Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd - [2006] FCAFC 128 - FCAFC 2006 case summary — Zoe

CTHFCAFC

Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd

[2006] FCAFC 128

Federal Court of Australia (Full Court)|2006-08-24|Before: Allsop J, Gyles JJ

View original source

At a glance

Source facts

Court

Federal Court of Australia (Full Court)

Decision date

2006-08-24

Before

Allsop J, Gyles JJ

Source

Original judgment source is linked above.

Judgment (47 paragraphs)

[1]

INTRODUCTION 1 This appeal is from the decision of Allsop J in Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd (2005) ATPR 42-066; [2005] FCA 581. 2 The Australian Competition and Consumer Commission (the ACCC) alleged that Baxter Healthcare Pty Ltd (Baxter) contravened s 46 and s 47 of the Trade Practices Act 1974 (Cth) (the Act) in various ways in the sale and supply of sterile fluids and peritoneal dialysis products to the health authorities of New South Wales, Queensland, South Australia, Western Australia and the Australian Capital Territory. It sought declaratory and injunctive relief, pecuniary penalties under s 76 of the Act, and findings of fact for the purposes of s 83 of the Act. The relevant events cover the period 1998 to 2001. 3 The learned judge at first instance concluded that: (1) the provisions of the Act do not apply to, or operate in respect of, the conduct alleged by the ACCC, in essence because of the application of the principles of Crown immunity or derivative Crown immunity (the Crown immunity issue); (2) on the assumption that his Honour's conclusion on the Crown immunity issue was not correct - (a) Baxter had contravened s 46 of the Act by entering into an agreement with South Australia in 2001 by reason of what is called Offer 1A made by Baxter to South Australia (the Offer 1A contravention); (b) Baxter had not otherwise contravened s 46 of the Act by the conduct alleged and proved in respect of its dealings with New South Wales, Queensland, South Australia, Western Australia or the Australian Capital Territory (the s 46 conclusions generally); (3) on the assumption that his Honour's conclusion on the Crown immunity issue was not correct, Baxter had contravened s 47 of the Act by certain of the impugned conduct (the s 47 contraventions) but had not contravened s 47 in respect of what the ACCC called the wider competitive process in the market. 4 The ACCC appealed against the decision on the Crown immunity issue, and on the s 46 conclusions generally (other than the conclusion on the Offer 1A contravention). It also appealed against the decision concerning the s 47 contraventions to the extent that they were not based on exclusive dealing having the purpose, or the effect or the likely effect, of substantially impeding or hindering 'the wider competitive process in the market'. 5 Baxter, for its part, by notice of contention, contended that the learned primary judge had erred in respect of several factual findings, as well as on a number of matters of law, concerning the s 46 conclusions generally. It also contended that his Honour had erred in respect of a significant factual conclusion concerning the s 47 contraventions, as well as on a number of matters of law concerning those contraventions. Its notice of contention also raised a number of additional grounds on which Baxter contended that the decision on the s 46 conclusions generally at first instance should be affirmed.

[2]

factual background 6 It is desirable to set out in a little detail the factual background to the issues. We have taken this section of the judgment largely from the reasons for judgment at first instance. His Honour made detailed findings, many of which were not in issue at the trial, and where the findings were based on disputed material at the trial the findings set out below were in the main not challenged on the appeal. (a) Baxter 7 Baxter is the Australian operating subsidiary, and in effect the Australian division, of Baxter International Inc. (BI Inc.), a global medical products and services company incorporated in the United States of America. BI Inc. has three divisions: BioScience (products related to blood), Renal (dialysis products) and Medication Delivery (intravenous products). Baxter supplies products for each of these divisions in Australia. 8 Baxter manufactures in New South Wales the majority of the products it supplies within Australia, including intravenous (IV) solutions and peritoneal dialysis (PD) fluids, as well as parenteral nutrition (PN) products. (b) The contracts 9 Each State (but not the Australian Capital Territory) issued State-wide tenders for the supply of certain sterile fluids to public hospitals. Baxter responded to each State tender invitation. It made an offer to supply the tender items on an item-by-item basis at so-called high 'cherry pick' prices, and it made an offer to supply the same items, including PD products, on an exclusive sole supply basis for substantially lower prices. 10 The State tenders were issued by State Purchasing Authorities (SPAs) and were generally for the supply of irrigating solutions (IS), large volume parenteral (LVP) fluids, PN fluids and PD fluids and products. 11 LVP fluids are sterile fluids administered intravenously by slow infusion therapy for the purpose of re-hydration, the administration of drugs, resuscitation and fluid and electrolyte replacement. There are no products that are substitutable for any or all LVP fluids. There was at all material times an established and entrenched demand for LVP fluids for use in public hospitals and other like facilities funded by the States and Territories (collectively health facilities), private hospitals, medical practices and ambulance services. The largest purchasers of LVP fluids were the relevant SPAs on behalf of their respective health facilities. 12 LVP fluids are used where the amount of fluid required is greater than 250 mL. They are distinguished from small volume parenteral (SVP) fluids, used to perform or facilitate injections and to reconstitute pharmaceuticals, and which are stored in volumes of less than 250 mL. SVP fluids are administered intravenously, but not by slow infusion therapy. SVP fluids were commonly regarded as related to a different market. 13 PN involves the provision of nutrition by intravenous sterile solutions to provide all or part of a patient's nutritional requirements. PN fluids are produced by dissolving water soluble ingredients in water and then placing the solutions in containers. There are about 30 types of PN fluids used by hospitals and nursing homes. PN differs from enteral nutrition (EN), which is the provision of food via the digestive tract. PN and EN fluids are produced in separate facilities so as to avoid cross-contamination. EN is less expensive than PN, and carries less risk of infection, as well as having other advantages. Consequently, although PN and EN are substitutable unless the patient's gastro-intestinal tract is not functioning, PN generally is only utilised when EN is not feasible. There is an established and entrenched demand for PN fluids. Again, the largest purchasers of PN fluids at material times were the relevant SPAs on behalf of their respective health facilities. 14 IS are aqueous-based products that are used generally in hospitals for a number of purposes, including washing or cleaning wounds or in surgery. They are not suitable to perform the function of LVP fluids, and are not substitutable for LVP fluids. Nor are LVP fluids properly substitutable for IS. It was accepted by all parties that there are no products substitutable for IS. There is an established and entrenched demand for IS, as they are used in almost every operation or surgical procedure, including by hospitals (public and private) medical practices and ambulance services. Again, the largest purchasers of IS were the relevant SPAs on behalf of their respective health facilities. 15 PD is a form of dialysis treatment for chronic renal failure. Renal failure can also be treated with haemodialysis and related treatments (HD) or a kidney transplant. PD removes waste products from the blood by osmosis using the peritoneum, which is the membrane covering the intestinal organs located in the abdominal cavity, as a filter. Most PD treatments are self-administered by patients at home. The expression 'PD products' in the evidence and in the judgment included PD fluids and ancillary PD products used to perform PD, such as automated PD machines, lines for fluid connection, locks for the connectors and bags for fluids. HD treatment involves the patient's blood flowing outside the body through disposable bloodlines into a specially designed filter, the dialyser which assumes the function of an artificial kidney. HD itself does not involve the use of sterile fluids, although related treatments involve some intravenous introduction of sterile fluids. In general, PD and HD are not mutually exclusive so that some, but not all, patients have a choice of treatments. Not all patients are suitable for PD, and on the other hand not all patients are suitable for HD. PD has the advantage of being portable and easily administered, and is often the preferred treatment if patients have some residual renal function and a functioning peritoneal membrane. There is an established and entrenched demand for PD products. The largest purchasers of PD products at material times were the SPAs on behalf of their respective health facilities and a very small number of private hospitals. Historically, PD has been provided to patients through the public hospital system. Kidney disease in Australia is increasing at a rate of about 6-7 per cent per annum, and the number of patients requiring dialysis is also increasing by a slightly higher percentage. 16 Patients with kidney disease are usually treated within their State or Territory, save for patients in New South Wales and the Australian Capital Territory where there is some interchange. Hence, the purchasing of all PD products is made by the respective SPAs in relation to the total needs of all PD patients within the State or Territory. The prices paid for PD products vary between the States and Territories. 17 PD first became available to home-based patients in the early 1980s. Until Gambro Pty Ltd (Gambro) commenced supplying PD products in Australia in 1990, Baxter was the only supplier of PD fluids in Australia. 18 In the hearing, and in the judgment, the term 'sterile fluids' was used to include only LVP fluids, IS and PN fluids. It was used as a collective term so as to exclude PD fluids (although PD fluids are also required to be sterile). We shall adopt the same usage. 19 Between 1998 and 2001 Baxter negotiated with, entered into, and gave effect to, five long-term contracts with the SPAs of New South Wales, Queensland, South Australia, Western Australia and the Australian Capital Territory for the supply of certain of Baxter's products. Each of the SPAs was part of the executive arm of government of the respective polity. The contracts in issue were:

with New South Wales, for the supply of its entire requirements for certain sterile fluids and 90 per cent of its requirements for PD fluids for the period 18 May 1998 to 30 April 2003 (the 1998 NSW contract);
with South Australia, for the supply of its entire requirements for certain sterile fluids and 90 per cent of its requirements for PD fluids for the period 1 April 2001 to 30 March 2006 (the 2001 SA contract);
with Western Australia, for the supply of its entire requirements for certain sterile fluids and 90 per cent of its requirements for PD fluids for the period 1 March 2001 to 28 February 2006 (the 2001 WA contract);
with the Australian Capital Territory for the supply of its entire requirements for certain sterile fluids and 90 per cent of its requirements for PD fluids for the period March 1999 to April 2003 (the 1999 ACT contract);
with Queensland, for the supply of its entire requirements for certain sterile fluids (excluding PN fluids) and 92.5 per cent of its requirements for PD fluids for the period 1 June 2001 to 31 May 2004 (the 2001 QLD contract).

[3]

(c) The ACCC claims 20 The ACCC contended that, broadly speaking, Baxter is the only manufacturer in Australia of sterile fluids, which were described as 'high volume low value', and thereby contrasted with PD products. It was said to have a significant competitive advantage in the manufacture and sale of sterile fluids because the importation costs of 'water on water' made competition very difficult. Its case was that, effectively, Baxter had a monopoly on the supply in Australia of sterile fluids. Import competition in relation to PD products was accepted as real. 21 The impugned approach of Baxter, as his Honour said, was the 'bundling' of the PD products with the 'monopoly' sterile fluids products, thereby eliminating (so the ACCC said) the effectiveness of any competition from rival PD suppliers who could not, and in most cases did not want to, compete with Baxter in the supply of sterile fluids. 22 Section 46 of the Act was said to have been contravened by Baxter taking advantage of its alleged substantial power in the sterile fluids market or markets for the purposes of harming competitors or preventing competitive conduct in the PD products market. Baxter was said to have offered prohibitively high item-by-item prices (so-called 'cherry pick' prices) so as to compel the States and the Australian Capital Territory to agree to exclusive supply contracts for the supply of sterile fluids bundled with PD products for lengthy periods. Its market power in the sterile fluids market or markets enabled it to do so. 23 The ACCC contentions then were put in a number of different ways to accommodate the identification of the market, or markets, in which Baxter was said to have a substantial degree of power, and of the markets to which its alleged purposes were said to be directed. The alleged purposes invoked s 46(1)(a) and s 46(1)(c) in respect of other entities in the market or markets, namely Fresenius Medical Corp Australia Pty Ltd (Fresenius) and Gambro. The several alternative contentions were based upon there being either a combined national wholesale sterile fluids market or three separate national wholesale markets for LVP fluids, PN fluids and IS fluids, and the exercise of power in that market or markets in relation to a combined national PD products market or to separate State-based geographic markets for PD products. 24 Section 47 of the Act was said to have been contravened by the same conduct on the part of Baxter, together with its having supplied sterile fluids and PD products to New South Wales, South Australia, Western Australia and Queensland under their respective contracts, at a particular price on condition that the State or the Australian Capital Territory would not, or would only to a limited extent, acquire sterile fluids and PD products from a competitor of Baxter. Alternative claims were expressed depending upon the permutation of the markets alleged (as referred to above) and to reflect the further alternatives of Baxter's impugned conduct having either the purpose, or the effect or likely effect, of substantially preventing, hindering or lessening competition in those markets.

[5]

(a) The participants in the markets 27 His Honour found that there were four competitors or potential competitors of Baxter in the sale of sterile fluids in Australia. Each was either a subsidiary of, or a part of a division of, a very large international business. 28 Gambro in Australia is a specialist renal and dialysis company. It has operated in Australia since 1975. From the early to mid-1990s, it was attempting to gain HD and PD business in Australia, and by the mid-1990s sold and supplied a significant quantity of PD products to some clinics and hospitals in Sydney. 29 Fresenius AG is a large German company operating worldwide. One of the three divisions of Fresenius, Fresenius Medical Care, operates in Australia. It too sought to enter the HD and PD markets in Australia in about 1995, and in 1996 it began offering HD and PD products around Australia. 30 The evidence suggested that, at that time, Gambro was the dominant HD supplier in Australia with a small share of the PD market, and that Baxter was the dominant PD supplier in Australia with a small share of the HD market. Fresenius by the relevant period had gained a significant share of the HD products market, but only a minor foothold in the PD products market. 31 Abbott Laboratories, through an Australian subsidiary, Abbott Australasia Pty Ltd, has been in Australia since 1937. It competed with Baxter in the supply of LVP fluids between 1985 and 1992, but then ceased to do so. 32 B. Braun Australia Pty Ltd, a subsidiary of B. Braun Melsungen AG, was established in 1982. It has registration with the Therapeutic Goods Administration for some IV fluids and IS, but presently for no PN products. It did not at material times sell PD products in Australia. 33 Baxter itself commenced operations in 1963. It has a substantial manufacturing plant in Toongabbie in Western Sydney, upon which it has expended very considerable capital producing a range of sterile fluids (including LVP, IS and PN fluids) and PD products. 34 The supply of sterile fluids requires warehousing facilities for locally manufactured or imported products, and a distribution network. In the case of PD products, locally based staff are needed at the point of supply to assist patients and hospitals. 35 Since early 1997, Baxter has supplied almost 100 per cent of LVP fluids at the wholesale level, and has been the only local manufacturer of LVP fluids since 1993. B. Braun had supplied only a 'niche' LVP product into Australia. Baxter was also in the relevant period the wholesale supplier of about 95 per cent of IS. It was also the only local manufacturer of PN fluids. Baxter also sold some 90 per cent of the PD products in Australia in the relevant period, with Fresenius and Gambro each enjoying a small share of PD products sales in Australia.

[6]

(b) Previous State contracts for the supply of sterile fluids and PD products 36 The learned primary judge regarded this background as important to understanding the extent to which the impugned conduct of Baxter could be characterised as the reasonably anticipated response to invitations by the respective States and Territories in the conduct of their affairs. 37 In the 1980s there were four manufacturers of IV solutions in Australia, but by 1993 only Baxter continued to do so. It was only in the mid-1980s that exclusive supply agreements with certain SPAs emerged for some IV products. Similarly, it was only when Commonwealth/State funding arrangements changed in 1990, that significant quantities of PD products were sold directly to the States. 38 Baxter had previously made bids to Queensland for tenders to supply IV, IS and PD solutions, including bids which were on the basis of item-by-item prices and bids which were at significantly lower prices for guaranteed sole supply for all items covered by the tender, both in 1987 (when the States had limited purchases of PD products), and in 1990 and 1993. It made bids on similar bases to South Australia and to Western Australia in 1991, and to New South Wales in 1992 and 1993. In March 1992, a consortium including Abbott and Gambro and another company expressed concern to New South Wales about the way the tender processes were constructed. Their concern was that those processes were constructed to favour the supplier with the broadest range of product, and which encouraged bundling and 'a sole supplier situation'. 39 His Honour observed: 'To this point this [the construction of the tender process] had not been dictated by Baxter but decided by the States. That remained the position up to and during the relevant period.' In fact, New South Wales, in the period after the consortium's concern, made it clear that it wanted a long term contract and one in which there was an exclusive supply arrangement covering sterile fluids and PD products, and that Baxter was one of its potential suppliers, but in the longer term not the only one. 40 Baxter secured exclusive supply contracts with Queensland in 1990 (for three years) and again in 1993, excluding PN fluids at the insistence of Queensland (for three years), and in 1997 (again for three years); with South Australia in 1991 (for two years) and in 1995 (for three years); with Western Australia in 1991 (for two years, extended by one year) and again in 1995 (for five years); and with New South Wales in 1993 (for five years). His Honour found that each of those contracts was negotiated by the relevant SPAs which had a capacity to choose, to a degree, the terms on which they would deal with Baxter and for the costs savings the contracts produced as well as the range of products supplied.

[7]

(c) The negotiation of the impugned contracts 41 Each of the impugned contracts was entered into after a process involving formal Request for Tenders, their consideration, and a period of negotiation. Each Request for Tenders included LVP, PD and PN fluids and products and IS. Each permitted alternative tenders. Each specifically envisaged and allowed the submission of bundled offers. 42 The Request for Tenders for the 1998 NSW contract was released on 8 October 1997. It referred to LVP, PD and PN fluids and products and to IS. At the time, as his Honour found, Baxter was, of course, aware of B. Braun as a major worldwide sterile fluid producer and believed it was a competitive threat to Baxter winning the New South Wales tender, although it anticipated winning the sterile fluids contract. Apart from B. Braun, tenders for the New South Wales contract were also received from Fresenius and Gambro, although not for the full range of products. Baxter understood also that, if its item-by-item prices were taken seriously, the financial pressure on New South Wales to take Baxter's PD fluids and products was very strong unless an importer such as B. Braun was to take the bulk of the sterile fluids market. New South Wales then further negotiated with Baxter, as a result of which Baxter made further concessions or revised offers. Ultimately, one of its revised offers was accepted. The evidence was that the acceptance of that offer was heavily influenced by the desire to avoid additional cost to the public health system in New South Wales. 43 On 30 April 1998, the existing contract between South Australia and Baxter was due to expire. There were direct negotiations with Baxter during 1998 for a new contract, during which Baxter made two bundled offers. They were not taken up. The existing contract therefore continued to roll over until the 2001 SA contract. South Australia invited tenders for pharmaceutical products including LVP, PD and PN fluids and IS. Tenders were invited for two year contracts, with one or two year optional extensions. Tenders were received from Baxter, Gambro and Fresenius. On 5 December 2000, South Australia requested a revised offer for a five year term (called Offer 1A), for sole and exclusive supply of sterile fluids, but excluding PD fluids and products. Baxter responded on 11 December 2000 with its Offer 1A. It offered no discount on the item-by-item prices in its Offer 1, although clearly the invitation to make Offer 1A was to seek a volume discount in exchange for sole and exclusive supply of sterile fluids. Baxter's Offer 1A indicated that it was not prepared to give a discount for exclusivity for sterile fluids if no exclusivity for PD fluids was given. Baxter's initial bundled offer for sterile fluids and PD fluids was cheaper than its item-by-item offer for sterile fluids alone, and that remained the position after Offer 1A. After further negotiation, however, its Offer 1 was accepted but allowing for 10 per cent of PD products to be purchased from other suppliers. 44 The 1999 ACT contract was, as the Australian Capital Territory understood it, based on the 1998 NSW contract, although the relevant officer in the Australian Capital Territory did not think the arrangement precluded the Australian Capital Territory from dealing with other suppliers. In fact in May 2001, Fresenius contracted with the Australian Capital Territory to supply dialysis products so that Baxter was no longer the exclusive supplier of PD fluids and products to Canberra Hospital. Baxter then claimed to be entitled to a higher price, but the Australian Capital Territory has continued to adhere to the prices in the 1998 NSW contract. At the time of the judgment, there was an ongoing dispute about that. 45 The 2001 QLD contract followed a tender request of 3 May 2000 for IV fluids and dialysis fluids, excluding PN fluids. Baxter, Fresenius and Gambro tendered. Both the Baxter and Gambro tenders included bundled bids. The unbundled bid of Baxter was that which was assessed, and Baxter was recommended. The impugned bundling, as his Honour found, had no effect on the awarding of the tender to Baxter. However, obviously for price reasons, its bundled bid was then accepted. His Honour also accepted the evidence that Queensland perceived its position as one embodying 'real bargaining power, deployed in its own interests'. 46 The 2001 WA contract followed a tender request of 26 May 2000. Tenders were received from Baxter, Gambro and Fresenius. The cost or 'price' of not taking a Baxter sole supply arrangement for all products, including PD products, was described by the primary judge as 'huge, unless sterile fluids could be sourced elsewhere'. Its bundled sole supply offer was accepted, after negotiation to allow 10 per cent of PD products to be acquired from other sources. 47 The learned primary judge also noted that the later agreement made jointly by New South Wales and Victoria and Baxter in 2003, after extensive negotiation, did not give Baxter any guaranteed exclusive supply agreement, although Baxter has provided more favourable pricing based upon volume discounts for total usage of sterile fluids and a minimum of 80 per cent of the PD fluids acquired. That agreement does not contain the 'cherry pick' item-by-item prices.

[8]

(d) Reference to other evidence 48 The Therapeutic Goods Administration requirements for the registration of imported therapeutic and medical devices were considered. The primary judge concluded they were not a barrier to entry 'of any real magnitude'. 49 His Honour also regarded the evidence of clinicians concerning product quality, technological innovation, servicing and clinical choice as inconclusive. It did not assist in demonstrating that the States sacrificed quality against their wishes. 50 The evidence of a number of Baxter employees was separately considered. The topics it addressed included that Baxter would generate cost savings if it ceased to supply PD products in New South Wales. The thesis was that if the costs savings were small, Baxter would be justified in raising prices to cover lost revenue. Baxter however, as his Honour pointed out, made no attempt to analyse the 'cherry pick' prices by reference to its cost base or the increased marginal cost of production positing any given reduction in production volume. The topics also included evidence relating to Baxter's purpose and the calculation of its prices. The primary judge's conclusion on that topic reflects his assessment of all of that evidence. In the course of his conspectus of that evidence, his Honour remarked (at [478]): 'There was no satisfactory evidence (beyond assertion) as to how the "cherry pick" prices were set. No doubt, to a degree, such higher prices would lessen the blow of a loss of volume. But I reject the evidence … that that is how they were set. There was no documentary support for that. They were set at a level to be taken seriously as a credible alternative and to maximise the apparent benefit for the State in taking the bundle: to demonstrate the value of the bundle'. And (at [482]): '… the bundling and the place of the "cherry pick" alternative as credible made the bids of Gambro and Fresenius for PD unacceptable to the States behaving rationally. I have no doubt that … it was … Baxter's purpose in the structure of the offers made during the period 1998 to 2001.' 51 The next phase of the judgment referred at length to the expert economic evidence. The analysis of that evidence is broken into three sections under the headings 'market definition', 'market power', and 'testing taking advantage and the effect of the conduct'.

[9]

(e) The conclusions of the primary judge concerning the case under s 46 of the Act 52 The primary judge concluded that there were two relevant markets: (1) an Australia-wide sterile fluids market (including LVP and PN fluids and IS), and (2) an Australia-wide PD fluids market. 53 His Honour concluded then that Baxter did have a substantial degree of market power in the Australia-wide sterile fluids market. 54 The third element to address was whether, by the impugned conduct, Baxter had taken advantage of its market power in the Australia-wide sterile fluids market. His Honour was not satisfied that by its impugned conduct, except in respect of Offer 1A in South Australia, Baxter had relevantly taken advantage of its market power. 55 The primary judge reached a different conclusion in respect of Offer 1A in South Australia. He regarded the 'point blank refusal' of Baxter to give a discount volume in Offer 1A on sterile fluids as indicative of Baxter taking advantage of its substantial degree of market power. 56 Finally, it was necessary to address whether, in engaging in the impugned conduct, Baxter had a purpose proscribed by s 46(1)(a) or (c), namely eliminating or substantially damaging a competitor in the sterile fluids market or the PD market, or deterring or preventing a person engaging in competitive conduct in the sterile fluids market or the PD market respectively. The pleading identified Fresenius and Gambro as competitors in the PD market, and for the purposes of s 46(1)(c) added reference to other potential suppliers. 57 His Honour was not satisfied that, in any of the impugned conduct, Baxter had a purpose proscribed by s 46(1)(a). He concluded (at [608]): 'Thus, it seems to me clear that the purpose involved, as a substantial purpose, was to frame a bid structure involving a credible item-by-item alternative to maximise the chances of bringing about circumstances in which the bids of competitors with substantially equivalent products could only be accepted at a significant cost penalty.' 58 The primary judge described the question whether that purpose fell within s 46(1)(c) as 'more problematic'. The paraphrase of the purpose was to make rival PD bids uncompetitive in the sense of unacceptable, because of the credible cost alternative of Baxter's item-by-item offer. Its substantial purpose in the structuring of its bids was described as (at [613]): '…to prevent rival bidders (Fresenius and Gambro) for PD products from being able to put forward bids that were realistically competitive by the existence of credible alternative high item-by-item pricing.' 59 His Honour concluded (at [616]): 'The purpose of the bid and its structure was to foreclose the likelihood or restrict the possibility of a competitor's bid having any realistic prospect of success. The stubbornness of [the] attitude to the request for Offer 1A in SA in 2001 reflects the reality of the purpose of the structure of the bids. To give a genuine discount for volume would be to make Fresenius' and Gambro's PD bids ones that had realistic prospects of success. It was that that was to be prevented, thereby protecting the PD revenue stream.' 60 Consequently, the primary judge found that the conduct of Baxter in relation to Offer 1A in South Australia contravened s 46 of the Act. In other respects, Baxter's impugned conduct did not do so because it had not taken advantage of its market power, notwithstanding the finding of purpose recorded in the preceding paragraph.

[10]

(f) The conclusions of the primary judge concerning the case under s 47 of the Act 61 The impugned conduct of Baxter fell within s 47(2) of the Act because of the bundling of its tenders. There was no issue about that. Hence, Baxter by that conduct would have engaged in the conduct of exclusive dealing contrary to s 47(1) unless (relevantly) s 47(10) were enlivened. That in turn depended upon whether the impugned conduct of Baxter had the purpose of substantially lessening competition, or had, or was likely to have, the effect of substantially lessening competition within the meaning of s 47(10)(a) or (b) respectively. The expression 'lessening competition' by s 4G extends to preventing or hindering competition. 62 The primary judge concluded that Baxter's purpose by the impugned conduct, namely to ensure so far as possible that the competitive process of tendering would not bring about realistically competitive bids for PD products did amount to the proscribed purpose of lessening competition. He identified the relevant process as the tender system used by the States. It was the perceived consequences of not accepting the offer of bundled supply (that is, of not accepting the offer which amounted to exclusive dealing under s 47(2) of the Act) which hindered the effective operation of the tender process in relation to PD products. That purpose of the bundled bids was directed, so his Honour found, to hindering the competitive process of the tender bids and so to hindering the competition, accepting (as his Honour noted at [629A]) that the PD products market is an Australia-wide one. There was no great consideration of s 47(13)(b). 63 That conclusion of course related only to the tendering process. It did not relate to entering into the relevant contracts themselves, or to the supply of goods under them. If it were not correct (contrary to his Honour's conclusion) to view each tender as the competitive process, then he would not have concluded that Baxter had a relevant purpose for s 47(10). In that event, the exclusive dealing within s 47(2) would not have contravened s 47(1) of the Act. The tied contracts themselves, his Honour considered, did not have, and were not likely to have had, any substantial effect on competition. They did not raise barriers to entry in any substantial way. They do not impede competition in the sale of products in the future (save for the period of the contracts). They do not inhibit import of PD or sterile fluid products. They were not found to have inhibited capital expenditure on plant production facilities.

[13]

the crown immunity issue 67 The threshold question in the appeal is whether the primary judge was correct in holding that the Act does not apply to, or operate upon, the conduct of Baxter alleged to contravene s 46 and s 47, including entry into the impugned contracts and conduct up to such entry, with the consequence that no relief could be granted as sought because of what can be described as Government or Crown immunity from the operation of the Act. For present purposes, that question largely depends upon the proper analysis of what was decided by the High Court in Bradken Consolidated Ltd v Broken Hill Pty Co Ltd (1979) 145 CLR 107 (Bradken), taking into account the recent discussion of that decision by the High Court in NT Power Generation Pty Ltd v Power and Water Authority (2004) 219 CLR 90 (NT Power). Bradken was decided at the high tide in Australia of the presumed immunity of the Crown from statute (see, for example, China Ocean Shipping v South Australia (1979) 145 CLR 172). In Bradken, Gibbs ACJ (at 116) and Stephen J (at 127) expressed the view that the then understanding of the rule could only be altered by statute. The decision in Bropho v State of Western Australia (1990) 171 CLR 1 revealed that rule to be wrong and changed the ground rules, although that change has no direct effect in this case. 68 Part IV of the Act binds the Crown in right of each of the States, of the Northern Territory and of the Australian Capital Territory, so far as the Crown carries on a business, either directly or by an authority of the State or Territory (s 2B), and has done so since amendments made by Act No 88 of 1995 introduced as part of the competition reforms of that era. Prior to that time, the position was that the Act did not apply to the Crown in the right of any of the States or any instrumentality or agent of any State (Bradken). That immunity extended to the Crown in the right of the Northern Territory (Burgundy Royale Investments Pty Ltd v Westpac Banking Corporation (1987) 18 FCR 212). 69 The ACCC sought to advance an argument that the effect of the amendments to the Act, made as a result of the competition reforms, changed the landscape such that the foundation for the conclusion that the Act did not bind the States or the Territories was disturbed. In our opinion, the express provisions of s 2B are not reconcilable with that argument. It should also be noted that it was conceded for the purpose of this case that none of the States or Territories was engaged in carrying on a business so far as is relevant to this case, notwithstanding the fact that there was a very considerable business involved in obtaining and supplying the States and Territories with the goods in question. 70 The primary judge closely examined the decision of the High Court in Bradken in the light of NT Power and deduced the following propositions (at [680]): '(1) Properly understood the authority of Bradken remains unimpaired, though, of course, now within the framework of s 2B of the Act.

[19]

Does, then, the Act operate to make it unlawful for non-government parties to respond to such tenders or invitations or to participate in negotiation if a specified norm of conduct is contravened? If the answer to that were yes, it would follow (at least insofar as the response was such as to be within the contemplation of the request or invitation) that the legal rights, interests or prerogatives of the polity in question were qualified or impaired. Thus, the answer must be, no.' 73 Having looked at the circumstances of the individual States and Territories, his Honour concluded (at [700]): 'Therefore, the Act does not apply to or operate upon the conduct of Baxter said to contravene ss 46 and 47 up to the entry into the impugned contracts. Thus, no declarations as to past conduct or penalties as to past conduct can be made. On this basis, it would also be inappropriate and without foundation to grant orders restraining any future conduct with the States or the ACT.' 74 The respondent States carried the burden of the argument supporting the reasoning of the primary judge. It was submitted that, as the Act did not bind any Government party, such a party cannot be inhibited in any way relating to the entry into such contracts or arrangements to acquire goods or services as it sees fit from whom, on such terms and at such times as it sees fit by any operation of the Act. It was accepted that this meant that the State could not receive the benefit of the Act. In other words, if a contract or arrangement were entered into as a result of breach of the Act by the supplier, the State could not be relieved of the burden of the contract by reason of any breach of the Act, and the third party would not be liable for any such breach. It would follow that the same conclusion would apply to pre-contractual conduct in breach of the Act by the third party, even if the State were adversely affected and if no contract or arrangement were eventually entered into. It would also follow that the same apparently anomalous results would follow in relation to any other protective statute - State or Federal - that did not bind the relevant State instrumentality. 75 The underlying principle appealed to would appear to be that, as the Act does not inhibit the manner in which a State acquires supplies, then it cannot affect those with whom the State has dealings in the course of acquiring those supplies. Put another way, the immunity of the State can only be effective if those with whom it negotiates with a view to acquiring supplies are also free from the restraints of the Act. It is submitted that, if the Commonwealth does not like this result, then the remedy is to amend the Act (subject to any Constitutional limitations). 76 It is submitted for the ACCC that the mere fact that the Act does not bind the Crown does not authorise unlawful conduct by others. It is submitted that Bradken does not establish the principle relied upon by Baxter and contended for by the State respondents. The ACCC alternatively reserves the argument that Bradken should not be followed in the event that this case reaches the High Court. It is accepted by the ACCC that Bradken does establish that relief cannot be granted if it has the result that the State would lose the benefit of a contract entered into by it, even if it is entered into in breach of the Act and has sought to frame the relief sought in such a way as not to infringe that principle. 77 There are undoubtedly statements in the judgments in Bradken which support the reasoning of the primary judge, but they must be considered in light of the issues for determination by the High Court in that case and in light of the authorities up to that point. 78 Bradken arose out of acquisition by the Commissioner for Railways for the State of Queensland (the Commissioner) of railway rolling stock in connection with the development of a new railway line to service a coal mine. The applicants, Bradken Consolidated Limited and a subsidiary, were suppliers of rolling stock and alleged that there was a contract arrangement or understanding between the Commissioner, Broken Hill Proprietary Co Ltd (BHP) and other parties for the supply of the rolling stock without any competitive tender and that there was a contract arrangement or understanding between the Commissioner and BHP for the supply of equipment, each of which was in breach of s 45 of the Act. It was also alleged that BHP and another respondent had provided or agreed to provide financial assistance to the Commissioner on condition that he would not acquire the rolling stock from a competitor of the respondents, or on condition that he would acquire the equipment from particular respondents in breach of s 47 of the Act. The applicants sought orders restraining the Commissioner and the respondents from giving effect to the offending provisions of the contracts, arrangements and understandings said to be in breach of s 45. They also sought orders restraining BHP and the other respondent from giving effect to or engaging in the exclusive dealing alleged to be contrary to s 47 by the provision of finance. 79 Among the defences raised by the Commissioner were the following: '6. On its proper construction, the Trade Practices Act 1974 as amended (herein referred to as "the Act") does not apply to the Second Respondent,' (i.e. the Commissioner for Railways) 'or purport to regulate the conduct of the Second Respondent, in that -

[30]

The High Court ordered that so much of the cause as was raised by those paragraphs of the defence be removed to that Court. 80 The applicants then sought to discontinue against the Commissioner. That was refused as the relief sought would affect the interests of the Commissioner, even if he were not a party to the proceeding, as the rolling stock and the finance would not be provided to him as agreed. The applicants indicated that they wished to amend their points of claim to raise a new case that the respondent companies had, contrary to the Act, engaged in conduct (called pre-contractual conduct) in which the Commissioner played no part, although they did wish to persist, if only in the alternative, in the existing claims against the respondent companies. When the matter came on for hearing in the High Court there was no appearance for any respondent other than the Commissioner, although by then it was made clear that no relief was sought against the Commissioner. Argument in the High Court was restricted to the questions of law raised in paragraphs 6, 7 and 8 of the defence. 81 The principal question which arose in relation to paragraph 6 was whether it was the legislative intention that the Act should bind the Crown in the right of the State of Queensland, there being little doubt that the Commissioner was an instrumentality, agent or authority of the Crown in right of Queensland. That question was answered in the negative. It was then necessary to go on to consider the consequences of that finding. It was in that context that the following statements were made: Gibbs ACJ said (at 123): 'It of course follows that the applicants cannot obtain the relief which they seek against the Commissioner, but can they obtain the relief sought against the respondent companies? I have already pointed out that such relief, if granted, would invalidate transactions to which the Commissioner is a party. The first two claims are for injunctions to restrain the respondent companies concerned from giving effect to the provisions of contracts, arrangements or understandings to which the Commissioner was a party. An injunction restraining one of the parties to a contract from completing it affects not only the party against whom it is made; it equally affects the other party to the contract. The third and fourth claims are for injunctions restraining certain of the respondent companies from engaging in the practice of exclusive dealing, which, according to the points of claim, consists in providing, or agreeing to provide, finance and/or financial assistance to the Commissioner on certain conditions. Those injunctions, if granted, will affect the Commissioner as much as the respondent companies. In other words, if the remedies sought are granted against the respondent companies, the Commissioner will be prejudiced by the operation of the Trade Practices Act just as much as if its provisions had been directly enforced against him.' Mason and Jacobs JJ said as follows (at 137-138):

[32]

… in accordance with such authorities as Wirral Estates Ltd. v Shaw and In re Telephone Apparatus Manufacturers' Application, the absence of an intention to bind the Crown in right of Queensland will not only exonerate it from the direct application of the statutory provisions but will also exonerate from the application of those provisions the contracts arrangements or understandings made by that Crown and the other parties thereto as well.' Stephen J said (at 129): '… it follows that the Act will not only not apply directly to the Commissioner but will also not apply so as to prejudice its interests when in contractual relationship with parties to whom the Act clearly applies or when otherwise interested in transactions affecting those parties (In re Telephone Apparatus Manufacturers' Application).' Murphy J said (at 140-141): 'In my opinion, the interpretive rule that the Crown is not bound except by express words or necessary implication applies, in the case of Acts, only to the Government of the Commonwealth. I would take the view that the Crown in right of a State is bound by the Trade Practices Act. But, even if the Act does not bind the Crown in right of the State, it does not follow that ss. 45 and 47 are not applicable to the contract. The cases relied upon by the respondents, in particular Wirral Estates Ltd. v. Shaw and In re Telephone Apparatus Manufacturers' Application, do not persuade me to accept the contention. In terms, ss. 45 and 47 are directed to a prohibition of certain conduct by a corporation. Because an Act does not bind the Crown, this does not mean that it has no application to conduct of others in relation to the Crown (see McGraw-Hinds (Aust.) Pty. Ltd. v. Smith). I would not regard a contract to which the Crown in right of a State is a party as outside the scope of the Act.' The order of the Court was as follows (so far as is relevant): 'The Court holds that the secondnamed respondent by par.6(b) and (c) of his defence raises matters which in law are a bar to the granting of the relief sought in par.34(1) and (2) of the points of claim and to the granting of the relief sought in par.34(3) and (4) of the points of claim in so far as that relief is sought upon the basis of the allegations presently made in the points of claim.

[33]

Remit the case to the Federal Court of Australia to give effect to this judgment and to take any other necessary action in the proceedings.' 82 It is useful to review the significant authorities up to that time. Perry v Eames [1891] 1 Ch 658 concerned the question as to whether an easement for light could be obtained by prescription. The relevant section of the Prescription Act did not bind the Crown, however, it was argued that the section did apply where the legal estate was not vested in the Crown but was held by subjects in trust for the Crown. That argument was rejected on the basis of older authorities, principally related to rating. In fact, by the time the claim was made, the beneficial title had passed from the Crown but the land had been beneficially owned by the Crown for part of the period founding the claim of prescription. 83 Doyle v Edwards (1898) 16 NZLR 572 concerned a building that was erected on Crown land held for railway purposes and was leased by the Crown to a tenant for a term of seven years. The respondent erected the building as a builder for the tenant. The tenant covenanted with the Crown to remove at the end of the term all buildings to be erected by him. The building was not erected for railway purposes. An Information was laid against the builder for erecting a building without first obtaining a permit under a building by-law made under the Municipal Corporations Act 1886 (NZ). Section 3 of that Act contained a general exemption of Crown property from the operation of the Act and the by-laws. It was argued that the exemption should be restricted to cases in which the Crown alone obtains the benefit of that exemption. In an ex tempore decision without citing authority, Prendergast CJ said (at 574): 'I think section 3 does exempt land belonging to and vested in the Crown, although a leasehold interest is created, and that it cannot be said that this builder was liable to get a permit. To hold so would be to affect the land. There are no words excluding tenants from the benefit of the exemption, and such words cannot be presumed.' 84 In Roberts v Ahern (1904) 1 CLR 406 an independent contractor was engaged to cart away nightsoil from a Commonwealth Post Office in Victoria. A servant of that independent contractor was charged with carting away nightsoil without a licence from, and without having given any such security as was required by, the local authority contrary to the Police Offences Act 1980 (Vic). After analysing Dixon v London Small Arms Co (1876) 1 App Cas 632, Griffith CJ (for the Court) said (at 420): 'Applying the same principle to the present case, it appears to us that the relation of principal and agent existed between the Commonwealth Government and Appleby and his servants, in the discharge of the duties in question, and that the mode of their remuneration and the terms of their employment are immaterial. When an act unlawful at common law is made lawful by Statute, it is clear that the authorization extends to the protection of all persons and agencies employed in doing the act, and it is immaterial whether the persons are so employed under a contract or stand in the direct relationship of servants to the persons who have the statutory authority. Of this rule, Newton v. Ellis, 5 E. & B., 115; 24 L.J.Q.B., 337, affords a good illustration. Nor can it make any difference whether the act in question is one which, being unlawful at common law, is made lawful by Statute, or is one which, being lawful at common law, is not made unlawful by any Statute. The case of Black v. Christchurch Finance Co.,(1894) A.C., 48, is authority, if authority be needed, for the proposition that the liability of the principal for the acts of his agent is not excluded by the fact that the agent is a contractor, or himself works by sub-agents. The terms of the employment must be the subject of inquiry to the extent of ascertaining that the relation of service or agency exists in fact, but in our judgment the Executive Government cannot be controlled either in its choice of agents or in the form of their appointment or mode of their remuneration. Nor, in our judgment, is it material whether the appointed agent does the work with his own hands, or through the medium of his servant. For these reasons we think that the appeal must be allowed.' Fullagar J described Roberts v Ahern as an extreme application of the overthrown doctrine of immunity of instrumentalities in The Commonwealth v Bogle (1952-1953) 89 CLR 229 (at 268). 85 The case of Dixon v London Small Arms Co relied upon by the respondent to support the conviction in Roberts v Ahern is of interest as it relates to facts analogous with the present case. The appellant was the holder of certain patents for improvements in the manufacture of small arms. The respondents were contractors for the manufacture and supply of small arms for the use of the Government. In the course of the manufacture they made use of the appellant's patents. The Crown was entitled to use the patents but the question was whether the respondents could take advantage of the Crown rights. It was held that the respondents' contract with the Crown was one of sale and not of agency and that the respondents were not, therefore, entitled to the benefits of the contract which they would have had if it had been one of service or agency. 86 Wirral Estates Ltd v Shaw [1932] 2 KB 247 (Wirral Estates) concerned the operation of the United Kingdom Rent Restrictions Acts (1920) and (1923). It was accepted that those Acts did not bind the Crown. The premises in question had been the property of the Crown and had been let to the respondent Shaw in 1919. He continued in possession until 1931 when served with a notice to quit. The reversion had passed through several hands in the intervening period, ultimately having been acquired by the appellant Wirral Estates Ltd in 1928. A County Court Judge found, in substance, that a new tenancy had been created. However, an order for possession was not made because it was considered that the Court was bound by the decision in Clark v Downes (1931) 145 LT 20 to the view that the property remained free of the Rent Restrictions Act because of the link with the Crown. The Divisional Court disagreed and the Court of Appeal upheld the Divisional Court. 87 Clark v Downes also dealt with the effect of the Rent Restrictions Acts of 1920 and 1923. There, the demised premises had been the property of the Crown at the date of the lease. The Crown subsequently sold the property and assigned the benefit of the lease to the purchaser. It was held that, as the Rent Restrictions Acts operated in rem and not in personam, they effectively operated at the time at which the lease was entered into and continued to apply to that lease thereafter. Hence, the point of difference between it and Wirral Estates. Romer LJ, however, added another ground as follows (at 22): 'I only want to add this. The Acts not binding the Crown, it is the duty of the courts so to construe the Acts that the Crown and its property are in no way prejudicially affected by the Acts. Now, if the learned county court judge is right and these houses became subject to the operation of the Acts, the moment they passed out of the ownership of the Crown it follows that the reversion to the houses while in the possession of the Crown was worth considerably less than it would have been but for the Acts. The Acts so construed, therefore, would prejudicially affect the property of the Crown. Having regard to what I have said, the Acts should therefore not be construed in that way.' It was made clear in Wirral Estates that that was not a ground of the decision of the Court in Clark v Downes. 88 It is worth noting that Wirral Estates and Clark v Downes (and Rudler v Franks [1947] 1 KB 530 which followed them) were discussed by Jacobs J (as he then was) in Dowse v Wynyard Holdings Ltd [1962] NSWR 252; (1961) 79 WN (NSW) 122 at 258-261. His Honour did not apply the principle that the Rent Restrictions Acts operated in rem to similar legislation in New South Wales, although his Honour was unable to see any particular distinction between the statutory scheme in New South Wales from that in England. 89 In Attorney-General v Hancock [1940] 1 KB 427 Wrottesley J, after reviewing a number of cases including Wirral Estates, concluded (at 439): '… the principle has been discussed and applied, or not applied, in a number of decisions during the last hundred years and the rule is now well laid down and clear that if an Act of Parliament would otherwise devest the Crown of its property, rights, interests or prerogative, it is not to be construed as applying to the Crown unless the Crown is mentioned either expressly or by necessary implication. In the statute under consideration here there are no special words naming the Crown and it is also clear that there is no necessary implication to be drawn from the words of the statute to involve the Crown.' [emphasis added] The case itself is far from the facts of this case. It was a wartime case. The question was whether the Crown could execute a judgment properly obtained against a subject in accordance with the powers vested in the Crown or whether it was necessary to obtain the leave of the appropriate court under the Courts (Emergency Powers) Act 1939.

[34]

90 In the meantime, the rule concerning the Crown not being bound unless expressly named was solidifying - see, in particular, Province of Bombay v Municipal Corporation of the City of Bombay [1947] AC 58. 91 Then Bank voor Handel en Scheepvaart NV v Slatford [1953] 1 QB 248 came to be decided - by Devlin J at first instance (at 254 and following) and the Court of Appeal (at 283 and following). One of the questions which arose in that complicated piece of litigation was whether the Custodian of Enemy Property had Crown status and was accordingly not liable to pay income tax. Devlin J accepted that contention. The Court of Appeal disagreed. The House of Lords allowed an appeal on this point (Bank voor Handel en Scheepvaart NV v Administrator of Hungarian Property [1954] AC 584). In the course of his judgment in the Court of Appeal, Denning LJ (as he then was) said (at 294): 'The immunity can, I think, only be claimed by a person having Crown status. He must be either a servant of the Crown or, at any rate, be in consimili casu: see what Blackburn J. said in the Mersey Docks case (11 HLC 443). But I confess that there are two decisions of a Divisional Court which suggest the contrary. They seem to show that the Crown immunity can be claimed, even by a private person, if it can be shown that Crown purposes would be prejudiced unless immunity were granted to him. One of the cases is Clark v Downes ((1931) 145 LT 20), where it was held that a purchaser of Crown property was immune from the Rent Acts as regards a tenancy created by the Crown; for to hold otherwise would prevent the Crown from obtaining a higher price. Talbot J. considered that to be an extreme application of the doctrine of immunity: see Wirral Estates Ltd. v. Shaw ([1932] 2 KB 247). The other case was Rudler v. Franks, ([1947] KB 530)in 1947, where it was held that a tenant who held from the Crown could eject his sub-tenant in spite of the Rent Acts. It does not seem to have been argued in either of those cases that Crown immunity can only be claimed by a person having Crown status. It was, however, raised before this court in Tamlin v. Hannaford, ([1950] 1 KB 18), in 1950, but it was unnecessary to give any decision upon it. The Divisional Courts do not seem to have been referred to some observations of Lord Watson and Lord Bramwell in Coomber v. Berkshire Justices (9 App Cas 61),which go to show that immunity of Crown property only extends to the Crown interest therein and not to any other interests, and this is, I think, the correct view. The Divisional Court cases have now been overruled in effect by the Crown Lessees (Protection of Sub-tenants) Act, 1952, and need not be further considered.' 92 The authorities cited by Lord Denning were not referred to by the other members of the Court of Appeal and were not mentioned in the speeches in the House of Lords, save for Coomber v Justices of the County of Berks (1883) 9 App Cas 61. Although perhaps not directly in point here, the speeches of Lord Tucker (at 627-628) and Lord Asquith (at 630-631) contain useful summaries of the persons entitled to claim Crown immunity. 93 The High Court considered the issue of statutes binding the Crown at about the same time in Wynyard Investments Pty Ltd v Commissioner for Railways (NSW) (1955) 93 CLR 376. Kitto J (although in dissent) gave a useful summary of the position at 393-394. 94 Lower Hutt City v Attorney-General [1965] NZLR 65 and Wellington City Corporation v Victoria University of Wellington [1975] 2 NZLR 301 follow on from the decision in Doyle v Edwards and, like Roberts v Ahern, deal with property, whether the actual decisions are correct or not (cf Re Northbuild Construction Pty Ltd v Lockton [2000] 2 Qd R 600). 95 In Re Telephone Apparatus Manufacturers' Application [1962] 1 WLR 596 a question arose as to whether a particular agreement was caught by Pt 1 of the Restrictive Trade Practices Act 1956 (UK). There was an agreement between the Postmaster-General and eight manufacturers of telephonic equipment whereby the Postmaster-General agreed to place each order for telephone apparatus by him only with a single contractor to be nominated by the contractors save in five special cases. The contractors agreed to establish a committee which would appoint a secretary whose duty it would be to notify the Postmaster-General of the nominated contractor. The Postmaster-General was not to be concerned with the particular constitution or workings of the committee (the Crown agreement). It was the successor to a 1952 agreement. The agreement in relation to which the controversy occurred was a subsequent agreement between the contractors themselves establishing the committee appointing a secretary and laying down the basis of a quota scheme to be applied in relation to nominations to the Postmaster-General (the TAM agreement). It was conceded that, since the Act did not bind the Crown, the Crown agreement was not registrable. An application for a declaration that the TAM agreement was not an agreement to which the Act applied was made to the Chancery Division and was heard at first instance by Wilberforce J (as he then was). Wilberforce J accepted as a formulation of the general rule the passage from Wrottesley Jin Attorney-General v Hancock, which has been set out above, together with a reference to the dicta of Romer LJ in Clark v Downes. However, it was held that no interests or rights of the Postmaster-General were affected by the agreement in question. 96 An appeal from that decision was allowed (In Re Telephone Apparatus Manufacturers' Application [1963] 1 WLR 463). Willmer LJ said (at 474-475): 'The matter may, I think, be tested in this way. If the T.A.M. agreement is held to be registrable, it must go before the Restrictive Practices Court and may be held to be contrary to the public interest. Should that occur, no method of operating the Crown agreement would remain, except in so far as the contractors upon any particular occasion might be able to reach unanimous agreement for submitting the name of the selected contractor. That, as it seems to me, would be a wholly unrealistic possibility. Should it thus prove impossible to operate the Crown agreement, it must, I think, be presumed that this would prejudicially affect the interests of the Postmaster-General. It is, moreover, to be remembered that it would not be open to the contractors to make a new agreement between themselves providing for an alternative method of selecting the contractor whose name is to be put forward to the Postmaster-General. For if the T.A.M. agreement were held to be contrary to the public interest and, accordingly, void, the contractors would be subject to an order under section 20(3) of the Act of 1956, restraining them from making any other agreement to the like effect. Any agreement whereby they restricted themselves to putting forward a single name, whatever alternative method of selection was provided, would be, in my judgment, an agreement to the like effect. This would be so even if they agreed that a name should only be put forward as the result of unanimous agreement. For they would still be restricted by the obligation envisaged in the Crown agreement to put forward only a single name. The result of the T.A.M. agreement being held to be contrary to the public interest and, accordingly, void, would, therefore, be to leave the Crown agreement almost wholly ineffective. Since the Crown agreement must be presumed to have been entered into for the benefit, not only of the contractors, but also of the Postmaster-General, such a result must be regarded as prejudicial to the interests of the Postmaster-General.' 97 Harman LJ said (at 475-476): 'The first thing here to be noticed about the Act of 1956 is that it does not apply to the Crown. This is admitted. It follows that the emanation of the Crown constituted by the Postmaster-General is free to make his arrangements with his suppliers without regard to the prohibition of restrictive practices prescribed by the Act. The Postmaster-General is by far the largest user of telephone equipment in the country and he has chosen, as he is free to do, to confine his orders to the circle of manufacturers represented by the eight contractors. He is minded to confine his purchases to this circle and presumably has good reason to do so, though this is not the concern of the court.' And (at 477): 'I must say that it seems to me, looking at it broadly, that the two agreements are complementary, and that the T.A.M. agreement is merely a machine for making the Crown agreement work. Had the T.A.M. agreement been, as it might have been, amalgamated with or been expressed as a schedule to the Crown agreement, I take it that the registrar would have admitted that he could not interfere. I cannot see that the fact that in form there are two agreements and not one makes in substance any difference. The two are so intimately connected that to interfere with the T.A.M. agreement is, in effect, to frustrate in whole or in part the Crown agreement, and thus to interfere with the freedom of contract of the Crown. It is true to say that the Crown disclaims any control over the committee and its methods, but to insist that the committee can only act when it is unanimous is, in effect, to hamstring the whole arrangement.' Upjohn LJ said (at 479): 'Sir Milner Holland for the registrar concedes that the Crown is neither expressly nor by necessary implication bound by the provisions of the Act and in such case the law is clear. If an Act of Parliament would otherwise devest the Crown of its property, rights, interests or prerogative, it is not to be construed as applying to the Crown: per Wrottesley J. in Attorney-General v. Hancock ([1940] 1 KB 427, 439). Sir Milner further concedes that in these circumstances the Crown agreement is not subject to registration under the Act, not merely because the Crown is a party to the Crown agreement but because, in the circumstances of this case, if the Crown agreement is subject to registration and so to the jurisdiction of the Restrictive Practices Court the property, rights, interests or prerogative of the Crown may be devested.' And (at 482-483): 'This brings me to the real question whether the Crown will be prejudiced by registration of the T.A.M. agreement with the registrar with the consequential result that one day its provisions will be brought before the Restrictive Practices Court. From what I have already said it must necessarily follow that if the T.A.M. agreement is registered the rights and interests of the Crown will be prejudiced. Suppose the T.A.M. agreement is registered and it is declared that the restrictions which permit the secretary to operate the provisions of clause 1(ii) and clause 3 of the T.A.M. agreement are contrary to the public interest and, accordingly, void and injunctions are granted accordingly: it would make the Crown agreement basically inoperative. The Postmaster-General, for the reasons already given, simply will not get what he bargained for in the Crown agreement. Accordingly, it seems to me quite plain that if the T.A.M. agreement were to be registered, the Crown would be prejudiced. But as the Crown is not bound by the Act of 1956 it must follow, in accordance with the principle enunciated by Wrottesley J, ([1940] 1 KB 427, 439), that the T.A.M. agreement is not subject to registration and I would so declare.' 98 The concession of counsel for the Registrar that the Crown agreement was not registrable was crucial to the result of that case as the true ground of the decision was that the TAM agreement was effectively part of the Crown agreement (see the analysis in NT Power per McHugh ACJ, Gummow, Callinan and Heydon JJ at [177]-[183]). That concession was questionable. It appears to go further than any previous authority. It is arguably contrary to Dixon v London Small Arms Co. All of the previous cases had dealt with property and general statements, such as those by Wrottesley J and Romer LJ, and must be read in that light. A reference to 'prerogative' in those general statements might refer to a true prerogative of the Crown and not merely a freedom to act. 99 The acquisition of goods and services by an arm of the executive government would not normally be described as an exercise of the prerogative of the Crown. It is the exercise of a freedom to act and will often be the result of legislation and Parliamentary appropriation. It is not like requisitioning supplies in war time or other steps which might arguably be seen as the exercise of a prerogative of the Crown. One view of prerogative rights is that of Blackstone who, in his Commentaries on the Laws of England, (1765), Bk 1 Ch 7, p 232), said that the term 'can only be applied to those rights and capacities which the King enjoys alone, in contradistinction to others, and not to those which he enjoys in common with any of his subjects' (quoted by Brennan J in Davis v The Commonwealth (1988) 166 CLR 79 at 108). A wider view is that it means any rights which the Crown possesses at common law rather than by statute (Re Residential Tenancies Tribunal (NSW); Ex parte Defence Housing Authority (1997) 190 CLR 410, 438; cf Johnson v Kent (1975) 132 CLR 164). Whether the ability to contract to obtain goods and services in such a right is doubtful. 100 Absent legislation or special circumstances, in acquiring goods and services the executive government takes the market as it finds it and has no special status as a purchaser, although it may have considerable market power because of the volume of potential purchases. In that context, it is difficult to see why the circumstance that the executive government is not bound by a statute should lead to the conclusion that conduct in breach of the statute by others is not prohibited, so permitting unrestrained restrictive practices in connection with the acquisition of goods and services on behalf of the executive government or its instrumentalities by all concerned. The interests affected are essentially commercial in nature. 101 A similar point is made by the majority in NT Power in the following paragraph ([181]): 'The first, wide, basis for the decision treated the two agreements as distinct: the striking down of the TAM agreement would make the Crown agreement almost wholly ineffective and deprive the Postmaster-General of the services of the committee. This first basis is questionable. Willmer LJ said that the Postmaster-General's "interests" would be prejudicially affected by the invalidity of the TAM agreement, and Upjohn LJ said that the Crown's "rights and interests" would be prejudiced. But the interests were only commercial interests: the legal position of the Postmaster-General was unimpaired. Harman LJ said that to interfere with the TAM agreement was "to frustrate in whole or in part the Crown agreement, and thus to interfere with the freedom of contract of the Crown". That "freedom" was not a legal right: the Crown and the manufacturers could have included within the Crown agreement any term of the TAM agreement they wished, but they chose not to.' 102 The consequences of the argument for the States on this point are significant. The amount involved in the combined purchases of goods and services by the executive governments of the States and State instrumentalities is massive and, as this case illustrates, in many fields would dominate demand. It is one thing to exempt the executive government from legislative prohibition as to conduct, particularly where the dominant position of the executive government in many markets would complicate procurement. It is another to have a substantial area of commerce in which restrictive practices can be carried on by all those dealing with a government, perhaps to the disadvantage of the public purchasing authority, but also to the detriment of other suppliers and consumers. It seems odd, for example, that a contract entered into as a result of misleading or deceptive conduct by a supplier corporation, which conduct would otherwise be contrary to s 52 of the Act but fell short of deceit, could not be set aside by the misled purchaser, or that a contract entered into as part of a collusive bidding arrangement, whether with or without the knowledge of the public instrumentality, should be immune from attack under the Act. Indeed, the actual facts of In re Telephone Apparatus Manufacturers' Application are contrary to modern notions of competition law. The evils of a State-sponsored cartel are not limited to the risk of causing higher prices to be paid by the government purchaser whether due to naivety, corruption or simply the inability to find out the truth. The existence of a cartel eliminates the ability of other suppliers to compete for government business which may dominate the market. The Crown agreement involved in that case had its genesis in the early 1950s, before there was any serious competition regulation in the United Kingdom or Australia. 103 The passages to which reference has already been made from Bradken indicate that a majority of the High Court took the concession made in In Re Telephone Apparatus Manufacturers' Application to represent the law. The decision in Bradken is consistent with that conclusion in that the contracts, arrangements or understandings in question in that case were said to be protected from attack by reason of the involvement of the Crown as a party. That conclusion is binding upon this Court. The High Court did not need to consider the correctness of this aspect of Bradken in NT Power once it was decided that Gasgo was not relevantly the Crown. The decision of the High Court in Bradken did not deal with the question as to whether the parties other than the Crown were responsible for conduct in breach of the Act other than entering into the relevant contract, arrangement or understanding. But Bradken did decide that the contract is immune, even though entering into it was not the specific gravamen of the prohibition. The contracts said to be in breach of s 47 were protected as much as the contract said to be in breach of s 45. 104 It is submitted on behalf of the ACCC that the effect of Bradken should not be extended. The issue of the conduct of the other parties was expressly left open in that decision. It is submitted that the effect upon the government of punishing past behaviour or injuncting future behaviour of third parties is purely collateral and commercial and does not divest any right or interest of the Crown or affect the exercise of any prerogative of the Crown. The argument in response is that to subject private parties to the Act when they are dealing with the Crown will inevitably affect the manner in which the Crown can do business in obtaining supplies and so affect its interests consistently with the wide statements of principle in Bradken. Distinguishing between entering into a contract, arrangement or understanding, on the one hand, and the conduct relating to it, on the other, is submitted to be artificial. 105 The approach of the majority in NT Power, particularly in its analysis of the wider view concerning In re Telephone Apparatus Manufacturers' Application, gives an indication that the effect of Bradken might be confined or even reviewed by the High Court when it falls for consideration by that Court. As Murphy J pointed out in Bradken, the Act in terms prohibits conduct by a corporation and the fact that the Act might not bind the Crown does not mean that it has no application to conduct of others in relation to the Crown. However, Bradken has stood for many years and the 1995 amendments were framed against that backdrop. The effect of Commonwealth legislation upon the activities of the States is a serious political and constitutional issue. We are not persuaded that an intermediate appellate court should now deliberately confine the effect of Bradken as we have been invited to by the ACCC. In our opinion, the primary judge was on safe ground in holding that to grant relief claimed would be inconsistent with the immunity of the various State governments from the effect of the Act. Even if the effect of Bradken is more confined than appears from a reading of the judgments, it by no means follows that the result in this case would be different as the conduct in question in this proceeding is closely concerned with contractual and precontractual dealings between the States and Territories and Baxter directly related to the procurement of essential government supplies. 106 As the appeal upon this threshold issue fails, the appeal must fail regardless of the correctness or otherwise of the findings below as to breach of the Act. Those contentious findings are moot.

Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd

At a glance

Court

Decision date

Before

Source

Judgment (47 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (11)

Cited By (2)