31 August 2007

If you deal with the Government, does the TPA apply to you?

If Government is not "carrying on a business", it's not bound by the Trade Practices Act. Does that immunity generally extend to anyone negotiating or contracting with it? The High Court has said "no" in its decision in ACCC v Baxter [2007] HCA 38 (29 August 2007) reversing the effect of the decisions of the Federal Court and of the Full Court of the Federal Court on appeal.

The Government tenders, and Baxter's pricing

Various State and Territory Governments needed to buy sterile fluids and peritoneal-dialysis products for their health services. Baxter had a monopoly in sterile fluids but faced competition in peritoneal-dialysis products. It offered significantly lower prices for sterile fluids if the purchasing authorities also brought its peritoneal-dialysis products.

The Australian Competition and Consumer Commission said that this was bundling products in these tenders in breach of section 46 (misuse of market power) and section 47 (exclusive dealing) of the TPA.

Sharing the immunity?

Both sides accepted that the Government purchasing authorities were not carrying on a business and that the Act therefore did not apply to them. Did their immunity from the Act extend to Baxter?

No, said the High Court. There's no broad immunity granted to anyone negotiating or contracting with a Government body that is itself immune from the TPA.

What this means for Government and those dealing with it

Many industries supply many different products to Government often by way of tenders or other contracting arrangements. Price competition is often fierce.

For industry the decision means that they will not be immune from the operation of the TPA when negotiating or contracting with Government. While Government might not be affected by the TPA in an arrangement, industry will be!

Industry therefore should review their tenders and other contracting arrangements to ensure that they are not asking the other side to engage in conduct which could breach the TPA.

Industry ought to look carefully at their tenders and contracts to ensure they have not relied on what is now a wrong view of the law. In particular, a review of any long term exclusive contracts would be prudent to make sure that they do not contravene the exclusive dealing provisions of the Act.