Wakim v HIH Casualty & General Insurance Ltd [2001] FCA 1892

FEDERAL COURT OF AUSTRALIA

Wakim v HIH Casualty & General Insurance Ltd [2001] FCA 1892

GEORGE WAKIM v HIH CASUALTY & GENERAL INSURANCE LIMITED (PROVISIONAL LIQUIDATORS APPOINTED) N 281 OF 2001 LINDGREN J 14 DECEMBER 2001 SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY N 281 OF 2001

BETWEEN: GEORGE WAKIM

APPLICANT

AND: HIH CASUALTY & GENERAL INSURANCE LIMITED

(PROVISIONAL LIQUIDATORS APPOINTED)

RESPONDENT

JUDGE: LINDGREN J

DATE OF ORDER: 14 DECEMBER 2001

WHERE MADE: SYDNEY

THE COURT ORDERS THAT:

1. The motion brought by notice of motion filed on 19 June 2001 be dismissed.

2. The applicant pay the respondent's costs of the motion.

3. The application be dismissed.

4. The applicant pay the respondent's costs of the application other than those referred to in Order 2 above. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY N 281 OF 2001

BETWEEN: GEORGE WAKIM

APPLICANT

AND: HIH CASUALTY & GENERAL INSURANCE LIMITED

(PROVISIONAL LIQUIDATORS APPOINTED)

RESPONDENT

JUDGE: LINDGREN J

DATE: 14 DECEMBER 2001

PLACE: SYDNEY

REASONS FOR JUDGMENT 1 There is before the Court a motion brought by notice of motion filed on 19 June 2001 by the applicant ("Mr Wakim"). By the substantive application by which the proceeding was commenced on 22 March last, Mr Wakim seeks an extension of time in which to file and serve a notice of appeal from a judgment of Einfeld J given on 20 February 2001. By the notice of motion Mr Wakim seeks leave under s 471B of the Corporations Law to proceed with an appeal against the respondent, HIH Casualty & General Insurance Limited ("HIH"). Section 471B of the Corporations Law has now been replaced by s 471B of the Corporations Act 2001 (Cth) ("the Act"). The provisions are identical and are as follows: "While a company is being wound up in insolvency or by the Court, or a provisional liquidator of a company is acting, a person cannot begin or proceed with: (a) a proceeding in a court against the company or in relation to property of the company; or (b) enforcement process in relation to such property; except with the leave of the Court and in accordance with such terms (if any) as the Court imposes." 2 Provisional liquidators were appointed to HIH on 15 March 2001. The provisional liquidators are Anthony Gregory McGrath and Alexander Robert Mackay McIntosh. 3 The judgment at first instance is that given by Einfeld J in George Wakim v HIH Casualty & General Insurance Ltd & Ors [2001] FCA 103 in proceeding NG 981 of 1993. 4 On the same day Einfeld J gave judgment for the respondents in two other proceedings. These were George Wakim v Peter J. McNally & Terrence J. McNally trading as Lobban McNally & Harney (NG 65 of 1994) and George Wakim v The Official Trustee in Bankruptcy (NG 8252 of 1997). 5 Mr Wakim sought an extension of time in which to appeal in respect of the decisions adverse to him in the McNally and The Official Trustee in Bankruptcy proceedings (those applications for extension were proceedings N 282 of 2001 and N 279 of 2001). I granted Mr Wakim the leave which he sought in both of those proceedings on 13 June last (see Wakim v Official Trustee in Bankruptcy [2001] FCA 748). The reasons for judgment which I gave then for doing so did not address Mr Wakim's application for an extension of time to appeal against his Honour's judgment in favour of HIH. 6 I will not repeat here the facts in relation to either the general background or Mr Wakim's delay in appealing. Rather, I incorporate by reference in these reasons for judgment what I said on 13 June 2001 in granting the other two applications for extensions of time. 7 The present motion was listed for hearing on 5 November 2001. On that occasion, Mr Wakim sought an adjournment. I granted the adjournment and gave reasons for doing so ([2001] FCA 1601). I also incorporate what I said in those reasons for judgment in these reasons. 8 The provisional liquidation of HIH introduces into the present application a range of discretionary factors which were not present in either the McNally or The Official Trustee in Bankruptcy proceedings. The evidence relied upon by the liquidators shows that the provisional liquidation is of great magnitude and complexity. There are an estimated 50,000 claims involving companies in the HIH Group (either as insurer or defendant or plaintiff) to which the provisional liquidators were appointed. 9 In his affidavit Mr McGrath states that he does not expect that the provisional liquidators or liquidators would be in a position to deal with the assessment of claims against HIH in an orderly manner for quite some period of time. He states, and I accept, that if leave to proceed were to be granted, the provisional liquidators would be required to determine with respect to an appeal by Mr Wakim: · whether there are funds available to fund an opposition to the appeal; · whether the appeal should be resisted in the interests of creditors generally; · what priority should be directed to resisting the appeal as against the priority to be granted to dealing with other claims; and · the effect that resisting the appeal would have, in the light of the ability to recover from any relevant reinsurer. 10 According to Mr McGrath's affidavit, the provisional liquidators would need to determine matters of that kind on an ad hoc basis in relation to all proceedings in respect of which leave to proceed was granted and this would disrupt work on other tasks being undertaken by the provisional liquidators. 11 In his affidavit Mr McGrath states: "The consideration of each separate proceeding will consume administrative resources and the time of the liquidators and their staff and advisers. In matters in which leave has been obtained, the Provisional Liquidators have had to expend resources to obtain legal advice on the steps the Provisional Liquidators should take (if any) in those proceedings." Mr McGrath states that at the time of swearing his affidavit, the provisional liquidators had not decided whether or not to resist an appeal by Mr Wakim if leave to proceed were to be granted to him, and would consider matters of the kind outlined above if leave should be granted. 12 A report by the provisional liquidators to the Supreme Court of New South Wales in proceeding No 1799 of 2001 in the Equity Division of that Court shows that the HIH Group comprises some 274 companies in Australia and many other jurisdictions, that at the time of the appointment of the provisional liquidators the Group had approximately 2800 employees and was Australia's second largest insurer, and that the Group had assets worth in excess of $8 billion according to the Group's annual return for the year ended 30 June 2000. 13 The report outlines the tasks undertaken by the provisional liquidators. I will not set them out but they represent many, varied and onerous activities which the provisional liquidators have been obliged, and are still obliged, to undertake. After a review of the HIH Group's financial position Mr McGrath stated to the Federal Government Task Force on 25 May 2001 that early estimates of the total deficiency were between $2.7 billion and $4 billion. The estimated net asset deficiency in HIH itself was $1.507 billion. 14 As I indicated in my reasons for judgment given on 5 November 2001, a scheme called the HIH Claims Support Scheme ("the Scheme") has been put into place by the Commonwealth Government. The Scheme is administered by HIH Claims Support Limited ("HCS"). (Mr AA Henskens of counsel has appeared amicus curiae for that company, to assist the Court, if required, in relation to the operation of the Scheme.) I will not repeat here what I said about the Scheme in those reasons for judgment. 15 In relation to Mr Wakim's application for assistance under the Scheme, there is now evidence before the Court in the form of a letter dated 27 November 2001 from HCS to Mr Brett Hurley, Mr Wakim's solicitor, in which it is stated that as a condition of granting assistance to Mr Wakim, HCS would require: "(a) the written acknowledgment of the Liquidators of HIH that HIH will pay 10% of the legal costs incurred in defending/opposing Mr Wakim's appeal; (b) an assignment by HIH to HCS of HIH's right to receive or demand receipt of the benefit of any Court order that Mr Wakim pay HIH's costs of the appeal, in the event that HIH successfully defends the appeal (on the basis that the Scheme will be paying 90% of HIH costs); and (c) security for costs as set out below." 16 The first condition has not been satisfied. That is to say, there does not yet exist a written acknowledgment by Messrs McGrath and McIntosh that HIH will pay 10 per cent of the legal costs incurred in resisting Mr Wakim's appeal. It is of course true, as Mr Hurley who appears for Mr Wakim submits, that this has nothing to do with his client. But what matters for present purposes is simply that the condition has not been satisfied (for reasons which are given by Mr McGrath). It cannot be suggested that the failure to give the written acknowledgment in any way suggests any bad faith on the part of the provisional liquidators; indeed, the first condition raises a question as to whether it is appropriate for them to give the written acknowledgment, having regard to the numerous other claims against HIH. 17 In relation to the second condition, it is clear that what it requires is an assignment now by HIH to HCS of the entirety of HIH's right to receive or demand receipt of the benefit of any Court order that Mr Wakim pay HIH's (party/party) costs of the appeal in the event that HIH successfully resists the appeal, as security for the whole of the 90 per cent of HIH's (solicitor/client) costs to be funded by HCS. That is to say, before the provisional liquidators would be reimbursed one cent, any recovery of costs by HIH from Mr Wakim would go to pay fully the costs which HCS would have funded. This condition also has not been satisfied and there is no suggestion that the failure of the provisional liquidators to provide the assignment is in any way attributable to bad faith on their part. 18 The third condition is to the effect that security for costs would have to be provided by Mr Wakim in respect of an order in favour of HIH for costs. This condition has not been satisfied either. Mr Hurley sought a further short adjournment while he took instructions from Mr Wakim's brother as to whether he would be prepared to provide the security. I declined to allow him the opportunity. The issue of security has been a live one in the proceeding since at least 27 November 2001 and it has long since been open to Mr Wakim or his brother to provide evidence in this proceeding as to the amount and form of any security which they would be willing and able to provide. 19 I note that if the security was only in respect of HIH's party/party costs, this would leave the amount of any difference between those party/party costs and HIH's solicitor/client costs not covered. 20 Having regard to the nature of the provisional liquidation and in particular its size and the extent of the deficiency and the problems which would be associated with the provisional liquidators having to divert effort to dealing with the appeal, the non-satisfaction of the three conditions stipulated by HCS and the unlikelihood that they will ever be satisfied, and the dislocation of priorities as between Mr Wakim and unsecured creditors which would result from the granting of the leave, I decline the application for leave under s 471B of the Act. The result is that the motion will be dismissed with costs. 21 It follows that the substantive application for the extension of time must also be dismissed with costs. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.