23.11.2020

Court of Appeal cuts fine for Steel & Tube’s breaches of the Fair Trading Act 

The Court of Appeal in Commerce Commission v Steel & Tube Holdings Limited [2020] NZCA 549 has set aside last year’s High Court decision under the Fair Trading Act 1986 (FTA) where it imposed a (record-high) fine of $2 million on NZX-listed Steel & Tube Holdings Limited (Steel & Tube). 

Steel & Tube pleaded guilty to FTA charges brought by the Commerce Commission after falsely representing that seismic-mesh had been tested according to the required standards for seismic grade quality (the Standard) when in fact, independent testing of the mesh had ended in 2011.  Steel & Tube sold approximately 480,000 sheets of mesh that it represented as being compliant with the Standard between 2012 – 2016.

The High Court characterised Steel & Tube’s omission as “gross carelessness” which weighed in favour of a starting point of $3.8 million.  On the High Court’s analysis, the starting point for FTA penalties should be determined with adjustments to be made to take into account specific additional aggravating or mitigating factors.  Having applied this approach, the High Court increased the District Court fine from $1.9 million to $2 million. 

The Court of Appeal agreed that the offending was serious because of “the vital importance of compliance with the [S]tandard, the absence of any adequate excuse, and the large scale and long duration of the offending”.  However, it found that the High Court sentence was “manifestly excessive” in the circumstances. 

The Court of Appeal placed relatively more weight on the fact that Steel & Tube did not intend to mislead and deceive; it believed the mesh did comply and that its testing processes were equivalent or superior to the Standard.  Steel & Tube also withdrew the mesh from the market as soon as it was put on notice that its testing processes did not comply. 

The Court of Appeal consequently adopted a lower starting point of $2.4 million taking into account all aggravating and mitigating features of Steel & Tube’s offending.  The penalty was distributed among the FTA charges as a proportion of the maximum penalty, totalling fines of $1.56 million.    

Despite the fact the fine payable was reduced by $449,280, the Steel & Tube saga serves as a reminder to all businesses that when it comes to strict liability offences under the FTA, being able to demonstrate an active approach to compliance is important to mitigating exposure to substantial penalties.  It is essential that there is continuous monitoring of representations made, and robust systems in place to ensure compliance.

If you have any questions about Fair Trading Act 1986 compliance, please get in touch with our Disputes or Business Advice teams or your usual contact at Hesketh Henry.

 

Disclaimer:  The information contained in this article is current at the date of publishing and is of a general nature.  It should be used as a guide only and not as a substitute for obtaining legal advice.  Specific legal advice should be sought where required.

 

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