Smart Telecom Plc. Contract Law Case Analysis

Introduction

In the following case note I will examine the High Court case; Smart Telecom Plc. V Radio Teilefis Eireann & Glanbia Plc. [2006] IEHC 176. The essence of this case is one involving a request for tenders put forward by RTE for sponsorship and the subsequent refusal of Smart Telecom’s referential bid thereto. The questions raised were (1) whether referential bidding was a permissible term of RTE’s offer and (2) if not, were they were obliged to re-tender the contract for failure to inform Smart as such and equally liable for break of contract.

Mr. Justice Kelly ruled against Smart Telecom, upholding the judgment made in The Harvela Case (1986) – one with very similar facts. Both Kelly J. and Lord Templeman shared the view that where there is an expressed contractual promise to accept the highest bid – that excludes referential bidding. And that RTE had no obligation to reiterate terms of contract to Smart – as there were no alterations to those existing terms. I expressly agree with these judgments.

There has been a large amount of consistency in the prior case law in this area with which I will make reference to prominent cases from Wales (1898) and New York (1982). Logical methods of deduction were employed by Kelly J. in Smart v RTE with due concern for the true intention for the vendor. This type of consideration I believe to be apt and of paramount importance in the interest fairness and transparency regard to all parties involved; the vendors, the tenders and the nature of competition itself – a style which has rendered this an area of the law unchallenged for almost a century.

Facts

  1. RTE invited bids for sponsorship to four interested parties (two of whom were Smart and Glanbia) summoning their best offers as sealed bids and expressly promising to sell to the highest bidder. The bids were to be confidential and opened at a specific time in tandem.
  2. It was specifically stated that there was a competitive nature about the request for tenders in the interest of fairness and transparency.
  3. The bids were to be stated as gross figures, for a two-year period, inclusive of agency commission.
  4. As a pre-emption, it was stated that in the event of identical offers, there would be a 2nd round.
  5. A subsidiary of Smart called Smart Telecom Holdings Limited (Holdings) responded despite not being one of the original four parties offering 1,5100,000e (sic).
  6. Smart responded with the offer of a sum equal to 5% above the highest priced bid received.
  7. OMD Ireland on behalf of Glanbia offered 1,595,500e per annum this is 3,191,000e for two years.
  8. On the morning of the deadline one of the other parties emailed enquiring, in essence, about the acceptability of referential bids.
  9. RTE responded by clarifying their original email – and thus denouncing the acceptability of referential bids.
  10. RTE did not inform the other bidders of this enquiry or the response thereto.
  11. The Smart bid was considered invalid – consistent with their response made to enquiry made the unnamed company about referential bids earlier that day.
  12. Smart was informed of this and asked for clarification on their Holdings bid, which was that of 15 million euro.
  13. They claimed this had been a typographical error and that the intended offer was 1,510,000e. RTE requested an email clarification of that.
  14. An email was then received by RTE on behalf of Smart Telecom (not Holdings) rather for the sum of 1,500,100e (differs from figure mentioned).
  15. RTE regarded this big from Holdings as the only valid one to emanate.
  16.  Notwithstanding the question of whether Holdings was even entitled to submit a bid at all, they were considered, but it was in fact Glanbia who submitted the highest fixed bid.
  17. RTE accepted Glanbia’s offer.
  18. Smart emailed RTE claiming they were the highest bidders and that if they did not accept they would instruct their solicitors to issue specific performance proceedings.
  19. RTE responded simply by reiterating the terms of the contract and denouncing any obligation to accept their offer, as it was both not valid and not the highest.
  20. Smart claimed an order for specific performance of the contract allegedly entered (damaged in lieu of specific performance are claimed as an alternative).
  21. They also sought an injuction restraining RTE from awarding the sponsorship to Glanbia.
  22. Smart also seeks a declaration that RTE was in breach of contract failing to inform it that a referential bid would be invalid.
  23. A further declaration is sought to the effect that the conduct of the tendering process by RTE was rendered invalid and void because one bidder was told that referential bids were invalid and Smart was not.

Ratio Decidendi Kelly J. decided that – “on the true construction of the RTE offer, the making of a referential bid was impermissible. That finding is supported by reference to the wording of the offer and by high judicial authority from England and Wales and from New York. “ He is of the view that there is much to be said for the opinion of Lord Templeman to the effect that – “where referential bids are sought there ought to be an express provision in the invitation permitting such bid’s to be made. Patent unfairness results unless that is done. Such unfairness would be inconsistent with the object which was sought to be achieved in the RTE offer.”

He also concludes that RTE’s email response to the referential bidding query – “did no more than indicate what the true position was to the enquirer. It was a response to the question that did not alter in any way the RTE offer… [it was] no more than a reiteration of the existing terms, and [he] can see no basis upon which it was necessary to communicate the same information to all the other bidders.” Obiter Dictum Had there been an alteration to the terms of the offer however, different considerations would apply.

Analysis

Referential Bids (1) The way in which Kelly J. chose to extrapolate the true intention of RTE’s offer was both logical and consistent with the mechanics of his predecessor Lord Templeman. His first declaration was to the effect that, indeed, there was no trace of an expressed prohibition of referential bids within the offer – but by no means did this rinse the offer of an implied exclusion.

A legal expression I find to be of rather appropriate mention in the analysis of this contract and indeed any contract where in which there uncertainties lie is this: Expressio unius est exclusion alterius – which means, the expression of one thing is the exclusion of another. And indeed in Kelly J’s judgment amounts to expose the truth. Though there is no explicit exclusion of referential bidding (but for arguments sake, may be a wise inclusion to avoid confusion in future tenders) the language that is expressed is of such a clean, clear and concise nature that – upon inspection – exposes the terms of the contract to be anything but unclear. There are stark inconsistencies in the language with the permission of referential bidding.

In relation to the general tendering process – “The tender setting out the terms upon which the supplier or builder is prepared to contract constitutes an offer. There is no obligation upon the offeror to accept any of the tenders unless he has promised in the statement inviting tenders to accept the lowest tenders.” – or the highest tenders as the case may be – the traditional contractual flow of offer and acceptance is overturned.

Both Smart v RTE & Glanbia and The Harvela Case share the facts that ‘sealed bids’ were requested and consideration from the offeree – compliant with the terms – would constitute valid entry into the contract. In cases void of a privilege clause as such, extinguish an obligation for the offeror to accept any either the lowest or the highest bid. He has the right to accept or reject any bid, but a duty to “consider compliant bids.”.

If the language of his offer is expressed incorrectly and coupled with the absence of a privilege clause – he may way be exposed on foot of his “express contractual promise to accept the highest bid.” to the dangers of the sale aborting, a breach of contract or an obligation to retender the contract – none of which can be said for the way in which RTE’s offer. Court of Appeal. Lindley M.R. said:- “Does the offer fairly answer the description of what the liquidator had bound himself to accept.” (2)

The construction of RTE’s offer, in my views, expressed their intentions in a sufficiently coherent manner. To be in any doubt of this, I believe, would be indicative of ignorance on behalf of the reader. Their use of phrases such as “in the interest of fairness and transparency”, “sealed bid”, “specific time”, “highest bidder”, and “competition” were not only patently specific about its objectives but that it would in fact be entirely absurd to construe their intentions in any other way (to accept referential bids) as that would rightly contradict that which is expressly stated.

For reasons stated succinctly by Lord Templeman in pages 231 and 232 of his speech – “if referential bids were permissible by implication, without express provision in the invitation for that purpose, and without any indication in the invitation of the nature of the referential bids which would be acceptable, he results could have been bizarre”. They too would have been entirely unfair in that there was “a possibility that one bidder would never have an opportunity to buy.” For a referential bid to even uphold there would have to be one fixed bid at least.

“Whether it was tender at all depended… not upon the construction of that letter, but upon whether other people tendered. That is not what the liquidator wanted, and that is not what he bound himself to accept.” I might also add that in The Harvela Case there were a mere two tenders in question, which in the eyes of Lord Templeman could have rendered “bizarre results” but Kelly J. rightfully pondered on how bizarre those results could have been with the imposition of four tenders.

The essence of this case, I feel, boils down to an analysis of the difference between a sale by auction and a sale by fixed bidding by His Lordship in the Harvela Case: “Where there are two bidder with ample resources, each determined to secure the property and to prevent the other bidder from acquiring the property and to prevent the other bidder from acquiring the property, the stronger will prevail in the fixed bidding and may pay more than in an auction which is decided, not by the strength of the stronger, but by the weakness of the weaker of the two bidders.”

RTE intended for their offer to create a confidential, competition to render the highest bid from the strongest bidder. Referential bidding falls into none of these categories. Indeed referential bidding as I have pointed out – perverts the course of these ambitions from establishing a fair commercial result.

As regards RTE’s response regarding the referential bid enquiry, I agree with Kelly J. in that it was but a mere reiteration of the facts and that no obligation was to be imposed on RTE to retender the contract on those grounds nor had they violated a contractual obligation toward Smart as they had previous fully disclosed all the terms of the contract. Indeed if they had altered the contract in any way at this point and failed to inform the other parties, the outcome of this case could have been quite different.

Conclusion

The consistency of the law in this area over the past century, stretching from Ireland to England, Wales, New York and Canada, can be held down to logical reasoning of very powerful courts. I think the law should continue to follow the preceding cases I’ve mentioned with a view to limiting the scope of pre-contractual liability at all costs. The intention of the vendor is, in my view, is to be regarded as of utmost importance. After all, the purpose of contract “is to establish the agreement that the parties have made and to fix their rights and duties in accordance with that agreement.” And where an offer is a bona fide invitation to tender regarding the acceptability of referential bidding – any ambiguity that may arise surrounding the language in the offer, no matter how unclear as the case may be, be considered with due favour to the party that initiated the contract.

There is to be no justice in enforcing a contract with which the true intention of the contractor is disregarded in favour of those who attempt to circumnavigate around provisions of a fair competition. I believe this to be especially the case where a company such as Smart intervenes with an offer from a subsidiary (Holdings) to cover all bases (both a fixed bid and a referential bid), leading me to believe that indeed their intentions were not in the spirit of fair competition. Smart set out to their bid – not merely in ignorance, nor just knowingly but indeed to strategically obliterate their fellow competitors. And it is in my opinion, notwithstanding the contractual law in this area being so supportive of my view, that the intention of both parties should always be considered in equity too.

[ 1 ]. Harvela Investments Ltd v Royal Trust of Canada (Cl) Ltd [1986] AC 207

[ 2 ]. South Hetton Coal Co. v Haswell Shotton & Easington Coal and Coke Co. [1898] 1 Ch. 465

[ 3 ]. SSI Investors Limited v Korea Tungsten Mining Co. Limited [1982] 449 N.Y.S. 2d173

[ 4 ]. Lord Templeman in Harvela Investments Ltd v Royal Trust of Canada (Cl) Ltd [1986] AC 207

[ 5 ]. http://www.answers.com/topic/expressio-unius-est-exclusio-alterius-1

[ 6 ]. Clarke, R. Contract Law in Ireland Fifth Edition (Dublin: Round Hall). 10

[ 7 ]. M.J.B. Enterprises Ltd v Defence Construction (1951) Ltd

[ 8 ]. Clarke, R. Contract Law in Ireland Fifth Edition (Dublin: Round Hall, 2008). 11

[ 9 ]. Poole, J. Textbook on Contract Law (Oxford: Oxford University Press, 2012). 42

[ 10 ]. Smart Telecom Plc. V Radio Teilefis Eireann & Glanbia Plc. [2006] IEHC 176

[ 11 ]. Lord Templman in ibid

[ 12 ]. South Hetton Coal Co. v Haswell Shotton and Easington Coal and Coke Co. [1898] 1 Ch. 465.

[ 13 ]. http://answers.encyclopedia.com/question/purpose-contracts-365127.html