It’s
suddenly become very interesting at the Special Commission of Inquiry
looking at James Hardie’s handling of its asbestos obligations. The
headline in the Sydney Morning Herald said it all “Hardie may have
misled: adviser”.

The story was a report of yesterday’s evidence from
James Hardie’s key outside legal adviser who thought in 2002 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 the Commission was also told documents sent to shareholders before the vote on the restructure may be been misleading

Allens Arthur Robinson partner David Robb told the Special Commission,
headed by David Jackson QC, that 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

The Commission is looking at claims of a huge shortfall in funds
available to a trust that Hardie set up in February 2001 with $293
million available to meet claims from asbestos disease victims.

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.

Further questions on the draft advice from Mr Robb were put off to
today ( Friday) to allow the letter to be retrieved from files and
presented to the court.

The SMH reported separately that the from the tenor of the hearing
yesterday that the Robb advice was not referred to in his witness
statement, or in the documents given to the Commission in response to
its summonses.

The SMH said the counsel for the Trust, Michael Slattery was ‘clearly stunned’ by the revelation of the Rob advice

The Financial review reported that Mr Robb agreed with Mr Slattery that
Justice Santow in the NSW Supreme Court was given ‘no indication’ of
the future cancellation of partly paid shares that gave the Australian
shell of James Hardie, the right to call on up to $1.9 billion from the
Dutch company.

The agreement was put in place to reassure the court, and others,
including CSR, the other company with a major liability from asbestos.

But it was cancelled in March 2003, with no disclosure made to the court, the trust, CSR, or the ASX.

That’s despite Hardie telling the NSW Court five months after the trust
was established in February 2001, that the old Australian shell company
would be able to call on the Netherlands-based new parent “in the
future and from time to time” to meet its liabilities, including
asbestos claims.

The AFR reported that Mr Robb told the Commission that Hardie
executives were ‘ seriously contemplating’ how eventually to expel the
Australian parent company from the group in early 2001, before the
trust was created and the domicile moved to the Netherlands and the
cancellation of the partly paid shares last year.

The trust raised concerns about its funding six weeks after it was
created and by September 2001 had sent a letter to Hardie which Mr Robb
agreed implied a claim of ‘misrepresentation and misleading and
deceptive conduct’ against Hardie.

Mr Robb said that he did not see this letter until January 2002, three
months after the NSW Supreme Court approved the Dutch move.

He agreed that had he seen the letter he would have taken advice on disclosing it to the court.

So now the most crucial time of the whole inquiry is reached. Those
silly investment banking analysts who confidently said Monday night’s
news of a ballooning in the possible future cost of asbestos claims,
wouldn’t have much of an impact on Hardie, and that ‘the corporate veil
would not pierced” to quote one dingbat, had better think again.

Mr Robb’s letter and his explanations yesterday and what will come
Friday will be vital to the future of Hardie and its base in the
Netherlands. Shareholders, creditors, everyone involved with Hardie
will now be on edge because it is apparent, from what Mr Robb said
yesterday, there were concerns expressed by the trust, well before the
move to the Netherlands, that its funding was inadequate.

The
lack of disclosure of that letter, and the cancellation of the partly
paid shares, which reassured a lot of people as to Hardie’s bon a fides
in this matter, are very damaging.

The fact that Mr Robb’s advice, in the letter sent at the end of 2002
by another Allens colleague, hasn’t been handed up will be further
investigated.

Hardies will have to be quizzed as to its receipt and consideration.
Will the Alan Bond Defence and its HIH variant be trotted out? (I don’t
recall, or I can’t remember).

And the Sydney columnist who said that Hardie management hadn’t covered
themselves with glory was quite true. But she forgot to include the
board, including chairman Alan McGregor.

Hardie’s handling of its asbestos responsibilities, from the board down
is looking grubbier and grubbier. The response of the investment
community to the news is looking as equally grubby.