CGU Insurance Limited v Blakeley &Ors
HCA 2 (11 February 2016)
High Court confirms certain third party claimants may apply to
join insurers directly to proceedings against an insolvent company
when indemnity has been declined
Akron Roads Pty Ltd (in liquidation) (Akron)
commenced proceedings in the Victorian Supreme Court
(VSC) against Akron's former directors
including Trevor Crewe (Crewe) and Crewe Sharp Pty
Ltd (CS) alleging that Crewe and CS were liable
for loss and damage suffered by Akron's creditors as a result
of alleged insolvent trading.
CS claimed under their professional indemnity insurance held
with CGU Insurance Limited (CGU) in relation to
the insolvent trading claim. Crewe was also an insured under the
policy. CGU declined to indemnify both parties on the basis of the
directors and officers and trading debts exclusion in the
During the proceedings, CS went into liquidation and Crewe
indicated he would be unable to satisfy any judgment made against
him. Akron applied to the VSC to join CGU to the proceedings as a
defendant and for leave to seek a declaration that CGU was liable
to indemnify CS and Crewe. CS and Crewe were unable to take steps
to contest the denial of indemnity.
Akron relied upon section 562(1) of the Corporations Act which
provides that a company or its liquidator is obliged to pay to a
third party any amounts received from an insurer under an insurance
contract in respect of the company's liability to a third
An analogous provision can be found in section 117 of the
Bankruptcy Act 1966 (Cth).
At the first instance, Judd J made the orders sought by Akron
and held that the liquidators were entitled to seek declaratory
relief because they had "sufficient interest" in
the proceeds of insurance.
On appeal, CGU contended that the Court did not have the
jurisdiction to make orders with respect to liquidators as they
were strangers to the insurance contract between CGU and the
parties, who were not challenging the denial of liability.
The appeal was dismissed on the basis that whilst it is
generally accepted the contracting parties have an interest in the
contract to which they are parties, the position changes when an
insured becomes insolvent and there are unpaid claimants whose
claim would ordinary be responded to by an insurance policy.
TheHigh Court Decision
CGU successfully applied for special leave to appeal to the High
The High Court found that CGU's denial of indemnity
constituted a "justiciable controversy"between
CGU and Akron.
The appeal was unanimously dismissed on the basis that CGU's
denial of indemnity and sections 562 of the Corporations
Act and 117 of the Bankruptcy Act meant that
liquidators had sufficient interest in the determination of whether
CGU was entitled to deny indemnity.
Nettle J confirmed that whilst it is not normally appropriate to
make decisions about the effect of a contract on application of a
non-party to the contract, this was an exception as it could not be
rationally said that a claimant who qualifies as a beneficiary
pursuant to section 562 or section 117 is an
"outsider" to the relevant policy of
This case opens the gates for liquidators and other claimants to
join insurers to proceedings when indemnity has been denied by the
insurer to insolvent defendants. There may be a significant
increase in exposure to third party claims as a result.
However, it should be noted that two main criteria must be met.
Namely, that the insurer denies liability for a claim and the
insured is insolvent and unwilling or unable to do anything to
contest the denial.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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