James Hardie and asbestos: the compensation scandal that changed Australian corporate law

On the morning of 16 February 2001, James Hardie Industries announced it had established a foundation to compensate victims of asbestos-related diseases caused by its products. The company called it a "final" solution. The Medical Research and Compensation Foundation, as it was named, was seeded with roughly $293 million. Company representatives told the media the fund was fully funded and that no further claims would fall on James Hardie.

Both of those statements, the New South Wales Special Commission of Inquiry would later find, were false.

A company built on the product that kills slowly

James Hardie had manufactured asbestos-containing building products in Australia for most of the twentieth century. The company's fibro sheeting was everywhere — suburban homes, schools, commercial buildings. Hardie's brand names were so dominant they became generic. Generations of Australian tradespeople cut, drilled and sanded the stuff without adequate warning of the risk.

Asbestos-related diseases — mesothelioma, asbestosis, lung cancer — have a latency period that can stretch to forty years. That biological delay meant the claims were still accumulating decades after manufacture had wound down. By the early 2000s, actuarial modelling was pointing to a liability that dwarfed what the company had set aside.

James Hardie was aware of this. The question the inquiry and, later, the courts would examine was what the company's leadership knew, when they knew it, and what they told the public.

The corporate restructure and the move to the Netherlands

Before establishing the foundation, James Hardie had undertaken a significant corporate restructure. The company shifted its ultimate holding entity to the Netherlands in 2001, a move that placed the parent company outside the direct reach of Australian courts and creditors. The two subsidiaries most exposed to asbestos liability — James Hardie & Coy Pty Ltd and Jsekarb Pty Ltd — were left behind in Australia, as was the compensation foundation that was meant to cover their obligations.

Critics, and ultimately the Special Commission of Inquiry, would focus on whether this separation was designed to insulate the profitable operating business from its historic liabilities. The company consistently denied that characterisation, but the sequence of events — restructure, then foundation, then announcement of "full funding" — drew sustained scrutiny.

The Special Commission of Inquiry

In 2004, following sustained pressure from unions, victim advocates and media investigations, the New South Wales Government appointed David Jackson QC to conduct a Special Commission of Inquiry into the Medical Research and Compensation Foundation. The commission's terms were broad: examine the establishment of the foundation, the adequacy of its funding, and the conduct of those involved.

Jackson's report, delivered in September 2004, was detailed and unflinching within its mandate. It found that the board of James Hardie had approved an announcement that the foundation was "fully funded" when the actuarial advice before them indicated it was not. The report found that the shortfall in the foundation's assets, relative to projected future liabilities, was substantial — ultimately estimated in the billions of dollars.

The commission found that a draft ASX announcement reviewed by the board had described the foundation as fully funded, and that this description was misleading. The board minutes and the actuarial reports before the directors were central to that finding. Jackson concluded that several non-executive directors bore responsibility for approving the misleading announcement.

The report also addressed the conduct of the company's chief financial officer and its external advisers. It was, by any measure, a damning public document.

ASIC's action and the Federal Court findings

The Australian Securities and Investments Commission launched civil penalty proceedings in the Federal Court against a number of former James Hardie directors and officers. The proceedings alleged contraventions of the Corporations Act 2001, specifically the duties of care and diligence owed by directors, in connection with the approval of the misleading ASX announcement.

The litigation was protracted and contested across multiple hearings and appeals. At first instance, Justice Ian Gzell found against a number of the defendants. On appeal, the Full Federal Court and ultimately the High Court were drawn into aspects of the proceedings. The appellate process produced important clarifications of Australian directors' duties law — specifically around the standard of care expected of non-executive directors who rely on information presented to them by management.

Without recounting every procedural step: the proceedings ultimately resulted in findings of contravention against several former directors and the former chief executive, though individual outcomes varied on penalty and on specific findings. The litigation is extensively reported in the Federal Court's published judgments, which run to hundreds of pages and remain required reading in Australian corporate governance.

One name that featured prominently in both the inquiry report and the litigation was Meredith Hellicar, the chairwoman of James Hardie at the relevant time. Her case went to the High Court, which in 2012 restored findings against her that an intermediate appellate court had set aside. The High Court's judgment in ASIC v Hellicar [2012] HCA 17 is among the more significant recent statements on directors' duties in Australian law.

The compensation deal

Separate from the litigation, and arguably more consequential for the people the foundation was meant to serve, was the protracted negotiation over proper compensation funding. The NSW Government, unions — particularly the Construction, Forestry, Mining and Energy Union and the Asbestos Diseases Foundation of Australia — and victim advocates pressed James Hardie to make good the shortfall.

In 2007, after years of negotiation that included threats of legislative intervention, James Hardie reached a binding agreement with the NSW Government and union representatives. The company committed to a long-term funding arrangement under which it would pay a proportion of its annual net operating cash flow into a compensation fund each year, for as long as claims remained outstanding. The arrangement was given legislative backing through the James Hardie (Civil Liability) Act 2005 (NSW) and associated legislation, which created the framework for the Asbestos Injuries Compensation Fund.

The total liability was enormous. Actuarial estimates at various points suggested the company could be paying out over multiple decades, with the final aggregate likely running well into the billions. For victims and their families — many of them tradespeople who had been told nothing about the dangers — the agreement was partial justice at best. Mesothelioma has no cure, and many of those whose claims the fund would eventually consider were already dying or had already died by the time any money moved.

What the inquiry changed

The James Hardie saga produced changes that reached well beyond the company itself. ASIC's conduct of the Federal Court proceedings, and the courts' treatment of directors' duties, sharpened the legal expectations on non-executive directors in ways that have been felt across Australian boardrooms since. The idea that a non-executive director could simply rely on whatever management put in front of them, without bringing independent judgment to bear, took a significant hit.

The Special Commission also drew attention to the adequacy of ASX continuous disclosure obligations and the internal governance processes by which major announcements are vetted. Governance consultants and company secretaries will tell you the Jackson report, alongside the resulting litigation, is regularly cited in boardroom training materials. Whether it changed behaviour in the ways the inquiry intended is a different question — one I'd say the record on subsequent corporate collapses answers only partly in the affirmative.

For the unions and the victims' advocates, the episode was a demonstration that sustained public pressure, combined with the right institutional mechanism — in this case, a properly resourced commission of inquiry — could produce an outcome that litigation alone might not have achieved in time to help anyone.

The public record and what remains

The Jackson report is publicly available. The Federal Court judgments in the ASIC proceedings, including the High Court's decision in ASIC v Hellicar, are on the Australasian Legal Information Institute database. The NSW legislation establishing the compensation framework is on the NSW legislation website. This is well-documented history.

What the public record does not fully capture is the texture of individual loss. The Asbestos Diseases Foundation of Australia has documented cases going back decades, and the human cost — tradespeople, laggers, waterside workers, people who renovated their own homes with a product that was manufactured and sold long after the company knew of its dangers — is something that the legal findings gesture toward but cannot contain.

James Hardie continues to operate as a building products company. It is listed on the Australian Securities Exchange, headquartered in Ireland as of more recent corporate restructuring. The compensation fund continues to pay claims. The litigation produced real accountability for specific individuals in specific roles, which is more than many comparable controversies can claim.

But the gap between the 2001 announcement — "fully funded", "final solution" — and the reality that the Special Commission of Inquiry exposed in 2004 remains, in my view, one of the starkest examples of corporate disclosure failure in modern Australian history. The Jackson report is sixty-odd chapters long and worth the effort.

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— Colin Ashworth, Scandals & the Public Record, Brisbane