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On 29 August 2007, in Australia Competition and Consumer Commission v Baxter Healthcare Pty Ltd [2007] HCA 38 (Baxter), the majority of the High Court set aside the Full Federal Court’s decision in 2006 in relation to derivative Crown immunity, and concluded that Crown immunity does not extend to Baxter’s conduct in supplying State purchasing authorities. The Court remitted the matter back to the Federal Court to consider whether Baxter in fact contravened the TPA in relation to the misuse of market power and exclusive dealing.

This decision clarifies that corporations are subject to the Trade Practices Act, irrespective of whether the Act also applies to the other party to the arrangement. It is now clear that corporations will not receive the protection of any crown immunity when dealing with Commonwealth, State or Territory bodies.

Allegations in Baxter

Baxter is the only manufacturer of large volume sterile fluids in Australia and is one of a number of other local manufacturers and importers of peritoneal dialysis (PD) fluids, which are used in a form of dialysis treatment for chronic renal failure.

Between 1998 and 2001, Baxter responded to requests for tender from five State purchasing authorities and subsequently negotiated for, entered into and gave effect to long-term contracts with each of these authorities. In each of its tender responses, Baxter made two offers:

• an offer for the bundled supply of the requirements of the State for certain sterile fluids and PD fluid requirements; and
• an offer for the stand-alone supply of sterile fluids, PD fluids and other products on an item-by-item basis at higher prices than those included in the bundled offer.

Baxter refused a request by one of the State purchasing authorities to give it a volume discount on the item-by-item prices for sterile fluids.

The ACCC alleged that Baxter’s conduct in bundling the supply of sterile fluids (the market for which was not competitive) with the supply of PD fluids (the market for which was competitive) in offers to State purchasing authorities amounted to exclusive dealing under section 47 of the Trade Practices Act 1974 (TPA) and a misuse of market power in breach of section 46 of the TPA.

Crown immunity and the TPA

It is a general principle of statutory construction that no statute binds the Crown unless the Crown is expressly named in it or unless there is a necessary implication that the Crown is to be bound. In the case of the TPA and the Crown in right of the States and Territories, this is provided under section 2B. Under section 2B, the Crown in right of the States and Territories are bound by Part IV of the TPA (or do not benefit from Crown immunity) to the extent that they “carry on a business.” Similarly, section 2A of the TPA provides that the Crown in right of the Commonwealth is bound by the whole of the TPA to the extent that it “carries on a business,” either directly or indirectly.

Previous findings in Baxter

In the Baxter case, the ACCC conceded that the relevant State purchasing authorities were not “carrying on a business” for the purposes of the TPA. This meant that the State purchasing authorities benefited from Crown immunity and Part IV did not apply to their involvement in the tendering for sterile fluids and PD fluids, and subsequent dealings with Baxter. The question for consideration by both Justice Allsop and the Full Court was whether Baxter benefited from “derivative” Crown immunity given its dealings with these State purchasing authorities.

At first instance, Justice Allsop concluded that elements of Baxter’s conduct would breach both sections 46 and 47, but held that this conduct was immune from legal action as Baxter benefited from derivative Crown immunity in supplying State purchasing authorities. The Full Court’s decision analysed the authorities, including Bradken v Broken Hill Proprietary Co Ltd (1979) 145 CLR 107, and noted that the granting of relief against the respondent would invalidate transactions to which the Crown was a party, which would have the effect of prejudicing the interests of the Crown. To avoid such an effect, the benefit of derivative Crown immunity was extended to Baxter. Considering itself bound by precedent, the Full Court concluded that Allsop J was correct in his finding that Baxter benefited from derivative Crown immunity. However, the Full Court noted that it considered the High Court had erred in Bradken.

Reasoning for the High Court majority’s findings

Baxter was heard by the Full Court of the High Court, with a majority decision to allow the ACCC’s appeal and to set aside the Full Federal Court’s orders. Kirby J issued a separate judgment but agreed with the conclusion of the joint judgment, whilst Callinan J dissented and dismissed the appeal. In a joint judgment, Gleeson CJ and Gummow, Hayne, Heydon and Crennan JJ found Allsop J’s interpretation of the existing Crown immunity principles to be too wide, and disagreed with the conclusion that the TPA does not bind corporations dealing with State Purchasing Authorities simply as a corollary to the proposition that the TPA does not bind those Authorities.

In particular, the majority of the High Court noted in its joint decision that:

• Existing authorities in relation to Crown immunity were based on a general principle of statutory construction, not some prerogative power of the Crown to override a statute, or dispense with compliance. The majority noted that “some of the arguments about derivative immunity had about them a flavour of assertion of executive prerogative.”
• The application of derivative immunity is “impossible to reconcile” with the object of the TPA, which includes the enhancement of welfare of Australians through the promotion of competition and fair trading. In particular, the majority seemed particularly concerned that the Full Federal Court’s decision could lead to refusal to supply scenarios which were influenced by the recognition of derived Crown immunity.
• The TPA has “changed materially since Bradken” and State and Territory governments no longer enjoy any general immunity from the TPA. Under the current TPA, State and Territory governments who are carrying on business themselves would not be immune from the application of the TPA. It would therefore be an odd result if the TPA can be construed to afford Baxter (and other corporations dealing with State and Territory governments) immunity which the governments themselves do not have.

Accordingly, the majority concluded that there was no reason to deny the availability of remedies sought by the ACCC, including pecuniary penalties, and ordered that the matter be remitted to the Full Federal Court.

Implications

The factual scenario considered by the High Court in Baxter is similar to that encountered by most corporations who respond to requests for tender to supply goods/services to Commonwealth, State and Territory authorities. As a result of Baxter, corporations whose conduct offends the TPA in their dealing with Commonwealth, State and Territory governments cannot rely on the benefit of derivative Crown immunity in respect of these dealings and will be fully subject to the TPA. It is therefore important to ensure that compliance mechanisms be in place and enforced in all circumstances in a corporation’s dealings.