2004, No.7

  John Ingram
» FORUM: Hypothetical
Who really runs the country?
··ASBESTOS WOES
··ETHICAL AND SOUND INVESTMENT
··CEOS WITH THE COMMUNITY
··MITSUBISHI APOLOGIZES FOR COVER-UPS
··FORMER ENRON CEO TO BE CHARGED
··"BECAUSE I COULD..."
Asbestos business
Dr. John Sweeney
  • 1926. "A sick asbestos worker filed the first successful claim for compensation to the Massachusetts Industrial Accidents Board. Over the following three years several hundred further claims were filed." (WORKSAFE)
  • 1987. James Hardie Industries suspend asbestos related production.
  • August, 1999. James Hardie Industries Limited (JHIL) successfully argues that much of the responsibility lies with NSW State Government for paying Mr.Warren Hay's $370,000 compensation, awarded in 1994, for the mesothelioma (an asbestos-caused fatal cancer) he contracted during construction at Wallerawarang power station. JHIL's argument was that the Government did not exercise sufficient regulatory control over a substance it knew to be harmful. (A subsequent appeal in 2001 by the Government was upheld.) Some senior JHIL executives then formed a special group to devise a way of dealing with the problem. It embarked upon a publicity campaign to put the company's point of view to influential politicians, journalists, unions and victims' groups. Its aim was to maintain credibility and promote an alternative compensation scheme. (SMH)
  • 2000. The JHIL board proposed a company restructure. It set up a foundation, "Medical Research & Compensation Foundation" (MRCF). Sir Llew Edwards was named the chairman. MRCF became the holding company for the asbestos arms of the former JHIL: Amaca and Hardie Ferrodo Amaba. (ABC)
  • The remaining non-asbestos business would then be concentrated in a new company and application was made to the NSW Supreme Court to move it to Holland. This new company is James Hardie Industries NV. JHIL became re-registered as ABN 60 Pty. Ltd.
  • JHIL's submissions to the court included:
    • A commitment that all genuine asbestos claims would be properly compensated.
    • In February 2001, actuaries Trowbridge Consulting produced an estimate of future asbestos compensation liabilities of $323m. MRCF held $293m in assets, much of it as property occupied by Amaca and Amaba who paid rent to MRCF.
    • Citing PriceWaterhouseCoopers and Access Economics, MRCF capital would be able to earn 11.7% pa for the foreseeable future. (AUSTRALIAN)
    • "JHIL … will have, through existing reserves and access to funding in the form of the partly paid shares, the means to meet liabilities which will or may arise in the future whether in relation to asbestos-related claims or other obligations to other persons." (Allens Arthur Robinson solicitors Peter Cameron and David Robb to Chief Justice Santow). 100,000 shares in ABN 60 were sold to JHINV at $5 each and shareholders were assured that ABN 60 could further oblige JHINV to pay the residue of the value of the shares upto JHIL's full capitalisation at August, 2001, i.e. $1.9b. (NINEMSN)
  • Permission for the off-shore relocation was granted by shareholders and Chief Justice Santow.
  • Weeks after the restructure, Trowbridge revised their estimate to $1.1b and advised Edwards. Edwards applied to JHINV for more funds and was refused. (ABC)
  • March, 2003. JHINV, apparently satisfied that all future claims could be adequately met, cancelled the $1.9b share offer and excluded any further liabilities due to asbestos related claims. It did not advise the Supreme Court, the market or the public of this decision. (NINEMSN)
  • June, 2003. Actuaries KPMG, contracted by ABN 60, produced another estimate of likely compensation claims of $1.6b (which includes $432m in legal costs). They also made their own estimate of claims using the data Trowbridge had available to it in 2001: $694m. (JHINV)
  • Estimates by Leigh and Driscoll suggest that there will be 18,000 deaths due to mesothelioma but up to 40,000 asbestos-related deaths by 2020. (BRW) There are currently 500 each year in Australia, the highest level per capita in the world. (KAZAN)
  • 25 February, 2004. Premier Carr announces a special commission of inquiry to investigate whether JHIL misled the NSW Supreme Court in 2001 in making its submission to move off-shore. (SMH: Weekend)
  • 11 May, 2004. The NSW Government announces that it may be liable to millions of dollars in compensation for asbestos related claims, due to its use in rail and electricity networks.
  • In the special inquiry,
    • Hardie lawyer in 2001, Wayne Attrill said that the average figure for compensation for a victim of mesothelioma, supplied by JHIL to Trowbridge in order to base their estimates was $135,000. He thought at the time that the figure was not up to date and too low. The average resolution to date is $250,000. (ABC) (See above Mr. Hill's 1994 award of $370,000).
    • David Robb, of key legal advisor to Hardie, Allens Arthur Robinson, spoke of a draft memo which was to be sent to Hardie in 2002 which stated that Hardie may have misled the Supreme Court in 2001 when it gave assurances that all genuine claims would be properly met. The memo dealt with the question of the share options and the failure to disclose an agreement signed by the MRCF in February, 2001 concerning them. The draft had been prepared by a colleague who then went on leave. The draft was re-edited, sent to Management at Hardie and was reduced to one line in a report submitted to the Board. (SMH)
  • The inquiry has stopped taking evidence and is expected to hand down its findings in September.
  • The share value of JHINV has fallen 30% since last October. Crédit Suisse First Boston commented that although Hardie Industries is earning well, especially in the US, and it is likely that it sustains its case before the Special Inquiry, the ongoing ethical rather than the legal issue will continue to adversely affect the value of shares. (SEVEN)
  • June, 2004. Westpac sells its Sustainability Funds in James Hardie Industries NV. (ETHICAL INVESTOR)

    • A very good summary of events may be found at: bulletin.ninemsn.com.au

    A list of issues compiled by Mr. John Sheahan QC, counsel assisting the inquiry, has been made public.

    STOP PRESS
    July 14, 2004. James Hardie announces that it will ask shareholders to allow more funds to be made available for future compensation.

    References
    ABC: Australian Broadcasting Commission.
    KAZAN: Kazan-Allen, Laurie. New asbestos diseases research institute.
    BRW: Business Review Weekly.
    ETHICAL INVESTOR: The Ethical Investor: www.ethicalinvestor.org.au
    NINEMSN: The Bulletin, NineMSN Pty. Ltd.
    SEVEN: Seven Network (Operations) Ltd.
    SMH: The Sydney Morning Herald.
    SMH, Weekend: The Sydney Morning Herald, Weekend Edition, 3 Business and Money, p. 48. June 19-20, 2004.
    WORKSAFE: 2000 WorkSafe Western Australia.
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