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§ 437. “Necessary for the Development of the Territory of the State.”

Mr. O'Connor's first suggestion, that a rate should not be unlawful if imposed “for the development of traffic between places within the limits of a State” (see Historical Note) was objected to by Sir George Turner as referring not to the development of the country, but to conserving the traffic in the competitive area. Accordingly Mr. Grant's amendment, from which the section is adapted, spoke of the development of territory.

The section is a recognition of the fact that the railways, being owned by the State, are in a different position to private companies. They are public institutions as well as business concerns, and may be worked, not merely for the purpose of making a profit on the railway business, but for the purpose of developing the resources of the State by which they are owned. Rates which, in the case of a company, would be preferential, might conceivably, from the point of view of a State, be necessary for the development of its territory; and the object of this section is to protect rates imposed with that object, whilst leaving unprotected any rate the purpose of which is to interfere with the equality of inter-state trade.

That public interests should be considered is the basis of all railroad legislation. It has been laid down in numerous American cases that railways are public highways, and subject to government control (see Smyth v. Ames, 169 U.S. 466; Cherokee Nation v. Kansas R. Co., 135 U.S. 641). What this section recognizes is a particular exemption from control by the Federal Government, so far as is necessary for development of the resources of the States.

A curious analogy to this provision may be found in the (Imperial) Railway and Canal Traffic Act, 1888, sec. 27, sub-sec. ii., which empowers the court or the Commissioners, in deciding whether a lower charge or difference of treatment is an undue


  ― 922 ―
preference, to take into consideration whether the lower charge or difference is “necessary for the purpose of securing in the interests of the public the traffic in respect of which it is made.” (See p. 906 supra.)

The question, whether a rate is necessary for the development of the territory of a State, is one of fact, to be decided in each case as it arises by the constitutional tribunal. The test of the legality of such a rate is its necessity. Not every rate which does as a fact develop or tend to develop a territory will be valid. It must have something more than a mere developing effect to place it beyond attack. It must not be merely “for the development,” but “necessary for the development;” and the Commission, not the State authority, is the sole judge of that necessity. Consequently a State could not under the name and guise of a development rate make a charge for the carriage of goods on a railway which is not fairly and reasonably essential for developmental purposes, but which is in reality intended to act as a preference or to draw trade and traffic from its natural flow and destination.

The “territory” contemplated by this section is no doubt that region of the State within the sphere of influence of the railway on which the rate is operative. The development of localities beyond that sphere could not be taken into consideration.

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