A PROFITEERING CASE

New Zealand Times, Volume XLVI, Issue 10562, 13 April 1920, Page 4

A PROFITEERING CASE

GROCER ADJUDGED GUILTY bertie smith fined £100: an interkstim; j tdgment. Bertie Smith, a grocer and ''food specialist" doing business in Courtenay place and Berlin mporc,' was yesterday adjudged guilty of profiteering in respect of a sale of Mcllin's Food at 3s Cd per bottle by Mr E. Page, S.M., und as a penalty lie was ordered to pay a fine of £IOO and the costs of the proceedings. The prosecution—the first brought in the Dominion under the provisions of the nei>"Roard of Trade Act—waß one of considerable public importance, oud it was based on a transaction between Smith, and Hazel Edith Carroll, of Auckland. The latter, who was visiting • Wellington, 'desired to ' purchase 'some Mcllin's Food for her child, and ns rsayment for two bottles she tendered *Ss. an amount she usually paid in her home-town. Being inrormed that, the price was 7s (3s (id per bottle) she protested, but'made the purchases, and subsequently reported "the matter to the Board of Trade. As an investigation revealed that other grocers were selling, the food at '2s 9d per bottle —a price that returned a. profit—action was taken. At the hearing of the charge, Mr J. Prendeville, of the Crown Law Office, conducted the prosecution, and Mr A. Gray, K.C., and Mr A. M. Stick the defence. GROSS' PROFIT OF 61 PER CENT. During the course of his'judgment, which he delivered at the Magistrate's Court yesterday, Mr Page ,said: The price charged by the defendant showed a gross profit of 61 per cent, upon the cost. '.No case had been quoted in which another local firm had asked more than 2s 9d per bottle, and at Auckland the good* wcr* retailed at 2s"6d per bottle. The defendant him-' self h:id formerly charged 2s 9d, but shortly after ■ Christmas last he revised his price list mid increased his retail rate to 3s Gd. He had said that at the time he did this he had acted under a misapprehension, as he v,as confusing in his mind the cost of Mellin's Food -with that of another line, and he. fixed the price while under the impression thaib the food had cost him 3s per bottle. However, lit? allowed the retail price to stand, at 3s 6d, and he contended tha£ this l was not an unreasonable price. -DETERMINING'A. REASONABLE . PROFIT. It "was not easy for the court to say in precise figures what was a reasonable rate of commercial .profit in respect, of any particular line of goods. Primarilv, the particular goods must be' looked to—their nature and the lrequency with which they were turned over, 'their liability to breakages or depreciation or loss in valuer the fiuc* tua.fcions in-the market, the risk cf handling, and all such matter —to ascertain at what rate they could be handled to produce a reasonable rate of commercial profit; but in deciding lvhat -was a reasonable rate he thought that the ultimata test, must be jthc rate of interest "the handling of the goods would produce upon the capital Invested in 'the business after making provision for -proper outgoings and contingencies. When this rate of interest was ascertained, the question as ;to whether the rate -was s reasonable one •was not so difficult to determine. Ho thought, however, that the defendant was;entitled to ask the court to look beyond the particular goods and subject of the charge. Goods sold at a, certain rate of profit by olio tradesman might be held to have been sold at a price which was -unreasonably hich, while similar goods sold alt a similar rate of profit by another tradesman less favourablv situated as to his other operations, might be held to have been sold at a reasonable price. INTENTION OF ACT. It seemed to him. that the Act was not intended to interfere with the legitimate operations of traders, or to disallow a reasonable latitude m the fixing of prices. A trader was entitled, he thought, to exercise within reasonable limits his discretion in deciding what" goods or classes of goods he would sell alt .a low rate of profit, or even at a loss, or what goods he would sell at a higher rate of profit. If-in the result it was shown that his legitimate business operations on his whole business did not result in an undue profit, it seemed to him that that fact "was an element, to be taken lato consideration in deciding whether an unreasonably high price had ■ been charged for any particular goods. A PROSPEROUS BUSINESS. In respect of the case oerore the court, tlio returns from the defendant's business had been put in, and, he thought, the court was bound to consider these when deciding the question. The defendant had, lor some years, been in business at Borhampore, and in 191 S he extended his operations by buying out a grocery business in Courtenay place, where he essayed to curry on' a cash trade. With a view to capturing customers, he cut his prices on many lines, and in the course of a vcar and nine months had increased his business at that shop five fold. Reading the two balance-sheets produced together, it appeared, that for the period covered —just over months —there was realised f'oin ti.e two businesses, after payment or all outgoings, including wages to the defendant and his wife, a net profit of £B7l 2s. The total turnover, as represented b\- the sales for that period, was ' £37,701 Is, and the capital account, as at June 6th. 1919, was shown at £2720 18s. lid. On the Courtenav place business, the figures showed for the period a nob profit, after payment of all expensej, including waeos as stated above, of £433 4s £d. The turnover for that period was £22,227 13s 6d- The capital account in connection with that business was not separatelv shown, but calculating it in proportion to the stock carried, at the respective shops, the. amount would be approximately £1P.60.

NET PROFIT OF 20 PER CENT. ; TU»=o figures showed for the period a net profit upon defendant's capital of rented a little over 29 per cent pet Milium. The Cburtenay place business had yielded a little over 23 j>c> cent per annum, and it was to be noted that these profits had been in respect of a business that iv.u nut yei two years old; one that was bein<> built up, and in which for ' the first ve.ar or two low profits might normally he looked for. The amount shown as" the capital account did not necessar'lv. represent the whole amount ol capital employed in the business, an such amount would be affected by advances or assistances from bankers or

defendant's capital account. The defendant stated that the total working expenses in.running his business equalled 11.8 per cent, calculated on turnover, and the evidence indicated that that rata was somewhat below the average. LINES SHOWING OVER 100 I'EB CENT. It was shown that on certain sm'al lines in the grocery trade sold in verj small parcels, a rate of profit of 100 per cent., or even 200 per cent, might be customarily charged, but or other lines which wore, turned over in largo quantities the rate of profit was us a rule cut fine, and in some easel Biich goods might be knowingly handled at a loss. There was, therefore, u wide rango between the two eitremes, but, speaking generally, tfia rate of profit charged on each class oi goods by one trader was in the vicinity of that charged by other traders. Except for the fact that Mellin's Food was a slow-selling line, and for tn« possibility of au occasional breakagu and deterioration, there were no special features about the goods calling for a high rate of profit, and, looking at all the circumstances, he thought that he must hold that the goods on which a gross profit of M per cent., had been added to the cost were sold at «. price that was unreasonably high. The information elicited from the balance-sheets, though relevant to the inquiry, did not show such a position as to justify.the price charged. • THE QUESTION OF PENALTY. Referring to the question of penalty the magistrate said that the need for preventing the imposition of an unduo profit was great, and the Legislature had shown by \.h& fines set out in -the Statute its view of the nature of the offence. The object of the law; would not be achieved unless »übstantial penalties followed breaches of the Act. The defendant would be fined £IOO. Mr A. Gray, K.C., pleaded for a reduction of the fine, but the magistrate said that he could no£ see nis to alter his decision. Security for .appeal was fixed at £3O over fhe amount of fine and costs. ,