QBE Underwriting Limited v New Cap Reinsurance Corporation Limited [2008] NSWSC 526

New South Wales Supreme Court

CITATION : QBE Underwriting Limited v New Cap Reinsurance Corporation Limited [2008] NSWSC 526

HEARING DATE(S) : 28 May 2008

JUDGMENT DATE : 29 May 2008

JURISDICTION : Equity Division Corporations List

JUDGMENT OF : Windeyer J at 1

DECISION : Leave to proceed given.

CATCHWORDS : CORPORATIONS - winding up - leave to proceed against company in liquidation

LEGISLATION CITED : Corporations Act 2001

CATEGORY : Principal judgment

CASES CITED : Ex parte James [1874] 9 Ch App 609

QBE Underwriting Limited (suing for and on behalf of all members of Lloyd's syndicate 1215 for the 1995 and 1996 years of account) (Plaintiff) PARTIES : New Cap Reinsurance Corporation Limited (In Liquidation) (First Defendant) John Raymond Gibbons (Second Defendant)

FILE NUMBER(S) : SC 2554 of 2008

COUNSEL : Mr S Street QC with him Ms J Chambers (Plaintiff) Mr J Sheahan SC with him Mr B Katekav (Defendants)

SOLICITORS : Freehills Lawyers (Plaintiff) Henry Davis York (Defendants)

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

WINDEYER J

THURSDAY 29 MAY 2008.

2554/08 QBE UNDERWRITING LIMITED (suing for and on behalf of all members of Lloyd's Syndicate 1215 for the 1995 and 1996 years of account) v NEW CAP REINSURANCE CORPORATION LIMITED (In Liquidation) JUDGMENT 1 The plaintiff (the Syndicate) seeks leave under s 500(2) of the Corporations Act 2001 to commence proceedings against New Cap Reinsurance Corporation Limited (In Liquidation) (New Cap) and its liquidator, Mr Gibbons. New Cap was placed into liquidation pursuant to a resolution of creditors of 16 September 1999. 2 The facts which the plaintiff wishes to plead and upon which its claim would be based are set out in the following paragraphs. 3 The Syndicate entered into a retrocession agreement with Lexington Insurance Company (Lexington) under which it reinsured Lexington under a claims made excess policy in respect of Lexington's involvement in medical negligence liability insurance first for a 12 month period commencing on 1 July 1995 and second for a 12 month period commencing on 1 July 1996. 4 The Syndicate then entered into two facultative reinsurance agreements in respect of each of those years with New Cap under which New Cap reinsured the Syndicate for its excess loss in respect of each of the years covered by the Lexington agreements. 5 Under the facultative reinsurance New Cap was required to provide irrevocable letters of credit as security for the reinsurance obligations of New Cap to the Syndicate, each letter of credit being for an amount of US$2,240,000. The Syndicate undertook that it would only draw down on the letters of credit in certain circumstances, the circumstance relevant here being if notice of non-renewal of the letter of credit was received from the issuing bank. 6 Letters of credit were provided by Chase Manhattan Bank as required with the necessary "evergreen" condition. 7 In December 2005, the bank which provided the letters of credit gave notice that they would not be renewed beyond their next expiry date which was 17 November 2006. 8 The liquidator of New Cap informed the Syndicate that various options or courses of action were available, namely (a) cancellation on the basis the letters of credit were no longer required; (b) an alternative arrangement option under which the letters of credit would be drawn down with the funds being placed in escrow with the accounts to be balanced between the parties in due course; (c) the arranging of an alternative letter of credit provider. 9 There is evidence sufficient to satisfy me these facts can be established.