(2011) 284 ALR 196
- Oil Basins Ltd v Bass Strait Oil Company [2012] FCA 1122
(2012) 297 ALR 261
- Re Affinity Health Ltd (2006) 58 ACSR 461
- Re Biron Capital Ltd [2005] FCA 1228
(2014) 315 ALR 146
- Selim v McGrath [2003] NSWSC 927
(2003) 47 ACSR 537
- Super John Pty Ltd v Futuris Rural Pty Ltd [1999] NSWSC 627
Source
Original judgment source is linked above.
Catchwords
(2011) 284 ALR 196
- Oil Basins Ltd v Bass Strait Oil Company [2012] FCA 1122(2012) 297 ALR 261
- Re Affinity Health Ltd (2006) 58 ACSR 461
- Re Biron Capital Ltd [2005] FCA 1228(2014) 315 ALR 146
- Selim v McGrath [2003] NSWSC 927(2003) 47 ACSR 537
- Super John Pty Ltd v Futuris Rural Pty Ltd [1999] NSWSC 627(1999) 32 ACSR 398
- Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332
- Weinstock v Beck [2013] HCA 14(2013) 93 ACSR 231
- Wentworth Metals Group Pty Ltd v Leigh (as liqs of Bonython Metals Group Pty Ltd (in liq)) [2013] FCA 349
Judgment (8 paragraphs)
[1]
Solicitors:
TressCox Lawyers (Plaintiff)
Ashurst Australia (Defendants)
File Number(s): 2015/121903
[2]
Judgment
These proceedings concern an issue arising in respect of the Australian scheme of arrangement ("Australian scheme") concerning CIC Insurance Limited (in liquidation and subject to a scheme of company arrangement) ("CIC") and FAI General Insurance Company Limited (in liquidation and subject to a scheme of company arrangement) ("FAI"). CIC and FAI were placed in liquidation in August 2001, the Australian scheme was approved by meetings of creditors of those companies on 29 March 2006 and the Court approved the Australian scheme on 26 May 2006.
The Plaintiff in these proceedings is the State Insurance Regulatory Authority ("SIRA"). Its role includes regulation of the compulsory third party personal injury scheme for motor vehicles registered in New South Wales. SIRA, as the nominal defendant under s 188 of the Motor Accidents Compensation Act 1999 (NSW), became liable for the insurance liabilities that could no longer be met by CIC and FAI after they were placed in liquidation. SIRA became a creditor in each of the CIC and FIA schemes, by reason of its having met liabilities that should otherwise have been met by CIC and FAI, and has been admitted as a substantial creditor in the CIC scheme and the FAI scheme as described below. The Defendants, Messrs Honey and McGrath, are the scheme administrators of the Australian scheme.
By Amended Originating Process filed on 18 September 2015, SIRA seeks an order under s 1321 of the Corporations Act 2001 (Cth) reversing a decision of the scheme administrators to reject SIRA's request to submit an amended or supplementary final claim for adjudication in accordance with cl 26.1 of the Australian scheme in respect of CIC and FAI. Alternatively, SIRA seeks an order under s 1322(4)(d) of the Corporations Act that the period for it to submit final claim forms in a specified form be extended to 18 September 2015 or such further time as the Court sees fit. That extension, if granted, should now extend to a reasonable period after the delivery of judgment in this application. SIRA also seeks a consequential order under s 1322(4)(d) of the Corporations Act that the period within which the scheme administrators must determine whether specified liabilities give rise to Established Scheme Claims (as defined in the Australian schemes) be extended to 18 December 2015 or such other or further time as the Court sees fit.
The relevant facts are largely agreed between the parties and emerge from the affidavit evidence in the proceedings. I set out a chronology of events below, drawn from that affidavit evidence and a helpful chronology provided by Mr Sulan, who appeared with Mr May for SIRA. SIRA relied on several affidavits of its General Manager, Mr Andrew Nicholls and also relies on affidavits of Mr Adrian Gould, an actuary who provided advice to SIRA in respect of the process of lodgement of its final claims in the scheme, and on an affidavit of Mr Peter Marshall dated 26 June 2015. Mr Marshall is the Director of Treasury and Financial Accounting in a government entity which is the corporate services provider to SIRA, and his affidavit refers to correspondence with Mr Nicholls and Mr Gould and discussions with the scheme administrators in relation to the identification and investigation of the further claims.
The scheme administrators in turn rely on Mr Honey's affidavit dated 16 July 2015, which sets out the structure of the Australian scheme, which provided for an initial run-off period; an estimation period, which was intended to deal with scheme creditor claims which were not dealt with during the run-off period; a process by which an estimation date was notified to creditors; the dispatch of final claim forms to creditors in late February 2013 "pre-populated" with the creditor's estimated Established Scheme Claim (as defined) amount as at 31 December 2012; and the provision of revised final claim forms reflecting any change in an Established Scheme Claim amount in mid-April 2013 and again in mid-June 2013. Mr Honey also refers to the process adopted for dealing with the insurance held by an insurer in respect of claims, where those claims were met from a statutory fund, known as "cut-through" entitlements. Mr Honey's evidence is that the pre-populated final claim forms sent to scheme creditors included a "gross" Established Scheme Claim amount, which did not take account of reinsurance recoveries remitted to the scheme creditor, which were only taken into account at the point of paying a distribution to the scheme creditor. That matter has considerable significance in this application, as well emerge below.
[3]
The terms of the Australian scheme
The Explanatory Statement dated 10 February 2006 (Ex R2) relating to the Australian scheme provides a useful general description of the structure of the scheme. The Explanatory Statement noted that the Australian scheme was structured as "reserving schemes, converted to estimation schemes at a later date to enable closure of the insolvencies" and described the concept of an "estimation scheme" as follows:
"An estimation scheme is one under which scheme creditors submit claims to the scheme administrators by a certain deadline, covering all claims they have against the company, including present and future claims. The value of future claims is then estimated. The Australian Scheme provides for an automatic conversion to an estimation scheme seven years after commencement, unless on the recommendation of the Scheme Administrators and the Creditors' Committee, a special resolution of Scheme Creditors is passed approving an earlier or later Estimation Date. No Estimation Date in the proposed Australian Scheme may be less than five years or more than nine years, after commencement."
The Explanatory Statement also referred to the process of lodgement of final claim forms for estimation, as follows:
"After the Estimation Date, Scheme Creditors with any claims which have not yet been accepted as Established Scheme Claims, and who wish to participate in the final Scheme Payments, will be required to submit a Final Claim Form for Estimation within three months following the Estimation Date. …"
A diagram setting out that process was included as Appendix 9 of the Explanatory Statement and was consistent with that explanation. It is notable that the Explanatory Statement contains no reference to any ability to extend the period for lodgement of such claims.
Clause 5.1 of the Australian scheme provides that the purpose of the scheme is, inter alia, to provide for payment by a scheme company to those scheme creditors whose liabilities have from time to time become Established Scheme Claims (as defined) and to provide for a final Estimation Date (as defined) for the making of claims against each scheme company and for an estimation procedure. The term "Established Scheme Claim" is defined in cl 12.1 as the amount of an Acknowledged Creditor Claim (as defined), after, relevantly, the scheme administrators have taken account of any security held by the scheme creditor and any set-off and which is notified by the scheme administrators to the scheme creditor to be such. The term "Acknowledged Creditor Claim" is in turn defined in cl 11.1 of the Australian scheme as the amount of a liability of a scheme company which is agreed between a scheme company and the scheme creditor after the Record Date (27 August 2001), including any liability agreed prior to the Effective Date (as defined) or determined by the scheme administrators; established by a Final Order (as defined), or determined by a Scheme Adjudicator (as defined) during the Estimation Period. The term "Estimation Date" is defined as the date determined under cl 24, which was ultimately determined as 31 May 2013.
[4]
The calculation of SIRA's claims in the Australian schemes
There is evidence that SIRA and its predecessor entity faced significant challenges following the appointment of liquidators to FAI and CIC, which had acted as insurers for relevant claims under the motor vehicle insurance scheme (Nicholls 24.4.15 [16[). SIRA as the nominal defendant became liable for insurance liabilities that could no longer be met by CIC and FAI, and funding was provided, initially by the New South Wales Treasury, to meet claims on relevant policies. From 30 October 2002, SIRA entered into a claims management and agency agreement with Allianz Australia Insurance Limited ("Allianz") by which it appointed Allianz as its agent for exercising certain functions, which was subsequently varied in January 2005 (Nicholls 24.4.15 [17]-[19]). Mr Nicholls' evidence also sets out steps which were taken to deal with relevant claims after Allianz was appointed to that role (Nicholls 24.4.15 [20]ff).
SIRA and its actuarial advisers subsequently took steps to calculate its Final Claim in the Australian scheme, which involved both provision of estimates by the scheme administrators and work undertaken by SIRA's actuarial advisers to confirm those estimates (Nicholls 24.4.15 [27]ff). Mr Gould, who, as I noted above, provided actuarial advice to SIRA in respect of the estimates of its claims, refers to meetings with the scheme administrators' representatives which explained the process involved in submitting final claims for estimation in the schemes and his evidence is that the process of finalising SIRA's final claims continued from late 2012 until late August 2013 and involved dealings with the scheme administrators and Allianz (Gould 26.6.15 [8]). Mr Gould refers (Gould 26.6.15 [9]) to correspondence received from staff of the scheme administrators in early February 2013 and to information as to reinsurance recoveries provided to him at that time. Mr Gould refers to having formed the understanding, from that correspondence and discussions, that information provided by the scheme administrators in respect of SIRA's Established Scheme Claim, based on the scheme administrators' records (and, presumably, FAI's and CIC's records) would be provided net of reinsurance recoveries. An email dated 5 February 2013 from Mr Morosin, an employee of the scheme administrators, stated that:
"The Established Scheme Claim of [SIRA] has been reduced by the value of the reinsurance recoveries which have been remitted to them."
By an email dated 6 February 2013 to SIRA, Mr Gould in turn advised SIRA that information provided by the scheme administrators had allowed for past reinsurance receipts (Gould 26.6.15 [11]).
[5]
Extension of time under s 1322 of the Corporations Act
As I noted above, SIRA seeks an order under s 1322(4)(d) of the Corporations Act that the period for it to submit Final Claim Forms in a specified form be extended to 18 September 2015 or such further time as the Court sees fit. The scheme administrators did not oppose the making of an order under s 1322(4)(d) of the Act if the Court was satisfied that such an order was appropriate. Properly, and in accordance with the duty to assist the Court in applications of this kind, they identified several considerations applicable to the exercise of the Court's discretion in that respect.
Section 1322(4) of the Corporations Act reflects a broad legislative policy that the law should not inflict unnecessary liability or inconvenience or invalidate transactions because of non-compliance with its requirements, where such non-compliance is the product of honesty or inadvertence and where the Court can avoid its effects without prejudice to third parties or the public interest in compliance with the law, and that the Court will have regard to the purposes of the Corporations Act, the interests of all affected parties and the public interest in exercising its powers under the section. In Elderslie Finance Corporation Ltd v Australian Securities Commission (1993) 11 ACSR 157 at 160, Owen J followed earlier authority in observing that s 1322(4) was a remedial remedy and should be given a liberal construction. In Oil Basins Ltd v Bass Strait Oil Company [2012] FCA 1122; (2012) 297 ALR 261 at [67], Gordon J observed, by reference to authority, that it is well established that s 1322(4) is a remedial provision to be interpreted liberally and that the Court's discretion is unfettered except for the requirements in s 1322(6). The width of the Court's power under s 1322(4) of the Corporations Act was also emphasised by the High Court of Australia in Weinstock v Beck [2013] HCA 14; (2013) 93 ACSR 231, where French CJ also observed (at [39]) that the section reflects:
"a long-standing legislative recognition that mistakes will happen in corporate governance and that it is not in the public interest that the validity of decisions made in relation to corporations be unduly vulnerable to innocent errors which may be corrected without substantial injustice to third parties."
In particular, s 1322(4)(d) allows the court to extend the time for steps to be taken under the Corporations Act or in relation to a corporation: see, for example, Re Insurance Australia Group Pty Ltd (2003) 45 ACSR 702; 21 ACLC 1107; Re Biron Capital Ltd [2005] FCA 1228; (2005) 54 ACSR 548; Re Golden Iron Resources Ltd [2010] FCA 693. Consistent with its remedial purpose, the section has been treated as sufficiently wide to permit an order to be made in relation to a scheme of arrangement, which plainly amounts to a matter in relation to a corporation: Re Affinity Health Ltd (2006) 58 ACSR 461 at [13]; Re Commonwealth Steel Co Pty Ltd [2013] NSWSC 1983.
[6]
Appeal under s 1321 of the Corporations Act
The appeal brought by SIRA under s 1321 of the Corporations Act raises a narrow issue. The scheme administrators rejected SIRA's supplementary final claims on the basis that they did not have a discretion to admit a claim beyond the cut-off date under the Australian scheme. SIRA submits the scheme administrator's decision was in error as to the construction of the scheme. Given the finding that I have reached above, it is not strictly necessary to deal with this appeal, although I will outline my views as to that application in deference to the parties' comprehensive submissions as to the issue.
The principles relating to an appeal under s 1321 of the Corporations Act are well-established and were not in controversy in this application. This section allows a person to appeal to the Court from an act, omission or decision of, relevantly, a person administering a compromise, scheme or arrangement under Pt 5.1 of the Corporations Act. An appeal under this section is a hearing de novo and the Court may make its decision on evidence that was not before the relevant person administering the compromise, scheme or arrangement: Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332. If an appeal is brought against a discretionary decision by a scheme administrator, the Court will recognise that the discretion has been vested in the scheme administrator and will not interfere unless it is shown that, relevantly, the scheme administrator made errors of law or failed to take into account relevant matters or took into account irrelevant matters: compare, as to decisions by a liquidator, Selim v McGrath [2003] NSWSC 927; (2003) 47 ACSR 537 at [36]-[38]; McGrath v Sturesteps [2011] NSWCA 315; (2011) 284 ALR 196 at [73]. A potentially broader view of the scope of an appeal under this section was taken in ASIC v Forestview Nominees Pty Ltd (recs & mgrs apptd) [2006] FCA 1530; (2006) 236 ALR 652 at [45], where French J observed that an appeal could be allowed if a decision "is informed by some error of law, or significant factual error or is otherwise so unreasonable, in the circumstances, that it should not be allowed to stand"; that broader view was applied, without deciding its correctness, in Wentworth Metals Group Pty Ltd v Leigh (as liqs of Bonython Metals Group Pty Ltd (in liq)) [2013] FCA 349; (2013) 93 ACSR 626 at [24]. Nothing turns on any difference of approach for the purposes of this application.
[7]
Orders
Subject to hearing Counsel as to the applicable dates, I propose to make orders substantially in the form proposed by the parties, namely orders pursuant to s 1322(4)(d) of the Corporations Act 2001 (Cth) that the period for the Plaintiff to submit Final Claim Forms in the form annexed to the affidavit of Ms Kirsten Farmer dated 26 June 2015 under cl 25.1(b) of the Australian scheme be extended to a date shortly after today, and that the period within which the Defendants must determine whether the liabilities detailed in section D of each Final Claim Form give rise to Established Scheme Claims be extended to a date three months after the date of lodgement of the claims. It was common ground between the parties that SIRA should be ordered to pay the costs of this application on the ordinary basis, as agreed or as assessed, and I will also make that order.
[8]
Amendments
31 December 2015 - Para 30 line 1 - "may under s 1322(4)(d) may" to "under s 1322(4)(d) may".
Para 30 line 15 - "Bass Straight" to "Bass Strait".
Para 30 quoting Gordon J - italicised 'no substantial injustice'.
Para 32 line 3 - "1322(4(d))" to "1322(4)(d).
Para 42 - "that it that" to "that".
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 31 December 2015
Clause 6.1 provides that the Australian scheme applies to all Liabilities (as defined) of each scheme company and that scheme creditors accept their rights under the Australian scheme in lieu of their entitlements to prove in, and receive a dividend from, the Winding Up (as defined). Clause 17.1 provides for the making and agreement of Acknowledged Creditor Claims (as defined) during the Run-off Period (as defined) and is not presently relevant. Clause 21.1 permits a scheme creditor to give a Notice of Litigation (as defined) during the Run-off Period (as defined).
Clause 25.1, which is in issue between the parties, in turn provides that:
"25.1 No Scheme Creditor shall be entitled to have any Liability determined to be an Acknowledged Creditor Claim unless …
(b) A Final Claim Form for Estimation is completed by the Scheme Creditor detailing each of its Liabilities and returned to a Scheme Company so as to reach the Scheme Company, on or before the date three months after the Estimation Date; or
(c) Prior to the Estimation Date, a Proceeding has been commenced in relation to the Liability in accordance with The Australian Scheme which has not been determined by the Estimation Date."
Clause 25.2 in turn provides that:
"Subject to clause 25.3 [which is not presently relevant] and clause 25.4, and without affecting any rights which any Scheme Creditor may otherwise have under section 1321 of the Corporations Act, after the Estimation Date, no Scheme Creditor shall, without the prior written agreement of the Scheme Administrators (which agreement must be in writing and refer to this clause 25.2), institute or continue any Proceeding in any jurisdiction against a Scheme Company to establish the existence or amount of a Liability."
Clause 25.4 provides that, after the Estimation Date, a Scheme Creditor may continue any Proceeding commenced during the Run-off Period in accordance with clauses 18.1 or 18.2.
Clause 26.1 provides that, after the Estimation Date, the scheme administrators shall determine whether any Notified Liability (as defined) gives rise to an Established Scheme Claim within three months after the final date for the submission of a Final Claim Form for Estimation in accordance with clause 25.1(b). Clause 28.1, to which the parties also referred in submissions, provides that, if and to the extent that a Scheme Creditor obtains an order, judgment, decision or award of a Court or Tribunal relating to a Liability (as defined) in contravention of clauses 18.1 or 25.2, that order, judgment, decision or award shall not be an Acknowledged Creditor Claim except with the agreement of the Scheme Administrators. Clauses 31-35 of the scheme provide for distribution of the assets subject to the scheme in payment of Established Scheme Claims.
Clause 42 specifies the general functions and powers of the scheme administrators and clause 43 identifies several specific functions and powers of the scheme administrators. Clause 43.1(bb) permits the scheme administrators:
"To do all other things which the Scheme Administrators consider necessary or desirable for the purpose of giving effect to or carrying out The Australian Scheme."
Mr Gould made a file note of a meeting in mid-March 2013 with representatives of the scheme administrators and others (Gould 1.8.15 [2], Annexure "A"), where his handwritten note recorded that information would be provided to SIRA with reinsurance proceeds "received and offset", and a further note stating "netted off to calculate ESC [Established Scheme Claim] amounts advised". Mr Marshall (Marshall 6.8.15 [3]) also attended the meeting in mid-March 2013 and his file note of that meeting also records a statement that "net claim is after all cut-throughs of Distribution", which he understood as a reference to cut-through reinsurance recoveries. The scheme administrators' position is that there was reference, at the meeting on 15 March 2015, to the fact that pre-populated Final Claim Forms sent to SIRA and other scheme creditors included "gross" Established Scheme Claim amounts and did not take into account reinsurance recoveries. The evidence led by SIRA takes a different view as to that issue.
There is no reason to doubt that Mr Gould then had the misunderstanding as to the treatment of reinsurance recoveries to which he referred in his affidavit evidence and that misunderstanding was connected with discussions with and communications with the scheme administrators. Sensibly, both parties conducted the proceedings without seeking to attribute blame to the other in respect of the circumstances in which such a misunderstanding had arisen, and it must be recognised that, of course, misunderstandings can arise without fault on the part of either of two communicating parties, particularly where the communication relates to complex matters.
The scheme administrators in turn provided their calculation of SIRA's Established Scheme Claim on 15 April 2013, updated to 31 March 2013. Mr Gould's memorandum dated 31 May 2013 (Ex A1, pp 23-24) recorded his understanding that it had been confirmed previously that the Established Scheme Claim amounts for CIC and FAI were "net of all recoveries, including 'cut-through' reinsurance proceeds" and the calculation made in that memorandum proceeded on that basis. Mr Gould there identified a modest difference between his estimate of SIRA's claim and the scheme administrators' estimate of the Established Scheme Claim. Mr Gould's further email dated 2 July 2013 provided an updated calculation, which increased the identified difference to $1.2 million, being 0.2% of the total claim, and expressed doubt that it would be sensible to undertake a major forensic analysis to seek to identify the cause of a variance of that size.
The scheme administrators sent a notice requiring final estimation of claims to be lodged by 2 September 2013. Final Claim Forms were submitted by SIRA on 30 August 2013, prior to the cut-off date for submissions of the Final Claim Forms under the scheme (Nicholls 24.4.15, [30]). SIRA submitted a final claim in relation to CIC in an amount exceeding $249 million and a final claim in an amount exceeding $278 million in relation to FAI. Those claims were accepted by the scheme administrators on 4 December 2013.
In mid-January 2014, correspondence between Mr Gould and representatives of the scheme administrators, in respect of the payment of an interim dividend to SIRA, disclosed the fact that, contrary to Mr Gould's previous understanding, the Established Scheme Claim amount was not reported net of reinsurance repayments, although those payments were taken into account for other purposes. By an email dated 17 January 2014, a representative of the scheme administrators advised SIRA, with a copy to Mr Gould, that she could see how confusion may have been created by the contents of the email dated 5 February 2013, to which I referred above (Gould 26.6.15, Ex A1, p 50). By emails sent in mid-January 2014, Mr Gould advised SIRA of a possible discrepancy between the amount calculated by the scheme administrators and SIRA's calculation, which was then identified as in the order of $50 million (Gould 26.6.15, Ex A1, pp 32, 41). By a further email dated 20 January 2014, Mr Gould advised SIRA that the possible discrepancy had increased to $54.5 million (Gould 26.6.16, Ex A1, p 59). That difference was, obviously enough, substantially greater than that on which SIRA's previous decision not to investigate the discrepancy further had been made.
Mr Nicholls refers (Nicholls 26.6.15 [6]ff) to the circumstances in which he became aware of the relevant issue, in January 2014, and to the steps taken to address that issue from that time. Mr Gould (Gould 26.6.15 [28]ff) identifies steps which were subsequently taken to identify the source of the discrepancy, a range of difficulties in doing so, arising from limits in the availability of records for the period March 2001 to September 2007, incomplete claims data and issues as to complexity of the data and the need to reconcile allocations of claims between liabilities of the nominal defendant and liabilities of Allianz. Mr Gould also indicates that he did not find the process of conducting the investigation and reconciliation to be a "straightforward exercise".
By 24 January 2014, two omitted amounts had been identified as a source of part of the discrepancy (Gould 26.6.16, Ex A1, p 77). The first omitted amount relates to a substantial claim settlement paid out by Allianz, as agent for SIRA, in June 2012, which would be an additional claim on the FAI scheme fund. A second omitted amount was an incentive payment to Allianz made in November 2011, pursuant to the variation of the agreement with Allianz made in 2005, which would be partly a claim in the FAI scheme fund and partly a claim in the CIC scheme fund. An email dated 20 March 2014 from Mr Gould to Mr Marshall identified a third omitted amount (Gould 26.6.15, Ex A1, p 80). That amount relates to misallocation of certain claims as being in-force rather than run-off claims, so they were paid from Allianz's reserves rather than from the nominal defendant's funds, and a consequential reimbursement to Allianz, which would be a claim on both the CIC and FAI scheme funds. Mr Nicholls of SIRA then met with senior executives of Allianz in relation to the discrepancies on 21 March 2015 (Nicholls 7.8.15, [3(j)]). A further email dated 9 April 2014 from Mr Gould to Mr Marshall provided a further summary of the ongoing investigations (Gould 26.6.15, Ex A1, p 104).
There was some delay in advising the scheme administrators of the discrepancy and the investigations, and such advice was sent on 11 March 2014 (Marshall 26.6.15, [13]). Mr Nicholls indicates that he also raised the issues with the scheme administrators or their representatives at meetings of the committee of creditors of FAI and CIC held in April, July and November 2014. Mr Nicholls also refers to a telephone conversation with a representative of the scheme administrators, in late October 2014, indicating that any adjustment of the final scheme would need to be done "soon", and that a Court application would be required to achieve that.
By letter dated 21 January 2015, SIRA advised the scheme administrators of these matters and noted that the amount involved was approximately $19 million, and sought confirmation that the scheme administrators would consider amended Final Claims submitted by SIRA to FAI and CIC, and advised of a possible application to the Court to vary the scheme timetable if it became necessary to do so. By letter dated 22 January 2015, the scheme administrators responded to SIRA's advice as to these matters, referring to legal advice that cl 25.1 of the schemes prevented the scheme administrators from considering any Final Claim Form for estimation or amended Final Claim Form submitted to them after the "bar date" or cut-off date under the schemes, 2 September 2013. The scheme administrators also pointed to the possibility that SIRA could make an application to the Court, as it has now done.
At about the time of SIRA's letter to the scheme administrators, it also sought information from Allianz as to those matters. However, it became apparent by mid-April 2015 that it was unable to explain the discrepancy, beyond the omitted amounts that had already been identified by SIRA and its actuarial advisers. Mr Nicholls' further affidavit dated 7 August 2015 provides some further explanation of the period of time which elapsed between the final date of submission of SIRA's final claim and SIRA's letter sent to the scheme administrators in January 2015. He refers to the fact that, by April 2014, only $19 million of an apparent shortfall of $53 million had been identified and that he understood that issues in respect of the balance were complex, uncertain and would require time to resolve. He indicates that he considered it necessary, in acting in the interests of the State of New South Wales, to take all reasonable steps to seek to identify and include that remaining amount in the claim in the schemes, and to provide time for the investigation in order to do so, and that he kept the scheme administrators informed of the attempts that were being made to resolve the issue at the meetings of creditors to which he had referred in his earlier affidavit.
SIRA commenced these proceedings by Originating Process on 24 April 2015. The solicitors for SIRA provided supplementary final claims to solicitors for the scheme administrators on 11 May 2015, which increased SIRA's claim in respect of FAI to in excess of $293 million and increased SIRA's claim in respect of CIC to in excess of $253 million. The additional claim in the FAI scheme $15,161,845.05 and in the CIC scheme is $4,618,380. By letter dated 19 May 2015, the solicitors for the scheme administrators confirmed their position that they were unable to consider any Final Claim Forms for estimation received after 2 September 2013 under the terms of the schemes, but noted that proceedings had been commenced by SIRA in respect of the matter.
Mr Honey's evidence also indicates that, based on the scheme administrators' current estimates of total final dividends payable by CIC and FAI, allowing the additional claims by SIRA in full would have an impact on other scheme creditors of approximately 1 cent in the dollar for CIC insurance creditors and non-insurance creditors, 0.5 cents in the dollar for FAI insurance creditors and 0.55 cents in the dollar for FAI non-insurance creditors. It should be noted, however, that that impact involves a comparison with the position where SIRA had understated the amount of its claims against CIC and FAI, and other creditors are not deprived of any amount to which they would have been entitled had SIRA submitted the full amount of its claims within the time permitted for such claims under the scheme.
The Court's power under s 1322(4)(d) may be exercised where, relevantly, the contravention is essentially procedural, or the persons concerned had acted honestly, or it is just and equitable that an order be made, and provided that no substantial injustice has been or is likely to be caused to any person: s 1322(6). The conditions specified in s 1322(6) are in the alternative, so that only one of them need be satisfied in order to allow an order to be made under s 1322(4) of the Corporations Act. In Elderslie Finance Corporation Ltd v Australian Securities Commission above at 160, Owen J observed that a person seeking relief under s 1322(4) of the Corporations Act would need to positively show that no substantial injustice has been or is likely to be caused to any person. His Honour noted that the concept of "injustice" required the Court to consider real and not merely insubstantial or theoretical prejudice, and that a degree of prejudice to a person or persons may be outweighed if the overwhelming weight of justice is in favour of making the order sought. In Oil Basins Ltd v Bass Strait Oil Company above, Gordon J also noted that an order could be made under s 1322(4) if, relevantly, no substantial injustice had been or is likely to have been caused to any person, and summarised the concept of "no substantial injustice" (at [71]) as follows, also by reference to authority:
"The reference to 'no substantial injustice' in s 1322(6)(c) (emphasis added) has been held to refer to a real and not insubstantial or theoretical prejudice. Whether there is real injustice requires a weighing of any prejudice if the order is made against the prejudice which would be suffered by other members and creditors of the company if an order was not made…"
Mr Dick, who appears with Mr Barnett for the scheme administrators, points out that whether there is substantial injustice for the purpose of s 1322(6) involves weighing the prejudice if the order is made against the prejudice suffered by the plaintiff if it is not, and relevant matters include whether prejudice would be unfair or inequitable, taking into account the interests of all of those who would have been directly affected by a dispensation: Super John Pty Ltd v Futuris Rural Pty Ltd [1999] NSWSC 627; (1999) 32 ACSR 398; Re Islamic Association Western Suburbs Sydney Inc [2015] NSWSC 638 at [128]; Re Keneally as administrator of Australian Blue Mountain International & Tourist Group Pty Ltd (admin apptd) [2015] NSWSC 937 at [69].
I also note that, in Re Commonwealth Steel Co Pty Ltd above, Brereton J would have accepted that an extension of time was available under s 1322(4)(d) of the Corporations Act in a similar context, although the extension of time there sought was significantly less than the extension of time sought in this case. His Honour there recognised that deadlines as to the submission of claims in a creditors' scheme are imposed for the benefit of all the scheme creditors and there could be unfairness in extending time for one without extending time for others who might have been excluded, but also noted that, in that case, as in this case, there was no suggestion that others had been excluded in a similar situation. His Honour there noted that there had been delay in the applicant in that manner and treated a slight reduction in the dividends available to other creditors as not amounting to substantial injustice to any person. There is a degree of similarity between the facts of that case and the facts of this case, and I will reach the same conclusion as that which Brereton J would have reached, had it been necessary for him to do so, although I recognise that the delay involved in this case was much more substantial than that involved in that case.
Mr Dick points to an initial question of construction of the scheme which is relevant to whether the extension of time to lodge a supplementary Final Claim Form sought by SIRA will have utility. He notes that a Final Claim Form has already been submitted by SIRA and acted upon within the time within which a Final Claim Form must be determined. He points out that the approach adopted by a SIRA in seeking an extension of time assumes that the additional Final Claim Forms to be lodged by SIRA are also Final Claim Forms under cl 25.1 of the scheme, irrespective of the fact that a Final Claim Form has previously been submitted by SIRA. The scheme administrators express the view that, on balance, the scheme would permit them to receive and consider a second Final Claim Form, in circumstances where the Court had considered it appropriate to extend the cut-off date to do so under s 1322 of the Corporations Act, and submit that construction accords with the terms of cl 26.1 and the underlying intention of the cut-off date under the scheme. It seems to me that the scheme administrators are correct in that view. It does not seem to me that there is anything in the language of the scheme which has the consequence that the adjudication of a partial Final Claim Form would prevent the adjudication of a second, or supplementary, Final Claim Form, within the time specified in the scheme, including as extended by the Court. Accordingly, the extension of time that I consider is properly granted, for the reasons noted below, will have the consequence that the scheme administrators will be permitted and obliged to consider the additional Final Claim Forms lodged by SIRA in accordance with the terms of the scheme.
Mr Sulan identifies several factors that support the conclusions that the Court's discretion should be exercised in favour of the extension of time sought by SIRA and that there is no substantial injustice in allowing an extension of time in this case. First, Mr Sulan points to the evidence of the difficulties faced by SRA following the collapse of the HIH Group and the detailed evidence as to the circumstances in which the misunderstanding as to the treatment of reinsurance recoveries and SIRA's related decision not to pursue investigation of the discrepancy between the scheme administrators' and SIRA's estimates of the Final Claim arose. As the narrative set out above indicates, the application for an extension of time arises from a misunderstanding which potentially has significant adverse financial consequences for SIRA, where the actuary who assisted SIRA in submitting its final claims in the Australian scheme checked the original estimate provided by the scheme administrators on the assumption that that estimate was net of insurance recoveries, whereas that financial information was gross of insurance recoveries. As I noted above, that error had the result that the actuary did not identify a discrepancy of about $54.5 million between the information provided by the scheme administrators and the amount that SIRA could properly claim under the scheme, and further claims giving rise to part, but not all, of that discrepancy have now been identified and are the subject of the further claims that SIRA seeks to make in the Australian scheme.
Mr Sulan submits, and I accept, that is not necessary to attribute blame to any party in respect of the incorrect assumption on which the actuary proceeded. It is sufficient to recognise that if that misunderstanding had not occurred and the larger discrepancy of $54.5m which was subsequently identified had been known prior to the submission of the Final Claim Forms, then SIRA would then have conducted the investigation which it subsequently conducted, and the amounts which it has now sought to claim by a further claim would have been included in its Final Claim Forms lodged prior to the cut-off date under the scheme. The scheme administrators indicated that they were also content to proceed on the basis that SIRA could establish that it acted on an incorrect assumption and that it was not necessary for the Court to determine which party had responsibility for the making of that assumption.
Mr Sulan also points to the extent of the amount involved, and the loss which would be suffered by SIRA (and, in a wider sense, the taxpaying public) if its claim were rejected, leading to what is, in one sense, a windfall gain to other creditors. Mr Sulan points to the lack of any suggestion that there are likely to be multiple claims for an extension of time with similar characteristics to that of SIRA, so that allowing an extension of time in this case should not bring about a wider detriment to the administration of the scheme. Mr Sulan also points out that SIRA kept the scheme administrators informed of its investigations undertaken throughout 2014, and the scheme administrators do not suggest that there would be any difficulties in this particular case in dealing with this claim, where it was lodged at this time. I have not neglected the fact that SIRA could perhaps have proceeded more expeditiously than it did, although I recognise that that should be balanced against the need for an adequate investigation given the amount involved, and it seems to me a matter of limited significance in this matter.
The scheme administrators point to several matters that may tend against extension of time sought by SIRA, including the importance of the time limits in cl 25 of the scheme to the overall administration of the scheme; the extended Run-off Period and Estimation Period under the scheme; and the delay before the Final Claim Forms were provided to the scheme administrators in May 2015, 20 months after the cut-off date under the scheme. I accept that cl 25 of the scheme is an important, and indeed critical, clause to the operation of the scheme and that is a matter to be taken into account in the exercise of the Court's discretion. I also accept that the lengthy period of the scheme is relevant, but it seems to me that is a matter that could readily be outweighed, and is outweighed in this case, by an explanation of the circumstances of the delay and significant prejudice to the creditor if its claim is excluded. The scheme administrators are correct that there was a significant delay between the cut-off date and the lodgement of the supplementary Final Claim Forms, although that delay was mitigated, to some extent, by the fact that SIRA had kept the scheme administrators informed as to the progress of its inquiry into the discrepancy it had identified. I have had regard to these matters as relevant to the exercise of the Court's discretion.
The scheme administrators also submit that SIRA has not explained why the three components of the missing claims were not included in the original Final Claim Forms, as distinct from explaining why their omission was not detected. I give little weight to this submission. The evidence led by SIRA indicates a detailed process by which steps were taken to seek to verify estimates of claims provided by the scheme administrators. There is nothing illogical about SIRA having used those estimates as a starting point for its review and lodged its Final Claim Forms on that basis, where it appeared to be broadly consistent with its own calculations. To put it another way, SIRA was not obliged to undertake a freestanding calculation of its own claims, as distinct from a verification exercise in respect of estimates provided by the scheme administrators. I accept, as the scheme administrators also point out, that SIRA could also have acted more promptly in respect of aspects of its investigation, including between April and October 2014, and in seeking assistance from Allianz. However, it seems to me that this matter should also be given little weight, having regard to the other matters to which I have referred, and the fact that there is no suggestion that the delay has had any substantive impact on the administration of the scheme.
I turn now to the question whether substantial injustice has been or is likely to be caused to any person by SIRA's delay, such that an extension of time cannot be granted under s 1322 of the Act. Mr Sulan points out that detriment to a third party is not the same as substantial injustice, and injustice will not be established unless the detriment is unfair or inequitable. I have noted above that admitting the additional claim made by SIRA would slightly reduce the recoveries of insurance creditors and other creditors of FAI and CIC. That, in one sense, amounts to detriment, although only by comparison with the position if they obtained a windfall gain from SIRA's error. It does not seem to me that that amounts to injustice, since it is not unfair or inequitable that SIRA should be entitled to prove for the amount that was properly recoverable in the scheme.
It seems to me that any substantial injustice to other persons in this case could only arise from the possibility that other creditors had not sought or were not given an extension of time of the kind that SIRA seeks. A similar issue was considered, in a somewhat different context, by Brereton J in Re New South Wales Bar Association [2014] NSWSC 1695; (2014) 315 ALR 146 at [107]. However, it seems to me that Mr Sulan is correct in distinguishing that decision on the basis that any detriment suffered by the plaintiff in that case was mitigated by his opportunity to lodge a further application within a year's time, whereas SIRA in this case would be permanently shut out from consideration of its further claims. It also does not seem to me that the possibility that other claimants have not sought extension of time in similar circumstances, which is of course somewhat speculative, gives rise to substantial injustice in the relevant circumstances. First, there is no evidence that other creditors are in a similar position to SIRA, and it is perhaps unlikely that that is the case, given the particular circumstances that affected SIRA's claim, the amount which is involved in it, the fact that SIRA's error occurred despite its retaining professional actuarial assistance, and the time that has passed without any suggestion of other creditors seeking to lodge substantial claims out of time. Second, there is here no inequality of treatment because, if another creditor does have a sufficient basis to support the exercise of the Court's discretion under s 1322 in favour of an extension of time, and moves promptly before the balance of scheme assets are distributed, it also may make an application for an extension of time under s 1322 of the Corporations Act, which would be determined by reference to its particular circumstances.
The scheme administrators also point to the possibility that the lodgement of SIRA's supplementary claims, at this stage, may delay the administration of the scheme, by reason of the time periods permitted for the scheme administrators' determination of the claims; the possibility of referral to a scheme adjudicator if there is disagreement as to the claims; and the possibility of a subsequent appeal to the Court under s 1321 of the Corporations Act. I give little weight to that risk.. There seems to me to be no reason to think that the scheme administrators or a scheme adjudicator will not act promptly, and potentially in less than the maximum time permitted to them, in determining the further claims now lodged by SIRA or any subsequent adjudication, particularly where those claims are in narrow compass. The Court can readily expedite any application under s 1321 of the Corporations Act so as to avoid delay in completion of the scheme.
I am comfortably satisfied, in this case, that the basis for an extension of time under s 1322 of the Corporations Act is established.
The scheme administrators' view that they do not have the power to admit a late or amended claim under the Australian scheme is founded on cl 25.1 of the scheme, to which I have referred above, which they contend precludes them from considering any Final Claim Form or amended Claim Form after the cut-off date of 2 September 2013. The terms of cl 25.1 of the scheme seem to me to be inconsistent with the conferral of a discretion the kind for which SIRA contends on the scheme administrator, so far as they contemplate that a Final Claim Form is to be received on or before the stated date, and cl 26.1 in turn provides for the scheme administrators to determine whether any such liability is an Established Scheme Claim within three months of the cut-off date. Those provisions are not qualified to refer, for example, to those dates or such other dates as the scheme administrators may determine in the discretion.
Mr Sulan contends that the words "shall be entitled" in cl 25.1 of the scheme mean only that a scheme creditor submitting a claim after the cut-off date does not have a right or entitlement to have their claim considered and the clause says nothing about the scheme administrators' discretion. Mr Sulan is correct that that clause is silent as to any discretion of the scheme administrators. However, it seems to me that that reflects the fact that the scheme is based on the concept of entitlements and does not contemplate that creditors should be afforded rights under the scheme by an exercise of discretion by the scheme administrators. Mr Sulan's contention that there is no express prohibition in cl 25.1 or any other clause of the scheme which prevents the scheme administrators from admitting or adjudicating on a claim beyond the cut off date does not seem to me to assist SIRA where there is no express power in the scheme for them to do so.
Mr Sulan also submits that there is good reason why a residual discretion should be left with the scheme administrators under the scheme. That submission has the difficulty, first, that the Court should not construe terms of the scheme by reasoning from an a priori assumption as to how it should sensibly operate, rather than from its terms. Second, in any event, as the scheme administrators point out, the effective working of the scheme was more likely to be promoted by clear rules than by affording discretions to the administrators, which would potentially be costly to exercise and capable of giving rise to dispute. The scheme administrators rightly point out that, with a substantial scheme involving large amounts and many creditors, the conferral of the discretion to extend time on the scheme administrators would potentially require multiple exercises of discretion by the scheme administrators and, it might be added, would reduce the incentive for scheme creditors to comply with the timing requirements imposed by the scheme.
Mr Sulan also draws attention to cl 25.4 of the scheme which permits a scheme creditor to continue a proceeding which was already on foot. That provision also does not seem to me to assist SIRA, since an express provision permitting one course does not support an inference that another and different course should be permitted. Mr Sulan also relies on cl 28.1 of the scheme which provides an express right to admit claims that are the subject of court proceedings commenced or determined after the relevant date in breach of the scheme and asks, rhetorically, why would the scheme administrators not also retain a general discretion under cl 25.1, if the discretion exists for the submission of such claims or liabilities? It seems to me the answer to that rhetorical question is that, first, an express provision dealing with this particular matter does not support an inference of a wider discretion to deal with other matters and, second, there may be good reason to treat judgments of a Court, albeit obtained in breach of the scheme, differently from other claims lodged after the cut-off date.
Mr Sulan also relies on cl 42.1 of the scheme which confers on the scheme administrator a general power to manage, control and administer the property, scheme assets and affairs of a scheme company for the purposes of implementing the Australian scheme, and specific powers and functions. Mr Sulan submits that the broad powers conferred by that clause and the general purpose of the scheme supports a finding that the scheme administrators have a discretion to admit a late claim. I am also not persuaded by that submission. It seems to me that those powers were conferred on the scheme administrators for the purpose of giving effect to the Australian scheme in accordance with its terms, and did not include a power to extend the time for lodgement of final claims which the terms of the Australian scheme did not itself confer. Mr Sulan also submits that the view that the scheme administrators had no power to extend time would lead to unreasonable, inconvenient and unjust results, because they would have no discretion to admit a claim submitted immediately after the cut-off date, irrespective of the explanation for the delay. It seems to me that any cut-off date has that consequence, but a cut-off date is still necessary for the effective administration of the scheme. In any event, it was not necessary for the administrators to have such a discretion, because the Court had that discretion under s 1322 of the Corporations Act.
Accordingly, it seems to me that the scheme administrators were correct that they did not have a discretion to admit a claim after the cut-off date, absent the extension of time for admission of the claim which the Court will grant under s 1322 of the Act for the reasons noted above. Accordingly, their decision, absent the extension of time by the Court, not to accept SIRA's further claim was correct and should not be overturned under s 1321 of the Corporations Act.