PROSECUTION FAILS

Dominion, Volume 13, Issue 1, 26 September 1919, Page 8

PROSECUTION FAILS

IN THE FLANNEL CASE

CHARGE AGAINST GEORGE AND KERSLEY DISMISSED

"Summarising the matter therefore, I find that tho goods were sold at a prico which is unreasonably high, but that flie case haa not been shown to be within that portion of the section under which the charge is laid/' said Mr. E. Page,, S.M,, in,delivering reserved judgment at the; Magistrate's Court yesterday in the case Board of Trade v. Georgo and Kcrsloy, Ltd., drapers.

The" information, laid by the Board of Trade, alleged that tho defendant firm on September it, 1919, at Wellington, sold to' Hua Audrey Bethel two yards of • flannel; known. as No. 5 Shetland flannel, :at • 3s. 3d. per yard, a price which was unreasonably high. It was further alleged that tlio opportunity of obtaining such a prico in Now Zealand arose by reason of a scarcity of such goods in Now Zealand caused by war conditions.

The information was laid muter section 21 .of the War Legislation anil Stafcuto Law Amendment Act, IUIB, subsection* 2, 3, and i, of which read: (2) Every person commits an offence against this section who either, as principal or agent, sells or supplies, or offers for sale .or-supply, in New Zealand any goods at o, price which is unreasonably high it $16 opportunity of obtaining such pricu in New Zealand arises by reason of the existence.' present or past, of a war in which His Majesty is engaged or by Tea'son of a scarcity of such goods in New Zealand caused by war conditions present or past. (3) JFor the purposes of this section the price of any goods shall be deemed to bo unreasonably high if it produces moro than a fair and reasonable rate of commercial. profit to the person selling or supplying, or offering to sell or supply, the- goods, or to his principal, (i) A fair and reasonable rate of commercial profit is for tho purposes of this section ■ such rate as would have been fair and reasonable on similar goods prior to August 1, 1914, with a fair and reasonable addition for war conditions of freight charges and business expenses.

Operation of the Act. ■4 r -- / Contmninir, His Worship said: "It is . to he noted that the Act does not penalise every person who sells Roods at a price which is unreasonably high. Its opera- ■' ■ tion is limited to two' classes of cases, namely, cases in which tho opportunity for selling at an excessivo price arises by reason of tho war, and cases in which ; such opportunity arises b.v reason of a scarcity of tho gc<jds 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 ; arise for decision. Firstly, were the ' goods sold at a price whioh is unreasonably high; and. secondly, (lid the opportunity of obtaining such price arise by V Teason of a. scarcity of such goods in Now • ■■;' Zealand, caused by war conditions, pro-. ;•'■ sent or-past? With -regard to the ques- ! tion of price, the evidence shows that ','*■•' this lino of flannel is manufactured locally by the Wellington Woollen Comf. ' pany.. Prior to tho war the price i charged by the Woollen Company to TeV r**\ tailers was IOJd. per yard, less 8J per j ' cent, cash discount. The flannel was sold by retailers at Is. 2d. por yard. ';■' This represented a gross profit of a little , less than id. per yard_, or about 88 per cent, on the cost price. The prico charged now by tho Woollen Company ;.-'■.' to retailers (inoluding defendants) for V this.,flannel is Is. 7}d..;per yard; lesa 8J por cent, cash discount. The defend- :. ■,■'■., ants.sell the flannel at 3s. 3d. per yard. This represents a gross .profit of a little ''-.....: over. ls.<Bd. per yard, or 107 per cent. : on the cost price.

Assessing the Profit. •"'—■ "Flannel belongs to a department of the '. . drapery, trade known as the Manchester. . department. There is among the wit- ; nesses called a consensus of opinion as to ../-* tho amount of the gross profit that is •' usually, looked for from this department. .; It is.considered that a gross profit of 50 i'-'. per cent, upon the cost price is, under •;.' normal conditions, a satisfactory and ■'■.'•'' payable profit. From this gross profit '■':':. the exponses of the business are payable. Some variation as to the amount of pro- '"; fit upon different classes of goods in tho department is usual, and flannel is commonly regarded as a lino upon which a low rate of profit is chargeable The Tate.of.gross profitabovo mentioned was deemed satisfactory prior, \to the war. Working expenses have since the com-

mencament of the war increased vory largely, but the cost of material aud the amount-of turnover have increased at ][''•■. least in equal proportion, so that the rate, of profit above mentioned is still : under normal conditions deemed satis l factory. ■ TJndor . these, circumstances, f where.'a recognised and customary and ; ''■ payable . rate of commercial profit on goods'of'this class is shown to be 6onie- <-'-.', thing under 50 per cent, on cost, and ; where the rato of profit mado by defendants is 107 per cent., it seems to mo '■-. that a strong prima facie case of excessive profit has been mado out. The an- .;';' , swer that is given by the defendants on y, : the question of the reasonableness of ';' their price is, in my opinion, inadequate. .'■'■■'. Counsel for the 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 singlo given line of goods: that merchants must, within reasonable limits, bo given a freo liand as to the ' prices they decide to nsk for particular goods, so long as, in the aggregate, they do not mako unreasonable profits; that if, for example, a loss on a certain, lino '■-: of goods is possible or probable, merchants must be allowed to increaso the . price of other goods to mako provision ' for such loss. It seems to me that in ■ a measure this proposition must bo ac< :. cepted. The question of what is a fair and reasonable rate of profit must in • some moasure depend upon the exigencies ■._,. of the particular business,.and if special circumstances exist, thoM circumstances must be taken into consideration. Covering Losses. "In the present ease, the defendants ! have shown that some C(10 yards of flannel bought by them from" another woollen company in New Zealand had proved an unsatisfactory purchase, and ! tho retail price of such llannels had had to be reduced .to a price which would, , after payment of working expenses, prob- ;; ably ree-ult in a loss. For this reason the price of tho flannel, tho subject ot ;_.■ theso proceedings, was, they say, increased so as to cover such loss. If a loss of this nature is to bs spread or averaged over other goods, duo regard must, I think, be paid to tho nature of .', fiuch goods, the quantity over which tho \\ loss is spread, and the reasonableness of !.' the selling price fixed for such other '■ goods. With a view to showing that ■ the profits on the whole business wero i not excessive, the defendants produced ■ a bare statement, showing over a period | of five years the nverngo net profit on I their whole turnover received from the ; Manchester department, and also' that i received from their whole business. In / absence of any balance-sheet, or of any information- as to the relation of their turnover to tho amount of their i capital or as to the full basis 1 on which tho memoranda are founded, these ligurcs do not prove very much. I On tho face of them they may well re- ', present, and do, in fact, suggest a very • handsome profit. 1 Admitting that in fixing the selling prices of goods the whole of the varied conditions and circumstance- of the business must of necessity ; be taken into consideration the profit • ■ with reference to the particular goods | must still be fixed at a reasonable- figure, having duo regard to sucli conditions and cimiinstauccs.

Price Unreasonable and Excessive. "The material, tho subject-of tho present charge, is a cheap quality of limine]. It is a class of goods that is used in ninny homed. It is a necessity, and not a 1 usury, and it has nono of tho elements of possible loss incidontal to many other classes of goods. Its saleability is not apt to bo affected by the change of tho season of the year, or i by fashion.' It is not apt to depreciate through being handled or oxposod in the shop, or being stored in tho shelves. _ It Is generally recognised to be a line ivhioh

can safely bo handled at a low rate of profit, and on which a reasonablo low rata of profit is usually and properly charged. In my opinion, under tho olrcunistiinces shown here, an addition of 107 per cent, by way of gross profit upon tho cost of this flannel is unreasonable and excessive Was Price Due to Scarcity of Flannel? "With regard to tho second question involved, namely, whether the opportunity of obtaining such a price arises by reason of a scarcity of such goods in Now Zealand, tho evidence on this point may bo summarised as follows: Prior to tho war, tho class of flannel.in question in these proceedings was sold retail at Is. 2d. i)or yard.' The cheapest English flannel sold in those days was a lino known as 'Doctor' flannel, which was sold retail at Is. Cd. per yard. During tho war tho cost of this English flannel has increased, and its landed cost is now from 2s. Gd. to 2s. 9d. per yard. Tho colonial flannel, the subject of these proceedings, manufactured by the Wellington Woollen Company, is sold by them to tho various drapery firms at tho present time at Is. 7Jd. per yard, loss 3} per cent, discount. During the war the Wellington Woollen Company, being engaged in war work, was unable to supply all the orders it received for flannel from its various customers. It supplied flannel to sonic twenty-five customers in Wellington, and it adopted a plan of rationing its suppliers, delivering flannels to each customer on 6omo basis of equality in proportion to tho amount of that customer's order. One specific instance of such rationing is given in evidence, and it has reference to tlio supplies sold by tho Woollen Company to tho defendants. In October, 1918, tho defendants placed an order, apparently ,a season's order, with the Woollen Company for various blankets, plaidings, and flannels, delivery to bo 'as can do season 1918-19.' The order included twelve rolls of No. 5 flannel (three of such rolls being 'Shetland'). Of such order for 12 rolls of No. Ii flannel the Woollen Company supplied two rolls in July, 1919, and one roll in August, 1919. Two of such three rolls woro 'Shetland.' In August, 1919 i some three weeks before the sale the subject of the present information, the defendants placed a further order for various goods, including 8 rolls of No. 5 flannel (two of such rolls being 'Shetland'). * "Season's delivery by Juno 30, 1920.' This order has not so far been executed. It is not clear wliethor this second order of August, 1919, for tho new season's delivery is meant to supersede the existing incompleted order of October, 1918, or is to be in addition thoroto, but'l will assume that it is meant to b'> au additional order and that the old order still stands. Mr. Donne, secretary of the Woollen Company, says in ovidence: 'There is a general shortage, due to our inability to make. We were not making during the war period. I should eay there was a great scarcity during tho war. The domestic trade was praotically shut off.' No further evidence was offered to prove a scarcity in New Zealand of tho goods in question. No evidence of any sort waa offered aa to the operations or the output of tho various other woollen mills in New Zealand. The Court is asked to eay that the above evidence established that thero was a eoarcity of tho goods in New Zealand. Insufficient Evidence as to Scarcity. "It is contended that if tho Wellington Woollen Company were unable to fill all its orders it is a proper inference that the retailers were unable to supply the demands of the public. This docp not appear to mo to bo a safe inference. I assume the retailers do not wait until their supply of a given line is completely exhausted before replenishing their stocks. It may be inferred that the retailers' stocks were in many oases running low. If the requirements of the public for flannel were not able to be fully supplied, evidence to prove such fact should be readily obtainable. Of the twenty-fivo retailers to whom the Wellington Woollen Company supply these goods not one was called to show that his stock of flannel generally or of any partioular class of flannel had at any time run out. No evidence was offered by any retailer that he had at any timo been unable to supply any member of the public with any flannel desired, and no evidence was offered by any member of the public that he had at any time had any difficulty in purchasing any flannel desired. General Shortage Assumed. , "I will assume, though the evidence falls short of establishing the fact, that there was u shortage of flannel in the trade, and that the various houses wore not ablo to obtain and carry their normal stocks. Something more than this, however, must bo shown. It must' bo shown that both there was a scarcity and that tho opportunity of obtaining an unreasonably high price arose by reasoa of such scarcity. In order to prove that, through ft scarcity of tho goods, an opportunity arises for charging an unreasonably high price, it is not, I think, necessary to prove that the defendant had a monopoly or anything approaching a monopoly of the existing 6tocks. If it were .shown that somo shops were sold out or had been sold out of the linen, that the public or 6omo members of tho public had had any difficulty in getting supplied, that tho public or members of the public knew or understood that there was some scarcity of tho goods, if any of these matters had been established anything arising from the scarcity that might' operate on the mind of the individual so aa to induce him to pay more than tho usual price, one might perhaps conclude that this gave defendants tho opportunity to charge an unreasonably high price. No sueh evi. denco 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 woro asked an excessive prico at one 6hop, he should have no difficulty in obtaining it in moderate 6upply at another shop. The purchaser of tlio particular pieco of flannel, tho subject of the present proceedings, states in' evidenco 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 theni at prices considerably lower than that charged by defendants. Tho material could be purchased at enery establishment at which inquiries were made, some of such establishments being within a few yards of the defendants' premises. Information Dismissed. "In tho face of this evidence can it be held that tho opportunity of charging tlio prico that was charged in this caso arose by reason of a scarcity of such goods in New Zealand. 1 aui of opinion mat it cannot.

"Snnunorising the matter therefore I find that tho goods wero sold at a price which is unreasonably high, but that the case has not been shown to be within that portion of the section which tho charge is laid. The information will be dismissed.

"I do not think that it is a case in which costs should be allowed."

At the hearing Mr. P. S. K. Macassey appeared for tho informant, John 'William Collins, secretary to the Board of Trade, and Kir John Fimllay, K.C., and Mr. M. Jlycra for tho defendants.