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§ 430. “Preference or Discrimination.”

HISTORY OF THE WORDS.—The phrases “undue preference,” “unjust discrimination,” and so forth, have a history in English and American legislation, and in the judicial decisions of those countries, from which it is impossible to disassociate them, and which forms a valuable aid to the interpretation of the words in this Constitution. It has been held in the Supreme Court of the United States, with respect to these same words, that so far as Congress, in the Inter-State Commerce Act, adopted the language of the English Railway and Canal Traffic Act, it is to be presumed that it had in mind the construction given by the English courts to the adopted language, and intended to incorporate it into the Act. (Inter-State C.C. v. Baltimore, &c., R. Co., 145 U.S. 263. See Texas and Pacific R. Co. v. Inter-State C.C., 162 U.S. 197.)

English Legislation.—When railways were first authorized in England, it was expected that the railways would be public highways like turnpikes or canals; that the companies would merely provide the highway, and take toll for its use; and that the public, or carriers, would employ their own locomotives, carriages, and waggons—just as on roads and canals they employed their own horses, coaches, carts, and (sometimes) barges. (Grierson, Railway Rates, pp. 71, 94; Hadley, Railroad Transportation, p. 165.) It has been said by Wills, J., that “no proper understanding of a good deal of our railway legislation, and pre-eminently of clauses relating to tolls or charges, can be arrived at, unless it (this notion) is firmly grasped and kept steadily in view.” (Hall v. London Brighton, &c., R. Co., 15 Q.B.D. at p. 536.) Accordingly the early railway Acts required equal mileage rates—the same charge per ton per mile, on all parts of the line, for the same class of goods.

It soon became clear, however, that this anticipation was a mistake, and that three cases had to be provided for, on railways, as on canals:—(1) where the railway companies simply provided the highway and took tolls for its use; (2) where the railway companies, without being carriers, provided trucks and locomotives; (3) where the companies were common carriers upon their own highway. (Grierson, Railway Rates, p. 94.) Accordingly by the Railway Clauses Consolidation Act, 1845 (8 and 9 Vic. c. 20, sec. 90) the prohibition against differential rates was repealed. It was recited to be expedient that companies should have power to vary the tolls upon their lines “so as to accommodate them to the circumstances of the traffic,” but that this power “should not be used for the purpose of prejudicing or favouring particular parties, or for the


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purpose of collusively and unfairly creating a monopoly, either in the hands of the company or of particular parties.” It was therefore enacted that companies might alter or vary the tolls authorized by their special Acts, either upon the whole or any part of the railway; “Provided that all such tolls be at all times charged equally to all persons and after the same rate, whether per ton, per mile, or otherwise, in respect of all passengers and of all goods or carriages of the same description, and conveyed or propelled by a like carriage or engine, passing only over the same portion of the line of railway under the same circumstances; and no reduction or advance in any such tolls shall be made either directly or indirectly in favour of or against any particular company or person travelling upon or using the railway.”

This section—the “equality clause,” as it is called—only applies where circumstances are absolutely the same; and then it requires an absolutely rigid equality. It is immaterial that the allowance is made to meet competition. (London and N.W.R. Co. v. Evershed, 3 Q.B.D. 134; 3 App. Ca. 1029; and see Phipps v. London and N.W.R. Co. [1892] 2 Q.B. at p. 249.) A carrier cannot be charged higher rates than other members of the public. (Great Western R. Co. v. Sutton, L.R. 4 H.L. 226; see Ford v. London and S.W.R. Co., 60 L.J. Q.B. 130.) But the proviso only applies to goods carried between the same points of arrival and departure, and does not forbid a uniform charge from different points, or disproportionate rates for unequal distances. (Denaby Main Colliery Co. v. Manchester, &c. R. Co., 11 App. Ca. 97.)

The Railway and Canal Traffic Act, 1854 (17 and 18 Vic. c. 31, sec. 2), provides that no railway or canal company “shall make or give any undue or unreasonable preference or advantage to or in favour of any particular person or company, or any particular description of traffic, in any respect whatever, nor shall any such company subject any particular person or company, or any particular description of traffic, to any undue or unreasonable prejudice or disadvantage in any respect whatever.”

This section has been supplemented by the Railway and Canal Traffic Act, 1888 (51 and 52 Vic. c. 25). Sec. 27, sub-s. i. of that Act, provides that whenever it is shown that a railway company makes any difference in treatment to any trader or class of traders, or to the traders in any district in respect of the same or similar merchandise, or the same or similar services, the burden of proving that the difference in treatment is not an undue preference is on the company. Sub-sec. ii. enacts that in deciding whether a lower charge or difference in treatment is an undue preference, the Court or the Commissioners may, if they think it reasonable, take into consideration whether the lower charge, or difference in treatment, is necessary for securing, in the interests of the public, the traffic in respect of which it is made, and whether the inequality is not removable without unduly reducing the rates charged to the complainant; with the proviso that no railway shall make, nor shall the Court or the Commissioners sanction, any difference in the rates for, or any difference in the treatment of, home and foreign merchandise, in respect of the same or similar services. (For comparison with the “development” clause of this Constitution, see Note, § 437, infra). Sub-sec. iii. deals with the question of long and short hauls. It provides that “the Court or the Commissioners shall have power to direct that no higher charge shall be made to any person for services in respect of merchandise carried over a less distance than is made to any other person for similar services in respect of the like description and quality of merchandise carried over a greater distance on the same line of railway.” Sec. 29 deals with “group rates.” It provides that any railway company may group together any places in the same district, situated at various distances from any point of destination or departure, and charge a uniform rate to and from any place in the group, provided that the distance shall not be unreasonable and that the group rates and the places grouped together shall not be such as to create an undue preference.

Sec. 55 defines an “undue preference” for the purpose of the Act, as including “an undue preference, or an undue or unreasonable prejudice or disadvantage, in any respect, in favour of or against any person or particular class of persons or any particular description of traffic.”




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The decisions on the Act of 1854, first by the Court of Common Pleas, and then by the Railway Commissioners and the Court of Appeal, show a considerable difficulty in fixing the principles upon which the reasonableness of a rate is to be determined. It has been clearly settled, however, that the fact that a trader has access to a competing route for his goods may be taken into consideration in deciding whether lower rates constitute an undue preference; and that the question whether a preference is undue or unreasonable is a question of fact in each particular case. (Phipps v. London and N.W.R. Co. [1892], 2 Q B 229.) For the decisions of the Railway Commissioners, see Annual Reports of the Railway Commissioners (Parl. Papers); and for comments on some of them, see Grierson, Railway Rates, pp. 173–8; Hadley, Railroad Transportation, pp. 182–5. It will be convenient here to cite the decisions which bear on the interpretation of the Act of 1854, and to quote extracts from some of the judgments.

The Court may take into consideration the fair interests of the railway itself, and entertain such questions as whether the Company might not carry larger quantities, or for longer distances, at lower rates per ton per mile than smaller quantities, or for shorter distances, so as to derive equal profits to itself. A rate for one company's coal, to compete with coals of another merchant partly sea-borne, held an undue preference. Ransome v. Eastern Counties R. Co. [1857], 26 L.J. C.P. 91.)

A railway company made a special rate with certain merchants “in order to introduce the northern coke into Staffordshire.” Held that this was no legitimate ground for a preference, and that lowering rates for that purpose, there being nothing to show that the pecuniary interests of the company were affected, was an undue preference. (Oxlade v. Eastern Counties R. Co. [1857], 26 L.J. C.P. 129.)

A railway company is justified in carrying goods for one person at a less rate than for another if there be circumstances which render the cost of carrying for the former less than for the latter. (Id.)

Excluding the omnibus of one omnibus proprietor from within the station gates, and admitting another, no justifying circumstances being shown, held an undue and unreasonable preference. Inconvenience to passengers was relied on as one element. (Marriott v. London and N.W.R. Co. [1857], 26 L.J. C.P. 154.)

Where a company gave a cab proprietor, for a consideration, an exclusive right to stand at the station, no public inconvenience being shown, no injunction was granted. (Beadell v. Eastern Counties R. Co. [1857], 26 L.J. C.P. 250; and see cases cited Dig. Eng. Case Law, iii. 138.)

Carrying coals from one colliery at a lower rate than from another in the same locality, in consequence of a threat from the owner of the first colliery to construct another railway, is an undue preference. (Harris v. Cockermouth, &c., R. Co. [1858], 27 L.J. C.P. 162.)

A scale of charges for carriage of coal from two points, the effect of which was to diminish the natural advantages of dealers at one point, by annihilating, in point of expense of carriage, a portion of the distance, held an unreasonable preference. (Ransome v. Eastern Counties R. Co. [1858], 27 L.J. C.P. 166.)

“The effect of such a scale of charges is to diminish the natural advantages which the position of the dealers at Ipswich, by reason of its greater proximity, gives them over the dealers at Peterborough, in respect of the traffic at Thurston, &c., … by annihilating, in point of expense of carriage, a certain portion of the distance between Peterborough and those places; and just in proportion by which that natural advantage is diminished, an undue preference is given to the Peterborough dealers, and an undue disadvantage is brought upon the complainants and the other Ipswich dealers.” (Per Williams, J, id. at p. 169.)

The words “undue” and “unreasonable” imply that there may be advantage to one person or one class of traffic, and prejudice to another, which would not be within the Act. It is not undue or unreasonable for a railway company to carry goods for A at a lower rate than for B, in consideration of A's guarantee of large quantities and full loads at regular periods (provided that the object of the company be to obtain thereby a greater profit by the diminished cost of carriage) although the effect may be to exclude B from the lower rate. (Nicholson v. Great Western R. Co., 1859, 28 L.J. C.P. 89.)

A railway company may make special agreements securing advantages to individuals, where it clearly appears that the company has in view only the interests of the proprietors and the legitimate increase of the profits of the railway, and the consideration given to the company in return for the advantages is adequate, and the company is willing to afford the same facilities to all others upon equal terms. (Id.)




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A preference to a customer who engaged to employ other lines of the company, for traffic distinct from and unconnected with the goods in question, was held unreasonable. (Baxendale v. Great Western R. Co., 1859, 28 L.J. C.P. 69.)

A company charged rates inclusive of delivery charges, in order to compel customers to employ them as carriers, apart from their line of railway. Held an undue preference to themselves. (Baxendale v. Great W.R. Co., 1859, 28 L.J. C.P. 81; Garton v. Great W.R. Co., id., 158.)

A facility given to one carrier by receiving goods at a later hour is an undue prejudice to others. (Garton v. Bristol, &c., R. Co., 1859, 28 L.J. C.P. 306.)

A deduction to certain persons, in consideration of their contracting to consign all goods by the railway, and not by water or other means, is an undue preference, unless it be clearly shown that it is done to prevent a competition with the railway, or that there is secured thereby to the company such an amount of traffic as to compensate for the reduction. Bona fide competition, held out to the public generally, might be good. (Id.)

A reduced rate for a full trainload is good, though the company, for its own convenience, divides the trainload If the rate is valid, the mode of carriage is immaterial. (Ransome v. Eastern Counties R. Co., 1860, 29 L.J. C.P. 329.)

The gratuitous cartage of the goods of one firm, though done bona fide to meet competition and at a profit on the whole carriage, is an undue preference. (London and N.W.R. Co. v. Evershed, 1877, 2 Q.B.D. 254; 3 Q.B.D. 134; 3 App. Ca. 1029.)

“We are of opinion that the gratuitous cartage and the allowance of rebate granted by the defendants to the three brewing firms mentioned in the case, but not granted to the plaintiffs, although made bona fide for the simple purpose of attracting their traffic to the defendants' line of railway, in lieu of its being sent by competing lines, and although such traffic realized a profit to the defendants notwithstanding such an allowance or rebate, did under the circumstances amount to an undue preference or advantage given to them by the defendants' company, and is contrary to the language and meaning of the equality clause, 8 and 9 Vic. c. 20, s. 90, and also of 17 and 18 Vic. c. 31, s. 2.” (Per Mellor, J., 2 Q.B.D. at p. 265.)

“We think that a railway company cannot, merely for the sake of increasing their traffic, reduce their rates in favour of individual customers, unless, at all events, there is a sufficient reason for such reduction, which shall lessen the cost to the company of the conveyance of their traffic, or some other equivalent or other services are rendered to them by such individuals in relation to such traffic.” (Id. at p. 267.)

Group Rates.—A railway company carried coals to a point, from a group of collieries at different distances along the same line, at the same rate. In an action for overcharge, it was held by the Court of Appeal and by the House of Lords, overruling the Queen's Bench Division, that this was not a breach of the equality clause, and that no action for an overcharge lay for an undue preference. (Denaby Main Colliery v. Manchester, &c., R. Co., 1883, 13 Q.B.D. 674, 14 Q.B.D. 209, 11 App. Ca. 97.)

By sec. 29 of the Railway and Canal Traffic Act, 1888 (see p. 906, supra), it is provided that a railway company may group together places in the same district, situated at various distances from any point of destination or departure, and charge uniform rates to and from all places within the group, provided that the distance is not unreasonable, and the group rates charged are not such as to create an undue preference.

The works of the applicant were on the line of the Furness R. Co., 18 miles from a junction. Other similar works were situated on the same line, 38 miles from the junction. The company grouped these works together and charged them a uniform rate, except that the applicants were charged sixpence a ton less for coke. Held, that so far as the rate for coke was concerned, the company had made sufficient allowance; but as regards the other rates, the places grouped were so far apart that there was an undue preference. (North Lonsdale Iron Co. v. Furness R. Co., 1891, 60 L.J. Q.B. 419. See also Newry v. Great Northern R. Co., 7 Ry. and Can. Traffic Cas. 184; cited Dig. Eng. Case Law, iii. 146.)

Competition.—The fact that a trader has access to a competing route for the carriage of his goods may be taken into consideration in deciding whether lower rates charged to such trader are an undue preference. (Phipps v. London and N.W.R. Co., 1892, 2 Q.B. 229.)

“The second section of the Act of 1854 does not afford to the tribunal any kind of guide as to what is undue or unreasonable. It is left entirely to the judgment of the court on a review of the circumstances. Can we say that the local situation of one trader, as compared with another, which enables him, by having two competing routes to enforce upon the carrier by either of those routes a certain amount of compliance with


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his demands, which would be impossible if he did not enjoy that advantage, is not among the circumstances which may be taken into consideration? I am looking at the question now as between trader and trader. It is said that it is unfair to the trader who is nearer the market that he should not enjoy the full benefit of the advantage to be derived from his geographical situation at a point on the railway nearer the market than his fellow trader who trades at a point more distant; but I cannot see, looking at the matter as between the two traders, why the advantageous position of the one trader in having his works so placed that he has two competing routes is not as much a circumstance to be taken into consideration as the geographical position of the other trader, who, though he has not the advantage of competition, is situated at a point on the line geographically nearer the market. Why the local situation in regard to its proximity to the market is to be the only consideration to be taken into account in dealing with the question as a matter of what is reasonable and right as between the two traders, I cannot understand. Of course, if you are to exclude this from consideration altogether, the result must inevitably be to deprive the trader who has the two competing routes of a certain amount of the advantage which he derives from that favourable position of his works. All that I have to say is that I cannot find anything in the Act which indicates that when you are left at large, for you are left at large, as to whether as between two traders the company is showing an undue and unreasonable preference to the one as compared with the other, you are to leave that circumstance out of consideration any more than any other circumstance which would affect men's minds.” (Per Lord Herschell, id. p. 242.)

“It seems to me that, whether you look at the Act of 1854 by itself, or whether you look at it in connection with the provisions of sub-sec. 2 of sec. 27 of the Act of 1888, to which I have been referring, it is impossible to say that there is anything in point of law, which compels the tribunal to exclude from consideration this question of competing routes. I do not go further than that. It is not necessary to go further than that. I am not for a moment suggesting to what extent it is to weigh. I am not suggesting that there may not be such an excessive difference in charge made in cases of competition, as that it would be unreasonable and unfair when you are looking at the position of the one trader as compared with the other. That may be so, but all that is matter for the tribunal to take into account, and certainly I think that they are entitled to take it into account, and to give weight to it as far as is reasonable. If that be so, it is of course sufficient to dispose of the present case.” (Per Lord Herschell, id. pp. 245–6.)

“Now, the appeal here is put, as it must be put, upon a question of law—viz., whether there is any rule which compels us to say that the Commissioners had no right to take into their consideration the fact that Butlins and Islip had two routes of communication westward instead of one. It appears to me that there is no such rule, and I cannot help thinking it would be extremely unreasonable if there were. Upon what principle of good sense can any business man or anybody else exclude from his consideration the locality of either place? If there is a physical difference in favour of one or the other, or an artificial difference by reason of the facilities of traffic, whether by sea or by land, why is not everything which is material to be taken into account, and upon what principle can it be said that you are to exclude from consideration one of the main elements in the case?” (Per Lindley, L.J. id. pp. 250–1.)

“I think it is clear that the section implies that there may be a preference, and that it does not make every inequality of charge an undue preference Of course, if the circumstances so differ that the difference of charge is in exact conformity with the difference of circumstances, there would be no preference at all. But, as has been pointed out before, what the section provides is that there shall not be an undue or unreasonable preference or prejudice. And it cannot be doubted that whether in particular instances there has been an undue or unreasonable prejudice is a question of fact. In Palmer v. London and South Western Ry. Co., Erle, C.J., said: ‘I beg to say that the argument from authority seems to me to be without conclusive force in guiding the exercise of this jurisdiction; the question whether undue prejudice has been caused, being a question of fact depending on the matters proved in each case.’ In Denaby Main Colliery Co. v. Manchester, &c., R. Co., when it was before the Court of Appeal, not in the action brought by the Denaby company against the railway company, but on an appeal arising out of the proceedings before the Railway Commissioners, Lord Selborne, then Lord Chancellor, said at p. 441: ‘They gave a decided, distinct, and great advantage, as it appears to me, to the distant collieries. That may be due or undue, reasonable or unreasonable, but under the circumstances is not the reasonableness a question of fact? Is not it a question of fact and not of law whether such preference is due or undue? Unless you could point to some other law which defines what shall be held to be reasonable or unreasonable, it must be and is a mere question, not of law, but of fact.’ The Lord Chancellor there points out that the mere circumstance that there is an advantage does not of itself show that it is an undue preference within the


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meaning of the Act, and further that whether there be such an undue preference or advantage is a question of fact, and of fact alone. No rule is given to guide the Court or the tribunal in the determination of cases or applications made under the 2nd section of the Act of 1854. The conclusion is one of fact, to be arrived at looking at the matter broadly and applying common sense to the facts that are proved. I quite agree with Wills, J., that it is impossible to exercise a jurisdiction, such as is conferred by this section, by any process of mere mathematical or arithmetical calculation. When you have a variety of circumstances differing in the two cases, you cannot say that such a difference of circumstances represents or is equivalent to such a fraction of a penny difference of charge in the one case as compared with the other. A much broader view must be taken, and it would be hopeless to seek to decide a case by any attempted calculation. I should say that the decision must be arrived at broadly and fairly, looking at all the circumstances of the case, that is, looking at all the circumstances which are proper to be looked at.” (Per Lord Herschell, id. pp. 236–8.)

“What is an undue preference? Now, if you look at the sections which relate to this matter, beginning with the equality clause, s. 90 of the Act of 1845, s. 2 of the Act of 1854, and this s. 27 of the Act of 1888, you find these expressions used, all of which appear to me to point to the same sort of mischief. You have ‘undue’ or ‘unreasonable,’ or ‘unfair’ ‘preference,’ or ‘prejudice,’ or ‘disadvantage,’ or ‘favour.’ What is undue, &c., is a question of degree, and being a question of degree, it is obviously a question of fact, and if it is a question of fact, there is no appeal.” (Per Lindley, L.J., id. pp. 251–2)

Home and Foreign Merchandise.—The Railway and Canal Traffic Act, 1888 (51 and 52 Vic. c. 25) s. 27 sub-s. 3, which empowers the Commissioners to take into consideration whether a rate is necessary “for securing, in the interests of the public, the traffic,” contains a proviso “that no railway company shall make, nor shall … the Commissioners sanction, any difference in the tolls, rates, or charges made for, or any difference in the treatment of, home and foreign merchandise, in respect of the same or similar services.” Held that the effect of this proviso is not to prohibit all inequalities in rates as between home and foreign merchandise, but that, if the railway company has proved facts which would justify the admitted differences, had the goods in question been home goods, the company is not debarred from relying on those facts as an answer, merely because the goods which receive the benefit of the provision are of foreign origin. (Mansion House Association v. London and S.W.R. Co. [1895] 1 Q.B. 927.)

American Inter-State Commerce Act.—In 1887 the Congress of the United States passed the Inter-State Commerce Act, which was adapted from, and to a large extent followed the language of, the English Acts of 1854 and 1873.

The Act applies to any common carrier engaged in the transportation of passengers or property wholly by railroad, or partly by railroad and partly by water, when both are used under a common control, management, or arrangement, for a continuous carriage, or shipment, from one State or Territory of the United States to another, or between any place in the United States and a foreign country. It does not apply to transportation wholly within one State. “Transportation” includes all instrumentalities of shipping or carriage. The Act first provides generally, that all charges made for any service rendered in connection with transportation, or with the handling of property, shall be reasonable and just; and every unjust and unreasonable charge for such service is prohibited and declared unlawful (sec. 1).

Sec. 2 provides that if any common carrier directly or indirectly, by any special rate, rebate, drawback, or other device, charges any person a greater or less compensation for any such service than it charges any other person for a like and contemporaneous service in the transportation of a like kind of traffic under substantially similar circumstances and conditions, the carrier is guilty of unjust discrimination, which is prohibited and declared unlawful. (Cf. English “equality clause,” Railway Clauses Cons. Act, 1845, s. 90.)

Sec. 3 makes it unlawful for a common carrier to make or give any undue or unreasonable preference or advantage to any particular person, company, firm, corporation, or any particular description of traffic, in any respect whatsoever, or to subject any particular person, company, firm, corporation, or locality, or any particular description of traffic, to any undue or unreasonable prejudice or disadvantage in any respect whatsoever. It further provides that common carriers shall afford proper and reasonable


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facilities for through traffic with connecting lines, and shall not discriminate in their charges between such connecting lines. (Cf. Railway and Can. Traffic Act, 1854, s. 2.)

Sec. 4 makes it unlawful for any common carrier to charge any greater compensation in the aggregate for the transportation of passengers or of the like kind of property, under substantially similar circumstances and conditions, for a shorter than for a longer distance over the same line in the same direction, the shorter being included in the longer distance; but this is not to be construed as authorizing as great a compensation for a shorter as for a longer distance. It is provided, however, that on application to the Inter-State Commerce Commission, a carrier may in special cases, after investigation by the Commission, be authorized to charge less for the long-haul than for the short-haul and the Commission may prescribe, from time to time, how far such carrier may be exempt from this section. (Cf. Railway and Can. Traffic Act, 1888, s. 27—iii.)

Sec. 5 prohibits combinations for the pooling of freights. Sec. 6 provides that carriers shall print and publish schedules of their rates, stating separately the terminal charges, &c. Sec. 8 provides that for any contravention of the Act a carrier shall be liable to the person injured for the full amount of damages sustained. Sec. 9 enables any person injured either to make complaint to the Commission or to sue for damages, at his election, but not to pursue both remedies. Sec. 10 provides that any carrier, or any director, officer, agent, or employee of a carrying company, who is privy to any violation of the Act, is guilty of a misdemeanour, and liable to a fine not exceeding $5000 for each offence. The rest of the Act deals with the establishment and duties of the Inter-State Commerce Commission. (See Note, § 423, supra.)

“The principal objects of the Inter-State Commerce Act were to secure just and reasonable charges for transportation; to prohibit unjust discriminations in the rendition of like services under similar circumstances and conditions; to prevent undue or unreasonable preferences to persons, corporations, or localities; to inhibit greater compensation for a shorter than for a longer distance over the same line ; and to abolish combinations for the pooling of freights. It was not designed, however, to prevent competition between different roads, or to interfere with the customary arrangements made by railway companies for reduced fares in consideration of increased mileage, where such reduction did not operate as an unjust discrimination against other persons travelling over the road. In other words, it was not intended to ignore the principle that one can sell at wholesale cheaper than at retail. It is not all discriminations or preferences that fall within the inhibition of the statute; only such as are unjust or unreasonable.” (Inter-State C.C. v. Baltimore, &c., R. Co., 145 U.S. at p. 276.)

Consequently a party-rate ticket for passengers is not a discrimination or preference; and see Texas and Pacific R. Co. v. Inter-State C.C., 162 U.S. 197.

“Subject to the two leading prohibitions that their charges shall not be unjust or unreasonable, and that they shall not unjustly discriminate, so as to give undue preference or advantage to persons or traffic similarly circumstanced, the Act to Regulate Commerce leaves common carriers as they were at the common law, free to make special contracts looking to the increase of their business, to classify their traffic, to adjust and apportion their rates so as to meet the necessities of commerce, and generally to manage their important interests upon the same principles which are regarded as sound, and adopted in other trades and pursuits.” (Cincinnati, &c., R. Co. v. Inter-State C.C., 162 U.S. 184, at p. 197.)

“The conclusions of the court, drawn from the history and language of the Acts under consideration, and from the decisions of the American and English courts, are:— (1) That the purpose of the Act is to promote and facilitate commerce by the adoption of regulations, to make charges for transportation just and reasonable, and to forbid undue and unreasonable preferences. (2) That in passing upon questions arising under this Act, the tribunal appointed to enforce its provisions, whether the Commission or the courts, is empowered to fully consider all the circumstances and conditions that reasonably apply to the situation, and that, in the exercise of its jurisdiction, the tribunal may and should consider the legitimate interests as well of the carrying companies as of the traders and shippers, and in considering whether any particular locality is subjected to an undue preference or disadvantage, the welfare of the communities occupying the localities where the goods are delivered is to be considered as well as that of the communities which are in the locality of the place of shipment. (3) That among the circumstances and conditions to be considered, as well in the case of traffic originating in foreign ports, as in the case of traffic originating within the limits of the United


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States, competition that affects rates should be considered, and in deciding whether rates and charges made at a low rate to secure foreign freights which would otherwise go by other competitive routes are or are not undue and unjust, the fair interests of the carrier company and the welfare of the community which is to receive and consume the commodities are to be considered. (4) That if the Commission instead of confining its action to redressing, on complaint made by some particular person, firm, or corporation, or locality, some specific disregard by common carriers of provisions of the Act, proposes to promulgate general orders, which thereby become rules of action to the carrying companies, the spirit and letter of the Act require that such orders should have in view the purpose of promoting and facilitating commerce, and the welfare of all to be affected, as well the carriers as the traders and consumers of the country.” (Texas and Pac. R. Co. v. Inter-State C.C., 162 U.S. 197.)

The mere fact that the disparity between through and local rates is considerable does not necessarily constitute undue discrimination—especially if not complained of by any one affected. (Texas v. Inter-State C.C., 162 U.S. 197.)

“A rate may be unreasonable because it is too low, as well as because it is too high. In the former case it is unreasonable and unjust to the stockholder, and in the latter to the shipper.” (Inter-State C.C. v. Cincinnati R. Co., 167 U.S. at p. 511.)

The portion of a through rate received by one of several railway companies transporting the goods as inter-state commerce may be less than its local rate. (Parsons v. Chicago and N.W.R. Co., 167 U.S. 447.)

Competition is one of the most obvious and effective circumstances that make the conditions under which a long and a short haul is performed substantially dissimilar. The following conclusions were affirmed:—

  • (1.) That competition between rival routes is one of the matters which may lawfully be considered in making rates for inter-state commerce.
  • (2.) That essential dissimilarity of circumstances and conditions may justify common carriers in charging greater compensation for the transportation of like kinds of property for a shorter than for a longer distance over the same line in such commerce. (Inter-State C.C. v. Alabama Midland R. Co., 168 U.S. 144.)

The meaning of the previous decisions is that, under sec. 4, substantial competition which materially affects transportation and rates may produce dissimilarity of circumstances and conditions which may justify a carrier, even without authority from the Commission, in charging less for a longer than for a shorter haul. (Louisville and Nashville R. Co. v. Behlmer [1900], 175 U.S. 648.)

Sec. 4 of the Act has in view only transportation by rail. Free cartage after arrival does not concern the Commission. (Inter-State C.C. v. Detroit Grand Haven, &c., R., 167 U.S. 633.)

PREFERENCE OR DISCRIMINATION.—Guided by the English and American authorities, we may now proceed to discuss the meaning of the words “preference” and “discrimination” in this Constitution. Before any clear idea can be formed of what constitutes a preference or discrimination which is undue and unreasonable, or unjust to any State, it is necessary to obtain some definition of the words “preference” and “discrimination” themselves.

A preference is a setting of one person or thing before another; here it means a dissimilarity of treatment, involving advantage to one person, locality, or class of goods, or prejudice to another. Discrimination is a difference of treatment; as applied to railways it is defined by Webster's Internat. Dict. as “the arbitrary imposition of unequal tariffs for substantially the same service.” In the English Railway and Canal Traffic Act (see p. 906, supra) “preference” is applied to persons, and to descriptions of traffic; in the American Inter-State Commerce Act (see p. 910, supra) it is applied to persons, descriptions of traffic, and localities. “Discriminations,” in the Inter-State Commerce Act, sec. 4, is applied to persons only, and means a departure from equal treatment of persons in respect of substantially the same service. In sec. 5, discrimination between connecting lines is referred to. There seems, however, no reason why the word “discrimination,” used generally, should not apply as between localities and descriptions of traffic, as well as between persons. Thus Hadley (Railroad Transportation, p. 111) speaks of “the three forms of discrimination—between classes of


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business, localities, or individuals.” At least it is clear that the words “preference” and “discrimination” together cover differences of treatment (1) as between different persons; (2) as between different descriptions of traffic; and (3) as between different localities. That is to say, the words include the unequal treatment of persons, the arbitrary classification of goods, and the unequal treatment of localities.

The difficulty, however, is to get a satisfactory test of what constitutes a difference of treatment. Where the circumstances are exactly, or even substantially similar, the difficulty disappears; but where circumstances are dissimilar—as they must be between different localities and different goods, and may be between different persons—a difference due to the dissimilarity of circumstances is not a discrimination at all; and the problem is to find out how far the difference of treatment is due to the dissimilarity of circumstances. Before discussing the three kinds of discriminations, it will be necessary to allude briefly to the chief principles of equality which have been laid down. They may be shortly described as mileage, cost of service, and value of service.

(1.) Mileage.—The principle of equal mileage rates is now universally discarded. It was never strictly applied except in connection with a classification of goods, which gave some recognition to both cost and value of service. Even if the terminal charges are assessed separately, equal mileage charges are quite unsuited to the requirements of railway traffic. Mileage is in fact only one element arbitrarily selected as a test of the cost of service; it ignores other elements which may be equally important. (See Grierson, Railway Rates, pp. 13–20; Acworth, The Railways and the Traders, Chap. II.)

(2) Cost of Service.—The cost of the service is sometimes laid down as the true principle on which rates should be based. That it is one important element cannot be doubted. In the first place, however, it is practically impossible to estimate the proportion of the total expenses of the railway which each article ought to bear. “Broadly speaking, the cost of carriage, whether of passengers, or goods, is made up of four different items: locomotive or movement expenses, terminals or station expenses, maintenance of way and works, interest on capital.” (Acworth, The Railways and the Traders, p. 24.) The permanent-way expenses are practically constant; many of the working expenses vary with the traffic. The apportionment of these among the different classes of traffic must always be to a certain extent arbitrary.

But even if the cost of service were always ascertainable, it is not always a practicable basis. In many cases “the traffic will not bear” rates based on the cost of service, for the simple reason that the cost of the service—if a share of the interest on the fixed capital is included—is greater than the value of the service. Yet if the traffic cannot be had on other terms, it may be profitable to carry it at a margin above working expenses, and the public benefit resulting from the development of trade may be enormous. (See Grierson, Railway Rates, pp. 8–12; Acworth, The Railways and the Traders, Chap. I.; Lewis, National Consolid. of Railways, Chap. V.)

(3.) Value of Service.—This basis, usually known as “charging what the traffic will bear,” is one which, with careful qualifications, is most favoured by scientific writers as the true basis, but is sometimes used by railway companies as a pretext for “charging what the traffic will not bear,” or “bleeding the traffic to death.” Charging what the traffic will bear is the basis—or chief basis—of every system of classification of goods. “Railroads divide their freight into four or more classes, the division being mainly based on the value of the goods. Thus, dry goods are placed in the first class, and lumber in the fourth; and the charges on the former are made two or three times as high as on the latter. There is a difference of cost of handling, and of risk; but nothing like so great as the difference in charge. The railroad does not base its classification upon cost of service, but upon what the traffic will bear. A ton of lumber has so little value that, if they attempted to charge the same rates for it as for the dry goods, they would get none of it to carry; the traffic would not bear the higher rate.” (Hadley, Railroad Transportation, p. 112.) The value of the service is of course affected by the laws of supply and demand; it varies with the value of the articles, and with the


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facilities offered by competing modes of transit. (See Grierson, Railway Rates, pp. 68–77; Acworth, The Railways and the Traders, Chaps. III., IV.; Lewis, National Consolid. of Railways, Chap. V.)

In the case of Government Railways, the further element is introduced that the proprietors of the railway represent also the public interests of the State, and that rates may be fixed with a view to other things besides a direct profit on the railways, as a business concern. “A Government enterprise may be managed on any one of four principles: (1) as a tax; (2) for business profits; (3) to pay expenses; (4) for public service, without much regard to the question of expense.” (Hadley, Railroad Transportation, p. 240.)

Having touched upon the chief principles of rate-making, we may recur to the definition of a preference or discrimination as an arbitrary difference of treatment. An arbitrary difference is one which is not based upon any satisfactory principle. So far as any of the above principles are thought satisfactory, differences of rates based upon their application will not be preferential or discriminating.

It should be noticed that whilst questions of reasonableness and unreasonableness are questions of fact, the question whether the facts proved constitute a preference or discrimination at all is a question of law. The interpretation of the words “preference” and “discrimination” is, in the last resort, for the High Court; and that court alone can authoritatively decide the principles upon which the question of preference or no preference is to be determined. If there is no preference, there can be no unreasonable preference; if there is a preference, whether it is reasonable or unreasonable is a question of fact which the Inter-State Commission alone can decide.

(1.) Personal Discriminations.—Personal discriminations, when the facts are known, are the easiest of all to decide. Between persons, as individuals, there is not likely to be any serious discrimination by the States. Between classes of persons there might conceivably arise cases of discrimination affecting inter-state traffic.

A law prohibiting discriminations does not ignore the principle that one can sell wholesale cheaper than retail, so long as reductions are made impartially to all, under the same circumstances. Consequently a party-rate ticket for passengers is not a discrimination or preference. (Inter-State C.C. v. Baltimore, &c., R., 145 U.S. 263. See Texas and Pac. R. Co. v. Inter-State C.C., 162 U.S. 197; Nicholson v. Great Western R. Co., 28 L.J. C.P. 89; Hadley, Railroad Transportation, p. 119.)

(2.) Discriminations between Classes of Traffic.—The classification of goods is the most generally recognized form of departure from the principle of cost of service. Such classification, if it is challenged by any person who is prejudiced, must, it is conceived, be based upon some definite principle; and that principle might, in the case of a State railway, either be the value of the service to the producer or the importance of the service to the public. It does not necessarily follow, because a class of business is done at less than average rates, or even at less than the average cost, that such business is an actual loss to the road, or that other business is taxed to make up for it. And still less does it follow that there is a loss to the country. (Hadley, Railroad Transp. p. 112.)

(3.) Local Discriminations.—The preferences and discriminations which will probably assume the greatest importance are local discriminations between States—rates made by the competing railways of different States in order to secure or retain the traffic of particular localities. It is only between States that competition between railway and railway exists. Experience suggests that this competition needs regulating; and at the same time the power of the Commonwealth in this regard is hedged about with special restrictions in order that this competition may only be interfered with so far as it is unfederal in character, and not so far as it is necessary to secure the profitable working of the railways of a State, or the development of the territory of a State.

But the competition is not only between railway and railway; it is also between railway and river. Questions are likely to arise as to how far it is justifiable to reduce


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the rates at competitive points as compared with the rates at non-competitive points; how far it is justifiable to reduce the rate for the long-haul as compared with the rate for the short-haul, and so forth. (See Notes on “Undue and Unreasonable,” § 431, infra.)

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