Ibbco v HIH

[2001] NSWSC 346

Reported Decision: (2001) 19 ACLC 1093

New South Wales

Supreme Court

CITATION:	Ibbco v HIH [2001] NSWSC 346
CURRENT JURISDICTION:	Equity Division Commercial List
FILE NUMBER(S):	SC 50105/00
HEARING DATE(S):	20.4.01
JUDGMENT DATE:	4 May 2001
PARTIES :	Ibbco Trading Pty Ltd -v- HIH Casualty & General Insurance Ltd (In Prov. Liq.)
JUDGMENT OF:	Hunter J

COUNSEL :	Plaintiff - S Donaldson SC Defendant - M J Slattery QC
SOLICITORS:	Plaintiff - Clayton Utz Defendant - Blake Dawson Waldron
CATCHWORDS:	Corporations Law - declaratory proceedings by insured against insurer - appointment of provisional liquidator - applications for leave to proceed - principles and considerations affecting discretion.
CASES CITED:	Zempilas v J N Taylor Holdings (In Prov Liq.) (1991) 3 ACSR 755 Re Western National Earth Moving Corporation Pty Ltd (In Liq): Ex parte Conlan (Unreported, Western Australia Supreme Court, Master Sanderson, 8 April 1998) Boral Resources (WA) Ltd v Innovative Precast Systems Pty Ltd (1998) 16 ACLC 1570 Re Sydney Formworks Pty Ltd (In Liq) [1965] NSWR 646 Ogilvie-Grant v East (1983) 7 ACLR 669 Vagrand Pty Ltd (In liq) v Fielding (1993) 10 ACSR 373 Re A J Benjamin (In Liq.) (1969) 90 WN (Pt 1) (NSW) 107 Re Gordon Grant & Grant Pty Ltd (1982) 1 ACLC 196 Maher v Taylor (1984) 8 ACLR 931 Capita Financial Group Ltd v Rothwells Ltd (1989) 15 ACLR 348
DECISION:	Leave to proceed granted conditionally. Costs to be costs in the proceedings.

IN THE SUPREME COURT

OF NEW SOUTH WALES

EQUITY DIVISION

COMMERCIAL LIST

HUNTER J

FRIDAY 4 MAY 2001

50105/00 IBBCO TRADING PTY LTD -v- HIH CASUALTY & GENERAL INSURANCE LTD (IN PROV. LIQ.)

REASONS FOR JUDGMENT

1 This application is for leave to proceed pursuant to sec 471B of the Corporations Law, provisional liquidators of the defendant having been appointed by order of this Court of 15 March 2001. The proceedings were instituted by summons filed on 3 August 2000 seeking declarations in respect of a contract of insurance entered into by the plaintiff with the defendant known as an Export Policy of Trade Credit Insurance (the policy). Under the policy the defendant agreed to indemnify the plaintiff “for the direct loss arising from the non-payment of any “Insured Debt” due to … “Protracted Default” or “Contract Repudiation” of an “Insured Buyer” in the “Approved Countries”.”

2    The proceedings arise out of a denial by the defendant of a claim by the plaintiff under the policy in respect of a failure by a Luxembourg corporation (the buyer) to accept delivery of and to pay for a cargo of frozen meat (the cargo) under eighteen contracts of sale (the contracts of sale) by the plaintiff to the buyer, entered into between October and November 1997. The cargo was shipped CIF for delivery in Koper, Slovenia. The terms of the contracts were “sight draft first presentation of documents”.

3    There does not appear to be any real dispute between the parties as to the following: (a) the terms of the contracts of sale : (b) the cargo was shipped and arrived at Koper between December 1997 and March 1998: (c) the buyer was an “Insured Buyer” and Luxembourg was an “Approved” country within the meaning of the policy: (d) the buyer refused to take delivery of the cargo: (e) on 8 July 1998 the plaintiff gave notice to the buyer of default and of its rescission of the contracts by reason of that default : (f) in September 1998 the plaintiff located and sold the cargo to an alternative buyer.

4    By its summons the plaintiff claims a loss of approximately $800,000. The defendant by its defence relies on two principal grounds for denying liability. One arises out of an inspection of the cargo by the buyer on 14 and 15 May 1998, which involved breaking the seals on several of the containers holding the cargo. The other ground is based on the assertion that there has been no “Protracted Default” within the meaning of the policy.

5    Protracted Default is defined as follows:

“3.21 “Protracted Default” means the non-payment of an “Insured Debt” for a period of four months commencing on the original due date for payment or the postponed due date for payment as agreed by HIH under the applicable contract for the sale of goods. The “Protracted Default” period shall not commence whilst a dispute exists of any nature between the “Insured” and the “Insured Buyer” over the “Insured Debt”, or if for any reason the “Insured Buyer” under any law or regulations having the force of law in the country of the “Insured Buyer”, is entitled or obliged to refuse payment of an “Insured Debt”.”

6    It is contended by the defendant that a dispute exists between the plaintiff and the buyer so as to preclude the commencement of the period of protracted default under the policy. It is not disputed by the plaintiff that the buyer raised a dispute as to its obligation to pay for the cargo on 18 May 1998. The plaintiff contends that it is not a bona fide dispute and in par 1(d) of its reply the plaintiff set out the particulars of the reasons given by the buyer in the months prior to 18 May 1998 for its failure to pay for the cargo. Those reasons included the buyer’s financial difficulties, inclement weather, political problems in Bosnia (including the obtaining of import licences) difficulties with transport and in finding purchasers of the subject cargo.

7    There is no dispute by the plaintiff that the buyer gained access to the cargo and in the process broke the seals of several of the containers. It asserts by its reply, however, that that access was unauthorised.

8    In support of the application the plaintiff reads the affidavit of Richard John Shankland (Shankland) sworn 22 March 2001 to which there is annexed a letter from the defendant to the plaintiff dated 9 June 1998 in the following terms:

“ RE: DE LUX MEAT CORPORATION S.A
I refer to your facsimile of today and agree De Lux’s claim of inferior meat with respect to those containers with original seals in place, is indeed spurious.
Given De Lux’s attitude to these containers, I feel we have no alternative but to resell the meat and hold De Lux duly responsible for all losses inclusive of Storage and Demurrage.
Concerning, those containers on which the original seals were broken, we can only confirm our advice that any liability would appear to lay with your shipping company as they allowed access to the meat without your authority and while the containers were under their control.”

9    The letter is of some significance. On the face of it the defendant’s officer accepted that the buyer’s access to the cargo was unauthorised: that the dispute raised by the buyer was “spurious” and that the only alternative open to the plaintiff was to resell the subject cargo.

10    The proceedings were instituted by summons filed on 3 August 2000 and between that time and 16 February 2001 there were several directions hearings in this matter pursuant to which the parties reached an advanced stage of preparation and the matter fixed for hearing to commence on 30 May 2001. In substance, both parties are ready for hearing, save for matters arising out of the appointment of the provisional liquidators.

11    Shankland’s affidavit deposes to the fact that, if the matter does not proceed to hearing on 30 May 2001 and is deferred indefinitely, considerable resources which have been expended in the preparation of this matter for hearing will be wasted.

12    The defendant relies upon the affidavits of the provisional liquidators, namely, of Alexander Robert Mackay Macintosh (Macintosh) sworn 30 March 2001 and that of Anthony Gregory McGrath (McGrath) sworn 19 April 2001. They have been appointed as provisional liquidators of the defendant and of some seventeen subsidiary companies in “the HIH Group of companies” (the HIH Group). The initial approach of the provisional liquidators in relation to this application is set out in par 18 of the Macintosh affidavit in the following terms:

“18. The Provisional Liquidators request this Honourable Court to order that the hearing of the plaintiff’s notice of motion be adjourned for a period of six to eight weeks. In my best present judgement of the situation, by that time the Provisional Liquidators will have had a sufficient opportunity to manage the most urgent of the early tasks of the provisional liquidation and assess the most advantageous course to take commercially to answer leave to proceed claims such as the present one. I am seeking adjournments for this period in all proceedings of a similar character to the present proceedings.”

13    The facts upon which that request is made may be summarised as follows:

(a) the HIH Group is a complex group of companies being in excess of one hundred and twenty in number and carrying on business in many jurisdictions including the United States and the United Kingdom. It is Australia’s second largest insurer, underwriting general insurance policies in Australia and overseas.

(b) The provisional liquidators are presently preoccupied:

(i) planning staff requirements (the HIH Group employs over two thousand people),
(ii) developing protocols for the continuation of businesses within the HIH Group,
(iii) dealing with industry bodies and professional groups representing policy holders,


all of which, because of the specialist nature of the business, represent a particularly challenging task “in the first month to six weeks of the provisional liquidation”.

(c) It is estimated that there are fifty thousand claims involving companies in the HIH Group and that dealing on an “ad hoc basis with applications for leave to proceed” would create a serious dislocation to “orderly planning”.

(d) the granting of leave “in the next four to six weeks” would result in the “forced expenditure of …. funds [at a time] … where there is no current certainty as to the ultimate distribution to creditors”.

(e) The granting of leave could impose, with the granting of leave in other applications, “quite a significant cash drain on the funds currently available to the Provisional Liquidators” who have had insufficient time to determine the financial position of the HIH Group or of the defendant: the provisional liquidators anticipating that a “cost benefit approach will need to be taken” in relation to particular claims.

(f) In relation to particular claims the provisional liquidators have not had the opportunity to obtain legal advice about their merits.

(g) The provisional liquidators are facing a winding up application returnable on 10 May 2001 and are examining the possibility of forming a scheme of arrangement.

14    McGrath’s affidavit of 19 April 2001 supplemented those matters to the effect that as at the date of swearing that affidavit “the provisional liquidators [were] still gathering information …or undertaking most of the tasks listed”. And “it is unlikely that [they] would be able to provide a final opinion to creditors [relating to the desirability of liquidation or a scheme of arrangement] for quite some time”.

15    He further testified that: (a) the companies within the HIH Group are clearly insolvent and the “provisional liquidators have not yet been able to estimate what amount may ultimately be payable to unsecured creditors” : (b) the provisional liquidators have not been able to identify any reinsurance that relates to the subject claim : (c) the provisional liquidators are in the process of establishing an “informal committee” of creditors to be involved in decisions relating to actions in respect of which leave to proceed is granted : (d) if leave to proceed is granted there is no guarantee that the solicitors on the record for the defendant would continue to act, they having advised the solicitors for the provisional liquidators that they would continue to act provided costs to date in excess of $70,000 be paid.

16 As many of those matters overlapped considerations affecting the exercise of discretion under s 471B and since the deferment sought would have the likely affect of the hearing date of the proceedings being vacated, the argument was addressed by both parties on the merits of the application.

17 The application was conducted on the basis that no practical distinction lies in the application of s 471B between a company in liquidation and one the subject of the appointment of provisional liquidators. That was the approach adopted in Zempilas v J N Taylor Holdings Ltd (In Prov Liq.) (1991) 3 ACSR 755.

18 That may not always be the case, given the rationale for the appointment of a provisional liquidator and the primary role of that officer in preserving the status quo pending the hearing of the winding up application, notwithstanding the wide powers conferred upon a provisional liquidator under s 472 of the Corporations Law (cf Re Western National Earth Moving Corporation Pty Ltd (In Liq): ex parte Conlan (Unreported, Western Australia Supreme Court, Master Sanderson, 8 April 1998) and Boral Resources (WA) Ltd v Innovative Precast Systems Pty Ltd (1998) 16 ACLC 1570). By contrast, the role of the liquidator is that of realising and distributing the assets of the corporation.

19 The purpose behind comparable legislation to s 471B was expressed by McLelland CJ in Eq. in Re Sydney Formworks Pty Ltd (In Liq.) [1965] NSWR 646 as follows :

“This view is in keeping with what I consider to be the obvious intention of the section, namely, to ensure that the assets of the company in liquidation will be administered in accordance with the provisions of the Companies Act and that no person will get an advantage to which, under those provisions, he is not properly entitled, and to enable to Court effectively to supervise all claims brought against the company which is being wound up.
In New South Wales the effect of sections like s. 218 has been considered in three cases.
In Thomson Mulgoa Irrigation Co Ltd (1893), 4 B.C (N.S.W) 33, a suit had been commenced against a company in liquidation without the leave of the Court as required by s.140 of the Companies Act 1874. At p. 33 Manning J., said: “All that s.140 means is that a company in liquidation is not to be harassed and its assets wasted by unnecessary litigation, and the leave of the Court is therefore required as a safeguard. Before any action can be brought or continued against a company, the Court must investigate the intended litigation”.
(at 649- 650)

20    The history of such legislation and the principles upon which it should be applied were expressed by McPherson J in delivering the judgment of the full court of the Queensland Supreme Court in Ogilvie -Grant v East (1983) 7 ACLR 669 at 671 as follows:

“The prohibition against commencing or proceeding with an action or other proceeding against a company once a winding up order is made has been a feature of legislation with respect to liquidation of companies from at least the time of the United Kingdom Companies Act 1862 (258 26 Vic c 89, s 87). It has since been extended to the case of a company to which a provisional liquidator has been appointed, and more recently to the case of a creditor’s voluntary winding up: see s 263(2) of the Act; The same prohibition appears in the uniform Companies Codes: see s 371(2), but with a limitation now to proceedings that are “civil” in character. The statutory restriction on actions and proceedings has always been accompanied by a power to grant leave to proceed, whether upon terms or otherwise; but the section itself gives no direct indication of the circumstances in which such leave is to be granted, and there has been surprisingly little close examination of the subject in the decided cases.
The precise purpose and function of provisions similar to s 230(3) have seldom been explained. From time to time the suggestion has been made that the prohibition exists in order to effectuate the statutory policy of ensuring that corporate assets are distributed rateably amongst all creditors so that none of them will gain an advantage over others : see eg Re Sydney Formworks Pty Ltd [1965] NSWR 646, 649-50. But in Australia at least it is not often that the institution of proceedings or even the recovery of judgment operates to confer a priority or advantage on a litigating creditor. A more convincing explanation is that, without the relevant restriction, a company in liquidation would be subjected to a multiplicity of actions which would be both expensive and time-consuming, as well in some cases unnecessary. This explanation has been accepted in a number of Canadian cases and appears also to have been adopted by Street J in Re A J Benjamin Ltd (1969) 90 WN (NSW) 107, 109. It is consistent with this that there should be no automatic prohibition upon proceedings against a company in members’ voluntary winding up, where the company is solvent and therefore less likely to be the target of numerous actions.
As a matter of history, a winding up by the court was and remains today an administration conducted by the court: Re Phoenix Oil & Transport Co Ltd (No 2) [1958] 1 Ch 565, 570. Both because of this, and because it was before the Judicature Act an administration conducted in Chancery, it was inevitable that there should be restrictions on the bringing of proceedings, whether at common law or otherwise, during the course of that administration. What is substituted for litigation in the ordinary course is a procedure by which a claimant lodges a verified proof of debt with the liquidator, who admits or rejects it wholly or in part, and from whom an appeal lies to a judge, who determines the appeal de novo primarily on affidavit material: Re Kentwood Constructions Ltd [1960] 1 WLR 646. There can be no doubt that ordinarily such a procedure is, and is designed to be, much more expeditious and less expensive than ordinary proceedings by way of action. If this means that it occasionally has the consequence that the attainment of perfect justice is sacrificed to expedience, it may be justified by the circumstances that on appeal it is possible under modern rules of procedure for the judge in appropriate cases to make orders for discovery and even for the delivery of pleadings where it appears necessary or desirable to do so.
The question whether a claimant should be permitted to proceed by action, or should be required to submit his proof of debt and, if dissatisfied, appeal to a judge, is therefore reduced largely to one of choosing between alternative forms of procedure. The effect of s 230(3) is to require the claimant to adopt the course of lodging proof of debt unless he can demonstrate that there is some good reason why a departure from that procedure is justified in the case of the particular claim in dispute. This is really all that is meant in this context by expressions such as “convenience” and “balance of convenience” that appear in judgments on the matter: see, for example, Re The Queensland Mercantile Agency Co Ltd (1888) 58 LT 878; Stewart v Intercity Distributors Ltd [1960] NZLR 944, 946; and cf Century Mercantile Co v Auckland Provincial Fruitgrowers’ Co-operative Society Ltd [1921] NZLR 272, 276. It, of course, follows that it is quite impossible to state in an exhaustive manner all the circumstances in which leave to proceed may be appropriate, but in the past they have been said to include factors such as the amount and seriousness of the claim, the degree of complexity of the legal and factual issues involved, and the stage to which the proceedings, if already commenced, may have progressed.”
See also Vagrand Pty Ltd (In liq) v Fielding (1993) 10 ACSR 373.

21    Senior Counsel for the defendant relied upon Sydney Formworks and the decision of Street J in Re A. J. Benjamin (In Liq.) (1969) 90 WN (Pt 1) (NSW) 107, as authority for the proposition that:

“there must be no prejudice to the creditors or to the orderly winding- up of the company if the action is allowed to proceed”

:that being the view of those authorities as expressed in Re Gordon Grant & Grant Pty Ltd (1982) 1 ACLC 196 at 199.

22    In the case of Benjamin, Street J, in refusing leave, expressed the rationale of comparable legislation as follows:

“The matter for decision on the present application is whether the statutory fetter imposed by s. 230 should be released so far as the applicant is concerned. That fetter is imposed by the Act in the Part which deals with the winding up of companies. Where a company is being wound up as an insolvent company it is recognized that the legislative policy contemplates the assets of the company being taken under the control of a liquidator and administered with due regard to the rights inter se of the creditors of the company. Independent actions by creditors are not encouraged in a winding up. Responsibility for satisfying the rights of creditors is placed upon the liquidator. If the grant of this leave could be seen to be likely to lead to attempts on the part of the applicant to reopen anything already done in the winding up, then it is probable that if leave were to be granted it would be hedged about with conditions. Leave is not to be withheld simply and solely as a punishment: the primary consideration is the enabling of an orderly winding up. If no prejudice, procedural or substantive, will flow to those having interests in the winding up, an applicant has strong case for gaining the leave he seeks. The wide power of the court to impose conditions will ordinarily be exercised to prevent the risk of prejudice.”
(at 109-110)

23    Nothing in Sydney Formworks, nor in Benjamin, in my view, should be treated as authority for the proposition advanced in Gordon Grant “that there must be no prejudice to the creditors or to the orderly winding-up of the company” by the granting of leave. I think that proposition should be distinguished from what was stated by Street J in Benjamin, namely, that an applicant should be treated as having a strong case for the obtaining of leave where there is no prejudice to those having interests in the winding up.

24    That was the way in which Hunt J in Maher v Taylor (1984) 8 ACLR 931 at 934 viewed the relevant passage in Benjamin as appears from the following:

“In the A J Benjamin Ltd case, Street J (as he then was), drew attention (at 109-110), firstly, to the need for an applicant for leave to show at least a prima facie case and, secondly, to the legislative policy which imposed the requirement that leave be obtained before commencing or continuing proceedings against companies in liquidation. His Honour placed considerable emphasis upon the obligation of the liquidator to administer the assets of the company with due regard to the rights, inter se, of all the creditors of the company. There is, as his Honour said, a strong case for granting leave where no prejudice - procedural or substantive - will result from the proceedings to the other creditors who have interests in the winding up. On the other hand, there is a good reason for refusing leave where there is no prospect of surplus assets in the company and no question of insurance. The ordinary terms imposed upon the grant of leave is in any event to shut the applicant out from proving in competition with the other creditors of the company”.

25    Capita Financial Group Ltd v Rothwells Ltd (1989) 15 ACLR 348 is a case where the matters under consideration in an application for leave to proceed have some point to the subject matter of this application. Capita concerned leave to proceed against a defendant in respect of which a provisional liquidator had been appointed.

26    The appointment was made by order of the Queensland Supreme Court of 3 November 1998 and, at the time of the hearing of the application, the petition for winding up had not been disposed of. That matter is referred to in the judgment of Rogers CJ in Comm D at 349-350 in the following terms:

“When I had earlier said that this case has unusual features, one of them is the progress of the application for the winding up of the defendant. There appears to be no room for doubt that the defendant is completely and irrevocably insolvent. Furthermore, it would seem from the evidence that the margin between the liabilities of the defendant and any realisable assets is in a very large sum indeed. Furthermore, the affairs of the defendant are complicated in the extreme.
No doubt partly in response to these factors, and partly because of other matters which it is unnecessary to detail, the winding up petition has still not yet been disposed of. With commendable zeal, the provisional liquidators have been attempting to structure the affairs of the defendant in such a way that the best possible result may be achieved, in particular, for the smaller creditors. To this intent, they have been endeavouring to put in place a scheme of arrangement, which necessarily took a long time to prepare.
As a result, the winding up petition has been stood over, from time to time. It will next come before the court on 2 May and it is not clear that even on that day, an order will be made. It may be that there will be an order for the winding up of the defendant, or for a scheme of arrangement, or perhaps a combination of both, or it may be necessary to adjourn the application to a later date. Suffice it to say, that the precise way whereby the defendant’s affairs will be sought to be restructured and the creditors satisfied, insofar as that is possible, is not yet known, nor is it yet known when the situation will be clarified.”

27    After considering the nature of the discretion as expressed in Ogilvie-Grant v East, Rogers CJ in Comm D addressed the factors which he considered pertinent to the exercise of his discretion in the following way:

“I think this is such a situation [that leave to proceed should be granted]. The reasons for it are as follows:
(1) The proceedings were commenced prior to the commencement of the liquidation.
(2) There is a very serious issue to be tried between the parties.
(3) It is not known when final liquidation and/or the scheme of arrangement will be put in train.
(4) The evidence shows that whether it be in a liquidation or in a scheme of arrangement, it will be necessary for the plaintiff in this action to appeal against a refusal of its proof of debt, unless there is a determination of its entitlement in these proceedings.
It is to be only fair to the provisional liquidators to point out that their present view is that the claim of the plaintiff is misconceived and ought to be resisted. I can see no room for a change of mind on the part of the liquidators, now or in the future. I ask rhetorically, what may come to pass that would bring about a change of mind? It was faintly suggested by counsel that perhaps the proof of debt may be admitted if the dividends to be paid in the liquidation or under the scheme of arrangement are seen to be lower than presently anticipated. I must say that I am not clear why this should be so, and certainly there is no foundation for such supposition in the evidence.
It is perfectly correct to say, as counsel did, that if a proof of debt is rejected the creditor may appeal, and that is the usual and proper method of disposing of a dispute between a liquidator and a creditor. But that is in circumstances which are quite different from those which obtain here.
In addition to the matters to which I have already pointed, there is the factor that any appeal in a winding up would have to be taken to the Supreme Court of Queensland. As counsel for the plaintiff pointed out, there is a likelihood in those circumstances that the work which has already been done in the present action will have to be duplicated in the context of an appeal to that court.
Mr Reeves, for the provisional liquidators, has made another point which I think needs attention. He said that if leave to proceed is now granted and a winding up order is made on 2 May, there will then be imposed a fresh stay of proceedings and a further application will become necessary.
There are two points to be made in the context of that submission. First, it is by no means certain that, in fact, the Supreme Court of Queensland will, on 2 May, make a final order for the winding up of the defendant. Second, I would have thought that even if such an order was made and another application for leave to proceed be necessary - as to which I express no opinion - a judge would almost automatically make that order, because the only change in circumstances would be a neutral factor.
Mr Reeves suggested that if this application is granted, there may be an avalanche of litigation unleashed on the provisional liquidators. With all due respect, that not only is not supported by the evidence, but, indeed, is in the teeth of the evidence. As I understand it, no one has foreshadowed commencing an action against the provisional liquidators and, indeed, it would be very difficult at this point of time for anyone to put himself or itself in the same position as the plaintiff in the present case. While I am not suggesting that the plaintiff is in a unique position, so far as any individual factor is concerned, the concatenation of circumstances which persuades me that I should grant leave to proceed cannot be replicated; there is not any other person who has an action on foot commenced prior to the appointment of the provisional liquidators, or one whose claim is as strongly resisted as the present plaintiff.
In conclusion, I should say that I am anxious that I should give full effect and recognition to the legislative purpose which underlies the statutory provision for a stay of proceedings. However, where it is clear, as it is in the present case, that the difference between the parties will have to be litigated, then it seems to me that in the circumstances of the present case, it should be litigated in proceedings which are fixed for hearing at an early date.
I should complete what I have said by mentioning that Mr Reeves suggested that the provisional liquidators may be distracted from the work that they are presently undertaking by the need to attend to this present litigation. Again, with due respect, that is something which is unlikely to take place. The evidence which will be required to be adduced by the defendant will be evidence from former officers of the defendant company. The work in question will be undertaken by the legal advisers to the provisional liquidators. If I were of the view that there was any danger of the provisional liquidators having to attend to this litigation in preference to attending to orderly liquidation of the defendant, I would be reluctant to give leave to proceed. However, I do not think that this is the case here.”
(at 352 -353)

28    It is common ground that there is a serious question to be litigated in these proceedings.

29    The plaintiff is prepared to accept as a condition of the granting of leave that any judgment in its favour in the proceedings be stayed until further order.

30    In my view leave to proceed should be granted.

31    To defer the making of an order, or to refuse the granting of leave would lead to a vacation of the hearing fixed for these proceedings and, inevitably, in my view, a significant waste of some of the resources expended by both parties in bringing the matter to a state of readiness for hearing.

32    I am also of the view that the nature of the issues raised in these proceedings is such that they should be determined in this Court, in these proceedings, rather than by recourse to the machinery of lodgment of proof of debt, if the provisional liquidators move in that direction : the more so when the proceedings are close to hearing.

33    The evidence establishes that the provisional liquidators are faced with a daunting task in ascertaining the financial position of companies within the HIH Group and in the implementation of protocols for the continuation of the respective businesses conducted by those companies affected by the order of 15 March 2001, and for the administration of claims. There will be some distraction to the provisional liquidator in attending to the conduct of these proceedings, in granting leave to proceed.

34    However, I think that distraction is far from significant having regard to the state of preparation of the proceedings and the imminence of the pending hearing. The marshalling of resources required for the defence of the proceedings will be the responsibility of the defendant’s solicitors.

35    I place little reliance upon the evidence that the provisional liquidators will require advice as to the substance of the defendant’s defence in the proceedings, having regard to the fact that serious issues have been raised by the defendant in the proceedings. One assumes that those issues have been raised, conscious of the defendant’s obligation to act in good faith to the plaintiff and that the defendant’s solicitors will have advice readily available as to the merits of the plaintiff’s claim.

36    It is in that context that I think one should view the evidence of the provisional liquidators that they will have to make a value judgment whether the proceedings should be allowed to go by default if leave is granted.

37    In that respect, the amount of the claim far outweighs the additional costs of what is estimated to be a three day hearing, namely $66,500. As to the costs owing to the solicitors on the record for the defendant, they assert that they “hold a lien over the file and have the ranking of a secured creditor” in respect of costs to date of approximately $72,000.

38    I find it difficult to accept that, if there is a meritorious defence to these proceedings, it would be in the interests of creditors of the defendant and its shareholders to allow the proceedings to go by default, particularly having regard to the amount of the claim and to the limited amount of estimated costs of defending the proceedings.

39    Senior counsel for the defendant has pressed upon me the consequences of a “precedent” in granting leave. It was submitted that a considerable number of applications for leave would flow on from a successful application and that the provisional liquidators could not cope with that. I am not prepared to accept that any such consequence would flow from the granting of leave in the particular circumstances of this case. Each application needs to be addressed on the particular circumstances governing the exercise of discretion.

40    While the status of the appointment of the liquidators is provisional there is no statutory requirement for the submission of proof of debts and, in one sense, the maintenance of these proceedings is the only basis upon which the plaintiff’s claims may be litigated. Assuming that a winding up order is made the machinery of lodgment of proof of debt and appeal from its rejection is, in my view, a particularly unsatisfactory method of determining the plaintiff’s rights as advanced in these proceedings. It is my view that the only satisfactory way of resolving that dispute will lie in the processes available to the parties in these proceedings.

41    It follows that I do not accept that the considerable burden imposed upon the provisional liquidators is, in itself, sufficient to determine that all applications for leave should be refused regardless of the circumstances of the individual applicant, or that all applications should be deferred.

42    In this particular case, I think leave should be granted.

43    In granting leave, it does not follow that the provisional liquidators are shut out from making any application for a short adjournment of the hearing of these proceedings. In that respect, I note that the plaintiff is not averse to a deferment of the hearing to a date in July, which would be available to the parties if the Court was satisfied that some further time should be given to the defendant to address the matters referred to by the provisional liquidators and which are peculiar to these proceedings.

44    Accordingly, I grant leave to proceed in these proceedings upon condition that any judgment obtained by the plaintiff in the proceedings be stayed until further order of the Court. The costs of the application will be costs in the proceedings.

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Last Modified: 05/10/2001