New Cap Reinsurance Corp Ltd v AE Grant - [2009] NSWSC 662

No judgment structure available for this case.

Reported Decision:
257 ALR 740
72 ACSR 638

New South Wales

Supreme Court

CITATION: New Cap Reinsurance Corporation Ltd v A E Grant & Ors, Lloyd's Syndicate No 991 [2009] NSWSC 662

HEARING DATE(S): 17/12/08
Written submissions: 17/12/08, 27/02/09

JUDGMENT DATE :
14 July 2009

JURISDICTION: Equity Division
Corporations List

JUDGMENT OF: Barrett J

DECISION: See paragraphs [126] to [130]

CATCHWORDS: CORPORATIONS - winding up - conduct and incidents of winding up - recovery of preferences - elements of cause of action under s 588FF(1)(a) that defendants pay to company an amount equal to money paid by company to defendants - claim for interest - statutory basis for allowing interest - whether interest should be allowed - date from which interest should be computed - appropriate rate of interest - no appearance by non-submitting foreign defendants - consideration nevertheless of defence raised by them - CORPORATIONS - winding up - cross-border insolvency - plaintiffs seek letter of request addressed to High Court of Justice of England and Wales - defendants resident in England - plaintiffs ask this court to request the English court to order payment of money ordered by this court to be paid or, in the alternative, that the English court entertain afresh the claims litigated in this court - whether other methods of enforcement available to plaintiffs - whether English court has power to act as contemplated by letter of request - whether English court likely to act upon request

LEGISLATION CITED: Civil Procedure Act 2005, s 100
Co-operation of Insolvency Courts (Designation of Relevant Countries and Territories) Order 1986 (UK)
Corporations Act 2001 (Cth), Part 5.6 Division 1A, Part 5.7B Division 2, Part 10.1 Division 6, ss 9, 411(1), 411(4), 513B(d), 513C, 580, 581(4), 588FA, 588FC, 588FE(2), 588FF(1), 588FF(2)(b), 588FF(3). 588FG(1), 588FG (2), 588FI(2), 588FI(3),
Corporations Law, Part 5.3A, s 446A
Foreign Judgments (Reciprocal Enforcement) Act 1933 (UK)
Insolvency Act 1986 (UK). S 426(4), 426(5), 426(11)
Reciprocal Enforcement of Foreign Judgments (Australia) Order 1994 (UK)
Supreme Court Act 1995 (Qld), s 47(1)
Supreme Court Rules 1970, Part 10 rule 1A(a)
Uniform Civil Procedure Rules 2005, rule 11.2. item (a) of Schedule 6
United States Bankruptcy Code, Chapter 11

CATEGORY: Principal judgment

CASES CITED: Buchanan v Rucker (1808) 9 East 192; (1808) 103 ER 546
Cambridge Gas Transport Corp v Official Committee of Unsecured Creditors of Navigator Holdings plc [2006] UKPC 26 ; [2007] 1 AC 508
Capital Finance Australia Ltd v Tolcher [2007] FCAFC 185; (2007) 164 FCR 83 (an appeal to the High Court was compromised: see [2008] HCATrans 316)
Comandate Marine Corp v Pan Australia Shipping Pty Ltd [2006] FCAFC 192; (2006) 157 FCR 45
Dome Resources NL v Silver [2008] NSWCA 322; (2008) 68 ACSR 458
England v Smith [2001] Ch 419
Ferrier v Civil Aviation Authority (1994) 55 FCR 28
Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160
Hall (as Liquidators of New Tel Ltd) v Ledge Finance Ltd [2005] NSWSC 645
Henry v Geopresco International Ltd [1976] QB 726
Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (1998) 90 FCR 1
Hughes v Hannover Ruckversicherungs-Aktiengesellschaft [1997] 1 BCLC 497
Miliangos v George Frank (Textiles) Ltd (No 2) [1977] QB 489
Motor Terms Co Pty Ltd v Liberty Insurance Ltd [1967] HCA 9; (1967) 116 CLR 177
New Cap Reinsurance Corporation Ltd v A E Grant & Ors, Lloyd’s Syndicate No 991 [2008] NSWSC 1015; (2008) 221 FLR 164
New Cap Reinsurance Corporation Ltd v Faraday Underwriting Ltd [2003] NSWSC 842; (2003) 177 FLR 52
New Cap Reinsurance Corporation Ltd v Renaissance Reinsurance Ltd [2002] NSWSC 856; (2002) 192 ALR 601
Re Harris Scarfe Ltd [2006] SASC 277; (2006) 203 FLR 46
Re HIH Casualty & General Insurance Ltd; McGrath v Riddell [2008] UKHL 21; [2008] 1 WLR 852
Re HIH Insurance Ltd [2004] NSWSC 454
Samick Lines Co Ltd v Owners of the “Antonis P Lemos” [1985] AC 711
Sheldrake v Paltoglou [2006] QCA 400
Spokes v The Grosvenor and West End Railway Terminus Hotel Co Ltd [1897] 2 QB 124
Star v O’Brien (1996) 40 NSWLR 695
State Bank of New South Wales Ltd v Swiss Bank Corporation (1995) 39 NSWLR 350
Tolcher v National Australia Bank Ltd [2003] NSWSC 207; (2003) 174 FLR 251

TEXTS CITED: M G R Gronow “McPhersons Law of Company Liquidation”, fifth edition (current looseleaf), paras 11.400, 11.780

PARTIES: New Cap Reinsurance Corporation Limited - First Plaintiff
John Raymond Gibbons - Second Plaintiff
A E Grant & Ors, Lloyd's Syndicate No 991 - Defendants

FILE NUMBER(S): SC 2351/02

COUNSEL: Mr R G Forster SC/Dr S R Derham - Plaintiffs

SOLICITORS: Henry Davis York - Plaintiffs

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

BARRETT J

TUESDAY 14 JULY 2009

2351/02 NEW CAP REINSURANCE CORPORATION LIMITED & ANOR v A E GRANT & ORS, LLOYD’S SYNDICATE NO 991

JUDGMENT

The principal claim

1 These proceedings were commenced by originating process filed on 19 April 2002. They arise out of the winding up of New Cap Reinsurance Corporation Limited (“NCRA”).

2 The plaintiffs are NCRA and its liquidator, Mr Gibbons. The defendants are A E Grant and numerous other persons named in a schedule to the originating process. They are (or were at relevant times) the persons associated together as the members of Lloyd’s Syndicate No 991.

3 Mr Gibbons became the administrator of NCRA under Part 5.3A of the Corporations Law on 21 April 1999. By operation of s 446A of the Corporations Law, he became liquidator under a creditors voluntary winding up on 16 September 1999. By force of the transitional provisions in Division 6 of Part 10.1 of the Corporations Act 2001 (Cth), the winding up and its consequences and incidents are now governed by that Act.

4 The principal relief sought in the originating process is an order that the defendants pay money. The order sought is, in terms, an order that the defendants pay money to the plaintiffs but since the originating process makes it plain that the proceedings are brought under s 588FF(1) of the Corporations Act, the situation is in truth one in which Mr Gibbons, as liquidator, seeks an order that the defendants pay money to NCRA.

5 If the claim for an order for the payment of money by the defendants to NCRA is successful, questions about enforcement of the order will need to be addressed. An amended interlocutory process filed by the plaintiffs on 17 December 2008 raises those questions.

6 The plaintiffs’ application was heard on 17 December 2008. Written submissions were, by leave, subsequently filed. Judgment was reserved on 2 March 2009.

Statutory provisions

7 Key provisions of the Corporations Act relevant to the plaintiffs’ claim for an order under s 588FF(1) should be quoted. With the exception of the definition of “transaction”, the provisions are within Part 5.7B headed “Voidable Transactions”.

8 Section 9 defines “transaction”, for the purposes of Part 5.7B, as follows:

’transaction’

9 Section 588FA, so far as is relevant, provides:

10 Section 588FC relevantly provides:

11 Section 588FE(2), dealing with transactions of a company entered into on or after 23 June 1993, applies if the company is being wound up. It provides:

12 Section 588FF(1) is the central provision. It is in these terms:

13 Under s 588FF(3), an application under s 588FF(1) must be made within a particular limitation period. Section 588FF(3) is in these terms:

The plaintiffs’ case

14 The basic proposition advanced by the plaintiffs is that two payments made by NCRA to the defendants – a payment of US$2,000,000 on 8 January 1999 and a payment of US$3,980,600 on 14 January 1999 – constituted “voidable transactions” within the meaning of s 588FE. The steps said to lead to such a conclusion are, first, that the making of each payment by NCRA was a “transaction” to which NCRA and the defendants were parties; second, that each such transaction was an “unfair preference” given by NCRA to the defendants (s 588FA); third, that NCRA was insolvent in January 1999 when each transaction was entered into so that the transaction is an “insolvent transaction” (s 588FC); and, fourth, that the transaction was made within the period of six months ending on the “relation-back day” in relation to the winding up of NCRA

(s 588FE(2)(b)).

15 The plaintiffs further say that, because of the matters just outlined, the court must be satisfied in the way mentioned in s 588FF(1), so that the power to make an order under that section is exercisable and should be exercised. The particular order sought is an order under s 588FF(1)(a) that the defendants pay to NCRA an amount equal to the aggregate paid to them under the transactions in question.

The statutory cause of action

16 Section 588FF(1) appears in Division 2 of Part 5.7B which was introduced into the corporations legislation with effect from 23 June 1993 and is headed “Voidable Transactions”. It is important to note the structure of the section. The statutory jurisdiction it confers is only exercisable “on the application of a company’s liquidator”. The company itself is not a competent applicant although, in some cases, it may be an appropriate party to the proceedings in which its liquidator makes an application.

17 Among the orders that s 588FF(1) empowers the court to make on the liquidator’s application are orders “directing” or “requiring” a person to pay money or transfer property to the company of which the applicant is liquidator: see s 588FF(1)(a), (b), (c) and (d) (as I have said, the order sought in this case is an order under s 588FF(1)(a) directing payment by the defendants to NCRA). Other orders may require persons to confer less direct financial benefits on the company, for example, by freeing the company from a debt, security or guarantee (s 588FF(1)(e)), by indemnifying the company (s 588FF(1)(f)) or by suffering avoidance, variation or unenforceability of an agreement (s 588FF(1)(h), (i) and (j)). In all these other cases, the court’s order will alter a legal relationship between the company and another person; and it will do so to the benefit of the company and to the detriment of the other person. It is for that reason that it will be appropriate for the company to be a party to the proceedings initiated by the liquidator. In a common law derivative action brought by a shareholder, the company is joined as a defendant so that it may be “bound by the result of the action”: Spokes v The Grosvenor and West End Railway Terminus Hotel Co Ltd [1897] 2 QB 124 at 128. In the present context, where the liquidator, who is the only competent applicant, is able to control actions of the company, the appropriate course is for the company to be a co-plaintiff so that, if and when the court makes, on the liquidator’s application, an order within one of the classes mentioned, the company, as a party, will be “bound by the result of the action”.

18 One type of order contemplated by s 588FF(1) does not entail payment of money to the company or variation of the legal relationship between the company and another person. Section 588FF(1)(g) allows the court to make an order varying or regulating a person’s right to prove a debt in the winding up. When winding up commences, a creditor’s right to prove in the winding up replaces pre-existing rights against the company: Motor Terms Co Pty Ltd v Liberty Insurance Ltd [1967] HCA 9; (1967) 116 CLR 177. In a s 588FF(1)(g) case, therefore, the court’s order merely redefines the basis on which the person’s right is to be taken into account by the liquidator for the purposes of allocation of benefits in the administration of the estate. It is the right of proof arising upon and by virtue of winding up that a s 588FF(1)(g) order may modify.

19 The important point is that, although Division 2 of Part 5.7B of the Corporations Act is, according to its heading, concerned with “voidable transactions”, its provisions do not operate upon concluded transactions so as to deprive them of efficacy or effect. Neither the statutory provisions nor orders of the court made under them cause the relevant “transaction” to be “void” (although the particular type of order authorised by s 588FF(1)(h) may cause “an agreement constituting, forming part of, or relating to” the relevant transaction to be “void”). On the contrary, the provisions direct the court to take transactions as it finds them. If a particular transaction has particular characteristics, the court has statutory jurisdiction to make one or more of the orders specified in s 588FF(1). I would venture to repeat here what I said in Hall (as Liquidators of New Tel Ltd) v Ledge Finance Ltd [2005] NSWSC 645 at [12]:

“Despite use of the word ‘voidable’ as a label in Part 5.7B and references, in general parlance about Part 5.7B, to the ‘avoidance’ of transactions and the ‘recovery’ of moneys related to transactions, the statutory provisions are not concerned with undoing transactions or re-arranging the financial relationships of parties to transactions, vis-à-vis those transactions themselves. They do not involve reliance on contractual rights or the contractual consequences of events. The liquidator, in pursuing the statutory cause of action, does not sue upon a contract or for restitution consequent upon the invalidity of a transaction. Nor is the liquidator affected by any vitiating elements to which a transaction may be subject, except to the extent that those elements may be shown by a defendant to make unavailable the ‘transaction’ foundation for the liquidator’s claim, in the sense that there never was in truth a transaction (even one liable to be rescinded or declared void). The liquidator’s task is merely to prove facts justifying a conclusion that the company became party to a ‘transaction’ described in s.588FA, s.588FB, s.588FC or was the borrower under a loan described in s.588FD. If any of those things is proved and if, in addition, elements are shown as referred to in a sub-section of s.588FE such as to cause the transaction to be given by s.588FE the statutory designation ‘voidable’, the liquidator has access to the statutory jurisdiction conferred on the court by s.588FF(1).”

20 As Palmer J observed in Tolcher v National Australia Bank Ltd [2003] NSWSC 207; (2003) 174 FLR 251 at [10], a s 588FF(1) order vindicates “not property rights which the company itself would have had prior to liquidation, but rather statutory rights which the liquidator alone has under” the statutory scheme in consequence of winding up.

21 The purpose of an order under s 588FF(1)(a) for the payment of money to a company in liquidation is not to compensate or make whole that company. The section does not create a proprietary right of any kind in the company: New Cap Reinsurance Corporation Ltd v Faraday Underwriting Ltd [2003] NSWSC 842; (2003) 177 FLR 52 at [38]: Re Harris Scarfe Ltd [2006] SASC 277; (2006) 203 FLR 46 at [26]. As with preference avoidance provisions in bankruptcy, the objective is to adjust the rights of creditors among themselves in such a way as to eliminate the effects of favourable treatment afforded to one or more creditors, to the exclusion of others, in the period immediately before an insolvent administration commences. As is said at paragraph 11.400 of M G R Gronow “McPhersons Law of Company Liquidation”, fifth edition (current looseleaf):

“the focus on [sic] the relief that is available (under s 588FF(1)) where a payment or transaction is voidable under the Division is to enable the restoration to the company of money and other property that has been alienated, and to relieve it of the burden of liabilities of the kind mentioned.”

Non-appearance by the defendants

22 Before the elements of the plaintiffs’ claim are addressed, it is relevant to note that the defendants have filed no appearance. They are resident outside Australia and did not seek to take part in the proceedings. In correspondence with the liquidator’s solicitors, the defendants have made it clear that they do not submit to the jurisdiction of this court.

23 On principles discussed in New Cap Reinsurance Corporation Ltd v Renaissance Reinsurance Ltd [2002] NSWSC 856; (2002) 192 ALR 601, however, the cause of action under s 588FF(1), if established, must be accepted as having arisen in New South Wales. If the case that NCRA and its liquidator advance is made out, it will be found that it was in New South Wales that NCRA depleted its resources by making the two payments to the defendants and took all the steps necessary on its part to transmit funds to the defendants in the United Kingdom accordingly. That will mean that the s 588FF(1) cause of action is one that arose in New South Wales, so that service of the originating process outside New South Wales was authorised by Part 10 rule 1A(a) of the Supreme Court Rules 1970 or, after 15 August 2005, rule 11.2 and item (a) of Schedule 6 of the Uniform Civil Procedure Rules 2005.

24 On 20 December 2003, orders for substituted service were made allowing the defendants to be served through their solicitors in London. Service in accordance with those orders has been proved. Leave to proceed was granted on 17 October 2003.

25 I am satisfied that there was no obstacle to the court’s hearing the plaintiffs’ s 588FF(1) claim on 17 December 2008 in the defendants’ absence and that there is no obstacle to its now proceeding to determine that claim. Indeed, the court must do so. I shall, however, mention in due course matters raised in correspondence on the defendants’ behalf in response to the claim.

The payments

26 A key factual question must now be addressed. Did NCRA, as the plaintiffs allege, make payments of US$2,000,000 and US$3,980,600 to the defendants on 8 January 1999 and 14 January 1999 respectively?

27 An affidavit sworn on 19 April 2002 by Mr Hutchison, a partner in Mr Gibbons’ firm, includes copies of NCRA internal documents that led to payments of US$2,000,000 and US$3,980,600 by NCRA to the defendants on 8 January 1999 and 14 January 1999 respectively. These show that those sums were transmitted by electronic funds transfer to A E Grant Underwriting Agencies Ltd on the relevant dates in respect of a “Contract Name” described as “A E Grant Syn 991”.

28 Banking records annexed to Ms Merrick’s affidavit of 25 September 2003 establish that the source of the two payments was NCRA’s foreign currency account 100630436USD115601 with Commonwealth Bank of Australia, Sydney.

29 I am satisfied that the electronic transfers of funds on 8 January 1999 and 14 January 1999 were payments by NCRA to the defendants; also that the payments were sourced from funds of NCRA held in New South Wales. This finding is relevant to the jurisdictional matter referred to at paragraph [23] above.

The elements of the cause of action – “transaction”

30 Having established that the payments upon which the plaintiffs rely were made by NCRA to the defendants, it is necessary to examine separately the several elements that make up the s 588FF(1) cause of action. The first of these is that there is a “transaction”. There can be no doubt that NCRA, by making each of the January 1999 payments to the defendants, entered into a “transaction” with the defendants. The s 9 definition of “transaction” is broad. It gives as one example of a transaction to which a body is party “a payment made by the body”. The making by NCRA of each of the payments in question is thus within the “transaction” definition.

The elements of the cause of action - timing

31 There next arises the question of timing posed by s 588FF(2)(b). In the particular context, the question is whether the relevant transaction was entered into within the period of six months ending on the “relation-back day”. The question arises in that form in this case because each of the transactions was a simple payment, as distinct from something more complex which might have entailed a series of acts.

32 The “relation-back day” in relation to a winding up of this type is the day specified in paragraph (b) of the s 9 definition of “relation-back day”, that is, the day on which Division 1A of Part 5.6 deems the winding up to have begun. The provisions within Division 1A of Part 5.6 applicable to this case are s 513B(d) and s 513C. They fix, as the commencement of the winding up, the day on which the antecedent voluntary administration began.

33 As I have said, Mr Gibbons became the administrator of NCRA under Part 5.3A of the Corporations Law on 21 April 1999 and the liquidator under a creditors voluntary winding up on 16 September 1999. Because the voluntary administration began on 21 April 1999, it is that day that is the “relation-back day” in relation to the winding up.

34 Each transaction consisting of the making of a payment by NCRA to the defendants in January 1999 therefore occurred within the period of six months ending on the “relation-back day”.

The elements of the cause of action - insolvency

35 The next question arises from s 588FC: was NCRA “insolvent” when each transaction was entered into in January 1999?

36 That question was decided at an earlier stage of the proceedings. The matter became the subject of an order for separate determination made in December 2006. In a comprehensive judgment delivered on 30 September 2008, White J determined that NCRA “was insolvent at all relevant times from 31 December 1998, including as at 8 January 1999 and 14 January 1999”: see New Cap Reinsurance Corporation Ltd v A E Grant & Ors, Lloyd’s Syndicate No 991 [2008] NSWSC 1015; (2008) 221 FLR 164.

The elements of the cause of action – “creditors” and “unsecured debt”

37 For each of the payments under consideration to be an “unfair preference” given by NCRA, as referred to in s 588FA(1) (so that it is capable of being, in terms of s 588FC, an “insolvent transaction” of NCRA), it must be established that, at the time the payment was made, the defendants were a “creditor” of NCRA and that the payment resulted in the defendants, as creditor, receiving from NCRA, in respect of “an unsecured debt” owed by NCRA to the defendants, more than the defendants would have received from NCRA in respect of the debt if the transaction were set aside and the defendants were to prove for the debt in the winding up of NCRA.

38 Before the hypothesis regarding proof in a winding up is addressed, attention must be given to two central and related matters, namely, the status of the defendants in January 1999 as a “creditor” of NCRA and the existence at that time of an “unsecured debt that [NCRA] owes to [the defendants]”.

39 The evidence shows that NCRA had incurred contractual liabilities to the defendants under a whole account reinsurance contract entered into in January 1997. NCRA was the reinsurer and the defendants were the reinsured. Significant losses were incurred during the 1997 and 1998 policy years. In December 1998, the parties to the reinsurance contract entered into a commutation agreement. That agreement was evidenced by memoranda signed for the defendants and bearing the stamp of NCRA by way of its assent, together with slip endorsements for the 1997 and 1998 years.

40 The agreement was for commutation at a 92.5% discount, so that US$5,980,760 became owing by NCRA to the defendants, by way of sums of US$2,697,380 and US$3,283,380, both of which were expressed to be due and payable on 31 December 1998.

41 The effect of the commutation was that NCRA became obliged to pay to the defendants on 31 December 1998 the fixed and quantified sums of US$2,697,380 and US$3,283,380 expressly provided for in the commutation agreement and was thereby relieved of all liability under the reinsurance contract. The defendants thereupon ceased to have rights under the reinsurance contract. On the making of the commutation agreement, there thus arose, on the part of the defendants and as a matter of contract, two liquidated claims properly regarded as debts.

42 It follows that, on and after 31 December 1998, there existed two debts owing, due and payable by NCRA to the defendants, one of US$2,697,380 and the other of US$3,283,380. Each was an unsecured debt. The defendants were a creditor of NCRA because of the existence of those debts.

43 The two payments made by NCRA to the defendants in January 1999 totalled US$5,980,600. This was US$160 less than the indebtedness of US$5,980,760 created by the commutation agreement. It must nevertheless be accepted that the payments were made in discharge of that indebtedness. NCRA’s internal records show an “amount outstanding” of US$3,380,760 after payment of the US$2,000,00 and an “amount outstanding” of “Nil” after payment of the US$3,980,600.

44 The conclusion must be that

(a) before the payments of January 1999 were made, NCRA owed to the defendants the two sums of US$2,697,380 and US$3,283,380 by reason of the commutation agreement made in December 1998;

(b) those sums were due and payable by NCRA to the defendants on 31 December 1998;

(b) there were accordingly, in January 1999, unsecured debts totalling US$5,980,760 owed by NCRA to the defendants, who were accordingly creditors of NCRA;
(c) the payments made by NCRA to the defendants on 8 January 1999 and 14 January 1999 caused the defendants, as creditors, to receive, in respect of those unsecured debts, a total of US$5,980,600; and

(d) by making those payments to the defendants, NCRA entered into “transactions” with the defendants.

The elements of the cause of action – the s 588FA(1)(b) hypothesis

45 Once this point has been reached, it can be said that the January 1999 payments will be regarded as an “unfair preference” within s 588FA(1) if the amount of US$5,980,600 received by the defendants in respect of their unsecured debts is greater than the amount receivable by the defendants upon the hypothesis stated in s 588FA(1)(b), that is, if the payments were set aside and the defendants were to prove for the debts in a winding up of NCRA. On this hypothesis, an additional US$5,980,600 would be available to a liquidator of NCRA for deployment in the winding up and the debts and claims proved in the winding up would be increased by US$5,980,600.

46 Mr Gibbons states in his affidavit of 24 November 2008 that, as at 1 January 2008, the estimated net deficiency of NCRA was US$198,449,924. He does not believe that anything has occurred since 1 January 2008 to warrant any significant change to this estimate. It follows that, in the winding up of NCRA as it stands, unsecured creditors will receive very substantially less than 100 cents in the dollar even if available assets are increased by US$5,980,600 and the proved debts and claims of unsecured creditors are increased by the same amount.

47 It is, however, by no means clear that the question posed by s 588FA(1)(b) is to be approached by reference to the circumstances of the particular winding up presided over by the liquidator by whom the s 588FF(1) application is made. Section 588FA(1)(b) directs attention to the circumstances that would prevail “if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company”. The reference is to “a” winding up, not “the” winding up: see generally the discussion at paragraph 11.780 of M G R Gronow, “McPhersons Law of Company Liquidation”, fifth edition (current looseleaf).

48 There is no need, in the present case, to pursue this matter. For the reasons stated at paragraph [46] above, an approach to the s 588FA(1)(b) question based on the circumstances of the actual winding up now in progress produces a positive answer to that question – in other words, the answer that the US$5,980,600 actually received was more than the defendants would have received if the payments of that amount by NCRA were set aside and the defendants had proved in the actual winding up. It is clear that the question will also receive a positive answer if regard is had to a hypothetical winding up commencing when the payments were made in January 1999.

49 In saying this, I do not mean that the financial consequences in an assumed winding up commencing in January 1999 would have been identical with those that have arisen in the actual winding up that commenced some three months later on 21 April 1999. Rather, I mean that, if in a hypothetical winding up that commenced in January 1999 an additional US$5,980,600 had been available to the liquidators and additional debts of US$5,980,600 had been provable, the situation would still have been one in which the defendants realised, in respect of their debts of US$5,980,600, less than the US$5,980,600 they in fact received by virtue of the January 1999 payments. I say this because of both White J’s conclusion that NCRA was insolvent in January 1999 and his Honour’s specific findings in New Cap Reinsurance Corporation Ltd v A E Grant & Ors, Lloyd’s Syndicate No 991 (above) as to NCRA’s financial position at that very time. Those findings were stated thus at [31]:

“In the following week to 15 January 1999, claims totalling $37,991,573 were paid. The principal source of funds for these payments was the receipt of US$30 million (approximately A$47.5 million) on 12 January 1999. However, additional claims which became due and payable in that seven-day period, together with net reinstatement premiums payable by NCRA, totalled A$59,424,918, leaving a total amount due and payable as at 15 January 1999 of A$75,665,625. The available cash (including investment funds and excess funds in the collateral account) totalled A$23,990,437, a deficit of A$51,675,188.”

50 White J went on (at [32]) to refer to events in the weeks following the particular week mentioned:

“In the following week, A$2,990,468 of claims were settled. Additional amounts totalling A$1,578,453 became payable. Available cash funds increased, presumably as the result of premium receipts. There remained a net deficit of A$44,210,168 between the amounts due and payable at the end of the period and the available funds. That pattern continued until administrators were appointed on 23 April 1999. Mr Smith summarised the net cash position, being the difference between available funds at the end of each week and the amounts due and payable at the end of each week, as follows:

Table 30 Net cash position – surplus/(deficit)	A$
8 January 1999	(41,928,374)
15 January 1999	(51,675,188)
22 January 1999	(44,210,168)
29 January 1999	(39,047,407)
5 February 1999	(30,261,874)
12 February 1999	(30,347,410)
19 February 1999	(46,016,059)
26 February 1999	(52,811,933)
5 March 1999	(48,867,209)
12 March 1999	(39,643,581)
19 March 1999	(53,756,039)
26 March 1999	(43,733,672)
2 April 1999	(51,813,326)
9 April 1999	(61,112,081)
16 April 1999	(73,400,209)
23 April 1999	(80,507,847)”

51 The overall position was summarised at [33]:

“NCRA did not obtain further additional capital or write substantial new profitable business after 31 December 1998. Mr Smith concluded on the basis of the later actuarial assessment of claims, liabilities and reinsurance recoveries that NCRA had a balance sheet deficiency of around A$400 million during the period from 1 January 1999 to 21 April 1999. I accept that opinion. Mr Gibbons, the administrator, and subsequently the liquidator of NCRA, estimated in his report to creditors of 22 July 1999 that as at 30 April 1999, NCRA had a deficiency in net assets of US$203,124,119. In his report to creditors of 30 September 2004, that estimate had increased to US$332,195,188.”

52 The facts and analysis set out by White J amply support the conclusion I have stated at paragraph [49] above.

53 It follows that the s 588FA(1)(b) question must be answered favourably to the plaintiffs, whether regard is had to the actual winding up that commenced on 21 April 1999 and is now in progress or to a hypothetical or assumed winding up commencing in January 1999.

The s 588FF(3) limitation period

54 Section 588FF(3) says that an application under s 588FF(1) “may only be made” during the period of three years ending on the relation-back day (I leave to one side the possibility that the court may extend the period).

55 As noted above, the “relation-back day” in this case is 21 April 1999. The originating process was filed on 19 April 2002. The application under

s 588FF(1) was therefore “made” within the relevant period of three years.

Conclusions on the s 588FF(1) claim

56 The plaintiffs have succeeded in establishing the several elements stated at paragraph [14] above. It follows that the court is, as contemplated by the opening words of s 588FF(1), satisfied that each payment transaction of January 1999 “is voidable because of section 588FE”. It further follows that, by virtue of s 588FF(1), the court “may make” one or more of the orders referred to in s 588FF(1). That power is, however, limited by s 588FG(1) and s 588FG(2) each of which says that a court “is not to make under section 588FF an order materially prejudicing a right or interest of a person if” certain matters are “proved”. Those matters are, in very broad terms, receipt in good faith, for value and without reasonable grounds for suspecting insolvency.

57 The s 588FG provisions may be dealt with briefly. Because the defendants have not participated in the proceedings, they have adduced no evidence. The evidence adduced by the plaintiffs does not touch upon any of the elements that must be “proved” in order to activate under s 588FG an obstacle to the making of a s 588FF(1) order. The court is therefore not confronted by any such obstacle.

58 The only other statutory constraint upon the making of a s 588FF(1) order, in a case of the present kind, arises from s 588FI(2) which says, in effect, that such an order cannot be made if the recipient of the preference has already disgorged it, whether pursuant to a s 588FF(1) order or otherwise. There is, on the evidence, no basis for s 588FI(2) to operate in this case.

59 Section 588FF(1), in terms, confers a discretion on the court. There is, in this case, no apparent reason why the discretion should not be exercised in the way the plaintiffs seek. The defendants received, in January 1999, 100 cents in the dollar in respect of their aggregate debts of US$5,980,600. They therefore came to occupy a more advantageous position than creditors whose claims then existing came to be proved in the winding up and whose returns will be much less than 100 cents in the dollar. There is no reason why the equalising means of redress put at the disposal of the court, upon the application of the liquidator, should not be employed so as to cause the defendants to participate on the same footing as those other creditors.

60 There will therefore be an order under s 588FF(1)(a) that the defendants pay US$5,980,600 to NCRA, this being an amount equal to the aggregate paid by NCRA under the two relevant transactions. Subject to compliance with that order, the defendants will then be in a position to prove in the winding up for an equivalent sum by virtue of s 588FI(3).

The plaintiffs’ claim for interest

61 The plaintiffs say that there should also be an order that the defendants pay interest on the sum of US$5,980.600. Several matters arise:

(a) does the court have power to award interest in this case?

(b) if power exists, should it be exercised?

The power to award interest

62 The plaintiffs rely, in this respect, on s 100 of the Civil Procedure Act 2005 which, so far as relevant, provides:

“In proceedings for the recovery of money (including any debt or damages or the value of any goods), the court may include interest in the amount for which judgment is given, the interest to be calculated at such rate as the court thinks fit:

63 There is a question whether proceedings in which an order for the payment of money is sought under s 588FF(1)(a) are properly characterised as “proceedings for the recovery of money”. Those words most aptly apply to proceedings in which a person seeks to vindicate some separately existing right to payment vested in that person, rather than proceedings in which one person (liquidator) seeks to obtain a court order creating, by force of statute, a new and otherwise non-existent right of another person (the company in liquidation) to receive money: see generally the analysis at paragraphs [16] to [21] above. I note, nevertheless, that in Sheldrake v Paltoglou [2006] QCA 400 the Queensland Court of Appeal proceeded on the basis that the Queensland equivalent of s 100(1) (being s 47(1) of the Supreme Court Act 1995 (Qld)) allowed interest to be awarded on a sum ordered to be paid under s 588FF(1)(a). The Queensland provision, like s 100(1), refers to proceedings “for the recovery of money”. The Queensland court was content to adopt approaches taken to preference recovery proceedings under quite different earlier legislation with respect to recovery of preferences – for example, Ferrier v Civil Aviation Authority (1994) 55 FCR 28 and Star v O’Brien (1996) 40 NSWLR 695, decisions of the Full Federal Court and the New South Wales Court of Appeal respectively. I note also the broad construction of “proceedings for the recovery of money” recently adopted by the last-mentioned court in Dome Resources NL v Silver [2008] NSWCA 322; (2008) 68 ACSR 458.

64 The question of a supplement in the nature of pre-judgment interest on a sum ordered to be paid pursuant to s 588FF(1)(a) of the current legislation was considered by the Full Federal Court in Capital Finance Australia Ltd v Tolcher [2007] FCAFC 185; (2007) 164 FCR 83 (an appeal to the High Court was compromised: see [2008] HCATrans 316). In that case, s 588FF(1)(c) was identified as the source of the court’s power to award interest: see per Gordon J at [143] and [147], Heerey J concurring and Lindgren J, at [84], expressly approving her Honour’s statements in [143] to [153]. Section 588FF(1)(c) identifies, as one of the orders a court may make when “satisfied” in terms of the opening words of s 588FF(1), an order “requiring a person to pay to the company an amount that, in the court's opinion, fairly represents some or all of the benefits that the person has received because of the transaction”. I am satisfied that the question of “interest”, in the broad sense, should be approached by reference to s 588FF(1)(c).

65 Since their receipt of the sums of US$2,000,000 and US$3,980,600 in January 1999, the defendants have been in a position where they have been able to deploy the aggregate US$5,980,600 to their advantage without the need to raise it from some other source. The interest that the defendants have saved by not having to borrow US$5,980,600 should therefore be regarded as something that “fairly represents” benefit received by them “because of” the making of the payments to them, those payments being the relevant “transactions”.

66 I am satisfied, therefore, that payment by the defendants of an appropriately calculated element on account of or in the nature of interest may, pursuant to s 588FF(1)(c), be ordered. Such a sum will not be, in concept, compensation to NCRA for having been kept out of its money. It will represent, rather, re-allocation of a benefit of the kind with which s 588FF(1)(c) is concerned.

Should interest be awarded?

67 The answer to this question is “yes”, provided that it can be seen that the defendants were made aware of the plaintiffs’ claim for the payment of US$5,980,600 and, being so aware, declined to pay. I say this because the court has now ruled in favour of the plaintiffs’ claim for the aggregate sum so that failure by the defendants to pay in response to any corresponding demand can be seen to have been unwarranted and to justify re-allocation of benefit.

Timing considerations relevant to interest

68 The matter just mentioned, considered in conjunction with the question of the date from which interest should be computed, identifies a need to determine whether a demand for payment was made upon the defendants and, if so, when it was made. The relevance of that to identification of the date from which interest should be computed comes from the cases in which the date of claim is regarded as the relevant date. In cases arising under earlier legislation, three possibly relevant dates were identified: the date of the making of the payment which, under the present legislation, is the “transaction” for s 588FF(1)(a) purposes, the date of the appointment of the liquidator and the date on which the creditor who was the beneficiary of the transaction failed to comply with a demand by the liquidator. In both Ferrier v Civil Aviation Authority (above) and Star v O’Brien (above), the last of these was regarded as the appropriate date, given that, until demand was made (and, in particular, before the advent of winding up), the recipient had no reason to think that he or she would be required to disgorge. The same approach, based on the date of failure to comply with the liquidator’s demand, was taken in the cases under the present legislation to which I have referred, being Sheldrake v Paltoglou (above) and Capital Finance Australia Ltd v Tolcher (above).

69 The plaintiffs acknowledge that they made no demand upon the defendants before the filing of the originating process on 19 April 2002. They also acknowledge that service of the originating process was only ever effected in the manner provided for in the order for substituted service, that is, by delivery to the defendants’ solicitors in London. Before that, however, the plaintiffs’ London solicitors had written to the defendants’ agent, A E Grant Underwriting Agencies Limited, as follows (the letter is dated 6 August 2002):

“We act for the liquidators of NCRA which is an Australian company in liquidation.

We are writing to request that you nominate a representative member to accept service of New South Wales Supreme Court proceedings on behalf of the Members of Syndicate 991 arising from preference payments totalling US$5,980,600 made by NCRA in January 1999. A copy of the originating process documents is attached.

The next return date for the originating process is 27 August 2002, and we would appreciate receiving your response prior to that date.

We look forward to hearing from you.”

70 On 23 August 2002, after a follow up letter of 20 August 2002, Mr Michael Chan, a solicitor in the office of the plaintiffs’ London solicitors, telephoned Mr Alan Grant of A E Grant Underwriting Agencies Limited to ask whether the letters and documents previously sent had been received. It appears that they had been received since, according to Mr Chan’s file note, Mr Grant said that advice was being sought from Australian counsel as to whether “such a claim could be made as AG [Mr Grant] thought that this contract was subject to English law”. The file note also records Mr Grant as having said that “the claim was outrageous as the contracts and payments had been made in good faith”; and that “even if the claim had jurisdiction they would be resisting it”.

71 I infer from this that, by 23 August 2002, the defendants’ agent was fully on notice of the claims pursued by the plaintiffs in these proceedings. The defendants did not pay in response to the plaintiffs’ claim or at all. They should be regarded as having derived benefits unjustifiably from the funds of US$5,980,600 after 23 August 2002.

The rate of interest

72 Because the interest element will be awarded under s 588FF(1)(c), it is not appropriate to approach quantification on the basis of deprivation suffered by NCRA. Consistently with s 588FF(1)(c), the focus must be on the “benefits” that the defendants received because the sums of US$2,000,000 and US$3,980,600 were paid to them.

73 As I have said, the defendants derived the “benefit” of not having to pay interest on borrowings to the extent of US$5,980,600. Quantification of that “benefit” and assessment of an amount that, in terms of s 588FF(1)(c) “fairly represents” it, will pay attention to interest rates applicable to US dollar loans in the relevant period.

74 The matter may be appropriately approached on the footing that the defendants were saved from having to borrow US$5,980,600 for the period 23 August 2002 to the date of the making of orders in this case; and that the benefit thus derived by the defendants is fairly represented by an interest liability avoided for that period “at a rate at which someone could reasonably have borrowed [United States dollars] in [the United Kingdom] at simple and not compound interest”. This is an adaptation of words used in Miliangos v George Frank (Textiles) Ltd (No 2) [1977] QB 489 at 497, allowing for the fact that the defendants are based in the United Kingdom and the relevant currency is United States dollars. The appropriateness of an interest rate relevant to the particular foreign currency was also recognised in State Bank of New South Wales Ltd v Swiss Bank Corporation (1995) 39 NSWLR 350.

75 Having regard to the expert evidence of Mr Coughlin of Australia and New Zealand Banking Group Ltd concerning interest rates and banking practice, I am of the opinion that the calculation should be made by reference to the London Inter Bank Offer Rate (or “LIBOR”), as published daily throughout the period in question. Mr Coughlin gave evidence that middle market corporate customers are typically charged interest at a margin over LIBOR. The unadjusted LIBOR rate is inappropriate because it is used in transactions between banks. Loans to other borrowers involve greater credit risk. Mr Coughlin’s evidence is that margins differ according to circumstances, but that, for each of the years 2002 to 2007, the net interest rate margin of Australia and New Zealand Banking Group Ltd for all currencies was in the range 2.19% to 2.77%, the average for the six years thus being 2.463%.

76 I consider that LIBOR plus a margin of 2.463% should be regarded as producing a fair representation of the kind that s 588FF(1)(c) contemplates.

Orders to be made under s 588FF(1)

77 There should be an order under s 588FF(1)(a) that the defendants pay to NCRA a sum of US$5,980,600.

78 There should be an order under s 588FF(1)(c) that the defendants pay to NCRA the sum that would have been interest on a loan of US$5,980,600 for a term commencing on 23 August 2002 and ending on the date of the order, computed at the London Inter Bank Offer Rate plus a margin of 2.463% per annum. The precise terms of this order will have to take account of practices in actually computing interest.

The defendants’ objection

79 Having said that there should be orders as just outlined, I should pause to consider whether that conclusion is in any way called into question by the articulated objection of the defendants.

80 Although the defendants played no part in the proceedings, they made it plain, through correspondence sent by their solicitors to the plaintiffs’ solicitors, that they considered themselves to have a defence to the plaintiffs’ claims.

81 The defendants’ objection (or the basis for their defence) was articulated in their solicitors’ letter of 7 October 2002:

“It is our view that the proceedings in Australia issued by New Cap Re and the liquidator of New Cap Re are in breach of the agreements for arbitration in the relevant reinsurance contracts. Any claims which New Cap Re and the liquidator have in connection with the reinsurance contracts must be submitted to arbitration in London in accordance with Article 16 of the reinsurance treaties. The proceedings that your clients have brought in Australia are in breach of these agreements.”

82 The relevant reinsurance contract was that referred to at paragraph [39] above, that is, the contract of January 1997 between NCRA as reinsurer and the defendants as reinsured. That contract contained a provision as follows:

“All matters in difference between the parties arising under, out of or in connection with this Reinsurance, including its formation and validity, and whether arising during or after the period of this Reinsurance, shall be referred to an arbitration tribunal in the manner hereinafter set out.”

83 Detailed procedures for arbitration were then set out.

84 The plaintiffs’ London solicitors wrote to the defendants’ solicitors on 14 October 2002 as follows:

Corporations Act

85 The defendants’ solicitors reiterated their clients’ position on several occasions over several years up to and including 2008 in the course of a chain of correspondence through which the plaintiffs’ solicitors kept them informed of developments in this litigation.

86 The objection taken by the defendants should not deter the court from making the orders outlined. The arbitration provision formed part of the agreement between NCRA and the defendants. It was concerned with all matters of difference “between” NCRA and the defendants “arising under, out of or in connection with” their reinsurance contract. A provision defining in those terms the relationship between a dispute or claim and the parties’ contract must be broadly construed: see, for example, Samick Lines Co Ltd v Owners of the “Antonis P Lemos” [1985] AC 711, Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160, Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (1998) 90 FCR 1, Comandate Marine Corp v Pan Australia Shipping Pty Ltd [2006] FCAFC 192; (2006) 157 FCR 45. Claims arising from things such as pre-contract representations by one party to the other will be caught.

87 But even on the most generous interpretation of the words “[a]ll matters in difference between the parties arising under, out of or in connection with this Reinsurance”, they do not extend to the present proceeding under

s 588FF(1) of the Corporations Act in which the liquidator of one party to the reinsurance contract seeks an order for the payment of money to that contracting party by the other contracting party. This proceeding has nothing to do with the reinsurance contract. It is a proceeding upon a statutory cause of action maintainable by the liquidator of one of the former contracting parties. The cause of action is not available to the contracting party itself. Its liquidator, when suing upon the statutory cause of action, does not attempt to enforce some right of the contracting party. Furthermore, the event giving rise to the proceeding is not anything done under, by reference to or in relation to the reinsurance contract. The relevant event is the making of a payment by one of the parties to the reinsurance contract to the other of them pursuant to a new and separate contact by which they agreed to compromise and release the rights and obligations created by the reinsurance contract.

88 In summary, the “matters in difference” in these present proceedings are matters between NCRA’s liquidator and the defendants. They are matters arising from events that happened after the agreed termination of the reinsurance contract and, following the commencement of NCRA’s winding up, caused a statutory cause of action to become vested in the liquidator. There was no cause of action and no claim upon the defendants until the winding up of NCRA intervened. The arbitration provision in the reinsurance contract – which ceased to be in force between NCRA and the defendants when, in December 1998, they became parties to the commutation agreement – has no bearing on the statutory right that the subsequently appointed liquidator of NCRA subsequently acquired to seek orders against the defendants under s 588FF(1).

Enforcement of the s 588FF(1) orders

89 The plaintiffs say that the court, having decided to make orders under s 588FF(1) that the defendants pay money to NCRA, should cause a letter of request to be transmitted to the High Court of Justice in England and Wales (which I shall call “the English court”) with a view to securing enforcement of those orders.

90 The terms of the request, as proposed by the plaintiffs, are as follows:

Insolvency Act

amount of judgment

(b) In the alternative:

(i) Ordering that the Liquidator be at liberty to file and serve proceedings in the High Court of England in, or substantially to the effect of, the form attached to this letter of request; and further

(ii) Declaring that the proper law to be applied by the English Court for the determination of any such proceedings commenced pursuant to that liberty is the law of Australia.

(c) Granting such further and other relief as the High Court of Justice in England may consider just.

(d) Making such further or other orders as may, in the opinion of the High Court of Justice in England, be necessary or appropriate to give effect to the foregoing orders.”

91 An immediate reaction is to think that a letter of request may not be necessary because the order can be enforced in England according to ordinary principles concerning the enforcement of foreign judgments. Upon examination, however, that possibility can be seen to be non-existent.

Enforcement under reciprocal enforcement legislation?

92 A statutory basis for the enforcement in England of a judgment of this court exists under the Foreign Judgments (Reciprocal Enforcement) Act 1933 (UK). Judgments of this and certain other Australian courts (designated “recognised courts”) are relevant to the operation of that Act because of the Reciprocal Enforcement of Foreign Judgments (Australia) Order 1994 (UK). But the Act extends only to a “judgment” as defined by s 11(1):

“’Judgment’ means a judgment or order given or made by a court in any civil proceedings, or a judgment or order given or made by a court in any criminal proceedings for the payment of a sum of money in respect of compensation or damages to an injured party.”

93 It seems to me clear that the payment of money required in obedience to a s 588FF(1) order is not payment “in respect of compensation or damages to an injured party”. In the present case, the party to whom the payment will be due is NCRA. The occasion or pretext for the payment will be no more or less than the court’s findings with respect to the several statutory elements discussed above.

94 Having regard to the nature of the statutory cause of action as outlined at paragraphs [16] to [21] above, an order under s 588FF(1) for the payment of money to the company in liquidation cannot be regarded as an order for the payment of money “in respect of compensation or damages to an injured party”. The company is not, in the particular context, an “injured party” and the money does not have the character of “compensation” or “damages”.

95 The s 588FF(1) orders will therefore not be “judgments” as defined by the Foreign Judgments (Reciprocal Enforcements) Act of the United Kingdom and the liquidator, having obtained the orders, will not be in a position to make a successful application under s 2(1) of that Act in relation to them. There is the added difficulty for the plaintiffs that, under s 4 of the Act, registration of a judgment must be set aside if the judgment debtor, as defendant in the foreign court, did not submit to that court’s jurisdiction.

An action on the order?

96 It is therefore necessary to consider whether it will be possible for the defendants to be sued in England on the obligation created by the s 588FF(1) order.

97 Apart altogether from difficulties that may arise from the form of the statutory claim already noted, an essential pre-condition to the exercise of the common law jurisdiction to enforce a foreign judgment by action at law is absent from this case. As was made clear in Buchanan v Rucker (1808) 9 East 192; (1808) 103 ER 546 and later cases discussed by the English Court of Appeal in Henry v Geopresco International Ltd [1976] QB 726, an English court will not enforce a foreign judgment obtained against a defendant who was not within the territorial jurisdiction of the foreign court, was not otherwise subject to and did not submit to that court’s jurisdiction and had no assets in the foreign jurisdiction; and this is so even though some mode of non-personal service sufficient under the foreign law has been adopted (in Buchanan v Rucker service of process of the Court of Common Pleas of Tobago on a resident of England was effected by nailing it to the court house door at Scarborough in Tobago in accordance with a local practice).

98 The present defendants have not appeared. They occupy, in these proceedings, precisely the position of remoteness from this court just described. I accept, therefore, that the defendants could not be sued successfully in England on the s 588FF(1) order.

The letter of request

99 Because NCRA (or its liquidator) thus seems to have no prospects of enforcing this court’s s 588FF(1) orders in the United Kingdom either by separate action there upon the obligation the order will create or by resort to statutory processes for the enforcement of foreign judgments, I proceed to consider the application of NCRA and its liquidator concerning a letter of request.

100 Two comments need to be made at the outset about the form of the request this court is asked to make of the English court: see paragraph [90] above. First, it seems inappropriate that the request contemplate, in paragraph (a), payment “to the Liquidator”. I say this because the orders of this court will be orders that the defendants pay NCRA. That is the form of order envisaged by both s 588FF(1)(a) (“an order directing a person to pay to the company”) and s 588FF(1)(c) (“an order requiring a person to pay to the company”). Second and in the same vein, paragraph (a) will need adjustment to take account of the separate orders under s 588FF(1)(a) and s 588FF(1)(c).

101 I have not set out the form of application to the English court that is referred to in paragraph (b) of the letter of request and defines the alternative relief the plaintiffs wish to have from that court. It is sufficient to say that the approach proposed by the plaintiffs is that, if the English court does not act as envisaged by paragraph (a) of the letter of request by simply making orders for the payment of money so as to give new and independent force, by the exercise of its own jurisdiction, to the orders of this court, the English court will itself entertain an application under s 588FF(1) of the Corporations Act 2001 (Cth) for new and separate orders in the same terms as this court’s orders, with the plaintiffs re-agitating in their entirety before the English court the s 588FF(1) claims already determined in their favour by this court.

Jurisdiction

102 The jurisdiction of this court now invoked by the plaintiffs is that created by s 581(4) of the Corporations Act:

“The Court may request a court of an external Territory, or of a country other than Australia, that has jurisdiction in external administration matters to act in aid of, and be auxiliary to, it in an external administration matter.”

103 Having regard to the definition of “external administration matter” in s 580 (which I do not pause to set out), the winding up of NCRA is clearly an “external administration matter”. It is therefore open to this court to request that the English court act in aid of, and be auxiliary to, this court in the winding up of NCRA.

104 It is also relevant to refer to provisions of United Kingdom statute law. Section 426(4) of the Insolvency Act 1986 (UK) is as follows:

“The courts having jurisdiction in relation to insolvency law in any part of the United Kingdom shall assist the courts having the corresponding jurisdiction in any other part of the United Kingdom or any relevant country or territory.”

105 By virtue of s 426(11) of the Insolvency Act and the Co-operation of Insolvency Courts (Designation of Relevant Countries and Territories) Order 1986 (UK), Australia is a “relevant country” for these purposes.

106 Section 426(5) of the Insolvency Act is in these terms:

“For the purposes of subsection (4) a request made to a court in any part of the United Kingdom by a court in any other part of the United Kingdom or in a relevant country or territory is authority for the court to which the request is made to apply, in relation to any matters specified in the request, the insolvency law which is applicable by either court in relation to comparable matters falling within its jurisdiction. In exercising its discretion under this subsection, a court shall have regard in particular to the rules of private international law.”

107 It is thus made clear that the English court, in giving effect to a request of this court to render assistance in relation to an aspect of Australian winding up, may apply either English “insolvency law” or Australian “insolvency law” applicable to the matter. It is for the English court to decide which system of law it should apply, although it is required by s 426(5) to have regard to the rules of private international law. The ability of the English court, exercising its insolvency jurisdiction, to deploy “its own general jurisdiction and powers” (Hughes v Hannover Ruckversicherungs-Aktiengesellschaft [1997] 1 BCLC 497) will be relevant to a request that that court simply, as it were, re-impose this court’s orders. The English court’s ability, as a matter of English law, to apply Australian statute law with respect to insolvency (as it did in, for example, England v Smith [2001] Ch 419) will be relevant to the alternative request referred to at paragraph [101] above.

Matters relevant to the discretion to order the making of the request

108 Having regard to the statutory provisions just mentioned, I am satisfied that this court has power to make the relevant request of the English court and that the English court has power to act upon the request. Two points then arise for consideration: first, whether there is some good substantive reason for the request that this court is asked to make; and, second, whether there is utility in the request in the sense that the English court is likely to exercise its power to act upon the request if it is made: see Re HIH Insurance Ltd [2004] NSWSC 454.

109 As to the first matter, it is clear that there is a good substantive reason for the making of the request. This court has determined that it will order, pursuant to s 588FF(1) and in order to effectuate the due administration of NCRA’s winding up, that the defendants pay money to NCRA. Those defendants are in the United Kingdom. They are amenable, in a direct and practical sense, to the jurisdiction of the English court. It appears that the plaintiffs cannot obtain satisfaction either by bringing a common law action in the English court upon this court’s order or by resort to United Kingdom reciprocal enforcement legislation. In those circumstances, such assistance as the English court is minded to give pursuant to s 426 of the Insolvency Act in response to the letter of request will itself be a means of enhancing the due conduct of the winding up of NCRA in accordance with the Corporations Act.

110 The second matter requires closer attention.

The utility question

111 The question whether the English court is likely to accept and act upon the request the plaintiffs ask this court to make was referred by the liquidator of NCRA to Mr Gabriel Moss QC of the English bar. Mr Moss’s written opinion dated 16 December 2008 has been put into evidence by the plaintiffs.

112 I need not canvass Mr Moss’s opinion in detail. His overall conclusion is that the English court will grant relief in the form of the primary relief sought (that is, by way of orders that the defendants pay to NCRA the money required by this court’s s 588FF(1) orders to be paid) or, if for some reason that is not considered appropriate, in the form of the alternative relief sought (that is, by way of leave to re-institute in the English court the s 588FF(1) application already determined favourably to the plaintiffs by this court).

113 In reaching this conclusion, Mr Moss mentioned a number of cases. It is instructive to refer to two of them.

114 The first is the decision of the House of Lords in Re HIH Casualty & General Insurance Ltd; McGrath v Riddell [2008] UKHL 21; [2008] 1 WLR 852. It is sufficient, for present purposes, to quote from the speech of Lord Hoffmann at [30]:

“The primary rule of private international law which seems to me applicable to this case is the principle of (modified) universalism, which has been the golden thread running through English cross- border insolvency law since the 18th century. That principle requires that English courts should, so far as is consistent with justice and UK public policy, co-operate with the courts in the country of the principal liquidation to ensure that all the company's assets are distributed to its creditors under a single system of distribution.”

115 There was some division of opinion in the House of Lords on the question whether an English court could or should give full effect to such a principle so as to subject United Kingdom assets to a foreign insolvency administration unless s 426 of the Insolvency Act compelled assistance to the relevant foreign court. Lord Hoffmann and Lord Walker of Gestingthorpe took the view that an order causing United Kingdom assets to be subjected to the foreign administration could be made in the exercise of the English court’s discretion at common law. Lord Phillips of Worth Matravers preferred not to express an opinion on the matter, noting that s 426 provided a basis for such an order. Lord Scott of Foscote and Lord Neuberger considered that the order could not be made except under s 426.

116 The statement of Lord Hoffmann quoted above is consistent with the approach taken by the Privy Council (Lord Bingham of Cornhill, Lord Hoffmann, Lord Hutton, Lord Rodger of Earlsferry and Lord Carswell) in the earlier case of Cambridge Gas Transport Corp v Official Committee of Unsecured Creditors of Navigator Holdings plc [2006] UKPC 26 ; [2007] 1 AC 508. The relevant principle of universality was stated in this way (at [16]):

“There should be a single bankruptcy in which all creditors are entitled and required to prove. No one should have an advantage because he happens to live in a jurisdiction where more of the assets or fewer of the creditors are situated.

117 After referring to principles of bankruptcy law to the effect that English moveables vest automatically in a foreign trustee or assignee but that English immoveable property does not, the Privy Council continued (at [20]-[21]):

Re African Farms

‘A declaration, in effect, that the liquidator is entitled to deal with the Transvaal assets in the same way as if they were within the jurisdiction of the English courts, subject only to such conditions as the courts may impose for the protection of local creditors, or in recognition of the requirements of our local laws.’

118 The actual decision in the Cambridge Gas case was that, as a matter of comity, an English court (or, as it actually was, the Isle of Man court) should act in aid of an insolvency administration instituted under Chapter 11 of the United States Bankruptcy Code; and that this was so even where a statutory provision such as s 426 of the Insolvency Act 1986 (UK) did not require that the domestic court do so. Assistance might be given in any form within the domestic court’s jurisdiction. As their Lordships said at [22]:

“At common law . . . the domestic court must at least be able to provide assistance by doing what it could have done in the case of a domestic insolvency.”

119 The assistance held appropriate in the circumstances was, in substance, an order that the local court could have made under statute in circumstances of creditor approval defined in the statute; and that order was appropriate even though those circumstances did not in fact exist. A foreign process of creditor determination analogous with the statutorily defined approval process was apparently considered a sufficient substitute for the making of the order.

120 This last matter should be explained in some greater detail. Navigator was a company incorporated in the Isle of Man. Its register of members was in the Isle of Man. The plan of reorganisation approved by creditors of Navigator under the United States Bankruptcy Code purported to divest from Cambridge Gas shares it held in Navigator and to vest those shares in other persons. The Privy Council took the view, on the basis of comity, that the Isle of Man court should make a form of vesting order in respect of the shares so as to allow the effects of the Unites States reorganisation to be recognised on the Isle of Man share register. The foundation for such an order was explained in this way:

1. If Navigator had been subject to winding up in the Isle of Man where it was incorporated and if an appropriate application had been made to the Manx court by Navigator or a member or creditor of Navigator, that court could have convened a meeting of Navigator’s creditors under the Isle of Man equivalent of s 411(1) of the Corporations Act 2001 (Cth) to consider a creditors’ scheme of arrangement.

2. If Navigator’s creditors had, at such a meeting, favoured the scheme by the requisite majority and the Isle of Man court was satisfied that it was not unfair and made an approving order, the scheme would, under the counterpart of s 411(4), be binding on not only the creditors and the liquidator of Navigator but also – and crucially – on its contributories, including Cambridge Gas.

3. A creditors’ scheme of arrangement approved by order of the court under the Isle of Man legislation could thus have deprived Cambridge Gas of its shares in Navigator.

121 Cambridge Gas was a case in which cross-border assistance provisions such as s 426 of the Insolvency Act 1986 (UK) played no part. The Privy Council proceeded on the basis of a comprehensive common law power of the domestic court to assist in the effectuation of a foreign insolvency administration as a matter of comity. As I have said, the existence of that power was questioned or rejected by some members of the House of Lords in McGrath v Riddell (above). But that case, like this, was one in which s 426 of the Insolvency Act operated to require the domestic court to assist the foreign court to implement the foreign scheme of insolvency administration. Particularly since s 426 will be at work in the present case, the decisions in Cambridge Gas and McGrath v Riddell provide strong support for the conclusion stated by Mr Moss QC.

122 This court should therefore proceed with confidence that the English court will act upon the request that the plaintiffs ask this court to make.

Application under s 588FF(3)

123 The plaintiffs recognise that if the English court elects to embark afresh upon the hearing of s 588FF(1) proceedings, a question will arise under s 588FF(3): see paragraph [13] above. Any such new application under s 588FF(1) will obviously be made to the English court more than three years after 21 April 1999, being the “relation-back day” referred to in s 588FF(3).

124 To cater for the need that may arise for an order of this court extending the limitation period pursuant to s 588FF(3) itself, the plaintiffs have included in the application with which I am now dealing a claim for an extension to 31 December 2013. The plaintiffs do not ask that that order be made now. Indeed, it is by no means clear to me that the court can make any extending order, although counsel did outline in general terms submissions that might be advanced if the need to pursue that aspect becomes real – which it will if the English court does not, in response to the letter of request, adopt the course of re-imposing this court’s orders for the payment of money.

125 The plaintiffs merely seek, at this point, to have their claim for an order extending time kept alive on the basis of liberty to restore to the list, if the need arises. I am content to adopt that course.

Conclusion

126 The court will make orders under s 588FF(1)(a) and s 588FF(1)(c) as indicated at paragraphs [77] and [78] above. It will be necessary for the amount relevant to the s 588FF(1)(c) order to be calculated and for brief submissions explaining the calculation to be furnished.

127 The court will also direct that the Registrar transmit to the English court a letter of request generally in the form sought by the plaintiffs, but taking account of the matters referred to at paragraph [100] above and some matters of drafting outlined in a separate note furnished to the plaintiffs’ legal representative on the publication of these reasons.

128 In accordance with the plaintiffs’ application, it will be ordered that the order concerning the letter of request be stayed for 28 days after it is made on the footing that, if the orders under s 588FF(1)(a) and s 588FF(1)(c) are satisfied by payment within that period, the stay will become permanent.

129 To deal with the possible need for the plaintiffs to seek an extension of time under s 588FF(3), it will be ordered that the claim in paragraph 5 of the amended interlocutory process filed on 17 December 2008 stand over before the Corporations Judge on 20 July 2010 with liberty to restore to the list on two days notice.

130 Finally, there will be an order that the defendants pay the plaintiffs’ costs.

131 I direct that short minutes of orders be filed by delivery to my Associate within 14 days.

**********

Citations

New Cap Reinsurance Corporation Ltd v Grant [2009] NSWSC 662

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CITATION:	New Cap Reinsurance Corporation Ltd v A E Grant & Ors, Lloyd's Syndicate No 991 [2009] NSWSC 662
HEARING DATE(S):	17/12/08 Written submissions: 17/12/08, 27/02/09
JUDGMENT DATE :	14 July 2009
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
DECISION:	See paragraphs [126] to [130]
CATCHWORDS:	CORPORATIONS - winding up - conduct and incidents of winding up - recovery of preferences - elements of cause of action under s 588FF(1)(a) that defendants pay to company an amount equal to money paid by company to defendants - claim for interest - statutory basis for allowing interest - whether interest should be allowed - date from which interest should be computed - appropriate rate of interest - no appearance by non-submitting foreign defendants - consideration nevertheless of defence raised by them - CORPORATIONS - winding up - cross-border insolvency - plaintiffs seek letter of request addressed to High Court of Justice of England and Wales - defendants resident in England - plaintiffs ask this court to request the English court to order payment of money ordered by this court to be paid or, in the alternative, that the English court entertain afresh the claims litigated in this court - whether other methods of enforcement available to plaintiffs - whether English court has power to act as contemplated by letter of request - whether English court likely to act upon request
LEGISLATION CITED:	Civil Procedure Act 2005, s 100 Co-operation of Insolvency Courts (Designation of Relevant Countries and Territories) Order 1986 (UK) Corporations Act 2001 (Cth), Part 5.6 Division 1A, Part 5.7B Division 2, Part 10.1 Division 6, ss 9, 411(1), 411(4), 513B(d), 513C, 580, 581(4), 588FA, 588FC, 588FE(2), 588FF(1), 588FF(2)(b), 588FF(3). 588FG(1), 588FG (2), 588FI(2), 588FI(3), Corporations Law, Part 5.3A, s 446A Foreign Judgments (Reciprocal Enforcement) Act 1933 (UK) Insolvency Act 1986 (UK). S 426(4), 426(5), 426(11) Reciprocal Enforcement of Foreign Judgments (Australia) Order 1994 (UK) Supreme Court Act 1995 (Qld), s 47(1) Supreme Court Rules 1970, Part 10 rule 1A(a) Uniform Civil Procedure Rules 2005, rule 11.2. item (a) of Schedule 6 United States Bankruptcy Code, Chapter 11
CATEGORY:	Principal judgment
CASES CITED:	Buchanan v Rucker (1808) 9 East 192; (1808) 103 ER 546 Cambridge Gas Transport Corp v Official Committee of Unsecured Creditors of Navigator Holdings plc [2006] UKPC 26 ; [2007] 1 AC 508 Capital Finance Australia Ltd v Tolcher [2007] FCAFC 185; (2007) 164 FCR 83 (an appeal to the High Court was compromised: see [2008] HCATrans 316) Comandate Marine Corp v Pan Australia Shipping Pty Ltd [2006] FCAFC 192; (2006) 157 FCR 45 Dome Resources NL v Silver [2008] NSWCA 322; (2008) 68 ACSR 458 England v Smith [2001] Ch 419 Ferrier v Civil Aviation Authority (1994) 55 FCR 28 Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 Hall (as Liquidators of New Tel Ltd) v Ledge Finance Ltd [2005] NSWSC 645 Henry v Geopresco International Ltd [1976] QB 726 Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (1998) 90 FCR 1 Hughes v Hannover Ruckversicherungs-Aktiengesellschaft [1997] 1 BCLC 497 Miliangos v George Frank (Textiles) Ltd (No 2) [1977] QB 489 Motor Terms Co Pty Ltd v Liberty Insurance Ltd [1967] HCA 9; (1967) 116 CLR 177 New Cap Reinsurance Corporation Ltd v A E Grant & Ors, Lloyd’s Syndicate No 991 [2008] NSWSC 1015; (2008) 221 FLR 164 New Cap Reinsurance Corporation Ltd v Faraday Underwriting Ltd [2003] NSWSC 842; (2003) 177 FLR 52 New Cap Reinsurance Corporation Ltd v Renaissance Reinsurance Ltd [2002] NSWSC 856; (2002) 192 ALR 601 Re Harris Scarfe Ltd [2006] SASC 277; (2006) 203 FLR 46 Re HIH Casualty & General Insurance Ltd; McGrath v Riddell [2008] UKHL 21; [2008] 1 WLR 852 Re HIH Insurance Ltd [2004] NSWSC 454 Samick Lines Co Ltd v Owners of the “Antonis P Lemos” [1985] AC 711 Sheldrake v Paltoglou [2006] QCA 400 Spokes v The Grosvenor and West End Railway Terminus Hotel Co Ltd [1897] 2 QB 124 Star v O’Brien (1996) 40 NSWLR 695 State Bank of New South Wales Ltd v Swiss Bank Corporation (1995) 39 NSWLR 350 Tolcher v National Australia Bank Ltd [2003] NSWSC 207; (2003) 174 FLR 251
TEXTS CITED:	M G R Gronow “McPhersons Law of Company Liquidation”, fifth edition (current looseleaf), paras 11.400, 11.780
PARTIES:	New Cap Reinsurance Corporation Limited - First Plaintiff John Raymond Gibbons - Second Plaintiff A E Grant & Ors, Lloyd's Syndicate No 991 - Defendants
FILE NUMBER(S):	SC 2351/02
COUNSEL:	Mr R G Forster SC/Dr S R Derham - Plaintiffs
SOLICITORS:	Henry Davis York - Plaintiffs