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Note: Applicant, New Cap Reinsurance Corp. Ltd. reinsurered Insurer, All American Life Insurance Co. At Applicant's request Issuer, Chase Manhattan Bank, issued an LC in favor of Insurer in an amount equal to Applicant's portion of Insurer's loss reserves.

Applicant was liquidated and Insurer subsequently fully drew on the letter of credit. Applicant sought recovery of the entire US $ 1,660,311 Insurer drew under the LC, alleging that:

"[T]he LOC transaction was a 'transaction' within the meaning of that term in [Applicable Australian law], that it was entered into at a time when [Applicant] was insolvent ... and that it resulted in [Insurer] receiving from the [Applicant] more than it would have received if the LOC transaction was set aside and the defendant was to prove for the debt in the winding up. It was pleaded that the LOC transaction was an unfair preference ..., that it constituted an insolvent transaction ... and that it was voidable ... ."

Insurer sought to strike Applicant's statement of claim as disclosing no reasonable cause of action. The Supreme Court of New South Wales, Equity Division, Gzell, J., dismissed Insurer's interlocutory process, ruling that dismissal of the claim on a summary dismissal basis was inappropriate.

Insurer argued that "the statement of claim was defective in that the pleading of the LOC transaction did not specify any change in the rights, liabilities or property of the first plaintiff." Insurer also contended that the not all the elements of the LC transaction were entered into prior to the insolvency of Applicant and therefore did not constitute an insolvent transaction under the Applicable Australian law.

On the unfair preference issue, the appellate court stated that:

"[T]he pleading was sufficient to identify for the defendant the allegation made with respect to a transaction alleged to fall within the scope of the [Applicable Australian law]. The pleading identified the steps of the alleged transaction and asserted the benefit obtained by the defendant from its participation in it. The defendant was forewarned with sufficient particularity of the nature of the case it must meet."

On the voidability issue, the appellate court stated that "the [Applicable Australian law] did not require all elements of a transaction to have occurred within the six month period. At the least that is a strongly arguable proposition such that the pleading should not be struck out at this stage on that basis."

[JEB/lhd]

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