25 Oct 2018

Steel & Tube says its conduct was 'unintentional' after record fine

7:58 am on 25 October 2018

Steel and Tube is insisting it never knowingly broke the law, even after copping the single biggest fine ever for misleading customers.

Steel mesh, concrete

Photo: 123RF

Its insistence is also despite the judge saying what the $220 million listed company did strikes "at the core foundation" of legal protection for consumers.

Whether the seismic steel mesh Steel and Tube sold was up to scratch, Judge Warren Cathcart said during his ruling yesterday, remains unanswerable.

It was the culmination of a three-year saga that exposed deep shortcomings in building product quality policing in New Zealand.

Over a four-year period, until early 2016, 480,000 sheets of the mesh were bought.

Those sales were worth $24m to the company.

It was the Canterbury quakes that spurred the demand for the higher standard of mesh as people were wanting to strengthen their concrete house floors with mesh to make them less likely to crack in a quake.

Steel and Tube cashed in on that demand but with a product that wasn't as advertised.

Judge Cathcart described the behaviour as "grossly negligent" and said it "strikes at the core foundation of the Fair Trading Act".

Steel and Tube chief executive Mark Malpass responded in a statement to the Stock Exchange that its conduct was "inadvertent" and "unintentional", and that these were "historical issues" - though the company did apologise to customers.

Mr Malpass and his company's new chair Susan Paterson would not talk to RNZ.

"I characterise the culpability of Steel and Tube as grossly negligent," the judge said, especially given the "significant revenues" it got from the sales which were shored up by it claiming its mesh was up to standard.

"The lack of robust procedures would have been self-evident even if basic enquiries had been made."

When RNZ made those enquiries, in early 2016, Steel and Tube's mesh test certificates displayed the logo of an independent lab and had a lab manager's signature.

However, Steel and Tube were not using this lab, or any lab, and the lab manager was actually a Steel and Tube manager in its factory, where the testing was being done.

The judge said the senior management ought to have known of the large scale non-compliance and that the technical manager was not properly supervised.

The managers "cannot be permitted to wash their hands of taking responsibility for that negligent oversight", Judge Cathcart said in fining the firm a record $1.9m, almost double the next highest such fine under the Fair Trading Act.

Prosecutors had sought a fine between $2.7m and $3.3m.

Mr Malpass, echoing what his predecessor Dave Taylor repeatedly told RNZ in statements in 2016, said that what went on "does not relate to the performance characteristics of the steel mesh".

In tests ordered by the Commerce Commission in May 2016, Steel and Tube's mesh returned substandard results for stretchability (ductility), alongside other companies' mesh that also failed.

Steel and Tube once again was quick to point out that, at the time, government officials and engineers had said people shouldn't worry about the mesh, that there was no safety risk.

But Judge Cathcart said the whole point of having the standard, which Steel and Tube breached, was to avoid the "mischief" of customers never knowing just how safe or sound a product really was.

"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."

A timeline of steel mesh:

  • August 2015 - The Commerce Commission received a complaint about the validity of claims made by three companies selling 500E steel mesh in New Zealand.
  • March 2016 - Brilliance Steel and Euro Corporation agree to stop selling some steel mesh while the Commerce Commission investigates concerns they may not be up to standard.
  • March 2016 - RNZ reports Steel and Tube has been selling critical earthquake-reinforcing mesh wrongly certified as tested by a top laboratory.
  • March 2016 - Steel and Tube says that it does not have a laboratory for testing its reinforcing mesh despite test certificates being signed off by a 'laboratory manager'.
  • March 2016 - Steel and Tube's products are expected to be among those tested as part of a wider investigation into failures with seismic mesh, the Ministry of Building Innovation and Employment (MBIE) says.
  • March 2016 - RNZ uncovers an initial test of Steel and Tube seismic mesh revealed it does not meet a key measure of strength.
  • April and May 2016 - The Commerce Commission enters into 'enforceable undertakings' with three companies to ensure 500E steel grade mesh can only be used once it has passed stringent testing.
  • April 2016 - Steel and Tube puts a hold on supplying its seismic reinforcing mesh and tells building stores not to sell already in stock. Test results received by the Commerce Commission show a Steel and Tube mesh sample did not meet the standard. The tests alone did not prove the mesh was non-compliant with the Building Code and the commission was seeking more information from the company.
  • April 2016 - The Commerce Commission reveals it is testing the steel mesh of the country's leading mesh maker, United Steel. United's mesh passes. Builders warn costs could go up and construction of houses may be delayed due to disruption in the market.
  • April 2016 - Fletcher Distribution's mesh passed tests by the Commerce Commission. Building regulators are checking how much Steel and Tube seismic reinforcing mesh has been used in commercial or multi-storey buildings, as wire rod maker Pacific Steel denies a conflict of interest over testing. MBIE says it's not yet clear how many buildings the mesh has been used in, but the buildings will be assessed on a case-by-case basis once it knows.
  • April 2016 - Building and Housing Minister Nick Smith orders MBIE to look beyond mesh to other products deemed to be critical to a building's safety.
  • April 2016 - Steel and Tube and Euro Corp are permitted back into the seismic reinforcing mesh market but must get each batch of mesh independently tested and show the results to the Commerce Commission.
  • May 2016 - Tests by the Commerce Commission showed the sheets of mesh from three out of five companies failed in almost all cases to reach the required standard of 10 percent ductility, or stretchability. Sheets from Euro Corp scored just 1.7, 3 and 4.5 percent, while Steel and Tube had a run of three sheets with an average score of under 6.5 percent. Mesh from Brilliance Steel recorded slightly higher test results, but still not above the 10 percent.
  • August 2016 - The government calls for submissions on proposed changes to the Building Code to strengthen steel mesh.
  • August 2016 - A book-building is launched in Auckland, backed by a London law firm, in an attempt to take a class action against steel mesh makers and distributors, including Steel and Tube in New Zealand. Major UK insurers say the steel mesh in tens of thousands of New Zealand homes could compromise their insurance.
  • November 2016 - The government makes changes to testing requirements, increasing the number of samples which need to be tested, clarifying how testing is done and requiring testing be done by internationally accredited testing laboratories.
  • September 2017 - Steel and Tube boss Dave Taylor steps down.
  • June 2018 - MBIE announces another review of building product quality controls, similar to what Nick Smith announced in April 2016 amid the mesh mess.

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