Vol 4 (2007) - Issue 6

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Long Tail Personal Injury Liabilities: The Australian Response

Asbestos and other dust diseases are not a new issue.Nevertheless, events over the last few years have catapulted them to the forefront of community and political debate in Australia.

Interestingly, a combination of factors has resulted in this personal injury issue being increasingly viewed through the prism of company law. This has resulted in
some radical company law reform proposals.

1. Background

The James Hardie group was an Australian-domiciled manufacturer of asbestos products. In 2001, long after it had ceased to manufacture asbestos products, it relocated to Holland (for tax reasons). It left behind in Australia the group companies which had been the manufacturers of asbestos products; those group companies were hived off from the rest of the group and placed under the control of a standalone company under the terms of a trust. The purpose of this trust arrangement was to use the assets of the former group companies to provide for the payment of claims for asbestos-related illnesses from Australians.

It subsequently emerged that the quantum of claims would outweigh the funds available. The trustee applied to the NSW Supreme Court for directions as to the
appropriate course of action. In the course of dealing with that application, the Court held that many persons injured through exposure to James Hardie’s asbestos products would have no standing as creditors should the former group companies be placed in liquidation:

‘58 On current authority, persons injured through exposure to asbestos manufactured or supplied by [the group companies] do not have a completed cause of action until damage is suffered and that usually involves manifestation of the disease ... .

59 This type of liability must be distinguished from the case of a contingent creditor [or] a prospective creditor ... .

60 The distinction is vital because whilst contingent or prospective creditors are taken into account in assessing solvency, possible future claims that might
crystallise are not. The great probabilities are that if [the group companies] were to go into provisional liquidation now, then the only claims that would be
paid by the liquidator would be those which have crystallised and, after paying the doubtless heavy expenses of liquidation, there would be a distribution of
surplus funds to the shareholder MRCF which would be used for the purpose of the alleged charitable fund. The future creditors would get nothing and this may very well be the case even if the claim matured the day after the liquidation commenced.

Australia has a federal system of government. Responsibility for workplace health and safety rests with State legislatures, while the Federal legislature has authority over corporate law (including corporate insolvency). The New South Wales State Government commissioned an inquiry into the James Hardie situation .
That committee released its report in September 2004. The report recognised the legal position identified by the Supreme Court and commented that: ‘unless some
general reform is enacted that permits [corporate insolvency law] to deal with long tail liabilities, future cases will arise that will have to be the subject of ad hoc legislative solution, if serious injustice is to be avoided’.