Hardie Officials Cited for Breach of Duty

SYDNEY—An Australian civil court ruled this week that 10 former employees of building products company James Hardie Industries misled victims of asbestos-related diseases into believing that they would be compensated for their exposure to the carcinogen.

In 2001, the executives and directors of the company claimed that they had set up a fund to provide certainty of compensation. Yet two years later, the fund was deficient by $710 million USD.

James Hardie has been compensating people who were made ill by working with or around its asbestos-containing products since the 1980s. The company, which for nearly 100 years had been Australia’s largest asbestos manufacturer, stopped using asbestos in its products in 1987.

Asbestos is a naturally occurring mineral fiber which is extremely strong and can withstand high temperatures, fire, electrical conductivity, salt water corrosion and other damage from the elements. Because of this, it was once a popular additive to housing materials and insulation. The asbestos fibers, however, can become airborne when they are disturbed even slightly. When inhaled, the fibers lodge themselves inescapably in bodily organs and tissues.

Although exposure to asbestos may not manifest in any immediate symptoms, diseases such as asbestosis, pleural disease, and the deadly cancer mesothelioma can develop years, or sometimes even decades, after the initial exposure. By the time a diagnosis has been made, the diseases are usually incurable.

A New South Wales state Supreme Court judge, Justice Ian Gzell, ruled last week that Hardie executives had breached their duties. Said Gzell, the board members’ announcement of the fund was “expressed in too emphatic terms.” He also added that they should have corrected the information and let the Australian Stock Exchange know about the shortfall earlier.

The civil case was filed by the Australian Securities and Investments Commission, and it seeks maximum fines against the 10 former officials. These would amount to AU$200,000 ($141,670 USD). The executives would also be barred from managing companies in the future.

After the deficiency in its compensation fund was discovered, James Hardie added AU$4 billion (over $30 million USD) to another fund, payable over the next 40 years. On Thursday, however, the company made an announcement that it will no longer be contributing to this fund.

Hardie is experiencing cash flow problems linked to the American mortgage and housing-market crises. Sales of materials—such as siding, shingles, and cement underlayment—to the American housing and construction industries are responsible for two-thirds of the company’s revenue.