Company executive fined for Fair Trading breach

Press Release – Commerce Commission

The former managing director of a timber company that has gone into liquidation has pleaded guilty to 36 charges of breaching the Fair Trading Act in relation to misleading timber retailers and consumers about the characteristics of timber frames and roof …Company executive fined for Fair Trading Act breach

The former managing director of a timber company that has gone into liquidation has pleaded guilty to 36 charges of breaching the Fair Trading Act in relation to misleading timber retailers and consumers about the characteristics of timber frames and roof trusses. He has been fined a total of $15,000 and has been ordered to pay costs of $130 in the Auckland District Court on 28 April 2010.

Larry Roger Binns was the managing director of Total Frame and Truss Limited, a west Auckland-based company, which supplied computer-designed prefabricated timber wall frames and roof trusses to hardware retailers, independent building companies and contractors throughout New Zealand and particularly in the greater Auckland area.

The charges relate to a period between April 2007 and October 2008 and allege that Total Frame and Truss represented to its customers that the frames and trusses had been manufactured using MSG8 timber. MSG8 is a premium grade of timber that has been machine stress graded and is suitable for building frames. However, at the direction of Mr Binns, the majority of the timber used was a lower grade, known as either non-load bearing or ‘reman’ timber, which does not have the required characteristics of MSG8 timber.

The Commerce Commission commenced an investigation after receiving a complaint from the Department of Building and Housing. A Department of Building and Housing’s investigation was triggered when a building inspector noticed that timber used in a frame was different to that stated on the specifications.

“All businesses must ensure that the claims made about goods and services are accurate and not misleading. This is of particular importance where claims are not able to be easily verified by an ordinary consumer. It would not have been possible for a consumer to know whether frames and trusses were manufactured using MSG8 timber by looking at a completed product. Reliance was placed on the documentation supplied by Total Frame and Truss. Consumers and other retail businesses alike should have been able to trust the information they received about their frames and trusses,” said Greg Allan, Commerce Commission Fair Trading Manager, Wellington.

The Commission estimates that around 4,000 structures such as houses, garages and new extensions around New Zealand, in particular in the greater Auckland area, were built using frames and trusses supplied by Total Frame and Truss. The Commission has received expert advice that while there is no risk of the frames or trusses failing, there is a possibility that some frames may bend under extreme conditions.

As Total Frame and Truss is in liquidation, many of the businesses that the frames and trusses were manufactured for have taken responsibility for the assessment, repair and maintenance costs associated with buildings where the frames and trusses were used.

“These businesses are to be commended for the responsible approach they have taken to this issue, which was not of their making. They, as well as the consumers, are victims of Mr Binns’ offending,” said Mr Allan.

“This case highlights the fact that, even when a company is in liquidation, if the Fair Trading Act has been breached, company executives can be held to be liable under the Fair Trading Act and may face prosecution. Senior management should ensure that they are familiar with and comply with all relevant legislative requirements. Failure to do so can not only have serious consequences for their companies, but for them personally,” said Mr Allan.

Background
Total Frame and Truss Limited was established in 2006. The company went into voluntary liquidation in April 2009.

Fair Trading Act
Breaches of the Fair Trading Act may result in prosecution in court. Companies found guilty of breaching provisions of the Fair Trading Act may be fined up to $200,000 for each charge. Where more than one charge is laid, the court may impose a fine greater than $200,000. Only the courts can decide if a representation has breached the Fair Trading Act.

Section 13 states:
No person shall, in trade, in connection with the supply or possible supply of goods or services or with the promotion by any means of the supply or use of goods or services,—
(a)(make a false or misleading representation) that goods are of a particular kind, standard, quality, grade, quantity, composition, style, or model, or have had a particular history or particular previous use.

The Commission has developed a set of resources to assist businesses comply with the Fair Trading Act. The resources include a check sheet for marketing claims and can be downloaded free of charge from the Commission’s website at www.comcom.govt.nz/developing-a-fair-trading-compliance-programme/
Timber grades. Timber is graded for the purpose of sorting timber into groups that have similar appearance or structural properties. Once timber has been sorted into its group it is specified by a grade, which implies properties and certain characteristics.

Timber can also be structurally graded and sorted into groups of stress grades. Structural grading can be carried out in a number of ways, including visual stress grading and machine stress grading.

MSG8 is machine graded timber that has an average stiffness of at least 8 gigapascals. Timber meeting the MSG8 grade is marked black. MSG8 is a premium grade that is suitable for use in frames and trusses. A truss is a structure using triangle shapes to give shape and strength to house roofs and buildings.

During the stress grading machine process, the timber which fails to achieve the grade requirements is marked as a non-structural grade. Some timber mills call this timber non-load bearing (NLB) while other mills call it ‘reman’. Neither NLB nor reman is permitted to be used as a substitute for MSG8 timber unless it is re-graded by a formal process of re-grading, undertaken in accordance with the relevant timber Standard.

NLB will have a red horizontal spray paint marking down the stick of timber, where the properties of the timber at that point are lower than that identified from MSG8 grade. NLB will have a solid red paint mark at right angles to the stick of timber. Reman will have a grey spray paint marking at the end of the timber.

Standard NZS3622:2004 (Verification of Timber Properties) came into effect on 1 April 2007. The objective of the new standard was to specify requirements for the manufacture, structural characteristics, and evaluation and monitoring of stress graded sawn timber. The new verification and independent auditing process for structural timber then became a Code of Compliance requirement in terms of the Building Act 2004.

The Standard NZS3622:2004 process for grading machine stress graded timber is:

Timber is passed through a stress grading machine to determine the grade that reflects the strength and stiffness.
Results of this grading are then verified by physical testing on a statistical basis to ensure the stress grading machine is calibrated correctly.
The stress grading and the static testing process is then independently audited.
ENDS

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