Carrying on: The risk of pulling an ACL in State commercial activities

The Australian Consumer Law (ACL) contains a range of consumer protections and offences, including unfair contracts regime, which prohibits, voids and imposes penalties for unfair and unreasonable inclusions in some contracts.

Section 2B of the Competition and Consumer Act 2010 (Cth) and s 16 of the Australian Consumer Law and Fair Trading Act 2012 deal with the application of the ACL to the State.

However, the ACL applies to the State only where (and to the extent that) it is 'carrying on a business'. Whether the State is doing so requires a close analysis of what it is doing, why and the surrounding context.

This note sets out some of these concepts at a high level. If you work for the State in areas such as contracting, procurement or commercial activities, you should be aware of these concepts and when to seek advice.

What you need to know:

• when the State provides basic government services - even by purchasing goods or contracting services - this will generally not constitute carrying on a business, so the ACL will not apply
• State owned enterprises and corporations who compete in private markets and earn returns are more likely to undertake activities which amount to carrying on a business
• where government undertakes projects or activities which resemble commercial ventures - e.g. outside the governmental functions of an authority, for a reward, and on an ongoing basis - the State might be carrying on a business
• there is no one size fits all test - agencies and decision makers should seek advice early in the course of major projects, to ensure they are not inadvertently impacted, especially where they generate a return, compete with the private sector or otherwise have a commercial look and feel
• If the State is carrying on a business, that is just the start of analysing if and how the ACL applies or impacts it.

What is the ACL

The ACL is a set of consumer protection provisions, including prohibiting misleading and deceptive conduct, unconscionable conduct, implied warranties and the unfair contracts regime. It's a schedule to Commonwealth legislation and is applied in Victoria by enabling legislation.

Where it applies, it can have significant consequence, including hefty penalties for bodies that have unfair terms in their contracts after recent reforms.

What does 'carry on a business' mean?

'Business' is a "wide and general" word within the CCA. Factors that influence whether the government is carrying on a business include:

• whether the activity contains elements of trade or commerce resembling business that a private citizen or trader might undertake
• whether the activity is regular, repeated or systemic
• whether the activity serves a governmental or regulatory purpose, such as the performance of a statutory function in the interests of the community
• whether the activity is conducted for a profit. Activities that are not conducted for a profit may still constitute a business

Several basic functions of government, such as the issuing of licences and levying of taxes, do not constitute businesses under the CCA. For activities outside this narrow class, contracting authorities need to apply the test above to what they plan to do.

When will the State carry on a business?

There's no single definitive answer, but there is a lot of valuable guidance from past cases:

These cases explain the importance of the purpose of an activity as an indication of whether the ACL applies. For example:

• developing and leasing an office space, usually a commercial activity, may not constitute a business where the building that is constructed is necessary to fulfil a government function
• providing electricity infrastructure, usually a governmental activity, may constitute a business where access to a grid is restricted for the purposes of avoiding competition from private businesses

Other factors such as any profit resulting from an activity, repetition, and relevant statutory duties will be more influential in circumstances where the purpose of an activity is less clear.

What about procurement?

The key question is the same: why and how is the State contracting through it procurement? If the procurer is just buying goods or services incidental to its core government services, it is unlikely to be carrying on a business. But, if the State entity is a revenue generating business, or if the State is buying goods and services to sell them on, or generate a return, the risk is higher.

What if the state is carrying on a business?

If the State is, or might be, carrying on a business, many other factors come into play to determine whether how ACL or if the unfair contracts regime applies:

• what part of the State is involved (many state emanations are immune from ACL penalties)?
• the nature of any contract - is it in a standard form?
• the terms of any contract - has the State insisted on particularly one-sided terms that it doesn't need to protect its interests?
• who is the State contracting with? Is it a small business?
• how is the State treating its counterparts? How can it show this? What has it told them or promised and how has it acted in practice?

These questions require context, close analysis and advice.

Contact our team

Alex Murphy Assistant Victorian Government Solicitor
M 0407 932 683 E alex.murphy@vgso.vic.gov.au

Alison O'Brien PSM Assistant Victorian Government Solicitor
M 0409 385 343 E alison.obrien@vgso.vic.gov.au

Rebecca Radford Lead Counsel
M 0447 411 830 E rebecca.radford@vgso.vic.gov.au