TRUSTS ACT CASE.

Dominion, Volume 6, Issue 1608, 27 November 1912, Page 4

TRUSTS ACT CASE.

MORE LETTERS READ. THE ADDRESS BY ATTORNEY GENERAL. EVIDENCE CALLED. OBJECTIONS BY DEFENCE. Further interesting correspondence was read in the Supremo Court yesterday during tho course of the Attorney-General's opening in the N case against a number of defendants for participation in uu alleged sugar monopoly. Tho proceedings, which aro koing taken before tho Chief Justice (Sir Robert Stout), aro tho first under the Commercial Trusts Act, 1910. • Tho plaintiff is his Majesty'the King. The defendants are the Merchants' Association of New Zealand, Incorporated, a trade protection society, Wellington; the Colonial Sugar Refining Company, Ltd., incorporated in New South Wales, sugar refiners and sugar merchants, Auokland; Levin and Co., Ltd., W. M. Bannatyno and Co., Ltd., and Joseph Nathan, and 'Co., Ltd., all merchants, of Wellington. The Attorney-General (tho Hon. A. L. Herdmati), Sir John Findlay, K.C., and Mr. H. H. Ostler, of. the Crown Law Office, are appearing for tho Crown. 31r. C. I». Skerrett, ICC., with Mr. C. H. ■ Treadwell, is for the Merchants' Association; Mr. J. H. Hosking, ICC., of Dunedin, with Mr. H. P. Richmond, of Auckland, for the Colonial Sugar Refining Co., Ltd. Mr. M. -Myers for Levin and Co., Ltd.; and Mr. IV Young for W. M. Bannatyne and Co., Ltd., and for Joseph Nathan and Co., Ltd. • The Breaches Alleged. An outline of the Crown's allegations was published in yesterday's'.issue. As regards the definite breaches of tho Commercial Trusts Act, 1910, tho statement of. claim alleges that in. the month of October, 1911, the Colonial Sugar Refining Company (in breach of Section 3, Paragraphs (d) and (e) of the Act) agreed to give Levin and Co. the maximum discount of 5 per ecnt. on all purchases. Similar breaches of the Act were committed by the company making similar agreements with the other defendants (Bannafyne and Co., and Nathan and Co.). In Octobor, 1911, also the company committed a breach of Section 4, Paragraphs (b) and (c), in refusing to supply sugar to Fairbairn, Wright, and Co., of Christchurch, except on conditions relatively disadvantageous as compared to the conditions on which it was supplied to members of the Merchants' Association. All the other, defendants were charged with "aiding or abetting, counselling, and procuring", .the ' commission of these offences. Again, Levin and Co. were chargcd separately with a refusal to supply Fairbairn, Wright, and Co., and all the other defendants with "aiding and abetting" this offence. Finally,' the five defendants were chargcd with a breach of Section 5 of the Act in that they conspired together to create a sugar-monopoly, in New Zealand. The Solicitor-General therefore claimed on behalf of the King: (a) Judgment for a penalty of .£SOO against each of "the defendants in respect of each of the breaches of the Act al--. Jeged. (b) An injunction against each of the defendants prohibiting each from continuing or repeating any such breach.'. (c) The • osts of, the action.'

| Nature of the Defencc. I Separate defences were filed in every case, and every defandarit separately de-: nied every breach of the "Act alleged, and i,dsqifd tlmt there had b,eim gay. ..to creato. a monopoly. half of the.Merchants' Association, it. was ' said'that it is, and always has teen, open to any persons to join in' wholesale purchases for, tlio purpose of obtaining the maximum wholesale discount, and that it is lawful, proper, and'"customary to do so. This statement was also repeated in the'defence of the other defendants.

, Alternative Prosecution. , There waa a second prosecution in which the same defendants were, proceeded against. In this case tho prosecution took the alternative course of charging Levin and C 0.,, Ltd., with payinff illegal discounts in respect of purchases made for six months ended September 30, 1911, and ivith agreeing to pay illegal discounts for purchases made during the, six months following that period. The other defendants were charged with aiding and'abet-, ting Levin and Co., and with being knowingly concerned in the commission of these offences. ' As in the first case, separate defences: were filed denying the breaches of the Act , Ths Attorney-General'on the "Discovered" . Letters. The Attorney-General opened the case for the Crown on Monday morning, and had not completed his address at tiie evening adjournment. A great deal of his opening was occupied in a survey of correspondence that had been discovered ill i connection with tho case, extracts from different letters being published yesterday. I When the Attorney-General resumed his address yesterday he proceeded to refer to additional correspondence, submitting that it tended to show that the scale of discounts had been raised by the company (after the manner indicated in yesterday's report) at the instance of Mr. W. A. Mowbray, chairman of the executive of the Merchants' Association, for the express purpose of driving Fairbairn, Wright and Co. out of the trade, and to secure preferential terras for the members of the association. The correspondence would also show that Fairbairn, Wright, and Co. threatened to commence trouble unless they were supplied with what sugar they should require on the best terms. Among the letters, the following was from a letter written by the manager of the Sugar Co. to A. Watkins, dated March 18, 1911:"Now that the New Zealand Farmers Co-operative Association have unconditionally accepted the offer of the New Zealand Merchants' Association, it looks as if everything would come out satisfactorily,' if, Fairbairn, Wright, and Co. : . could only be-induced to join in also.The fact ; of the agreement with the New Zealand Farmers will probably havo some effect on Fairbairn, Wright, and Co. in that direction." , . Mostly About Fairbairn, Wright and Co.'

The following letters were also quoted by the Attorney-General -.—From. letter to General Manager, dated March 20, 1911: "Fairbairn, Wright and Co. You will learn from Mr. Watkins' Wellington letter. of tho 16th inst., of winch I enclose a copy, further information as- to the stand taken , up; by this firm, and that, they contemplate giving to all their customers all but J per cent. discount of what they earn. Tho fact of the New Zealand Farmers' Association Syndicate having come to an agreement with the merchants may have some effect on Fairbairn, Wright and Co., in inducing them to join in with the merchants, as I think Fairbairn, Wright and Co. were relying on securing the New Zealand Farmers'; Syndicate. ..." ■ Extract from fi.M.'s letter, dated March 25, 1911:—"We do not altogether appreciate the force, of the objection raised by retailers to our altered terms. It should bo'manifest to thcta that the/merchants must necessarilv be insured some profit in connection with tho .handling.; of our sugars; while the retailers theinsflves—as is clear from the information with which we have from time to time "been furnished— have always succeeded in deriving a handsome return from ' the sale of our sugars to the public. From the tenor of Mr. Watkin's letter, it would appear that the. larger retailers consider themselves entitled to the.combined profit of wholesale merchants and retailers alike. In nnv case, the lines which we have laid doivn must inevitably be. adopted on April 1, and our future course must be .determined bv the'experience thus gained.". In a letter dated March 23, 1911;' the secretary of the Merchant;' W«.! a f.v« wrote, regarding sugar:— 'Retailers will be required to sign an undertaking that thoy will not resell at prices lower than tbes# fixed to IcoaJ. wholesale aaacia-

lions. No member of t.ho Now Zealand Association'-.is. nonnitled to give- jiwny any.portion of..tliu ■(} per eeul. discount;' I lie. business of , such retailers as nifty lie nominated ■by 'Messrs. lieviu and ' Oil. will be exclusively for the benefit, of the association."

The secretary of tho Merchants' Association wrote on March iS, 11)11;—'"If linn been decided not In add to tho list already uppruvod by the New Kralum! Association any other firms in the North Island, rind as pointed out in my letter to Mr. J. If. C-ock, tlio object of mentioning these firms was to prevent any possibility of business going In Kairbnini, Wright, and Co." The general manager of the Sugar Company wrote on Apfil 10. Illf I"Sir. ](oberlon. 'reiterated what Mowbray, of Levin and Co. said, that there was .nothing in the prosont arrangement to prevent merchants from importing outside sugars, after tliey had purchased the necessary .CIO,OOO, worth per month, to earn the per cent, extra discount, and; ho strongly urges our company, when considering any uossiblo alteration ■ in terms nt the end of the current six months, to adopt the basis of -t!25,000 per month, as necessary to earn f> per cent, extra discount, which arrangement ho considers would remove tho likelihood ol outside importations, and perhaps would have the effect of forcing Fiurbairn, Wright, and Co. into tho Merchants' Association. llr. Roberton hears on good authority that T. 11. Ilall and Co., , of Auckland, who are buying through Fairbairn, Wright, and Co., are givuig 3J per cent, discount to their customers. He says that the sugar and kerosene businesses are becoming thoroughly disorganised and unprofitable since tho passing of tho Commercial Trusts Act. One whole; sale firm in Aucklnud, ho tells me, is supplying kerosene to country settlers and customers at Gs.. lid. per case, .presumably as an advertisement, although tho firm in question actually pays 7s. -d. per case for it."

1 Only Firms Actually Earning Discount. In reference to an interview with Mr; i Mowbray, tho general manager, in. .Sydney wrote in July, iail:-"Arap.nrothor means that ho proposes .wo should adopt wiut tlie object, of preventing the cutting .that is at present, taking place on the part of Fail-bairn and Wright, is the suggestion that' the minimum amount of monthly accounts entitling purchasers to the maxixnum discount should he increased from ten to twenty, or perhaps, even thirty thousand pounds, and. that the intermediate rates of discount at .present allowed, between 1 and per cent., should be entirely abolished. In order to enable ns to give effective consideration to his, proposal, we shall feel obliged if you will furnish us (if possible by return mail, or at any rate by the Wellington, mail next week) with a statement showing tho total value of the purchases, made by Levin and Co. and their nominees during the months of April, May,; and June spectively, at the same timo, forwarding; similar information'- regarding Kairbairn and Wright, and also providing a list of all other firms dealing direct with us, and the rate of discount that each earns. Under existing circumstances, wo, shall not be surprised if it. should prove , that the only firms actually earning, discount are Levin and -Co. aud ; "Fairbairn and Wright, and that our published scales consequently are inoperative in all other respects. .'■■ -''' , Tho ■ Auckland manager ■ wrote . to the general manager on July , 30, ; 3911,^-' referring to Fail-bairn, Wi'ight and - Co. s competition:. "Although this -state lof affairs demoralises business, from vthe merchants'-' point of ■ view, it tends • to keep prices down for tho storekeeper, and eventually for the, consumer,- when the. .ctorekeepers commence cutting their prices; and in that 'way carries out the. supposed object of the Commercial. Trusts-Act..-Whereas, if that is not done, and out' terms, aro so altered as to give the 'merchants the bulk of; the . profit, there, will'doubtless be loud complaints throughout the' Dominion and in Parliament." •

Decided to Fight. . • "-'Oil September 14, 1911, . the/manager ~at Auckland.. again' wrote to the'general manager - as follows:—''Selling Terms;—Yestei'.day.afternoon Mr. Loiiisson, resident part-. of-;:';:tUeS-fii - iri ,of Fair-, bairii, . Wright an<l .Co., called 'upon me; and informed:-me .that since-.the receipt of our circular in reference to our . new; terms, which lie. considers as fmfil,-jsominif ifito foroe on October 1, he had'been ill frequent' telegraphic communication' with'. Mr. Fairbairn, in Christchurch, and they, had come to the conclusion that undue' influence had been brought to bear on our; company, and that the . new terms had. been drawn up with the chief object of driving tbeir firm out of /the sugar busk ness of. the Dominion; but .that since theyhad entered upon that business, and had been successful -in doing, an increasingly considerable trade, they were determined not to be'-driven'out if they, could, help-it. Although' they, appreciate the satisfactory way in which the company had,; attended to their orders, and although they, were iu'ctant to' take extreme measures,; they had decided to fight, tho matter, chiefly, at the instigation of Mr. Lonisson himself, wlio:had just received a telegram • from: Mr. Fairbairn, in Christchurch; instructing him-to 'interview, company. unl«?s unconditionally placed on 'best.footing'will institute proceedings: 18th instant'.''' - During the morning the Attoriiey-Gen'-eral commented on an absence : -of cOrrpin that di-Dovered. ""in .the' letters discovered .by the Merchants'-Asso-ciation there, was nothing from Jiiiie ii) until August. 11. and there was an absence; of minutes from' March ,15 until .August. 31. In the internal correspondence of thV. comnany there, was no letter from-Slay 15 until July 5. ' . His Honour asked if the ?ap in the Merchants' Association's correspondence might not be' accounted for by the. fact that Mr. Jtowfcrav was absent in Australia during enrt of the time. The Attorney-General did not. think so, He pointed out that wore ?imo letters. obvionslv demanding replies, to which no replies had been discovered.

Attorney-General-Quotes Figures. After referring at greater length to the correspondent and reiterating his point about the object of the Merchants' Association had in view, the Attorney-General contended that it was idle for the Sugar Co. to suggest that they did.not know of the existence.of a commercial trust.. As a result of the new scale of discounts established, two large grocers in Aucldand, who had been purchasing' sugar through I'airbairn, Wright, and Go., applied in September, 1011, to levin and Co. to purchase through the latter firm. . The internal correspondence of the company proved that they were aware that the discounts were not paid to I/evin and Co. for their own use, but for. distribution to the customers. . Retailers, purchasing per medium of the association, did not receive the full discount, a portion of which was retained' by the association. -In order to. conoeal the true nature of this item, the ' association-showed it in the balance-sheet as a "special subscription/' • • A year's operations of the ring resulted' iu a division of .£29,088 7s. among members in respect of discounts. There was this inference to be dTawn froni tlie figures:—A calculation would show that the ring .purchased from the Colonial Refining Sugar Co., Ltd., during the. year approximately ,£6os,oooworth.of sugar. In the first half of the same period Fairbairh, AVright, and Co. purchased worth, and in the second half ,£60,000 worth, malting a total of .£126.000 worth. This made a total of .£731,000 worth of sugar sold by the company in twelve months. It. was suggested that this was their total output except for a quantity sold to brewers and others at a specially reduced rate. It appeared from the figures that the Merchants' Association practically .had the control of the whole output of the company, except for. that amount taken by I'airbairn, Wright,'and Co. The latter firm, although the largest buyer in New Zealand (taking more than .£IO,OOO worth per month) was unable to earn more than 2.\ per cent, discount, whereas members of the ring, some of whose purchases amounted to no'more than .£3OO per month, received the full discount of 5 per cent. In the .second period of ,tlie year, the purchases of the ring showed'a large increase, while Ihe purchases of Fairbnirn, Wright, and Co. decreased. This showed that the ring was gradually squeezing Fairbai.ru, Wright, and Co. out of the trade. Had they been successful in doing this, there would liavo been no competition, and they would have been able to dictate their own terms to retailers.

Mr., Skerrott Objects. By- way of . final observations, the Attorney-Genera! .. said that the evidence which ,'he proposed to submit included tlioso letters which lie had read, other, letters which had passed between citors, mid tho-.mi«ut<n of thfl Association, which' .had- bwu/.md, wJfa

'also proposed to call Mr. Fnirbnirn, of I'liirbmrn, Wright and Co,, to substantiate iiillogiitluna of tho IVoivil as to tlio com'niercini trust, afid lo tlio' refusal to supply his firm' on favourable terms. Mr. Fill ton would corroborate coino of this ovidence. iMr. Ilosklng wished to rnise objection to tho ivliulo of tho documentary ovidenco. Ho wished to save the right lo object to miytiling, not adinisaiblo agninst his clients. Air. Skerrolt, in answer lo llio Al.lor-ney-rieneral, siiiled that he desired that (lie correspondence should bo proved in tile usual ivay. Tlio Allorney-Cloncrn] then indicated that ho proposed (o call n lawyer's clerk to offer certain evidence, >nud then to ask his Honour (o apply the provisions of [ Section IS to the evidence. Continuing, tho Attorney-General intimated that fhe Crown would olTer concluslvo proof that discounts had been given, and that they had been given to a ring of merchants, who wcro a commercial trust. And, in order lo prove that they would havo lo show Hint tlio combination existed for tho purpose of influencing and controlling prices. If they satisfied his Ilonour on that point, then they would bo entitled to judgment. The evidence would also show that a breach of the Act had been committed in refusing to supply Mr. l'airbairn's firm with sugar on favournblo terms. Whether it was the .Sugar' Company or Lovin and Co. that had committed the breach of the Act in paying discounts was not of material valno' from the Crown's point of | view. Tlio Crown had to provo that there ' was a conspiracy between the Merchants' Association and the Sugar Company in regard to the discounts, and it would bo contended that the. wholo of the evidence and the correspondence went in tho direction of proving this. It showed that tho Merchants' Association and tho Sugar Company were fully alive to tho legal .position'that arose on tho new, Act coming into force, and that the new scale of discounts was one ■of the results.' On the question of penalty the Crown submitted that the matter-was of sufficient importance to warrant a substantial penalty. It was also submitted that.each .payment of a discount was a separate offence, and n penalty might be inflicted in respect of each offence. Jn addition, his Honour might grant an injunction against the defendants to restrain them from carrying on these illegal payments in future. The Crown would ask for the granting of such injunctions. The Attorney-General then proceeded to call evidence.

Evidence for the-Prosecution Called. E. M. .Sladden, solicitor in the employ of Messrs. Young. and Tripe, gave' evidence in regard to the correspondence that had been discovered by all the defendants, with the exception of the Colonial Sugar Refining Co., Ltd. His firm mado the affidavits of discovery for the Association, for,.' Bannatyne 'and Co;,' and'for Nathan and Co. Messrs. ..Bell, Gully, Bell, and Myers prepared the affidavit of discovery tor Levin and Co. He could not swear-that the printed books in Court were exact copies o. the original letters. They were in most cases printed from what were documents purporting to be true copies of the originals. To Mr. Skerrett: In some cases he had not seen the original letters. He had only received what purported to be true copies of inward letters of the Merchants' Association. To Mr. Myers: In the case of Levin and Co.'s letters, he had not seen the original letters. The Attorney-General submitted that his Honour should admit this evidence under Section 15 of the Act as proof that, tho prints were true copies. .- Mr. Skerrett objected. He submitted that the evidence was wholly,insufficient as regarded the. letters of thq Merchants' Association, unless his Honour. cared to .take, the'responsibility under. Section 15.. ' :His .'Honour pointed; out. that ; ,the mere fact of the letters being- in possession of .the .defendants. .would be admissible in a -charge- of -treason.-or conspiracy. ..- Mr. .Skerrett . contended that. the . rule- . was.;nofc applicable in a. cas-e of civil conspiracy.. .' ; After some - further argument, Mr.'.'Skerrbtt ■: stated 4 that. he decided to take the .wider objection that the'whole of..thesewer®' inadmissible-' oh- the -.'ground ' ; :W'a.fe',fhoy. were not'properly proved. l %here;-whs the rule- that; tho, actual documents vli'ad to -be produced' or ;accountedvfor. : ' v-.'s. r ' Mr. ■ Hosking said, that' he was'taking; no 'objection. - .' .' Mr. Myers Takes.a. Part. ;,Mr. Myers took, the same objection -as' Mr. Skerrett. . .He submitted. that Levin and Co. had-aright to call for thc documents to be properly proved. He would' call on the Court to ask the Crown to'prove, the documents, as they would have, to prove" them in.'any other case.. His submission was that, sutaoction-l of Section 15 , should . riot -be invoked .for. the purpose of admitting secondary evidence, where the primary evidence was obtainable. ■ . '. His Honour .wis pf.-opinion that.it was not-, secondary-'evidence, .but primary 'evidence. "'He'decided to admit it. ; '- 'i Mr.. Skerrott.-asked, "if his Honour ruled as to the .e(Te.(;t. of the evidence;' " His Honour 'said that that ■ was a.different matter. Ho left tfie'. poiht: open as to relevancy- and to subsequent -. objections that might he..raised., as to. admissibility | against ea'ch of: the"defendants., -. ' The. 'Atforncy-;General then ; put in the Sprinted'' documents (correspondence) to ; which .' lie" had referred at considerable' length in his opening. . -'. George Craig,' of' the Customs Department, produced a return (prepared by the Collector of Customs at Auckland) of the refined sugar imported to Auckland in . .1910, 1911, and the first part of 1912. ' Air. Hosking objected. How could it be evidence if it was prepared by an officer .in. Auckland? .. . , - / jlr. Ostler asked that the evidence be admitted under Scction-15. ■ The objection was purely a technical one. After some discussion on the point, Mr. Hosking said lie merely wanted an opportunity of ascertaining if tho return was near the' truth; "If the paper -were left with hiin. lie would consult the manager of the company, and probably be ablo to agree-to tho evidence m the morning. Eventually the return and othor returns were admitted, subject to the right of tho otor side to raise' objections later on. Sir John Findlay then called'upon H. A. Gold, secretary of the Merchants' Association, to. proauoe the minute-book of tho Merchants' Association of New Zealand, and also to produce the agreement with tho Corn Broom Manufacturing Company. ' Mr. Skerrett objected to this, last document. It plainly did not relate to sugar.- ■ Mr. Hosking here intimated that he objected,to the admission of all documents as against the Sugar Company except such correspondence to which the company had been party—that was letters to or from the company. Mr. Skerrett then declared that he 'wished to raise objection to the admission of any minutes of meetings of the association prior to the actual iucorporaJohn' Findlay required, that this point should l>e argued at that, stage, as he desired his Honour to settle tho ques* Hon before the next wjtness .was called. He submitted .that it must be relevant if it tended to show that die actions of the 'association were in the direction of creating a commercial trust. Sir Skerrett and Mr. Hosking both argued' in support of the objection and. after Sir John Findlay had replied, his Honour intimated'that lie would give his opinion in the morning. N ■Vt 4.50 p.m. the Court adjourned until I io" o'clock this morning.