“PUBLIC PENALISED”

New Zealand Times, Volume LII, Issue 12196, 22 July 1925, Page 11

“PUBLIC PENALISED”

SOUTH ISLAND FLOURMILLING CASE BEFORE APPEAL COURT “TO HELP THE LAME DOGS” ONE-THIRD OF MILLS WOULD BE SUFFICIENT The Sobth Island flourmill! ng case, in which the Crown appeals against the judgment of Mr Justice Sim in the action heard in Dunedin in December last, where the Crown sought to recover penalties of £SOO under the Cor-mercial Trusts Act, 1910, from the Crown Milling Company, Ltd. (Invercargill), Otago Roller Fleur and Oatmeal Company, Ltd. (Timaru), and Wood Bros., flourmillers (Christchurch), and Distributors, Ltd-, flourmillers’ agents (Christchurch), which companies are respondents in the present case, was continued in the Appeal Court yesterday. The judgment of Mr Justice Sim was to the effect that the combination was justifiable and not contrary to the public interest. The court is composed of the Chief Justice (Sir Robert Stout), Mr Justice Herdman, Mr Justice Reed, Mr Justice MacGregor, and Mr Justice fklpers, both divisions of Court of Appeal being present in Wellington for the case. .Counsel for the. Crown are the Attorney-General (Sir Francis Bell, K.C.), the Solicitor-General (Mr A. Fair, 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.

GOVERNMENT POLICY OR OTHERWISE , Sir Francis Bell, continuing his arguments yesterday, oriticisecC the actions of Mr McDonald, Uie manager of Distributors, Limited, who was stated by counsel for the respondents to have been acting in concert with the wishes of the Government, in his control of the -means of distribution. Mr McDonald, counsel pointed out, had been head of the Department of Trade and Commerce, and whilst in this position had been. approached by the fiourmitiers and consented to act in the position which he afterwards held, thus entailing his resignation. To say that the actions of the Distributing Company; when it was controlled by an ex-officer of the Government, even if continuing the Government policy, was St-ill carrying out the wishes and had the approval' of the ~Government was, Sir Francis urged, unjustifiable. He went on to outline the policy of the Government in connection with the encouragement of the growth of suffi, cient wheat-in New Zealand to supply the. country’s requirements, . Mr Justice Herdman: Ido not know if the oonrt i» entitled to consider what was the policy of the Government. That might change to-morrow. To mix that question up with that of what is in the interests of the public is only obscuring the issue.

_ Sir Francis Bell: I urge this question only in answer to the arguments of the opposing counsel. Mr Skeyrett: We have only held that the policy adopted was necessary to the public interest.

The Attorney-General was proceeding to review the; evidence l given . in the lower court when Mr Skerreit inters ruptedly warmly .- "I challenge the At-torney-General to show a single passage in the evidence oP-Mr MoJJonald which shows that he claimed to be interpreting’ the Government’s jpolicy.” Sir Francis Bell: If I have misquoted the case of the opposition I can only apologise. - So far, the' - Attorney-General proceeded, he had based his arguments on the assumption that no injury had been done to the public interests, but merely that the combination was prejudicial to the public interest. He now came to his eighth point, which was that under, section 3 of the Act, each one of those companies concerned in the combination had committed offences. He held that the interpretation of'Mr Justich. Sim in regard to section 3 of the Commercial Trusts Act was too narrow; that the flourmillera-:did in fact receive valuable consideration from the combination in that they were relieved from the responsibility of the marketing of their flour; 'and were assured a certain settled price. The whole of the facts were, he urged, consistent with the existence of a monopoly. DISTRIBUTION COSTS NOT REDUCED Mr A. Fair, K.C.* continuing the case for the Crown, attacked the contention that the combine was not against the interests of tlie public. Despite what had been said to the contrary, he urged, the formation of Distributors, limited, had increased in. swad of reduced the cost of distribution. It had prevented any, reduction in the price of. flour, and had like, wise prevented 'the formation Of any new flourmilling companies whose operations might . have tended towards this end. Finding the whole market divided up and a strong fighting combination ; holding the- whole island, the adventure of new capital for such a purpose, would be extremely hazardous. On these grounds he held that the combination was a violation of see-, tion 3 of the Commercial Trusts Act, and contrary to the public interest. The burden of showing that profits were no greater under the agreement than before was on the defendants. An inspection of the books was requested by the Crown but was resifted by the deponents, and refused by the court., The points on which the Crown relied as showing the illegality of Distributors,’ Ltd., were as That the bakers in Southland and Dunedin were prevented from obtaining the flour they thought best and Compelled to accept that supplied bv Distributors, Ltd.; (2) every fipuhnil! but one or two was established in trade for six years and perhaps for ever, irfesnective of their capacity or worth, and the public is paying interest on the capital involved when these companies might he eliminated under Open trade competition • (3) it removed normal incentives to increased efficiency(4') it prevented a reduction in the. cost of flour and consequently of broad, that would otherwise have been made; (5) increased the ooat of distribution; (6) prevented new firms' from starting flourmilling; and (7)',that; the. agreement was a breach of section 3 of the Act, and therefore contrary to the public interest. ' Mr Fair referred .again to the Australian coal case, ktiown aa the “Vend”’ case, where the Newcastle coal owners combined in order to save the industry, this donibination. pvCn with such motives, being held under Australian law to be illegal, Here, he said, there were no such grounds. . Mr Justice Alpers: .There is evidence to ehow that without something being dine the whole industry would have fallen into, chaos. EFFECT OF THE ,COMBINE Mr Fair proceeded to quote from evidence to show how bakers in the “south” had been compelled to accept inferior flour, particularly from August, 192 p, to February, 1924. The bread made from this flour was held to bo unsaleable, particularly ip. the case of Fleming’s flour. It was claimed that too much flour was being taken

from the wheat. Fleming blamed the wheat

Mr Justice Herdman; Does it matter, what the reason was? The fact remains that the flour was bad. Mr Fair: That is so. Your Honour.

Mr Justice MacGregor: The only persons who suffered were the people of Invercargill who had Ao eat pastry made from this flour. (Laughter.) Continuing, counsel quoted a case in which a baker, applying to Distributors, Ltd., for northern flour, was told that he could not receive it, as the allotment of that brand for Southland had been used. He was further told that l;e must take what was given him or do without as Distributors, Ltd., did not require his business. He submitted that‘thiß dictatorial attitude was usual to a monopoly, which when it had obtained control treated its clients with an absolute absence of consideration. The evidence of the advocates cf Distributors, Ltd., was that there was not enough Oamar.u flour (the brand which the bakers were mostly applying for) to fulfil all requirements. Ho agreed that under the system of distribution, as drawn up by Distributors, Ltd., this was so. but had all the mills been permitted free manufacture the position might have been altered. He contended that it was shown that there were large stocks of flour available from which the bad flour of Fleming’s mill might have been replaced. He quoted D. H. Brown and Co., of Christchurch, who had in November. 1923, 1800 tons of flour on hand, and Evans and Co. (Timaru) whose stocks amounted to 1665 tons, besides many other smaller amounts. Mr Myers: I would like to point out to Your Honours that at this time the mills o< Messrs Brown and Co., and Evans and Co. were closed down as there was no more wheat in the country, and that the stocks in hand had to carry on their trade until the following February; Mr Justice MacGregor: Does this not Bhow that the flour was there all the same? Mr Myers: Yes, that is so, but the shortage would have occurred later. Mr Fair: My learned friend is basing.his argument on ,the presumption that, it would have been impossible to import wheat had the stocks of the country n<rt been sufficient. NURSING THE WEAK MILLS He prooeeded to quote the figures of wheat and flour in the country as in November, 1923, these being given as 6879 tons of flour, and 1,525,803 bushels of wheat, capable of producing, according to average flour, or quite sufficient to fill the country’s requirements until the new crop of wheat came on. He urged that the whole effeot of the combine was to permit a mill to go bn producing a bad quality of flour, and assured them a price for it equally as high as for the better article. He further urged that as it was admitted that the mills of New Zealand were capable of turning out three times the amount of flour required in the country, then the capital inverted in mills was in excess cf the public requirement, and yet by the present arrangement the millers were assured interest on this capital. In order to do" this a price must be fixed which would permit of the marginal .mills receiving a. fair profit, the result being that the well organised mills received a profit considerably larger than they, would have been prepared to accept under ordinary trading conditions, the public naturally suffering. He quoted . from the previous evidence to the effect that, one milter stated that under the rationing agreement as imposed by Distributors. Ltd., his two mills produced only 2750 tons of flour per day, the maximum capacity being 6750 tops. Mr Justice Alpers: This over-produc-tion came into effect some years ago under a system of open competition, did it not? * Mr Fair: Yes. but we now suggest that the less efficient should he permitted to be eliminated by' open competition. Mr Fair contended that the combine was unjustifiable, afid not in the interest of the wheat growers. - Mr Justice Alpers: What woqld you suggest—Government control ? Mr Fair: The Government might fix a minimum price for wheat. Mr Myers: But as the AttorneyGeneral pointed out this morning, yon cannot fix a minimum price for wheat without, fixing a maximum price for flour. Proceeding, Mr Fair said that even if the Distributors Company’s actions were not reprehensible for the moment, that was no 'guarantee that this would continue to be so. It was only natural that while they knew that they were being closely watched they would be on their best behaviour. But once they were accepted, and the Government by tolerance had given them a legal standing, then their conduct might be entirely different.. He submitted that once this standing was achieved the policy of the combino would he diverted to producing the highest ' possible profits for the miUowners. and that the effect would be towards the injury and possible ruin of the wheat growers. Mr Skorrell; A most extraordinary doctrine!

Mr Myers: You quite ignore the control of the Board of Trade. Mr Fair went on to state that »hau the •Distributors, Ltd., was formed vhe price of Oamaru flour in Dunedin waj 10s per ton below that of North Island flour, but that some few months later it had been raised to a flat rate.

...Mr Myers: With the consent of the pafbrs of Dunedjq, and for tho pigfiose Of assisting'tlie local industry. . Mr Fair: I submit that the pskevß of; Dunedin are not the only ;>«r:ons to be considered. The consumers are the people who should receive primaiy consideration. Mr Justice MacGregor: I think you

can take it that the paramount interest of tho public is that there should fas cheap bread. V The case is being continued +o-dav