New South Wales Supreme Court CITATION : New Cap Reinsurance Corp Ltd & Anor v Somerset Marine & Ors [2003] NSWSC 540 HEARING DATE(S) : 12/06/03 JUDGMENT DATE : 1 July 2003 JUDGMENT OF : Gzell J DECISION : Interlocutory process dismissed with costs CATCHWORDS : CORPORATIONS - Winding Up - Unfair preferences - Reinsurance Treaties with non-resident reinsureds providing for payment by cash, escrow accounts or letters of credit - Letter of credit agreement between reinsurers and banks providing for reimbursement of payments under letters of credit - Collateral agreement between reinsurers and banks providing for lodgement of securities in advance of establishment of letters of credit and charge over securities - Letters of credit in favour of reinsureds by non-resident bank - Payment by non-resident bank to non-resident reinsureds - Application to set aside originating process by liquidator of reinsurer as disclosing no cause of action - Whether non-resident reinsureds were parties to a transaction resulting in payment under the letters of credit - Whether non-resident reinsureds recieved payment under the letters of credit from the reinsurer Corporations Act 2001 (Cth) LEGISLATION CITED : Supreme Court Rules 1970 Companies Code Bankruptcy Act 1966 (Cth) News Corporation Ltd v Lenfest Communications Inc (1996) 40 NSWLR 250 Dey v Victorian Railway Commissioners (1948-1949) 78 CLR 62 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 Agar v Hyde (2000) 201 CLR 552 Penthouse Publications Ltd v McWilliam (unreported 14 March 1991 CA(NSW)) Mutual Life & Citizens' Assurance Co Ltd v Evatt (1970) 122 CLR 628 Hortico (Australia) Pty Ltd v Energy Equipment Co (Australia) Pty Ltd (1985) 1 NSWLR 545 Re Emanuel (No 14) Pty Ltd (in liquidation) (1997) 147 ALR 281 V R Dye & Co v Peninsula Hotels Pty Ltd (in liq) [1999] 3 VR 201 at 209 Re Lanpac International Pty Ltd (in liq) [1998] VSC 9 Mann v Sangria Pty Ltd (2001) 38 ACSR 307 Re Ruwaldt (1931) 3 ABC 245 CASES CITED : Re Smith (1933) 6 ABC 49 Re Lynch (1937) 9 ABC 210 Ramsay v National Australia Bank Ltd [1989] VR 59 Richardson v The Commercial Banking Co of Sydney Ltd (1951) 85 CLR 110 Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 Sheahan v Carrier Air Conditioning Pty Ltd (1996-1997) 189 CLR 407 Wily v Bartercard Ltd (2000) 34 ACSR 186 Bartercard Ltd v Wily (2001) 39 ACSR 94 Burns v Stapleton (1959) 102 CLR 97 Re C G Monkhouse Pty Ltd (in liq) (1968) 69 SR (NSW) 429 Norfolk Plumbing Supplies Pty Ltd v Commonwealth Bank of Australia (1992) 6 ACSR 601 Walsh v Terranova Pty Ltd (1994) 14 ACSR 432 Macquarie Health Corporation Ltd v Federal Commissioner of Taxation (1999) 96 FCR 238 PARTIES : Somerset Marine Incorporated & Ors - Applicants/Defendants New Cap Reinsurance Corporation Limited (In Liquidation) & Anor - Respondent/Plaintiff FILE NUMBER(S) : SC 2372/02 COUNSEL : Mr N Hutley SC/Mr M Leeming-Applicants/Defendants Mr B Coles QC/Mr P Dowdy-Respondent/Plaintiff SOLICITORS : Henry Davis York Lawyers Hunt & Hunt Lawyers IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION GZELL J TUESDAY 1 JULY 2003 2372/02 NEW CAP REINSURANCE CORPORATION LTD (IN LIQUIDATION) & ANOR v SOMERSET MARINE INCORPORATED & ORS JUDGMENT 1 By originating process, the first plaintiff and its liquidator, the second plaintiff, sought the recovery of moneys paid to the defendants on the basis that they were unfair preferences in terms of the Corporations Act 2001 (Cth), s 588FA(1). 2 The defendants were incorporated in the United States of America. They have not entered an appearance. By interlocutory process, they sought orders under the Supreme Court Rules 1970, Pt 11 r 8 setting aside the originating process, setting aside service of the originating process on them, a declaration that the Court has no jurisdiction over them in respect of the subject matter of the proceedings, or an order striking out the whole of the originating process or, alternatively, so much as sought to recover moneys paid to another corporation, New Cap Reinsurance Corporation (Bermuda) Ltd ("NCRB"). 3 In News Corporation Ltd v Lenfest Communications Inc (1996) 40 NSWLR 250 at 254-255, Giles J held that a claim that an originating process did not disclose a cause of action could be determined on a motion under the Supreme Court Rules 1970, Pt 11 r 8. 4 The principles applicable to summary dismissal of an action are well understood. The case must be very clear to justify summary intervention to prevent a plaintiff submitting his case for determination in the appointed manner (Dey v Victorian Railways Commissioners (1948-1949) 78 CLR 62 at 91). The Court's powers of summary dismissal should not be exercised to deny a plaintiff access to the Courts unless the lack of a cause of action is clearly demonstrated (General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129). It was common ground that these principles applied to the application (Agar v Hyde (2000) 201 CLR 552 at 575-576). 5 The allegations in the originating process and its accompanying statement of claim, together with the statements in an affidavit as to factual matters not set out in the pleading, were not in dispute. The application proceeded as on the old form of demurrer. It is for the applicant defendants to demonstrate that the originating process is beyond saving by legitimate amendment (Penthouse Publications Ltd v McWilliam (unreported, 14 March 1991, CA(NSW)) citing Mutual Life & Citizens' Assurance Co Ltd v Evatt (1970) 122 CLR 628 at 631). 6 For the purpose of this application, then, the following facts were not in issue. The first applicant was an insurance agent that underwrote reinsurance business as agent for a pool of reinsurance companies. The other applicants were members of that pool. The first respondent reinsured the members of the pool by reinsurance treaties entered into by the first applicant on their behalf. Article XXV of the reinsurance treaties was as follows: "If the Reinsurers are unauthorised in any State of the United States of America or the District of Columbia where authorisation is required by insurance regulatory authorities, the Reinsurers will fund (provided particulars are received thirty (30) days prior to the date funding is required by the Reinsured) known outstanding losses by either cash advances, escrow accounts for the benefit of the Reinsured, Letter of Credit, or a combination thereof, if a penalty would accrue to the Reinsured on its statement without such funding. The Reinsurer shall have the sole option of determining the method of funding referred to above provided it is acceptable to the insurance regulatory authorities involved." 7 Because of loss events, the first respondent became liable to the applicants under the reinsurance treaties. On behalf of the pool, the first applicant requested the establishment of letters of credit in specified amounts in favour of the respective members of the pool. 8 The first respondent and its related corporation, NCRB, had entered into a letter of credit agreement with The Chase Manhattan Bank, Sydney Branch as Issuing Bank and Administrative Agent and Bank of Bermuda (New York) Ltd as Collateral Agent whereunder the banks had agreed to issue letters of credit for the account of the first applicant and NCRB up to individual commitment limits. Section 2.01 of the agreement was in the following terms: "Subject to the terms and conditions set forth herein, the Issuing Bank agrees to issue (or extend or amend) Letters of Credit for the account of the Applicants from time to time during the Availability Period in an aggregate principal amount not to exceed the total Commitments and each Bank agrees to participate pro rata (in accordance with its Applicable Percentage) in the obligations created as a result of issuance (extension or amendment) of Letters of Credit in an amount not to exceed its Commitment. Within the foregoing limits and subject to the terms and conditions set forth herein, the Applicants may reduce or cancel Letters of Credit or request the extension of Letters of Credit or the issuance of new Letters of Credit, in each case subject to the consent of the beneficiary of any such Letter of Credit, if required." 9 It was provided that the Issuing Bank might, in its discretion, arrange for one or more letters of credit to be issued by affiliates of the Issuing Bank in which case the term Issuing Bank included any such affiliate with respect to letters of credit issued by that affiliate. 10 Provision was made for reimbursement from the first respondent and NCRB of any moneys paid by the Issuing Banks with respect to a letter of credit. Section 2.02(d) provided, in part: "If the Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit, each Applicant severally agrees to reimburse such LC Disbursement in accordance with its Reimbursement Obligation Percentage by paying to the Administrative Agent an amount equal to such Reimbursement Obligation Percentage of such LC Disbursement on the date that such LC Disbursement is made…." 11 The first respondent's obligations under the letter of credit agreement were secured by a collateral agreement between it, the Administrative Agent and the Collateral Agent. The Collateral Agent was required to maintain an account with the Federal Reserve Bank of New York. By book entry it was to record in a collateral account, the beneficial ownership interest of the first respondent. Section 3.02 of the collateral agreement was as follows: "On or prior to the date of the issuance of any Letter of Credit which is in whole or in part for the account of the Company, the Company shall cause to be delivered to the FRB Account, for credit in the Collateral Account, US Treasury Securities having a Loan Value so that after giving effect to such delivery and issuance of such Letter of Credit the Loan Value Percentage shall equal 100%." 12 The loan value percentage had as its numerator the value of the securities credited to the collateral account and, as its denominator, the first respondent's reimbursement obligation under the letter of credit agreement. In other words, the first respondent was obliged to deposit US treasury securities equal in value to its reimbursement obligations under the letter of credit agreement before the establishment of a letter of credit. 13 The first respondent was obliged to take all actions as should be necessary or as requested by the Collecting Agent to cause the loan value of the collateral at all times to be equal to at least the aggregate amount of the first respondent's obligations under the letter of credit agreement. 14 Over this fund, the first respondent gave security for the performance of its obligations. Section 3.01 of the collateral agreement was as follows: "As security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Secured Obligations, the Company hereby pledges and grants to the Administrative Agent, for the benefit of the Administrative Agent, Issuing Bank and the Banks as hereinafter provided, a security interest in all of the Company's right, title and interest in the following property, whether now owned by the Company or hereafter acquired and whether now existing or hereafter coming into existence (all being collectively referred to as "Collateral"): (a) the Collateral Account; (b) the US Treasury Securities credited from time to time to the Collateral Account; (c) all moneys representing interest or any payment on any of the US Treasury Securities described in clause (b) of this Section 3.01, or otherwise received in exchange therefor; (d) all Cash held from time to time in the Collateral Account; and (e) all proceeds of and to any of the property of the Company described in the preceding clauses of this Section 3.01 (including, without limitation, all causes of action, claims and warranties now or hereafter held by the Company in respect of any of the items listed above), or collections with respect to the US Treasury Securities and, to the extent related to any of the property of the Company described in the preceding clauses of this Section 3.01 or such proceeds, or books, correspondence, credit files, records and other papers; and (f) all Security Entitlements of the Company in any and all of the property of the Company described in the proceeding clauses of this Section 3.01." 15 The call under the reinsurance treaties was made by the applicants within the six month period ending on the relation back day for the purposes of the Corporations Act 2001 (Cth), s 588FE(2)(b)(i). The first respondent requested the Issuing Bank to issue letters of credit. With the exception of one beneficiary, two letters of credit were requested split roughly 70/30 in accordance with the relative obligations of the first respondent and NCRB. 16 The Issuing Bank requested its affiliate, The Chase Manhattan Bank New York ("Chase New York"), to issue the letters of credit, which it did. The letters of credit were presented to it in New York and payment was made to the applicants within the relevant six month period. On the next day, the Issuing Bank wrote to the first respondent requesting reimbursement of the amounts paid by Chase New York. 17 The Corporations Act 2001 (Cth), s 588FA(1) defines an unfair preference as follows: "A transaction is an unfair preference given by a company to a creditor of the company if, and only if: (a) the company and the creditor are parties to the transaction (even if someone else is also a party); and (b) the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction was set aside and the creditor were to prove for the debt in a winding up of the company; even if the transaction is entered into, is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency." 18 The applicants argued that they were not a party to any transaction with the first respondent that led to payment to them under the letters of credit and they received nothing from the first respondent. In other respects it was not in issue that the requirements of the legislation were satisfied. 19 The applicants argued that the only transaction to which they and the first respondent were parties were the reinsurance treaties. They were not parties to the letter of credit agreement. They were not parties to the collateral agreement. They received letters of credit from Chase New York. They presented those letters of credit and received payment from that bank. 20 The respondents submitted that the transaction in question was one whereby, pursuant to a request from the applicants, the first respondent arranged for the issue of letters of credit in favour of the applicants whereby the applicants received payment from Chase New York and the Issuing Bank obtained reimbursement from the first respondent. 21 As to the second proposition, the applicants argued that they received letters of credit from Chase New York that, upon presentation, led to payment from Chase New York. They did not receive payment from the first respondent or any chose in action enforceable against the first respondent. The fact that Chase New York had recourse against the first respondent and the securities credited to the collateral account was beside the point. It is a feature of an irrevocable letter of credit that the issuing bank cannot refuse to honour it provided necessary documents are lodged and any conditions are satisfied (Hortico (Australia) Pty Ltd v Energy Equipment Co (Australia) Pty Ltd (1985) 1 NSWLR 545 at 551). 22 The respondents submitted that the banks were the instruments by which the applicants received the payment from the first respondent. Looking at the overall transaction the first respondent's funds were depleted and, pro tanto, the debts due to the applicants were discharged. 23 It was submitted that it would be a curious result if payment by cheque or cash might be challenged as an unfair preference while payment by letter of credit could not. 24 The Bankruptcy Act 1966 (Cth), s 122 used to specify the types of transaction that could be set aside as a preference: a settlement, a conveyance or transfer of property, a charge on property, a payment made or an obligation incurred. That specification was repeated in the former legislation (Companies (New South Wales) Code, s 451(1)). The respondents submitted that the change in the current legislation to the more general reference to a transaction (Corporations Act 2001 (Cth), s 588FA(1)(b)), albeit that the term is defined in s 9 by reference to specific examples, indicated an intention to broaden the concept. 25 Reference was made to a passage from the Full Court of the Federal Court decision in Re Emanuel (No 14) Pty Ltd (in liquidation) (1997) 147 ALR 281 at 283, in which it was said that a benefit in terms of the Corporations Act 2001 (Cth), s 588FA might well be conferred on a creditor in a dealing that would not have been caught by any one of the types of transaction specified in the earlier legislation that adopted the Bankruptcy Act 1966 (Cth), s 122. 26 On the other hand, it has been said that while the statutory language has changed, the circumstances that constitute a preference under the Corporations Act 2001 (Cth), s 588FA are the same as those that constituted a preference under the Bankruptcy Act 1966 (Cth) s 122 (V R Dye & Co v Peninsula Hotels Pty Ltd (in liq) [1999] 3 VR 201 at 209, Re Lanpac International Pty Ltd (in liq) [1998] VSC 9, Mann v Sangria Pty Ltd (2001) 38 ACSR 307). 27 I would have thought that the former wording under the Bankruptcy Act 1966 (Cth), s 122 was sufficiently broad to encompass any transaction falling within the purview of the Corporations Act 2001 (Cth), s 588FA. However, in light of my view of the application before me, it is unnecessary for me to resolve this issue. In any event, it remains the case that the impugned transaction must be identified and the question asked whether it falls within the terms of the legislation. 28 The applicants also argued that the letters of credit for 30% of the amounts paid to the applicants discharged the obligation of NCRB and could not be recovered as unfair preferences given by the first respondent. 29 The respondents argued that NCRB did not cause the establishment of the letters of credit gratuitously. Their case was that a credit was raised in inter-company accounts between the first respondent and NCRB to reflect payment by NCRB on the first respondent's behalf. It was submitted that that was but a part of the transaction by which the debts due to the applicants were discharged. 30 In Re Stevens (1929) 1 ABC 90 a debtor, who was subsequently made bankrupt, authorised the purchaser of his property to issue a promissory note to a creditor who accepted it in full discharge of the debtor's debt to him. It was held that the giving of the promissory note was a conveyance or transfer of property within the meaning of the forerunner to the Bankruptcy Act 1966 (Cth), s 122(1). The transfer of property was regarded as that of the debtor. 31 Likewise, a payment by a third party from funds at the disposal of a debtor to a creditor of the debtor at the debtor's instance is treated as a payment by the debtor (Re Ruwaldt (1931) 3 ABC 245, Re Smith (1933) 6 ABC 49, Re Lynch (1937) 9 ABC 210). 32 In Ramsay v National Australia Bank Ltd [1989] VR 59 the undertaking of a company which had an overdraft with the bank was transferred to a new company for nominal consideration, the new company undertaking to discharge the indebtedness of the old company and indemnifying it with respect to that indebtedness. The new company drew a bill of exchange that was discounted by the bank. Together with funds deposited by the new company and an overdraft extended to the new company, the funds were utilised by the bank to discharge the overdraft of the old company. 33 Having cited the above cases and having considered Richardson v The Commercial Banking Co of Sydney Ltd (1951) 85 CLR 110 and Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360, the Court said at 63: "We have seen no authority for the proposition that a payment out of his own moneys by B to C, pursuant to a contractual obligation to discharge A's debt to C, an obligation imposed upon B by a contract between A and B, can be said to be a payment made by A to C." The Court accordingly concluded that the payment to discharge the overdraft was not made by the old company and, upon its liquidation, did not constitute a void preference. 34 The applicants rely upon Sheahan v Carrier Air Conditioning Pty Ltd (1996-1997) 189 CLR 407. A receiver appointed by a secured creditor to a company acting as a subcontractor, opened an account into which he deposited the proceeds of realisation of company assets. The company had engaged further subcontractors who refused to complete the work unless paid. The receiver paid them from the account. A liquidator was subsequently appointed and sought to set aside the payments as void preferences under former legislation invoking the Bankruptcy Act 1966 (Cth), s 122. The Court held that the payments were not preferences because they were neither made from moneys belonging to the company nor made by an agent of the company. 35 At 437, the Court, by reference to some of the cases cited in Ramsay, recognised that where a debtor directs a third party that holds funds at its direction or is otherwise obliged to account to it, not by payment to it, but to its creditor, there may be a payment made by the debtor within the meaning of the Bankruptcy Act 1966 (Cth), s 122(1). 36 At 438, the Court went on to cite with approval the above passage from Ramsay, concluding that there was no payment by the insolvent subcontractor because the payments made to discharge the further subcontractors' debts were not made from moneys belonging to the insolvent subcontractor. 37 The applicants submitted that the same situation arises in the instant circumstances. The payments were made by Chase New York from its funds and not from the funds of the first respondent. The fact that Chase New York had a right of recourse against the securities credited to the collateral account was beside the point. The nature of a letter of credit dictated that Chase New York should devote its own funds in the first instance to payment upon presentation of the letters of credit. 38 The respondents rely upon Emanuel. In that case, a company contracted with its debtor that, in full settlement of its claims, the debtor should make payments both to it and, at its direction, to its creditor. The Court held that the Corporations Law (Cth), s 588FA(1) was satisfied. At 289, the Court said: "We conclude, then, that a course of dealing initiated by a debtor that is intended to, and does, extinguish a creditor's debt can in its totality be a transaction for the purposes of Pt 5.7B of the Corporations Law notwithstanding that the achievement of that end can only be realised through the participation of a third party in a particular dealing (or dealings) within the overall transaction, being a particular dealing (or dealings) to which the debtor is not or may not be a party." 39 A similar approach was taken in Dye. In that case moneys were deposited to a trust account to be drawn down by an accountant as and when he performed services. It was held that the transaction was a prepayment of the kind traditionally excluded from the purview of the voidable preference legislation. 40 At 214, it was said that for the purpose of characterising any impugned transaction and its effect for the purpose of the preference provisions, the court should look at the "ultimate effect" of the "entire transaction". 41 In Wily v Bartercard Ltd (2000) 34 ACSR 186, the defendant operated a reciprocal trade exchange by which members exchanged goods and services. The defendant received a transaction fee calculated by reference to the value of the transactions. It also granted franchises to selected entities to operate within specified localities. A franchisee terminated its franchise. The defendant delivered documents to it but they were not signed. One document provided a formula under which the defendant received a credit that was set-off against amounts owing by it to the franchisee. Austin J held there to be a transaction that constituted an unfair preference under the Corporations Law (Cth), s 588FA. At 195-196, his Honour said: "In my opinion, an arrangement between two parties which produces legal consequences under either the law of contract or the law of equitable estoppel is a "transaction" for the purposes of s 588FA. The word "transaction" is defined in s 9, but not exhaustively. Having regard to the legislative policy with respect to voidable transactions, an arrangement having legal consequences and giving one of the parties to it a benefit of the kind described in s 588FA should, as a matter of legislative policy, be amenable to the application of that section. In Re Emanuel (No 14) Pty Ltd (in liq) (1997) 147 ALR 281; 24 ACSR 292, the Full Federal Court referred to the definition of "transaction" in s 9 and said (at ACSR 299): "Common to the examples is the characteristic that the conduct or dealing engaged in by the debtor company has the consequence of effecting a change in the rights, liabilities or property of the company itself." On this principle, the arrangement in the present case is a transaction whether it operates by way of contract or estoppel." His Honour's decision was approved on appeal ( Bartercard Ltd v Wily (2001) 39 ACSR 94). 42 The respondents submitted that this approach was not new. In Richardson the Court recognised that a discrete dealing might be merely part of an entire or whole transaction. It was submitted that the approach was consistent with the purpose behind the unfair preference provisions. In Burns v Stapleton (1959) 102 CLR 97 at 104 it was said that the Bankruptcy Act 1924-1955 (Cth), s 95(1) clearly intended to make void the change in the legal situation of a person unable to pay his debts which, if allowed to be effectual, would dislocate the statutory order of priorities amongst creditors. 43 It seems to me that these propositions are non-controversial. I did not understand the applicants to challenge them. What is controversial is the passage in Emanuel at 287-288 where the Court criticised the passage from Ramsay on the basis that before a payment made by B to C could be effective to discharge A's debt to C, it must be made with A's authorisation or ratification. The Court took the view that where a payment is so made it can properly be said that it is A's act that makes B's payment efficacious at law to discharge the debt to C and where the payment constitutes part of the consideration B furnished and A required in the A-B contract and where that consideration is the final settlement of the obligation inter se A and B, then A has made the payment to C albeit by using B as its instrument for the purpose. 44 The applicants point out that those observations were obiter dicta, the Court specifically stating that it was unnecessary to consider that matter or Ramsay. In light of the endorsement of Ramsay in Sheahan, which was decided after Emanuel and without reference to it, the applicants submitted that the proposition cannot stand. 45 In approving the passage from Ramsay, the High Court in Sheahan referred, apparently with approval, to Re C G Monkhouse Pty Ltd (in liq) (1968) 69 SR (NSW) 429. In that case a building contractor was obliged to pay subcontractors and in default the building owner was to pay them and deduct the amount from moneys otherwise payable to the builder. The owner paid a subcontractor and deducted the amount from the next payment to the contractor. At the time of payment to the subcontractor there was no debt due by the owner to the contractor. 46 At 431, Jacobs JA observed that the case was not one where the building owner paid the subcontractor out of moneys that were then due or would certainly become due to the building company. 47 The respondents submitted that that observation supported their case. The applicants pointed out that there was no obligation that answered that description in Monkhouse and the same applied to Chase New York in the instant circumstances. 48 It should be noted that Ramsay has been considered on a number of occasions and distinguished. In Norfolk Plumbing Supplies Pty Ltd v Commonwealth Bank of Australia (1992) 6 ACSR 601 at 616, Kearney J said its facts were special and had no bearing on the matter before him (see also Walsh v Terranova Pty Ltd (1994) 14 ACSR 432 at 436). It may also be observed that Emanuel was distinguished in Macquarie Health Corporation Ltd v Federal Commissioner of Taxation (1999) 96 FCR 238 at 269-271. 49 I am not satisfied that Ramsay and Sheahan so clearly dictate the conclusion for which the applicants contend that I should deny the respondents the opportunity of placing their case before the Court. In Ramsay the funds of the third party were used to discharge the company in liquidation's liability to the bank. The assets of the company in liquidation were not depleted as a consequence of that transaction. It was the earlier disposal of its undertaking for a nominal sum under which any depletion of the assets took place. 50 Likewise in Sheahan, it was third party funds, the moneys in the receiver's account, and not the funds of the company in liquidation that were used to discharge the debts due to the subcontractors. 51 In the instant circumstances, assets of the first respondent, sufficient to cover Chase New York's payment of the letters of credit, were required to be deposited for credit to the collateral account. The placing of those funds for the credit of that account and the charge given over them preceded any recourse that the Issuing Bank might have made against them. 52 I agree with the submission on behalf of the respondents that the High Court's endorsement of Ramsay must be understood in the context of the facts of that case. In my view, Ramsay and Sheahan are distinguishable from the instant circumstances and do not command the same result. At the very least, there is good argument to that effect. 53 The criticisms of Ramsay in Emanuel while obiter dicta, have force. The issue has not been authoritatively determined by a court, and I am of the view that the respondents should have the opportunity of testing those propositions in these proceedings. 54 If the applicants' acceptance of payment on the letters of credit as discharging the first respondent's indebtedness to them required the authorisation of the first respondent, there was a transaction between the first respondent and the applicants, albeit it was but part of the entire transaction under which the Issuing Bank and Chase New York were the instruments for payment. 55 Article XXV of the reinsurance treaties, to which the applicants were parties, required the first respondent to fund outstanding losses by, amongst other ways, letters of credit. In accordance with that obligation, it entered into the letter of credit agreement and the collateral agreement and in further discharge of its obligation, it pre-funded payment by Chase New York on the letters of credit. 56 The first respondent thereby discharged its indebtedness to the applicants by payment by way of letters of credit. At the instance of the first respondent, the applicants received the benefit of the letters of credit that were created in their favour and pre-paid at the first respondent's instance. 57 On this analysis, there was a transaction to which the applicants were party and under which they received property from the first applicant by its instrument, the Issuing Bank and its instrument, Chase New York. 58 To concentrate, as the applicants have done, on the Issuing Bank's right to reimbursement and right of recourse under the security, ignores the fact that the first respondent's funds were depleted in advance of payment on the letters of credit. 59 At the very least this line of reasoning raises a serious issue and the respondents should not be denied the opportunity to have a Court finally determine the matter. 60 As to the submission that the respondents can have no interest in the 30% payments under the letters of credit, the argument that the first respondent's obligation under the reinsurance treaties was initially discharged by NCRB and then charged to the first respondent in inter-company accounts, is a matter that can be raised by legitimate amendment of the statement of claim. 61 I dismiss the applicants' interlocutory process. I order the applicants to pay the respondents' costs of the application. ********** Last Modified: 07/01/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.