Asbestos Questions

Why are we advertising?

What was James Hardie's association with asbestos?

Was James Hardie the only company to use asbestos? 

Why did James Hardie set up the MRCF?

Why did James Hardie move to the Netherlands?

Why were the partly paid shares cancelled?

Why didn't James Hardie help the Foundation when it asked for more money?

Will James Hardie pay legitimate asbestos claims?

What is happening in the negotiations between the company and the ACTU?

Why is the MRCF claiming that it is running out of money?

What effect are the current boycotts having on the company?

Advertising is one way we can address these misconceptions and, we hope, reassure people that James Hardie is working to develop a solution. Back to top

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 What was James Hardie's association with asbestos?

James Hardie group companies first started manufacturing products containing asbestos in the 1920s. Brake products were produced from 1930.
 
In 1937, James Hardie and Coy was incorporated as a subsidiary and from that point on was responsible for the production of asbestos cement building products. Other companies within the group had leading positions in a wide range of industries. Over time, these included tires, security, PVC pipes, fire protection and electrical contracting.
 
In the following years, the use of asbestos was very widespread. In Australia, it was used in thousands of products, by hundreds of companies, and by significant government entities. 
 
Information about the dangers posed by the different forms of asbestos grew gradually and, as the connection between asbestos and disease became established, most companies, including James Hardie, first controlled exposure, then stopped using it. 

James Hardie ceased using blue asbestos in 1968 and then phased out the use of all other forms of asbestos, so that our insulation was asbestos free by 1974; our building products by 1983; and pipes by 1986. Our brakes business was asbestos-free by 1986 and sold in 1987.
 
James Hardie products are now totally asbestos-free. Back to top
 
This page last updated on: 08 December 2004 
 
 
Was James Hardie the only company to use asbestos? 
 
No. James Hardie was one of many organisations that used asbestos in products or processes. 
 
Two James Hardie group subsidiaries, Amaba (the company that formerly produced brake products containing asbestos) and Amaca (the company that formerly produced building products containing asbestos), figure prominently amongst the defendants against whom claims are currently made by asbestos disease sufferers. 
 
While the James Hardie group had a major share in the asbestos cement building materials market, asbestos was widely used in a range of areas - such as fire-proofing, textiles and fabrics, ship-building, paints and adhesives  - and  many products used in those applications were not supplied by James Hardie. 
 
Expert evidence by KPMG Actuaries presented to the Jackson Commission of Inquiry estimated the present value of the liabilities of the former James Hardie subsidiaries to be $1.573 billion as at 30 June 2003.  KPMG Actuaries' latest estimate of the present value of those liabilities is $1.536 billion as at 30 June 2004.
 
Further, a recent actuarial and insurance industry review by KPMG estimated that, at present, the total cost of Australian asbestos liabilities may exceed A$8.2 billion, although they acknowledged the uncertainty in predicting a definitive figure, owing to an evolving legal and medical environment.
 
On the basis of that estimate, and the actuarial advice prepared by KPMG as expert evidence before the Commission, James Hardie's former subsidiaries would represent approximately 19% of the total asbestos liabilities in the Australian market. Back to top
 
This page last updated on: 08 December 2004
 

Why did James Hardie set up the Medical Research and Compensation Foundation?

By the late 1990s, it was clear that James Hardie's largest growth prospects were overseas, particularly in North America. 
 
Managing the compensation claims of the former James Hardie subsidiaries in relation to asbestos liabilities was a major drain on management resources, at a time when the evolving trans-national business required constant attention.
 
It was also considered that overseas investors and debt providers were less inclined to invest in James Hardie if it continued to have on-going asbestos liabilities within the balance sheet of group companies.

These business realities did not make James Hardie any less sympathetic to the plight of victims of asbestos related diseases.
 
Seeking to provide for their needs and, at the same time, assist James Hardie to pursue growth opportunities, the former Australian holding company, James Hardie Industries Limited (JHIL) created the Medical Research and Compensation Foundation in 2001.

Establishing the Foundation, and transferring to it the former subsidiaries involved in asbestos manufacture, created a dedicated organisation to manage and deal with the asbestos liabilities of those former subsidiaries. 

At the time, the JHIL Board believed this was in the best interests of both James Hardie and asbestos claimants:

• For James Hardie, it would enable the Board and managers to focus exclusively on its current business without being distracted by the demands of managing a litigation portfolio relating to activities not conducted by James Hardie for 20 years. It would also encourage investment by those who were concerned by the asbestos history of James Hardie; and
• For legitimate claimants, the proper investment of the funds supplied to the former subsidiaries and the MRCF, and the proper management of the claims process for dealing with the personal injury claims, should ensure that those claims would be met for a substantial period of time.  

Taking into account actuarial advice commissioned at the time, the Foundation was established with A$293 million of cash funds and income-producing assets. 
 
At the time, and contrary to what is now alleged to be the company's motivation, the JHIL Board believed this would be sufficient funds to meet future claims for a prolonged period.
 
James Hardie also provided the Foundation with funds for medical research aimed at finding treatments and cures for asbestos-related diseases and it continues to be involved in this vital area. Back to top

 This page last updated on: 08 December 2004

Why did James Hardie move to the Netherlands?

Claims that James Hardie restructured and moved to the Netherlands to avoid its asbestos liabilities are completely inaccurate. 

The reasons for the restructure were set out comprehensively in the Information Memorandum published by James Hardie Industries Limited on 27 August 2001 and available on this website.

In summary, the establishment of a Dutch-based parent company and the restructure were driven by the group's increasingly global focus and international financial tax efficiencies.  They were not driven by a desire to run away from asbestos liabilities.

Financial tax efficiencies
James Hardie needed to find a more effective corporate structure to deal with the fact that an increasing proportion of the company's returns were coming from the United States, but had to be distributed to predominantly Australian shareholders. 

As confirmed by JHI NV Chairman, Meredith Hellicar, at James Hardie's Annual Information Meeting held in September this year, the move to the Netherlands delivered foreign tax-related benefits to James Hardie shareholders of US$24.8 million in the company's last financial year.

Global focus of the company
By the late 1990s, it was clear (and subsequent experience has borne out) that James Hardie's largest growth prospects were overseas, particularly in North America.  It was also apparent that moving the group holding company to the Netherlands would:

• improve after tax returns for James Hardie shareholders on the international earnings of James Hardie;
• improve the corporate structure of James Hardie to finance further growth in the James Hardie group;
• provide an enhanced investment structure for international shareholders; and
• provide more attractive scrip to fund international acquisition opportunities should they arise. Back to top

This page last updated on: 08 December 2004
 
 
Why were the partly paid shares cancelled?
 
Reports that James Hardie cancelled the partly paid shares in ABN 60 (James Hardie's former subsidiary) in order to avoid its asbestos liabilities are completely inaccurate.

The partly paid shares came into existence when the Dutch parent company, James Hardie Industries NV (JHI NV), was established in the Netherlands and the group was restructured under JHI NV. 

As part of the restructure, JHI NV subscribed for partly paid shares in the former parent (JHIL, now called ABN 60) with an issue price calculated by reference to the market capitalisation of JHIL immediately prior to the scheme's implementation (which equalled approximately A$1.9 billion). 

The partly paid shares were issued by ABN 60 to enable it to call on JHI NV for funds if needed to maintain its solvency.

ABN 60 is not related to the Medical Research and Compensation Foundation or the Foundation's subsidiaries (Amaca and Amaba) which bear the vast majority of asbestos claims against former members of the James Hardie group.

In other words, even if the partly paid shares were still in existence, it is unlikely that they would have any effect on the current availability of funding arrangements for the Foundation or its current subsidiaries.

The decision to cancel the partly paid shares was taken by the directors of ABN 60 who did so because that reduction in capital would not materially prejudice ABN 60's ability to pay its creditors and would be fair and reasonable to the company's shareholders. 

Mr David Jackson QC examined the circumstances of the cancellation of partly paid shares in detail, but did not find that the directors breached their directors' duties in cancelling the partly paid shares.

Further, Commissioner Jackson found that James Hardie and its advisers did not deliberately breach their duty of disclosure in not alerting the court when it was considering approval of the scheme of arrangement in 2001 to the potential cancellation, although they did so inadvertently. Back to top
 
This page last updated on: 08 December 2004


Why didn't James Hardie help the Foundation when it asked for more money?

This question was addressed by our Chairman, Meredith Hellicar, when she spoke at the Annual Information Meeting for Shareholders in September. Her response follows:
 
"When the Directors of the Foundation wrote to us informing us that the fund may experience a significant shortfall, our response was consistent with the approach that the financial position of the Foundation and its subsidiaries had become that of a separate enterprise. At the time, we did not identify an appropriate way by which we could offer further funding.
 
"In retrospect, we could have responded differently, and more quickly.
 
"We knew we had to carefully consider all the ramifications of these circumstances: the potential impacts on future claimants and their families, on the Foundation, on the company and shareholders, and on us as Directors. 
 
"As directors, we sought to maintain both a legal and moral perspective, whilst bearing in mind our fiduciary responsibilities to you, our shareholders, and our obligation to act in the best interests of the company as a whole.
 
"In considering the sometimes competing  - or even conflicting - requirements of the law, community expectations and our own moral precepts, we did not respond with offers of funding support for any shortfall of the Foundation.  Understandably, this worried the Foundation and potential claimants and led to a perception that we were seeking to "wash our hands" of the Foundation's predicament."
 
This page last updated on: 08 December 2004 Back to top
 
 
Will James Hardie pay legitimate asbestos claims?

On behalf of the JHI NV Board and the company, the Chairman, Meredith Hellicar, has repeatedly stated publicly that James Hardie deeply regrets:

• that people were, and continue to be, injured by asbestos products manufactured by former subsidiaries of James Hardie, and
• that these people, and their families, have suffered as a result of this exposure, and
• the stress and uncertainty caused because the Foundation James Hardie set up to meet their claims has proven to have insufficient funding.

Although the Jackson Commission found that James Hardie Industries NV and its current subsidiaries have no legal liability to provide further funds to the Foundation or its former James Hardie subsidiaries, the Board has stated that it will seek shareholder approval for fair and sustainable arrangements to compensate proven current and future James Hardie personal injury asbestos claimants on an agreed basis. 

This would allow James Hardie to realise the original intention for the establishment of the MRCF in 2001. Back to top

This page last updated on: 08 December 2004

 What is happening in the negotiations between the company and the ACTU?

On 21 December 2004, James Hardie Industries NV (JHINV) signed a Heads of Agreement with the Australian Council of Trade Unions (ACTU), Unions New South Wales, asbestos support groups and the New South Wales Government, to provide long-term funding of asbestos related personal injury claims against former JHINV companies. James Hardie made a voluntary funding proposal to the Jackson Commission in July 2004 and is pleased to have now reached agreement on the principles on which James Hardie will provide voluntary funding. These include:

• the establishment of a Special Purpose Fund (SPF) to compensate asbestos victims;
• initial funding of the SPF by James Hardie on the basis of the November 2004 KPMG Actuaries' report (which provided a net present value central estimate of $1.5 billion in present and future claims at 30 June 2004). The actuarial assessment is to be updated annually;
• a two year rolling cash "buffer" in the SPF and an annual contribution in advance based on actuarial assessments of expected claims for the next three years, revised annually;
• a cap on the annual James Hardie payments to the SPF, initially set at 35% of annual net operating cash flow of the JHINV Group for the immediately preceding financial year, with provision for the percentage to decline over time depending on James Hardie's financial performance and the claims outlook; and
• no cap on individual payments to proven claimants.

The Heads of Agreement will form the basis of a Principal Agreement to be settled between JHINV and the NSW Government which, in turn, will require the support of JHINV's lenders and shareholders.  The Principal Agreement is to be a legally binding agreement.

Based on KPMG Actuaries' assessment and expectations of James Hardie's future financial performance, the arrangement is intended to allow payments to be made by the SPF to all future proven claimants against the former James Hardie subsidiaries for asbestos-related diseases.  However, it should be recognised that because the number of claimants and the amounts that the courts may award is uncertain and James Hardie may not perform as currently projected, no absolute assurance on this can be given.   The company and the NSW Government will now move to settle the terms of the Principal Agreement whilst waiting on the outcome of the NSW Government's Review of Legal and Administrative Costs in Dust Diseases Compensation Claims. This Review is expected to have a significant impact on the financial strength of the proposed Special Purpose Fund and the affordability and sustainability of James Hardie's funding proposal. Back to top

This page last updated on: 01 March 2005

Key developments in relation to negotiations

On Tuesday 19 October, 2004 James Hardie, at a meeting with the ACTU and Representatives tabled a draft term sheet in relation to the long-term funding agreement for future asbestos-related claims against the MRCF companies. 

A Statement of Objectives in relation to the proposed funding arrangement was agreed and signed by James Hardie, the ACTU and Representatives on 2 November 2004. On 3 November, James Hardie presented a Heads of Agreement to the ACTU for comment. The draft Heads of Agreement included the following key points:

• A Special Purpose Fund would be created to compensate asbestos victims.
• There would be an annual actuarial assessment of the liabilities of the fund.
• James Hardie would make annual payments to the Special Purpose Fund based on this annual actuarial assessment.
• James Hardie would provide the Fund with a cash "buffer" based on this actuarial assessment - this would provide greater security to present and future claimants to better enable the Fund to be able to meet changes in the incidence of claims and / or changes in the financial condition of James Hardie.
• A cap on the annual James Hardie payments to the Fund (it is not intended that there be any caps on payments to claimants) would be set, as a proportion of free cash flow, at a level designed to ensure that all legitimate claimants are paid and, the financial health and growth prospects of James Hardie are maintained (which both the ACTU and James Hardie recognises is crucial to the long term security of the future payments).  Based on current actuarial estimates and market expectations of James Hardie's future financial performance, the proposed caps should allow payments to claimants to not only be properly funded but also to have the benefit of a significant contingency provision.  However, because the number of claimants and the amounts that the courts may award cannot be known specifically at this time and James Hardie may not perform as we might hope, no absolute assurance on this can be given.

Currently, the level of legal costs incurred in relation to asbestos claims against the former James Hardie companies now owned by the MRCF have an estimated net present value of approximately $410 million. This high level of costs (equivalent to 36% of payments projected to be received by claimants) has a major adverse effect on the long term strength of any funding proposal over the lengthy time period that James Hardie is proposing to fund claimants.

For this reason, it is hoped that the outcome of the recently announced NSW Government Review of Legal Costs and Administrative Costs in Dust Diseases Compensation Claims will have a strong, positive impact on the financial strength of the proposed Special Purpose Fund and the affordability and sustainability of James Hardie's funding proposal. James Hardie supports this Review and notes that the rights of claimants (including to receive independent legal advice and representation) will not be adversely affected as a result of the Review.

Timeliness of Negotiations

As Greg Combet, Secretary of the ACTU has confirmed, the negotiations involve complex issues, including the need to develop a viable financial proposal that is, both designed to meet the needs of asbestos claimants under a variety of different claims scenarios and also affordable for the company such that it will remain financially strong for decades into the future.

James Hardie has been seeking to conduct the negotiations with the ACTU in a timely, constructive, consistent and efficient fashion. It is not in the Company's interests to do otherwise.

James Hardie and its advisers are focused on completing these financial arrangements as soon as practicable to avoid causing unnecessary anxiety amongst claimants and to allow James Hardie to refocus on its businesses. 

James Hardie believes that the New South Wales Government should have a more direct involvement in the negotiations (to date the New South Wale Government has declined to meet with James Hardie and its advisers or have any direct involvement in the negotiations).

James Hardie continues to work with the ACTU and Representatives towards achieving a long-term financial compensation agreement.  Back to top

This page last updated on: 08 December 2004

Why is the MRCF claiming that it is running out of money?

Discussions with the ACTU and asbestos diseases groups aim to solve the long-term funding needs of asbestos victims. In the meantime, claims are being paid by the Medical Research Compensation Foundation. 

As far as James Hardie is aware (and this has never been disputed by the Foundation), to date not a single claim has gone unpaid due to a lack of funding. 

The Foundation has expressed concerns publicly that it requires additional cash funding to be able to remain solvent in the immediate future. 

James Hardie has offered arrangements to support the MRCF to ensure that no one who is entitled to receive compensation from the MRCF will go without payment while a long-term solution to the asbestos compensation issue is being finalised, and approval for what is agreed is sought from the NSW Government and James Hardie's shareholders.

James Hardie has provided an indemnity to ABN 60 Directors to facilitate ABN 60 paying a further $88.5 million to the MRCF to pay claims to legitimate asbestos claimants. This money was paid on Thursday, 2 December 2004.

On current claim levels, this - along with funds already available to the MRCF - is enough to pay claims for at least another two years. Further funds are also payable to the MRCF from other sources in that period. The MRCF is well aware of these facts.

We opposed the application by the MRCF to seek the appointment of a provisional liquidator. We considered that provisional liquidation was unnecessary in light of the financial position of the MRCF and was not in the best interests of asbestos claimants.

As a result of the opposition of James Hardie, the ACTU and asbestos diseases groups, on 2 December 2004, Mr Justice Young did not grant the MRCF's application for provisional liquidation and agreed to it being adjourned until early 2005. Back to top

This page last updated on: 08 December 2004

What effect are the current boycotts having on the company?

James Hardie is committed to continuing as a successful business so it has the financial resources to fund future asbestos compensation arrangements, while achieving appropriate returns for shareholders.

Boycotts of James Hardie products are unnecessary and counterproductive to our ability to fund future asbestos claims. If boycotts lead to reduced revenue, the task of finding the money to fund compensation becomes that much harder.

While we understand the message of the threat of boycott, we hope that everyone will at least allow James Hardie the opportunity to reach a long-term settlement with the ACTU and victims groups before making any decision along these lines.  Back to top

This page last updated on: 08 December 04