Council's contract claims overturned in Court of Appeal

Secure Parking Pty Ltd v Woollahra Municipal Council [2016] NSWCA 154

In a recent judgment of the NSW Court of Appeal, councils have been reminded of the perils of making amendments during the tender process. Woollahra Municipal Council (Council) lost a substantial damages award and was ordered to pay the costs of Secure Parking Pty Ltd (Secure) in both primary and appeal proceedings, after the Court of Appeal overturned orders made by in the Supreme Court. The case unfolded as follows.

In November 2010, Council invited tenders for the management of four car parks. Included in the tender documents were a draft management agreement with a requirement for bank guarantees to be provided as security for income associated with each car park.

It appears that Council wanted the ability to accept a tender and thereby create a binding contract with the chosen tenderer.  

Secure submitted a tender in December 2010 but shortly after, varied its offer by proposing performance bonds be provided in lieu of the required bank guarantees. The relevant Council officer communicated that bank guarantees were necessary and that guaranteed amounts would have to subsequently increase (to the equivalent to three months income). Secure then proposed a compromise of performance bonds securing two months income. Council’s response was to state that two months income secured by bank guarantees would be the terms of a report put to the elected member of council for a decision. Secure did not respond to this.   

Council resolved on 14 March 2011 to accept Secure’s tender subject to provision of bank guarantees for two months income. It informed Secure on 15 March 2011 and provided a copy of the resolution, along with an amended management agreement (which included several changes to its original terms), a commencement date of 1 June 2011 and the requirement for the higher value bank guarantees.

Secure refused to sign the amended management agreement and refuted Council’s claims that a binding contract between the parties had come into force as of 15 March 2011.

Original Proceedings

The Supreme Court held that a binding contract was made between the parties upon the notice of acceptance on 15 March 2011. The contract was on the terms of the draft management agreement in the tender documents, as modified in respect of the increased bank guarantees.  According to the primary judge, Council was entitled to terminate that contract for repudiation because Secure refused to sign and perform.  He ordered Secure to pay Council $6,940,811.41 for loss of the benefit of the contract and for having to undertake a second tender process, plus Council’s costs.

Appeal

Secure appealed the decision to the Court of Appeal, claiming no agreement was ever reached between the parties on the bank guarantees issue and the commencement date and thus, there was no binding contract. The Court upheld Secure’s appeal, determining:

Variation to the Tender

The Court accepted that Secure had agreed to the increased amounts only on the basis that they were the subject of performance bonds not bank guarantees. Secure had made clear its position and the distinction was significant. There was no agreement to provide bank guarantees. Council could not accept an offer that had not been made. The Court held Secure’s failure to respond to or correct Council’s final reference to bank guarantees did not justify a finding that Secure had agreed to that. The Court concluded that Secure’s conduct and correspondence did nothing to indicate it accepted Council’s counter-offer about the security and that if the Council officer proceeded under the wrong understanding, it was not of the making of Secure.

Commencement date

The invitation to tender required the parties to agree to a commencement date within 14 days of Council’s notice of acceptance to the successful tenderer. However, the draft management agreement did not specify a commencement date or expressly require such an agreement.

A date of 1 June 2011 had been mooted by Secure in pre-acceptance negotiations but was dependent on specific events occurring (namely ordering for car park management equipment in February 2011 and installation prior to commencement) which never eventuated.

Council acceptance was based on a commencement date of 1 June 2011.

The Court determined that the parties had not reached agreement on the commencement date and that a commencement date could not be attributed to an event such as the installation of parking equipment. Rather, it had to be a clear calendar date.

Council’s purported termination

Council had purported to terminate by alleging Secure had repudiated its contractual obligations by not signing.  But the Court held there was simply no binding contract as of 15 March 2011.  So the question of whether Council was entitled to terminate was irrelevant.  

Implications

The decision demonstrates that circumstances under which amendments can be made to the terms of a tender, once the process has been initiated, are limited. If a tender is to be accepted in a way that is binding on the tenderer, the process must be tightly managed so that what is accepted is what the tenderer actually offered.    

General contract law principles of offer and acceptance must be adhered to or parties are at risk of not entering into a binding contract. In this case, Council could not negotiate amendments (make counter-offers and impose new requirements) and then purport to accept an original offer as binding the tenderer and it also failed to ensure that all the key elements for a binding contract had been resolved.

It is worth noting that amendments to tenders are also restricted by clause 176 of the Local Government (General) Regulation 2005.

Author: Steven Griffiths