CITY POLYTECHNIC OF HONG KONG v. BLUE CROSS (ASIA-PACIFIC) INSURANCE LTD

1993 No.A10750

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H E A D N O T E

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Commercial Law - Contract - Irrevocability of tender.

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The defendant was one of eight insurance companies invited by the plaintiff, a statutorily incorporated, public academic institution, to tender for provision of medical and life insurance benefits for the plaintiff's employees, as a group, for the three year period 1993/4 to 1996/7.

A set of the plaintiff's formal tender documents including a) Conditions for Tendering, and b) a Tender Form was supplied on behalf of the plaintiff to the defendant which, in common with the other tender invitees, was expressly notified that the time fixed for the latest receipt of tenders was 24th May 1993.

One of the Conditions of Tendering was, "Late Tenders will not be considered".

The Tender Form included the following express terms:

"We agree to abide by this Tender for a period of three (3) months from the date fixed for receiving the same and it shall remain binding upon us and may be accepted at any time before the expiration of that period.

We understand that the City Polytechnic of Hong Kong is not bound to accept the lowest or any Tender which may be received."

In time for the 24th May 1993, the defendant submitted its tender, offering coverage for HK$6,311,988 per annum.

Before the plaintiff had accepted the defendant's or any other tender, the defendant, on 31st May 1993, notified the plaintiff in writing it had withdrawn its tender with immediate effect.

The plaintiff refused to accept such withdrawal, and purported to accept the defendant's tender by a letter of acceptance sent the defendant on 4th June 1993. The defendant refused to issue any policy to the plaintiff or give any cover to its employees.

On 1st July 1993, in mitigation of its loss, the plaintiff entered into a contract for the same coverage with a different insurance company at a premium of $10,686,046 per annum, and commenced proceedings in contract against the defendant for the difference in premium.

The defendant succeeded before a Master in having the plaintiff's writ and Statement of Claim struck out as disclosing no reasonable cause of action on the basis that consideration was lacking to render enforceable the defendant's promise to keep its tender open after the deadline.

The plaintiff appealed.

Held, allowing the appeal, adequate consideration existed in the form of an implied undertaking by the plaintiff that if it entertained any tender, it would entertain the defendant's along with all other timely and conforming tenders submitted before the deadline, so as to make the defendant's tender irrevocable during the specified three month period after the deadline: Blackpool & Fylde Aero Club Ltd v. Blackpool Borough Council [1990] I.W.L.R. 1195 and Fairclough Building Ltd v. Borough Council. Port Tablot, 62 BLR 82, applied.

1993 No.A10750

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. This is an appeal from a Master's order striking out a Statement of Claim under O.18 r. 19 together with the accompanying writ on the ground that no reasonable cause of action was disclosed.

2. The factual situation described in the Statement of Claim, supplemented by what is common ground and the common knowledge of which any reasonably informed person living in Hong Kong will be aware, is as follows.

3. The plaintiff, ("the City Poly"), is a major, publicly funded academic institution, incorporated under the City Polytechnic of Hong Kong Ordinance, Cap.1132. It employs a large staff.

4. The defendant, ("Blue Cross"), is a well known company, incorporated and carrying on business in Hong Kong as an insurer.

5. Like many other academic institutions, voluntary agencies, and also some major companies in Hong Kong, the City Poly provides group medical and other types of insurance coverage for its employees as part of their employment package.

6. In typical Hong Kong fashion for large institutions, the City Poly does not carry the insurance risk itself, but, instead, contracts it out to the private sector, by entering into an agreement with an insurance company for a specified period, to provide appropriate benefits for its employees, as a group, in exchange for an agreed lump sum premium paid by the City Poly to the insurer.

7. Again, in typical Hong Kong fashion for a body financed by public funds, the City Poly calls for tenders from insurance companies for its insurance needs before deciding to place its business with a particular insurer.

8. To help it get the best deal, the City Poly retained the services of an insurance broker, Gibbs Insurance Consultants Limited, ("Gibbs"), to carry out a tendering exercise to cover its group employees' medical and life insurance requirements, ("the Group Scheme"), for the three year period 1993/4 to 1996/7.

9. On or about 14th May 1993, the City Poly, through Gibbs, invited tenders for the Group Scheme from eight Hong Kong insurance companies, including Blue-Cross, by sending each of those companies a set of tender documents which included (a) Conditions for Tendering, and (b) a Tender Form.

10. Those insurance companies were all expressly notified that the time fixed for the latest receipt of tenders was 24th May 1993. One of the Conditions of Tendering was, "Late Tenders will not be considered".

11. The Tender Form included the following express terms.

"II Unless and until a formal agreement is prepared and executed this Tender together with the written acceptance thereof by the City Polytechnic of Hong Kong subject to the provisions of Clause III hereof shall constitute a binding contract.

III. I/We agree to abide by this Tender for a period of three(3) months from the date fixed for receiving the same and it shall remain binding upon me/us and may be accepted at any time before the expiration of the period.

IV. I/We, understand that the City Polytechnic of Hong Kong is not bound to accept the lowest or any Tender which may be received."

12. On or before 24th May 1993, Blue Cross duly submitted its tender to the City Poly in proper form, offering insurance cover required by the Group Scheme for a premium of HK$6,311,988 per year, (subject to various adjustments of no materiality for present purposes).

13. Before the City Poly had accepted Blue Cross's or any other tender, Blue Cross, on 31st May 1993, faxed the City Poly, stating Blue Cross had withdrawn its tender with immediate effect.

14. The City Poly refused to treat Blue Cross's tender as withdrawn, and purported to accept that tender by a letter of acceptance it sent Blue Cross on 4th June 1993. Blue Cross wrote back on 10th June 1993 to the effect it had withdrawn its tender on 31st May 1993, and was under no contractual obligation to the City Poly. Consistent with that stance, Blue Cross refused to issue any policy to the City Poly or give any insurance cover to its employees under the Group Scheme.

15. To mitigate its loss, the City Poly, on 1st July 1993, entered into a contract with Manufacturers Life Insurance Company for cover under the Group Scheme at a premium of HK$10,686,046 per annum.

16. The writ brought by City Poly against Blue Cross claims damages for breach of contract in the sum of HK$13,122,174, being the difference for three years between the premium of HK$6,311,980 per annum in the tender from Blue Cross, and Manufacturers Life's premium of HK$10,686,046 per annum.

17. It was not disputed on behalf of the City Poly that the position generally under contract law is that an invitation to tender is no more than an offer to receive bids, so that any invitee is entitled, with impunity, to withdraw his offer to tender at any time before acceptance, since the ingredient of consideration moving from the promisee, (i.e. the invitor), crucial for an enforceable promise, will be lacking.

18. The modern law of contract does, however, contemplate the possibility that, in tendering situations, where the circumstances so justify it, an implied contract can come into existence binding the tenderer to keep his tender open from the time of the deadline for submitting tenders up until the expiry of the period specified by the tender's terms for keeping tenders open.

19. Consideration moving from the tender-invitor to support such an implied contract is, needless to say, necessary.

20. An express or implied term on the invitor's part that he will, after the deadline, consider all timely and conforming tenders before deciding which, if any, tenderer will be awarded the contract tendered for, can, in suitable circumstances, amount to valuable consideration to make all the tenders irrevocable between the tender deadline and expiration of the specified period. The Court of Appeal decision in Blackpool and Fylde Aero Club Ltd. v. Blackpool Borough Council [1990]1 W.L.R. 1195 supports that proposition which also met with approval from a differently constituted Court of Appeal in Fairclough Building Ltd. v. Borough Council of Port Talbot, 62 B.L.R. 82.

21. The benefit moving from the City Poly to Blue Cross was City Poly's implied undertaking to consider the Blue Cross tender along with all other conforming and timely tenders. On the aspect of benefit to the promisor amounting to valuable consideration in the eyes of the law: see Williams v. Roffey Bros Ltd [1991]1 QB 1, 16D-G.

22. Counsel for Blue Cross was prepared to accede in principle to the proposition that where the tender-invitor and the invitees expressly agree that the invitor will consider all conforming tenders received before the tender deadline, the situation can arise of a tenderer being in breach of contract if he seeks to withdraw his tender after the deadline. He did baulk, though, at the notion there could be an implied contract to the same effect, and, in any event, argued strongly that, from the circumstances disclosed in the Statement of Claim, the court could not spell out the implication the City Poly argued for here. As pointed out by Bingham LJ in the Blackpool case (p. 1202F), contracts are not to be lightly implied. Where, however, the circumstances are right, they can be, the Blackpool case itself, of course, being such an example.

23. To determine whether Blue Cross was locked, contractually, into an irrevocable offer at the time it purported to withdraw its tender, it is necessary to look at the express terms of the tender documents and the surrounding circumstances at the time Blue Cross submitted its tender.

24. Blue Cross was one of eight insurers, invited by Gibbs to tender for the Group Scheme. From amongst those eight, only those who submitted a tender on or before 24th May 1993 were eligible to be considered.

25. As one would expect with a tender likely to involve many millions of dollars, put out by a specialist insurance broker like Gibbs, on behalf of a public body like the City Poly, the sets of tender documents sent to the invitees were of a highly formalised nature, laying down clear, orderly procedures on how an invitee was to submit its tender, going into such details even as the depositing of the tender in the City Poly's special tender-box in a nominated building on a specified floor.

26. What precise procedures the City Poly follows to determine which, (if any), tender is to be accepted is not clear on the face of the tender documents shown me at my request, but a reference in them to a "Main Tender Board" is indicative of the City Poly following formalised procedures. What Stocker LJ said at page 1203G in the Blackpool case, concerning the significance of the form of the tender documents he was there considering, can be said with equal force in relation to the tender documents in the present case: "The format of the invitation document itself suggests in my view that a legal obligation to consider a tender submitted before any award ...... was to be implied ..."

27. A public body in Hong Kong, such as the City Poly, formally inviting tenders, is certain to treat each and every applicant with scrupulous fairness as almost a reflex reaction conditioned by the Hong Kong Government's long-standing campaign against corruption in the government and semi-government sector, as well as in the private sector. For over twenty years now, there has been a vast, on-going public education programme to combat the scourge of corruption. Besides exhortation addressed to the community at large, and intensive investigation of anyone suspected of corruption, the Independent Commission Against Corruption ("I.C.A.C.") has actively pursued a preventive policy of requiring organizations involved in spending public funds to set in place effective procedures which will minimize the opportunity for corruption. One area to which the preventive arm of ICAC has devoted much effort has been tendering, since, without tight procedures in place, it is wide open for exploitation by the corrupt.

28. What I have said about corruption and the salutary measures to combat it in Hong Kong, far from being esoteric knowledge, is something everyone taking even a passing interest in Hong Kong affairs will know.

29. The City Poly's involvement in anti-corruption measures is reflected not-only by its formalised tendering procedures, as embodied in its tender documents, but those documents, in No. 11 of the Conditions of Tendering, also include an explicit warning of the dire consequences under the Prevention of Bribery Ordinance, Cap.201, ("the Ordinance"), awaiting those who seek improper advantages from a tender. Moreover, the City Poly is a scheduled public body under the Ordinance, so that those working for it are exposed to the Ordinance's full rigours.

30. Rather than act like an extraterrestrial touching down in Hong Kong on his first day on earth, a judge or master considering Blue Cross's application to strike out should take account of Hong Kong's peculiar climate of awareness of corruption as part of the circumstances surrounding the tendering process.

31. Not wishing to attract the attention of I.C.A.C. and to guard against any suggestion of laxity, virtually everyone engaged in any aspect of tendering where public money is involved will work according to the book.

32. If before tendering in this instance, the manager, or whoever else was in charge of tendering for Blue Cross, had been asked whether he thought those in the City Poly responsible for awarding the Group Scheme contract would bother to consider Blue Cross's tender before placing the contract, his answer, I do not doubt, would have been along the lines, "Of course they will. They wouldn't dare not to".

33. Putting the question the other way round, if those in charge of tendering for the City Poly had been asked before the tender date, "Are you going to take the trouble of studying all the tenders you have invited before deciding who gets the contract?", the answer would have been an indignant, "Of course we are".

34. Bingham L.J. in the Blackpool case at page 1201 posed the following question in relation to the tender in issue there :

"If in these circumstances one asked of this invitation to tender the question posed by Bowen L.J. in Carlill v. Carbolic Smoke Ball Co. [1893]1 Q.B. 256, 266, 'How would an ordinary person reading this document construe it?"'

That approach of Bingham L.J. met with approval in the Fairclough Building case (page 89). Applying that same approach to the Group Scheme tender, any ordinary person in Hong Kong reading the tender documents would, I think, come to the same conclusion as I have suggested those responsible for the tender in the City Poly and Blue Cross would.

35. There is, realistically, no room for doubt that both parties knew and intended before the deadline that all conforming tenders arriving in time would be considered by the City Poly before awarding the Group Scheme contract.

36. The circumstance that the City Poly would go to the trouble of entertaining all conforming and timely tenders is, in my judgment, sufficient consideration to hold Blue Cross to its promise to keep the offer embodied in its tender open for three months from 24th May 1993.

37. Other necessary requirements to constitute a binding contract out of Blue Cross's promise not to withdraw after the deadline, such as an intention by both parties to create contractual relations (animus contrahendi), and what Mustill L.J. in Hispanica de Petroleos S.A. v. Vencedora Oceanica Navegacion S.A. (No.2) (Note) [1987]2 Lloyd's Rep.321, 331 called, the "...mechanism for offer and acceptance", are all patently present.

38. How consideration operates in the modern law of contract is well summed up in the following passage of Russell L.J. in Williams v. Roffey Bros, 18G-H :

"consideration there must still be but, in my judgment, the courts nowadays should be more ready to find its existence so as to reflect the intention of the parties to the contract where the bargaining powers are not unequal and where the finding of consideration reflect the true intention of the parties."

39. Williams v. Roffey Bros, in its turn, drew on a trend towards a pragmatic appraisal of consideration in commercial relationships, expounded by Lord Wilberforce in his speech on behalf of all the Law Lords in New Zealand Shipping Co. Ltd v. A.M. Satterthwaite & Co. Ltd., [1975] A.C. 154, 167C:

"It is only the precise analysis of this complex of relations into the classical offer and acceptance, with identifiable consideration, that seems to present difficulty, but this same difficulty exists in many situations of daily life, e.g., sales at auction; supermarket purchases; boarding an omnibus; purchasing a train ticket; tenders for the supply of goods, offers of rewards; acceptance by post; warranties of authority by agents; manufacturers' guarantees; gratuitous bailments; bankers' commercial credits. These are all examples which show that English law, having committed itself to a rather technical and schematic doctrine of contract, in application takes a practical approach, often at the cost of forcing the facts to fit uneasily into the marked slots of offer, acceptance and consideration."

40. That there is a species of contract between the parties for the Blue Cross tender to remain irrevocable for three months from the deadline is clear, in my view. Whether one chooses to clothe it with the mantle of "collateral contract", "option", or, (as in the Canadian case, The Queen in right of Ontario et al. v. Ron Engineering & Construction Eastern Ltd. (1981), 119 D.L.R. (3d) 267, [1981] 1 S.C.R. 111, 35 N.R. 40, cited with approval in Northern Construction Co. Ltd. v. Gloge Heating & Plumbing Ltd. 6 D.L.R. (4th) 450, Alberta Court of Queens Bench, affirmed on appeal to Alberta Court of Appeal 27 D.L.R. (4th) 264,) "Contract A" and "Contract B", "Contract A" being the further contract which would come into existence if the tenderer's tender is accepted, is of no great moment. What is of importance is for the court to arrive at a solution which avoids what Bingham L.J. in the Blackpool case (page 1201G) describes as " ... an unacceptable discrepancy between the law of contract and the confident assumptions of commercial parties both tenderers and invitors". Any other solution is a recipe for chaos, disruptive of what Estey J. in The Queen in right of Ontario et al. v. Ron Engineering & Construction Eastern Ltd. (1981), 119 D.L.R. (3rd) 267, [1981] 1 S.C.R. III, 35 N.R. 40. aptly described as "the integrity of the bidding system".

41. Counsel for Blue Cross was obviously perplexed by the conundrum he himself posed of how can there be an implied term without there first of all being in existence a contract for it to be implied into. In its search for a just and practical solution, I do not think a court nowadays need bother itself overmuch with that sort of theoretical problem, bearing in mind Lord Wilberforce's speech in the New Zealand Shipping Co. case, page 167C that:

"...English law, having committed itself to a rather technical and schematic doctrine of contract, in application takes a practical approach, often at the cost of forcing the facts to fit uneasily into the marked slots of offer, acceptance and consideration."

42. For Blue Cross, reliance was placed on an unreported judgment, Southampton City Council v. Academy Cleaning Services London Ltd, 1991-S-7956, given in May 1993, by a deputy judge in England in relation to a tender by the defendant company there, ("Academy"), for a contract to clean the public conveniences of the plaintiff council, ("Southampton"). It was an express term of the formal tender documents submitted by Academy that the tender should remain open to be accepted or not by Southampton for a period of thirteen weeks running from 26th July 1990. During that thirteen week period, Academy withdrew its tender. The deputy judge there dismissed Southampton's action in contract for want of consideration.

43. That case offers no comfort to Blue Cross for two reasons.

44. Firstly, the decision turned upon Southampton's duty under the Local Government Act 1988, ("the 1988 Act"), to undertake activities competitively, thus imposing a requirement for Southampton to consider all tenders. That emerges from the following passage in the transcript of the judgment :

" In my judgment it is plain that Southampton's expenditure in evaluating Academy's tender and complying with the provisions of the 1988 Act was not incurred on the faith of Academy's promise to keep its tender open for 13 weeks nor at Academy's request, express or implied.

The expenditure was incurred as a result of Southampton's own obligations to seek competitive tenders for the cleaning of its public conveniences in accordance with the provisions of the 1988 Act. It did not therefore constitute a detriment to Southampton.

Mr Rees also argues that there was benefit to Academy in that once the tender was made Southampton was bound to comply with its statutory duties in evaluating it. I am quite unable to see how compliance by Southampton with its statutory duties in this regard can be regarded as the giving of value by Southampton to Academy."

45. No comparable statutory provision operates in Hong Kong.

46. Whether the deputy judge was right even on the significance of the 1988 Act to consideration for Academy's tender, I think, is seriously open to question. I am far from convinced that the benefit to Academy of Southampton's being statutorily bound to consider its tender could not amount to sufficient consideration. Arguably, Southampton's duty to entertain each and every tender brought about an a fortiori situation for tenderers to be held to their promise to keep a tender open.

47. As good a statement as any on how consideration operates in the modern law is to be found in Glidewell L.J.'s judgment in Williams v. Roffey, page 16 D-G:

"As a subsidiary argument, Mr Evans submits that on the facts of the present case the consideration, even if otherwise good, did not 'move from the promisee.' This submission is based on the principle illustrated in the decision in Tweddle v. Atkinson (1861) 1B. & S.393. My understanding of the meaning of the requirement that 'consideration must move from the promisee' is that such consideration must be provided by the promisee, or arise out of his contractual relationship with the promisor. It is consideration provided by somebody else, not a party to the contract, which does not 'move from the promisee.' This was the situation in Tweddle v. Atkinson, but it is, of course, not the situation in the present case. Here the benefits to the defendants arose out of their agreement of 9 April 1986 with the plaintiff, the promisee. In this respect I would adopt the following passage fromChitty on Contracts, 26th ed, (1989), p. 126, para. 183, and refer to the authorities there cited:

'The requirement that consideration must move from the promisee is most generally satisfied where some detriment is suffered by him e.g. where he parts with money or goods, or renders services, in exchange for the promise. But the requirement may equally well be satisfied where the promisee confers a benefit on the promisor without in fact suffering any detriment."'

48. Secondly, the decision in Southampton v. Academy was per incuriam insofar as it might be regarded as holding that, even without the 1988 Act, any implied undertaking by Southampton to all tenderers to consider all timely and conforming tenders could not amount to valuable consideration.

49. By treating the nineteenth century case of Dickinson v. Dodds [1876]2 Ch.463 as "the leading authority" on whether Academy could withdraw its tender within the thirteen week period following the tender deadline, the deputy judge was in no way being unregenerate in the face of the Court of Appeal decisions in the Blackpool and Fairclough cases to the contrary, since neither was cited to him. He thought he was following what he described, (at page-22 of the transcript), as "A modern statement of the law ... to be found in Chitty on Contracts 26th edition Vol 1, para.262, p.194". Unfortunately, the 26th edition of that work stated the law as it was believed to stand at 1st January 1989, several months too early for Williams v. Roffey Bros, which was not heard until November 1989. Blackpool Aero Club v. Blackpool B.C. was the following year, and the Fairclough case did not get heard until 1992.

50. Since the 26th edition of Chitty never had a supplement, the work has become a trap for anyone hoping to find in it the really modern law on tenders.

51. As, for the reasons I have stated, I am satisfied the Statement of Claim discloses a good cause of action, I allow this appeal by reversing the Master's decision to strike out the writ and the Statement of Claim.

52. This being a judgment reserved pursuant to O.42, r.5B, I make a fourteen day order nisi that costs here and below are to follow the event.