Victorian Court of Appeal considers misleading and deceptive conduct in IT RFP documents

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26 November 2012

The decision of the Victorian Supreme Court, Court of Appeal in Ipex ITG Pty Ltd (receivers and managers appointed) v Melbourne Water Corporation[1] serves as an important reminder to customers in the IT industry to ensure the accuracy of their tender documentation.  This article discusses the judgment of Justice Mandie (agreed to in full by Justices Redlich and Beach) handed down on 13 August 2012.

BACKGROUND

In April 2000, Melbourne Water Corporation (Melbourne Water) invited several service providers to submit tenders for the provision of IT services.  To assist tenderers in costing their proposals, the invitation was accompanied by a request for proposal (RFP) which set out information regarding the IT environment of Melbourne Water and the services required.

A significant aspect of the services to be provided by the successful bidder was the provision of help desk services.  The help desk was required to be available by telephone and email 24 hours a day, 7 days a week, and would be responsible for resolving the majority of IT problems encountered by Melbourne Water’s employees in the course of their work.

The RFP also contained data as to the number and types of help desk calls received by Melbourne Water in the 6 months preceding the invitation to tender (October 1999 to March 2000).  The data, known as the “HD calls” data, was derived from a log created by Melbourne Water’s then current service provider, Unisys, and revealed an average of 433 help desk calls a month.

Ipex ITG Pty Ltd (Ipex) was the successful bidder and subsequently entered into a contract with Melbourne Water for a term commencing 1 August 2000 and ending 31 July 2003.  Ipex was required to assume most, if not all, of the risks involved in the three year term of the project.

Over this three year term Ipex experienced an average of 675 help desk calls a month – far in excess of the average number of calls described in the RFP.

In February 2003 Ipex commenced proceedings against Melbourne Water in relation to the number of help desk calls it experienced, initially claiming around $2.5 million in damages.

In the first instance, Justice Byrne found in favour of Melbourne Water, dismissing Ipex’s claims that Melbourne Water had engaged in misleading and deceptive conduct in breach of section 52 of the Trade Practices Act 1974 (Cth) during the tender process[2].  Justice Byrne also made substantial costs orders against the insolvent Ipex and its former parent company[3].

Ipex appealed the decision of Justice Byrne on two points, contending that Melbourne Water had engaged in misleading and deceptive conduct by:

  1. representing that the HD calls data provided to tenderers was a sufficient sample on which Ipex could cost its proposal; and
  2. remaining silent about older (pre-October 1999) help desk data which showed a greater number of help desk calls per month.

Ipex’s arguments were ultimately unsuccessful and Justices Mandie, Redlich and Beach upheld the decision of Justice Byrne on appeal.

THE MISSING PIECES

Both the Court of Appeal and Justice Byrne were critical of several aspects of Ipex’s presentation of its case.  In particular:

  • Ipex failed to call two key witnesses: a former managing director and a former account manager of Ipex, both of whom were involved in preparing the Melbourne Water tender;
  • Ipex did not produce key tender documents which Ipex claimed were prepared by it in reliance on the HD calls data.  Ipex failed to produce any cost analysis, or any records which revealed assumptions made in preparing its proposal; and
  • several of Ipex’s pleaded arguments were inherently ambiguous.

At trial, Justice Byrne noted that “[it] became increasingly apparent as the trial unfolded that the unexplained absence of these documents created difficulties”[4] and the Court’s consideration of Ipex’s claims was approached “with the caution which is appropriate to a case which has been so presented.”[5]

THE DECISION

Despite the difficulties raised by Ipex’s presentation of its case, the decisions of Justice Byrne and the Court of Appeal serve to highlight some important features of misleading and deceptive conduct where tender documentation is involved.

SUFFICIENT SAMPLE REPRESENTATION

Ipex claimed that Melbourne Water had engaged in misleading and deceptive conduct by representing that the six months of HD calls data were a sufficient sample on which Ipex could cost its tender proposal.

Additionally, Ipex argued that Melbourne Water had engaged in misleading and deceptive conduct by representing that the number of help desk calls would continue to be around 433 per month.

At trial, Justice Byrne did not accept that these representations had been made, and refused to accept Ipex’s claim that that it was “notorious industry practice” that the number of help desk calls would remain constant in an unchanged IT environment.  Moreover, his Honour did not accept that the IT environment of Melbourne Water was going to remain “unchanged,” since the RFP called for innovation.

On appeal, the Court upheld the decision of Justice Byrne finding that Ipex had not advanced any evidence to show that any of the people involved in costing the proposal had considered, believed or acted upon the basis that the help desk data constituted a “representative sample.”

REPRESENTATION BY SILENCE

Ipex contended that Melbourne Water had refrained from disclosing the entirety of the Unisys log which revealed a much higher monthly average of 723 help desk calls per month.  Ipex contended that this “representation by silence” was misleading and deceptive.

In response, Melbourne Water asserted that it was correct not to disclose the help desk data prior to October 1999.  Melbourne Water led evidence to show that the higher number of calls received prior to October 1999 arose as a result of significant disruption to its IT environment caused by rolling out a standard operating environment (SOE).  Moreover, Melbourne Water asserted that the data relating to the period prior to the rolling out of the SOE was irrelevant since once the SOE was successfully implemented, the number of help desk calls was significantly reduced.

Justice Byrne found that Melbourne Water had not engaged in misleading or deceptive conduct by not disclosing the pre-October 1999 help desk data.  The disruption caused by the SOE roll-out was found to be a sufficient reason for not including this data in the RFP.  The Court of Appeal agreed with Justice Byrne on this point stating that help desk data from pre-October 1999 related to a “fundamentally different” IT environment which was not relevant to tenderers.

THE USE OF BROAD DISCLAIMERS

While not considered in detail by the Court of Appeal, at trial Justice Byrne made a number of comments in relation to reliance on data provided to IT tenderers during a tender process.

Importantly, despite the “unsatisfactory evidentiary background”[6] and the fact that Ipex was unable to produce any documents or key witnesses to explain the role the HD calls data actually played in calculating its tender price, Justice Byrne found that Ipex had indeed relied on the representations made by Melbourne Water in the RFP.

Justice Byrne stated, “Melbourne Water compiled and included in its RFP a mass of material to enable tenderers to prepare their tenders… [It] intended that all tenderers rely upon the information provided to them.  It cannot escape responsibility for this by hedging this information with disclaimers.  The question of reliance is a question of fact, and a fact of this sort cannot be contractually deemed out of existence.”[7]

However, as discussed above, neither Justice Byrne nor the Supreme Court of Appeal considered that the information provided was actually misleading or deceptive.

CONCLUSIONS

Resolving the issues turned into a protracted process for the parties, who found themselves before the Court nearly nine years after the original contract was due to expire.

In light of this decision:

  • Customers must be careful to ensure the accuracy of information contained in tender documents (including information supplied by third parties). 
  • Customers should be aware that general disclaimers may not relieve them from liability for the content of an RFP.  Customers may like to consider including more specific disclaimers in relation to information which may be changeable (for example “Respondents should not assume that such data will remain unchanged during the term of the contract”).
  • Service providers should exercise caution when entering into contracts where they bear the whole of the risk of unexpected increases in the demand for their services (or other changed circumstances beyond their control).  If they do accept such terms, service providers should build a suitable buffer into their pricing.
  • Service providers should ensure that key documents prepared in response to an RFP (such as costs analyses) are retained for the term of the contract.  Without such evidence, it may be difficult to establish that the service provider’s reliance on the information provided by the customer was the cause of the damage.

  [1][2012] VSCA 169

  [2]Ipex ITG v Melbourne Water Corporation (No 5) [2009] VSC 383.

  [3]Ipex ITG v Melbourne Water Corporation (No 6) [2009] VSC 571.

  [4]Ipex ITG v Melbourne Water Corporation (No 5) [2009] VSC 383 at [36].

  [5] Ibid at [45].

  [6] ibid at [150].

  [7] ibid at [151].


The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.


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