Legal Briefing No. 39

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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