Section 2B
Application of Act to States and Territories

(1) The following provisions of this Act 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:

(a) Part IV;

(b) Part XIB;

(c) the other provisions of this Act so far as they relate to the above provisions.

(2) Nothing in this Act renders the Crown in right of a State or Territory liable to a pecuniary penalty or to be prosecuted for an offence.

(3) The protection in subsection (2) does not apply to an authority of a State or Territory.

Inserted by Competition Policy Reform Act 1995 (Act 88 of 1995)

Amended by Trade Practices Amendment (Telecommunications) Act 1997 (Act 58 of 1997)

Amended by A New Tax System (Trade Practices Amendment) Act 1999 (Act 61 of 1999)

Amended by Statute Stocktake (Regulatory and Other Laws) Act 2009 (Act 111 of 2009)

In Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd and Ors [2007] HCA 38 was a case concerning allegations of misuse of market power and exclusive dealing. It involved Baxter Healthcare's dealings with a number of state purchasing authorities. These authorities were not 'carrying on business' and therefore were not subject to the prohibitions in the Act. Baxter argued, in part, that it enjoyed 'derivative crown immunity'; in other words, if the state purchasing authorities were immune from liability then it was as well.

Chief Justice Gleeson and Justices Gummow, Hayne, Heydon and Crennan observed [footnotes omitted; emphasis added]:

[16] Section 2A, which was originally inserted in 1977, provides that the Act binds the Crown in right of the Commonwealth in so far as the Crown in right of the Commonwealth carries on a business, either directly or by an authority of the Commonwealth. However, the Crown in right of the Commonwealth is not liable to prosecution or to a pecuniary penalty (s 2A(3)). Section 2B, which was inserted in 1995, makes corresponding provision as to the Crown in right of a State or the Crown in right of a Territory in relation to certain parts of the Act, including those that are presently relevant. Section 2C, also inserted in 1995, provides that certain specified forms of government activity, or exercises of government powers, do not amount to carrying on a business for the purposes of ss 2A and 2B. That list is not exhaustive (s 2C(2)). In the present case, it was conceded by the appellant that the acquisition of the products in question by the SPAs was not in the course of carrying on a business.

[63] For the reasons already given, and particularly because of the terms of s 2B, ss 46 and 47 of the Act, even when the Crown is acting through a corporation as defined, or in any extended application of the Act under s 6, do not apply to conduct of the Crown in right of a State or Territory so far as the Crown does not carry on a business. Sections 46 and 47 did not apply to any conduct of the second, third and fourth respondents in this case. [emphasis added]

[64] At the same time, it would be wrong to conclude that ss 46 and 47 had no application to any conduct of the first respondent in relation to its dealings with the second, third and fourth respondents. The first respondent was a trading corporation. A conclusion that, in carrying on dealings with a government in the course of its own business, it enjoyed a general immunity not available to the government when the government was carrying on business itself would be remarkable. Such a conclusion would be impossible to reconcile with the object of the Act as now declared in s 2. Furthermore, such a conclusion would go far beyond what is necessary to protect the legal rights of governments, or to prevent a divesting of proprietary, contractual and other legal rights and interests. As a result of changes to the Act since Bradken, State and Territory governments no longer enjoy any general immunity from the Act. Acting under s 51(1), State and Territory Parliaments may legislate to protect governmental interests, but the legislative emphasis on the specificity with which they must do that (increased since Bradken) draws attention to the importance attached to the pursuit of the object declared in s 2.

[65] One example is sufficient to demonstrate the unacceptable consequences of a general proposition that s 47 of the Act did not apply to the first respondent in its dealings with the SPAs. Section 47(3) covers refusals to deal. Suppose the first respondent, over the protests of a SPA, had refused to supply sterile fluids unless the SPA agreed not to acquire PD products from anyone else. It is difficult to take seriously a suggestion that the Act was not intended to cover such conduct.

[66] The real question is the extent to which the reach of ss 46 and 47 of the Act, and the provisions relating to remedies, in their potential application to the conduct of the first respondent, is modified by the operation of the principle of construction discussed above.

[67] The argument for the respondents, accepted by Allsop J and the Full Court, was expressed by Allsop J as follows:

"The respondents submitted that all [the] relief [claimed] impermissibly applied the Act to the Crown by denying it the right, power and capacity that it had and has to enter a contract of such kind as it wishes. This was said to be an interference directly with its rights and not a mere adjectival interference with its commercial interests."

[68] Underlying this argument is the idea that the Act operated so as not to enact any law that would circumscribe the freedom of the Crown in right of a State or Territory to make any kind of contract it wished, and, furthermore, that the Act preserved the Crown's freedom in that respect, by providing that corporations dealing or negotiating with the Crown should be free to propose and make any kind of contract, unfettered by any constraint under the Act. These ideas cannot be supported by reference to any established principle of statutory construction, and they are impossible to reconcile with the purpose and subject matter of the Act. It is one thing to read the Act so as not to divest the Crown of legal rights. It is another thing altogether to read the Act as giving an executive government (as distinct from a Parliament acting under s 51(1)), including all its servants and agents, a freedom not enjoyed when the government itself is carrying on business, from any impact of laws enacted for the promotion of competition and fair trading in the public interest. And it is even more unlikely that that freedom extends to all persons dealing with that executive government.

[69] Allsop J accepted the following proposition:

"If a State or Territory has a contract with a non-government party, the Act is to be construed as not applying to that contract such that the State or Territory and non-government party [are] not bound by the terms of the Act in relation to the entry into and performance of that contract."

[70] If the expression "is to be construed" suggests some inflexible rule of construction, the proposition is inconsistent with Bropho. Even if the expression is understood only as a prima facie approach to construction, it is too wide. In order to protect legal rights of the Crown, it is not necessary to deny that entering into or performing a contract could involve a contravention of s 46 or s 47 by a non-government party. As was pointed out earlier, many statutes, and the Act in particular, may produce the consequence that making or performing a contract is illegal for one party but not for the other. When that occurs, the result is not necessarily general unenforceability of the contract. In the case of the Act, that is reinforced by s 4L as explained in SST Consulting Services Pty Ltd v Rieson. The outcome is determined by the application of the detailed legislative scheme concerning remedies. It is not dictated by a general conclusion that, in order to preserve the Crown's immunity, it is necessary also to extend a general immunity to any non-government party negotiating or contracting with the Crown.

[71] Finally, Allsop J dealt with the problem that, on his findings, the only conduct of the first respondent that otherwise fell within s 46 or s 47 was pre-contract conduct and, in the case of s 46, was conduct that never led to a contract. He said:

"This leaves the issue of whether the principle [of derivative immunity] only prevents the application or operation of the Act to the entry into or giving effect to the impugned contracts once formed, as crystallised legal rights, or whether it extends to prevent the application or operation of the Act to the commercial negotiations leading up to the formation of the impugned contracts. If the former, then Baxter will have contravened s 46 of the Act by making Offer 1A in SA and s 47 of the Act by negotiating, and making the offers it made leading up to the formation of, the impugned agreements. Not only will this have the consequences that declarations to that effect will be made and that Baxter will be liable to the imposition of penalties, but also, Baxter can be restrained from the repetition of such conduct in the future. This would thereby prevent or foreclose the State or the ACT from making a contract with Baxter by preventing its negotiation, notwithstanding that if such a contract were to be formed the Act would not extend to either Baxter or the State or the ACT as to its formation and performance."

[72] The premise that the Act would not apply to the first respondent in relation to the formation or performance of the contract is unwarranted. Even if it were correct, it would not follow that pre-contract conduct, or conduct that never resulted in a contract, would be beyond the reach of the Act. Allsop J dealt with that question by reference to the States' and Territories' freedom of contract, which he described as an aspect of the prerogative, or at least of the relevant polity's "legal situation". He referred to the initiation by governments of a tender process and said:

"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] This reasoning, also, seems to seek to apply some inflexible rule, but even as an expression of an approach to construction it goes beyond the established principle. ... As a matter of construction of the Act ... it is wrong to conclude that it operates to preserve unfettered the contractual capacities of the Crown, to the extent of withholding the application of the Act from conduct by non-government parties in response to an invitation to tender. To return to an example given earlier, suppose a response to an invitation to tender is a refusal to supply except on certain exclusive terms, and that refusal is made with the purpose of lessening competition. It is unsatisfactory to make the application of the Act depend on whether this is a response that was within the contemplation of the procuring authority. It is also at odds with the restrictions imposed by s 51(1) on the capacity of a Parliament to exempt anti-competitive behaviour from the Act. It seems to give the public officials of States and Territories a wider power to give dispensations from the operation of Commonwealth law than State or Territory legislatures.

[89] ... the Act itself appears to assume, for some relevant purposes, that the States and Territories of the Commonwealth are manifestations of the Crown. Thus, s 2A of the Act contains several provisions that assume that the Commonwealth, States and Territories are respectively, in their several identities, manifestations of the Crown "in right of" such polities. This phraseology appears in no fewer than eight of the provisions of ss 2A, 2B and 2C of the Act. Thus, even if the better view of the law of Australia were that the Commonwealth, States and Territories are not manifestations of the Crown in those several "rights", but distinct constitutional entities so described, the express statutory assumption manifested, relevantly, in s 2B(1) of the Act might arguably justify treating as harmless any misdescription of a State or Territory as the Crown. It might justify reading the provision in the Act concerning "the Crown in right of" a given State as nothing more than a reference to the constitutional State itself.