TANALEE SMITH

SYDNEY (AP) ¿ Ten former officials of building materials giant James Hardie Industries NV misled asbestos victims into believing the company had set aside enough funds for compensation, an Australian civil court ruled Thursday.

Justice Ian Gzell of the New South Wales state Supreme Court said the ten had breached their duties as directors and executives when they announced in February 2001 a fund that would provide certainty of compensation for those sickened by the company's asbestos products.

Two years later, it was found the fund had a shortfall of more than 1 billion Australian dollars ($710 million).

Gzell said the company's announcement "was expressed in too emphatic terms" and criticized the board members for failing to correct the misleading information or inform the Australian Stock Exchange.

No ruling has yet been made on penalties.

The civil case was filed by the Australian Securities and Investments Commission. It is seeking maximum fines of $200,000 Australian dollars ($141,670) against the 10 former James Hardie officials, and disqualification from managing a company.

James Hardie ¿ Australia's largest asbestos maker for most of last century ¿ has been making compensation on asbestos-related claims since the early 1980s and stopped making asbestos products in 1987.

Following a shortfall in its first compensation fund, James Hardie agreed in 2006 to pay AU$4 billion to an amended fund over the next 40 years, in anticipation of continuing claims from workers and family members whose health was affected by work with asbestos. Inhaled asbestos mineral fibers can cause mesothelioma, asbestosis and lung cancer.

On Thursday, the company announced it could not afford to contribute to the fund this year because of a cash crunch following the meltdown of the U.S. housing market, which provides 75 percent of the company's sales.

"Future funding ... continues to be linked to the long-term financial success of James Hardie," the company said in a statement.

"It is anticipated that the annual payment due on July 1, 2009 will be zero."

James Hardie said the shortfall in the fund was "regrettable" and that it would resume contributions when its operating cash flow was positive.

Unions called on the company to open its books to independent scrutiny to prove it cannot contribute to the fund.

James Hardie shares closed down 23 cents, or 5.2 percent, at AU$4.23.

___

On the Net:

James Hardie: http://www.jameshardie.com.au/

Copyright 2009 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

More from Stocks

Stacey Cunningham: From Intern to Head of the New York Stock Exchange

Stacey Cunningham: From Intern to Head of the New York Stock Exchange

Stocks Waver Amid Progress on U.S.-China Trade; Dow Slips

Stocks Waver Amid Progress on U.S.-China Trade; Dow Slips

WATCH LIVE: Facebook CEO Mark Zuckerberg Appears Before European Parliament

WATCH LIVE: Facebook CEO Mark Zuckerberg Appears Before European Parliament

Jim Cramer: Schlumberger Predicted the Rise in Oil Prices

Jim Cramer: Schlumberger Predicted the Rise in Oil Prices

Jim Cramer on Zillow's New Business: Buying and Selling Homes

Jim Cramer on Zillow's New Business: Buying and Selling Homes