Doing business with government in Australia - no immunity from breach of the Trade Practices Act
By Kathryn Edghill, Partner and Graham Maher, Partner
11 October 2007
On 29 August 2007, the Australian High Court handed down its decision in ACCC v Baxter Healthcare Pty Limited [2007] HCA 38. The decision is significant for any company dealing with Australian Federal, State and Territory government bodies, such as purchasing authorities. The decision sweeps away any derivative crown immunity which attached to companies doing business with government bodies and opens the door for such companies to be liable for breaches of Australia’s antitrust law, the Trade Practices Act 1974 (Cth) (TPA).
The Facts
Between 1998 and 2001, Baxter entered into five long-term contracts for the supply of sterile fluids and peritoneal dialysis (PD) products to public hospitals, in response to a formal tender process. The contracts were entered into with the relevant purchasing authorities of various State and Territory governments (SPAs). At the time, Baxter was the only Australian manufacturer of sterile fluids other than PD solutions, but within the PD products market there was significant competition. In each case, Baxter made offers to supply the tender items on two bases, one being an item-by-item basis, at particular prices, and the other being on a bundled basis, for substantially lower prices. The ACCC alleged that by bundling the products, Baxter was in breach of sections 46 and 47 of the TPA, which prohibit respectively, the misuse of market power and exclusive dealing. In the lower courts Baxter avoided liability for breach of the TPA by relying on the principle of derivative crown immunity. Under the TPA, government bodies which are not carrying on business enjoy immunity from prosecution. Prior to the High Court’s decision, companies doing business with such government bodies also enjoyed the same immunity.
The High Court’s decision
The issue before the High Court was whether, upon the true construction of the TPA, crown immunity should extend to the conduct of a company in respect of negotiations for, entry into, or performance of, a contract with a government body which was not itself carrying on a business.
The High Court held that no such derivative immunity exists, stating that the fact that a breach of the TPA is one that may not be committed by a government body is no reason for concluding that it may not be committed by a company against that government body. In Baxter’s case, the conduct complained of was unilateral conduct of Baxter (i.e making the bundled offer*), which had the potential to harm Baxter’s competitors. The High Court held that the objects of the TPA, which include the promotion of competition and fair trading, required that derivative crown immunity should not apply.
Implications
Doing business with government bodies in Australia is an understandably attractive proposition for most companies. For some companies, part of that attraction may have lain in the immunity which they derived from the Crown’s immunity, which could allow them to make offers and engage in conduct which would otherwise be anti-competitive in breach of the TPA. With the demise of derivative crown immunity, companies now need to ensure that their conduct in dealings with government bodies does not breach the TPA.
The assistance of Ainslie Baird, Solicitor, in writing this article is appreciated.
* The question of whether the making of the bundled offer was a breach of the TPA is still to be decided on appeal.