MAXIMUM PENALTY

Dominion, Volume 14, Issue 56, 30 November 1920, Page 8

MAXIMUM PENALTY

PROFITEERING CASES

BING, HARRIS AND CO. FINED £3000

WILSON FINED £400

Judgment was delivered in the Magistrate's Court yesterday by Mr. J. S. Evans, S.M., in respect to the charges brought by the Board of Trade against Bing. Harris and Co., Ltd., and Robert Wilson and Co.

Bing, Harris, and Co. were charged (1) that on .Tune 11 they did sell to Gotthard Krebs 73 yards Mosgiel suiting at 16s. 6d. a yard; (2) tint on April. 14 they did sell to J. T. .Lewis, Ltd., .12 yards suiting at lis. Gd.; (3) that on March IS they did sell to ICitto and Sons 74 yards suiting at 225. 6d. a ynrd.

Robert Wilson and Co. were charged (1) that on March 11 they did sell to James Smith, Ltd., 9 yards suiting at 325.: (2) on May 31 did sell to Gotthard Krebs 31 yards Mosgiel suiting at 225. Gd. a yard; and (31 on the samo date did sell to M. Greenfield (ii yards Mosgiel suiting at 17s. Gd. a yard. The informations wore laid under section 32 of the Board of Trade Act, 1919. ' Appeal Court's Decision. In referring to the decisions of the ADpeal Court in the "Big Ben" clock case and Mellins food case, the Magistrate said:—"The principles laid down in these cases are tho express and considered judgment of the Full Court, and not mere obiter dicta. In the two cases before the Court., the actual decision turns on tho facts of each case, the 'Big. Ben' cases on the grounds that the selling price is fixed by the manufacturers, and in the Mellins food case that the sale was higher than the goods were sold by other traders. ... In the "Big Ben' cases the Court decides that the principle referred to as 'replacement cost' ns laid down is a reasonable one, and in thp Mellins food case tho principle of differential rates for different classes of goods is also a reasonable one. But ' T1 my opinion the first principle must be applied in the strict terms laid down by the Court; and in the second the differential rates must be. reasonable and exercised so as not to give an unreasonable commercial profit on the article sold. If the transaction in question departs from theso principles, then in ni* opiiiTon there' would be an offence within the meaning of the Act. The first principle as laid down'by the Court i* that traders may always regulate their selling prices at the current market rate at the time of the sale, and may from time to time advance their prices over the actual cost price to tho current market rate, both on goods in stoclc at the time of the rise in priccs and on goods to arrive." \ • ~ Continuing, the Magistrate eaid tlmt the evidence In the present cases unowen that the poods were bought ill fl ' market and were not subject to an arbitrary selling price fixed by tho manufacturers as in the "Big Ben" eases. Alter referring to the profit made by tns (wo firms, and analysing the evidence, the Magistrate said:— Case of Binfl, Harris and Us. ; "There is no evidence of any actual rise after January, and I must therefore find as a fact that the market pneo had not increased after January, and then only 2i and id. per yard on the: price at wfilcb the defendant (Bing. Barns and Co.rbought, and therefore tho January prices were tho current market rates at the time of sale within the Pi/"" cinlo laid down by tho Full Coiift. The prices have not yet been fixed for this vear bv the Mosgiel Company, and there is a slump in tho wool luarket. Mr. Marks, manager for the defendant (Bing, Harris and Co.), says that they aim at 20 per cent, to 22.5 per cent, net profit on returns, both pre-war and now They differentiate on different lines from. 10 per cent, to 15 per cent, off or on. They put on to good selling patterns and take off from bad selling ones. They were warned in January by Mr. Allan that the prices might rise from 2a. to Gs. per yard, but he gives no evidonco oi an actual Tiso before the sales in respect of which they are charged. He put on {•3. as replacement cost on the tweed eold fo ICitto, 2s. on that sold to Lewis, and 'Is. on that sold to Krebs. This was based on an estimated future increase, and not on an actual increase in the market pric# at the time of sale. "Oil tho evidonco and the figures, 1 find that 50 per cent, on replacement coat, that is on the market value at the timo of sale,' or 33 l-3rd per cent, on turnover, is a fair and reasonablo rate of profit which commercial men in the same lino of business aro satisfied to make. This was tho rate before tho war, and is still the rate generally aimed at, . . ■ It is obvious, therefore, that any substantial increase ill the rate of gross profit ovor what is found to be a fair and rea' senable rato must contribute substantiallj to tho annual profits of tho defendant* (Bing, .Harris, and Co.); Tho defendants admit putting on thoir goods a gross profit of 104 per cent., 99 per cent., and 9li per cent, respectively on cost, with tho corresponding percentage on sales. ] find that this was rendered possible by tho oonditions prevailing as tho result of tho war; tho demand exceeded the supply, and there was no competition in tho aonso that thele was no cutting of prices by reason of tho excess of demand ovei supply. In. fact, it wns adriiitted that merchants might have asked any prico and found n sale for their goods by reason of the prevailing demand and necessity ■ existing." Within the Penal Clauses. "In my opinion," continued tho Magis trate, "the rate of profit charged by tho defendants (Bing, Harris, and Co.) ljrings thom within the penal clausca of tho Act, and thoy must be convicted. The question of whether or not a bona fide uiiscoucop tion of tho principle of replacement costs, if it existed, or belief that thoy were entitled to advance tho price of their goods 25., 35., and 4s. respectively over tho current niarkot price, is a dofenca that was left open by ttio'JWt Court, and I will leave that question to bo decided by a higher Court if necessary. In view of-the l'iso of 2d. and 4d. per yard in January, when it wns known in August, 19.19, that ■ tho commandeer was to bo lifted ill January., tho advnnce on thy current market price was not justifiable. "Prom the point of view of the pnbliu who buy these- goods, it is bad enough that thoy have to pay the advanced market rate and the usual rate of profit on that advanced l-ato for money which tho defendants have not paid for the goods they aro selling without having to pay such a speculative rato as tho defendant? may put on' their goods with tho cor responding rate of profit on monoy they have not expended, and may never ox pend, but which, as in this caso, have all gone to swell their otherwise increasing profits." R. Wilson and Co.'s Case. The Magistrate then dealt with tho three charges against R.. Wilson and Co., and tho general statement of their business. ".This. statement," remarked Hi? Worship, "is based on the returns foi tho years ended Juno 30, 1914, to 1920. I will deal only with the extreme years. The proprietors' capital has risen from, ml' 11 19, as 6hoWll ty 'he statement. Iho revenue has risen trom nil in 1914 to <£1358 in 1920. Tho sales have risen from 1 in 1914 to 2.39 and the gross profit from 1 in 1914 to 3.6. The percentage of gross profit oil sales has risen from 23.23 per cent, to 36.32 per cent, in 1920. Tho overhead charges have fallen from 18.79 per cent, in 1914 to 10.24 per cont, m 1920. The percentage of not profit from trading has risen from 4.44 per cent, in 1914 to 26.08 per cent, in 1920. The total net profit, allowing income tax, has risen from 1 in 1914 to 8.8 in 1920. Tho drawings of partners, exclusive of sal.v 1920 riS °" fr ° m 1"l 1914 to "' 3 ' 2 iU

| On the general principlo of replacewent costs, it scorns nt first sight unreasonable tliat tho ultimate purchaser *.iould have to pay the trader a sum he tins not himself paid for tlio goods he is .foiling with his usual rato of profit, on that but on closer investigation it is not so. In the first place, it is noccssnry that thoro must lit a fixed standard for all traders on which profit may bo haswl. If it were not so, thou every trador would have to make his own standard,

which in coses of this kind would lead to an interminable inquiry into the reasonableness of each man's standard nn compared with the standards of all tbo others in the same or similar lines of business. And if tho trader was bound to fix his profit on the cost of tho goods to him, he would' require to add a higher percentage of profit to his original cost. This might operate moro hardly on the ultimate. purchaser as each trader .would have to put on a speculntive profit on his costs to meet possible fluctuations which might not take place, and again this would involvo an endless inquiry into tho reasonableness of his speculative percentage. Neither of the defendants rely on a differential basis of profits to make up a general average between good selling lines and bad. I need, therefore, not consider this principle.

Current Market Value the Standard. "The position then is: The current market value is the standard of replacement cost. The fair average commercial gross profit bn costs, including replacement cost, is 50 per cont. The defendants Hing, Harris, and Co., Ltd., have put on 101 por cent., 99 per cent., and 90 per cent., respectively, on their own showing. The defendant Wilson has put on 72.52 per cent., and GB.G7 per cent. This increase was not justified by tho current markot price at the time of sale. Convictions Recorded. "Ding, Harris, and Co., Ltd.. will therefore bo convicted on all charges, nnd Wilson will be convictod on the sales (2) of New Zealand tweed. The information for selling English tweeds will be dismissed. The penalties are fixed as to individuals, not persons and companies. Bing, Hams, and Co., Ltd., i s a company, and Wilson admits he is practically solo proprietor trading under a firm name. In. the Mollius food case, where the profit was 2d. per bottle, the penalty was .£IOO, and Mellins food was only ono item of a grocery business. In the case of a kitchon table in Dunedin, one article in a general stock, whero the exiffis profit was 7s. fid., the penalty was also .£IOO. In • Bing, Harris, and Co.'s case the tweeds represented 90 per cent, of the business of the department, and the inorease in their profit was high. Jn Wilson's case the increase was higher still, though his trade in New Zealand tweeds was small, but' the increased profit resulting from his excessive rate must havo been considerable. Tho penalties in this class of case are intended to be preventive. •

"In my opinion, therefore, in all the circumstances of these cases, notwitnstanding tho different rates of cross profit put on,' I would not be doing my duty if I did not impose tho maximum penalty in each case. In .justification for fining Wilson the .maximum penalty when his percentages were lower thai: tboße of Bing, Harris, and Co., I hit veto say, first, that ho stated frankly that he was out to make as much as the circumstances and market would allow, ami would have charged 200 per cent, if lie could have got it. In the second placr. the penalty for an individual includes an alternative penalty of impiisonment, und if it had been on individual within the meaning of tho Act who had put on Hie 104 per cont. (B3 in tho cns» of Bin?, Harris, and Co.), I would have seriously considered, tho penalty of imprisonment on at least this charge." Bin?, Harris, and Co., Ltd., were fined the maximum of .CIOOO on each of the three charges, together with .£lO 10s. solicitor's fees in each-case. Roliert Wilson was fined the maximum of .C2OO on each of two charges, with .C 5 ss. solicitor's fee, in respect to each. The expenses of witnesses axo to be 'apportioned in the ratio of 3to 2. , ~ „ „ ■ At tho hearing last week Mr., P. S. In.. Macassey appeared for tho Board of Trade, and Mr. C. V. Skerretl, K.C., for the defendants. .