The letter dated 20 February 1922, from the Chairman of the British Australian Wool Realisation Association has been forwarded to me for advice

I have been delayed in dealing with the matter owing to the fact that all the relevant papers were in Sydney during the hearing of the wool-tops case.

The matter turns upon a promise made by the Prime Minister in the House, and the interpretation of that promise.

The Prime Minister's promise:

On 26 March 1920, just after the making of the agreement of 12 March 1920, Mr Rodgers, in the House of Representatives, moved the adjournment of the House in order to put forward on behalf of the Australian woolgrowers certain claims with regard to wool acquired under the agreement.

He asked the Prime Minister to consider two alternatives:

1. that the profits of the Commonwealth Government under the agreement should be put into the Pool for distribution to the woolgrowers; or
2. that the woolgrowers should be put in the same position, with regard to wool taken by the Colonial Combing Company under the agreement, as if the wool had been the subject of the contract with the Imperial Government.

Mr Hughes, in reply, rejected the first alternative altogether, pointing out that the woolgrowers had no shadow of a claim to the profits arising out of the manufacture of wool-tops.

As regards the second alternative-that the woolgrowers should be put in as good a position as if the wool had not been taken for local manufacture, Mr Hughes said (Debates, Vol. 91, p. 923):

While I contend that under the agreement the wool used for local manufacture is wholly outside the Pool, I am ready to consider the proposal fairly on its merits . . . I am prepared to say now, on behalf of the Government, that I will give favourable consideration to the proposal. I want to make my intention perfectly clear. I mean to say that I am prepared to consider whether the grower shall have as much profit as he would have had if the wool had gone into the Pool and been sold to the British Government in the ordinary way.

On 16 April 1920 (Debates, Vol. 91, p. 1295) Mr Rodgers asked the Prime
Minister, upon notice:

Whether the Government is prepared to allow to the Australian woolgrowers in respect of the wool supplied to the Colonial Combing, Spinning, and Weaving Company under contract for the manufacturing of wool-tops, the same share of profits in such wool as if it formed part of the wool sold to the Imperial Government?

Mr Hughes replied-'Yes'.

The interpretation of the promise:

That is the promise, the interpretation of which is now in question. It relates to wool supplied to the Colonial Combing Company under the agreement of 12 March 1920; and it declared that the Government was prepared to allow to the woolgrowers, in respect of that wool, the same share of profits as if the wool had formed part of the wool sold to the Imperial Government.

In a letter dated 14 June 1920, to the Secretary, Prime Minister's Department, the Chairman of the Central Wool Committee wrote:

The C.W.C. interpret the statement of the Prime Minister to mean that the Commonwealth Government will, through the Central Wool Committee, make available for distribution to Australian woolgrowers an amount of money equal to 50% of the difference between-

1. the flat rate value of such wool, plus all charges incidental thereto, and
2. the amount such wool would have realised if taken over by the Imperial Government and sold by them at auction.

This letter having been referred to the Secretary, Attorney-General's Department, he wrote the following memorandum, dated 6 August 1920:

The wool selected and purchased by the Colonial Combing Spinning and Weaving Coy Ltd is outside the contract with the Imperial Government, which was for the surplus over Australian requirements. It, therefore, does not go into the Pool accounts, and, so far as the strict rights of the growers are concerned, the matter is closed when they are paid the flat rate.

The Prime Minister has, however, promised to consider as a matter of grace to the growers, giving them what may be called a bonus equivalent to the profit they would have had if the wool had gone into the Pool and been sold to the British Government in the ordinary way.

The basis which I would suggest for ascertainment of the amount to be made available for distribution in this way is as follows:

1. Ascertain the flat rate value of the wool, together with all charges which would have been payable thereon if it had been sold in London.
2. Ascertain the amount that wool of a similar type would have realised if sold by auction in London on the date on which payment was made by the Colonial Combing Company for the wool.

The amount to be distributed would then be one-half the difference between (1) and (2).

I suggest that the chairman of the Central Wool Committee should be asked to ascertain, as nearly as may be, what the amount so arrived at would be; and that this amount be appropriated and paid out of revenue.

This memorandum was forwarded to the Central Wool Committee by the Secretary, Prime Minister's Department, with the following endorsement, dated 7 August 1920: 'Referred in connection with the last paragraph of the above memorandum'.

On 4 November 1920, the Chairman of the Central Wool Committee wrote to the Prime Minister informing him that: ' . . . full and complete information has been received from the Director-General of Raw Materials, London, enabling the Central Wool Committee to prepare statements in strict accordance with the instructions contained in the letter above referred to'-i.e. the memorandum of 6 August set out above.

With this letter was forwarded a debit note for £397,952 12s 7d 'being amount due to Australian woolgrowers for 50% of the profit on 13,375 bales and eleven butts of greasy wool and 512 bales of scoured wool', and certain statements in support. The Chairman added:

The fact that the Central Wool Committee do not comment on certain remarks contained in the letter of the Secretary of the Attorney-General's Department bearing date 6.8.20 must not be interpreted that the Central Wool Committee endorse the remarks expressed therein.

The Chairman of the Central Wool Committee, in a letter of 21 September 1921, to the Prime Minister, intimated that the debit note for £397,952 12s 7d represented an amount due by the Commonwealth Government to B.A.W.R.A.

The Prime Minister, in a letter dated 1 February 1922, replied that he could not admit this, and that there had evidently been a misconception as to what his statement in the House of Representatives (on 16 April 1920) implied.

He set out the material parts of the correspondence, and said that the basis for 'ascertainment of the amount to be made available', suggested in Sir Robert Garran's memorandum of 6 August 1920, had been neither accepted nor rejected by the Government, but had been referred to the Central Wool Committee by the Department for comment and advice.

Mr Hughes pointed out that the wool selected could not have been shipped to London, and sold by auction 'on the date on which payment was made by the Colonial Combing Company'-i.e. fourteen days after sale to the Colonial Combing Company; and that his promise only implied that growers would receive as much as they would have done had their wool been sold to the British Government and shipped in due course for sale by auction overseas. He was informed that in that case the wool would not have been sold earlier than May-July 1921, and would have formed part of the stocks on hand at 31 December 1920-which were valued, for the purpose of transfer of the Australian interest therein to B.A.W.R.A. on the fixed basis of cost price, plus charges, less depreciation of 40%.

That valuation, he contended, having been agreed to by the British Government, the Central Wool Committee, and B.A.W.R.A., was the most reliable that could be obtained. On that basis, the wool would have been sold not at a profit, but at a loss.

Mr Hughes also stated that the debit note involved a further miscalculation as it included 4840 bales of wool supplied to the Colonial Combing Company before 12 March 1920, and having no connection with the agreement of that date.

In conclusion, Mr Hughes stated that the Government was willing to fulfil the promise made, but would not accept the figures supplied or the basis on which the claim was constructed.

The Chairman of the Central Wool Committee, in a reply dated 20 February 1922, stated that the Central Wool Committee had adopted and accepted as a direction the 'formula' of 6 August 1920, which had not previously been challenged, and that their basis for estimating the amount due was founded on the formula, and was correct and unassailable.

But whether the 'formula' was taken as the basis or not, he contended that the amount of the claim was not subject to alteration. All wool sold to woollen manufacturing firms in Australia, from 30 June 1920, to the opening of the 1920-1 selling season, had been charged on London parity, on the same basis as that employed in the debit note and statements. The members of the Central Wool Committee and the directors of B.A.W.R.A. were satisfied that that basis was correct, and that the contention of the Prime Minister regarding dates and periods of payment was neither sound nor relevant. The basis employed for the valuation of carry-over wool on transfer to B.A.W.R.A. had no relation to this wool; it was merely an assumption for fixing the capital of B.A.W.R.A., and the actual value of the wool would be determined when sold. Moreover the 40% depreciation basis covered a large percentage of medium and low-grade cross-bred wools, and was not applicable to this wool.

As regards the suggested error in calculation, the Chairman admitted that 9,047 bales came specifically under the agreement of 12 March 1920, but contended that the 4840 bales were also included; see clause 6 (b) of the agreement (whereby the Commonwealth consented to the sale and export of wool-tops 'now held or hereafter to be manufactured under this agreement by the Company').

It seems clear that there has been no acceptance by the Prime Minister or the Government of the 'formula' of 6 August 1920 or any other formula; and, therefore, that we must go back to the words of the original promise as the only basis for ascertaining the amount due.

Two things stand out: first, that the promise was made with reference to a matter 'outside the Pool'-the wool being treated as reserved for Australian requirements and, therefore, not included in the Imperial contract; and next, that the promise was concerned not with legal rights but with 'merits'-the principle being that the woolgrowers should not be worse off by reason of certain wool having been taken by the Company, instead of being sold to the British Government.

The thing to be ascertained, therefore, is: What would this wool have fetched if it had been shipped to London in the ordinary course? That is a hypothetical question, the answer to which is a matter of estimate, and the problem is to get the best basis for such an estimate.

It appears to me that the Prime Minister's objections to the 'formula' of 6 August 1920 are unanswerable; in the light of the history of the wool market since that date, that formula cannot be relied on as a basis for an estimate of what the wool would in fact have fetched.

Nor does the uniform practice of the Central Wool Committee, with regard to charging for wool supplied to manufacturers, give any better basis.

The valuation of the carry-over wool may give a closer approximation, because it was made at a later date; but that also appears to me not to be conclusive, as it also was only an estimate when the stocks were still unsold.

I think that the foundation for a valuation must be an estimate of what would in fact have happened to this wool: when it would have reached London, when it would have been sold, and what price wool of that description would have realised if sold at that time. Those appear to me to be the relevant facts to be ascertained, and I presume that persons with expert knowledge of the business could make an estimate which would be reasonably reliable.

As regards the 4840 bales, I am unable to agree with the Chairman of the Central Wool Committee. I think the promise does not apply to wool selected by the Company before the date of the agreement. The fact that, by the same agreement, the Commonwealth undertook to consent to the sale and export of tops made from wool previously delivered to the Company does not affect the matter. That wool was already excluded from the Pool before the agreement was made.

[Vol. 19, p. 295]