THE FLANNEL CASE.

Taranaki Daily News, 30 September 1919, Page 6

THE FLANNEL CASE.

PROSECUTION FAILS.

CHARGE AGAINST GEORGE AND KERSLEY DISMISSKJ)

Wellington, Sept. 20.

"Summarising the matter therefore, I find that the goods v.-ero sold at a.ji.ice which is unreasonably high, but that, the ease has not been tihown to be within that portion of the section under which the charge is laid," said Mr. K. Page, S.M., in delivering reserved judgment at the Magistrate's Court yesterday in the case Board of Trade v. George and Kersley, Ltd., drapers. The information, laid by the Board of Trade, alleged that the defendant llrm on September 3, 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 »vas further alleged that the opportunity of obtaining such a price in New Zealand arose by reason of a scarcity of such goods in New Zealand caused by war conditions.

The information was laid under section 21 of the War Legislation and j Statute Law Amendment Act, 1918, sub- I sections 2, 3, and 4, of which read: (2) j Every person commits an offence against this section who either, as principal or) agent, sells or supplies, or offers lor sale j or supply, in New Zealand any goods at j a price which is unreasonably high if i the opportunity of pbtaining such price j in New Zealand arisis by reason of the \ existence, present or post, of a war in j which His Majesty is engaged or by j reason of a scarcity of such goods in j New Zealand caused by war conditions) present or past. (3) For the purposes of this section the price of any goods | shall be deemed to be unreasonably high if it produces more than a fair and reasonable rate of commercial profit to' the person selling or supplying, or offer- i ing to sell or supply, the goods, or to his ! principal. (4) A f jir and reasonable : rate of commercial profit is for the pur- i poses of this section such rate as would have been fair and reasonable on shnuar goods prior to August 4, 11)14, with a fair and reasonable addition for war conditions of freight charges and business expenses. OPERATION OF THE ACT. Continuing, His Worship said: "It is to be noted that the Act does not penalise every person who sells goods at a price which is unreasonably high. Its operation is limited to two classes of cases, namely, cases in which the oppor- : tunity for selling at an excessive price arises by reason of the war, and cases in which such opportunity arises by reason of a scarcity of the goods 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 which is unreasonably high; and, secondly, did the opportunity of obtaining such price arise by reason of a scarcity of such goods in New Zealand, caused by war conditions, present or past"? With regard to the question of price, the evidence shows that this line of flannel is manufactured locally by the Wellington Woollen Company. " Prior to the ] war the price charged by the Woo'len < Company to retailers was lO'/od per 1 yard, less 3j per cent, cash discount, l The flannel was sold by retailers at Is i 2d per yard. This represented a gross ! profit of a little less than 4d per yard, ' or about 38 per cent, on the cost price, i The price charged now by the Woollen < Company to retailers (including defend- i ants) for this flannel is Is 7id per yard, ! less Si per cent, cash discount. The defendants sell the flannel at 3s 3d per j yard. This represents a gross profit ofc a little over Is Sd 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 | the witnesses called a consensus of opinion as to the amount of the gross profit that is usually looked for from this department. It is considered that a gross profit of 50 per cent, upon t'ie cost price is, under normal conditions, a satisfactory and payable profit. From this • gross profit the expenses of the business are payable. Some variation as to the amount of profit upon different classes of goods in the department is usual, and flannel is commonly regarded as a line upon which a low rate of profit is chargeable. The rate of gross profit above mentioned was deemed satisfactory prior to the war. Working expanses have since the commencement of the war increased very largely, but the cost of material and 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 satisfactory. Under these circumstances, where a recognised and customary and payable rate of commercial profit on goods of this class is shown to be something under 50 per cent, on cost, and where the rate of profit made by defendants is 107 per cent., it seems to me that a strong prima facie case of excessive profit has been made out. The answer that is given by the defendants on 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 single given line of goods: that merchants must, within reasonable limits, be given a free hand as to the prices they decide to ask for particular goods, so long as, in the a;cregate, they do not make unreasonable profits; that if, for example, a loss on a certain line of goods is possible or probable, merchants must be allowed to increase the price of other goods to make provision for such loss. It seems to me that in a measure this proposition must be accepted. The question of what is a fair and reasonable rate of profit must in some measure depend upon the exigencies _of the particular business, and if special circumstances exist, those circumstances must be taken into con- ■ sideration. ! COVERING LOSSES. "In the present case the defendants ■ have shown that some (100 yards of 1 flannel bought, by them from* another ! woollen company in Xew Zealand had • proved an unsatisfactory purchase, aim i the retail price of such flannels had had ■ to be reduced to a price which 'would, . after payment of working expenses, ■ probably result in a. loss. For this rea- ' son the price of the flannel, the sub- : ject of these proceedings, was, they say, i increased so ns to cover such loss. It ' a loss of this nature is to lie spread , or averaged over other goods, due regard must, I think, be paid to the nature of B such goods, the quantity over which the . J loss is spread, and the reasonableness of J ■ the gelling price toed for such other

goods. With a view to showing that | Hie profits on the Whole business were i not excessive, the defendants produced ] a bare statement, showing over a period j of five years the average net profit on their whole turnover received from the j Manchester department, and also that re- j ceived from their whole business. In j Hie absence of any balance-sheet, or ot j any information as to the relation o- j their turnover to the amount of their j capital invested, or as to the full basis j on which the memoranda are founded, these figures do not prove very much. On the face of them they may well represent, and do, in fact, suggest a very handsome profit. Admitting that in fixing the selling prices of goods the whole of the varied conditions and circumstances of the business must of neces U.y ; be taken into consideration, the pVofit with reference to the particular goods must still be fixed at a reasonable figure, haviug due regard to such conditions and circumstances. PRICE UNREASONABLE AND EXCESSIVE. "The material, the subject of the present charge, is a cheap quality of ti.nnel. It is a class of goods that is used in many liomes. It is a necessity, and not a luxury, and it has none of the i elements of possible loss incidental to (many other classes of goods. Its sstleI ability is not apt to be ali'ected by the i change of the season of the year, or by j fashion. It is not apt to depreciate through being handled or exposed in the shop, or be'r«g stored in the Bhelvea. It i ia generally recognised to be a line whicti j can safely be handled at a low rate of j profit, and on which a reasonably low rate of profit is usually and properly charged. In my opinion, under the circumstances shown here, an addition of 107 per cent, by wa» of gross profit upon the cost of this flannel is unreasonable | and excessive." i