It has long been considered that local councils (like trade unions) are not engaged in trade or commerce and therefore are exempt from the operation of the
Competition and Consumer Act 2010 (Commonwealth) (CCA) (which replaced the well known, Trade Practices Act). However, that is not the case. Councils like individuals, partnerships and companies can fall foul of the CCA, including its misleading or deceptive conduct provisions.
The application of the CCA to the conduct of local councils was considered in the Supreme Court of New South Wales case of
Fabcot Pty Ltd v Port Macquarie - Hastings Council [2010] NSWSC 726.
In late 2005, the Council ran an "Expression of Interest" (EOI) process and received interest from Coles and Woolworths. The Council initially approved Woolworths' proposal. When those negotiations reached an impasse the Council commenced negotiations with Coles.
In late 2007 the Council ran another EOI process. Coles and Woolworths again expressed their interest. In early 2008, the Council shortlisted Woolworths. In February 2008, the Council informed Woolworths that it had approved Woolworths' proposal. However, the parties were unable to reach agreement on the terms of the contract.
In early 2009 the Council re-opened negotiations with Coles. The Council deliberately refrained from telling Woolworths that it had re-opened negotiations with Coles. Throughout 2009, the Council was in active negotiations with both parties. Woolworths sued the Council, alleging amongst other things that the Council's non-disclosure of its negotiations with Coles was misleading and deceptive.
The Court held that the Council's conduct was misleading and deceptive. Moreover, the Court found that Council's conduct fell well short of commercial fair dealing and the standards which a commercial party was entitled to expect when dealing with a Council.
Ramifications for Councils
Councils (and their officers) need to ensure that when carrying on their commercial activities that they act with honesty and candour. Otherwise, councils, like any other person or entity involved in trade or commerce, run the risk of being found to have engaged in misleading or deceptive conduct in contravention of the CCA. Councils that are found to have engaged in misleading or deceptive conduct expose themselves to:
- Having damages awarded against them (eg. a party in Woolworths' position would in most cases be entitled to receive compensation for the expenditure it incurred in negotiating with the Council;
- Being injuncted from engaging in the contravening conduct;
- Having executed contracts set aside or varied in order to overcome the contravention;
- Prosecution, and the imposition of penalties, by the ACCC.
Further, officers acting as the organ of the Council are also exposed to the risk of being found to having been knowingly involved in, or aiding, abetting, counselling or procuring the contravention. In the event that an officer is found to have been a party to the contravention of the CCA, the aggrieved party would be entitled to seek damages from the officer.
To the extent that Council officers are involved in commercial negotiations or commercial decisions, officers ought to ensure that the Council has appropriate directors and officers liability insurance policies in place.