting was attended (in addition to Mr Armstrong) by Mr Deegan and Mr Rogan from the Department, Mr Deacon from the SRA, Mr Stott and Mr Dunne from the STA, Mr Mellish from the Bus & Coach Association, Mr Graham from Treasury, Mr Cutts from the PTA Secretariat, Mr Smith from Deloittes and Mr Gunton as secretary. The minutes note that Mr Armstrong reported, in effect, that the due diligence review process was consistent with the assessment of the respective Proponents' capabilities that had been expressed in the supplementary evaluation of May 2001. The plaintiffs submit that Mr Armstrong's report to the PCG, so far as the due diligence investigation was concerned, was manifestly inadequate. It appears that none of the concerns expressed by Mr Wildermuth as to the state of MASS development, to which I have referred, were brought to the attention of the PCG, nor did Mr Armstrong draw the attention of the PCG to what the plaintiffs claim was a discrepancy between ITSL's claimed development of the central system software modules and the Project team's view. As to this latter matter, the submission depends upon the note of 2 August 2001 (the effect of which is, as I mentioned above, doubtful), whilst as to the first, I do not see why it was necessary for Mr Armstrong to identify particular information that was assessed by the review team. The team was highly qualified, and well able to assess the significance of Mr Wildermuth's input as well as the extent of development of the software modules. There is no reason to doubt that it did so. Choice of the matters that were right to be brought to the attention of the PCG at that meeting was a judgment call for Mr Armstrong to make. I cannot see that bringing the findings as distinct from the process that led to them was unfair or unreasonable or in any way inappropriate. The review had been delegated to appropriately qualified people. Their findings were clearly open to them. Presumably any member of the PCG could have asked for and would have received the full report if it was wanted. I cannot see anything in the Call or the implied term of good faith and reasonableness which can justify the plaintiff's criticism of the review team, Mr Armstrong or the PCG. The submission is considerably weakened, also, by the omission of counsel for the plaintiffs to put these matters to Mr Armstrong. Furthermore, as is self-evident, the work of the review team was a continuing and complex process which, obviously, was not confined to the occasions referred to in the documents that have been tendered. There is no adequate evidentiary basis, therefore, for the assumption upon which the plaintiffs' criticism is based, that the matters which they identify had not been resolved to the satisfaction of the review team. In short, I regard the submission as unwarranted.

[219]

(b) make use of the Confidential Information for any purpose other than the purposes for which I was engaged. 2.3 I will: (a) take all necessary precautions to ensure that no person other than a person authorised by DOT is able to gain access to Confidential Information; and (b) ensure that the Confidential Information is safely and securely stored." 132 The partner responsible for the Clayton Utz team advising the Department was Mr John Shirbin. He was also team leader of the Legal and Commercial Sub-Committee, a participant on the Commercial Benefits' Sub-committee, an adviser to the Evaluation Committee and a member of the negotiating team. Another partner of Clayton Utz, Mr Steven Klimt and an employed solicitor, Ms Kate Hasan, also represented Clayton Utz on the Legal and Commercial Sub-Committee. Another employed solicitor, Ms Burnett, who worked directly for Mr Shirbin, had access to confidential information in connection with the tender and it seems possible that Mr Jim FitzSimons, a Clayton Utz partner in the Sydney office, may also have been given access to confidential information in connection with the tender. About July 1999, Mr Klimt sent an email to all partners of Clayton Utz nationally, informing them that Mr Shirbin and others had been retained by the NSW Government in connection with the ITP for a smartcard system involving buses, trains and ferries in the greater Sydney area and that anyone who thought that they may have any involvement should contact either Mr Shirbin or himself before proceeding further. This email did not name the Proponents, as they had not yet been identified. However, when they became known, it appears that no further inquiry was made of Clayton Utz staff as to whether they were acting for the partners involved in the two consortia. This was an unfortunate oversight. In March 2000, Mr Shirbin received an email from Mr Frank Bannon, a Melbourne partner of Clayton Utz, informing him that the firm was acting for OneLink in a claim against the Public Transport Commission of Victoria relating to a ticketing project there. The email pointed out that one of the major shareholders of OneLink is ERG. Mr Bannon observed that there was "no issue of legal conflict" but that there "may be an issue of disclosure" and suggested "appropriate Chinese walls" be erected to ensure confidentiality. At one point it appeared that ERG was separately represented by another firm but this was corrected when Mr Shirbin was advised in early April 2000 that Mr Stephenson was in fact acting for ERG, not OneLink. On 18 April 2000 Mr Shirbin informed Mr Armstrong by email that the Melbourne office of Clayton Utz was advising ERG in the OneLink contract, adding that this advice had no connection to Clayton Utz's relationship with the Sydney ITP. Mr Armstrong was informed of the following safeguards - "1. Lawyers advising ERG are under a duty to keep all their information strictly confidential. Likewise, my team working on your project is under a duty to keep all information relating to it strictly confidential.

[224]

134 Resuming the narrative of events, Mr Armstrong immediately forwarded Mr Shirbin's email to Mr Smith at Deloitte, who discussed the matter with Mr Shirbin shortly after and confirmed by email on 20 April that Clayton Utz would not act for ERG or any other member of the consortium in relation to any of the contracts forming part of the Sydney ITP. Mr Smith was satisfied that the issues raised by Mr Shirbin's email had been appropriately addressed and dealt with. Mr Smith was concerned with a possible perception that Clayton Utz might expect to get further work from ERG as a result of the work it was performing in relation to the Sydney ITP. Mr Smith's consideration of the matter was, I think, considerably less than adequate. Thus, he did not enquire about rotation of staff between Sydney and Melbourne, did not contact the partner in Melbourne acting for ERG, did not consider that he should obtain independent legal advice or whether the government should be advised to do so, nor did he obtain from Clayton Utz assurances that there were not other oversights so far as any of the members of the consortia were concerned. On the other hand, I do not consider that any reasonably well-informed onlooker - especially the members of the consortia in the ITP and particularly the plaintiffs - could reasonably have formed the view that Clayton Utz was in a conflict of interest. There was, in fact as well as law, no conflict of interest. It was not in any sensible sense in the interests of Clayton Utz to provide ERG with any information about the Sydney ITP, let alone confidential information. Indeed, the provision of confidential information would have indicated to ERG that Clayton Utz was not trustworthy, a perception which would scarcely be in the firm's interests to engender. Furthermore, the professional risks of breach of confidentiality were substantial. This is not a case, as is obvious, where Clayton Utz had a conflict of duty such as might arise where a solicitor acts for different parties in respect of the same transaction although, even here, full disclosure and informed consent will usually suffice to overcome the problem. Whatever the shortcomings of Mr Smith's inquiries, I consider that his conclusion (implicit in his satisfaction that the steps taken by Clayton Utz resolved the issue) that there could be no reasonable perception of conflict and no real risk of breach of confidence was, as a practical matter - and as, in my view, events showed - correct. So far as the Government was concerned, it had put in place a probity process which was based upon the appointment of an appropriately qualified probity auditor, which Mr O'Connor, Mr Smith, and Deloitte, undoubtedly was. The Principal was entitled, in my view, to assume that the Probity Auditor had resolved probity questions coming to its attention in an appropriate way and cannot be criticised, as it seems to me, for accepting, in this case, Mr Shirbin's assurance.

[226]

136 About October 1998, Mr David Cowling, a partner of Clayton Utz Sydney, was retained by ERG Telecommunications Pty Limited (a subsidiary of ERG) in relation to a claim against it by F J Precision Pty Limited involving a dispute that concerned, inter alia, the quality of certain cabinets manufactured by the latter on behalf of the former. Mr Cowling was also retained by ERG in a claim brought by a financial services firm against Australian Power Industries Pty Limited ("API") in relation to fees for services claimed to have been provided to API. That retainer was current between about November 1998 and June 2000. Mr Cowling said that he did not have any communications with Mr Shirbin's team or, indeed, any other solicitor from Clayton Utz about either of these matters other than with solicitors under his direct supervision who were working on them. It was not suggested to either Mr Shirbin or Mr Klimt that they had given or were aware of anyone else having given, any confidential information to Mr Cowling or, for that matter, to any other person outside the team and there is no evidence which suggests that they did. Mr Klimt said that he told Mr Cowling that John Shirbin and he were acting on the Sydney ITP which involved acting for the Government in relation to tenders for the project and Mr Cowling said to him that he had been acting for ERG in relation to some minor litigation matters and said, "It's not a problem for you, there is no conflict". The plaintiffs submit that, as Mr Cowling had an office on the same floor of Clayton Utz Sydney as Mr Klimt up until August 2000, four months after the date of the last account rendered by Mr Cowling to ERG, there could have been daily encounters between Mr Klimt and Mr Cowling and a real possibility of inadvertent disclosure of confidential information. I think this possibility is negligible, still less of confidential information that might have compromised the fairness of the assessment process. The plaintiffs also point to the use of the general Clayton Utz fax number for the purpose of receiving faxes from, inter alia, Mr Armstrong and Mr O'Leary, in connection with the ITP which was potentially dangerous as faxes might be inadvertently distributed to the wrong person. The procedure was for facsimiles to be personally delivered to the addressee. Even assuming that a mistake was made, it would not matter unless the information was communicated to ERG. Overall, I think that this risk was slight indeed. The plaintiffs suggest that there was a degree of familiarity between Mr Cowling and Mr Klimt which led the latter to accept, without reference to the Probity Auditor, Mr Cowling's assertion that there was no conflict arising out of the previous employment by the company secretary and general counsel of ERG as a solicitor of Clayton Utz who was known both to Mr Cowling and Mr Klimt. I do not regard these matters as being any more than makeweights. 137 Mr Paul Fitzpatrick, a partner of Clayton Utz in Perth, received instructions to act for ERG about June 1998 concerning a dispute with James Martin & Co which alleged misrepresentations as to the design of Hong Kong's Octopus Transportation Smartcard Scheme. No further work was done in relation to this matter after 26 October 2000. In November 1998, Clayton Utz Perth was also instructed to act for ERG in relation to a dispute with a communications company arising out of an asset purchase agreement. No work was done on this matter after 19 February 2001. Clayton Utz Perth was also retained about September 1999 by ERG in relation to a potential claim against Sigma Industries Pty Limited which arose from the supply by Sigma of allegedly defective cabinets to house technical equipment. No work was done on this matter after February 2000. Between 8 October 1999 and 29 November 2000, Clayton Utz Perth also received instructions to act for ERG to provide advice to a former employee in respect of proceedings commenced against ERG Limited. In all, the amount of fees involved was something over $18,000. Mr Bishop, the partner of Clayton Utz dealing with the Sigma matter, says that he did not communicate with anyone at Clayton Utz or have any other involvement in relation to the Sydney ITP, nor did Mr Fitzpatrick. I do not think that there is any basis for concluding that there was any breach of confidence arising out of the retainer of the Perth office of Clayton Utz by ERG.

[227]

138 In Prince Jefri Bolkiah v KPMG (a firm) [1999] 1 All ER 517, the House of Lords considered the position of a firm of accountants which had acted for the plaintiff for some years and had accepted a retainer from the Brunei Government to investigate an investment agency of which the plaintiff was chairman and in respect of whose activities, in part, the investigation was directed. The defendants' retainer by the plaintiff concerned private litigation in the course of which they were entrusted with extensive confidential information about the plaintiff's assets and financial affairs. The defendants accepted the Government's retainer because they had ceased to act for the plaintiff over two months previously, he was no longer a client and, though there was a possibility of a conflict of interest because the investigation was likely to be adverse to the plaintiff's interests and they possessed confidential information relating to his financial affairs, the firm erected a "Chinese wall" around the department carrying out the investigation on behalf of the Brunei Government. The plaintiff, who had not consented to the defendants' accepting the Government's retainer, was granted an injunction to restrain them from continuing to work on the investigation. It will be apparent from this brief account of the facts that the House was considering the issue of conflict and confidentiality in a context markedly different from that which obtains here. Clayton Utz were in no sense retained by the plaintiffs and the confidentiality which they were bound to observe was primarily that of their client, the NSW Government and its material agencies. They never had and were not at the time of the bid in a fiduciary relationship with the plaintiffs, let alone the relationship of solicitor and client. Insofar as there was a duty of confidentiality in respect to information which came from the plaintiffs, that was not, and could not be, the subject of legal professional privilege. The test propounded in the House of Lords, more particularly by Lord Millett, having commented on the test in Rakusen v Ellis Munday & Clarke [1912] 1 Ch 831 that disqualification required a 'reasonable probability of real mischief' imposed an unfair burden on the former client, his Lordship went on to say ([1999] 1 All ER at 528) - "It is in any case difficult to discern any justification in principle for a rule which exposes a former client without his consent to any avoidable risk, however slight, that information which he has imparted in confidence in the course of a fiduciary relationship , may come into the possession of a third party and be used to his disadvantage. Where in addition the information in question is not only confidential but also privileged, the case for a strict approach is unanswerable. Anything less fails to give effect to the policy on which legal professional privilege is based. It is of overriding importance for the proper administration of justice that a client should be able to have complete confidence that what he tells his lawyer will remain secret. This is a matter of perception as well as substance. It is of the highest importance to the administration of justice that a solicitor or other person in possession of confidential and privileged information should not act in any way that might appear to put that information at risk of coming into the hands of someone with an adverse interest. [Emphasis added] Many different tests have been proposed in the authorities. These include the avoidance of 'an appreciable risk' or 'an acceptable risk'. I regard such expressions as unhelpful: the former because it is ambiguous, the latter because it is uninformative. I prefer simply to say that the court should intervene unless it is satisfied that there is no risk of disclosure. It goes without saying that the risk must be a real one and not merely fanciful or theoretical. But it need not be substantial.

[228]

…[The defendant's duty to protect the confidentiality by doing no more than taking reasonable steps to protect it] would run counter to the fundamental principle of equity that a fiduciary may not put his own interest or those of another client before those of his principal's. In my view no solicitor should, without the consent of his former client, accept instructions unless, viewed objectively, his doing so will not increase the risk that information that is confidential to the former client, may come into the possession of a party with an adverse interest." 139 I do not consider that Clayton Utz had a fiduciary obligation of confidentiality to the plaintiffs. The firm may have been subject to an action for damages if, by negligence, confidential information in its possession had been disclosed, on proof of damage. But I cannot see that it had a duty, enforceable at the instance of the plaintiff, to erect impermeable barriers to the potential disclosure of such information, still less that that the failure to do so provided a basis for the plaintiffs, in an action against the Government and the Principal, to prevent them from entering into a contract with the other Proponent. In short, the obligations of Clayton Utz to the plaintiffs were no more and no less than those owed by any of the participants in the tendering process to whom confidential information was imparted, directly or indirectly by the plaintiffs. Members of the many Sub-committees to whom such confidential information was imparted by one Proponent had communications with the other. It is entirely conceivable that Mr Shirbin, for example, spoke to representatives of both Proponents in accordance with his functions under the Call. It is impossible, in this context, that it was necessary, or even desirable, that such persons, having obtained information from one side, could not also communicate with the other even though "wordless communication can take place inadvertently and without explicit expression, by attitudes, facial expression or even by avoiding people one is accustomed to see, even by people who sincerely intend to conform to control" (D & J Constructions Pty Limited v Head & Ors (1987) 9 NSWLR 118 per Bryson J at 123; and see David Lee & Co (Lincoln) Limited v Coward Chance (a firm) [1991] 1 Ch 259 per Browne-Wilkinson VC at 674; Newman v Phillips Fox (1999) 21 WAR 309 at 323 per Steytler J). It is obvious from what I have already said that the principles developed by the Courts in the exercise of their inherent jurisdiction to uphold the appearance of justice does not apply in the present circumstances, even if the court will prevent a legal practitioner from acting in a way that is "stained by the appearance of disloyalty" (emphasis added) (Wan v McDonald (1992) 33 FCR 491 at 513 per Burchett J). Here, nothing done by Clayton Utz was or could be affected by disloyalty, since at no time was it under any fiduciary or professional obligation to the plaintiffs.

[248]

Could you please call Tom Walker to discuss." 146 The plaintiffs criticise Mr Armstrong for having failed to brief Mr Smith with the contents of Mr Trimmer's email which is set out above. However, I consider that Mr Smith was given adequate information upon which to make any inquiries which he thought it proper to make. Mr Trimmer's information was vague at best and he did no more, in my view, than raise the possibility of bias. The submission of the plaintiffs that Mr Trimmer thought that bias was likely is, to my mind, an overstatement. Moreover, it fails to deal with the evidence of Mr Armstrong that he had a meeting with Mr Enever and Mr Trimmer following the latter's email at which the matter was discussed and, I infer, Mr Trimmer's position was clarified in somewhat different terms to those in his (Mr Trimmer's) email. Mr Armstrong had also had the benefit of Mr Croft's views, to whom he had been directed by Mr Trimmer. I accept Mr Armstrong's evidence, in substance, that his email to Mr Smith honestly stated the matter, as he then understood it. His response to the issue when it was raised by Cubic was, in my view, reasonable, fair and appropriate. Mr Smith's concession in cross-examination that the Trimmer email was "an important piece of information" is no doubt honest, but there was no suggestion put to him that he would have conducted his investigation in any different manner had he been aware of it at the time. Moreover, if (as I think likely) that inquiry would simply have brought Mr Smith back to the position as it was described in Mr Armstrong's email, it is irrelevant. It appears, at all events, that Mr Smith discussed Mr Reeves' position with both Mr Reeves as well as Mr Walker of Cubic. (Importantly, it was not suggested to Mr Smith that he did not talk with Mr Walker about this matter and it was referred to in a letter dated 21 July 2000 from Mr Smith to Mr Zentilomo, Smartpos' Project Director.) Mr Reeves informed Mr Smith that Microelectronic (Aust) Pty Limited (Microelectronics) was involved in a very limited way with the then defunct Telstra bid for the ITP. Mr Reeves' involvement was limited to attending the original briefing for Proponents and neither he nor Microelectronics had been involved in the proposal of any other proponent in the project. Mr Reeves told Mr Smith that he had not had any financial involvement with Microelectronics since January 2000. It appears that Mr Walker did not give Mr Smith any significant information that suggested Mr Reeves would be ill-disposed towards Cubic. Mr Walker gave evidence in the trial to the following effect. While Microelectronics was retained by Cubic as a sub-contractor, he had met and spoken with Mr Reeves on many occasions. He said that there were a number of concerns, over this period, expressed by Cubic about the standard of work being done by the Microelectronics' software engineers and, in September 1992, Cubic had issued a "show cause" notice requiring a response in 72 hours as to why the contract should not be terminated. There followed a series of meetings and correspondence in which Mr Walker said he and Mr Reeves were "deeply involved". Apparently some delay had arisen which Mr Walker considered to be unacceptable. After communicating this view, further correspondence ensued between Mr Reeves and Cubic but, with no recovery made to the project schedule, Mr Walker advised that the contract should be terminated, which was done in early December 1992. This information, and copies of the correspondence, were always available to Smartpos and could, of course, have been passed to the probity auditor. It did not seek to do so. There was no explanation for this failure and the only reasonable inference is that it was not seen as establishing the likelihood of any ill feeling by Mr Reeves towards Cubic. In light of this crucial fact, the extensive and apparently earnest correspondence generated by Cubic's complaint about Mr Reeves' involvement, with which I deal below, assumes a distinct air of unreality.

[250]

148 Mr Smith wrote to Mr Zentilomo of Smartpos on 21 July 2000 conveying the information about Mr Reeves' involvement with Telstra but not mentioning the Cubic connection with Microelectronics. Having regard to his mention of a conversation with Mr Walker, the most probable inference is that he did not understand it to be an issue. Mr Smith also said he had discussed the matter with the Project Director, Project Manager, SRA Manager and the Chairman of the Technical Sub-committee, each of whom confirmed that they had not perceived any bias on Mr Reeves' part and had undertaken to watch for any such perception. Mr Smith also advised that Mr Reeves had himself said that he had no bias towards or against any proponent. Mr Smith added that he had recommended that all members of the Technical Sub-committee should be informed of what he called "the related interests of Mr Reeves", considering that this increased the level of transparency of the process. I reject the submission of the plaintiffs that this was not an adequate response to the matter. More fundamentally, the process required referral of the issue to the Probity Auditor. He was independent. It was reasonable of the Government and the Principal to have left the matter in his hands. Short of any lack of good faith in supplying relevant information to the Auditor, the defendants cannot be answerable to the plaintiffs as they have formulated their action merely because the Auditor did not act as thoroughly as another reasonable mind might think it appropriate. Indeed, I am of the view that, even if the Auditor erred in his approach and omitted some appropriate action, or otherwise acted unreasonably, that does not amount to a failure by the defendants to fulfil any of the various obligations identified by the plaintiffs, whether arising under contract, estoppel, reasonable expectation or otherwise. It has not and could not be submitted that it was unreasonable or unfair dealing for the Principal, through Mr Armstrong, to place the matter in the Auditor's hands and leave the appropriate outcome to him.

[259]

Please can you advise how you intend to address our concerns before recommendation of Preferred Proponents." 151 The plaintiffs, as I understand it, no longer press the objection stated in the first paragraph set out above. As to the second paragraph, I do not see how it raises any reasonable suspicion of a bias against Cubic. It is not asserted that Cubic terminated Microelectronics services or that Cubic alleged Microelectronics' performance was unsatisfactory, matters which must have been within Mr Zentilomo's knowledge or at least within his means of obtaining it. In the circumstances, Mr Smith was reasonably entitled to act on the basis, not that there was a lacunae in Cubic's knowledge, but that such was not the case. As to paragraph 4, it is difficult to see how it could seriously be proposed by Smartpos that it should have been consulted on the retainer of any person advising the Principal in relation to the bid. It appears that Mr Zentilomo's letter had angered Mr Armstrong and he telephoned him. His initial response was that the decision as to the recommendation of the Preferred Proponent had been made and therefore (as I understand Mr Zentilomo's note of the conversation) there was no point in pursuing the Reeves' issue. However, after further discussion, Mr Armstrong agreed to consider making a further response. It appears from Mr Zentilomo's note (made on the following day) that, although he said to Mr Armstrong that his letter of 21 August stated what Cubic wanted, the letter did no such thing as is obvious from the above quotation. Indeed, one of the curious matters reflecting on the genuineness of the plaintiffs' allegations about Mr Reeves is that they never managed to articulate what they wanted the defendants to do. The correspondence reads as the creation of a file of complaints. This is made clear from the email sent by Mr Armstrong to Mr Smith on the very evening of the conversation with Mr Zentilomo, stating that Mr Zentilomo said, in response to Mr Armstrong asking him what remedy he thought appropriate, that "he had not considered a particular course of action (!) then on reflection said that he expected us to visit sites etc in relation to the second letter, and offered no solution to the first". The exclamation mark is a reasonable comment in the circumstances. Mr Armstrong also noted that, although Mr Zentilomo suggested that there should be a discussion again the following day, he rejected this suggestion and advised that he would receive a written response in time. I have mentioned that Mr Zentilomo's note was made on 22 August, whilst Mr Armstrong's email was sent to Mr Smith in the evening of the 21st. I note, in passing, that there are some marked discrepancies between them. The parties have made nothing of it, in the sense of attempting to criticise one or other of the protagonists but it is an instructive example of how documents - even contemporaneous ones - need to be looked at with some care before they can be accepted as altogether reliable accounts. In this case, the differences are no doubt due to the different perspectives from which Mr Armstrong and Mr Zentilomo were considering the matter. Mr Armstrong's email to Mr Smith went on to state - "Given that (a) we have conducted a thorough process,

[264]

154 On 1 September 2000, Mr Zentilomo wrote again to Mr Smith concerning "Sydney ITP probity issues", dealing with two matters, of which one concerned Mr Reeves. This was described as "a serious probity issue" and Smartpos's concern in this respect was stated as follows - "The selection (without prior consultation) by the Project team of a consultant who had been the subject of a termination action by us, whose contribution was sought for the very subject area occasioning the termination, and who had an association with other competitors in this very tender." 155 It will be noted that the circumstances of the termination are rather barely described with no mention being made of the reasons for the termination. Furthermore, the termination had been of Microelectronics, not (at least directly) Mr Reeves. Mr Zentilomo went on to discuss the proposed review, raising - "Smartpos concerns at the apparent hurried nature and narrowness of the Department's envisaged scope and depth for the review… The obvious conflict of interest in asking the Project Team to review their own activities and decisions. Indeed, as the Project Director has already made clear his opposing views on these issues it is difficult to argue that the review would be impartial and independent." 156 I do not accept that, in the present context, Mr Armstrong should not have undertaken the review envisaged by Mr Smith, with whom he was to consult in the process, merely because he had an opinion, even a strong opinion, about the merits of Smartpos' complaint. Providing his review of the factual matters and his judgment upon them (which, at all events, would not be definitive) was reasonable and honest, that was the most the plaintiffs had a right to expect. As I apprehend the course of the review, Mr Armstrong was in the role of informant or investigator. There was no requirement that he ought not have his own opinion about the merits of the case. They were for Mr Smith to judge. There was no suggestion that Mr Armstrong was personally partial to Mr Reeves and there were good reasons why he should review Mr Reeves' involvement in the process, having regard to his vantage point as Project Director. Moreover, the question of his involvement was for the Probity Auditor to determine. I do not consider that, in accepting that determination, the Principal acted unreasonably or unfairly. It will be recalled that clause 3.1.26 of the Call (Probity) provides that, following an investigation and recommendation by the Probity Auditor, "[any] action taken as a result of such a process will be at the Principal's sole discretion".

[296]

162 It is apparent from this report that Mr Smith made his own inquiries using, as it were, Mr Armstrong's review as a staring point. It was Mr Smith's recommendation which was important and this was made independently. Thus, Mr Armstrong's description of Mr Reeves' involvement as it appeared in his letter of 28 August 2000, was confirmed by Mr Smith. With respect to the information given to Mr Smith by members of the Sub-committee that Mr Reeves did not appear to display any particular bias, this and the description of the extent of Mr Reeves' involvement in the scoring are dismissed by the plaintiffs as relating more to actual bias than apprehended bias. I am of the view that Mr Smith was bound to make those inquiries and that this information was very significant. For reasons that I have already explained, I do not think that the relevant test is a reasonable apprehension of bias, but whether or nor any actual bias can be shown. As I mentioned when dealing with the relevant law concerning the implication of good faith terms, especially in light of the discussion in Burger King (supra), the nature and extent of the obligations implied depend on the character of the contractual object. Here, it is to assess two proposals for a substantial public transport project in which the crucial issue is the correctness of the assessment (from the Government's point of view) and its actual fairness (from the Proponents' point of view), in a process involving a number of key participants from Government (and some from the private sector) who will have had or be likely to have had significant prior contact with the Proponents, who had been contracting to the STA and the SRA for some time. Those contacts may have been good or bad; it would be most unlikely if they had not resulted in some prior assessment of the qualities of the Proponents. Acceptance of an apprehended bias objection would require the Probity Auditor to vet all these persons, a course not suggested by anyone because, I think, it was simply accepted that prior acquaintance and prior knowledge and even prior opinions about the Proponents was, as a practical matter, immaterial. These circumstances, taken with the nature of the exercise, persuade me that actual bias is the crucial issue.

[299]

165 The plaintiffs submit that the Probity Auditor's approach to assessing Mr Reeves' bias was fundamentally flawed in that he underestimated the nature and significance of the work he was undertaking in the process. They point, for example, to the fact that in early August 2000 Mr Reeves was finalising the design and implementation supplementary report of the Technical Sub-committee, prima facie a very influential task. However, the document was in fact prepared by the joint efforts of Mr Trimmer and Mr Reeves, who worked closely together, with Mr Trimmer doing most of the drafting and settling of the language and Mr Reeves' contributing spreadsheets and matters of that kind, with the report needing to be signed off by all other members of the committee who were asked to review the documents and provide comments. The details of Mr Reeves' actual involvement, therefore, were known to the members of the committee consulted by Mr Smith and, it appears, known at least in a general way by Mr Armstrong. Mr Reeves was one of three participants representing the SRA on the Technical Sub-committee, the other two participants being Messrs Dogra and Trimmer. It will be recalled that Mr Trimmer had initially raised the question of Mr Reeves' possible attitude to Cubic and it is reasonable to infer that he would have been alert to the possibility that Mr Reeves might be influenced by other than purely objective and technical considerations. It is evident that Mr Trimmer's technical expertise covered the same ground, more or less, as Mr Reeves. There is no evidence to support the plaintiffs' submission that he had any greater influence than any other person in the group representing the SRA or for that matter on the Sub-committee. The SRA rendered a single score agreed by all its representatives. This score was then part of the Sub-committee's overall score which was tendered to the Evaluation Committee. Mr Smith arranged for an analytical review of the scoring undertaken by the various Sub-committees which was included in the Evaluation Committee reports of August 2000 and May 2001. The purposes of the review were to confirm that scores appearing in those reports had been correctly transposed from Sub-committee reports, correctly calculated and that weightings were correctly applied and also to obtain a greater level of assurance regarding the conflict of interest allegations made by Smartpos. That review established that as, across the Sub-committees, ITSL scored higher than Smartpos in both August 2000 and May 2001 reports, a change in the relative weighting applied to the Technical Sub-committee score would not change the outcome of the evaluation. Furthermore, the removal of the SRA score from the Technical Sub-committee result did not affect the ranking of Proponents by that sub-committee and a re-calculation of the scores of both Proponents based upon the addition of the scores provided by individual scoring entities for each Sub-committee did not affect the evaluation outcome, since each scoring entity had scored ITSL higher than Smartpos. In a similar exercise, removing Bovis scores from the Technical Sub-committee report for the August 2000 evaluation did not affect the ranking of Proponents by the sub-committee. I have mentioned this test for completeness although it related to the allegations in respect of Mr Robert France, to which I will come. It confirmed that the score for the two Bovis representatives, including Mr France, on the Technical Sub-committee, did not indicate bias against Smartpos. This so-called "sensitivity analysis" was, of course, somewhat rough and ready and, by itself, proved little. But it was a useful control for the more subjective inquiries of the other members of the Sub-committee and the Project team and indicates that the Probity Auditor undertook a genuine investigation.

[301]

167 It will be recalled that Mr Zentilomo's response to Mr Smith on 1 August 2000 simply acknowledged Mr Smith's letter of 21 July concerning the involvement of Mr Reeves in the ITP evaluation process and advised that Mr Smith's comments had been noted by Smartpos. By 18 August 2000 Smartpos had become aware through improperly obtained information, that ERG had a higher score in the technical and operations area and that the ITSL scores were higher than those of Smartpos. On that date, Mr Walker and Mr Marcus Judge, then Chief Manager for Business Development of the Commonwealth Bank of Australia, met as part of the Smartpos consortium to discuss the status of the bid. They had been supplied with confidential information that ERG was ahead in the technical and operations aspects of the evaluation but equal in the financial, legal and qualifications areas. The notes of this meeting state that the action proposed was "Call for review - further due diligence required [and] make sure delay happens". Under the heading "Action Plan", the first entry is "delay" and the second entry "process/probity how to trigger review" next to which is noted, amongst other items, "Reeves' letter", "Ferries & buses tech info". Mr Walker was, not surprisingly, cross-examined about what occurred at this meeting. He was asked what discussion he recalled taking place concerning the steps to be taken if ERG was the preferred proponent and he gave the following evidence - "A I believed we discussed how we could stop such a thing happening. Q And one of the ways that you described stopping the thing happening, as you describe it was to Call for a review? A. Yes. Q. Was it another to make sure that further due diligence was required? A. Yes. Q. And another was to make sure that the delay happens? A. I don't know - specifically recall that, but that doesn't mean it wasn't discussed. Q. And do you recall it being discussed to use process and probity issues as a means of triggering a review? A. Yes. Q. In that context, I want to suggest to you it was decided by you and Mr Judge to raise the issue of Mr Reeves again with the Department and probity auditors? A. I don't recall deciding at that particular meeting but yes, I think on the following Monday…we decided to raise the Reeves' issue again, yes. Q. Had you ever been satisfied about the way in which the Reeves' matter had been dealt with? A. No. Q. In those circumstances why was it that by 18 August you had not replied to the letter of 21 July from the probity auditors rejecting the claim relating to the Reeves' matter?" 168 Objection was taken to this question by Mr Walker upon the basis that the answer might tend to incriminate him, a privilege he exercised a number of times on being questioned about the receipt of confidential information. I allowed the witness to decline to answer the question. However, I think it is impossible to avoid the conclusion that the Reeves' matter was not raised because there was any genuine apprehension of bias but as a device to delay the decision on the preferred Proponent. In a contemporaneous email sent by Mr Judge in connection with the Smartpos bid, Mr Judge said, "As things stand we have lost" and adding in a list of issues concerning the evaluation -

[304]

170 It will be seen from this narrative of events concerning the objections to Mr Reeves that, although his impartiality was questioned "both in substance and perception" (see Mr Zentilomo's letter of 21 August 2000) and although raising this question was part of Smartpos's strategy, no material was ever forthcoming from Smartpos that gave any substance to the accusation that Mr Reeves had been dismissed for poor performance or in circumstances that might have given rise to feelings of ill-will. Even the allegation, which was presumably put at its highest by virtue of Smartpos' motives in making it, appeared, on one reading, to put Mr Reeves at one step away from the termination and does not unambiguously assert that it was Mr Reeves' performance which was in question. In these circumstances, it is scarcely surprising that the response of Mr Armstrong and Mr Smith was to investigate whether there was any evidence of any actual bias. In undertaking this inquiry they were obliged to ask Mr Reeves about the allegation of bias and were reasonably entitled to place reliance, if they thought it was justified, upon what he said about it. It was also reasonable to undertake the steps which I have described above to attempt to discover whether any bias had been discerned by the persons with whom Mr Reeves had worked, presumably quite closely, over a lengthy period of time and then by analysing the scoring in various ways to see whether bias was demonstrated. Of course, these steps could not completely guarantee that Mr Reeves was not biased and that he had not by cunning and subterfuge fooled those with whom he had worked and, by placing his thumb only subtly on the scales, influenced the outcome. Whether this had happened was ultimately a matter for judgment and I see no reason why that of Mr Armstrong and Mr Smith on the matter should not be regarded as entirely justified, especially since it was supported by the overwhelming preponderance of evidence. The plaintiffs submit that, although such an examination was necessary, it could not be sufficient since the allegation itself raised the reasonable apprehension of bias. I reject this submission for the reasons already given. But I would add that I do not see how the matter asserted in Mr Zentilomo's letter of 21 August 2000 was adequate to justify, without more, a reasonable apprehension of bias. Furthermore, I do not believe that Smartpos made this allegation bona fide - although in stating this conclusion I do not question Mr Zentilomo's motives.

[307]

173 Mr Reeves continued to undertake work in connection with the project in 2001, participating in the work of the Technical Sub-committee and was one of the members of the review team that performed the due diligence of the back end software (extensively discussed above) together with Messrs Dogra, Trimmer, Zerial and Doery. It is submitted by the plaintiffs that he was also the author of an analysis of statements made by Smartpos regarding concerns with the ERG systems solution and was therefore the author of two particular observations described by the plaintiffs as "extraordinary". I do not accept the submission that Mr Reeves was solely responsible for the criticised language. I accept Mr Armstrong's evidence that he was but one of a number of people preparing material in relation to Smartpos' submission while, of course, the ultimate report was the responsibility of all members of the Sub-committee. Again, the plaintiffs can point to no evidence of actual bias in this period and the basis of the submission concerning apprehended bias had not changed either. It follows that no material issues arose following the report of December 2000. More significant to my mind is the fact that Mr O'Connor, to give himself an extra level of comfort in relation to objectivity with respect to Mr Reeves' role, met with Mr Doery, the chair of the Technical Sub-committee, in the second week of July 2001 who said that he was satisfied with the objectivity and competence of his team. Of course, Mr Doery was alive to the particular questions that had been raised as to Mr Reeves. 174 In the end, the plaintiffs submitted in substance that the process followed by Mr Smith to deal with Smartpos' complaint about Mr Reeves was manifestly inadequate, in respect of his attempting to understand the extent of Mr Reeves' role in the work of the Technical Sub-committee and resulting from his not obtaining from Mr Armstrong Mr Trimmer's email of 1 June 2000. For the reasons that I have already given, I consider that there is no merit in these submissions. I note that it is not submitted by the plaintiffs that Mr Smith's inquiries about the circumstances of the Microelectronics' sub-contract termination were inadequate, let alone that there were facts which, if they had been brought to his attention, should have affected his recommendation.

[329]

182 Mr Walker gave hearsay (probably second-hand) evidence that the possibility that Mr France's involvement may have been a problem so far as Smartpos was concerned came from an employee of the Commonwealth Bank, a Mr Ison. Mr Ison had been involved in the process throughout the whole of the tender period as the Commonwealth Bank expert on smartcard technology. He raised the matter some time shortly before 9 October 2000, however, although he had been involved through the whole of the year and was aware, I infer, of Mr France's involvement in that period. There was no explanation for the delay. Mr Ison reported to Mr Judge. Mr Walker said that, when Mr France was employed by Keycorp, he believed that the Commonwealth Bank held a 10% interest in the company, that Mr France was "Keycorp's relationship manager with the Commonwealth Bank" and had been terminated by Keycorp for poor performance "after receiving complaints from the Bank about his dealings with the Bank". None of this information was conveyed to the Probity Auditor despite Mr O'Connor's specific request to provide details of the complaints. No attempt was made in the present proceedings to verify any of this hearsay material (which was elicited only in cross-examination) and, in the circumstances, I consider that, even assuming it is admissible evidence of the truth of the assertion, its weight is so slight, I should disregard it, although I do not doubt that Mr Walker was giving the conversation as he recalls it. The plaintiffs' case on this point is simply that "Keycorp had associations with the Smartpos tender as a sub-contractor with the Smartpos consortium" and does not suggest that any bias might be apprehended arising from the Commonwealth Bank's membership of the Smartpos consortium. Mr Smith ascertained that Keycorp was an equipment supplier to Smartpos and a potential supplier to the ERG consortium. It is difficult, therefore, to see (even if there were some bias) how it might have affected the outcome. At all events, it appears that the total value relating to supply of Keycorp equipment was only in the order of 2% of project costs. It is scarcely surprising that Mr Walker conceded that he did not take Mr France's alleged bias seriously.

[332]

185 In focusing on a so-called process argument in this Court, the plaintiffs have sought to avoid attempting to establish that, in fact, any unfairness arose by virtue of the procedures that were followed. It is not enough for the plaintiffs to show a flaw in the course of the investigation but that this flaw was either unfair in itself or productive of unfairness. It seems to me obvious that they have proved neither to be the case. DELOITTE 186 The plaintiffs also submit that Deloitte failed to comply with the probity auditing process as specified in the plan for the evaluation of the revised proposals of May 2000 or were in breach of implied duties deriving from their appointment as Probity Auditor as set out in clause 3.1.26 of the Call. I have already said why I do not think that the plan is material. The question is dependent upon the Call and what is able to be implied in it. Deloitte was retained by the Department to act as Probity Auditor for the ITP under an agreement of 14 January 1999. In that agreement, Deloitte warranted that it had no conflict of interest in the performance of its services under the retainer and that, immediately upon becoming aware of the existence or possibility of such a conflict, it would advise the Department. It does not appear that any internal inquiries were conducted within the firm to ensure that no conflict of interest existed. Mr O'Connor assumed, given Deloitte's normal practice and the fact that a senior manager prepared Deloitte's submission seeking the retainer, that such a search would have been undertaken, as was the usual practice. I am asked to infer from the fact that Mr Krallis (the responsible partner), was not called by the defendants even though he still worked for Deloitte that his evidence would not have provided any confirmation that such a search was in fact undertaken. Mr O'Connor has undertaken some three hundred separate engagements in relation to probity audits and process reviews over the past nine years. Mr O'Connor said that the process of submitting a tender for a probity auditing contract includes a conflict of interest search. His evidence of standard practice in Deloitte is sufficient for me to infer that it was probable that such a search was undertaken in about July 1998. He also stated that, in August and December 2000, further searches were undertaken by way of email and copies of the (presumably negative) responses had been supplied. Furthermore, all the team members signed individual conflict of interest statements. Mr O'Connor undertook a conflict of interest search on 23 August 2000 in relation to ERG's involvement in the ITP. That email was in the following form - "Deloitte is currently acting as probity auditors to the NSW Department of Transport for the selection of the consortia to provide an integrated ticketing system on public transport - smartcards. A decision will be made soon.

[339]

If such an extension is not possible, an alternative approach, subject to your approval, could involve CTS submitting a system solution proposal which would exclude estimates for integrating legacy equipment and systems originally provided by ERG. This area would then be addressed once the information is made available post-proposal submission." 192 It appears that Mr Walker also spoke to Mr Armstrong to suggest the possible solution described in the last paragraph quoted above. On 15 October 1999, Mr Gunton responded to Mr Walker stating, inter alia, that a particular Driver's Console was not available at that stage since it was only installed in private buses and, as to the rest of the information sought, the Department was in the process of determining the precise details of the material requested and when it could be made available, confirming that a meeting was arranged for 18 October with representatives of ERG to enable this to be done. Mr Gunton added that the Department would accept a proposal which did not involve integrating legacy equipment that had been provided by ERG and permit Smartpos to reserve the right to amend its proposal subject to a number of conditions which are not presently material. It appears that, following the meeting on 18 October, ERG provided further confidential material to be controlled under the deed of access. ERG's correspondent, Mr Fleming, stated that it was his understanding that, with this supply, the outstanding request for information was satisfied. On 22 October 1999 Mr Zentilomo wrote to Mr Gunton briefly setting out some difficulties with adequately considering the documentation which had been supplied within the time frame required for lodgement of the proposals but noting that, even as at the date of the letter, the necessary information had still not all been made available. On 10 November 1999, Mr Zentilomo informed Mr Gunton that Smartpos then believed they had been provided with access to sufficient information regarding the STA Bus system but that the information in the secure room as to the ferry system was still not adequate. Mr Zentilomo referred to communications between an ERG representative (Mr Horbatiuk) and Cubic's engineering manager (Mr Cook) attempting to clarify the matters as to which documentation was still required. Mr Zentilomo reported that Mr Horbatiuk had indicated that he believed the information already provided should be sufficient for the purposes described by Mr Cook and requested ITSL to prepare a detailed written statement describing exactly what further information was necessary. A schedule of this material was attached to Mr Zentilomo's letter to Mr Gunton. The letter concluded with the reservation that, "until the consortium has full access to information on both Buses and Ferries it must necessarily reserve the right to consider the way in which the information once available will affect our Proposal."

[346]

198 On 8 May 2000 Mr Fleming of ERG advised Mr Armstrong that it was unable to satisfy the request of Smartpos for the provision of certain performance and availability statistics since "there is currently insufficient longitudinal data to derive any statistically meaningful system performance/availability measurements". On 12 May 2000 Mr Armstrong wrote to both Proponents concerning equipment performance for the STA Bus and Ferry system, supplying STA information about performance data for STA buses but advising, as to ferries, to the same effect as in Mr Fleming's letter. It is submitted by the plaintiffs that Mr Armstrong merely "parroted" Mr Fleming's explanation for refusing the request to supply statistical data for ferries. The evidence is unclear as to whether as assessment had been made within the Department or the Project team conveyed to Mr Armstrong that Mr Fleming's point was well taken or whether it reflected Mr Armstrong's own opinion. However, it seems to me very probable that it was at least assessed by the technical people as the letter was distributed to Mr O'Leary who in turn distributed it to the persons who would normally respond and Mr O'Leary then passed on to Mr Armstrong a draft of the letter which was ultimately sent. I find it very difficult to accept that Mr Armstrong would ever "parrot" a response without being satisfied of the fact, one way or another. On 17 May 2000 Mr Zerial (of STA) obtained legal advice concerning the Smartpos request for access to additional information that, although the Maintenance Contract entitled STA to provide the requested information (if it was in its possession) subject to the conditions set out in the contract, it was recommended that "due to significant commercial risks associated with delivering such information to a direct competitor of the Contractor, State Transit should not provide Smartpos with the requested information". Further bus information was provided to the Proponents by Mr Armstrong on 17 May 2000. 199 On 24 May 2000 Mr Zentilomo wrote to Mr Armstrong referring to the history of the matter and identifying Smartpos' essential concern as the "ability to provide a competitive response to this area of the tender, in the absence of the data usually provided". Mr Zentilomo said that the consortium was therefore "forced, by commercial prudence, to either price with a contingency overhead or to seek caveats (such as the right to re-price when the required information is eventually made available) and added that the "requirement to commit to the expected KPI regime is impacted in a similar matter". Mr Zentilomo's letter concluded in the following way - "Whilst we recognise their historical basis, nonetheless the above issues expose our consortium to a competitive disadvantage which the other proponent does not face (given the significant information provided recently by CityRail and related arrangements).

[354]

201 On 26 May 2000, Mr Armstrong replied to Smartpos' letter of 24 May as follows - "I confirm, as has been previously indicated to you, that in areas where Smartpos believes it is unable accurately to prepare and cost its bid on the basis that it has not been provided with sufficient information, Smartpos should submit its proposal reserving the right to vary it in relation to those areas. Whilst the Principal does not accept the comments you have made concerning the lack of information, I confirm that the Principal will be evaluating the proposals so as to ensure that, in its opinion, neither proponent is disadvantaged due to lack of access to information." 202 It is submitted that equal access to appropriate data was, first, essential to a fair and equitable tender process and, second, the Principal had not complied with its obligation under the Call by not insisting that ERG supply the information that was sought. It seems to me that there are at least two answers to this claim. The first is that the plaintiffs have not sought to establish that, in fact, the absence of the material that was sought actually had a negative impact on its bid still less that, in the evaluation, it was disadvantaged due to lack of access to information. Nor have the plaintiffs sought to establish the significance to the tender as a whole of this alleged lack of information. Merely to repeat the allegation in correspondence that necessary information was lacking is, of course, not to establish the fact. I am not prepared to accept, on the evidence before me, that it was probable that significantly material information was withheld nor that Smartpos' tender was disadvantaged by the approach taken to its bid in this regard, as outlined by Mr Armstrong. This is especially so since, following Mr Armstrong's letter of 26 May, Smartpos did not suggest that the proposal was either unfair or unreasonable, a matter which the Principal is entitled to consider as very significant in respect of its own implied obligation of good faith. The assessment of the significance of the information that was sought is self-evidently a highly complex and technical matter. As it seems to me, the plaintiffs rely principally upon the inference said to arise from Mr Armstrong's letter of 12 May 2000 that no such assessment was made by the Department. As I have already said, I do not think this inference should be drawn. Once it is accepted that it was probable that such an assessment occurred, the plaintiffs' complaint about this matter must, as it seems to me, fail. The plaintiffs have established, of course, a request for the information but not that the information was important, still less have the plaintiffs shown that the defendants failed to ensure that Smartpos was not disadvantaged by making such adjustments to its tender as may have been necessary. Indeed, the plaintiffs have not even proved that any change to Smartpos's tender was brought about by the alleged lack of information.

[361]

The level of detailed information concerning equipment currently in use by operators is different for each proponent. The project team however appears to have taken appropriate action to address this issue to ensure that neither proponent was disadvantaged because of the level of information available…" 204 On 8 February 2001, in a letter (to which I have already referred) addressed to Mr Deegan and dealing generally with probity and due diligence issues, Smartpos asserted, with respect to an alleged imbalance of technical and performance data - "The fact that both bids have been assessed as technically complete does not dispose of our concern regarding the level of technical and performance data provided to Proponents in relation to busses and ferries compared to rail. This concern arises from the position of the competing proponent as an existing supplier of equipment and services. From this position we expect that our competitor is able to obtain independent access to data which might reasonably permit it to dispose of contingent risks in the course of preparing its bid. For example, such further data may permit a number of contingencies to be removed from business planning and so have a substantial effect on pricing. In short, this concern may have an effect on a number of areas of your evaluation and not solely on the technical completeness of bids." This is a tendentious submission. It does not suggest any particular area of inadequacy nor does it suggest the kind of data which ITSL may have been able to use to its advantage. This is somewhat surprising in light of the statement that as a possibility its position might have a substantial effect on pricing. This claim is clearly not confined simply to seeking access to information thought necessary by Smartpos to prepare its tender, but in substance, the whole of ITSL's information on buses or ferries that possibly might affect the way ITSL priced its bid. The implicit suggestion that, after all, this is what Smartpos did with its rail information is immaterial, even if true. It cannot have thought that it could force ITSL to disclose more than it needed to because Smartpos disclosed as much as it thought it should. On the whole, I think that this letter was little more than the attempt to create a casus belli . UNCLEAN HANDS

[364]

207 The first document that discloses Cubic's approach is an email from Mr Stokes, an employee of Edelman Consulting, a public relations company retained by Smartpos in connection with its bid which attached a guide to an introductory media function which it was proposed should take place, inter alia, with the Minister for Transport, Mr Scully. On the hard copy of the email is a note concerning communications with Mr Scully made by, as it seems to me, Ms Jeannine Campbell, reporting a conversation with Mr Scully to the effect, amongst other things, that "we put some negatives into his ear about possible ERG complications", commenting (as I read the note) that they had attempted to lay "a very delicate ambush for ERG" without saying what that ambush might be. At all events, by May 2000, Mr Walker and Mr Judge were considering the appropriate strategy if it appeared that Smartpos was not going to win the tender. The view of the Smartpos consortium was that, if it did not win the tender, it would be preferable that the Project not proceed at all rather than ERG win the contract to undertake it. Three months after this meeting, on 18 August 2000, Smartpos were aware that on the previous day, namely 17 August, the Evaluation Committee had recommended that ITSL be selected as the preferred proponent and details of the scoring which had led to this recommendation. I need hardly point out that this information could only have been passed on as the consequence of a highly improper breach of confidence. However, this was not the first occasion upon which confidential information came into the hands of Smartpos. Before 20 June 2000, Mr Walker had been supplied with sensitive and confidential information about the ITSL bid price from Mr Bernie Clarke of European and Australasian Business Consultants, a firm retained by Smartpos to assist with its bid. This information was passed on by Mr Walker to senior executives of the first plaintiff. Mr Walker conceded (and, at all events it is obvious) that the information could only have come to Mr Clarke in breach of a duty of confidence. Mr Walker did not inform the Probity Auditor or any other relevant person of this very serious matter. Furthermore, he attempted to take advantage of the information in developing a strategy for the consortium. He conceded that in each of these ways, he acted quite improperly. I am satisfied that Mr Judge was privy to this information and the use that was sought to be made of it. Furthermore, having regard to the fact that a flow of confidential information came to Smartpos through Mr Clarke, the only inference that can reasonably be drawn is that Smartpos either implicitly or explicitly directed or encouraged Mr Clarke to continue to obtain such information. I have mentioned the scoring information which was procured on the 17 or 18 August 2000. It included scoring against each criterion (technical and operations, financial, legal, qualifications), the weighting, the winner and, with respect to technical and operations, the differentiator which was the "central system, implementation plan". As Mr Judge's email of 18 August states, Smartpos took the view that it was necessary to "slow down" the decision making process and, in tandem with this, to procure that "the decision makers should call for an independent technical review of the proposals". Mr Judge reported that the advice to Smartpos was that a review was unlikely without a clear rationale and that "due diligence and Peter Reeves" might be "seen as suitable grounds for a review".

[366]

209 On 14 November 2000 Mr Walker became aware that the Department had approached consultants for the purpose of conducting a review of the Sydney ITP proposals and the scope of the proposed review. He passed this information to other members of the consortium, including Mr Judge, noting "this is extremely confidential information". Its source appears to have been a consultant who was approached by the Department to conduct the review. Mr Walker did not disclose it to the Probity Auditor or to the defendants, in breach, I think, of Smartpos's ethical obligations. By December 2000, Mr Walker had become aware that the review was to be conducted by Mr Wildermuth, amongst others. The source of this information is not clear but a fair reading of the email from Mr Walker to Mr Zable, Mr Walker's superior in America, is that the information was obtained in breach of confidence. Mr Walker stated that he and Mr Judge had arranged a meeting with Mr Wildermuth in the following week and, as "[we] have still not been officially informed by the Department that he is involved in the process…our justification for meeting him is based on the premise that we are visiting Singapore to learn about what is going on there". The purpose of the meeting, as is clear from the email, was to attempt to improperly influence Mr Wildermuth in favour of the Smartpos bid. After a discussion of a number of issues, including the effect of the Sydney ITP on the SRA's systems demands as supplied by Cubic, Mr Walker concluded - "In light of this, I believe our best approach is to first find out what he can about what is in Bruno's report, and if it is favourable to us, to support him by showing a flexible attitude about issues related to specification, implementation and scope. (Given his recent experience in Singapore, it is highly unlikely that he would recommend anything that a more deliberate, lower risk implementation strategy.) This may also give us some room to ask about flexibility in payments terms from the Government at the appropriate time.

At a glance

Court

Decision date

Before

Source

Judgment (371 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (23)

Cited By (4)