WAS THERE A TRUST?

New Zealand Times, Volume LII, Issue 12195, 21 July 1925, Page 6

WAS THERE A TRUST?

IMPORTANT SOUTH ISLAND FLOURMILLING CASE ACTION IN APPEAL COURT WAS COMPANIES’ ACTION IN PUBLIC INTEREST ? “The South Island flourmillin g case, one of the most important heard in this country under the Commercial Trusts Act, 1910, and rivalling in interest the sugar case of 1912, commenced in the Court of Appeal yesterday. The court is composed of the Chief Justice ' (Sir . Robert Stout), Mr Justice Herdman, Mr Justice Reed, Mr Justice MacGregor, and Mr Justice Alpers, both divisions of Court of Appeal being present in Wellington for the case. It was intended that Mr Justice Ostler should also sit, but he was prevented by indisposition from doing so. Counsel for the Crown are the Attorney-General (Sir Francis Bell, K.C.), the Solicitor-General (Mr A. Faire, K.C.), and Mr F. Adams, Crown Solicitor of Dunedin. For.the respondents Messrs M. Myers, K. C., C. P. Skerrett, K.C., and W. E. Leicester are appearing.

OUTLINE OF THE CASE The appeal is from the decision of Mr Justice Sim given in Dunedin in December last. The action heard in Dunedin was one to reoover penalties of £SOO for breaches of the Commercial Trusts Act, 1910, from the Crown Mitling Co., Ltd.‘(lnvercargill), Atlas Roller Flour and Oatmeal Mills Co., Ltd. (Timaru), Wood Bros., Flourmillers (Christchurch), and Distributors, Ltd., Flourmillers Agents, (Christchurch), which companies are respondents in the present case. The offence alleged is that the respondents involved, conspired to monopolise, wholly or partially, the supply of flour, bran, and pollard in New Zealand, and to control its price and! supply, such control being of a nature contrary to the public interest. The Distributors, Ltd., was incorporated in 1923 for the purpose of acting as sole agents for the sale of flour, etc., for all such flourmillers as should enter into the agreement to that,effect. After the incorporation nearly all the flourmillers in New Zealand entered into this agreement for a period of about six years. The companies agreed to employ the Distributors, Ltd., as sole agent and not to make any sales (subject to small exceptions) save through that agency. A fixed proportion of flour to be marketed was arranged for each mill. The total quantity of flour sold from all mills in New Zealand for the year ending February 28th, 1924, was 134,607 tons, and of this 96,777 tons came from mills associate)! with the company. The case for the Crown in the Lower Court was - that the incorporation of Distributors* Ltd., had led to inability on the part of> the bakers to get particular.] brands of flour ordered, a poor quality being supplied instead. The Crown sought to' establish that the combination was a Commercial Trust and contrary to public interest, in that it removed from each miller the national inducement that had) previously existed to produce the best flour possible, and made, for general slackness, by removing from the baker his power to change an unsatisfactory hrand of flour. It was also alleged that the effect of the agreement was to keep up the price of flour and bread.- At tjie trial, counsel for the respondents admitted that a partial monopoly of flour in parts of New Zealand had been effected. The evidence for the defence was that the association of ' millers was merely for the purpose of preventing disastrous price-cutting and had stabilised the baking industry by ensuring fixed' and regular prices for flour for a number of years. According to Mr Justice Sim. (who found in favour of defendants, ie spondents in the present action) the case for the Crown appeared to bo based largely on a view that unfettered competition was a desirable thing, and that any agreement which, interfered with this, unless for an essential reason, must he contrary to the public interest. He held, however, that in considering the interests of the consumer, it wqs impossible to overlook the interests of the producer, and that in the long run it was not desirable to have cut-thront competition. The ’flourmills of New Zealand, it, was held, were capable of producing three times as much flour as could he consumed in the Dominion. Under these circumstances, he held, it was not unreasonable for the mill-owners to come to an arrangement for the rationing of the flour-trade of the Dominion, and for fixing prioes at a rear sonable basis of p»fit. Such an agreeraent, he contended, was in the public interest as industry, provided always that-prices were npt fixed unreasonably high* “CONTRARY TO PUBLIC INTEREST” Sir Francis Bell, in opening the case for the Crown, said tlfat the case was being brought under sections 3 to 5 of the Commercial Trust Act, T9lO. For the moment, he would confine his remarks to section 6 of the Act, for it was intended to show that such a combination as the alleged trust was injurious to the interests of the country, even it. the offences against which section 3 legislated had not been specifically committed. He argued that the judgment of Mr Justice Sim had held that the Flourmillers’ Association were merely agents, but he pointed out that an agent was one who sold goodß at a price fixed by the producer, whilst the Distributors’ Company was a body which took the whole of the output of the different companies and disposed of it at a price fixed not by the producer, but by the company. The proportion qf flour which each mill might supply was fixed, but should more he produced it might be exported. “This,” said Sir Francis, “is for the purpose of preventing the employees contending tl(at they, were not permitted to work full time. It is not an uncommon clause in arguments of American trusts..” The combination, he proceeded, fixed the price, and stipulated that this should be fair and reasonable, but this, he contended, carried no weight, as no penalties were provided for a breach of the provision. He was going on to deal with the danger which might conceivablv arise from such a combination, when Mr Skerrett intercepted, “The charge that the public had suffered in any way from the combination was specifically withdrawn.” Sir Francis Bell: I am not arguing that such did occur; I am merely quoting the agreement to show ufliat might happen. Mr Justice Herdman: I thought that at the trial a trust wag admitted, xnd also a partial monopoly, but that it was held that the arrangement was' not against the public interest. Mr Skerrett: Largely that ,was so, Your Honour. t

Continuing, Sir Francis Bell held that where the terms of a combination were not specifically set down, the court could only arrive at a decision from the overt act committed. Here, however, the terms of. the combination were set down plainly in the agree-, ment signed by the parties, and the court could proceed under section 5. the day after the agreement was made, as well as it could several years after. He denied that there was any analogy between the formation of the alleged trust, and the action of the Government in fixing the price of flour in the interests of wheat-growers. Mr Skerrett: The price at which flour was sold was fixed by the company, submitted to the Board of Trade, and approved by the Government, so that there was no : exploitation of the' public.

The Chief Justice: There was nothing in the agreement ' to say that the price of flour, should he submitted to the Government.

Mr Skerrett: I submit that had the price been fixed at an unreasonable figure, then a prosecution could have been brought against the flourmillers under section 7 of the Act. The Chief Justice: But if the company entered into a conspiracy, it is not necessary that their- acts should be against the public interest in order that-an offence should be committed. It appears tliat the court will have to decide whether there was anything in the agreement contrary to the public interest, not- as to how the agreement was carried out.

Mr Skerrett: AVe hold that the spirit and not, the letter of the agreement must be taken into consideration. -

Sir Francis Belli 1 quite agree, and have said, before that such an agreement might be entered, into quite innocently and faithfully., carried out for years. But at the end of that;, time the machinery still existed to commit a public wrong. As Attorney-General I always held that there should be some person to deal with the’ wHoat-growore, but the position of Mr McDonald, who controlled thd Distributing Company,' was not such as this.

Mr Skerrett: My learned friend has referred to the position of Mr McDonald. It was handsomely admitted by counsel in the case in Dunedin that Mr McDonald had acted in no way contrary, to the public,interest during his control of the company.

OPERATION OF THE COMPANY

Continuing, counsel held that flour was such an essential to the life of the people, that any action which, tended in any way to endanger the supply was contrary to the public, interest, ‘firstly, on the grounds that it prohibited competition ; secondly, it prevented ariy mill producing move than a- specific quantity in any year, and excluded effort to improve the mill,or the plant; thirdly, it provided for a fixed’price for all the mills, irrespective of quality; and fourthly it provided that that .'fixed price should he settled by ■ a commercial trust. Sixth, it provided that the public should accept such .brands of flour as the trust directed, and were excluded from making any bargain as to price or quality. Seventhly, it provided that if it became necessary to have more flour than was producible in New Zealand no miller was to. 'import flour. It was all to bo imported by the trust. '• Mr Justice Reed: Is it suggested that the Auckland mills were parties to this trust ?

Mr Skerrett: They were parties to the agreement fixing the price of wheat in 1922, this being the basis of the present agreement. Continuing, counsel Held that all of these objections were pertinent; as they were contrary to the common law. A further objection to ; the action of -the Distributing Company was that the byproducts of flour were such a valuable commodity to the farming community of New Zealand as fowl and pig feed that anything whic]| tended to. limit their production, was inflicting a hardship on this section of the public! He held further that it was possible when thu maximum price of flour was fixed and the price of by-products was not, ta keep up the price of flour to the maximum, and 1 the by-products low; and so stabilise the selling price ~f milled wheat. He quoted reports to show that this.had hcen-done in-Aus-tralia.

Mr Skerrett: Tbe price of by-pro-duots has been fixed since 19,18. Sir Francis Bell: I seem to he unfortunate in my references. The opposing counsel hold an advantage over me—— .i

Mr Myers: Because they know. the facts. (Laughter.)

Sir Francis Bell proceeded to point out the importance of the production of wheat in New Zealand, this being recognised as a national policy of the country, and borne out by the Customs duties imposed. The result was that largely—almost completely foreign wheat was excluded, and within the protection of that nolicy the present combination was formed to ; prevent even local competition. The fact of the necessity for a protective policy aggravated the position, as should the authorities desire to import flour to meet the occasion, it would be defeating the principle of protection. The afternoon was. spent by. the At-torney-General in examining caseß jtf similar prosecutions in Australia and the United States. The case is being continued to-day.