This week’s TGIF considers Re Akron Roads Pty Ltd (in liq) (No 3) in which the Court held that the liquidators had standing to seek a declaration against an insurer arising from the assignment of rights under a policy.
The previous High Court decision
The background facts of this matter were set out in the recent High Court decision of CGU Insurance Ltd v Blakeley (2016) 90 ALJR 272, which was the subject of our article: After CGU Insurance Ltd v Blakeley & Ors, liquidators welcome insurers to the party.
In that decision, the High Court granted the liquidators of Akron Roads Pty Ltd (in liq) leave to join CGU to the proceeding so that a declaration could be sought that CGU was liable to indemnify Mr Crewe (a former director of Akron Roads) and his company, Crewe Sharp Pty Ltd (in liq) (Crewe Sharp) under a professional indemnity policy, for breaches of the insolvent trading provisions.
Specifically, the High Court held that:
If the liquidators established the liability of CGU to indemnify Mr Crew and Crewe Sharp, the proceeds of the policy would have been payable to them as a result of the operation of s 562 of the Corporations Act and section 117 of the Bankruptcy Act;
Because of those statutory provisions, in all practical respects, it was the liquidators who stood to benefit from the outcome of any findings made; and
This interest, in combination with the denial of liability under the policy, was sufficient to constitute a “justiciable controversy” between the liquidators and CGU.
In March 2016, the liquidators, Mr Crewe and Crewe Sharp entered into a settlement deed whereby Mr Crewe and Crewe Sharp consented to judgment being entered against them in respect of the insolvent trading claims. Under the terms of the deed:
1.The liquidators agreed to enforce the judgment:
a. first against any proceeds of the insurance policy; and
b.secondly, only once the claim on the insurance policy had been exhausted, as against Mr Crewe for the amount of $125,000, being the amount of a security sum paid by Mr Crewe.
2. Mr Crewe assigned to the liquidators, ‘any and all amounts recovered under the policy in relation to the [insolvent trading] claims’ …
As a result of the settlement deed, orders were made that Mr Crewe pay the liquidators the sum of approximately $12 million as a debt due to Akron Roads.
In the proceeding before the Victorian Supreme Court the liquidators sought a declaration that CGU was liable to indemnify Mr Crewe and Crewe Sharp in respect of their insolvent trading liability to the liquidators, arising from the settlement deed.
The question before the Court was whether the liquidators had standing to do so.
The liquidators argued that:
The settlement deed assigned to them a contractual right to any and all amounts recovered under the policy which gave them standing to seek the declaratory relief sought.
This contractual right replicated the legal effect of s 117 of the Bankruptcy Act (which provides that the right of a bankrupt insured to indemnity vests in the trustee in bankruptcy).
The High Court had agreed that the liquidators had a real interest in establishing that the insurer was liable to indemnify Mr Crewe. That interest and CGU’s denial of liability under the policy were sufficient to constitute a justiciable controversy.
CGU argued that the Court had no jurisdiction to grant the declaratory relief sought by the liquidators because no justiciable controversy existed – the High Court’s decision was based on the possibility of CGU being liable to indemnify Mr Crewe and him becoming bankrupt.
As it was no longer a possibility that Mr Crewe would become bankrupt, due to the settlement deed, no controversy existed.
In determining that the liquidators did have standing to seek the declaratory relief sought, Robson J was first required to determine whether the proceeding gave rise to a justiciable issue.
In doing so, his Honour considered the following four factors referred to by Nettle J in the High Court decision as supporting the granting of declaratory relief where there was no contract between the parties:
That the claimant will derive some benefit from the declaration over and above any benefit of advantage that might be derived by ordinary citizens.
That the liquidator’s claim relates to events which have occurred in the past.
That the claim for a declaration may be determined at the same time as and on the basis of the same evidence as the liquidator’s claims against the directors.
That the issue is productive or a real and pressing dispute, is of a real and practical importance, or is one in which the claimant has a real commercial interest.
His Honour held that a justiciable controversy existed for the following reasons:
The claim against CGU would have utility in that it would resolve the claims as between Mr Crewe and CGU, as well as resolving the amount, if any, assigned to the liquidators by Mr Crewe.
The liquidators’ claim is not contingent on a future event - all the relevant events had occurred: the trading whilst insolvent, the breach of duties, the insurance policy being taken out.
The settlement avoided the likely plight of Mr Crewe being bankrupted and seeks to achieve the same result as that which may have been achieved under s 117 of the Bankruptcy Act.
If declaratory relief was refused, the liquidator’s interest in the rights of Mr Crewe and Crewe Sharp under the policy could be defeated by reason of Crewe and Crewe Sharp being unable to pursue a claim under the policy themselves (for financial reasons).
This case illustrates that the assignment of a right to recover under an insurance policy may be enforced by a liquidator, even where the underlying claim as between the liquidator and the insured has been compromised.