McGrath v National Indemnity Company - [2004] NSWSC 391

No judgment structure available for this case.

Reported Decision:
49 ACSR 403

Supreme Court

CITATION: McGrath & Ors v National Indemnity Company [2004] NSWSC 391

HEARING DATE(S): 10/03/04, 12/03/04, 03/05/04, 04/05/04

JUDGMENT DATE:
11 May 2004

JURISDICTION:
Equity Division
Corporations List

JUDGMENT OF: Barrett J

DECISION: Leave to proceed granted. Order extending time for liqiuidators' application.

CATCHWORDS: CORPORATIONS - winding up - voidable transactions - extension of time for liquidator to initiate challenge - particular party targetted - party domiciled in foreign country - need for party to be defendant and to be served - construction of s.588FF(3)(b) - conditions necessary for extension to be granted

LEGISLATION CITED: Corporations Act 2001 (Cth), ss.5888FF(1), 5888FF(3)(b)
Supreme Court Rules, Part 1 rule 8, Part 10 rules 2, 4 and 5, Part 20 rule 1

CASES CITED: Agar v Hyde (2000) 201 CLR 552
Australia and New Zealand Banking Group Ltd v Laros (1987) 13 NSWLR 286
BP Australia Ltd v Brown (2003) 46 ACSR 677
BP Exploration Co (Libya) Ltd v Hunt [1980] 1 NSWLR 497
Cameron v Cole (1944) 68 CLR 571
Greig v Australian Building Pty Ltd (2003) 21 ACLC 1565
McGrath re HIH Insurance Ltd (2004) 22 ACLC 449
New Cap Reinsurance Corporation Ltd v Renaissance Reinsurance Ltd (2002) 43 ACSR 65
Staff Membranes Pty Ltd v Synflex Industries (International) Inc [1984] 2 NSWLR 116

PARTIES :
Anthony Gregory McGrath and Alexander Robert Mackay Macintosh as the joint liquidators of the HIH Companies - First Plaintiffs
HIH Insurance Limited (In Liquidation) - Second Plaintiff
FAI Traders Insurance Company Pty Limited (In Liquidation) - Third Plaintiff
World Marine & General Insurances Pty Limited (In Liquidation) - Fourth Plaintiff
HIH Underwriting & Insurance (Australia) Pty Limited (In Liquidation) - Fifth Plaintiff
United Body Works (Qld) Limited (In Liquidation) - Sixth Plaintiff
Lanlex No 65 Pty Limited (In Liquidation) - Seventh Plaintiff
FAI Leasing Finance Pty Limited (In Liquidation) - Eighth Plaintiff
FAI Insurances Limited (In Liquidation) - Ninth Plaintiff
CIC Insurance Limited (In Liquidation) - Tenth Plaintiff
FAI Investments Pty Ltd (In Liqiuidation) - Eleventh Plaintiff
FAI General Insurance Company Ltd (In Liquidation) - Twelfth Plaintiff
FAI Overseas Investments Pty Limited (In Liquidation) - Thirteenth Plaintiff
HIH Casualty & General Insurance Limited (In Liquidation) - Fourteenth Plaintiff
HIH Overseas Holdings Limited (In Liquidation) - Fifteenth Plaintiff
FAI Financial Services Limited (In Liquidation) - Sixteenth Plaintiff
FAI Overseas Holdings Pty Limited (In Liquidation) - Seventeenth Plaintiff
FAI Reinsurances Pty Limited (In Liquidation) - Eighteenth Plaintiff
HIH Underwriting And Agency Services Limited (In Liquidation) - Nineteenth Plaintiff
National Indemnity Company - Defendant

FILE NUMBER(S): SC 1877/04

COUNSEL: Mr M B Oakes SC - Plaintiffs

SOLICITORS: Blake Dawson Waldron - Plaintiffs

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

BARRETT J

TUESDAY, 11 MAY 2004

1877/04 – McGRATH & ORS v NATIONAL INDEMNITY COMPANY

JUDGMENT

Background

1 The first plaintiffs, Mr McGrath and Mr Macintosh, are the liquidators of the second to nineteenth plaintiffs, being HIH Insurance Limited and eighteen of its subsidiaries. I shall refer to the first plaintiffs as “the liquidators” and the second to nineteenth plaintiffs as “the HIH companies”. Each of the HIH companies is in the course of winding up by the court. The “relation-back” day (as defined by s.9 of the Corporations Act 2001 (Cth)) in relation to each winding up is 15 March 2001.

2 By an originating process filed in court on 10 March 2004, the liquidators sought an order under s.588FF(3)(b) of the Corporations Act extending until 10 March 2005 the period within which an application under s.588FF(1) might be made against National Indemnity Company, a corporation organised under the laws of Nebraska in the United States of America. Sections 588FF(1) and (3) are in the following terms:

(i) money that the company has paid under the transaction;

…

(a) within 3 years after the relation-back day; or

3 On 24 March 2004 and in exercise of leave granted by me on 12 March 2004, the plaintiffs filed an amended originating process. The relief sought was unchanged, as was all other matter in Part A under the heading “Details of Application”. The amendments involved addition of National Indemnity Company as defendant (there was originally no defendant named, even though the order sought clearly related to National Indemnity Company), alteration of Part D (“Service”) by omitting “It is not intended to serve a copy of this originating process on any person” and substituting “It is intended to serve a copy of this originating process on the defendant”; omission of the original statement as to the time and date when the application would be heard and substituting a statement that it would be heard by me in Court 11B, Law Courts Building, Queens Square, Sydney at 10 am on Monday 3 May 2004; and alteration of the material in Part B (“Notice to Defendant(s)”) so as to omit the words “Not applicable” and substitute the full form of words in Form 2 in the schedule to the Supreme Court (Corporations) Rules 1999 designed to make a defendant aware of the consequences of failing to appear in the specified court at the specified time. All such amendments, and the addition of the defendant as a party, were pursuant to the orders made by me on 12 March 2004.

Reason for the amendment of the originating process

4 The plaintiffs’ application for leave to amend in this way was made after I had indicated that I would not make the order sought under s.588FF(3)(b) unless National Indemnity Company was made a defendant and given an adequate opportunity to decide whether it wished to be heard and, if it did, to make appropriate preparations. I should explain now why I took that attitude.

5 The decisions of the Queensland Court of Appeal and the Court of Appeal of this Court in, respectively, Greig v Australian Building Pty Ltd (2003) 21 ACLC 1565 and BP Australia Ltd v Brown (2003) 46 ACSR 677, plus some of the first instance judgments in the latter course of litigation, seem to me to make it clear that the appropriate course, procedurally, is that, where an identified person is squarely contemplated by an application for an order for the extension of time under s.588FF(3)(b) (in the sense that the extension sought is intended to allow further time to mount a s.588FF(1) challenge to some transaction or transactions involving that person and, in the absence of the extension, the person would be the beneficiary of the time bar), that person should be made a defendant to the extension application and be served with the originating process accordingly. This requirement may be relaxed if, as happened in some of the HIH extension cases I dealt with during the days immediately before 15 March 2004, the originating process was directed at a particular person not made a defendant and that person, although not formally served as a defendant, nevertheless attended court, through counsel or solicitor, on the hearing of the plaintiffs’ application and sought leave to be heard on that application for the purpose of stating a position on the question whether the extension order should be made: see, for example, McGrath re HIH Insurance Ltd [2004] NSWSC 143.

6 In a case such as the present involving, as I shall explain in greater detail presently, a foreign corporation having no presence here, the matter of service may not be just a point of technicality. The jurisdiction of a superior court such as the Supreme Court of New South Wales, being without territorial limit, is exercisable against or in respect of persons outside the jurisdiction only on the basis of service. Two conditions must be satisfied for the court to be in a position regularly to make an order binding on a person beyond its territorial jurisdiction: the person must be duly served; and some appropriate connection must exist between the forum and the claim against the person. These matters are reflected in Part 10 of the Supreme Court Rules. If a person outside the jurisdiction is subjected to a claim of a relevant kind and is served, but enters no appearance, the person seeking the order cannot proceed further without the court’s leave. This is provided by Part 10 rule 2. Proof of proper service is essential if such leave is to be granted.

7 If a s.588FF(3)(b) extension order is sought in respect of possible s.588FF(1) proceedings against a person who has no presence within the jurisdiction, has not been served and has not, by appearance or otherwise, submitted to the jurisdiction of the court, it may be that, despite the statutory context in which the matter arises, the claim is (or is sufficiently akin to) a claim in personam that the court does not have jurisdiction to make the order in respect of that person.

8 It is also to be borne in mind that a s.588FF(3)(b) order for the extension of time is a final order. It deprives the affected person of the right and ability to plead a time bar should a liquidator seek to proceed against the person under s.588FF(1) within the extended period. The order thus has serious implications for such a person.

9 In Cameron v Cole (1944) 68 CLR 571, Rich J said:

“It is a fundamental principle of natural justice, applicable to all courts whether superior or inferior, that a person against whom a claim or charge is made must be given a reasonable opportunity of appearing and presenting his case.”

10 His Honour later said:

ex debito justitiae

11 The applicability of this fundamental principle to proceedings of this particular kind was confirmed with some force in both Greig v Australian Building Industries Pty Ltd (above) and BP Australia Ltd v Brown (above). I refer in particular to the observations of Spigelman CJ in the latter case at paragraphs at 133 to 136:

“The power to make orders, and the power to extend time under s588FF(1) and (3) are conferred on a court. There can be no doubt that such a body must obey the rules of procedural fairness. An order of a superior court is not a nullity even if made in breach of this obligation. Nevertheless, a person affected is entitled as of right to have any such order which affects that person set aside. (See e.g. Cameron v Cole (1944) 68 CLR 571 at 589 and 590-591.) The basic principle has been affirmed many times, including with respect to powers conferred upon the Court by corporations legislation. (See e.g. Re Great Eastern Cleaning Services Pty Ltd [1978] 2 NSWLR 278 esp at 281; Dahozo Pty Ltd v Oz-US Film Productions Pty Ltd (1997) 24 ACSR 739 esp at 741-742 and 743).

The obligation to comply with procedural fairness imports a higher level of content when imposed on a court than in decision-making processes conducted by administrators or tribunals. It requires, in my opinion, that a person likely to be adversely affected by the order of the court is given an opportunity of making submissions to the court before any such order is made or if, exceptionally, an order is made without such an opportunity being given that, upon application, the person must be put in the same position as he or she would have been prior to the order being made. It is the inherent difficulty of achieving the latter that makes an ex parte order a course to be followed only in the case of necessity or other strong reason.

The creation of a situation in which a person must apply to vacate or vary an order after the order has been made is an exceptional situation. Nothing on the facts of the present case, as at the time of the first judgment, was such as to justify the exceptional course.

12 The Chief Justice went on to say, consistently with what was said by the Queensland Court in Greig, that it is inappropriate for a judge, faced with a question whether the audi alterem partem rule has been satisfied, to take the course of, in effect, sidestepping the question by making the order in the absence of the affected party on the implicit basis that that party may later apply to have it set aside either under Part 40 rule 9(3) of the Supreme Court Rules or by way of exercise of the inherent jurisdiction reflected in that rule. It is not open to the court knowingly to act contrary to the principles of procedural fairness.

The hearing on 3 May 2004

13 The amended originating process duly came before me in Court 11B, Queens Square on 3 May 2004 at 10am. Mr Oakes SC appeared for the plaintiffs. The matter was called outside the court. There was no appearance on behalf of the defendant; nor had any notice of appearance been filed in accordance with the rules. Having filed an interlocutory process seeking leave to proceed under Part 10 rule 2 of the Supreme Court Rules and read the several affidavits on which the plaintiffs relied, Mr Oakes submitted that the liquidators were entitled to both that leave and the order under s.588FF(3)(b) of the Corporations Act sought in the amended originating process. (I note, in passing, that the interlocutory process named 23 plaintiff companies but, since these included the 19 named in both the originating process and the amended originating process and, in view of the terms of s.588FF, the necessary parties are the liquidators, this circumstance does not appear to require further comment.)

A preliminary question of construction

14 Before proceeding to certain jurisdictional questions and the merits of the application, I must deal with an important question of construction. The court’s power to extend the period for the making of an application under s.588FF(1) may be exercised only in accordance with s.588FF(3)(b) which refers to “such longer period as the Court orders on application under this paragraph by the liquidator within those three years”, that is, the three years beginning on the “relation-back day” which, as I have said, is 15 March 2001. Section 588FF(3)(b) poses a question as to the thing that must happen within the three year period for the time specification to be satisfied in such a way that an order for the extension of time may be seen to be validly made. Is that thing the making of the application under s.588FF(3)(b) by the liquidator or the making of the order by the court in response to the application? In other words, is the provision to be construed as referring to:

(a) “such longer period as the Court orders (on an application under this paragraph by the liquidator) within those 3 years”; or

(b) “such longer period as the Court orders (on an application under this paragraph by the liquidator within those 3 years)”?

15 Mr Oakes submitted that the time specification is satisfied if the application for an order extending time is made within the three year period and that an order made upon an application so made is effective to extend time even though the period has expired by the time the order itself is made. In support of that, he referred to the course of litigation that culminated in the decision of the Court of Appeal in BP Australia Ltd v Brown (above). It is convenient to set out the contentions in this respect as they appear in Mr Oakes’ written submissions:

Brown v DML No 7

· The application was made within the 3 year period.

· The joining of BP outside the 3 year period was not an invalidating factor. (There was an argument on the effect of SCR Part 8 Rule 11(3) not relevant here as National Indemnity Company was joined within the 3 year period.)

· The proceedings were thus regularly constituted. (The purported use of s 1322(4) though incorrect, was irrelevant.)

· The discretion under s 588FF(3)(b) was available to be exercised. The proposition that it was not available to be exercised on the grounds that it needed to be exercised within the 3 year period does not appear to have been advanced.

(i) At several points in his judgment the Chief Justice articulated the premise that only the application needs to be made in the 3 year period: see paragraphs [115], [118], [151] and [162].”

16 I also set out the paragraphs of the Chief Justice’s judgment to which the last submission refers:

“[115] A creditor or other person who has received the benefit of a voidable transaction is at risk of having to surrender it. The time limit in s588FF(3) has the effect that at the end of the period of three years, such a person will know whether s/he remains at risk. In a legislative scheme which seeks to balance conflicting commercial interests of this character, that appears to me to be a perfectly reasonable requirement. Those who have an interest, or who represent those who have an interest, to disturb transactions must indicate, within three years, whether they wish to keep open the option of doing so. In this, as in other areas, legal policy favours certainty.

…

[118] Section 588FF(3) does not have the effect of requiring all applications to be brought within a short period of time. It does, however, have the effect of requiring those who wish to keep open the option to do so, to determine that they do wish to do so within the three year period and to seek a determinate extension of the period. One thing that must be decided within the three year period is how long the process of deciding whether to pursue voidable transactions will take. Eventually, investigations to overcome deficiencies of information or the pursuit of funding must cease. Parliament has identified a reasonable time for such matters to occur, subject to a single determinate extension of time.

…

[151] Nothing in s588FF(3)(b) directs attention expressly to a period of this character. The relevant date is the date on which an application for a “longer period” is made to the Court. Such an application must be made within the original period of three years after the relation back day. Nothing under s588FF(3)(b) turns, directly or indirectly, on the date on which proceedings are commenced against a particular person. Accordingly, Pt 8 r11(3) does not impinge upon an application made to the Court under s588FF(3)(b).

…

[162] On 4 September 2000, Austin J made these orders. The effect of his Honour’s second, third, fourth and fifth judgments was that each order was set aside insofar as it affected the Appellant. If, as I have decided, his Honour erred in doing so then, subject to the discretionary considerations that arise with respect to the extension of time under s588FF(3)(b), an application had been made to the Court within the three year period identified in that paragraph.”

17 Clearly implicit in these statements by Spigelman CJ is a construction requiring no more than that the application be initiated within the three year period. The clearest indication in that direction is in paragraph [151]. There is also an indication that anyone against whom substantive proceedings may be brought should be made aware, by the end of the three year period, whether the possibility of their being pursued under s.588FF(1) may be kept alive or whether proceedings are unquestionably barred. That is consistent with the notion that it is only the application that needs to materialise during the three year period.

18 While this point was not directly decided in BP Australia Ltd v Brown and neither Mr Oakes’ researches nor my own have brought to light any other decision bearing directly upon the matter, I am satisfied that the ambiguity in s.588FF(3)(b) should be resolved in favour of the construction under which an extension order made after the period of three years has expired is effective for the purposes of the section provided that the application upon which the order was made was itself (by filing of the appropriate initiating process) within that period. There is, I think, another sound reason of policy favouring that view, in addition to those referred to by Spigelman CJ. The time at which a court order is made is beyond the control of the ultimately successful applicant. Strenuous opposition and interlocutory skirmishes may mean that there is an interval of months between filing of an application and its disposition by the court. Busy court calendars may give rise to delay. A judge, having heard an application raising difficult questions, may take time to consider the matter and to prepare detailed reasons for judgment. In the absence of some clear indication to the contrary, I do not think that the legislature should be presumed to have intended to place time limits on the resolution and determination (as distinct from unilateral initiation) of court proceedings. Much more consonant with reality is a legislative intention of requiring a liquidator to initiate proceedings within the specified time (or forfeit the s.588FF(1) opportunity), with those proceedings then taking their ordinary course within the court system.

19 In the present case, the originating process was filed on 10 March 2004, a few days before the end of the relevant period of three years. On 12 March 2004 (still within the three year period), leave was given to add the defendant as a party and to amend procedural aspects of the originating process accordingly. In exercise of that leave, the amended originating process upon which the plaintiffs eventually proceeded was filed on 24 March 2004, that is, somewhat more than a week after the end of the three year period. Does the timing of the amendment mean that the plaintiffs did not act, in a timing sense, consistently with s.588FF(3)(b)?

20 In my opinion, this question must be answered in the negative. The only substantial effect of the amendment was that the defendant was formally named as a party, the statement that it was not intended to serve the originating process on any person was replaced by a statement of intention of serving the defendant and the statement as to the consequences of non-appearance at the specified time and place were added. There was no change in the description of the relief sought or, as it were, of the cause of action pleaded involving, of its very nature, an order affecting the defendant. The character of the application remained the same. There was no more than the addition of features facilitating service on the person obviously affected by the originating process in its original form so that that person might be afforded the formal position of a party capable of appearing and joining issue. In accordance with general principle (eg, Australia and New Zealand Banking Group Ltd v Laros (1987) 13 NSWLR 286) as reflected in Part 20 rule 1 of the Supreme Court Rules, the amendment should be regarded as operating from the time at which the originating process in its original form came into effect upon being filed on 10 March 2004.

21 Having regard to the conclusions I have expressed about the construction of s.588FF(3)(b) and the effect of the amendment of the originating process, I am satisfied that the extension order the plaintiffs seek, if made, will be an order “on” an application by the plaintiffs within the relevant three year period. To put this another way, the amended originating process now before the court represents, in terms of the statute, a sound basis for the making of a valid order extending the time within which an application by the plaintiffs under s.588FF(1) for an order against the defendant may be made.

Procedural requirements

22 Having disposed of these questions going to jurisdiction, I turn to some procedural matters. Mr Oakes submitted, and I accept, that where, as here, a defendant is to be found in a place which is not a “convention country” as defined in Part 1 rule 8 of the Supreme Court Rules, and there is no appearance by that defendant, the following conditions must be found to be satisfied before the court can address the claim for substantive relief advanced by the plaintiffs:

1. The court must be satisfied as to service in accordance with either Part 10 rule 4 or Part 10 rule 5.

2. Having regard to Part 10 rule 2A, the court must be satisfied that the originating process was accompanied by Form 13A.

3. The court must be satisfied that the case falls within Part 10 rule 1A.

4. Leave to proceed must have been granted under Part 10 rule 2.

Service

23 Evidence to which I shall refer presently shows that the defendant is a corporation owing its existence to the laws of Nebraska. There is no suggestion that it has a place of business or carries on business in New South Wales or any other part of Australia or that it is registered under Part 5B.2 of the Corporations Act.

24 Being incorporated in Nebraska, the defendant may be taken, for the purposes of our law, to be domiciled in Nebraska. Due service of the originating process on it in Nebraska in a way satisfying the requirements of the Supreme Court Rules will therefore be effective to enable this court to entertain and dispose of the claims in that originating process, subject to the remaining matters to which I have referred.

25 Part 10 rules 4 and 5 are as follows:

Subject to this Part and subject to any convention, the rules apply to service outside the State under this Part as they apply to service inside the State.

A document which is to be served outside Australia need not be served personally on the person required to be served so long as it is served on him in accordance with the law of the country in which service is effected.”

26 The effect of Part 10 rule 5 is to make service in a country outside Australia good service provided that it is in accordance with the law of that country. Compliance with Part 10 rule 5 makes it unnecessary to consider whether there has been compliance with Part 10 rule 4. This is the effect of the opening words of the latter provision: BP Exploration Co (Libya) Ltd v Hunt [1980] 1 NSWLR 497 at 501-2.

27 The plaintiffs have introduced into evidence an affidavit of Richard P. Garden Jr, an attorney duly licensed to practise law in the State of Nebraska. Mr Garden deposes to having searched records kept by the Nebraska Secretary of State, ascertained that the defendant is “a Nebraska corporation in good standing” and that the registered agent of the defendant is Walter C. Strain of 4016 Farnam Street, Omaha, Nebraska. Mr Garden also deposes to having sent to Mr Strain by certified mail on 2 April 2003 (with a return receipt requested) the amended originating process, Mr McGrath’s supporting affidavit sworn on 9 March 2004 and a Notice to Defendant Served Outside Australia (Form 13A) prescribed by the Supreme Court Rules. Copies of all of these are annexed to Mr Garden’s affidavit. On 6 April 2004, Mr Garden received from the post office a return receipt showing delivery of the envelope containing the documents despatched by him by means of certified mail.

28 Mr Garden also gave evidence about the law of Nebraska regarding service of process:

Neb. Rev. Stat.

29 Annexed to Mr Garden’s affidavit are extracts from the Nebraska Revised States of 1943, chapter 25, article 5, dealing with service of process in civil proceedings. In accordance with s.174 of the Evidence Act 1995, regard may be had to this foreign statutory material for the purpose of determining the statute law of the jurisdiction in question. That material fully bears out the statements in Mr Garden’s affidavit as to the Nebraska legislative provisions and their effect.

30 Having regard to the whole of Mr Garden’s evidence, I am satisfied that the amended originating process, Mr McGrath’s affidavit and Form 13A were served in accordance with Part 10 rule 5 of the Supreme Court Rules. The pre-condition to jurisdiction requiring service has thus been satisfied.

31 That disposes of the first and second procedural requirements referred to at [22] above.

Part 10 rule 1A

32 The third of those procedural requirements is that the court be satisfied that the case falls within Part 10 rule 1A. That rule identifies the cases in which originating process may be served outside Australia. Mr Oakes’ submission is that the present case is within Part 10 rule 1A(1)(a):

“where the proceedings are founded on a cause of action arising in the State.”

33 That submission proceeds on the basis that any proceedings eventually instituted by the plaintiffs against the defendant under s.588FF(1) of the Corporations Act will be a proceeding “founded on a cause of action arising in the State” and that these separate and anterior proceedings to extend the time in which s.588FF(1) proceedings may be brought must be seen as being of the same character and description.

34 The first part of this submission is said to be supported by my decision in New Cap Reinsurance Corporation Ltd v Renaissance Reinsurance Ltd (2002) 43 ACSR 65. It was there held that s.588FF(1) makes a “cause of action” available to a liquidator upon which the court may make a range of orders against other persons with a view to remedying depletion of assets of the company in liquidation at the hands of the controllers in office before winding up. The acts which, in that case, gave rise to the complaint at the heart of the cause of action were the acts of depletion and, since those acts occurred in New South Wales, the cause of action was regarded as a cause of action arising in the State. That conclusion was seen to be consistent with the decision of Cohen J on earlier analogous legislation in Staff Membranes Pty Ltd v Synflex Industries (International) Inc [1984] 2 NSWLR 116.

35 The evidence adduced by the plaintiffs in support of the present application for extension of time outlines the general nature of the possible s.588FF(1) proceedings against the defendant, as presently seen by the plaintiffs. Mr McGrath’s affidavit explains that the object of the proceedings would be to seek to remedy depletion of assets that occurred by reason of the making and performance by several of the HIH companies of a contract with the defendant. The contract is described as a reinsurance contract but that may be something of a misnomer. Under that contract, those plaintiff companies were obliged to pay $55 million to the defendant by instalments over five years in return for a contracted maximum recovery of $50 million or, in a defined event, $80 million. The defined event was the occurrence of two earthquakes in Australia, each causing damage of more than $5 billion and each occurring within the period of five years to which I have referred, but neither occurring in the same year as the other. The HIH Royal Commission received expert opinion that the probability of this composite event happening was in the range of 1.8 to 3.3 per cent. The Royal Commission expressed a view that the contract was negotiated and finalised with the primary purpose of enabling FAI to record a profit to boost its results.

36 The contract in question was made in the course of conducting the operations of the relevant plaintiff companies in New South Wales where the centre of their activities was located. In the same way as in the New Cap Reinsurance case (above), any s.588FF(1) proceedings in which it was sought to redress the effects of asset depletion through that contract would, in my opinion, be proceedings “founded on a cause of action arising in the State”.

37 But the question before me is, of course, a different question, namely, whether the present proceedings in which an order for the extension of time under s.588FF(3)(b) is sought are “proceedings founded on a cause of action arising in the State”. These proceedings are a preliminary to any s.588FF(1) proceedings that the plaintiffs may in due course choose to pursue. In my opinion – particularly because a s.588FF(3)(b) order must, of its nature, have in contemplation a particular proceeding (or a proceeding within definable boundaries) under s.588FF(1) – it is appropriate to regard the subject matter of that contemplated s.588FF(1) proceedings as marking out the ground covered also by s.588FF(3)(b) proceedings. Putting this another way, the “cause of action” as to extension of time under s.588FF(3)(b) should, in my view, be taken to have the same territorial quality as the “cause of action” that the extension would permit to be pursued by way of substantive claim under s.588FF(1).

38 On that basis, I am satisfied that the claim for an order extending time under s.588F(3)(b) is, in this case, “a cause of action arising in the State” as referred to in Part 10 rule 1A(1)(a).

Leave to proceed

39 The fourth condition referred to in paragraph [22] above is that leave to proceed has been granted under Part 10 rule 2. The interlocutory process seeks that leave. The condition will be satisfied only if the claim in the interlocutory process is determined favourably to the plaintiffs. By virtue of Part 10 rule 2(2), the interlocutory process need not be served.

40 In Agar v Hyde (2000) 201 CLR 552 at 576, Gaudron, McHugh, Gummow and Hayne JJ held that leave is to be given or withheld under this provision by reference to the cogency of the substantive case. The test to be applied is the same “as is applied in an application for summary judgment by a defendant served locally”. It follows that leave should be granted if the plaintiffs show that there is a triable issue.

41 On that, little needs to be said. The potential viability of any s.588FF(1) claim eventually pursued against the defendant sufficiently emerges from the brief description of the relevant transaction at paragraph [35] above, supplemented by the observations of the HIH Royal Commission. The reasons why the liquidators have not so far been able to pursue that possibility in full are set out in Mr McGrath’s affidavit. They correspond with the reasons advanced in support of the application I granted in McGrath re HIH Insurance Ltd (2004) 22 ACLC 449 (see paragraph [14] thereof). I am satisfied that the plaintiffs have shown a triable issue in relation to s.588FF(3)(b) extension and that it is therefore appropriate to grant leave to proceed under Part 10 rule 2.

Conclusion

42 There is then the question whether I should deal immediately with the s.588FF(3)(b) claim itself, without having heard from the defendant.

43 I have before me affidavits of Mr Coffey of Blake Dawson Waldron, the plaintiffs’ solicitors, describing contacts and correspondence he has had with Mr Snover, an officer of the defendant. Most of that contact occurred before service of the originating process, supporting affidavit and Form 13A. I leave that to one side. More pertinent is what happened after service. On 17 April 2004, Mr Snover sent to Mr Coffey an email as follows:

“We have received your notice to National Indemnity Company (‘NICO’) concerning an application and haring to extend by twelve months the period in which the Liquidator may file applications against NICO in relation to the liquidation proceedings.

We are concerned that, given the period of three years since HIH went into liquidation with no indication from anyone representing HIH that there was any basis for a claim against NICO, your request that NICO now consent to an extension is intended solely to create some pressure on NICO to offer some payment and not to preserve any truly viable claim. We are convinced that NICO’s actions in this matter were totally appropriate and proper.

Balancing these factors, we have determined not to oppose your application, as we do not wish any opposition to be perceived incorrectly as an effort by us to conceal or avoid scrutiny over our transaction with HIH. Our non-opposition is conditioned on the Liquidator’s affirmative agreement that this act of cooperation will not be used as a basis for claiming that the Australian courts have any jurisdiction over NICO, as we do no business in Australia and there is no basis for jurisdiction over NICO in Australia.

We remain prepared, as we have indicated in the past, to discuss with the Liquidator the NICO contract or issues relating to it at your convenience.

Thank you.”

44 Mr Coffey replied by email to Mr Snover on 23 April 2004 as follows:

“I refer to my recent e-mail to you regarding your message below.

I have now received instructions from our clients to accept your non-objection to our application to extend time, on the basis that we will not seek to rely on that offer in future as any submission to the jurisdiction of the Australian Courts on the part of National Indemnity Company.

Please could you confirm whether you have instructed any legal representatives in Australia to attend at Court and confirm your instructions at the return of this matter before Justice Barrett at 10.00am on Monday 3 May 2004.

I look forward to hearing from you in this regard as soon as convenient.”

45 I do not have any evidence of reply by Mr Snover to Mr Coffey.

46 Having decided to grant leave to proceed, I would in some cases be reluctant to go to the next stage of determining the substantive application without giving the defendant a further opportunity to oppose the making of the order sought. In this case, however, Mr Snover’s message to Mr Coffey – or more precisely, the message conveyed, in that way, by the defendant as a corporation to the liquidators – makes it clear that the defendant has decided not to oppose the application for extension of time under s.588FF(3)(b) but, in so doing, makes no concession whatsoever in relation to the foreshadowed s.588FF(1) claim. The plaintiffs, moreover, have accepted that the indication of non-opposition in relation to s.588FF(3)(b) extension will not be relied upon as any concession inimical to the position of the defendant in the longer term.

47 In these circumstances, I am prepared to make the extension order now, particularly as I consider factors I have already mentioned sufficient to satisfy the threefold test referred to by Austin J in Green v Chiswell Furniture Pty Ltd [1999] NSWSC 608. That test directs attention to, first, the explanation for delay in bringing the s.588FF(1) proceedings, second, a preliminary examination of merits to see that the foreshadowed s.588FF(1) claim is not so devoid of substance that it would be unfair to expose the potential defendant to it and, third, questions of prejudice to that party. I have already referred to explanation for delay by way of evidence corresponding with that discussed in McGrath re HIH Insurance Ltd (2004) 22 ACLC 449. The preliminary assessment of merits has been made in the context of the application for leave to proceed. The matter of possible prejudice is adequately laid to rest by the communication between Mr Coffey and Mr Snover. My conclusions on all three matters favour the grant of the extension of time sought.

48 The orders of the court are as follows:

1. Noting that the plaintiffs have duly served on the defendant outside Australia the amended originating process filed on 24 March 2004 together with Form 13A and the affidavit of Anthony Gregory McGrath sworn 10 March 2004 and filed herein, grant to the first plaintiffs leave under Part 10 rule 2(1) to proceed against the defendant under that amended originating process.

2. Order pursuant to s.588FF(3)(b) of the Corporations Act 2001 that any application under s.588FF(1) by the liquidator or liquidators of any one or more of the second to nineteenth plaintiffs in respect of a transaction or transactions between any one or more of the second to nineteenth plaintiffs and the defendant in relation to circumstances involving the defendant and generally described in the affidavit of Anthony Gregory McGrath sworn 10 March 2004 and filed herein may be made within the period ending on 10 March 2005.

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Last Modified: 05/12/2004

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Citations

McGrath v National Indemnity Company [2004] NSWSC 391

Most Recent Citation

Re ABD Group Construction Pty Ltd (recs and mgrs apptd) (in liq) [2025] VSC 277

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Cases Cited

8

Statutory Material Cited

2

McGrath and Ors re HIH Insurance Ltd (In Liq) [2004] NSWSC 143

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CITATION:	McGrath & Ors v National Indemnity Company [2004] NSWSC 391
HEARING DATE(S):	10/03/04, 12/03/04, 03/05/04, 04/05/04
JUDGMENT DATE:	11 May 2004
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
DECISION:	Leave to proceed granted. Order extending time for liqiuidators' application.
CATCHWORDS:	CORPORATIONS - winding up - voidable transactions - extension of time for liquidator to initiate challenge - particular party targetted - party domiciled in foreign country - need for party to be defendant and to be served - construction of s.588FF(3)(b) - conditions necessary for extension to be granted
LEGISLATION CITED:	Corporations Act 2001 (Cth), ss.5888FF(1), 5888FF(3)(b) Supreme Court Rules, Part 1 rule 8, Part 10 rules 2, 4 and 5, Part 20 rule 1
CASES CITED:	Agar v Hyde (2000) 201 CLR 552 Australia and New Zealand Banking Group Ltd v Laros (1987) 13 NSWLR 286 BP Australia Ltd v Brown (2003) 46 ACSR 677 BP Exploration Co (Libya) Ltd v Hunt [1980] 1 NSWLR 497 Cameron v Cole (1944) 68 CLR 571 Greig v Australian Building Pty Ltd (2003) 21 ACLC 1565 McGrath re HIH Insurance Ltd (2004) 22 ACLC 449 New Cap Reinsurance Corporation Ltd v Renaissance Reinsurance Ltd (2002) 43 ACSR 65 Staff Membranes Pty Ltd v Synflex Industries (International) Inc [1984] 2 NSWLR 116
PARTIES :	Anthony Gregory McGrath and Alexander Robert Mackay Macintosh as the joint liquidators of the HIH Companies - First Plaintiffs HIH Insurance Limited (In Liquidation) - Second Plaintiff FAI Traders Insurance Company Pty Limited (In Liquidation) - Third Plaintiff World Marine & General Insurances Pty Limited (In Liquidation) - Fourth Plaintiff HIH Underwriting & Insurance (Australia) Pty Limited (In Liquidation) - Fifth Plaintiff United Body Works (Qld) Limited (In Liquidation) - Sixth Plaintiff Lanlex No 65 Pty Limited (In Liquidation) - Seventh Plaintiff FAI Leasing Finance Pty Limited (In Liquidation) - Eighth Plaintiff FAI Insurances Limited (In Liquidation) - Ninth Plaintiff CIC Insurance Limited (In Liquidation) - Tenth Plaintiff FAI Investments Pty Ltd (In Liqiuidation) - Eleventh Plaintiff FAI General Insurance Company Ltd (In Liquidation) - Twelfth Plaintiff FAI Overseas Investments Pty Limited (In Liquidation) - Thirteenth Plaintiff HIH Casualty & General Insurance Limited (In Liquidation) - Fourteenth Plaintiff HIH Overseas Holdings Limited (In Liquidation) - Fifteenth Plaintiff FAI Financial Services Limited (In Liquidation) - Sixteenth Plaintiff FAI Overseas Holdings Pty Limited (In Liquidation) - Seventeenth Plaintiff FAI Reinsurances Pty Limited (In Liquidation) - Eighteenth Plaintiff HIH Underwriting And Agency Services Limited (In Liquidation) - Nineteenth Plaintiff National Indemnity Company - Defendant
FILE NUMBER(S):	SC 1877/04
COUNSEL:	Mr M B Oakes SC - Plaintiffs
SOLICITORS:	Blake Dawson Waldron - Plaintiffs