Australia: High Court Extends Trade Practice Act Exposure To Companies Contracting With Governments

Last Updated: 6 September 2007

In a major change to established thinking, the High Court has effectively limited its 1979 decision relating to crown immunity, in deciding that crown immunity does not apply to commercial contracts involving federal, state and territory governments, as far as the corporation contracting with that government is concerned.

Case background

The case related to five long-term contracts for the supply of sterile fluid products to public hospitals entered into by Baxter Healthcare Pty Limited (Baxter) with the relevant purchasing authorities of Western Australia, South Australia, New South Wales, Queensland and the Australian Capital Territory. Each of the relevant purchasing authorities are part of the executive arm of the government of its corresponding state or territory.

Each contract was entered into after a process involving formal requests for tenders by the state purchasing authorities. Baxter made an offer to supply the tender items, on an item-by-item basis, at particular prices, and an offer to supply the same items, for substantially lower prices, on a sole supply basis.

At first instance, Justice Allsop found that Baxter had engaged in conduct that would have contravened section 46 (misuse of market power) and section 47 (exclusive dealing) of the Trade Practices Act 1974 (Cth) (Act). However, his Honour held that the Act did not apply to Baxter's conduct by virtue of the principles of derivative Crown immunity.

The decision was appealed to the Full Federal Court which, constrained by the High Court's authority, had no choice but to conclude that the Act did not apply to Baxter's conduct because of the doctrine of derivative Crown immunity. The Federal Court made it clear that it would have found otherwise, if it had not been constrained by the precedent set by the High Court in Bradken Consolidated Ltd v Broken Hill Proprietary Co Ltd (1979) (Bradken).

In Bradken, the High Court had held that Crown immunity extended to a corporation to the extent that the corporation had contracted with state and federal governments or their agencies.

The Full Federal Court made a number of observations that invited the Australian Competition and Consumer Commission (ACCC) to apply for special leave to appeal to the High Court.

In particular, the Court noted:

Absent legislation or special circumstances, in acquiring goods and services the executive government takes the market as it finds it and has no special status as a purchaser, although it may have considerable market power because of the volume of potential purchases. In that context, it is difficult to see why the circumstance that the executive government is not bound by a statute should lead to the conclusion that conduct in breach of the statute by others is not prohibited, so permitting unrestrained restrictive practices in connection with the acquisition of goods and services on behalf of the executive government or its instrumentalities by all concerned. The interests affected are essentially commercial in nature.

Subsequently, the ACCC was granted special leave to appeal to the High Court.

The High Court yesterday, handed down its decision, finding that Baxter was subject to the provisions of the Act.

The findings

The central question before the Court was one of construction of the Act. The majority, in concluding that Baxter was not entitled to Crown immunity, took the view that in light of the High Court's decision in Bropho v Western Australia (1990), the principle established in Bradken was expressed too broadly and no longer represented the position of Australian competition law. The High Court noted that as a result of changes to the Act since Bradken, federal, state and territory governments no longer enjoyed a general immunity from the Act.

The Court expressed the view that it would be astonishing to conclude that a business that dealt with government in the course of its own business, enjoyed a general immunity not available to the government when the government was carrying on business itself.

Such a conclusion would have been impossible to reconcile with the objective of the Act. The Court found that such a conclusion would go beyond what was necessary to protect the legal rights of government, or to prevent a divesting of proprietary, contractual or other legal rights.

If Crown immunity were to apply to Baxter it would, in the opinion of the High Court, impose a significant qualification upon the Act's objective of promoting competition and fair trading in the public interest.

The High Court's decision is limited to the question of crown immunity. The decision on whether the conduct in question, breached the prohibitions of the Act, has been remitted to the Federal Court to consider the facts of the case.

Future direction

The High Court's decision throws open the potential application of the Act to contracts which the federal,, state and territory governments are a party. This is particularly the case with large government procurement contracts. Corporations dealing with the executive arm of government should now assume full exposure to the entire operation of the Australian competition laws.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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