21 Jun 2004

"Carrying on a business"- the Government and the Trade Practices Act

by Joanne Daniels

Two recent Federal Court cases have considered in detail the extent to which the Government and its contractors are bound by the provisions of the Trade Practices Act 1974 (Cth).

The concept of "carrying on a business"

The Commonwealth and the State Governments are bound by the provisions of the Trade Practices Act 1974 ("TPA") to the extent that they are "carrying on a business".

The decision of JS McMillan Pty Ltd v Commonwealth of Australia (1997) 77 FCR 337 clearly established that in determining whether the Commonwealth Government was "carrying on a business" the courts had to look at whether the activities being undertaken by the Commonwealth were:

  • in the nature of Government activities or commercial activities; and
  • undertaken with repetition, system and regularity.

If the activities were commercial in nature and undertaken with repetition, system and regularity then it was likely that the activities were part of the Commonwealth "carrying on a business".

In the recent decision of GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 50 (12 February 2003) the Federal Court held that certain representations made in relation to an outsourcing contract for the provision of a secure communications network (the ADCNET Project) were not made as part of the carrying on of a business and therefore could not be misleading in breach of the TPA.

The ADCNET Project had a number of elements one of which related to the upgrading and enhancing of the security of the communications network. In this regard, the Commonwealth had promised BHP Information Technology to provide certain security devices which were to be incorporated by GEC Marconi Systems Pty Ltd into the ADCNET software that it was developing. The representations in question related to the ability of the Commonwealth to deliver the security devices and the circumstances surrounding the subsequent cancellation by the Commonwealth of their use in the ADCNET Project.

The Federal Court found that the Commonwealth had engaged in conduct that was misleading or deceptive. The only question was whether the Commonwealth was bound by the TPA.

In relation to the question whether the Commonwealth was bound by the TPA, the Federal Court found that:

  • The ADCNET Project was designed to enhance the Commonwealth's Diplomatic Communications Network which was a project which could be characterised as distinctively Governmental in character; and
  • The Commonwealth's attempt to commercialise its intellectual property in the ADCNET Project was sporadic and therefore did not constitute the "carrying on of a business".

The case continues a now significant line of authorities which have held that Government, in undertaking tendering and contracting activities (at least where it is contracting for goods or services for its own use), is not carrying on a business and is therefore not caught by the provisions of the TPA.

Does a policy of commercialisation of property = a business?

A number of Governments have introduced policies which are aimed at ensuring that Departments are commercially exploiting their property, including intellectual property, where appropriate. The fundamental driver behind such policies is usually to assist Departments in relieving budgetary pressures.

One interesting aspect of the Marconi case is that the Federal Court indicated that the outcome may have been different if the Commonwealth had as a matter of "whole of Government policy" required Commonwealth agencies to commercially exploit intellectual property and technical innovations resulting from activities undertaken by or for those Departments. It is worthwhile setting out the relevant paragraph of the judgment:

"If it had been the case that the Commonwealth, as a matter of whole of Government policy, had ordained that Commonwealth departments and agencies were to exploit commercially technological innovations resulting from activities undertaken by or for those departments and agencies, it might be that the aggregate of the actions taken by the departments and agencies could evidence the carrying on of a business of exploiting such innovation."

The implications of this is that Governments need to take care in the formulation and implementation of policies of commercialising property to ensure that they are not inadvertently applying the TPA to various activities and ensuring that if they do Departments are fully aware of the implications.

Derivative Crown immunity under the TPA

Another recent case has considered the extent to which contractors of Governments are entitled to the immunity from the provisions of the TPA.

In the decision of ACCC v The Australian Medical Association Western Australia Branch Inc [2003] FCA 686 (9 July 2003) the ACCC alleged that Mayne Nickless Ltd and the Australian Medical Association of Western Australia ("AMA") were guilty of price fixing under the TPA. One of the issues which was considered was whether Mayne was entitled to derivative Crown immunity.

The facts were that Mayne had purchased a hospital, Joondalup Health Campus, from the State of Western Australia. In the past, the State had remunerated practitioners in accordance with an agreement known as "the State VMP Agreement". This agreement was still standing in relation to the State's employment of medical practitioners at the relevant time. The AMA negotiated on behalf of participating practitioners and entered into an agreement with Mayne regarding the remuneration to be paid to the participating practitioners. This agreement adopted the terms and rates for participating practitioners as specified in the State VMP Agreement. The ACCC alleged that this was price fixing because the AMA represented a number of doctors (who were competitors).

The Federal Court held that there was no price fixing. In relation to the question of derivative Crown immunity the court found that:

  • The State in running a State hospital was not carrying on a business and was therefore not subject to the TPA; and
  • Mayne was entitled to derivative Crown immunity and was not subject to the TPA for the purposes of the relevant agreements.

In deciding that Mayne was entitled to derivative Crown immunity, the court seems to have relied heavily on the fact that the public hospital services were provided free of charge in Western Australia, the State was heavily involved in the negotiation of all of the arrangements and the fact that the interests of the State would have been prejudiced if the TPA had been applied to the arrangements.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.