Australia: Insurers must come to the liquidator's party

Key Points:

In some circumstances a plaintiff/claimant can bypass a defendant (even an insolvent one) and seek a declaration against the defendant's insurer.

The High Court has confirmed that, if a defendant is insolvent, the plaintiff may seek a declaration that the defendant's insurer is liable to indemnify the defendant, at least when:

  • the insurer has denied liability;
  • the defendant has not accepted the denial of liability; and
  • the defendant is unable or unwilling to pursue the claim against the insurer (CGU Insurance Limited v Blakeley [2016] HCA 2).

This ought to prevent insurers from denying liability or sitting on the fence as a strategy to frustrate claims by those who have a real interest in insurance proceeds where the insured itself either cannot or has no incentive to pursue a claim. However, it does not mean that a plaintiff/claimant can otherwise bypass an insured defendant (even an insolvent one) and go straight to their insurer.

The insurer's denial

On 9 April 2013, the liquidators of Akron Roads commenced insolvent trading proceedings against three former directors of Akron Roads (including Mr Crewe) and Crewe Sharp Pty Ltd, alleged to be a de factor or "shadow" director of Akron Roads. Crewe Sharp claimed indemnity in respect of the claim under a professional indemnity insurance policy issued to it by CGU.

On 6 March 2014, CGU denied indemnity and on 20 June 2014, Crewe Sharp entered into creditors' voluntary liquidation.

On 20 August 2014, the Akron liquidators applied to join CGU as a defendant to the proceedings and for leave to amend their claim to seek a declaration that CGU is liable to indemnify Mr Crewe and Crewe Sharp under the insurance policy in respect of any judgment obtained against those parties.

On 13 February 2015, the Supreme Court of Victoria made those orders. CGU unsuccessfully appealed against those orders to the Court of Appeal and then to the High Court.

The question on appeal to the High Court

The question on appeal to the High Court was whether federal jurisdiction invested in the Supreme Court of Victoria authorises the Supreme Court to entertain a claim by a plaintiff for a declaration against a defendant's insurer that the insurer is liable to indemnify the defendant.

The question was within the subject matter area of federal jurisdiction because it depended upon the existence of a liability of Mr Crewe and Crewe Sharp under the Corporations Act (ie. federal legislation) to enliven the indemnity obligation under the insurance policy. Although this may seem straightforward, the parties and the Victorian courts had not proceeded on that basis.

To enliven the requirement to claim declaratory relief, however, there also needed to be a justiciable controversy between the Akron liquidators and CGU.

The Akron liquidators were entitled to join CGU and seek the declaration

Section 562 of the Corporations Act essentially requires a liquidator of an insolvent company (such as Crewe Sharp) to pay over to third party liability claimants (such as the Akron liquidators) amounts recovered under a liability contract of insurance (such as the CGU policy) in respect of the insolvent company's liability to the third parties, after the liquidator has deducted its expenses of or incidental to getting in the insurance proceeds.

Section 117 of the Bankruptcy Act 1966 (Cth) contains an analogous provision in respect of bankrupt individuals.

Accordingly, although neither Crewe Sharp, nor its liquidators, nor Mr Crewe, had accepted CGU's denial of indemnity (and Mr Crewe in fact disagreed with the decision and consented to the joinder of CGU), none of them had an incentive to pursue CGU because any potential gain would need to be handed over to the Akron liquidators.

CGU had argued that the courts had no jurisdiction at the suit of a stranger (ie. the Akron liquidators) to grant declaratory relief as to the meaning and effect of private contract (ie. the insurance policy) between parties (ie. CGU, Crewe Sharp and Mr Crewe) who will not pursue any claim relating to rights or duties under that contract. However, the majority in the High Court found that:

  • the claim did not involve principles of contract law or privity of contract because the Akron liquidators were not claiming as a party to the insurance contract nor as persons otherwise entitled to the benefit of that contract;
  • rather, the claim was based upon the legal consequence created by section 562 of the Corporations Act if CGU is liable to indemnify Crewe Sharp;
  • that legal consequence would be the bringing into existence of a right of the Akron liquidators to the proceeds of the insurance policy payable to Crewe Sharp in respect of its liability to the Akron;
  • that interest and CGU's denial of liability constituted a justiciable controversy between the Akron liquidators and CGU;
  • the effect of section 562 of the Corporations Act and section 117 of the Bankruptcy Act is that it is the Akron liquidators, to the exclusion of Crewe Sharp and Mr Crewe, who stand to benefit from the declaration sought; and
  • it would be to "distinctly to ignore" that reality if the Akron liquidators' interest could be defeated by reason of inaction by Crewe Sharp (whose liquidators were without funds) and Mr Crewe against CGU given that the statutory provisions deprived them of any incentive to pursue a claim under the insurance policy.

Practical implications and limits of the CGU decision

If CGU had succeeded, then absent some other direct right of a plaintiff to proceed against a defendant's insurer (eg. as a party to the insurance policy or under a statutory provision such as section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) or its equivalents in the ACT and NT), a plaintiff claiming against an insolvent but insured person would be in the invidious position of having to either first obtain a judgment against the insolvent party, or waiting for the company to be deregistered so as to use section 601AG of the Corporations Act, or funding the defendant's liquidator or trustee in bankruptcy to pursue a third party claim against the insurer. A corollary of this is that insurers could have frustrated potentially valid claims by denying liability or sitting on the fence.

The High Court's decision does not mean, however, that a plaintiff/claimant can always bypass a defendant (even an insolvent one) and seek a declaration against the defendant's insurer. Clearly, it was relevant to the majority's decision that neither Crewe Sharp nor its liquidators nor Mr Crewe had the ability and willingness to pursue the insurance claim. That will not always be the case, even if a company is insolvent or an individual is bankrupt (for example, a liquidator may have funds and use those funds to pursue an insurance claim).

There is a further matter that still may lead to further dispute as a result of the decision. A plaintiff could seek to join a defendant's insurer prior to the formal insolvency of a defendant if an insured defendant has insufficient means to satisfy the claim and does not pursue the insurer. Although such circumstances may give the plaintiff a real interest in seeking a declaration against the insurer (because a judgment against the defendant may otherwise be ineffectual), such circumstances would not be on all fours with the ratio of the majority decision, which turned upon the legal consequence of section 562 of the Corporations Act (and by implication, section 117 of the Bankruptcy Act), which only operate in an insolvency context.

You might also be interested in...

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.