In two recent judgements delivered by Mr Justice Neville Camilleri and Mr Justice Grazio Mercieca, the Court decided to award Infrastructure Malta a sum of money in damages after the defendant companies failed to conclude the final contract after its offer for works was accepted by the Authority.
The aforementioned cases involved the publication of two tenders by Infrastructure Malta for resurfacing works of various rural roads. The two defendant companies submitted an offer which, according to Article 8 of the General Rules Governing Tenders, they were bound by for a period of ninety days (also known as the Period of Validity of Tenders). Following a process of evaluation, Infrastructure Malta accepted the offers made by the two defendant companies within the Period of Validity. The defendant companies were required to pick up the final contracts for signature and return the same to the Authority once signed, however failed to do so.
Categorisation of the Claim: Pre-Contractual Liability
In both cases, the Court acknowledged that Infrastructure Malta’s claim was not based on the execution of a contract, but related to negotiations at the pre-contractual phase. The Court confirmed that pre-contractual liability emanates from the lack of bona fede during negotiations before the conclusion of a contract and is entirely separate from the execution of a contract. The Court made reference to a number of cases supplementing its categorisation including Anthony Baldacchino noe vs. Ic-Chairman tal-Korporazzjoni Enemalta et which emphasised that, “[…] jeżistu danni oħra abbinati mal-fażi pre- kontrattwali u, għaliex le, mal-fażi ta’ l-invit għall-offerti;”; and Avukat Peter Fenech noe vs. Dipartiment tal-Kuntratti, where the Court highlighted that the offer creates a tacit agreement between the parties and for this reason ‘’Ir-responsabilita’ ta’ min jonqos li jħares il-kundizzjonijiet ta’ dan il-patt taċitu hija r-responsabilita’ ta’ min jonqos li jħares patt kuntrattwali, u għalhekk hija ex contractu.’’
The Court held that in the case of public contracts, this phase is regulated by the Public Contracts Regulations which every offeror is obliged to abide by. It also highlighted that the consequences of an offeror for not entering into the final contract is regulated under paragraph 12.3. of the General Rules Governing Tenders drafted by the Department of Contracts in January 2019, which unequivocally states that:
By way of explanation, according to this paragraph, an offeror who is determined to be liable for pre-contractual liability, is obliged to pay the difference between the original amount due to the original offeror (who retracted from signing the final contract), and the amount due to the subsequent offeror whose offer was accepted after the retraction of the original offeror.
A Summary of Infrastructure Malta vs Appalitalia Srl Unipersonale
In Infrastructure Malta vs Appalitalia Srl Unipersonale, the defendant company’s principal plea was based on force majeure (Article 1133 of the Civil Code, Chapter 16 of the Laws of Malta). The Court held that in such case, the plaintiff need only prove that there was an obligation on the defendant, whilst for the defendant company’s defence to subsist, the defendant was required to prove that the obstacle affecting its ability to adhere to its obligations, was a product of an external cause, beyond the control of the defendant, whether directly or indirectly, which was insurmountable and could not be prevented using ordinary diligence. The Court added that for the defendant to be released of its obligation, the impossibility must be total, objective and absolute, and cannot simply consist of difficulty. This analysis was to be done on a case-by-case basis.
The defendant company claimed force majeure on the following bases:
- that prices increased after it was awarded the tender – in this regard, the Court held that price increases were not a valid reason to justify force majeure, in so long as the price does not cause enormous harm to the debtor; or execution of the obligation becomes impossible or so grave that the court sees that it would be unjust for the debtor to be condemned to fulfil its obligation. The Court ultimately held that the defendant company did not prove to the satisfaction of the Court that there was a drastic increase in its products and what effects this increase had on it, since it could not present quotations (which were claimed to have been made orally), and could neither name its suppliers;
- that it was not aware of the entirety of its obligations under the tender due to lack of indication and explanation – to which the Court remarked that the defendant company had the right to request clarification of the contractual clauses at the offering stage, and, since it failed to do so, it could not bring forward such a plea after the tendering period had closed;
- that the quantities foreseen in the explanatory documents and annexed plans used at offering stage were in reality half of what were required for the works to be completed – to which the Court held that the defendant company should have been aware that the contracts signed between Infrastructure Malta and contractors are all ‘re-measured based contracts’. This means that contractors would be paid according to the quantities resulting on site after the works would have been completed.
A Summary of Infrastructure Malta vs Restoration and Construction Services Group Limited
In Infrastructure Malta vs Restoration and Construction Services Group Limited, the Court declared that defendant company did not provide valid reasons for not concluding the contract. The defendant company claimed that it could not sign the final contract for the following reasons:
- it cannot be forced to perform the impossible – the Court held that in order for the defendant company to absolve itself from liability the company had to prove that it acted as a bonus paterfamilias. The Court held that since the defendant company submitted the offer without confirming related prices, it did not act diligently and thus cannot claim that a price increase was an obstacle which was impossible to overcome. The defendant’s plea was rejected as the Court could not determine whether the increase in actual fact had an adverse effect on the company;
- it fell victim to trade limitation practices, there were a number of inconsistencies in the call for tenders, and there was a substantial difference between the quantities foreseen in the tender and those actually resulting on site – the Court in this regard held that its plea on trade limitation practices was not sufficiently proven. It further held that the tender was part of an Open Procedure which does not contemplate the possibility to negotiate. As such, an offeror is bound by all conditions of the tender, otherwise, the fundamental principle of public contracts regarding equal treatment, transparency and non-discrimination would be disrespected. The Court held that in relation to inconsistencies, it could have requested clarifications from the Authority. Furthermore, in relation to the difference in quantities, it held that this would have amounted to a modification of contract, which if modified illegally, would have allowed the defendant to avail itself of another remedy under regulation 277 and regulation 278 of S.L. 601.03 of the Laws of Malta.
Conclusion
From the aforementioned cases, it emerges that in relation to tenders, once parties submit their offer, they are deemed to have accepted to carry out the works they were offering under the conditions emanating from said tender. Where offerors subsequently fail to conclude the final contract, they are almost invariably deemed liable for damages on the basis of pre-contractual liability, unless an offeror is able to prove that there emanated some obstacle which affected its ability to conclude the final contract, which obstacle was a product of an external cause, beyond its control (whether directly or indirectly), was insurmountable and could not be prevented using ordinary diligence.