This article is an excerpt from the 2023 edition of The Art of Tendering: A Global Due Diligence Guide.
In its August 2020 decision in TN Ramnauth and Company Limited v. Estate Management and Business Development Company Limited, Trinidad and Tobago’s High Court of Justice recognized a tort-based conspiracy claim involving allegations of bid-rigging against a group of contractors. The court ruled that the plaintiff purchasing institution, Estate Management and Business Development Company Limited (EMBD), could proceed with its attempt to recover funds through the tort-based civil claim of “unlawful means conspiracy”, a relatively new remedy recognized by multiple Commonwealth courts in recent years.
By way of background, the plaintiff, EMBD, alleged that the pre-tender estimates prepared by its engineers were inflated, that the quantities of materials required for the works were overstated, and that the contractors who bid on the work colluded to artificially increase their prices to non-competitive levels. EMBD further alleged that the work was never properly inspected, that inflated payments were made for defective or omitted work, and that the contracts were managed with inadequate documentation to further conceal the price-fixing scheme.
In its claim, EMBD cited pricing patterns that could only be explained by collusion between the bidders. For example, EMBD alleged that “the percentage range between the highest and lowest price tendered by the bidders is identical, to two decimal points, for a significant number of individual items within a group of activities”. EMBD also claimed that these pricing patterns included “an identical 8.92% price range between the lowest and highest bids” for concrete and drainage works and that 10 of 38 other price categories “had an identical 45.79% price range between the lowest and highest bids”.
EMBD also raised concerns about the unusual speed at which the contracts were approved and paid for. As the Court noted, “it seems to me that the events unfolded with such extraordinary rapidity that it might be regarded as emblematic of either very good governance or very bad governance” and that “it is EMBD’s case that the speed is explained only by an indecent rush to enrich the EMBD contractors in the last months before the then government faced the polls.” However, the Court was careful to caution that “unusual speed is not the determinative inferential factor in EMBD’s pleading of the Cartel Arrangements” and that the “allegations and inferences of fact must be assessed in the round at trial.”
EMBD claimed that while 31 contractors were prequalified to bid on the larger works, and an additional 19 contractors were prequalified to bid on smaller contracts, only six contractors were ultimately asked to bid on each of the contracts. EMBD asserted that “no reason was recorded for limiting the pool of bidders to this select group, there was no justification for doing so, and no attempt was made to ensure ‘an equitable assortment of previous awardees and contractors’” as required by applicable tendering rules.
As the Court noted, the newly evolving tort of “unlawful means conspiracy” arises out of relatively recent case law developments in the United Kingdom:
Unlawful means conspiracy is a relatively new tort in England and the Commonwealth, and it has been developing incrementally. In 2008 the tort took a quantum leap into modernity in the House of Lords judgment in Revenue and Customs Commissioners v Total Network SL [2008] UKHL 19. The state of the common law since then has been described as uncertain to academicians and practitioners alike. No general overriding principle for some of the tort’s constituent elements has been unanimously endorsed by the House of Lords or the Supreme Court in England. This is a tort still in its developmental stages. The requirements for pleading such a tort are therefore open to argument, and I had many.
Further, as the Court explained, these conspiracy claims are inference-dependent torts since conspirators tend to avoid leaving direct evidentiary trails of their illegal schemes:
The Cartel Arrangements
As I will explain below, the law recognises that conspiracies are only rarely, if at all, founded on the clear evidence of a written agreement. Conspirators go to great pains to conceal their conspiracy. In pleading a lawful or an unlawful means conspiracy the courts have approved the allegation of sufficient facts that will allow the judge, if they are proven at trial, to make an inference of the conspiracy. This is an inference-dependent tort. EMBD relies individually and/or collectively on numerous facts and circumstances to infer the existence of Cartel Arrangements.
The Court elaborated on the elements of the tort of unlawful means conspiracy, which requires a claimant to prove loss or damage arising out of the unlawful actions of another group:
One broadly accepted definition of the tort is contained in the judgment of Nourse LJ in Kuwait Oil Tanker Co SAK v Al Bader [2000] 1 All ER (Comm) 271 at p 312:
“A conspiracy to injure by unlawful means is actionable where the claimant proves he has suffered loss or damage as a result of unlawful action taken pursuant to a combination or agreement between the defendant and another person or persons to injure him by unlawful means whether or not it is the predominant purpose of the defendant to do so.”
As the Court noted, “these ingredients are most often proven by inference” and such inference “is to be drawn on the basis of the primary facts set out the pleadings and proved at the trial.” The Court concluded that sufficient primary facts were pleaded by the plaintiff to support the elements of the tort, namely the “concerted action or combination between two or more persons” and the “intention to injure the claimant”.
The Court confirmed that in multiple Commonwealth jurisdictions, including Canada, New Zealand, Singapore, and England, a breach of fiduciary duty has been recognized as the “unlawful element” required to support an unlawful means conspiracy claim. As the Court noted, this new remedy serves to help regulate excessive conduct in the free market economy:
Mr. Hughes QC made a spirited plea to me not to follow any of the Commonwealth decisions or even the English High Court cases. He said they were wrongly decided. He cautioned that the tort had been developing incrementally if not hesitatingly, and there was insufficient consensus among the Law Lords in Total Network to provide any universal principle that breach of a fiduciary duty could be a ground for unlawful means conspiracy. As Mr. Phillips QC correctly observed, none of the Commonwealth decisions or the English High Court decisions were appealed. If those cases were wrongly decided I imagine they would have been appealed.
It seems to me that it is too late to turn back the clock. The years of inflexible “judicial abstentionism” are past. The courts today are more prepared than before to regulate the excessive conduct of players in a free market economy, especially when it is as result of a combination and involves wrongdoing that causes injury. A breach of fiduciary duty can, in my view, provide the unlawful element in unlawful means conspiracy. Total Network has opened a Pandora’s Box but what emerges from it are not dangerous demons but principles of fair competition and the protection of a claimant’s economic rights in a free market.
The Court also noted the public policy importance of stopping the spread of corruption:
Just as the common law has developed incrementally, so too have the activities of those who seek to subvert it. These subversionary inroads begin first on unnoticed footpaths and, unless the courts intervene in the otherwise free market, the unnoticed footpaths will soon become highways. Public policy must take account of these incremental deviations from the integrity of the legal system in Trinidad and Tobago and its effects on the public consciousness of right and wrong. In my view, there is nothing improper in law with EMBD’s plea of illegality and its claim that the contracts are unenforceable.
The Court dismissed the defence’s application to strike out the claim and allowed the lawsuit to proceed.
As this case illustrates, the law continues to evolve, under increasing judicial scrutiny, in the area of collusion and price-fixing.
