Lawyers for catering and cleaning group Spotless are seeking to remove “embarrassing” allegations about the company’s bid for the Manus Island contract from a Federal Court class action claim.
The centre of the allegations is that Spotless ignored its owned guidelines and booked costs from bidding to operate Manus Island centre as profit when it should have known it would not win the contract.
Spotless’ lawyers were also lashed by Justice Bernard Murphy for their push to remove the allegations with the judge saying the move was “a waste of time and a waste of money”.
Spotless is facing a combined class action from Slater and Gordon over its 2015 profit downgrade.
The company shocked the market in November 2015 when it downgraded its guidance for 2016. Downer EDI has since seized control of 88 per cent of Spotless’ shares.
The downgrade saw Spotless’ shares fall 50 per cent in a single day. Only three months earlier, Spotless said its results would materially exceed the previous financial year.
Spotless explained its profit downgrade at the time as being based on problems with the integration of acquisitions, underperformance, market slowdown and expensing of previously capitalised bid costs.
Spotless spent $7 million preparing its bid for the contract to operate the Manus Island detention centre but did not list the expense in its accounts because it considered it would probably win the contract.
By not treating the pre-contract bid costs as an expense item, Spotless was able to increase its net profit, the court heard.
Peter Collinson QC told the court, Spotless’ decision it was probable it would win the contract was against its own measures to test the profitability of the bid.
“Profitability would be influenced by a number of factors. The number of competing bidders, the stage of the tender process, whether Spotless was the incumbent provider … that would increase the prospects to secure the contract,” Mr Collinson said.
“Spotless was competing with eight other bidders. Broadspectrum was the incumbent rather than Spotless.”
Mr Collinson said Spotless also operated no offshore camps at the time and had not historically served the immigration sector.
“It was not probable that Spotless would win the DOI [Department of Immigration] contract,” Mr Collinson said.
“According to Spotless, the allegation is embarrassing. We would not have thought that the DOI contract was embarrassing,” Mr Collinson said.
Lawyer for Spotless Michael Gardner told the court the allegations were embarrassing because they were being presented as conclusions “without the facts”.
“Discovery could aid in standing this up,” Mr Gardner said.
A spokesperson for Spotless said that Spotless was not embarrassed by any aspects of this claim. Spotless intends to vigorously defend all aspects of the class action and remains confident in the outcome.
Justice Murphy gave Spotless’ legal team two weeks to decide on whether to push ahead with its application to strike out the allegations.
“My preference is to get on with the case but to allow you to bring on a strike out whenever you want to,” he said.