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This article looks as the case of HIH. What started off as a seemingly simple request to the court for directions ended up going through the appeal courts and became a fiercely contested battle of the jurisdictions with the central question being, should a case be remitted to a foreign jurisdiction particularly when a class of creditors may be adversely affected by that decision. This article looks at the repercussions of the decision and how future cases may well be decided.
On 9 April 2008 the House of Lords handed down its decision in the case of McGrath and another and others ? Riddell and others1. What started out as a request for directions to the court ended up as a major legal journey to the House of Lords to test out the meaning and extent of section 426(4) of the Insolvency Act 1986 and to ascertain as to whether remission to a foreign jurisdiction was permissible even if a group of creditors may, on the face of it, be prejudiced.
The case concerned the company HIH Casualty and General Insurance Limited (HIH). This was an Australian company that was also registered in England as a foreign company. HIH operated both in the primary and re-insurance market. The majority of the company's assets and liabilities were in Australia, with 20% of the assets being held in the UK.
The HIH group failed in 2001 and this company was placed into Provisional Liquidation in Australia on 15 March 2001. On 16 March 2001 the High Court in England also appointed Provisional Liquidators. HIH was placed into liquidation. In 2005 the liquidator in Australia decided to seek the intervention of the courts of England and Wales. The reason for this was due to the fact that the rules on distribution in England and Australia were different. In Australia there is different treatment depending on type of claim (insurance or non-insurance). In addition, preferential treatment can be given on the basis of location, for instance, whether the liabilities are in Australia or elsewhere.
Section 116(3) of the Insurance Act 1973 in Australia states:
"In the winding-up of a general insurer, the insurer's assets in Australia must not be applied in the discharge of its liabilities other...