- The first respondents were appointed liquidators of the second respondent (“Akron Roads“) and later commenced proceedings against the remaining respondents for insolvent trading as directors of Akron Roads.
- One of the respondents, Crewe Sharp Pty Ltd, claimed indemnity to those claims under an insurance policy it had with the appellant, CGU Insurance.
- After CGU denied liability, the respondent liquidators sought to join CGU as a defendant to the proceedings.
- The Victorian Supreme Court of Appeal dismissed CGU’s appeal to grant the orders sought by the respondent liquidators, holding that the Supreme Court had jurisdiction to grant the relief sought; whilst only contracting parties have an interest in the contract, in the case of insurance contracts, once an insured party becomes insolvent an unpaid claimant to whose claim an insurance policy responds will have an interest in the contract.
- The High Court unanimously dismissed the appeal.
- The High Court majority (French CJ, Kiefel, Bell and Keane JJ) held that because CGU’s liability to indemnify Crewe Sharp and others arose under s 588M of the Corporations Act 2001 (Cth), the respondent liquidators’ claim involves a question arising under a law of the Commonwealth, and is thus within the subject matter area of federal jurisdiction (a “justiciable controversy“).
- Given CGU’s denial of liability to ensure Crewe Sharp, the respondent liquidators, if they could make good their claims against Crewe Sharp and establish CGU’s liability to indemnify the insured, stood to receive the proceeds of the policy.
- The liquidators’ claim was not that they were a party to the insurance contract or entitled to the benefit of that contract, but rather was the consequence of s 562 of the Corporations Act (or if Crewe became bankrupt, s 117 of the Bankruptcy Act 1966 (Cth)) which created their right to the proceeds of the policy. A justiciable controversy therefore arose between the liquidators and CGU.
- Nettle J also dismissed the appeal, agreeing that CGU’s liability formed a prerequisite to the success of the liquidators’ claims against the directors. His Honour also dealt with the privity issue (see below).
“Australian authority largely accords with Meadows. As was recognised in Meadows, however, there are exceptions. Generally speaking it may be correct to say that an outsider has no standing to seek a declaration about the meaning and effect of a contract to which the outsider is not party [See, e.g., Wilson v Darling Island Stevedoring and Lighterage Co Ltd (1956) 95 CLR 43 at 67 per Fullagar J; Coulls v Bagot’s Executor and Trustee Co Ltd (1967) 119 CLR 460 at 478 per Barwick CJ.] But that depends on what is meant by an “outsider” and upon the circumstances in which the parties to the contract have chosen, or been influenced, not to raise an issue. A plaintiff to whom s 562 of the Corporations Act or s 117 of the Bankruptcy Act gives a right to be paid in priority out of the proceeds of a policy of insurance against an insolvent defendant’s liability to the plaintiff is not an “outsider” in any rational sense of the word.”
(Nettle J at paragraph )
The full text is available here: http://eresources.hcourt.gov.au/showCase/2016/HCA/2
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