13

H.—44

handling of substitutes and a consequent decline in the sales of the discounted goods ; (3) a consequent loss to the manufacturers, and a loss to the consumers in so far as quality articles are displaced by inferior substitutes. Local manufacturers claim that they are at a disadvantage as compared with oversea competitors in the matter of price-control, as manufacturers beyond the jurisdiction of New Zealand can cut off the supply of goods to any local distributor who fails to observe a scheduled price. The result is that many dealers prefer to handle imported lines that are not subjected to price-cutting. A local manufacturer taking similar action would probably infringe the provisions of the Commercial Trusts Act. By section 12 of the Cost of Living Act, 1915, the scope of the Commercial Trusts Act, 1910, is widened to embrace in the schedule thereto " any article of food for human consumption, and ingredients used in the manufacture of any such article." By virtue of this amendment the manufacturers of a foodstuff in common with the manufacturers of any commodity mentioned in the schedule to the Commercial Trusts Act—become a commercial trust within the meaning of the Act as soon as such manufacturers endeavour to control or determine the prices at which their goods shall be sold wholesale and retail. If the manufacturers enter into an arrangement with other persons, whether wholesalers or retailers, for the fixation of the price of goods —in respect to which the Act applies—either by arrangement to supply subject to the observance of certain conditions in regard to prices, or by refusing to deal in consequence of the non-observance of those conditions, the Act makes such arrangment an offence. Notwithstanding these comprehensive provisions of the Act to prevent unfair restraint of trade, the fact that there are many devices that can legally be resorted to to prevent price-cutting indicates that in all cases the prevention of such tactics is not deemed to be an unfair restraint of trade within the meaning of the Act. Many devices are resorted to by manufacturers to prevent price-cutting, some of which are not illegal, but others are such as would clearly involve a breach of the Act if they had relation to goods in respect to which the Act applies. The principal devices which have come under the notice of the Department and which have been adopted by manufacturers to prevent cutting tactics are as follows :— (1.) Grants of rebates to such dealers as are willing to maintain the fixed price, such rebate to be payable when the goods are sold, and any variation from the fixed price to entail forfeiture of the rebate. This practice is common in New Zealand, but so far as this Department is aware it is confined to commodities not included in the schedule to the Commercial Trusts Act. $.) Manufacturers refuse to sell to dealers who cut prices. Some manufacturers have gone so far as to refuse to supply not only the offending dealer direct, but to insist that agents shall not supply, thus making it impossible for the dealer to renew his supplies from any source. A refusal to supply—even if the commodity is one to which the Commercial Trusts Act applies—is not an offence in itself, but some valid reason must be assigned for the refusal, otherwise an offence would be committed. With regard to the question of cutting off all sources of supply, there is an organization in New Zealand one of the objects of which is to obtain an undertaking from all affiliated manufacturers to refuse to supply any goods should a retailer offend even in the sale of one specific line. By means of a " stop list " all avenues of supply are closed. Such organization is careful to apply its machinery only to goods not included in the schedule to the Act. (3.) Another method of maintaining prices is to embody in the contracts of sale special provisions by which dealers are bound to observe a fixed price. (4.) A further' means of control, not unusual, is for conditional sales to be made in which the title to the goods sold to dealers remains with the manufacturers, and passes only upon completion of the resale made at the fixed price. The manufacturers reserve the right to demand the return of the unsold goods in the event of price-cutting. (5.) The use of an agency agreement whereby the dealer is regarded merely as an agent without title to the goods is probably the most common means of control, and no doubt the most effective, as agent dealers must sell at a stated price and their profits are in the form of commissions. This method of control is not illegal, and is in fairly wide use by certain manufacturers and distributors in New Zealand. It has been adopted by the Board of Trade in connection with the distribution of sugar. (6.) Sometimes there is affixed to the goods or the container a statement that certain prices must be observed, the implication being that the use of such notice makes the transaction a conditional sale which binds the dealer to the fixed price. This practice is probably the least effective in the accomplishment of the desired end, and in fact plays into the hands of the price-cutter. The general question of the legality of fixing selling-prices by manufacturers was discussed in the " Big Ben " case (Christie v. Hastie, Bull, and Pickering, 1921), and in that case it was considered by the Court to be a reasonable and universal commercial practice. That case, however, concerned an article to which the Commercial Trusts Act does not apply, consequently considerable doubt exists as to how far manufacturers may legally control prices of articles to which the Act does apply. The guiding principles appear to be whether or not the price is " unreasonably high," and whether or not the practice adopted is " contrary to public interest." There is little doubt, however, that a " refusal to deal " because of a failure to observe a fixed price in regard to a commodity to which the Act applies would in itself constitute a breach of the Act, quite apart from the question of price or public interest.