Trouble at the mill

The Commerce Commission is bringing criminal charges against forest products company Carter Holt Harvey and a number of its senior managers, alleging they sold timber for construction that was weaker than claimed.

Industry sources estimated up to $250 million worth of the premium MGP10 grade timber was sold by Carter Holt nationwide between 1999 and November 2003, through timber merchants such as ITM and Mitre 10.

While the timber was typically used in roof trusses, window lintels and floor joists, leading industry players said they did not believe any safety issues arose from the use of weaker timber. The commission was expected to file charges under the Fair Trading Act within weeks, against the company and six of its present or former managers. Under the act, individuals could be fined up to $60,000 for each offence, and the company $200,000 for each offence, but it is still not clear how many charges the regulator may bring. The court could also order a number of other remedies, such as a refund for customers or a repair of faulty goods.

The charges follow an investigation of nearly 2 1/2 years - and a raid by the commission on Carter Holt's sawmills at Eves Valley, Putaruru and Kopu in October 2003.

Yesterday, the commission alleged a number of senior managers at Carter Holt - New Zealand's seventh-largest listed company based on the value of its shares - were parties to the misrepresentation.

"Carter Holt Harvey made false and misleading representations that construction timber Carter Holt Harvey sold was of a particular specification, MGP10, when it was not," it said in a statement. It said it would not name the managers so that they could seek legal advice.

The company said it was "surprised and disappointed" by the decision to bring charges. Carter Holt Harvey general counsel Nicolas Short said that the relevant timber grading standard was unclear in a number of respects. "For this reason, there is room for differing opinions as to whether the criteria [for MGP10] are satisfied. We consider that any breach is technical in nature."

He said Carter Holt had been trying to discuss the issue with the commission for 18 months and had received indications it would get an opportunity to meet the commission before charges were laid.

The company would "vigorously defend" the charges, he said. Chief executive Peter Springford would not comment.

Carter Holt has previously acknowledged MGP10 grade timber sold under the Laserframe brand had not always complied with grade characteristics.

It regraded the product under a different standard, as F5 grade timber, in November 2003.

While industry sources believed between $200 million and $250 million of MGP10 was sold during the four-year period, they were divided on whether anyone suffered losses as a result of the alleged deception.

ITM chief executive Gordon Buswell said MGP10 would largely have been marketed as a generic, rather than premium, product and where the extra elasticity implied by the grading would have been important, it was sold to big customers, who received discounted prices.

"I don't believe there was ever a premium for the product."

Another industry source said the allegations posed a question of economic deception.

"Defining who has borne that loss is difficult, builders, framers and trussers, merchants - or [Carter Holt's] competitors. They will be aggrieved because people do sell wood at separate qualities."

But most agreed there were no safety issues.

Wayne Coffey, chief executive of the Timber Industry Federation, said while for select structural uses F5 might not have been used where MGP10 would have been, the amount of tolerance built into the grade meant the federation did not believe there were any safety issues.

The Frame and Truss Manufacturers Association said it had received no complaints about MGP10, as did ITM's Buswell.

"Most of the timber that was sold through stores in New Zealand was sold in applications where F5 would have been more than adequate," he said.

"The areas where MGP10 is most required is in the frame and truss industry, and most frame and truss operations have secondary grading operations.

"If timber is unsuitable they will grade it down."

ITM had surveyed its own 26 framing and trussing plants. None had reported any problems, he said.

"We're very comfortable that it was appropriate for the use."

A spokesman for Carter Holt said international quality auditors Bureau Veritas had audited the quality assurance programme for the Laserframe brand and had, in late 2003, confirmed the company's view that there was no safety issue.

The issue is an embarrassment for former Carter Holt chief executive Chris Liddell, however.

Liddell became chief executive in 1999, the year the misrepresentation is alleged to have begun.

Earlier this week, he was appointed chief financial officer for global software giant Microsoft, a position he is due to take up on May 9.

A spokesman said "he is not involved, hasn't been charged, and nor is there any suggestion he is likely to be".

Liddell believed Carter Holt had responded appropriately and had "full faith" in the management team, his spokesman said.

Analysts and investors played down the potential effects of the commission's actions on Carter Holt itself.

BNZ Investment Management fund manager Reg Montgomery told Bloomberg it affected only a tiny part of Carter's business.

"I wouldn't think it means anything for the company," he said.

One analyst said even if the company was forced to pay the fines they would be unlikely to be material to such a large company.

Carter Holt's share price closed down 2c at $1.86 yesterday.