Australia: Non-executive director - AIG Australia Ltd v Jaques [2014] VSCA 332

Insurance Quarterly Newsletter

Construction of investment management insurance policy – meaning of the term of non-executive director – whether non-executive director entitled to benefit of special excess limit under the policy


This was an appeal from a decision of a single judge of the Supreme Court of Victoria.

AIG issued an Investment Management Insurance Policy to the company Australian Property Custodian Holdings Ltd (Holdings) (the policy). The policy undertook to repay or reimburse an insured person for any claim made during the policy period for a wrongful management act. The policy operated from 16 July 2010 to 16 July 2011. An insured person was generally a director or non-executive director of Holdings.

Under the policy executive directors were insured for losses up to $5,000,000. Non-executive directors were entitled to extended cover by way of special excess limited to an additional $1,000,000.

Jaques sought further indemnity pursuant to the special excess limit to defend a claim brought against him as a director of Holdings, in respect to alleged wrongful managerial acts that occurred on various dates in 2006, 2007 and 2008.

A special excess limit of the policy provided as follows:

  • 4.71 - Special excess limit
    A separate excess aggregate limit of $1,000,000 for each Non-Executive Director, subject to the total aggregate limit equivalent to the Limit of Liability for all Non-Executive Directors.

A director in the policy was defined as any person who was, now is or during the policy period becomes, an executive or non-executive director of Holdings. A non-executive director was defined as any natural person who serves as a non-executive director of Holdings at the time of any wrongful managerial act.

There was otherwise no other explanation or definition to assist in determining the difference between a director and a non-executive director and it was accepted by the parties that the Corporations Act 2001 offered no definition or criteria that would aid in this regard.

Issues to be determined

The decision is primarily concerned with seeking to define what the role of a non-executive director is in modern corporate life and applying that definition to the facts of Jaques involvement in Holdings and its related entities.

In determining the issue at first instance the court was required to analyse Jaques' role over a period of time when he held roles as director of Holdings and an employee of another entity.

AIG conceded at the trial that Jaques was a non-executive director prior to 6 April 2004 and Jaques conceded that he was an executive director from 26 June 2007 but AIG did not accept that Jaques was acting as a non-executive director from 6 April 2004 up to 26 June 2007 which would entitle him to the special excess cover for claims in regard to wrongful managerial acts during this period.

Jacques involvement with Holdings, its related entities and its various personalities was far from simple. Prime Trust owned retirement villages. Holdings undertook the office of trustee of the Prime Trust. Other entities managed the businesses operated by the Prime Trust properties. Jaques accepted an invitation to become a non-executive director of Holdings in March 2001. In late 2003 Holdings negotiated to purchase a retirement village in Buderim Gardens. A management company was formed to manage the village. Jaques was asked to assist in managing the village and was employed as a general manager of Australian Property Custodians Pty Ltd (Custodians). He ceased to receive a fee from Holdings and became a salaried employee of Custodians.

However on 5 July 2004 Holdings issued a supplementary PDS which included a statement that Jaques was a director of Holdings. As an employee for Custodians Jaques also performed work for Australian Property Syndications Pty Ltd (Syndications) which was related to the Prime Trust. On 26 June 2007 the board of Holdings resolved that deeds of appointment be approved and executed to appoint Jaques as an executive director.

Jaques work and functions during the relevant period were multifaceted and hence the difficulties in characterising whether he had discharged functions as an executive or non-executive director of Holdings. The judgment examines Jaques role and duties in some detail.

Director's role - non executive

Previous authorities would suggest the role of a non-executive director is independent of corporate management. They are not bound to give continuous attention to the affairs of the corporation. Their duties are more intermittent in nature and intended to give an independent review to the actions of management. Another, characterisation was that the role of a non-executive director is to guide and monitor the company, rather than to be involved at an operational level.

Characterising the role of a non-executive director – finding of Court of Appeal

The Court of Appeal upheld the primary judge's finding that Jaques acted as a non-executive director of Holdings, and was entitled to cover under the special excess limit extension of the policy. The appeal was dismissed. The court provided helpful guidance on the roles of executive and non executive directors.

The fact that Jaques was on an employment contract with Custodians, and not with Holdings until June 2007 was an important fact that assisted the court in characterising Jaques' role with Holdings.

Relevantly, the court agreed that generally a non-executive director will be one who is not a full time operative of the company, and who is not otherwise employed by it or is delegated by it to act in its affairs.

The role of the non-executive director is generally considered to be the role of an independent overseer of the board and the company, but without operational or administrative control, which is generally left to the executive directors.

How a director is held out to the public, including the investing public, for example in company publications or corporate lodgings is not determinate.

The subjective views of the board or its individual directors as to their roles is also unlikely to be determinative.

All directors will owe a duty to exercise independent judgment and supervision as a board member. There is no different duty owed between the two roles. However the standard of care owed may vary between executive and non-executive directors.

The actual duties performed by the director is determinative of the issue. The role of a non-executive director is fundamentally different from an executive director due to their lack of involvement in the day to day management of the company.

Lessons for insurers

In circumstances where Jaques' roles in working with the Holding and related entities was multifaceted, AIG may have been better served to avoid coverage uncertainty by seeking to clearly define what it considered to be the role of a executive and non-executive director from the outset of policy cover, given the additional cover it offered to non-executive directors. As the Court of Appeal observed there was no useful definition in the policy and the Corporations Act did not assist. The parties were left to characterise Jaques conduct by relying on a handful of previous decisions of the courts with all the uncertainty that approach entailed.

The decision is otherwise a useful examination of the different roles of executive and non-executive directors, and their duties with reference to previous leading authorities. It will have relevance to corporations law generally and will assist advisors in determining the liability of directors in actions against them in future proceedings.

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”

Related Video
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.