PROFITEERING CHARGE

Evening Star, Issue 17327, 15 April 1920, Page 3

PROFITEERING CHARGE

THE WELLINGTON CASE. Following is the full text of the judgment given by Mr Page, S.M., in the Magistrate’s Court at Wellington on Monday in the case in which Bertie Smith, grocer, was charged with selling Mcllin’s food at 3s 6d per bottle—a gross protit of 64- per cent,: The defendant is charged with haring on January- 30, 1920, sold certain 1 goods, to wit two bottles of Melon's iood, at a price which was unreasonably high, to wit the price of 3s 6d a bottle. The charge is laid under section 52 of tlio Board of Trade Act, 1919. Sub-sections 1 and 2 of that section read as follow: —(1) " Every person commits an offence who, either as principal or agent, sells or supplies, or otters for sale or supply any goods as a price which is unreasonably high.” (2) “ For the purpose of this section the price of any goods shall bo deemed to he unreasonably high if it produces, or is calculated to produce, mors titan a fair and reasonable rate of commercial profit to the person selling or supplying, or offering to sell or supply, -those goods, or to his principal.” The defendant had bought the goods in question from Messrs A. SPaterson and (Jo., Ltd. The price paid by the defendant for the goods was 25s 6d per ao/ou (2s l£d per bottle). The terms on which defendant purchased entitled him to a cash discount of 2j per cent, upon payment by the 20th of the month following the purchase. The defendant did not take advantage of this discount. *

The price charged by the defendant for the goods was 3s 6d per bottle. This represents a gross profit of 64 per cent, upon the cost of them. The price at which the goods can be bought (25s 6d per dozen) has been a stable price, and has varied little. The piico at which the goods have been sold retail by many firms in Wellington is 2s Sd per bottle. The names of a number of firms have been quoted who | are trading under conditions somewhat similar to the defendant, and who sell the goods retail at 2s Pd per bottle. No case has been quoted other than that of defendant in which more than 2s Sd per bottle is charged. In Auckland the goods are procurable retail at 2s 6d ner bottle. The defendant himself formerly charged 2s 9d per bottle. Shortly before Christmas last, however, the defendant revised his price book, and in doing so he increased the retail price from 2s 9d to 3s 6d ]«r bottle. The defendant says that at the time that be did this ho acted under a _ misapprehension. He was confusing in his mind the cost of those goods with the cost of another line, and be fixed the retail price at 3s 6d per bottle, thinking at the time that the goods had cost htTn~36s per dozen (3s per bottle). Ko, however, allowed the retail price to stand at 3s 6d per bottle, and ho contends that this is not an unreasonable price. It ia nut easy for a Court to say in precise figures what is a reasonable rate of commercial profit in respect to anv particular goods. Primarily the particular goods must be looked to, their nature, the frequency with which they are turned over, their liability to breakages or depreciation or loss in value, the fluctuation in the market, the risk fof handling, and all other such matters, in order to ascertain at what rate they can be handled so as to produce a reasonable, rate of commercial profit. In deciding what is a reasonable rate I think that the ultimate test must he the rate of interest that the handling of the goods will produce upon tlie capital invested in the business, after making provision for proper outgoings and contingencies. When this rate of interest is ascertained, the question as to whether the rate is a reasonable one is not so difficult to determine. I think, however, that a defendant ia entitled to ask the Court to look beyond the particular goods, the subject of the chaige. Goods soid at a certain rate of profit by one tradesman might be held to have been sold at a price which was unreasonably _ high, while similar goods sold at a similar rate of profit by another tradesman, less favorably situated as to his. other ooeratons, might bo held to have been sold at a reasonable price. It seems to me that tho Act was not intended to interfere with tho legitimate operations of traders or to disallow - a reasonable latitude in the fixing of prices. A_ trader is entitled, I think, To exercise within reasonable limits his discretion in deciding what goods or what class of goods he will sell at a low rate of profit, or even at a loss, and what goods he will sell at a higher rate of profit. If in the_ result it is shown that his legitimate business operations on his whole business do not result in an undue profit, it seems to me that this fact is an clement to be taken into consideration in deciding whether an unreasonably high price has been charged for any particular goods. In the present case the returns from the_ defendant’s business over certain periods have been put in, and I think that this Court is bound to consider these in deciding whether or not the price charged for the goods, tho subject of the present charge, is unreasonably high. The defendant has been for some years in business at Berhampore as a grocer. In May. 1218, he extended his operations by haying out a grocery business in Courtenay place. It was at the latter shop that the goods, the subject of the present charge, were purchased. In the Courtenay place shop the defendant essayed to carry on a cash business. With a view to capturing trade, the defendant cut his prices on many lines, and in tho course of a rear and nine months ho has increased'the volume of the Courtenay place business five-fold. Two balance-sheets have been produced, one for a period of six months ending October 31, 1919, and one for a period of just over seven months ending June 6, 1919. Reading the two balancesheets together, it appears that for the period covered by the balance-sheets (viz., just over 13 months) there was realised from the two businesses, after payment of all out-goings, including wages to defendant and to his wife, a net r.rofifc of £B7l 2s. The total turnover (as represented by the sales) for that period was £37,701 Is. The capital account as at Juno 6, 1919, is shown as £2,720 18s lid.* On the Courtenay place business the figures show for the period a net profit (after payment oi expanses, including wages as above mentioned) of £435 4s Bcf, tho amount of turnover being £23,227 13s 6d. The capital account in connection with the. Courtenay place business is not separately shown in the balance-sheet, but, calculating it in proportion to the stock carried at the respective shops, the amount would bo approximately £1,660. These figures show that for the period ’ mentioned the whole business yielded a net profit upon the defendant’s capital of 32 per cent., which represents a rate of a little over 29 per cent, per annum. For the like period the Courtenay place business yielded a net profit upon the defendant’s capital of 26 per cent., which represents a rate of a little over 23 percent, per annum. It is to #ie noted that these profits have been made in respect of a venture which is not yet two years old—a business which is in the course of being built up, and in .which for the first year or two low profits might normally have been looked for. It should be mentioned that the amount shown as the capital account does not necessarily represent the whole amount of capital employed in the business, as suejj ! amount would be affected by advances or I assistance from banker and merchants, i It represents, however, the defendant’s I own capital account. The defendant states | 'that the amount of his total working i expenses in running his business equals ! 11.8 per cent., calculated on turnover, i The evidence indicates that this rate of working expenses is somewhat below the average. It is shown that on certain small lines in the grocery trade, such as essences, lines which are sold in very small parcels, as by the ounce, or -at very small sums for each order, a rate of **ross profit oqual to 100 per cent., or even 200 per cent., may be* customarily . charged. This is due to the fact tbal the returns from such lines are comparatively small, and the amount of handling, weighing’ etc., is proportionately large. On the other lines, which are t'urned over in large quantities, and for which iiiere is a large daily demand, the rats of profit is as a rule cut fine, and in some cases goods may be knowingly, handled at a loss. There is

therefore, a wide range bet ween the two extremes, the highest and the lowest rate of profit commonly charged. But, speaking generally, the rate of profit charged on each class of coeds bv one trader is ;n the vicinitv of that charged ou the same da=? bv other traders. Mellin’s Food is looked on as a rather slow-selling line. Instances have been given of a deterioration in an occasional bottle oi the food, rendering it woithless. The merchants who have the Now Zealand agency, however, reimburse ntailors for any bottles of this food that have deteriorated and become worthies*. Except for the fact that it is a slow-selling line, ami for the possibility of an occasional instance of deterioration or break a go. the’o are no special features about this line of goods calling for a high rale of profit. Looking at the class of goods, the rate .that i« charged by other traders, the rate tho defendant himself used t i chaige. and ill! the circumstances of this case. 0 ! think that must be held that these go mE, on which a gross profit of 61 per cent, ’has been added to the cost, have been" sold a: ; a price which was unreasonably high. ihe information elicited from the bal--ance-shects produced by the defendant, y .iilc, in my opinion, relevant to the inquiry, does not show such a position as to justify the price which has'becn charged for tnese goods. The defendant must therefore be convicted. With regard to the question of penalty, it seems* to me that a substantial penalty must be inflicted. Ihe need for preventing the imposition of an undue profit on the sale of any goods is great, and the. Legislature .ias snown. by the limit of lines set out in the statute, its view of .the nature of the offence. The object of the would not by achieved nnWs substantia! penalties .should be made to fed! w breaches of ihe Ad, The defendant, will be fined t.ic siun of £IOO, and ordered to pay l'ie costs O! Jibe (nuccediugs—viz., counsel's ice i£o os’, court co-ts. and witnesses’ expenses.