HIH Casualty & General Insurance Ltd (in liq) v Building Insurers' Guarantee Corporation

[2004] NSWSC 910

Reported Decision: 51 ACSR 21

Supreme Court

CITATION:	HIH Casualty & General Insurance Ltd v Building Insurers' Guarantee Corporation [2004] NSWSC 910
HEARING DATE(S):	14/05/04
JUDGMENT DATE:	5 October 2004
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
DECISION:	Application for directions under s.479(3) refused
CATCHWORDS:	CORPORATIONS - winding up - application by liquidators for directions - directions sought as to operation of certain statutes upon and in relation to reinsurance contracts - such contracts described only in general terms - no concrete factual circumstance identified - not appropriate case for directions
LEGISLATION CITED:	Corporations Act 2001 (Cth). s.479(3) Employers' Indemnity Supplementation Fund Act 1980 (WA) General Insurance Reform Act 2001 (Cth), s.116 Home Building Act 1989 (NSW) Insurance Act 1973 (Cth), s.116 Insurance Act 1973 (Cth), s.116 Motor Accident Insurance Act 1994 (Qld) Motor Accidents Compensation Act 1999 (NSW) Workers Compensation Act 1987 (NSW) Workers Compensation Act 1958 (Victoria) Workers' Rehabilitation and Compensation Act 1988 (Tasmania) Work Health Act (Northern Territory)
CASES CITED:	HIH Casualty and General Insurance Ltd v Building Insurers' Guarantee Corporation (2003) 202 ALR 610 Otis Elevator Co Pty Ltd v Guide Rails Pty Ltd (2004) 49 ACSR 531 Re Ansett Australia Ltd (2002) 40 ACSR 433 Re French Caledonia Travel Service Pty Ltd (2003) 48 ACSR 97 Re Staff Benefits Pty Ltd [1979] 1 NSWLR 207 Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115
PARTIES :	HIH Casualty & General Insurance Limited (In Liquidation), FAI General Insurance Company Limited (In Liquidation), CIC Insurance Limited (In Liquidation), World Marine & General Insurances Pty Limited (In Liquidation), FAI Traders Insurance Company Pty Limited (In Liquidation), FAI Reinsurances Pty Limited (In Liquidation), HIH Underwriting & Insurance (Australia) Pty Limited (In Liquidation), HIH Underwriting & Agency Services Limited (In Liquidation), HIH Insurance Limited (In Liquidation), Lanlex No 65 Pty Limited (In Liquidation), FAI Leasing Finance Pty Limited (In Liquidation), FAI Insurances Limited (In Liquidation), FAI Investments Pty Ltd (In Liquidation), FAI Overseas Investments Pty Limited (In Liquidation), HIH Overseas Holdings Limited (In Liquidation), FAI Financial Services Limited (In Liquidation), FAI Overseas Holdings Pty Limited (In Liquidation), Hannan & Company Pty Limited (In Liquidation), Notestir Pty Limited (In Liquidation), First Mentor Group Pty Limited (In Liquidation), World Wide Weather Underwriting Agencies (Australia) Pty Limited (In Liquidation), HIH Investment Holdings Limited (In Liquidation), HIH Company Limited (In Liquidation), ACN 006 495 987 Pty Limited (In Liquidation) (formerly "Industrial Rehabilitation Services Pty Limited"), CIC General Insurance Holdings Ltd (In Liquidation), FAI Home Security Holdings Limited (In Liquidation), ACN 005 312 345 Pty Limited (In Liquidation) (formerly "Ready Plan Asia Pacific Pty Limited), FAI Film Distribution Pty Limited (In Liquidation), FAI Workers Compensation (Vic) Pty Limited (In Liquidation), HIH (Real Estate) Pty Limited (In Liquidation), Integrated Commercial Finance Pty Limited (In Liquidation), Innes Owens Pty Limited (In Liquidation), RiskCorp Australia Pty Limited (In Liquidation) - First Plaintiffs Anthony Gregory McGrath and Alexander Robert Mackay Macintosh - Second Plaintiffs Building Insurers' Guarantee Corporation - First Defendant Motor Accident Insurance Commission - Second Defendant
FILE NUMBER(S):	SC 5353/02
COUNSEL:	Mr B A J Coles QC - Plaintiffs Mr A J L Ogborne - Second Defendant Mr N C Hutley SC/Mr R D Marshall - NSW, Victoria, Western Australia and ACT Workers Compensation Mr M B Oakes SC/Mr M J Dawson - Amici Curiae
SOLICITORS:	Blake Dawson Waldron - Plaintiffs Bain Gasteen by their City Agents Hicksons - Second Defendant

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

BARRETT J

TUESDAY, 5 OCTOBER 2004

5353/02 – HIH CASUALTY & GENERAL INSURANCE LIMITED (IN LIQUIDATION) & ORS v BUILDING INSURERS’ GUARANTEE CORPORATION & ORS

JUDGMENT

1 On 26 November 2003, I delivered a judgment dealing with a number of matters relevant to the general question of the interaction between, on the one hand, provisions of the Corporations Act 2001 (Cth) as to application of assets in a winding up of an insolvent insurer and, on the other, s.116 of the Insurance Act 1973 (Cth), s.116 of the General Insurance Reform Act 2001 (Cth) and provisions of various State and Territory statutes intended to ensure that, where a State or Territory authority administering a compulsory insurance scheme meets certain engagements of such an insurer, the benefit of reinsurance contracts held by the insurer inures to the State or Territory authority: see HIH Casualty and General Insurance Ltd v Building Insurers’ Guarantee Corporation (2003) 202 ALR 610.

2 These general questions arose upon an application under s.479(3) of the Corporations Act by the liquidators of thirty three companies (“the HIH Companies”) for directions in relation to matters arising under the windings up of those companies. Having stated conclusions with respect to the questions of statutory interpretation (including questions as to the ways in which the particular State and Territory provisions are accommodated by Part 1.1A of the Corporations Act), I said:

“It was agreed at the conclusion of the hearing of the liquidators’ application for directions under s.479(3) that formulation of the precise terms of any directions should await my conclusions on the matters of substance with which these reasons deal. Those terms will depend in part on those conclusions and in part on features of the actual wording of the State and Territory provisions. I have not attempted, at this point, to deal with the latter matter comprehensively.

The appropriate course now will be for the liquidators to give consideration to the form of the directions they will ask the court to make in light of the matters covered in these reasons. The liquidators’ second further amended originating process will be stood over to allow further submissions to be assembled and made.

It remains only to emphasise the nature and effect of directions under s.479(3). Despite the fact that State and Territory authorities became parties to the liquidators’ application (or, in some cases, were heard without becoming parties), the jurisdiction invoked by the liquidators is the jurisdiction created by s.479(3). It is a jurisdiction available only to liquidators. Directions eventually made by the court will accordingly have no operation inter partes . I respectfully adopt, in this connection, the following description of the jurisdiction and its implications in the judgment of Pullin J in Australian Securities and Investments Commission v Rowena Nominees Pty Ltd (2003) 45 ACSR 419 at 422-3:

‘An application for directions under s 479(3) of the Corporations Act 2001 is an administrative non-adversary proceeding: Re Murphy & Allen; Re BPTC (in liq) (1996) 19 ACSR 569; at 570. Directions given under s 479 (3) will protect the liquidator against subsequent allegations of breach of duty if the liquidator has made full disclosure of the facts, but no binding determination of substantive issues can be made under this provision: see Re G B Nathan , above [(1991) 24 NWSLR 674], Re Magic Aust Pty Ltd (in liq) (1992) 7 ACSR 742; the authorities cited by Goldberg J in Re Ansett Australia Ltd (2001) 39 ACSR 355; at [59]; and Re Murphy & Allen , above, at 570. As a result, nothing that I have said about the background circumstances, and no directions I give, will have any binding effect in relation to proceedings between Rowena and the growers, and nor will it resolve any legal issues which may exist between Rowena and lenders (who might be identified).’”

3 On 16 December 2003, I made, on the liquidators’ original application, directions under s.479(3) concerning the matters dealt with in the judgment of 26 November 2003. Those directions were as follows:

“1. Directs that the liquidators of the First Plaintiffs would be justified in acting on the basis that s.116(3) of the Insurance Act 1973 (Cth) does not affect the operation, according to their terms, of the following provisions:
(i) Section 191 of the Motor Accidents Compensation Act 1999 (NSW);

(ii) Section 61(3) of the Motor Accident Insurance Act 1994 (Qld);

(iii) Section 235 of the Workers Compensation Act 1987 (NSW);

(iv) Section 98(3) of the Workers Compensation Act 1958 (Victoria);

(v) Section 129(a) of the Workers’ Rehabilitation and Compensation Act 1988 (Tasmania);

(vi) Section 103V of the Home Building Act 1989 (NSW);

(vii) Section 137(3) of the Work Health Act (Northern Territory);

(viii) Section 40(1) of the Workers Compensation Supplementation Fund Act 1980 (ACT); and

(ix) Section 36 of the Employers’ Indemnity Supplementation Fund Act 1980 (WA).
(the State Provisions)
2. Directs that the liquidators of the First Plaintiffs would be justified in acting on the basis that s.116 of the General Insurance Reform Act 2001 (Cth) has no application in the winding up of any of the HIH Companies and the matters dealt with by the State Provisions are in no way affected by s.116 of the Act.
3. Directs that the liquidators of the First Plaintiffs would be justified in acting on the basis that none of s.555, s.556 and s.562A of the Corporations Act 2001 (Cth) prohibits the doing of an act or imposes a liability for doing an act where one of the State Provisions specifically authorises or requires the doing of that act.
4. Directs that the liquidators of the First Plaintiffs would be justified in acting on the basis that the provisions of Chapter 5 of the Corporations Act 2001 (including s.555, s.556 and s.562A) do not apply to the winding up of any of the HIH Companies to the extent to which the winding up is carried out in accordance with any of the State Provisions.”

4 The liquidators subsequently formulated a request for more detailed directions. Those proposed directions are concerned with the construction and application of provisions of the nine State and Territory statutes considered in the earlier judgment, being the Motor Accidents Compensation Act 1999 (NSW), the Motor Accident Insurance Act 1994 (Qld), the Workers Compensation Act 1987 (NSW), Workers Compensation Act 1958 (Victoria), the Workers’ Rehabilitation and Compensation Act 1988 (Tasmania), the Home Building Act 1989 (NSW), the Work Health Act (Northern Territory), Workers Compensation Supplementation Fund Act 1980 (ACT) and the Employers’ Indemnity Supplementation Fund Act 1980 (WA).

5 Each proposed direction attempts to reflect the operation of a particular State or Territory statute in alternative circumstances. I quote merely by way of illustration the direction sought in relation to the Workers Compensation Supplementation Fund Act 1980 (ACT):

“1. Directs that, in circumstances where:
(a) a First Plaintiff had prior to 15 March 2001 met a liability under a policy of insurance required pursuant to Workers Compensation Act 1951 (ACT) (an ACT Workers Compensation Policy );
(b) no part of the same liability has been met by moneys paid out of the Fund on or after 15 March 2001; and
(c) a contract of reinsurance provides cover for the occurrence of those events by reference to which the liability is incurred,
then the Second Plaintiffs would be justified in acting on the basis that for the purposes of s 40 of the Workers Compensation Supplementation Fund Act 1980 (ACT) the Manager is not entitled to any amounts received from a reinsurer in respect of that liability.
2. Directs that, in circumstances where:
(a) a First Plaintiff had met any part of a liability under an ACT Workers Compensation Policy prior to 15 March 2001;
(b) part of that same liability has been met by moneys paid out of the Fund on or after 15 March 2001; and
(c) a contract of reinsurance identified in Part 1 of Schedule 2 provides cover for the occurrence of those events in respect of which that liability was met,
then the Second Plaintiffs would be justified in acting on the basis that the effect of s 40 of the Workers Compensation Supplementation Fund Act 1980 (ACT) is that:
(i) the First Plaintiff is entitled to receive all monies due under that contract of reinsurance in respect of that part of the liability which was met by the First Plaintiff; and
(ii) the Manager is entitled to receive all monies, after the deduction of any expenses of or incidental to getting in that amount, which (but for the operation of s 40 of the Workers Compensation Supplementation Fund Act 1980 (ACT)) would have been due to the First Plaintiff under that contract of reinsurance in respect of that part of the liability which was met by the payment made out of the fund.
3. Directs that, in circumstances where:
(a) a liability under an ACT Workers Compensation Policy for which a First Plaintiff was the insurer has been met by a payment out of the Fund on or after 15 March 2001;
(b) a contract of reinsurance identified in Part 1 of Schedule 2 provides cover for the occurrence of those events in respect of which that liability was met; and

(c) no First Plaintiff had met any part of the same liability prior to 15 March 2001,

then the Second Plaintiffs would be justified in acting on the basis that the effect of s 40 of the Workers Compensation Supplementation Fund Act 1980 (ACT) is that the Manager is entitled to receive all monies, after the deduction of any expenses of or incidental to getting in that amount, which (but for the operation of s 40 of the Workers Compensation Supplementation Fund Act 1980 (ACT)) would have been due to the First Plaintiffs under that contract of reinsurance in respect of that liability.”

6 On 14 May 2004, I heard submissions in relation to the liquidators’ application for these further directions. The application is, in one sense, unusual in that some of the State and Territory authorities administering the relevant compulsory insurance schemes have been made defendants and some others have sought and been granted leave to be heard without becoming parties. On 14 May 2004, Mr Hutley SC and Mr R D Marshall of counsel appeared for some of those bodies and Mr Ogborne of counsel appeared for another of them. As previously, Mr Coles QC appeared for the liquidators and Mr Oakes SC and Mr Dawson of counsel appeared as amici curiae.

7 Despite the matters to which I have just referred, it remains clear that the proceedings involve no more than an application by the liquidators of the HIH Companies for directions under s.479(3). At a directions hearing, there was reference to the possibility of the addition of an application for declaratory relief. As was eventually made clear on 14 May 2004 by Mr Coles QC, neither the liquidators nor the HIH Companies seek declaratory relief. It was likewise made clear by Mr Hutley and Mr Ogborne that none of the statutory bodies makes any such application. These proceedings therefore do not represent a vehicle through which any determination inter partes is capable of being made. There was no suggestion that joinder of certain of the State and Territory authorities as defendants meant that it was no longer appropriate to treat the matter as a s.479(3) application by the liquidators alone (compare Otis Elevator Co Pty Ltd v Guide Rails Pty Ltd (2004) 49 ACSR 531 at [6]). I do not think that the existence of a defendant or respondent necessitates any such conclusion: see Re Staff Benefits Pty Ltd [1979] 1 NSWLR 207; Re French Caledonia Travel Service Pty Ltd (2003) 48 ACSR 97 at [18].

8 The statutory bodies represented by Mr Hutley and Mr Marshall expressed serious reservations about the directions proposed by the liquidators, both in substance and in form. They took the position that directions as sought are likely to be unnecessary and superfluous in obvious cases and of only limited assistance in difficult cases. They accept that the directions made in consequence of the judgment of 26 November 2003 were reasonably and responsibly sought by the liquidators and involved what was referred to in submissions as “the consideration of a finite high level actual scenario and competing statutory schemes”. But the further directions now sought, it is submitted, are different in that they do not deal with a finite actual scenario or with competing statutory schemes (or even with an issue of construction).

9 It is further submitted by the authorities represented by Mr Hutley and Mr Marshall that the further directions sought are framed by reference to hypothetical circumstances in which the terms of particular contracts of reinsurance play no part. This, it is said, means that the directions are not sought about a “particular matter” as s.479(3) provides but rather in regard to general and abstract matters. The point is made that no reinsurance contract has been put into evidence and that all the court has before it is what purports to be a summary of common features of all the contracts of reinsurance. It is not suggested, however, that all the contracts are in a standard form and the statement of facts by reference to which the directions are sought makes it clear that there are differences between them. Also, it is not made clear whether each contract involves one reinsurer or several and, if several, how the relevant contractual responsibilities are shared among them.

10 Another point made by the authorities represented by Mr Hutley and Mr Marshall is that the directions, as sought, do not address issues that may arise when the loss insured leads to more than just a one off lump sum payment. I quote from the written submissions:

“For example multiple workers compensation claims could be made in respect of one occurrence. Those multiple claims that are successful could lead to ongoing periodic payments, perhaps on such a scale that the deductible is exceeded. Years later common law claims may be successfully pursued resulting in lump sum payments within a reinsurance band. Where the timing is that forecast by the Second Plaintiff’s proposed direction 2 (i.e. HIH pays a total amount exceeding the deductible before 15 March 2001 and a Fund pays, or is to pay, the balance of the liability) difficulties may arise. For example:
(a) what is to be done where a reinsurer makes a payment on account of some periodic payments but no lump sum common law judgment;
(b) what is the effect of the reinsurer becoming insolvent before all of its liabilities are paid?”

11 Another set of complexities will exist where there are several reinsurers under a particular contract or treaty and some meet their engagements while others do not. Questions would then arise as to where the deficiency should fall as between the HIH companies and the relevant statutory authority.

12 Another matter raised by Mr Hutley and Mr Marshall involves deductibles. Where these became significant, the directions as presently drafted might prove misleading since they do not cater for deductibles at all.

13 The submissions go on to make the further point that there is a danger that the further directions sought, if made, could themselves be the subject of an issue of construction in their application to a fact situation actually arising in the future. In such a case, it is submitted, the relevant statute should be left to speak for itself, uncomplicated by some paraphrase or tailored attempt to encapsulate meaning by way of direction under s.479(3).

14 The basic proposition advanced by Mr Hutley and Mr Marshall is that, if the liquidators encounter a particularly difficult matter which cannot be resolved by reference to the applicable statutory language and the directions of 16 December 2003 (construed with the aid of the judgment of 26 November 2003), the appropriate course will be for them to approach the court with a view to obtaining specific directions applicable to that instance. To that is added, of course, the possibility that matters which in future come into contention may be resolved by appropriate proceedings between the liquidators (or, as appropriate, the particular insolvent insurer) and the authority administering the scheme created by a State or Territory statute; or, of course, by some consensual compromise.

15 Mr Ogborne, appearing for the Motor Accident Insurance Commission (a Queensland statutory authority) generally supported the submissions made by Mr Hutley and Mr Marshall as to the utility of the directions as sought. In addition, however, he raised an issue which, as he put it, caused one of the directions said to be so clear as to be obvious not to be of that quality, so far as the relevant Queensland legislation is concerned.

16 The position taken by the liquidators is that the possibility of difficult or anomalous cases (which is readily admitted) and the allied possibility that a direction might, according to its terms, apply to a situation which in reality is not comprehended by it should not deter the court from acceding to the liquidators’ application. In such a case, it is said, the fact that the direction existed and that the liquidators applied it in deciding upon their course of action in relation to the case would not in any way prejudice the position of any other party. If, for example, a State or Territory authority took the view that action by the liquidator in accordance with the direction in the particular case would be inconsistent with a statutory provision to the disadvantage of that authority, the authority would in no sense be precluded from whatever avenues it considered appropriate to attempt to have the matter dealt with by the liquidators in a way that was inconsistent with the direction but, as the authority saw it, required by the relevant statute. A s.479(3) direction, after all, operates only to protect a liquidator against allegations of breach of duty or other inappropriate conduct. It says nothing about rights and obligations inter partes. Mr Coles added that no liquidator acting properly and responsibly would blindly follow a direction in circumstances where he or she could see some possibility of its being inapplicable in substance even though applicable according to its terms.

17 Mr Oakes and Mr Dawson, as amici curiae, submitted, in effect, that the court should lean towards assisting the liquidators, as officers of the court, by providing them with appropriate guidance. This is unquestionably so and I did not understand any counsel to take a contrary position.

18 The question whether the court should entertain and accede to the application for the detailed directions sought by the liquidators with respect to the operation of the several State and Territory provisions, as they affect reinsurances held by the HIH Companies, is to be answered by reference to the terms of s.479(3) itself. The section allows a liquidator to apply to the court for directions in relation to “any particular matter arising under the winding up”. It is clearly envisaged that the “particular matter” will be of a concrete character and the practice is for the liquidator to place before the court a statement of facts which identifies the “particular matter” in a particular factual context.

19 Such a statement of facts will typically identify a situation in which a liquidator is placed with respect to the administration and, in so doing, specify a particularly proposed action that the liquidator has it in mind to take in that factual situation. Provided that the case is not one in which the liquidator “feels some unease about a situation and wishes to obtain some sort of insurance against the possibility of error” (Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115 at 116 per Young J) and does not relate to the making and implementation of what is really a business or commercial decision (Re Ansett Australia Ltd (2002) 40 ACSR 433 at [46] per Goldberg J), the court will be inclined to make a direction, assuming that it will be of utility.

20 It is the issue of utility that arises in this case. The statement of facts is cast in general and, to some extent, unspecific terms. By way of example, I quote part of the description of the relevant reinsurance contracts relating to motor vehicle compulsory third party (CPT) schemes with certain aspects emphasised:

“The Statutory Risk Reinsurance Contracts in respect of the CTP Schemes are comprised of various cumulative layers of non-proportional contracts.
The total amount of reinsurance cover for particular classes of loss is comprised of separate contracts with similar or identical terms but with cumulative excess levels and limits.
By way of illustration , the identified reinsurance program in relation to the CTP Compensation Schemes for a particular policy year is comprised of four layers of contracts as follows: …
Although the terms of the Statutory Risk Reinsurance Contracts in respect of the CTP Schemes vary from contract to contract , the operational features of each contract are similar or identical . In particular, all payments due from a reinsurer will result from an identifiable loss occurrence.
By way of illustration , the operational features of a Statutory Risk Reinsurance Contract in relation to the CTP Schemes for a particular policy year may be summarised as follows: …”

21 The liquidators do not seek a direction as to the operation of any particular State or Territory provision in a particular set of circumstances that has arisen (or can be seen to be about to arise) under or in relation to a particular reinsurance contract. Their objective is, rather, to seek to obtain a form of judicial paraphrase or general interpretation of a particular legislative provision as it may apply to a variety of future and, at this stage, not explicitly identified circumstances arising under or in relation to contracts which have generally described common features but, as to their details, are not identical or identified.

22 The liquidators’ request for the court’s assistance in this respect is made in a context where, as part of these proceedings, there has obviously been discussion of relevant issues with the various State and Territory authorities administering the insurance schemes. In some cases, it is apparent that there have been extensive and detailed discussions between the respective lawyers and that, so far as the authorities represented by Mr Hutley and Mr Marshall are concerned, this has led to a consensus as to the way the particular legislation will work in a number of the situations instanced in the course of the hearing.

23 The fact remains, however, that the construction and application of the State and Territory provisions are matters which, in the long run, may involve differences of opinion in relation to specific instances actually arising. Every such difference of opinion will exist as between the liquidators on the one hand and a particular State or Territory authority on the other. Resolution of a particular difference will require either agreement or judicial determination. If the liquidators are minded to enter into such an agreement or to institute particular proceedings with a view to obtaining resolution in a particular case, they may well consider it prudent to make a s.479(3) application with respect to that specific course of action. Such an application would represent regular and unexceptionable resort to the s.479(3) jurisdiction.

24 My overall conclusion in relation to the application presently before me is that the directions sought possess hypothetical characteristics not sufficiently related to any “particular matter arising under the winding up” to bring the application within the proper scope of s.479(3). It has been demonstrated that a significant degree of common ground exists between the liquidators and the State and Territory authorities as to the operation of the relevant statutory provisions in certain cases. Doubts and difficulties are therefore unlikely to confront the liquidators in those cases which accordingly raise no need for any s.479(3) direction. Where any case of a difficult or controversial kind actually arises, it will be for the liquidators to decide whether a specific s.479(3) direction should be sought in relation to the means proposed for resolution of that particular case.

25 The liquidators’ application for further directions in the form that was before the court on 14 May 2004 (as revised in minor ways reflected in the draft short minutes of order delivered to my chambers on 19 May 2004, initialled by me for identification on that day and placed in the court file) is, for these reasons, refused.

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Last Modified: 10/06/2004