Australia: Discovery of asbestos in imported construction materials reignites liability concerns for Australian businesses

What you need to know

• Asbestos contamination has historically been a significant concern for many Australian businesses, given the material's common use in the Australian construction industry until the early 90s.
• The risk of asbestos exposure in Australia has come back into the spotlight following the material's discovery in several new construction projects throughout 2016 - since many building products are imported, unsuspecting users may be caught out by differences in international standards.
• Australian businesses need to understand their obligations under Australia's 'no tolerance' policy on asbestos and implement strong risk management practices.

Over a decade ago, Australia introduced a 'no tolerance' policy on asbestos through a nation-wide ban on the manufacture, supply, storage, sale, use, reuse, installation and replacement of all types of asbestos and Asbestos Containing Material (ACM).

Recently, asbestos concerns have been reignited after the toxic material was discovered in building products supplied to construction projects in Australia.

These developments serve as a reminder of the importance for Australian businesses, particularly those involved in building and construction projects, to review their internal processes and know their obligations and liabilities.

Asbestos is back in the spotlight

In July 2016 news broke that asbestos had been discovered in building materials in two prominent construction projects - a children's hospital in Western Australia and government headquarters in Queensland. At the centre of the controversy was an Australian-based subsidiary of a Chinese multinational manufacturing firm that was supplying asbestos-laced materials to construction companies which were certified as 'asbestos free'. The subsidiary maintained that the contaminated product was supplied by a third party China-based manufacturing plant, which provided a fraudulent test certificate. The certificate stated that the products were 'asbestos free' when in reality they contained traces of chrysotile or white asbestos. In China, products can be labelled 'asbestos free' if they contain up to 5% asbestos.

The discoveries triggered an investigation into all construction projects supplied by the Chinese-owned subsidiary as well as independent testing of the company's shipping containers. One further shipment headed for Queensland was revealed to contain asbestos and stopped at the border, but no other cases appear to have been detected so far. The United Kingdom and Europe followed suit and commenced their own enquiries into projects supplied by local branches of the Chinese parent company.

Earlier last year, contaminated building products imported from China were discovered in the flooring of two electrical substations in South Australia, while numerous other construction projects around the country came under scrutiny for suspected use of asbestos contaminated products.

The issue has drawn attention to Australia's border control practices, which were the subject of the Asbestos Importation Review Report released by the Department of Immigration and Border Protection (DIBP) in August 2016. The independent review carried out by KGH Border Services examined the effectiveness of the DIBP's internal process and procedures for managing the importation of asbestos into Australia. Whilst the review ultimately found that the management of border processes for asbestos was effective, several key technical and organisational challenges were flagged for improvement. Most relevantly, the use of different testing standards between countries was identified as a key concern. Australia's asbestos ban was also at the centre of discussions between representatives of Australian Border Force (DIBP's enforcement agency) and the General Administration of China Customs in November 2016.

In light of the increased media and regulatory interest in Australia's asbestos regulations, it is more important than ever for Australian businesses to know their obligations and manage the risk of asbestos exposure arising under their guard.

Asbestos regulations affecting Australian importers and businesses

Australia's no tolerance policy

Asbestos is a toxic and carcinogenic mineral fibre that can cause lung cancer, mesothelioma and asbestosis. As public awareness of the health risks associated with the product increased, an Australia-wide ban was effected on 31 December 2003. The ban is reflected in the work health and safety laws in all States and Territories and supplemented by Regulation 4C of the Customs (Prohibited Imports) Regulations 1956, which prohibits the importation and exportation of asbestos and products containing asbestos.¹

Australia is one of a small group of countries with a zero tolerance policy on asbestos. Many other countries will permit low amounts of particular types of asbestos in products. For example, chrysotile asbestos (also known as white asbestos) is permitted in a number of countries, including China. This discrepancy between international standards means that goods manufactured overseas could be labelled 'asbestos free' and still contain asbestos, as we have seen through recent discoveries in Australia.

Australian rules for testing

When it comes to testing for asbestos, various mandatory requirements must be considered.

Goods can be tested in Australia or overseas before importation. In either scenario, a testing certification must be provided to the Australian Border Force.

If an importer wishes to have goods tested in Australia, they must obtain permission from the Minister for Employment to import a sample for analysis purposes. The sample must come from the shipment intended for importation and testing must be conducted by an Australian laboratory accredited by the National Association of Testing Authorities (NATA).

If testing is to be carried out overseas, certification must come from an overseas laboratory that is (i) accredited by the NATA equivalent in that country and (ii) a signatory to a Mutual Recognition Arrangements with NATA. The onus is on the importer to ensure these two requirements are met.

One of the issues with using overseas laboratories, which was relevantly identified in the KGH Asbestos Importation Review, is that often the laboratories will not have the required accreditation. International differences in testing standards can lead to 'asbestos free' certifications when in reality there are traces or residual amounts of asbestos in the product.

The relevant Australian Standard for testing of asbestos is by no means clear or certain. Care needs to be taken when interpreting laboratory results, as there are three levels of available testing. It should also be noted that there are no NATA-accredited labs in Australia to undertake the most stringent testing level.

If asbestos is detected, the imported products are seized as a prohibited import and are liable to be forfeited for disposal. Overseas suppliers found to provide products containing asbestos or ACM to Australia will be stopped at the border and any goods previously imported will be identified and referred to the relevant State and Territory regulatory bodies for further enquiries.

What liabilities might Australian businesses face?

Border offences

Importers who fail to adhere to Australia's strict importation/exportation requirements regarding asbestos can be subject to penalties or prosecution. Border offences attract fines of up to 1000 penalty units (A$180,000) or three times the value of the goods, whichever is greater. For a body corporate the same border offence attracts a higher penalty of up to five times the amount applied to an individual (A$900,000).

An importer's liability may be mitigated if it can show that all reasonable measures have been taken to ensure products do not contain asbestos. In some cases it may be sufficient to show a testing certificate from an overseas laboratory that says 'asbestos free' even if the testing was not conducted in accordance with the Australian Standards.

Work Health and Safety consequences

Businesses must also be mindful of their potential exposure under State-based Work Health and Safety (WHS) laws. In every State and Territory there are stringent requirements for managing and controlling asbestos and ACM at the workplace. These requirements fall under the umbrella of an overarching obligation on persons conducting a business or undertaking to ensure, so far as is reasonably practicable, that workers and other persons are not exposed to health and safety risks in the workplace.

In the context of a construction project, builders, contractors, suppliers and employers can all be subject to the duties (and enforcement measures) imposed by WHS laws. If a WHS duty is breached and a person (ie a worker or member of the public) contracts or is at risk of contracting an asbestos-related illness, penalties or prosecutions may ensue.

Workers' Compensation claims

Employers whose workers are exposed to asbestos or ACM are at risk of workers' compensation claims by employees.

If an insurance claim is accepted, employees may be entitled to payment of their medical expenses, or an amount of lump sum compensation depending on the circumstances.

Employees may also have the right to sue their employer for negligence through the common law process. The test is whether in the circumstances a reasonable employer would have taken precautions having regard to the:

• probability that the injury would occur if care were not taken
• likely seriousness of the injury and
• burden of taking precautions to avoid the risk of illness.

Australian Consumer Law

Suppliers are subject to the requirements of the Australian Consumer Law (ACL) and can be penalised for supplying unsafe products to the Australian market.

Liability based on common law negligence may also attach to a supplier of a product if it is established that they did not take adequate precautionary measures to check the product for asbestos contamination and as a result, a person was exposed to asbestos and became ill.

Manufacturers are also liable to compensate individuals where:

• the manufacturer supplies the goods in trade or commerce and
• the goods have a safety defect and
• the individual suffers injuries because of the safety defect.

It is important to note that the term 'manufacturer' is broadly defined in the ACL and can include an Australian importer.

Owners and occupiers of property

Given the prevalence of past use, asbestos and ACMs can be found in all types of property – commercial, industrial, retail and residential. Although the estimated construction date of a particular building can be a good indicator of whether asbestos and ACMs are likely to be present, the above recent cases show that new construction work still has the propensity to be compromised by asbestos contamination.

Landlords should:

• enquire about their contractors' risk management practices regarding the building products they use, as well as their relevant certifications and competency to carry out the work required on the premises
• take the cautious route if asbestos contamination is suspected, and seek specialist guidance about what investigations should be made and how. If asbestos is known to be present, but is not exposed in any way, landlords should take care to arrange for the preparation, and implementation, of a formal asbestos management plan
• be aware that if asbestos is present or suspected, development applications will usually mandate removal by qualified and certified contractors and certification of safe disposal. A number of recent examples of blatant illegal dumping of asbestos material have been exposed on news and current affairs programs, and government authorities are alert to this issue and looking to impose stringent penalties on those who are caught doing the wrong thing
• be very careful in giving any contractual warranties, for example in a lease agreement, that their buildings contain no asbestos, unless they have made absolutely sure that this is correct (noting the issues highlighted above, such as differing international standards).

Asbestos contamination can also be an issue for tenants, especially where they are carrying out building or fitout works in the premises. WHS and Workers Compensation issues will be relevant to business owners regardless of whether they are landlords or tenants. Tenants should also ensure they are adequately protected with business interruption insurance coverage if the discovery of asbestos prevents them from carrying on business while rectification works are performed on the premises.

What should Australian businesses do to mitigate their risk?

First, Australian businesses should familiarise themselves with Australia's no tolerance policy and identify their legal obligations.

Second, it is imperative to implement and maintain strong risk management practices to ensure the products being imported, supplied or used comply with Australia's asbestos 'no tolerance' policy and sufficient measures are taken to prevent exposure to asbestos-related illnesses. Measures may include:

• enquiring with overseas suppliers about the use of asbestos at any point in the manufacturing process and the supply chain
• investigating any concerns
• where appropriate, including in supplier contracts a term that requires a nil asbestos content
• arranging for sampling and testing before products enter into Australia
• conducting regular risk assessments that identify which raw materials are used in the manufacture of a product and where those materials are sourced.

As long as there is a lack of consistency between international standards governing asbestos in products, there is a real risk that products imported for use in Australia might contain asbestos. The key for Australian businesses is to be aware of their obligations and liabilities, and to take appropriate steps to limit their exposure and mitigate their risk.

^Footnotes

¹ There is a very limited exception. Regulation 4C(a) of the Customs Regulations provides: "The importation into Australia of amphibole asbestos, or goods containing amphibole asbestos, is prohibited unless the importation is of raw materials that contain naturally occurring traces of amphibole asbestos" (emphasis added).

This article is intended to provide commentary and general information. It should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this article. Authors listed may not be admitted in all states and territories