BONDSON TECHNOLOGY LTD v. SECRETARY FOR JUSTICE

CACV 249/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 249 OF 2011

(ON APPEAL FROM HCA NO. 1458 OF 2010)

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REASONS FOR JUDGMENT

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Hon Fok JA (giving the Reasons for Judgment of the Court):

1.  The plaintiff sought to tender for the provision of digital audio recording and transcription services (“DARTS”) to courts in Hong Kong under two contracts. The Judiciary Administrator (“JA”) did not accept the plaintiff’s tender and the plaintiff sued the defendant for breach of contract and/or negligence.

2.  By her judgment dated 19 October 2011, Deputy High Court Judge Au-Yeung (as Au-Yeung J then was) answered three questions posed under the Order 14A procedure in favour of the defendant and consequently dismissed the plaintiff’s action.

3.  This was the plaintiff’s appeal against the Judge’s determination of those questions.  At the conclusion of the hearing before us, we dismissed the appeal with costs and indicated that we would give our reasons for doing so in due course, which we now do.

Background

4.  The Government issued tender documents for Tender Ref. CR273/6/37-T1 on 4 June 2004.  The tender was for the provision of DARTS to various courts in Hong Kong under two contracts (A and B) for four years commencing on 7 December 2004.

5.  There were 8 parts to the Tender Documents, namely:

        Part I: Notes to Tenderers

        Part II: Terms of Tender

        Part III: Conditions of Contract

        Part IV: Contract Schedules

        Part V: Specifications

        Part VI: Offer to be Bound

        Part VII: Form of the Supplier’s Undertaking

        Part VIII: Articles of Agreement

6.  The relevant provisions of the Tender Documents were set out by the Judge in paragraph 4 of her judgment.  I shall return to set them out after summarising the background facts.

7.  The plaintiff duly tendered for both Contracts A and B and its tender proposals were received by the Central Tender Board on 19 July 2004.

8.  The JA wrote to the plaintiff on 28 September 2004 to state that its tenders for Contracts A and B had not been accepted due to its failure to comply with all the mandatory requirements specified in paragraph 12.1 of the Terms of Tender in relation to both contracts.

9.  By a further letter to the plaintiff dated 8 October 2004, the JA stated that, notwithstanding that the plaintiff had not provided any statement of non-compliance in relation to clause 2.1.3 of the Specifications in Contract Schedule 9, it had not proposed, in Contract Schedule 4 of its tenders, to provide spare microphones in accordance with clause 2.1.3 of the Specifications.  Instead, it had stated in each Schedule 4, “Judiciary’s used microphones taken as serviceable”.[1]

10.  The Government eventually awarded Contract A to Court Services Asia Limited and Contract B to Megaluck International Limited (“MIL”).

11.  The plaintiff sought a review of the Government’s decision to reject its tenders by the Review Body on Bid Challenges.  On 25 May 2005, the Review Body dismissed the plaintiff’s challenge and ruled that the Government was entitled to reject the plaintiff’s tenders for non-compliance with clause 2.1.3 of the Specifications and paragraph 12.1 of the Terms of Tender.

12.  In about 2006, it was subsequently discovered that MIL had provided false information in support of its tender for Contract B and that contract was terminated.  After a fresh tender exercise, the plaintiff was awarded a service contract for the period from 5 October 2007 to 30 June 2012.

The relevant provisions of the Tender Documents

13.  As noted above, these were identified in paragraph 4 of the Judgment below and the material parts of the contractual terms are as follows:

“Part I. Notes to Tenderers

4.1 All tenderers are advised to read the instructions contained herein carefully prior to preparing their tender. These instructions are conditions of tendering and any tender which does not follow these instructions will be considered incomplete and may be disqualified.

…

5.1 Complete information on the Services and Proposed Equipment and Software offered to be provided, including technical and descriptive literature, shall be submitted with the tender as an attachment to the Contract Schedules. Information submitted shall be sufficiently detailed to show that the Services and the Proposed Equipment and Software offered meet the requirements under the Conditions of Contract and the Specifications.

…

Part II. Terms of Tender

8.1 Subject to paragraph 2.4 hereof, the Government may elect at its sole option to accept all or any part of the tenderer’s offers and the Government has sole discretion whether or not to accept any of the tenders irrespective of its price.

…

11.1 All terms and conditions in the Contract are the requirements of the Government and should not be altered by the tenderer. Any counter-proposal will only be considered in exceptional circumstances and on issues of a fundamental nature.

…

11.3 The Specifications are not subject to any counter-proposal whatsoever from the tenderer.

…

12.1 The following are the mandatory requirements for this invitation to tender which a tenderer must fulfil before its tender is eligible for assessment under the marking scheme contained in Annex A hereof:

(a) It is mandatory that tenderers comply with each and every clause in the Specifications by not providing any statement of non-compliance in Contract Schedule 9.

(b) It is mandatory that each tenderer must submit:

(i) all Contract Schedules, except Contract Schedules1, 2, 6, 8D, 11A and 12;

Without prejudice to other grounds specified in these Terms of Tender or in the Notes to Tenderers which entitle the Government to reject or disqualify a tender, a tenderer’s failure to comply with the above mandatory requirements will render its tender invalid and its tender will not be considered for evaluation.

12.2 Notwithstanding anything in the Tender Documents to the contrary, save and except for those Tender Documents the submission of which by a tenderer in its tender are specified to be a mandatory requirement under paragraph 12.1 above, where certain documents or information required under any of the Tender Documents (including any document or information required under any of the Contract Schedules except for Contract Schedule 5) are found missing, or there is ambiguity or inconsistency, in a tender submitted by a tenderer, which the Government Representative, in its opinion, considers the tenderer concerned has merely made an unintentional error of form and that giving the tenderer an opportunity to correct that error will not give rise to any discriminatory practice, the Government Representative may, in its absolute discretion, request that tenderer concerned to supply such missing document, additional information or documentary proof, or clarification, on or before such date as the Government Representative may in its absolute discretion allow. Alternatively, the Government Representative may elect to assess that tender on an as is basis. A tenderer who fails to comply with the Government’s request for missing or supplemental information or document, or clarification, pursuant to this paragraph will entitle the Government to disqualify its tender without further notice.

…

26.1 In evaluating the tenders submitted and awarding the Contracts, the Government is not bound to accept the lowest or any tender. The award of Contracts will be made to the tenderers who are assessed by the Government to be fully capable of undertaking the Contracts. Even if a tenderer attains the highest Final Assessment Scores (as defined in Annex A hereof) for both Contracts, no one (1) single tenderer will be awarded with both of them, and the Contracts will be awarded on the basis of a tender combination that is determined by the Government to be most advantageous to the Government.

Part III. Conditions of Contract

16.3.10 Throughout the Term, the Contractor shall, at its own expense and at no cost to the Government, stock adequate spare parts and spare Equipment to ensure the smooth running of the System to meet the Service Levels specified in Clause 35, Contract Schedule 6 and the Specifications, according to the quantities of spare parts and spare Equipment prescribed in Contract Schedule 4 (collectively “spare parts”). The spare parts shall at all times throughout the Term be kept and maintained in good working order and condition, and be from time to time replenished to the quantities specified in Contract Schedule 4 in case of use. The minimum level of spare parts proposed by the Contractor may be amended should the Government Representative deem necessary.

16.3.11 In the event that it shall become necessary for the Contractor to replace a piece of Applicable Item or any part thereof within the System in performing the Remedial Maintenance Services, the Contractor may consider, before using its own spare parts kept by it in accordance with Clause 16.3.10 and Contract Schedule 4, making use of the Government’s spare parts…

Part IV. Contract Schedules

Schedule 4 – Spare Level

1. The Contractor shall stock the following spare parts and spare equipment at its own cost.

[One of the spare parts was fixed microphone and the Contractor has to specify the minimum quantity in the table.]

Part V. Specifications

2.1.3 Microphones (forming part of the Existing Equipment) are provided for the following persons:

[The judge and 6 categories of persons]

Two (2) full sets of the above microphones in good function and condition shall be made available by the Contractor as spare items.”

The issues raised in the pleadings

14.  By this action, the plaintiff claims for breach of contract and/or negligence in respect of the Government’s failure to award Contract B to it.  It is alleged that the Government awarded Contract B to MIL notwithstanding that the latter’s tender was more expensive, less advantageous compared to the plaintiff’s and non-compliant with clauses 1.6 and 3.1.10 of the Specifications.  It is also alleged that the Government acted in breach of contract and/or negligently in rejecting the plaintiff’s tender under clause 2.1.3 of the Specifications by failing to consider the adequacy of the existing microphone stock.

15.  In paragraph 17 of the statement of claim, the plaintiff pleads:

“On its true construction, Clause [i.e. paragraph] 12.1(a) of the Terms of Tender provided that if any statement of non-compliance was provided, the tender would be rejected. The Plaintiff did not provide any statement of non-compliance in Contract Schedule 9 hence was not in breach of any requirement imposed by Clause 12.1(a) of the Terms of Tender.”

16.  In paragraphs 21 to 23, the plaintiff also pleads that, in the tender documents, the Government stated that it had spare items available which the contractor could consider using if any replacement was necessary before the contractor used any of its own spares.  In view of the large quantity of available spares from the Government and the low incidence of failures, the plaintiff did not tender new microphones in Contract Schedule 4 as spare items.  The plaintiff pleads that the Government ought to have considered these matters in deciding whether the mandatory requirements under paragraph 12.1 of the Terms of Tender and clause 2.1.3 of the Specifications had been breached.

17.  The Government’s pleaded case is that on the proper construction of paragraph 12.1 of the Terms of Tender and clause 2.1.3 of the Specifications, the plaintiff’s tender was clearly not compliant with the mandatory requirements specified and the Government was thus entitled to reject it.

The questions posed under Order 14A and the Judge’s answers to them

18.  The first question posed in the summons is:

“Whether, on the true and proper construction of Paragraph 12.1 of the Terms of Tender (Part II of the Tender Documents):

(1) The Plaintiff was required to comply with each and every requirement of the Specifications (Part V of the Tender Documents) failing which its tender would be disqualified/rejected and would not be considered for evaluation; and

(2) Non-delivery of any statement of non-compliance did not exonerate the Plaintiff from complying with each and every requirement of the Specifications.”

19.  The Judge answered these questions as follows: as to 1(1), yes; as to 1(2) no, the plaintiff was not exonerated.

20.  The second question posed in the summons is:

“Whether, on the true and proper construction of Clause 16.3.10 of the Conditions of Contract (Part III of the Tender Documents) and Clause 2.1.3 of the Specifications, the Plaintiff was required to make available two full sets of microphones (i.e. a total of 14 microphones) as spare items regardless of the availability of the Government’s spare parts referred to in Clause 16.3.11 of the Conditions of Contract.”

21.  The Judge answered this question in the affirmative.

22.  The third question posed in the summons is:

“Whether the Plaintiff’s Tender was non-compliant with Paragraph 12.1 of the Terms of Tender and/or Clause 2.1.3 of the Specifications such that the Government was entitled to reject the Plaintiff’s Tender by reason of such non-compliance.”

23.  The Judge answered this question as follows: yes, the plaintiff’s tender was non-compliant and the Government was entitled to reject it by reason thereof.[2]

24.  As indicated above, in the light of her answers to the questions posed, the Judge dismissed the plaintiff’s action.

The appeal

25.  The crux of the plaintiff’s case on appeal was that the Judge failed to construe all the relevant provisions of the Tender Documents together.  In particular, it was contended by Mr Nigel Kat, counsel for the plaintiff, that she should have construed clause 16.3.10 of the Conditions of Contract and paragraphs 12.1(a) and 12.1(b)(i) of the Terms of Tender together and that, had she done so, she should have reached the conclusion that:-

(1)  They required the contractor to propose his own “quantities of spare parts” needed to maintain the specified “Service Levels” on the blank form of Contract Schedule 4 supplied with the tender documents; and

(2)  Those quantities would be “the minimum level of spare parts proposed by the Contractor” provided by clause 16.3.10, while undertaking to comply with the Specifications by paragraph 12.1(a).

26.  It was contended that the Judge’s decision gave no effect to paragraph 12.1(b)(i) of the Terms of Tender or clause 16.3.10.

27.  Thus, the plaintiff complied, it was contended, with the requirements of paragraph 12.1(a) and clause 2.1.3 of the Specifications in that, by signing the Statement of Compliance in Schedule 9 to the Terms of Tender, it undertook to “make available” the particular quantities of items specified therein.  The undertaking in the Statement of Compliance was in these terms:

“We, Bondson Technology Limited, hereby confirm that if we are awarded with the Contract (A) or (B), we will comply with all requirements set out in that Contract including the Specifications save and except the following …”.

Since no item of non-compliance was identified by the plaintiff, this Statement of Compliance was, it was contended, a present promise of a future requirement, to apply once the contract was awarded.  Pursuant to clause 16.3.10, the Government Representative would deem a particular level of spare parts to be “necessary”.

28.  It was contended that the Judge’s acceptance of the JA’s interpretation, namely that the terms and conditions required the tenderer to fill in Schedule 4 including the number of microphones set out in clause 2.1.3 of the Specifications, rather than to propose a quantity needed for the Service Level in accordance with clause 16.3.10, rendered redundant the requirement in paragraph 12.1(b)(i) to complete Schedule 4. This was because to do so by including anything other than the parts provided in clause 2.1.3 of the Specifications or by omitting any of those parts would be non-compliant and result in immediate rejection, notwithstanding a Statement of Compliance.

Analysis

29.  Was there a mandatory requirement, at the tender stage, for the plaintiff to specify in Contract Schedule 4 a minimum number of spare microphones which it proposed to stock at its own cost and did that number have to be at least the number of spare microphones required by clause 2.1.3 of the Specifications?

30.  Paragraph 12.1 of the Terms of Tender is a clear and unambiguous statement of requirements for the invitation to tender which a tenderer must fulfil before its tender is eligible for assessment.  Paragraph 12.1(a) expressly states that compliance with “each and every clause in the Specifications” is mandatory.  This is complied with by the tenderer not providing any statement of non-compliance in Schedule 9.  In addition, other than those Contract Schedules excepted by paragraph 12.1(b)(i) – and Schedule 4 is not so excepted – the tenderer must submit all Contract Schedules.  Failure by a tenderer to comply with these mandatory requirements will result in the tender being treated as invalid and in its not being considered or evaluated.

31.  Thus, the tenderer’s obligation is to submit Schedule 9 in which it confirms its compliance with the requirements set out in the contract including the Specifications save and except for those it expressly identifies.  Where the reason given for non-compliance amounts to a counter-proposal, Note (a) to Schedule 9 requires the tenderer to submit the reason for non-compliance in accordance with paragraph 11 of the Terms of Tender.  Note (b) also draws the tenderer’s attention to the mandatory requirements specified in paragraph 12 of the Terms of Tender.

32.  It is therefore clear, in our opinion, that the terms of paragraph 12 are mandatory and relate to requirements to be fulfilled before a tender will be considered by the Government.  We do not consider this conclusion is affected by the provisions in the Notes to Tenderers (e.g. paras. 2.3 and 8.1) to which Mr Kat drew our attention which indicated that the tenderer is making a “proposal” and that, in Contract Schedule 7B, the tenderer is required to detail how the tenderer will deliver and manage the Maintenance Services in a timely and efficient manner “including but not limited to the stock-up level of spare parts”.

33.  In the light of this clear mandatory requirement, we do not accept the plaintiff’s contention that paragraph 12.1 of the Terms of Tender only required a tenderer to undertake to comply with the Specifications in the future in the event it was awarded the contract.  We accept the contrary contention of the defendant that this argument is inconsistent with other provisions in the Tender Documents specifically:-

(1)  paragraph 12.1 providing (as I have already noted) that the mandatory requirements must be fulfilled “before” its tender is eligible for assessment and that failure to comply with the mandatory requirements “will render its tender invalid and its tender will not be considered for evaluation”;

(2)  clause 4.1 of the Notes to Tenderers stating that the instructions are conditions of tendering and that any tender which does not follow the instructions “will be considered incomplete and may be disqualified”; and

(3)  clause 5.1 of the Notes to Tenderers requiring that “Complete information on the Services and Proposed Equipment and Software offered to be provided … shall be submitted with the tender as an attachment to the Contract Schedules” and that “Information submitted shall be sufficiently detailed to show that the Services and the Proposed Equipment and Software offered meet the requirements under the Conditions of Contract and the Specifications”.

34.  The plaintiff’s contention as to future compliance with the Specifications also does not sit comfortably with the opening words in Contract Schedule 4 which expressly stipulate that “The Contractor shall stock the following spare parts and spare equipment at its own cost”.  By the use of those words, the form of the schedule was plainly requiring a tenderer there to set out, at the time of tendering, the specific quantities of spare parts it was prepared to provide at its own cost.

35.  The plaintiff’s Contract Schedule 4 for Contracts A and B did not indicate a commitment to meet the requirements of clause 2.1.3 of the Specifications to make available two full sets of the seven stipulated microphones (i.e. a total of 14 microphones) in good function and condition as spare items.  That was, in our view, what paragraph 12.1 of the Terms of Tender required and this is a fortiori the position when that paragraph is read together with clause 16.3.10 of the Conditions of Contract, to the construction of which we shall return below.

36.  On the contrary, the plaintiff’s Contract Schedule 4 indicated “Judiciary’s used microphones taken as serviceable”in the place where the number of spare “Fixed Microphones” was to be specified and in the section headed “Others” neither fixed nor wireless microphones were to be provided by the plaintiff, thereby indicating, on its face, that the plaintiff would not be providing any spare microphones as required by clause 2.1.3 of the Specifications.

37.  We do not accept the plaintiff’s contention that clause 16.3.10 of the Conditions of Contract only required a tenderer to express its professional view, in Contract Schedule 4, of the level of spares that would, in its opinion, be required for the smooth running of the system.

38.  Apart from the fact that this would render the process of assessing whether a tender was compliant with the contractual requirements more difficult for the Government, which is unlikely to have been the intention of the Tender Documents, such an interpretation of clause 16.3.10 is, in our view, wholly inconsistent with the Terms of Tender emphasizing that the Specifications are mandatory and not subject to any alterations or counter-proposals: see paragraphs 11.1 and 11.3 of the Terms of Tender.

39.  Additionally, the submission made on behalf of the plaintiff that clause 16.3.10 “makes no reference, either express or implied, to any contractually specified minimum quantity of spare parts” (Skeleton Submissions for the Appellant at §27) also cannot, in our opinion, be accepted. On the contrary, clause 16.3.10 expressly requires the Contractor to stock adequate spare parts “to meet the Service Levels specified in Clause 35, Contract Schedule 6 and the Specifications, according to the quantities of spare parts and spare Equipment prescribed in Contract Schedule 4” (underlining added).

40.  It was submitted by Mr Kat that the words in clause 16.3.10 “and the Specifications” should be read as part of the phrase qualifying the words “the Service Levels” and that this supported the conclusion that the tenderer was only required to propose quantities of spare parts that would, in its opinion, enable it to meet those Service Levels.

41.  However, we do not consider that the suggested conclusion follows.  Even if the reference to the Specifications in clause 16.3.10 qualifies the Service Levels, the thrust of the clause concerns the quantity of spare parts and spare equipment the contractor is to stock at its own expense and there is express reference to the quantities of spare parts and spare equipment prescribed in Contract Schedule 4.  The way in which a contractor will meet service levels is both by the quality of its service and the quantity of equipment it is providing.  Thus, in our opinion, reference to the Specifications includes both the qualitative and quantitative requirements there prescribed.

42.  There is therefore no reason to limit the reference to Specifications in clause 16.3.10 to exclude the required commitment as regards the number of spare microphones stipulated in clause 2.1.3 of the Specifications.  On the contrary, it seems to us, clause 16.3.10 is plainly requiring the contractor to maintain the number of spare parts specified in the Specifications and as set out in Contract Schedule 4 throughout the term of the contract.  Furthermore, we do not consider that the use of the word “proposed” in the last sentence of clause 16.3.10 means that the tenderer is not required to stipulate in Contract Schedule 4 at least the minimum number of spare microphones required by clause 2.1.3 of the Specifications.

43.  The mandatory nature of the Specifications is also reinforced by Clause 35 of the Conditions of Contract which is entitled “Service Levels” and provides that “Unless with the prior written consent of the Government Representative, the Contractor shall ensure that the Services are provided in compliance with the Service Levels stipulated in Contract Schedule 6 and the Specifications”.  As noted above, compliance with the service levels involved the provision of a certain quality of service which in turn was directly impacted by the quantity of equipment to be provided.

44.  We are therefore in agreement with the Judge (Judgment §33) that the mere fact the Government may have had spare microphones did not absolve the plaintiff from compliance with the mandatory requirements under clause 16.3.10 of the Conditions of Contract and clause 2.1.3 of the Specifications.  The provisions of clause 16.3.10 and Contract Schedule 4 made it clear that it was the tenderer’s obligation to stock, at its own cost, adequate spare parts to meet the prescribed levels set out in the Specifications and in accordance with the prescribed quantities in Contract Schedule 4.

45.  It may be thought repetitive and pedantic to require the tenderer to repeat the Specifications as regards spare parts in Contract Schedule 4 but the form of the Tender Documents requires this.  In any event, the content of Contract Schedule 4 is not restricted to the quantity of spare parts but also includes other information as regards the spare parts.  Furthermore, a tenderer may choose to indicate a willingness to provide more than the stipulated number of spare microphones.  If so, when his tender falls to be evaluated at the marking stage contemplated by paragraph 12.1 of the Terms of Tender, he may get additional credit under the Tender Assessment Criteria (Annex A to the Terms of Tender).

46.  For these reasons, we would agree with the Judge’s conclusions and answers to the questions posed in the Order 14A summons.  Since the plaintiff’s tender did not comply with the terms of the Specifications, it follows that the Government was entitled to reject it pursuant to paragraph 12.1 of the Terms of Tender without further evaluation.

The acceptance of MIL’s tender

47.  The plaintiff contended that, even if this Court were against it on the construction arguments, its grounds of appeal concerning the Government’s acceptance of MIL’s tender would remain.  Those grounds were that the Government acted unfairly in not rejecting MIL’s tender and in rejecting the plaintiff’s tender without a proper evaluation since this was a process contract.

48.  We do not accept this contention.  As the Judge held (Judgment §60), a tenderer has to supply a conforming tender for a process contract to come into existence.  On the Judge’s conclusions as to the proper construction of the Tender Documents, with which we agree, there was simply no conforming tender and therefore no process contract could have come into existence.  The plaintiff’s tender was therefore not entitled to evaluation by the Government and there was no corresponding obligation on the part of the Government to evaluate it.

The costs below

49.  It was submitted for the plaintiff that, even if the appeal were dismissed, the Judge’s summary assessment of the costs before her of HK$750,000 were excessive and should not be allowed and that those costs should be taxed instead.

50.  However, the Judge’s assessment was of the costs of the action as a whole and not merely the Order 14A summons which she heard.  The plaintiff’s counsel appearing below (not Mr Kat) made submissions on the defendant’s statement of costs, which the Judge considered before making her assessment of costs.  In the circumstances, the quantum of costs summarily assessed is not such as to warrant interference by this Court.

Dispostion

51.  For these reasons, the appeal was dismissed with the costs of the appeal to be paid by the plaintiff to the defendant, to be taxed if not agreed, with a certificate for two counsel.