SALE AT REPLACEMENT VALUE

Dominion, Volume 13, Issue 235, 29 June 1920, Page 6

SALE AT REPLACEMENT VALUE

A REASONABLE PRACTICE DECISION ON PROFITEERING CHARGES MAGISTRATE DISCUSSES BUSINESS USAGE ' By Telegrapi-PreSß Association. Christchurch, June 28. Reserved judgment was delivered to-i day by Mr. S. JJ. M'Carthy, S.M., in the series of cases brought by the Crown in respect of various charges of profiteering. Six of tho cases were concerned with the sale of (alarm clocks, and the sevonth caso was 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.I.C. in respect of tho sale of n child's coat, a fine of dGSO was imposed, and the company was ordered to pay costs, ,£ls. Tho informations relating" to the sales of- "Big Ben" alarm clocks were laid against Hastie, Bull and Pickering, Ltd.; Mason, Struthers and Co., Ltd.; E. Recce, -Ltd.; A. J. White, Ltd.; G. 0. Drayton and Co.; and Brown and Dureau, Ltd. Reasonable Practices. In tho course of his judgment, the Magistrate said: • "There is no need to consider what wero the several firms' respective average gross profits or expenses on turnover or cost, or what were their average dividends oii capital during a series of years, or what amount has 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 the clocks were cheaper in price, they ought not to have sold to the publio at prices corresponding to the prices at which they had respectively bought. One must not overlook the fact that some of the firms charged with selling tho clocks are wholesalers as well as retailers. These firms buy at the rate for wholesalers and then, selling retail; were bound under their agreements .to charge the general 'public the respective retail mteß fixed from time to,, time. It was proved that apart from the Board of Trade Act, 1919, it has been the general and uniform practice in the mercantile world for dealers carrying on both branches of trade to charge the usual re-

tail prices to tho general public buying on a retail basis, notwithstanding that tho 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 nt tyio 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 a sound and honourable business practice. I shall find that both these practices arc reasonable. Unreasonable. Usage. "The offer to 6«U by the General and Drapery Importing .Company ' of New Zeiuund, Ltd., was at 455., whereas the cost to the company had been 21s. (id. This represents a gross; profit on turnover of 52.G per cent., and on cost of 109.3 per cent. The company consider that 331-3 per cent, is a good percentage for grosß profit on the general turnover, though it expects a slightly, increased percentage for this department. Its explanation as to this saiO is that the.coat offored was ono of a lino of samples bought as a job lino at a considerable reduction for sale to the public during August and September next. It further says that had the coat been bought in the - ordinary way it would have been fair retail value at the time of salo for 555. or 575. Gd. It was deposed to by Cox, manager of the defendant company, that the London price of this article as on January 5 last was '21i per cent, higher than tho Dominion cost price, namely, 17s. lid., to which must be added' transmission and Customs charges. Cox and Miss Wraight, manageress of the children's department, each deposed,,that the pricing of the raincoat ha*d been in accordance with a regular and recognised trade custom. There was no evidenco by anyone in the drapery trade outside the employment of the company, and as Miss Wraight deposed thai she carried out Mr. Cox's policy, it cannot reasonably be held that the fixing of the price was in accordance with a trado usage. The price was fixed as near a full, retail price as would secure a sale, thus giving some

Blight advantage to the customer. ,'Bven assuming that 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 the trader as a job line should; be Tetailed as such. The Meaning of Section 32. . ' "It has been contended for the defence that every individual sale of goods which is attacked under section 32 can only be so attacked in tho light of the average, profit made by the defendant trader in his. business. I cannot accede to this contention. To so interpret the section would be to render its provisions a dead letter.. It would set the Crown the duty of chasing A will o' the wisp. It would bo called on to prove facts peculiarly within the knowledge of the defendant. I see no reason, keeping in view the grave issues at stake, to depart' from the plain meaning of the section, which is to permit of individual transactions being attacked. If the defendant's average rate of profit is reasonable whilst the rate- earned in an isolated case is -unreasonable, that is liis misfortune, and the only relief which can be afforded \\im is in fixing the quantum of the penalty. The defendant firms firstly mentioned were bound to sell tho clocks at rates fixed from time to time by tho manufacturers, and it is.not competent for them to rely on this fact as a defence, in addition to the average general profit theory, the two being contrary. The Crown contended that a <lefenco based on' the fixation of prices by tho manufacturer on a resale and of selling at replacement rates were two contradictory defences. I cannot agree. Tho one is complementary to the other. A Fair Commercial Profit. "This brings us to discuss the question : What is a fair and reasonable rato of commercial profit within the meaning of section 32? There can be no quarrel with the general definition of profit laid down by Lord Ellenborough in Eyro v. Glover. We, 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 tho mercantile world or in tho particular in-' dustry as defined. Sections 12 and 26 assume the existence of these usages and practices, and the intention of the Legislature is that they can only bo made inoperative by regulations of tho 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, (i) not contrary to any positive law. Admittedly, no Board of Trade regulations have yet been made. Questions as to the reasonableness or unreasonableness of commercial practices and usages are questions of mixed law and. fact. "In estimating what is a reasonable rato of profit within the meaning of the statute one must not overlook two factors, One of these is the increased cost o.f living; the other is the contingency flint the trader, when n slump in prices arrives, may .have high-priced stocks on hand which he will be compelled to rPaliso at a loss. In connection with the alarm clock cases, the prices charged wpre those current at tho time of sale, whilst tho high profits were earned pursuant to well-recognised commercial usages which comply with each one of the four tests set out. Further, the in-, creased prices were not due to any desire to exploit, but to economic conditions over which tho parties had no control. Such profits are therefore based on a fair and reasonable rate of comnierrnl profit with'n the moaning nf sub-section 2 of action 31, TTad it not been fo" the existence of the s !> usages, the profits in most of those cas»s mint have been held to be unrWtsonnWv high. If it is ncessary for tho public welfare. Flint I hose usages should be declared illegal, the remedy is to be had under sections 12 and 215.