Skip to content.

Home

Allens Arthur Robinson

Focus: Crown contracting and the authority of government agents

26 October 2009

In brief: A recent Western Australia Court of Appeal decision reinforces that contracts with the Crown, to be binding, must relate to the ordinary functions of government and be entered into by officials with authority to do so. Partner Leighton O'Brien (view CV) and Lawyer Michael Hogan explain.

How does it affect you?

  • Contracting with the Crown is different from contracting with a private entity: to bind the Crown, a contract entered into by government, or a government agent, must relate to the ordinary activities or functions of government.
  • The Crown will also not be bound by a contract purportedly entered into by a government agent representing to have, but not having, the actual or ostensible authority of the state.
  • Any entity negotiating with government officials should, if intending to enter into contractual relations or proceed on the basis of representations made by the officials, be sure of the nature and extent of the officials' authority.

Background

The case1 related to a $50 million facility provided by Tipperary Developments Pty Ltd to Rothwells Ltd in 1988. Tipperary tendered successfully to purchase a site owned by the State of Western Australia (the State). It was a condition of sale that the purchaser provide the facility to Rothwells, which was in a distressed state following the stock market crash of 1987 (and was later placed in liquidation). The State, by its agent, Kevin Edwards, the then Executive Director of the Department of Premier and Cabinet, purported to orally guarantee Rothwells' obligations to Tipperary under the facility.

While the case, and subsequent appeal, dealt with many issues arising from the transaction, the Western Australia Court of Appeal made findings pertaining to the authority of state agents to enter into agreements binding on the State. These findings should be noted by any person or entity intending to contract with government.

Return to top

Court of Appeal decision

This element of the appeal turned on whether the State was liable for the purported contract (being the oral guarantee) entered into by Mr Edwards. The parties accepted, in relation to Crown liability for contracts made by ministers and officers, that the principles set out by the High Court in a 1930s judgment2 still apply in Western Australia.3 In Bardolph, Justice Starke stated that:

[C]ontracts made on behalf of the Crown by its officers or servants in the established course of their authority and duty are Crown contracts, and as such bind the Crown. The nature and extent of the authority may be defined by constitutional practice or express instructions, or inferred from the nature of the office or the duties entrusted to the particular officer or servant.

The parties further accepted the principle, despite critical academic commentary, that the capacity to bind the Crown is confined to contracts relating to the ordinary activities or functions of government. The Prime Minister and a state Premier have relevant authority across the whole field of these activities and functions.

The State challenged the trial judge's finding that Mr Edwards' oral guarantee was part of the ordinary activity of government. The State did not advance any test for determining what is, or is not, such an activity and its submission was rejected. Justice McLure, following Bardolph, held that the Premier of the State was authorised to enter into a contract of guarantee, and that this authority could be delegated (either actually or ostensibly) to Mr Edwards.

Interestingly, Justice Wheeler was not satisfied that the nature of the transaction (as distinct from the provision of the oral guarantee considered by the trial judge) was part of the ordinary and accepted function of government. While unable to make findings on this point, as it was not advanced by either of the parties, Justice Wheeler observed that the transaction was not a 'commercial one', but rather 'a narrowly political one' that did not serve the public interest. As such, the transaction was 'plainly' not an accepted function of government.

On the evidence, the Court of Appeal did not accept that Mr Edwards was authorised to provide the guarantee. This was contrary to Mr Edwards' understanding of the authority conferred on him by the Premier (and therefore on behalf of the State) for the purpose of discussing the facility with Tipperary, as reflected in the below exchange between counsel for Tipperary and Mr Edwards:

...did I understand your answer correctly ... that you were instructed or authorised [by the Premier] to tell these other interests anything by way of assurance that would persuade them to make the contribution [to Rothwells]? – Yes. I mean, that was ... the thrust of the position.

So whatever they wanted to hear by way of assurance which would persuade them to make the contribution, you were authorised to tell them? – That was my understanding of what I was told, yes.

In rejecting this evidence, Justice McLure made the observation that, even in light of the 'surprising conduct of the state and its officials in the Rothwells saga, this evidence stretches incredulity'.

Return to top

Implications for industry

This judgment represents a cautionary tale for all entities seeking to contract with government. While a government, including through its officers, has a very broad prerogative to enter into contracts binding on the Crown, it does not follow that all government agents, in all circumstances, have the requisite authority to so bind the Crown. Tipperary, it would appear, was placed in the invidious position of negotiating with an official who believed (incorrectly) he had, and represented to have, the imprimatur of the State.

The court refrained from expanding the test for whether a contract is binding on the Crown; the Bardolph 'ordinary activity' test was applied. For that reason, government contracts remain on a different footing to those with companies and individuals. In light of the large number of contracts signed by governments and the diversity of government business, this distinction remains problematic for those contracting with government. Justice Wheeler's distinction between political and public interest would, if adopted, represent a further challenge.

When negotiating directly with a leader of government (and likely a minister), it may, on the basis of Western Australian law, be presumed that the leader (or minister) has authority to enter into any contract relating to the ordinary activities and functions of government (as very broadly defined). However, an entity engaged in negotiations with government officials should be sure of the nature and extent of the officials' authority before entering into contractual relations or proceeding on the basis of any representations made.

Footnotes
  1. Tipperary Developments Pty Ltd v Western Australia [2009] WASCA 126 (22 July 2009).
  2. New South Wales v Bardolph (1934) 52 CLR 455.
  3. This is to be contrasted to the Commonwealth, where the authority of the executive, and its officers, to enter into contracts involving the committal of public money is regulated by the Financial Management and Accountability Act 1997 (Cth) and the Financial Management and Accountability Regulations 1997 (Cth).

For further information, please contact:

Return to top

Tweet or bookmark with
Tweet this article

What are these?

 

Recent Construction publications