Executive summary
The Federal Court decision in Cirrus Real Time Processing Systems Pty Limited v Hawker Pacific1 is a stark reminder that care must be taken when separate companies bid together for work as they will have no contractual obligations to one another unless there is a binding contract in place at the time of the bid.
It is not enough for the parties to assume there is a binding contract. A teaming agreement (or something similar) should be in place and must meet all the essential requirements for a binding contract, including an intention to create legal relations.
Background
Cirrus and Hawker engaged in negotiations for the purpose of Cirrus assisting Hawker to submit a response to an RFT by the New Zealand Defence Force (NZDF).
Cirrus exchanged four versions of its quotation with Hawker.
On 21 December 2016, at Hawker’s request, Cirrus allowed version of 4 of its quotation (QV4) to be submitted as part of Hawker’s bid, provided that a particular training component of any contract with NZDF was awarded to Cirrus. Hawker agreed and issued the letter to this effect.
While Hawker’s bid was successful, it subcontracted the training to another company. Cirrus commenced proceedings in which it alleged that the exchange of QV4 and the letters on 21 December 2016 constituted a binding “teaming agreement”. Hawker denied there was a binding agreement.
The decision
The Court accepted that the terms of QV4, although incomplete, were capable of constituting a binding contract, but it found that when assessed objectively, the parties lacked the intention to be legally bound2. This was despite the Court taking into account parties’ conduct after 21 December 2016, the commercial circumstances known to the parties and the fact that the parties initially treated themselves as having a binding agreement.
The Court said that the following surrounding circumstances, among other things, told against a mutual contractual intention:
- the incomplete terms of a teaming agreement and missing terms that were previously described by Hawker as “critical“.
- it was ‘improbable’ that Hawker intended to bind itself to acquire a particular software when the NZDF could change its requirement.
- clause 10.2 of QV4 contemplated negotiating a subcontract in the future tense. This told ‘powerfully’ against intention to be bound.3
- the parties had a history of executing formal contracts.4
- Cirrus never requested a binding contractual commitment but only “correspondence“.5
Key takeaways
When engaging in negotiations concerning future work or allowing disclosure of confidential information, diligent drafting must be undertaken and the effect of documents intended to be contracts must be carefully considered to ensure any agreement reached is either contractually binding, or not binding, as intended. Failing to do so may leave parties’ interests unprotected. This is particularly the case with documents like teaming agreements or bid phase agreements where goodwill is high and attention to detail can be low.
HWLE’s construction law team is well placed to assist clients in negotiations for securing future work or handling disputes arising from issues of contract formation
This article was written by David Jury, Partner, Sannan Tarig, Senior Associate and Chelsey Bowd, Solicitor.
1Cirrus Real Time Processing Systems Pty Limited v Hawker Pacific Pty Ltd [2024] FCA 763.
2Ibid [93], [96].
3Ibid [99].
4Ibid [120]-[122].
5 Ibid [124].
