Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd, (Baxter) was a decision of the High Court of Australia, which ruled on 29 August 2007 that Baxter Healthcare Proprietary Limited, a tenderer for various government contracts, was bound by the Trade Practices Act 1974 (TPA, Australian legislation governing anti-competitive behaviour) in its trade and commerce in tendering for government contracts. More generally, the case concerned the principles of derivative governmental immunity: whether the immunity of a government from a statute extends to third parties that conduct business with the government.
The High Court's judgment marked a successful appeal for the Australian Competition & Consumer Commission, the Australian regulator of anti-competitive conduct, having lost at first instance and on appeal in the Federal Court of Australia. The ACCC was again successful when the case was remitted to the Federal Court for reconsideration, ending eight years of litigation between the parties. The High Court's judgment was received as a significant precedent in the law of derivative governmental immunity in Australia.
Background
Facts
Baxter Healthcare Pty Ltd (Baxter), was the Australian subsidiary of the multinational health care company Baxter International. Baxter manufactured intravenous (IV) and peritoneal dialysis (PD) fluids at various plants in Australia. Because of the cost of importing sterile IV fluids and the absence of a rival domestic producer, Baxter was a monopoly supplier of sterile IV fluids in the Australian market. Its monopoly covered large volume parenteral fluids, irrigating solutions and parenteral nutrition fluids. However, Baxter faced competition in the market for peritoneal dialysis fluids (PD fluids).
A number of state governments issued requests for tender for the supply of sterile fluids and PD fluids. Baxter responded to the requests with tenders that put forward two alternative pricing options: either a state could purchase sterile fluids and PD fluids as a bundled package at a discounted rate, or the state could buy each product separately but at a higher rate.
Legislation
Section 46 of the TPA prohibited corporations from misusing market power. Section 47 prohibited exclusive dealing. The critical provision to the case was Section 2B of the TPA. Section 2B provided that Sections 46 and 47 of the TPA:
... bind 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 ...
Section 2B thus provided an immunity from state and territory governments from Sections 46 and 47 of the TPA insofar as the governments were not carrying on a business.
The Australian Competition & Consumer Commission
The Australian Competition & Consumer Commission (ACCC), the Australian government authority responsible for regulating the TPA, commenced an action in the Federal Court of Australia seeking declarations that Baxter's bundling pricing structure in its tenders had contravened Sections 46 and 47 of the TPA. The ACCC sought the imposition of injunctions and pecuniary penalties by the court.
Derivative governmental immunity before Baxter
Derivative governmental immunity refers to the extension of a government's immunity from a statute to a non-government party on the basis the government would be affected if the statute was to apply to the other party.
Prior to Baxter, the leading case on derivative governmental immunity in Australia was the 1979 High Court judgment in Bradken Consolidated Ltd v Broken Hill Pty Co Ltd. In Bradken, the High Court upheld a claim for derivative governmental immunity by equipment suppliers to the Queensland Commissioner for Railways. The majority's conclusion was that if the Queensland government was immune from the TPA, it would prejudice the Queensland government if the contracts and arrangements it entered were subject to the TPA through the other parties to the contracts and arrangements.
Bradken'''s application of the principle of derivative governmental immunity had been subject to criticism. Robertson Wright SC, a Senior Counsel specialising in competition and trade practices law, argued there are "a number of difficulties" with the judgment, including the "unsatisfactory nature" of the authorities it relied on. The High Court's judgment in Baxter would mark a retreat from Bradken.