There’s been a surprising case decided recently that could have huge consequences for commercial negotiations that use a tender process. If you’re negotiating a purchase of a large or unique item, do you have a right to know that the vendor is negotiating with another interested buyer? Conversely if you are tendering for the exclusive supply of goods/services, does a respondent have a right to assume you are negotiating exclusively with them?
The courts have decided that in certain circumstances, even if the parties haven’t expressly said that they are negotiating exclusively, a court may decide that they are![i] This is a timely reminder to be careful in drafting clear terms in tender documents to ensure that there is no confusion about the exclusivity of negotiations. Read on if you’re interested in knowing what the factors were in this case that swayed the judges.
The case[ii] involved negotiations between Woolworths and the Port Macquarie Council (Council) to develop land into a supermarket. The Council invited tenders for the purchase of the land, and the Council conditionally accepted an offer from Woolworths. The negotiations between the Council and Woolworths eventually stalled. The Council then went to Coles to negotiate a possible deal, but there was still no sale.
In a small but significant turn of events, the Council decided to run another tender process, and both Coles and Woolworths showed interest. Woolworths was shortlisted. After long negotiations, the negotiations got stuck over 2 “deal breaking issues” as viewed by Woolworths. While the negotiations with Woolworths over the deal breakers continued, the Council began negotiations again with Coles. This was actually their “back up plan”, unbeknownst to Woolworths, and Council eventually sold to Coles.
As it turns out, Woolworths weren’t too happy that they lost the deal, and they sued the Council, on the grounds that the Council’s failure to inform them that they were negotiating at the same time with Coles was misleading and deceptive conduct under the Fair Trading Act 1987. The crux of Woolworth’s position was that if they had known that there was a potential competitor in the tender, it would have negotiated differently on the ‘deal breakers’.
And the court surprisingly agreed with Woolworths.
What was key in this case in giving rise to the decision was that:
- during the tender process only one bidder had been chosen for negotiations, even though the tender documents didn’t say that Council would negotiate with only one party
- Woolworth’s bid had been approved by Council, even though that was subject to continuing negotiations
- there was considerable cost to Woolworths even after being shortlisted to secure the final deal
- the previous actions of Council when the first round of tenders stalled showed that the Council would only involve negotiations with other potential buyers by opening up a new tender
So what does this mean for you?
Clearly now care has to be taken during a tender, as there could be instances where it is reasonable for a potential buyer (or seller) to expect that the negotiations are exclusive, even if the parties haven’t specifically agreed that it will be. Therefore, care should be taken to not act in a way that it could be implied that negotiations are exclusive. Instead, the position should be reserved and options kept open. And great care should be taken to draft clear terms in tender documents to ensure that parties are clear on this issue.
[i] The NSW Court of Appeal upheld this principle in Fabcot Pty Ltd & Anor v Port Macquarie-Hastings Council  NSWCA 167.
[ii] Fabcot Pty Ltd v Port Macquarie-Hastings Council  NSWSC 726. On the facts of this particular case the court was unable to award damages as Woolworths was unable to prove that it suffered any loss or damage. Woolworths went on to appeal on this point.
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