MATTEOGRASSI SPA v. THE AIRPORT AUTHORITY

1997 A.L. No. 54

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMINISTRATIVE LAW LIST

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J U D G M E N T

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1. Introduction

In October 1996, eight contractors were invited to tender for the contract for the provision of public area seating in the Passenger Terminal Building of the new airport at Chek Lap Kok. They included the Applicant, Matteograssi SpA ("Matteograssi"), and Wilkhahn, Wilkening & Hahne Gmbh. ("Wilkhahn"). All except one of the eight contractors submitted tenders. In due course, it was decided to award the contract to Wilkhahn. In this application for judicial review, Matteograssi challenges that decision. Since Wilkhahn has substantially performed the contract, the only relief Matteograssi now seeks is damages.

Amenability to judicial review

2. I have very grave doubts as to whether this decision is amenable to judicial review. There was no statutory underpinning of the tendering process, unlike two recent tendering cases in the Court of Appeal in England: Mass Energy Ltd. v. Birmingham City Council [1994] Env. L.R. 298 and R. v. Avon County Council ex p. Terry Adams Ltd. [1994] Env. L.R. 422. Indeed, it is difficult to see how this case differs from R. v. The Lord Chancellor ex p. Hibbit & Sanders [1993] COD 326. Following a tendering process, the Lord Chancellor had decided to award the contract for court reporting for a group of local courts to a particular contractor. The Divisional Court held that the decision was not amenable to judicial review. What principally persuaded the Court that judicial review was not available was the fact that court reporters who sought work in the private sector would have to pursue such remedies in private law as were available to them, and there was no sufficient basis for putting court reporters who sought work in the public sector in a different position. That reasoning applies equally to contractors who tender for contracts to be awarded by the Airport Authority ("the Authority"). And in Mercury Energy Ltd. v. Electricity Corporation of New Zealand Ltd. [1994] 1 WLR 521 at p.529A-B, Lord Templeman 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."

No allegation of fraud, corruption or bad faith is now made in the present case.

3. However, the Authority does not contend that the decision challenged is not amenable to judicial review. Since I have heard no argument on the issue, it would be wrong for me to reach a concluded view on it. In view of the conclusion I have reached on the merits of the application, I am prepared to assume, for present purposes, that the decision challenged is amenable to judicial review, but I would not have been willing to make that assumption had I reached a different view on the merits. This was the course taken by the Court of Appeal in Attorney-General v. Odelon Ltd. [1996] 1 HKLR 190.

The nature of the challenge

4. It is common ground that the only issue which the case raises is whether Matteograssi's tender was considered fairly by the Authority. At one stage in these proceedings, it was suggested that erroneous information had been given about the sum for which Matteograssi had tendered, but that suggestion is no longer pursued. Nor is the other criticism made in the Grounds on Which Relief is Sought - that the decision to award the contract to Wilkhahn was Wednesbury unreasonable - now advanced. The only criticism which is now made is one not advanced in the Grounds on Which Relief is Sought, and that is that Matteograssi had a legitimate expectation that its tender would be considered fairly, that it was not considered fairly, and that therefore its legitimate expectations were not fulfilled. This criticism of the decision-making process is based entirely on the documents which had been exhibited to the affidavits filed by the Authority in opposition to the application.

5. Since this criticism was not made until Matteograssi's counsel's skeleton submissions were served, I was worried that the criticisms might not have been sufficiently addressed in the Authority's evidence. Although much evidence had been filed setting out the way in which the tenders had been considered, that evidence had been filed without knowledge of the particular criticisms which were ultimately going to be made of the tendering process. Accordingly, in the course of the hearing, I gave strong hints that I would consider sympathetically an application by the Authority to file further evidence if it felt that its evidence was insufficient in the light of the criticisms now being made. That invitation was not taken up by the Authority. I have therefore proceeded on the assumption that the Authority, with knowledge of the particular criticisms made of it, has been content to rely only on the evidence which it had previously filed.

6. In order to determine whether Matteograssi's tender was fairly considered, it is necessary to examine the facts with some care. It is therefore to the facts that I now turn.

The tendering procedure

7. The invitation to tender had not identified whether leather or fabric should be used to cover the seats. Matteograssi's tender was based on the provision of leather seats made of coachhide, a harder-wearing material than seats covered with soft leather or fabric. One of the other tenderers had also based its tender on the provision of leather seats, and it was therefore decided to ask all tenderers to quote for the supply of alternatives to seats covered in fabric.

8. The procedure by which the tenders were to be considered involved three stages:

(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.

The anonymity of each tender was preserved by assigning letters of the alphabet to each tender. Matteograssi was assigned the letter "G", and Wilkhahn was assigned the letter "B".

The Project Director's report

9. The tenders were assessed by the project team, and the report of the Project Director dated 12th March 1997 was submitted to the Chairman of the Project Committee. The report included the following information about the tenders:

"Tenders were received from seven (7) invited tenderers indicated above.

The prices were:

Tender	Tender Total
Tender A	$46,212,354.00
Tender B	$46,445,727.00
Tender C	$44,488,199.60
Tender D	$44,146,437.00
Tender E	$57,308,037.02
Tender F	$57,010,188.00
Tender G	$37,104,308.00

Two tenderers offered a leather seat which the [invitation to tender] did not preclude and others noted that they could provide alternatives to upholstery [i.e. alternatives to seats covered in fabric.]

It was therefore decided to ask all tenderers to quote for the supply of alternatives.

The following are the original tender totals and alternative:

Tender	Tender Total	Ten Alternatives
Tender A	$46,212,354.00	A1: $55,573,013.00 A2: $61,224,788.00
Tender B	$46,445,727.00	B1: $43,387,238.00 B2: $51,204,242.00
Tender C	$44,488,199.60	$45,369,555.40
Tender D	$44,146,437.00	$50,970,337.00
Tender E	$57,308,037.02	$65,034,610.52
Tender F	$57,010,188.00	$57,541,894.00
Tender G	$37,104,308.00	Not Submitted

The alternatives include coachhide, soft leather and vinyl."

It is to be noted that, from this information, the members of the Project Committee could not have known that tender G (which was Matteograssi's tender) was for leather, and for a harder-wearing leather at that. Nor did they know which of the other tenderers had originally tendered for leather. Nor did they know the nature of the non-fabric alternatives which were offered by the six tenderers who submitted alternative tenders.

10. The report continued:

"All tenderers provided samples of six seats with integral table which were installed in Kai Tak on trial between mid December 1996 and mid February 1997...

Notes on their performance and other relevant factors will be tabled and explained during the site inspection following which Members will be invited to indicate their preference in order of priority. It is intended to carry out an elimination process to arrive at a consensus. Alternatively, Members may like to decide that the award be based solely on price."

However, although the report reminded the Project Committee of its option to award the contract "solely on price", the report's 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."

Indeed, consistent with the view expressed in the report about the five lowest tenderers, the two highest tenderers, E and F, unlike the five lowest tenderers, had not been invited to Hong Kong to be interviewed by the project team about their tenders.

11. Mr. John Bleach S.C. for Matteograssi argued that the unfairness of which Matteograssi complains stemmed from the report submitted to the Project Committee. Although the report reminded the Project Committee of its option to award the contract solely on price, the report recommended that, once the two highest tenders were to be eliminated, price should be ignored. The premise on which that recommendation was based was "the close proximity in price of the lowest 5 tenders". Mr. Bleach argued that that premise was wrong. By no stretch of the imagination could Matteograssi's tender of $37.1m. be in "close proximity" to tenders which ranged from $44.1m. to $46.4m. Moreover, like was not being compared with like. Matteograssi's tender for $37.1m. for seats covered in a more expensive and durable material such as coachhide could not be compared with tenders for seats covered in fabric. The real comparison which should have been made, in order to determine whether the tenders were in "close proximity" with each other in terms of price, was between Matteograssi's tender for $37.1m. and such tenders (whether original or alternative) which were for seats covered in leather.

12. In my view, there is no acceptable answer to this complaint. Mr. Phillip Ross for the Authority correctly submitted that whether the prices were in "close proximity" with each other was a matter for subjective judgment, but I cannot see how prices which ranged from $37.1m. to $46.4m. can rationally be regarded as so close to each other that the differences between them can be discounted. For tenders of this size, a difference of $1m. or $2m. between the lowest and the highest tender may properly be said to be sufficiently close to each other as to make no difference, but not a difference of the magnitude that there was between the lowest and the highest of the five lowest tenders. Indeed, Mr. Ross realistically conceded that Matteograssi's tender for $37.1m. could not be regarded as being in "close proximity" to those of the other tenders (whether original or alternative) which are known to have been for leather, i.e. tender A1 for $55.5m. and tender B2 for $51.2m.

13. Mr. Ross argued that the tenders had to be seen in the context of the Authority's budget for this contract, which was in the region of $65m. Since all the tenders were within that budget, price differences (though they could not be totally ignored) played less of a role than would otherwise be the case. I cannot go along with this argument. 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." (Emphasis supplied)

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.

14. 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. However, that is by no means decisive of the case. It was open to the Project Committee to ignore the recommendation if it chose to do so. If it ignored the recommendation, and decided to take the prices of the five lowest tenders into account, the flaw in the report would have been cured. It is necessary, therefore, to examine closely how the Project Committee approached its task.

The Project Committee's consideration of the tenders

15. On 18th March 1997, the members of the Project Committee met to consider the tenders. In the course of the meeting, they inspected the sample seats provided by the seven tenderers. Thus, they inspected the sample seats provided by tenderers E and F as well. A numbering system was used to identity each sample, so that the members would not be aware of the price of the sample when assessing its quality. A points system was devised, whereby each member would award 3 points to his first choice, 2 points to his second choice and 1 point to his third choice. The results were:

Sample	Tender	Score
1	A	18
2	D	5
3	B	18
4	G	12
5	C	3
6	F	12
7	E	0

This information was then disclosed to the members of the Project Committee. That was when they knew for the first time which sample related to which tenderer. Also disclosed to them for the first time at that stage were the facts that tenderer G's only tender was for coachhide, and that the alternative tenders of tenderers A, B and F were for the following materials:

A1	Leather
A2	Coachhide
B1	Vinyl
B2	Leather
F	Vinyl

 

16. Para. 2.03 of the minutes of the meeting of the Project Committee record what happened next:

"In view of the very competitive scoring result, the Chairman proposed and Members agreed that only Tenders A and B be taken forward for further consideration, with the rest then eliminated."

There then followed a discussion which covered a number of areas. It will be necessary for me to return to this discussion later, but the upshot was that the Project Committee decided to recommend the award of the contract to tenderer B.

17. On these facts, it is plain that the members of the Project Committee knew the prices of the various tenders when they decided to eliminate all the tenders except for tenders A and B. But the crucial question of fact is whether at that stage they took those prices into account, or whether they regarded the number of points achieved in the scoring exercise (which had taken place when they did not know the prices of the various samples) as decisive irrespective of price. This is the area in which I have felt the lack of further evidence from the Authority most acutely, but I must do the best I can on such evidence as I have.

18. In my view, it is more likely than not that the members of the Project Committee did not take price into account at the stage when it was decided to eliminate all the tenders except for tenders A and B. The minutes do not record any discussion about price after the results of the scoring exercise had been declared, and the only reason which the minutes assign for the decision to eliminate the bulk of the tenders is "the very competitive scoring result". I appreciate that those words may only refer to the reason for the Chairman's proposal, rather than the reason for the members' agreement with it, but the fact remains that para. 2.03 of the minutes does not refer to price at all, and that price had not been discussed since the tabling of the results of the scoring exercise. I do not ignore the evidence of Mr. David Corby, the Senior Project Manager for the Passenger Terminal Building, that

"[a]s appears from the minutes of the meeting there was a full discussion of the relative merits of the tenders including price and the choice of materials." (Emphasis supplied)

But the minutes only record price and choice of materials being discussed after all the tenders except for tenders A and B had been eliminated.

19. I turn, then, to the discussion which took place after the elimination of all the tenders except for tenders A and B, but before it was decided to recommend the award of the contract to tenderer B. That discussion is vital, because Mr. Ross argued that it showed that the elimination of Matteograssi's tender was not cast in stone, that its tender continued to be considered, and that eventually it was rejected in favour of tender B at a time when members of the Project Committee were alive to and considered the differences in (a) price and (b) material between the two tenders. Accordingly, it is said that if the decision to eliminate all of the tenders except for tenders A and B had been flawed because the decision had been made without reference to price, the flaw was cured by the subsequent discussion.

20. The minutes show that members were informed that in the scoring exercise they had regarded leather as an entirely acceptable alternative to fabric. Indeed, the Chief Architect advised them that in one respect leather was preferable to fabric because it had a greater warranty period. In addition, he noted the particular durability of coachhide. It must have been apparent to members that if leather had initially been regarded as an unacceptable alternative to fabric because of its expense, tender G (Matteograssi's tender) showed that that was no longer a reason to reject leather. In the light of these facts which the discussion revealed, it is not surprising that one of the members re-opened the issue as to whether tender G should have been eliminated. He is recorded in para. 2.10 as saying that he

"considered that Tender G (i.e. sample 4) was the most reasonable in terms of both price and finish as it had the lowest tender price of all received and this price was for coachhide which represented good value for money."

In these circumstances, it is plain that the decision to award the contract to tenderer B was made after a discussion in which specific and express reference had been made to Matteograssi's tender, and to the features which were rightly thought by at least one member to have made it such a competitive tender.

21. But did that discussion cure the previous flaw? Mr. Bleach contended that it did not. He relied on para. 2.12 of the minutes:

"Miss V. Tang suggested that perhaps some weightings could be applied to the factors in consideration, which included both price and technical aspects of the seats in order to take a more objective view. The Chairman noted that ideally the methodology of scoring should be agreed beforehand and now it appeared that we had to work backwards. He added that the choice should depend on whether one was prepared to pay the additional money for better quality, noting all tenders were conforming."

Mr. Bleach's argument is that this shows that it was appreciated that the scoring exercise had been flawed, because it had given no weight at all to price and to the fact that leather was an acceptable alternative to fabric and was not prohibitively expensive. What the Project Committee should have done was to repeat the scoring exercise - this time requiring the members to select their first, second and third choices taking these factors into account. In that way, the need (which the Chairman recognised) to "work backwards" would have been avoided. By not repeating the scoring exercise, the Project Committee's ultimate recommendation was based on a scoring exercise which was recognised as having been flawed.

22. Not without hesitation, I have concluded that this argument must be rejected. The scoring exercise was (subject to the arguments which I shall touch on a little later in this judgment) an acceptable way to choose between the various tenders, ignoring price and the cost of the material to be used. When the members were reminded that the scoring exercise did not take these factors into account, I do not read them as having regarded the results of the scoring exercise as decisive of who should be awarded the contract. I read them as having regarded the results of the scoring exercise as decisive on the factors of comfort, appearance, durability and maintainability, but that price and value for money should be taken into account as well in deciding to whom the contract should be awarded. Thus, the Chairman is recorded as saying in para. 2.09:

"Noting that the price for leather and fabric was not significantly different, the Chairman said that other factors such as value for money, future maintenance etc. should be looked at."

This was echoed in the last sentence of para. 2.12, to which I have already referred. When these observations are coupled with the remarks of the member who favoured awarding the contract to tenderer B, it is, I believe, plain that the members of the Project Committee took into account, not only the results of the scoring exercise, but also other considerations, including price, value for money, and the fact that leather was an acceptable alternative to fabric and was not prohibitively expensive.

23. For these reasons, I have concluded that the flaw in the report, and the failure of the members of the Project Committee to take price into account when they first eliminated all the tenders excepted for tenders A and B, were cured by the subsequent discussion prior to the recommendation to award the contract to tenderer B. The Project Committee's ultimate recommendation was made with full knowledge of, and after properly considering, all the relevant factors.

The Board's consideration of the tenders

24. The recommendation of the Project Committee was considered by the Board on 27th March. The Board decided to award the contract to Wilkhahn. Mr. Bleach described the Board as having "rubber-stamped" the recommendation of the Project Committee. I do not think that that is a fair description of the matter. It is true that the members of the Board did not inspect the samples of the seats as the members of the Project Committee had done. But of the nine members of the Board who attended the meeting on 27th March, six had inspected the samples, because they had been members of the Project Committee who had attended the meeting on 18th March. Indeed, the Board was provided on 27th March with the report to the Project Committee and the minutes of the Project Committee's meeting on 18th March.

25. One of the members of the Board who attended the meeting on 27th March was the member of the Project Committee who had said that the contract should be awarded to tenderer G. He spoke against the recommendation at the meeting of the Board. Moreover, the minutes of the meeting of the Board show not merely that the flaws in the scoring exercise were recognised, but also that the Board was aware that the Project Committee's ultimate recommendation was not limited to the results of the scoring exercise. Para. 3.1.6 of the minutes records the Board being informed that

"[t]he Committee [had] noted [the dissenting member's] comment about not awarding the contract to the tenderer who [had] submitted the lowest conforming tender but had made its recommendation based on other factors."

In these circumstances, it cannot be said that the consideration by the Board of the recommendation of the Project Committee, and its ultimate decision to award the contract to tenderer B, was flawed.

The scoring exercise

26. In the interests of completeness, I return to the scoring exercise, which Mr. Bleach contended was flawed in three respects (apart from the limited nature of the factors which the members of the Project Committee had to consider):

(i) The scoring exercise required markers to give scores to tenders E and F, even though the project team had thought that those tenders should be excluded on grounds of price. Although tender E was not awarded any points in the scoring exercise, tender F was awarded 12 points. What would have happened, asked Mr. Bleach, if those 12 points had been available for distribution elsewhere? The fact of the matter is, however, that if the points awarded by the five markers who had included tender F as one of their three choices had been distributed in the manner most favourable to tender G, and in the manner least favourable to tender B, tender B would have scored 19 points and tender G would have scored 16 points. In any event, the fact that the project team thought that tenders E and F should be excluded on grounds of price did not mean that the markers should have been denied the opportunity of considering their suitability on other grounds. If one or other of them had been found to be the most popular irrespective of their price, the impact of their price on their competitiveness could then have been considered.

(ii) Twelve markers participated in the scoring exercise. Since only eight members of the Project Committee attended the meeting, four of the large number of officers who also attended the meeting participated in the scoring exercise. I think that that was unfortunate. They might have known things which it was regarded as important for the members not to have been aware of - for example, the identity of the tenderers, and which sample related to which tender. But I do not think that their participation could be said to have invalidated the scoring exercise.

(iii) Two of the markers did not identify their first three choices. One of them identified only his first choice, and the other identified only his first two choices. But even if the marks which they did not award had been distributed in the manner most favourable to tender G, tender G would still only have had 15 points.

27. For these reasons, I do not think that such flaws as there may have been in the scoring exercise can be said to have caused the ultimate decision to award the contract to tenderer B to be flawed.

Conclusion

28. For these reasons, this application for judicial review must be dismissed. At present, I see no reason why costs should not follow the event. Accordingly, I make an order nisi that Matteograssi must pay to the Authority its costs of the application, to be taxed if not agreed.

(Brian Keith)

Judge of the Court of First Instance