2 related companies, Timber King Ltd & NZ Steel Distributor Ltd, have been fined $400,950 for making false & misleading representations relating to their steel mesh products, which are used to strengthen buildings. NZ Steel Distributor imports steel from China and Timber King was the retailer.
They’re the first companies sentenced after Commerce Commission investigations into steel mesh sales, which began after the commission received a complaint from a Timber King customer in August 2015.
Auckland District Court judge Robert Ronayne heard the case in December and handed down his decision on Tuesday, fining Timber King on 5 charges and NZ Steel Distributor on 2 charges under the Fair Trading Act. The 2 companies pleaded guilty to making false, misleading & unsubstantiated representations relating to their TS10 steel mesh between June 2015 & February 2016.
From a starting point of $660,000, Judge Ronayne reduced the penalties by 10% for co-operation and 25% for early guilty pleas, and another 10% for claimed inability to pay a fine that big, although the judge was sceptical about the audit & accounting evidence provided to him.
Judge Ronayne said the customer above bought 3 sheets of TS10 steel mesh from Timber King, noted the mesh had no tags and asked for a copy of the test certificate demonstrating compliance with the standard. After he received a photograph of a batch tag, the customer sought further verification of compliance. In reply, Timber King sent the customer a certificate on the letterhead of external building product testing laboratory SGS NZ Ltd.
Judge Ronayne: “As a result of further enquiries, it was revealed that the certificate was fake and had not been produced by SGS. SGS had not carried out testing of the mesh to determine compliance with the standard. Instead, the certificate had been created by an employee of Timber King using a genuine SGS test certificate that had been obtained in relation to testing of a different product and altering it so that it appeared to show that TS10 had been tested & found to comply.”
Jackie Liu is a director of both companies and, Judge Ronayne said, was for all intents & purposes the controlling mind of both companies. He owns 75% of the shares in Steel Distributor and effectively controls a 55% holding in Timber King through holding companies, Three Brothers Group Ltd & NZ Liu Family Trustees Ltd. He’s sole director of both.
Ringo Liu is also a director of both Timber King & Steel Distributor. He owns 25% of the shares in Steel Distributor and effectively controls a 45% holding in Timber King through Three Brothers.
This in a quake-prone country?
Judge Ronayne said: “It is quite obvious in New Zealand, given our history of earthquakes & the consequences of them, that there is a vital need for consumers to rely on representations as to standard compliance and, in particular, earthquake standard compliance.”
He concluded that the companies were “grossly negligent” in the steps they took to ensure that the product complied with the standard: “The creation of the fake certificate can only have been deliberately carried out in order to provide an additional false assurance of compliance with the standard.
“The use of non-compliant steel mesh, especially in the context of earthquake compliant mesh, has actual & potentially enormous consequences for consumers, for competitors and for the reputation of the building industry. Very strong specific & general deterrence is required in these circumstances.”
Mesh went into 32 homes
Timber King sold 2600 sheets of TS10 over a 9-month period, of which 614 are known to have failed both aspects of the standard and the others to have failed its testing requirements. Judge Ronayne said it appeared the 614 sheets went into the ground slabs for 31 homes and a suspended concrete floor of another home: “5 homes were considered to be high risk, 24 medium risk & 3 low risk. The 5 high risk homes were then referred to an engineer who considered one of them to be ‘of concern’. Obviously, this exercise has not been without cost.”
The judge added: “The misleading conduct appears to have been carried out with a focus to remain competitive in the market. It can therefore be assumed that this gave an unfair competitive advantage over compliant competitors.”
The Commerce Commission has 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 NZ Standard specifies strength & ductility (elasticity) requirements for steel reinforcing materials. The standard also specifies the procedures (ie, sampling & testing) that must be followed to comply including:
- manufacturing methods that must be used by steel manufacturers
- chemical, mechanical & dimensional requirements of mesh sampling & testing of each batch of mesh, and
- 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 is the building regulator, and sets & enforces the standards & 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 the complaint in August 2015. Following its investigations:
- Fletcher Steel Ltd was issued with a warning
- United Steel Ltd & Pacific Steel (NZ) Ltd were issued with compliance advice
- Brilliance Steel Ltd pleaded guilty to 20 charges and will be sentenced on 25 May
- Steel & Tube Holdings Ltd pleaded guilty to 24 charges and is awaiting sentencing
- The commission filed 59 charges against Euro Corp Ltd in December 2017.
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
8 April 2016: Steel & Tube undertakes dual mesh testing
5 March 2016: Suppliers recheck as commission questions steel mesh, ministry not worried
25 April 2016: Commission lifts ‘stop’ on Euro Corp steel mesh
Attribution: Judgment, commission release.