TRUSTS ACT CASE.

Dominion, Volume 6, Issue 1611, 30 November 1912, Page 7

TRUSTS ACT CASE.

THE FIFTH DAY. THE CASE FOR THE DEFENCE. , COLONIAL SUGAR CO. ITS OPERATIONS AND AIMS. ~ , .... 5 HIS HONOUR'S COMMENT. Five days' hearing'has not fccen sufficient: to dispose of the-first case, under the Commercial Trusts Act, 1910, which is being, taken in the Supreme Court' before; the Chief Justice (Sir liobert Stout). - The in defence were not. completed when the adjournment was taken last evening. As is. now well known, the proceeding's are being taken against a number of 'defendants for participation in an alleged sugar monopoly. I ,

The plaintiff is his Majesty the King. •Tho defendants aro tho Merchants' Association of New' Zealand, : Incorporated, a trade protection society, Wellington; the. Colonial- Sugar,Kefining Company, Ltd., incorporated in New South Wales, sugar refiners and sugar merchants, Auckland; Levin and Co.;' Ltd., 'Vf* M. Bannatyno nnd Co.;. Ltd., and Joseph Nathan and Co., Ltd., all merchants, of Wellington.

The Attorney-General (the Hon. A. L. Herdman), Sir John Findlay, K.C., and Mr: .H. H; Ostler, of the Crown Law Of-fioe.-are'appearing for the Crown. Mr. C. P: K.C., with. Mr; C. E. Tread-, wellj .is; for ,the Merchants'' Association; Mr. l J.' Hi Hbsking,; K.C., lof Dunedin, with MiwH. P.-Richmond, of Auckland, for the'.Colonial Sugar Infilling Co., Ltd.; Mr., M. Myers for Levin' and Co., Ltd.; npdJilrr.T.. ; ;Tounß:for W. 31. Bannatyne and Co., Ltd., and. for Joseph Nathan and .Co.; Ltd.

- / 'MR, hosking; k,c. - THE CASE FOR THE SUGAR CO. >At : the' close of . the;, fourth day, , Mr. Hosking,. wlio led off -for the defence, had submitted that the' Act should not be construed so as to te destructive of fair trading. '.'Ho pointed out. that the Act, though framed for the suppression of. malignant trusts, should not be used to utrike out combinations which were for the public good. Yesterday morning, Mr. Hosking ; followed up this . line of : argument. 'He submitted that tho construction of the Act was' not clear, and, on that account, he put forward tie following- propositions:—(l). That ;it is permissible to' combine to control prices if the combination is -'.not, .'contrary , -to public .'interests; i (2) .it is . permissible for. ia f <'commercial i trust to fix pricesthat are not unreasonably high ; (3) it is permissible': for- anyone .to sell goods atJpnces:-which"are fixed by a commercial trust if-those .prices -aire;, not: unreasonably: high; (4) it is permissible for any-one-tosell goods at. prices not unreason-ablyA-high-in conformity with :tlic deter-minations-'-of 'a- -commercial .trust. Ho contehd«di"that.'.'th6' :kindrOf trust, .which-'-tlie Act-aimed-at, was.A com-mercial-trust-which acted Unconscionably and that; the commercial trust referred to, in Section 3 and Section 4 of the Act (of which the person is a member or of which he Tefuses to become a member) must. b«i a commercial trust which operates to control. prices contrary to-public interest. -As far as the Sugar Company waS'- concerned; tho only- form of commer-. rial- trust that, it could .be identified with in breach of the Act was a commercial trust,' which. -:d«alt in sugar., * the ' .Discounts ■: : ....

••Reviewing the'position of, the Sugar Compitrij" before the Act came into ;force andj.tho- system of ' discounts, obtaining,. Mr;:'Hosking- stated that it mattered nothing.',to, the. : Company , whether the discounts. weht to-the: retailer, or. not so long as,- it/kept' the big buyer .satisfied. He then referred to the.correspondence with the- object .of showing that the company's office in: Auckland was a mere conduit pipe for the-transaction of business. The, policy of the company in regard to tho ma'tterof discounts was wholly and solely in ,the hands of the general manager in Sydney, and anything done by the. manager in Auckland or by Mr. Watkins "could not.be binding on the cdirfpa'ny 'unless it was acquiesced in or adopted. by : the com.'.lt'was quite" conceivable ' what might ;follow'_ on : .Mr/. A G'titlieridge or-Mr. Watkins; baying.-a glasS'.-.of; wine, with a client 'at ; .the : clHb'Mn : thV''m'oraiiig ; ; —. . His, H&tib'ur:' I- don't' think there's any eyldeni:e' : of;' , that. ! (Laughter.) ■■ - Counsel point that things dotie by,the'firmfs _Ne\v: iZeiiland representatiVeVvVero'not . binding unless this were adopted. On- thc;'fnc« 'of the correspondence, -it was submitted, that it was-quite clear that the company was anxious,"and took immediate steps;- to comply with tho Act oh its'coming injto force. The letters themselves gave the exact motives, which '• actuated the Sugar' Company in the course taken'.' They had no desire to explain /them away. There -they -wore, and - they : were perfectly content to rest upon the-'reas6hs given, in the letters for. the alterations. The object in raising the amount necessary to lie purchased to seciire the maximum discount was to prevent • -tho • undue cutting : that had been going on. • . ,

His Honour here suggested that whatever had been the intention of the company it might be difficult for it to explain away a breach of the Act. It was apparently anxious to avoid * foreign competition, and it, had taken steps (perhaps without, intending to offend under the Act) to conciliate the large buyers,-. Mr.Hosking: I- can assure your Honour that; if jve. had believed,that' we wera guilty ,of; an':offeftcd J iindet' the Act wo ehoidd riot be'here to-day. . ' v His , Honour; remarked that' it was not necessary; #, prove that the Sugar Company was'morally guilty (as would be necessary under some statutes) if the company had allowed the Merchants' Association to force it into doing something that was illegal."; • > 1 Mr.'..Hosting remarked that his clients would certainly appreciate any announcement by the Court that there had not been any guilty design, as there, had been such allot in the air' to' the contrary. His Honour did not think that thero had been any suggestion that the company sold sugar at an unreasonably high price. : That did . not appear to be the case at all, so far as his Honour could judge. Position that fhe Sugar Co. Had to Face. ■Mr. Hosking left that point , for ■■ tho time being, and procotded to cover ground for tho purpose of showing that .th« company had scarcely any' alternative but to meet the Merchants' As;ociation in the. manner-in> which it had don«. What was the position of the company as against its large buyers? Its object was to continue tho jelling of sugar in New Zea-land-as it existed. It had large sugar refining- works in Auckland,- and what was working along the lines all the time was the fear .. of foreign competition. Counsel referred to the correspondence for the first, premonition the company had of tke competition it mijht have to meet if ,the Merchants' Association combined against it. The company was faced with the possibility of the withdrawal of tke merchants' trade, the importation of foreign sugar, a cutting of prices,, and a general disorganisation of trade—a slate of affairs that (it was submitted) was sot conducira to the . public interest. The- relations of the company'with the association were then referred to at length by Mr. Hesking', who submitted that the company was not concerned with what became "of the discounts, and that it was a very proper thing for tho company to refusf- to have anything to do with the disposal of tho discounts. Ho added later that there was nothing wrong in appointing Levin and Co. to bs head of tho group of buyers;

No Attempt to Drive Fairbairn, Wright & Co, out of the Trade. ~

His Honour: "That's not tho gravamen of the charge. The gravamen 0 f tho charge is that you so choso to arran.se your business as to enablo this .group to secure a monopoly. Mr. Hosking hope<l that ho had been ablo to. show that tho Sugar Co. had rot

arranged the scale of discounts for the express purpose of driving Fairbairn, AVright, ana Co. out of the trade. The company, however, readily admitted that the raising of the minimum was to prevent the cutting tactics which Fairbairn, Wright and Co. had been indulging in. They were not concerned with whether these cutting tactics were right or wrong, but they were concerned with what the Merchants' Association, thought of them, when the Merchants' Association threatened to withdraw their support. Counsel rtpeated that the correspondence of tho Merchants' Association and tho minutes of the association cou]d not be evidence against his. clients. T'hero had been a candid disclosure of all the evidence on the part of-tho Sugar Co. His Honour : I think that tho Sugar Co. havo all along been candid and open in what they've dofle. But tho Merchants' Association, on the other hand, havo not been candid,' because'; for one thing, they havo not kept minutes. Mr. Hosking declared that the discounts had not been given to Levin and Co. as a momter of a commercial trust. Tho Sugar Co. had no knowledgo that tho Merchants' Association was acting as a commercial trust. In regard to the charge against Levin and Co., of paying discounts for tho reason that those receiving were members of a ring, the Sugar Co. was concerned for aiding and abetting. He would submit, -however, that the' prosscution had failed to prove that this was tho dominant, factor operating tho rnihd of ■ Levin. and Co. • to .the knowledge of the Sugar Co. And as fdr tho Sugar Co. paying, tho discount to Levin and .C 0.,. it was simply paid to them as head of a group in the same manner as it had been paid to Fairbairn, Wright and Co., as head of a group. There was nothing, he submitted, in tho charges against the company for paying discounts to Bannatyne and Co. and Nathan and Co. In connection with tho refusal to supply Fairbairn, Wright, and Co. with sugar on favourable terms, it was submitted that there was no definite application for any particular goods. The correspondence did not show a refusal to supply them with goods on terms equally favourable to tho association. The position really was that Fairbairn, Wriglit and Co. wanted mora ' advantageous terms. ■ His Honour asked if Mr. Hosking could give him' any reason for the raising of the scale of discounts if it were not for the. purpose of excluding' -Fairbairn, Wright and' Co. Mr. Hosking replied that it was for the purpose of preventing them carrying on undue cutting. Unless it could be shown that Levin and Co. had refused to supply' Fairbairn, .Wright and Co, for the reason alleged in the statement of claim, then the Sugar Co. could not be guilty of aiding and abetting. The conspiracy charge was only another setting of the Eot of facts, which would go to prove a breach of : Section 3. It was submitted that there could not 1jo ; punishment under both. In the Coal, Vend case the facts had played a number of tunes in the indictment', but it was held that they only had to pay the piper for one. . On a 'reasonable reading of the Act, there oould be no finding of conspiracy. The Legislature had made it a crime for anyone to break gaol, but it could not be held wrong for a man to break gaol when the gael took fire. : His Honour: There's.no suggestion that the Sugar Company's, works took fire. (Laughter.)

The "Difficulty of "passing on'* Certain Benefits to Small Buyers. When. Mr. Hosting again mentioned the question 'of'.public interest, his. Honour remarked that the evidence had all b£en one way, that the action of the "ring" had been against the public interest. The other side had called no evidence,to rebut that. There was also evidence that the benefit arising from the removal of duty was not passed on to the public. • Mr. Hosting replied, that they could not pass the removal of duty on. It was a fact, however,, that when the duty on sugar was reduced by £i 13s a ton, the Sugar Company had- reduced the price by JJS a ton. It was a difficult matter to ■pass the . benefits arising out of duty on to the wholesale quantities* Supposing, for 'instance, '{lie duty on sugar were rediibed by £1 ii ton, that would bo 2-10 pence to be spread over 22101b., or something' like 'a tenth of a penny per lb. "We don't keep tenths of pennies." In goods that were sold in such small quantities as sugar there was necessarily a certain amount of waste, and there was also to be considered the fact that, a.bag had to go with each small quantity .sold. Counsel then returned to the-question'of conspiracy, and submitted that the essence of the conspiracy charge was that it must bo foreseen that the publio interest would be injured. His Honour observed that that.was not in the-statute. If the effect, was that it was contrary to public interest that was an offenoe. Mr. Hcsldng made a few further observations, contending that the Sugar Company were .not guilty of any of the charges alleged against,them.,.. He;concluded his address.'at-' 3.20"p.m; .

MR. SKEHRETT, K.C. FOR MERCHANTS' ASSOCIATION. .Mr. Skerrett, who followed Mr. Hosking, opsned with a' review 4of tho Sugar Company's position in - regard to its New Zealand trade, and said it was to the interest of the company to arrange its trade to dispose of the very largest . possible quantity of,sugar, and to do this it was to its advantage to further retail competition. It had found that it was advantageous not to itself. undertake the distribution of its sugar, but to pass that, distribution on to the. Merchants' Association. It had the right under common! law to arrange its own. business in such taanner as it thought fit," and to establish tho best possible agency, and to say. (if it did not think that any one person could dispose of its sugar to the bost advantage) that it would adhere to its own arrangements. Tho company was adopting a 6ystem of distribution which experience had shown to bo the most efficient one, The wholesale business was long and well established. Mr. Fairbairn had said that a time was coming when it would go. That might bo, but counsel ventured to predict that neither he nor Mr. Fairbairn would live to see it 'go.

An Interesting Trade Matter—"Pirates," After some discussion with, his Honour on the matter of discounts, counsel stated that he hoped to 1)0 able to show' that none of tho acts of the Sugar Company had made it guilty of a breach of Section 3of tho Act. He desired to point out that tho discounts allowed by the Sugar Company were not so much lit the' interests of tho merchants as in tho interest of the company itself. .They were allowances designed to recompense tho merchants for tho expense which they went to in distribution, the risk they ran of bad debts, etc. Anyone who got those discounts for not rendering the services was regarded by the merchants as a pirate. He was as a rulo someone, dealing in a very few individual lines, who selected a few. good marks, had-'to giro no credit, and Tan practically 'no risk at 'all. He was! not deserving of discounts at all. ■ As a rule, pirates never lived very long, but the result of their Intervention was that—for h. time, at least—trade became disorganised, and on,a of two things followed. Eeither the merchants were oompellotl to combine together to protect - their interests, or else the trade passed into tho hands of a few 'individuals, who were a* menace to society. Counsel pointed out that the interests of the Sugar Company were intimately bound up with those of the wholeaaJers. His Honour observed that might be f but it was quite contrary to the condition of affairs in England, where free trade prevailed, and had built nn ."uch a preat trade for the Old Country. If the system were to be-adopted, the Arbitration Court would have to be, enlarged to regulate prices, profit.*, and other things. Mr. Skerrett said that many of tho great merchants established a system of differential discounts, and ho believed fr---what his Honour had let fall from 'the Bench, that his Honour saw no harm in such a system if it were not detrimental to the public interest. His Honour remarked that ho had t" lwp his own opinions out of tho matter. Ho had merely to ascertain whether thee had been a breach of the statute. ITe had stated before that he did not think that the Sugar. Company had felt tha' anything which thny had done had beer morally wrong. but, nevertheless, he (hiHonour) had to see whether what they had done was allowed by statute.

The Cardinal Points about tho Discounts, Proojftdi.iij with his address, connfcl submitted uiat two caxdiml uointe were

to bo notod in tho Sugar .Company's system of discounts as first altered after tho passing of the Commercial Trusts Act. The first point (and this was common ground) was that tho bonus system had been abolished. Tho.second point (which had been vigorously challenged by the was that the syndicate system had been dono'away-with and replaced by the system of individual purchaso.- _ In principle, tho first scale did not differ from the second or third. His Honour: No doubt, it doesn't differ in principle, but. its effect is verj different. Counsel quite understood that, but hoped to bo ablo to answer his Honour's observation. Before the first scale had been promulgated, the company saw that the system would be open to misuse, and fiirat a revision of tho scale would be necessary in order to reduce the merchant's margin for operating in foreign sugar. Sir John Findlay had pointed out that any discounts allowed under tho new scale wero at tho expense of the public. Counsel desired to point out, however, that tho discounts had only been reduced by 1 per cent., and that was the business of the Sugar Company. It was therefore entirely a matter of prejudice and not one of real interest.

From this, counsel proceeded to contrast the position of the firm of Fairbairn, Wright, and Co. with, that of other merchants. Ho submitted that from Mr. Fairbairn's own evidence, it v;as clear that he carried oh the business of an indent agent rather than of a merchant.

Sir John Findlay interposed that ,Mr. Fairbairn had repeatedly.denied this. He had 6fcated distinctly that he carried on his business in tho ordinary way of a merchant. 'Mr. Skerrett said that no donbt Mr. Faii-bairn had stated that in a general way, but in the main the evidence pointed in the contrary direction. Mr. Fairbairn had admitted in his evdencs that 5 per ceut. was not' an unreasonable profit for wholesale merchants to retain for handling sugar. Sir John Findlay disputed this point. Tho witness's statement did'not, he said, refer to sugar, but only to other merchandise. Mr. Skerrett, in referring to the revised scale of discounts, declared that it had been extracted from the Sugar Company at the point of -I,he bayonet, and ,under {he throat of foreign competition. 'It was clear from the correspondence that tho Sugar Company was not concerned with tire question as'to whether the persons to whom the. discounts were allowed obeyed or acted in conformity with the determination or diroctibns of a commercial trust. Counsel was. elaborating tihis latter point at 5 p.m. when the hearing was adjourned until l 0 o'clock this morning.