WHAT IS SEASONABLE PROFIT?

Dominion, Volume 14, Issue 3, 29 September 1920, Page 7

WHAT IS SEASONABLE PROFIT?

PROFITEERING DENIED ALARM CLOCK CASES BEFORE FULL COURT DISQUISITION ON 1 ECONOMICS. The Pull Court was again occupied in hearing the appeal against the judgment of Mr. S. E. McCarthy, S.M., i!n the Christchurch alarm clock cases, in which the informations laid against firms were dismissed. The charges, based on tho sale of alarm clocks at an allegedly high and unfair prico, related to the following firms: —Hastie, Bull and Pickering, Ltd.. E. Beece. Ltd., A. J. White, Ltd. (Sir John Findlay, K.C.), Mason, Strutters and Co., Ltd., and G. W. Drayton and Co. (Mr. C. P. Skcrrett. K.C.). all of Christchurch; and Brown and Dniw Ltd (Mr. M. Myers), of Wellington. In tho cases of A. J. White and Co., Ltd., and E. B-eece and Co., Ltd., the charges in the Court below were of "offering to sell" the soods at the prico complained of., The appellant, G. H. Christio, secretary to the Pric«a Investigation Tribunal, Christchurch, was represented bv tho Solicitor-General (Mr. W. C. MacGree or, K.C.). On the bench were Their Honours Mr. Justice Edwards, Mr. Justico Chapman, and Mr. Justice Herdman. Tho firms concerned in the appeal were indicted originally under the Board of Trade Aot. 1019, section 32 being tho basis of the prosecutiion. This clause' provides, inter alia, tliat "every parson commits an offence who, either as principal or agent, sells or supplies, or offers for sale or supply, any goods, at a Drioe whioh is unreasonably high." Subsection 1 sets out that "tho prico of any goods shall be deemed to be unrest eonably high, if it produces or is calculated to produce, more than a fair and

reasonable rate of commercial profit to the person selling or supplying, . . . «r to his principal." The information in the case of Brown and Bureau alleged that the defendant corporation committed an offence under the Act by asking or advising A. Jlinson, of to offer for sale certain goods at a price which was unreasonably high. Sir John Findlay's Argument. On behalf of the respondent firms which.he represented, Sir John Eindlay raised the question of the merilt of the prosecution, pointing out that an alarm clock was an article that would last a household a lifetime, and that therefore any element of excess profit which might be alleged to obtain occurred but onco in a long series of years. Conversely, however, 'in the case of articles of food and wearing apparel the consumer bought repeatedly a-nd any profiteering that existed was perpetuated. Counsel went on to submit that the absence of any real merit in the present case before the Court must strike Their Honours very considerably. The remedy— if <i Temedy could bo found—was to suppress excessive profit in connection with those commodities (food and clothes) to which he had referred. Proceedings of the kind at present before the Court afforded no real relief at all, but were in the nature, of a quack remedy to soothe popular indignation. Quoting freely from Walker's work on "Political Economy," counsel sought to establish, that the accepted definition of "a reasonable profit" was "the amount of market price which a trader could obtain in competition with other traders." It was no offence to sell at a price far above the market price if it dild not produce to the trader moro than a fair and reasonable rate of commercial profit; but it did not matter at how low a price the trader was selling an article if the result produced what the Magistrate regarded as more than a'fair and reasonable rate of profit.

It was submitted by counsel that there was no possible or practifcablo test as to what constituted a reasonable profit ex: cent this: "That amount of market price which a trader can retain for himself after paying cast, Tent, interest, wages, and other outgoings out of the goods ho sells." Surely section 32 never intended to revolutionise the whole economic system upon whibh our trading system had been based for centuries past, by accepting the revolutionary construction placed on it by the Solicitor-General. Free competition had been defined as "unrestricted competition of individual interests among buyers and sellers of any article in any market." Price-fixation did not necessarily tend to equality of profits. While the price charged the consumer mifclit be the 6ame, the profits which different traders were making would vary with the efficiencv of tho respective businesses—their organisation and other excellencies of management. The test of a fair and reasonable profit was determined by the law of supply and demand, operating through free competition. The Crown's test was first to find out tho gross profit, hut in arriving at that it refused to tfike the net profits of the whole business into consideration. If on ninety-nine articles out of one hundred a trader was making a low rate of profit, no profit, or evtfi a loss, and yet on the hundredth—it might be a packet of pitas—ho was making more than a fair and reasonable rate of profit, then he was, according to tho Crown, committing an offence. The method was shown by selecting alarm clocks out of a vast ironmongery business dealing with almost countless articles. Mr, Skerrett's Address.

Mr. Skerrett said that there were three observations which he wished to make with regard to section 32. The first was that, although it applied seemingly to all goods, it applied, nevertheless, only to goods which were sold in the course of ft- trade or business. It had no application it was submitted, to goods sold in an exceptional, casual, or isolated manner. Counsel's second submission was that there was nothing in the statute—nothing in tho section— which prevented the whole of the circumstances of tho sale from beiiig taken into teonsiderntion in determining the quantum ofprofit. In England this was. expressly provided for in the Profiteering Act of 1919. It was important to note that it must bo constantly borne in mind that the salo contemplated by the statuto was a sale in a trade or busil ness. it was an act which involved tho continuity of the business, and the ratio of profit must therefore be considered— as it was in practice considered—in the, lie'nt of tho necessity for keepitag tho business in operation. Counsols third, observation was that thore was nothing in the statute which indicated any intention of disruptitag_ reasonable trade usages and practices in the conduct of business; and, further, that a construction which was discordant to tho recognised practices of business mus-t bo held to obtain in the case of section 32, in the absence of any irresistible inference to the contrary. Mr. Skerrett maintained that tho simplo construction which tho Solieitor-Gen-eral placed on section 32 was vicious because it ignored all tho various considerations whiWi in practice wont to determine whether or not a profit was reasonable. It was too crndo altogether. Another point made by Mr. Skerrett was that the onus of prooi' that tho profit oil Hie sale was unreasonable was on the Crown, whereas the only ovidenoe on '•his point wan the other way. In the absence of this proof, therefore, the appellant's case could not succeed. Incidentally, counscl stressed the point that the replacement theory had been adopted by the English Board of Trade, and it

had advised its profiteering tribunals to "have regard to the cost of replacement i/ii determining tho question of reasonable profit. Solicitor-General In Reply. In replying to the arguments of counsel for tlie respondents, tho SolicitorGeneral. aaid that tho wholo trend of their submissions was to convince the Court that tho respondents were reasonable and honourable tradespeople, and were not making moro than That constituted a reasonable and honourable profit. llf that were the case, then why fchib strenuous effort on tho part of counsel to succeed in ,1 technicality to prevent the Court passing judgment in the matter; and why should it 1» neoeswry for three leArned counsel to take the best part of two days in order to convince tho Court of the righteouene-o of thcco 'ftppsKmtJy tatcffAmfc aetionri? IW

tion 32 of the Act, ill effect, saM: "If you buy in tho cheapest market you must not sell in tho dearest market," Sir John Findlay's arguments notwithstanding Touching tho question of the merits of tho prosecutions, he submitted that tho conclusions arrived at by counsel for tho respondents were based on a fundamental error or fallacy; iin eliort, they, held a mistaken view of tho object in effect of section 82 of the Act. They persisted in looking at it from a wveng angle—from tho viewpoint of (ho seller. it mu/st be obvious to tho Court, however. that section 32 was dearly passed for tho benefit of tho consumer, and not that of tho manufacturer, tho merchant, or tho seller. Aa to the question of profit tho plflin Eufflish of tho transaction was that the salo price (255.) of the clocks was 100 per cent, moro than the cost price. Wflfl not tho conclusion inevitable, therefore, that 255. was an unreasonably high price? On the figures disclosed in tho ovldence, tho throe defenwis set up by tho respondents, however ingenious, wero entiroly irrelevant, m At 4.30 p.m. the Court adjourned tfll this morning, -when tho SolicitOT-Gew&iU .pill continue M',« Bignmenfc, 15 - a>- ■