PIONEER CATERING EQUIPMENT & ENGINEERING LTD v. SECRETARY FOR JUSTICE

HCSA89/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

SMALL CLAIMS TRIBUNAL APPEAL NO.89 OF 2003

(On appeal from Small Claims Tribunal Claim No. 69254 OF 2003)

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REASONS FOR JUDGMENT

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INTRODUCTION

1. This is an appeal against the decision of the Adjudicator of the Small Claims Tribunal dated 12 December 2003 dismissing the appellant's claim with costs. On 9 July 2004, after hearing the parties, I dismissed the appeal with costs. These are my reasons.

2. The background facts may be summarized as follows.

THE LIST

3. The Architectural Services Department ("ASD") has at all material times maintained a list of Approved Suppliers of Materials Specialist Contractors for Public Works ("the List"). The List is subdivided into categories, including the category of "Catering Equipment Installation" ("the Category"). In 1996, the appellant, a company specialized in the supply and installation of catering equipment, was approved as one of the contractors for the Category on the List.

THE HANDBOOK

4. In 2002, the Transport and Works Bureau ("the Bureau") issued a revised version of the Contractor Management Handbook ("the Handbook") to all contractors on the List. Those paragraphs in the Handbook which are pertinent are summarised below.

(1) Para.2.1.5

5. The Secretary for Works reserves the right to amend these Rules and any criteria pertaining to the administration of the List without reference to contractors on the List and any such amendments will be published by the Secretary for Works in the appropriate manner.

(2) Para.2.2.6

6. Application to be place on the List under any category shall mean the contractor unconditionally accepts these Rules and any future amendments or additions thereto. Failure or refusal to observe these Rules may lead to refusal of entry to the List for the category being applied for, or removal from all categories in which the contractor is listed.

(3) Para.2.1.7

7. A contractor on the List is required to submit updated company information upon request of the Secretary for Works or the Managing Department (i.e. ASD) for reviewing his listing status as and when required. It is the duty of the contractor to immediately inform the Secretary for Works of any material changes of his company which may affect his listing status.

(4) Para.5.1.1

8. The List and associated regulatory regime are put in place to ensure that certain standards of financial capability, expertise, management and safety are maintained by the contractors carrying out Government works.

(5) Para.5.1.2

9. The Secretary for Works reserves the right to remove any contractor from the List or take other regulatory action against a contractor such as suspension, or where applicable, downgrading to probationary status or demotion to a lower group, in respect of all or any of the works or categories he is in. Before deciding on such action, a contractor will be given adequate warning of the action proposed and advised of the reasons of it and given the opportunity to present his view of the matter.

(6) Para.5.2.1

10. A contractor who is under suspension form tendering for public works at the time of tender invitation may be allowed to collect tender documents. However, if, by the tender closing date, the tenderer is under suspension from tendering for public works, his tender will not be considered unless the suspension is lifted within 40 days from and including the tender closing date.

11. At the trial before the Adjudicator, the appellant admitted that it had received a copy of the Handbook and that it was aware of the provisions therein before the present disputes arose.

SUSPENSION OF THE APPELLANT

12. In October 2002, all contractors in the Category were assessed in accordance with Appendix 3C to the Handbook, which listed out the statutory requirements for retention on the List. One of the statutory requirements is that a contractor must be a registered gas contractor under the Gas Safety Ordinance in order to be qualified.

13. The appellant was not a registered gas contractor under the Gas Safety Ordinance. In December 2002, ASD began to review the appellant's listing status. By letter dated 20 December 2002, the appellant responded to certain queries raised by ASD. By letter dated 13 March 2003, ASD advised the appellant that it had failed to meet the criteria for the Category. The appellant was reminded that a contractor failing to satisfy the requisite criteria may be subject to regulating action.

14. By letter dated 7 April 2003, the Bureau advised the appellant that it had failed to comply with the statutory and technical staff requirements as specified in the Handbook and that the Bureau intended to suspend the appellant from tendering for public works under the Category on 28 April 2003, unless the appellant could present an acceptable reason for not doing so before then.

15. By letter dated 15 May 2003, the Bureau advised the appellant that the Bureau had suspended the appellant from tendering for pubic works. The appellant was further advised that if it still failed to comply with the requirements, the Bureau would consider removing it from the Category on 6 July 2003.

SUBMITTING TENDERS

16. On 23 May 2003, all contractors in the Category, including the appellant, received invitation to submit tenders for contract reference no.M-3936/2003 ("the 1st Invitation"). The closing date for the 1st Invitation was 5 June 2003.

17. On 30 May 2003, invitation was made to all contractors in the Category, including the appellant, to submit tenders for two contracts with reference nos.M-4106/2003 and M-4107/2003 ("the 2nd Invitation" and "the 3rd Invitation" respectively). The closing date for both Invitations fell on 10 June 2003.

18. According to para.5 of the Special Conditions of Tender for the 2nd and 3rd Invitations, if, by the tender closing date, the tenderer is under suspension from tendering for public works, his tender will not be considered unless the suspension is lifted within 40 days from and including the tender closing date. This is more or less a substantial reproduction of para.5.2.1 of the Handbook. (I will for present purposes call this "the Suspension Clause".) The Condition of Tender for the 1st Invitation does not contain the Suspension Clause or any similar clause.

19. It is a condition of all three Invitations that ASD is not obliged to accept the lowest tender.

20. On or about 4 June 2003, the appellant submitted its tender for the 1st Invitation. On or about 9 June 2003, it submitted tenders for the 2nd and 3rd Invitations. In the end, all the appellant's tenders failed, although for two of the Invitations, the appellant's tenders were the lowest.

21. On 15 July 2003, the appellant was removed from the Category.

CLAIMS

22. Dissatisfied with the result of the tenders, the appellant lodged a claim with the Small Claims Tribunal on 27 July 2003. The appellant claimed for the loss it had allegedly suffered as a result of the Government not awarding the contracts to him in respect of the 1st to 3rd Invitations in the sum of HK$50,000.

STATEMENT OF FINDINGS BY THE ADJUDICATOR

23. The Adjudicator gave her Statement of Findings on 11 February 2004.

24. She first found that there was an agreement between the appellant and ASD that the appellant would be bound by the rules promulgated by the Secretary for Works and amended from time to time without reference to any of the contractors. She went on to hold that :

"The terms of that agreement are set out in the Handbook...In those circumstances, the Defendant was not in breach of the agreement by introducing the revised version of the Handbook. To the contrary, [the appellant] was in breach of the agreement by failing to comply with the minimum requirements in the Handbook."

25. The Adjudicator then rejected the appellant's argument :

(1) That the agreement could not be altered or varied without its consent.

(2) That the Handbook could not have retrospective effect.

(3) That the appellant, as a contractor already on the List, was not bound by the Handbook.

(4) That ASD had wrongly applied para.5.2.2 to the appellant.

(5) That the appellant was not effectively suspended because the relevant letters were not signed by the Deputy Secretary (Work Policy) as required by para.5.2.1.

Finally, the Adjudicator dismissed the appellant's claim.

IS THE HANDBOOK BINDING ON THE APPELLANT AS A MATTER OF CONTRACT?

26. It would appear that in rejecting the claim, the Adjudicator had found that the Handbook was binding on the appellant as a matter of contract. I doubt if the Adjudicator is correct in that finding (if that was in fact her finding). The Handbook is issued for the purposes of, inter alia, ensuring that the contractors on the List will all meet the standards and requirements stated therein. This in turn ensures that all public works contracts (to be performed by the contractors on the List) will be carried out safely and professionally. The Bureau is plainly entitled to issue the Handbook and to revise the standards and requirements from time to time. If any contractor does not satisfy the standards or requirements, the Bureau can certainly take the necessary action as set out in the Handbook. The Handbook is binding on all the contractors on the List in this sense. But I have reservation if the listing status or the Handbook per se creates any contractual relationship between the contractors on the List on the one hand and the Government on the other.

27. As I understand Mr Leung, Government Counsel appearing for the Secretary for Justice, he is not seriously pressing the point that the Handbook, on its own, is contractually binding on the appellant. He indeed agrees with my analysis of the parties' relationship, to which I now turn.

COLLATERAL CONTRACT

28. In my view, two general questions arise from the evidence before me :

(1) How does a contractual relationship between a party inviting tenders and a party submitting a tender arise?

(2) What does that contractual relationship entail?

29. It is trite law that an invitation for tenders is generally not an offer. Only the tender is. When the tender is accepted by the inviting party, a contract is then concluded. However, a collateral contract may arise before the conclusion of the principal contract in this way. There is an implied obligation on the party inviting the tender to consider all confirming tenders, thereby providing consideration for a collateral contract brought into being upon the submission of a tender, and to that extent and invitation to tender was an offer and the submission of a timely and conforming tender an acceptance : see City University of Hong Kong v. Blue Cross (Asia-Pacific) Insurance Ltd [2001] 1 HKC 463, at p.473D-F.

30. Thus a tenderer whose offer is in due form is entitled, not as a matter of expectation but of contractual right, to be sure that his tender will be opened and considered with all other confirming tenders, or at least that his tender will be considered if others are : see Fairclough Building v. BC Talbot, 62 BLR 82 at p.84.

31. On his part, a tenderer is bound to abide by the conditions of the tender : Ontario v. Ron Engineering & Construction (Eastern) Ltd (1981) 119 DLR (3d) 267.

32. On the evidence before me, the above general principles are all applicable to the present case. Accordingly, a collateral contract as described above arose between the appellant and the Government in respect of each of the 1st, 2nd and 3rd Invitations.

THE APPELLANT'S TENDERS NOT CONSIDERED WHILE UNDER SUSPENSION

33. It is not in dispute that the Government had not considered the appellant's three tenders at all. This is the main thrust of the appellant's complaint. The question is therefore whether the Government was entitled not to consider the appellant's tenders in the circumstances. This depends on the terms of Conditions of Tender for each of the 1st to 3rd Invitations.

34. The position under the 2nd and 3rd Invitations is clear. As noted above, the Special Conditions for the 2nd and 3rd Invitations did contain the Suspension Clause. The appellant was bound by it. Thus the Government was entitled not to consider the appellant's tenders when it was still under suspension at the time. The appellant cannot possibly have any complaint arising from that.

35. In my view, the Suspension Clause makes perfect sense. Although a contractor under suspension is entitled to submit his tender for consideration, his suspension status has rendered his suitability to take up the contract doubtful. Thus the Government is entitled not to consider his tender while he is under suspension, unless the suspension is lifted within the 40 days' period.

36. The position under the 1st Invitation is different in that the Conditions of Tender do not contain the Suspension Clause or any express clause of similar effect. But there exists very strong reason for the Government to make the 1st Invitation subject to such a clause. The contract involved was a public works contract. The suitability of a contractor to take up the contract must be one of the primary concerns. Hence it would only be right to subject the tenderers to the same treatment under the Suspension Clause. On the appellant's part, it was certainly aware of para.5.2.1 of the Handbook. In the circumstances, to give business efficacy to the 1st Invitation, a term which has the same effect of the Suspension Clause can be readily and should be implied ("the Implied Term"). It is reasonable and equitable so to do. It follows that the Government is entitled under the Implied Term not to consider the appellant's tender for the 1st Invitation.

37. For these reasons, the appellant's claim must fail in its entirety.

38. I am aware of the fact that the Adjudicator had not made the above findings as I did on the terms of the Conditions for the 1st to 3rd Invitations. But there is sufficient undisputable evidence before the Adjudicator that entitles me to come to my findings above even on appeal : see section 29(2)(a) of the Small Claim Tribunal Ordinance, Cap.338.

GROUNDS OF APPEAL

39. I now turn to the grounds of appeal raised by the appellant. They may be categorized into five main grounds. And I will deal with them in turn.

40. The appellant first argued that it had already become a listed contractor in 1996. Since then, an agreement existed between the appellant and the Government. The Government could not later unilaterally introduce the Handbook, thereby altering the relationship. The provisions in the Handbook did not have any legal or retrospective effect.

41. This argument is wholly misconceived. As demonstrated above, the contractual relationship between the appellant and ASD was governed by the Conditions of Tender for each of the Invitations. The appellant has not been able to satisfy me that its listing status had created a contractual relationship as alleged. Further, I cannot accept his contention that the Government could not issue the Handbook to the contractors concerned.

42. The appellant next contended that the Handbook is only binding on contractors who are listed after its issue. This argument is unmeritorious. There is simply no reason why contractors, whether they become listed before or after the issue of the Handbook, should not be subject to the same standards and requirements.

43. Thirdly, the appellant argued that it had not been explained to him that the Handbook was binding on him. This contention is flatly contradicted by paras.2.1.5, 2.1.6, 2.1.7, 5.1.2 and 5.22 of the Handbook referred to above. These paragraphs make it perfectly clear that for all intents and purposes, the Handbook is binding on all contractors.

44. Fourthly, the appellant submitted that as it had been invited to submit tenders, there should be no doubt that it was capable of fulfilling the contracts. This submission completely ignored the Implied Term for the 1st Invitation and the Suspension Clause for the 2nd and 3rd Invitations. It must be rejected.

45. Fifthly, the appellant alleged that the Deputy Secretary who issued the letters of suspension on behalf of the Secretary for Works dated 15 May and 15 July 2003 did not have the authority to do so. The appellant had not adduced any evidence to substantiate this bare assertion. This point is entirely baseless.

46. Finally, the appellant contended that he was persecuted by the authorities. This is a serious allegation indeed. But it is a bare allegation without evidence in support. And I have no hesitation to reject it.

47. For the above reasons, none of the grounds of appeal has any substance at all.

CONCLUSION

48. As I have demonstrated above, the appellant's claim must fail. This appeal is wholly unmeritorious. I dismiss it accordingly with costs.