Lab Tests Wins Back Lab Services Contract

The recent decision of the Court of Appeal has quashed the

decision of the High Court which invalidated not only the decision

of the Auckland Regional District Health Boards

(ARDHBs) to award the contract to provide primary

referred pathology services to Lab Tests but also the contract

itself which was due to commence on 1 July 2007.

The Court of Appeal has ruled that Lab Tests' contract be

reinstated and that it commence to supply services under its

contract for the remainder of the term. Having said that,

Diagnostic Medlab Limited (DML) has indicated that it is

considering seeking leave to appeal to the Supreme Court.

The decision is a rejection of what the Court of Appeal

described as a broad based 'probity in public decision-making

approach' and is a return to the more traditional approach to

judicial review. It will provide board members of public sector

organisations, procurement managers and their advisers with a

greater degree of certainty around their procurement and tendering

processes where commercial contracts are involved, and will

hopefully reduce the ability of an unsuccessful tenderer to

challenge the award of a commercial contract using the judicial

review process.

We briefly highlight the important aspects of the case.

JUDICIAL REVIEW

One thing that the Court of Appeal makes very clear is its

unease that the Courts are not well equipped in judicial review

proceedings to deal with the range of issues that tendering

processes for commercial contracts raise and what in the Lab Tests

case ultimately involved a competition for the laboratory services

market in the Auckland region. The extent of the Court's

concern is best highlighted by the concurring judgment of Hammond J

who has written an intriguing dissertation which he called the four

P's of judicial review, which are: the point of entry of

judicial review, the purpose of judicial review, the principles of

judicial review, and the place of judicial review in New Zealand

today.

Although the New Zealand Public Health and Disability Act (NZPHD

Act) may have effected 'something of a sea change in the

management of public health services in New Zealand', the Court

of Appeal was not convinced that it swept away all elements of the

previous legislation by removing the commercial aspects of a

DHB's functions and powers. They found that under the NZPHD

Act, the DHBs are still required to make commercial decisions and

in respect of those decisions the authorities support a relatively

limited role for judicial review, subject always to the statutory

context.

In the present case the Court considered that the High Court

judge did not give proper weight to the commercial context within

which the DHBs were operating, or to the relevant statutory

provisions.

The view expressed by the Court of Appeal is that judicial

review should only be available in limited circumstances such as

where there is fraud, corruption or bad faith, although the Court

did accept that it may also be available in analogous situations.

The example given was where an insider with significant inside

information and a conflict of interest had used that information to

further their interests and to the disadvantage of their rivals to

the tender so as to undermine the...

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