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.
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.