REINSURANCE v ODYSSEY [2000] NSWSC 1118

Reported Decision : (2000) 36 ACSR 348 (2001) 19 ACLC 401

New South Wales Supreme Court

CITATION : REINSURANCE v ODYSSEY [2000] NSWSC 1118 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 3016 of 2000 HEARING DATE(S) : 1/11/2000, 16/11/2000, 17/11/2000 JUDGMENT DATE : 14 December 2000

PARTIES : Reinsurance Australia Corporation Limited v Odyssey Re (Bermuda) Ltd (Company No 16193) JUDGMENT OF : Master Macready at 1

COUNSEL : Mr. J. Gleeson with Mr R. Dick for plaintiff Mr T.G.R. Parker for defendant SOLICITORS : Phillips Fox for plaintiff Allen Allen & Hemsley for defendant CATCHWORDS : Corporations Law. Application to set aside statutory demand which demanded payment of a claim under a policy of reinsurance. Held that such a claim was not a debt. Also held that there was a genuine dispute about the claim. Demand set aside. DECISION : Paragraph 58..

- 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

MASTER MACREADY

Thursday 14 December 2000

No 3016 of 2000 REINSURANCE AUSTRALIA CORPORATION LIMITED v ODYSSEY RE (BERMUDA) LIMITED (COMPANY NO 16193)

JUDGMENT 1 MASTER: This is an application under section 459G of the Corporations Law to set aside a statutory demand dated 9 June 2000 claiming US$4,144.628.41 from the plaintiff by the defendant. I will deal with some of the factual background so that the argument and the parties' stance in the matter can be understood. 2 The plaintiff is a listed Australian based reinsurance company with net assets said to be in the order of some $42 million. Since February 2000 the plaintiff has been in what is described as "run off". This means that it has written no new business since that time and is presently involved in the process of paying out its liabilities under its existing reinsurance contracts which process includes discussions with various companies for a commutation of the plaintiff's liability in respect of existing reinsurance contracts. The plaintiff says that after this process is complete it will be paying a substantial dividend to shareholders. The defendant puts a somewhat different view of the reasons for the run off process. 3 The defendant company is a reinsurance company within the Fairfax Group of insurers. That group has reinsured various of its risks with the plaintiff. One of the risks placed with the plaintiff was a US$10 million reinsurance policy covering three years from 1 January 1998. The plaintiff's share of the liability under the policy was some 50 percent. The policy was placed on behalf of a number of companies including the defendant. 4 Initially a claim estimate was made by the defendant under the relevant policy of reinsurance which was in respect of the Sydney hail storm and a European storm. On 29 March 2000 the defendant changed its demand to one in respect of the Turkish earthquake. That was an earthquake which occurred on 17 August 1999 and the epicentre of the earthquake was near Izmit on the Asian shore of the sea of Marmara. The earthquake caused considerable loss of life and property damage. Between April and 12June 2000 when the statutory demand was served both the commutation issue and the claim in respect of the Turkish earthquake were being considered and discussed between the plaintiff and the defendant. According to the plaintiff the first date on which the defendant intimated that its claim in respect of the Turkish earthquake might be pursued independently of commutation was 19 April 2000. There is a dispute between the parties on this aspect. 5 From at least 18 May 2000 and on a number of occasions thereafter, the plaintiff has demanded that the defendant permit the plaintiff to inspect the defendant's records pursuant to an access of records clause in the policy of insurance. This was to enable the plaintiff to consider its position in the commutation process and arguably to assess its liability in respect of the demand that had been made on 29 March 2000 by the defendant's broker Aon Group Limited. That request was refused by the defendant who required that its claim be paid before access would be granted. 6 The documentation in respect of the contract of reinsurance only consists of the original signed slip in December 1997. The full policy wording has not been agreed although one was offered by the defendant's broker on 19 April 2000. Although I will return to the terms of the policy in more detail it is clear that the policy even in its abbreviated form included:-