A recent decision by the NSW Court of Appeal concerning parties
making claims against directors and officers provides some
certainty for directors and insurers with regard to the proceeds of
The Court ruled that parties making a claim cannot assert a
statutory charge over the proceeds that would prevent the directors
and officers from accessing the policy to fund their defence costs
before judgment is handed down.
There has been great uncertainty about the issue since the New
Zealand High Court handed down the 'Bridgecorp' decision in
September 2011, which stated that a provision of the Law Reform
Act 1936 (New Zealand) operated to ensure civil claimants had
first claim over the insurance monies, and that the directors could
not access the insurance funds for defence costs. (
See our previous alert on the issue here.)
This initial decision was overturned by the New Zealand Court of
Appeal in February 2013. (
See previous alert.) The case is currently on appeal to the New
Zealand Supreme Court (the highest court in New Zealand). The
decisions are relevant to Australia because the New South Wales
Law Reform (Miscellaneous Provisions) Act 1946 was
modelled on the New Zealand legislation and contains a similar
The clarification was sought in relation to various claims that
resulted from the collapse of the Western Australia-based Great
Southern managed investment scheme. The underlying litigation has
been conducted in Victorian and Western Australian courts. The
Court was asked to consider numerous issues, including whether
section 6 imposed a charge on insurance money that precluded the
payment of defence costs.
The Court decided the matter on the basis that there was
insufficient territorial connection to NSW for the legislation to
apply, however it also went on to consider how section 6 might
operate had the territorial requirements been satisfied.
The Court concluded that the charge under section 6 would not
extend to money payable under a policy for defence costs before any
judgment or settlement has been decided.
There is nothing on the face of s 6 to suggest that it
was intended to alter the contractual rights of the parties in such
a radical fashion. If the New South Wales Parliament intended s 6
to have such a drastic effect on the contractual rights of an
insured, it could be expected to have provided so in express terms.
While this judgment is not binding, it provides a degree of
certainty for insurers, as well as directors and officers, that
policies intended to fund costs defending an action may be used to
do just that.
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The failure of a party to call a witness does not necessarily give rise to an adverse inference being drawn in accordance with Jones v Dunkel (1959) 101 CLR 298. An unfavourable inference is drawn only if evidence otherwise provides a basis on which that unfavourable inference can be drawn.
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