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Commission takes anti-competition case against First Gas

on Wednesday 16 January 2019 in Commerce Commission, Gainz, Regulation, Sectors

The Commerce Commission said last week it had filed proceedings in the Wellington High Court against gas network operator First Gas Ltd for anti-competitive conduct in acquiring the Bay of Plenty assets of GasNet Ltd.

The commission alleges First Gas, a much larger gas distribution business, engaged in anti-competitive conduct by:

  • Having unsuccessfully offered to buy GasNet’s assets, taking steps to retrofit gas pipelines in areas where GasNet had already laid its own pipelines
  • Acquiring the GasNet assets in December 2016 without clearance or authorisation from the commission, and
  • Contractually restraining GasNet from re-entering the Bay of Plenty region for 5 years from the time of acquisition.

First Gas has filed admissions to the alleged conduct and the matter is before the court for a penalty hearing.

First Gas took ownership of Vector Gas Ltd & Maui Development Ltd’s transmission networks in 2016, and now owns & controls the only transmission network in the North Island. It also bought Vector’s distribution networks in Northland, the Waikato, the Bay of Plenty, Taupo, Gisborne & the Kapiti Coast.

GasNet is owned by Whanganui District Council Holdings Ltd, a council-controlled organisation of the Whanganui District Council, and operates the distribution network in Whanganui.

Attribution: Commission release.

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Knauf buys 2 US building material suppliers, NZ commission outlines competition issues

on Tuesday 15 January 2019 in Commerce Commission, Gainz, Regulation, Sectors

German building materials supplier Gebr Knauf KG has entered into an agreement to acquire the international businesses of US company Armstrong World Industries Inc, on top of its $US7 billion acquisition of Chicago-based USG Corp. In New Zealand, the Commerce Commission is considering the USG merger’s competition impacts, and said last week it would also take the AWI takeover into account.

The commission is seeking submissions by Friday 1 February and is scheduled to make a decision on the application by Monday 11 March.

The main impact appears to be in the supply of suspended ceiling components.

Knauf operates globally. It manufactures & supplies a range of products including plasterboard, cement board, metal profiles, plasters & suspended ceiling components. In New Zealand, Knauf imports & supplies tiles & grids used for modular suspended ceilings, and insulation products.

USG is a global manufacturer & supplier of building materials and makes a similar range of products. In New Zealand, USG operates through its 50%-owned joint venture with Australian company Boral Ltd, USG Boral Building Products NZ, which supplies suspended ceiling components & other building materials through third party distributors.

USG Boral in turn owns 50% of another Australian supplier active in New Zealand, Rondo Building Services Pty Ltd, in partnership with CSR Ltd. Rondo manufactures & supplies various metal building products in New Zealand & Australia, including steel ceiling grids.

Knauf & USG submitted to the Commerce Commission that they compete in New Zealand only in the supply of modular suspended ceilings.

Separately from its proposed merger with USG, Knauf has entered into an agreement to acquire the Europe, Middle East, Asia & Asia-Pacific businesses of US company Armstrong World Industries Inc, a global manufacturer & supplier of building products, including modular suspended ceilings. As AWI imports & supplies ceiling tiles and grids into New Zealand, the Commerce Commission said the AWI transaction would result in overlap in the supply of modular suspended ceiling components in New Zealand.

Knauf, which owned 10.6% of USG, agreed a takeover price of $US44/share with USG’s biggest shareholder, Warren Buffett’s Berkshire Hathaway Inc, last June. Shareholders approved the takeover in September.

Knauf gained conditional European Commission approval for its AWI takeover on 7 December. The conditions include a requirement to divest certain mineral fibre tile & grid operations to approved third parties in 11 European countries. AWI expects the takeover to be completed in the first half of 2019.

Links:
Commerce Commission
Commerce Commission case register, statement of preliminary issues
Knauf
USG
Armstrong World Industries

Earlier story:
21 December 2018: Knauf & USG seek NZ clearance for merger

Attribution: Commerce Commission, Knauf, USG, AWI.

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Knauf & USG seek NZ clearance for merger

on Friday 21 December 2018 in Commerce Commission, Gainz, Regulation, Sectors

International building materials manufacturers & suppliers Gebr Knauf KG of Germany and USG Corp of the US have sought Commerce Commission clearance for their merger.

Knauf’s products include plasterboard, cement board, metal profiles, plasters & suspended ceilings. In New Zealand, it imports & supplies products used for modular suspended ceilings & insulation.

USG’s products include plasterboard, cement board, plasters & suspended ceilings. USG is active in New Zealand through its 50% interest in USG Boral Building Products, which supplies plasterboard, suspended ceiling components & other building materials.

In addition to the New Zealand clearance, competition authorities in several jurisdictions, including Australia, the US & Singapore, will assess the proposed merger.

Attribution: Commerce Commission release.

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Fletcher Building seeks clearance to acquire Waikato Aggregates

on Friday 30 November 2018 in Commerce Commission, Gainz, Regulation, Sectors

Fletcher Building Ltd has sought Commerce Commission clearance to acquire all the assets & employees of Waikato Aggregates Ltd, including the right to extract & process sand from the Tamahere quarry. However, Waikato Aggregates will maintain ownership of the underlying land of the quarry.

Waikato Aggregates, a privately owned company incorporated in 2011, has 6 local shareholders. It owns & operates a sand quarry at Tamahere, just south of Hamilton, and supplies sand in the Waikato & Bay of Plenty.

Fletcher Building is a customer in those areas and uses the sand to manufacture & supply readymix concrete, concrete blocks & pavers and concrete pipes.

The commission said it would clear the application if satisfied the acquisition won’t lessen competition in a market.

Attribution: Commission release.

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Both sides appeal steel mesh penalty

on Wednesday 21 November 2018 in Commerce Commission, Court, District court, Gainz, Regulation, Sectors, Securities – NZ, Steel & Tube

Steel & Tube Holdings Ltd followed the Commerce Commission back into court yesterday as both filed appeals against a fine imposed last month relating to the company’s steel mesh.

Judge Warren Cathcart fined Steel & Tube $1.885 million in the Auckland District Court on 24 October for breaching the Fair Trading Act by making false & misleading representations about its steel mesh products which are used in construction to provide strength & stability in the event of an earthquake.

Steel & Tube pleaded guilty to 24 charges relating to conduct between 1 March 2012 & 5 April 2016, covering 482 batches & about 480,000 sheets of steel mesh, which Steel & Tube sold for about $24 million.

Judge Cathcart adopted a starting penalty of $2.9 million for the misrepresentations and discounted this to a $1.885 million penalty to reflect Steel & Tube’s guilty pleas, co-operation with the commission & remedial measures.

The commission said it had appealed on the bases that the judge erred by:

  • failing to properly attribute the knowledge of a Steel & Tube manager to the company, and
  • not adequately taking into account the size of Steel & Tube and the potential for it to gain from the conduct.

Steel & Tube said yesterday it had carefully reviewed the decision and believed the fine was excessive. In its statement yesterday, Steel & Tube said that when the judge released his decision it had apologised to its customers, shareholders & staff for the historic breaches of the Fair Trading Act and stressed that the breaches were unintentional.

The company added: “Both the Ministry of Business, Innovation & Employment and the Structural Engineering Society have indicated that homeowners should not be concerned about the safety or ductility of steel mesh in their homes. The Insurance Council also recently reassured homeowners they should not be unduly concerned about insurance claims in respect of homes containing steel mesh from Steel & Tube.”

Earlier story:
24 October 2018: Steel & Tube fined $1.885 million for misleading steel mesh representations

Attribution: Commission & company releases.

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Steel & Tube fined $1.885 million for misleading steel mesh representations

on Thursday 25 October 2018 in Commerce Commission, Gainz, Regulation, Sectors, Securities – NZ, Steel & Tube

Steel & Tube Holdings Ltd was fined $1.885 million in the Auckland District Court yesterday for breaching the Fair Trading Act by making false & misleading representations about its steel mesh products which are used in construction to provide strength & stability in the event of an earthquake.

The Commerce Commission, which brought the prosecution, said this was a record fine for a single company under the Fair Trading Act.

Steel & Tube pleaded guilty to 24 charges relating to conduct between 1 March 2012 & 5 April 2016, covering 482 batches & about 480,000 sheets of steel mesh, which Steel & Tube sold for about $24 million. The offending fell into 2 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/NZ Standard for reinforcing steel, when it was not. Steel & Tube failed to properly age & test the product
  • False & misleading representations on batch test certificates and Steel & Tube’s website claiming the steel mesh had been independently tested, when it had not.

Judge Warren Cathcart adopted a starting penalty of $2.9 million for the misrepresentations and discounted this to a $1.885 million penalty to reflect Steel & Tube’s guilty pleas, co-operation with the commission & remedial measures.

“Grossly negligent”

In his judgment, Judge Cathcart said: “I characterise the culpability of Steel & Tube as grossly negligent…… Senior management ought to have known of the largescale non-compliance over the 4-year charging period.

“The technical manager was not properly supervised. Steel & Tube cannot be permitted to wash their hands of taking responsibility for that negligent oversight….. It was Steel & Tube’s responsibility to have proper systems in place to ensure compliance with the standard. This is particularly so given the significant revenues Steel & 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 doesn’t necessarily mean the product lacks the physical & mechanical properties of earthquake-grade steel mesh.

Judge Cathcart said: “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 & Tube’s conduct therefore strikes at the core foundation of the Fair Trading Act.”

Investigation began 3 years ago

The commission carried out a series of investigations into steel mesh following a complaint in August 2015, and began investigating Steel & Tube in March 2016.

Steel & Tube voluntarily stopped selling its SE62 product on 6 April 2016 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.

Following the commission’s investigations:

  • Fletcher Steel Ltd was issued with a warning
  • United Steel Ltd &d Pacific Steel (NZ) Ltd were issued with compliance advice
  • Timber King Ltd & NZ Steel Distributor Ltd were fined 4400,950 after pleading guilty to 7 charges
  • Brilliance International Ltd was fined $540,000 after pleading guilty to 20 charges.
  • 59 charges against Euro Corp Ltd are still before the court.

Not about performance, but testing & logos, says Steel & Tube

Steel & Tube emphasised after the judge announced the penalty that it didn’t relate to the performance characteristics of the steel mesh, but to the application of testing methodologies & the inadvertent use of a testing laboratory’s logo on the bottom of test certificates.

Chief executive Mark Malpass said the fine wouldn’t impact on Steel & Tube’s financial results in the 2019 financial year.

Mr Malpass also apologised to customers & shareholders, though he said the breaches were unintentional: “We stand by the integrity of our products. In our view, even if our testing methods at the time did not meet the testing requirements in full, the differences in testing would not have a material impact on the performance of the steel mesh.”

The Ministry of Business, Innovation & Employment also indicated homeowners shouldn’t be concerned about the safety of the steel mesh, while the Structural Engineering Society of NZ said homeowners shouldn’t be unnecessarily concerned about the ductility of steel mesh in their houses.

The standard specifies elongation (a performance aspect for seismic mesh) as 10%. Mr Malpass said information Steel & Tube presented to the Commerce Commission & the court indicated that, even if elongation of the mesh was as low as 5%, the impact would be negligible.

Attribution: Judgment, and Commerce Commission, Steel & Tube, MBIE & Structural Engineering Society releases.

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Fletcher gets miffy over Steel & Tube time to get advice, pulls what was only ever a “non-binding & indicative offer”

on Tuesday 16 October 2018 in Commerce Commission, Fletcher Building, Gainz, Regulation, Sectors, Securities – NZ, Steel & Tube

Fletcher Building Ltd dropped its on-the-quiet attempt to buy fellow NZX-listed company Steel & Tube Holdings Ltd yesterday, 3 hours after Steel & Tube told the exchange a revised offer still undervalued it.

Remarkably, Fletcher blamed the Steel & Tube board’s lack of support to “progress the proposal in a timely manner”.

5 weeks after Fletcher’s initial confidential approach, the Steel & Tube board decided it needed expert advice on Friday’s revised offer that would take 3-4 weeks to confirm.

Fletcher said they’d had “ample time”.

Again, as it did with its initial offer, Fletcher focused on the short-term timeframe of Steel & Tube’s share price, ignoring the turnaround process Steel & Tube has begun after a $38 million annual loss.

Fletcher initially began talks confidentially with the Steel & Tube board, and also with major shareholders in the target company, on its 10 September proposal to make a non-binding indicative offer of $1.70/share for the whole of Steel & Tube.

12 days after Steel & Tube disclosed that offer & its rejection to the market, Fletcher came again with a $1.90/share price tag plus a 5c/share dividend, with imputation credits.

This time, Steel & Tube told the market:

  1. Its advisors’ (First NZ Capital Ltd) view on Steel & Tube’s intrinsic value was between $1.95-2.36/share, excluding the company’s share of synergies, and
  2. The permitted dividend doesn’t adequately compensate shareholders for the extended timeframe realistically required to seek regulatory approvals.

The Steel & Tube board said of the new offer:

“The revised offer of $1.90/share implies an enterprise value (EV) of $341 million and is only an 8.5x multiple of our long-term sustainable earnings, assessed as 2021 financial year ebit (earnings before interest & tax) of $40 million. Comparatively, excluding the company’s share of synergies, our advisors’ valuation range is an implied EV of $346-414 million.
“However, Steel & Tube advises that in light of the revised offer the board is commissioning an independent expert report which will take 3-4 weeks, and will further consult its legal & financial advisors about the implications of the revised offer. Fletcher Building has been advised of this.”

Steel & Tube chair Susan Paterson.

Steel & Tube chair Susan Paterson said: “The revised non-binding indicative offer from Fletchers does not prevent higher value approaches from other interested parties. The board will continue to evaluate strategies & actions that deliver the best value to shareholders and is continuing to focus on executing our turn-around strategy.”

In her letter to Fletcher chair Bruce Hassall & chief executive Ross Taylor, Ms Paterson said: “While we understand you may have indications of some support from a couple of our institutional shareholders, the board needs to consider the interests of all shareholders taken as a whole, and the execution risks inherent in the revised non-binding indicative offer.

“Chapman Tripp continues to advise that the proposed acquisition would face challenging issues for clearance under the Commerce Act, due to Fletcher’s vertical presence & significant size in several steel product markets.”

The sulk

Fletcher said in its withdrawal announcement it had pulled its offer “due to lack of support from Steel & Tube’s board to progress the proposal in a timely manner.

“Steel & Tube has announced that it does not support Fletcher Building’s revised proposal, and that it would need a further 3-4 weeks to confirm this view. Fletcher Building has been engaging with Steel & Tube on a proposal for 5 weeks now, which has provided ample time for the board to seek independent valuation advice.

“During that period, Fletcher Building received support for progressing its proposal from major Steel & Tube shareholders Milford Asset Management & Harbour Asset Management.”

Analysing share price movements with a glass eye

Fletcher said its revised proposal “provided a significant premium of more than 50% to Steel & Tube’s pre-announcement 5-day volume-weighted average price”.

Fletcher Building chief executive Ross Taylor.

Fletcher chief executive Ross Taylor said: “Despite offering what we believe was a very attractive offer to Steel & Tube shareholders, our engagement with the Steel & Tube board has been unsuccessful and, as a result, we have withdrawn the acquisition proposal.

“Based on expert advice, Fletcher Building remains confident the transaction would have received Commerce Commission clearance. Steel & Tube’s market share information released on 10 October doesn’t properly take into account the material impact of direct imported products in relevant markets.”

Steel & Tube Holdings Ltd’s share price rose 11c to $1.34 in the 4 days before it revealed Fletcher Building Ltd’s intention to take it over. On 3 October, the day of the announcement, the price rose another 22c, and 3c more the next day to reach $1.59 – a 36% gain in a week.

The price had fallen to $1.15 at the end of August, tumbling from $1.83 in May & $2.06 in January.

Steel & Tube’s share price dropped to $1.48 a week ago and has since been in a 3c band around that price.

Fletcher’s share price hit a short-term peak of $6.58 on 2 October, the day before Steel & Tube revealed the confidential offer. Since then, the Fletcher price has tumbled to $6.10.

Like Steel & Tube, the Fletcher share price has been hit over the last 2 years by revelations of incompetent management & board control.

On 2 February, 12 days before Fletcher announced an extra $486 million of losses by its Building + Interiors division, accompanied by chair Sir Ralph Norris’s decision to resign, its share price hit a 4-month high of $7.61. It bottomed on 4 April at $5.53 and made it back up to $7.13 on 30 July.

The Fletcher share price had been at $10.19 in November 2016. The company had become aware of deep problems within its vertical construction business over that summer, and the price had dropped to $8.73 by 17 March 2017, the Friday before now-departed chief executive Mark Adamson made the first revelation of the extent of Fletcher’s problems.

Link:
Steel & Tube investor updates

Earlier stories:
5 October 2018: The price was moving, the confidentiality remains, and still-weak Fletcher insinuates Steel & Tube takeover “compelling”
13 September 2018: Steel & Tube bookbuild scaled
30 August 2018: Steel & Tube completes books-clearing, future already brighter
22 August 2018: Updated: A loss, but flow of red ink stops at Fletcher Building
7 August 2018: Updated: Steel & Tube seeks $80.9 million from placement & rights issue, updates guidance
1 July 2018: Fletcher Building exits Sims recycling joint venture
22 June 2018: Australia the next big focus for Fletcher, offsite construction an innovation example
23 May 2018: Review puts Steel & Tube ebit loss at $38 million
14 February 2018: Another $486 million of losses for Fletcher Building, and Norris resigns

Attribution: Fletcher and Steel & Tube releases, websites, NZX.

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Fulton Hogan drops Huntly quarry from Stevenson purchase, Commerce Commission happy

on Tuesday 16 October 2018 in Commerce Commission, Drury, Gainz, Infrastructure, Land use, Neighbourhoods, Regulation, Roads, Sectors, South

The Commerce Commission has closed its investigation into roading & infrastructure construction company Fulton Hogan Ltd’s acquisition of Stevenson Group Ltd’s construction materials business, saying its concerns with the transaction have been addressed.

Fulton Hogan agreed to buy Stevenson’s construction materials business in May, intending to take full ownership of Stevenson’s 2 quarries & 4 concrete plants, transport, laboratory services and associated plant & equipment.

Fulton Hogan didn’t seek clearance under the commission’s merger regime, and the commission opened an investigation in June, primarily due to concerns the acquisition could reduce competition for the production & supply of aggregates (granular rocks, gravel or sand typically used in roading & construction) in Auckland & North Waikato. Fulton Hogan & Stevenson both own & operate quarries in Auckland & Huntly.

Commission deputy chair Sue Begg said yesterday Fulton Hogan had since agreed not to acquire Stevenson’s Huntly quarry as part of the transaction and it had now been formally excluded from the purchase.

“The decision to remove the Huntly quarry from the transaction addresses our concerns in this case. We are satisfied that Fulton Hogan’s purchase of Stevenson’s Auckland quarry assets is unlikely to substantially lessen competition, given the presence of other competitors in this market, and we have now closed our investigation.”

Stevenson’s focus has shifted to the development of its Drury quarry & land across to Auckland’s Southern Motorway, where it had 361ha of rural & quarry land rezoned in 2013 for a mix of industrial & business development.

Since then, Kiwi Property Group Ltd has bought 51ha at Drury to create a town centre, and Karaka & Drury Ltd (Charles Ma) has begun work on 2 residential developments at Drury, the first for 68ha and the second for 85ha, set to yield about 2700 homes plus a village centre.

Link:
Commerce Commission case register

Earlier stories:
15 June 2018: Commission opens investigation into Fulton Hogan’s Stevenson acquisition
31 October 2016: Work starts on 3 striking special housing area projects
24 August 2016: Work set to start after fast approval for Auranga special housing area at Drury
30 August 2013: Drury South industrial area plan change & MUL extension approved
10 September 2017: Second round for Auranga precinct confirms Drury as major growth centre

Attribution: Commission & Fulton Hogan releases.

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Updated: Commission takes Vector to court for failing to curtail power outages, and Vector says rules out of date

on Thursday 11 October 2018 in Commerce Commission, Gainz, Regulation, Sectors

Published 10 October 2018, updated 11 October 2018:
The Commerce Commission said it would file civil proceedings in the Auckland High Court on Wednesday seeking financial penalties against electricity lines company Vector Ltd for breaching its network quality standards.

Vector said it was at fault – but believed the regime “no longer reflects reality” (see its response below).

Vector serves over half a million homes & businesses in the greater Auckland region and, as a regulated business, must comply with commission regulations regarding the maximum revenue it can collect and the minimum standards of quality it must deliver. Quality is measured in the duration & frequency of power outages.

The commission said: “As part of its compliance with the regulations, Vector reported that it had breached its quality standards in both the 2015 & 2016 financial years. The commission will file proceedings under the Commerce Act alleging Vector failed to adhere to good industry practice in some aspects of its network management, which resulted in increased outages over that period.

In particular, the commission considers Vector did not meet good industry practice with regard to aspects of its:

  • overall governance of compliance with the quality standards – for example, underestimating the growing risk of non-compliance, and failing to have methods to predict & plan for the effects of increased traffic congestion
  • asset lifecycle management practices
  • approach to managing reliability, such as a consolidated & documented strategic reliability management plan, which would have helped to identify key issues & solution options
  • vegetation management (cutting trees to avoid collisions with power lines), and
  • management & supervision of arrangements with the field service providers whose crews undertake maintenance & fix faults on Vector’s network.

The commission said Vector had co-operated with its investigation and confirmed it wouldn’t contest the proceedings. It has also reported further breaches of its quality standards for 2017 & 2018 that are subject to a separate investigation.

The maximum financial penalty that can be imposed on an electricity lines business for a breach of its price-quality path is $5 million per act or omission. If the court imposes a penalty, section 87A of the Commerce Act allows the commission, or any person who has suffered loss or damage as a result of the breach, to bring a further claim for compensation against the electricity lines company within 12 months of the penalty.

Vector admits erring, but says regime “no longer reflects reality”

Vector acknowledged yesterday it was agreeing to a settlement with the Commerce Commission, following breaches of an electricity network quality standard in 2015 & 2016.

The company said details of the settlement would be heard at a penalty hearing to take place “in due course”.

The company’s chief network officer, Andre Botha, added that Vector believed the quality control regime “no longer reflects reality”.

Like other lines companies, Vector’s prices and service quality are regulated by the Commission using a price-quality path, which means Vector is required to meet certain network quality standards, relative to its own historical performance, and is limited in the amount of revenue it can earn.

Vector’s chief network officer, Andre Botha, said one of the Commerce Commission’s quality standards was the average duration in minutes of network interruptions. The commission found Vector breached this quality standard by 51 minutes in the 2015 regulatory year and 13 minutes in the 2016 regulatory year.

“Vector has noted to the commission the circumstances that it believes contributed to its breach of the service quality standards in 2015 & 2016. These conditions included increased storm frequency & other weather-related impacts, increases in Auckland’s traffic congestion, which have slowed travel times and can prevent maintenance crews from reaching network faults in a timely fashion, and Vector’s decision to prioritise safety of its people by introducing a best-practice policy to avoid working on live lines wherever possible, which can lead to extended outages.

“We understand the disruption these breaches have caused for some Aucklanders and we have been working hard on a range of measures to reduce the impact. However, we also believe the existing regime for quality control no longer reflects the reality of the changed operating environment, particularly in Auckland, and meeting these legacy quality standards will remain a significant challenge for ourselves & others in the industry.

“It is pleasing that we have been able to table these concerns with the Commerce Commission directly and we will continue to work constructively with them to determine new quality standards that will take effect on 1 April 2020 following the next regulatory reset process.”

Attribution: Commission & Vector releases.

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Steel mesh supplier Brilliance fined for misleading representations

on Monday 20 August 2018 in Commerce Commission, Court, District court, Gainz, Regulation, Sectors

Auckland District Court Judge Robert Ronayne has fined Brilliance International Ltd (Wu Guanghui & Wu Donghui, both of Dannemora, Auckland) $540,000 for making false & misleading representations relating to its steel mesh products which are used to earthquake-strengthen buildings.

Following the judge’s decision, released on Friday, class action legal specialist Adina Thorn encouraged Brilliance steel mesh customers to join a proposed class action against several companies that have supplied non-compliant steel mesh product.

Judge Ronayne sentenced Brilliance on 20 charges brought by the Commerce Commission under the Fair Trading Act. Brilliance pleaded guilty to making false & misleading representations for its 147E steel mesh product, which it marketed & sold as being earthquake grade ‘500E’ steel mesh, between 30 September 2012 & June 2016.

11 charges were for making representations on the Brilliance website that were liable to mislead the public and on product tags that its 147E steel mesh complied with the Australian/NZ Standard for reinforcing steel suitable for structural use in an earthquake zone, when it did not comply.

The other 9 charges related to false & misleading representations on Brilliance’s website that the product had been tested by independent testing laboratory SGS NZ, when it had not. The charges relate to about 35 batches of 147E steel mesh, or 56,125 sheets.

Commission says non-compliance undermines NZ Building Code & Standards

Commerce Commission chair Dr Mark Berry said in response to the judgment: “The safety & durability of New Zealand’s buildings depend on them being constructed with materials that comply with the relevant standards. False & misleading representations about building products are a priority for the commission because compliance with standards is critical to both public confidence & safety,”

Judge Ronayne said in his judgment: “It is self-evident that standards are fundamentally important. The defendants’ conduct… plainly undermined the NZ Building Code & the objectives of NZ Standards in general.

“The defendant’s conduct is highly culpable because its behaviour has left consumers in a position of uncertainty, because it cannot now be known whether all of the [steel mesh] complied. This position of uncertainty is what the free trade agreement and the standard seek to avoid.”

Steel mesh cases

The commission filed charges against a number of companies relating to false & misleading representations about 500E steel mesh. In 500E, the ‘E’ stands for earthquake and the standard specifies strength & ductility (elasticity) requirements for steel reinforcing materials. The standard also specifies the procedures (ie, sampling & testing) that must be followed to produce steel of the specified standard, including:

  • manufacturing methods that must be used by steel manufacturers
  • chemical, mechanical & dimensional requirements of mesh
  • sampling & testing of every batch of mesh
  • identification & 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. The Ministry of Business, Innovation & Employment (MBIE) is the building regulator, and sets & enforces the standards & Building Code. The commission can investigate misleading or deceptive claims about compliance with the standard.

Investigations began in 2015

The commission has carried out a series of investigations into steel mesh following a complaint in August 2015. Following its investigations:

Links:
Commerce Commission case register, Brilliance Steel decision
Steel mesh class action

Earlier stories:
27 July 2018: Lawyer says interest in class action grows as steel mesh sentence awaited
26 April 2018: First companies sentenced arising from steel mesh investigation
29 November 2017: Steel & Tube owns up to mesh label & testing guilty pleas
8 June 2017: Updated: Commission files 29 charges against Steel & Tube over mesh
2 November 2016: Steel mesh testing rules tightened
25 April 2016: Commission lifts ‘stop’ on Euro Corp steel mesh
8 April 2016: Steel & Tube undertakes dual mesh testing
5 March 2016: Suppliers recheck as commission questions steel mesh, ministry not worried

Attribution: Decision, commission release, Thorn release.

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