New South Wales Supreme Court CITATION : Re HIH Casualty and General Insurance Limited & Ors [2006] NSWSC 6 HEARING DATE(S) : 04/03/05, 10/03/05, 18/03/05, 29/03/05, 04/04/05, 26/08/05, 10/10/05, 17/11/05, 18/11/05 JUDGMENT DATE : 31 January 2006 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Barrett J DECISION : Plaintiffs to pay one half of the costs of Amaca Pty Ltd and Amaba Pty Ltd and one half of the costs of Hazelwood Power Partnership and La Trobe Power Partnership CATCHWORDS : CORPORATIONS - creditors granted leave to be heard without becoming parties - applications by liquidators for convening of meetings of creditors to consider scheme of arrangement - difficult and novel questions - whether creditors should be awarded costs Civil Procedure Act 2005, s.98 LEGISLATION CITED : Corporations Act 2001 (Cth), s.411(1) Supreme Court (Corporations) Rules 1999, rules 2.13(1), 2.13(2) AssetInsure Pty Ltd v New Cap Reinsurance Corporation Ltd [2005] HCATrans 990 and 991 Knight v F P Special Assets Ltd (1992) 174 CLR 178 New Cap Reinsurance Corp Ltd v General Cologne Re Australia Ltd (No 2) [2005] NSWSC 276 Re European Banking Company; Ex parte Baylis (1866) LR 2 Eq 521 CASES CITED : Re HIH Casualty and General Insurance Co Ltd (2005) 190 FLR 398 Re HIH Casualty and General Insurance Company Ltd (2005) 54 ACSR 380 Re HIH Casualty and General Insurance Limited [2005] EWHC 2125 (Ch) Re HIH Casualty and General Insurance Limited [2005] NSWSC 1180 Re Pan Pharmaceuticals Ltd; Selim v McGrath (2004) 48 ACSR 681 HIH Casualty & General Insurance Limited, FAI General Insurance Company Limited, CIC Insurance Limited, World Marine & General Insurances Pty Limited, FAI Traders Insurance Company Pty Limited, FAI Reinsurances Pty Limited, FAI Insurances Limited, HIH Underwriting and Insurance (Australia) Pty Limited - First Plaintiffs PARTIES : Anthony Gregory McGrath and Alexander Robert Mackay Macintosh - Second Plaintiffs Australian Securities and Investments Commission - Leave granted to appear by counsel as amicus curiae Amaca Pty Limited, Amaba Pty Limited, Hazelwood Power, La Trobe Power Partnership, Perisher Blue Pty Limited - Entities granted leave under rule 2.13 of the Supreme Court (Corporations) Rules 1999 to be heard without becoming parties FILE NUMBER(S) : SC 6708/04 Mr M.B. Oakes SC/Mr A.P. Ryan, Solicitor - First and Second Plaintiffs COUNSEL : Mr S.D. Rares SC/Mr P.W. Flynn - Australian Securities and Investments Commission Mr S.D. Robb QC/Mr J.A.C. Potts - Amaca Pty Limited and Amaba Pty Limited Mr I.M. Jackman SC - Hazelwood Power, La Trobe Power Partnership Blake Dawson Waldron - First and Second Plaintiffs Kim Turner - Australian Securities and Investments Commission SOLICITORS : Eakin McCaffery Cox - Amaca Pty Limited and Amaba Pty Limited Mallesons Stephen Jaques - Hazelwood Power, La Trobe Power Partnership Dibbs Abbott Stillman - Perisher Blue Pty Limited IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J TUESDAY, 31 JANUARY 2006 6708/04 – RE HIH CASUALTY AND GENERAL INSURANCE LIMITED & ORS JUDGMENT 1 On 18 November 2005, I made orders under s.411(1) of the Corporations Act 2001 (Cth) for the convening of meetings of the creditors of certain insurance companies for the purpose of considering schemes of arrangement between the several companies and their respective creditors: see Re HIH Casualty and General Insurance Limited [2005] NSWSC 1180. It is now necessary to deal with matters of costs. 2 The applications by the insurance companies (which were the first plaintiffs, their liquidators being the second plaintiffs) were initiated by the filing of an originating process on 10 December 2004. On 29 March 2005, after a hearing that took place on 4, 10 and 18 March 2005, I declined to make orders for the convening of meetings but indicated that the applicant liquidators would be given an opportunity to reformulate the proposed schemes: see Re HIH Casualty and General Insurance Co Ltd (2005) 190 FLR 398. On 3 June 2005, I granted a further adjournment to allow the liquidators of the companies to commence proceedings in the High Court of Justice in England for the purpose of obtaining a decision on certain questions of English law relevant to the reformulation of the proposed schemes: see Re HIH Casualty and General Insurance Company Ltd (2005) 54 ACSR 380. On 4 July 2005, I ordered that this court issue a letter of request addressed to the High Court of Justice. On 7 October 2005, the English court gave judgment: see Re HIH Casualty and General Insurance Limited [2005] EWHC 2125 (Ch). Thereafter, this court made orders for the convening of meetings of creditors to consider the schemes as eventually formulated by the liquidators. 3 Several creditors of the plaintiff companies were granted leave under rule 2.13(1) of the Supreme Court (Corporations) Rules 1999, that is, leave to be heard in the proceedings without becoming parties. They included Amaca Pty Ltd and Amaba Pty Ltd, for which Mr Justin Gleeson SC (and later Mr Robb QC) appeared together with Mr Potts of counsel, and Hazelwood Power and Latrobe Power for which Mr Jackman SC and Mr Strong of counsel appeared. The entities I have named (as well as others granted leave under rule 2.13(1)) had a particular interest in two aspects of the proposed schemes. One such aspect concerned the operation of s.562A of the Corporations Act for the benefit of those creditors of the companies in respect of whose risks the companies carried reinsurance. The other aspect concerned the operation of s.116 of the Insurance Act 1973 for the benefit of creditors in respect of an insurer's liabilities in Australia – and, more generally, the question of the availability to the liquidators appointed by this court of proceeds and assets receivable in other countries, particularly from reinsurers. 4 The Australian Securities and Investments Commission (ASIC) appeared as amicus curiae at all stages of the proceedings. 5 Matters concerning s.562A and s.116 became the substantial focus of the applications as initially heard on 4, 10 and 18 March 2005. Detailed submissions were made on behalf of Amaca/Amaba, Hazelwood/Latrobe, certain other entities granted leave under rule 2.13(1) and ASIC. All of them took the view that the scheme, as originally formulated, was inconsistent with the legislative provisions, although there were differences in the approaches and reasoning advanced by each. My decision was that the schemes as then formulated failed to recognise and give effect to the relevant legislative provisions and that, for that reason, orders for the convening of scheme meetings would not be made. There was some reference, at that stage, to some other features of the schemes that would in due course require consideration, in particular, aspects concerning the allocation of assets and liabilities to various geographical areas. It was those aspects, insofar as they involved the United Kingdom, which eventually caused the liquidators to become party to the separate proceedings in the English court. Amaca Pty Ltd and Amaba Pty Ltd became respondents in those separate proceedings. 6 The schemes as eventually proposed by the liquidators do not embody features cutting across s.562A or s.116 or features inconsistent with the English law position as disclosed by the decision of the English court (or, for that matter, the English law position as it may exist after an appeal, leave to appeal having been granted on 24 October 2005). 7 Each of Amaca/Amaba and Hazelwood/Latrobe says that, in the circumstances of this particular case, it should have a costs order against the companies upon whose applications the order for the convening of meetings have been made. It is their contention that, even though they were not parties to the proceedings (having been granted leave to be heard only), they played such a part in the emergence of the final result that, in effect, their contribution to the outcome should be appropriately recognised. ASIC does not seek a costs order. It takes the view that its assistance to the court as amicus curiae was no more than part and of its statutory role in relation to the due administration of the corporations legislation. 8 In Re Pan Pharmaceuticals Ltd; Selim v McGrath (2004) 48 ACSR 681, I referred to cases in which it had been recognised that the power of the court under s.76 of the Supreme Court Act 1970 to award costs was sufficiently general to allow the making of a costs order against a party and in favour of a non-party. I was there satisfied that such an order could be made. A corresponding view was subsequently expressed by Young CJ in Eq in New Cap Reinsurance Corp Ltd v General Cologne Re Australia Ltd (No 2) [2005] NSWSC 276. Section 76 of the Supreme Court Act has now been replaced by s.98 of the Civil Procedure Act 2005. I am satisfied that the same approach is appropriate under the revised legislation, with the result that, as a matter of abstract power, the court may make a costs order against the plaintiff companies and in favour of Amaca/Amaba and Hazelwood/Latrobe, even though they have never been parties. 9 In the Pan Pharmaceuticals case, I also referred to the special provisions with respect to costs forming part of the regime under which creditors and other interested persons may be allowed to be heard in corporations cases without becoming parties. I referred in particular to rule 2.13(2) of the Supreme Court (Corporations) Rules which contemplates the possibility that additional costs to which a party is put by reason of the participation of the non-party granted leave may be laid by the court at the feet of the non-party. The provisions giving the court power to allow interested persons to be heard without becoming parties therefore expressly contemplate principles different from those relevant to costs of parties to the proceedings. 10 The context in which that power is given to the court, coupled with the emphasis by members of the High Court in Knight v F P Special Assets Ltd (1992) 174 CLR 178 on the extraordinary nature of the aspect of the general costs power involving orders against non-parties, caused me to conclude, in Pan Pharmaceuticals, "… that some very special factor outside the ordinary and expected course of events and engendering a justifiable expectation of compensation in the mind of the non-party would have to be found before nay relevant aspect of the comprehensive jurisdiction with respect to costs might be regarded as regularly and properly invoked in favour of a non-party as against a party. In other words, such an award, if ever appropriate, will be extraordinary and exceptional. Someone who seeks and is granted leave under rule 2.13(1) chooses a course entailing the limited costs exposure described in rule 2.13(2). Such a person can have very little expectation of being awarded costs." 11 It is submitted on behalf of each of Amaca/Amaba and Hazelwood/LaTrobe that, although it chose the rule 2.13(1) course, it should have an order for costs against the plaintiff companies. The basic propositions they advance in support of their claims may be stated briefly. It was the avowed intention of the plaintiff companies and their liquidators from the outset that the scheme as proposed should be consistent with and accommodate s.562A and s.116. They formulated the scheme according to what they took to be the effect of those provisions, having regard to the limited case law guidance available. All of the entities granted leave under rule 2.13(1) (including Amaca/Amaba and Hazelwood/Latrobe) took the view that the plaintiff companies and their liquidators had failed in their aim of propounding a scheme consistently with the statutory provisions. ASIC took the same view. It was largely because of their efforts, say Amaca/Amaba and Hazelwood/Latrobe, that the scheme eventually assumed a form in which the court was content to see it submitted to creditors for consideration. Had it not been for those efforts, they say, the court would have been left without important submissions on essential matters of law, with the result that it may have allowed to go forward a scheme that was so seriously flawed that it would not have merited approval under s.411(4) in due course. That, it is said, would have been a most undesirable position, particularly in a context the entities seeking costs categorise as one of considerable public importance. 12 It is fair to say, I think, that there were, in submissions before the court in the earlier stages of the proceedings, differing approaches to the compliance questions involving s.562A and s.116. There were also inconsistencies between the stances taken on legal issues in the various submissions. The questions were complex. Some of the answers given may yet require revision following judgment in the appeal in AssetInsure Pty Ltd v New Cap Reinsurance Corporation Ltd [2005] HCATrans 990 and 991, heard by the High Court on 7 and 8 December 2005. The submissions of all who made them – including Amaca/Amaba and Hazelwood/Latrobe – were of considerable value to the court and contributed in a material way to the formulation of a proposal in respect of which the court was ultimately willing to make orders under s.411(1). I intend no disrespect to ASIC when I say that its submissions, valuable and helpful as they were, would not alone have produced the outcome that eventually emerged. Nor, I think, would the individual submissions of any other entity appearing by leave. The outcome was one reached with the very great assistance provided by all submissions. 13 The materiality of their participation is, in the submission of Amaca/Amaba and Hazelwood/Latrobe, something that sets them apart from the creditors who applied unsuccessfully for costs in Pan Pharmaceuticals. Two of those creditors (Faulding and the Guild), in contrast to those with which I am here concerned, appeared to support or reinforce positions for which parties contended on the basis of full argument. They did not, in essence, add any special dimension to the store of material on the basis of which the court reserved its decision. Amaca/Amaba and Hazelwood/Latrobe, by contrast, made independent and separate submissions that proved highly relevant to the task of the court in reaching its decision. 14 I have come to the conclusion that the particular circumstances of this case warrant a costs order in favour of creditors who appeared by leave under rule 2.13(1) and now seek costs. They played the part of vigorous contradictors and while, to some extent, their role paralleled that of ASIC, they also put before the court matters of importance (generated by their own particular interests) which it is quite possible would otherwise not have been available. The issues were novel and complex. The court required assistance in many areas. In some of them, the parties exercising leave under rule 2.13(1) were the principal source of that assistance. I accept the submissions of Amaca/Amaba and Hazelwood/Latrobe in these respects and am satisfied that special and unusual circumstances warranting a costs order have been shown. 15 It would not be appropriate, however, for each of the applicants for costs to have a separate order for the whole of its costs. In winding up cases, where creditors or contributories appear to support or oppose, they are, for costs purposes, regarded as a single group so that, if they are awarded costs at all, they have only one set of costs between them: see, for example, Re European Banking Company; Ex parte Baylis (1866) LR 2 Eq 521. A similar outcome should be achieved here. 16 That outcome can, I think, be conveniently achieved by giving each of Amaca/Amaba and Hazelwood/Latrobe one-half of its costs, recognising that the participation of each overall was about the same. The following orders are accordingly made: 1. Order that the first plaintiffs pay one-half of the costs of Amaca Pty Ltd and Amaba Pty Ltd as if they had together been a single defendant, such costs to be assessed and payable forthwith and to be an expense of the windings up of the first plaintiffs. 2. Order that the first plaintiffs pay one-half of the costs of Hazelwood Power Partnership and Latrobe Power Partnership as if they had together been a single defendant, such costs to be assessed and payable forthwith and to be an expense of the windings up of the first plaintiffs. ********** 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.