MATTEOGRASSI SPA v. THE AIRPORT AUTHORITY

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

1998, No. 31
(Civil)

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J U D G M E N T

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Mortimer, V.-P. :

1. This is an appeal against Keith J's dismissal of an application by Matteograssi SPA ("Matteograssi") for judicial review of a decision by the Airport Authority ("the Authority") in awarding the contract for the provision of public area seating in the Passenger Terminal Building of the new airport at Chek Lap Kok to a competitor Wilkhaln.

The background

2. In October 1996 eight contractors, including Matteograssi, were invited by the Authority to tender. All save one submitted tenders. Those tenders were considered in a three stage procedure described by the judge at p.5D-L as follows:

"(i) an assessment of the tenders by the project team leading to a report from the Project Director to the Chairman of the Project Committee,

(ii) the consideration of the tenders by the Project Committee leading to a recommendation to the Board of the Authority,

(iii) the consideration of the tenders by the Board of the Authority, who would make the final decision as to which, if any, of the tenderers should be awarded the contract."

3. In its written application for judicial review Matteograssi took two points:

(1) That the decision was reached unfairly because the Authority considered a different price for its tender to that submitted; and

(2) That the award of the contract to Wilkhaln was Wednesbury unreasonable.

4. At the hearing neither of these matters was pursued. Mr Bleach SC for Matteograssi contended that it had a legitimate expectation that its tender would be examined fairly whereas it was not so examined. This point was not even in the applicant's skeleton but the core of the new submission was that although the first stage report of the Project Director to the Project Committee reminded the Committee of its option to award the contract solely on price, it eliminated the two highest tenders and recommended that for the others price should be disregarded. This was based on "the close proximity in the price of the lowest five tenders". Mr Bleach argued that the range from $37m to $46.4m could not rationally be regarded as in "close proximity" and further the comparison was not like with like as Matteograssi's tender was for coach hide whereas some others were for fabric.

5. All the tenders were well within budget and counsel for the Authority contended that in the circumstances price could be given less weight than the other factors. The judge did not accept this submission. He said:

"The Authority was required, by section 6(1) of the Airport Authority Ordinance (Cap. 483), to

'conduct its business according to prudent commercial principles',

and by section 6(2), it was required

'in conducting its business ... [to] have regard to safety, security, economy and operational efficiency.'

The fact that the tenders were all within the Authority's budget did not mean that price should be given less weight than other factors."

The judge, however, accepted Mr Bleach's contention in this passage:

"For these reasons, therefore, I find that the recommendation in the report - that price should be ignored in considering the five lowest tenders - was fundamentally flawed because it was made on the basis of a false premise, namely that the prices of those tenders were in 'close proximity' with each other."

6. Following this, the judge undertook a detailed examination of the remaining tendering process in stages two and three. Finally, he concluded, not without hesitation, that the "flaw" had been cured because members of the Project Committee, and later the Board, knew of the prices and took them into account. On this basis, the judge dismissed the application.

The judge's misgivings

7. The judge entertained the criticisms of the tendering process - which were based by then entirely upon matters disclosed by the Authority - with considerable misgivings. He had very grave doubts whether this decision of the Authority was amenable to judicial review. The doubts he entertained were whether the tendering process was in the public law field at all or whether it was a private law matter undertaken by a public body. In spite of this, Keith J heard no argument on the point because the then counsel for the Authority conceded that the decision was amenable to judicial review. In these circumstances the judge acceded to the suggestion that he should hear the case on its merits and if he reached a preliminary view that Matteograssi could succeed on the merits he would then re-list the case for further argument.

The appeal

8. Indeed, the course the judge chose to take would have disposed of the matter had not Matteograssi decided to appeal. Not surprisingly Mr Dykes SC, who appears for the Authority on this appeal but who did not appear below, now wishes to take the point on appeal.

Damages as the only remedy

9. Additionally Mr Dykes seeks to take a further point not resolved below. It was this:

"By the hearing of the judicial review Wilkhan had almost completed the contract."

Those advising Matteograssi no doubt appreciated that it would be impossible by the time of the hearing to persuade the judge to grant the discretionary remedies of certiorari or mandamus. This left the claim for damages which was wholly at large and unparticularised. Mr Dykes submits that as no application was made for this action to continue as if begun by writ under O53 r9(3) and that the claim for damages is purely a private law matter, the application for judicial review is competent.

Leave granted

10. This Court always jealously scrutinises any point not taken below to ensure that no relevant evidence could have been advanced which touches upon it. We are even more reluctant to hear argument on a point which has been conceded below unless it becomes clear that the point has been conceded in error which, of course, is not the same as deciding that the point is beyond argument. Nothing was put before us to suggest that in applying these principles we should refuse to hear those arguments. Further, as both these matters go to the root of the proceedings and were probably, if advanced, the most important points for decision in the case. We allowed Mr Dykes to raise and argue them at the outset of the appeal.

Is the decision amenable to judicial review?

11. In summary, Mr Dykes submits that the Authority is a public body and concedes therefore prima facie its decisions are subject to review, but in exercising its capacity to contract - as in this case - he submits, it is in all respects like any other commercial body. Its decisions, therefore, absent fraud, lack of bona fides, corruption and the like are therefore private law matters only. Further, he submits that the requirements of s.6 of the Airport Authority Ordinance that it must conduct its business "according to prudent commercial principles" and to have regard to "economy as the only statutory requirements" emphasise that the Authority is required to act simply like any other commercial body in the private law field.

12. In these circumstances, he submits that the mere fact that the Authority is a public body does not place Matteograssie in any better position than any other person who seeks to enter into a contract.

13. He cites in support Mercury Energy Ltd v Electricity Corporation of New Zealand Ltd [1994]1 WLR 521; and R v The Lord Chancellor ex p Hibbit & Sanders [1993] COD 326. The latter case is an example of a public body performing its private law contractual duties and activities where an unfair tender was established but it was still held not subject to judicial review.

14. In these circumstances Mr Dykes said that there was no statutory underpinning of the tendering process such as could possibly assist Matteograssi. Such underpinning, he submitted, would lay down detailed requirements for the conduct of the tendering process in respect of which the applicant would have to demonstrate a breach.

15. For the applicant Mr Bleach advanced yet another case. He contended that the provisions of s.6 of the Ordinance do underpin the tendering process and that when the Project Committee recommended that price should be ignored for the five lowest tenders, this was a breach of the statutory provisions amounting to illegality and, he submits, the judge so found. He further argues that the judge was wrong in finding that that flaw had been cured by the later tendering process in stages two and three.

The submissions considered

16. There is, of course, no universal test to determine whether a decision by a public body is amenable to judicial review. In borderline cases this is a question of impression and degree. As Ognall J R v Legal Aid Board, ex p Donn & Co [1996]3 All ER 1 at 11 said:

"The answer must, it seems to me, fall to be decided as one of overall impression, and one of degree. There can be no universal test."

17. But this is not a borderline case. Here a public authority in exercising its capacity to contract is carrying out a purely commercial function.

18. In Mercury Energy Ltd v Electricity Corporation of New Zealand [1994]1 WLR 521 at 529B Lord Templeman delivery the judgment said:

"It does not seem likely that a decision by a state enterprise to enter into or determine a commercial contract to supply goods or services will ever be the subject of judicial review in the absence of fraud, corruption or bad faith."

And further at D:

"Industrial disputes over prices and other related matters can only be solved by industry or by government interference and not by judicial interference in the absence of a breach of the law."

19. For my part, I am unable to say that a breach of s.6 could never been demonstrated in the absence of fraud, corruption or bad faith, but I find it difficult to envisage the circumstances in which this would occur. Fraud, corruption and bad faith - although at one time suggested in this case - are now wholly abandoned.

Was the decision a commercial one?

20. There remains the one point that price was ignored in the final selection and therefore the selection was not made according to law. Price is obviously an important commercial and economic factor but it is far from the only commercial consideration. The context of the decision challenged was this:

(1) The Authority had a budget for the provision of seating and all seven tenders were all within budget.

(2) The highest two tenders were rejected on the grounds of price.

(3) The remaining five were invited to Hong Kong and were interviewed to explain their tenders.

(4) There were trial samples of seats from the tenderers at Kai Tak Airport. These were available for inspection by those making the decision.

(5) Parts of the report of the Project Committee noted these words

"Alternatively, Members may like to decide that the award be based solely on price."

But the recommendation was,

"In view of the close proximity in price of the lowest 5 tenders and the fact that all are considered to conform, it is recommended that Members make the choice based on comfort, appearance, durability and maintainability following inspection of the samples."

21. In summary the tenders were within budget, the highest two were eliminated on price alone and the remaining was chosen on comfort, appearance, durability and maintainability.

22. These latter factors - comfort, appearance, durability and maintainability -clearly relate both to prudent commercial principles and to economy. The judge, however, decided that the process was flawed because the differences in price of the last five were ignored. They were said to be in "close proximity" when there were obviously substantial differences in purely monetary terms.

23. But clearly a commercial judgment which must take into account not only price but the four factors to which I have referred. That those are factors which the Authority was entitled to take into account with accordance with s.6 is too obvious to elaborate.

24. Having obtained tenders within budget and eliminated the most expensive ones, what value in choosing seating which is uncomfortable, ugly, needs frequent replacement and is costly to maintain? With great respect, the evidence does not establish even a prima facie case that the decision in awarding the contract on these bases was not made according to law.

Conclusion

25. For these reasons, I would unhesitatingly hold that this decision challenged is not amenable to judicial review. It was a commercial decision by a public body which sounds in private law only. Not even a prima facie case is made out that the decision was unlawful. Indeed, I take the view that had the case which was presented to us been the subject of the application, it is most unlikely that leave would have been granted in the first place.

26. Before I leave that matter, I would add that the judge below was asked to consider not illegality but unfairness. I would pay tribute to the care with which he considered the tendering process although I would have approached the matter somewhat more robustly. He reached a decision on the case as presented to him with which I agree.

The claim only for damages

27. When the rules were amended some twenty years ago to allow a claim for a declaration, an injunction or damages to be made in an application for judicial review, the aim was to avoid a litigant having to make a choice between two sets of proceedings or having to bring two sets of proceedings. The claim for damages sounds only in private law whereas judicial review is brought to invoke the supervisory jurisdiction of the court to quash a decision taken unlawfully and in certain circumstances to order that the decision-making process should be carried out according to law.

28. At the time the proceedings were brought, the discretionary remedies of certiorari and mandamus could have been available if the case had been established. But by the time of the hearing, it was clear that no judge would exercise his discretion in the applicant's favour as the contract for the provision of seating had been substantially completed.

29. Mr Dykes submits that it was not open in these circumstances for the applicant to pursue a claim only for damages in judicial review proceedings.

30. Order 53 r7, however, provides:

"(1) On an application for judicial review the Court may, subject to paragraph (2) award damages to the applicant if -

(a) he has included in the statement in support of his application for leave under rule 3 a claim for damages arising from any matter to which the application relates, and

(b) the Court is satisfied that, if the claim had been made in an action begun by the applicant at the time of making his application, he could have been awarded damages.

(2) Order 18, rule 12, shall apply to a statement relating to a claim for damages as it applies to a pleading."

It seems to me that it would have been open for the applicant to pursue a claim for damages on the judicial review hearing had there been a statement which bore out its claim. But Mr Dykes is right when he submits that the claim for damages is purely a private law matter and no such claim was either made out in the application or pursued at the hearing.

31. Mr Bleach points out correctly that the tendering process may in some circumstances give rise to contractual obligations and breaches of those obligations. See Blackpool Fylde Aero Club Ltd v Blackpool BC [1991] WLR 1195. But he was unable to point out or advance any basis for such a claim in this case. Indeed, usually when this circumstance arises, one would expect an application to the judge to exercise his powers under O53 r9(5) that the proceedings should continue as if they had begun by writ. That did not happen in this case.

32. In these circumstances I agree that these proceedings, as presently constituted and as constituted before the judge, are not competent. There remains only a claim for damages and no basis for that claim is pleaded or advanced.

33. For those reasons, I would dismiss this appeal.

Rogers, J.A.:

I agree that this Appeal must be dismissed and would add the following.

34. This case has reached this stage through a chapter of incidents. The Appellant's arguments, upon which they found their case for jurisdiction to bring judicial review proceedings, owe scarcely nothing for their foundation on the Notice of Application for leave to apply for judicial review. Indeed, it can be said that it would appear that to-date the Appellants have had three different cases. The first was that on which they applied for judicial review. The second was that argued on the substantive application in the Court below and the third was that argued in this Court.

35. Section 21K(4) of the High Court Ordinance, Cap. 4 permits the inclusion of a claim for damages with an application for judicial review. But it must be noted that the claim for damages must be a claim in its own right. The sub-section reads as follows :-

"(4) In an application for judicial review the High Court may award damages to the applicant if-

(a) he has joined with his application a claim for damages arising from any matter to which the application relates; and

(b) the court is satisfied that, if the claim had been made in an action begun by the applicant at the time of making his application, he would have been awarded damages."

36. It is quite possible that this was lost sight of right at the beginning of these proceedings since the relief sought in the Notice of Application for leave to apply for judicial review is :-

(a) writ of certiorari and/or

(b) writ of mandamus or

(c) damages.

37. As such, therefore, as a matter of grammatical construction, the claim for damages could be read as existing on its own. Applying a strict construction, the application was therefore incompetent from the beginning.

38. At the commencement of the proceedings, the Appellants claimed that the decision of the Selection Board of the Airport Authority was in breach of the principles of natural justice and in addition or in the alternative it was a decision to which no reasonable Board properly directing itself could have come.

39. Although expressed in the Notice of Application to be based upon such matters as a failure to give proper consideration to the Appellant's tender and the taking into account of false information, the application was more broadly based because the affidavits had overtones of misfeasance, not to say fraud and perhaps allusions to a previous complaint made on the Appellant's behalf to the ICAC about the matters the subject of this application.

40. At the hearing below the Appellant abandoned not only its application based upon the "Wednesbury" unreasonableness but abandoned any claim for certiorari or mandamus. As such, as recorded in the judgment below, the only issue that remained was whether the Appellant's tender had been considered fairly by the Airport Authority, which as the Judge referred to, was one not advanced in the grounds on which relief was sought. The only relief sought was damages.

41. In my judgment, once it had become apparent that no relief by way of judicial review was being sought, the judicial review procedure should not have been proceeded with. The matter should have either been treated as a normal action for damages under an application under Order 53, rule 9(5) or application should have been made to withdraw it with leave of the Court. It seems to me that there is no justification for continuing to use the judicial review procedure when all that is being sought is damages, the right to which the Appellant would have had to establish on the basis of contract or tort. The judicial review procedure is not as fitted for consideration of a claim for damages as a normal action. Even if the claim is made out, questions would arise as to whether the Defence has been properly particularised.

42. The claim in any event appears to me to have been misfounded. The only ground put forward as the basis of a right of action was a breach of statutory duty. That was said to be the duty of the Airport Authority to consider economy when conducting its affairs. Section 6 of the Airport Authority Ordinance, Cap. 483 has to be read in the context of the whole Ordinance and in particular in the light of section 5 which reads as follows :-

"(1) (a) The Authority shall, in accordance with this Ordinance and also in accordance with the objective of maintaining Hong Kong's status as a centre of international and regional aviation, provide, operate (in accordance with any law in that regard which is for the time being in force), develop and maintain, at and in the vicinity of Chek Lap Kok, an airport for civil aviation.

(b) The Authority may provide, at, as regards or in relation to the Airport (or any part thereof), such facilities, amenities or services as are, in its opinion, requisite or expedient."

43. The section thus makes clear that the Airport Authority is charged with the task of setting up a major regional airport. Hence, whatever other factors it takes into account, the Airport Authority must first and foremost build and establish an airport which will maintain Hong Kong's status as an international aviation centre.

44. Section 6 on which reliance is placed provides as follows :-

"(1) Subject to the other provisions of this Ordinance, the Authority shall conduct its business according to prudent commercial principles and shall, as far as practicable, ensure that, taking one year with another, its revenue is at least sufficient to meet its expenditure.

(2) The Authority shall, in conducting its business or in otherwise performing its functions, have regard to safety, security, economy and operational efficiency and the safe and efficient movement of aircraft, air passengers and air cargo."

45. Apart from anything else, it is quite clear that Section 6 could not be the basis upon which a claim based on a private right could be founded.

46. As with any other body appointed with a public duty, economy is of course a factor to be taken into consideration, but as common sense as well as a proper construction of the statute dictates, it is not an overriding consideration. As such, the statutory requirement for economy in the conduct of the Airport Authority's functions would, in my judgment, not be justiciable. It would be impossible for a Court to weigh and assess in the way the Airport Authority should all the relevant factors and matters relating to the conduct of the Airport Authority's functions.

47. Turning to the Decision complained of, it is quite apparent that the Appellant's arguments in this Court are unsustainable. The basis upon which the argument was put in this Court was that in coming to its Decision, the Airport Authority did not take into account economy.

48. The Airport Authority's budget for the public seating was HK$65,068,000. The two most expensive tenders were discarded on the basis of cost despite the fact that it would seem they were not over-budget.

49. All tenders that were given full consideration were well within that budget. Given the importance of seating in the public area, where the seating is one of the most significant features of the airport as regards the public convenience, I consider that not only must other factors be taken into account but that on those facts alone economy was sufficiently taken into account. On the face of the matter the Airport Authority had properly and deliberately considered what its financial commitments were likely to be for the project and all the tenders fell within that limit. Thereafter, it seems to me quite legitimate for the Authority to try and provide what it considered were the best facilities for the public which it could afford within its budget.

50. It appears from the record of the meeting of the Project Committee which was responsible for making recommendations to the Airport Authority Board and the minutes of the meeting of the Airport Authority Board itself of 27th March 1997 that on both occasions one of the members of the Project Committee who was also a member of the Board specifically raised the question of price and specifically drew attention to the fact that the Appellant's bid was the lowest bid. There was evidently some discussion as to the merits of the Appellant's seats and the fact that the Project Committee and the Board went ahead with alternative seating, after being reminded that the Appellant's tender was the lowest and substantially lower than any other, makes the submission that economy was not considered untenable. The fact that consideration is given to price does not mean that price has to be the dominant factor in any decision. I would observe, moreover that it is the decision-making process which is the subject of a judicial review and not the decision itself. It does appear that the Project Committee considered a large number of factors including aesthetics, comfort and soundness of design.

51. In the light of all these circumstances, it is not for the Court on judicial review proceedings except in exceptional circumstances where, for example, bad faith or improper or ulterior motives are alleged to examine how that decision was arrived at. Nevertheless, even from the papers in these proceedings it is apparent that the Appellant's seating was the subject of some criticism to the extent that it is not surprising that it has not been chosen.

Nazareth, V.-P.:

I agree with my Lords that the appeal must be dismissed for the reasons they have given. I add the following few words of my own.

52. What was ultimately pursued before us was the private law claim for damages. Such a claim under s.21K(4) of the High Court Ordinance and O53 r7(1) of the High Court Rules can be included in an ordinary judicial review application. In such an application the ordinary relief is either certiorari or mandamus. These were included in the application in this case but were subsequently abandoned. The question then arose whether the claim for damages in a private law context could be pursued. Mr Dykes submitted upon the wording of the relevant provisions that it could not and ought not to be permitted to be pursued. However, s.21K(4) and O53 r7(1) are not explicit upon the point. Likewise Supperstone and Goudie's second edition on Judicial Review, upon paragraph 14.36 of which Mr Dykes seeks to rely, does not there support him in clear terms nor cite authority that supports his contention. Nevertheless, had the private law claim been clearly amenable to judicial review, I would myself have been disposed to avoid the unnecessary expense and delay of the matter having to be commenced anew, a fortiori given that the appellant, Matteograssi, cannot be criticised for having initially included that claim. However, for the reasons my Lords have given, it seems to me also that the claim on its own was no longer justiciable.

53. Mr Bleach sought to justify the pursuit of the appellant's contractual claim also in the following way. He submitted that it possessed a sufficient public law element and statutory underpinning. That submission founds upon the relevant authorities to which Mortimer V-P has referred in his judgment, in particular the judgment of Rose LJ in R v Lord Chancellor, ex p Hibbit & Saunders [1993] COD 326. The public law element and statutory underpinning, Mr Bleach contended, were provided in s.6(1) of the Airport Authority Ordinance, i.e. by the words, "prudent, commercial principles" by which the authority was required to conduct its business and the word "economy" to which it likewise had to have regard under s.6(2). Those, moreover, were not the only matters to which the Authority had to have regard. Sub-section (2) of s.6 provides also that in conducting its business or in otherwise performing its functions, the Authority shall have regard to safety, security, and economy and operational efficiency, and safe and efficient movement of aircraft, air passengers and air cargo. In that light, plainly it is one thing for the Authority to so conduct its business, with particular reference to "economy" and to "prudent, commercial principles". It is quite another for the Authority to have to do so by specifically having regard to individual tender prices in a relatively minor contract given the scale of the airport projects, in the manner contended for, a fortiori in the context of the courts having to impose that sort of requirement by way of judicial review. Such matters, plainly, are best dealt with by those entrusted with them by the legislation and whose conduct of them is only properly amenable to judicial review in case of fraud, corruption, bad faith or contravention of the law. See Mercury Energy Ltd v Electricity Corporation of New Zealand Ltd [1994]1 WLR 521.

54. Not being unaware of these considerations, Mr Bleach focused his attack upon a single matter revealed in the course of the proceedings in the Airport Project Committee's report on the particular tenders concerned. This was the Committee's recommendation that once the two highest tenders were eliminated, price should be ignored. Such a recommendation, Mr Bleach submitted, was in clear breach of the requirement to have regard to "economy" in s.6. He contended that the recommendation was made plainly upon the erroneous basis that the prices in the five lowest tenders were in "close proximity". It resulted, he submitted, in the Board which had to decide the tenders, not having had regard to price. Moreover, he continued, the judge, having found the recommendation fundamentally flawed, then himself erred in going on to find that the flaw had been cured in the Project Committee and Board having taken both the price and value for money into account.

55. Without repeating my Lords' detailed account and consideration of those matters, I merely content myself with saying that I am unable to accept that. In my view, both the Committee and Board had sufficient regard to price, notwithstanding that at some stage in the proceeding, having considered the price, they went on to narrow their choice by reference to other matters. Price was in any case clearly in the contemplation of the members and in fact was referred to expressly even after it was recommended that price should be disregarded.

56. I conclude, therefore, that not only did the references to "prudent commercial principles" and "economy" in s.6 not require the Board and the Committee to specifically have regard to price in the specific manner contended for, but that in fact, the Board and the Committee did sufficiently address the matter of price in their deliberations.

57. Accordingly, I conclude that there was no breach of the law, nor is there other good reason for this Court to intervene.

58. The appeal is dismissed.