Grannall v Marrickville Margarine Pty Ltd [1955] HCA 6

Grannall v Marrickville Margarine Pty Ltd [1955] HCA 6 - HCA 1955 case summary — Zoe

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factory satisfies the conditions of cleanliness and hygiene to which that section refers, and the application shall be granted. But if the application is in respect of a dairy produce factory for the manufacture of any other form of dairy produce than butter or cheese then that application must be considered, first by the Advisory Committee, and secondly by the Minister in the light of the com- mercial and economic interests of the dairying industry, and if the application would be prejudicial to those interests the Minister may, under s. 58 (i), refuse it. The Minister is not obliged to grant a licence to any applicant; he has a complete discretion, he may grant only one licence, or he may grant many. But each licence shall specify within its terms the maximum amount which that licensee may manufacture. If the Minister decides that there shall be a number of licences and the maximum amount which each of those licensees may manufacture is, in the aggregate, 2,500 tons, the effect of s. 22 is that no licensee can increase his quota of manufacture nor can any further licence be granted. If the whole 2,500 tons is given by way of different quotas among different licensees, the quota of each licensee is frozen unless one of the existing licensees does not seek to renew his licence or goes out of manufacture. The quota of each licensee is frozen, notwithstanding that a particular licensee may not manufacture the whole of his quota or any part of it. What is significant in sub-s. (2) of s. 22c is, where this permit is granted, it is provided that every such permit shall contain such conditions as the Minister thinks neces- sary to ensure that this table margarine so manufactured does not go into inter-State trade. The group of sections 22a to 22p inclusive, inserted in 1940, is not in any way concerned with the purity or forms of manufacture of margarine ; it is solely concerned with controlling the quantity which may be manufactured and the quantity which may be sold in Australia. The operation of the Act is concerned with the furtherance of the interests of the dairying industry and seeks to achieve that result by restricting the manu- facture, sale and distribution of margarine in Australia. If that construction be correct, and even if the Act so construed operates wholly upon intra-State aspects of trade and commerce, yet never- theless because of the declared object of the Act, its provisions contravene s. 92 of the Constitution. The purpose and intention for which the defendant carries on its business is manufacture for sale intra-State and inter-State. The manufacture of table mar- garine or the carrying on of a business of manufacturing table margarine for sale inter-State falls within the immunity of s. 92 of the Constitution. This Act, in its operation, strikes at that business

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Tf the real significance to be attributed to any series of transactions depends upon their commercial significance then if the commercial or business significance of those matters is that what is being done is manufacturing for the purpose of inter-State trade and commerce and selling and delivering, that could and does involve that manu- facture as part of it. If the contrary view put in Matthews v. Chicory Marketing Board (Vict.) (1) and Hartley v. Walsh (2) be right then it means that manufacture can never be a constituent element in inter-State trade and commerce. That view is not correct. One cannot define beforehand what are the limits of inter- State trade and commerce and an inquiry into the particular cireum- stances may show that manufacture is essentially one part of it. The contracts with the growers in Clements & Marshall Pty. Ltd. v. Field Peas Marketing Board (Tas.) (3) in Tasmania in themselves did not make any provision for the goods going across the border yet the contracts between the growers and the buyers in Devonport, Tasmania, were entitled to be said to fall within the immunity of s. 92, because the contemplation of the situation was that, if those goods went forward according to the terms of the particular contract

intra-State - and as intended, they would constitute a part of a transaction which was one involving the delivery of goods across a border and an inter-State trade transaction. The present inquiry for the Court must be whether that manufacture in the circum- stances of trade, commerce and intercourse formed, in these present circumstances, part of it. What the Court is inquiring into is not manufacture isolated or manufacture alone, but manufacture as part of a broader scale of transactions which would, if carried to their conclusion, ultimately result in the passage of goods across the border. Whether manufacture can be part of inter-State trade and commerce was considered in McNee v. Barrow Bros. Commission Agency Pty. Ltd. (4). Manufacture will be part of inter-State trade and commerce where the manufacture is for the purpose of sale and delivery of those goods inter-State. Even if the highest view of "manufacture " as put be not accepted, the facts in par. 10 of the case stated show that the defendant from time to time enters into contracts for the sale and delivery across State lines of the products

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HIGH COURT (1954-1955. trade within the meaning of the authorities. The under-mentioned cases are cases which deal with the meaning of trade and commerce, and they are not cases which can be distinguished on the basis of doctrine special to the Constitution of the United States of America, They consistently maintain that production and manufacture is not trade and commerce : Kidd v. Pearson (1); United States vy. B.C. Knight & Co. (2); Prentice and Egan on the Commerce Clause (1898), p. 54; Judson: The Law of Inter-State Commerce (1912) (2nd ed.), p. 16; Quick and Garran : The Annotated Constitution of the Australian Commonwealth (1901), p. 518; W. Harrison Moore : The Constitution of the Commonwealth of Australia (2nd ed.) (1910), p. 550. The terms of the Constitution itself, such as s. 51 (iii.) referring to bounties on production, and s. 90 which refers to excise duties and bounties on production, draw the basic distinction. From James v. The Commonwealth (3) and Bank of New South Wales v. The Commonwealth (4) it is abundantly clear that in using "trade and commerce "' and adding " intercourse" the Australian Constitution was intending to adopt the meaning which those words had been held to have. That distinction stood notwith- standing the purpose, or intention, or probability that the goods would move into inter-State trade so that there was the closest integration between the manufacture and trade and commerce, and notwithstanding that the parties by their contracts joined the two in the one contract. [He referred to United Mine Workers of America vy. Coronado Coal Co. (5); Oliver Iron Mining Co. v. Lord (6); Utah Power & Light Co. v. Pfost (7); Champlin Refining Co. v. Oklahoma Corporation Commission (8); Parker v. Brown (9).] This is not a disguised attempt to interfere with inter-State trade ; see Kerr on The Law of the Australian Constitution (1925), p. 118. A contract, including the contractual arrangements in this case, cannot in any circumstances transform manufacture into trade and commerce. In no sense can the parties convert manufacture into trade and commerce. It is not until after the point of manufacture, which is the critical time for the operation of this Act, that some

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portion in the nature of things could be selected by the defendant's employees and set aside within the company's premises for general purposes of inter-State sale, and it is not until after that that the defendant in respect of particular contracts and particular deliveries appropriates to the contract. At the point of impact of this legis- lation the goods have not gone into inter-State commerce. The process of importation begins upon the entrance of the articles into the export stream (Empresa Siderurgica v. Merced County (1) ). The conclusion to which the United States Court has come in those cases where there were existing contracts to deliver inter-State, that the parties cannot by their contract alter intrinsic constitutional foundations, results in the situation that in no circumstances can manufacture become part of trade and commerce. If that sub- mission is right, the dictum of Sholl J. in McNee v. Barrow Bros. Commission Agency Pty. Ltd. (2) would not be correct where he said he could envisage some circumstances where the pulp- ing of eggs might become part of inter-State trade. The question of whether one part of the transaction was or was not an inseparable or inseverable part of inter-State trade was mentioned in Wragg v. State of New South Wales (3): see also Williams v. Metropolitan & Export Abattoirs Board (4) and Clements & Marshall Pty. Ltd. v. Field Peas Marketing Board (Tas.) (5). In all walks of life the concept of manufacture and production is distinguished in parlance from that of trade and commerce. The cases in United States since 1936 have not resulted in any weakening of the distinction between manufacture and production and trade and commerce (National Labor Relations Board v. Jones & Laughlin Steel Corporation (6); United States v. Darby (7) ). Section 22c (1) is an addendum to the basic scheme of the Act, that is a licensing system which will insure that no more than a certain quantity is produced, empowering the Minister, if he thinks fit, to permit something more to be manufactured for export, not under a licensing system, but under a different system of special permits. Sub- section 2 (a) of s. 22c is not a provision in any sense directed against inter-State trade; it is a provision intended to police and insure that the whole purpose and basis of the production is exportable. Its whole purpose has nothing to do with inter-State trade and thus differs fundamentally from James v. The Commonwealth (8); it is

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H. A. Winneke Q.C. (Solicitor-General for Victoria) (with him R. Else-Mitchell), for the State of Victoria and the State of South Australia, intervening by leave. All the other States have legis- lation similar to the New South Wales Act. It is impossible to deny that the dominant motive, for this initial action on the part of the States was to preserve, so far as they were constitutionally able, what each regarded as one of its basic primary industries, the dairy farming industry. In Victoria for many years the legislation stood as part of the general health legislation, its purpose being to prevent the improper passing off of a butter substitute as butter itself. All the submissions made to the Court on behalf of the informant that the process of manufacture is not part of trade and commerce are adopted. The impact of this legislation upon inter- State trade and commerce is indirect or remote as distinct from being either direct or immediate. This legislation does have, at some stage of the process, an impact upon inter-State trade and commerce in margarine and it does not matter, for the purposes of this case, whether it be treated as a complete prohibition or as a partial prohibition on the manufacture of margarine. The real isswe as to the validity of this legislation turns on whether the effect which it will have on inter-State trade and commerce is immediate and direct or consequential and indirect. This legislation is direct in its effect upon inter-State trade in this commodity. The activity which is selected by this legislation is the activity of manufacture itself. That activity is not itself a transaction of trade and commerce at all, let alone of inter-State trade and com- merce. Conceding that the operation of the Act will or may at some stage of human activity have an effect upon inter-State trade in the commodity just as much as it will have an effect upon domestic trade in the commodity, that effect, when it gets to the stage of inter-State trade, is not immediate or direct, because the immediate effect of this legislation is simply to prohibit manufacture. A person in the position of the defendant cannot trade inter-State because he has not got the goods with which to trade ; they do not exist because of a general State law which operates in the State

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beginning of inter-State trade may operate directly upon the trade (Clements & Marshall Pty. Ltd. v. Field Peas Marketing Board (Tas.) (1) ; Fergusson v. Stevenson (2) ; Foggitt, Jones & Co. Ltd. v. New South Wales (3) ). The actual form of the legislation will not be conclusive. One will need to look to the substance, and one will find directness of application although the statute does not in terms refer to any of the inter-State activities of the persons affected. The acquisition that is bad is the acquisition that uses a means to achieve the end of control, and here there is another device which is used as a means of control, and its only purpose is to control the trade. There is not any other purpose to be found in the statute. What the words of the Act do achieve is to prohibit the sale of more than a certain quantity. The purpose of controlling the manufacture is to attempt to control the amount available for sale. It does not stop at a mere desire to prohibit all manufacture. If it is desired to determine whether the taking away has a direct operation on trade, one must have regard to whether the taking away is a means to some end. If the end be the interference with trade by means of controlling, then the acquisition is bad. Putting Peanut Board v. Rockhampton Harbour Board (4) and James v. Cowan (5) side by side, the conclusion from them in relation to acquisition is that acquisition as a means of controlling trade fails. In this case there is manufacture which is no more than an antece- dent point in the inter-State trade. There is not any difference between the inability to get it and the inability to make it. Taking this statute in substance, it is designed to control the total amount of margarine which may circulate in trade in Australia so far as the State of New South Wales is making a contribution to it. Legislation which does not in terms operate upon an activity which is itself trade, or part of it, may nevertheless be invalid. The relevant test of validity is whether the legislation produces directly, in the sense of proximately and not remotely, an effect upon the individual's trade of the prohibitive kind. The relevant effect is not limited to a trade in being carried on by the individual, but extends to a trade in which he intends to engage (Peanut Board v. Rockhampton Harbour Board (6) ). A law acquiring vendible goods may be held to produce a direct and not a remote inhibition on trade with the goods (Peanut Case (4) ). A law preventing posses- sion of vendible goods can be held to be producing a direct inhibition of trade (Fergusson v. Stevenson (2)). A law acquiring a vendible

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Drxon C.J., McTrernan, Wess and Kirro JJ. This case stated involves the constitutional operation of s. 22a (1) (b) of the Dairy Industry Act 1915-1951 of New South Wales. That provision deals with a substance called table margarine which is, of course, not a product of the dairy industry but is on the con- trary a substitute for butter. Section 22a (1) (b) provides that no person shall manufacture or prepare table margarine unless he holds a table margarine licence. Margarine is table margarine if it is not cooking margarine and it is cooking margarine if ninety per cent or more by weight of the fat and oil it contains consists of beef or mutton fat. That is the effect of the statutory definitions in s. 2 (1). The authority from whom a licence must be obtained is the Minister of Agriculture and he may at his discretion grant or refuse a licence : s. 22a (2) and (3). If he grants a licence for table margarine it must contain a condition limiting the quantity which during the currency of the licence its holder may manufacture or prepare. Licences are annual and expire on 30th June of each year, though they may be renewed. There is a limit upon the aggregate quantity of table margarine for which licences may be granted in respect of a year. The maximum amounts respectively specified in the various licences granted for a period of twelve months must not in the aggregate exceed 2,500 tons: s. 22a (6) (c) The holder of a licence is entitled to have it renewed at the end of a year unless he has broken its conditions or he has been convicted of an offence under the Act, in which latter event the licence may be cancelled at any time. Thereupon the Minister may grant a new licence to someone else for the quantity covered by the can- celled licence or allocate the quantity among the holders of existing licences by increasing their maximum quantities proportionately : s. 22a (7). The reason for limiting the production of table margarine is not stated by the Act but it is of course evident that it is lest the

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the beginning the artificial definition of "dairy produce" has included margarine as well as milk, cream, butter, cheese and other products of milk: s. 2 (1). The first purpose of the Act was to require the registration of premises if they were to be used in the preparation or manufacture of dairy produce in this extended sense (ss. 4 and 5), and to provide for the inspection of the place (ss. 9 and 10), for the grading and testing of cream and butter (ss. 12 to 16), for regulating the basis of payment by factories for cream (ss. 11 and 25 (1)) and, in the case of margarine, for establishing safeguards against confusion with butter and against poorness of ingredients (ss. 17 to 22). In 1938 provisions were added the purpose of which is to allow of the refusal of registration of premises for a dairy produce factory if, after considering the report of an advisory committee which is bound to take various matters into account, the Minister in the exercise of his discretion is satisfied it is in the best interests of the dairying industry in New South Wales to refuse the application for registration. But this provision does not extend to an applicant who produces cream or milk himself and uses the premises solely to manufacture therefrom butter or cheese: ss. 54 and 5p. The provision, of course, extends to premises for the manufacture of margarine. One provision of the original Act forbids the exportation of margarine from New South Wales unless it is submitted first for examination, a certificate is obtained that the margarine has been prepared in accordance with the Act, and the package is branded as prescribed: s. 21. Export from New South Wales necessarily includes delivery into another State and accordingly there may be some doubt as to the validity to that extent of this section. But it is clearly severable ; indeed probably it would be read distributively as a result of the severa- bility clause, if it were considered constitutionally incapable of applying to inter-State trade. The section can have no bearing upon the validity of s. 22a (1) (b).

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Nothing which has been said above implies that under the power conferred by s. 51 (i.) of the Constitution to make laws with respect to trade and commerce with other countries and among the States legislation of the Commonwealth Parliament can never reach or touch production. In the first place, the power is to legislate with respect to trade and commerce. The words "with respect to" ought never be neglected in considering the extent of a legislative power conferred by s. 51 or s. 52. For what they require is a relevance to or connection with the subject assigned to the Common- wealth Parliament, a conception very different from those which have been employed in the exposition of s. 92. In the next place, every legislative power carries with it authority to legislate in relation to acts, matters and things the control of which is found necessary to effectuate its main purpose, and thus carries with it power to make laws governing or affecting many matters that are incidental or ancillary to the subject matter. But this principle is entirely foreign to such a provision as s. 92 whether the doctrine be regarded as a constitutional consequence of the common law principle expressed in the maxim quando lex aliquid alicui concedit conceditur et id sine quo res ipsa valere non potest or of the direct incorporation into our constitutional law of a principle founded upon implication and formulated by the adoption of the famous words of Marshall C.J. in M'Culloch vy. Maryland (1): " Let the end be legitimate, let it be within the scope of the constitution, and all means which are appropriate, which are plainly adapted to that end, which are not prohibited, but consist with the letter and spirit of the constitution, are constitutional" (2). The idea that because the freedom of trade, commerce and intercourse among the States is assured by the Constitution, all matters that are incidental or ancillary to such trade, commerce and intercourse are in the same way protected from interference or control is quite fallacious.

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Whether activities which include production may be the subject of valid legislation under s. 51 (i.) must depend on the nature of the business or trade and upon the character of the legislation, Again nothing that has been said means that by circuitous means or concealed design legislation may impair the freedom of inter-State trade, commerce and intercourse although if the impairment were achieved by overt or direct means it would be invalid. It has been repeatedly said that there is no provision of the Constitution to which the maxim quando aliquid prohibetur, prohibetur et omne per quod devenitur ad illud could be more appropriately applied than to the constitutional guarantee given by s. 92. But in applying this doctrine it is necessary first to see steadily what freedom is the subject of impairment, detraction or restriction. If some fact or event or thing which itself forms part of trade, commerce or inter- course or forms an essential attribute of that conception (essential in the sense that without it you cannot bring into being that particular example of trade, commerce or intercourse among the States) is made the subject of the operation of a law which by refer- ence to it or in consequence of it imposes some restriction or burden or liability, it does not matter how circuitously it is done or how deviously or covertly. It will be considered sufficiently direct or immediate in its operation or application to inter-State trade, commerce and intercourse. Provided the prejudice is real or the impediment to inter-State transactions is appreciable, it will infringe upon s. 92: see Hospital Provident Fund Pty. Ltd. vy. State of Victoria (2). But generally speaking, it will be quite otherwise if the thing with reference to or in consequence of which the law operates or which it restricts or burdens is no part of inter-State trade and commerce and in itself supplies no element or attribute essential to the conception. It will not be enough that it affects something which, because it is a sine qua non to the existence of some subject of the freedom which s. 92 guarantees, has a conse- quential effect on what might otherwise have been done in inter- State trade.

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hibition of the carrying on of a banking business, the second question also called for, and received, an affirmative answer, which led inevitably to the overruling of R. v. Vizzard; Ex parte Hill (1) and the cases which followed and applied it. With the Banking Case (2) may be contrasted the later case of Hospital Provident Fund Pty. Ltd. vy. State of Victoria (3). There the activity for which the plaintiff company claimed protection was the carrying on of what was in substance an insurance business. This business was held not to possess the character of inter-State commerce, and the second question therefore did not arise. If it had arisen, it would seem that it must have been answered in favour of the company. But, as it was, it did not arise, and it was quite immaterial that, as an incident of its business, the company's officers engaged in com- munications and journeyings between one State and another. The activity for which the protection of s. 92 was claimed did not consist of these journeyings and communications as such, but of the carrying on of a business, and the carrying on of that business was not inter-State commerce. One other example may be taken as illustrative of the class of case where the real controversy revolves round the second question. In Fergusson v. Stevenson (4) a com- pany named Booth & Co. (England) Ltd. transported kangaroo skins purchased on its behalf in Brisbane to Sydney, where they were sorted and exported overseas. Clearly the company was engaged in inter-State trade or commerce. But did the Fauna Protection Act 1948 (N.S.W.) interfere with the freedom of that trade? The relevant provision of the Act forbade any person to have in his possession in New South Wales, inter alia, any kangaroo skin. It did not in terms forbid the importation of kangaroo skins from Queensland into New South Wales, which would, of course, have been an obvious interference with freedom of trade. But the company's inter-State trade could not practically or effectively be carried on without some person in New South Wales having posses- sion of skins, if only for a brief period. It was accordingly held that the law from which immunity was claimed did possess the character of an interference with freedom of trade, and that s. 92 gave immunity.

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Judgment (166 paragraphs)