The NSW
Supreme Court recently handed down its decision in Re HIH Insurance Limited (In Liq)[1]. This long-running saga began with the
collapse 15 years ago of Australia’s (then) second largest insurance company,
HIH Insurance Limited, and has since seen a royal commission, the imprisonment
of various senior management figures, and losses totalling more than $5 billion.
This decision
has attracted a lot of attention across the financial and corporate sectors. The decision is the first in Australia to
explicitly accept ‘indirect market-based causation’ in cases involving
misleading or deceptive conduct. This
will potentially pave the way for investors to bring claims against listed
companies who misled the market, without needing to establish direct reliance
on the misleading information.
The case was
brought by several shareholders of HIH who bought shares in the company in the three
years leading up to its collapse. In the
case the parties agreed that HIH had released misleading financial results for
the financial years ending 30 June 1999 and 2000, which overstated the
company’s profits by some $92 million and $108 million respectively. These overstatements related to the
accounting treatment of complex reinsurance contracts entered into by
subsidiaries of HIH.
