Ethics and Sussex

Richard Ackland’s column in this morning’s SMH provides a succinct summary of the state of play in the Jackson commission of enquiry into James Hardie Industries’ manoeuvrings to effectively avoid legal liability for the mountain of asbestos exposure-related claims, to which its past manufacture of asbestos products exposed it:

The crux of the most intriguing aspects of the hearing is that Hardie told Justice Santow of the Supreme Court that its current and future liabilities to its asbestos victims could be fully met because the company could draw on partly paid shares to the tune of $1.9 billion. The judge approved Hardie’s restructure ased upon that assurance. In other words, because the company’s creditors could be paid, the court approved the restructuring and the shift of the corporate headquarters to the Netherlands.

Eighteen months later the company surreptitiously cancelled the partly paid shares, thereby creating an enormous shortfall in the capacity of the specially created asbestos foundation to meet its liabilities. That shortfall is now put by the commission at $2 billion.

The interesting (or rather depressing) part for a legal academic and (until not that long ago) long-time private legal practitioner is what the evidence tells us about the ethics and behaviour of Australia’s major law firms. In this case the firm involved in advising James Hardie was Allens Arthur Robinson:

James Hardie says it didn’t know it was going to cancel that source of capital at the time it assured the Supreme Court that it had the capacity to meet its current and future liabilities. That brave idea apparently occurred to it later.

Its legal adviser, Allens Arthur Robinson, said it didn’t know either. The consequences for any lawyer who consciously misleads the court are quite dreadful – striking off for a serious disciplinary offence and maybe even criminal prosecution. The defence, then, of the relevant lawyers from Allens is dependent on their lack of knowledge about what was going on in the management and board of its client. In arriving at conclusions about matters so starkly in contention, courts and commissions of inquiry are entitled to draw inferences.

What will be weighed, unless other evidence comes to light soon, is that Hardie didn’t burp without consulting its lawyers. It therefore appears inconsistent with the course of prior dealing that it would not consult its outside lawyers about its intention to cancel the partly paid shares. There is also the famous memo from the in-house lawyer at James Hardie, Peter Shafron: “We kept Allens close by our side throughout this transaction (and Allens’ billings will reflect that).”

There are some obvious parallels between Allens’ apparent behaviour in this case and that of Clayton Utz in the Rolah McCabe tobacco litigation (about which I blogged at length here). In both cases, I think it’s a fair inference that the law firms adopted ruthless, devious, single-minded strategies because they regarded their role in maximising their client’s financial bottom-line as exhausting their duties. There seemed to be no role for any duty to the court (which lawyers piously but emptily assert is their primary duty), nor for even the most rudimentary concepts of ethics, honesty or integrity on any sensible definition of those words.

As far as I know, neither Clayton Utz nor anyone associated with it has suffered any substantial sanctions as a result of its putatively disgraceful behavior in the tobacco litigation, just as current High Court Justice Ian Callinan has never been censured for his dubious (at best) role in the Flower & Hart/White Industries/Herscu litigation. Moreover, and despite the Jackson enquiry into James Hardie, I’d be surprised if Allens ever suffers any meaningful penalty. In fact, they might conceivably privately regard it as good publicity to be seen as ruthless pricks who’ll stop at nothing to win a case or secure advantage for a client prepared to pay their huge fees. No wonder most people regard lawyers as lower in the human scale of evolution than used car salesmen. How many cases of this sort will it take before governments decide that leaving enforcement of ethical behaviour in the hands of a self-regulating legal profession is like entrusting the Red Cross Blood Bank to Dracula?

Update – Quantum Meruit has some further interesting musings on this topic.

About Ken Parish

Ken Parish is a legal academic, with research areas in public law (constitutional and administrative law), civil procedure and teaching & learning theory and practice. He has been a legal academic for almost 20 years. Before that he ran a legal practice in Darwin for 15 years and was a Member of the NT Legislative Assembly for almost 4 years in the early 1990s.
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Dave Ricardo
Dave Ricardo
2021 years ago

Ken, you’re probably right and Allens will get away with it. But then, Supreme Court justices don’t like to be tifled with. You never know, examples might just be made of one or two Allens’ partners, pour encourager les autres.

TrueRWDB
TrueRWDB
2021 years ago

“…that leaving enforcement of ethical behaviour in the hands of a self-regulating legal profession is like entrusting the Red Cross Blood Bank to Dracula?”. Or even worse, the Red Cross!

qm
qm
2021 years ago

I know that heads rolled at Clayton Utz and they certainly lost British American Tobacco as a client. I suspect that practitioner sanction is being delayed because the case is on appeal to the High Court with intervention from the particular key practitioners concerned (on the basis that the trial judge made adverse findings against them as non parties).

The Law Institute of Victoria has certainly kept a close eye on the case and its implications and my guess will almost certainly investigate when the dust has settled.

I might also add that the State Attorney General is seeking to intervene in the case for the purposes of addressing just this issue with a view to tightening legislation in relation to document retention if necessary.

observa
observa
2021 years ago

Ken,
The layman might be a bit naive here in thinking that this is just like a lawyer advising or defending a Saddam or a Milosevic. Is it the lawyer’s role to prejudge the ethical intentions of the client, or simply to act within the letter of the law in the client’s best self-interest?

TrueRWDB
TrueRWDB
2021 years ago

To this layman, this case is rather confusing. Presumably the cancellation of the partly paid shares was done with the consent of the Australian shell of James Hardie which only had assets of $20 million.

Are the asbestos subsidiaries are now owned by the Foundation looking after the assets set aside for compensation? Are any of the shell company directors trustees of the Foundation? How much arms-length is there between them?

How could the court that gave the approval for the Netherlands move been so negligent as to not have known that the partly paid shares were not irrevocable? You would think some conditional injunction would have been placed on them at the time to prevent this happening.

observa
observa
2021 years ago

I suppose it doesn’t quite apply to a mesothelioma or asbestosis claimant, but take the case of a lawyer advocating for compensation for a vehicle accident client. The lawyer, in dealings with his client, forms the opinion that the claimant is embellishing the nature of his long term injuries/pain and suffering and will probably make a remarkable recovery after a fat payout. Should the lawyer be obliged to inform the court of his opinion, particularly where he has evidence to back up his opinion?

Ken Parish
Ken Parish
2021 years ago

TrueRWDB

My general understanding of the situation is that the evidence suggests the Foundation directors/trustees were appointed quite late in the piece and largely kept in the dark. As for your other questions, I don’t know. However, it also occurred to me that Santow J was a tad slack to say the least in not either making orders or insisting on a structure that ensured that the partly paid shares couldn’t simply be cancelled once the company had decamped to the Netherlands.

Observa

There’s a qualitative difference between a lawyer who suspects his client may not be truthful (or that it’s up to something dodgy), and one who actively connives in such activity and actively misleads the court if the intention from the beginning was (as one suspects) to cancel the shares when the dust settled.

TrueRWDB
TrueRWDB
2021 years ago

In respect of the legalities as distinct from the morality, I’d like to see some estimate of the improper distribution of assets from the asbestos-making subsidiaries to companies further up the chain. In order to cover the shortfall, will it be sufficient to claw back the improperly distributed funds or will the corporate veil have to be lifted so that the present-day (very profitable) businesses of Hardies are attacked?

Further is it proper to legislate retrospectively (as has been suggested) to lift the corporate veil in this case because of the moral imperatives? I can’t find any in-depth discussion of these issues in the media. All we’re finding is a shock-horror moral outrage that businessmen can behave like mafia dons, as if nobody in any other walk of life ever acts without regard to the suffering of others (particularly journalists who are always morally pure and superior in this respect to any of us).

Ken Parish
Ken Parish
2021 years ago

TrueRWDB

Yes, the retrospective legislation issue is certainly an interesting one. Moreover, I (like most lawyers) would generally agree with what I assume to be your point, namely that retrospective legislation is normally to be deplored and avoided. But the main policy rationale for the non-retrospectivity principle is that people are entitled to arrange their affairs as they see fit to their own advantage within the boundaries of the existing law.

However, depending on how the evidence eventually stacks up, the James Hardie scheme may prove in a critical sense to be not unlike the bottom of the harbour tax avoidance schemes of the late 70s and early 80s. Participants in those schemes weren’t acting lawfully at all, but relied on practices which effectively put the requisite evidence of illegality beyond regulators’ reach. Where that is the situation, the policy rationale against retrospective legislation largely disappears.

My gut feeling is that the James Hardie evidence may eventually show that a scheme was designed by someone with the express purpose of defrauding creditors (namely those with asbestos-related illnesses) by putting the company’s assets beyond their reach, but structured in such a way that it would prove almost impossible to pin guilty intent on any single person. One suspects maximum use was made of legal professional privilege, crucial advice not committed to writing or speedily destroyed, and knowledge compartmentalised so that it would prove difficult or impossible to prove to the necessary degree under existing law that any single person had the requisite knowledge or intent. If that’s the way it turns out, I don’t think there would be any legitimate principled objection to legislating retrospectively.

Moreover, the anti-retrospectivity principle is much more powerful in relation to criminal than civil liability. It would be difficult to argue persuasively against a law lifting the corporate veil to permit civil action against shareholders and/or directors (or lawyers who advised them), in a situation where they had all piously assured the Supreme Court that there would be adequate assets to pay all likely creditors.

TrueRWDB
TrueRWDB
2021 years ago

I’m not as sanguine about the social benefits of retrospective legislation as you are Ken. To me it assaults the concept of the rule of law to such a brutal degree that’s we’re far better off letting criminals loose and to tighten things up prospectively. I don’t really see the legitimacy of distinguishing between civil and criminal law in this regard either. If our laws are so deficient that people like asbestos sufferers don’t get satisfaction, there’s a good case for the government making good to them. Making up for government inadequacies is a community responsibility in a democracy.

Much as I would hate to see the Bali bombers relieved of their just deserts I support the constitutional decision by the Indonesian court, for example. It’s a hopeful sign that the rule of law is maturing in Indonesia.

observa
observa
2021 years ago

I generally agree with need to be very wary of retrospective law. I guess as a businessman, I would be more inclined to relax the principle for criminal rather than civil purposes. We all have our biases here I suppose. In this regard Ken has a bias such that-
“It would be difficult to argue persuasively against a law lifting the corporate veil to permit civil action against shareholders and/or directors (or lawyers who advised them), in a situation where they had all piously assured the Supreme Court that there would be adequate assets to pay all likely creditors.”
Now Ken tends to see a clear shirking of a moral obligation by Hardies here, where I am not so clear. The difficulty I have, is the increasing tendency of the law, with the benefit of 20/20 hindsight, to make such clear moral judgements. Hardies and others in the asbestos industry, began making products with the normal good intentions of any enterprise. It could not have predicted `at the time, that it was to deal in a carcinogenic product. It was to find this out like the general community over time and with scientific investigation and statistical analysis. A bit like the frog in a heating frypan, it would not necessarily know when to jump in order to avoid fatal succumbing. At what stage, exact time or date, could this enterprise and its personnel, or indeed the general community, categorically know the full nature of the problem? As the nature of the problem dawned, there was the inevitable denial and circling of wagons by the group. After all, what person wants to admit that their occupation was really dealing in death? As harsh as it may sound for the victims, I tend to lean to the view, that any enterprise that deals in a legal product, should not be saddled with liability for that legitimate product’s impact. This impact should be ameliorated by the community at large. This should only leave the victim with recourse to the community safety net for all, namely Medicare and Centrelink. Consequently, I would defend the enterprise’s right to protect its assets from retrospective moral judgements by the law. I think the tobacco industry fits in here as well. If they deliberately deal in declared, illegal, harmful products, then retrospective law to catch them, is fine with me.

Ken Parish
Ken Parish
2021 years ago

observa

What a convenient political philosophy for a businessman!! It’s essentially old McEwen-esque Country Party agrarian socialism. Capitalise your profits and socialise your losses. Only in this case the losses are human lives, people who die in the most horrible ways because a company deliberately chose to put profit ahead of human life.

As far as I can see, James Hardie hasn’t contested liability in any of the asbestos cases that went to trial over the period leading up to its shipping its assets offshore. It knew that its actions were utterly indefensible legally as well as morally. Here’s a short summary of those actions from a Sydney Law Review article titled Blue Asbestos and Golden Eggs: Evaluating Bankruptcy and Class Actions as Just Responses to Mass Tort Liability:
James Hardie opened its first Australian asbestos factory in 1916. Although the dangers of asbestos were documented in the US and the UK before the 1920s, the first known death of a Hardie employee due to asbestos occurred about 1960. In 1964 a safety officer employed by the company wrote a long memo to senior management warning that ‘asbestos dust is one of the most dangerous of all industrial poisons’. Although James Hardie experimented with fibres to replace it, asbestos was far more profitable. The first asbestos compensation claims were filed against CSR and James Hardie in 1977. However, Hardie did not stop manufacturing asbestos until 1987. It is estimated that approximately 2000 claims have been made against James Hardie by the beginning of 2001.
The article also recounts some of the anti-litigation strategies pursued by the principal US asbestos manufacturing entity. Those with some knowledge of the behaviour of tobacco companies will find it a disturbingly familiar story:
From the 1920s until the 1970s Johns-Manville was both the largest manufacturer and the largest supplier of asbestos products in the United States.’ As early as 1933, litigation by 11 employees alleging injuries caused by exposure to asbestos placed the company on formal notice of the health risks for workers. According to the minutes of a board of directors meeting on 24 April 1933, the suits were settled by Johns-Manville on the express condition that the plaintiffs’ attorneys would not bring similar claims against the company in the future.
Correspondence produced on discovery in a South Carolina case included letters about the suppression of publication of articles in Asbestos magazine at the direction of industry executives. According to Judge James Price:
[T]he correspondence reveals… that Raybestos-Manhattan and Johns-Manville exercised an editorial prerogative over the publication of the first study of the asbestos industry which they sponsored in 1935… . [It] further reflects a conscious effort by the industry in the 1930s to downplay, or arguably suppress, the dissemination of information to employees and the public for the fear of promotion of lawsuits.
Asbestos workers began forming unions and the presence of unions facilitated the transition from individual workers reporting asbestos-related injuries to the extensive epidemiological data available today. Unions also provided workers with access to lawyers who developed an expertise in the area. Although the early cases were often unsuccessful, as plaintiff lawyers developed further evidence and expertise, there was a sudden explosion of asbestos litigation.
By 1982 the pace of litigation against Manville had increased to an average filing of three cases per hour, every hour of the business day. The company projected its total asbestos liability at more than $1 billion. On 26 August 1982, Manville Corporation filed for reorganisation under Chapter 11 of the US Bankruptcy Code.
Australian bankruptcy law protection isn’t quite as corporation-friendly as the US, so James Hardie seems to have opted to ship its assets offshore to reduce its liabilities to the people it killed in the pursuit of profit. Like “observa”, no doubt its executives (and their lawyers) suppress any momentary pangs of conscience with the thought that their dying victims can always avail themselves of the services of Centrelink and Medicare.

TrueRWDB
TrueRWDB
2021 years ago

The whole issue of the civil liability of Hardies depends to a large extent on who knew what and when. It does appear they knew about mesothelioma well before they ceased production, which in my view makes them criminally liable as well as civilly liable under existing laws. The retrospectivity relates to lifting the corporate veil, so that shareholders of the asbestos-making subsidiaries have unlimited liability. Once you lift the corporate veil you can then attack the holding company. I would have no objection to this in future cases provided the law allows it in relation to certain specified types of corporate misconduct, of which Hardie’s case would certainly fall within.

Maybe it won’t be necessary to lift the corporate veil in this case if the whole liability can be covered by clawing back under existing law improperly declared dividends and capital returns, or in reversing the improper sale of assets at less than arms-length prices.

One problem with retrospective legislation is the more often it’s done the easier it gets in the future and the justifications for it get less and less. This is the nature of such precedent-setting. There is quite a lot of community resistance to retrospective legislation now, but habitual use will certainly make it routine until it becomes the preferred method of lawmaking rather than the exception. A similar circumstance is the frequency with which the government announces that as of today a tax law is changed, but it may be six months or never before the relevant legislation is passed. When this practice first started it was seen as a one-off. Now it happens all the time. Now even the opposition is announcing it before they become government, such as the promise to extract the Medicare Plus advertising from the Liberal Party once they are elected.

In respect to lifting the corporate veil, why stop at the holding company? Why not extend it to ordinary shareholders? Perhaps the reason for stopping there is that ordinary shareholders have no direct control. If you legislate to lift the corporate veil should it be limited to those shareholders deemed to have a controlling interest?

There are very good reasons for the existence of the corporate veil. Some economists credit it with the rapidly expanding capital formations of the last 150 years, and thus the basis of the first-world’s present-day prosperity, along with the safeguarding of property rights.

Ken Parish
Ken Parish
2021 years ago

TrueRWDB

I agree that any lifting of the corporate veil to fix personal liability should be confined to shareholders in a position to exercise control or at least major influence. In a practical sense it’s unlikely any government would ever consider going further than that in any event. Fixing “mum and dad” shareholders or institutional super funds with personal liability would be political suicide.

I also agree that there are very good economic as well as legal and practical arguments against lifting the corporate veil in any but exceptional circumstances. However, it’s always been possible to do so where assets were stripped with an intent to defraud creditors. All that would be necessary here (if any new legislation at all is needed) would be to catch the situation where, although it’s absolutely clear that a fraudulent scheme was carried out, it isn’t possible to prove exactly who devised the plan or who knew what when. That isn’t too much of an extension of existing principle.

The practical beauty of fixing controlling shareholders with personal liability is that they’re in a position to avoid that liability by taking the necessary decisions to bring the stripped assets back onshore. That’s hardly unfair given that they should never have been permitted to take them offshore in the first place.

TrueRWDB
TrueRWDB
2021 years ago

That’s assuming the assets were stripped and not onsold in good faith. It is Hardie’s current USA businesses, which are currently very profitable that have transformed its sharemarket value in very recent years. The question is, were the US assets transferred at an objective arm’s length price back in 2001, and has the value added since then been due to the good management (or even good luck) of the Netherlands based company since then. These are questions of fact that need to be tested. I haven’t seen this issue being addressed at all.

Any abnormal dividends and capital returns (if any) out of the asbestos-producing companies are of course fair game for clawing back.

It would indeed be very surprising if our commercial laws weren’t sufficient to ensure the repatriation of fraudulent funds movements.

The question remains, should the assets of a holding company not derived from the offending subsidiaries be attacked. I think you are saying morally, yes. But legally, I’m not so sure without retrospectivity.

If the community wants this to be the legal situation then new laws need to be enacted to apply to all cases, to ensure that there is no corporate veil within company groups. This already applies in many tax situations.

I think Hardies have been “too smart by half”. It can be argued that it’s reasonable to leave the asset base of subsidiaries like this available in full to potential creditors (ie the asbestos sufferers), to realise ongoing businesses at their full objective value and leave the funds in the subsidiaries for passive investment, and allow the ongoing operations to continue without future success being encumbered with past liabilities. What Hardies have attempted to do, apparently, is to decimate the assets of the subsidiaries in the process. Its this latter process that’s fraudulent.

Ken Parish
Ken Parish
2021 years ago

TrueRWDB

You obviously know much more about this stuff than me. Everything you say sounds pretty right to me. You might be interested in reading the Sydney Law Review article I mentioned earlier. It argues that structured Part 10/11 bankruptcy schemes and/or class action settlements are probably a better way to go than ad hoc litigation. Litigants get reasonable (if not enormous) compensation, and the company continues to trade so that the shareholders don’t lose all their capital.

It’s easy to let one’s moral outrage at the downright evil behaviour of corporate executives, who continued selling asbestos despite knowing it was a killer, blind us to the practical realities of large scale personal injury litigation. Ordinary shareholders and superannuants are victims too if a company goes belly-up under the weight of litigation claims. Moreover, with rapid fatality conditions like mesothelioma, most of the multi-million dollar damages awards enure as a windfall benefit to surviving relatives.

Arguably, we should look to strengthening the criminal law to deter corporate executives from knowingly continuing to trade in death-dealing substances while suppressing public knowledge about the dangers of their product, and look to increasing the instrumental efficiency of injury compensation systems. It’s a wider point than how to deal with a company that ships its assets offshore to avoid paying out at all, but worth discussing just the same. You could probably mount an argument that Australian class action provisions are insufficiently flexible to allow broad-scale US-style settlements, and that the latter are often a better solution )in that they better balance the range of legitimate interests involved). Maybe the lack of flexible class action provisions even contributed to James Hardie executives resorting to the expedient of shipping the company offshore instead of constructing a ‘win-win’ structured settlement scheme (God I love that sort of talk).

TrueRWDB
TrueRWDB
2021 years ago

I suppose the “beyond a reasonable doubt” constraint prevents a lot of prosecutions in these cases. I guess proving how much was actually known, how much was only open to conjecture and how much was just early voices crying in the wilderness is a difficult evidentiary hurdle. It does seem to me that criminal law bends over backwards to be “fair” to criminals at the expense of the community and to victims.

Incidentally I’m not sure I’d put present-day tobacco companies in the same league as asbestos manufacturers. Is anybody really in any doubt about the dangers of cigarette smoking today? Yet I see plenty of young people starting and continuing to smoke. Brings to mind the appeal judgement against the man who dived into a creek near Wyong without checking the depth and blamed the Council. If all the info is out there and readily available, people have to take personal responsibility. In the case of asbestos very few knew of the real danger until recent decades.

Ken Parish
Ken Parish
2021 years ago

TRWDB

I agree with your point about tobacco companies from (say) the mid 70s onwards. That’s when governments began legislating seriously to restrict tobacco advertising and require health warning to accompany them. Until that time, the practices and strategies of tobacco companies had been arguably even worse than those of the asbestos industry, and I don’t think public knowledge about the extent of smoking risks of death and debilitating disease was all that widespread in the 60s and earlier. I would agree, however, that anyone who started smoking as an adult after the early 70s should mostly take responsibility for their own actions, and arguably has no-one to blame but themselves (despite seductive tobacco advertising).

observa
observa
2021 years ago

Thanks to Ken and TrueRWDB for elucidating some of the finer points of ethical and legal liability here. Can I say that I have appreciated some of the finer nuances of such an issue.

Now I did hang out my business bias for all to see, but I might take the opportunity to tackle what I might refer to, as a little too much self-righteousness on behalf of our crusading legal fraternity in such matters. Let me also point out that I am personally aware of the end result of mesothelioma, due to the death of my son’s girlfriend’s mother about 2yrs ago. She died 3 months after diagnosis, leaving behind 3 children, thankfully all over 18. They were also fortunate in receiving compensation from Hardie’s fund in this regard, although they were financially comfortable prior to this. Apparently she had worked in the payroll office of the Whyalla shipyards many years earlier and contacted shipyard workers covered in asbestos used in lagging.

Ken raises the obvious objection that Hardies has privatised the gains and wants to socialise their losses, but he also has to recognise(although the discussion touches on this above), that lawyers wanted to ignore the privatised gains to past consumers of asbestos products and go for the jugular of an easy milch cow. As Ken points out in the history of Hardies, consumers were enjoying(those who were not health affected) the cheap private cost of their products. Claerly they were not paying the true social cost of this and yet Ken’s profession will not touch them. Indeed he may simply be punishing the many innocent recent employees and shareholders of Hardies, for the sins of the past. Imagine Ken’s outcry if his NT uni law department was bankrupted, because the courts found it complicit in training the lawyers who covered up Hardies sins in the past? How would he like to lose his job? How far should we let the legal profession go in their retrospective moral crusading and witch hunting?

Now what Ken isn’t aware of is the young Observa was busily engaged in the automotive trade in the early 70s, busily blowing the asbestos out of lawyers brake drums with compressed air and no mask, among other things. They may not have been paying the true social cost of servicing their cars at the time. Now I don’t recall any govt inspectors or lawyers, informing me or my fellow workers, of all the abundantly clear evidence about at that time, of the folly of such activity. Now it is true that for some years now, brake mechanics have been educated to wash out brakes with solvents and protective equipment. However, it wasn’t until January 1st this year that an enlightened community, through govt law, finally banned the sale of brake linings containing asbestos. Up until that time and for the life of all asbestos linings still in service, the asbestos from these linings was still being deposited all over our communities. Who should this smoker sue if he comes down with an asbestos relsted disease in future?

Somehow I think we should stick to rule of law with regards civil liability claims. If the conventional wisdom of my peers through my govt, say it is legal to deal in a product, then I should have the protection of the community and it’s laws from civil liability. The alternative is Ken’s Pandora’s Box of moral retrospectivity and anyone is fair game, if they’ve got the bucks. The divine right of lawyers.

Ken Parish
Ken Parish
2021 years ago

observa

You make some excellent points about the potentially arbitrary “scattergun” effect of “crusading” (or carpetbagging) lawyers casting around for someone to blame/sue for wrongs that may have been known about in a general sense but not thought through clearly in society at the time.

Moral retrospectivity is perhaps an apt label, although not for companies like Hardies and CSR, who knew exactly what they were doing and what its effects were, and actively colluded to suppress public knowledge of it so they could go on making a buck as long as possible. It’s also not an apt label for the tobacco companies, who acted similarly.

But it’s certainly apt in relation to the wide range of other suppliers and service businesses further down the line, which one can in theory imagine being sued. However, you’re underestimating the evidentiary and other difficulties involved in fixing liability on businesses of that sort. Hardies and CSR are in the gun because the case against them is so powerful and clearcut, and they’re big enough to be worth suing. I think you underestimate the self-correcting nature of the litigation marketplace to keep the sort of Russian roulette liability you’re imagining within tolerable bounds, especially with the recent legislative restrictions and caps on tort law liability (which I supported).

Of course, one possibility suggested by Observa’s points is whether we ought to consider a universal “no fault” personal injury compensation scheme, funded by a levy or insurance contribution on all businesses, car drivers etc., and abolish common law personal injury liability completely. It would incorporate existing workers’ compo and motor accidents compo schemes (where common law liability has already been abolished in some states and territories) and be extended to injuries sustained during medical treatment, leisure activities, and product liability areas. Perhaps even criminal injury compo (as in NZ). I have mixed feelings about this sort of idea, and the NZ experience has certainly been mixed, but maybe we could learn from their mistakes and construct a scheme that would be more just, affordable and economically efficient.

One of these days I’ll write a major post on this topic, but not until I’ve had time to look more closely at the NZ scheme and any parliamentary or law reform commission enquiries that have looked into the idea over the years. Alternatively there might be a reader who knows more about the area than me (which wouldn’t be difficult) or who’s prepared to put in the hard yards in research work. I’m always happy to publish guest blogger contributions.

PS Come to think of it, there will almost certainly also be law journal articles about “no fault” compo schemes. So if there are any law student readers out there interested in writing a blog post, here’s your chance. You have access to a wide range of law journals as enrolled students at a university, so if you can make time for it alongside your assessable course work, a blog contribution would be welcome.

TrueRWDB
TrueRWDB
2021 years ago

Condoning the continuing manufacturer of a product you know to be dangerous and then excusing it on the grounds it is “legal” is a great cop-out, Observa. So is passing off the resulting liability to taxpayers via a “no-fault” scheme. In a civilised democracy people must take responsibility for their actions. Distributing a product you know to be dangerous is a criminal act and should be punished under criminal as well as civil law. The law is a lagging reactor, so to speak. New law is created slowly and hopefully carefully. It just can’t be expected to a substitute for individual responsibility.

I do have some sympathy for present-day investors in Hardies who may have to pay the penalty for previous generations of management. However investing is a risky business and you accept these risks when you buy shares. Maybe some employees will lose jobs if Hardies goes belly-up, but ongoing businesses will be sold and in my view job losses would be minimal.

I am sympathatic to business as a system, but not to misbehaving businessmen. I am a true capitalist (hence my pseudonym). I find most businessmen, paradoxically, are not. Many of them seem to want protection for their own industry (bugger free trade) at the expense of everybody else and skate around the intent of laws regulating business conduct to maximise their own profits.

I agree that a great deal of business regulation is misapplied, bordering on social engineering or openly protectionist of various interests. But in this case the law regulating business conduct is or should be directed to community protection in its most basic form, and I support it.

All that should remain is for the facts to be tested and legal sanctions applied if fault is proven.

Ken Parish
Ken Parish
2021 years ago

TrueRWDB

Your comment that a “no fault” universal injury compo scheme would be a “copout” for negligent businesspeople would be true if everyone paid the same amount of annual premium/levy. But if premium levels varied according to the objective riskiness of the industry, and were micro-adjusted for the actual claims record of individual businesses, that wouldn’t be the case. There would be clear and powerful “price signals” to induce businesses to act responsibly. Of course, whether such a scheme would be feasible and affordable, and what other implications it might have, is another matter.

Ken Parish
Ken Parish
2021 years ago

One implication, for instance, might be that the current wrongful termination system in the Workplace Relations Act would need to be loosened, so businesses could more easily sack stupid or irresponsible employees.

observa
observa
2021 years ago

“Condoning the continuing manufacturer of a product you know to be dangerous and then excusing it on the grounds it is “legal” is a great cop-out, Observa. So is passing off the resulting liability to taxpayers via a “no-fault” scheme. In a civilised democracy people must take responsibility for their actions. Distributing a product you know to be dangerous is a criminal act and should be punished under criminal as well as civil law.”

In general I would agree with the principle that we should not defend business practice that knowingly profits from distributing dangerous goods. However I think we need to differentiate between the immediate and obvious dangers of what we might term engineering type goods and what may be termed epidemiological type dangers. The former dangers (eg a faulty electrical appliance) can easily be determined by current engineering standards of probity. The long term dangers of asbestos, smoking, drugs and chemicals(medical diagnosis?), appear to be a separate and distinct type of product. We may only realize the dangers of the latter after a long evolutionary process, which can of course be quickened by our increased technological capacity to gather and crunch statistical evidence. Unfortunately, while this process of enlightenment is occurring, many players will be innocently caught up in an increasing culpability. A bit like the slow trickling of water into a dam, which eventually bursts and inundates its unsuspecting victims, albeit that some become increasingly aware of the leaking wall. This is where I have a problem with retrospective moralising and would call for the streaker’s defense, that it seemed like a good idea at the time. I have a problem with castigating and wanting to punish Hardies, for doing up to 1987,what my own govt openly and knowingly allowed, until Jan 1st this year with car brake pads. One rule for the rulers and one for the ruled. Shouldn’t a Hardies be allowed to shelter under their/our superior wisdom and knowledge? When we as a society make the call then and only then should the Hardies be called to account, if they carry on illegally. In fact this sort of exemption from civil liability, should encourage more timely and open whistle blowing about imminent dangers.

This is also where I think Ken’s idea of national compensation/insurance could work with differential premiums for good/bad practice. However this risk premium will only work for the engineered goods sector. It cannot work for long tailed epidemiological risk, as the private insurance system has found. This is why I made my comment about ultimately having to rely on Medicare and Centrelink in these cases. That may not be a pleasant prospect for most of us, but that is of course a political resourcing issue for those programs.

If you don’t think I appreciate some of the long tailed consequences of the asbestos industry, let me enlighten you with an aside. Ken you may recall a couple of years ago a chap in Darwin who paid a taxi driver $50,000 to a cabbie to drive him about for a week or so. He was the father of my son’s girlfriend and though I never met him, I gather he had some psychological problems, probably schizophrenia. I think the cabbie recognised this and refunded some $40k of his money. At any rate his wife had separated from him and after he returned from Darwin she took out a court order to stay away from the family home. In the runup to this he was naturally upset and stated that he hoped she got cancer and died. Unfortunately he could not have known how this throwaway line would come back to haunt him. With no symptoms whatsoever at the time, his wife would die some 3 months later of mesothelioma. He blamed himself so much for his words, he suicided shortly afterwards. My son in particular and to a lesser extent our family would deal with the grief of a young lady who would lose both parents in such tragic circumstances in her last year of high school. She would pass her YR12 that year and go on to TAFE, in a remarkable display of the strength and resilience of the human condition. Life is sometimes more remarkable than any fiction.

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[…] due course, it became apparent that the fund was insufficient by an order of magnitude. Ken Parish commented on this at the time (with some reference to relevant facts). The Age summarises the relevant facts thusly: The […]