McGrath v WorkCover WA - [2010] NSWSC 384

CITATION: McGrath v WorkCover WA [2010] NSWSC 384
This decision has been amended. Please see the end of the judgment for a list of the amendments.

HEARING DATE(S): 28/04/10

JUDGMENT DATE :
6 May 2010

JURISDICTION: Equity Division
Corporations List

JUDGMENT OF: Barrett J

DECISION: Application for declaratory relief dismissed.

CATCHWORDS: CORPORATIONS - winding up - winding up by the court - winding up of insurance company where Commonwealth insurance law makes assets in Australia primarily applicable to meet liabilities in Australia - scheme of arrangement binding on liquidator, creditors and contributories contains provision in like terms - meaning of "assets in Australia" - where company in liquidation enters into litigation funding agreement as funder - money being "assets in Australia" expended in providing funding thereunder - where agreement provided in certain eventuality for payment to company of sum outlaid, interest thereon and a share of net proceeds of litigation - whether third of these elements is part of "assets in Australia" - postulated concept of "new value"

LEGISLATION CITED: Corporations Act 2001 (Cth), ss 411(4), 543, 588FF
Employers’ Indemnity Supplementation Fund Act 1980 (WA)
Insurance Act 1973 (Cth), S 116(3)
Uniform Civil Procedure Rules 2005 , rule 7.6(1)(c)
Workers’ Compensation and Injury Management Act 1981 (WA).

CATEGORY: Principal judgment

CASES CITED: AssetInsure Pty Ltd v New Cap Reinsurance Corporation Ltd [2004] NSWCA 225; (2004) 61 NSWLR 451
AssetInsure Pty Ltd v New Cap Reinsurance Corporation Ltd [2006] HCA 13; (2006) 225 CLR 331
Commissioner of Taxation v Betro Harrison Constructions Pty Ltd (1978) 37 FLR 150
New Cap Reinsurance Corporation Ltd v Faraday Underwriting Ltd [2003] NSWSC 842; (2003) 47 ACSR 306
Re Federal Building Assurance Co Ltd [1932] VLR 301
Re HIH Casualty and General Insurance Ltd [2005] NSWSC 240; (2005) 215 ALR 562
Re National Employers’ Mutual General Insurance Association Ltd (1995) 15 ACSR 624

PARTIES: Anthony McGrath and Christopher Honey in their capacity as scheme administrators of HIH Casualty and General Insurance Limited (In Liq) (Subject to Scheme of Arrangement) - Plaintiffs
WorkCover WA - Defendant

FILE NUMBER(S): SC 2010/104992

COUNSEL: Mr M B Oakes SC - Plaintiffs
Mr S T White SC- Defendant

SOLICITORS: Blake Dawson - Plaintiffs
WorkCover WA - Defendant

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

BARRETT J

THURSDAY 6 MAY 2010

2010/104992 ANTHONY McGRATH & ANOR IN THEIR CAPACITY AS SCHEME ADMINISTRATORS OF HIH CASUALTY AND GENERAL INSURANCE LTD (IN LIQUIDATION) (SUBJECT TO SCHEME OF ARRANGEMENT) v WORKCOVER WA

JUDGMENT

1 The plaintiffs are the “scheme administrators” of a scheme of arrangement which, by virtue of an order made under s 411(4) of the Corporations Act 2001 (Cth) in 2006, became binding on the creditors, the liquidators and the contributories of HIH Casualty and General Insurance Ltd (“C&G”), a company in the course of winding up by the court.

2 By force of the scheme of arrangement, creditors of C&G came to have rights created by the scheme itself in place of…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2010] NSWSC 384
Decision Date: 6 May 2010

CaseChat Overview and Summary

The case of McGrath v WorkCover WA involved a dispute between the liquidator of an insurance company, McGrath, and WorkCover WA. The liquidator sought to have certain payments made under a litigation funding agreement classified as assets in Australia, which would have implications for the distribution of the company's assets. The case was heard in the Federal Court of Australia. The central issue before the court was the interpretation of the phrase "assets in Australia" in the context of a company that has entered liquidation. The court needed to determine whether certain payments made under a litigation funding agreement, including a share of the net proceeds of litigation, should be considered as assets in Australia. The case also raised questions about the concept of "new value" in the context of insurance law and the impact of a scheme of arrangement on the rights of creditors and contributories.

The court examined the relevant provisions of the insurance law and the terms of the litigation funding agreement. It found that the money expended by the company in providing funding under the agreement was indeed an asset in Australia. However, the court held that the provision for payment of a share of the net proceeds of litigation was not an asset in Australia. The court reasoned that this provision did not constitute "new value" as it was contingent on the outcome of the litigation, and thus, it did not represent a fixed asset that could be distributed to creditors. The court's decision was influenced by the principle that the distribution of a company's assets should be determined by the law applicable to the company's liabilities in Australia. The court's interpretation of "assets in Australia" was narrow, focusing on tangible and certain assets rather than contingent future payments.

The outcome of the case was that the liquidator's claim for the share of the net proceeds of litigation was dismissed. The court's decision clarified the scope of assets that could be considered in the distribution of a company's assets in Australia. The final orders of the court were that the liquidator's claim for the share of the net proceeds of litigation was dismissed, and the liquidator was ordered to pay WorkCover WA's costs of the proceeding. This case provides important guidance for liquidators and creditors in determining the assets that are available for distribution in a winding-up proceeding.

Orders