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Tuesday, 3 July 1906

Mr ISAACS (Indi) (Attorney-General) . - I think that honorable members are reasonable in asking for some explanation of the definition of " commercial trust." There is no Act that I am aware of that contains the definition, but it has been educed from the various American decisions, as we have them recorded, and I shall explain to the Committee how the clause took its present shape. It is necessary to understand to some extent the development of the trust system, as we call it, in America, and I shall very briefly explain the way in which that evolution took place. There have been three stages in the development. The first stage was this : Separate and independent persons - by that is meant, of course, persons carrying on different businesses, .either as single individuals, or firms or corporations separately and independently as regards each other - entered into what are known in America as simple combinations. That Ls to say, these various separate and independent persons entered into an agreement, and formed what was then known as a combine - that is the strict meaning of the word - bv which they determined that they would surrender their individual discretion in carrying on their respective separate businesses, and agreed that they should be conducted only in a particular manner. Some of these agreements were perfectly good, but others were held by the Courts to be bad. An illustration cif a. case of a simple combination was. found in T892, in the case of the Texas Oil Company and another v. Adoue, 83 Texas Reports, 650. The gist of the agreement is given as follows: -

A contract between five cotton-seed oil mills, fixing prices of cotton seed, and naming the markets wherein each mill was to buy, and guaranteeing certain profits to each mill, is illegal and void, upon the following grounds : That the prices paid for cotton seed by the parties to the agreement were arbitrarily fixed without reference to the market, and were changed only by mutual agreement. That the selling prices of the products of the mills were arbitrarily fixed, and each party to the agreement was expressly prohibited from selling its products at less than the minimum price so fixed.

The Court held that such provisions were contrary to public policy and void. It said -

If the object of the contract had been merely to provide in good faith a uniformity of prices among the parties thereto, to avoid unhealthy fluctuations in the market, or if the contract had contemplated a joint and mutual association between the parties for their common benefit in the nature of a partnership, and had simply fixed the prices at what they considered the business would bear, instead of a combination between independent manufacturers and dealers for the purpose of at least destroying all competition between themselves, then there might have been nothing in such an arrangement which the Courts could pronounce as pernicious and forbidden by law. There is no pretence, however, that any partnership was contemplated in this instance ; and if there had been, the entire absence of any community of interests in the profits, losses, or capital employed, would have effectually repelled the assumption. Each party retained, after the contract as before that time, the control of his capital and the operation of his own mills, and did not throw his capital or manufacturing concerns into a common stock. He continued to operate with his own separate means, "but surrendered his right of competition and of supplying his mills with raw material at the best prices he might otherwise have obtained in the markets of the State, and consented to submit to rates artificially established. But the contract - rather, I say, the combination - did not stop at establishing prices merely.

It was pointed1 out that the parties had practically entered into a conspiracy. That was a case of a simple combination where separate and independent persons agreed amongst themselves to do something to the detriment of the public. The Court suppressed that kind of combination. Then the ingenuity of the American manufacturer and trader evolved the trust. In Eddy on Combinations, at page 550, we find the following : -

The trust form of combination was simply an effort to evade the force of the many .decisions against simple combinations. The Courts having held, in the cases reviewed in the last chapter, that neither parties nor corporations could become parties to agreements, pools, or associations for the control of prices and products, it was suggested that the same practical result might be accomplished by the organization of constituent corporations, each stockholder of which would deposit his stock with certain trustees, giving them the power to vote same, and thereby control all the constituent corporations, the stockholder receiving in return for the stock surrendered trustees' certificates. It was argued, with some show of reason, that a man could do as he pleased with his own, and if he saw fit to place his stock in the hands of another with power to vote it, he could do so. But, as will be seen, the Courts condemned the " trust " as illegal combination under another form and name.

In other words, what they said was : " If we cannot as separate individuals agree with one another as to prices and profits, we shall have no agreement at all as to what we will do, or what we will not do. We shall have a corporation, and hand our shares over to trustees, who will manage the whole of our businesses for us. We shall not say that we will not sell below a certain price, or will not pay above a certain price. We shall not agree to restrict our products or refuse to deal except under discriminating terms, because the Court would hold that to be wrong ; but we shall put our shares in the hands of trustees, and get certificates for them. The trustees can exercise our voting power, and our businesses will, therefore, be controllable by them." They, therefore, used the well-known equity system of trust law to aid them in their attempts to get rid of the simple combination decisions. The Court held that that also was bad, and I must say that at present that particular form of monopoly is disappearing in America, because the Courts have hit it very hard. Then the members of the trusts, being prevented from forming simple combinations or trust combinations, adopted another system, which is described in the Merger case. They formed an entirely new corporation, which was to have as its own particular function the holding of the stocks of the separate corporations. The new business was managed on corporation lines. The Court said that that form of trust or combination was equally bad, and crushed it in the Northern Securities case. If honorable members will follow the definitionas it appears in the Bill, they will find that it deals: with the various forms of evolution as we have found them in America. In the first place, it is provided -

In this Act, unless the contrary intention appears - " Commercial Trust " includes a combination, whether wholly or partly within or beyond Australia, of separate and independent persons.

That does not mean separate individuals in the one partnership. If persons become partners they are no longer separate individuals. (corporate or unincorporate) whose voting power or determinations are controlled or controllable by -

(a)   the creation of a trust as understood in equity, or of a corporation, wherein the trustees or corporation hold the interests, shares, or stock of the constituent persons.

That plainly indicates various separate and. independent persons who join combinations.

Mr Watkins - Or firms.

Mr ISAACS - Yes.

Mr Watkins - Then the Bill would apply to the case mentioned by the honorable member for Parramatta?

Mr ISAACS - A firm as a whole would be one person. The honorable member will see that, according to the definition, "person" includes "corporation and firm and a commercial trust." But the members of a firm would not be separate and independent towards each other.

Mr Watkins - A number of firms in combination would be brought within the scope of the provision.

Mr ISAACS - Three firms would be three independent persons.

Mr Watkins - Then the explanation of the Minister must have been misleading.

Mr ISAACS - I do not understand the honorable member. I have not said anything that could be calculated to mislead. I think I have been perfectly consistent in all that I have said. The definition continues -

(b)   an agreement ; or

(c)   the creation of a board of management or its equivalent ; or

(d)   some similar means ;

If a number of firms come together and say that they will have a board of trustees or a board of management, we say that that is a trust in another form. We could not follow these combinations throughout all their possibilities, in view of the Protean forms taken by American combinations, and, therefore, we could only leave it to the Court to decide what were "similar means." Then the definition continues - andincludes any division, part, constituent, person, or agent of a Commercial Trust.

Some of these huge commercial trusts embrace within the scope of their operations America, England, and these Colonies, and we could not meet the case if we restricted the operation of the Act to cases in which a trust confined its business to Australia. These trusts have their divisions. For instance, the International Harvester Trust has what is called its Australian division, and under the Bill we shall be able to deal with that portion of the trust that finds its place in Australia.

Mr Glynn - But the provision would include very much more.

Mr ISAACS - I do not think that it includes the case mentioned by the honorable member for Parramatta.

Mr Watkins - The decision read by the Minister would prevent a combination such as the coal vend.

Mr ISAACS - No. It prevented a combination which was intended to shut out legitimate competition.

Mr Watkins - Among themselves?

Mr ISAACS - Yes; but it did not prevent the payment of prices that the competition would honestly bear. In other words, if the vend were intended to prevent such cut-throat competition as would wipe out legitimate competition, and ultimately leave the public, the workers, and everybody else, at the mercy of those who remained, it would be legitimate, but if it were intended to prevent legitimate competition, and from the first to put every person at the mercy of the combination, it would be illegitimate.

Mr Watson - Summed up, it would remain with the tribunal to decide upon the facts whether or not the competition was fair?

Mr ISAACS - Exactly. It is impossible to predicate in advance what is reasonable, and what is not.

Mr McWilliams - What would be a fair price for one colliery to pay might be an unfair price for another.

Mr ISAACS - In the Great Nordenfeldt case in the House of Lords, it was pointed out that it was for the Court to determine whether the combination was to the detriment of the public, or whether it was reasonable under the circumstances.

Mr Watson - Or whether it was a restraint of trade to the injury of the public.

Mr ISAACS - It is simply impossible to say beforehand what would be a crime and what would not.

Mr Watkins - I understand that the matter will be decided by the Court, but I think that what we embody in this Bill will prove of guidance to that tribunal.

Mr JOSEPH COOK (PARRAMATTA, NEW SOUTH WALES) - Obviously it is to be a Court for the regulation of prices.

Mr ISAACS - No. There is no difference between this Bill and any other measure which is intended to restrain offences. Everything will depend upon the view which the tribunal ultimately takes of the facts of any case. We cannot get nearer than that. In answer to the honorable and learned member for Angas, I would point out that the definition of a " commercial trust " will not have the effect which he apprehends, because, although there is in the Bill a clause which declares that the fact that a body is a commercial trust, shall raise a prima facie assumption, it is not a prima facie presumption of guilt.

Mr Glynn - I did not say that it was. I said that the parties had to disprove the allegation of guilt.

Mr ISAACS - That is not so. I would point' out to the honorable and learned member that the definition of a commercial trust does not enter into any charge that he can imagine, such as " a wilful combination in restraint of trade or commerce to the detriment of the public." Perhaps that is a complete answer to the position put by the honorable member for Newcastle. The only provision relating to a prima facie presumption in regard to a commercial trust has reference to paragraph b of clause 4 of the Bill which deals with the repression of monopolies. If the honorable member for Newcastle is merely directing his attention to paragraph a of that provision, I would point out that the definition of a commercial trust has no reference whatever to it. Clause 6 is the only clause which provides that there shall be a prima facie presumption in the case of a commercial trust, and, that being so, it relates only to unfair competition. That " unfair competition " is not a phrase used in connexion with paragraph a of clause 4. Consequently the definition of "commercial trust" would have no relation whatever to the decision of a question under paragraph a of that clause.

Mr McWilliams - Many of these combinations are established merely to raise prices.

Mr Watkins - The combination to which I refer was not formed for the purpose of raising prices, but incidentally it has that effect.

Mr ISAACS - If it is formed merely for the purpose of maintaining a fair and equitable price, such as the business will honestly bear, I have no hesitation in saying that it falls within the class of cases to which I have referred, and that its establishment constitutes no offence at all.

Mr Watson - We must take some power to deal with persons who might put a price of£5 per ton upon coal.

Mr ISAACS - Of course. If I rightly understand the position put by the honorable member for Newcastle, he need have no apprehension whatever that the definition of " commercial trust " will be applied to the case to which he has referred.

Mr McWilliams - But what if the combination unduly raises the price of coal to the consumers ?

Mr ISAACS - If it does that, not merely for the purpose of maintaining such a price as the business will honestly bear, but for the purpose of excluding legitimate competition, it will, of course, be hit by this Bill. But that fact does not depend upon the definition of a " commercial trust." The two things are entirely separate. The definition of a "commercial trust " does not enter into the question that has been raised by the honorable member for Newcastle in connexion with the coal difficulty, because that matter would fall within the purview of paragraph a of clause 4, with which the definition in question has nothing whatever to do.

Mr Johnson - How is the price which an article can honestly bear to be determined ?

Mr ISAACS - It can be determined only by the facts of the case. Of course, the guilt of the person must be proved, but in that relation there is no presumption whatever against the accused. The only presumption contained in the Bill is embodied in clause 6. In that provision there is a presumption of one inference only, and even then facts have to be proved to raise that inference. But in the case which we are now considering there is no presumption of any fact whatever against the accused. I think that I have now answered the question put to me in regard to the definition of a "commercial trust." If there is any other point upon which honorable members desire me to give more detailed information, I shall be happy to do my best to supply it.

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