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Australian Government Solicitor

 

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Legal Briefing

Number 39

17 November 1997

COMPETITION LAW AND COMMONWEALTH BUSINESS ACTIVITIES

Implications for Clients

It is important that clients in the Commonwealth public sector are aware of the application of the Trade Practices Act 1974 ('the TPA') to their activities. Sanctions apply where the TPA is breached and these can have significant legal and political implications. Because of these risks, a proactive and preventative approach is recommended. This Briefing outlines the application of the TPA to Commonwealth agencies. Where the Commonwealth carries on a business, either directly or by a Commonwealth authority, it is bound by the provisions of the TPA.

Situations Where Trade Practices Issues May Arise

By way of example, the following situations may give rise to concern - where an agency:

  • refuses to supply to a competitor or potential competitor
  • makes a decision not to charge for goods and services
  • provides goods or services to its commercial arm at a rate less than the market rate
  • provides goods or services to the community on a differential basis, for example, where some are charged and some are not
  • provides goods or services to persons on an exclusive basis, that is, where only that person has the right to use the information
  • applies restrictions, particularly on price, to the resupply of goods and services
  • charges less than the market rate
  • makes representations about its goods and services
  • supplies goods or services which are defective or not fit for their purpose.

Application of the TPA

Under section 2C of the TPA, certain activities do not amount to 'business', for example, taxes, levies and fees for licences. The Courts have held that Telstra, Australia Post, Australian Government Publishing Service ('AGPS'), Air Services Australia and the Australian Broadcasting Corporation were all carrying on a 'business' for the purposes of this section. It is not necessary that all of the operations of an agency be a business. Thus it may sometimes be the case that a core government Department 'carries on a business' to a small degree.

The McMillan Case

In the recent decision J.S. McMillan Pty Limited, Pirie Printers Holdings Pty Limited and Imsep Pty Limited trading as National Capital Printing Pty Limited v Commonwealth of Australia 147 ALR 419 at 435 relating to AGPS Emmett J said:

The term "business" is defined in s 4 as including a business not carried on for profit. Nevertheless, it is still necessary to find an activity which can be characterised as carrying on a business. Words such as "business" have "about them a chameleon-like hue, readily adapting themselves to their surroundings, different though they may be" (per Mason J in Federal Commissioner of Taxation v Whitfords Beach Pty Ltd (1982) 150 CLR 355 at 378-379). "The expression 'carry on business', in its ordinary meaning, signifies a course of conduct involving the performance of a succession of acts and not simply the effecting of one solitary transaction" (per Gibbs J in Smith v Capewell (1979) 142 CLR 509 at 517).

However, mere repetitiveness is not sufficient to constitute carrying on of a business. System and regularity are involved in the carrying on of the business but it does not necessarily follow that one who has transactions of the same kind systematically or regularly is carrying on a business in those transactions.

Emmett J went on to find that general printing and like services provided by AGPS to other Commonwealth agencies were activities comprising the carrying on of a business. The reason is that in its guise as AGPS, the Commonwealth was doing what any citizen or private trader might do. However, the Commonwealth agencies which acquire the services for the purposes of governing were not engaged in business. Further, in selling the business of AGPS to a private owner the Commonwealth was not engaged in a business. This was seen as a 'once off decision' to cease the business.

Part IIIA of the TPA establishes a legal regime to facilitate access to services of certain essential facilities of national significance. This Part applies to the Commonwealth whether or not the Commonwealth is carrying on a business.

Responsibilities of Senior Management

The Courts have found that senior management carries special responsibility to ensure compliance with the TPA. In the recent decision of ACCC v Australian Safeway Stores Pty Ltd 145 ALR 36, Goldberg J was faced with a situation where Tip Top Victoria, a division of George Weston Foods (GWF) had a well-formulated compliance program which it had not enforced (because of a high turnover of managers). There was no evidence that senior management knew of the breaches. Goldberg J held:

It is very important in this area that responsibility be assumed and discharged by the board of directors and senior executives and management for compliance by the corporation with its obligations under the Act [at 42]…and a high turnover of management only requires the board and top management to ensure, and be more vigilant, that a compliance program is actively implemented and carried into effect. [at 48]

GWF cooperated with the ACCC and pleaded guilty but was still ordered to pay a penalty of $1.15 million for price fixing and resale price maintenance.

Identification of the Trade Practices Issues

Part IV of the Act

There are a number of provisions in Part IV of the Act, dealing with restrictive trade practices. The purpose of these provisions is to ensure and maintain competition in trade and commerce.

Section 45 prohibits certain anti-competitive agreements, arrangements or understandings that either have the purpose, or are likely to have the effect, of substantially lessening competition in a market or contain an exclusionary provision. An exclusionary provision is in effect a boycott of another person or class of persons.

Section 45A deems agreements that fix prices to substantially lessen competition.

Section 46 prohibits the misuse of market power, including refusal to supply and predatory pricing. Generally speaking, a business with a substantial degree of power in a market is prohibited from taking advantage of that power for the purpose of:

  • eliminating or substantially damaging a competitor
  • preventing the entry of a person into any market, or
  • deterring or preventing a person from engaging in competitive conduct in any market.

Section 47 prohibits exclusive dealing which has the effect of substantially lessening competition in a market. Generally speaking, exclusive dealing involves the supply of goods or services on the condition that the purchaser complies with certain restrictions concerning with whom, where and in what, it deals. It is prohibited to supply goods or services on condition that the purchaser:

  • will not acquire, or will limit the acquisition of, goods or services from a competitor of the supplier, or
  • will not resupply, or will resupply only to a limited extent, goods to particular persons or a particular class of persons or in a particular place or places.

Section 48 prohibits resale price maintenance. Resale price maintenance involves a supplier:

  • agreeing with a reseller that the latter will not advertise or sell below a specified price
  • setting a minimum price at which resellers should advertise, display or offer their goods for sale or for the resupply of services
  • inducing resellers not to discount
  • taking or threatening to take action against a reseller to force the reseller to sell the goods or resupply services at or above the minimum specified price, or
  • indicating a price that is taken by the reseller as a price below which goods or services may not be resold.

Section 88 empowers the ACCC to grant authorisations in respect of conduct that falls within most of the above provisions. However, authorisations are not possible if conduct falls within section 46.

Part IVA of the Act

Part IVA deals with unconscionable conduct. Section 51AA prohibits unconscionable conduct in commercial dealings. Section 51AB prohibits unconscionable conduct in consumer dealings and is considerably wider. 'Unconscionable conduct' refers to conduct where:

  • one party to a transaction suffers from a special disability or disadvantage in dealing with the other party
  • the disability was sufficiently evident to the stronger party, and
  • the stronger party took unfair or unconscionable advantage of its superior position or bargaining power to obtain a beneficial bargain.

The Government currently has reform proposals to extend the protection of section 51 AB to small business.

Part V of the Act

There are a number of provisions in Part V of the Act, dealing with consumer protection.

Division 1 deals with unfair practices. Section 52 prohibits misleading and deceptive conduct. Generally speaking, businesses are required to tell the truth or refrain from giving an untruthful impression.

Division 2 deals with conditions and warranties in consumer transactions, and implies into all consumer contracts certain conditions and warranties. Its purpose is to protect consumers when they acquire goods or services.

Conditions implied by Division 2:

  • the supplier must be able to give the consumer clear title to the goods
  • the goods must be of a merchantable quality
  • the goods must be fit for their purpose
  • goods supplied by description or sample must correspond with the description or sample.

Warranties in contracts implied by Division 2:

  • the consumer is entitled to enjoy quiet possession of the goods
  • the consumer is entitled to own the goods outright
  • services must be carried out with due care and skill
  • services and any materials associated with them must be fit for the purpose for which they are supplied.

Section 68 provides that a seller may not exclude, restrict or modify the statutory conditions and warranties in Division 2. Any term to do so will be void.

Remedies and Penalties in the Event of Breach

Remedies that may be sought by the ACCC or a private individual or company in the event of a contravention of the TPA include injunctions, declarations, pecuniary penalties for breach of Part 4 (by the ACCC only), fines for breach of Part 5, damages (but not by the ACCC), corrective advertising and, compensation and refund orders.

The pecuniary penalties that may be imposed are:

  • individual - up to $500,000 per offence
  • body corporate - up to $10 million per offence.

The Commonwealth and the States are not liable to a pecuniary penalty or prosecution. However, the ACCC may bring actions for pecuniary penalty against or prosecute an 'authority of the Commonwealth'. An 'authority of the Commonwealth' is a body corporate established under Commonwealth law or a Company owned by the Commonwealth.

Importantly, where a contravention of Parts 4 or 5 is established a person suffering loss or damage by the conduct may recover the amount of the loss or damage (section 82). A third party may also rely upon the findings of a Court to seek recovery of loss or damage suffered (section 83).

A contravention of Part 5 (but excluding section 52) is a criminal offence, punishable by a fine in respect of an individual of up to $40,000 per offence and a body corporate of up to $200,000 per offence.

Acceptance of Undertakings by ACCC

The ACCC may accept an undertaking from a party in relation to a matter: section 87B. Undertakings are generally accepted by ACCC where a contravention is of a comparatively minor nature and court orders are not considered necessary or appropriate. The undertaking may be enforced by the Federal Court. Where the ACCC has reason to believe that a person has information relating to a matter that constitutes a contravention of the TPA the Commission may serve a notice requiring that person to furnish information or documents to the ACCC or require them to attend for examination (section 155).

ISSN 1448-4803 (Print)
ISSN 2204-6283 (Online)

The material in this briefing is provided for general information only and should not be relied upon for the purpose of a particular matter. Please contact the Legal Practice before any action or decision is taken on the basis of any of the material in this briefing.

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