So what’s going on an the Special Inquiry into James Hardie’s handling of its asbestos liabilities in Sydney?

I know some of you will answer, it’s an inquiry into James Hardie’s
handling of its asbestos liabilities. But a fascinating sub-plot
involving key Hardie legal adviser, Allens Arthur Robinson, has emerged
which makes you wonder if all is right in the big national legal firm
about its association with this increasingly grubby case.

In the box yesterday was Peter Cameron, formerly of Allens where he
was the senior legal adviser to Hardie. He has since left and
liked the company so much that he joined the board. He is also head of
Mergers and Acquisition at investment bank, Credit Suisse.

Mr Cameron is also on the takeovers panel, so he should know all there
is about disclosure. But then his chairman, Adelaide lawyer, Alan
McGregor, is also a corporate law expert and should know about
disclosure. Together they seem to be having great difficulty with the
concept as it applied to the now controversial issue of $1.9 billion
dollars worth of partly paid shares by the Australian rump of Hardie
when the new company moved its domicile to the Netherlands.

Mr McGregor has told the Commission he and the board never asked for
independent advice as to whether the cancellation of these shares
should be disclosed to the ASX, the NSW Supreme Court or to other
parties, such as the foundation set up before the shift to house
Hardie’s asbestos liabilities.

Mr Cameron, in a difficult examination yesterday by counsel for
asbestos victims, Jack Rush QC, denied deliberately withholding
information from Justice Kim Santow of the NSW Supreme Court, who
oversaw the company’s application to move its domicile to the
Netherlands.

As head of Mergers and Acquisition at Allens Mr Cameron headed the
group of legal advisers that pushed the shift of domicile ( through a
scheme of arrangement) through the Court. He also advised Hardie on the
separation of long-term asbestos liabilities from the holding company
by placing them in a trust (the foundation) with assets of $293 million.

Those resources are now totally inadequate to meet claims, which is the key point of the Commission of Inquiry.

The partly paid shares were there to provide the trust with extra
resources in the event of more claims than expected. The partly
paid shares were used to assure the court and other parties, such as
CSR Ltd, which also has asbestos claims. But there has been evidence to
the inquiry that there were suggestions that the issue could be
cancelled, during 2001.

Mr Cameron left Allens in December 2001, two months after the move to
the Netherlands was approved, he joined the board in August of last
year, four months after the partly-paid shares were cancelled in March,
2003.

In the inquiry last week, David Robb, a current Allens lawyer and the
so-called ‘point man’ with the NSW Court on behalf of Hardie in 2001,
dropped a bombshell.

He revealed a memo drafted in late 2002 to Hardie with the suggestion
that the company may have misled the NSW Supreme Court in 2001 when it
gave assurances that all asbestos victims would continue to be
compensated properly after the change of domicile that saw the company
move to the Netherlands.

And he told the Commission that documents sent to shareholders before the vote on the restructure may be been misleading.
Mr Robb said a letter raising his concerns went ‘in draft’ to the company in late 2002.

Robb said he was on holiday when a colleague from Allens sent the
letter. He told the Commissioner that he doesn’t recall re-visiting the
issue when he returned from holidays.

Evidence last Friday revealed his warning had gone to senior management
of Hardie, and that it had been reduced to a single line in a document
for the Hardie board.

It was also revealed that his memo had been changed from what he had
almost completed, to what was sent to Hardie. He did not discover the
changes for some months.

Mr Robb said the existence of an option agreement signed by the trust
in February 2001 was not disclosed to the NSW Supreme Court which
examined the shift of domicile proposal.

In reporting last Friday’s evidence The Weekend Australian also
reported that Allens litigation partner, Roy Williams, emailed Hardie’s
in-house lawyer, Peter Shafron, most likely after talking to Mr Robb,
“expressing concern that the law firm’s name not be associated with any
claim that Hardie had fully funded the foundation to deal with asbestos
liabilities”.

That was an intriguing revelation. Perhaps there’s a smidge of concern
inside Allens about Hardie and its actions over the trust and any claim
that the foundation was fully funded, as claimed by Hardie, was wrong.

So we have the former M&A partner at Allens, now a Hardie director,
denying there was any misleading of the NSW Supreme Court, a current
partner revealing that the court could have been misled in 2001, and
drafting a memo to Hardie to that effect.

And we have the litigation partner at Allens reported in the Commission
as wanting the firm’s name not to be associated with any claim that the
trust(foundation) would be fully funded.

And, the now discredited actuarial report on asbestos claims from the
Trowbridge firm of Deloittes, which wasn’t revealed to the market until
February 2001, when the trust had been formed, was never read by Mr
Cameron.

He admitted this in the inquiry yesterday. And yet the level of claims
is the most important fact in the whole affair. KPMG has estimated
claims could go as high as $1.5 billion, compared to the Trowbridge
estimate of around $3000 million in 2001.

Makes you wonder how Mr Cameron could have reached any conclusion about
the whole deal without reading the report and its claims estimate.

Peter Fray

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