Posts

Sirway Asia Pacific v Commonwealth of Australia

SIRWAY ASIA PACIFIC PTY LTD V COMMONWEALTH OF AUSTRALIA [2002] FCA

Federal Court of Australia – 18 September 2002

FACTS

Sirway submitted a tender to the Department of Defence to supply chinaware under a standing offer agreement for a three year period. The chinaware was to meet a Specification, which involved testing the chinaware for water absorption, chipping and thermal shock.

Sirway’s tendered samples did not meet the specification and the Department of Defence held meetings with a director of Sirway, Mr Giammario (Giammario) regarding the failure. Despite the nonconforming samples, Sirway was the successfultenderer and signed a Standing Offer Agreement (SOA) in August 1997.

The Department of Defence raised two purchase orders. Several meeting were held over the next year regarding Sirway’s inability to provide the chinaware according to Specification. Eventually, Giammario wrote to the Department of Defence informing them the manufacturer was unable to meet the Specifications. The Specifications were reviewed by the Department and a testing laboratory, which concluded the Specifications were not too extreme.

The SOA was cancelled at a meeting in December 1998, as Sirway was unable to meet the Specifications. Sirway alleged, among other claims, that the Department had represented that it would accept chinaware that did not meet the specified standard.

ISSUES

Was the Commonwealth carrying on a business for the purposes of the Trade Practices Act 1974?

If so, was the Commonwealth liable for misleading and deceptive conduct under the Trade Practices Act 1974?

FINDING

Sirway claimed the Department managed a business of trading in chinaware in industrial quantities to bring an action under the Trade Practices Act for misleading and deceptive conduct. Their claim was based on the Department being aware that the chinaware did not meet the Specifications when they were granted the SOA.

Under the Trades Practices Act, Sirway had to prove that the Department was in trade or commerce. Therefore it attempted to demonstrate that the Department was carrying on a business of trading or acquiring chinaware in industrial quantities. The Court held that the Department’s core function was the defence of Australia and there was limited evidence of a “business”. As acquiring chinaware related to a government function in the community’s interests, therefore the Department was not in business. The Trade Practices Act was then unavailable for further claims.

The Court also found that if the Department has been engaging in business its conduct would not have been misleading and deceptive as it never represented that the tendered samples had complied with the specification or that acceptance of samples not meeting the specification would be satisfactory to the Department.

QUOTE

“Although the applicant focuses on its interaction with the respondent as the business operator, that is the applicant’s participation in the tender process and the conclusion of the SOA, it must first establish that the respondent was carrying on a business when it engaged in such activities. It is not sufficient that it establish the commercial nature of the respondent’s behaviour and the transaction; such behaviour must relate to the respondent’s carrying on of the alleged business.”

IMPACT

A tenderer when submitting tenders should make sure that they understand and are able to comply with the specifications. A Principal should be careful to ensure that it is careful about negotiating with a tenderer that may not meet the specification as it risks the tenderer later alleging that the commencement of negotiations means that strict compliance with the specifications is not necessary. Finally, the mere fact a government body is undertaking to operate in a certain field does not mean that it is operating a business in that field.

Perini Corporation v Commonwealth of Australia

PERINI CORPORATION V COMMONWEALTH OF AUSTRALIA [1969] 2 NSWLR 530

Supreme Court of New South Wales – 22 October 1969

FACTS

Perini Corporation (“Perini”) entered into a building contract with the Commonwealth of Australia (“Cth”) to build the Redfern Mail Exchange which appointed the Director of Works as the certifier. The building contract contained a term that a Commonwealth official called the ‘Director of Works’ who could extend the time for completion of the work to such period as he should think adequate upon sufficient cause being shown to him. On many occasions Perini made applications to the Director of Works for extensions of time but many of these requests were refused because of departmental policy and other requests were only partially granted. Perini contended that the Director of Works was under a duty to act impartially and that itwas an implied term of the contract that the Commonwealth was obliged to ensure that the Director of Works so act.

ISSUE

Whether there was an implied term in the contract that the certifier should act impartially.

FINDING

The Court held that the Director of Works was a certifier under the contract and as such had certain duties imposed on him by the contract, including the obligation to act fairly, justly and with skill. Although the Director was entitled to consider departmental policy, he was not entitled to be controlled by it; on the contrary, he was subject to the implied term to exercise his discretion according to the rights and obligations of each party to the contract and the contract itself. Consequently, the discretion was a narrow one. The Court also held that there was an implied term in the contract that the Commonwealth would ensure that the Director of Works did his duty as certifier.

QUOTE

MacFarlan J, at 536, commented on the role of the Superintendent:

The characteristic of them is that there is a person appointed on behalf of the government or semi-government body to supervise the execution of the contract on behalf of his employer. He is generally a senior engineer or a director of works or a principal architect or some other officer who, because of his technical qualifications and experience, is competent to undertake that work. He is, as I have said, an employee of the body on whose behalf he undertakes this work, but, in addition, the same cases show that he is commonly charged with a duty either of resolving disputes between the contractor and the body which employs him or in certifying as to the quality of the work done or the whole or part of the cost of doing that work. In my opinion, the cases make plain that throughout the period of performance of all these duties, the senior officer remains an employee of the government or semi-government body, but that in addition and while he continues as such an employee he becomes vested with duties which oblige him to act fairly and justly and with skill to both parties to the contract. The essence of such a relationship in my opinion is that the parties by the contract have agreed that this officer shall hold these dual functions and they have agreed to accept his opinion or certificate on the matters which he is required to decide. It has also been said, and in my opinion correctly said, that the agreement of the parties is that they have referred the decision of these matters to a person who by reason of his employment and who by reason of his other duties in supervising the execution of the contract is a person who has both bias and partiality. It is now in my opinion too late to hold that an appointment of this kind is not one for which the parties to a contract cannot provide. I have already expressed the opinion that in respect of the duties imposed on him by cl 35 of the general conditions that he is a certifier. The word “certifier” does not have an exact meaning but is used to describe a function which is somewhere between those of a servant and those of an arbitrator.

MacFarlan J, more specifically, said at 538:

The kind of interest which must govern the exercise of the director’s discretion is the interest of each party as it appears from all the provisions of the agreement. The interest in this sense, in my opinion, is measured both by the rights and obligations of each as they appear from the various provisions of the contract. Indeed, in my opinion the discretion is of a narrow scope… In my opinion, though without attempting to embrace every case that could arise or perhaps has arisen in the course of the current disputes, the director would be obliged to consider the contractual rights and duties of the plaintiff.

MacFarlan J also held at 542 that:

…the duty of the Director when acting as Certifier was to act independently and in the exercise of his own volition according to the exigencies of a particular application.

Further, MacFarlan J commented that:

In my opinion [Perini] and [Commonwealth], being the parties bound by this agreement, are bound to do all co-operative acts necessary to bring about the contractual result.

IMPACT

This case stands for the proposition that the Courts usually imply a term into the contract that the Superintendent will act, and the Principal shall ensure that the Superintendent will act, in a fair, unbiased and competent manner.