December 2014 marks the 10-year anniversary of the biggest compensation agreement ever struck in Australia on behalf of people with asbestos-related illnesses directly caused by the actions of the building-products manufacturer James Hardie.
There’s no doubt that Australia has one of the highest incidences of asbestos-related disease per capita in the world, and it’s history in this country is a continual reminder of the corporate greed and negligence of companies who shamelessly used and sold the product while knowing about its health impacts.
The 2004 deal struck with James Hardie was a landmark agreement, and its benefits have resonated across the country, raising awareness, education and investment in medical research into asbestos diseases. Importantly, the agreement also ensured current and future victims of asbestos-related diseases would be fully compensated for years to come.
The crux of the deal involved James Hardie allocating a percentage of its yearly earnings to the Asbestos Injuries Compensation Fund (AICF) to be used to compensate claimants. For the agreement to be sustainable it was in the best interest of all parties for James Hardie to grow and prosper as a company so that it can continue to compensate the growing number of asbestos sufferers for years to come. Last year alone the company paid more than $122 million to the fund after it doubled its full-year profit.
Read more about what happened at the negotiating table and what transpired leading up to the deal being struck.
Initial compensation fund runs dry
After finally accepting ownership for the suffering caused by its asbestos-riddled products, James Hardie attempted to compensate claimants by setting up a compensation fund in 2001, which was chaired by an external party and funded by a one-off allocation from the company. As the number of asbestos sufferers continued to grow it soon became obvious that the fund was grossly inadequate. When the funds ran dry after just two years, James Hardie refused to add more.
The NSW premier at the time, Bob Carr, decided to establish a judicial inquiry – which had similar powers as a Royal Commission – to investigate the situation. He appointed David Jackson, QC, to run it. The enquiry commenced in early 2004 which included representatives from James Hardie, victim groups, trade unions and the fund, with the overall objective of accessing how much money was needed to compensate the victims in full and how best this could be achieved.
The inquiry ran for about six months to September 2004 during which time lawyers (representing victim groups and trade unions pro bono), provided a mountain of evidence to challenge the dubious conduct by James Hardie. It became apparent that James Hardie had attempted to shirk its responsibilities by establishing a new holding company in the Netherlands and then severing relationships with its Australian subsidiaries that held asbestos-related liabilities.
It was also during the enquiry that now widely-recognised social justice campaigner; the late Bernie Banton, first came to public attention. He was the designated spokesman for the Asbestos Diseases Foundation of Australia, a NSW based Asbestos victims group. I had a great working relationship with Bernie, and continue to support the activities of his wife, Karen Banton in her ongoing education and advocacy campaign across Australia, supporting sufferers and their loves ones.
In Jackson’s final report from the inquiry, he made a pragmatic assessment that, although future liabilities for asbestos sufferers was grossly underestimated and that James Hardie had behaved wrongfully, legal action to recover the money would be onerous to all involved.
The findings were handed to Bob Carr, who asked then ACTU Secretary Greg Combet to lead a team to negotiate on behalf of the victim groups to resolve the dispute once and for all. This was an enormous responsibility given the inherent difficulties in securing a deal with James Hardie.
Negotiations were challenging to say the least. The Board of James Hardie had distanced itself from the day-to-day negotiations by designating third-party representatives to act on its behalf and appointed a crisis manager to assist.
During these negotiations a consensus was reached that the only way asbestos victims and their families could be fully compensated was if James Hardie had the means to do so. The company’s assured viability therefore had to be the cornerstone to any deal being stuck.
This led to the key element of the proposal, the cash flow cap, which still stands today. This involves an independent actuary firm assessing the company’s yearly liability based on the estimated number of asbestos victims. James Hardie is then required to meet that obligation through its contribution to the AICF subject to a limit of 35% of its cash flow.
This percentage figure strikes a three-way balance of appeasing investors, allowing the company to still prosper and ensuring adequate funds are available to continue compensating claimants now and into the future. This was a pivotal moment in negotiations that now stands as a landmark agreement in Australia’s history.
Compare this to the approach taken in US with claims against Johns Manville, which was the biggest asbestos supplier in the world. The company ended up going bankrupt and claimants were left largely uncompensated. There were other similar examples in the UK.
There were concessions were made to James Hardie which meant that the fund would only compensate personal injury claims. This means, for example, the money cannot be used to pay land remediation claims.
The in-principal agreement, signed in late 2004, was used to form the binding agreement drawn up by the NSW Government and was ratified 12 months later.
The government conducted a review of the existing compensation regime, and delivered significant changes to how compensation was distributed in NSW which later flowed to other jurisdictions. The redesign of the compensation scheme helped deliver outcomes for many more clients without prolonged legal battles.
It was also stipulated in the agreement that through the fund, James Hardie would contribute to asbestos research, awareness and education. The fund contributed to the establishment of major medical research facilities such as the Asbestos Diseases Research Centre, based at Concord Hospital as well as educational campaigns such for DIY home renovators about the risk of asbestos in homes built before the 1980s.
The work of victims groups, unions and lawyers in reaching this agreement is in my opinion one of the most rewarding and significant moments in my legal career.
However, the struggle to ensure adequate, lasting compensation outcomes for James Hardie victims continues, with recent claims from the fund that it will need more funds more quickly because of the expected level of future claims.