Recently, the High Court handed down its decision in the case of
Australian Competition and Consumer Commission v Baxter Healthcare Pty Limited (Baxter Healthcare)1.
By majority, the High Court held that sections 46 and 47 of the Trade Practices Act 1974 (Cth) (TPA), which prohibit certain anti-competitive practices, apply to corporations that tender and contract with the States and Territories, notwithstanding that the States and Territories are, in certain circumstances, protected by the doctrine of Crown immunity.
The case is significant for all businesses involved in government procurement processes or contracting and, more generally, is a timely reminder of the importance of complying with the TPA.
Background
Baxter Healthcare Pty Limited (Baxter) was the sole supplier of essential sterile fluids in Australia and a major supplier of specialised dialysis products. The Federal Court held that Baxter had a substantial degree of market power in the sterile fluids market. In contrast, there were a number of competitors supplying competing specialised dialysis products. Baxter attracted the interest of the Australian Competition and Consumer Commission (ACCC) whilst tendering to various government departments.
Baxter’s tender contained two offers, providing a choice between:
- exclusively supplying sterile fluids and dialysis products at a discounted price for an extended term;
- or supplying these products item by item at individually based prices.
A government department subsequently requested that the first offer be made by Baxter in respect of sterile fluids alone. Baxter refused to offer the discount for exclusivity on sterile products if exclusivity on dialysis products was not also given.
The department eventually accepted the first offer.
Trial and appeal
The ACCC commenced proceedings against Baxter in the Federal Court seeking statutory penalties and declarations that Baxter had breached sections 46 and 47 of the TPA.
In general terms, the concern from a competition law perspective was that Baxter, by insisting on tying the supply of sterile fluids with the supply of dialysis products, was using its market power in the former market to leverage into the latter market.
Baxter submitted that, as it was negotiating or carrying on business with a State government, it was not caught by the TPA by virtue of Crown immunity specified in section 2B of the TPA. In doing so, it sought to rely on the 1979 High Court decision in Bradken
Consolidated Limited v Broken Hill Proprietary Co Limited2 (Bradken). In this decision, the majority found that the TPA should not be construed so as to prejudicially affect the Crown’s interest in freedom of contract. Therefore, corporations trading with a State were not bound by the TPA.
Both the Federal Court and Full Court of the Federal Court relied on Bradken to find that Baxter was immune from the operation of the TPA by virtue of the doctrine of derivative Crown immunity.
Notably, Allsop J of the Federal Court found that, in the absence of Crown immunity, Baxter would have breached sections 46 and 47 of the TPA.
High Court
The issue before the High Court was whether or not Crown immunity applied to Baxter. It did not consider whether, in the absence of any immunity, there would have been a breach of the TPA by Baxter.
The High Court overturned the decision of the Full Court of the Federal Court by a majority of 6-1. In doing so, it substantially qualified the application of derivative Crown immunity as stated in Bradken.
The High Court held that Crown immunity will extend to a corporation which contracts with the Crown only when the application of the TPA would impair the Crown’s legal interests, such as proprietary, contractual or other legal rights. The commercial prerogative of freedom of contract is, in itself, insufficient to render a corporation immune from the TPA when it deals with the Crown.
The majority therefore held that Baxter was not immune from the TPA and remitted the question of whether it had breached sections 46 and 47 of the TPA to the Full Court of the
Federal Court.
Implications
- The application of Crown immunity in respect of the TPA to businesses that deal with governments is heavily qualified.
- More generally, the Baxter Healthcare decision is a timely reminder of the importance of complying with the TPA and obtaining advice, irrespective of whether the proposed arrangement is with a government department or not.
1 [2007] HCA 38 (29 August 2007)
2 [1979[ HCA 15; (1979) 145 CLR 107