ACCC v. Baxter Healthcare

TThe recent High Court decision of Australian Competition and Consumer Commission (“ACCC”) v. Baxter Healthcare Pty Ltd (“Baxter”) appears to have brought to an end the protections afforded to companies while dealing with certain Government entities by virtue of the principle of law known as “derivative Crown immunity”.

WHAT IS “DERIVATIVE CROWN IMMUNITY”?

It is a general principle of statutory interpretation that a statute will not bind the Crown (i.e the Federal, State and Territory Governments) unless the Crown is expressly named in it or unless there is a necessary implication that the Crown is to be bound. This principle is known as “Crown immunity”. Pursuant to Section 2B of the Trade Practices Act (“TPA”), the Crown in right of the States and Territories are bound by Part IV of the TPA only to the extent that they “carry on a business”. This means that if a State purchasing authority, for example, was not carrying on business for the purposes of the TPA, then that purchasing authority would enjoy the benefit of Crown immunity and Part IV of the TPA would not apply to their operations.

As the law previously stood before Baxter’s case, the benefit of Crown immunity from the provisions of Part IV of the TPA was extended to also protect third parties dealing with State authorities if, in the course of those dealings, the State authority involved was not “carrying on a business”. This principle is known as “derivative Crown immunity”.

INITIAL FINDINGS OF THE FEDERAL COURT

In 2005, Justice Alsop found that the negotiated bundled contracts Baxter entered into with various State health purchasing authorities were effectively for the purpose of substantially lessening competition and were for the purpose of preventing or deterring other suppliers from competitive conduct in the market. At face value, the conduct of Baxter was found to be anti-competitive thereby breaching both Sections 46 and 47 of Part IV of the TPA.

At the trial, the ACCC conceded that the relevant State health purchasing authorities were not “carrying on a business” for the purposes of the TPA. This meant that those State purchasing health authorities benefited from Crown immunity and were therefore exempt from Part IV of the TPA in relation to the contracts entered into and subsequent dealings with Baxter.

The question therefore for consideration by Justice Alsop was whether Baxter benefited from “derivative Crown immunity” given its dealings with the State health purchasing authorities. If Baxter also enjoyed this immunity, it would be safe from prosecution.

Justice Alsop ruled that although Baxter’s conduct breached both Sections 46 and 47 of the TPA, this conduct was immune from legal action as Baxter benefited from “derivative Crown immunity” in supplying the State health purchasing authorities.

In August 2006 the Full Federal Court confirmed the findings of Justice Alsop.

THE HIGH COURT DECISION

On appeal to the High Court, the majority held that Crown immunity does not automatically extend to third parties unless that immunity is clearly necessary to protect the Crown’s proprietary contractual legal rights – a factor which was not established in the present case. The Court therefore concluded that Crown immunity did not extend to Baxter’s conduct in supplying State health purchasing authorities, and remitted the matter back to the Federal Court to consider the question of the breaches of Sections 46 and 47 of the TPA.

In reaching its conclusions, the majority of the High Court noted the following:

• The TPA was intended to enhance the welfare of all Australians by facilitating an environment of competition and fair trading, and that the general extension of Crown immunity to third parties clearly conflicts with this stated purpose of the TPA,
• The TPA contains other mechanisms whereby Crown immunity can be extended, e.g the TPA makes provisions for Governments throughout Australia to specifically enact laws and regulations to exempt particular contracts from the effects of the TPA when necessary, and
• It is irrelevant that the application of the TPA to businesses engaging in purchasing activities somehow constrains a Government’s freedom to contract or adversely impacts on the Crown’s proprietary contractual legal rights. Something more is required to demonstrate that the legal interests of Government are in fact detrimentally effected.

EFFECT OF THE DECISION

The decision of the High Court now clarifies that companies are subject to the TPA, irrespective of whether the TPA also applies to the other party to the arrangement. Further, it is now clear law that companies will not automatically receive the protection of any Crown immunity when dealing with either Commonwealth, State or Territory authorities.

Companies which have in the past enjoyed the benefit of “derivative Crown immunity” when dealing with these authorities, will now clearly have to quickly revise their compliance procedures to ensure their practices do not breach Part IV of the TPA.