Steel & Tube Holdings Limited (Steel & Tube) has been fined a record $1.885 million for breaching the Fair Trading Act by making false and misleading representations about its steel mesh products which are used in construction to provide strength and stability in the event of an earthquake. This is the highest fine to date under the Fair Trading Act for a single company.
Judge Cathcart yesterday sentenced Steel & Tube after it pleaded guilty to 24 charges under the Fair Trading Act. The charges relate to conduct between 1 March 2012 and 5 April 2016. They cover 482 batches and approximately 480,000 sheets of steel mesh, which Steel & Tube sold for about $24 million. The offending fell into two categories:
- Representations that were liable to mislead the public on batch tags, batch test certificates, advertising collateral and Steel & Tube’s website that its SE62 steel mesh was 500E grade steel mesh meeting the Australia/New Zealand Standard for reinforcing steel, when it was not. Steel & Tube failed to properly age and test the product.
- False and misleading representations on batch test certificates and Steel & Tube’s website claiming the steel mesh had been independently tested when it had not.
For these misrepresentations the Court adopted a starting penalty of $2.9 million and discounted this to an end penalty of $1.885 million to reflect Steel & Tube’s guilty pleas, cooperation with the Commission and remedial measures.
In his judgment, Judge Cathcart said “I characterise the culpability of Steel and Tube as grossly negligent…… senior management ought to have known of the large scale non-compliance over the four-year charging period. The technical manager was not properly supervised. Steel and Tube cannot be permitted to wash their hands of taking responsibility for that negligent oversight….. it was Steel and Tube’s responsibility to have proper systems in place to ensure compliance with the Standard. This is particularly so given the significant revenues Steel and Tube derived from its sales of SE62 and the heavy extent of its reliance on the Standard and its marketing of that product…. the lack of robust procedures would have been self-evident even if basic enquiries had been made.”
Non-compliance with the Standard does not necessarily mean the product lacks the physical and mechanical properties of earthquake grade steel mesh.
“Questions about the soundness of the mesh remain largely unanswerable which was precisely the mischief the Standard seeks to address. And the whole purpose of the standard is to safeguard people from injury caused by structural failure; to safeguard people from loss of amenity caused by structural behaviour; and to protect other property from physical damage. Steel and Tube’s conduct therefore strikes at the core foundation of the FTA [Fair Trading Act],” said Judge Cathcart.
 |
Commission Chairman, Dr Mark Berry said, “Steel & Tube’s representations arose because senior management of a large company failed to put in place adequate procedures and oversight. The penalty imposed demonstrates that this is unacceptable and high-risk conduct that undermines the confidence of the public in construction products being sold into the market.”
“Consumers have no choice but to trust and rely on representations about Standard compliance. That’s why Standards exist. These types of misrepresentations strike at the very heart of the Fair Trading Act by not only undermining confidence in Standards but also in the wider construction industry,” said Dr Berry.
Recap
Record fine
The fine for Steel & Tube is the highest handed down under the Fair Trading Act. The previous highest was $1.08 million for Reckitt Benckiser in February 2017 for misleading claims about their Nurofen specific pain range. Under the Act businesses face penalties of up to $600,000 per offence. Prior to June 2014, the maximum penalty under the Act was $200,000. Steel & Tube’s conduct spans both penalty periods.
Investigation into Steel & Tube
The Commission began investigating Steel & Tube in March 2016. On 6 April 2016 Steel & Tube voluntarily stopped selling its SE62 product and on 28 April 2016 Steel & Tube entered into court enforceable undertakings with the Commission to only sell SE62 500E grade steel mesh that had passed specific independent testing.
Steel mesh cases
The Commission filed charges against a number of companies relating to false and misleading representations about 500E steel mesh. In 500E the ‘E’ stands for earthquake, and the Standard specifies strength and ductility (elasticity) requirements for steel reinforcing materials. The Standard also specifies the procedures (ie, sampling and testing) that must be followed to produce steel of the specified standard, including:
- manufacturing methods that must be used by steel manufacturers
- chemical, mechanical and dimensional requirements of mesh
- sampling and testing of each batch of mesh
- identification and labelling of different grades of mesh.
To be sold in New Zealand as 500E grade steel mesh, the mesh must be produced in accordance with the requirements of the Standard. If mesh is produced in any other way, it cannot be described as 500E mesh. MBIE is the building regulator, and sets and enforces the Standards and Building Code. The Commission can investigate misleading or deceptive claims about compliance with the Standard.
The Commission has carried out a series of investigations into steel mesh following a complaint in August 2015. Following its investigations:
- Fletcher Steel Limited was issued with a warning
- United Steel Limited and Pacific Steel (NZ) Limited were issued with compliance advice
- Timber King and NZ Steel Distributor was sentenced and fined $400,950 after pleading guilty to seven charges
- Brilliance International Limited was sentenced and fined $540,000 after pleading guilty to 20 charges.
- 59 charges against Euro Corporation are before the courts.
If you can’t back it up, don’t say it
False and misleading representations about building products are a priority area for the Commission because of the serious harm they can cause consumers. Traders must be able to back up the claims they make and if they cannot, they should not be making them. Guidance for traders on unsubstantiated claims is available on the Commission’s website.
Connect with the Commerce Commission of New Zealand via Twitter and Facebook
