FEDERAL COURT OF AUSTRALIA Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd [2005] FCA 1109 AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v BAXTER HEALTHCARE PTY LTD AND THE STATE OF WESTERN AUSTRALIA AND THE STATE OF SOUTH AUSTRALIA AND THE STATE OF NEW SOUTH WALES NSD 1008 OF 2005 MOORE J 12 AUGUST 2005 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1008 OF 2005 ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION APPELLANT AND: BAXTER HEALTHCARE PTY LTD FIRST RESPONDENT THE STATE OF WESTERN AUSTRALIA SECOND RESPONDENT THE STATE OF SOUTH AUSTRALIA THIRD RESPONDENT THE STATE OF NEW SOUTH WALES FOURTH RESPONDENT JUDGE: MOORE J DATE OF ORDER: 12 AUGUST 2005 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The application for orders removing the appeal from the Full Federal Court list for the sittings in Sydney commencing 31 October 2005 and listing the appeal in the call over for the Full Federal Court sittings in February 2006 be dismissed. 2. Costs of the application be costs in the appeal. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1008 OF 2005 ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION APPELLANT AND: BAXTER HEALTHCARE PTY LIMITED FIRST RESPONDENT THE STATE OF WESTERN AUSTRALIA SECOND RESPONDENT THE STATE OF SOUTH AUSTRALIA THIRD RESPONDENT THE STATE OF NEW SOUTH WALES FOURTH RESPONDENT JUDGE: MOORE J DATE: 12 AUGUST 2005 PLACE: SYDNEY REASONS FOR JUDGMENT 1 This is an application by the Australian Competition and Consumer Commission ("the Commission") for an order removing an appeal from the Full Court list for the sittings commencing 31 October 2005 ("the November sittings") and an order listing the appeal in the call over for the sittings in February 2006 ("the February sittings"). 2 The appellant is the Commission. The notice of appeal was filed on 20 June 2005. The appeal is against the judgment of Allsop J of 16 May 2005 in Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd [2005] FCA 581. The appeal was placed in the next call over held on 27 July 2005. At the call over, counsel for the Commission sought to have the appeal stood over and not listed in the November sittings. Baxter Healthcare Pty Ltd ("Baxter"), one of the respondents to the appeal, opposed the matter being stood over and submitted the appeal should be listed in the November sittings. I then ordered that it be listed in the November sittings. The Commission did not want its appeal heard in the November sittings because senior counsel who had represented it at the trial, would not be available. That was because he was briefed in a criminal matter which was scheduled to continue through the entire period of the November sittings. 3 Since the call over, the Commission has made inquiries about the availability of other senior counsel. In summary, the Commission will have considerable difficulty in securing the services of senior counsel to appear in the appeal with what it assesses as sufficient expertise in the field. By notice of motion filed on 1 August 2005, the Commission sought to re-agitate the issue of whether the appeal should be listed in the November sittings. Baxter continued to oppose any delay in the hearing of the appeal. 4 It is necessary to refer briefly to the issues decided by Allsop J. The first few paragraphs of his Honour's reasons set out, in summary, both the nature of the proceedings and his Honour's conclusions. The reasons commenced: The Australian Competition and Consumer Commission (the "ACCC") has brought an application under Part IV of the Trade Practices Act 1974 (Cth) ("the Act") against Baxter Healthcare Pty Ltd ("Baxter"), a manufacturer and supplier of sterile fluids. It seeks declarations that there have been various contraventions by Baxter of ss 46 and 47 of the Act, It also seeks injunctions under s 80 of the Act, pecuniary penalties under s 76 of the Act and an order that there be findings of fact pursuant to, and for the purposes of, s 83 of the Act. The conduct of Baxter was at all times undertaken with New South Wales, Queensland, South Australia, Western Australia and the Australian Capital Territory in connection with the supply to the health authorities of those States and that Territory of fluids and products for use in hospitals. I have come to the view that the Act does not apply to, or operate in respect of, the conduct complained of. The reasons for this conclusion, which are set out later in these reasons, are that (to use a convenient shorthand) the principles of Crown immunity or derivative Crown immunity mandate that result. I have otherwise dealt with the matter on the assumption that I am wrong in that conclusion. Approaching the matter on that basis, I would find that there has been one contravention of s 46 of the Act, and that there have been a number of contraventions of s 47 of the Act. 5 Later in his reasons (at [37] and following), his Honour summarised the Commission's case in general terms: The ACCC submitted that, broadly speaking, the sterile fluids other than PD, and perhaps PN, fluids can be viewed as bulky water-based items in respect of which Baxter has the only manufacturing plant in Australia. The products could also be described as "high volume low value" and were to be compared to PD products which were of lower volume and higher value. Thus, it was said, Baxter has a significant competitive advantage in the manufacture and sale of these "high-volume-low-value" sterile fluids. Importation costs of carrying "water on water" made import competition in relation to sterile fluids very difficult. The ACCC's case was that, effectively, a monopoly existed for sterile fluids. PD fluids, on the other hand, were of lesser volume or bulk and of higher value than sterile fluids. Taken as an individual group of products, the local manufacture by Baxter of PD did not give it as significant an advantage as it enjoyed in respect of sterile fluids. Import competition was real in relation to PD products. The impugned approach of Baxter was said to be the "bundling" of the PD products with the "monopoly" sterile fluid products, thereby eliminating, it was 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. 6 As to the alleged contravention of s 46 of the Trade Practices Act 1974 (Cth) ("the Act), the claims were summarised (at [40] and following): The ACCC, in its s 46 claims, says that Baxter took advantage of what was said to be its substantial market power in the sterile fluids market or markets for the purpose of harming competitors or preventing competitive conduct in the PD products market. …. In essence, the complaint was that Baxter offered prohibitively high item-by-item prices (the so-called "cherry pick" prices) so as to compel the States to agree to exclusive supply contracts for the supply of sterile fluids (being products over which it has a monopoly and being products which constitute a market or markets in which it allegedly has substantial power), bundled with PD products, for lengthy periods. This arrangement allegedly took advantage of Baxter's market power in the sterile fluids market or markets, because it would not or could not have been able, under competitive conditions, to force the States to take the bundled offer by threatening prohibitive prices for sterile fluids. This arrangement also allegedly harmed both actual and potential competition in the PD products market, namely two foreign concerns through their Australian subsidiaries, to which I will generally refer without any greater specification of corporate form, except where necessary, as Fresenius and Gambro, because these companies were unable to compete in the markets for LVP, PN and IS fluids. To be successful, the ACCC had to demonstrate that Baxter had substantial power in the relevant sterile fluids market or markets, that Baxter took advantage of that power and that Baxter had the requisite subjective purpose. 7 As to the alleged contravention of s 47 of the Act, the claims were summarised (at [73] and following): The substantially identical body of conduct (with one additional aspect) is said to give rise to contraventions of s 47 of the Act. The additional aspect of conduct relied upon is that from 18 May 1998, 1 April 2001 and 1 March 2001, Baxter has supplied LVP fluids, PN fluids, IS and PD products to NSW, SA and WA, respectively, under the relevant agreements and that from 1 June 2001 Baxter has supplied LVP fluids, IS and PD products to QLD under the relevant agreement. This conduct was said to be, the offering to supply, or the supply, of goods (LVP fluids, IS, PN fluids (except for QLD) and PD products) or the supply of those at a particular price on condition that the State or the ACT will not, or will not to a limited extent, acquire such goods from a competitor of Baxter, thereby satisfying s 47(2) of the Act. The various claims under s 47 of the Act were framed in the alternative by reference to various markets for PD products LVP fluids, PN fluids, IS and sterile fluids. In each case the underlying conduct was the same: negotiating, entering into and supplying pursuant to each of the five impugned agreements. The substance of the allegations are apparent from these passages and it is unnecessary to explain what the various acronyms mean. His Honour's ultimate conclusions (apart from immunity questions) were summarised at [643]: …I would dismiss the Application insofar as it asserts and relies on contraventions of s 46 of the Act with the exception of Offer 1A in South Australia; and I would, subject to settling the precise terms of the relief, make declarations and injunctions, and consider the imposition of penalties, in relation to the conduct of Baxter in responding to requests for tenders and in negotiating the contracts in question with NSW, SA, WA and QLD as amounting to contravention of s 47 of the Act and in relation to the making of Offer 1A to SA as amounting to a contravention of s 46 of the Act. 8 His Honour approached the immunity questions by addressing both the operation of the Act on contractual arrangements between Baxter and a State or Territory and also its operation on the negotiations leading to such a contract. As to the former the substance of his Honour' s conclusions were (at [682]): … the Act's operation does not extend to their [relevant States and the ACT] legal rights found in the impugned contracts. It follows from that limitation on the operation of the Act (a limitation intended by the Commonwealth Parliament) that the other party to the contract is not affected by the operation of the Act. Thus, at least to enter into and give effect to (here by supplying pursuant to) the contract is not touched by the Act. To do so would be to make unlawful the performance of obligations or the taking advantages of rights bargained for or granted by the State or Territory in its contract. The legal rights of the Crown would be directly affected. … As to the latter (negotiations) his Honour identified the issue (at [687]): This leaves the issue of whether the principle 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 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. and the answer, in principle, as being (at [693]): 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. His Honour then reviewed the conduct associated with entry into each of the impugned contracts (having regard to the pleadings) and concluded the Act had no application to that conduct. 9 I should mention that the trial took 23 days and it is estimated that the appeal will take 4 to 5 days. By a notice of contention, Baxter puts in issue in the appeal various findings of fact of the primary Judge and certain of his legal conclusions. 10 The gist of the Commission's argument in support of the removal of the appeal from the November sittings was that it would not be able to have senior counsel of its choice, there was a real risk that it would not be able to retain senior counsel with appropriate experience at all, the delay occasioned by the appeal being heard in the February sittings was not great and there was no real prejudice to Baxter if the matter went over. The gist of Baxter's argument supporting the hearing of the appeal in the November sittings was that the Commission had suitably qualified junior counsel who could conduct the appeal, it had not been established there were no senior counsel available to appear for the Commission, Baxter's commercial position would be significantly prejudiced by any delay and, in any event, there had already been significant delay in the proceedings more generally occasioned by the conduct of the Commission. 11 It is convenient to consider first what the likely delay will be. I am here discussing submissions concerning, in effect, the period between the time judgment was likely to be given if the matter was heard in the November sittings and the time judgment was likely be given if the matter was heard in the February sittings. Counsel for the Commission submitted that the delay would only be of the order of six weeks. As I understood the submission, the six weeks was based on an assumption that if the appeal was heard in the November sittings, judgment would not be given before Christmas and most likely not before the February sittings themselves. 12 As noted earlier, the November sittings commence on 31 October 2005. They conclude, for present purposes, on 18 November 2005. The February sittings commence on 13 February 2006 and conclude, for present purposes, on 3 March 2006. Having regard to information provided by the parties to the Court concerning the availability of counsel (other than the preferred senior counsel for the Commission), there is a real prospect that the appeal could be listed in the first week of the November sittings. That week is the only week in which all counsel nominated by the parties (other than the preferred senior counsel for the Commission) are available. When judgment is likely to be given is, of course, a matter of speculation. The issues in the appeal (including the notice of contention) appear to be both significant and potentially complex. However, I do not accept that judgment will not be given, as counsel for the Commission appeared to submit, before Christmas if the matter is heard in the first week of the November sittings. It would be realistic to think that judgment in the appeal could be given before Christmas though obviously there is a real prospect it will not be. However, it cannot be assumed that judgment would not be given before Christmas if the appeal was heard in the November sittings. If judgment was given before Christmas, then the delay arising from the appeal being heard in the February sittings is potentially two to three months or even more. Even if judgment was not given before Christmas there is a prospect that it would be given early in the New Year. In January 2005, over 30 judgments were given in this Court. 13 The Commission has endeavoured to meet the potential prejudice to Baxter of any delay by indicating that if it was successful in the appeal it would not seek a penalty referable to any impugned conduct in the period between the November and February sittings. However, the potential prejudice to Baxter is not met by that intimation. Importantly, there is evidence indicating that two of the contracts the subject of an adverse finding by the primary Judge, namely the sterile fluids contracts between Baxter and the State of Western Australia and Baxter and the State of South Australia expire on 28 February 2006 and 30 March 2006 respectively. I was informed, and this does not appear to be contentious, that those contracts were for a fixed term and tenders will be called for new contracts at about the time the existing contracts expire. The contract with the State of Queensland expired on 31 May 2004 but has been extended on what was described as "a rolling basis". In addition, a contract with the State of New South Wales expires in November 2005. The unchallenged evidence was that a new contract is likely to operate from that time and it is likely that the State of New South Wales will issue a request for tender in respect of that contract. 14 It follows that there is a real prospect that Baxter will shortly be in the position of having to formulate tenders for contracts broadly of the type sought to be impugned by the Commission in the proceedings to which this appeal relates and potentially engage in negotiations of the type which the Commission also sought to impugn. It will do so in circumstances where, while it has the benefit of his Honour's judgment, there is the uncertainty arising from the challenge, by way of appeal, to that judgment. In those circumstances a delay of potentially three months or more possibly leading to the determination of the appeal in the first half of 2006 (and almost certainly some time well after the end of February) rather than the last quarter of 2005 or first month or two of 2006 could be material to Baxter and create real prejudice. In addition, there is the potential prejudice to Baxter of greater exposure (by virtue of it being for a longer period) to any damages claims against it by any party adversely affected by its conduct if, ultimately, it is found to have been engaged in conduct in contravention of the Act. 15 Against that has to be balanced the prejudice to the Commission of not having senior counsel of its choice who conducted the trial, interviewed witnesses (and, in particular, interviewed a Professor Barry Nalebuff whose opinion is apparently viewed by the Commission as significant) and undertook some examinations under s 155 of the Act and the possibility it will not be able to retain appropriate senior counsel at all. The evidence, as it presently stands, is that senior counsel of its choice who conducted the trial is not available at all and virtually all the comparatively limited number of senior counsel who the Commission believes have the appropriate experience and standing are not available because they have other commitments, have insufficient time to prepare or charge fees which the Commission is unlikely to be able to offer. However, the evidence is that there are two other senior counsel who might be suitable but they are both in Melbourne. The Commission has said that it does not wish to brief either of these counsel because of the costs and practical difficulties associated with retaining counsel who live in another city and preparing an appeal "between cities". 16 While it is regrettable that these difficulties have arisen, I remain of the view that, on balance, the potential prejudice to Baxter by removing the appeal from the November sittings outweighs the potential prejudice to the Commission. The Commission has the option of conducting the appeal using the competent and experienced junior counsel who appeared at the trial or, in addition, retaining senior counsel from Melbourne notwithstanding the additional cost and practical difficulties. While the Commission may well incur additional costs if fresh senior counsel is briefed, at least some of those costs are likely to be recoverable if it is successful in the appeal. 17 The Federal Court Rules, in O 52 r 29(3), provide that an appeal shall be set down for hearing at the first sittings of the Court in its appellate jurisdiction appointed to be held at the place of hearing after the expiration of six weeks from the institution of the appeal. In this appeal that means the November sittings. While that requirement is subject to any order of the Court or a judge to the contrary, it manifests a bias towards listing an appeal for hearing as soon as practicable after the notice of appeal was lodged. Indeed, even without the rule, the interests of justice ordinarily require the expeditious disposition of any proceeding in the Court with, in this matter, the same result. I was referred to some authority which was of limited assistance: see, in particular, Sali v SPC (1993) 116 ALR 625 at 628-629. Ultimately, however, I am exercising a discretionary power that must be exercised judicially. I am not persuaded that an order should be made modifying the operation of O 52 r 29(3). Accordingly, I dismiss the Commission's application. The costs of the application should be costs in the appeal. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moore. Associate: Dated: 12 August 2005 Counsel for the Appellant: A I Tonking Solicitor for the Appellant: Australian Government Solicitor Counsel for the First Respondent: I S Wylie Solicitor for the First Respondent: Blake Dawson Waldron Solicitor for the Fourth Respondent and on behalf of the Second and Third Respondents New South Wales Crown Solicitor Date of Hearing: 9 August 2005 Date of Judgment: 12 August 2005