THE MEAT CASE

Evening Post, Volume CX, Issue 51, 28 August 1925, Page 4

THE MEAT CASE

MR. LYSNAR AND VESTEY'S

COMMISSION'S REPORT

PRESENTED TO HOUSE.

The report of the Royal Commission which investigated the position as between Mr. W. D. Lysnar, the member for Gisborne, the Minister of Agriculture (the Hon. W. Nosworthy), and Vestey's was presented to tho House of Representatives yesterday. The Commission draw attention to conflicts of testimony which arose during the course of the inquiry. Tha testimony of independent witnesses, they state, seems to be more correct in these instances, and that Mr. Lysnar's recollections of the matters wero at times defective. Mr. Lysnar's recollection was that which at times appeared to be at fault. The report goes into the question of the erection of freezing works in the Poverty Bay district at some length, and the legislation in regard to tha meat 'industry, also the political situation and the financial position of the country in 1923. Tho evidence regarding the valuation of the works is reviewed at length, and attention is drawn in this respect to the conflict of testimony between Mr. Lysnar on the one hand and Mr. Lawford and Mr. Thompson on the other haud, the conclusion come to by the Commissioners being that the financial position in September, 1923, was neither easy nor hopeful

The history of the company and its financial position at the time of sale are next dealt with, following which comes a consideration of the steamer Admiral Codrington and her value. The Commission' state that the steamer was unfortunately for the shareholders of the company purchased at the top of the shipping market. Sho> was purchased a-gainst the advice and : strong remonstrance of the National Bank, and ;t was admitted by Mr. Lysnar that this was so. Evidence showed that the working of the steamer had not been profitable, and Mr. Clarke was at a disadvantage in conducting his investigations into ' the financial position of the company owing to the-absence of a private journal. Apart altogether from loss in capital value the actual working uf the steamer has shown a loss. . In regard to the position generally, the Commission says that the evidence shows there were in 1923 and are now a greater number of freezing works in New Zealand than are justified from an economic standpoint. There seems to be no dnubt that two freezing works are ample for the Poverty Bay district.

REPLACEMENT VALUE OF WORKS Dealing with the replacement value of works, the opinion is expressed that Mr. Thompson, the branch manager at (*isborne, should have been better able to reach a fair idea of the value of Mr. Lysnar's- v works than . Mr.. Lysnar -endeavoured to lead the Commission to believe. It was quite clear that the works had ceased to be a necessity in the district. Partial destruction by disaster of the stock and of suitable natural conditions would cause a proportionate fall in the real value of the premises. So the advent of the .financial glump rendered the district able to support onlytwo and not three works, and that circumstance entirely changed the value of those works. Under such circumstances it was cjuite wrong to think that the fair market value of Mr. Lysnar's works was anything like the cost of replacement value. The fair value from a 1923 point of view was the figure at which the works stood in the company's balance-sheet for that year. Mr. Jolly's estimate of the financial position of the company was fairly .accurate. A curious transaction in 1922----23 relative to the fees owing to James and M'Carthy in connection, with the. erection of the. works is drawn attention to. A cheque for' £500 was received by the company from a Wellington firm (the Oppenheimer Casein Company), and although Mr. Lysnar's company owed the bank £300,000 this cheque was not put through the bank account by Mr. Lysnar's company, but was handed over direct to James and M'Carthy. Mr. Lysnar's explanation was that this was done to save double exchange. The Commission . expresses the opinion that this is a very unusual way of doing business, and that Mr. Lysnar, if not the rest of the directors, must' have been aware of the usual course of business matters of this sort. One inference that can be drawn is that the cheque, if remitted to the bank, might have been, used in permanent reduction of the company's overdraft.

"A HOPELESS ONE" In regard to the financial position of the 1 eojnpany the Commissioners come to the conclusion that in September, 1923, io was a hopeless one. At the time of the sale the company not only owed considerably more than the fair value of tho whola of its assets, but it -was destitute of liquid assets, and was entirely, at tho mercy of its chief creditor. Apart from the fact that it owed the National Bank a very large sum of money, the mortgage cm its ship ivas overdue. The company, lo use the words of one witness, was in a hopelessly insolvent condition. In addition to the unfortunate shipping venture and consequent logs o£ capital, the other main causes of the company's downfall were failure to mako reasonable provision for depreciation and the payment to shareholders of dividends which should have been conserved and used in tho. reasonable financial requirements of the business. The directors were unduly optimistic, imprudent, or had not sufficient business experience. In short, the Commissioners report that before and at the time of the sale the company was insolvent.

. The Commissioners state in detail the circumstances which brought about this condition. In the opinion of the Commission Mr. Lysnar in 1923 did negotiate with Armours.in the hope of .' raising for his company a loan from Armours of £340,000, secured over the j company's works and tha Admiral Codrington. The negotiations of some of the company directors with Vestey's is dealt with in quotations made from the evidence. NEGOTIATIONS WITH VESTEY'S The opinion is expressed that there I were negotiations with Vestey's, and that if the prico offered by Vestey's had been high enough Mr, Lysnar would have. been - prepared to advise his codirectors and his 'shareholders to have accepted Vestey's offer.- The Commissioners state that evidently the ■wajon ■Lysnar war. so desirons of-getting them to beliovr that he 'lid not want "to wll to Vcstey'a, and did not, jiegot ia ht> with [ Yeats/a was. becaiug Us .knew .thai Ju» ;

offer to sell to the firm which he described as a vicious trust was Dot consistent with his protestations that' his actions in connection with this inquiry in connection with the sale and in connection with his charges \-ainst the Minister were wholly in the public interest. "NO REAL EXPECTATION" Tho Commission is of opinion that Mr. Lysnar was either more acutely optimistic than usual, oi' that he had no sincere belief in his ability to arrange finances for a purchase of Vestey's Taruheru. works. "We think that Mr. Lysnar had no real expectation of being able to arrange for this money, even if Vestey's had evinced a desire to sell, and we think his actions were —to use tho words of his ' co-director — his ' way of doing business.' " In September, Octo'ar, and November, 1923, there wa.> more than one account of this company with the National Bank. Taking the totals of these accounts, the company owed to the bank over £300,000, and in the Commission's opinion the security which the bank held was not such as any ordinary bank or lending institution could reasonably consider to be proper, sufficient, or safe. I Reporting on the position of Messrs. Vestey Bros, in Poverty Hay, as the then existing owners of other freezing works, the Commission states that Dr. Reakes had taken special care to make inquiries through his officers regarding the operations of Vestey's, and had noi found evidence sufficient to justify the> Minister in refusing under section 7 of ! the 1918 Act to renew their license. We beg to add here, says the report, that we express no opinion, nor do we think that we are asked to express any opinion, as to whether or not Vestey's should, or should not, as Mr. Lysnar urges, be probihited from owning any freezing works in New Zealand. But we tako the opportun-

ity of stating that in our opinion the main complaints made by Mr. Lysmir ajainst the transactions in New Zealand of this firm do not appear to be supported by the evidence adduced beforo this Commission. QUESTION OF LEGISLATION The Commission considers that- the question of legislating to ensure that freezing work owners should have no power to buy or export meat is outside its province. Discussing the question whether other purchasers than Messrs. Vestey Bros. were willing to pay the price paid by. this firm, and whether such purchaser might reasonably have been found by tho National Bank, the report states: "In our opinion ' the farmers ' of Poverty Bay were not then in a financial position which would justify a belief in their ability to purchase the works, and there, was no reasonable likelihood of other purchasers than Vestey's being found willing to pay the price paid by Vestey's." . Answering the question, could the company have been expected to reestablish itself if the bank had not sold I the Commission says: "We are of opinion that this company could not have been expected to re-establish itself in a position of financial stability had the bank not exercised its right of Bale of the company's premises, and this, whether it had been allowed to continue under its own directors, or even if the bank had gone into possession under its security and employed the services of a •thoroughly competent and experienced supervisor and controller." The Commission, on the question whether the bank could reasonably have been expected to allpw the company's indebtedness to it to be further increased, state their opinion that in 1923 there was no fair or reasonable margin of security. The report reviews the " diary episode," and the suggestion that political influence and financial pressure came into the issue. "We see no reason," it says, " to disbelieve the accuracy of the entry in tho diary of Mr. Jolly which relates to this matter, and wo therefore consider there is no foundation for the suggestion on the part of Mr. Ljsn&r that the diary entry was made for tho purpose of making a weapon against him." "Regarding the allegations against the character of Mr. Jones, we do not consider these are worthy of any serious consideration. . . . We say that in our opinion there is no evidence to support thorn." TWO QUESTIONS ASKED The Commission asks two questions: (1) Did the Minister act in any manner contrary to his duty? (2) Did the Minister act in any manner contrary to the public interest?

The Commission points out that witnesses called by both sides admitted that though there were three works in the district it could not have economically supported more than two. Vestey's had applied for a transfer to them of Nelson's licenses, and their conduct was very carefully examined, investigated, and considered by the Minister for Agriculture and his chief of staff. "We do not think that they were within the prohibited class any more than Borthwick's, for instance."

The report points out that Mr. Lysnar, as one of the directors of the works, discussed the question of Vesteys becoming the purchasers of the Waipaoa works. "Mr. Lysnar, we think, was on the horns of a dilemma. . . We consider that the Minister did the only thing that he could fairly and equitably have done, seeing that vesteys held licenses in the district. . . In our opinion, if the bank had introduced gome person or firm about whom the Minister could not honestly have come to the conclusion that they were suitable transferees, the Minister should have refused. "In our opinion, the Minister made reasonable inquiries, took reasonable steps, and gave the matter due and reasonable, consideration, and came to a fair and reasonable decision, and in consenting *o a transfer of this license did not act in any manner contrary to his duty." THE PUBLIC INTEREST As to the aspect of the public interest, the report says: "In our opinion, the Minister, in consenting to the transfer of this particular license to this particular firm, did not act in any manner - contrary to the public interest." Tho report suggests that in considering attacks made by Mr. Lysnar upon the character and integrity of various people, including attacks on the conduct of the Minister of Agriculture, in consenting to the transfer, some allowances must be made for Mr. Lysnar, in view of the heavy financial loss he has suffered and the feelings he must have towards his friends who had lost. "While these- may explain," says the report, "we do not think they justify the state.of mind into which Mr. Lys- ] nar has evidently allowed himself to drift —a state of mind in which he is prone to think that various persons, including officials occupying public positions, have conspired to ruin him personally aud also his company." THE ADMIRAL CODRINGTON The report says there is ample evidence that .1 considerable number of (shippers, including various co-operative farmers' freezing companies, declined to . ■ fikip, or did not, require an allotment, of space 011 thf. Admiral Codringtun. H 1 quotes copiously from document* nod I e.viflmirr} snhniiUaW, i.-pvi.Tit>g <bo opm-a- j [ lions of ttiis sUaiwr, aud eipreus* Urn j

opinion that the Meat Board was quite justified in refusing to include the Admiral Codrington in either of the freight contracts for the seasons 1923-24 or 1924-25.

Discussing the action of the chairman, and of ,the Meat Board, in acquiescing in the sale of the works, the Commission states that once it is admitted that the National Bank had the right to put the property up for sale under the security which it held, it was the party entitled to be heard by the board. The bank did no wrong in making its application to the Meat Board, which had actually given a decision before any application was made on behalf of tho company. It was not the board's duty to act as if it were a Judge hearing an application under the Mortgages Extension Act. ''In our opinion," says the report, "Mr. Lysnar's tactics were obstructive and calculated to remove from himself the responsibility of the financial disaster which had overtaken his company in consequence of mismanagement, details of which are mentioned elsewhere. In our opinion, there is no real merit in Mr. Lysnar's charges, either against the Minister or the Meat Board, for not hearing Mr. Lysnar or his company." REGARDING COMPLAINTS In a letter to the late Prime Minister, dated 14th June, 1924, Mr. Lysnar made seven complaints against the Meat Control Board, the chief being thaj. the board was not carrying out the spirit and intention of the Act in handling and marketing produce. The board made no reply to this letter, but the Commission considers it would have been tho wiser course to have acknowledged its receipt and given a businesslike answer to Mr. Lysnar's letter of 29th March. It was clear during the hearing that Mr. Lysnar held one opinion as to the powers of the Meat Board, while counsel appearingfor the Meat Board held a contrary opinion. The Commission is not prepared to say that the policy of the board has up to the present been wrong in connection with the general treatment of this large and controversial subject, nor has the action of the chairman been contrary to his duty or to tho public interest. A complaint by Mr. Lysnar in his letter of 4th June that the board's actions favoured big trusts and combines more than the producers appears, according to the summary of tho evidence quoted by the report, to centre around the question of grading. This, says the Commission, is a highly technical question, and it does not feel qualified to express an opinion on what should be the best policy. ' A complaint by Mr. Lysnar that Mr. Jones's letter to him, dated 6th April, 1924, shows a bitter, hostile, and reck-, less attitude unworthy of his position, and warrants his removal from office, is thus commented on by the report:— "While Mr. Jones's letter cannot be cited as a pattern of courtesy, and is in certain matters inaccurate, we think we would not be justified in saying that Mr. Jones's conduct in writing this letter was contrary to his public duty or to the public interest."

The Commission considers Mr. ■ Jones's letter accurate in regard to the main facts. THE MISSING PRIVATE JOURNAL ' The report quotes evidence relating to a certain private journal which was not available. Mr. Lysnar, at one stage of the inquiry, presumably thought that it never existed but the Commission remarks that Mr. Irvine, one of the auditors of the company, described it as a book well known to him because it was a very important book containing the whole of the transfer entries at the finish of the year's work. Mr. Clarke, another auditor, had described it as the keystone of the whole of the accounts. Evidence was given by Mr. Porter, formerly accountant of Mr. Lysnar's company, which tends to show that in 1924 lie had received this book, together with the company's private ledger, from Mr. Hamilton, who is Mr. Lysnar's private secretary. Mr. Hamilton's evidence ;\vas that he obtained from Mr. Porter a parcel containing papers which might have included tho missing private journal. There was no further satisfactory evi-. dence which threw any further light xipon tho whoreabouts of tliis book. "Mr. Porter impressed us," says the Commission, "as an honest and disinterested witness, and it is much to be regretted that this book was not available to tho Commission in connection with tho inquiries made into tho financial position of the company. Your Commissioners were not favourably impressed by tho manner in which Mr. Hamilton, Mr. Lysnar's private secretary, gave his evidence.."

"A HIDDEN LADY" The report mentions that a considerable amount of importance was attached by Mr. Lysnar to the taking of certain notes by what he termed "a hidden lady.'' This occurred at an interview between the directors of Mr.'Lysnar's company and the chairman of the Meat Board. The episode, says the report, "may appear/ trivial and unworthy of special notice, but for the frequency with which Mr. Lysnar referred to it. The Commission considers it quite proper to have taken a record. At the same time, it is unfortunate that the stenograpner had not been prominently situated at the long board table, seeing

that the fact of her having been placed at the ordinary sitting-place of the 1 roller-top desk has created in the minds of Mr. Lysnar and his co-directors a feeling that she was purposely placed there in the hope that her presence would not be noticed by the directors of tho company. The importance of the matter to some extent disappears when it transpires that counsel for the Poverty Bay Meat Company admits the virtual correctness of the stenographer's notes."