Carter Holt Harvey fined $900,000 for falsely labelling timber

In a case the Commission considers one of its most serious prosecutions to date, Carter Holt Harvey has pleaded guilty to breaching the Fair Trading Act by selling timber that did not meet the grade claimed on packaging.

The company was fined $900,000 for 20 breaches of the Fair Trading Act. The Commission is also prosecuting six former or current Carter Holt Harvey employees, and is considering further civil proceedings to seek compensation.

Judge Bouchier in the Auckland District Court found that between July 2001 and November 2003 Carter Holt Harvey sold timber labelled as MGP10 when it knew the timber did not consistently meet that grade.

MGP10 is a high-strength timber used for trusses and framing in homes and buildings. It was marketed by Carter Holt Harvey as a superior and premium product.

It is estimated that around 20,000 new houses were built with Laserframe MGP10 supplied by Carter Holt Harvey during the period. Carter Holt Harvey's MGP10 sales in the period were approximately $63.4 million annually.

The Commission investigated after concerns were raised by the New Zealand Timber Industry Federation. After testing the timber and finding some did not make the grade, the Commission searched the company's premises and seized documents proving Carter Holt Harvey had known about the problem since 2001.

"The Commission considers that this is one of the most important and most serious Fair Trading cases we have dealt with," says Commerce Commission Chair Paula Rebstock.

"It is very concerning that a large corporation like Carter Holt Harvey would choose to deliberately mislead its customers."

"Carter Holt Harvey's own internal report shows that since 2001 the company knew its timber was not consistently meeting the grade, yet they continued to sell it as high-grade MGP10," says Paula Rebstock.

"They took the view that to do otherwise would be 'financial suicide' - that is what their internal documents reveal."

Ms Rebstock said the Commission had been advised that use of the timber was not likely to lead to any safety issues.

"The Commission has been advised that houses built with the timber may suffer performance defects such as deflections in the roof and squeaky floors," says Ms Rebstock.

The New Zealand Timber Industry Federation contacted the Commerce Commission in October 2002 to say it had research results that showed Carter Holt Harvey's timber was not consistently meeting the MGP10 grade.

In May 2003 the Commission tested three packets of the timber and confirmed that, on average, it was not meeting the MGP10 standard. It then searched the company's mills at Thames, Putararu and Nelson, and seized documents which proved the company had known about the problem since 2001.

Background

Carter Holt Harvey

is described on its company website as "Australasia's leading forest products company, with significant interests in wood products, pulp, paper and packaging, supported by forests."

Timber grading.

Timber can be structurally graded in a number of ways, including visual stress grading and machine stress grading. Visual grading involves a trained grader examining each piece of timber. Machine stress grading involves a machine bending each piece of timber to measure its stiffness.

MGP10.

In the process of machine stress grading of timber, the machine bends each piece of timber and is able to measure the elasticity of each piece. There is a limited correlation between elasticity and strength. Elasticity is measured in terms of the pascal which is a unit of pressure. For large values figures are often quoted in megapascals or gigapascals. Machine stress graders measure the elasticity of the timber. MGP10 stands for Machine Graded Pine of a 10 gigapascal grade. It is a premium grade that may be used in the construction of frames and roof trusses.

Value of MGP10 sales.

Carter Holt Harvey's machine stress graded MGP10 sales in the period July 2000 to November 2003 were approximately $63.4 million annually. Between August 2001 and November 2003, CHH reported net sales revenue of approximately $162.1 m from sales of MGP10 timber.

Consequences of using incorrectly graded timber.

The grade of timber may affect the design of a structural component of a building. Use of incorrectly graded timber in a roof truss could, for example, cause sagging or deflection. Many houses are designed using computer assisted design software. The grade of timber is entered into the software and the resulting design depends on the timber grade to be used. Although houses are "over engineered" so that surplus wood is used to ensure structural integrity, by using a lower grade of wood when a design calls for MGP10, those built-in safety margins are reduced. It is highly unlikely that using the non-MGP10 timber that was sold as MGP10 would cause failure of any particular house component, but the house may suffer performance defects such as deflections in the roof and squeaky floors.