In the Matter of HIH Insurance Limited (In Liquidation) ACN 008 636 575; McGrath and Honey as the joint liquidators of HIH Insurance Limited (In Liquidation) ACN 008 636 575 v Perpetual Trustee Company Limited Acn

The plaintiffs, McGrath and Honey as joint liquidators of HIH Insurance Limited, filed a claim against the defendant, Perpetual Trustee Company Limited, concerning the conversion and redemption of Notes issued by HIH Insurance. The dispute revolved around the interpretation and application of the conditions governing the conversion of these Notes. The Federal Court of Australia was tasked with resolving the legal issues presented in this matter.

The primary legal issues that the court had to decide involved the interpretation of the terms "must be automatically converted" in condition 12.3 and the process outlined in condition 6.5 of the Conditions of Issue of the Notes. The plaintiffs argued that the mandatory conversion should be considered as a single step rather than the two-step process stipulated by condition 6.5. The court also had to consider whether the contracts related to the Notes had been frustrated due to the removal of HIH Insurance from the Australian Stock Exchange, and whether the failure to convert and redeem the Notes constituted a repudiation of the contracts by NZ.

The court determined that the term "must be automatically converted" did not warrant any deviation from the established conversion process outlined in condition 6.5. The court held that the conversion process was a two-step procedure and not a single step as proposed by the plaintiffs. Regarding frustration, while the court did not definitively decide whether the contracts were frustrated by HIH Insurance's removal from the stock exchange, it noted that the minimum price of 25 cents per ordinary share became the relevant denominator under condition 6.5(b)(ii). The court also concluded that NZ's failure to redeem and convert the Notes as required constituted a repudiation of the contracts, allowing the plaintiffs and Perpetual to terminate the contracts on 15 November 2007.

The court's decision rejected the plaintiffs' argument regarding the mandatory conversion of the Notes and confirmed the necessity of adhering to the two-step conversion process as outlined in the Conditions of Issue. The court did not find the contracts to be frustrated but did establish that the minimum share price served as the relevant denominator under the specific condition. The failure to convert and redeem the Notes led to a repudiation of the contracts by NZ, permitting the termination by the plaintiffs and Perpetual.