New Cap Reinsurance Corporation Ltd v HIH Casualty & General Insurance Ltd

The discretion under section 130(2) of the Insolvency Act 1986 is broad and unfettered. The court must decide what is right and fair in the circumstances of the particular case. Relevant factors may include the risk of inconsistent findings, the interrelationship between proceedings, their readiness for trial and the likely burden on the insolvent estate. The existence of other actual or potential litigation may carry little weight where its nature and significance are not supported by detailed evidence. An appellate court may interfere only for an error of principle or where the decision is plainly wrong.

HIH, an Australian insurance company in provisional liquidation, was defendant in two related actions brought by New Cap Reinsurance Corporation Ltd and Gordian Runoff Ltd. The actions formed part of wider litigation involving alleged reinsurance and retrocession agreements.

Etherton J granted leave under section 130(2) of the Insolvency Act 1986 for the two retrocession actions to proceed despite the statutory stay. HIH appealed, arguing that the judge had failed to give sufficient weight to the burden of numerous other proceedings and the interests of unsecured creditors. The central issue was whether the judge had erred in principle or exercised his discretion plainly wrongly.

1. Appeals dismissed. The orders lifting the statutory stay in respect of the retrocession litigation were upheld. The appellants were ordered to pay the respondents’ costs, to be assessed or agreed, and those costs were to be expenses in the provisional liquidation.
2. Section 130(2) of the Insolvency Act 1986 confers a broad and unfettered discretion on the Companies Court. The governing question is what is right and fair in the circumstances of the particular case. This principle was stated in Re Aro Ltd [1980] Ch 186.
3. The judge was entitled to treat the interlocking nature of the Mainframe Litigation and Retrocession Litigation, the risk of inconsistent findings, the advanced stage of preparation and the imminent trial date as substantial factors favouring continuation of the actions. He was also entitled to conclude, on the evidence before him, that the existence of other pending or potential litigation should receive no real weight. Different evidence might have justified a different assessment, but the conclusion reached was unassailable on appeal.
4. The fact that the matter was finely balanced, or that the decision might have gone either way, did not justify appellate intervention. The judge had committed no error of principle and his decision was not plainly wrong.
5. The court declined to direct the provisional liquidators to be bound by all findings in the related litigation. They had a commercial choice whether HIH should take no part, participate fully, or adopt an intermediate position. The court had no satisfactory grounds to dictate that choice.

• Court of Appeal (Civil Division): Appeals from orders made by Etherton J on 28 November 2001 were dismissed. The orders had lifted the stay under section 130(2) of the Insolvency Act 1986 in respect of the retrocession litigation.