High Court ends costly New Cap saga
Sydney Morning Herald
Saturday September 5, 2009
THE High Court yesterday turned down an opportunity to consider how "commercial morality" intersects with a director's duty not to mislead investors.In refusing leave for two discrete appeals relating to the collapse of New Cap Reinsurance, the High Court also called a halt to one of the longest and costliest court battles of recent years.The investor Duncan Saville, whose Ingot Capital funds management group lost $40 million when a series of natural, aviation and satellite disasters felled New Cap in 1999, was refused leave to appeal against New Cap's former directors and its legal adviser Phillips Fox, one of whose former partners was on the board.Ingot did not pursue an appeal against other prominent original defendants, including New Cap's stockbroker, Macquarie Equities, and its auditor, PricewaterhouseCoopers, which, like Phillips Fox, were involved in the 1998 prospectus for a convertible note issue.New Cap's former managing director, Azmin Daya, separately failed to persuade the High Court that it should hear his appeal against Ingot.In ordering Mr Daya to reimburse Ingot $38 million, the NSW Court of Appeal ruled last year that Ingot did not need to present its case by expressly claiming that investors would have expected New Cap to disclose a blow-out in insurance claims after the prospectus was published but before the notes were issued."The inference that investors would expect that, if such events occurred, [New Cap] would inform investors of them is based on commonplace notions of commercial morality," the Court of Appeal said.Mr Daya, who had not been found liable by Justice Robert McDougall in the initial trial, wanted the High Court to examine whether this "inferred expectation" fell outside the proper legal test for determining when silence amounted to misleading or deceptive conduct.Ingot's bid to appeal focused on its argument that Justice McDougall had not dealt with an important part of its statement of claim and that the Court of Appeal had failed to pick this up.The refusal of leave to appeal means a final reckoning on legal costs. During the original trial alone, the successful defendants spent $33 million.While Ingot is due to receive damages plus interest from Mr Daya, there is doubt over his capacity to pay. In his 2007 judgment, Justice McDougall said New Cap's directors' indemnity insurer had denied liability to Mr Daya and he had told the court he was "impecunious".
© 2009 Sydney Morning Herald