The decision of the Victorian Supreme Court, Court of Appeal in Ipex ITG Pty Ltd (receivers and managers appointed) v Melbourne Water Corporation 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.
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. Justice Byrne also made substantial costs orders against the insolvent Ipex and its former parent company.
Ipex appealed the decision of Justice Byrne on two points, contending that Melbourne Water had engaged in misleading and deceptive conduct by:
Ipex’s arguments were ultimately unsuccessful and Justices Mandie, Redlich and Beach upheld the decision of Justice Byrne on appeal.
Both the Court of Appeal and Justice Byrne were critical of several aspects of Ipex’s presentation of its case. In particular:
At trial, Justice Byrne noted that “[it] became increasingly apparent as the trial unfolded that the unexplained absence of these documents created difficulties” 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.”
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.
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.”
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.
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” 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.”
However, as discussed above, neither Justice Byrne nor the Supreme Court of Appeal considered that the information provided was actually misleading or deceptive.
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:
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