Consumer Update – 25 October 2018
Steel & Tube Holdings Limited (Steel & Tube) has been fined $1.885 million for breaching the Fair Trading Act by making false and misleading representations about its steel mesh products. This is the largest fine under the Fair Trading Act for a single company to date and provides a clear signal how seriously the courts are taking such conduct. It also demonstrates the impact of the increase in penalties in 2013.
Two important points arising from the decision are that:
- the record fine was imposed despite Steel & Tube pleading guilty, cooperating with the Commission and undertaking remedial measures. These are usually important mitigating factors at sentencing and reduce the starting point of any penalty (which was $2.9 million in this case), so it is only a matter of time before Fair Trading Act fines exceed $2 million; and
- in his decision, Judge Cathcart noted that "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 & Tube cannot be permitted to wash their hands of taking responsibility for that negligent oversight". This is a stark reminder to senior management that they cannot simply delogate responsibility for employees' actions or compliance with the laws and standards, including the Fair Trading Act.
By way of background, the Commission took over two and a half years to investigate Steel & Tube. This led to Steel & Tube pleading guilty to 24 charges under the Fair Trading Act for conduct between March 2012 and April 2016. The charges cover approximately $24 million worth of sales of steel sheet products used in construction to provide strength and stability in the event of an earthquake.
Steel & Tube made representations across a range of collateral (including on batch tags, batch certificates, advertising collateral and its website), which were considered to be false and misleading. These fell broadly within two categories:
- firstly, Steel & Tube made representations that its SE62 steel mesh was 500E1 grade steel mesh meeting the Australia/New Zealand Standard for reinforcing steel (Standard), when it was not. Steel & Tube failed to properly age and test the product; and
- secondly, Steel & Tube made representations that the steel mesh had been independently tested when it had not.
The Standard specifies the strength and ductility requirements for steel reinforcing materials in 500E products. It also specifies the procedures that must be followed to produce steel of the specified standard (such as the manufacturing methods, sampling and testing, and identification and labelling requirements). Only mesh that is produced in accordance with the Standard can be sold in New Zealand as 500E grade steel.
The decision acts as a stern reminder and warning for senior management. In his judgment, Judge Cathcart characterised the culpability of Steel and Tube as "grossly negligent", and emphasised the failure of senior management to take necessary action and have appropriate systems in place. This is particularly the case for senior management in companies that rely heavily on representations made for marketing and sales purposes. Both the Court and the Commission (in its subsequent media release) recognised the importance of senior management:
- supervising the actions of their employees; and
- putting in place proper systems and adequate procedures to ensure compliance with the relevant standards.
If you have any questions as to how this judgment may impact your business or compliance with the Fair Trading Act, please contact one of the authors below.