Liquidator Pursues General Re For $400m Over Hih Takeover Bid

The Age

Friday June 9, 2006

ELISABETH SEXTON, SYDNEY

HIH liquidator Tony McGrath has decided to pursue his long-planned $400 million damages claim against General Re, the reinsurance arm of Warren Buffett's Berkshire Hathaway.

Mr McGrath's lawyers alerted Gen Re's solicitors, Allens Arthur Robinson, to the decision on May 30.

It remains to be seen whether the case will also proceed against other potential defendants. These include parliamentary secretary to the Prime Minister, Malcolm Turnbull, and his former employer, investment bank Goldman Sachs, which was FAI's financial adviser when it was taken over by HIH in 1998.

In a preliminary court skirmish in February with Gen Re over access to documents, Mr McGrath undertook to give the reinsurer advance notice once a decision had been made.

The claim, which seeks compensation for HIH's decision to spend $300 million to takeover FAI, was filed in the NSW Supreme Court in 2004 but has not been served on any defendant.

Other targets named on the court file include former FAI executives Rodney Adler, Tim Mainprize and Daniel Wilkie, and international reinsurance broker Guy Carpenter & Co.

The NSW Supreme Court has also given Mr McGrath a three-month extension to serve his other big damages suit - also seeking hundreds of millions of dollars - relating to losses incurred by HIH continuing to trade while insolvent.

Gen Re and Guy Carpenter are also named as potential defendants in that suit. Its other targets include the now-defunct audit firm Arthur Andersen and HIH actuary David Slee.

The extension was opposed by Gen Re and Guy Carpenter, who both argued it was time to bring matters to a head.

But Justice Carolyn Simpson said in a judgement yesterday that Mr McGrath deserved extra time to negotiate a settlement.

Mr McGrath told the court he could achieve a settlement in principle by September 30.

Lawyers for Gen Re and Guy Carpenter both told the court that no negotiations were under way with their clients, leaving Arthur Andersen as the most likely candidate to settle.

Guy Carpenter, a subsidiary of US-listed insurance and consulting group Marsh & McLennan, acted as broker in 1998 when FAI bought a reinsurance contract from National Indemnity, a subsidiary of Berkshire Hathaway, which the HIH commission found allowed FAI to overstate profits by $29 million.

Gen Re, which was taken over by Berkshire Hathaway in 1998, sold FAI a second policy, which the royal commission found boosted the same profit by $28 million. It is understood that Gen Re plans to vigorously defend both suits.

© 2006 The Age

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