BAYLINE GROUP LIMITED V THE SECRETARY OF EDUCATION HC WN CIV 2007-485-904

BAYLINE GROUP LIMITED V THE SECRETARY OF EDUCATION HC WN CIV 2007-485-904 29 August 2007IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV 2007-485-904UNDER the Judicature Amendment Act 1972 IN THE MATTER OF an application for Review BETWEEN BAYLINE GROUP LIMITED Applicant AND THE SECRETARY OF EDUCATION Respondent Hearing: 27 August 2007 Counsel: P McPherson for the Applicant U Jagose and A Williams for the Respondent Judgment: 29 August 2007JUDGMENT OF SIMON FRANCE J[1] Bayline is a bus company that was the unsuccessful tenderer for a school bus route in Tauranga. It seeks judicial review of the Secretary of Education's decision to award the contract to the other party that submitted a tender. It wishes the contract, which has now run for eight months of its two-year duration, to be declared invalid and for Bayline to be awarded the contract. Alternatively, it seeks a declaration that the Secretary should conduct another tender round.Facts[2] In the Tauranga district, some schools organise their own bus services, and the Ministry organises others. This case concerns a group of 26 routes servicing two schools which the Ministry organise. The contract for these routes was put out to tender in 2006. The contract was for a two-year period, and was to follow on froman existing two-year contract that itself had been the subject of a tender round in 2004. [3] The length of the contract is unusual. Normally all Ministry organised routes are the subject of a National Tender Round, the next of which is to occur in 2008. Contracts in that round will be for six years, with the possibility of two 3-year extensions. However, in Tauranga the local authorities were reviewing the provision of local public bus services. What decisions were made in that regard would affect whether the Ministry organised any school bus services at all. Because of this uncertainty, shorter contract periods were decided upon. [4] Ion 2004, and in 2006, there were only two bidders – Bayline, and the successful competitor, Bethlehem. The fact that there was a tender at all in 2006 was not decided until mid-2006. The Ministry reviewed whether it should conduct a tender or simply roll over Bethlehem's contract for a further two years until the National Tender Round in 2008. It consulted with both companies, and although seemingly happy with Bethlehem, decided upon a renewed tender process. [5] Ministry school transport tenders are conducted under a set of Tender Guidelines. The tenders are advertised. Those who express interest receive the tender documents, and a copy of the Tender Guidelines. The process, known to both Bethlehem and Bayline, is that the tender is in two parts. There is "Envelope A" which contains the Safety and Organisational information. "Envelope B" contains the bids which can be structured in a variety of ways – a job lot, or individual routes, or groupings of individual routes. [6] The bids are assessed by a Tender Evaluation Committee, which in turn makes a recommendation to the Secretary of Education (or her delegate). The Chairperson of the Tender Evaluation Committee is a Mr David Tribe; he is a manager within a trust named Multiserve which acts as the Ministry's agent and conducts the school bus tendering process. The Tender Evaluation Committee is guided by the Guidelines which are provided to all interested parties.[7] On this occasion the tender was advertised locally in the Bay of plenty Times. Three expressions of interest were received; Bayline and Bethlehem, the two bidders in the last round, again submitted bids. The third body which expressed interest was previously unknown to the Ministry and did not pursue matters beyond receiving the documents. [8] In terms of the tender process, the Tender Evaluation Committee did not formally meet. Because it was a one-off small tender, Mr Tribe acted as a central point of communication for Committee members, discussing the recommendation with each of them. [9] Concerning the safety requirements, Part A of the process, there was no issue with either applicant. In terms of the published criteria it was also decided that a transfer of services from Bethlehem, the incumbent, to Bayline, the potentially new provider, could be done with a minimum of disruption. [10] Turning to pricing and economy, the Bayline bid was the most competitive. Under the former Guidelines there was a 2% price differential recognised as the threshold for making a change in provider worthwhile. The present Guidelines do not have an express figure, but Bayline's bid was, in general terms, 5% cheaper. [11] In the ordinary course of events Bayline would have succeeded. However, Mr Tribe, from his general knowledge of the bidders, was concerned that if Bethlehem lost the contract it would pull out of the school bus market. This would leave Bayline as the only competitor when it came to the 2008 National Tender Round. The Committee's recommendation, therefore, was that the short-term financial gains of giving the two-year contract to Bayline were outweighed by the longer-term advantages in maintaining competition. The Ministry accepted the advice and renewed Bethlehem's contract for two years.The complaint[12] Bayline says it has been treated unfairly. If the published criteria were followed they would have been successful. The same point is variously argued under different grounds of review. Essentially the proposition is that:• the decision could only be taken on the criteria published in the Guidelines;• if not, the viability of Bethlehem, or the "competition factor", was in any event an irrelevant consideration;• if it was relevant and able to be considered, Bayline had to be given notice of it so that it could comment on it. [13] For any or all of these reasons the decision to award the contract to Bethlehem is said to be reviewable, and should be quashed. [14] In response, the Secretary of Education argues it was permitted to take the competition factor into account; it was relevant to the decision making process and it did not give rise to further discussion or consultation requirements. Further, in the exercise of the Court's discretion any relief should be declined. [15] However, these points in response are secondary to the respondent's primary submission which is that the Secretary's decision is not amenable to judicial review. It is a commercial contract decision involving no policy or public content, and can give rise, if at all, only to private law remedies.Issue One – Reviewability?[16] The applicant's case is essentially that the power to organise bus services is statutory and therefore decisions in exercise of that power are reviewable.Authorities where the power has been reviewed are relied on although it is acknowledge that the point was not taken in those cases. [17] Section 139D of the Education Act 1989 provides:139D School transport(1) The Secretary for Education may assist in the provision of school transport by doing any of the following: (a) paying schools to provide school transport to their students: (b) arranging transport providers to provide school transport: (c) contributing to the cost of parents providing school transport. (2) In this section,—school means registered schools, early childhood services (as defined in section 120), and certified playgroupsschool transport means the transport of students to and from school, to and from any educational activity approved by the Secretary, or both.[18] Its predecessor was s201B of the 1964 Act, which provided:201B Transport assistance provided by Director-General"The Director-General shall out of such money as may from time to time be appropriated by Parliament for the purpose provide such school transport assistance as he thinks necessary."[19] Section 201C then provided a detailed delegation power for these functions; and s201D provided for the making of regulations for school transport assistance. [20] Mr McPherson, who presented the case for Bayline, relied on authorities such as Webster v Auckland Harbour Board [1983] NZLR 646 (CA) as establishing the reviewability of decisions by public authorities. He relied on a passage from the judgment of Cooke and Jeffries JJ at 651:"If the applicants are able to show that in making any decision under attack the Board violated the express or implied requirements of some statute (which requirements could include, for instance, relevant considerations or fairness) it is highly probable that they will also be able to show that the decision decided, prescribed or affected their rights or privileges. And if their case did reach that point, we think that it would be contrary to the intent of the Judicature Amendment Act to hold that it was not sufficiently adecision under a power conferred by any Act to enable the review procedure to be used."[21] Mr McPherson submitted that the apparent limiting of reviewability that might be found in Mercury Energy Limited v ECNZ [1994] 2 NZLR 385 (PC) should be confined to SOEs who were established for a commercial purpose, and accordingly are different from Government Departments. [22] The Ministry provided three cases in which review of school bus decisions had occurred. Minister of Education v De Luxe Motor Services (1972) Ltd [1990] 1 NZLR 27 (CA) was a decision under the old provisions. The Court of Appeal decision is unhelpful on the point in issue because the Court considered the judicial review proceedings in the High Court had miscarried due to the non-involvement of the third party who held the contract. The substance of the case was not therefore discussed. The High Court had, however, quashed the decision of the Secretary's delegate and thereby obviously considered the issue reviewable. The decision in question was to terminate long-standing bus contracts in favour of a new system of competitive tendering. The fault had been in the manner in which the existing contracts were terminated. [23] Bayline Coachlines v Attorney-General HC ROT CP1/95 19 January 1995 was a decision of Henry J. Bayline was challenging the outcome of a tender round in which it had lost several existing contracts. Henry J was dealing with an application for interim relief, five days before the school term was to commence. The challenge concerned whether the vehicles of the successful bidder met the Part A safety requirements. An argument that tenders which did not comply with the literal requirements of the Guidelines were invalid was held by Henry J to be not capable of serious argument. In the course of dismissing the application Henry J stated:"the Ministry must be able to determine for itself what information it will or will not act on in the tendering process provided its own procedures are fair to the tenderers, reasonable and carried out in good faith."[24] The issue of whether the decision was reviewable at all was not considered.[25] Finally in Cesta Travel v Ministry of Education HC DUN CP50/94 14 December 1994 Tipping J ruled on an application seeking interim orders preventing the Ministry from accepting tenders. The challenges involved a query as to proper delegation, a challenge as to inconsistency in relation to whether the applicant's buses were fit for purpose, and non-disclosure to the applicant of reports about its buses. The decision was given orally under urgency and dismissed on balance of convenience factors. No issue was taken as to reviewability. [26] The respondent on the present application submitted strongly that the decision was not reviewable. I provide only a brief outline because otherwise Ms Jagose's helpful submissions are reflected in my reasoning. The essential argument is that the decision had no public component at all; if reviewable, it would only be so in the limited Mercury Energy sense of "fraud, corruption or bad faith". The respondent pointed to the absence of any analysis by the applicant of the statutory scheme: this is said to reflect a reality that, apart from the fact that s139D says the Secretary, if she wishes, may "arrange transport providers", there is nothing to suggest the provision falls at all within core functions of the Ministry or the Act. The provision is situated within a Miscellaneous Provisions Part and contains no accompanying direction or powers. [27] A recent article by Professor Stephen Bailey ("Judicial Review of Contracting Decisions" [2007] Public Law 444), establishes that the situation in the United Kingdom is the same as exists in my view in New Zealand. The article observes (at 444):"The extent to which judicial review is available as a remedy in respect of the contracting decisions of public authorities has caused difficulty for as long as judicial review has existed in its modern form The case law tends to support the proposition that for contracting decisions taken in the exercise of statutory power to be subject to judicial review, there must be some specific public law element beyond the mere fact that the body is exercising a statutory power to contract."[28] A case relied on by the respondent in these proceedings, Mass Energy Ltd v Birmingham City Council [1994] ENV LR 298 (EWCA) is an example of this proposition but the article refers to numerous others. It is fair to say Professor Bailey is not in agreement with the law, preferring what I take to be the applicant'sposition that a statutory power should suffice. However, it is clear that the preponderance of authority favours the need for a public law element to the decision. A concern over the fairness of a public authority's actions is not, in itself, enough to make the decision reviewable. [29] A recent New Zealand example of the principle is Schelde Marinebouw BV v Attorney-General [2005] NZAR 356 (HC). There the issue was a tender process conducted by the Ministry of Defence in relation to the supply of naval ships. The allegations involved a failure to act even-handedly, and a breach of legitimate expectation in relation to the tender process. Gendall J held the claims arose out of what was essentially a process contract where the remedy, if at all, lay in contract. The availability of a public law remedy depended upon the nature of the right and the manner in which it is said to be breached through the decision making process. The judgment cited the well known passage from Wilson v White [2005] 1 NZLR 789 (CA) (at paragraph 21): The principle is that the Courts, in considering the amenability of administrative action to judicial review, are less concerned with the source of the power exercised in decision makers (and in particular whether or not it was statutory) and now more ready than in the past to treat as reviewable the exercise of any power having public consequences In all such cases the power must be exercised on public law principles.[30] The present case involves a decision containing no public consequences at all. The two bidders were tendering to provide the exact same services at the exact same times. Both proffered comparable levels in terms of buses and quality of service. There is no wider policy content; indeed the tender involves a one-off contract for a short term ahead of a national tender round. The tender involves no issues as to when, if and how school buses should operate or the Ministry's role in them. It is quintessentially a low level contracting decision, and the fact that the statute says that the Secretary "may arrange for transport providers to provide school transport" does not alter this essential characterisation. [31] The subject matter is a great distance from the issues confronting Asher J inDiagnostic Medlab Ltd v Auckland District Health boards HC AK CIV 2006-404- 4274 20 March 2007 where the issue was the provision of laboratory testing facilities for all of Auckland. As Asher J noted, the particular contract went to the heart of theDistrict Health Board's statutory duty to protect and improve health. If there be a spectrum, in my view that case and the present lie at the opposite ends. [32] The present application is declined on the basis that the decision is not subject to judicial review. However, in case I am wrong in that, I consider the challenges raised by the applicant.Issue Two – Reviewable error?[33] At the heart of the applicant's case is that the Guidelines represent a commitment to deciding the tenders only on the basis of the material and factors identified therein. [34] Like all Guidelines, on a general level they certainly convey the impression contended for by the applicant because they identify both general criteria, and exceptions to those criteria. Paragraph 10 is of some significance. It reads:PRICES OFFERED10.1 Once Tenderers have satisfied the TEC that Safety and Quality requirements of Part 1 have been met and that there is no reason why the tender should be set aside because of concerns outlined in section 2 above (disqualification of vehicles), the decision to recommend the award of the contract to a particular Tenderer will, in most cases, be based upon price. There are a number of instances where the TEC may decide not to recommend awarding the contract to the lowest bidder: (a) Where the price is considered to be too low to enable the Tenderer to carry the work through the period of the contract. As a general guide, it is difficult to accept that prices of less than $1.00 per kilometre are sensible bids. (b) Where the price difference does not justify the disruption. Where the incumbent has offered a price which is not the lowest, but the difference is marginal and retaining the existing contractor reduces the risks of disruption in the overall tender round, the incumbent may be awarded the contract. However, the overall difference per annum and for the term of the contract will vary depending on the distance of the route and the level of prices tendered. The TEC will use its judgement in such cases. (c) Where the price difference does not justify the client dissatisfaction. Many boards of trustees have indicated a preference that their existing contractor be retained. Where theincumbent has strongly supportive references, and the price difference is marginal the incumbent may be awarded the contract. (d) Where the lowest tender exceeds the daily per pupil per capita limit.[35] Although the Guidelines set up everyone's expectation that they are how tenders will normally be handled and decided upon, there are the usual qualifications that cannot be ignored. The initial tender advert says that the lowest or any tender will not necessarily be accepted. The Guidelines are expressed to be for the assistance of the Tender Evaluation Committee, but it is made plain that is only a recommendatory body and that the decision is the Secretary's. [36] The opening page of the Guidelines has in bold and increased font size:"These guidelines are to assist the Tender Evaluation Committee when it is evaluating the tenders received. As every possible situation cannot be anticipated, there may be times when the Tender Evaluation Committee is required to make decisions on matters not covered by these Guidelines."[37] A general reservation could not be plainer than that. [38] Accordingly I consider the applicant's complaint is misconceived in that it elevates the Guidelines to an exhaustive list of relevant factors. Nor do I consider the competition factor which weighed with the Tender Evaluation Committee is one that had to be the subject of further notification and submission. It is not a new "criteria" – it is a consideration that is relevant for a body that is responsible for a nation-wide system of contracting school bus routes. Enhancement of competition is a legitimate and relevant factor to take into account – it is neither improper nor irrational to do so. [39] In the present case the Secretary was entitled to take account of the short- term nature of the contract, the consequently reduced overall savings from a cheaper bid, the fact that there was a National Tender Round coming up, and the desire to keep more players in the market. These considerations are aspects of decision- making, and need not be the subject to specific consultation with bidding parties.[40] It is incorrect to characterise the Ministry's concern as being the viability of Bethlehem. If there had been several bids, the concerns over competition would not have arisen. Bethlehem's continued involvement in that market only became relevant because the same two players were again the only bidders. The applicant produced affidavits from two companies that said they did not know of the tender. They might have bid but could not say. They remain interested in bidding in 2008. It is this evidence that the applicant says further consultation would have produced. [41] What weight the Secretary would have given to it is a matter for her. For the reasons given, I do not consider there was an obligation to seek it. However, I note that its content would not influence any discretion that would have been exercised by me; it is highly speculative and the Ministry was entitled to rely upon the actuality of only the same two bidders on successive tenders. [42] Of the various other process complaints the one that causes most concern is the method by which the Tender Evaluation Committee reached its decision. I am not convinced a "hub" approach where one person speaks to other members individually is a correct method for reaching a Committee decision. However, this point was not addressed orally and bearing in mind the Tender Evaluation Committee only recommends, it is not a factor that would have led me to give relief. [43] The final process point is even-handedness. Depending on how one reads the evidence, there may have been discussion with Bethlehem, after the tender started, about its position. It is not possible on the papers to confirm this, and I tend to the view that the decision was based on general knowledge rather that any specific focussed contact with Bethlehem. Again, in the context it is not a matter that needs resolution. [44] The process challenge fails. I note the respondent suggested that what occurred fell within the exception identified in the second sentence of paragraph 10.1 (b) (paragraph 34 above). Whilst literally it arguably does so, I do not consider that was the intention of that exception, and prefer to decide the issue on the more general points already discussed.Issue Three - Discretion[45] The case has failed on both grounds. Comment on how the discretion would have been exercised must necessarily be guarded because it is against a background of no identified failings. Assessment of gravity is therefore difficult. However, I do think it appropriate to observe that I consider the prospects of relief were always marginal. [46] I accept the respondent's criticism of delay. Bayline became aware on 7 December 2006 that the "competition point" had motivated the contract being given to Bethlehem. Although each step that it took thereafter can be viewed in isolation as reasonable, the reality is that proceedings were not commenced for six months, on 6 May 2007. In the context of a two-year school bus contract, that is too long. At the time of the hearing the contract was one third of the way through its term. [47] Second, the case was never one where only one outcome to the tender was possible. The prospects of a Court deciding that the contract had to somehow immediately be transferred to Bayline were very low. Further, if referred back to the Secretary, there is no obligation on her to tender it again. The Secretary could deal directly with the incumbent. The context of a National Tender Round some time next year cannot be ignored as being a factor likely to influence her decision.Conclusion[48] The applications are dismissed. The respondent is entitled to costs on a 2B basis together with reasonable disbursements to be fixed by the Registrar if necessary. [49] I note for the record that the Ministry was originally named as second defendant but that was struck out, by consent, at the commencement of the hearing. ___________________ Simon France JIn accordance with r540(4) I direct the Registrar to endorse this judgment with the delivery time of 4.00pm on the 29th day of August 2007.Solicitors:Hesketh Henry, Auckland for the Applicant Crown Law Office, Wellington for the Respondent