HIH Insurance Ltd (in liq) v Adler - [2007] NSWSC 633

No judgment structure available for this case.

CITATION: HIH Insurance Limited (in liquidation) & Anor v Rodney Stephen Adler & Ors [2007] NSWSC 633

HEARING DATE(S): 18/06/07, 19/06/07

JUDGMENT DATE :
22 June 2007

JURISDICTION: Equity Division

JUDGMENT OF: Einstein J

DECISION: Applications to be dismissed.

CATCHWORDS: Practice and procedure - Applications to strike out sections of further amended statement of claim - Principles

LEGISLATION CITED: Companies Act 1981 (Cth)
Corporations Act 2001 (Cth)
Corporations Law (Cth)
Evidence Act 1995 (NSW)
Trade Practices Act 1974 (Cth)

CASES CITED: Agar v Hyde (2000) 201 CLR 552
Air Services Australia v Zarb (Unreported, New South Wales Court of Appeal, Priestley, Powell JJA and Rolfe AJA, 26 August 1998)
AJ Thompson Pty Ltd v KLK Manufacturing Pty Ltd (1986) ATPR 40-718
Allianz Australia Insurance ltd v GSF Australia Pty Ltd (2005) 221 CLR 568
Ancuta v R (1990) 49 A Crim R 307
Angas Law Services Pty Limited (in liq) v Carabelas (2005) 215 ALR 110
ASIC v Rich (2005) 216 ALR 320
Bank of New South Wales v Murray (1963) 80 WN (NSW) 272
Bruce v Williams (1989) 46 A Crim R 122
Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592
Chappel v Hart (1998) 195 CLR 232
Colly Cotton Marketing Pty Ltd v Simmons [2006] NSWCA 134
Dey v Victorian Railways Commissioners (1949) 78 CLR 62
Digi-Tech (Australia) Ltd v Brand and Ors (2004) 62 IPR 184
DPP for Northern Ireland v Maxwell [1978] 3 All ER 1140
Electrical Enterprises Retail Pty Limited v Rodgers (1988) 15 NSWLR 473
Environment Agency v Empress Car Co (Abertillery) Ltd [1999] 2 AC 22
Esanda Finance Corp Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241
Ford Motor Company of Australia Ltd v Arrowcrest Group Pty Ltd (2003) 134 FCR 522
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125
Gibson v Parkes District Hospital (1991) 26 NSWLR 9
Giorgianni v The Queen (1985) 156 CLR 473
Gould v Vaggelas (1985) 157 CLR 215
Hampic Pty Ltd v Adams [1999] NSWCA 455
Henville v Walker (2001) 206 CLR 459
Hospitals Contribution Fund of Australia v Hunt (1982) 44 ALR 365
I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd, (2002) 210 CLR 109
James Andrew Sweeney v State of Western Australia [2006] WASCA 118
Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526
Johnson Tiles Pty Ltd v Esso Australia Ltd (No. 2) (2000) 97 FCR 175
Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458
Linter Group Limited (in liq) v Goldberg (1992) 7 ACSR 580
Lezam Pty Ltd v Seabridge Australia Pty Ltd (1992) 35 FCR 535
McCarthy & Ryan v R (1993) 71 A Crim R 395
March v E & MH Stramare Pty Ltd (1991) 171 CLR 506
Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494
NRMA Insurance Ltd v A W Edwards Pty Ltd (1995) 11 BCL 200
Petagna Nominees Pty Ltd v AE Ledger, Liquidator of Linun Pty Ltd (1989) 1 ACSR 547
Preston v Star City Pty Ltd [1999] NSWSC 1273
R v Bainbridge [1959] 3 WLR 656
R v Phan (2001) 53 NSWLR 480
R v Russell [1933] VLR 59
Rural Press Ltd v ACCC (2003) 216 CLR 53
San Sebastian Pty Limited and Anor v Minister Administering the Environmental Planning and Assessment Act 1979 and Anor (1986) 162 CLR 340
Sidebottom v Cureton (1937) 54 WN (NSW) 88
Spellson v George (1992) 26 NSWLR 666
Stockland (Constructors) Pty Ltd v Retail Design Group (International) Pty Ltd [2003] NSWCA 84
Stokes & Difford v R (1990) 51 A Crim R 25
Sutton v AJ Thompson Pty Ltd (in liq) (1987) 73 ALR 233
TPC v Australia Meat Holdings Pty Ltd (1988) 83 ALR 299
Trade Practices Commission v Lamova Publishing Corp Pty Ltd (1979) 28 ALR 416
Travel Compensation Fund v Tambree (2005) 224 CLR 627
Valoutin Pty Ltd & Anor v Furst & Ors (1998) 154 ALR 119
Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514
Western Australia v Wardley Australia Ltd (1991) 30 FCR 245
Wickstead & Ors v Browne (1992) 30 NSWLR 1
Yorke v Lucas (1985) 158 CLR 661

PARTIES: HIH Insurance Limited (in liquidation) (First Plaintiff)
HIH Investment Holdings Limited (in liquidation) (Second Plaintiff)
Rodney Stephen Adler (First Defendant)
Timothy Maxwell Mainprize (Second Defendant)
Daniel Wilkie (Third Defendant)
General Reinsurance Australia Limited formerly known as General & Cologne Reinsurance Australasia Limited (Fourth Defendant)
Kolnische Ruckversicherungs-Gesellschaft Aktiengesellschaft (Fifth Defendant)
Guy Carpenter & Company Pty Limited (Sixth Defendant)
Goldman Sachs Australia Pty Limited (Eighth Defendant)
Malcolm Bligh Turnbull (Ninth Defendant)
Russell Craig Pillemer (Tenth Defendant)

FILE NUMBER(S): SC 4280/06

COUNSEL:
Mr AJ Sullivan QC, Mr ST White SC, Mr JK Kirk, Mr IR Pike (Plaintiff)
Ms RC Higgins (First Defendant)
Mr R Derham (Second Defendant)
Mr JS Emmett (Third Defendant)
Mr J Sackar QC, Ms N Sharp (Fourth and Fifth Defendants)
Mr MA Pembroke SC, Mr DL Williams SC, Mr TM Faulkner (Sixth Defendant)
Mr AJL Bannon SC, Mr GKJ Rich (Eighth Defendant)

SOLICITORS: Blake Dawson Waldron (Plaintiffs)
Gilbert & Tobin (First Defendant)
Atanaskovic Hartnell (Second Defendant)
Speed & Stacey (Third Defendant)
Allens Arthur Robinson (Fourth and Fifth Defendants)
Ebsworth & Ebsworth (Sixth Defendant)
Watson Mangioni (Eighth Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

Einstein J

Friday 22 June 2007

4280/06 HIH Insurance Limited (in liquidation) & Anor v Rodney Stephen Adler & Ors

JUDGMENT

The notices of motion

1 There are before the Court a number of notices of motion brought by disparate defendants seeking to strike out particular paragraphs of the Further Amended Statement of Claim [“FASOC” or “Statement of Claim”] filed on 7 September 2006. The defendants in question are the fourth and fifth defendants [together referred to as "the GCRA parties" or simply “Gen Re”], the sixth defendant ["Carpenter"], and the eighth defendant Goldman Sachs ["Goldman"].

The proceedings

2 The FASOC runs for 188 pages covering 610 paragraphs. A convenient approach has been taken by the preparation by the plaintiffs of an epitome of the statement of claim [amended to record causes of action no longer pressed], which mercifully extends across only 11 pages. However following the very extensive citation during address of paragraphs from the FASOC, the reasons are naturally based on the precise terms of the pleading under attack.

3 The epitome [underlined to give focus] reads as follows:

INTRODUCTION

1. This document is provided to the Court and the parties as an aide. It is a preliminary guide summarising the claims made by HIH as set out in the further amended statement of claim (FASOC). It is not intended to be definitive and is not a substitute either for the FASOC itself or for any evidence.

2. The FASOC pleads the various claims brought by HIH Insurance Limited and HIH Investment Holdings Limited against 10 defendants for losses that the plaintiffs incurred as a result of the takeover of the FAI Group of companies in 1998.

First defendant	Mr Rodney Stephen Adler	Director of FAI Insurances and CEO of the FAI Group
Second defendant	Mr Timothy Maxwell Mainprize	Finance director of FAI Insurances
Third defendant	Mr Daniel Wilkie	Director of FAI General and COO of the FAI Group
Fourth defendant	General Reinsurance Australia Limited (GCRA)	Reinsurer
Fifth defendant	Kolnische Ruckversicherungs-Gesellschaft Aktiengesellschaft (GCR)	Reinsurer
Sixth defendant	Guy Carpenter Pty Limited (Guy Carpenter)	Reinsurance broker
Eighth defendant	Goldman Sachs Australia Pty Limited (GSA)	Merchant bank
Ninth defendant	Mr Malcolm Bligh Turnbull	Managing director and Chairman of GSA
Tenth defendant	Mr Russell Craig Pillemer	Vice President of GSA

(a) The first section ("Preliminaries") contains a description of the parties and pleads various statutory requirements applicable to the financial statements that were published by the FAI Group for the year ending 30 June 1998 (FAI Group 97/98 Financial Statements).

(b) The second section is entitled "the Course of Events", (paragraphs 21 to 293) and pleads, in broadly chronological order, the facts and matters that give rise to the claims against each of the defendants.

(c) The third section of the pleadings, entitled "Causes of Action" (paragraphs 294 to 583), pleads the causes of action against each of the defendants.

5. The following paragraphs are an overview of sections 2 to 4 of the FASOC.

SECTION 2 OF THE FASOC – THE COURSE OF EVENTS

The intentions of FAI senior management in relation to the FAI Group 97/98 Financial Statements and under-provisioning within the FAI Group (paragraphs 21 to 27)

6. In 1998, the FAI Group was a major Australian insurance group. FAI Insurances Limited ( FAI Insurances) was its ultimate holding company.

7. During the course of the 1998 financial year, senior management of the FAI Group, including Messrs Adler, Mainprize and Wilkie (FAI Executive Directors) became aware of a serious shortfall in the provision made by companies within the FAI Group for outstanding claims liabilities under policies of insurance written by them. The necessary increase in provisions would have a substantially adverse effect on the reported results of the FAI Group for the year ending 30 June 1998.

The GCRA arrangements (paragraphs 28 to 50, 67 to 69, 73 to 75)

9. In March 1998, Mr Mainprize and Mr Wilkie began discussions with GCRA and GCR for the purpose of procuring a purported reinsurance contract under which FAI could recognise illusory profits to improve its reported results for the year ending 30 June 1998. GCRA and GCR were informed of FAI's under-provisioning and the fact that senior management of FAI were proposing a "staged" increase in the reserves of the FAI Group over a number of years.

10. Discussions between senior management of FAI and GCRA and GCR in relation to a possible contract continued through March and April 1998. In the course of these discussions (in April) GCRA and GCR conducted a due diligence investigation into the financial condition of the FAI Group and concluded that FAI was under reserved by more than $110 million.

11. The discussions led to an agreement that was entered into between GCRA and FAI on 6 May 1998. The agreement (the First GCRA Agreement) consisted of a number of separate contracts and arrangements, including an aggregate excess of loss contract (the First AXOL Contract) which, on its face involved an apparent risk that GCRA would be obliged to pay more in recoveries to FAI than it would receive in premiums. However, the First GCRA Agreement also included 6 other purported reinsurance arrangements (the 6 GCRA Slips) under which FAI companies would be obliged to pay premiums to GCRA totalling $12.5 million and a side letter (the May Side Letter) by which FAI agreed to make no claims under the 6 GCRA Slips without the agreement of GCRA. These parts of the First GCRA Agreement ensured that GCRA would be protected from any loss under the First AXOL Contract and that it would also receive a fee for agreeing to enter into the arrangements with FAI.

12. In June 1998, FAI sought an increase in the overall aggregate limit under the First AXOL Contract. This led to a renegotiation of the arrangement with the result that the First AXOL Contract was replaced by another aggregate excess of loss contract (the Second AXOL Contract). The Second AXOL Contract was part of the same transaction as the six GCRA Slips and the May Side Letter. This further agreement between GCRA and FAI (the Second GCRA Agreement) also included a further side letter by which FAI agreed not to make claims under one section of the Second AXOL Contract.

13. As GCRA and GCR were aware, the Second GCRA Agreement entailed no transfer of material insurance risk to GCRA and was in substance a loss making deposit or loan arrangement for FAI. At all material times, GCRA and GCR were aware that it was the intention of senior management of FAI to account for the Second AXOL Contract as a genuine contract of reinsurance, recognising an illusory profit (net recovery) of approximately $30 million under that contract to improve the reported results of the FAI Group for the year ending 30 June 1998. They were also aware that senior management of FAI intended to mislead the FAI Group auditors as to the substance, purpose and effect of the arrangements that had been entered into with GCRA in order to achieve their accounting objectives. GCRA and GCR had proposed a structure that would allow FAI senior management to mislead the auditors in these respects .

Guy Carpenter and the NI Contract (paragraphs 51 to 63, 70 to 72 and 76 to 78)

14. In 1998, Guy Carpenter was a broker for FAI. Early in June 1998, Mr Adler asked Guy Carpenter to arrange a purported contract of reinsurance for the purpose of improving the FAI Group's reported results for the year ending 30 June 1998. In this context, Guy Carpenter was told of the existence of a substantial under-provisioning within FAI.

15. Later in June 1998, Guy Carpenter approached the US reinsurer, National Indemnity Company. National Indemnity proposed a purported reinsurance contract which, after some negotiations with Guy Carpenter on behalf of FAI, was entered into on or about 30 June 1998 . The contract, covering a number of FAI's underwriting years, required that FAI pay to National Indemnity premiums totalling $55 million. The maximum amount that FAI could recover under the contract was limited to $50 million. This could increase to $80 million, but only if the conditions set out in a clause in the contract were satisfied. That contingency was intended to be, and was, an extremely remote possibility, involving two earthquakes occurring in Australia, each causing damage in excess of $5 billion.

16. Senior management of FAI intended to account for the NI Contract as a genuine contract of reinsurance, recognising an illusory profit (net recovery) of approximately $30 million under the contract. However, the NI Contract did not involve a transfer of material insurance risk to National Indemnity and could not properly be accounted for as a genuine contract of reinsurance in the manner intended by senior management of FAI. The contract was entered into on the last day of the 97/98 financial year with the object of allowing the FAI Group to recognise illusory profits to improve its reported results for that year. These financial results would not present a true and fair view of the performance of the FAI Group for the year ending 30 June 1998 and its position at the end of that year . FAI had not sought any reinsurance for losses caused by earthquakes and the earthquake clause had been included at the instigation of National Indemnity for the sole purpose of giving the contract the appearance, but not the reality, of risk transfer. At all material times, Guy Carpenter was aware of these matters and of the intention of senior management of the FAI Group to mislead the FAI Group auditors in relation to the NI Contract and, in particular, the purpose for which it had been entered into and the date on which it had been entered into, so as to achieve their objective of accounting for the contract as a genuine contract of reinsurance .

17. Shortly after the contract had been entered into, Guy Carpenter prepared a backdated cover note (NI Cover Note) containing the terms of the NI Contract with the object of allowing FAI management to create the pretence that the NI Contract had been entered into at the beginning of the 1997/98 financial year, rather than on the last day of that period.

The misleading of the FAI Group Auditors and the 26 August meeting (paragraphs 79 to 152)

18. The auditors of the FAI Group for the year ending 30 June 1998 (the Auditors) were the accounting firm Arthur Andersen.

19. In about July and August 1998, there were discussions between senior management of the FAI Group (including the FAI Executive Directors) and the Auditors in relation to the accounting treatment of the Second AXOL Contract and the NI Contract. Management of FAI proposed that both contracts should be accounted for as genuine reinsurance contracts, with FAI recognising net recoveries of approximately $30 million under each contract. In order to induce the Auditors to accept this accounting treatment, the FAI Executive Directors withheld from the Auditors information and documents relevant to the proper accounting treatment of these two contracts. In particular, the Auditors were not told about the 6 GCRA Slips or the May Side Letter and their connection with the Second AXOL Contract. Also, they were only provided with the NI Cover Note and were not told of the purpose of the NI Contract or the circumstances in which it had been entered into.

20. At a meeting on 21 August 1998, Mr Wilkie and Mr Mainprize represented to the Auditors that the two contracts involved the transfer of material reinsurance risk to the reinsurers. Later, the Auditors were provided with an FAI position paper that represented that the contracts involved risk transfer and had been entered into as part of the FAI Group's normal reinsurance programme.

21. At no time during the period of the audit did the FAI Executive Directors disclose to the Auditors the shortfall in FAI's provision for outstanding claims liability.

22. On 26 August 1998, a meeting was held at the offices of FAI Insurances between Mr Martyn Scrivens, a partner of Arthur Andersen and the signing partner for the FAI Group 97/98 Financial Statements and various officers of FAI, including Mr Wilkie and Mr Mainprize. The purpose of the meeting was to discuss FAI's proposed accounting treatment of the Second AXOL Contract and the NI Contract. Representatives of GCRA, GCR and Guy Carpenter were invited by FAI to attend the meeting. Mr Barnum and Mr Smith, who were agents of both GCRA and GCR, attended the meeting. Mr Tuckfield, a director of Guy Carpenter, also attended to answer questions about the NI Contract.

23. At the meeting, Mr Barnum and Mr Smith, through their statements and also by reason of the information that they deliberately withheld, misled Mr Scrivens in relation to the Second AXOL Contract. They allowed Mr Scrivens to continue under what they knew to be mistaken assumptions as to the purpose, substance and effect of the arrangements between FAI and GCRA. Guy Carpenter's representative, Mr Tuckfield also made misleading statements to Mr Scrivens in relation to the NI Contract, withheld information relevant to the accounting treatment of that contract and allowed Mr Scrivens to proceed under mistaken assumptions as to the purpose, substance and effect of the NI Contract.

24. On or about 3 September 1998, draft financial statements for the FAI Group for the year ending 30 June 1998 were provided to the Auditors by senior management of FAI. The Second AXOL Contract and the NI Contract had been accounted for as genuine contracts of reinsurance, resulting in a material misstatement of the reinsurance recoveries properly recognisable by companies within the FAI Group. The draft financial statements did not make adequate provision for the FAI Group's outstanding claims liability. As a result of these matters, the draft financial statements materially misstated the financial performance of the FAI Group for the year ending 30 June 1998 and its position as at the end of that year.

25. As a consequence of the conduct of the FAI Executive Directors throughout the period of the audit, and the conduct of GCRA, GCR and Guy Carpenter at the 26 August meeting, the Auditors accepted the proposed accounting treatment of the Second AXOL Contract and the NI Contract and did not discover the FAI Group's serious under-provisioning.

The publication of the misleading FAI Group 97/98 Financial Statements and associated documents on 9 September 1998 (paragraphs 153 to 209)

26. The FAI Group 97/98 Financial Statements were approved by the FAI board of directors on 9 September 1998. They stated that, in the year ending 30 June 1998, the FAI Group had made an operating profit before tax of $8.609 million and had, as at 30 June 1998, net assets of $337.170 million.

27. The FAI Group 97/98 Financial Statements accounted for the Second AXOL Contract and the NI Contract as genuine reinsurance contracts. The financial statements did not make adequate provision for the outstanding claims liabilities of companies within the FAI Group. As a result of these matters, the FAI Group 97/98 Financial Statements materially misstated the net profits of the FAI Group for the year ending 30 June 1998 and its position as at the end of that year. The accounting treatment of the Second AXOL Contract and the NI Contract resulted in an overstatement of $35.675 million and $31.078 million respectively in the reported net profits and net assets. The failure to make proper provision for the outstanding claims liabilities of companies within the FAI Group itself resulted in an overstatement in net profits and net assets in the order of $170 million. The financial statements also materially overstated the reinsurance recoveries properly recognisable by the FAI Group and understated the amount of the FAI Group's net claims incurred and net discounted outstanding claims.

28. The FAI Group 97/98 Financial Statements were provided to the ASX on 9 September 1998 together with the Directors' Statement, signed by Mr Adler and Mr Mainprize, the Auditors' Report, a Preliminary Final Report in the form required by the listing rules, and a letter to the ASX from Mr Adler referring to aspects of FAI's reported results. The documents accompanying the FAI Group 97/98 Financial Statements was materially misleading in the respects pleaded in paragraphs 183 to 200 of the FASOC.

GSA, Turnbull and Pillemer and Project FireLight (paragraphs 210 to 219)

29. In the period from late 1997 to September 1998 , GSA, through Mr Turnbull and Mr Pillemer, was involved with Mr Adler in discussions concerning a proposed joint venture privatisation of entities within the FAI Group, code named Project FireLight. The project was not disclosed to the FAI non-executive directors .

30. As part of Project FireLight, GSA was provided with and reviewed a significant amount of financial information relating to the FAI Group. As a result of its investigations, GSA and Messrs Turnbull and Pillemer formed the opinion that the true financial position and net assets of the FAI Group were substantially less than those that were to be reported by the Group for the year ending 30 June 1998. On 12 September 1998, GSA informed Mr Adler that it had decided to abandon Project FireLight.

The takeover of the FAI Group, the misleading Part B Statement and the conduct of GSA, Turnbull and Pillemer (paragraphs 220 to 293)

31. On 9 September 1998, the same day that the FAI Group 97/98 Financial Statements were provided to the ASX, Mr Adler sent them under cover of a letter to Mr Williams, the CEO of the HIH Group (Williams letter) in connection with a potential takeover of the FAI Group by the HIH Group.

32. HIH relied upon the published financial statements of the FAI Group (and the associated documents referred to in paragraph 26) in deciding to make a takeover offer for the FAI Group. On 18 and 21 September 1998, HIH began acquiring shares in FAI Insurances on market, in anticipation of a formal takeover offer. On 23 September 1998, the HIH Group made a formal takeover announcement.

33. On or about 28 September 1998, GSA was retained by FAI Insurances as an adviser in relation to the HIH takeover offer. Pursuant to that retainer, GSA agreed to provide FAI Insurances with financial advice in connection with the proposed takeover including advice as to the net worth of the FAI Group. GSA advised the FAI Board not to appoint an independent expert and undertook to provide its own report as to the value of FAI.

34. As part of the services it provided to FAI pursuant to its retainer, GSA made two presentations to the FAI Board on 13 and 23 October 1998 and attended a number of FAI Board meetings. In the course of those meetings, drafts of a Part B Statement to be issued by FAI were considered. These drafts did not disclose that the FAI Group 97/98 Financial Statements (being the most recent audited financial statements for the Group) contained any material misstatement. However, each of Mr Adler, Mr Mainprize and GSA knew that those financial statements did not contain a true and fair view of the performance of the FAI Group for the year ending 30 June 1998 or its position as at the end of that year.

35. On no occasion during the course of the takeover, including the presentations that GSA gave to the FAI Board and the Board meetings that they attended, did GSA or Messrs Turnbull and Pillemer disclose to the FAI non executive directors the fact of Project FireLight or the opinions that GSA had reached as to the true net worth of the FAI Group. Further, GSA impliedly represented to the Board that it was appropriate for the FAI Board to approve the issue of the Part B Statement in the form or substantially the form in which it was issued.

36. The Part B Statement was approved by the FAI Board, including Mr Adler and Mr Mainprize, on 13 November 1998 and, on the same day, signed by Mr Adler and Mr Harris (one of the FAI non-executive directors). The Part B Statement did not disclose the knowledge that Mr Adler and Mr Mainprize possessed in relation to the misleading nature of the FAI Group 97/98 Financial Statements, the fact of Project FireLight or the opinions GSA had reached as a result of its investigations into the financial condition of the FAI Group. Indeed, the Part B Statement expressly represented that there was no information known to any director that was material to the decision of FAI shareholders whether or not to accept HIH's offer that was not disclosed in the statement. The Part B Statement also impliedly represented that the FAI Group 97/98 Financial Statements gave a true and fair view of the financial performance of the FAI Group for the year ending 30 June 1998 and its financial position as at the end of the year.

37. HIH relied upon the misleading Part B Statement in continuing with and concluding the takeover of the FAI Group. The takeover was declared unconditional on 4 January 1999. HIH Investment's takeover costs were $229,969,861.33. HIH Insurance's takeover costs were in the order of $65,500,000.

SECTION 3 OF THE FASOC - CAUSES OF ACTION

(a) claims relating to the misleading of the Auditors (paragraphs 294 to 434);

(b) claims relating to the publication of the misleading FAI Group 97/98 Financial Statements and their provision to the HIH Group (paragraphs 435 to 538); and

(c) claims arising from the misleading conduct of various parties in the course of the takeover (paragraphs 539 to 583).

Claims relating to the misleading of the Auditors

39. These claims are brought against each of the FAI Executive Directors, GCRA, GCR and Guy Carpenter . The claims are brought both under the Trade Practices Act (TPA) and the Corporations Law (the Law, being the Law as it then applied; the causes of action arising thereunder are continued by s.1400 of the Corporations Act 2001 ). The claims include direct claims and accessorial claims.

40. As noted in paragraphs 17 to 23 above, each of the FAI Executive Directors provided misleading information to the Auditors during the audit of the FAI Group 97/98 Financial Statements. The claim is that the FAI Executive Directors or FAI Insurances misstated to the Auditors the financial performance of the FAI Group during the year ending 30 June 1998 and its financial position as at the end of that year. This conduct gives rise to direct claims against each of those directors under section 1005 of the Law for breach of section 999. These contraventions also form the basis of accessorial claims against each of GCRA, GCR and Guy Carpenter pursuant to section 79 of the Corporations Law.

41. Alternatively, the conduct of each of the FAI Executive Directors is attributed to FAI Insurances and the FASOC pleads contraventions by FAI Insurances of section 999 of the Law and section 52 of the TPA. These contraventions form the basis of accessorial claims pursuant to section 79 of the Law and section 75B of the TPA against each of the FAI Executive Directors, GCRA, GCR and Guy Carpenter .

42. There are also three further alternative formulations of the relevant primary contraventions of the FAI Executive Directors and FAI Insurances, giving rise to alternative accessorial claims.

43. In addition to the accessorial claims, there are direct claims for breaches of section 999 of the Law and section 52 of the TPA by GCRA, GCR and Guy Carpenter arising out of their conduct at the 26 August meeting.

44. Paragraphs 409 to 434 of the FASOC pleads facts and matters relevant to the causation case that is made in respect of the claims relating to the misleading of the auditors.

Claims relating to the publication of the misleading FAI Group 97/98 financial statements

45. Again, these claims are brought against each of the FAI Executive Directors, GCRA, GCR and Guy Carpenter. The claims are brought both under the TPA and the Law and include direct claims and accessorial claims .

46. There are claims against Mr Adler and Mr Mainprize for breach of section 999 of the Law relating to the statements made by each of them in the Directors' Statement.

47. As noted in paragraphs 24 to 26 above, the FAI Group 97/98 Financial Statements and associated documents that were provided to the ASX on 9 September 1998 were materially misleading. The claim is that, by providing these documents to the ASX, Mr Adler, or alternatively FAI Insurances, materially misstated the financial performance of the FAI Group during the year ending 30 June 1998 and its financial position as at the end of that year. Mr Adler breached section 999 of the Law by sending these financial statements and accompanying documents to the ASX. Alternatively, this was the conduct of FAI Insurances and gave rise to contraventions of section 999 of the Law and section 52 TPA.

48. These contraventions form the basis of accessorial claims pursuant to section 79 of the Corporations Law and section 75B of the TPA. Again, there are three further alternative formulations of the primary contraventions that also give rise to alternative accessorial claims .

49. The sending of the Williams letter gave rise to a breach by Mr Adler of section 995 of the Law. Alternatively, this was the conduct of FAI Insurances and Mr Adler was involved in that contravention within the meaning of section 79 of the Law.

50. Paragraphs 535 to 538 of the FASOC plead facts and matters relevant to the causation case that is made in respect of the claims relating to the publication of the misleading FAI Group 97/98 financial statements.

Claims arising from the misleading conduct of various parties during the course of the takeover

51. These claims are made against Mr Adler, Mr Mainprize, GSA, Mr Turnbull and Mr Pillemer. Claims are brought under section 1005 and section 704(7) of the Corporations Law.

(a) direct claims against GSA, Mr Turnbull and Mr Pillemer for breach of section 995 of the Law relating to the misleading of the FAI non-executive directors;

(b) direct claims against Mr Adler and Mr Mainprize for breaches of section 995 and section 704 of the Law relating to the misleading Part B statement;

(c) alternatively, the issue of the Part B Statement by FAI Insurances gave rise to a contravention by the company of section 995 of the Law and Mr Adler and Mr Mainprize were involved in that contravention pursuant to section 79 of the Law;

accessorial claims against Mr Turnbull and Mr Pillemer arising out of their involvement in the contraventions of section 995 of the Law by FAI Insurances, Mr Adler and Mr Mainprize

53. Paragraphs 574 to 583 of the FASOC plead facts and matters relevant to the causation case that is made in respect of these claims.

SECTION 4 OF THE FASOC – LOSS AND DAMAGE

GCRA, GCR and Guy Carpenter

$229,969,861 by HIH Investment Holdings Ltd

$65,500,000

$295,469,861

GSA,

$65,500,000

$261,368,024

These were costs incurred after the takeover announcement was made by HIH, and do not include some $34.1 million incurred in acquiring shares in FAI Insurances before then.

The extensive submissions

4 The parties have exchanged extraordinarily detailed written submissions which extend to cover over two hundred pages [including a number of charts and schedules].

Use of the word "demurrable"

5 Although from time to time and in a rather old-fashioned way I use the word 'demurrable' this should not be taken to suggest that I am not familiar with and do not intend to apply the uniform civil procedure rules. The relevant rule which governs an application for a strike out is as follows:

[r 14.28] Circumstances in which court may strike out pleadings

(a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading, or

(b) has a tendency to cause prejudice, embarrassment or delay in the proceedings, or

(c) is otherwise an abuse of the process of the court.

The principles

6 Shortly stated the principles to be applied are as follows:

(i) the defendants must meet a high threshold of persuasion;

(ii) the Court should only exercise its power if the pleaded case has been shown to be “ obviously untenable ” and the power of the Court should be exercised sparingly;

(iii) the test to be applied has been expressed in various ways “but all of the verbal formulae which have been used are intended to describe a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way”: Agar v Hyde (2000) 201 CLR 552 at [57];

Dey v Victorian Railways Commissioners

General Steel Industries Inc v Commissioner for Railways (NSW)

7 For obvious reasons save as insofar as it is strictly necessary to do so, the Court on a strike out motion should be cautious on occasion in relation to determining questions of law. In some circumstances determining certain such questions will be naturally appropriate.

8 Barwick CJ in General Steel (supra) at 129 to 130 adopted the summary of authorities by Dixon J, as his Honour then was, in Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91:

The fact that a transaction is intricate may not disentitle the court to examine a cause of action alleged to grow out of it for the purpose of seeing whether the proceeding amounts to an abuse of process or is vexatious

9 For those reasons I have approached the instant applications from the viewpoint that save where an issue of law may be seen as so clear as to require a section of the statement of claim to be struck out, the reasons will involve no more than identifying matters of law which are distinctly arguable.

10 Finally and with particular regard to some of the parameters of these instant applications, it is appropriate to note that in Preston v Star City Pty Ltd [1999] NSWSC 1273, Wood CJ at CL:

Air Services Australia v Zarb

Wickstead & Ors v Browne

Esanda Finance Corp Ltd v Peat Marwick Hungerfords

Hospitals Contribution Fund of Australia v Hunt

Gibson v Parkes District Hospital

NRMA Insurance Ltd v A W Edwards Pty Ltd

Sidebottom v Cureton

Bank of New South Wales v Murray

Spellson v George

The issues

11 During the exchange of submissions in relation to the strike out application the plaintiffs determined that they would not press the parts of the pleading alleging a joint enterprise involving each of Gen Re and Guy Carpenter.

12 Without being exhaustive the following remaining matters were addressed in the extensive submissions:

Accessorial Liability - Extent of knowledge

i. Whether two of three types of accessorial claims alleged against Gen Re and Guy Carpenter should be struck out on the basis of the extent of knowledge alleged against them;

Indirect reliance

iv. Whether certain indirect reliance claims against Gen Re, Guy Carpenter and GSA should be struck out in light of the Court of Appeal’s decision in Digi-Tech (Australia) Ltd v Brandand Ors (2004) 62 IPR 184;

Damages

Findings

13 Again, without being exhaustive, the crucial findings in the reasons which follow are:

As to accessorial liability and extent of knowledge

i. the GCRA Parties and Guy Carpenter are each alleged to have known of their own contracts and of the above-described under-provisioning;

ii. they are each alleged to have taken steps to assist FAI to engage in the misleading conduct;

iii. depending upon the precise circumstances, it is arguable that it may not matter that each defendant did not know of all key respects in which FAI/the Executive Directors were ultimately to engage in the misleading conduct – it is arguable that the focus is on the essential elements, not the particular details of the contravention;

iv. in the present state of the law it is arguable that if each defendant knew of one or more method that the principal contravener intended to use to mislead, that would be sufficient to make good the case of accessorial liability.

a) is knowledge of the type of harm and not the extent of harm,

· The GCRA/GCR contention that the plaintiffs must prove that these defendants had actual knowledge of each essential matter-vide each matter which must be proved to establish the contravention in the terms alleged

[which GCRA/GCR say must include knowledge of each of:

1. the overstatements of net profit and net assets by reason of the accounting treatment of the Second AXOL Contract;

2. the overstatements of net profit and net assets by reason of the accounting treatment of the NI Contract;

by reason of

and

· the plaintiffs’ contention that actual knowledge of each of the matters described in 1, 2 and 3 above is not required but that they have pleaded sufficient of the relevant knowledge to permit the matter to go to trial, the ultimate curial decision being required to treat with:

[These being matters for the Court’s evaluation from case to case.]

sufficient

Indirect reliance

vi. whether or not the Digi-Tech decision is to be read in the fashion suggested by the defendants does not require to be presently answered. The position at law has not so crystallised as to justify the strike out motion.

Damages

Accessorial liability claims

14 An analysis of what are and are not necessary elements underpinning a cause of action for accessorial liability serves as a convenient starting point.

15 Notwithstanding that claims are made under both the Corporations Law and the Trade Practices Act, I accept that it is convenient to focus upon the principles applicable to TPA claims: the principles that apply, if not materially identical are sufficiently close to warrant the same attention; the TPA claims are a little simpler and there is more case law concerning such claims.

16 It is necessary to distinguish between the following concepts:

i. the misleading conduct by the principal contravener said to breach s.52;

ii. the loss or damage said to be suffered by the claimant and sued upon under s.82 [including issues of whether the loss/damage sued upon was caused by the contravention by the principal];

iii. the conduct by the accessory said to aid/abet etc that conduct [falling within one or more of the categories of s.75B];

17 Section 82(1) of the TPA relevantly provides as follows (emphasis added):

by conduct of another person

that other person

18 It is s82(1) which creates the relevant cause of action, not s.52: Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514 at 525.3.

19 Section 75B of the TPA relevantly provides as follows:

(a) has aided, abetted, counselled or procured the contravention;

(b) has induced whether by threats or promises or otherwise, the contravention;

(c) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or

20 To my mind each of the following propositions are clearly arguable on the present state of the law:

i. the gist of an accessorial liability cause of action is that the claimant has suffered loss or damage by conduct of another person (the principal contravener): see generally the analysis in Western Australia v Wardley Australia Ltd (1991) 30 FCR 245 at 257 and 259 (Full Federal Court);

ii. section 82 enables the claimant to recover “the amount of the loss or damage”, implicitly being the loss or damage they have suffered by the conduct of the principal contravener.;

iii. that loss or damage may be recovered either by action against that principal contravener “or against any person involved in the contravention”;

iv. hence one contravention of s.52 may give rise to causes of action against various defendants in relation to the same amount of loss or damage;

v. the text of s.82 indicates that the required causation element is that the claimant has suffered loss or damage by the conduct of the principal contravener ;

vi. the text makes clear that it is no element of a claim against a person involved in a contravention that the actions of that person has caused the loss or damage which is sued upon;

vii. a person will be taken to be involved in a contravention when they fall within one of the provisions in s.75B(1) of the TPA;

viii. they may fall within more than one provision;

do not

The core complaint by Gen Re and Guy Carpenter

21 The core complaint against the accessorial liability claims made by these defendants is that they are sought to be made liable for misleading conduct involving broadly three aspects [the Second AXOL Contract, the NI Contract and under-provisioning by FAI], when it has only been alleged that they each had knowledge of two of those three aspects [ie it is not alleged that Gen Re had knowledge of the NI Contract, or that Guy Carpenter had knowledge of the Second AXOL Contract]. The proposition is that neither the GCRA parties nor Guy Carpenter had knowledge of what they contend are all of the constituent elements of the contraventions by the directors/FAI alleged in the pleading.

22 Guy Carpenter also seeks to suggest [in contrast to Gen Re] that its knowledge of significant under-provisioning is insufficient as there is no allegation that it had knowledge of a "shortfall of $170 million". Guy Carpenter also appears to assert that it cannot be an accessory in respect of that part of the misleading conduct relating to the under-provisioning in the accounts as it did nothing to facilitate it.

23 The loss or damage sued upon by the plaintiffs here is the purchase price of FAI, it being alleged that the shares of FAI were worthless when purchased. Issues of causation are put in somewhat different ways for the various different causes of action.

24 As against Gen Re and Guy Carpenter on the accessorial liability claims it is alleged that but for the misleading and deceptive conduct of FAI/the executive directors – in which conduct Gen Re and Guy Carpenter were involved – the plaintiffs would not and/or could not have proceeded to purchase FAI.

25 In my view there is an arguable case in support of each of the following propositions:

i. for the accessorial liability claims against the defendants to succeed it is not necessary to show that their conduct was a cause of any particular loss or damage suffered by the plaintiffs;

ii. rather, it is necessary to show that particular contravening conduct by FAI and/or the executive directors caused certain loss or damage to the plaintiffs, and that each of the relevant defendants were “involved ” in that contravention or in those contraventions;

iii. equally, a claim against an alleged accessory does not require proof that they themselves engaged in misleading conduct;

Matters of characterisation

26 In the manner in which the motions were argued there has been some special focus placed upon the legal characterisation of the claims made as against GCRA parties. The matter is generally explained in the following terms in the submissions of GCRA parties:

three alternative

Approach 1

the dissemination by Adler, Mainprize, Wilkie and FAI Insurances (as relevant) of information in relation to the Second AXOL Contract

No reliance is placed on either the NI Contract or FAI’s Inadequate Claims Provisions

narrow contravention

Approach 2

materially misstating to the Auditors the amount of reinsurance recoveries which FAI could recognise,

middle contravention

Approach 3

Dealing with the challenges to the ' broad allegation'

27 For the reasons given by the plaintiffs there is no substance in the challenge to the manner in which this allegation is pleaded or to the suggestion that the pleading is demurrable. Adopting those reasons the following is apparent in terms of a fair explanation of the plaintiffs’ case suitable to be tried:

i. The primary allegation against the executive directors and FAI in relation to both misleading the auditors and the publication of misleading accounts is the “broad” allegation: namely, that the executive directors and FAI “materially misstated [to the auditors or in the published accounts] the financial performance of the FAI Group during the year ending 30 June 1998 and its financial position as at the end of that year”. That allegation is put as against both the executive directors (Adler, Wilkie and Mainprize) and against FAI itself. It is also pleaded as a contravention of both s.999 of the Corporations Law and s.52 of the TPA. But these permutations do not alter the central, simple substance. The first example of that allegation in relation to misleading of the auditors is found at [295] of the FASOC and at [441] in relation to publication of the accounts.

ii. In answers to request for further particulars the plaintiffs have confirmed that the material misstatements consisted of an overstatement of net profits before tax of the FAI Group for the year ending 30 June 1998, and of the net assets of the FAI Group as at 30 June 1998, the overstatements being by the amounts as alternatively particularised in particulars (b), (c) and (d) of the relevant paragraphs. Those particulars specify overstatements in the net profits and net assets of the FAI Group by an amount in the order of respectively $235m, $205m and $200m.

iii. The first of these figures ($235m) relates to a summation of the overstatement of profits and assets involved in combination of the effect of the accounting treatment of the Second AXOL Contract, the NI Contract and under-provisioning. The second figure ($205m) relates to a summation just of the effect of the accounting treatment of the Second AXOL Contract and under-provisioning, and the third ($200m) relates to a summation of the accounting treatment of the NI Contract and under-provisioning. The second and third of these particulars are put in the alternative to the first.

iv. Gen Re concedes that it is not going to challenge here that it had knowledge of the substantial under-provisioning within FAI.

v. There is nothing artificial about this identification of the misleading conduct. There are specific entries and statements in the 1998 financial accounts relating to net profits before tax and net assets of the FAI Group. The same is true of the draft accounts provided to the auditors. It is the case of the plaintiffs that these figures were false, being overstated by amounts in the order of what has been identified. Such a formulation of a misleading conduct case is entirely unremarkable.

vi. In the nature of such things, auditors spend some time reviewing draft accounts and discussing issues with management prior to settling the accounts that they are prepared to certify. It is alleged in particulars (b), (c) and (d) of [295] of the FASOC (for example) that, by reason of the identified matters, the executive directors overstated the net profits and net assets of the FAI Group in the draft accounts provided to the auditors by the relevant amounts. It is specified at particular (a)(iii) of [295] that they failed at any material time to correct the relevant misstatements identified in earlier versions of the draft financial statements. The case is thus the same in substance as the publication of accounts case which is the second half of the case.

vii. The fact that the executive directors had a period of time during the conduct of the audits to correct the misstatements does not change the substance of the analysis. The relevant entries in the draft accounts were false `when first provided to the auditors. They were false on each subsequent occasion draft accounts were provided to the auditors. At no stage prior to finalisation of the accounts on 9 September 1998 were the false entries corrected or the misleading conduct drawn to the attention of the auditors. That the misleading conduct was engaged in, repeated and not corrected over a period of time does not alter the fact that in essence there is one complaint of misleading conduct in relation to misleading of the auditors .

viii. Gen Re’s articulation of the “broad” contravention thus is erroneous. It fails to recognise that on this “broad” contravention, properly understood, the contravention is not a simple matter of adding together three disparate elements and pretending that they are one piece of conduct. Rather, it is identifying specified conduct – notably insertion of line items in published and draft accounts – which are said to be misleading, where the degree to which they are misleading is identified in particulars (b), (c) and (d).

Dealing with the challenges to the ' middle’ allegation

28 Here again for the reasons given by the plaintiffs there is no substance in the challenge to the manner in which this allegation is pleaded or to the suggestion that the pleading is demurrable. Adopting those reasons the following is apparent in terms of a fair explanation of the plaintiffs’ case suitable to be tried:

i. The “middle” level of alleged contravention is pleaded (for the s.999 contraventions) at [301] of the FASOC relating to misleading of the auditors and [447] relating to publication of the accounts. Here the allegation is that the relevant documents and the executive directors “materially misstated the amount of reinsurance recoveries that could properly be recognised by companies within the FAI Group and thereby materially misstated the financial performance of the FAI Group during the year ending 30 June 1998 and its financial position as at the end of that year”. The amounts specified in the relevant particulars is in the order of $65m, being the summation of the erroneous accounting treatment of the two purported reinsurance contracts taken together. There is a line item entry in the 1998 accounts for reinsurance recoveries.

ii. Once again, these allegations relate to conduct that is readily identifiable. That is so not merely in relation to the statements of the net profits and net assets of the FAI Group as at 30 June 1998. The 1998 financial statements have a specific line item relating to reinsurance recoveries. It is the case of the plaintiffs that that item was false. Similarly, it is the case of the plaintiffs that the draft accounts provided by the executive directors to the auditors contain a false entry of the same kind. Again, there is nothing remarkable about this type of pleading.

iii. To make a claim under s.82 of the TPA relating to a contravention of s.52 it is necessary to establish two things: that the principal contravener (usually being a corporation) has engaged in misleading or deceptive conduct in contravention of s.52 and that this contravention has caused the claimant loss or damage.

iv. A cause of action under s.82 thus arises where the claimant can point to loss or damage having been suffered as a result of identifiable conduct. Sometimes that conduct will be one distinct and confined representation . At other times, the relevant conduct will encompass a broader set of acts or omissions over a period of time.

v. In some contexts it is not sensible or appropriate to break a set of acts and omissions down into particular distinct statements as opposed to having regard to the totality of the relevant conduct : see eg TradePractices Commission v Lamova Publishing Corp Pty Ltd (1979) 28 ALR 416 at 421 per Lockhart J; AJ Thompson Pty Ltd v KLK Manufacturing Pty Ltd (1986) ATPR 40-718 per Fisher J at 47,879-80, upheld Sutton v AJ Thompson Pty Ltd (in liq) (1987) 73 ALR 233 at 236-8 (discussed further below); note also Lezam Pty Ltd v Seabridge Australia Pty Ltd (1992) 35 FCR 535 at 541.

vi. The issue of identifying the misleading conduct is connected to the issue of causation. Where reliance is alleged it is necessary to identify what was relied upon and by whom .

vii. For example, in a conversation there could be a series of quite distinct representations made (eg “this is a good business”; “the business has revenue of $1million per annum”; “the business made a profit of $100,000 last year”). Or the representations might be made during the course of three separate conversations. They might be made by different representatives of the seller. The person who is the object of the conduct may rely on just one of these representations, or two or three, or they may have merged into one overall impression created in the object’s mind as a result of the conversation (eg “it is a profitable business”). The relevant conduct for any TPA claim must be assessed in light of the evidence .

viii. If the object of the conduct says “I took the conduct to suggest X”, then the question for the court is whether the contravener did engage in conduct X (ie whether X was communicated by the contravener’s acts or omissions) and whether the claimant suffered loss of damage caused by the contravener having engaged in conduct X.

at the conduct as a whole

Butcher v Lachlan Elder Realty Pty Ltd

Yorke v Lucas

viewed as a whole

a question of fact

relevant course of

conduct as a whole

The effect of any relevant statements or actions or any silence or inaction occurring in the context of a single course of conduct must be deduced from the whole course of conduct.

xi. Just as the question of whether conduct is misleading cannot be divorced from the whole course of conduct, so too the question of what the conduct is must be seen in the whole context.

a) the particular acts or omissions;

b) the context in which those acts/omissions occurred;

characterisation

29 Returning to the facts it may be observed that GCRA and GCR do not assert that the middle and broad contraventions alleged against FAI Insurances and its executive directors are not arguable. GCRA and GCR accept that misleading conduct can be the overall effect of a complex amalgam of a number of acts and omissions occurring over a period of time.

30 However GCRA and GCR whilst accepting that it is all very well to plead such a complex amalgam, go on to observe that if one does so, that will have necessary consequences for allegations that others were “involved” in those contraventions. The more complex the sequence of events which comprise the misleading conduct, the more essential facts there will be.

31 In many ways this very complexity of the plaintiffs’ allegations of misleading conduct is an important reason why in this particular case, the strike out application should not be acceded to. The complexities involved are demonstrated in what GCRA and GCR themselves put forward in terms of a consideration of the content and the structure of particulars supplied in relation to paragraph 295 of the further amended statement of claim. Using their own words these parties submit as follows:

This [ie paragraph 295] is the pivotal paragraph of the FASOC which draws together each of the strands of argument giving rise to the broad contravention relating to the misleading of the auditors. It is important to understand that the complexity runs in two directions, as is demonstrated in diagrammatic form in the GCRA/GCR document [MFI J1] (being the diagram saved onto a floppy disk). Along a horizontal axis, one sees acts and omissions relating to three separate matters. The first distinct matter is the Second AXOL Contract. The acts and omissions relating to that matter are grouped together in particular (a)(i)(A) of paragraph 295. The second distinct matter is the NI Contract. The acts and omissions relating to that matter are grouped together in particular (a)(i)(B). The third distinct matter is FAI’s Inadequate Claims Provision. The acts and omissions relating to that matter are grouped together in particular (a)(i)(C). Then, along a vertical axis, one sees acts and omissions occurring over time with respect to each of those three matters. For example, the acts and omissions occurring over time in relation to the Second AXOL Contract involved:

a) failing to provide the Auditors with all of the documents material to Second AXOL Contract (particular (a)(i)(A)(I));

b) failing to disclose matters material to the decision of the Auditors as to whether to accept the proposed accounting treatment for the Second AXOL Contract (particular (a)(i)(A)(II));

c) making misleading representations in relation to the Second AXOL Contract (particular (a)(i)(A)(III));

d) confirming the proposed accounting treatment of the Second AXOL Contact in the FAI Position Paper (particular (a)(i)(A)(IV));

e) providing the auditors draft financial statements which understated net discounted outstanding claims and misstated net profits and net assets by reason of the Second AXOL Contract (particular (a)(ii)); and

32 In the result both the “broad” and “middle” contraventions are seen to be properly pleaded as such given the specific line items they relate to in the final and draft 1998 FAI Group accounts.

The necessary conduct by the accessory

33 The parties have exchanged cross submissions throwing up a lively issue as to the extent to which there is utility in attempting to compare principles drawn from the criminal law with cases of misleading conduct. Here again it is inappropriate for the Court presently to treat with these submissions put by the respective parties otherwise than by indicating what may or may not be arguable.

34 On that basis it seems to me that with respect to an identification of the principle which informs the nature of the conduct by an accessory required to be involved in a contravention, the plaintiffs submissions are very clearly arguable in the present state of the law. That is to say:

i. Clearly enough the forms of accessorial liability provided for in s.75B of the TPA are drawn from criminal law, and have been interpreted in that light: Yorke v Lucas (1985) 158 CLR 661 at 669.

ii. There is a close – although not complete – analogy here between the criminal law notions and the civil concept of accessorial liability enshrined in s.75B of the TPA and its analogues.

iii. In Giorgianni v The Queen (1985) 156 CLR 473, at 493, Mason J noted that the terms “aid and abet” are generally used to refer to the conduct of a person who is present at the commission of the offence, whilst the terms “counsel or procure” are generally used in relation to the conduct of an accessory before the fact. Otherwise, the same legal principles apply to these notions.
iv. In Giorgianni it was indicated that to be secondarily liable in a criminal offence in this way, the defendant:

“must have intentionally participated in the principal offences and so must have had knowledge of the essential matters which went to make up the offences … in question, whether or not he knew that those amounted to a crime” (Wilson, Deane and Dawson JJ at 500.2; see also Gibbs CJ at 482.3 and 487-8, and Mason J at 493-4). [Emphasis added.]

v. In Stokes & Difford v R (1990) 51 A Crim R 25 at 37, Hunt J, with whom Wood and McInerney JJ agreed, broke down what was required for a criminal aiding/abetting charge as follows:

“To establish that an accused is an accessory to the commission of a crime by another person (whether or not he is a co-accused) by aiding and abetting him, the Crown must establish:

(1) the commission of that crime by the principal offender, and…

(2) ….

(3) that (subject to an exception…) the accused knew all the essential facts or circumstances which must be established by the Crown in order to show that the crime was committed by the principal offender (whether or not the accused knew that they amounted to a crime), and
(4) that, with that knowledge, he intentionally assisted or encouraged the principal offender to commit that crime.”

vi. The following may be said to be required with respect to an accessorial claim relating to a contravention of s.52 of the TPA:

a) that the principal contravener engaged in misleading conduct in contravention of s.52 which caused the loss or damage claimed;

b) that the secondary defendant had actual knowledge “ of the essential matters which went to make up the” contravention, that is, “the essential facts which made what was done” a contravention (see Gibbs CJ in Giorgianni at 488.1). It is not necessary to establish the knowledge of any damage being suffered, because damage is not part of what must be shown to establish a contravention of s.52 (as opposed to a cause of action under s.82);
c) that knowing these essential facts, the secondary defendant intentionally did act to aid, abet, counsel or procure (etc) the contravention – that is, they did those acts with the intention of assisting or encouraging the contravention by the principal contravener.

vii. In the criminal context the requirements have been paraphrased as a necessity to show that the defendant “is in some way linked in purpose with the person actually committing the crime [i.e. the contravention], and is by his words or conduct doing something to bring about, or rendering more likely, such commission”: R v Russell [1933] VLR 59 at 67; quoted approvingly by Mason J in Giorgianni at 493.5; see also R v Phan (2001) 53 NSWLR 480 at [69] and [76] per Wood CJ at CL. Or, as Gibbs CJ put it in Giorgianni at 482.3, along with having knowledge of the essential circumstances, “the person charged must have intended to help, encourage or induce the principal offender to bring about the forbidden result”.

35 In relation to element (c) identified above– the aiding [etc] conduct by the accessory – it is clearly arguable that what is required is the doing of “something” which acted to help, encourage or induce the executive directors/FAI to engage in misleading conduct [see R v Russell etc cited above]: the search is for a ‘link in purpose’.

The pleaded conduct of Gen Re and Guy Carpenter

36 The plaintiffs allege that by their conduct Gen Re and Guy Carpenter did do something to bring about, or render more likely, the misleading conduct in the form of the provision of misleading information to the auditors and in the published 1998 accounts. Gen Re is said to have engaged in such conduct by entering into arrangements with FAI, which were structured in a way designed to mislead the auditors, and then directly misled the auditors at the 26 August 1998 meeting. Guy Carpenter is said to have done so by procuring the NI Contract, preparing a backdated cover under artificially recreated letterhead for the purposes of misleading the auditors, and [like Gen Re] then directly misleading the auditors at the 26 August 1998 meeting.

37 The plaintiffs have submitted and I accept that in this respect it is arguably not to the point that the information and accounts supplied to HIH were also misleading because of additional matters. Self-evidently, a person said to be secondarily liable will not have engaged in all of the conduct which constitutes the contravention. They must merely have done something to assist or encourage the bringing about of the contravention. Where it is alleged that the information and accounts were misleading, the facilitation of FAI/directors being misleading in that way may constitute material assistance towards the commission of the contravention.

TPC v Australia Meat Holdings Pty Ltd

cannot

38 Guy Carpenter appear to suggest that because “it did nothing to facilitate the under provisioning” (indeed it asserts that, if anything, it was seeking to rectify it in part by providing to FAI a device for recognition of illusory profits) it therefore cannot be an accessory in respect of that part of the misleading conduct relating to the under-provisioning in the accounts (both final and draft). This submission appears to overlook the fact that the relevant misleading conduct at the “broad” level is claimed to be the misstatement of the net profits and assets of FAI.

39 The plaintiffs’ case is that Guy Carpenter did “something to bring about or render more likely” this contravention by, amongst other things, procuring the NI Contract, preparing a backdated cover under artificially recreated letterhead for the purposes of misleading the auditors, and directly misled the auditors by their conduct at the 26 August 1998 meeting.

Returning to knowledge of the essential elements

40 As already observed, the plaintiffs' submissions are generally adopted as of substance in terms of establishing a sufficiently arguable case to go to trial.

41 The central issue of present relevance is whether it is necessary to show that Gen Re and Guy Carpenter had knowledge of all respects in which the information and accounts as ultimately provided/published by the principal contraveners were misleading, or whether instead it is enough to show knowledge that the accounts would materially misstate FAI’s profitability and net asset position [in relation to the “broad” contravention].

42 The joint judgment in Yorke v Lucas (supra) at 670, drawing upon the judgments in Giorgianni, spoke of the necessity to show “knowledge of the essential facts constituting the contravention” and, shortly thereafter, “knowledge of the essential elements of the contravention”. In Giorgianni there was reference to “knowledge of the essential matters which went to make up the offences” (Wilson, Deane and Dawson JJ at 500.2) and knowledge of “the essential facts which made was done” a contravention (Gibbs CJ at 488.1). In Rural Press Ltd v ACCC (2003) 216 CLR 53 at [48] per Gummow, Hayne and Heydon JJ, the language of “actual knowledge of the essential elements constituting the contraventions” was again employed.

43 I accept as correct the proposition that the key idea appears to be that it is necessary to show in a criminal context, that a secondary offender knew such facts as would be sufficient for the prosecution to establish that a crime was to be committed by the principal offender, that is, facts sufficient to establish each of the elements of the offence.

44 At the least it is distinctly arguable that the use of the word “essential” would seem to focus attention on it being necessary to show only facts sufficiently establishing the elements of the offence, and not all the particular facts of the crime that was actually committed: if X assists Y knowing that Y is to commit a crime then X may be culpable, even if he/she does not know all the details of what is to occur.

45 For accessories before the fact, it is necessary to show that the secondary offender had the knowledge in advance of the principal offender’s intention to engage in the relevant conduct. But that is also usually true (at least to a significant extent) for a secondary offender who is present at the scene: see Stokes & Difford v R (1990) 51 A Crim R 25 at 38-9 per Hunt J (for NSW CCA); McCarthy & Ryan v R (1993) 71 A Crim R 395 at 409.8.

“The TP Act is a fundamental piece of remedial and protective legislation which gives effect to ‘matters of high public policy’. It is to be construed so as ‘to give the fullest relief which the fair meaning of its language will allow’.”

Janssen-Cilag

Marks

“Section 82 is the vehicle for the recovery of loss or damage for multifarious forms of contravention of the provisions of Pts IV and V of the [TP] Act. It is important that rules laid down by the courts to govern entitlement to damages under s 82 are not unduly rigid, since the ambit of activities that may cause contravention of the diverse provisions of Pts IV and V is large and the circumstances in which damage the reform may arise will vary considerably from case to case.

What emerges from an analysis of the cases (and there are many of them) is that they do not impose some general requirement that damage can be recovered only where the applicant himself relies upon the conduct of the respondent constituting the contravention of the relevant provision.”

71 The plaintiffs further submitted as follows in terms of the suggested proper analysis of Dig-Tech:

i. The Digi-Tech litigation involved a series of transactions between Digi-Tech and a number of investors relating to the intellectual property rights to telecommunication products owned by Digi-Tech. Digi-Tech carried out its own valuation of these rights and, in addition, retained the accounting firm Deloittes to provide various analyses and to value the products.

ii. On appeal, the Court of Appeal was required to consider a number of issues concerning what had been referred to at first instance as the "profit potential representation". The manner in which the representation was pleaded is set out in paragraph [67] of the judgment of the Court of Appeal. The representation, that the products had a "high revenue and profit potential", was derived from the various documents referred to in particulars. These included a Digi-Tech information memorandum, as well as two documents prepared by Deloittes, including an indicative valuation setting out forecasts provided by Digi-Tech. Importantly, while the relevant representation was contained in documents that included the Deloittes documents the case proceeded on the basis that the relevant representation was a representation by Digi-Tech to the investors.

iii. The Court of Appeal found that the profit potential representation was misleading because Digi-Tech had not adduced evidence that it had reasonable grounds for making it. The next issue that the Court had to decide concerned causation - whether the investors would have entered into the relevant transactions if they had been told that Digi-Tech did not have reasonable grounds for the revenue and profit projections upon which the Deloittes valuation was based; that is, whether the investors had been induced by the representation to entering into the transaction. After considering the findings at first instance, the Court concluded, at [131], that it could not decide this issue and remitted it for re-trial.

iv. It was in this context that the plaintiffs sought to rely upon what was referred to as "indirect causation". The submission was that if Digi-Tech had not produced the misleading forecasts, Deloittes would not have produced the valuation which it did and the investment scheme would not have gone ahead. The appellants, relying upon cases such as Janssen-Cilag , argued that the requisite element of causation did not require a finding that individual investors were induced by a reading of the relevant documents to enter into the transaction.

"We accept Mr Sheahan's submission that, whatever might be the position in other contexts, in cases of this kind (misrepresentation inducing a transaction) the courts have required reliance by or on behalf of the plaintiff on the misrepresentation as being essential to the proof of causation as required by s.82(1) of the TP Act. Persons who claim damages under s 82(1) on the ground that they entered into transactions induced by the misrepresentations of other persons must prove that they relied on such misrepresentations and, therefore, by that conduct, they suffered loss or damage. As Mr Sheahan pointed out, were it otherwise, representees could succeed even though they knew the truth or were indifferent to the subject matter of the representation."

vi. It is notable that the Court of Appeal cited no authority in this paragraph. It is evident that it was not attempting any substantial change to the law relating to s.82, or the imposition of any significant new restriction of the kind for which the relevant defendants now contend.

vii. In the present strike out applications, the defendants have seized upon the words "reliance by or on behalf of the plaintiff on the misrepresentation". However the facts of the case make it clear that the Court did not intend to invest the words "on the misrepresentation" with the significance and meaning for which the defendants contend. The Court of Appeal used these words simply because, in that case, the misleading conduct at issue (the profit potential representation) was directed at the plaintiffs themselves . In this respect, Digi-Tech is not a case which is analogous to the present case.

viii. In rejecting the appellants' submissions, the Court of Appeal was following the well established principle that the "but for" test is not the test for causation in s.82(1). The plaintiff must do more than simply establish that "but for" the misleading conduct, he or she would not have suffered the loss claimed. The Court was also confirming that, in order to establish causation in cases where the plaintiff claims losses resulting from the entry into a transaction, the plaintiff must establish that that he or she was induced to enter into the transaction. There is nothing novel in either of these propositions, however, the case is not authority for the proposition that such inducement can result only from direct reliance by the plaintiff on the misleading conduct in issue.

ix. That this is a correct view of the decision is established by the last sentence of the quote, in which the Court identified the concern that underpinned the decision - were it otherwise representees could succeed even though they knew the truth or were indifferent to the subject matter of the representation . GSA has attempted to apply this concern to the present case and the attempt reveals the flaws in its argument. It asserts that the consequence of the theory of indirect causation would mean that the HIH plaintiffs could succeed even if they "paid no regard to GSA's misrepresentation or were ignorant of it". However the Court of Appeal did not use such words. The Court was not concerned about cases where the plaintiff was ignorant of the fact that the representation had been made, but about a case where the plaintiff was claiming damage was suffered as a result of misleading conduct where he/she/it knew the true position or was indifferent to the subject matter of the misrepresentation – ie where the element of reliance was absent.

x. The present case is not such a case. In relation to the claims against Gen Re and Guy Carpenter, the plaintiffs plead that they relied upon the [incorrect] view of the position and performance of the FAI Group set out in the accounts published by FAI on 9 September 1998 (para 427 to 429 of the FASOC). These accounts had been approved by the auditors, in reliance upon the misleading conduct on the part of the FAI executive directors, Gen Re and Guy Carpenter.

xi. Similarly, the pleaded claim against GSA is that GSA misled the FAI non-executive directors and/or the FAI Board, which caused a misleading Part B Statement to be issued. The misleading Part B Statement was, in turn, relied on by HIH. Had there been no misleading conduct, the Part B Statement would either not have been issued at all (in which case the takeover could not have proceeded) or would have been issued in a non-misleading form (in which case HIH would not have proceeded with the takeover). Whether such matters are established, and assuming they are established, are sufficient to satisfy the Court that the loss and damage claimed by HIH was caused “by” GSA’s misleading or deceptive conduct, are matters which can only be determined after a final hearing.

xii. It follows from the allegations of reliance by the HIH plaintiffs that they did not know the "true position", that is that FAI was worthless, and that they were not "indifferent" to the subject matter in issue, being the true value of FAI.

Digi-Tech

72 The above set out respective contentions of the parties make clear that it is unnecessary for the Court on the present application to determine which of the respective approaches concerning the proper reading of the Court of Appeal decision be correct. This is so for a number of reasons:

i. the first is that the plaintiffs have made clear that even if the proper reading of the Court of Appeal decision is that advanced by the defendants, the plaintiffs wish to seek to test that matter before the High Court;

a) These principles have been the subject of recent consideration by the High Court in Henville v Walker (2001) 206 CLR 459, I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd , (2002) 210 CLR 109 and, most recently, in Travel Compensation Fund v Tambree (2005) 224 CLR 627;

b) Initially it was determined that the word "by" in section 82 should be understood as taking up the common law practical or common-sense concept of causation referred to in March v Stramare (E&MH) Pty Ltd (1991)171 CLR 506 (see Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 525);

c) However, in recent cases, in particular the Travel Compensation Fund case, emphasis has been given to taking a purposive approach to causation that seeks to determine the issue by reference to the statutory subject, scope and purpose in which the issue arises, thus marking a departure, or at least a possible one, from viewing causation strictly according to common law concepts;

Travel Compensation Fund

Chappel v Hart

Environment Agency v Empress Car Co (Abertillery) Ltd

Allianz Australia Insurance ltd v GSF Australia Pty Ltd

Henville v Walker

I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd

"in recent cases [this Court] has pointed out that, in deciding whether loss or damage is "by" misleading or deceptive conduct, and assessing the amount of the loss that is to be so characterised, it is in the purpose of the statute, as related to the circumstances of a particular case, that the answer to the question of causation is to be found”;

Decision on indirect reliance

73 At the end of the day I accept that it is always a question of fact as to whether the loss or damage claimed has been caused “by” the misleading or deceptive conduct. Indeed as has been observed in the TPA context "to speak of reliance can be an artificial approach to causation, which can be established if there would have been inaction or some other action if the true position had been known": Colly Cotton Marketing Pty Ltd v Simmons [2006] NSWCA 134 per Giles JA [at 161], Spigelman CJ and McColl JA agreeing.

74 The plaintiffs are entitled to contend that the issue must be decided in accordance with the principles established in the recent High Court decisions referred to above. Whether or not the decision of the Court of Appeal in Digi-Tech is to be read as intending to substantially narrow the circumstances in which a claim for damages for misleading or deceptive conduct could be brought should not be determined on a strike out application but on a final hearing. It certainly cannot be said that the position has crystallised and is so clear, as to justify a strike-out claim based on this broad construction of Digi-Tech particularly where, if necessary, an approach to the High Court to decide the issue is foreshadowed. Further, in the event that the defendants be correct in their analysis of Digi-Tech, it is clearly possible that leave to reargue the matter could be granted by the Court of Appeal.

75 In truth it cannot be said that the so-called ‘indirect causation theory’ is unlikely to turn upon developing doctrine. Whether absent GSA's conduct HIH could or would not have suffered a loss by relying on the Part B Statement is a matter suitable to be tried.

Substantial overlap in facts

76 A parameter of the principled approach to the exercise of the relevant discretion is seen in the observation by Kirby P in Wickstead v Browne (1992) 30 NSWLR 1 at 5-6, that a Court would be reticent to summarily dismiss an action where, even if the action was dismissed, other causes of action, based on either identical or overlapping facts, will still go to trial. This is the position presently. The principle was stated by Merkel J in Johnson Tiles Pty Ltd v Esso Australia Ltd (No. 2) (2000) 97 FCR 175 at 177 in the following terms:

Wickstead v Browne

The challenge to the plaintiffs’ reliance on journal entries as supporting their claim to damages

77 The plaintiffs rely on certain journal entries as supporting their claim for damages suffered. The allegation in question which the defendants seek to strike out [specifically para 283 of FASOC] [on the basis that it is said to disclose no reasonable cause of action], accounts for almost half [approximately $142 million] of the damages sought by the plaintiffs.

78 The plaintiffs contend that their interpretation of the journal entry as set out in a letter to Gen Re’s solicitors (dated 4 June 2007) is not untenable. The relevant extract from the letter reads as follows:

(a) for HIH Insurance – HIH Insurance issued 70,012,364 shares to the value of $142,125,098.92 and HIH Investments incurred an obligation to pay HIH Insurance the sum of $142,125,098.92; and

(b) for HIH Investments – HIH Investments incurred an obligation to pay the sum of $142,125,098.92 to HIH Insurance (for the issue of 70,012,364 shares by HIH Insurance), and HIH Investments acquired an interest in FAI Insurances Limited.”

79 Notwithstanding the considerable detail into which the respective cross-contentions travel, I am satisfied that there is no substance in the attack on the pleading or particulars. The reasons are as follows:

Corporations Act 2001

s.1305 Admissibility of books in evidence

ii. in a strike out action the Court is required to assume that the facts pleaded are correct and that there is no contrary evidence to rebut the prime facie position;

iii. the occasion of a strike out application represents an inappropriate vehicle for determining in contested proceedings whether or not any, and if so what form of agreement, may be inferred from all of the evidence to be called relating to the effect to be given to journal entries;

iv. the trial judge may have regard to the journal entries, to whether there was a course of dealing and to whether, in the circumstances, there was a commercial rationale for the entering into of the obligations;

v. these are matters for evidence and argument before the trial judge. They may raise questions of admissibility of close order. The evidence is presently not before the Court [it seems doubtful in the extreme that the issue would be appropriate for a separate question determination but certainly there is no current application for such];

vi. the journal entries will be required to be considered as part of the matrix of fact;

could never

never

80 Both groups of parties cited a number of authorities to the Court. It is unnecessary to examine each of those authorities for the reason that the particular complexities confronting a Court in determining whether or not an agreement is to be inferred from particular evidence are by and large instance specific. The point was made by Kearney J in Electrical Enterprises Retail Pty Limited v Rodgers (1988) 15 NSWLR 473: see also Petagna Nominees Pty Ltd v AE Ledger, Liquidator of Linun Pty Ltd (1989) 1 ACSR 547 at 552, 558-9; Linter Group Limited (in liq) v Goldberg (1992) 7 ACSR 580 at 591, 595, 617-619; Valoutin Pty Ltd and Anor v Furstand Ors (1998) 154 ALR 119 at 126-7, 131-2.

81 In Electrical Enterprises (supra) the Court was concerned with whether accounting records of inter-related companies provided adequate evidence to establish an agreement to on-sell at cost property subject to a floating charge. Kearney J set out in detail the evidence bearing on the accounting entries and noted that whilst the authenticity of the journal entries was queried he considered them prima facie to represent the records of the company. His Honour then stated (at 489) [emphasis added]:

“On the issue as to the effectiveness of the entries to evidence the on-selling or agency transactions alleged by the plaintiffs, it is common ground that the entries of themselves do nothing to create an agreement. To have any effect they must represent the agreement between the parties involved …

As to whether an agreement is to be inferred

absence of any formal record

It is stressed that the terms of the suggested agreement are unknown and uncertain, and it is necessary that the transaction evidenced by entries in books of account should be one which is valid and effective to create legal consequences…

…

It seems to me that the subject entries in the books…, supported by the annual accounts and supplemented by the explanations given by [the witnesses] when considered in the light of corresponding entries in the books of EER, and its annual accounts together with the consolidated accounts of EEL provide evidence establishing an agreement for NEE to on-sell to EER at cost the stock purchased by NEE from suppliers …

Within a group of associated companies, it is not surprising for internal arrangements to be made informally. Hence the inference is readily available of compliant directors of the respective companies agreeing to tacitly accepting the arrangements propounded by Mr Wright. Mr Langley’s statements to Mr Nygh support this conclusion as do the recorded transactions and discussions of the directors of EEL and the adoption by the directors of the various companies of the annual accounts based on such arrangements having been made.”

82 There is clear substance in the plaintiffs’ response to the defendants’ contention that the obligation to pay the sum of approximately $142 million referred to in paragraph 283 of the FASOC discloses no reasonable cause of action and is untenable. In short and as the plaintiffs have contended:

i. The defendants’ reasoning appears to be that the only evidence in support of the obligation is the journal entry GJ-31236-MAY-99 which a journal entry without more cannot establish that HIH Insurance has incurred an actual loss;

Firstly

Secondly

Thirdly

Fourthly

Fifthly

a) that s 1305 is of no assistance;

Corporations Act

83 It is appropriate before concluding to add a reference to two reasonably recent authorities:

Angas Law Services Pty Limited (in liq) v Carabelas

However, “the evidence indicates that there was no transaction before the winding up began, that these entries record or reflect

The proper conclusion, on the facts, was that the journal entries were not a true record of any transaction and that there was no transaction that was binding on [the applicant] or the other companies

ii. A recent decision in relation to the admissibility of accounts and the extent to which they can be used to prove the matters contained therein is the decision of Austin J in ASIC v Rich (2005) 216 ALR 320. Austin J was concerned with the tender of various records by ASIC and was required to determine the admissibility of those records pursuant to s.69 of the Evidence Act and/or s.1305 of the Corporations Act. His Honour noted that s.1305 was introduced into the Australian corporations legislation upon the enactment of the Companies Act and Codes of 1981. At page 371 his Honour referred to the explanatory memorandum to the Companies Bill 1981 which stated the following:

“This is a new provision based on section 156(3) of the Ontario Business Corporations Act. It is an evidentiary provision that is intended to expedite legal proceedings where books are to be introduced in evidence. This provision obviates the need to call witnesses to prove the books are books of the corporation when this fact is not in question and to prove transactions recorded in books when these matters are not in dispute.”

“Where it applies, section 1305 allows a document properly tendered to become prima facie evidence of any matter stated in it, regardless of whether the stated matter offends an exclusionary rule of the Evidence Act, such as the hearsay rule or the opinion rule. Subsection (2), where applicable, avoids the need to prove the authenticity of the document, unless the presumption is rebutted. … Thus section 1305, if applicable, gives ASIC a “fast track” to admissibility of its tendered documents.”

84 Sufficient has been demonstrated in the above reasons to make clear that the respective defendants’ submissions on this strike out segment are of no substance. However it should also be noted that in so far as it has been contended that paragraph 283 [which deals with the approximate $142 million obligation] is demurrable because there was no pleading as to the existence of an agreement or of its terms, a close examination of the pleading together with the very extensive particulars which have been provided [to be found in attachment E to Exhibit R1] include a particularised agreement as between HIH Investments and HIH Insurance. The allegation is that what is to be inferred is that the former agreed to pay to the latter, the sum of approximately $142 million in return for the latter issuing shares as the scrip consideration for the takeover offer. The matters giving rise to that inference are then set out.

Short Minutes

85 The parties are to bring in short minutes on which occasion costs may be argued.

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Citations

HIH Insurance Ltd (in liq) v Adler [2007] NSWSC 633

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Statutory Material Cited

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Agar v Hyde [2000] HCA 41

CITATION:	HIH Insurance Limited (in liquidation) & Anor v Rodney Stephen Adler & Ors [2007] NSWSC 633
HEARING DATE(S):	18/06/07, 19/06/07
JUDGMENT DATE :	22 June 2007
JURISDICTION:	Equity Division
JUDGMENT OF:	Einstein J
DECISION:	Applications to be dismissed.
CATCHWORDS:	Practice and procedure - Applications to strike out sections of further amended statement of claim - Principles
LEGISLATION CITED:	Companies Act 1981 (Cth) Corporations Act 2001 (Cth) Corporations Law (Cth) Evidence Act 1995 (NSW) Trade Practices Act 1974 (Cth)
CASES CITED:	Agar v Hyde (2000) 201 CLR 552 Air Services Australia v Zarb (Unreported, New South Wales Court of Appeal, Priestley, Powell JJA and Rolfe AJA, 26 August 1998) AJ Thompson Pty Ltd v KLK Manufacturing Pty Ltd (1986) ATPR 40-718 Allianz Australia Insurance ltd v GSF Australia Pty Ltd (2005) 221 CLR 568 Ancuta v R (1990) 49 A Crim R 307 Angas Law Services Pty Limited (in liq) v Carabelas (2005) 215 ALR 110 ASIC v Rich (2005) 216 ALR 320 Bank of New South Wales v Murray (1963) 80 WN (NSW) 272 Bruce v Williams (1989) 46 A Crim R 122 Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 Chappel v Hart (1998) 195 CLR 232 Colly Cotton Marketing Pty Ltd v Simmons [2006] NSWCA 134 Dey v Victorian Railways Commissioners (1949) 78 CLR 62 Digi-Tech (Australia) Ltd v Brand and Ors (2004) 62 IPR 184 DPP for Northern Ireland v Maxwell [1978] 3 All ER 1140 Electrical Enterprises Retail Pty Limited v Rodgers (1988) 15 NSWLR 473 Environment Agency v Empress Car Co (Abertillery) Ltd [1999] 2 AC 22 Esanda Finance Corp Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 Ford Motor Company of Australia Ltd v Arrowcrest Group Pty Ltd (2003) 134 FCR 522 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 Gibson v Parkes District Hospital (1991) 26 NSWLR 9 Giorgianni v The Queen (1985) 156 CLR 473 Gould v Vaggelas (1985) 157 CLR 215 Hampic Pty Ltd v Adams [1999] NSWCA 455 Henville v Walker (2001) 206 CLR 459 Hospitals Contribution Fund of Australia v Hunt (1982) 44 ALR 365 I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd, (2002) 210 CLR 109 James Andrew Sweeney v State of Western Australia [2006] WASCA 118 Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526 Johnson Tiles Pty Ltd v Esso Australia Ltd (No. 2) (2000) 97 FCR 175 Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458 Linter Group Limited (in liq) v Goldberg (1992) 7 ACSR 580 Lezam Pty Ltd v Seabridge Australia Pty Ltd (1992) 35 FCR 535 McCarthy & Ryan v R (1993) 71 A Crim R 395 March v E & MH Stramare Pty Ltd (1991) 171 CLR 506 Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 NRMA Insurance Ltd v A W Edwards Pty Ltd (1995) 11 BCL 200 Petagna Nominees Pty Ltd v AE Ledger, Liquidator of Linun Pty Ltd (1989) 1 ACSR 547 Preston v Star City Pty Ltd [1999] NSWSC 1273 R v Bainbridge [1959] 3 WLR 656 R v Phan (2001) 53 NSWLR 480 R v Russell [1933] VLR 59 Rural Press Ltd v ACCC (2003) 216 CLR 53 San Sebastian Pty Limited and Anor v Minister Administering the Environmental Planning and Assessment Act 1979 and Anor (1986) 162 CLR 340 Sidebottom v Cureton (1937) 54 WN (NSW) 88 Spellson v George (1992) 26 NSWLR 666 Stockland (Constructors) Pty Ltd v Retail Design Group (International) Pty Ltd [2003] NSWCA 84 Stokes & Difford v R (1990) 51 A Crim R 25 Sutton v AJ Thompson Pty Ltd (in liq) (1987) 73 ALR 233 TPC v Australia Meat Holdings Pty Ltd (1988) 83 ALR 299 Trade Practices Commission v Lamova Publishing Corp Pty Ltd (1979) 28 ALR 416 Travel Compensation Fund v Tambree (2005) 224 CLR 627 Valoutin Pty Ltd & Anor v Furst & Ors (1998) 154 ALR 119 Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514 Western Australia v Wardley Australia Ltd (1991) 30 FCR 245 Wickstead & Ors v Browne (1992) 30 NSWLR 1 Yorke v Lucas (1985) 158 CLR 661
PARTIES:	HIH Insurance Limited (in liquidation) (First Plaintiff) HIH Investment Holdings Limited (in liquidation) (Second Plaintiff) Rodney Stephen Adler (First Defendant) Timothy Maxwell Mainprize (Second Defendant) Daniel Wilkie (Third Defendant) General Reinsurance Australia Limited formerly known as General & Cologne Reinsurance Australasia Limited (Fourth Defendant) Kolnische Ruckversicherungs-Gesellschaft Aktiengesellschaft (Fifth Defendant) Guy Carpenter & Company Pty Limited (Sixth Defendant) Goldman Sachs Australia Pty Limited (Eighth Defendant) Malcolm Bligh Turnbull (Ninth Defendant) Russell Craig Pillemer (Tenth Defendant)
FILE NUMBER(S):	SC 4280/06
COUNSEL:	Mr AJ Sullivan QC, Mr ST White SC, Mr JK Kirk, Mr IR Pike (Plaintiff) Ms RC Higgins (First Defendant) Mr R Derham (Second Defendant) Mr JS Emmett (Third Defendant) Mr J Sackar QC, Ms N Sharp (Fourth and Fifth Defendants) Mr MA Pembroke SC, Mr DL Williams SC, Mr TM Faulkner (Sixth Defendant) Mr AJL Bannon SC, Mr GKJ Rich (Eighth Defendant)
SOLICITORS:	Blake Dawson Waldron (Plaintiffs) Gilbert & Tobin (First Defendant) Atanaskovic Hartnell (Second Defendant) Speed & Stacey (Third Defendant) Allens Arthur Robinson (Fourth and Fifth Defendants) Ebsworth & Ebsworth (Sixth Defendant) Watson Mangioni (Eighth Defendant)