Supreme Court New South Wales Medium Neutral Citation: In the matter of HIH Insurance Limited (In Liquidation) ACN 008 636 575 & others named in Schedule A [2015] NSWSC 1309 Hearing dates: 2 July 2015 Date of orders: 02 July 2015 Decision date: 02 July 2015 Jurisdiction: Equity - Corporations List Before: Brereton J Decision: Notice of motion dismissed. Catchwords: PROCEDURE – application to reopen plaintiffs' case – where additional affidavit and exhibits sought to be adduced – where plaintiffs aware of existence and availability of additional evidence before hearing – where evidence relevant only in broad sense – where significant reformulation of plaintiffs' case involved – where reopening hearing would open issues not explored at initial hearing – application not merely to remediate failure to adduce evidence at hearing – where evidence not sufficiently probative – held, leave to reopen refused. Category: Procedural and other rulings Parties: Craig Richard Baldock and others (plaintiffs) Anthony Gregory McGrath in his capacity as Liquidator of HIH Insurance Limited (in liquidation) (first defendants) Christopher John Honey in his capacity as Liquidator of HIH Insurance Limited (in liquidation) (second defendants) Anthony Gregory McGrath in his capacity as Scheme Administrator of FAI Insurance Company Ltd (in liquidation and subject to a scheme of arrangement) (third defendants) Christopher John Honey in his capacity as Scheme Administrator of FAI General Insurance Company Ltd (in liquidation and subject to a scheme of arrangement) (fourth defendants) Anthony Gregory McGrath in his capacity as Scheme Administrator of HIH Casualty and General Insurance Ltd (in liquidation and subject to a scheme of arrangement) (fifth defendants) Christopher John Honey in his capacity as Scheme Administrator of HIH Casualty and General Insurance Ltd (in liquidation and subject to a scheme of arrangement) (sixth defendants) Anthony Gregory McGrath in his capacity as Scheme Administrator of CIC Insurance Ltd (in liquidation and subject to a scheme of arrangement) (seventh defendants) Christopher John Honey in his capacity as Scheme Administrator of CIC Insurance Ltd (in liquidation and subject to a scheme of arrangement) (eighth defendants) Representation: Counsel: R White (plaintiffs/applicants) J Lockhart SC (defendant/respondent) Solicitors: DC Legal (plaintiffs/applicants) Ashurst Australia (defendant/respondent) File Number(s): 2013/ 345623 Judgment (ex tempore) 1. HIS HONOUR: At the trial of these proceedings which commenced on 24 February 2015 and concluded on 5 March 2015, the essential issues were whether the misleading and deceptive conduct of the defendant companies, which itself was not in issue, had caused relevant loss to the plaintiff shareholders and, if so, the quantification of that loss. A third issue was whether subsidiaries of HIH Insurance were knowingly concerned in the admitted or undisputed contravening conduct. 2. Before the trial, it appeared that the plaintiffs sought to prove that various adjustments were required to the balance sheets of the relevant companies in order to determine the true value of the shares, and sought to do so by use of the report of the HIH Royal Commission. 3. The plaintiffs' expert opinion evidence of Mr Coulton used, as assumptions, the various adjustments proposed by the Royal Commissioner in his report. Well before the hearing, it was made clear that the admissibility of the Royal Commissioner's report for that purpose was dubious, and ultimately the report itself was not tendered. The parties, however, reached agreement on a statement of agreed facts which, inter alia, identified an agreed adjustment that was required to the balance sheets, conveniently called "the Hannover Re Adjustment". 4. Mr Coulton then produced additional reports which, instead of using the Royal Commission adjustments as their underlying assumptions, used the Hannover Re Adjustment. Thus, on the first day of the trial, or thereabouts, Tuesday 24 February, he produced a report that changed the integers of his valuation model from the full suite of Royal Commission adjustments, so as to be confined to the Hannover Re Adjustment. 5. Subsequently, in the course of the proceedings, the plaintiffs sought to tender a report of Mr Lombe of Deloitte. That report contained opinions as to the true asset position of HIH as at the end of December 2000. It was tendered for the purpose of seeking to establish that, from that point onwards – which, in Mr Coulton's parlance, was the fourth period to which his opinions related – the company was then insolvent and its shares had no value. The company's insolvency or impending insolvency from December 2000 onwards was said to justify a departure from the price-to-book model that Mr Coulten otherwise adopted as providing an appropriate valuation. 6. When Mr Lombe's report was tendered and following some argument I made some informal observations [T58.36 to 59.27] to the effect that, as presently advised, it seemed to me that the report was not admissible as a business record, but afforded counsel an opportunity to say anything further, indicating [at T60.36] that I would not admit it at that stage and, when the parties were ready to address properly on the admissibility of the report, I would entertain it. They never did, and I never re-entertained the tender of that report. 7. Essentially, on the valuation issue, as I have said, Mr Coulton proposed a price to book model, possibly reverting to a net tangible assets model for the last period. He said that an alternative approach was a net tangible assets approach. I think it must be accepted that the possibility that, in the absence of being satisfied that any other approach was useful, the Court might resort to a net tangible asset approach was always open. At T4.10, I observed to counsel: In the absence of any evidence that it has a higher value than its net asset backing, I might be driven to resort to that. 1. I also adverted, in the course of the evidence of Mr Gower, the defendant's expert, to other possible approaches that the Court might adopt. So I think it is fair to say that the possibility of an NTA-based approach was always on the cards. But what it seems to me was not – at least from the time it was clear that the Royal Commission adjustments would not be pressed and the statement of agreed facts resulted in the experts refocusing their attention on adjustments limited to the Hannover Re Adjustments – was that there would be any suggestion that adjustments other than the Hannover Re Adjustments should be incorporated in any valuation. To the extent that the Deloitte/Lombe report pointed in any other direction, its relevance appeared to be only to what I have called "the fourth period", for the purpose of demonstrating insolvency or impending insolvency during that period. 2. By notice of motion filed on 16 June 2015, more than three months after the conclusion of the trial, the plaintiffs seek leave to reopen their case for the purpose of adducing in evidence an affidavit of one Geoffrey Simpson, dated 20 May 2015, and accompanying exhibits which comprise a report entitled "HIH Insurance Due Diligence", two statements made by him to the Royal Commission, and the transcript of his evidence before the Royal Commission. 3. In the course of submissions in reply, counsel for the plaintiffs confirmed that, if this material were admitted, then the intent was to use it to found a submission that the adjustments which might be said to be proposed by Mr Simpson in his report should be made to the Balance Sheets for the whole of the period – that is to say, commencing from December 1999, to which Mr Simpson's opinion is addressed – so as to found a valuation on an NTA-basis, which would incorporate all the adjustments proposed by Mr Simpson, and not just the Hannover Re Adjustment. 4. The application is put forward, first, on the basis that the plaintiffs expected that the Deloitte report would be admitted at trial to prove the true Balance Sheet position, implicitly that they were taken by surprise by its rejection, and that they now belatedly seek leave to reopen to prove what the Deloitte report would have proved, by alternative means. 5. It is plain that the plaintiffs were aware of the existence and availability of Mr Simpson prior to the trial. Indeed, they contemplated calling him and had obtained an affidavit from him for that purpose. Their solicitor had read his Royal Commission witness statements. His witness statements included reference to the report on which they now seek principally to rely, and also – in the body of the statement: The 21 page document at its conclusion sets out an NTA calculation for HIH. It indicated that the net asset position could be reduced by between $750,000,000 and $1,100,000. This would have resulted in net assets in the range of between +$42 million and -$308 million – well below the reported net assets of $962,000,000 and net tangible assets of $792,000,000 reported at December 1999 and well below the required minimum solvency level of just over $400,000,000. 1. I would not, in the slightest, be critical of any failure to locate the 21 page document referred to, although the evidence tends to indicate that it is available on the Royal Commission website. I can readily accept that tracking down that particular document, even on that website, might not have been obvious or straight-forward. However, the passage to which I have just referred does indicate that a person reading that witness statement would have been alerted to the fact that Mr Simpson was in a position to give evidence as to adjustments that should be made to the HIH Balance Sheets. And I must conclude that at least that was within the knowledge of the plaintiffs at the time of the original hearing. In short, that means that the evidence that is now sought to be adduced was reasonably discoverable at the time of the original hearing, though not actually known to the plaintiffs' solicitors. 2. As it transpired, although it was contemplated calling Mr Simpson on slightly different issues at the hearing – a course which would have required the Court's leave in the light of earlier guillotine orders – no application to call him was made. When I informally indicated, in the way I have set out above, that I was minded to reject the Deloitte report, it was not subsequently pressed. The plaintiffs' case was closed without any indication that there was to be an attempt to find and adduce further evidence to remedy any deficiency caused by the rejection of that report. 3. Importantly, the issues between the experts proceeded by a toing and froing of reports, where Mr Coulton would prepare a report and Mr Gower would then prepare a critique of it, which proceeded backwards and forwards over some time and some number of reports, and in the course of their cross-examination. Throughout that exercise, the underlying assumption was that the Balance Sheets should be adjusted by the Hannover Re Adjustments, but not otherwise. 4. Subject to the comments which I will make about the form of the Simpson report, it can be said that his evidence would be relevant, but in a very broad sense only. It is relevant because it is addressed to what the true Balance Sheet position of HIH should have been, and that has the potential to inform a NTA-based valuation of the shares in HIH during the period with which the Court is concerned. But in terms of the way in which the case was conducted, it would address that issue as at December 1999, not the fourth period to which Mr Lombe's report was addressed. Fundamentally, it would result in a very significant reformulation of the way in which the plaintiffs put their case on quantification. It would result in the prosecution of a case on quantification based on an NTA valuation throughout the relevant period, and not just assume insolvency for the fourth period. This is not the way in which the case was put through Mr Coulton or otherwise – although, as I have said, I had adverted to the possibility that the Court might be driven to resort to an NTA valuation. 5. But more significantly, it would do so on the basis of adjustments to the Balance Sheet throughout that period which had been excluded from the point that it became clear that the Royal Commission report would not be relied on. It would reintroduce into the litigation the question of whether those adjustments should be made. It would thereby open up a range of new issues concerning those adjustments which were not explored at the trial. These would include issues – amongst others, the appropriate discount rate and inflation rates – on which it can be envisaged that one or both parties would need to call additional evidence. Then Mr Coulton and Mr Gower would no doubt have to reconsider their positions, based on the new potential assumptions established by this evidence. 6. It becomes very clear that, if this were permitted, the reopening would be no minor exercise, but an extensive reopening in order to enable the plaintiffs to advance a case not previously made, rather than merely to remediate a failure to adduce admissible evidence on a case previously made, which itself would be a most unusual step. 7. Moreover, the evidence of Mr Simpson, at least in its present form, even if relevant, is far from probative. It is expressed in tentative and conditional terms. It contains no clear opinion – assuming he could give an admissible opinion – that the adjustments of which he speaks should be made. It is framed in terms of what further inquiries should be made and why, rather than that specific adjustments are warranted. For the most part, it does not identify the facts upon which it was based. Before it could be of any ultimate use, significant further evidence, including evidence of the underlying financial and factual matters upon which it is based, and to make good the other assumptions which it asserts, would be required. 8. The Court approaches these matters, at least in my case, with a prejudice in favour of the view that ultimately the Court should seek to get at the truth of a matter, and procedural defaults should not unduly be allowed to stand in the way of exposure of the true position. But against that, it has to be recognised that litigation is not just an inquiry into the truth, but involves an adversarial system in which each party puts forward and resists a case, and in that way adopts positions to which parties are normally held. There comes a point at which it is not fair to permit a party radically to change the basis upon which a case is put and has been prosecuted. It seems to me, in the context of this case, that three months after the hearing was concluded, in the light of the matters to which I have referred, that position has well and truly been reached. 9. In my view, it is not in the interests of justice that the plaintiff be given leave to reopen to adduce evidence which remains largely inadmissible or unprobative, to cure a failure to adduce admissible evidence at the trial, on an issue which was not really an issue in suit at the trial. 10. I order that the notice of motion be dismissed, with costs assessed in the sum of $5,500 inclusive of GST. ********** 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: 15 August 2016