In brief - Councils not exempt from operation of Competition and Consumer Act (CCA)
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 (Cth), which replaced the well-known Trade Practices Act. However, that is not the case. Like individuals, partnerships and companies, councils can fall foul of the CCA, including its misleading or deceptive conduct provisions.
Council issues "Expression of Interest" and negotiates with two supermarkets
The application of the CCA to the conduct of local councils was considered in the Supreme Court of NSW case of Fabcot Pty Ltd v Port Macquarie-Hastings Council  NSWSC 726.
In 2005 Port Macquarie-Hastings Council sought expressions of interest (EOI) for the development of council land. Coles and Woolworths both expressed interest in the project. The council initially approved Woolworths' proposal. When those negotiations reached an impasse, the council commenced negotiations with Coles.
Dissatisfied with the progress made, in 2007 the council again sought EOIs for the development of the land. Coles and Woolworths again expressed their interest. In 2008 the council gave in principle approval to Woolworths' development proposal. However, after several months of negotiations, the council and Woolworths were unable to reach agreement on the terms of the agreement.
Unsuccessful party sues council for misleading and deceptive conduct
As a result of the impasse it had reached with Woolworths, in 2009 the council re-opened negotiations with Coles. For commercial reasons, the council deliberately refrained from informing Woolworths that it was also negotiating with Coles. Woolworths continued negotiating with council and carrying out preliminary works in the belief that it had an exclusive arrangement with the council.
On 1 July 2009, council agreed to sell the land to Coles. Woolworths sued the council, alleging amongst other things that the council's failure to disclose to Woolworths that it was also negotiating with Coles was misleading and deceptive.
The court held that the council's conduct was misleading and deceptive. Moreover, the court found that the 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.
Councils need to act with honesty and candour in their commercial dealings
Councils (and their officers) need to ensure that when carrying on their commercial activities, 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.
Exposure to risks from engaging in misleading or deceptive conduct
Councils that are found to have engaged in misleading or deceptive conduct expose themselves to:
- Having damages awarded against them (e.g. 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
- Reputational damage due to adverse publicity
Risks to officers who work for councils
Further, officers acting as the organ of the council are also exposed to the risk of being found to have 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.
Officers of councils need to be covered by liability insurance
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.