HIH Casualty [2002] NSWSC 1036

New South Wales Supreme Court

CITATION : HIH Casualty [2002] NSWSC 1036 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 1810/01 HEARING DATE(S) : 15/10/02 JUDGMENT DATE : 6 November 2002

PARTIES : In the matter of HIH Casualty and General Insurance Limited (In Liquidation) Anthony Gregory McGrath and Alexander Robert Mackay Macintosh - Liquidators - Applicants JUDGMENT OF : Barrett J

COUNSEL : Mr N A Coffey, Solicitor - Applicants SOLICITORS : Blake Dawson Waldron - Applicants CATCHWORDS : CORPORATIONS - winding up - liquidator - approval required to enter into agreement of greater than three months duration - approval sought after the event LEGISLATION CITED : Corporations Act 2001 (Cth) Emanuele v Australian Securities Commission (1997) 188 CLR 114 Empire (Aust) Nominees Pty Ltd v Vince (2000) 35 ACSR 167 Re FAI General Insurance Co Ltd [2001] NSWSC 882 CASES CITED : Re HIH Insurance Group Ltd [2001] NSWSC 308 Lord Corporation Pty Ltd v Green (1991) 22 NSWLR 532 National Mutual Fire Insurance Co Ltd v Commonwealth [1981] 1 NSWLR 400 Registrar of Aboriginal Corporations v Bibelman Mia Aboriginal Corporation [2001] FCA 136 Re Sit Simplex Stulte Pty Ltd [2001] QSC 363 DECISION : Approval granted

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

BARRETT J

WEDNESDAY, 6 NOVEMBER 2002

1810/01 – HIH CASUALTY AND GENERAL INSURANCE LIMITED (IN LIQUIDATION) JUDGMENT 1 By an interlocutory process filed on 15 October 2002, Mr McGrath and Mr Macintosh, the liquidators of HIH Casualty & General Insurance Limited ("HIH"), seek an order approving their entering into, on behalf of HIH, certain agreements for the acquisition of services by HIH. 2 The services concerned are clearly services of a kind required for the proper and efficient conduct of the activities of HIH under the control of its liquidators. The present case is one in which the winding up is expected to be of significant duration, with the consequence that the liquidators must, of necessity, perform functions which would not form part of a winding up conducted according to normal expectations. The questions arising on an application under s.477(2B) in such a case are, in essence, whether there is a public interest in seeing the winding up continue for an extended period and whether, leaving aside the commercial merits or otherwise of the agreement (these not normally being the concern of the court), it is of a nature that properly relates to the due performance of the functions of the liquidator in relation to the extended administration: Re FAI General Insurance Co Ltd [2001] NSWSC 882. 3 I am satisfied that these questions should be answered in the affirmative in this case. There is, however, the point that each of the agreements has already been entered into and operates by reference to a "commencement date" which has already passed. It seems, therefore, that, subject to any contrary effect that absence of prior approval under s.447(2B) may produce, the providers of services are already contractually bound to provide the services, while HIH, for its part, is already contractually bound to take the services and to pay for them. This raises squarely the question whether approval under s.447(2B) may be given in some kind of retrospective fashion. 4 As is emphasised in the judgments of members of the High Court in Emanuele v Australian Securities Commission (1997) 188 CLR 114, a question of this kind is always to be approached by reference to the construction of the particular statute. The task is to discover, from the statute itself, which of the possibilities identified by Glass JA in National Mutual Fire Insurance Co Ltd v Commonwealth [1981] 1 NSWLR 400 applies in the particular circumstances: "… the proceeding is either a complete nullity or else it remains valid irrespective of whether or not leave is subsequently granted or else it continues in a state of suspended validity which will come to an end if leave is not obtained within an unspecified time." 5 In the present case, the applicable statutory provision reads, so far as is relevant, as follows: "Except with the approval of the Court, of the committee of inspection or of a resolution of the creditors, a liquidator of a company must not enter into an agreement on the company's behalf …". 6 The provision considered in Emanuele said: "An application by any of the following, or by persons including any of the following, may only be made with the leave of the Court …". 7 There is, to my mind, a difference between a provision saying that something "may only" be done with a certain kind of permission or leave and one stating that a person "must not" do a thing except with a particular permission or approval. In the former case, capacity and power are arguably denied, whereas the latter involves something more in the nature of a restriction on the exercise of a power. 8 I regard the provision now under consideration as the equivalent of one stating that a particular thing may be done with a particular approval, since a provision of that kind obviously carries within it a restriction precluding the doing of the thing without the approval. For this reason, I consider applicable to this case the approach taken by Cohen J in Lord Corporation Pty Ltd v Green (1991) 22 NSWLR 532 in relation to s.377(1)(c) of the Companies (New South Wales) Code. That section was in the following terms: "The liquidator may, with the authority of the Court, of the committee of inspection or of a resolution of the creditors - (c) make any compromise or arrangement with creditors …" 9 Cohen J was asked to authorise under the section the making of a compromise that had already been concluded. It was submitted that, since the approval had not been obtained in advance, the contract was made in excess of the liquidator's powers and therefore invalid. Cohen J did not accept that submission: "The fact that the liquidator entered into this compromise does not necessarily mean that it is invalid because the authority of the court was not given before its execution. In similar provisions in the English Companies Acts where the authority or approval of the court or the committee of inspection was required before engaging solicitors it has been held on a number of occasions that a failure to obtain that approval did not invalidate the engagement of the solicitors so as to prevent their costs being taxed and paid. The approval of the court can be given retrospectively: see Re London Metallurgical Co [1897] 2 Ch 262; Re Associated Travel Leisure and Services Ltd [1978] 1 WLR 547; [1978] 2 All ER 273 and Re A Debtor [1985] 1 WLR6; [1984] 3 All ER 995. The fact that the court can give a retrospective approval indicates that the act to which approval is given is not invalid but no doubt could be rendered invalid if the approval were to be refused. It was certainly made clear that the person entering into a compromise with a liquidator could not successfully allege that he is not bound because the liquidator had no power to effect that compromise. It was held in a Queensland case that where a liquidator has compromised a claim for damages without obtaining the authority or approval of the court it was competent for creditors who have not been paid in full and the shareholders to appeal to set aside the compromise: Re Stuckey and Co (In Liquidation); Ex parte Williams [1918] QWN 35.