Attorney-General v The Adelaide Steamship Co Ltd ('The Coal Vend case')

Following a period of 'ruinous competition', coal producers (known as the vend) entered into an agreement which fixed prices, allocated quotas and restricted the opening of new mines. The coal producers also entered into a shipping agreement with companies shipping coal from Newcastle which provided that they would deal only with each other and fixed the maximum reselling price of coal.

The Commonwealth alleged this contravened the Industry Preservation Act 1906; that Act required (section 7) that, in addition to the agreement, there be 'intent to control, to the detriment of the public, the supply or price of any service, merchandise, or commodity'.

Note: the requirement of intent to injure the public was removed from the Act by the Australian Industries Preservation Act 1910, but the case was brought prior to this change.

On the Industry Preservation Act

The vend 'was intended to preclude competition in the sense of underselling among its members, and by this means to raise and maintain the price of coal won from the Newcastle and Maitland coalfields' (at 47). Noted that, given low prices are generally advantageous to the public, 'in default of anything to indicate that the prevailing prices were too low to afford the colliery proprietors a reasonable profit, having regard to the capital embarked and the risk involved in their trade, a combination to raise prices would from the standpoint of public interest require some justification' (at 47).

However, in this case prices were 'disastrously low' due to years of 'cut-throat' competition:

'It can never ... be of real benefit to the consumers of coal that colliery proprietors should carry on their business at a loss, or that any profit they make should depend on the miners' wages being reduced to a minimum. Where these conditions prevail, the less remunerative collieries will be closed down, there will be great loss of capital, miners will be thrown out of employment, less coal will be produced, and prices will consequently rise until it becomes possible to reopen the closed collieries or open other seams. The consumers of coal will lose in the long run if the colliery proprietors do not make fair profits or the minors do not receive fair wages. ... [at 48]

The Privy Council considered that, as a result of this, the AG could not 'rely on the mere intention to raise prices as proving an intention to injure the public', but rather had to demonstrate that there was also an 'intention to charge excessive or unreasonable prices', which could not be demonstrated in this case (page 48).

The Council further noted that: '... even assuming that the vend agreement amounts to an attempt to create a monopoly within the meaning of sec. 7 of the Act, it certainly does not, on the face of it, disclose any intention of controlling the supply or price of coal to the detriment of the public by unduly raising prices or otherwise'. (page 49)

On restraint of trade

Prior to considering the legislation, their Honours considered the position at common law. They observed (at 33; footnotes omitted; my emphasis):

[page 31] ... it will be convenient, having regard to the arguments both here and in the Courts below, to refer to the law as it existed prior to and at the passing of the Act in relation to monopolies and contracts in restraint of trade.

At common law every member of the community is entitled to carry on any trade or business he chooses and in such manner as he thinks most desirable in his own interests, and inasmuch as [32] every right connotes an obligation no one can lawfully interfere with another in the free exercise of his trade or business unless there exist some just cause or excuse for such interference. Just cause or excuse for interference with another's trade or business may sometimes be found in the fact that the acts complained of as an interference have all been done in the bonâ fide exercise of the doer's own trade or business and with a single view to his own interests (Mogul Steamship Co v McGregor, Gow & Co). But it may also be found in the existence of some additional or substantive right conferred by letters patent from the Crown or by contract between individuals. In the case of letters patent from the Crown this additional or substantive right is generally described as a monopoly. In the latter case the contract on which the additional or substantive right is founded is generally described as a contract in restraint of trade. Monopolies and contracts in restraint of trade have this in common, that they both, if enforced, involve a derogation from the common law right in virtue of which any member of the community may exercise any trade or business he pleases and in such manner as he thinks best in his own interests.

The right of the Crown to grant monopolies is now regulated by the Statute of Monopolies, but it is always strictly limited at common law. A monopoly being a derogation from the common right of freedom of trade could not be granted without consideration moving to the public, just as a toll being a derogation from the public right of passage could not be granted without the like consideration. In the case of new inventions the consideration was found either in the interest of the public to encourage inventive ingenuity or more probably in the disclosure made to the public of a new and useful article or process. In the case of sole rights of trading with foreign parts it might be found in the interest of the public in new countries being opened to trade. But for the validity of every monopoly some consideration moving to the public was necessary. ... [33] ... monopolies were in the eyes of the lawyers of that time attended with the following evils: first, increase in the price of the wares, and secondly, deterioration of the wares themselves, both evils being due to the want of healthy competition ...

Contracts in restraint of trade were subject to somewhat different considerations. There is little doubt that the common law in the earlier stages of its growth treated all such contracts as contracts of imperfect obligation, if not void for all purposes; they were said to be against public policy in the sense that it was deemed impolitic to enforce them and not because every such contract must necessarily operate to the public injury. The old common law rule against enforcing such contracts has, however, been relaxed in more recent times. Though, speaking generally, it is the interest of every individual member of the community that he should be free to earn his livelihood in any lawful manner, and the interest of the community that every individual should have this freedom, yet under certain circumstances it may be to the interest of the individual to contract in restraint of this freedom, and the community if interested to maintain freedom of trade is equally interested in maintaining freedom of contract within reasonable limits. The existing law on the point is laid down in the case of Nordenfelt v Maxim Nordenfelt Co. For a contract in restraint of trade to be enforceable in a Court of law or equity, the restraint, whether it be partial or general restraint, must (to use the language of Lord Macnaghten, evidently adapted from that of Tindal CJ in Horner v Graves) be reasonable both in reference to the interests of the contracting parties and in reference to the interests of the public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is in no way injurious to the public. Their Lordships are not aware of any case in which a restraint though reasonable in the interests of the parties has been held unenforceable because it involved some injury to the public. Lindley and Bowen LJJ had suggested in the Court below that though a restraint might be reasonable as between the parties to the contract it might he [sic] unenforceable [34] because of the 'law which forbids monopolies,' or because it was calculated to create 'a pernicious monopoly' and there is a similar suggestion by Lindley LJ in Underwood v Barker. The term monopoly cannot be here used in its proper legal signification of a right granted by the Crown, nor can the expression 'the law which forbids monopolies' refer to any common law or statutory rule limiting the Crown's prerogative in this respect. The learned Lords Justices are contemplating a state of circumstances in which some trade or industry has passed or is likely to pass into the hands or under the control of a single individual or group of individuals, and are indicating that if a restraint on trade is likely to produce this result, it may on grounds of public policy be unenforceable however reasonable in the interests of the parties to the contract. Such a state of circumstances may, by eliminating competition, entail the evils thought to be incident to monopoly rights granted by the Crown, and may therefore in a popular sense be called a monopoly....

The chief evil thought to be entailed by a monopoly, whether in its strict or popular sense, was the rise in prices which such monopoly might entail. The idea that the public are injuriously affected by high prices has played no inconsiderable part in our legal history.... It influenced the Courts in their attitude towards contracts in restraint of trade. ... there is at present ground for assuming that a contract in restraint of trade, though reasonable in the interests of the parties, may be unreasonable in the interests of the public if calculated to produce that state of things which is referred to by Lindley and Bowen LJJ as a pernicious monopoly, that is to say, a [35] monopoly calculated to enhance prices to an unreasonable extent. ... the onus of showing that any contract is calculated to produce a monopoly or enhance prices to an unreasonable extent will lie on the party alleging it, and that if once the Court is satisfied that the restraint is reasonable as between the parties this onus will be no light one. Further, it must be remembered that the question whether a restraint of trade is reasonable either in the interest of the parties or in the interest of the public is a question for the Court, to be determined after construing the contract and considering the circumstances existing when it was made. It is really a question of public policy and not a question of fact upon which evidence of the actual or probable consequences, if the contract be carried into effect, is admissible.

It is only necessary to add that no contract was ever an offence at common law merely because it was in restraint of trade. The parties to such a contract, even if unenforceable, were always at liberty to act on it in the manner agreed. Similarly combinations, not amounting to contracts, in restraint of trade were never unlawful at common law. To make any such contract or combination unlawful it must amount to a criminal conspiracy, and the essence of a criminal conspiracy is a contract or combination to do something unlawful, or something lawful by unlawful means. The right of the individual to carry on his trade or business in the manner he considers best in his own interests involves the right of combining with others in a common course of action, provided such common course of action is undertaken with a single view to the interests of the combining parties and not with a view to injure others (The Mogul Case).

Full decision at AustLII

Full decision at Jade