FAI Insurances Ltd (in Liquidation) & Ors v Mainprize & Ors; HIH Insurance Ltd [2006] NSWSC 554 | Case summary

JUDGMENT 1 HER HONOUR: At issue in these proceedings is a claim by the plaintiffs for orders extending the time for service of a number of statements of claim, the operative versions of which were all filed on dates which, absent the orders now sought, will be valid for service only until 30 September 2006. 2 The application was heard in the course of my tenure as Duty Judge, with the limitations on available time that that entails. All participating parties agreed that they would not require "comprehensive reasons". Accordingly, these reasons will be somewhat more attenuated than would ordinarily be the case. 3 It is a matter of notoriety that, in 2001, HIH Insurance Ltd ("HIH Insurance") collapsed. Provisional liquidators and then liquidators were appointed. The liquidation process has commenced and proceeded some distance. A very large number of interlocking companies constitute the group of which HIH Insurance is a part. 4 The liquidators have determined to commence proceedings against a vast number of defendants. So too have the liquidators of FAI Insurances Ltd ("FAI Insurances"), also in liquidation. Eight separate statements of claim have been issued. None has been served. These proceedings are concerned only with seven of the eight proceedings. It will, however, be necessary to mention the eighth. 5 The defendants to the various proceedings include the partners of a firm of auditors; an actuary firm and its principal; executive directors of FAI Insurances; an insurer and reinsurer (General Reinsurance Australia Ltd, known as GCRA), and providers of services to insurers, and an insurance and reinsurance broker (Guy Carpenter and Company); executive and non-executive directors of HIH Insurances or related companies, and two individuals. In the seven proceedings the subject of the present application, in which the plaintiffs (which include HIH Insurance and FAI Insurances) are represented by Messrs Clayton Utz, solicitors, the plaintiffs seek recovery of dividends, or dividends or other damages, arising out of what is asserted to have been the continued trading of relevant companies after they were known to be insolvent. The eighth proceeding, in which the plaintiffs are represented by Messrs Blake Dawson Waldron, solicitors, relate to a takeover by HIH companies of FAI companies. 6 The statements of claim the subject of the present proceedings were issued by Clayton Utz on behalf of the plaintiffs between 2002 and 2006. Three have been amended at least once. Between late 2003 and December 2005 the liquidators engaged with various defendants in what is described as "an engagement process" in an endeavour to resolve the proceedings extra-curially. It is for this reason that the statements of claim have not been served. 7 By UCPR rule 6.2(4) an originating process filed in this Court is valid for service for six months after filing. By rule 1.12 the Court may, by order, extend any time fixed by the rules. Six of the present statements of claim were filed before 30 December 2005. Each has been the subject of at least one extension of time. Each is now valid for service until 30 September 2006. Notice of previous applications for extension of time was not given to the defendants who were therefore not represented and did not participate in the decision. In the ordinary case, that would be expected, since the defendant would not have notice of the substantive proceedings. However, in these unusual cases, the defendants have all received informal notice of the proceedings, and are aware of the nature of the claims to be made against them. Many, if not all, have actively participated in the negotiations directed towards resolution of the claims. Some are still engaged in that process. 8 Although, perhaps, they were not strictly obliged to do so, the plaintiffs gave notice of their intention to make the present applications. Some defendants have consented. Others have agreed, either unconditionally or on specified terms, not to oppose the extension; others have declined to state a position; and others still have not responded. GCRA and Guy Carpenter and Company, defendants to proceedings numbered 20033 of 2004 actively oppose the orders sought on behalf of the plaintiffs. 9 The area of dispute between the actively involved parties is within a narrow compass. It is necessary to refer only to a relatively small amount of the evidence tendered. 10 The liquidators wish to continue negotiations with those of the defendants who are prepared and willing to do so. That does not, it seems, include GCRA or Guy Carpenter and Company. 11 The liquidators believe that the prospects of settlement are good. So optimistic are they that Mr Anthony McGrath, one of the liquidators who swore an affidavit in support of the applications, believes that a settlement (subject to court approval) can be achieved by 30 September 2006. Mr McGrath also believes that those prospects would be diminished in the event that an extension of time is not granted, with the result that the plaintiffs will be forced to serve the statements of claim, thus setting in motion the procedures of the Court, particularly the case management procedures. This, Mr McGrath believes, will distract the parties from the settlement negotiations, and require them to give their attention to matters of preparation. He considers that the negotiation process will be jeopardised if the statements of claim are served. He also considers that that prospect will be detrimental to creditors of HIH Insurance. 12 Given that evidence, and the apparent willingness of a large number of defendants other than those who oppose the applications, the interests of justice would appear to favour the making of the orders sought. However, there is another consideration. Apparently, Messrs Blake Dawson Waldron have decided that the proceedings in which they represent the plaintiffs are unlikely to be resolved by negotiation, and they therefore propose to serve those statements of claim by the invalidity date, which is also 30 September 2006. 13 It is, it seems, inevitable that this Court will implement procedures designed to reduce, so far as possible, the costs and time which will be required to be devoted to this complex and lengthy litigation. This will include, if it is possible to do so, marrying up all eight sets of proceedings, for the purposes of case management, directions, and, ultimately, hearing. Once the Blake Dawson Waldron proceedings are served, those case management procedures will commence, and, if the present proceedings have not been served, the desired alignment will be lost. That is one of two bases upon which the opposition of GCRA and Guy Carpenter and Company is founded. The other is that the proceedings have been in existence, and those defendants have been aware of them, since February 2004. The time has come, they argue, to bring these matters to a head. They are no longer engaged in active negotiation, and, I would infer, do not wish to re-engage. 14 Their desire to bring some certainty and finality to their position is one with which I have some sympathy. It is a matter of some weight in the balance. 15 The Uniform Civil Procedure Rules give no guidance as to the principles applicable to an application such as this. I was referred to a decision of the House of Lords in Kleinwort Benson Ltd v Barbrak Ltd [1987] 1 AC 597, with respect to the parallel English rule. There the test applied was whether the evidence showed "good reason" for extending the time. That, too, was an unusual case, and the first instance judge concluded that good cause had been shown. 16 The House of Lords upheld that view. Their Lordships simply stated the "good reason" as the saving of unnecessary proceedings and costs, without any prejudice to the defendants. 17 I have concluded that the orders ought to be made. While, as I have indicated, I have some sympathy with the wishes of the resisting defendants to finalise their involvement, I do not think that outweighs the interests of the large number of other parties, and the creditors of the failed companies. 18 Accordingly, I propose to make the orders sought. I will require the plaintiffs to bring in short minutes of order in order to ensure that orders are made in respect of all necessary parties, whether participating in these proceedings or not.

FAI Insurances Ltd (in Liquidation) & Ors v Mainprize & Ors; HIH Insurance Ltd

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Before

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Judgment (12 paragraphs)

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