PROFITEERING CHARGES.

Star (Christchurch), Issue 19986, 28 June 1920, Page 7

PROFITEERING CHARGES.

“BIG BEN” CASES DISMISSED. D.I.C. FINED FIFTY POUNDS MR M’CARTHY’S RESERVED JUDGMENT. Reserved judgment Avas delivered this morning by Mr S. E. McCarthy, S.M., in the series of charges brought by the CroAvn in respect of various charges of profiteering. Six of the cases hero concerned with the sale of alarm clocks, and the seventh case Avas a charge in respect of the sale of a child's coat. The Magistrate held that the cases in respect of alarm.clocks should be dismissed. In the case against the D.1.C., in respect of the sale of a child’s coat, a fine of £SO Avas imposed

In a preface to his judgment the | Magistrate said; — “ A commercial profit within the meaning of section 32 of 1 The Board of Trade Act, MS), 1 is a profit produced according to usages and practices universal in tho mercantile world or in the particular industry as defined. Such usages and practices, before they can bo recognised in a Court of Justice, must answer each one of four tests, namely they must bo (a) universal, (b) certain. (0) reasonable, (d) legal. Section 32 is directed against isolated tnffi sac lions and a defendant may bo convicted, although his business viewed generally only yields a reasonable rate of commercial profit. Tho commercial usages known as fixation by tho vendor of prices 011 a resale and the practice of selling at a replacement value, and of the right of a trader carrying on both wholesale and retail branches to sell retail at current rates though he has bought as a wholesaler, are universal in commerce and are certain, reasonable and legal. A go-called commercial usage whereby a wholesale tradet buying a Job lot sells it as if it had been acquired in the normal way and as near current rates as possible, is unreasonable. A lot bought as job should bo similarly sold/’ <: Tho informations laid agaijnst Hastie, Bull and Pickering, Ltd., Mason, Struthcrs and Company, Ltd., E. lleeco, Ltd., A. J. White, Ltd., (i. W, Drayton and Co., and Brown and Bureau," Ltd..” tho Magistrate said, 1; each relate to certain admitted sales of Big Ben alarm clocks. The allegation 11 61 admitted in reference to each is that the sale w'as at a price unreasonably high. The information against tho General and Drapery Importing Company of New 7 Zealand, Ltd., alleges an admitted offering for sale of a child’s rain coat, tho allegation not admitted in reference to which is that the offering for sale was at a price unreasonably high. 'faking first tho eases in reference to tho Big Ben alarm clocks. These clocks are manufactured in the United States of America by the Western Clock Manufacturing Company, of Avhich tho defendants, Brown and Bureau, Ltd., aro the agents for, and control its sales in New Zealand. The prices on resales of all this company’s manufactures, the Big Ben clocks included, were controlled by that company. In respect of the Big Ben clocks, sales to wholesalers were made as far back as 1911 at 7s 2d, by the wholesaler to the retailer 8s Gd and 9s, less 2i per cent, and by the retailer to tho general public at 12s Gd. Tho respective dealers, wholesale and _ retail, were bound to sell at these prices, on pain of no further sales being made to them. Tho varying prices charged to the retailer were to differentiate between sales of case and what is known ns broken lots. PRICE-FIXING NOT ILLEGAL. “It is not suggested that the several agreements between the Western Clock Manufacturing Company, their Dominion agents and the several wholesalers and retailers are illegal. Owing to increased rates of transmission charges, and a drop in tho conversion rate between America and New Zealand, adverse to New Zealand, there was as from tho first of December, 1915, an increase of 3d on the landed cost of each clock. This increase was distributed between the wholesaler and retailer. The increase was not passed on to Iho general public. On March 23, 1916. there was a .further increase in the lauded cost, owing to four distinct factors, namely:—(a) Increase in the price of raw products, (b) increase in wages, (c) increase in transmission charges, (d) a further decline iu the conversion rate. This necessitated the general public being called on to pay 16s instead of 1.2s Gd, and there were consequential increases in prices to all the wholesale and retail dealers. There wore, owing to like causes, further inin price both to dealers and the general public on April 11, 1918, September 15, ,1919, and March 11, 1920. The increases to Hie general public wero 17s Gd, 29/ and 25s respectively, with corresponding increases to the dealers. None of these increases m price were made capriciously, with tho view of exploitation. They wero farced on all concerned by economic conditions sooly caused by the war. Whenever an increase in price was made, the time selected was when the local market had become well nigh depleted. Caro was taken to cause as small a loss as possible to the dealers. The sale by Hastie, Bull and Pickering, Ltd., was made to the informant;- on April 20, 1920, at 255; whereas the cost to that compauv had been 11s lOd net. The gross profit on turnover was 52 2-3 per cent, and on cost 11.26 per cent. ( The sale by Mason. Struthcrs and Co., Ltd., had been made at 255; whereas the cost to them had been 1 Is 3OH. After tho local officials of tho Board of Trade had made known to tho shop manager of tins company the object for which the purchase had boon made, a reduction in price iu Big Ben clocks was made by’ the shop manager to 20?. The reduction was subsequently cancelled and the price again raised io 25s bv order of tho general manager. The sale by A. J. White, Ltd... was at 255; whereas tho 'cost to that company was 13s, representing a gross profit on turnover of 48 per cent and on cost of 92.3 pci' cent-. The sale by U. Reece, Ltd., was at 255; whereas tho cost to that company was 15s fid, representing a gross profit on turnover of* 37 per cent and on cost of 38.73 per cent. In Drayton’s case the sale was at- 255; whereas the cost to that firm was Us 3d, representing a gross pr> fit on turnover of <J3 per cent, and on cost of 75.41 per cent. Tho sale price in each ease was tho current rate for the time being under tho fixation of prices on i’ft-sala. AVERAGE PROFITS NQT A FACTOR. “There is no need to consider what wero tho several firms’ respective aver-a-ro gross profits or expenses ou turnover or cost or what their average dividends on capital during a, series of years or what amount had been carried to reserve. The- case each company has made out is that it was bound to soil at certain fixed prices, and a material question for consideration is whether having bought whilst tho docks wero cheaper in price they ought not to have sold to the public at prices corresponding to Hie prices at which ■ ‘bc.v had respectively bought. One

must not overlook the fact that some of the firms charged with selling the docks arc wholesalers as well as retailers. These firms buy at the rate for wholesalers and then selling retail were hound under their agreements to charge the general public tho respective retail rates fixed from time to time. It was proved that apart from the Board of Trade Act. 1919, it had been tho general and uniform practice in the mercantile world for dealers carrying on both branches of trade to charge tho usual retail prices to tho general public buying on a retail basis notwithstanding the dealers had bought as .wholesalers and not as retailers. It was also proved that when there is an advance or decline in prices sales are effected at the rates in force at the time of sale. This practice is known as selling at replacement values, and ! is general and uniform, and is considered sound and honourable business practice. I shall find that both these practices are reasonable. SALE OF A COAT. ‘■’The offer to sell by the General and Drapery Importing Company of Now Zealand, Lto., was at 455; whereas tho cost to the company hud been at 21s fid. 'This represents a gross profit on turnover of 52.3 per vent, and on cost of 109.3 per cent. Tho company considers that 33 1-3 per cent is a good percentage for gross profit on the general turnover, though it expects a slightly increased percentage for this department. Us explanation ns to this sale is that the coat offered was one of a lino of samples bought as a job lino at a considerable reduction [or sale to tho public during August and September next. It further says that bad the coat been bought in t-he ordinary way it would have been fair retail value at tho time of salo for oos or 57s (Id. It was deposed to by Air Cox, the manager of tho defendant company, that the London price of this article as on January 5 last was 21f per cent higher than the Dominion cost price, namely 17s Bid, to which must ho added transmission ami Customs charges. Air Cox and Alias Wraight, manageress of tho children’s department, each deposed that tho pricing of the raincoat had been in accordance with a regular and recognised trade custom. There was no evidence by anyone in the drapery trade outside the employment of tho company, and ns Aliss Wraight deposed that she carried out Air Cox’s policy, it cannot reasonably bo held that- the fixing- of tho price was in accordance with a trade usage. The price was fixed as near a full retail price as would secure a sale, thus giving some slight advantage to tho customer. Even assuming there had been evidence of such a. trade usage, I should have had no difficulty in finding that such a usage was unreasonable. What is bought by tho trader as a job line should bo retailed as such,’ ? AN INTERESTING DIGRESSION. Discussing tho economic conditions which led to the passing of tho statute, the Alagistrato continued:—“ The war had suddenly caused an appreciation of our primary products. This, in turn, caused au appreciation of land values, especially of rural lands. These appreciations had their, share in causing a general inflation of values. Tho position is accentuated by the destruction 1 of man and transmission power, as well as raw materials, owing to the vicissitudes of war, and their diversion from industries io warlike operations; by the general rise in tho cost of transmission; by an adverse fall in tho rate of conversion, owing to Great Britain becoming a debtor instead of a creditor nation; by a largo proportion of workers engaging in strikes and a go-slow policy, which latter may. not inaptly, bo defined as a species of militant inertia, the basic; force of which is a malignant dishonesty. In addition, to all this tho considerable profits made out of land, commerce and industry, and the high rate of wages prevailing together with an inflated paper currency, has given momentum to an orgy of private extravagance dominating sections of all classes. We have had tho unthinking herd engaging in a rnad chase after' sensory pleasures, whilst the increased and increasing prices for literature lias deprived well nigh all but the well-to-do of those solid joys of which the changes and chances of life cannot rob 'their happy possessors. We have been producing less and consuming more. Prices have become so inflated that persons with modern to incomes find is difficult, if not impossible, to maintain their families and themselves and keep out of debt. Out of this welter there has emerged tho unscrupulous trader, bent on exploiting to the utmost the necessities, the vices, and tho follies 0 f his fellow citizens. Tho baleful activities of this class of trader arc assisting to waft higher and higher the ever soaring prices.' These remark.-, are of mere general application, and the Court is bound to say tho evidence adduced would not justify the inclusion of any of the clefoudaut linns in this category. These, however, are the •economic conditions which Tod up to tho passing of this statute, and it is in the light of these conditions that it must be interpreted. AN UNSOUND CONTENTION. “It has been contended for the dofence 'that every individual sale of goods which is attacked under section 33 can only bo so attacked in the light, of the average profit made bv the defendant trader in Iris business I. cannot acccdo to this contention. To so interpret tho section would be to vendor its provisions a dead Jetton It would set iho Crown the duty of chasing a will o’ the wisp. It‘would bo called on to prove facts peculiarly within tho knowledge of the defendant. I sec no reason, keeping in view j tho grave issues at stake, to depart from the plain moaning uf tho section which i s to permit of individual transactions being attacked. ’ If the defendant’s average rate of profit is rh;v tollable, whilst tho rate earned or proposed to bo earned in an isolated case is unreasonable, that is his misfortune, and the only relief which can bo afforded him is in fixing the quantum of tho penalty. Tho defendant linns firstly mentioned were bound to sell the clocks at rates fixed from time to time by the manufacturers, and it ! is not competent for them to rely ou this fact n. defence in addition to

iho average general profit theory, the tv.‘a being contrary. The Grown contended that a defence based on the fixation of prices by the manufacturer on a resale and of selling at rcplaoenient rates wore two contradictory defences. 1 cannot agree. Tho one is complementary to the other. This brings 113 to discuss the question, what is a fair and reasonable rate of commercial protit wi Lhiu tho meaning of section 32? FAIR RATES OF PROFIT. ‘’There can bo no quarrel with tho general definition of profit laid down by Lord Ellcnborough in Eyre v. 0 lover. Vie however, have still to determine what are commercial profits within the meaning of section 32. Such profits are those produced according to usages and practices universal in the mercantile world, or in the particular industry as defined. Sections 12 and 20 assume the existence of these usages and practices, and tho intention of the Legislature is that they can only be made inoperative hy regulations of the Board of Trade. Commercial usages and practices must, however, comply with each one of four tests, namely-They must be (1) notorious, (2) certain. (3) reasonable, (A) not contrary to any positive law. Admittedly no Board of Trade .Regulations have yet been made. Questions as to tho reasonableness or unreasonableness of commercial practices anil usages oro questions of mixed law and fact. In estimating what is a reasonable rate of profit within tho meaning of the statute, one must not overlook two factors. Ono of these is the increased cost of living; the other is the contingency that the trader, when a slump in prices arrives, may have high-priced stocks on hand, which lie will bo compelled to realise at a loss. In connection with tho alarm clock cases the prices charged were those current at the time of sale, whilst the high, profits were earned pursuant to well recognised commercial usages which comply with each one of the four tests set out. Further, the increased prices were not duo to any desire to exploit, but to economic conditions over which the parties had no control. Such. profits arc, therefore, based on a fair and reasonable rate of commercial profit within the moaning of sub-section 3 of Section 32. Had it not been for the existence of these usages the prolits in most of those cases must have been held to lie unreasonably high. If it is necessary for tho public welfare that these usages bo declared illegal, the remedy is to b® had under Sections 12 and 26. DECISIONS CRYSTALLISED. ‘‘ A\ itlv regard to the rainproof coat ease, the profit was clearly unreasonably high, and there was no trade usage to justify it. The information against the General and Drapery Importing Company, Ltd., is held to have been proved, and that company is convicted j and lined £’oo, and ordered to pay the costs. The informations against the other defendants are dismissed. With r regard to the question of costs in the 1 alarm clock cases it may bo urged that I the local Tribunal of the Board of j Trade failed to summon any of the de- | fendants before it to give their version iof the facts. The duty of the local j I.ribuual ends when a, primn. facie case j has been established. Such a case j ' va s established against each of the dej fendants, the informations against j whom have been dismissed. I shall, j therefore, follow the usual course and | make no order as to costs against the j Crown. ft would, however, savo use-' i less and harassing litigation, if the local T ribands before recommending the laying of an information gave those proposed to he charged a chance of making such explanations as to them might seem expedient, though it is to be hoped if those persons are subjected to the inquisitorial powers conferred hv tho statute on the local Tribunals, they will not subsequently complain that prior to being summoned ho- | fore the ordinary tribunal, they wore I placed ou the rack hy a modern economic Star Chamber.” -Mr A. T. Donnelly appeared for the Crown, and Air Lucas received judgment for all the defendants. In the case of tho D.I.C. the-costs were fixed at £lo. Mr Lucas stated that the D.I.C. intended to appeal, and he would like the security for costs feed. Ho stated that it was hoped to got the case before the Full Court as soon as possible. Tho Magistrate fixed tho costs at £IOO. 1 In reply to Air Donnelly, who sugj gested that the Crown might wish to I appeal'in tho alarm clock oases, the | Magistrate slated . that the Crown j would not require any security.