New Zealand Law Society - Steel firm hit with record fine for misleading representations

Steel firm hit with record fine for misleading representations

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Steel & Tube Holdings has been fined a record $1.88 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 largest fine to date under the Fair Trading Act for a single company.

The Commerce Commission says Judge Cathcart sentenced Steel & Tube in the Auckland District Court 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 $1.88 million to reflect Steel & Tube’s guilty pleas, cooperation with the Commission and remedial measures.

The Commission reports that, in his judgment, Judge Cathcart said: “I characterise the culpability of Steel & 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 & 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 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 & Tube’s conduct therefore strikes at the core foundation of the FTA [Fair Trading Act],” added 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 today demonstrates that this is unacceptable and high-risk conduct that undermines the confidence of the public in construction products being sold into the market.”

The previous highest fine under the Act was $1.08 million for Reckitt Benckiser in February 2017 for misleading claims about their Nurofen specific pain range.