In an earlier application in these proceedings, the Plaintiffs, Amaca Pty Limited (under NSW administered winding up) ("Amaca"), Amaba Pty Limited (under NSW administered winding up) and ABN 60 Pty Ltd (under NSW administered winding up) previously sought orders under s 562A(4) of the Corporations Act 2001 (Cth) that ss 562A(2)-(3) of the Corporations Act did not apply to the receipt of specified monies in respect of policy years commencing 31 March 1989, 31 March 1990, 31 March 1991 and 31 March 1992 (which have been referred to as the "Mid Clator" years) and that certain monies received by the liquidators of HIH Casualty & General Insurance Limited (in liquidation and subject to scheme of arrangement) ("HIHC&G") should be paid by them to the Plaintiffs. I dealt with that application in my judgment delivered on 5 March 2012 ([2012] NSWSC 176) ("the earlier judgment") and held that ss 562A(2)-(3) of the Corporations Act did not apply to reinsurance monies received by HIHC&G in respect of several reinsurance policies in respect of the Mid Clator years, where those monies had been paid by reinsurers under Deeds of Commutation and Settlement between HIHC&G and those reinsurers in respect of actual or contingent liabilities of HIHC&G to the Plaintiffs, and ordered, under s 562A(4) of the Corporations Act, that those receipts (net of relevant expenses) be paid to Amaca.
By Interlocutory Process filed on 17 June 2015, the Plaintiffs bring a further application in relation to receipts from Municipal General Insurance ("Municipal receipt") and Pohjola Insurance ("Pohjola receipt") relating to the Mid Clator years. The Municipal receipt relates to a commutation between HIHC&G and Municipal on 30 March 2010, a portion of which, GBP159,097, related to a commutation of reinsurance agreements between HIHC&G and Municipal in the Mid Clator years, by which Municipal had reinsured HIHC&G's asbestos liability cover to the James Hardie Group. The application relates to an amount of AUD 262,667, being the Australian dollar equivalent of that payment, converted at exchange rates at the time of the commutation. The Pohjola receipt results from the submission of a proof of debt by HIHC&G in the insolvent estate of Morgate Insurance Company Limited (formerly known as Pohjola Insurance Company Limited). An amount of GBP 2,750.73 was received from Morgate, referable to Pohjola's share, as reinsurer, of HIHC&G's liability under incurred but not reported claims by the James Hardie companies in two of the Mid Clator years. The application relates to an amount of AUD6,404.49, being the Australian dollar equivalent of that amount, converted using exchange rates at the time of the dividend payment. The Plaintiffs seek similar orders to those which have previously been sought in similar applications in the proceedings, that the Municipal receipt and the Pohjola receipt must each be applied by the liquidators and HIHC&G by deducting expenses of and incidental to getting in the receipts, quantified as 2.5%, and deducting any dividends or distributions already paid by the in respect of the relevant receipts and paying the balance of those receipts to Amaca. The liquidators do not oppose the application.
The Plaintiffs point out that, although the application relates to recoveries from reinsurers that were not previously the subject of orders made in the earlier proceedings, those reinsurers were involved the same policies of insurance that were considered in the earlier proceedings, and the circumstances in which those policies of insurance were entered were the subject of affidavit and documentary evidence previously put before the Court in the earlier proceedings. I have expressed the view, in earlier judgments in associated matters, and continue to take the view, that the application of s 562A in these circumstances would largely, if not entirely, turn upon the circumstances of the dealings between the James Hardie companies, HIHC&G and the relevant intermediaries involved in placing the cover, and not on the identity of the particular reinsurers with which that cover was placed.
The Plaintiffs in turn rely on a further affidavit of Ms Narreda Grimley, the General Manager of the Asbestos Injuries Compensation Fund, sworn 15 June 2015, in relation to this application. That affidavit refers to evidence led in the earlier proceedings, which is relied upon in the application, and the Plaintiffs in turn rely on the documents led in evidence as contained in the Court Book in respect of the earlier application. Ms Grimley's affidavit sets out the history of the relevant proceedings, and also refers to other proceedings brought by the Plaintiffs in respect of other reinsurance periods that are not in issue in this application. She refers to the circumstances in which the Plaintiffs were advised of further reinsurance recoveries from Municipal and Pohjola in April 2015 and to correspondence from the liquidators advising the amount of those recoveries, the circumstances in which they were received and the attribution of the amounts received to reinsurance cover provided by Municipal and Pohjola respectively in respect of cover provided by HIHC&G to the James Hardie companies. Ms Grimley in turn refers to evidence which had previously been led before the Court as to the participation of Municipal and Pohjola as reinsurers in the Mid Clator years, although orders had not previously been made in respect of recoveries from those reinsurers, which had not been received at the time of the earlier applications.
As I have noted in earlier judgments, s 562A(1) of the Corporations Act provides that the 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."
The term "relevant contract of insurance" used in s 562A(1)(a) means a "contract of insurance entered into by the company, as insurer, before the relevant date" and includes contracts of reinsurance: AssetInsure Pty Ltd v New Cap Reinsurance Corporation Ltd (in liq) [2006] HCA 13; (2006) 225 CLR 331 at [86]-[87]. Section 562A(1)(b) of the Corporations Act in turn requires that an amount "in respect of that liability" is received by the insurer "under the contract of reinsurance." It seems to me that the Municipal receipt and the Pohjola receipt are identical, in all material respects, with the recoveries from other reinsurers which I addressed in the earlier judgment. I am satisfied, for the reasons set out in the earlier judgment, that the Municipal receipt and the Pohjola receipt were received in respect of HIHC&G's actual or contingent liability to the Plaintiffs, and that the amounts were received by HIHC&G under the contract of insurance, so far as they were received in commutation (in the case of Municipal) or as a dividend in insolvency (in the case of Pohjola) referable to those contracts of reinsurance.
Where s 562A(1) of the Corporations Act applies in the relevant circumstances, the usual position is that a liquidator must distribute reinsurance proceeds among the insured creditors in the manner specified in s 562A(2)-(3) of the Corporations Act. Section 562A(3), which would be applicable in the present circumstances absent an order under s 562A(4), provides for the liquidator to provide each insured a proportion of their claim calculated in the manner specified. The Court may make an order providing for a different allocation of reinsurance proceeds under s 562A(4) which relevantly provides that:
"(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."
Several matters that the Court may take into account in considering whether to make such an order are specified, in an inclusive manner, in s 562A(5) of the Corporations Act.
I am satisfied that it is just and equitable to make the relevant order under s 562A(4) of the Corporations Act, having regard to the matters set out in s 562A(5) of the Act, given the manner of dealings between the James Hardie Group and the HIH Group in the Mid Clator years, to which I referred in the earlier judgment, including that HIHC&G entered into the reinsurance contracts for the purpose of providing cover for the Plaintiffs, which it would not have been able to provide without that reinsurance and where the reinsurers could not insure the Plaintiffs directly; where the premiums paid by the Plaintiffs to HIHC&G were identical (with an immaterial difference to which I referred in the earlier judgment) to the premiums paid by HIHC&G to the reinsurers; and where the James Hardie Group and its brokers were active in assisting HIHC&G to obtain the relevant reinsurance cover and were aware that substantially the whole of the risk nominally undertaken by HIHC&G had in fact been placed by facultative reinsurance contracts obtained for that purpose. It seems to me that, as I noted in the earlier judgment, the Plaintiffs would be prejudiced if they did not receive the direct benefit of the reinsurance monies for which they had bargained, where they would not have contracted for cover from HIHC&G without that reinsurance. I am therefore satisfied that it is just and equitable to make the relevant orders, for these reasons and the other reasons noted in the earlier judgment in respect of the Mid Clator period.
Accordingly, I am satisfied that I should make orders in accordance with the Short Minutes of Order submitted by the Plaintiffs, as follows:
For policy years commencing 31 March 1989, 31 March 1990, 31 March 1991 and 31 March 1992:
1 Pursuant to section 562A(4) of the Corporations Act 2001 (Cth) (the Act), subsections 562A(2) and 562A(3) of the Act do not apply to:
(a) $262,667 received from Municipal General Insurance (the Municipal receipt);
and that the Municipal receipt must instead be applied by the Defendants by:
(b) deducting expenses of and incidental to getting in the Municipal receipt, being 2.5% of the Municipal receipt;
(c) further deducting any dividends or distributions already paid by the Defendants in respect of the Municipal receipt; and
(d) paying the balance of the Municipal receipt to the First Plaintiff.
For policy years commencing 31 March 1990 and 31 March 1991:
Pursuant to section 562A(4) of the Corporations Act 2001, subsections 562A(2) and 562A(3) of the Act do not apply to:
(a) $6,404.49 received from Pohjola Insurance (the Pohjola receipt);
and that the Pohjola receipt must instead be applied by the Defendants by:
(b) deducting expenses of and incidental to getting in the Pohjola receipt, being 2.5% of the Pohjola receipt;
(c) further deducting any dividends or distributions already paid by the Defendants in respect of the Pohjola receipt; and
(d) paying the balance of the Pohjola receipt to the First Plaintiff.
No order as to costs.
Stand the matter over for 12 months with liberty to apply on 7 days' notice.
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Decision last updated: 16 July 2015