PROFITEERING CHARGE.

New Zealand Herald, Volume LVI, Issue 17275, 26 September 1919, Page 8

PROFITEERING CHARGE.

PRICE ASKED FOR FLANNEL.

FAILURE OF PROSECUTION.

NO COSTS ALLOWED.

[BY TELEGRAPH. reporter.]

WELLINGTON. Thursday.

Judgment was given by Mr. E. Page, S.M., in the Magistrate's Court this morning, in the charge of alleged "profiteering" against the fiQn of George and Kersley, of Wellington. The judgment reads as follows :— The information alleges that the defen dants, on September 3, 1919, at Welling ton, did sell to Hua Audrey Bethel, certain goods, to wit, two yards of flannel known as No. 5 Shetland flannel, at 3s 3d per yard, a price which is unreasonably high, the opportunity of obtaining such price in New Zealand having arisen by reason of a scarcity of such goods in New Zealand caused by war conditions. The information is laid under section 21 of the War Legislation and Statute Law Amendment Act, 1918. It is to be noted that the Act does not penalise every person who sells goods at a, price which is unreasonably high. Its operation is limited to two classes of cases —namely, cases in which the opportunity for selling at an excessive price arises by reason of the war, and cases in which such opportunity arises by reason of a scarcity of the goods in New Zealand caused by war conditions. The latter is the narrower class, and it is under this class_ that the present proceedings have been" brought. Two Main Questions.

Two main questions arise for decision. Firstly, were the goods sold at a price which is unreasonably high, and, secondly, did the opportunity of obtaining such price arise by reason of a scarcity of such goods in New Zealand caused by war conditions, present or past ? With regard to the question of price, the evidence shows that this line of flannel is manufactured locally by the Wellington Woollen Company. Prior to the war the price charged by the Woollen Company to retailers was 10£ d per yard less 3J per cent, cash discount. The flannel was sold by retailers at Is 2d per yard. This represented a gross profit of a little less than 4d per yard or about 38 per cent, on the cost price. The price charged now by the Woollen Company to retailers (including defendants) for this flannel is Is 7id per yard less 3| per cent, cash discount. The defendants sell the flannel at 3s 3d per yard. This represents a gross profit of a little over Is 8d per yard, or 107 per cent, on the cost price. Variation in Gross Profits.

Flannel belongs to a department of the drapery trade known as the Manchester department. What is a gross profit ? There is among the witnesses called a consensus of opinion as to the amount of the gross profit that is usually looked for from this department. It is considered that a gross profit of 50 per cent, upon the cost price is under normal conditions a satisfactory and payable profit. From this gross profit the expenses of the business are payable. Some variation as to the amount of profit upon different classes of goods in the department is usual and flannel is commonly regarded as a line upon which a low rate of profit is chargeable. The rate of gross profit above-mentioned was deemed satisfactory prior to the war. Working expenses have, since the commencement of the war, increased very largely, but the cost of material and amount of turnover have increased at least in equal proportion, so that the rate of profit above-mentioned is still under normal conditions deemed satisfactory. Under these circumstances, where a recognised and customary and payable rate of commercial profit on goods of this class is shown to be something under 50 per cent, on cost, and where the rate of profit made by defendants is 107 per cent., it seems to be that a strong prima facie case of excessive profit has been made out.

Defendants' Case Analysed. The answer that is given by the defendants on the question of the reasonableness of their price is in my opinion inadequate. Counsel for the defendants contends that it ii a matter of practical basis as to what constitutes a fair and reasonable rate of profit on any single given line of goods. That merchants must within reasonable limits be given a free hand as to the prices they decide to ask for particular goods, so long as in the aggregate they do not make unreasonable profits. That if, for example, a loss on a certain line of goods is possible or probable, merchants must be. allowed to increase the price of other goods to make provision for such loss. It seems to me that in a measure this proposition must be accepted. The question of what is a fair and reasonable rate of profit must, in some measure depend upon the exigencies of the particular business, and if special circumstances exist those circumstances must be taken into consideration.

I will assume though the evidence falls short of establishing the fact, that there was a shortage of flannel in the trade, and that the various houses were not able to obtain and carry their normal slocks. Something more than this, however, must be shown. It must be shown that both there was a scarcity and that the opportunity of obtaining an unreasonably high price arose by reason of such scarcity. Factors to be Considered. In order to prove that through a scarcity of the goods an opportunity arises for charging an unieasonably high price it is not, I think, necessary to prove that the defendant hid a monopoly, or anything approaching a monopoly, of the existing stocks. If it were shown that some shops were sold out, or had been sold out, of the lines, that the public, or some members of the public, had had any difficulty in getting supplied, that the public, or members of tbe public, knew' or understood that there was some scarcity of the goods, if any of these matters had been i established, and anything arising from the ] scarcity that might operate on the mind of the individual so as to induce him to pay more than the usual price, one might perhaps conclude that this gave defendants the opportunity to charge an unrea. son ably high price. j No such evidence ha*; been tendered. Indeed the only positive evidence points the other way. * The secretarv of the Wellington Woollen Company says that if a customer requiring this particular flannel were asked an excessive price at one shop he should have no difficulty in obtaining it in moderate supply at another shop. " Unreasonably High Price." The purchaser of the particular piece of flannel, the subiect of the present proceedings, states in evidence that she went into six other well-known shops. All these other shops were able to supply her with the desired flannel and all of them at prices considerably lower than that charged by defendants. The material could be purchased at every establishment at which inquiries were made, some of such estab-

lishments being within a few yards of the defendants' premises. In the face of this evidence, can it be held that the opportunity of charging the price that was charged in this case arose by reason of a scarcity of such goods in Jsew Zealand? I am of opinion that it cannot. j

Summarising the matter, therefore, I I find that the goods were sold at a price ; which is unreasonably high, but that the ' case has not been shown to be within that portion of the section under which the charge is laid. The information will be dismissed. J do not think that it is a! case in which costs should be allowed. j