Supreme Court New South Wales Medium Neutral Citation: In the matter of HIH Casualty & General Insurance Limited (in liquidation and subject to schemes of arrangement) [2013] NSWSC 2015 Hearing dates: 20 December 2013 Decision date: 20 December 2013 Jurisdiction: Equity Division - Corporations List Before: Black J Decision: Orders made under Corporations Act 2001 (Cth) s 562A(4). Catchwords: CORPORATIONS - Winding up - Insolvency - Proceeds of contract of reinsurance - Application for orders under Corporations Act 2001 (Cth) s 562A(4) - Whether "just and equitable" to make orders sought. Legislation Cited: Corporations Act 2001 (Cth) ss 562A(2)-(3), 562A(4) Cases Cited: - Amaca Pty Ltd (under NSW administered winding up) & Ors v McGrath & Honey [2012] NSWSC 1523 - Re HIH Casualty & General Insurance Ltd [2005] NSWSC 240 Category: Interlocutory applications Parties: Amaca Pty Limited (under NSW administered winding up) (First Plaintiff) Amaba Pty Limited (under NSW administered winding up) (Second Plaintiff) ABN 60 Pty Limited (under NSW administered winding up) (Third Plaintiff) Messrs A G McGrath & C J Honey as liquidators of the HIH Group of Companies (First Defendant) HIH Casualty & General Insurance Limited (in liquidation and subject to schemes of arrangement) (Second Defendant) Representation: Counsel: K. Rees (Plaintiffs) J.L. Barlow (solicitor - Defendants) Solicitors: Henry Davis York (Plaintiffs) Ashurst Australia (Defendants) File Number(s): 2013/277122 Judgment - ex tempore 1In proceedings 277122/2012 between the Plaintiffs, Amaca Pty Ltd, Amaba Pty Ltd and ABN 60 Pty Ltd, each under New South Wales administered winding up, and the liquidators of the HIH group of companies and HIH Casualty and General Insurance Ltd (in liq, subject to scheme of arrangement) ("HIHCG") on the other, the parties seek to have consent orders made providing that ss 562A(2)-(3) of the Corporations Act 2001 (Cth) not to apply to two amounts received from the Amlin 919 Syndicate and British and European Reinsurance Company Limited ("B&ERG"), each of whom were reinsurers of the 1993-1996 years in which the Plaintiffs were insured with the HIHCG. 2The background to this application relates to insurance arrangements between the Plaintiffs on the one hand and HIHCG on the other in four policy years commencing 31 March 1993, 1994, 1995 and 1996 which are referred to as the "End-Clator" years. The receipts in issue in this application relate to only three of those four years. The Court has previously dealt with an application by the Plaintiffs for orders under s 562A(4) of the Corporations Act in respect of receipts in relation to those years, in my judgment in Amaca Pty Ltd (under NSW administered winding up) & Ors v McGrath & Honey [2012] NSWSC 1523. I there referred to the nature of the relevant entities and it is not necessary for me to repeat the matters I there addressed. I also reviewed the scope of s 562A of the Corporations Act and noted the important consideration of that section in Barrett J's earlier decision in Re HIH Casualty & General Insurance Ltd [2005] NSWSC 240. I reviewed the manner in which dealings had taken place between HIHCG, the James Hardie Group and their London reinsurers in the relevant years and, in particular, referred to the affidavit of Ms Narreda Grimley dated 15 August 2012, which was read in that application and is again relied upon in this application. I set out, at some length, the documentary structure of arrangements between James Hardie Group, HIHCG and their relevant reinsurers, and noted several factors of the reinsurance arrangements which, I ultimately concluded, were such that it was just and equitable to make an order under s 562A(4) of the Corporations Act in the relevant circumstances. In particular, I noted that - as was also the case in the circumstances previously considered by Barrett J - the insurance contracts under which HIHCG provided cover to the Plaintiffs could readily be matched with reinsurance in favour of HIHCG; HIHCG entered those contracts for the purpose of providing cover which it could not otherwise have provided; and the James Hardie Group and its broker had a strong involvement in dealing with the London market and were aware that substantially the whole of the risk nominally taken by HIHCG had it in fact been placed in the London market by facultative reinsurance contracts. The reasoning in my judgment - again consistent with that of earlier judgment of Barrett J - was focused upon the structure of dealings between HIHCG, the James Hardie Group and reinsurers collectively and there was no particular issue in respect of dealings with individual reinsurers. That is not surprising, because the evidence before me established that reinsurers were dealt with, as a group, by the London brokers, each taking a proportion of cover of the particular policy layers. 3My attention has been drawn in this application to evidence which was before me in that application, concerning two particular insurers from which further reinsurance proceeds have now been obtained. In particular, the evidence before me in that earlier application had dealt with the structure of cover in each of the three policy years which are in issue in these proceedings and had also exhibited detailed documents recording the dealings with particular reinsurers. Those documents included, in respect of the relevant years, documents evidencing the fact that a syndicate now known as Amlin 919, and then known by various names including Lloyds Syndicate 919, had taken a share of cover in several layers in the relevant years, and another reinsurer, B&ERG had taken smaller percentage of the relevant cover in those years. There is in evidence in respect of that position, to which I have been taken, in particular, in respect of each of the 1993/1994, 1994/1995 and 1995/1996 policy years. The Plaintiffs also rely on a further affidavit of Ms Grimley filed in respect of this application, which records the receipt of further reinsurance collections by HIHCG in respect of claims submitted by the Plaintiffs from each of Amlin 919 and B&ERG, and point to an agreement reached between the James Hardie entities and the liquidators of HIHCG as to the costs of recovery of those amounts. 4The Plaintiffs and the liquidators have agreed consent orders which would provide for orders under s 562A(4) of the Corporations Act which would, in effect, allow the Plaintiffs the benefit of those recoveries. The Court must, of course, be satisfied that those orders are properly to be made, and must assess that matter on its merits, notwithstanding the consent of the relevant parties. The court must take that approach because an order under s 562A(4) while operating to the advantage of the Plaintiffs, will have at least some effect, albeit perhaps slight in individual terms, upon other potential claimants which might otherwise have benefited from reinsurance recoveries. 5In the present case, it seems to me that the reasoning of my earlier judgment, and in particular the analysis of the dealings between HIHCG and the James Hardie Group and their reinsurers in that judgment, supports a result that an order now be made under s 562A(4) of the Corporations Act in respect of the further recovery. The findings that I have made in my earlier judgment emphasise the extent to which, substantively, the relevant reinsurance arrangements were exclusively for the benefit of the James Hardie Group of companies, and HIHCG had not taken a substantive economic exposure in respect of the particular cover. I observed that there would be significant prejudice to the James Hardie Group if they were deprived of receiving the benefit of the reinsurance moneys for which they bargained for in any contracts with HIHCG, and it was just and equitable to make the orders because the impact on other reinsurance creditors was limited. 6That reasoning, so far as it turns to the nature of the dealings between HIHCG, the James Hardie Group and the reinsurers, the nature of the cover obtained, and the impact on third parties of making the relevant orders, is equally applicable to the two recoveries now obtained as it was to the several recoveries which were the subject of my judgment. For this reason, I am satisfied that it is appropriate to make orders in respect of the further reinsurance recoveries from Amlin 919 and B&ERG substantially for the reasons set out in my earlier judgment delivered in 2012, as applied in the present case in the manner which I have noted above. I make orders in accordance with the short minutes of order initialled by me and placed in the file. ********** 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. Decision last updated: 06 February 2014