24 April 2024

Tempo Holidays Pty Ltd (In Liq) v Tully & Berkley Insurance Australia

Holman Webb


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Recent case considers the application of the duty of disclosure in insurance contracts.
Australia Insurance
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On Friday 19th April 2024, Justice McElwaine handed down judgment in the matter of Fitzgerald, in the Matter of Tempo Holidays Pty Ltd (in liq) v Tully & Berkley Insurance Australia [2024] FCA 391, which considers the application of the Duty of Disclosure in Insurance Contracts.

Holman Webb Lawyers acted for Berkley Insurance Australia (BIA), the successful defendant in the proceedings.


Tempo Holidays was part of the international corporate travel group, Cox & Kings.

The travel industry is seasonal, and to manage seasonal cash flow issues, members of the group participated in an arrangement known as the Global Treasury Arrangement (GTA)

Tempo Holidays paid funds to the GTA through unsecured and undocumented loans when it had excess cash reserves. Ideally, during seasonally lean periods, funds would be drawn down from the Fund, including by Tempo.

In 2008, Cox and Kings acquired Tempo Holidays Australia and Mr Peter Kerkar became an executive Director. He was primarily based in India.

Patrick Tully was Peter Kerkar's brother-in-law. In November 2008, he became a non-executive director of Tempo to comply with the requirement for an Australian Resident Director.

Tully was not involved in Tempo's day-to-day operations. While no regular board meetings were held, Tully would visit the Tempo offices whenever he was in Melbourne on other business.

Sudarshan Madan had been the CFO for Tempo since 2009. Madan was a Chartered Accountant.

Tempo held cover with BIA under a Management Liability Policy.

The proposal for renewal of the policy was signed by Madan.

In August 2019 Tully became aware of the increasingly distressed financial state of Cox and Kings. He resigned as a Director of Tempo on 19 August 2019.

On 20 September 2019, Tempo was placed into Administration.

The policy in question lapsed at 4 pm on 31 March 2020. By letter of the same date, the liquidator asserted among other things that Tully had been engaged in Insolvent Trading from 26 June 2019 until 20 September 2019. BIA declined indemnity on 17 April 2020 based on an Insolvency exclusion.


The Liquidator and Tempo (in liquidation) commenced proceedings against Tully on 10 December 2021. On 5 April 2022, the Liquidator commenced proceedings directly against BIA alternatively under the Bankruptcy Act or the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW).

The claim made in the Statement of Claim against BIA identified a breach of directors' duties by Tully which were said to have led to unsecured loans to the GTA, that were not repaid. These loans were made between 16 April 2019 and 19 June 2019 (before the period of insolvent trading specified in the Demand) and totalled $5,8m.

Key among the duties said to have been breached by Tully was that imposed by s.180 of the Corporations Act, namely, "A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would if they (a) were a director or officer of a corporation in the corporation's circumstances; and (b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer."

On 20 December 2023, the plaintiffs entered into a settlement deed by which Tully consented to the entry of judgment against him for a sum just over $30M, of which $24.2M was apportioned to the insolvent trading claim and $5.8 for the breach of Directors Duties Claim. BIA's consent to the settlement was not sought.

His Honour found the Plaintiffs had not established that the settlement which Mr Tully entered into was reasonable. He found that Tully had consented to judgment in the full amount of the breach of the director's duty claim, save for interest and costs. He found that Tully had capitulated by consenting to judgment for the principal amount of the claim in circumstances where there was no evidence of any attempt by him to negotiate a discount, reflecting a compromise, in circumstances where the only evidence was that Tully said that he was advised that it would cost him $160,000 to defend the matter. He was advised he had a 70% chance of losing, although it was unclear whether that assessment concerned the Directors Duties claim or the Insolvent Trading Claim.

His Honour concluded that the plaintiffs had not discharged their onus of proving the reasonableness of the settlement, as the basis to establish the claim against BIA.

In relation to the alleged Breaches of Directors Duties claim, His Honour found that the Plaintiffs had:

  1. Failed to identify Mr Tully's relevant powers or duties which had been breached
  2. Failed to identify and prove why it should be accepted that Mr Tully breached his duties in allowing the five payments to be made under the GTA between 16 April and 19 June 2019, when he was not earlier in breach of the same duties concerning the operation of the GTA
  3. Failed to establish that any breaches of duty by Mr Tully caused Tempo to suffer loss


Whilst those findings were sufficient to dismiss the proceedings, His Honour went on to determine that the Insured had breached its duty of disclosure to BIA prior to inception of the policy on 31 March 2019. His Honour found that a reasonable person in the position of the insured would have known that the following matters were relevant to BIA in determining whether to accept the risk and, if so, on what terms:

  • That the company was insolvent as of 31 March 2019
  • That the company was, as of 31 March 2019, experiencing a Liquidity Crisis, namely that it was unable to pay its debts as and when due, and its ability to pay its debts was entirely dependent upon the receipt of funds from the GTA under which Tempo was owed more than $32 million. Urgent requests for payment made by Tempo had been ineffective, leading to a reasonable inference that the monies might not be repaid.
  • That Tempo provided a letter of accession to a Bank Guarantee on 18 June 2018, thereby exposing itself to a contingent liability of up to USD$187 million, an amount that far exceeded the net assets of Tempo of $407,530

Mr Madan, the CFO of the Insured, who completed the insurance proposal, was held to be aware of those matters.

His Honour held that the evidence from Mr McPhee, the National Underwriting Manager of BIA, established that had BIA been made aware of any of those three matters alone or in combination, BIA would have refused to write the risk. His Honour stated;

'I was favourably impressed by his evidence given without equivocation, concessions were appropriately made and I have no reason to doubt his credibility. The substantial evidence that he gave was that if a number of matters, relevantly for present purposes those which were required to be disclosed by Tempo, had been disclosed at the time then Berkley would not have accepted the risk. The cross-examination did not undermine that evidence.'

The decision highlights the importance of clear underwriting evidence to establish what an insurer would have done in the event of a breach of the duty of disclosure and that the matters an insured may be required to disclose can include the financial viability of the company.

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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