Beal v Marrickville Margarine Pty Ltd

Beal v Marrickville Margarine Pty Ltd - [1966] HCA 9 - HCA 1966 case summary — Zoe

[22]

The steps that have been taken in the endeavour to incorporate the manufacturing process into the inter-State trade are these. The defendant company has secured orders for specified quantities of margarine from other companies which carry on their businesses in States other than New South Wales, each order requesting the defendant company, whose only margarine factory is in New South Wales, to manufacture in its factory and supply to the ordering company (i.e. in the other State) the specified quantity of margarine in good order and condition. The steps necessary for fulfilling these orders are then carried out quite separately from the corresponding steps that are taken in order to produce margarine for other purposes, and are performed in such a way that it is possible to say of any selected mass of material in the factory, whatever portion of the manufacturing process is in progress or has been completed, whether or not margarine is being produced or has been produced for the purpose of inter-State sale. Moreover when margarine emerges from the final stage of manufacture, that is to say is extruded in bulk form from a machine known as the "A.W. Plant", if it is intended for fulfilment of inter-State orders it is put into a trolley containing only margarine manufactured for that purpose, and bearing a chalk notation on its side specifying the State (not being New South Wales) to which it is intended that the margarine in the trolley shall be delivered. The trolley is put into a refrigerated room on the exterior of which the word "Inter-State" is painted, and which is used only for storing margarine manufactured to fulfil inter-State orders. Subsequently the packaging processes are carried out by the use of packaging machines labelled "Inter-State", through which margarine for other purposes does not pass. The packaging, in foil wraps in blocks of one-half pound or one pound each, conforms in each case with the law of the State for which the margarine has been ordered. Each State other than Tasmania has requirements as to legends and markings and as to shapes of packages differing from those of New South Wales, and the legends and markings and the shapes differ accordingly. The foil-wrapped packages are then packed in twelve-pound cartons and they in turn in forty-eight-pound cartons, the sides of the latter being stamped with the relevant destination outside New South Wales. These cartons are then placed in a special store-room which is used exclusively for storing margarine awaiting despatch to inter-State purchasers, and are kept there until being despatched to their destination outside New South Wales.

[27]

The substance of the argument we have to consider in the present case is that everything the defendant company did in performance of a contract with a buyer in another State constituted one "transaction", and possessed as a whole the character of inter-State trade. The argument protested against the dismemberment of "the transaction" in disregard of what was asserted to be commercial and practical reality. The use thus made of the word "transaction" as a label for the sequence of activities the unity of which it is the object of the argument to demonstrate is question-begging and inaccurate. The question to be decided is whether, on the one hand, the activities are in fact the component parts of one inseverable piece of trade across State lines, or whether, on the other hand, the manufacture is merely the essential method (essential because stipulated for by the contract) by which the manufacturer equips himself with the wherewithal to trade and the trade that takes place across State lines is trade in manufactured goods. The case before us is one in which, as it seems to me, there is the clearest break between the manufacture and the inter-State movement by means of which the manufactured margarine is got to the proper place for delivery to the buyer in fulfilment of the contract, and the break is such that to treat the steps in manufacture and the inter-State movement as one continuous piece of trade is artificial and unreal. It is true that the beginning of the inter-State movement of cartoned margarine is the beginning of an activity which no one could doubt is within the protection of s. 92, but up to the moment when that movement being there is nothing to connect any specific material with inter-State trade - whether it be material in the course of manufacture into margarine, or fully manufactured margarine, or even wrapped and cartoned margarine - except the firm but inherently changeable intention of the defendant company and its own manifestations of that intention by means of appropriate labelling and the use of plant consistently reserved for use in carrying out intentions of a similar kind. Even where a specific batch of material can be identified in the factory as being in course of manufacture for the specific purpose of being applied to fulfilment of a specific contract with a buyer in another State, it is not logically possible to affirm that any trade in respect of that material or any inter-State movement has begun. An endeavour was made to gloss over this fact by saying that in the circumstances of such a case it is possible to say that the margarine "will" be applied to a contract or contracts for inter-State supply; and, again, that from the beginning of the manufacturing process the material was "devoted to" the fulfilment of those contracts. Statements of this kind are inaccurate; and if they be corrected so that "will" becomes "will in all probability" or "will unless the defendant company changes its mind", and "devoted to" becomes "intended for, and labelled as often and as plainly as is practicable with an indication that it is intended for", the propositions become patently irrelevant. Perhaps a word should be added about the expression "devoted to". It is often used in cases arising under s. 92 to express the idea of having been launched upon a movement which in a practical sense is either an entire movement, or an integral part of a larger movement, leading from a point in one State to a point in another State. But the use which the defendant makes of the expression in the present case is inappropriate to the facts, unless indeed one is to say that an inter-State movement begins with the first bringing of ingredients together as the initial step in the manufacture of goods for the purpose of delivery to a purchaser in another State. In my judgment this is not to be said, because it is simply not true. There can be no objection to saying that the materials when put into the manufacturing process are "devoted" to the production of goods in a fit state for inter-State trade, and that goods when so produced and ready for inter-State trade will become "devoted" to that trade if and when the first step in the despatching of them is taken. But the fact that there is no necessary identity between the goods ultimately produced from those particular materials and the goods which ultimately are sent on a particular inter-State journey would be enough by itself to preclude acceptance of the proposition that those materials have become the subject of a specific operation of inter-State trade as soon as they are put into the course of manufacture and so are from that moment onwards "devoted to" inter-State trade. For my own part, I would take broader ground and say that where the subject-matter of a proposed inter-State movement in trade is manufactured goods the manufacture of the goods is, in the nature of things, no part of inter-State trade. Even where the manufacture of the goods has been ordered by a customer in another State, by communications which have crossed the State border and upon terms which stipulate for both manufacture in the supplier's State and delivery of the manufactured goods to the buyer in the buyer's State, the manufacture is still, it seems to me, of necessity a mere intra-State preparation for a proposed act of inter-State trade in manufactured goods, and is not itself a part of any inter-State trade.

[28]

I do not think that a contrary view could be maintained without a radical re-writing of the judgments in Grannall's Case [1] , or that a sufficient re-writing of those judgments, even if the Court were willing to reconsider Grannall's Case [1] , could be performed without a re-writing of s. 92 itself. Grannall's Case [1] propounded no new doctrine; it placed no new interpretation upon s. 92; it simply declined to go beyond the limits which the very terms of the section prescribe, as had been explained with the utmost care in such earlier cases as Carter v. Potato Marketing Board [2] ; Hospital Provident Fund Pty. Ltd. v. State of Victoria [3] and Wragg v. State of New South Wales [4] . The defendant in the present case sought comfort from the judgments of Williams J. (as the Judge of first instance) and Dixon J. (in the Full Court) in the Field Peas Case [5] . An attempt for this purpose to go behind the later judgments of the Court, in which the particular kind of problem that arises here has been worked over and answered with some precision, must surely be misguided. But I have not in fact discovered anything in the Field Peas Case [5] which affords the defendant any comfort. One passage relied upon was in the judgment of Dixon J.: "We should, for the purpose of s. 92, regard the company's position not from the point of view of the legal character of the right to goods the contracts give or to the geographical point at which delivery in fulfilment of the contracts may be effected. We should consider the commercial significance of transactions and whether they form an integral part of a continuous flow or course of trade, which, apart from theoretical legal possibilities, must commercially involve transfer from one State to another" [6] . This passage was directed to the question whether the plaintiff in that case should be conceded a locus standi to seek from the Court a declaration that an enactment was invalid for inconsistency with s. 92 and for ancillary relief by way of injunction; but even if read as in a wider context the passage contains nothing to assist the defendant in the present case. Indeed, it illustrates how the word "transaction" should be kept to its proper use; for it insists upon identifying the relevant transactions and then considering whether together they form a course of trade. What is shown by the later cases above cited is that even if one calls manufacture a "transaction", that "transaction" and the transactions of sale and delivery across State lines do not together form a continuous course of trade, but form simply a sequence in which trade begins after manufacture is complete.

[35]

Counsel for the defendant placed great reliance upon what was said by Williams J. and Dixon J. (as he then was) in Clements and Marshall Pty. Ltd. v. Field Peas Marketing Board (Tas.) [2] and Field Peas Marketing Board (Tas.) v. Clements and Marshall Pty. Ltd. [3] . The contention was that in these judgments there is to be found authority for the proposition that to grow peas in one State for export to another State by a merchant who contracts to buy the peas from the growers is inter-State trade protected by s. 92. Pea growers in Tasmania in the winter and spring of 1946 made contracts with Clements and Marshall Pty. Ltd., a merchant, to deliver peas to be harvested in the autumn of 1947. Before the harvesting of the peas, the merchant made contracts with buyers in other States for the sale and shipment to them of quantities of peas. The growers' contracts were for delivery in Tasmania; the merchant's contracts reselling the peas which it expected to have delivered to it under the contracts with growers required consignment for inter-State carriage. The Board claimed that, by virtue of a proclamation under the Marketing of Primary Products Act 1945 Tas. and the Marketing of Primary Products (Field Peas) Act 1946 Tas., the growers' peas became vested in it upon their coming into existence. The Marketing of Primary Products Act provided: "Nothing in this Act and no proclamation or agreement made under this Act with any Government or persons shall in any way interfere with the free operation of s. 92 of the Commonwealth Constitution ". The Board's claim was rejected. Dixon J. said: "The field peas legislation enters at the earliest stage upon the control of all trade in the product. As the commodity comes into being the Board takes the fullest command of its disposal that compulsory acquisition and statutory authority can give. But, as the title to the Act says, it is for the marketing of field peas. Acquisition is only a device to secure that end. It is to ensure, so far as may be, that no peas shall escape into the market, but that all that Tasmania produces shall pass through the statutory Board. All sales by growers are domestic, inter-State or overseas. The distribution of the commodity among these three sections of trade is to be the work of the statutory body. As is shown by the conditions prevailing in the season to which at first the Act was limited, the very purpose was to secure that a greater quantity of peas was held for the more profitable overseas market instead of going through what were considered the less profitable channels of free commerce into inter-State trade. There is in my opinion a complete negation of freedom of trade in peas from one State to another. All freedom to market his product is denied to the producer: all trade is taken into statutory control; the purpose is to provide an exclusive method of disposing of the commodity and to make any form of inter-State and overseas trade in the commodity impossible unless by or with the consent of the Board; and the primary purpose is to obtain the advantage of overseas markets at the expense of inter-State trade" [1] . This, to my mind, falls far short of the contention advanced on behalf of the defendant, for while it is said, very definitely, that freedom to market inter-State goods which have been produced is protected by s. 92, it is not said that s. 92 confers freedom to produce goods to be marketed inter-State. It is this latter freedom which is now claimed. Williams J. did say: "In my opinion a dealer in a State has a similar right under s. 92 to buy goods in that State for sale in another State to the right of the grower or manufacturer of goods in one State to sell them in another State" [2] but, if this means, as counsel for the defendant claimed it does, that a person intending to sell goods in the course of inter-State trade has a right protected by s. 92 to buy - or to manufacture - goods for the purpose of making such sales, it is an opinion which, as a general proposition, I, with respect, do not share. It would all depend upon the concrete case.

[44]

It appears that at all relevant times the company held a licence to manufacture table margarine which contained a condition specifying 2,166 tons as being the maximum amount that might be manufactured by it during the currency of the licence. In fact during its currency it manufactured an amount in excess of that quantity and a large proportion of its output was applied in the fulfilment of orders received by it from customers in States other than New South Wales. It was for its failure to comply with this condition of its licence that the prosecution was launched. In an earlier case of Grannall v. Marrickville Margarine Pty. Ltd. [1] , the company was prosecuted for a breach of s. 22A (1) (b) of the Act in manufacturing table margarine without being the holder of a licence and it was contended on its behalf that the provisions of that paragraph, in so far at least as it purported to prohibit, except under licence, the manufacture of margarine intended to be supplied to buyers in other States, infringed the freedom of inter-State trade, commerce and intercourse which s. 92 guarantees. The evidence in that case showed that a substantial proportion of the company's output was intended by it to be applied and was in fact applied to the fulfilment of contracts between it and buyers in other States which called for the sale and delivery to those buyers of margarine from the company's premises. The contention failed. In their joint judgment Dixon C.J., McTiernan, Webb and Kitto JJ. pointed out [2] , that the prohibition in s. 22A (1) (b) was directed solely to the process of manufacture and did not restrict the freedom of the company to engage in inter-State trade and commerce. Their Honours agreed, of course, that the manufacture, production or importation of goods was an "essential preliminary condition" to any trade, inter-State or otherwise, in goods since without goods, there could be no trade in them. But that, they considered, did not make the manufacture, production or importation of goods trade and commerce among the States. They went on to say: "Two tendencies have grown manifest of late. One is to press the operation of s. 92 beyond the subject matter of trade, commerce and intercourse among the States so that it denies to the legislatures of this country the power to impose any prohibition, restriction or burden if its consequences could be seen in what was done or not done in the course of inter-State commerce. The other is to seek to extend the freedom which s. 92 guarantees to trade, commerce and intercourse among the States to antecedent or subsequent transactions on the plea that they are incidental, ancillary or conducive to inter-State transactions or necessarily consequential upon them. There is in truth nothing to justify such notions which would go far to exclude legislative power the existence of which has never been doubted. The defendant company's argument in the present case would, for example, appear to mean that there could be no effective prohibition of the importation of goods into Australia if they were merchandise intended to be bought and sold in inter-State trade. A customs tariff could not effectively be used to restrict importation if its purpose and operation were to prevent the dutiable goods going into inter-State trade" [1] . Fullagar J. said: "In order to bring the present case within the protection of s. 92, it was necessary for the defendant to put forward a conception of inter-State trade and commerce which, as my brethren have observed, has been put forward in several recent cases but has never been accepted. The substance of that view seems to be that operations such as production or manufacture are immune from legislative interference so long as it is possible that the producer or manufacturer may dispose of his product in inter-State trade, or at least if he intends to dispose of it in inter-State trade. I agree with what the Chief Justice and McTiernan, Webb and Kitto JJ. have said on this subject. There is no decision which gives any countenance to such a view. Section 92 protects only activities which themselves possess the character of inter-State trade, commerce, or intercourse" [2] . In the present case, counsel for the company submitted that Grannall's Case [3] was wrongly decided and should be overruled. In my opinion that submission should be rejected. The passages I have quoted from the judgments set out propositions with which I entirely agree and we have recently applied them to a case in which it was unsuccessfully argued that the prohibition under the Customs Act of the importation of aircraft intended to be used for the carriage of goods inter-State was an infringement of s. 92: Reg. v. Anderson; Ex parte Ipec-Air Pty. Ltd. [4] . Counsel's principal submission was, however, that the facts in the present case differ in vital respects from those in Grannall's Case [3] . They certainly differ in some respects and whether they lead to a different conclusion is the real question to be decided.

[48]

For the company it was contended that, having regard to the methods which it has adopted of keeping its manufacture of margarine for inter-State sales and deliveries separate and distinct from its manufacture of the product for sale and delivery in New South Wales, it is entitled to claim the protection of s. 92 from the moment when the raw materials, which will ultimately be turned into margarine for sale and delivery across the State boundary, are set aside or allocated for the purpose of processing them into the finished product which is to be used to fulfil an inter-State order until that product is delivered to the customer. There is, it was said, but one entire transaction the whole of which bears the character of inter-State trade and commerce and throughout that whole transaction the company is entitled to the protection of s. 92. I am unable to agree. If one asks what was the inter-State trade in which the company was engaged at the relevant time, the answer would surely be that it was that of selling and delivering margarine. It is, of course, true that unless it is able to manufacture margarine, it cannot fulfil its orders. That it should be free to manufacture the product which it ultimately delivers to the inter-State buyer is a necessary preliminary to its ability to trade inter-State but that is not to say that in manufacturing its products - and it is for this part of its activities that it claims immunity from the State law - it is engaged in inter-State trade, commerce or intercourse. It is an inter-State trader in margarine, not an inter-State trader in the ingredients which go to make up the finished product or an inter-State trader in the manufacturing processes by which it is produced. In my opinion, the distinction which exists between the facts in the present case and those in Grannall's Case [1] does not have the effect of bringing under the shelter of s. 92 the company's manufacturing activities entered upon for the purpose of fulfilling orders received from customers in States other than New South Wales. It follows that the company has committed the offence charged against it and the case should be remitted to McTiernan J. in order that his Honour may determine what penalty should be imposed.

At a glance

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Judgment (48 paragraphs)

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