TRUSTS ACT CASE.

Dominion, Volume 6, Issue 1609, 28 November 1912, Page 6

TRUSTS ACT CASE.

INTERESTING STAGE. \'-,.MRi;'-Ai-FAIRBAIRN'S EVIDENCE ;::■' / FOR THE CROWNPHILANTHROPY & BUSINESS. '\ '--''. SELLING TARIFFS, .' . Quite'an interesting stage in the Trusts Act case was reached in the Supreme Court'yesterday. The case,. as is now sufficiently known, is one against a number ' of defendants for participation in an alleged sugar monopoly.. The proceedings, which are being taken.before the Chief . Justice (Sir Robert Stout), are the first under the Commercial Trusts Act, 1910. The'plaintiff is his Majesty tho King. The defendants are the Merchants' AssoV ciation 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, Auckland; Xevin'dnd. Co'.,-Ltd., ,AV. M.: Bannatyne and Co'.;' Ltd., and Joseph Nathan and Co.. Ltd., all merchants, of Wellington. Attorney-General ..(the Hon. A. L. Herdmon), Sir John Findlay, K.C;,and; Mr. H. H...Ostler, of the Crown Law Office', : are appearing Sor. tho Grown. Mr. C.vP..Skerrett, K.C.,.: with Mr., C. H,- ' Treadwell, is for the' Merchants' Association; Mr. j.'.H. Hosking, K.C., or Dunedin; with Mr. H: P. Richmond, of Auckland, for the Colonial Sugar Refining Co., Ltd. ' .Jlr: M. Myers for Levin and Co., Ltd.;'and'Mr. _T.. Young for W. M. Bannatyne and C 0.," Ltd., 'and for. Joseph Nathan and Cot, Ltd.-' '-;.■'■'" .'7'."";'Cer.'tain' Evidence .Admitted, .'..'■ The-hearing opened on Monday, and portion of the Crown evidence had been tendered when the adjournment was taken on Tuesday. - When tlie Court resumed yesterday; his Honour , gave his decision in reference, to .an objection to the admission .of. minutes of. the Merchants'' Association' of.; New Zealand of meetings . prior to the incorporation of the association. Objection was made or. two'grounds: (1) That the acts recorded in the minutes were done before the Commercial Trusts ;■ Act, 1 -1910, came into force, and,(2) that ' the. association' after incorporation was ..-;.not responsible .for. the acts of its-pro- ; ■ motors. -~:" ,--..::' l.His Honour, in ', the 'course of fairly lengthy oral judgment, decided, that neither of the objections. could-'stand,, and that therefore tha minutes must'be admitted.-. .Sir John Findlay then called upon H; A. Gold, secretary of the Merchants' As- ■ Bociatipn, to .produce (under subpoena) : the minutes of the Wellington' Merchants' Association." -He said that he-understood that the' production would be objected to,. a.nd in.support of' his call for the minutes he argued that the New Zealand Association-was really.a federation 1 of the . local- associations; - and that-, the operations of the local associations were really part of the affairs of the ; -New Zealand bodyv ■ i ■'■ .-.-■'.... 'Mr... Skerrett. said that it was not. a fact....that tho New.-Zealand Association wasia federation of; the local associations. It had ..first been intended that this should be so. but the. plan was not carHe submitted that the acts . of. •• the'-local associations could not be. . used:against,the New Zealand body. The only relation; between them was a'.com-. "munity of .interest. ' • His Honour here remarked that his impression, was that if this case were to. turn upon, acts .of.; the '.Wellington Association, ; then (to use l a Scotch phrase) unless' there had; hepn homologation of these acts the New Zealand Association could not beheld responsible., "-■ ■ ■ Jlr.'Skerrett.remarked that the qbjection. _was, of course, merely, preliminary at.fKis stage."' The proper time 'to'moke stronger .'objection, would .be' : when the Crown attempted to use any. portion of tr.i?,..ey:d°nce against his clients. . -His Honour- was of .opinion that tho best course 'would be to admit' the minuses/jane)),., however, could not be used unless it "were"shown, that the acts of the "' Wellmgfxm'.rAssociation' were either directed by the New Zealand Association .or-adopted by them.' '.' --. '.'. 'Eventually-it was decided that the minute-book should be produced on these conditions. Mr.,, Young: .Of . course, youT Honour ■willi understand that my-'clients are taking;,'t)ije£'«i]r(e objections as '■. the Merchants'' Association.' ''.-■-•'■■: W. Hosking: We all are. v .. Mr. .Myers': All the defendants. - -His Honour remarked .that he did rot that Jlr. 'Myers'ami Mr. Young could : take objections if. it were proved ■that' their clients were members of tlie Wellington, Association. .Mr., Young: Well, of course, your Hon- ;-" l our, .'it 'has not been proved yet. All I ■want to be understood to say is that -w« -are takinar all th", objections taken by the Merchants' Association. ; -His Honour had the objections noted. Fairbairn, Wright and Co.'s Experience. 'Andrew Fairbairn, member of the firm, of [Fairbairn, Wright and Co., then gave evidence. ' He said that his firm carried on a general importing, business, and had houses-in the tour large centres. .They earned stocks approximately valued at i£50,000. For eleven years past his firm had had dealings with the Colonial Sugar Refining Company. During the last three months of tho year 1910 the firm's putchases from the Sugar Company had been large, but witness, could ■' not give tho exact figures. ■ From April 1, 1911). until . September,; 30, 1911, ;the firm had purchased sugar to the value of ,£G6,537. For the following six months' they showed a slight drop,.. the nurchases : amounting to . JE61.3G7. From 'April, 1912, to September, 1912,-they-ffcll as low-as J!oG,liG7. Witness j ■went on. to indicate, how the; sugar market varied; ( but considered that tho figures which he -had.;quoted gave a,fair idea of the effect,ithat the Sugar Company's altered -discounts had had on the.business jot' his firm: 'He ascribed the drop .'to the fact that .'his firm .was now.-getting only . 2£- per cent, discount (as. against 4-1 per' cent, previously), while the .-'Merchants' .. Association "was, getting 5 per cent. Tho natural eDiisonucnce. was. that a number of people had transferred their business. Witness ,then gave, evidence as to the _ arrangements -.Unit had. formerly obtained in the purchase of sugar, under the syndicate system. These syndicates were, formed by the Sugar Company. •" .. Mr. Skerrett objected. How could the witness say this? "•'--'• Witness replied that he.knew that the company formed these syndicates because He had been placed, in one of them by the company, and henever knew the composition of the syndicate. Ho regularly drew the discounts,:at the rate earned by the syndicate. It was in a.condition,, both in regard Jo the bonus of- 10s. a ton, and the discount, 'that members of the syndicate should not handle any other sugar. Sir John Findlay: Was the undertaking in writing? ;,. ' Witness replied that they had to sign before drawing the:', discount. He went on to explain what the discounts actually amounted to. Up till the time at which the Commercial Trusts "Act was passed the Sugar Company, also made it a condition that sugar was not tobe sold by, the merchants under a fixed' price. Regarding tho sugar business,' the witness eaid that the conditions, so far as the merchants were concerned, had altered entirely during tli9 last twenty years.'The bulk of the sugar trade was now done without handling.'.;. One Per Cent, was Amplo. Continuing, the witness .expressed the opinion, from his experience, that when retailers could buy on the same terms as tlie merchants, then there was no room in tlie business for the merchants at allOne per cent, was nmplo to cover the cost of handling. It was! too much if retailers were buying-on the same terms. When sugar was a free line on the raaiket, wit-ne-s's firm regularly earned 4i per cent., and they handed 34 per cent, on to all • tlioir clients. His firm was the only one to, earn the full discount at that time. ■-. Regarding the increased scale of discounts, he could not explain it otherwise than by. raying that it was the" first attempt reform, a ring. ' HisHottour: They were not runnina.

any risk. I understand that their business was practically cash. The witness replied that, except on approved accounts, it was practically so. When the scale of discounts was altered, his firm, in order to protect their clients, contracted to take up a quantity of .EIO.OCO per month for six months. Thoy entered into contracts with their customers, which they felt morally bound to fulfil, and, on account of tlie alterations, they made strong protest to the Sugar Company. Under the second scale the firm, by collective buying, was still able to earn the maximum discount. In reference to the third alteration in the scale of discounts, witness ■ could see no legitimate reason for the rise. It. was, however, a matter of common loiowledge that, thero was a combination of merchants forming. Until fourteen days beforo tho alteration, his firm had no knowledge that it was to take, place, and were consequently placed in a very awkward position, tinder tho latest'scale of discounts the firm earned 2J per cent.; and wore returning 2 per cent, to their customers. He knew of no other firm that returned any of the discounts to- customers. Witness went on to. relate ' what had taken place between his firm and Levin and Co. in regard to.a request that the latter should supply Fairbairn, Wright and Co.-. Mr. Mowbray, of.Levin and Co., had gone to Christchurch, and refused to supply the firm or have any dealings with them on account of witness's "recent actions.'" His; Honour: What actions'? Witness replied that it was in connection with the steps that he had taken in drawing.the attention of the authorities to the alleged breach of tho Commercial •Trusts Act. ■ He did not concede that this was the correct reason. He had his own opinions about the matter. Sir John Findlay was proceeding to lead' evidence in regard to the British Empire Trading Co.V refusal to supply. Pairbairn, Wright and Co. with tobacco, when—Mr. Skerrett objected to the. evidence, as not. being relevant, and Mr. Hosking also objected. His Honour, after hearing argument on the point, decided that the evidence was 'admissible to permit of the.Crown laying the ground, to show that there was a commercial trust. His Honour thought that the evidence would be relevant even if Section "15 wore- wiped out of the Act. The Green List. Sit John Findlay (to witness): Can you tell mo what the "green list" is? ' Witness answered that it was a list issued by the • British Empire Trading Co. fixing the'price to be charged to retailers by the Wholesale distributors. Tho "red list" was tho price charged the wholesale distributors' by the Trading Co. This'.was all prior to the coming into force of the Commercial Trusts Act. His Honour: What is this company? Is it a tobacco company? Witness said that it was a joint-stock trading company. It controlled the trade in the most important brands of tobacco in the Dominiou. Tho adoption of the "green list" throughout the Dominion would guarantee the wholesale people definite profits. Sir _ John Findlay then '-commenced to question,the witness in regard to.correspondence that had passed betwer-n him British Empire Trading Co. Mr. Skerrett again objected, as did Mr. ; Myers. His Honour heard argument on the .matter, and then held that it was logically relevant, and therefore admissible. [ In continuation of his evidence, tho witness said ; that, on October .'!, 1911, his firm (Fairbairn, Wright and Co.) wrote to the British -Empire Trading Co. ordering certain goods. The firm received a. reply in which the British Empire' Co. refused to open an account for them. It was a refusal to entertain the order, though the tobacco, which he had ordered, was obtainable in the Dominion. Sir John Findlay: You are not a mem-' ber of the New Zealand .Merchants' Association? Witness: No. In answer to a further question, the witness gave n statement of how he wculd have had to sell goods had he been a member of the association as compared with what he did while not a r,ember. Mr. 'Hosking objected to the .answer, but his Honour refused to allow the objection, as Mr. Hosking could cross-ex-amine on the point. Witness went on .to refer to his dealings with Column's firm in the Old Country. He was a direct imnorter but, become, he had refused to abide by a "selling tariff." ho was informed that the, firm would have to discontinue supplies. He had no option but to inks supplies and abide by the "selling tariff." The oficet of these a<rreed tariffs had been to increase the price tn the retailer and the rmblic. There had been a reduction of 2d. a lb. in. the duty on mustard, but the public never gained the benefit. Similar experiences were recorded by the witiio« in regard town's firm's dealinrh in .Keillor's marmalade, Neav»'s food. Sannn., matches. Frv's cocctt. tariffs iii these I'nes'were submitted tn the firm, and supplies were refused "xcent on eondiHou that thf tariffs should- h" obstrved. In fhoonsp of Kanon. the tariff the wholesale distributors a profit of 20 per C<?Tlt. Sir John Findlay read-, an extract from the minutes of the Merchants' Association referring to candles,'and then nrooeeded to lend evidence in regard to Fairbairn, Wrir'it. an' l transactions with the Zealandia Candle Co. Just Because They Said "Candles." Jlr. Hosking: I object to tlrs. your Honour. AVhat connection has this evidence, .with the extract which mv. friend lias just read? Just because the Merchants' Association said "candles," tho witness starts to tell us all this, about the local candle company, which has nothing whatever to do with the Merchants' Association. His Honour considered that the evidence might be admissible; but the witness was not further examined on the noint. . To Mr. Hosking: His firm had storm and carried stocks. They did not do so when they started,- but, as : .they spread their wings, their stores and stocks in•.creased. As regarded sugar, they only carried a stray ton or so. .- It was the custom of their clients to order about a fortnight ahead. Ordinary goods were supplied from their own stores. Their business, was not mainly that of collecting orders from dealers nnd supplying without carrying stock. They worked on the same footing as the,ordinary merchant. • His Honour asked what the meaning of this evidence was. Mr. Hosking explained that, if he could Drove .that the;- Arm- were carrying no large stocks, they could naturally sell cheaper than other merchants. In answer to a question by Mr. Hosking, witness stated that they refused to open .new accounts in some districts, but tlie? had good reasons for that. They could not give every firm the run of their stocks to secure special lines unaccompanied by other business. "I Understand that Your Business v/as on Philanthropic Lines." Mr. Hosking: I understand that your business was run on philanthropic lines? Witness: Not at all. In further -cross-examination, tho witness said that, with the abolition of the syndicate system in buying sugar, _ his firm had a larger, field of operations. Wheii.the .£IO,OOO scale of discounts was .introduced the firm, joined forces with Hall and Co., and were thus enabled to secure the full discounts foi tho benefit of their friends. . In answer to another question, -witness rerouted that there was no Toom for tho .middleman when the retailers could buy on the same terms. Mr. Hosking: Well, no doubt we're coming to that millennium when tho middleman will bo done away. with. You, for instance, are only getting 1 per cent, between the manufacturer arid. tho retallp ' r? : ■ ... „„ Witness: Oh, no; we're getting 20 per cent, on some lines. Mr. Hosking: But, surely you wouldn't take 20 per cent., Mr. Fairbairn? ' Witness replied that it was the only condition on which they could procure the goods. They had tried hard enough to break down the tariffs. Mr. Hosking: Well, the 20 per cent, makes up for some of the smaller profits on other lines. Witness indicated that it did more than this. He went on to reply to questions regarding tlie nature of the firm's sugar business, and the monthly quantities of sugar taken by customers. About Commercial Travellers. To Mr. Myere: His firm employed . Jwelye or. thirteen men la Cttristcnvuott,

eight in Dunedin, and a smaller number in Wellington and Auckland branches. The linn employed no travellers. 110 considered Ms. per day a moderate estimate for a commercial traveller's expenses, to which must bo added JKIOO or JMOO per ttiinum for salary—somo of them were well worth this. A firm sending out travellers must necessarily consider tho question of salary and expenses. Ho wanted it to be understood that his firm had never had any hostility with tho wholcsalo houses. Some years ago certain retailors were selling goods at cheaper rates. than tho wholesale houses. His business had been established to enable other retailers to meet that competition. It was all a matter of how a business w : as run. If he, for instance, chose to live in . a .£IO,OOO house, that was uo reason why the extra expense should be passed on to tho public. He insisted that his firm wero merchants in the real sense of the ' word. They tried to regulate stocks in accordance with their business, which was practically a cash one. Mr. Myers: If customers are paying you cash and taking terms from other merchants, are not those merchants accommodating your customers to enable them to pay you cash ? Witness: Put it that way if'you like. Mr. Myers: And does not that necessarily add to tho cost of tlie other merchants' business. Witnes denied that this was so. The business .was profitable to the merchants because the customer taking terms lost the cash discount, which was greater than the bank rate of interest. • . .Mr. Myers: Do you suggest that h per cent, or 1 per cent, should bo enough for the merchants? Witness cbuld not offer an opinion, but could say that his firm was satisfied with that rata. Later Mr. Myers asked the witness if travellers were sent by him from tho North Cape to the Blult wouid it not increase his business? - The witness declined to offer an opinion. His Honour: What is the object of this evidence? Do you suggest that a man should not be allowed to conduct his business without travellers? Mr. Myers: Certainly not, your Honour. My point—if you force me to disclose it at this stage—is that the profit made by the merchants is a reasonable. one. : After some discussion, the cross-examin-ation was resumed, and the witness suggested to Mr. Myers that a memo, sent out by him (witness) would have the same effect as a traveller. Sanding out travellers was* a course which he would not adopt. He did not approve of the credit eystem. His Honour: You suggest, that the' credit system is against the public interest. • Witness replied in the affirmative.. * - His Honour: You open up questions which I hope I have not to settle. "Pure Fiction." In answer to a further question from Mr. Myers, witness said that it was pure fiction that all the English merchants had scales of discounts—9s per cent, of the world's trade was free. Scales were artificial and recent. It was common knowledge that the wholesale man was gradually being eliminated by the large retailer and the departmental stores. To Mr. Skerrett: It was not unusual for some firms to give special concessions to large dealers in the interests of their business. v Mr. Skerrett: And this is not disadvantageous to the public? Witness replied that it was not disadvantageous so long as the public got the benefit of competition. The principle cf his own business was to buy a maximum quantity and give their friends tho advantage of the concessions obtained. The bulk of tho firm's business consisted substantially of indenting. They did not rely/on the stock which they carried, though their stock was a comprehensive one. The business was not carried on as a broker's business. They were merchants. Jlr. Skerrett then proceeded to inquire as to the sugar business transacted by tho firm; before and after the passing of tho Commercial Trusts Act. Witness objected to the present system obtaining, -whereby a number of large retailers could obtain tlioir goods on the same terms as the wholesaler. This placed the small retailer and the general public at a great disadvantage. Theso conditions existed in lines other than sugar. The position was that the large retailers were cutting out one set of profits and in some .cases makinp two. In the case of sugar, he was not able to say whether or not the retailers passed on the discounts to the public. He knew, how.ever, that at one time tho retail profit was 30 per cent, on sugar, but not so much in the country districts. He believed that some of his firm's customers in the country gave the public the advantage of the extra discount received. Regarding the margin of profit, which any merchant should allow, that depended entirely on the turn-over. Mr. Skerrett The more often n merchant can turn over his capital the better? Witness: Exactly. But if he can't do the turn-over that is no reason why he should pass the expense on to the public. Mr. Skerrett: The public havp a great advocate in you, Mr. Fairbairn. Counsel was proceeding, to question the witness about the svstem of cutting discounts, but Mr. Fairbairn objected. They never cut discounts. ' Mr. Skerrett: Well, giving them awav. Witness: Not giving away. We sell olie.i.ply. but make a profit every time. Mr. Skerrett had not concluded his cross-examination at 5.10 p.m., when the Court adjourned until 10 a.m. to-day. His Honour towards the close of the day expressed the opinion that about two-thirds of the cross-examination had been argumentative as to inference to be drawn. '