On 5 March 2012, the NSW Supreme Court held in Amaca Pty Ltd
(under NSW administered winding up) & Ors v Messrs A G McGrath
& C J Honey (as liquidators of the HIH Group of Companies)
& Anor  NSWSC 176 that the reinsurance proceeds be paid
contrary to general principles on the basis that it is just and
Amaca held a policy of insurance with HIH which was covered by
contracts of reinsurance.
The general rules for the distribution of the assets of a
company in liquidation including its reinsurance assets are
governed by section 562A(1)-(3) of the Corporations Act and
essentially provides that a liquidator of an Australian insurer is
required to pay the proceeds of reinsurance received by them (net
of expenses of or incidental to collecting the proceeds) to certain
insureds in priority to other creditors (for example, unsecured
Amaca brought proceedings against the HIH liquidators seeking an
order under section 562A(4) of the Corporations Act that the
general rules do not apply to the receipt of specified reinsurance
monies and that those monies should be paid by the Liquidators to
them as priority.
Section 562A(4) states:
"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 the manner that the Court considers
just and equitable in the circumstances".
The "just and equitable" criteria contained in section
562A(4) provide the Court with wide discretion. Further, section
562A(5) of the Corporations Act lists certain matters that the
Court may take into account in considering whether to make the
orders sought by Amaca, including:
"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
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
Whether particular relevant contracts of insurance include
statements to the effect that the contracts are to be protected by
Whether a person to whom an amount is payable under the
relevant contract of insurance would be severely prejudiced if
subsections (2) & (3) applied to the amount received under the
contract of reinsurance".
Justice Black held that it was just and equitable to make the
orders sought by Amaca on the following basis:
The limited role played by HIH in insuring the risk;
The unusually direct relationship between the Plaintiffs and
the reinsurers and the fact that Amaca paid their premiums to HIH
for cover to be afforded by the reinsurers rather than HIH;
Payments which were received by HIH were directly linked to the
reinsurance arrangements referrable to the James Hardie Group;
The prejudice to Amaca of being deprived of the proceeds of the
reinsurance for which they bargained for would be significant and
the adverse impact of the orders sought on the other insurance
creditors of HIH would be widely diversified and therefore, the
detriment suffered to any individual creditor limited.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The failure of a party to call a witness does not necessarily give rise to an adverse inference being drawn in accordance with Jones v Dunkel (1959) 101 CLR 298. An unfavourable inference is drawn only if evidence otherwise provides a basis on which that unfavourable inference can be drawn.
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