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MELBOURNE, Australia-Chemical manufacturer ICI Australia Operations Pty. Ltd. plans to appeal a court's finding of negligence in one of Australia's first class-action product liability suits.
Observers warn that the case, if successful, could prompt attorneys to initiate other class actions against Australian companies. It also will force companies to pay more attention to risk management, an attorney says.
Attorneys for the plaintiffs say the Federal Court's ruling, which involved cattle tainted with an ICI pesticide, could cost the Melbourne, Australia-based company at least $125 million Australian ($94 million) in compensation, depending on the size of the class, with some estimates up to $250 million Australian ($188 million).
In Sydney late last month, Federal Court Judge Murray Wilcox found ICI negligent for failing in its "duty of care" toward more than 480 New South Wales and Queensland farmers who fed pesticide-contaminated cotton trash to their cattle from 1989 to 1994, when droughts brought feed shortages.
The pesticide was contained in an ICI-manufactured product, Helix.
Judge Wilcox's decision came after a 19-day hearing in March and April. He will reconvene the case Aug. 4 to hear cross claims by the farmers and ICI against other parties, including cotton gins, cooperatives and transport companies.
An additional hearing is scheduled for Nov. 6, when Judge Wilcox will consider the amount of damages to be paid by parties found liable.
The New South Wales and Queensland state governments were joint defendants in the action because of their roles in registering chemicals like Helix, but Mr. Wilcox ruled that they, and a federal agency responsible for chemical oversight, were not negligent.
The farmers' claims against the company were first aired in 1995 trial.
The active agent in Helix is chlorfluazuron. When cattle destined for slaughter and the export markets ate the cotton trash, they became tainted with the chemical. That led to canceled export orders from the United States and Japan. Farmers' properties were quarantined, and they were unable to sell cattle for slaughter and export. The United States banned Australian beef shipments in November 1994, when the Helix contamination was discovered (BI, Oct. 16, 1995).
In his 246-page judgment, Judge Wilcox said ICI had breached its duty as the manufacturer, distributor and marketer of Helix in New South Wales and Queensland. He said ICI, in its haste for profits, had "cut research corners and inexcusably suppressed information that might have alerted the dozing public watchdog. As a result. . .many people suffered losses."
Judge Wilcox also characterized ICI's failure to research the effects of Helix on livestock was a case of "willful blindness."
Judge Wilcox has not yet determined whether ICI also will be responsible for paying the farmers' legal costs, nor did he set damages, saying that had not yet been investigated.
"Each individual claimant is entitled to recover damages against ICI in respect of any losses. . .he or she may have sustained by reason of its negligence," the judge said.
Judge Wilcox added that the claimants are not entitled to "exemplary" damages because there "must be something more than mere negligence, however gross."
He found that while ICI was negligent, thoughtless and lacked professionalism, there was "no deliberate action. . .to disregard anyone's rights."
The farmers also took action against a federal government body, the Technical Committee on Agricultural Chemicals, which was responsible for approving use of the chemical. Judge Wilcox found that while the TCAC "did not assemble the data it needed to make an informed decision" before approving the pesticide, it was not negligent because it owed no duty of care to the cattle farmers. The state agencies named in the suit relied on the TCAC's recommendation, according to court papers.
Judge Wilcox also said a further claim against ICI alleging violations of the federal Trade Practices Act, which prohibits misleading and deceptive conduct, would be determined at a future hearing.
He dismissed the Trade Practices Act action from the plaintiffs to whom he found ICI had been negligent: farmers whose cattle were contaminated, farmers who bought contaminated cattle, meat processors and exporters who owned meat found to be contaminated, and feed lot operators who retained contaminated cattle until they were safe for slaughter and export.
But Judge Wilcox said that other plaintiffs, whom he found were not owed a duty of care, may have a case under the Trade Practices Act.
These plaintiffs include farmers whose cattle were not contaminated but who were not able to export meat because of the ban, transport companies, cotton trash pellet suppliers, and slaughterhouse operators and exporters.
The maximum fine that can be imposed on a corporation for a breach of the relevant section of the Trade Practices Act is $10 million Australian ($7.5 million).
Mike Feehan, ICI's corporate affairs manager, said ICI is appealing the judgment because the company, a unit of Imperial Chemical Industries P.L.C. in the United Kingdom, believes the "legal responsibility for the unfortunate chain of events that led to the losses does not lie with ICI."
ICI's Mr. Feehan said the company believed it complied with industry standards and with regulatory authorities' requirements when it sought Helix registration for use on cotton crops.
However, ICI conceded in court that it did not take into consideration the practice of feeding cotton trash to cattle, he said.
ICI maintained, however, that was only because it was not aware of the practice. Before the extreme drought conditions of the early 1990s, the practice was not widespread, and the industry had no basis for foreseeing it, Mr. Feehan said.
But he added ICI was serious about its corporate and environmental responsibilities and had voluntarily withdrawn Helix from the market.
An ICI P.L.C. prospectus for the sale of its 62.4% stake in ICI Australia notes that global coverage for public liability and product liability is $740 million for the 1996-1997 year for claims made in that year.
Under the sale agreement, the global insurance arrangements will indemnify ICI Australia until June 30, 1998. Under the policy in force for the year ended June 30, 1995, the year in which the Helix claims were made, the coverage limit is $625 million, with a deductible of $10,000 per claim or related claims.
David Lyons, ICI's insurance risk manager, said ICI's London-based captive, Ichem Insurance Co. Ltd., and its global reinsurance program would cover any liabilities.
Mr. Lyons said ICI "manages its own insurance," and he would not comment on the company's deductibles, policies or sums insured. But he said ICI would be indemnified "for whatever amount necessary."
According to Peter Thomas, a consultant with law firm Peter Long & Co. in Gunnedah, New South Wales, who represents the farmers, the case could cost ICI more than $125 million Australian ($94 million) because more farmers who are eligible to join the class are now coming forward with claims.
Mr. Thomas said about 2,500 farmers who did not participate in the initial class action, and whose cattle were not physically affected, are likely to seek compensation from ICI because the export ban also prevented the farmers from marketing meat overseas.
Another attorney predicted the judgment will encourage Australia's plaintiff lawyers to mount more class actions.
"Perhaps the key message from this claim is that there is a growing band of product liability lawyers and clients who have greater resilience and tenacity than was previously thought," said Jocelyn Kellam, a partner with Sydney-based law firm Clayton Utz. "This does not augur well for manufacturers which fail to implement appropriate risk management strategies and give appropriate product warnings," she noted.
"Although plaintiffs lawyers are often regarded as ambulance-chasers, they obviously pose a threat which manufacturers must take seriously. Class actions pose special challenges. Their particular sting is that the court orders are likely to be publicized. No company wants that," Ms. Kellam said.
The decision will give plaintiffs lawyers confidence and enable them to put more "runs on the board," she said.
"No manufacturers can afford to assume that their size, reputation and resources will deter plaintiffs lawyers from taking them to the wire for products that fail to live up to consumers' expectations of safety," Ms. Kellam added.
Mr. Thomas, the plaintiffs attorney, said ICI offered an out-of-court settlement with farmers in Narrabri, northern New South Wales, only days before Judge Wilcox delivered his ruling, but the proposal was unanimously rejected as "unworkable and insufficient" because it underestimated the farmers' financial losses.
Mr. Thomas said that ICI's cross-claims against other parties are unjustified.
The cotton gins "are probably no better informed about Helix-sprayed cotton trash than the producers," he said.
Mr. Thomas said the judgment could set the stage for reforms in the agricultural and veterinary industries.
"Obviously this is a landmark decision, and the only representative (class-action) proceeding with findings on product liability issues," he said.