PROFITEERING CHARGE.

Star (Christchurch), Issue 12755, 26 September 1919, Page 5

PROFITEERING CHARGE.

INFORMATION DISMISSED. COMMENT BY MAGISTRATE. [Fbom Oue Correspondent.] WELLINGTON, September 25. Tlie charge against a firm of Wellington drapers, George and, Kersley, of profiteering in connection with the sale of - flannel has been dismissed by Mr E. Page, S.MIn giving judgment the Magistrate pointed out that the War Legislation and Statute Law Amendment Act, under which the information was laid, 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 opportunity for selling at excessive pnee arises by reason of the war, and cases in which such opportunity arises by reason of scarcity of goods in New Zealand, caused by war conditions. The latter is the narrower class, and it is under this class that the present pro- j ceedings have been brought. _ “ Two main questions arise for decision,’’ continues the judgment. “ Firstly, were the goods sold at a price which is unreasonably high? Secondly, did the opportunity of obtaining such prices arise by reason of the 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. Prioi to the war the price charged by the woollen company to retailers was a yard, less 3-| per cent cash discount. The flannel was sold by retailers at Is 2d a yard. This represented a gross profit of a little less than 4d per yard, or about 33 per cent on cost price. The i price charged now by the woollen company to retailers (including defendants) for this flannel is Is 7id a yard, less 3| per cent cash discount. Defendants sell the flannel at 3s 3d a yard. This represents a gross profit of a little over is 8d per yard, or 107 per cent on cost j price. Flannel belongs to the department of the drapery trade known as the Manchester department. WHAT IS A GROSS PROFIT? j “ There is among the witnesses called I a consensus of opinion as to the amount of gross profit/usually looked for from this department. It is considered that a gross profit of 50 per cent upon cost price is, under normal conditions, a satisfactory and payable profit. From this gross profit the expenses of busiI ness are payable. Some variation as to the amount of profit upon different j classes of goods in the department is usual, and flannel is commonly regarded as a line upon which a low rate ot profit is chargeable. The rate of gross profit above mentioned was deemed satisfactory prior to the war. Working expenses nave since the commencement of the war increased very largely, but | the cost of material and the amount of turnover have increased at least in | equal proportion, so that the rate of 9 ■ 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 he 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. The answer that is given by defendants on the question of the reasonableness of their price is, in my opinion, inadequate. Counsel for defendants contends that it is a matter of practical impossibility to lay down any definite 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 free hands 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 pos?'blo 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 mto consideration. SPREADING A LOSS. “ In the present case defendants have shown that some 600 yards of flannel bought by them from another woollen company in New Zealand had proved an unsatisfactory purchase, and the retail price of such flannel had had to be reduced to a pries which would, after payment of working expenses, probably result in a loss. For this reason the price of the flannel, the subject of these proceedings, was, they say, increased so as to cover such loss. If a loss of this nature is to be spread or averaged over other goods due regard must, I think, be paid to the nature of such goods, the ouantity over which, the loss is spread, and the reasonableness of the selling price fixed for such other goods. With a view to showing that the profits on tne , whole business were not excessive defendants produce I a bare statement showing over a period of five years an average net profit on their whole turnover received from the Manchester department, also that received from their whole business. In the absence of any balance-sheet or vny information as to the relation of their turnover to tile amount of their capital invested, oj as to the full basis on which the memoranda are founded, these figures do not prove very much- On the face of them they may well present, and do I in fact suggest, a very handsome profit. Admitting that in fixing the selling prices of goods the whole of the varied conditions and circu nsfcances of the business must, of necessity, be taken mto consideration the profit with reference to particular goods must still be fixed at a reasonable figure, bavin ,r due regard to such conditions and | cumstances. The quality of the flannel I m uenal, the subject of the' present I charge, is cheap quality flannel. It is a class of goods used in many liojats. It is a necessity -nd not a luxury, and it him none of the elements of possible loss incidental to many other classes of goods. Its saieaiiillty is not ant to | be affected by change of season o‘f the I year or by fashion.” 3 EVIDENCE OF SHORTAGE. | With regard to the second question | involved, whether the opportunity cf | obtaining such a price arises by reason | of the scarcity of such goods in New | Zealand, the Magistrate referred to the I shortage of flannel causing the WellingI ton Woollen Company to ration its B customers, aud the evidence of the comI pany’s secretary that there was a general shortage, but Uo further evidence was offered to prove scarcity in New Zealand of the goods in question. No evidence of any sort was offered as to the operations or output of various other woollen mills in New Zealand. •“ The Court is asked to say,” proceeded the judgment, “ that the above evi- . dence established that there was a I scarcity of goods in New Zealand. It is contended that if the Wellington Woollen Company was unable to fill all its orders, it. is a proper inference that retailers were unable to supply the demands of the public. This does not 1 appear to me to be a safe inference. 1 I assume that retailers do not wait i until their supply of a given line is ! completely exhausted before replenishing stocks. it may be ; inferred that j retailers’ stocks were in .many cases I running low. If the requirements of : the public for flannel were not able to bo fully supplied evidence to prove such fact should,be readily obtainable. Of twenty-five retailers to whom the Wellington Woollen Company supplied m these goods not one was called to show

that his stock of flannel generally, or of any particular class of flannel, had at any time run out. No evidence was offered by any retailer that he had at any time been unable to member of the public with any flannel desired. No evidence was offered by any member of the public that he had at any time had any difficulty in purchasing any flannel desired. AN ASSUMPTION. “I will assume, though the evidence falls short of establishing the fact, that there was a shortage of flannel in the trade, that various houses were not able to obtain and carry their normal stocks. Someth’ng more than this, however, must be shown. It must ue shown that both there was scarcity and that the opportunity of obtaining au unreasonably high price arose by reason of such scarcity. In order to prove that through scarcity of goods an opportunity arises for charging an unreasonably high price it is not, I think, necessary to show that defendant had a monopoly or anything approaching a monopoly of existing stocks. If it were shown that some shops were Jnild out or had been sold out of lines, that the public or some members of the public had had any difficulty in getting supplies, that the public or members of the public knew or understood there was some scarcity of goods—if any of these matters had been established, anything arising from 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 tins gave defendants an opportunity to charge an unreasofaably high price. No such evidence has been tendered, indeed the only positive evidence points the other way. The secretary 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 *. n obtaining it in moderate su-ply at another shop. /The purchaser of the particular piece of flannel, the subject or the present proceedings, states in evidence that she went into six other " ellington shops. All of these 'other shops were able to supply her with the desired flannel, 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 such establishments being within a few doors of 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 bv reason of the scarcity of such goods? 1 am of opinion that it cannot. Summarising the matter, therefore, 1 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 winch the chapge is laid The information will be dismissed. ’ I do not taink it i s a-case in -which costs should be allowed.”