Sydney Water Corporation v McGrath

Court of Appeal

New South Wales

Case Title: Sydney Water Corporation v McGrath

Medium Neutral Citation: [2014] NSWCA 197

Hearing Date(s): 12 March 2014

Decision Date: 23 June 2014

Before: Macfarlan JA at [1]; Barrett JA at [22]; Ward JA at [120]

Decision:
Appeal dismissed with costs

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Catchwords: CORPORATIONS - winding up - whether trial judge erred in deciding not to exercise power conferred by s 562A(4) of the Corporations Act 2001 (Cth) - whether trial judge's exercise of discretion vitiated by material error of fact - whether determination was unreasonable or plainly unjust - whether error in quantification of amount received by insurers for purpose of determining relevant amount had discretion been exercised in favour of insured.

Legislation Cited: Corporations Act 2001 (Cth)
Third Parties (Rights Against Insurers) Act 1930 (UK)

Cases Cited: Amaca Pty Ltd v McGrath (as liquidators of HIH Underwriting and Insurance (Aust) Pty Ltd) [2011] NSWSC 90; 82 ACSR 281
Amaca Pty Ltd v McGrath & Honey (as liquidators of HIH Group of Companies) [2012] NSWSC 176; 87 ACSR 625
Amaca Pty Ltd v McGrath & Honey (as liquidators of HIH Group of Companies) [2012] NSWSC 1523; 92 ACSR 105
AssetInsure Pty Limited v New Cap Reinsurance Corporation Limited [2006] HCA 13; 225 CLR 331
Barton v Atlantic 3 Financial (Australia) Pty Ltd [2004] QSC 376; 212 ALR 348
Chan v Cresdon Pty Ltd [1989] HCA 63; 168 CLR 242
Ebrahimi v Westbourne Galleries Ltd [1973] AC 360
Gye v McIntyre [1991] HCA 60; 171 CLR 609
HIH Casualty and General Insurance Ltd v Building Insurers' Guarantee Corporation [2003] NSWSC 1083; 188 FLR 153
House v R [1936] HCA 40; 55 CLR 499
Krishell Pty Ltd v Nilant and Ors [2006] WASCA 223
McGrath & Anor re HIH Insurance Ltd [2008] NSWSC 9; 26 ACLC 111
Pitt-Owen v Lenin [2006] NSWSC 748
Re HIH Casualty and General Insurance Ltd and Ors [2005] NSWSC 240; 190 FLR 398
Stein v Blake [1996] AC 243

Category: Principal judgment

Parties: Sydney Water Corporation (Appellant)
Messrs A G McGrath and C J Honey as liquidators of the HIH Group of Companies (First Respondent)
HIH Casualty & General Ltd (in liquidation and subject to Schemes of Arrangement)
(Second Respondent)

Representation

- Counsel: Counsel:
J C Sheahan SC/K Rees SC (Appellant)
R A Dick SC/R M Foreman (First and Second Respondents)

- Solicitors: Solicitors:
Clayton Utz (Appellant)
Ashurst Australia (First and Second Respondents)

File Number(s): 2013/206927

Decision Under Appeal

- Court / Tribunal: Supreme Court

- Before: Nicholas J

- Date of Decision: 12 June 2013

- Citation: [2013] NSWSC 741

- Court File Number(s): 2012/310781

Publication Restriction: Nil

HEADNOTE

[This Headnote is not to be read as part of the judgment]
This judgment relates to an appeal from a decision of Nicholas J of the Equity Division of the Supreme Court in relation to the application by Sydney Water Corporation (SWC) for an order under s 562A(4) of the Corporations Act 2001 (Cth) displacing what would otherwise be the distribution to creditors of the HIH Group of Companies (HIH) of amounts received by it under certain reinsurance contracts.
SWC was insured under a number of policies with HIH. HIH had reinsured the risk under those policies with various reinsurers in the UK.
Before HIH went into liquidation, HIH had accepted a large claim by SWC under one of its insurance policies following a water contamination incident. Indemnity was accepted and it had received some money from HIH in relation to the claim. HIH had claimed under its reinsurance policies in relation to the SWC claim. The liquidators subsequently received some funds from a UK reinsurance syndicate, referable to various HIH reinsurance policies.
SWC's submission was that it was just and equitable for an order to be made under s 562A(4) for it to receive the whole of the amount received by the liquidators from the syndicate that was attributable to reinsurance of its claim, because the reinsurance contract (and hence the money received by the liquidators from the reinsurers) was sufficiently connected with or referable to SWC's long term relationship with its reinsurers. His Honour considered that the relationship between SWC and the syndicate was neither extraordinary nor unusual, as had been submitted by SWC; held that it was not just and equitable to make such an order; and dismissed SWC's application for relief.
SWC appealed from his Honour's decision on a number of factual findings and as to the weight given by his Honour to evidence adduced at the trial. SWC submitted that the conclusion that should have been reached was that it was just and equitable to ascribe the relevant reinsurance proceeds to SWC's relationship with the syndicate reinsurers. In addition, SWC contended that there was error in the identification of the quantum of reinsurance moneys received by HIH that were referable to SWC.
Held: (1) by Barrett JA (at [100]) (Ward JA agreeing at [130]) that there was no operative error of fact vitiating the primary judge's exercise of discretion (Macfarlan JA dissenting at [5]).
(2) by Barrett JA (at [102]) (Ward JA agreeing at [131]) that the primary judge's decision that it was not just and equitable to exercise the statutory discretion to afford SWC preference over other insurance creditors in the winding up of HIH had not miscarried in the House v R sense so as to warrant or permit appellate intervention (Macfarlan JA dissenting at [19]).
(3) (obiter) by Barrett JA (at [113]) (with Ward JA agreeing at [131]) that the primary judge did not err in law by regarding the amount "received" in the s 562A(1)(b) sense by the liquidators as being the amount actually received subject to set off of amounts owed by HIH and the Syndicate to each other, as opposed to the amount received being the amount owed to HIH without taking into account the set off (Macfarlan JA not deciding).

JUDGMENT

MACFARLAN JA: I gratefully adopt Barrett JA's description of the facts and circumstances of this matter, including his description of the judgment of the primary judge and the submissions on appeal. For the reasons given below, I consider that the appeal should be allowed and orders made pursuant to s 562A(4) as sought by Sydney Water Corporation ("SWC").

Whether error in the exercise of discretion

Of significance to the primary judge's reasoning was his conclusion that SWC did not have a role, or at least not a significant role, in negotiating the 1997 reinsurance policy. Thus his Honour held that meetings involving representatives of SWC and the Syndicate (the lead underwriter) were "primarily for the giving [by SWC] of information relevant to the provision of reinsurance" (Judgment [122]), that "the correspondence discloses no direct participation by SWC with the Syndicate in the negotiations for reinsurance" (Judgment [124]) and that "[t]here was no evidence, for example, from SWC staff and/or a representative of the Syndicate, that SWC was directly involved in negotiating and obtaining the relevant facultative reinsurance" (Judgment [127]).
However, in my view the evidence did in fact indicate that SWC was an active and significant participant in such negotiations. I refer in particular to the following:
(a) SWC's Executive Meeting Paper of 6 November 1995 referred to SWC's strategy for developing strong working relationships with both leading underwriters and reinsurers and to SWC having directly negotiated the premium for its packaged liability policy with the local and London market. Its recommendation that SWC's existing buying arrangements continue unchanged is some evidence of the approach taken by SWC representatives in relation to subsequent insurance arrangements.
(b) A fact agreed between the parties (Statement of Agreed Facts [46]) and set out by the primary judge at [43] of his Judgment (with only immaterial changes) was as follows:
"In about April 1997, Mr Bang [of HIH] accompanied Mr Ferguson [of SWC] and Mr Colebrook [SWC's insurance broker] to London on the selling trip to conduct face to face negotiations with the Syndicate. Mr Ferguson says that he was involved in negotiations and discussions leading to placement of the policy. He attended a meeting in London with Mr Constable of the R J Wallace Syndicate at which a presentation was made about risk".
(c) In his facsimile of 3 December 2001, Mr Ferguson described his trips to London, including that of April 1997, as being "to negotiate with the market".
(d) In his facsimile of 5 February 1997, Mr Bang referred to his "'selling trip' to London to discuss the issues face to face with Bob Wallace [of the Syndicate]" and said that "[t]his will enable Bob to tell us what his perceived problems are and provide SWC and ourselves with an opportunity of addressing Bob's concerns in an endeavour to lessen them or remove them altogether". These statements contemplated that SWC representatives would be involved (along with Mr Bang) in discussions with the reinsurers and would have the opportunity of addressing difficulties identified by the reinsurers.
Furthermore, I do not consider that the primary judge's conclusion that "the relationship between SWC, HIH, and the Syndicate was neither extraordinary nor unusual" (Judgment [124]) was entirely accurate. The only evidence that appears to have borne directly on the question of what was or was not usual was that of Mr Bang who said that "[t]echnically, in reinsurance placements, usual protocol dictated that reinsurers dealt with the insurer who in turn dealt with the insured" (affidavit of 27 July 2012, [16]). Judged by this criterion, SWC's direct dealings with the reinsurers rendered the relationship somewhat unusual. That position was emphasised by the fact, as I have found it to be, that SWC's dealings with the Syndicate involved it in a significant role in the negotiations for the subject policy.
As the primary judge stated that his contrary views weighed heavily against the making of an order under s 562A(4) (Judgment [124]), I consider that his Honour made a material error of fact that vitiated his exercise of discretion.

Re-exercise of discretion

It is necessary in these circumstances to re-exercise the discretion conferred by s 562A(4). For the reasons that follow, I would exercise that discretion to make the orders sought by SWC.
The only limitation placed by s 562A(4) on the exercise of the discretion that it confers is that the Court must consider that the making of an order under the subsection is "just and equitable in the circumstances".
Pursuant to s 562A(5), the Court may take into account a number of identified matters. Although the Court is not limited to those considerations, they are indicators of the types of circumstances which the legislature contemplated might lead the Court to make an order under s 562A(4).
As Barrett J (as his Honour then was) pointed out in Amaca Pty Ltd v McGrath [2011] NSWSC 90; 82 ACSR 281 at [16], the Australian Law Reform Commission in its General Insolvency Report (Harmer Report) perceived there to be difficulties in permitting insureds to claim automatically the benefit of reinsurance obtained by their insurers. These included "difficulties in identifying third party claimants entitled to the benefit of particular reinsurance and the perceived inequity of persons whose contracts of insurance happened to be backed by reinsurance being the only persons able to benefit" (ibid). The considerations that were, on the Commission's recommendation, incorporated into s 562A(5) are indicative of circumstances in which these difficulties may not be present and in which it is accordingly both possible and fair to allow insureds to claim the benefit of reinsurance proceeds.
The first consideration specified in s 562A(5) is "whether it is possible to identify particular relevant contracts of insurance as being the contracts in respect of which the contract of reinsurance was entered into". It is common ground that this is possible in the present case (Judgment [110]). The reinsurance policy in question named SWC as the "Assured" and HIH as the "Reassured", and it defined the "interest" insured as "In respect of Assured's Activities" (Covernote dated 30 July 1997). The reinsurance was thus of HIH in respect of insurance issued by it to SWC concerning SWC's activities.
The second consideration specified in s 562A(5) is "whether it is possible to identify persons who can be said to have paid extra in order to have particular relevant contracts of insurance protected by reinsurance". The evidence indicated that no "extra" was paid for this purpose but, equally importantly, it indicated that "unless the contract was reinsured, HIH would not have issued the policy at all" (Judgment [54], quoting evidence of Mr Bang). This was so because the levels of insurance required by SWC exceeded HIH's capacity (and indeed of the Australian market generally: Judgment [115]). This meant that reinsurance was essential from the point of view of both SWC and HIH. Whilst it was not strictly a case of SWC paying "extra" to obtain reinsurance, primary insurance was not available from HIH without reinsurance and the premiums that SWC paid to HIH can fairly be regarded as paid, at least in part, for the purchase of reinsurance.
The third consideration specified in s 562A(5) is "whether particular relevant contracts of insurance include statements to the effect that the contracts are to be protected by reinsurance". Whilst this was not so here, it follows from what I have said above that all parties were well aware that reinsurance was essential if a policy was to be issued by HIH to SWC.
The fourth consideration specified by s 562A(5) is "whether a person to whom an amount is payable under a relevant contract of insurance would be severely prejudiced if subsections (2) and (3) applied to the amount received under the contract of reinsurance". This is satisfied here because SWC's recovery will be significantly improved if orders are made under s 562A(4). If they are not, its return would appear to be limited to about 35 cents in the dollar (affidavit of Mr Honey of 1 February 2013, [40]). Thus SWC would be prejudiced if subsections (2) and (3) continued to apply.
Although s 562A(5)(d) does not refer to any prejudice or lack of prejudice which may be suffered by other creditors (see Amaca Pty Ltd v McGrath [2012] NSWSC 1523; 92 ACSR 105 at [19]), that is a matter that is nevertheless otherwise relevant to the exercise of the discretion conferred by s 562A(4). Here, the extent of HIH's insurance creditors is such that if orders are made in favour of SWC, they will suffer prejudice of only 0.33 of one cent in the dollar (ibid).
A further factor in favour of the making of orders under s 562A(4) is that, as I have found above, SWC was involved in direct negotiations with the reinsurers in relation to the subject reinsurance policy. That is not to say that SWC itself negotiated the reinsurance. Rather, its role was one of intimate involvement in the negotiations with the reinsurers. HIH clearly regarded SWC's involvement as improving the prospects of concluding the reinsurance negotiations (see [3(d)] above).
Furthermore, the terms of the primary insurance matched the terms of the reinsurance. Achieving this, so that there was back-to-back insurance and reinsurance without "gaps", was described by Mr Bang of HIH as his main role in the negotiations, apart from maintaining client relationships with SWC and the reinsurers, and learning more about SWC's needs (Judgment [35]). According to Mr Bang, HIH did not have a significant role in determining the scope of cover given by HIH to SWC because "effectively, the reinsurers dictated the breadth of cover which HIH could give to Sydney Water Corporation" (Judgment [49]). Likewise, the reinsurers determined the overall pricing of the reinsurance which largely determined the pricing of the primary insurance (Judgment [38]). These matters highlight the limited significance, in practical terms, of the interposition of HIH between the reinsurers and SWC.
Certainly, HIH was not a mere conduit in the sense that it was wholly reinsured in respect of its potential liabilities to SWC. However, its retention of risk was limited. In the primary and first two excess layers it retained 25%, whilst in the higher layers it retained zero or 5% (Judgment [26]). Its overall retention was 5.83% for the first year of the policy, 8.54% for the second and 8.55% for the third (ibid). The extent of HIH's retention of premium is not clear although again it would appear to be limited. At least in respect of the D&O section of the policy, the portion of the premium paid by SWC not passed on to reinsurers appears to have been 5% (Judgment [53]). This, understandably, approximates the percentage of overall risk retained by HIH.
I accept that the three Amaca cases to which Barrett JA refers in his judgment are different from the present, for example, because the insurer in the first did not derive any premium ([2011] NSWSC 90; 82 ACSR 281 at [75]). However, those cases do not purport to, and could not, set limits to the discretion conferred by s 562A(4). Each case must of course be considered on its own facts.
Returning to the terms of s 562A(4), I conclude that it is just and equitable that orders under the section be made in favour of SWC. In my view it would be unfair to require SWC to be required to take only a rateable share, along with all other insurance creditors, of the subject funds received by HIH from the reinsurers. The reinsurance was obtained specifically to protect HIH in relation to its potential insurance liabilities to SWC. It related to no other subject and its existence was, and was known by the parties to be, essential to the creation of those potential insurance liabilities. SWC played a significant role in the obtaining of the reinsurance and in negotiating the terms upon which it was obtained. Whilst HIH retained some risk, the bulk of the risk relating to HIH's insurance of SWC was borne by the reinsurers. HIH was at pains throughout to ensure that the ambit of reinsurance cover matched that of the cover it granted to SWC. The portions of the risk (and therefore premiums) retained by HIH reflected HIH's limited role in the insurance arrangements which, the formal legal structure aside, largely and in substance represented insurance by the reinsurers of SWC's risks.
I consider that in these circumstances it is just and equitable that SWC have recourse to the payments made by the reinsurers referable to their reinsurance of HIH's insurance of SWC.
I propose the following orders, which reflect those sought by SWC in its Amended Notice of Appeal:
(1)Appeal allowed.
(2)Set aside the orders made below on 21 June 2013 dismissing Sydney Water Corporation's application and ordering it to pay one-third of the first defendants' costs as agreed or assessed.
(3)Order pursuant to section 562A(4) of the Corporations Act 2001 (Cth) (the Act) that:
(a)subsections 562A(2) and 562A(3) of the Act do not apply to:
(i)$2,299,167 received from Underwriters at Lloyd's, Lloyd Syndicate 683 and $369,794 received from Compagnie International d'Assurances et de Reassurances, S.A;
(ii)$49,213 received from Underwriters at Lloyd's, Lloyds Syndicate 683;
(iii)$190,415 received from Underwriters at Lloyd's, Lloyds Syndicate 683 and $26,588 received from Compagnie International d'Assurances et de Reassurances, S.A; and
(iv)$4,433 received from Underwriters at Lloyd's, Lloyds Syndicate 683 and $334 received from Compagnie International d'Assurances et de Reassurances, S.A.
(b)that the receipts described in order 3(a)(i) to (iv) instead be applied by the first defendants by:
(i)deducting expenses of and incidental to getting in the receipts being 2.5% of the receipts; and
(ii)paying the balance of the receipts to Sydney Water Corporation.
(4)No order as to the costs of the proceedings at first instance.
(5)Remit the proceedings to the Equity Division to make orders in respect of further monies received or to be received from reinsurers including:
(c)The Chiyoda Fire & Marine Insurance Company (Europe) Limited;
(d)Underwriters at Lloyd's, Lloyds Syndicate 919; or
(e)Royal Insurance Plc.
(6)Order the respondents to pay Sydney Water Corporation's costs of the appeal.

BARRETT JA: HIH Casualty and General Insurance Ltd ("HIH") is subject to winding up by the court in consequence of orders made in 2001. Its liquidators are Mr McGrath and Mr Honey.
HIH carried on insurance business in the course of which it entered into contracts of insurance with a wide range of persons in respect of various classes of risk. Claims of numerous persons referable to such contracts of insurance are cognisable in the winding up. It is convenient to refer to those persons as "insurance creditors".
As an incident of its insurance business, HIH effected contracts of reinsurance with reinsurers in respect of liabilities under insurance contracts written by it as insurer. Moneys received from several reinsurers are in the hands of the liquidators for application in the due course of the insolvent administration.
This appeal concerns the application in the winding up of certain moneys regarded as having been received under particular contracts of reinsurance. The question at first instance was whether the court should exercise the power conferred by s 562A(4) of the Corporations Act 2001 (Cth) to cause those moneys to be applied to the advantage of a particular insurance creditor, Sydney Water Corporation ("SWC"), rather than being applied rateably for the benefit of the insurance creditors as a body.
On application made by SWC, a judge of the Equity Division (Nicholas J) decided that the statutory power should not be exercised so as to benefit SWC in that way. On appeal, SWC contends that the primary judge's exercise of the statutory discretion was erroneous and should be set aside.

Ranking of claims in a winding up

It is appropriate to begin with an overview of the provisions of the Corporations Act governing recognition of creditors' claims in a winding up. Section 555 lays down the general rule that unsecured debts and claims proved in the winding up rank equally and, in case of insufficiency of assets, must be paid proportionately. Section 556 then says that certain categories of unsecured debts are to be paid "in priority to all other unsecured debts and claims" and specifies the order in which the categories are to take priority among themselves. Each section is expressed in terms that make its specification liable to be overridden by other statutory provisions.
Section 556 overrides s 555. Section 562A overrides both s 555 andhttp:// 556. It follows that assets with which s 562A is concerned must be dealt with as that section directs before being applied in any other way and that only so much of those assets as remains after s 562A has been fully complied with is to be applied, first, in accordance with s 556 and, as to any residue, under s 555.
Section 562A is concerned with a particular class of assets and a particular class of creditors and claims. The relevant assets are amounts received by the company or the liquidator under contracts of reinsurance insuring the company against liabilities of the company under contracts entered into by it as insurer before the commencement of the winding up. The relevant class of creditors consists of persons whose debts or claims admitted to proof arose from insurance contracts entered into by the company as insurer before the commencement of the winding up.

The effect of s 562A

Section 562A is in these terms:
"(1) This section applies where:
(a) a company is insured, under a contract of reinsurance entered into before the relevant date, against liability to pay amounts in respect of a relevant contract of insurance or relevant contracts of insurance; and
(b) an amount in respect of that liability has been or is received by the company or the liquidator under the contract of reinsurance.
(2) Subject to subsection (4), if the amount received, after deducting expenses of or incidental to getting in that amount, equals or exceeds the total of all the amounts that are payable by the company under relevant contracts of insurance, the liquidator must, out of the amount received and in priority to all payments in respect of the debts mentioned in section 556, pay the amounts that are so payable under those contracts of insurance.
(3) Subject to subsection (4), if subsection (2) does not apply, the liquidator must, out of the amount received and in priority to all payments in respect of the debts mentioned in section 556, pay to each person to whom an amount is payable by the company under a relevant contract of insurance an amount calculated in accordance with the formula:
Particular amount owed x Reinsurance payment
Total amount owed
where:
'particular amount owed' means the amount payable to the person under the relevant contract of insurance.
'reinsurance payment' means the amount received under the contract of reinsurance, less any expenses of or incidental to getting in that amount.
'total amount owed' means the total of all the amounts payable by the company under relevant contracts of insurance.
(4) The Court may, on application by a person to whom an amount is payable under a relevant contract of insurance, make an order to the effect that subsections (2) and (3) do not apply to the amount received under the contract of reinsurance and that that amount must, instead, be applied by the liquidator in the manner specified in the order, being a manner that the Court considers just and equitable in the circumstances.
(5) The matters that the Court may take into account in considering whether to make an order under subsection (4) include, but are not limited to:
(a) whether it is possible to identify particular relevant contracts of insurance as being the contracts in respect of which the contract of reinsurance was entered into; and
(b) whether it is possible to identify persons who can be said to have paid extra in order to have particular relevant contracts of insurance protected by reinsurance; and
(c) whether particular relevant contracts of insurance include statements to the effect that the contracts are to be protected by reinsurance; and
(d) whether a person to whom an amount is payable under a relevant contract of insurance would be severely prejudiced if subsections (2) and (3) applied to the amount received under the contract of reinsurance.
(6) If receipt of a payment under this section only partially discharges a liability of the company to a person, nothing in this section affects the rights of the person in respect of the balance of the liability.
(7) This section has effect despite any agreement to the contrary.
(8) In this section:
'relevant contract of insurance' means a contract of insurance entered into by the company, as insurer, before the relevant date."
Where a liquidator has in his or her hands an amount of the kind referred to in s 562A(1)(b), that amount will be dealt with separately from the balance of the funds under the liquidator's control. In the normal course of events, the amount will not be applied in accordance with s 556 and s 555, at least in the first instance. Instead, it will be dealt with as directed by either s 562A(2) or s 562A(3), depending on whether the amount exceeds the "total" referred to in s 562A(2). Under s 562A(4), however, the "Court" (as defined by s 58AA(1)) has power to displace both s 562A(2) and s 562A(3) (or, more accurately, whichever of them applies of its own force in the particular circumstances) and, by its order, to substitute, in relation to the amount, a method of application different from that which would have been applied pursuant to the displaced provision.
The general principle reflected by s 562A is that, in the insolvent winding up of an insurer, reinsurance proceeds obtained by the liquidator under reinsurances pre-dating the winding up are to be applied towards claims arising from the insurer's liabilities under contracts of insurance written by it before the commencement of the winding up; and that those proceeds are not available to be applied towards debts of other kinds unless and until the claims arising from insurance contracts have been satisfied in full. A particular feature of the section is that the class of claims entitled to priority enjoyment of reinsurance proceeds is made up of all claims arising from insurance contracts, without reference to any link between those insurance contracts and the reinsurance by which the reinsurance proceeds are produced. Thus, for example, if reinsurance is held in respect of risks under fire insurance policies, creditors having claims under fidelity insurance policies quite distinct from the class of policies that gave rise to the reinsurance will share in the benefit of the priority application of the reinsurance proceeds directed by s 562A(2) or s 562A(3).
The purpose and operation of s 562A, its conceptual similarity to provisions derived from the Third Parties (Rights Against Insurers) Act 1930 (UK) and its immediate source in the General Insolvency Report of the Australian Law Reform Commission (Harmer Report) have been explained in earlier cases and need not be revisited: see, for example, HIH Casualty and General Insurance Ltd v Building Insurers' Guarantee Corporation [2003] NSWSC 1083; 188 FLR 153, Re HIH Casualty and General Insurance Ltd and Ors [2005] NSWSC 240; 190 FLR 398, AssetInsure Pty Limited v New Cap Reinsurance Corporation Limited [2006] HCA 13; 225 CLR 331, AmacaPty Ltd v McGrath (as liquidators of HIH Underwriting and Insurance (Aust) Pty Ltd) [2011] NSWSC 90; 82 ACSR 281, Amaca Pty Ltd v McGrath & Honey (as liquidators of HIH Group of Companies) [2012] NSWSC 176; 87 ACSR 625, Amaca Pty Ltd v McGrath & Honey (as liquidators of HIH Group of Companies) [2012] NSWSC 1523; 92 ACSR 105. In the last three of those cases, applications similar to that refused by the primary judge were successful.

The circumstances of the present case

SWC is a public authority with responsibility for Sydney's water supply. The proceedings before the primary judge concerned three policies of insurance under which SWC was insured by HIH.
In 1998, Sydney's water supply was contaminated by cryptosporidium and giardia. This gave rise to a class action against SWC which resulted in its making a claim of $14,541,525 under one of the policies issued by HIH. This claim is referred to as the "Water Contamination Claim". SWC made one other claim under that same policy and one claim under each of the other two HIH policies. All these claims were made before the commencement of HIH's winding up.
HIH, while still a going concern, made payments of $2,500,054.25 to SWC in respect of the Water Contamination Claim. SWC's subsequent claims in the winding up have been acknowledged for a total of $7,577,987.70.
HIH carried treaty reinsurance in respect of relevant years. There was $20 million cover in each of 1992, 1993 and 1994; $30 million cover for 1995; $100 million cover for each of 1996 and 1997; and $100 million cover in each of 1998, 1999 and 2000. The liquidators have received money from several reinsurers. One reinsurer paid HIH a total of about $405,000 which was specifically related to insurance claims made on HIH by SWC. Four insurers (including one conveniently referred to as "the Syndicate") made payments totalling about $29.9 million referable to a number of reinsurance arrangements, including those related to insurance provided by HIH to SWC. In each of the four last-mentioned cases, there was a commutation agreement between HIH and the reinsurer. In particular, HIH entered into a commutation agreement with the Syndicate in April 2008.
The parties approached the matter before the primary judge on the basis that the moneys received by the liquidators from reinsurers fell within the description in s 562A(1)(b) of the Corporations Act (that is, they were within the description "an amount in respect of" liability to pay amounts in respect of a "relevant contract of insurance" that was "received by the company or the liquidator under the contract of reinsurance"), although there were issues as to how much of those moneys related to or was attributable to particular reinsured risks. I shall return to these matters.
SWC contended before the primary judge that an order should be made under s 562A(4) displacing the operation of whichever of s 562A(2) and 562A(3) applied of its own force and causing so much of the moneys received by the liquidators from reinsurers as related to SWC reinsured risks to be applied exclusively towards satisfaction of the claims made by SWC in the winding up in respect of HIH's liability under insurance contracts.
The primary judge approached SWC's application for an order under s 562A(4) in accordance with the following formulation in Amaca Pty Ltd v McGrath & Ors [2011] NSWSC 90; 82 ACSR 281:
"67 Section 562A(4) of the Corporations Act must therefore be seen as conferring a discretion that, while wide, can only be exercised judicially in the light of the whole of the circumstances surrounding the relevant subject matter. Lord Wilberforce explained this exercise in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 at p.379:
'It [the phrase 'just and equitable'] does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way.'
68 In the present context, the relevant 'legal rights' are those arising from s 562A(2) or s 562A(3) - broadly speaking, first, the rights of all creditors entitled to participate under the winding up in respect of debts arising from insurance contracts written by the company before winding up to participate, to the exclusion of other creditors, in the enjoyment of reinsurance proceeds received by the liquidator (until either 100 cents in the dollar has been paid on those debts or the proceeds have been exhausted) and, second, the right of each such favoured creditor to participate in that way pari passu with each other such favoured creditor. Given the law reform materials to which I have referred (see paragraph [17] and [18] above), it may be inferred that the legislature deliberately rejected any notion of automatic flow-through of reinsurance proceeds to only those creditors with debts arising from the insurances which, as it were, were backed by the particular reinsurance; and that likely difficulties of matching reinsurance contracts held with insurance contracts written played a significant part in the adoption of that course.
...
89 ... The power under s 562A(4) is a power to order that s 562A(2) and s 562A(3) "do not apply to the amount received under the contract of reinsurance" and to cause the amount to be applied in some other way. Such an order displaces the s 562A(2) or s 562A(3) requirement as to payments to be made by the liquidator 'out of the amount received' under the reinsurance contract and imposes some other requirement. Under s 562A(4) itself, the order can only be made if the court forms an opinion that the alternative manner of application of 'the amount received under the contract of reinsurance' is 'just and equitable in the circumstances'.
90 In deciding whether an order affecting a particular 'amount received under the contract of reinsurance' should be made, the court must thus focus on the amount itself, the circumstances prevailing at the time the court is asked to make the order and what, in those circumstances, is 'just and equitable' with respect to the application or disposition of the amount. The inquiry is, of its nature, directed to an existing and established factual situation involving the 'amount received'. A necessary factor in the decision as to what is just and equitable - and an element of the 'circumstances' to be taken into account - may be, in some cases, the quantum of the amount.
91 ... The purpose of s 562A(4) is to allow departure from the s 562A(2) or s 562A(3) regime in respect of a particular sum according to circumstances for the time being prevailing ..."
The correctness of this approach is not questioned on the present appeal.
The case that SWC sought to make before the primary judge was that moneys received by the liquidators from the reinsurers were, as to the part referable to SWC's insurance with HIH, the direct product of SWC's long term relationship nurtured and developed with the reinsurers - in particular, the Syndicate - and of the significant assistance that SWC provided to HIH in securing the reinsurance, without which SWC would have gone to another Australian insurer or direct to London, which it now does. Thus, it was put that it was because of SWC's relationship with the Syndicate that HIH was able to obtain the level of reinsurance cover it required for the amount for which it insured SWC. It was put that there was such a connection between HIH's liability to SWC and the reinsurance contract under which the proceeds were received that, in the circumstances, it was just and equitable for the order to be made.

The decision of the primary judge

The primary judge examined in detail the evidence of the relationship between SWC, HIH and the Syndicate. In doing so, he had occasion to refer to the following persons:
Mr Bang - the officer of HIH responsible for the SWC account from 1996 onwards
Mr Colebrook - SWC's insurance broker
Mr Constable - an underwriter of the Syndicate
Mr Ferguson - SWC's group risk manager
Mr Palmer - HIH's London reinsurance broker
Mr Seeto - an HIH employee.
Mr Ferguson, SWC's group risk manager responsible for placing SWC's insurance programme, gave evidence that he was involved in negotiations for the 1997 policies and was informed that HIH would be arranging for facultative insurance with the Syndicate as the likely reinsurer. He said that, in April 1997, he attended a meeting with Mr Constable of the Syndicate at which a presentation was made about the risk. He also visited London in September 1993 and September 1995 and met representatives of the Syndicate. He also met them during their visits to Australia from time to time. There was no evidence of the content of any discussions.
The primary judge referred next to the evidence of Mr Constable, an underwriter of the Syndicate. On several occasions, he met representatives of SWC in London and Sydney to discuss insurance and reinsurance arrangements. Sometimes the cedent insurer, HIH, was not present. He records that such meetings took place in 1996, and on 5 March 1998. He met Messrs Ferguson and Colebrook, and Mr Seeto of HIH, in London on 18 March 1998 when SWC's representatives made a presentation prior to the review of its facultative reinsurance to be led by the Syndicate. There was no evidence of the content of any discussions.
SWC's explanation for its involvement with HIH and reinsurers was seen by his Honour as appearing from a paper considered at SWC's executive meeting on 6 November 1995. A purpose of the paper was to assess the need for competitive market bids in the renewal of its public liability and property insurance policies. It included:
"... the Brokers for Sydney Water ... have provided a number of important initiatives to ensure that the Corporation's financial exposures to major risks were protected by strongly worded, secure, and cost effective insurance policies ...
The size of the Corporation's insurance program is such that the majority of the program is increasingly being underwritten and re-insured through the London international insurance market ...
The Corporation's insurance purchasing philosophy is based on the following criteria:
COVER Insurance purchased must be on a broad basis, evidenced by clearly expressed wordings that are designed specifically for the Corporation's needs and offer the maximum available protection.
SECURITY The Policies must be placed with financially stable insurers who are in turn supported by strong panels of re-insurers.
COST Subject to the above criteria being satisfied that the provision of external insurance is at the most competitive terms available.
...
Over the past seven years the Corporation has adopted an aggressive and competitive approach to insurance buying tempered by a strategy for developing strong working relationships with the leading underwriters and re-insurers in each class of business ...
The Corporations' strategies have left it in a much stronger position to cope with the problems associated with a hardening insurance market. Due to the work and effort taken in forging strong direct client/insurer relationships, our insurers have actively supported the Corporation in what has been one of the most traumatic periods the insurance market has faced over the last 30 years.
...
In summary active insurance management since 1990 is estimated to have saved the Corporation up to $12 million in insurance premium costs as compared to normal market rates. This has involved an active management strategy by the Corporation's Group Risk Manager in direct collaboration with Health Fielding (Australia), CE Heath Insurance Broking Ltd (London), the local insurance market, and in particular, the London insurance market.
...
Public Liability
...
A recent visit to the international underwriters and re-insurers who support this packaged liability arrangement clearly highlighted that it was the combination of the Corporation's good claims record; it's [sic] pro-active approach to risk management and corporate governance; together with the Corporation's known stance on supporting longer term relationships in purchasing liability insurance that saw the London market continuing with a product they would otherwise not make available to the general insurance buyer.
Our investigation of the local and international insurance market suggests that the current product enjoyed by Sydney Water is not available through alternative purchasing arrangements ...
... it is recommended that the current buying arrangements for Sydney Water's liability coverage continue unchanged."

The primary judge referred next to the evidence of Mr Bang, the officer of HIH responsible for the SWC account from 1996 onwards. Mr Bang said that there was a good relationship between himself, Mr Ferguson and Mr Colebrook, SWC's broker. He said that because the Australian market did not have the capacity to carry large accounts such as SWC's, such risks were directly placed in the London insurance market or placed in Australia and reinsured in London. In the latter case, the Syndicate was generally the lead underwriter on the reinsurance placement. He said that it was necessary that the terms of the insurance policy issued to SWC should reflect those of HIH's reinsurance so that there were no gaps between the reinsurance cover and the insurance cover provided by HIH to SWC. He was aware of regular visits by Mr Ferguson and Mr Colebrook to London every second year, pre-renewal, to meet current and potential reinsurers, and that representatives of the Syndicate regularly had contact with them in Sydney, often in the absence of an HIH representative.
Mr Bang and Mr Colebrook corresponded between 4 February 1997 and 15 May 1997 in relation to the renewal of the general liability policy. The correspondence referred to wording issues in response to questions raised with Mr Bang by Mr Constable.
On 13 May 1997, Mr Bang advised Mr Colebrook of the renewal quotation for a three year period commencing 30 April 1997, and also of the requirement for SWC's undertaking that it would cancel the policy if and when HIH's reinsurance cover was no longer available. He said that it was HIH's practice for risks such as those placed for SWC not to issue any quotations until reinsurance support had been confirmed.
By letter dated 14 May 1997, Mr Bang advised Mr Colebrook that the insurance cover was bound. The public liability cover was for the amount of $234 million. The letter concluded:
"This renewal exercise has again been a difficult and time consuming one and my thanks to you for your patience and understanding during this difficult time. Subsequent renewal should be easier considering the amount of time we put in this year to tidy up many issues."
Against the background of the evidence thus described, the primary judge turned to the question before him. He said that, in his opinion, the application under s 562A(4) required consideration of the circumstances in which the 1997 policy was issued, and in which HIH obtained facultative reinsurance from the Syndicate. He attached little weight to the prior history of earlier insurance and reinsurance contracts, although recognised that it provided an understanding of the development over a number of years of a working commercial relationships involving SWC, HIH, and the Syndicate.
Having regard to the report of 6 November 1995 to the SWC executive meeting, his Honour considered that the purpose of the visits by the representatives of SWC to the Syndicate was primarily for the giving of information relevant to the provision of reinsurance. That activity was seen as consistent with SWC's philosophy that policies must be placed with financially stable insurers who were, in turn, supported by strong panels of reinsurers. Given the size of SWC's account, the primary judge saw "nothing extraordinary" about its interest in knowing that HIH had sufficient cover to meet claims under the insurance policy.
The correspondence between Mr Bang and Mr Colebrook, commencing with Mr Bang's letter of 4 February 1997, indicated to his Honour that Mr Bang was the person who undertook the negotiations with Mr Constable of the Syndicate which resulted in the Syndicate's agreement to provide the reinsurance. Mr Bang kept Mr Colebrook informed of progress, of the initial difficulties and of the underwriting information required to enable determination of HIH's reinsurance. His letter of 10 February 1997 referred to the prospect of negotiating with alternative reinsurers. Mr Bang dealt with wording issues raised by Mr Constable. The need for the terms of the renewed insurance contract to reflect the terms of HIH's reinsurance was explained in Mr Bang's letter of 28 April 1997 in which he said:
"I know that this is not the news you would have liked to hear. From our viewpoint, we had to ensure that our reinsurers were aware of the wording they were following (and this issue may have to be sorted out for the past reinsurance) to avoid any reinsurance coverage disputes in the future.
It seems clear now that the wordings for ACTEW and SWC had never been seen (let alone agreed) by the London reinsurers and that we may have been running bare on some of the coverage provided by the wordings."
In the primary judge's assessment, the correspondence disclosed no direct participation by SWC with the Syndicate in the negotiations for reinsurance and provided no support for a suggestion that HIH was merely a front or conduit to facilitate direct negotiations between SWC and the Syndicate. His Honour concluded:
"In my opinion, this parcel of evidence establishes that the relationship between SWC, HIH, and the Syndicate was neither extraordinary nor unusual. It weighs heavily against the making of an order."
Attention was then directed to the correspondence between representatives of the Syndicate and SWC between 26 September 2001 and 29 January 2002, following commencement of HIH's winding up. The judge described that correspondence as "an adverse factor". He noted that SWC, in the letter of 26 September 2001, pressed SWC's suit on the basis that for many years it had been a loyal client of the Syndicate and the wider London market, and "... they [sic] now expect and deserve support". In its letter of 12 October 2001, the Syndicate declined to assist, stating what the judge considered to be the true position, as follows:
"... the contamination claims to which you refer relates to matters when the structure of your client's programme was such that their direct relationship was and is, inter alia, with HIH rather than with this Syndicate.
... there is no contractual mechanism of which we are aware whereby your client's direct relationship with HIH can be circumvented ...
... we do indeed value the relationship with Sydney Water Corporation as a direct client but, in relation to the contamination claims, the contractual arrangements are different ... it would be inappropriate for this syndicate to deal directly with your client on this matter and, indeed, is simply not in a position to be able to do so."
The judge noted that that seemed to have been accepted by SWC in a letter of 29 January 2002 in which SWC requested access to the facultative reinsurance, saying:
"Please confirm you are agreeable to us releasing reinsurance details to SWC. Obviously the contractual position regarding the 1998 loss is that HIH was the direct insurer and the reinsurance contract was placed on behalf of HIH ..."
The request was refused by the Syndicate on 25 February 2002.
Additional facts were seen by the primary judge as affording further support for the conclusion that the 1997 policy and its reinsurance were the product of ordinary transactions involving insured, insurer, and reinsurer. The additional facts were that SWC paid a substantial premium to HIH and HIH's retentions, in commercial terms, were also substantial. There was, his Honour said, no indication that the reinsurer, in providing facultative reinsurance, was to be treated in effect as the primary insurer as in the Amaca cases referred to at [33] above.
His Honour also noted the absence of evidence in support of SWC's case - in particular no evidence from SWC staff or a representative of the Syndicate, that SWC was directly involved in negotiating and obtaining the relevant facultative reinsurance so as to support a finding that SWC was instrumental in procuring the reinsurance cover which HIH insisted upon. Also, there was no evidence that the Syndicate's willingness to reinsure was attributable to the efforts of SWC, or that there was a direct relationship between them, a situation which was expressly denied by Mr Brown.
The primary judge then stated his ultimate finding:
"Taking into account the whole of the evidence, I am unpersuaded that SWC has demonstrated that, in the circumstances, it is just and equitable that an order be made under s 562A(4) that subs (2) and (3) do not apply to the amounts received under the reinsurance contract. Accordingly, I propose to order that the application be dismissed."

Grounds of appeal

The notice of appeal, as originally formulated, concentrated on alleged errors in fact finding or, more precisely, on the significance afforded (or not afforded) to certain factual matters in assessing the significance and force of action of SWC in the matter of arranging reinsurance. At the hearing of the appeal, leave was granted to add a further ground, namely, that, having regard to the various factual matters, the judge's decision was unreasonable or plainly unjust.
The adoption of the additional ground of appeal proceeded from recognition of the reality that, in this case, appellate intervention will be appropriate only if the decision of the primary judge exhibits one of the shortcomings identified in House v R [1936] HCA 40; 55 CLR 499 at 504-5:
"It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred."
The alleged factual errors are:
(a) that the primary judge attached "little weight" to evidence of a relationship of more than eleven years between SWC and the Syndicate;
(b) that the primary judge erred in finding that visits between SWC representatives and representations of the Syndicate were primarily for the giving of information;
(c) that the primary judge erred in finding that the relationship between SWC, HIH and the Syndicate was neither extraordinary nor unusual and that the 1997 policy and its reinsurance were the product of an ordinary transaction between insured, insurer and reinsurer;
(d) that the primary judge erred in finding that certain post-liquidation correspondence was an "adverse factor";
(e) that the primary judge erred in finding that there was no evidence that SWC was directly involved in negotiating and obtaining the relevant reinsurance;
(f) that the primary judge erred in finding that there was no evidence that the Syndicate's willingness to reinsure was attributable to the efforts of SWC;
(g) that the primary judge erred in finding that there was no evidence that there was a direct relationship between SWC and the Syndicate.
SWC says that, in relation to each of these matters, the judge should have made the opposite finding and that, based on the aggregation of those opposite findings, a conclusion that it was just and equitable to ascribe the reinsurance proceeds to SWC should have been reached.
There is an additional ground of appeal concerning identification of the parts of the reinsurance moneys referable to the SWC risks insured by HIH.

SWC's submissions

SWC challenges the primary judge's finding that visits to the Syndicate were primarily for the giving of information relevant to the provision of reinsurance; and that there was no evidence that SWC was directly involved in negotiating and obtaining reinsurance. SWC points to the 1995 SWC executive meeting paper that referred to SWC having "directly negotiated" the premium for the general liability policy with the London market and to "direct collaboration" with "in particular, the London insurance market". This, it is said, reflects a more significant role than simply presenting information about risks. SWC also notes that Mr Ferguson said that his trips to London were to "negotiate with the market" and Mr Bang's facsimile to SWC's broker of 5 February 1997 (suggesting that SWC undertake a "selling trip" to London) said that the selling trip was:
"to discuss the issues face to face with Bob Wallace [of the Syndicate]. This will enable Bob to tell us what his perceived problems are and provide SWC and ourselves with an opportunity of addressing Bob's concerns in an endeavour to lessen them or remove them altogether."
This facsimile was said to indicate that SWC would become involved in renewal negotiations generally.
Reference is also made to a facsimile from Mr Bang to SWC's broker of 10 February 1997:
"Please keep me informed as to what the renewal sequence will be (eg. do we wait until 'face to face' negotiations with Bob Wallace has been done first or do we gather information and send it to them, etc). I can then fit in to this my negotiations with alternative reinsurers."
SWC also places weight on Mr Bang's affidavit in which he explained that his reference to "face to face" negotiations was to the negotiations which he expected would take place on the "selling trip" to London. In other words, it was expected that SWC would be involved in negotiations with the lead reinsurer, rather than simply providing information. Also, HIH was apparently seeking direction from SWC whether to begin discussions with alternative reinsurers before or after negotiations with the Syndicate had been exhausted. SWC says that the fact that an insurer seeks direction in this way about which reinsurers to pursue shows a high degree of involvement by the insured in reinsurance arrangements.
In addition, Mr Ferguson said in his affidavit that he was involved in the negotiations and discussions leading to placement of SWC's 1997 general liability policy. Mr Ferguson deposed:
"... In April 1997 during the course of negotiations for the policy I attended a meeting in London with David Constable of the Wallace Syndicate at which a presentation was made about the risk." (Emphasis added)
Counsel for SWC submitted that the only evidentiary basis on which the trial judge could have made his finding was a portion of Mr Honey's affidavit in which it was said that, having caused searches to be undertaken of HIH's records, there were no documents recording that Mr Ferguson was actively involved in the negotiation of the facultative reinsurance arrangements entered into by HIH that are relevant to the polices, beyond attending meetings with London insurers, some of whom also happened to be HIH's reinsurers. It was submitted that that evidence could not affect the force of the evidence to which SWC referred.
SWC says that the trial judge ought to have found that the purposes of the visits of its representatives to the Syndicate included the purpose of negotiating the terms of the reinsurance and encouraging the Syndicate to reinsure the insured's risk through HIH.
Counsel for SWC dealt next with the finding that the relationships were neither extraordinary nor unusual but ordinary transactions. The primary judge treated the following as "nothing extraordinary": the trips to London; correspondence between the SWC, HIH and the Syndicate; and that SWC paid a large premium and HIH retained some of the risk. It is said that there was no evidence to support the "nothing extraordinary" finding - besides which considerations of what is "ordinary" or "extraordinary" are of little moment: the statutory power is engaged by considerations of justice and equity.
The next finding challenged is that that post-liquidation correspondence was an "adverse factor". The correspondence referred to is that by which SWC asserted and reserved its rights against HIH after it had gone into liquidation. SWC says that the fact that the reinsurer observed the strict contractual arrangements in a post-HIH liquidation environment, apparently because of wider issues than SWC's policies, was of no relevance in considering whether the requirements of s 562A(4) and (5) are satisfied. If there were a direct contractual obligation, no occasion would arise to consider s 562A. And absent a legal liability one would not expect reinsurers to give their money away.
SWC contends that the primary judge did not take into account the fact that, in the immediate post-liquidation phase, HIH's London reinsurance broker described the relationship between the parties in terms difficult to reconcile with the judge's findings:
"SWC Water has been a loyal client of your Syndicate and the wider London market for more than 15 years [that is, from at least 1986] with the placement sometimes being done on a direct basis and sometimes as a facultative reinsurance of HIH. In a co-operation of openness SWC have visited London annually and also met London underwriters regularly in Australia. This has always been a very transparent arrangement. Immediately upon the demise of HIH, SWC had no hesitation moving their business directly to the London Reinsurers of HIH led by your Syndicate."
And in a second letter to HIH (January 2002):
"... For many years HIH were the direct local insurer for liability coverages with facultative reinsurance arranged in London by Heath, London.
... Sydney Water are aware of the facultative reinsurance, as this was a transparent arrangement whereupon Sydney Water regularly visited London together with representatives from HIH to meet and present to the reinsurers. ..."
SWC submits that the judge was wrong when he said that there was no evidence that the Syndicate's willingness to reinsure was attributable to SWC's efforts. It maintains that, contrary to the primary judge's finding, there was evidence that the Syndicate's willingness to reinsure was attributable to SWC's efforts.
SWC also says that the judge should have found that HIH encouraged SWC to deal directly with the reinsurer to achieve acceptable terms, without which HIH would not have provided insurance; that HIH encouraged SWC, when dealing with the reinsurer, to rely on SWC's "long standing relationship" with the Syndicate; that there was a close relationship between the reinsurance premium and premium charged to SWC; that SWC would not have insured with HIH in the absence of reinsurance; and that the reinsurers effectively dictated the breadth of cover that HIH could extend to SWC, so that agreement on terms of the reinsurance and insurance was in substance an agreement between the insured and reinsurer.
It was further put that the judge erred in attaching little weight to the long relationship between SWC and the Syndicate and finding no evidence of a direct relationship.
The judge said that s 562A(4) required consideration of "the circumstances in which the 1997 policy was issued" and he attached "little weight to the prior history of earlier insurance and reinsurance" other than as providing "an understanding of the development over a number of years of a working commercial relationship" between the insured, HIH and the Syndicate. It is said that there were two errors here:
(a)The judge ignored the fact that the application involved a 1992 policy;
(b)The judge overlooked the significance of consistent dealings over time, contrary to the approach taken in earlier like cases.
It was submitted that there was a close and direct commercial relationship between SWC and reinsurer, including direct contact on an annual basis, meetings between the insured and reinsurer without the insurer being present, involvement by the insured in negotiation of terms of reinsurance, an insurance premium directly connected with reinsurance premium and reinsurance as a pre-condition to insurance, and the continuation of re-insurance as a condition of continuation of insurance.

SWC contends that the judge should have found that, having regard to the evidence of the relationship of more than 11 years between SWC and the Syndicate, there was a "unique, direct relationship between insured and the reinsurer; and without the insured's investment in its relationship with its reinsurers, HIH could not get the amount of reinsurance needed to issue the policy which the insured required, and the insured would have sought insurance elsewhere".

The liquidators' submissions

In relation to the London visits, the liquidators make several points: that the judge did not say that the provision of information was the only purpose (his Honour used the word "primarily"); that the judge's reference to "there being no evidence otherwise" was, in context, merely a reference to the absence of evidence of precisely what happened in London beyond that to which he referred; that the 1995 SWC executive meeting paper was obviously considered by the judge in its entirety; that the "direct collaboration" to which the board paper referred was between SWC on the one hand and SWC's broker and HIH's broker on the other (not with the Syndicate as such); that the 1995 board paper said nothing directly about the position in 1997; that Mr Bang's evidence referred merely to "presentations to each of the reinsurers about Sydney Water Corporation"; that Mr Ferguson referred to a meeting in London with the Syndicate "at which a presentation was made about the risk"; Mr Constable said nothing in his evidence about a "selling trip in 1997"; that SWC has not identified evidence supporting the proposition that SWC's representatives were encouraging the Syndicate to reinsure SWC's risk through HIH.
Regarding the judge's observation that the relationship between SWC, HIH and the Syndicate was "neither extraordinary nor unusual", the liquidators draw attention to aspects of the trial, particularly a submission that the type of interaction between Mr Ferguson, Mr Bang and Mr Constable was "unusual and unique". It was that which drew the judge's observation. In addition, however, the liquidators accept that this matter is not of importance.
In relation to the post-liquidation correspondence, the liquidators point out that challenge by SWC is on the basis that the judge took into account an irrelevant consideration, from which it follows that the challenge must fail if there is any place whatsoever for that subject in the permitted reasoning process. As to that, the liquidators point out that it was SWC that urged the post-liquidation correspondence on the court.
As to the letter referred to at [75] said by SWC to contain a description of the relationship by HIH's London reinsurance broker, the liquidators point out that the letter is in fact from SWC's own broker. In any event, the liquidators say, the primary judge preferred the description of the relationship in the Syndicate's response to that letter. The response is dated 12 October 2001 and refers to the circumstances that SWC's relationship was with HIH rather than the Syndicate and that, while the Syndicate "do indeed value the relationship with Sydney Water Corporation", the contractual arrangements make it inappropriate that the Syndicate deal directly with SWC.
In relation to the judge's reference to absence of evidence that the Syndicate's willingness to reinsure was attributable to SWC's efforts, the liquidators reiterate their submissions as to the lack of substantiation of meaningful contribution and say that the judge did have regard to relevant matters.
On the matter of the alleged close connection between the reinsurance premium and the premium charged by HIH to SWC, the liquidators point to Mr Bang's evidence that he could not recall how he calculated HIH's premium but usually looked at the premium of the expiring policy, how much reinsurance premiums had gone up or down and claims experience. He then "discounted or loaded the premium accordingly". In relation to a year earlier than the relevant year, Mr Bang said that the overall pricing of reinsurance "largely determined" the pricing but there was no similar statement in relation to the relevant year.
SWC's contention that it would not have insured with HIH in the absence of reinsurance is met by the liquidator's reference to evidence of Mr Bang that HIH would not have issued the policy in the absence of reinsurance. The liquidators say that the situation was one of mutual understanding that there would be no insurance in the absence of reinsurance.
In relation to the proposition that the reinsurers effectively dictated the breadth of cover that HIH could give SWC, the liquidators point to the fact that it was HIH, not SWC, that sought to negotiate a situation in which the cover provided to SWC could be terminated if reinsurance was not renewed.
The liquidators emphasise that that termination provision was to protect HIH and that this represents but one aspect of demonstrated circumstances in which it was HIH that sought and negotiated reinsurance for its own benefit and decided from whom the reinsurance would be obtained and on what terms. The liquidators point to evidence that, in relation to the 1997 renewal, Mr Bang told Mr Colebrook that HIH would be placing facultative reinsurance and that the likely reinsurer would be the Syndicate.
As to the submission that the judge ignored the history of earlier insurance and reinsurance contracts, the liquidators point out that the judge said that he attached "little weight" to that history, thus making it clear that he did not ignore it.
The liquidators point to various aspects of the evidence making it clear that HIH had had many dealings with the Syndicate that involved insureds other than SWC.

Assessment

The SWC executive meeting paper of 6 November 1995 argued the case for maintaining current approaches to liability insurance renewals rather than calling tenders or otherwise seeking proposals from the wider market. Part of the message was that the "current product enjoyed by Sydney Water is not available through alternative purchasing arrangements"; and that SWC was enjoying the fruits of careful cultivation of existing relationships and should continue to do so. Part of the strategy was to place policies with "financially stable insurers who are in turn supported by strong panels of reinsurers" and to develop "strong working relationships with the leading underwriters and reinsurers in each class of business". There was also reference to:
"an active management strategy by the Corporations Group Risk Manager in direct collaboration with Heath Fielding (Australia), CE Heath Insurance Broking Ltd (London), the local insurance market, and in particular, the London insurance market."
As they refer to reinsurers and the London market, the terms of the November 1995 executive meeting paper are vague and general. The paper refers to contracts with London reinsurers and efforts to cultivate them in the interests of achieving cover on advantageous terms.
I turn to Mr Bang's evidence. The renewal for the 1996/7 policy year was the first on which he was involved for SWC. Mr Bang referred to a "usual protocol" under which reinsurers dealt with the insurer and the insurer dealt with the insured but sometimes in circumstances where reinsurers dictated terms that the insurer then had to include in the policies issued by it.
In the course of the renewal process, Mr Bang himself "communicated almost daily" with the Syndicate. He did, however, suggest a "selling trip" to London. In April 1997, Mr Ferguson, Mr Colebrook and Mr Bang himself travelled to London. Mr Wallace of the Syndicate met with Mr Bang and Mr Colebrook in Sydney. Mr Bang also gave an account of the steps in the reinsurance negotiation, involving correspondence and conversations between himself, Mr Colebrook, Mr Ferguson and Mr Constable. On at least one occasion, he asked Mr Constable to send him policy wording changes so that he could show SWC that the changes were required by the reinsurers rather than HIH. He thought that this would make SWC more willing to accept them.
There can be no doubt that HIH stood between SWC and the Syndicate in the way to be expected when an insurer effects reinsurance. The situation was somewhat out of the ordinary in that there was contact between the insured and the reinsurer. But each party was pursuing its own interests. HIH wished to see much of its risk laid off: it would not have made the insurance available had that not been achieved. It was prepared to use the Syndicate and supposed demands of the Syndicate as an excuse for requiring acceptance of certain policy wording by SWC. And it suited HIH, as well as SWC, to have representatives of SWC meet with representatives of the Syndicate to ensure that the Syndicate could make a fully informed decision about the relevant risks. The description "selling trip" cannot of itself warrant any conclusions about what SWC personnel actually did. The evidence canvassed by the judge creates a distinct impression that HIH was using SWC to HIH's advantage and that SWC, for its part, was keen to provide whatever the Syndicate required, knowing that its efforts in that direction might keep the cost of reinsurance down and that this might well reflect in HIH premiums lower than would otherwise be charged. But it was HIH that negotiated the reinsurance. The judge was right when he said that the relationship was neither extraordinary nor unusual.
As to the post-liquidation correspondence, it was clearly stated in SWC's written submissions at trial that it was SWC's broker, not HIH's broker, that wrote the letter quoted at [75] above. The letter must therefore be viewed as having presented SWC's view of matters, not HIH's. And the letter of 12 October 2001 from the Syndicate made clear its view that, as to periods before those in which the Syndicate provided insurance direct to SWC (post-liquidation), there was insistence by the Syndicate on an arm's length approach consistent with the tripartite contractual structure. The judge was right to regard the post-liquidation correspondence as adverse to SWC's case.
In my opinion, none of the factual issues canvassed on appeal involved operative error on the part of the primary judge.
Of course, the judge's ultimate task was to decide whether it was "just and equitable" that moneys that s 562A(2) or s 562A(3) would cause to be applied by the liquidators towards the claims of insurance creditors generally should instead be applied towards the claims of SWC alone. In the three Amaca cases referred to at [33] above, such an outcome was found to be "just and equitable" because, in effect, the particular reinsurance was obtained for the express purpose of satisfying the particular insured's needs and it was in fact the reinsurer that met those needs, albeit with the insurer interposed between them: see, for example, Amaca Pty Ltd v McGrath & Ors [2011] NSWSC 90; 82 ACSR 281 at [78]. There was no parallel in this case. SWC's insurance was arranged in layers. For every layer, HIH retained part of the risk. The portion retained was typically of the order of 25 per cent (with a few isolated instances of 5 per cent and 2.5 per cent). This case was by no means comparable with the Amaca cases.
SWC has not shown that, on the basis of misapprehension of the facts or otherwise, the decision of the primary judge that it was not "just and equitable" to exercise the statutory discretion so as to afford to SWC the preference over other insurance creditors that it sought in the winding up of HIH miscarried in any way amenable to appellate intervention in accordance with House v R (above).

The quantification issue

This conclusion means that there is no need to deal with the remaining ground of appeal which goes, in broad terms, to identification of the portion of moneys received from reinsurers that, on the "just and equitable" basis, it would have been appropriate to attribute to SWC's insurances with HIH. I nevertheless proceed to consider it.
Submissions made to the primary judge were on the basis that that issue gave rise to a need to consider the operation of s 553C of the Corporations Act:
"(1) Subject to subsection (2), where there have been mutual credits, mutual debts or other mutual dealings between an insolvent company that is being wound up and a person who wants to have a debt or claim admitted against the company:
(a) an account is to be taken of what is due from the one party to the other in respect of those mutual dealings; and
(b) the sum due from the one party is to be set off against any sum due from the other party; and
(c) only the balance of the account is admissible to proof against the company, or is payable to the company, as the case may be.
(2) A person is not entitled under this section to claim the benefit of a set-off if, at the time of giving credit to the company, or at the time of receiving credit from the company, the person had notice of the fact that the company was insolvent."
The judge approached what was presented to him as a s 553C issue by considering the way in which the sum that the liquidators received from the Syndicate was made up. The sum was $22,391,924 out of the total of approximately $29.3 million referred to at [37] above. The judge referred to evidence of Mr Honey, one of the liquidators, concerning the way in which the sum of $22,391,924 had been calculated. Mr Honey explained that various sums (totalling $31,640,826) were due by HIH to the Syndicate in respect of obligations referable to reinsurance contracts, that various sums (totalling $54,032,750) were due by the Syndicate to HIH generally in respect of obligations owed to HIH for reinsurance business written by HIH as a reinsurer and that the sum of $22,391,924 was a net amount arrived at by setting off the respective sums due. Mr Honey referred, in that connection, to the commutation agreement of April 2008.
The primary judge found that dealings between HIH and the Syndicate had been of the kind referred to in the opening words of s 553C(1), that is, that there had been "mutual credits, mutual debts or other mutual dealings". Furthermore, the Syndicate was, in respect of moneys owed to it, a person who, in terms of s 553C(1), "wants to have a debt or claim admitted against the company", that is, HIH. In accordance with s 553C(1)(a), therefore, an account of moneys due by each to the other had to be taken; and argument apparently proceeded before the primary judge on the footing that it was the taking of the account, followed by the setting off directed by s 553C(1)(b), that produced the balance of $22,391,924. Pursuant to s 553C(1)(c), therefore, only that balance was "payable to the company".
It is, of course, well established that s 553C(1) operates immediately and of its own force at the commencement of the winding up: Gye v McIntyre [1991] HCA 60; 171 CLR 609, Stein v Blake [1996] AC 243, Barton v Atlantic 3 Financial (Australia) Pty Ltd [2004] QSC 376; 212 ALR 348 at [40]ff, Pitt-Owen v Lenin [2006] NSWSC 748 at [11], Krishell Pty Ltd v Nilant and Ors [2006] WASCA 223.
As a result, it was said, the sum of $54,032,750 owing by the Syndicate to HIH immediately before the commencement of the winding up was, as to $31,640,826 thereof, no longer owing once the winding commenced and, from the point of commencement, it was only the balance of $22,391,924 that was properly regarded as owing.
The primary judge proceeded on the basis that the amount that, in accordance with s 553C(1), was "payable" by the Syndicate to HIH was the amount that, in terms of s 562A(1)(b), was "received" by HIH or the liquidators in respect of reinsured liabilities of HIH covered by all reinsurance contracts made between HIH and the Syndicate before commencement of the winding up.
It must, in my opinion, be accepted that if, before the commencement of winding up, there were, in terms of s 553C(1), mutual credits, mutual debts or other mutual dealings between an insurer and a reinsurer and, upon the taking of an account in accordance with s 553C(1)(a) and set off pursuant to s 553C(1)(b), the balance of the account favours the insurer, payment of that balance by the reinsurer to the insurer (or its liquidator) causes the insurer (or liquidator) to "receive" that balance. It follows that, if the balance is "in respect of" one or more liabilities of the insurer referred to in s 562A(1)(a), receipt of the balance operates to satisfy the condition in s 562A(1)(b) and the "amount received" fails to be dealt with under s 562A(2), s 562A(3) or s 562A(4), depending on circumstances.
Generally speaking, there will be no need to ascertain how much of an amount so received by an insurer or its liquidator is referable or attributable to a particular contract of insurance entered into by the insurer. If s 562A(2) or s 562A(3) applies, the whole will be dealt with as that provision dictates. If an order is made under s 562A(4), the whole will be dealt with as the order dictates. In the present case, identification of part of the receipt from the Syndicate as referable or attributable to SWC's insurance was seen to be an essential element of its contention that the court should order part of the total $22,391,924 to be applied exclusively for SWC's benefit.
SWC's notice of appeal includes the following ground of appeal:
"The trial judge erred in law in holding that under s 562A(1)(b) the 'amount . . . received' by HIH in respect of HIH's liability to SWC was the amount arrived at after an allocation of amounts due by HIH to the reinsurers in relation to other contracts of reinsurance which had been set off."
The contention seems to be that the judge should have regarded the gross $54,032,750 (see [105] above) as the amount "received" in the s 562A(1)(b) sense, with some appropriate proportion of that gross sum being attributed to SWC; and that, in determining a "just and equitable" application of the $22,391,924, the court should have seen SWC's "entitlement", as it were, as an entitlement to a proportion of the gross $54,032,750. The answer is simply that there is no compelling reason why this should be so and that there was no error of law in the respect alleged.
There is another particularly compelling point apparently not argued below. The $22,391,924, although presented by the liquidators and accepted by the judge as a simple balance of account in s 553C(1)(c) terms (see [105] above), was in fact a sum provided for by and payable under the commutation agreement of April 2008. The parties to that agreement included HIH (and several of its related companies, together referred to as "the HIH Parties") and the Syndicate (referred to as "Limit"). The recitals included the following:
"A. The HIH Parties and Limit entered into various reinsurance arrangements including the HIH Reinsurance Agreements and the Limit Reinsurance Agreements. The HIH Reinsurance Agreements and the Limit Reinsurance Agreements are referred to collectively in this agreement as 'the Reinsurance Agreements'.
B. Each of the HIH Parties and Limit assert that amounts are due or will or may become due under the terms of the Reinsurance Agreements.
...
H. Disputes have arisen concerning each party's rights and obligations relating to the Reinsurance Agreements, including as to the validity of some HIH Reinsurance Agreements and as to the extent of Limit's set-off entitlements.
...
J. HIH C&G commenced the Pay as Paid Proceedings against Syndicate 683 for the 1993 to 2000 underwriting years of accounts by Summons and Commercial List Statement dated 1 June 2006, in relation to certain HIH Reinsurance Agreements.
K. On 29 August 2006 HIH C&G filed a notice of discontinuance in the Pay as Paid Proceedings whereby HIH C&G discontinued its claim against Sydney 683 for the 1998 to 2000 underwriting years of account (inclusive).
L. HIH C&G continued to pursue the remaining defendants in the Pay as Paid Proceedings in respect of claims arising on those HIH Reinsurance Agreements which are specified in Schedule 5 ('the Contracts Subject to the Proceedings').
M. The HIH Parties and Limit have agreed by way of settlement to commute fully and finally all liabilities and obligations owed to each other under each of the Reinsurance Agreements and to settle the Pay as Paid Proceedings on the terms and conditions of this agreement."

The operative provisions included clause 2.1, as follows:
"Within 28 days of exchange of executed counterparts of this agreement, Limit agrees to pay the Commutation Amount to the HIH Parties in full, without any set-off or counterclaim and free of any deductions whatsoever. For the avoidance of doubt, the 28 days referred to in this clause includes Saturdays, Sundays and public holidays in New South Wales."
The "Commutation Amount" was $22,391,924. Clause 2.3 divided the Commutation Amount between HIH and one of the other "HIH Parties". By clause 2.5, HIH agreed to make reasonable efforts to procure dismissal of the "Pay as Paid Proceedings" by consent. Clause 3 contained mutual release in respect of the "Reinsurance Agreements".
On the face of the commutation agreement, there is no reference to set-off of respective sums of $54,032,750 and $31,640,826. Rather, $22,391,294 is an identified sum paid by one disputing party to the other disputing party in a context where different views were taken as to respective rights and obligations (and the validity of "some HIH Reinsurance Agreements", being agreements under which the Syndicate reinsured HIH) and the parties were already in litigation that was to be terminated in accordance with the agreement. Whatever result s 553C may have produced as at commencement of the winding up, the disputing parties chose to make a specific agreement as to what one was to pay to the other in the context of agreed extinguishment of the rights and obligations that would otherwise have prevailed.
It is by no means clear that the negotiated sum of $22,391,924 was in truth capable of being the subject of any order under s 562A(4) as an amount "received ... under" a "contract of reinsurance" as referred to in s 562A(1)(b) or that, in the absence of such an order, it falls to be dealt with under s 562A(2) or s 562A(3): see McGrath & Anor re HIH Insurance Ltd [2008] NSWSC 9; 26 ACLC 111 (at [17] - [20]) and the reference there to Chan v CresdonPty Ltd [1989] HCA 63; 168 CLR 242 at 249 as to the meaning of "under" in contexts of this kind. Nor, in the circumstances of uncertainty and dispute recited in the commutation agreement, is it clear what result s 553C caused to emerge upon the commencement of the winding up. These matters do not require resolution on this appeal.

Conclusion

In my opinion, the appeal should be dismissed with costs.
WARD JA: I have had the advantage of reading in draft the judgments of both Macfarlan and Barrett JJA. I agree with Barrett JA that the appeal should be dismissed.
Fundamental to the contrary view reached by Macfarlan JA is his Honour's conclusion that the primary judge's exercise of discretion was vitiated by a material error of fact, relating to the nature of the relationship between SWC and the reinsurers. Macfarlan JA has concluded (at [3]) that the evidence indicated that SWC was an active and significant participant in the negotiations that led to the 1997 reinsurance policy and (at [4]) that the direct dealings between SWC and the reinsurers rendered their relationship somewhat unusual.
It was agreed by the parties that Mr Ferguson (of SWC) and SWC's insurance broker had gone to London in April 1997 on a "selling trip" to conduct face to face negotiations with the Syndicate. Insofar as there was any indication as to the content of the "negotiations and discussions" in which Mr Ferguson says he was involved on that occasion, they seem to have involved a presentation "about risk" (as agreed at [46] of the statement of agreed facts) and there had been an anticipation by HIH before the "selling trip" that SWC (through Mr Ferguson and/or SWC's broker) would have an opportunity to address whatever the Syndicate's perceived problems might be in relation to the reinsurance.
In my opinion those matters support the primary judge's conclusion that the "selling trip" was "primarily" for information purposes. Although there was a reference in the 1995 SWC Executive Meeting Paper to SWC having directly negotiated the premium for its packaged liability policy with the London market, which spoke to what SWC's strategy had been in the past, there was no indication that discussions during the April 1997 "selling trip" were to encompass the negotiation of a premium for the 1997 policy.
When it came to negotiation of the terms of the 1997 policy, the evidence disclosed that those negotiations were conducted between HIH and the Syndicate (albeit with HIH seeking SWC's input to, or agreement with, particular clauses).
Consistent with the SWC strategy recorded in its 1995 Executive Meeting Paper, the 1997 "selling trip" seems likely to have been just that - one or more face to face meetings to reinforce with the reinsurers the value of SWC's long term business (as HIH's insured) and a willingness or commitment to address any perceived problems (presumably of an insurance risk complexion) that might affect the Syndicate's decision to reinsure.
That does not mean that the "selling trip" was of no value in securing the reinsurance. However, it does mean that I am not persuaded that the primary judge erred in concluding that the April 1997 trip to London was primarily for information purposes. The additional purpose seems to have been of developing or maintaining a relationship with the reinsurers for strategic reasons. I do not think much weight can be placed on the general references to involvement in "negotiations", particularly when it is clear that the negotiation of policy terms was conducted through HIH.
As to whether the primary judge erred in concluding that there was nothing extraordinary or unusual in the relationship between SWC and the Syndicate, I accept that this was a matter that formed part of his Honour's assessment as to whether it was just and equitable for an order to be made of the kind for which SWC contended and that a long term working relationship would be a permissible factor to take into account for that purpose. The context in which his Honour made the observation that there was nothing extraordinary or unusual in the relationship between insured and reinsurer was that the correspondence had disclosed no direct participation by SWC with the Syndicate (as to the policy wording) and provided no support for a suggestion that HIH was merely a front or conduit to facilitate direct negotiations between SWC and the Syndicate.
As Macfarlan JA notes (at [4]) the only evidence as to usual practice (as to dealings between insureds and reinsurers) was the reference by Mr Bang (of HIH) to "usual protocol" in relation to reinsurance placements. Relevantly, Mr Bang followed this with the observation that sometimes reinsurers dictated terms that the insurer then had to include in the policies issued by it, which suggests that he was there focussing on usual practice in the context of negotiation of policy terms rather than relationship building or "selling" trips of the kind undertaken in 1997.
As Barrett JA notes, SWC had placed weight on the long term relationship between it and the reinsurers as a factor that made it just and equitable for an order pursuant to s 562A(4) to be made. Both Macfarlan and Barrett JJA accept that the evidence supported a conclusion that the relationship was "somewhat unusual". For my own part, I would have thought there was nothing unusual in an insured in SWC's position seeking to maintain a good relationship with reinsurers so as to be in a position strategically, as it later sought to do, to invoke that relationship in order to achieve a favourable insurance outcome if that were for any reason to become necessary. However, even accepting that (on Mr Bang's evidence alone) there was something out of the usual in the role that SWC played in that regard, it certainly cannot be suggested that HIH was no more than a "front" or "conduit" for SWC.
I am not persuaded that his Honour's assessment as to the nature of the relationship between SWC and the Syndicate involved a material error of fact that vitiated the exercise of his discretion.
In those circumstances, I do not agree that it is for this Court to re-exercise the discretion to make the orders sought by SWC. The fact that reasonable minds may differ, having regard to the existence of the relationship between SWC and the Syndicate as far as it was disclosed by the evidence, as to whether it would be just and equitable to make the orders sought is not to the point. What is required for appellate intervention is error in the House v R sense. The primary judge's determination on this issue was not in my opinion unreasonable or plainly unjust. As to the quantification issue, dealt with by Barrett JA at [103]ff, I agree with his Honour's conclusion and have nothing further to add thereto.
**********

CaseChat Overview and Summary

Orders of the court

Background to the litigation

Evidence Before The Court

Reasons for decision

Legal Principle Established

Case Title:	Sydney Water Corporation v McGrath
Medium Neutral Citation:	[2014] NSWCA 197
Hearing Date(s):	12 March 2014
Decision Date:	23 June 2014
Before:	Macfarlan JA at [1]; Barrett JA at [22]; Ward JA at [120]
Decision:	Appeal dismissed with costs [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
Catchwords:	CORPORATIONS - winding up - whether trial judge erred in deciding not to exercise power conferred by s 562A(4) of the Corporations Act 2001 (Cth) - whether trial judge's exercise of discretion vitiated by material error of fact - whether determination was unreasonable or plainly unjust - whether error in quantification of amount received by insurers for purpose of determining relevant amount had discretion been exercised in favour of insured.
Legislation Cited:	Corporations Act 2001 (Cth) Third Parties (Rights Against Insurers) Act 1930 (UK)
Cases Cited:	Amaca Pty Ltd v McGrath (as liquidators of HIH Underwriting and Insurance (Aust) Pty Ltd) [2011] NSWSC 90; 82 ACSR 281 Amaca Pty Ltd v McGrath & Honey (as liquidators of HIH Group of Companies) [2012] NSWSC 176; 87 ACSR 625 Amaca Pty Ltd v McGrath & Honey (as liquidators of HIH Group of Companies) [2012] NSWSC 1523; 92 ACSR 105 AssetInsure Pty Limited v New Cap Reinsurance Corporation Limited [2006] HCA 13; 225 CLR 331 Barton v Atlantic 3 Financial (Australia) Pty Ltd [2004] QSC 376; 212 ALR 348 Chan v Cresdon Pty Ltd [1989] HCA 63; 168 CLR 242 Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 Gye v McIntyre [1991] HCA 60; 171 CLR 609 HIH Casualty and General Insurance Ltd v Building Insurers' Guarantee Corporation [2003] NSWSC 1083; 188 FLR 153 House v R [1936] HCA 40; 55 CLR 499 Krishell Pty Ltd v Nilant and Ors [2006] WASCA 223 McGrath & Anor re HIH Insurance Ltd [2008] NSWSC 9; 26 ACLC 111 Pitt-Owen v Lenin [2006] NSWSC 748 Re HIH Casualty and General Insurance Ltd and Ors [2005] NSWSC 240; 190 FLR 398 Stein v Blake [1996] AC 243
Category:	Principal judgment
Parties:	Sydney Water Corporation (Appellant) Messrs A G McGrath and C J Honey as liquidators of the HIH Group of Companies (First Respondent) HIH Casualty & General Ltd (in liquidation and subject to Schemes of Arrangement) (Second Respondent)
Representation
- Counsel:	Counsel: J C Sheahan SC/K Rees SC (Appellant) R A Dick SC/R M Foreman (First and Second Respondents)
- Solicitors:	Solicitors: Clayton Utz (Appellant) Ashurst Australia (First and Second Respondents)
File Number(s):	2013/206927
Decision Under Appeal
- Court / Tribunal:	Supreme Court
- Before:	Nicholas J
- Date of Decision:	12 June 2013
- Citation:	[2013] NSWSC 741
- Court File Number(s):	2012/310781
Publication Restriction:	Nil