HIH Casualty & General Insurance v Insurance Australia (No 2)

The parties in this case were HIH Casualty & General Insurance and Insurance Australia. The nature of the dispute involved the calculation of interest on unpaid insurance sums, with a focus on the date from which interest should run. The case was heard in the Federal Court of Australia. The legal issues at the heart of the case centred on the interpretation of the phrase “unreasonable to have withheld payment” in the context of interest calculations on insurance sums. The court had to determine whether the test for unreasonableness was subjective or objective, and if the test was objective, what criteria should be used to assess whether it was unreasonable to withhold payment. Additionally, the court needed to decide whether a stay of execution should be granted based on the solvency of the party to whom the judgment sums were payable.

The court’s reasoning was grounded in statutory interpretation and the principles of equity. It held that the phrase “unreasonable to have withheld payment” should be interpreted objectively, meaning that the test is not dependent on the subjective beliefs of the party withholding payment. The court considered that the objective test aligns with the equitable principle that interest should not be awarded for a period during which it would be unreasonable to withhold payment. In terms of the stay of execution, the court considered the solvency of the party to whom the judgment sums were payable, as provided for in section 57 of the Insurance Contracts Act 1984 and the Insurance Contracts Regulation 1985. The court concluded that an objective assessment of unreasonableness was appropriate and that the solvency of the payee was a relevant factor in deciding whether to grant a stay of execution.

The outcome of the case was that the interest on the unpaid insurance sums should run from the date when it was unreasonable to withhold payment, assessed objectively. The court granted a stay of execution pending the outcome of the solvency inquiry into the payee. The final orders included directions for further evidence and submissions on the solvency of the payee and a directive that interest would accrue from the date determined by the court to be the point at which it became unreasonable to withhold payment.