BRITISH ASBESTOS NEWSLETTER

Contents:

1. WTO Upholds French Ban on Chrysotile
2. Dismal Winter for UK Asbestos Plaintiffs

1. WTO Upholds French Ban on Chrysotile

A landmark verdict by the World Trade Organization (WTO) has validated the rights of Member States to prohibit the import and use of goods which contain carcinogenic substances such as chrysotile (white asbestos). On March 12, 2001 the WTO’s Appellate Body (AB) issued its ruling in the case of Canada vs. the European Communities – Measures Affecting Asbestos and Asbestos-Containing Products (AB-2000-11). The AB members upheld and strengthened aspects of the Report of the Panel (September 18, 2000) while reversing, what has become known as, its "toxic logic." AB Judges Florentino Feliciano, James Bacchus and Claus-Dieter Ehlermann confirmed: chrysotile is an established carcinogen, there is no safe threshold and "controlled use" is not an effective alternative to a national ban. Pascal Lamy, European Union Trade Commissioner, said: "This ruling shows that the WTO is responsive to our citizens’ concerns. Legitimate health issues can be put above pure trade concerns. The ruling confirms that regulators can set the desired level of protection of health." Aimee Gonzales, a spokesperson for WWF International commented: "In this case, the scientific evidence supporting the French ban on asbestos was overwhelming, however the Appellate Body’s guidance on the relevance of scientific opinion confirms that all Member governments may be entitled to opt for maximum protection of humans, animals and plants even where scientists disagree as to the risks justifying protection."

For years asbestos industry apologists have maintained that their products can be used safely. The "controlled use" mantra has been at the heart of attempts to preserve markets threatened by growing international awareness of the repercussions of continued asbestos use. National bans were, according to the industry, over-reactions to misinformation disseminated by scientists and campaigners intent on "engendering widespread fibre-phobia." The Asbestos Institute, set up in 1984 to "maximize the use of existing resources in a concerted effort to defend and promote the safe use of asbestos on a global scale," is still peddling this line. On March 12, its Director, Denis Hamel, told journalists that depriving developing countries of chrysotile’s multifarious benefits would increase mortality rates. The AB ruling has demolished the "controlled use" smokescreen: "WTO Members have the right to determine the level of protection of health that they consider appropriate in a given situation. France has determined, and the Panel accepted, that the chosen level of health protection by France is a ‘halt’ to the spread of asbestos-related health risks. By prohibiting all forms of amphibole asbestos, and by severely restricting the use of chrysotile asbestos, the measure at issue is clearly designed and apt to achieve that level of health protection." Hammering the final nail into the "controlled use" coffin, the AB ruling said: "the efficacy of ‘controlled use’ is particularly doubtful for the building industry and for DIY enthusiasts, which are the most important users of cement-based products containing chrysotile asbestos."

It is important to note that the AB reversed the original ruling’s convoluted reasoning which equated chrysotile and chrysotile-cement products with safer alternatives containing PVA, cellulose and glass fibres. In September, 2000 Panel members Adrian Macey, William Ehlers and Ake Linden chose to ignore chrysotile's toxicity, chemical composition, physical structure and consumer attitudes focusing instead on: "the end-use of the products (which) should affect the way in which we examine the properties of the fibres." According to Macey et al, in examining the concept of "likeness," the health risk was an irrelevance within the meaning of Article III of The General Agreement on Tariffs and Trade 1994 (the GATT 1994). The Appellate Judges disagreed, highlighting the need to examine the molecular structure, chemical composition, fibrillation capacity, health risks, consumers’ tastes and habits and tariff classifications in assessing "likeness": "In examining the physical properties of the two sets of cement-based products, it cannot be ignored that one set of products contains a fibre known to be highly carcinogenic, while the other does not… We, therefore, reverse the Panel’s finding… that these health risks are not relevant in examining the ‘likeness’ of the cement-based products."

The AB findings have been welcomed despite lingering concerns over some aspects of the decision and WTO procedural matters such as the refusal to accept NGO submissions and the method of selecting expert witnesses. Reversing the original Panel’s ruling, the AB agreed with Canada that the French ban constituted a "technical regulation" under the 1994 Technical Barriers to Trade Agreement (TBT). Although the TBT was intended to further the objectives of the GATT 1994, the TBT "imposes obligations on Members that seem to be different from, and additional to, the obligations imposed on Members under the GATT 1994." Having decided that general prohibitions are subject to TBT regulations, the AB refrained from taking the analysis any further. Theoretically, Canada could bring a TBT challenge against the French or other national chrysotile bans; such an action would be the first WTO case brought under the TBT. Since re-trying the chrysotile case would involve an attempt to refloat the discredited "like" products analysis, it seems an unlikely prospect. Also worrying, however, are the implications of the AB’s support for the rights of Members to claim compensation for measures which adversely affect trade regardless of the reasons for the restrictions. Thus, even if a national prohibition is legitimately adopted on health grounds, "the measure may give rise to a cause of action under Article XXIII:l(b) of the GATT." Barry Castleman, a consultant to the EC legal defense team, is happy with the victory but worried about the future: "I fear that talk of the WTO understanding the need for the precautionary principle and allowing the maximum protection of humans from toxic substances in the face of scientific dispute is wildly optimistic. Look at the politics and the economics. This case was won because the WTO desperately wanted to look like they care about something more than free trade after the protests in Seattle. Canada was virtually alone in their defence of chrysotile lacking any powerful multinational corporations for allies and facing the USA and the EU as opponents. We may not be so lucky next time."

2. Dismal Winter for UK Asbestos Plaintiffs

Recent developments have thrown into question the likelihood of obtaining compensation for many UK victims of asbestos-related diseases. In a few short weeks, financial and judicial decisions reversed years of progress, leaving personal injury solicitors stymied and victims and their families clamouring for justice. On January 10, 2001 Chester Street Insurance Holdings Ltd., formerly Iron Trades Holdings Ltd., was declared insolvent (issue 41, article 1). Financial uncertainty over the escalation in asbestos liabilities, presently standing at £60 million, led Chester Street’s directors to propose a run-off of the company’s business. On February 5, 2001, creditors unanimously approved a Scheme of Arrangement and elected a committee on which the main policyholders British Shipbuilders, Corus UK Limited (formerly British Steel plc), GKN plc and Harland and Wolff Holdings plc are represented. The High Court approved the Scheme on February 28. Within ten days, the Scheme Administrators, in consultation with the Creditors’ Committee, set an initial payment percentage of 5%. According to Dan Schwarzmann, joint administrator of the Scheme: "Over the coming weeks and months we will continue to work closely with various policyholders and actuaries in order to reduce the level of uncertainty in the claims estimation process. This process is designed to lead to an increase in the payment percentage as soon as possible." Setting the rate at 5% will almost certainly prevent the majority of cases from proceeding. If, for the sake of argument, a mesothelioma claim is worth £100,000, Chester Street’s £5,000 payout will more than be absorbed by legal fees, leaving nothing for plaintiffs. Joseph Murray, a former pipe fitter at the Greenock dockyard, has mesothelioma; he is bitter that compensation for his family and the families of others, has been jeopardised. Jane Maitland, whose husband William died of mesothelioma, agrees: "They have taken away my husband, the most precious thing in my life. I was determined to take away the only thing precious to them – money. Now it seems I may not be able to do that." There are 12,000 people in the same position as Mr Murray and Mrs Maitland; 12,000 claims which overnight lost 95% of their value.

Some plaintiffs may be luckier than others. If a former employer is still in business, the claim should be met in full by the employer regardless of Chester Street reneging on the insurance cover: "In general, because Chester Street is insolvent, policyholders (who mainly comprise shipbuilders and manufacturers) should now be settling their employees’ claims in full." It would not be surprising if steps were taken by newly uninsured firms to avoid paying compensation. Reports that one employer is planning to dodge an asbestos claim by removing assets from the firm are all too believable. A claimant has been warned that suing the firm would prove pointless as the company would choose mass sackings and bankruptcy over accepting liability. If the former employer is defunct, claimants with post-1972 exposure can look to the Policyholder’s Protection Board (PPB) for compensation. The PPB, financed by a levy on insurers, has paid out £350 million since it was set up in 1972. The asbestos victims most affected by the collapse of Chester Street are those with pre-1972 exposure whose employer is no longer in business. In an Early Day Motion of January 29^th, MPs called on "the insurance industry to give an undertaking that it will settle all current claims not covered by the company’s assets as well as those which arise in the future." Tony Worthington MP demanded the insurance industry "act to protect its name. The essence of insurance is that one wins on many occasions and loses on a few. We insure ourselves against things that we hope will not happen, but the insurance company has to pay out in the minority of cases in which the worst has occurred. Cases concerning asbestos-related diseases are the worst." Frances McCarthy, President of the Association of Personal Injury Lawyers, concurs: "It cannot be right for an insurer to be able to escape its responsibilities."

Since the news first broke, the enormity of the situation has gradually become clearer. An actuarial report commissioned by the provisional liquidators estimates the insurer’s total liabilities, most of which are asbestos-related, over the next forty years at £3.75 billion; Chester Street has assets of £200 million. According to the TUC (Trades Union Congress) and the All Party Parliamentary Group on Occupational Safety and Health, the funding gap should be filled by an annual injection of £95 million from the insurance industry. TUC General Secretary John Monks says: "Insurers have got to face up to their moral responsibility to pay for the failures of the insurance system – failures which have left victims fearful and uncertain, but have left the insurers largely untouched. We are only asking for a small proportion of insurers’ profits to be set aside for the victims of poor insurance provisions and poor health and safety standards in the past. Asbestos victims deserve better." The Association of British Insurers (ABI) is fence-sitting. According to industry sources, the ABI is "not a guarantor of the solvency of insurance companies." Although discussions are on-going, there is "no indication that there’s going to be a (insurance) lifeboat" for those exposed before 1972.

Concern over the fall-out from Chester Street/Iron Trades has been widespread. In Scotland, Tony Worthington, solicitor Frank Maguire, whose firm has represented thousands of asbestos plaintiffs, and local victim support groups have briefed Ministers in the newly-devolved Scottish Parliament on the implications of these developments. Scottish Secretary Helen Liddell pledged her support for sufferers at a February 12 meeting. Mr Maguire urged the government to take immediate action: "If the Labour government is true to its principles, they cannot forget these people and should put up a financial package so they can get 100 per cent of the compensation." On March 10, discussions on Iron Trades took place at an asbestos fringe meeting at the Scottish Labour Party Conference; the organizer of this well-attended event Des McNulty, a Member of the Scottish Parliament, was supported by Bill Spiers, General Secretary of the Scottish Trades Union Congress, and Tony Worthington. A protest rally, organized by the Clydebank Asbestos Group, will hear speakers demand justice and full compensation for all Scottish asbestos victims on March 31. An already confused situation is exacerbated by uncertainty over the conflicting supervisory responsibilities of the Departments of the Environment, Transport and the Regions, Trade and Industry, the Financial Services Authority (FSA), the Chancellor of the Exchequer, the Secretary of State and the Treasury Minister. On February 14, a special meeting of the asbestos sub-committee of the All Party Parliamentary Group on Occupational Safety and Health was held in Westminster Hall. There was overwhelming support for government appointment of a full-time troubleshooter to secure 100% compliance from employers and insurers. A public enquiry into the events which precipitated the collapse of Chester Street, including payment of bonuses to directors and last year’s cut-price sell-off of Iron Trades Insurance Company Ltd. to QBE International Insurance Ltd., was demanded. Fears that other insurers with asbestos liabilities might choose to follow the example of Chester Street were growing. In the United States, major defendants have sought protection from asbestos claims under the Federal Bankruptcy Code; last year, Pittsburgh-Corning, Babcock & Wilcox, Owens Corning, Fibreboard Corporation and Armstrong World Industries Inc. joined this group. Until now, it was widely believed that UK insurance companies had weathered this particular storm but as discussions on Iron Trades continued, rumors spread about the collapse of another group: Builders Accident Insurance, Ltd. (BAI). On July 30, 1998 BAI’s Directors informed the High Court that the Chester-based company was insolvent. Like Iron Trades, BAI was a mutual: its policyholders, most of whom were in the construction industry, were its shareholders. A significant proportion of BAI’s £40 million liabilities stems from asbestos-related claims. A lawsuit brought by the family of mesothelioma victim Roy Roddis illustrates some of the ramifications of the BAI collapse. From 1960-1994, the deceased had worked for the firm of Connell & Finnegan, now in liquidation. From 1960-1966 cover was provided by Zurich Insurance; in 1966 the policy was transferred to BAI. Fortunately, the PPB has agreed to pay the damages caused after 1972. The collapse of BAI means that £6,000 of the £52,500 damages awarded won’t be recouped. Although a comprehensive list of BAI policyholders is unavailable, members of an informal Creditors’ Committee include: Cape, HBG Construction, Kier Group, J Murphy & Sons, Sir Robert McAlpine, Taylor Woodrow and Try Group. Unfortunately for Cape, it was also insured by Iron Trades: "the effect of the proposed Scheme of Arrangement could have a material impact on Cape’s future financial results. The insurance recovery from Iron Trades for the year 2000 amounted to approximately £0.7m."

Tony Worthington, MP for Clydebank and Milngavie, knows about asbestos disease; occupational exposure to asbestos in Clydebank’s shipyards and factories has produced disease rates which rank amongst the highest in Europe. In an adjournment debate at the House of Commons (March 6), Mr. Worthington spoke eloquently about the implications of the Iron Trades debacle: "The Government must give an immediate assurance that people who are dying from asbestos-related diseases will not suffer at all financially… There must be 100 per cent restoration… I want a commitment that those who are suffering from asbestos-related diseases will not lose out in any way. I also want an independent inquiry conducted by an independent person or body, rather than by the FSA, which is already tarnished by its approval of the deal (the sale in February, 2000 of Iron Trades Insurance Company Ltd. to QBE)." The best that can be said of the vacuous response by Miss Melanie Johnson, the Economic Secretary to the Treasury, was that the Government was at long last acknowledging that there was indeed a problem to be considered. Miss Johnson’s response consisted of equal parts waffle and condescension. Her assertion that compensation available under the Pneumoconiosis (Workers’ Compensation) Act 1979 was relevant was ludicrous. She boasted "Since 1980, the scheme has compensated 8,500 workers and their families with approximately £10.5 million." This is an average payment of £1235 per person! With his patience exhausted and the precious minutes allocated for the debate running out, Mr. Worthington intervened: "I asked the Minister for two basic assurances. First, I asked that no sufferer from asbestos should suffer further by loss of compensation because of the actions of Chester Street... Secondly, I asked for an independent inquiry because the FSA has lost our trust by approving a failing firm." Ms. Johnson ended as she began with non-committal vague assurances: "the Government are monitoring the situation carefully in the interests of those affected by the insolvency of this insurance company."

As the scale of the Iron Trades catastrophe emerged, asbestos victims received another blow. A "perverse and absurd" High Court judgment threw into doubt the viability of a huge proportion of mesothelioma cases. Mr. Justice Curtis’ February 1 ruling in the Fairchild case created blind panic amongst insurers, solicitors and plaintiffs. In a nutshell, Curtis declared himself unable to apportion liability for Arthur Fairchild’s premature death from mesothelioma. Although two defendants admitted having exposed the former joiner to "substantial quantities of lagging-derived asbestos containing debris and dust," the judge found it impossible to decide "from which source of exposure came the single asbestos fibre, or if it be the case, the fibres, responsible for the malignant transformation of the pleural cell. It follows the exposure causing the disease could be at either of the named premises or in combination – and none are more likely than the other." Trashing some plaintiffs’ precedents and relegating others to "an inference of fact," this judgment has been greeted with disbelief. According to Spencer Wood, Mrs. Fairchild’s solicitor, the outlook is bleak: "On its face, it will mean that all mesothelioma claims must fail. Evidence can always be brought by employers to show that there was some environmental exposure – on the Tube or even on the street. One asbestos fibre can cause mesothelioma and it is never possible to prove which fibre caused the disease." At the very least, the outcome of cases involving more than one defendant has been seriously compromised. Within a fortnight of the Fairchild verdict, Amicus Legal Ltd., which provides insurance linked to conditional fee agreements, began refusing to underwrite multi-defendant mesothelioma claims. Solicitor Gareth Wheeler, whose Southampton-based firm has handled over one thousand cases arising from exposure at local shipyards, building and construction companies, is concerned: "Obviously the withdrawal of insurance cover for this category of claims means that the majority of claimants will not have the resources or willingness to pursue these actions because of the potential liability to pay defendants’ legal fees." Amicus has issued precise instructions on how solicitors should proceed in multi-defendant cases: where a Certificate of Insurance has been issued, written authority from Amicus must be obtained before proceedings are commenced; where proceedings have been served, solicitors should expend "the minimum work levels required to keep the case live pending a decision of the Court of Appeal."

Although the vast majority of plaintiffs’ solicitors believe that the Fairchild verdict will be reversed upon appeal, the ruling has produced a climate of uncertainty and despondency. Solace can be found in the lack of support for Curtis evinced by Mr Justice Leveson and Judge Macduff QC. Critall Windows Ltd. and Others, defendants in an action which commenced before Leveson in Court 5 of the Royal Courts of Justice on March 12, were disappointed by his refusal to grant an adjournment pending the Fairchild appeal. Leveson said: "I am not contesting (the judgment of) Curtis J (in the Fairchild case) but I have to say in thirty years’ experience it causes me to raise my eyebrows." For twenty years, the deceased had worked in the same premises. During Mr Bond’s employment, corporate reorganizations occurred which enabled the defense to argue that exposure had been caused by multiple defendants. Not so said the judge: "the Deceased, giving long service with what he thought was one entity, has now lost his life as a result of that." The defendants agreed to pay damages of £120,000: the full value of the claim plus costs. This outcome compares favorably to an earlier defense offer which included a deduction for litigation risk on the Fairchild point. Also relying on Fairchild, the defendants in Durant v Parnall & Sons Ltd. were optimistic that multiple occupational exposures would get them off the hook. While the most substantial asbestos exposure experienced by the deceased had occurred during his employment with them, he had also experienced exposure from non-parties to the action. Having heard some lay evidence, Judge Macduff asked the defendants what their position would be if he ruled them the predominant exposer. Although they responded that they would dispute causation, twenty minutes later they agreed to pay £140,000: the full damages and costs. According to an expert witness present during the hearing, Judge Macduff QC, having agreed to judgment by consent, commented that he "preferred the approach in McGhee (a 1973 precedent) to that of Judge Curtis." As in the Bond case, the accepted settlement in Durant was a substantial improvement on a discounted offer made previously. Allan Gore, the plaintiffs’ barrister in both cases, argues that "both the result and reasoning in Fairchild is incorrect in law and that the case had been wrongly decided such that it should not be followed." He recommends that solicitors: transfer Fairchild-type cases to the High Court "to avoid any suggestion that the county court is bound by the decision of Curtis J," not settle at a discount any case in which a majority exposer is sued, litigate multiple exposer cases by arguing that Fairchild was "incorrectly decided." Defendants, always keen to take advantage of loopholes, are inviting plaintiffs’ firms to discontinue mesothelioma claims or face an application for wasted costs. One solicitor was told that if he refused to withdraw, the defendants would "seek an order that the claimant’s solicitors pay the defendants’ costs personally if the case went ahead and the claimant lost the Fairchild argument." Sheltering under the protective Fairchild cloak, and with the increasing difficulty of obtaining insurance, meritorious cases may well get buried. Until the Court of Appeal ruling is known, solicitors and their mesothelioma clients will remain in a state of limbo.

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Compiled by Laurie Kazan-Allen
Ó Jerome Consultants