Second plaintiff v TREVOR PAUL CREWE

CORPORATIONS - Whether Crewe Sharp was a shadow director of Akron - s 9 Corporations Act - Crewe Sharp (the alleged shadow director) being the employer of the director (Mr Crewe).

INSURANCE - Liquidators claim for a declaration that the insurer of Mr Crewe and of Crewe Sharp (the corporation that employed the director), was liable to indemnify the insureds for the claims by the liquidators against Mr Crewe and Crewe Sharp.

PRACTICE AND PROCEDURE - Whether the liquidators had standing to seek the declaration against the insurer of Mr Crewe - Consideration of s 117 Bankruptcy Act 1966 (Cth) - Whether purported assignment by Mr Crewe to the liquidators of Akron of whatever rights and entitlements Mr Crewe had under the policy of insurance he had with the insurer, was sufficient to give the liquidators standing.

INSURANCE - Whether the professional indemnity insurance policy issued by the insurer was engaged by the liquidators' claim against Mr Crewe and Crewe Sharp under s 588(2) of the Corporations Act.

INSURANCE - Whether the insurer was entitled to deny liability through non-disclosure or misrepresentations of the insureds - ss 21 and 26 Insurance Contracts Act 1984 (Cth).

1 Ross Blakeley, Michael Ryan and Quentin Olde, the liquidators of Akron Roads Pty Ltd (in liquidation), are the first plaintiffs. Akron Roads Pty Ltd (in liquidation) ('Akron') is the second plaintiff. The first, second and third defendants were each directors of Akron. Mr Crewe, the first defendant, was also a director of the fourth defendant, Crewe Sharp Pty Ltd ('Crewe Sharp'). CGU Insurance Limited ('CGU'), the fifth defendant, issued a professional indemnity policy of insurance to Crewe Sharp. Crewe Sharp carried on the business of management consultancy and provided such services to Akron. Crewe Sharp also provided the services of Mr Crewe to Akron, to act as a director of Akron. Whilst Mr Crewe was acting as a director of Akron, Akron incurred debts whilst insolvent.

2 The liquidators and Akron (the plaintiffs) claim:

(a) against Mr Crewe, the second defendant and third defendants (together, 'the Sills') and Crewe Sharp, as directors of Akron, damages, for failing to prevent Akron incurring debts whilst insolvent, under s 588M of the Corporations Act 2001 (Cth) (Corporations Act); and

(b) against CGU, a declaration that CGU is liable under the insurance policy, to indemnify Mr Crewe and Crewe Sharp in respect of their insolvent trading liability to the plaintiffs.

3 For convenience I shall refer to the plaintiffs as the liquidators.

4 The history of this matter is set out in the High Court decision in CGU v Blakeley.[1] On 9 April 2013, the liquidators commenced proceedings in this Court against Mr Crewe and two other directors of Akron, Robert and John Sill (the Sills). The liquidators also made a claim against Crewe Sharp. The liquidators allege that Crewe Sharp was a director of Akron within the extended meaning of 'director' in s 9 of the Corporations Act.

5 The liquidators' claim is made under s 588M(2) of the Corporations Act. The cause of action created by s 588M(2) is enlivened by a breach on the part of a company director of the duties imposed by s 588G of the Corporations Act to prevent the company incurring debts when it is insolvent, at that time, or where it would become insolvent by incurring debts and where there were reasonable grounds for suspecting that the company was or would become insolvent.

6 The liquidators allege that Mr Crewe, the Sills and Crewe Sharp breached that duty by failing to prevent Akron from incurring debts when it was insolvent. The liquidators have settled their claim against the Sills. The liquidators have settled their claim against Mr Crewe. Crewe Sharp is not defending the claim against it by the liquidators. Crewe Sharp is now itself in liquidation. The remaining claims before me are the claims by the liquidators against CGU, and the liquidators' claim against Crewe Sharp. The liquidators have court approval to proceed against Crewe Sharp even though it is in liquidation.[2]

7 On 4 December 2013, Crewe Sharp made a claim on a Professional Indemnity Policy with CGU (the CGU Policy) ('Policy'), for indemnity in relation to the claim brought against it by the liquidators. Mr Crewe, as director of Crewe Sharp, was also insured under that policy.

8 On 6 March 2014, CGU sent a letter to Crewe Sharp denying that the Policy covered the liability asserted by the liquidators. CGU said that the claims against Crewe Sharp and Mr Crewe were expressly formulated as arising from breaches of their duties as directors.

9 In denying liability, CGU relied on an exclusion in the Policy for the liability of directors or officers of an incorporated body 'arising from any act, error or omission of a director or officer of that incorporated body while acting in that capacity', as CGU does in the proceeding before me.

10 CGU also relied upon an exclusion of claims '[a]rising from a liability to pay trading debts, trade debts, or the repayment of any loan', as is also relied upon in the proceeding before me.

11 On 20 June 2014, Crewe Sharp entered into a creditors' voluntary liquidation and its liquidators informed Akron's liquidators that it was unlikely Crewe Sharp would defend the proceedings against it. As mentioned earlier, the claim by the liquidators of Akron against Crewe Sharp in this proceeding are not defended. There is no appearance for Crewe Sharp.

12 When the matter came before the High Court, as discussed below, the High Court said that as at July 2011, Mr Crewe's net assets were about $1 million. Mr Crewe was not a bankrupt but the undisputed evidence was that his limited assets would be insufficient to cover the claim brought against him by the Akron liquidators in this proceeding. As discussed below, Mr Crewe has now settled the claim against him by the liquidators; his maximum personal liability is $125,000. Mr Crewe has met that liability and there is no suggestion that he will face bankruptcy.

13 On 20 August 2014, Akron's liquidators filed an interlocutory process in the proceedings in this Court, seeking an order that CGU be joined as a defendant and for leave to file and serve amended points of claim seeking a declaration that CGU was liable to indemnify Mr Crewe and Crewe Sharp under the Policy in respect of any judgment and costs order obtained by the liquidators against Mr Crewe and Crewe Sharp.

14 On 2 October 2014, Mr Crewe's solicitors informed the liquidators that he consented to the joinder of CGU and that he disagreed with CGU's decision to deny indemnity to Crewe Sharp (and himself). The liquidators of Crewe Sharp informed the liquidators (of Akron) that Crewe Sharp was unfunded, was not in a position to investigate CGU's denial of indemnity, and took no position in relation to the joinder application. The other defendant directors (the Sills) did not participate in the application.

15 On 13 February 2015, Judd J made the orders sought by the Akron liquidators.[3] CGU made an application for leave to appeal against those orders. That application was heard by the Court of Appeal on 15 and 19 June 2015. The Court ordered that the application for leave to appeal be granted but that the appeal be dismissed.[4]

16 On 11 September 2015, the High Court granted CGU special leave to appeal against the judgment and order of the Court of Appeal on the grounds that the Supreme Court lacked jurisdiction to entertain the claim by the Akron liquidators for declaratory relief against CGU.[5] The High Court held that the Supreme Court had federal jurisdiction which authorised it to entertain the claim and had the power to grant the relief sought.

17 I intend to address below in more detail, the High Court decision in CGU v Blakeley, after considering the respective submissions of the plaintiffs and CGU on the standing of the plaintiffs to seek declarations against CGU in respect of its liability to Mr Crewe, if any.

18 When the matter came on before me on 18 April 2016, CGU raised the issue of the liquidators' standing to seek declarations in relation to the liability of CGU in respect of its liability to Mr Crewe arising from the claims of the liquidators against Mr Crewe under s 588M of the Corporations Act. There was no challenge to the liquidators standing under s 562 of the Corporations Act to seek declarations in relation to the liability of CGU to indemnify Crewe Sharp for the claims against Crewe Sharp by the liquidators.

19 Counsel for the liquidators expressed surprise that the standing of the liquidators to seek declarations in relation to the liability of CGU to Mr Crewe was challenged. Counsel said they considered that those issues had been resolved by the High Court in CGU v Blakeley. Counsel for the liquidators also submitted that it was not necessary for them to plead facts giving rise to their standing to bring the claim against CGU in relation to CGU's liability to Mr Crewe for claims made against him by the liquidators.

20 On 23 March 2016, orders were made by consent between the liquidators and the Sills that the claims by the plaintiffs against the Sills were discontinued with a right of reinstatement.

21 In March 2016, the liquidators of Akron, Mr Crewe and Crewe Sharp entered into a Deed of Settlement ('settlement deed'). Under the settlement deed, Mr Crewe consented to judgment being entered against him for $12,992,880.05 in favour of the liquidators.

22 On 4 April 2016, orders were made by consent between the liquidators and Mr Crewe that Mr Crewe pay the plaintiffs as a debt due to Akron the amount of $12,992,880.05.

23 On 19 April 2016, I gave leave to the liquidators to file and serve a fourth further amended points of claim ('FFAPC').

24 Under the FFAPC, the liquidators seek the following orders against Mr Crewe and Crewe Sharp:

(a) an order under s 588M(2) of the Corporations Act that the defendants pay to the liquidators, as a debt due to Akron, an amount equal to the amount of the loss or damage suffered by the creditors (the details of which are set out in the particulars subjoined to paragraph 6 of the FFAPC) in relation to the debts owed to them by Akron, because of the insolvency of Akron;

(c) leave to proceed against Crewe Sharp under s 500(2) of the Corporations Act;[6]

(e) any other orders or relief as this Honourable Court thinks fit.

25 Under the FFAPC, the liquidators also seek the following relief against Mr Crewe, Crewe Sharp and CGU.

26 They seek a declaration that CGU is liable to indemnify Mr Crewe and Crewe Sharp in respect of any judgment herein obtained by the liquidators against Mr Crewe and Crewe Sharp and in respect of any sums (including legal costs) which the Court may order Mr Crewe and Crewe Sharp to pay the liquidators, and that Mr Crewe and Crewe Sharp are bound by the declaration.

27 As mentioned, Akron and the liquidators have settled their claims against the Sills and Mr Crewe. That leaves for determination only the claims against Crewe Sharp and CGU. CGU is defending the claim. As mentioned already, Crewe Sharp, having itself gone into liquidation in 2014, is not defending the claims against it, and Akron and the liquidators wish to proceed to judgment against it.

28 There are eight matters in issue. For the reasons that follow, I set out the answer to each issue.

29 First, do Akron and its liquidators have standing to seek a declaration, as against CGU, regarding the responsiveness of the Policy to the liability of Mr Crewe (if any) under the judgment entered on 4 April 2016? Answer: yes.

30 Secondly, was Crewe Sharp a 'director' (de facto or shadow) of Akron during the relevant times? Answer: no.

31 Thirdly, is Crewe Sharp liable for 'insolvent trading' as alleged by the liquidators? Answer: no.

32 Fourthly, does the Policy respond to Mr Crewe's liability under the judgement of 4 April 2016 and in view of the settlement deed? Answer: yes.

33 Fifthly, would the Policy respond to Crewe Sharp's liability (if it is a 'shadow' director) for 'insolvent trading'? Answer: yes.

34 Sixthly, does the trading debts exclusion in clause 6.5(d) (Trading Debts Exclusion) in the Policy apply? Answer: no.

35 Seventhly, does the director exclusion clause 6.9(c) (Directorship Exclusion) in the Policy apply? Answer: no.

36 Eighthly, can CGU avoid liability to indemnify Crewe Sharp (if it is a 'shadow' director) and/or Mr Crewe on the basis of non-disclosure or misrepresentation? Answer: yes.

37 It is useful to set out the relevant events before descending to the detail required to decide the matters in issue.

38 Over the course of his 40plusyears' career Mr Crewe held several senior management positions in large publicly listed and private companies in Australia.

39 In 1991, Mr Crewe met Ken Sharp and together they started the Crewe Sharp management consulting practice in Perth. A Victorian office was later opened. Mr Crewe met Ken Sharp while working at Bell Transport, where Mr Sharp was the chief financial officer. The business operated through Crewe Sharp (Vic) Pty Limited, which traded under the name 'Crewe Sharp Management Services.' In 2004, the company name was changed to 'Crewe Sharp Pty Limited.'

40 From 1991, Mr Crewe acted as the managing director of Crewe Sharp, conducting a management consultancy business. Mr Crewe was formally appointed as the director and secretary of Crewe Sharp on 14 October 1996. On 6 February 2001, Mr Sharp resigned as a director and retired from Crewe Sharp.

41 There were other entities within the Crewe Sharp group which had specific functions. For example, information technology, training and recruitment services.

42 These other companies in the Crewe Sharp group did not perform management consultant services. With the exception of a short engagement by Crewe Sharp Career Bridge Pty Limited, none of the other entities were engaged by Akron at any time.

43 The clients of Crewe Sharp were privately owned companies and family businesses from various industry sectors with annual turnover ranging from $10 million to $300 million. The type of issues experienced by these clients were underperformance, ineffective or suboptimal management and governance structures or conflicts between management and staff.

44 Crewe Sharp focused on providing practical, 'hands-on' experience to improve clients' business performance and profitability. Crewe Sharp provided management consulting services to clients by:

(a) preparing a Business Performance Evaluation, which involved diagnosis of company performance through analysis of a company's revenue, costs and profits, structure, its operations and interactions with its clients and customers; and

(b) implementing the recommendations made in the evaluation reports.

45 Mr Crewe said that he saw it as Crewe Sharp's point of difference with other management consultants that Crewe Sharp and he actively participated in the implementation of their recommendations. Mr Crewe said that depending on the nature of the engagement, this involved the direct placement of a director or staff within the company. Mr Crewe said, however, that Akron was the only company to which he was formally appointed as a director.[7]

46 Mr Crewe said that for the companies to which he was not formally appointed as a director, he worked closely with their directors in guiding and steering them and their companies towards better profitability, gave instructions that were adhered to by the company and frequently acted as chairman.

47 Mr Crewe personally provided management consulting services to numerous companies.

48 The terms of Crewe Sharp's engagement with an entity were normally documented in a mandate letter.

49 By 2009, Crewe Sharp had 12 employees available to work as consultants at a company by whom Crewe Sharp was engaged. Depending on the scope of engagement, this may have involved the employee working from the company's offices on either a part-time or full-time basis, or performing the engagement from Crewe Sharp's offices and attending the company's premises as required. Crewe Sharp normally charged an agreed hourly fee for the time spent by the employees on the engagement.

50 Turning to the Akron engagement, in late-2000, Mr Crewe became aware of a company called Standard Roads Pty Ltd ('Standard Roads'). The chairman and majority shareholder of Standard Roads was Ron Rado. At that time Standard Roads owned 51 per cent of the shares in Akron. Ron Rado passed away suddenly in 2001.

51 At about that time, Mr Crewe was introduced to Ron's son-in-law, Gerard Keeghan, who was the chief executive officer of Standard Roads.

52 On 5 June 2001, Gerard Keeghan the Chief Executive of Standard Roads wrote to Mr Crewe as the managing director of Crewe Sharp thanking him for meeting with him the day before to discuss how Mr Crewe may be able to assist Mr Keeghan as a director/chairman of their joint venture companies Astec Pty Ltd and subsidiaries Akron Roads Pty Ltd.

53 Akron provided civil construction and engineering services to a broad variety of public and private sector clients. It focused principally on the construction of arterial roads, residential and industrial subdivisions and other infrastructure projects such as racetracks, wharves and footpaths. By 2010, Akron employed approximately 190 permanent staff and more than 250 contractors. As at the date it was placed into administration by its directors (1 February 2010), Akron had 138 current contracts, on behalf of 52 principals, at various stages of completion.

54 Mr Keeghan informed Mr Crewe that the directors of Akron were himself (representing the Standard Roads Group (SRG)), Robert Sill as chief executive (with a 37 per cent shareholding in Akron) and John Sill as executive engineer (with a 12 per cent interest in Akron). The company secretary was Ian Shields, an appointee of the SRG.

55 On 13 June 2001, Mr Crewe as managing director of Crewe Sharp wrote on Crewe Sharp letterhead to Mr Keeghan proposing that Crewe Sharp be engaged by the SRG to provide advice and to act in the capacity as either chairman/director of nominated operating companies within the SRG.

56 The letter is headed, 'Appointment of Crewe Sharp (Vic) Pty Ltd, Mandate No: J130601/2.' The letter stated as follows:

It is with pleasure we submit to you for your consideration our Mandate Agreement following on from our recent meeting and discussions. The purpose of this Mandate Agreement is to confirm our appointment and the conditions that relate to this appointment so that you may peruse them and determine that they meet with your requirements and will satisfy the outcomes of the discussions that we had.

1. Terms of Reference

Crewe Sharp (Vic) Pty Ltd (herein referred to as CSVPL) is engaged by Standard Roads Group (herein referred to as SRG) to provide advice and to act in a capacity as either Chairman/Director of nominated operating companies within SRG.

The services of CSVPL will be charged at the rate of $350 per hour.

CSVPL will invoice its fees on a weekly basis for which Payment would be due and payable on a strictly net seven (7) days basis.

Either party may terminate this appointment on seven (7) days written notice, at which point in time, SRG must pay all outstanding accrued fees and costs as at the date of termination of contract.

While CSVPL will take all due care, caution and procedure to protect the confidentiality of all matters relating to this appointment, they will not under any circumstances whatsoever, be liable to SRG or any other party for any loss or damage resulting from any misuse of confidential information by any third party.

The directors of SRG warrant to CSVPL that at the date of signing this letter of appointment, they are not, to the best of their knowledge in breach of any statutory or other obligation that is or might affect this appointment or, any services to be provided under it. If they should become aware of any such breach or any breach may come into existence during the term of this appointment they agree to inform us immediately in writing of that breach.

In closing, I would like to thank you for allowing us the opportunity to be of service to you. We look forward to working with you and to developing a rewarding and lasting relationship.

Could you please sign both copies of the Mandate Agreement to confirm the arrangements, however if there is any aspect of the Mandate Agreement that you are not happy with or wish to discuss further, please do not hesitate to contact me.

57 The letter was signed by Trevor Crewe, as managing director of Crewe Sharp. It was signed for and on behalf of the Standard Roads Group and dated 18 July 2001. Under this arrangement Mr Crewe was not paid personally for acting as a director, instead his time was billed by Crewe Sharp for the management consultancy services he rendered on its behalf to Akron at the rate of $350 per hour.

58 Mr Crewe's services were limited to Akron. On 19 July 2001, the board of Akron met at Dana Court Dandenong. In attendance were the Sills, Mr Keeghan and Mr Crewe.[8] Also in attendance were Mr L Crinch and Mr J Shields.

59 The board noted with regret the sudden passing of Ron Rado, the former chairman of the board of Akron. Mr Keeghan introduced Mr Crewe who had been nominated to replace Mr Rado as an independent director. The minutes noted that Mr Keeghan outlined Mr Crewe's background, which he said should assist the company in making a more professional approach and to provide discipline to their meetings in order to fulfil the responsibilities of being a company director. The meeting resolved to appoint Mr Crewe the chairman.

60 At that meeting, the minutes record that Mr Crewe queried budget projections for the 2001-2002 budget, and stressed the need to ensure that adequate controls were in place to monitor costs because of low yields on jobs.

61 The minutes record that Mr Crewe reiterated that the responsibilities of all directors were onerous and that he took his role seriously in terms of the responsibilities it carried.

62 In around 2001, Standard Roads sold its interests in Akron to the Robert and John Sill. Mr Crewe negotiated the buy-out price. After agreement was reached on price, the Sills brought in other professionals from Deloitte Australia (accountants) and Mason Sier Turnbull (lawyers) to carry out the transaction.

63 The following year, on 20 September 2002, Crewe Sharp wrote to Mr Robert Sill as the CEO of Akron, submitting a 'mandate agreement' to confirm 'our' appointment and the conditions that related to the appointment whereby Crewe Sharp was engaged by Akron to prepare information for presentation to potential purchasers and to supply additional information to potential purchasers as requested. The letter was signed by the Sills, on behalf of Akron, on 26 September 2002.

64 After the buy-out, Mr Crewe remained a non-executive director and chairman of the board. Robert Sill became the managing director.

65 In 2004, Robert Sill was appointed chairman in lieu of Mr Crewe and remained chairman until external administrators were appointed on 1 February 2010. Mr Crewe remained a director of Akron from 2004, although his role as director practically ceased upon the appointment of an administrator to Akron on 1 February 2010. Also in 2004, Stephen Pollock who had been the financial controller of Akron since 2001, was appointed managing director of Akron in lieu of Robert Sill. Robert Sill ceased to act as the CEO and as mentioned became chairman of Akron.

66 Around 2004, the Sills told Mr Crewe that they wanted to move towards semi-retirement.

67 On 5 March 2009, Mr Crewe, the Sills, Mr S Pollock, Mr R Cooper and Mr O Luznik met at Akron to consider a financial strategy review of Akron. The minutes of the meeting recorded, amongst other matters, that Jason Turner of Crewe Sharp was to undertake a forensic review of creditor payments to ensure that duplicated payments had not occurred over the past four years.

68 On 12 March 2009, Mr Crewe sent an email to the Sills expressing his desire that the board meet to discuss the future operations of Akron required for 'corrective implementation and execution to occur.'[9]

69 On 28 April 2009, Herbert Fischbacher of Mason Sier Turnbull (lawyers) sent an email to Mr Crewe about terminating the employment of Mr Stephen Pollock the then CEO, and Mr Otto Luznik.[10]

70 On 29 April 2009, a confidential meeting was held attended by Mr Crewe to discuss removal of Mr Pollock and other staff.

71 In April 2009, Mr Crewe was appointed an interim chief executive officer of Akron when Mr Pollock was stood down from that position. Mr Crewe also remained a director.

72 From approximately 2009 onwards, Crewe Sharp placed Mr Sofronas (an employee of Crewe Sharp) in Akron to provide financial services.[11] Mr Sofronas had an office at Akron and worked there full-time.[12]

73 In relation to Crewe Sharp's role at Akron, from 2001 until 2009, Crewe Sharp performed two main streams of work with Akron:

(a) an ad-hoc role that was specific to Akron's needs at that time. Mr Crewe said that, for example, Akron may have requested Crewe Sharp's involvement with interviewing people to fill various roles in Akron; and

(b) Mr Crewe's involvement with the preparing for and attending monthly Akron board meetings.

74 Mr Crewe said that some of Crewe Sharp's engagements at Akron were formalised by way of the issuing of a mandate letter, substantially in the form of the Crewe Sharp retainer referred to earlier.

75 A further mandate dated 10 December 2009, was given to Crewe Sharp for its assistance in identifying an interested party for the purchase of up to 80 per cent of Akron's equity. The letter was written by Crewe Sharp Management Services to the directors of Akron and said that Crewe Sharp was to undertake certain defined tasks, including identifying an interested party and undertaking discussion and negotiations for the purchase of an equity in Akron of up to 80 per cent. An hourly fee was set. The letter was signed on behalf of Crewe Sharp by Mr Crewe, and it was accepted by Akron by being signed by the Sills. Mr Crewe said that the terms of other engagements performed by Crewe Sharp were agreed orally between himself and the Sills at the time.

76 As to the board papers, Mr Crewe received board papers or board reports (Board Pack) once every month in advance of Akron's board meetings. The Board Pack was prepared by the financial controller or CFO of the company. The composition and content of the Board Pack was developed and refined, with Mr Crewe's input, through making requests at the board meetings. Mr Crewe attended Akron's monthly board meetings, with the other attendees being the Sills, the CEO and the CFO. From time to time, other members of the management team also attended meetings, including, for example, the chief operations officer or the construction manager.

77 Mr Crewe said his role also involved mentoring and acting as an advisor for the directors and management team from time to time, and this role included giving advice about the running of the company.

78 As to Mr Crewe's role at Akron between 2009 when Mr Crewe assumed the role of CEO and 1 February 2010 (when the administrators were appointed), Mr Crewe performed various specific engagements relating to top level management functions, including:

79 At that time Mr Crewe was provided a desk at Akron's head office in Seaford and he usually worked from there.

80 Mr Crewe actively participated in strategic decision-making processes of Akron. An employee from Crewe Sharp Career Bridge Pty Limited, was brought in to speak with a member of the executive team who indicated that he wanted to resign. This individual's role was to determine the reasons for the executive's decision and whether this could be prevented. Another person was brought in from Crewe Sharp to re-process creditors and debtors in order to identify accounts that had been paid twice or otherwise repaid.

81 Between 2009 and 1 February 2010, Crewe Sharp provided full-time finance and administration assistance to Akron through the services of Mr Evan Sofronas, an employee of Crewe Sharp. Crewe Sharp invoiced Akron for Mr Sofronas' work as treasurer and commercial services manager of Akron, and those invoices were paid by Akron.

82 Between at least 30 November 2009 and 1 February 2010, Crewe Sharp assisted Akron:

(a) with obtaining financing by way of his attendance at meetings with the ANZ bank, together with John and Robert Sill, Otto Luznik and other representatives of Akron;

(b) in relation to finance-related matters through -

(i) his attendance at informal meetings and his participation in regular discussions with the Sills, almost on a daily basis, throughout this period at which they discussed the financial position of Akron;

(ii) while there were no formal board meetings held between 30 November 2009 and 1 February 2010, maintaining constant communication between himself and the Sills as they tried to address Akron's financial position at that time.

83 Between at least 30 November 2009 and 1 February 2010, Mr Sofronas reported to him in his capacity as acting CEO. Mr Sofronas discussed a financial spreadsheet with him at least once or twice each week, during which time Mr Luznik was often present. Mr Sofronas had an office at Akron's premises and was working there full-time and attended many of the informal meetings and discussions Mr Crewe regularly had with the Sills throughout this period.

84 On 10 July 2009, Akron Roads made a presentation to its bank, the ANZ bank.

85 On 10 December 2009, an engagement letter from Crewe Sharp to Akron, was signed by the Sills. The engagement of Crewe Sharp was to identify an interested party to acquire up to 80 per cent of Akron.[13]

86 On 10 December 2009, CGU issued an amended schedule for insurance, inter alia, of Crewe Sharp.[14]

87 On 15 December 2009, the ANZ bank sent an email to Mr Crewe and others, advising that the ANZ bank had allowed Akron's account with the bank to go into excess to facilitate payment of wages.[15]

88 On 14 January 2010, the ANZ bank sent an email to Mr Crewe and others referring to a meeting with the bank on 11 January 2010 wherein an update on developments at Akron relating to its trading and credit difficulties was provided.[16]

89 On 1 February 2010, Akron appointed voluntary administrators to Akron.[17]

90 On 9 March 2010, a meeting of Akron's creditors appointed Messrs Olde, Ryan and Blakeley joint and several liquidators of Akron.[18]

91 On 28 May 2010, the liquidators of Akron made demand on Crewe Sharp for refund to Akron of alleged preferential payments received by Akron in the six-month period prior to 1 February 2010 (the date of the appointment of the administrators by Akron) being the sum of $975,799.58.[19]

92 On 21 June 2010, Crewe Sharp notified CGU of a claim under the Policy in respect of the liquidators' claim for $975,799.58.

93 On 19 August 2010, CGU notified Crewe Sharp that it denied liability for the liquidators' claim against Crewe Sharp.[20]

94 On 9 April 2013, the liquidators issued an originating process commencing this proceeding.

95 The substance of Mr Crewe's evidence in chief is captured in the description of the relevant events above.

96 On the question of insurance and disclosure, Mr Crewe said that he had been informed by Mr Bill Lambros, senior associate from Frenkel Partners, his solicitors in this matter, that CGU alleged in its defence, that before the Policy was issued, Crewe Sharp did not disclose to CGU that management consulting services may include directorship services. Mr Crewe says he did not know at any time that that was a matter relevant to the decision of CGU to accept the risk and, if so, on what terms to issue the policy.

97 In cross-examination, it was put to Mr Crewe that the letter from Mr Keeghan of 5 June 2001 did not suggest that Crewe Sharp was to be a director or to provide director services to Akron Roads. Mr Crewe accepted that.[21]

98 Under cross-examination, Mr Crewe said that he would never have understood Crewe Sharp as an entity to be a director.

99 Under cross-examination, Mr Crewe said that he participated in Akron Road's board meetings between 2001 and 2009. He was asked how board meetings were conducted. Mr Crewe said there would be a Board Pack prepared, which would be circulated, sometimes a few days prior to the board meeting.[22] The board would then meet. He said he would chair the meeting, as you would expect the board meeting to be chaired.

100 Mr Crewe said that they would stick to the agenda. He said they (presumably the directors and other attendees) would discuss matters arising.

101 Mr Crewe said that the other participants were Rob Sill and John Sill. He said the other parties attending but who were not directors would have been the general manager or chief executive and the CFO. He said that going through the information deciphering it and making some direction or decisions or putting forward some recommendations would be driven by the analysis that he had done on the Board Pack.[23]

102 Mr Crewe said that Mr Luznik prepared the finance and accounting section of the board reports.[24] Mr Crewe said that in mid-2009 Ernst and Young (accountants) were retained.

103 Mr Crewe said that prior to the company going into administration, there were no formal board meetings held but rather informal discussions were held between Mr Crewe and the Sills.[25] As indicated above, this was during the period from end of November 2009 to 1 February 2010 (some two months).

104 Before the company went into liquidation, Mr Crewe was seeking finance from the bank. He had suggested to the Sills that they needed a standstill agreement with their creditors.

105 Mr Crewe said that the Sills' role was limited. He said they 'were largely led through this process because it was not one that they were familiar with, or not a circumstance that they had ever encountered before.' Mr Crewe said 'they were relying on his experience or his company's experience, whichever way you want to express it, to give them advice as to how they should proceed and the matters that needed to be considered.'[26]

106 Mr Crewe said that the appointment of the administrators came about as they, being Akron, had nowhere else to go. They had attempted to raise funds unsuccessfully.

107 Mr Crewe said that he had discussions with the Sills and put to them that Akron 'could only have one captain and one ship and they could not dabble and fiddle and meddle and cut across.' He told them 'that the forum for doing that was with him or at board meetings but in the day to day directions of the company it was not a good practice for them to be cutting across what was going on, which they accepted.'[27]

108 Evidence in relation to the issuing of the relevant insurance policy by CGU to Crewe Sharp was given by Greg Hansen, the insurance broker acting for Crewe Sharp, and Ivana Vuckova, the then underwriter at CGU that authorised the issuing of the policy.

109 Mr Hansen was a director of Austbrokers Countrywide, which provides insurance broking services. Prior to becoming a director of Austbrokers Countrywide, he was employed by CGU for about 10 years. Mr Hansen was an underwriter at CGU but also had managerial positions. Prior to Mr Hansen's employment with CGU, he was employed by FAI Insurance as an underwriter for about three years. Mr Hansen holds a Bachelor of Economics degree from Monash University.

110 Ms Vuckova was, at the time of the hearing, employed by Vero Insurance as a senior underwriter. Prior to commencing employment with Vero Insurance about three years ago, Ms Vuckova was employed by CGU. Ms Vuckova was employed by CGU for about nine and a half years. Ms Vuckova commenced with CGU in a role of administrative officer and was then appointed an underwriting technical officer. Ms Vuckova was later promoted to the positions of technical underwriter, underwriter, team leader and then senior underwriter. Ms Vuckova holds a Bachelor of Economics degree from the University of Western Australia.

111 During Ms Vuckova's employment with CGU, CGU maintained a hard copy underwriting file for every insured. Each file ordinarily contained the insured's proposal for insurance, correspondence, internal documents and the policy schedule. CGU also had an electronic database called 'IA 90' which contained information about every insured. Ms Vuckova reviewed a copy of the relevant underwriting file and a printout of the IA 90 notes for 2009 relating to Crewe Sharp for the purpose of preparing her evidence.

112 During Ms Vuckova's employment with CGU, she had access to an underwriting manual for professional indemnity insurance. Ms Vuckova consulted the manual from time to time when underwriting professional indemnity policies. Ms Vuckova exhibited a copy of the relevant page of the manual to her witness statement. Ms Vuckova also had access to an underwriting manual for directors and officers liability insurance, and she exhibited the relevant pages to her witness statement.

113 In June 2009, in his role as a director of Austbrokers Countrywide, Mr Hansen met Matthew Crewe. Mr Crewe asked Mr Hansen to obtain a quotation for professional indemnity insurance ('P.I. policy') to cover four entities, including Crewe Sharp. Mr Hansen understood that the four entities already had a P.I. policy in place with another insurer but that Matthew Crewe wanted an alternative quotation.

114 Matthew Crewe provided Mr Hansen with the following documents:

(a) a professional indemnity insurance proposal for Crewe Sharp Career Bridge Pty Ltd, dated 28 May 2009;

(b) a recruitment services addendum for Crewe Sharp and two other entities, dated 29 May 2009; and

(c) part of a proposal for Crewe Sharp Career Bridge Pty Ltd, dated 29 May 2009.

115 Each of these documents was a Pro Risk proposal form. Pro Risk is an underwriting agency. Mr Hansen understood that Matthew Crewe had provided those proposal forms to his current insurance broker for the purpose of obtaining a quotation and that he had provided them to Mr Hansen so that he could also use them to obtain a quotation.

116 On 10 June 2009, Mr Hansen sent an email to Ms Vuckova, then employed as an underwriter at CGU.[28] In his email Mr Hansen sought a quotation for one P.I. policy covering the four entities listed in his email, including Crewe Sharp. Attached to the email was a proposal by Crewe Sharp Career Bridge Pty Ltd addressed to Pro Risk. In his email Mr Hansen also described the professional services provided by each of the entities. As to Crewe Sharp, Mr Hansen said:

• a Management Consultancy services company. None of the risks stuff you do not like (capital raising, bus valuations, M&a etc). It[']s all strategic management consulting centered around HR services. Annual fees last 12 months was $1m.

117 Ms Vuckova received the email from Mr Greg Hansen, who was the insurance broker for Crewe Sharp. Ms Vuckova said that his email described the professional services provided by each entity. Ms Vuckova said that his email stated that Crewe Sharp was a 'Management Consultancy services company.' Ms Vuckova said that Mr Hansen also stated Crewe Sharp was not involved in the 'risks stuff you do not like (capital raising, bus[iness] valuation, M&A etc).' Ms Vuckova said that Mr Hansen stated the services provided by Crewe Sharp were exclusively 'strategic management consulting centred around HR services.'

118 Ms Vuckova said that each of the documents forwarded to her was a Pro Risk proposal form. Ms Vuckova said that it is not uncommon to receive from a broker a proposal using another insurer's proposal form. Ms Vuckova said that she accepted such proposals as long as they contained all of the key information required by her to underwrite a policy.

119 Ms Vuckova said that after reviewing Mr Hansen's email and attachments, she took steps to ascertain whether the proposed insureds were existing clients of CGU and whether CGU had any information about them. She ascertained that the proposed insureds were new clients.

120 Ms Vuckova said that based on her review of Mr Hansen's email and the attachments, she then made a note in IA 90 notes for 2009[29] of her understanding of the professional services provided by Crewe Sharp and the other entities to be insured. Ms Vuckova's note records that the insureds provided the following services:[30]

Management consultancy, personnel consulting - white collar, admin[istration] and telemarketing, personnel consulting - nurses, training and development.

121 Ms Vuckova said there was nothing in Mr Hansen's email or the attachments that concerned her about offering to provide the P.I. policy requested by Mr Hansen. Ms Vuckova said it was the type of request that, at the time, she commonly received. Ms Vuckova said that CGU regularly offered professional indemnity insurance to people providing the types of professional services which he had described.

122 On 16 June 2009 Ms Vuckova sent an email to Mr Hansen attaching a quotation for the P.I. policy.[31] The quotation, at item 1, listed as proposed insureds Crewe Sharp Career Bridge Pty Ltd, listed twice; Crewe Sharp was not listed. CGU accepts that was a mistake. One of the references to Crewe Sharp Career Bridge Pty Ltd should have been a reference to Crewe Sharp.

123 Ms Vuckova said that on 19 June 2009 she received an email from Mr Hansen asking her to issue the P.I. policy. Mr Hansen also asked her to amend the description of the professional services covered by the P.I. policy (as contained in the quotation) to:[32]

Personnel and HR Consultancy, Management Consultancy, Business Coaching, Training and Development Consultancy and Debt Recovery Services.

Ms Vuckova said she responded by email to Mr Hansen confirming that the description would be changed.[33]

124 Ms Vuckova said that once the names of the insureds had been corrected to include Crewe Sharp and the description of the professional services amended, she sent an email to Mr Hansen attaching the policy schedule.[34] Mr Hansen said he received the same on 10 July 2009.

125 Mr Hansen said that he then prepared a tax invoice and a coverage summary and sent both by email to Ms Vuckova and Mr Crewe. He said the coverage summary set out, amongst other things, the insuring clause and the P.I. policy. He said he identified an error in the description insuring clause that referred to 'information technology services' when it should have referred to 'professional services.'

126 On 16 December 2009 the P.I. policy was amended to add another insured, Centric Management Services Pty Ltd.

127 Mr Hansen said that in June 2009 Matthew Crewe also instructed him to obtain a quotation for a directors and officers liability insurance policy (D&O policy) for Crewe Sharp and the other three entities covered by the P.I. policy. Mr Hansen said he understood that each of the four entities already had a D&O policy in place but that Mr Crewe wanted an alternative quotation. Mr Hansen said that on 18 June 2009 (two days after Ms Vuckova had provided the quote for the P.I. policy) he sent an email to Ms Vuckova requesting a further quotation for a 'C&ML' (Corporate and Management Liability) policy. He said that a C&ML policy is the same as a D&O policy, but it contains additional types of insurance cover.

128 Mr Hansen said he received an email from Ms Vuckova on 18 June 2009 in which she provided an indication of the premium for such a policy.[35]

129 Mr Hansen said Crewe Sharp and the other three entities did not take up the D&O/C&ML policy with CGU. Mr Hansen said that he arranged with Crewe Sharp and the other entities to take up such a policy with a different insurer, Chubb. Mr Hansen said that throughout his engagement with Crewe Sharp (including in the following periods when he arranged a renewal of the P.I. policy), he understood that Crewe Sharp was a management consultancy service company. That is, he understood it was an independent third party providing advice to clients on management issues.

130 Mr Hansen that he did not know that Crewe Sharp and its director, Mr Crewe, who was also insured under the P.I. policy, provided director and officer services to Akron Roads. Mr Hansen said that if he had known that Crewe Sharp and Mr Crewe provided director and officer services to Akron Roads, then he would have told Matthew Crewe that the P.I. policy did not cover such services and that he should make sure that Akron Roads had a D&O/C&ML policy in place to cover any claims made against its directors, including claims against Crewe Sharp and Mr Crewe.

131 Under cross-examination, Mr Hansen was taken to the CGU underwriting manual, which was marked as a confidential exhibit.[36] Mr Hansen was asked to turn to the description of the profession 'management consultant'. Mr Hansen agreed with Dr Bigos, junior counsel for the liquidators, that the management consultancy services were not defined as including an independent third party providing advice. Mr Hansen was asked did he agree there was no statement in the under writing manual that excluded directors or officers or director- or officer-type services from management consultancy. Mr Hansen agreed.

132 Mr Hansen also agreed that the manual said the consultancy activities can vary widely, and he accepted that proposition. Mr Hansen did accept that a management consultant may sometimes be performing director- or officer-type services.

133 Ms Vuckova said that at no stage did Crewe Sharp or Mr Hansen disclose to her that Crewe Sharp and its director, Mr Crewe (also an insured under the P.I. policy) provided director and officer services to Akron.

134 Ms Vuckova said that she had been asked to address in her witness statement whether her decision to offer the P.I. policy to Crewe Sharp would have changed assuming that at the time Crewe Sharp sought its P.I. policy it had disclosed to her that Crewe Sharp and/or Mr Crewe provided company director and officer services to Akron.

135 Ms Vuckova said that in those circumstances, she would have contacted Mr Hansen to obtain information about the company director and officer services. She said she would have asked Mr Hansen to tell her the percentage of income received by Crewe Sharp from the provision of company director and officer services compared to the percentage of income received from the provision of management consultancy services. Ms Vuckova said that if a large part of the income was from the provision of company director and officer services, she would have told Mr Hansen that it was not appropriate for her to offer the P.I. policy to Crewe Sharp because it would not provide any cover in respect of most of the services provided by it, namely the director and officer services.

136 Ms Vuckova said that if she had been told by Mr Hansen that only a small proportion of income received by Crewe Sharp related to the provision of director and officer services to Akron, then she would have been prepared to offer the P.I. policy to Crewe Sharp but only on the basis that it contained an endorsement to the following effect: 'This policy does not cover any claim or claims arising directly or indirectly from, out of, in connection with or in respect to, any service provided by, or on behalf of, the insured to Akron Roads Pty Ltd.'

137 Ms Vuckova said that on 18 June 2009 she also told Mr Hansen that a directors and officers liability policy would only be issued with an 'insolvency exclusion'. Ms Vuckova said she also informed Mr Hansen that she would require a completed CA-ML proposal before CGU would issue cover. Ms Vuckova said that Crewe Sharp did not take up a directors and officers liability policy with CGU.

138 A witness statement of Mr Blakeley was tendered.[37] Mr Blakeley was not cross-examined. Mr Blakeley gave evidence to support the insolvent trading proceeding, produced books and records of Akron, correspondence of Akron, minutes of meeting of directors of Akron and other meetings of executives, and generally gave evidence in support of the unfair preference proceeding, Mr Sharp's dealings with Akron, the likely return to creditors of zero to 15 cents in the dollar, and produced certain documents relating to insurance of Akron.

140 I have already discussed the events leading to the High Court's decision that the Supreme Court had federal jurisdiction which authorised it to entertain the claim made by the liquidators against CGU and had the powers to grant the relief sought by the liquidators.[38]

141 On the appeal to the High Court, the liquidators claimed its standing to seek the declaration against Crewe Sharp and CGU, was based on s 562 of the Corporations Act. Section 562 provides:

Application of proceeds of contracts of insurance

(1) Where a company is, under a contract of insurance (not being a contract of reinsurance) entered into before the relevant date, insured against liability to third parties, then, if such a liability is incurred by the company (whether before or after the relevant date) and an amount in respect of that liability has been or is received by the company or the liquidator from the insurer, the amount must, after deducting any expenses of or incidental to getting in that amount, be paid by the liquidator to the third party in respect of whom the liability was incurred to the extent necessary to discharge that liability, or any part of that liability remaining undischarged, in priority to all payments in respect of the debts mentioned in section 556.

(2) If the liability of the insurer to the company is less than the liability of the company to the third party, subsection (1) does not limit the rights of the third party in respect of the balance.

(3) This section has effect notwithstanding any agreement to the contrary.

142 Before the High Court, the liquidators claimed its standing to seek the declaration against Mr Crewe and CGU, was based on s 117 of the Bankruptcy Act 1984 (Bankruptcy Act). Section 117 provides:

(1) Where:

(a) a bankrupt is or was insured under a contract of insurance against liabilities to third parties; and

(b) a liability against which he or she is or was so insured has been incurred (whether before or after he or she became a bankrupt);

the right of the bankrupt to indemnity under the policy vests in the trustee and any amount received by the trustee from the insurer under the policy in respect of the liability shall, if the liability has not already been satisfied, be paid in full forthwith to the third party to whom it has been incurred.

(2) Subsection (1) does not limit the rights of the third party in respect of any balance due to him or her after the payment referred to in that subsection has been made.

(3) This section applies notwithstanding any agreement to the contrary, whether entered into before or after the commencement of this Act.

143 The High Court held in relation to both statutory provisions that they provided the liquidators with standing to seek the declaration sought as against CGU.[39]

144 On Monday 18 April 2016, the trial of this proceeding commenced before me. I heard opening submissions from both parties. The insurer, CGU, submitted in their opening that they assumed that the liquidators relied on s 117 of the Bankruptcy Act, as the basis of the liquidators' claims to be entitled to the moneys that CGU was obliged to indemnify Mr Crewe for under his policy with CGU. CGU submitted that s 117 was no longer apposite by reason of a deed of settlement (discussed below) that the liquidators and Mr Crewe had entered into, as Mr Crewe was now no longer threatened with bankruptcy.

145 On or around 23 March 2016, the liquidators and Mr Crewe entered into a deed of settlement resolving their claim against Mr Crewe. The deed of settlement provided as follows:

(a) Trevor Crewe and Crewe Sharp consent to judgment being entered against them in the Proceeding in the amount equal to the amount of the Debts without any orders as to interest or costs.

(b) Without limitation of clause 2.1(a), Trevor Crewe and Crewe Sharp consent to Liquidators providing orders set out in the Schedule to this Deed to the Court within 5 days of this Deed taking effect pursuant to clause 4.8 below.

2.2. Enforcement of judgment

In consideration of the deposit of the Security Sum by Trevor Crewe in accordance with clause 2.2(c) below:

(a) Effective from the time of the provision the Security Sum is required by clause 2.2(c) below, the Liquidators agree to enforce the judgment in the Proceeding only as follows:

(i) first against any proceeds of the Policy, and

(ii) as against Trevor Crewe once the claim and the Policy has been exhausted, only against the Security Sum of $125,000.

(b) Trevor Crewe hereby assigns to the Liquidators any and all amounts recovered under the Policy in relation to the Claims and he will take all steps reasonably requested by the Liquidators in order to recover such amounts. To the extent that further proceedings are required in order to recover under the Policy, Trevor Crewe will conduct such proceedings with assistance from solicitors nominated by Liquidators and the Liquidators will indemnify Trevor Crewe in respect of liability to those services for legal costs and in respect of any disbursements and expenses reasonably incurred by him and in respect of any and all costs orders made against him in such proceedings, including costs and expenses that he is ordered to pay to any party in such proceedings.

(c) As security for his liable under clause 2.2(a)(ii) above, Trevor Crewe will deposit by 23 March 2016 the Security Sum into the Liquidators' solicitors' trust account.

146 The deed then provided details of how the moneys are to be paid.

147 CGU submitted in its opening that by reason of the deed of settlement, s 117 of the Bankruptcy Act was not available as a basis for the liquidators to seek a declaration against CGU. CGU said that s 117 might only be relevant if Mr Crewe was bankrupt or was likely to go bankrupt. CGU said that as Mr Crewe was only now obliged to pay $125,000 (which he had now done) there was no suggestion that Mr Crewe would be bankrupted and that s 117 would be enlivened. The liquidators did not dispute that Mr Crewe was not at risk of being bankrupted.

148 CGU submitted that therefore the liquidators had no standing to seek the declaration from CGU in respect of moneys payable to Mr Crewe, if any, under the Policy.

149 On 19 April 2016, the liquidators sought to amend their statement of claim by adding paragraph 26A as follows:

By reason of: (a) the operation of s 117 of the Bankruptcy Act 1966 (Cth) in any bankruptcy of Trevor Crewe; and further or alternatively (b) the Settlement Deed dated 23 March 2016 (the full terms of which are relied on, including clauses 2.2(b) pursuant to which Trevor Crewe assigned to the Liquidators any and all amounts recovered under the Policy in relation to the claims in paragraphs 6 to 17), any amount payable to Trevor Crewe pursuant to the policy from CGU in respect of the Plaintiffs' claims must be paid to the Plaintiffs.

150 Upon tendering the proposed amendment, the liquidators said that they no longer relied on point (a) in the amendment and merely relied on point (b).

151 CGU submitted that the deed of settlement did not give the liquidators standing to seek the declaration that they sought against CGU.

152 On 28 April 2016, I heard argument on the issue of the standing of the liquidators to seek the declaration in relation to CGU's obligation to indemnify Mr Crewe. The liquidators argued that I should defer the issue of standing until the conclusion of the trial. CGU submitted that I should resolve the issue before the matter proceeded any further. I decided to defer consideration of the issue of the liquidators' standing until the conclusion of the trial. I otherwise, granted leave to the liquidators to amend the points of claim as they had sought.[40]

153 On Monday, 2 May 2016, the trial continued. As indicated above, Crewe Sharp did not appear to oppose the claim against it that it was a director of Akron and that it is liable as a director under s 588 of the Corporations Act for $12,992,880.05 being the amount of the loss and damage suffered by the creditors of Akron in relation to debts owed to them by Akron, because of the insolvency of Akron.

154 I now turn to consider the issues raised in the trial.

Do the liquidators of Akron have standing to seek relief concerning CGU liability to Mr Crewe?

155 The liquidators submit that the settlement deed assigned to the liquidators any and all amounts recovered under the Policy and that that contractual right gave the liquidators standing to seek the declaration that they do against CGU as to CGU's liability under the policy to Trevor Crewe. The liquidators submit that the deed replicated the legal effect of s 117 of the Bankruptcy Act.

156 The liquidators contend that s 117 had been the basis for the liquidators' standing as regards Mr Crewe, and that all parties had understood this even though it was not pleaded.[41] The liquidators submit that s 117 relevantly provides that the right of a bankrupt insured to indemnity under an insurance policy vests in the trustee-in-bankruptcy, and any amount received by the trustee from the insurer under the policy in respect of a liability to a third party shall be paid to the third party.

157 The liquidators say that CGU denied indemnity to its insured, Mr Crewe and Crewe Sharp. Both were left to defend the litigation as prudent uninsured, without any indemnity even in respect of defence costs. The liquidators say that due to their impecuniosity, neither Mr Crewe nor Crewe Sharp actively challenged the denial of indemnity, although at least in respect of Mr Crewe, he stated that he did not agree with CGU's denial.[42]

158 The liquidators submit that when they sought to proceed against CGU directly for declaratory relief by joining it as a defendant to the proceeding, CGU argued, at first instance, and in two appellate courts, that s 117 did not give the liquidators standing in respect of Mr Crewe (and that the corresponding provision in the corporations legislation[43] did not give the liquidators standing in respect of Crewe Sharp).

159 The liquidators submit that the High Court held unanimously that s 117 enabled the injured party to sue the insurer directly for declaratory relief. Their Honours did not accept CGU's arguments that s 117 requires the trustee-in-bankruptcy to sue the insurer first, or that it was necessary for the liquidators to establish some cause of action against CGU in order to found jurisdiction for declaratory relief.

160 The liquidators submit that the Court agreed with the plaintiffs' contention that, because of the effect of s 117, the prospect of Mr Crewe becoming bankrupt as a result of the proceeding was sufficient to give the liquidators standing to seek a declaration that CGU was liable under the Policy to indemnify Mr Crewe.[44] The legal consequence created by s 117 would be the bringing into existence, in favour of the plaintiffs, of a right to the proceeds of the Policy payable to Mr Crewe in respect of his liability to Akron.[45]

161 The liquidators contend that the High Court agreed that the liquidators have a real interest in establishing that the insurer is liable to indemnify Mr Crewe.[46] The interest upon which the claim for declaratory relief is based and CGU's denial of liability under the Policy, are sufficient to constitute a justiciable controversy between the liquidators and CGU.[47]

162 The liquidators submit that because of s 117, it is the liquidators who stand to benefit (to the exclusion of Mr Crewe) from the making of the declaration sought.[48]

163 The liquidators contend that at the beginning of day 2 of the trial, they sought to clarify the position as regards standing, by providing the Court and CGU with a proposed amended pleading. They submit that the question of standing is not a matter that necessarily needs to be pleaded. Either there is standing or there is no standing.[49] The liquidators submit that whether there is standing is a substantive question,[50] and it would be overly technical to require standing to be pleaded.[51] The liquidators argue that this is especially so in circumstances where the totality of the evidence regarding standing, being the Settlement Deed, is already before the Court, having been opened by both sides.

164 The liquidators submit that although it was not necessary to plead their standing as regards to Mr Crewe, and both parties proceeded on the basis that it did not need to be specifically pleaded, the liquidators considered it prudent to formally bring to the attention of CGU, the liquidators' contention of how standing arises based on the deed of settlement.

165 The liquidators submit that the relevant provisions of the settlement deed are as follows:

(i) Clause 2.1 provides that Mr Crewe consents to judgment being entered against him in the proceeding in the sum of $12,992,880.05. Judgment was accordingly entered against Mr Crewe on 4 April 2016.

(ii) Clause 2.2(a) relevantly provides that in consideration of the deposit of a security sum of $125,000 by Mr Crewe, the liquidators agree to enforce judgement in the proceeding first only against any proceeds of the Policy, and as against Mr Crewe, once the claim on the Policy has been exhausted, only against the security sum of $125,000. The responsiveness of the Policy to the judgment against Mr Crewe is to be determined in the proceeding. On the plaintiffs' case, it will be found to respond up to the policy limit of $5 million, and the liquidators will therefore be limited to the amount of $125,000 by way of enforcement of the judgment against Mr Crewe.

(iii) The settlement deed provides for the liquidators to obtain that amount in two ways:

(a) clause 2.2(b) relevantly provides that Mr Crewe assigns to the liquidators any and all amounts recovered under the Policy. Therefore the amounts recovered under the Policy - up to the Policy limit of $5,000,000 - are assigned to the liquidators.

(b) clause 2.2(c) relevantly provides for Mr Crewe to make a security deposit of $125,000, which is held on trust. That amount is to be paid to the liquidators after the proceeds of the Policy are recovered.

166 The liquidators argue that the amounts recovered (ie the proceeds of a claim) under the Policy are a debt, which is assignable[52] at law[53] or in equity. It is the right to be paid amounts under the Policy. Even though the assignment of the debt does not carry with it the right to make a claim under the Policy,[54] it is sufficient to give the liquidators as assignees standing to seek a declaration that the Policy responds to the insured's claim.

167 The liquidators submit that clause 2.2(b) replicates by contract the effect of s 117 of the Bankruptcy Act. The liquidators argue that the assignment by Mr Crewe to the liquidators under clause 2.2(b), of any and all amounts recovered under the Policy, carries the legal consequence - by analogy with s 117 - of the bringing into existence, in favour of the plaintiffs, of a right to the proceeds of the Policy payable to Mr Crewe in respect of his liability to Akron.

168 The liquidators submit that Mr Crewe's obligation to pass on any proceeds of the Policy is absolute and immediately operative. The liquidators submit that they have a real interest in establishing that the insurer is liable to indemnify Mr Crewe. As with s 117, the liquidators contend that the interest upon which the claim for declaratory relief is based and CGU's denial of liability under the Policy are sufficient to constitute a justiciable controversy between the liquidators and CGU.

169 The liquidators contend that because of the assignment, it is the liquidators who stand to benefit (to the exclusion of Mr Crewe) from the making of the declaration sought. The liquidators argue that just as with s 117, there is no need for Mr Crewe to sue the insurer first, as the assignment enables the liquidators, as the injured party, to sue the insurer directly.

170 The liquidators submit that Mr Crewe, as a prudent uninsured (having been denied indemnity), acted appropriately and reasonably, and entirely consistently with the overarching obligations under the Civil Procedure Act 2010 (Vic), in entering into the settlement deed with the plaintiffs. However, the liquidators submit that CGU has seized on the settlement deed as an additional basis for denying indemnity under the Policy. The liquidators argue that the way CGU would have it, any settlement which fell short of bankrupting Mr Crewe would disentitle the liquidators to standing against CGU.

CGU's submissions on the standing of the liquidators to sue CGU

171 CGU submits that the amendment (to the statement of claim) accepted that the liquidators did not have standing under s 117 of the Bankruptcy Act to found its claims against CGU and that its standing is now based solely on the on the assignment in the deed of settlement.

172 CGU submits that in light of the settlement deed between Mr Crewe and the liquidators, the Court has no jurisdiction to grant the declaratory relief against CGU sought by the liquidators in respect of Mr Crewe because there exists no justiciable controversy between the liquidators and CGU. CGU rely on CGU v Blakeley.[55]

173 CGU submits that the High Court in CGU v Blakeley made it clear that the liquidators' claim against CGU for a declaration in respect of its alleged liability to indemnify Mr Crewe under the Policy invoked federal jurisdiction based upon the contingency of s 117 of the Bankruptcy Act 'in the event that CGU is liable to indemnify Mr Crewe and he becomes a bankrupt.'[56] CGU argue that the liquidators now accept that that will never happen, as a consequence of the settlement deed and Mr Crewe's payment of the settlement sum of $125,000.

174 CGU submits that the liquidators now instead contend that the settlement deed provides the basis of the necessary justiciable controversy, although they do not say whether they rely on federal jurisdiction or whether they must seek to invoke the power of the Court under s 36 of the Supreme Court Act 1986 (Vic).

175 CGU submits that as the plurality made clear in CGU v Blakeley:[57]

The...liquidators' proceeding against the directors involved a matter arising under a law made by the Commonwealth Parliament, namely ss 588G and 588M of the [Corporations] Act.

176 Having settled against Mr Crewe, CGU says that it is difficult to see how a federal matter remains. CGU submits that the 'central task' is the identification of a justiciable controversy.[58]

177 CGU refers to Nettle J in CGU v Blakeley, where he said that Australian authority largely accords with the statement of May LJ in Meadows Indemnity Co Ltd v Insurance Corporation of Ireland Plc,[59] as follows:

I accept the general submission that was made to us that a person not a party to a contract has no locus, save perhaps in exceptional circumstances, to obtain a declaration in respect of the rights of other parties to that particular contract. It would be contrary to the whole principle of privity to allow such a person to obtain such a declaration. He has no 'rights' in respect of that contract and has no claim for relief under it (emphasis altered by CGU).

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 (citing Wilson v Darling Island Stevedoring and Lighterage Co Ltd [1956] HCA 8; (1956) 95 CLR 43, 67 (Fullager J) and Coulls v Bagot's Executor and Trustee Co Ltd [1967] HCA 3; (1967) 119 CLR 460, 478 (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.

As the Akron liquidators have submitted, their claim does not depend upon any incursion upon principles of contract law or privity of contract. They are not claiming as a party to the insurance contract nor as persons otherwise entitled to the benefit of that contract. Their claim is based upon the legal consequence created by s 562 of the [Corporations] Act in the event that CGU is liable to indemnify Crewe Sharp and, more contingently, s 117 of the Bankruptcy Act in the event that CGU is liable to indemnify Mr Crewe and he becomes a bankrupt. That legal consequence would be the bringing into existence, in favour of the Akron liquidators, of a right to the proceeds of the insurance policy payable to Crewe Sharp in respect of its liability to Akron. The interest upon which the claim for declaratory relief is based and CGU's denial of liability under the policy are sufficient to constitute a justiciable controversy between the Akron liquidators and CGU involving a question arising under a law of the Commonwealth. Because of these statutory provisions, it is the Akron liquidators who stand to benefit (to the exclusion of Crewe Sharp and Mr Crewe) from the making of the declaration sought (emphasis added).

180 CGU submits that in this case, there is no basis established, or authority referred to, by the liquidators that would permit the application of some type of exceptional circumstance contemplated by Nettle J.[61]

181 CGU contends that to adopt the phrasing of the plurality used above, the liquidators are not claiming as a person 'entitled to the benefit' of the insurance policy between Mr Crewe and CGU (for example, under s 48 of the Insurance Contracts Act 1984 (Cth) (ICA)). CGU submits that the liquidators claim for a declaration, now, does most certainly 'depend upon [an] incursion upon principles of contract law or privity of contract.'

182 CGU referred to clause 2.2 (b) of the settlement deed which states:

Trevor Crewe hereby assigns to the Liquidators any and all amounts recovered under the Policy in relation to the Claims and he will take all steps reasonably requested by the Liquidators in order to recover such amounts. To the extent that further proceedings are required in order to recover under the Policy, Trevor Crewe will conduct such proceedings with assistance from solicitors nominated by Liquidators and the Liquidators will indemnify Trevor Crewe in respect of liability to those services for legal costs and in respect of any disbursements and expenses reasonably incurred by him and in respect of any and all costs orders made against him in such proceedings, including costs and expenses that he is ordered to pay to any party in such proceedings.

183 CGU submits that that clause does not assign any rights or interests under the Policy. Nor does it assign a right to recover under the Policy. CGU says that it does not operate to vest in the liquidators any entitlement to the benefit of the Policy or any right to recover under it. CGU says that the general rule that a person not a party to a contract has no standing to obtain a declaration in respect of the rights of other parties to that contract therefore governs.

184 CGU submits that notably, the liquidators' assertion (and it is just that) at paragraph 10 of their written submission that 'the assignment of the debt ... is sufficient to give the liquidators as assignees standing to seek a declaration that the [P]olicy responds to the insured's claim' is unsupported by any explanation, let alone authority.

185 CGU contends that nor do the liquidators 'stand to benefit from the making of the declaration' that CGU indemnify Mr Crewe. CGU says that Mr Crewe has paid $125,000 to the liquidators in settlement of the claim against him.

186 CGU submits that if Mr Crewe's Policy with CGU (being a professional indemnity policy) responds, then CGU's only obligation under the Policy is to indemnify Mr Crewe in respect of his liability to the plaintiffs, being $125,000. Therefore, CGU argues that whilst Mr Crewe might stand to benefit (by being indemnified for the $125,000 paid), the liquidators do not stand to benefit. CGU submits that the liquidators seek a declaration that will not result in any payment of money to them. CGU says that such declaration has no utility. CGU contends that it follows that the liquidators' submission that it is they 'who stand to benefit (to the exclusion of Mr Crewe) from the making of the declaration sought', cannot possibly be right.

187 Further, and in any event, CGU submits that the express terms of the settlement deed make it clear that if any 'further proceedings' are necessary to recover any amount in excess of $125,000, it is Mr Crewe who has to bring them, not the liquidators. CGU submit that for that reason, and because the liquidators have already been paid the maximum amount that CGU could ever be liable to pay Mr Crewe, the liquidators have no interest (for standing or any other purpose) in the Policy or any amount that may be paid to Mr Crewe.

188 CGU submit that despite having been on notice of the basis upon which CGU says that the liquidators no longer have standing,[62] the liquidators have said nothing about the obvious difficulties outlined above that stand in their way.

189 CGU argues that the liquidators' submission that they have standing is contained in a single paragraph of their written submission. CGU submits that the liquidators' single contention in support of the proposition that they have standing to seek the declaration is that clause 2.2 (b) 'replicates' the effect of s 117 of the Bankruptcy Act. CGU contends that it is readily apparent that the settlement deed has no resemblance to s 117. Section 117(1)(b) vests 'the right of the bankrupt to indemnity under the policy' - which is the very right that clause 2.2(b) of the settlement deed assuredly does not assign to the liquidators.

190 CGU submits that the declaration sought by the liquidators against CGU is limited to any judgment obtained by the liquidators against Mr Crewe. Under the deed of settlement, Mr Crewe assigned to the liquidators any and all amounts recovered under the Policy in relation to the claims and he agreed to take all steps reasonably requested by the liquidators in order to recover such amounts.

191 CGU says that because of the terms of settlement, Mr Crewe is not entitled to recover any sum under the Policy so there is nothing assigned to the liquidators.

192 CGU submits that under the terms of the settlement, Mr Crewe's maximum liability to the liquidators was $125,000 (even though he agreed to judgment being entered against him for $12,992,880.05) and that that sum has already been recovered by the liquidators from Mr Crewe, thus his liability is now nil. Thus, the effect of the settlement deed is that any liability to the liquidators that Mr Crewe did have has been discharged by the settlement. Accordingly, nothing has been assigned to the liquidators.[63]

193 Secondly, CGU submits that the settlement deed purports to do no more than assign to the liquidators any amount that Mr Crewe may recover in some proceeding brought by him against CGU. CGU says that that does not assign any right or interest in the Policy. CGU submits that it is just an assignment of amounts that Mr Crewe may recover.[64] CGU says that unless some right or interest in the Policy is assigned, that is the contract, the liquidators remain a stranger to that contract.

194 CGU submits that the assignment only sought to assign amounts recovered under the Policy and the assignment went on to set out the mechanism by which those moneys would be recovered. That is, that Mr Crewe would take proceedings with the assistance of solicitors nominated by the liquidators, having his costs and so forth indemnified by the liquidators. CGU submitted that the assignment did not give the liquidators' standing to sue CGU.

195 It is first necessary to consider in some detail the High Court decision in CGU v Blakeley, where the High Court upheld the standing of the liquidators to seek declarations against CGU in respect of its liability if any to Mr Crewe and Crewe Sharp.

196 The plurality of the High Court addressed whether the Supreme Court was exercising federal jurisdiction in determining the claim by the Akron liquidators against CGU. The plurality held that two matters needed to be satisfied before federal jurisdiction was enlivened. First, the subject matter of the controversy must fall within the heads of jurisdiction set out in Chapter III of the Australian Constitution. Secondly, the claims in the proceeding must involve a justiciable controversy or otherwise fall within an established category of judicial power.[65]

197 There was no dispute the subject matter fell within the heads of jurisdiction, as these included any matters arising under the laws made by the Parliament that includes the Corporations Act. The Corporations Act itself also vests the Supreme Court of the States with jurisdiction.

198 Accordingly, the plurality held that the liquidator's claim for declaratory relief satisfied the subject matter requirement for the exercise of federal jurisdiction by this Court. They said that the question whether the judicial power of the Commonwealth invested in the Supreme Court was enlivened by the claim for declaratory relief against CGU depended upon whether 'that claim involved a justiciable controversy.'[66]

199 The plurality resolved the issue before them as follows:[67]

The question raised by the Akron liquidators' claim is one within the subject matter area of federal jurisdiction. The next inquiry is whether it reflects a justiciable controversy between the Akron liquidators and CGU. It is in that area that the parties essentially joined issue on this appeal.

In light of the foregoing reasons, that question can be answered quite shortly. Crewe Sharp had made a claim against CGU under the [P]olicy and CGU had declined that claim. Neither Crewe Sharp nor its liquidators nor Mr Crewe accepted the denial of liability. Mr Crewe, who was also an insured person under the policy, disagreed with the decision and consented to the joinder of CGU. The liquidators of Crewe Sharp were not in a position to investigate CGU's denial of liability and took no position on the joinder.

If the Akron liquidators made good their claim against Crewe Sharp and Mr Crewe, and established the liability of CGU to indemnify its insured, the proceeds of the policy so far as they related to Crewe Sharp would have been payable by the liquidators of Crewe Sharp to the Akron liquidators subject to the deductions mentioned in s 562 of the [Corporations] Act. If Mr Crewe himself became a bankrupt then s 117 of the Bankruptcy Act could apply to similar effect with respect to his trustee in bankruptcy.

As the Akron liquidators have submitted, their claim does not depend upon any incursion upon principles of contract law or privity of contract. They are not claiming as a party to the insurance contract nor as persons otherwise entitled to the benefit of that contract. Their claim is based upon the legal consequence created by s 562 of the [Corporations] Act in the event that CGU is liable to indemnify Crewe Sharp and, more contingently, s 117 of the Bankruptcy Act in the event that CGU is liable to indemnify Mr Crewe and he becomes a bankrupt. That legal consequence would be the bringing into existence, in favour of the Akron liquidators, of a right to the proceeds of the insurance policy payable to Crewe Sharp in respect of its liability to Akron. The interest upon which the claim for declaratory relief is based and CGU's denial of liability under the policy are sufficient to constitute a justiciable controversy between the Akron liquidators and CGU involving a question arising under a law of the Commonwealth. Because of these statutory provisions, it is the Akron liquidators who stand to benefit (to the exclusion of Crewe Sharp and Mr Crewe) from the making of the declaration sought. It would be distinctly to ignore this reality if the liquidators' interest in this regard could be defeated by reason of inaction on the part of Crewe Sharp and Mr Crewe against CGU given that the statutory provisions themselves deprive Crewe Sharp and Mr Crewe of all incentive to pursue a claim under the policy.

The declaration sought by the Akron liquidators would be binding as between them and CGU. In the circumstance in which the insured are also parties, albeit not conceding CGU's position nor claiming relief against it, it is unlikely that they or CGU would be permitted to relitigate, in subsequent proceedings, issues which had been determined or which could properly, and should, have been agitated in the proceedings against CGU.

The application of preclusive doctrines against relitigation, which would support the utility of declaratory relief, is in the circumstances of this case theoretical. Given the position of the parties there would seem to be little or no prospect of any relitigation being embarked upon which would require consideration of those doctrines. For all practical purposes the declaratory claim brought by the Akron liquidators will be the only occasion on which CGU's denial of liability is contested.

This is a case in which the Supreme Court has federal jurisdiction to entertain the claim by the Akron liquidators against CGU and power to grant the declaratory relief sought. The appeal should be dismissed. The appellant is to pay the respondents' costs of the appeal.

200 In this passage it can be seen that the High Court referred to the fact that the liquidators were not claiming as a party to the insurance 'nor as a person otherwise entitled to the benefit of that contract.'[68] The Court said that their claim was based upon the legal consequence created by s 562 of the Corporations Act and 'more contingently' s 117 of the Bankruptcy Act.[69]

201 Nettle J also held that the claim of the Akron liquidators against CGU was justiciable.

202 Nettle J's judgment warrants close attention as, in my opinion, it supports the contention of the liquidators of Akron that they have standing to seek the declaration claimed against CGU in respect of Mr Crewe.

203 Nettle J in considering jurisdiction, held that where, such as here, a claim depends on non-federal law, such as the common law liability of CGU under the Policy, and a federal claim against the directors under s 588M(2) of the Corporations Act and 'arise[s] out of "common transactions and facts" or "a common substratum of facts" or where "the determination of one is essential to the determination of the other" the non-federal claim will be part of the federal matter and thus fall within "accrued" federal jurisdiction.'[70]

204 Nettle J confirmed that the issue between the liquidators and the directors arose under the law of the Commonwealth with the result that this Court's authority to decide the issue stems from the federal jurisdiction conferred on this Court by s 39(2) of the Judiciary Act 1903 (Cth).[71]

It follows that the Supreme Court's jurisdiction to decide the claim for declaratory relief against CGU depends on whether that claim comes within the concept of a 'matter' within the meaning of s 39(2) of the Judiciary Act and thus within the meaning of Ch III of the Constitution. It does not follow, however, that the Supreme Court does not have federal jurisdiction to entertain the claim for a declaration.

206 Nettle J rejected the contention of CGU that the Court of Appeal was in error in treating what CGU described as case management considerations as pertinent to jurisdiction.

As the Full Court concluded in Ashmere Cove,[74] in a case of this kind the core of the justiciable controversy is the dispute between the liquidators and the directors. There is also a controversy between the directors and the insurer as to whether the insurer is liable to indemnify the directors against the liquidators' claims, which forms part of the single controversy arising out of the liquidators' claims against the directors. The success of the liquidators' claims against the directors is an essential prerequisite to the determination of any claim by the directors against the insurer. The liquidators' claim that the insurer is bound to indemnify the directors arises out of the same substratum of facts as the liquidators' claims against the directors. And the liquidators have a real interest in establishing that the insurer is liable to indemnify the directors. That is sufficient to comprise a justiciable controversy for the purposes of identifying a matter that attracts jurisdiction.

208 Nettle J rejected CGU's contention that the lack of contractual privity between CGU and the liquidators deprived CGU and the liquidators of the character of adversaries with the result that there was no justiciable controversy between them.

209 Nettle J cited with approval the decision of French J in Ashmere, where he held that:[75]

[...] although s 562 of the Corporations Act does not confer a legal right on a plaintiff liquidator as against a defendant's insurer, it confers a right of priority in respect of the proceeds of any successful claim by the defendant against the insurer. That gives the plaintiff liquidator a 'very real interest'[76] in having the insurer's obligations to the defendant determined by way of declaration in the course of the proceeding in which the defendant's liability to the liquidator is determined.

210 Nettle J referred to four factors that supported the granting of declaratory relief in those circumstances where there was no privity of contract:[77]

(a) the claimant will derive some benefit from the declaration over and above any benefit of advantage that might be derived by ordinary citizens;

(b) the liquidator's claim relates to events which have occurred in the past, namely the directors' beaches of s 588G of the Corporations Act;

(c) 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; and

(d) the issue is productive or a real and pressing dispute, is of real and practical importance, or is one in which the claimant has a real commercial interest.

[...] where a claimant has a real commercial interest in establishing the claimant's legal status or entitlement in relation to proposed commercial conduct and there is a real controversy with some contradictor as to the existence or extent of the claimant's legal status or entitlement, the claimant may have standing to obtain, and the court co-ordinately will have jurisdiction to grant, a declaration as to the existence or extent of the status or entitlement.[79]

212 Nettle J also had regard to whether the declaration would also binding as between the insurer and the insured and said that it would by reason of issue estoppel.[80]

213 Nettle J said that the directors of Akron could have claimed indemnity but chose not to. In those circumstances, it was desirable and appropriate for the liquidators to obtain a determination of the issue of CGU's liability. Nettle J observed that the Supreme Court Rules enabled such a proceeding to be undertaken as it was 'just and convenient' to determine the issue of CGU's liability to indemnify Crewe Sharp and Mr Crewe.[81]

[...] it should be concluded that the liquidators' claim for a declaration of CGU's liability to the directors gives rise to a justiciable controversy. Because determination of that justiciable controversy depends on resolution of the directors' liability to Akron Roads under the Corporations Act, the justiciable controversy is within the same matter as the liquidators' claims against the directors. The claim for the declaration therefore comes within the Supreme Court's federal jurisdiction. Judd J and the Court of Appeal were right to hold that there is jurisdiction to grant the declaration that is sought.

215 No authority was cited directly on whether the deed of settlement would give rise to a justiciable issue between the liquidators and CGU. Nevertheless, the High Court's observations in CGU v Blakely suggest that all the circumstances of the case should be taken into account in deciding whether the liquidators have raised a justiciable question with CGU. There is little doubt that if it has then the issue falls within the accrued federal jurisdiction arising out of the liquidators claim under the Corporations Act against Mr Crewe and Crewe Sharp.

216 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 same evidentiary issues arise in relation to the claim against Crewe Sharp by the liquidators as in the claim by the liquidators against CGU. For example, the liquidators have to establish liability against Crewe Sharp and such liability, if established, is relevant to CGU's obligation to indemnify Crewe Sharp.

217 The liquidators clearly have a special interest. It is not hypothetical. The liquidators' claim is not contingent on a future event. All the relevant events have occurred in the past: the trading whilst insolvent, the breach of duties, the insurance policy being taken out, the events giving rise to a claim.

218 The High Court was addressing statutory rights under s 562 of the Corporations Act in relation to Crewe Sharp and s 117 of the Bankruptcy Act in relation to Mr Crewe.

219 The High Court did observe that the liquidators were not claiming as party to the insurance contract nor as a person otherwise entitled to the benefit of that contract. That observation implies that such a claim may have weighed against the Court recognising that the liquidators claim against CGU as justiciable. On the hand, the four factors referred to by Nettle J, and the recognition by the plurality of similar factors as supporting their decision that the claim of the liquidators against CGU was justiciable, support the view that the claim under the settlement deed is justiciable.

220 The terms of settlement have avoided the likely plight of Mr Crewe of being bankrupted. There is no suggestion he could have met an order for some $12 million. His agreement with the liquidators seeks to achieve the same result as that which may have been achieved under s 117 of the Bankruptcy Act if he went bankrupt. That is, the receipt by the liquidators of the insurance coverage available to Mr Crewe by reason of his breaches of the Corporations Act as alleged by the plaintiffs.

221 In my opinion, the High Court gave weight to the commercial considerations facing the liquidators in carrying out the winding up of Akron. The plurality said that it would be distinctly to ignore reality if the liquidators' interest in the rights of Mr Crewe and Crewe Sharp under the CGU Policy could be defeated by reason of inaction on their part given that the statutory provisions themselves deprived Crewe Sharp and Mr Crewe of all incentive to pursue a claim under the Policy.

222 In the current situation, the liquidators of Crewe Sharp have said that they cannot afford to dispute the denial of liability by CGU and Mr Crewe has no financial incentive to dispute the denial at his own expense in view of the terms of settlement.

223 If Mr Crewe and Crewe Sharp had joined CGU as a third party and pursued their rights under the CGU Policy, the dilemma facing the liquidators would not have arisen.

224 After taking all these matters into account, in my opinion, recognising that the liquidators have standing to seek declaratory relief against CGU in respect of Mr Crewe is consistent with, and supported by, the High Court's decision in CGU v Blakeley.

225 Accordingly, I reject CGU's standing objection to the liquidators' claim against CGU. Of course, such a rejection says nothing about the defences raised by CGU to the claim.

What is the effect of the settlement deed on the liability of CGU?

226 As referred to above, CGU says that by reason of the settlement deed, Mr Crewe's liability to the liquidators was limited to $125,000 and he has paid that sum. Thus, under the assignment contained in the settlement deed, there is no sum due by CGU to the assignee, the liquidators.

227 The liquidators assert that CGU were aware of the mediation with Mr Crewe and must have been aware that Mr Crewe was likely to compromise the claim against him brought by the liquidators.

228 CGU submit that while Mr Crewe may recover $125,000 under the Policy, the liquidators will not receive a penny more from him as he has already paid that sum to the liquidators, as required under the settlement deed.

229 The liquidators submit that under the deed of settlement, Mr Crewe assigned to the liquidators all amounts recoverable under the Policy, which they contend is the value of the policy limit.

230 For the following reasons, I consider CGU's obligation is to indemnify the insured for the actual loss suffered and not for the value of the policy limit.

231 The deed of settlement is persuasive evidence of the quantum of liability of the insured. I find that it is this loss for which CGU must indemnify the insured (Mr Crewe), (subject to the claim being otherwise compliant with the Policy, as discussed further below).

232 The principle applied 'is that the assured cannot recover any more than the actual loss in the case of an indemnity policy, a question of fact in each case.'[83] In the case of an indemnity policy, the value of the policy limit 'merely fixes the maximum amount which in any event the insurer may have to pay, and the only obligation is to indemnify the insured [original: assured], up to this figure, against actual loss from the accepted risk.'[84]

233 The loss indemnified is the loss to the insured. This position was made clear by Crockett J in Lucas v New Zealand Insurance Co Ltd.[85] In that case, the plaintiff entered into a contract of fire insurance with the defendant, the contract required that, should the property (or any part of it) be damaged by fire, the defendant 'pay to the Insured the value of the Property at the time of the happening of its destruction or the amount of such damage or at its option reinstate or replace such Property or any part thereof.'[86]

234 His Honour, in considering the applicable principles observed:[87]

A policy of fire insurance must be construed as a contract for indemnification only: Castellain v Preston (1883) 11 QBD 380, 386 and 393; British Traders Insurance Co Ltd v Monson [1964] HCA 24; (1964) 111 CLR 86, 94. The amount recoverable must, therefore, be measured by the amount of the insured's loss; that is to say, by the value which the fire has taken away from his property; Westminster Fire Office v Glasgow Provident Investment Society (1888) 13 App Cas 699, 704 (emphasis added).

...

In determining the value of the property lost it must be borne in mind that it is not the value in an abstract sense that is to be assessed, but the value of the property to the insured. That is to say it is the insured's actual loss that is recoverable: see Canadian National Fire Insurance Co v Colonsay Hotel Co., [1923] 3 DLR 1001. So, if the insured should have a house property on the market for sale at a stipulated price at the time of its destruction by fire then the 'real value' to the insured of the property, and so the measure of his loss, is that price (less the site value) and not the cost of its replacement: Leppard v Excess Insurance Co Ltd, [1979] 1 WLR 512; [1979] 2 All ER 668. Or, should the insured of a house property be intending at the time of its being destroyed by fire in the near future to demolish the house in preparation for the development of the site, then the value of the house to the insured may be little more than the value of salvages materials upon its demolition: Falcon Investments Corporation (N.Z.) v State Insurance General Manager, [1975] 1 NZLR 520. On the other hand, the property in question may have a value to the insured beyond the market value because it was held by him for the purpose of using and enjoying it as a house - see Bowen LJ in Castellain v Preston, 400 - or in carrying on his business: Grant v Aetna Insurance Co (1862) 15 Moo 516, 518-9; [1862] EngR 871; 15 ER 589.

235 Applying the above principles, the insured is only to be indemnified for the actual damage or loss suffered by the insured. The quantum of this liability may be determined by a settlement agreement, subject to various requirements discussed below.

236 A reasonable settlement may be sufficient to establish the amount of an insured's liability (if not the liability itself).[88] In MacGillivray on Insurance Law, this distinction was explained as follows:[89]

In order to recover under a conventional liability policy, the assured must show that it was under a legal liability to the third party claimant; that the liability is covered by the insurance, and (in the case of a settlement) that any amount paid by way of settlement was reasonable. The general principal is that liability insurance provides an indemnity against actual established liability, as opposed to mere allegations.

237 In Lumbermens, Colman J, after considering these separate requirements, observed that:[90]

Each of these constituents of the obligation to indemnify the insured has to be established before it can be said that there is a cause of action. This is quite clearly established by the decision of the Court of Appeal in Post Office v Norwich Union Fire Insurance Society Ltd,[91] supra. Thus, at page 373, Lord Denning MR, with whom Salmon LJ agreed (at page 378), observed:

'The policy says that "the company will indemnify the insured against all sums which the insured shall become legally liable to pay as compensation in respect of loss of or damage to property." It seems to me that the insured only acquires a right to sue for the money when his liability to the injured person has been established so as to give rise to a right of indemnity. His liability to the injured person must be ascertained and determined to exist, either by judgment of the court or by an award in arbitration or by agreement. Until that is done, the right to an indemnity does not arise. I agree with the statement by Devlin J in West Wake Price & Co v Ching:[92] "The assured cannot recover anything under the main indemnity clause or make any claim against the underwriters until they have been found liable and so sustained a loss."'

238 Colman J considered there were two important facets to this process of ascertainment. First, it is the link between the liability, and the actual loss sustained. Colman J explained that '[i]t is the judgment, arbitration or settlement agreement which has imposed on the assured a judgment debt or a contractual obligation to satisfy an award or to perform a settlement agreement which constitutes the assured's loss caused by the assured's liability.'[93]

239 The second aspect identified by Colman J was that the judgment, arbitration or settlement agreement, is 'a source of evidence' for ascertainment of loss, as follows:[94]

[...] a judgment that the assured is liable in a given amount of damages is normally conclusive evidence as to liability and quantum. This, of course, would not be true of all judgments - notably of a judgment in default or of a judgment arising from a trial where no proper defence had been raised by the assured. The same would be true if there was a pending appeal. An arbitration award would give rise to a similar consequence. However, a settlement of a claim by a third party has a quite different effect. It is common ground that it evidences the amount which the assured has agreed to pay to discharge the claim in respect of the assured's liability but that it is not conclusive evidence as between assured and insurer either as to whether there was in truth liability or, if so, what the true amount of that liability was.

Thus as a matter of law an assured who relies on a settlement as a means of ascertainment has to prove by extrinsic evidence that he was in truth under a liability insured by the policy and secondly that what he paid by way of settlement of that liability was reasonable having regard to the amount of damages that he would have to pay if the matter had gone to trial. The latter requirement of reasonableness is normally satisfied by proof that such amount of damage would be at least as much as the amount paid under the settlement: [see Structural Polymer Systems v Brown [1999] CLC 268, 277 (Moore-Bick J)].

240 In the particular circumstances of that case, wherein the settlement agreement did not specifically identify the cost to the assured of discharging the claims, Colman J concluded that the settlement agreement could not satisfy the requirement of 'ascertainment' as it did 'not impose on the assured any identifiable loss in respect of any identifiable insured eventuality.'[95]

241 The approach taken by Colman J has been considered in two Australian decisions - QBE Insurance Ltd v Nguyen[96] and Kernaghan v Corrections Corporation of Australia Staff Superannuation Pty Ltd (No 2).[97]

242 In Nguyen, the question was whether proof of a default judgment, coupled with a judgment for payment of damages, established for the purposes of the insurance policy, that the judgment sum was an amount a party was legally liable to pay.[98]

243 In Kernaghan, the insured sought to argue that a settlement deed established the loss to be indemnified. North J concluded that the agreement ascertained the liability. However, in obiter, the ability of a party to challenge the quantum of liability evidenced by the judgment or settlement was considered. North J observed that:[99]

[...] the principle formulated in Lumbermens has been the subject of controversy. A little over a year after judgment in Lumbermens, Aikens J in Enterprise Oil Limited v Strand Insurance Company Ltd [2006] EWHC 58 (Comm) said at [166-171]:

[...] on principle, I think that it is open to an insured to assert and prove, by extrinsic evidence, that it is liable to a third party for a particular sum under a settlement that has been made and that the particular sum represents a loss covered by an insured peril under the liability policy. Equally, if an insured had made a settlement which purported to identify a particular sum as representing the quantum of liability for a particular type of loss that equated to an insured peril under the liability policy, the insurer would be free to challenge the insured's liability to the third party, the quantum of the liability and whether the particular liability identified in the settlement did, in fact, constitute a loss covered by an insured peril under the policy.

...

In the event that I am wrong in my view that Lumbermens is distinguishable, I would find the criticism of that case by Aikens J compelling and prefer the approach adopted by him. I would apply it in this case. The result would be to permit [evidence to be led] of the separate costs of the applicants suing the respondents ... in order to establish that the settlement agreement included a liability which attracted the indemnity ... and was reasonable.

244 Whilst the quantum of liability detailed in a settlement may be relevant, admissible evidence, it may not be conclusive, and quantum may be attacked by an insurer; a mere statement of liability, or admission, contained in a settlement agreement will not be binding on an insurer.[100] And a settlement does not absolve the insured from establishing they have an indemnifiable liability.

245 The settlement deed has the effect of limiting the liability of the insured. Ordinarily, an insured will be entitled to an indemnity for the settlement amount if the settlement of the liability was reasonable.[101]

246 In determining whether the settlement amount is 'reasonable', if one was to apply the reasoning in Nguyen, the value evidenced by the judgment entered against Mr Crewe ($12,992,880.05) may be of some utility. The liability of Mr Crewe (of $125,000) is so low compared to the claims made against him and the other defendants to suggest that it would likely be considered a reasonable settlement.

247 The obligation imposed by cl 2.2(a)(i) of the settlement deed presupposes that there are proceeds of the Policy, which can then be drawn upon. As the principles discussed above make clear, there can only be proceeds from a policy where, first, the insured's liability has been established, second, the liability falls within the scope of the policy, and third, the quantum of liability has been determined.

248 In my opinion, the justiciable issue between the liquidators and CGU relating to Mr Crewe, is not a claim that CGU owes Mr Crewe the maximum amount owing under the Policy. Because of the settlement deed, Mr Crewe's financial loss is limited to $125,000. That is the only matter that is justiciable between the liquidators and CGU relating to Mr Crewe.

249 In my opinion, because of the settlement deed, the maximum CGU may owe Mr Crewe, if the Policy is enlivened, is $125,000.

250 As for the consequences on the liquidators' standing to bring the claim against CGU of the liquidators already having received $125,000 from Mr Crewe, Mr Crewe has assigned to CGU any moneys he receives under the Policy. As Mr Crewe may be entitled to $125,000 if the Policy is engaged, those moneys have been assigned to the liquidators. Thus, the liquidators do have a financial interest in bringing the claim against CGU. I reject this ground of objection to the liquidators' standing to seek the declaration against CGU.

251 The liquidators allege that Crewe Sharp was a person who acted in the position of a director within the meaning of s 9 of the Corporations Act (de facto director), further or alternatively, the directors of Akron were accustomed to act in accordance with Crewe Sharp's instructions or wishes, within the meaning of 'director' in s 9 of the Corporations Act (shadow director). The liquidators provide the following particulars:

(i) during the Relevant Period, Trevor Crewe, the Managing Director of Crewe Sharp, was a director of the Company and its acting chief executive officer;

(ii) during the Relevant Period, from time to time Crewe Sharp invoiced the Company for Trevor Crewe's work as chief executive officer of the Company and attendance at the Company's board meetings, and those invoices were paid by the Company;

(iii) during the Relevant Period, Crewe Sharp was responsible for attempting to obtain financing for the Company;

(iv) during the Relevant Period, Crewe Sharp was responsible for directing the Company's affairs in relation to financial related matters such as the profit position, the cash flow position and insolvency risks;

(v) during the Relevant Period, Evan Sofronas, an employee of Crewe Sharp:

1. was "Treasurer" of the Company, in which role he had "responsibility for short term cash flow forecasting and cash management" and became the "manager of the cash flow";
2. took on the additional role of overseeing the operations of the occupational health and safety department and the human resources department of the Company, at which time his title became "Commercial Services Manager";

1. had an office at the Company's premises and appeared to be working there full time;

1. attended the Company's executive meetings;
2. was the second-in-charge ('2-IC') in the Company behind Trevor Crewe;
3. was the person to whom the chief financial officer of the Company, Otto Luznik, deferred in relation to the Company's financial affairs;

(vi) during the Relevant Period, from time to time Crewe Sharp invoiced the Company for Evan Sofronas's work as Treasurer and Commercial Services Manager of the Company, and those invoices were paid by the Company;

(vii) during the Relevant Period, Trevor Crewe and Evan Sofronas were the persons who liaised, on behalf of the Company, with ANZ bank, the Company's banker;

(viii) Crewe Sharp's involvement with the Company was continuous, from the time of its engagement in about 2001 until the Company's collapse on 1 February 2010;

(ix) Crewe Sharp was engaged by the Company to perform, and did perform, top level management functions, including, during the Relevant Period, seeking sources of funding for the Company, dealing with debtors and dealing with creditors, and cash flow management, being key areas of the business affairs of the Company in respect of which one would expect a director to be involved;

(x) Crewe Sharp actively participated in the strategic decision making process of the Company during the Relevant Period, in relation to seeking sources of funding for the Company, dealing with debtors and dealing with creditors, and cash flow management;

(xi) John Sill and Rob Sill followed, and were accustomed to follow, the direction of Crewe Sharp, through Trevor Crewe, in relation to seeking sources of funding for the Company, dealing with debtors and dealing with creditors, and cash flow management. In relation to those matters John Sill and Rob Sill deferred to Crewe Sharp, through Trevor Crewe, in the exercise of their management powers in relation to the Company. In doing so, Crewe Sharp had the potential to control, and did control, the Company's affairs. There was a pattern of behaviour in which John Sill and Rob Sill did not exercise discretion or judgment of their own but acted in accordance with the directions of Crewe Sharp, and habitually complied with those directions over a period of time, including during the Relevant Period;

(xii) in the liquidators' public examinations, Trevor Crewe admitted (on behalf of Crewe Sharp) that Crewe Sharp was engaged as a director of the Company in attending board meetings and performing other duties that relate to being a director. (T123:9-15).

252 Section 9 of the Corporations Act provides, inter alia:

director of a company or any other body means:

...

(b) unless the contrary intention appears, a person who is not validly appointed as a director if:

(i) they act in the position of a director; or

(ii) the directors of the company or body are accustomed to act in accordance with the person's instructions or wishes.

Subparagraph (b)(ii) does not apply merely because the directors act on advice given by the person in the proper performance of functions attaching to the person's professional capacity, or the person's business relationship with the directors or the company or body.

253 Sub-paragraph (i) of the definition is often described as 'de facto director', and sub-paragraph (ii) of the definition is often described as 'shadow director'.

254 As indicated in the pleading above, the liquidators and its liquidators contend that Crewe Sharp was a de facto director and/or a shadow director of Akron, and rely on evidence of Crewe Sharp's conduct and its relationship with Akron, principally contained in the witness statements of Ross Andrew Blakeley[102] and Mr Crewe. The substance of Mr Blakeley's evidence on whether Crewe Sharp was a director was limited to the production of minutes of board meetings and other documents that showed the activities of Mr Crewe from which it was sought to establish that Crewe Sharp acted as a de facto or shadow director of Akron.

255 In Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd,[103] the New South Wales Court of Appeal considered the relevant principles in establishing whether a company was a shadow director of another company. In that case, it was alleged that Apple Computer Australia Pty Ltd and Mr Likidis, its finance director, were 'shadow' directors of Buzzle. In substance it was alleged that Buzzle was insolvent at the time of incurring debts of some $12 million. The liquidators of Buzzle alleged that Apple and Mr Likidis had contravened s 588G of the Corporations Law[104] by failing to prevent Buzzle from incurring debts when insolvent. The liquidators claimed the debts incurred by Buzzle from Apple and Mr Likidis as compensation under s 588M.

256 The Court confirmed certain principles relevant to ascertaining whether Apple and Mr Likidis were 'shadow' directors.

257 Young JA delivered the leading judgment. He upheld the trial judge's decision that neither Apple nor Mr Likidis were 'shadow' directors of Buzzle.

258 On the issue of the statutory test of whether a person is a 'shadow' director, Whealy JA agreed with Young JA, Hodgson JA substantially agreed with the reasons of Young JA, in holding that no error was shown in the decision of the primary judge on the issue of whether the directors of Buzzle were at material times 'accustomed to act in accordance with the ... instructions or wishes of' Apple or Mr Likidis.

259 Young JA generally agreed with what the trial judge said on this issue.[105]

260 The appellants contended that by, and from, 1 January 2001, Apple and its finance director, Mr James Likidis, were 'shadow directors' of Buzzle. Young JA said:[106]

That is, the appellants alleged that the directors of Buzzle were accustomed to act in accordance with the directions of instructions or wishes of Apple and Mr Likidis, otherwise than by merely acting on advice given by them in the proper performance of functions attaching to their business relationship with the directors of Buzzle (par (b)(ii) of the definition of 'director' in s 9).

261 Young JA observed that before the then current definition was adopted in 1999, the corresponding definition in s 60 of the Corporations Law was, a 'person in accordance with whose directions or instructions the directors of the body are accustomed to act...' The then current definition referred to 'instructions or wishes'. His Honour said that in the cases decided since 2000, virtually no significance had been given to the change. His Honour said that if there is any significance, 'it is that "wishes" covers a wider field than "directions".'[107]

262 The primary judge, White J, accepted the analysis of Millett J in Re Hydrodam (Corby) Ltd,[108] where His Lordship said that:

To establish that a defendant is a shadow director of a company it is necessary to allege and prove: (1) who are the directors of the company, whether de facto or de jure; (2) that the defendant directed those directors how to act in relation to the company or that he was one of the persons who did so; (3) that those directors acted in accordance with such directions, and (4) that they were accustomed so to act.

What is needed is, first, a board of directors claiming and purporting to act as such; and, secondly, a pattern of behaviour in which the board did not exercise any discretion or judgment of its own, but acted in accordance with the directions of others.

264 The trial judge said that it was not necessary that:[110]

[T]he instructions or wishes (...) of the shadow director be given over the whole field of corporate activity for which the directors are responsible and therefore there is no inconsistency with a person being a shadow director, and on the other hand the board exercising some discretion or judgment in areas in respect of which the shadow director does not give instructions or express a wish.

For the definition to be satisfied the directors of the company must be accustomed to act as directors of the company in accordance with the person's instructions or wishes as to how they should so act.

For the reasons I have already given, I do not accept that to establish that person is a shadow director, it must be shown that the directors of the company do not exercise any discretion of their own. Nonetheless, the authorities do provide powerful support for the defendants' submission that there must be a causal connection between the instruction or wish of the shadow director and the act taken by the directors.

267 The trial judge said that for Apple or Mr Likidis to be a shadow director, the directors of Buzzle must have been 'accustomed to act' in compliance with its or his instructions or wishes. His Honour said that this required 'habitual compliance over a period of time.'[113]

268 The trial judge held that for a person to be a shadow director, the directors collectively must be accustomed to act on that person's instructions of wishes. He accepted that it is sufficient if a governing majority was so accustomed.[114] The trial judge accepted[115] the view of Lewison J in Ultraframe (UK) Ltd v Fielding[116] that it is sufficient to establish that 'a person at whose direction a governing majority of the board is accustomed to act is capable of being a shadow director.'[117]

However, it seems to me that various principles emerge from the leading authorities.

First, not every person whose advice is in fact heeded as a general rule by the board is to be classed as a de facto or shadow director.

Secondly, if a person has a genuine interest of his or her or its own in giving advice to the board, such as a bank or mortgagee, the mere fact that the board will tend to take that advice to preserve it from the mortgagee's wrath will not make the mortgagee, etc a shadow director.

Thirdly, the vital factor is that the shadow director has the potentiality to control. The fact that he or she does not seek to control every facet of the company or the fact that from time to time the board disregards advice is of little moment.

Fourthly, Millett J's proposition that the evidence must show 'something more' than just being in a position of control must be shown. The whole of the facts of the case must be shown to see whether that power to control was put into practice. The emphasis that one must judge on the whole of facts and circumstances is made many times over in the leading cases, see eg Secretary of State for Trade and Industry v Tjolle and Re Kaytech International plc.

Fifthly, although there are problems with cases where the board of the company splits into a majority and minority faction, so long as the influence controls the real decision makers, the person providing the influence may be a shadow director. (citations omitted).

270 Hodgson JA substantially agreed with Young JA. His Honour said:[119]

I agree that influence exercised on directors of a company by a mortgagee acting in its own interests, particularly if supported by contractual rights in its mortgage documents, would not generally constitute the mortgagee a shadow director. While in such a case the directors may on many occasions act in accordance with the instructions or wishes of the mortgagee, this will generally be so because the directors make their own decision that to do so is in the interests of the company, rather than because they defer to decision-making by the mortgagee on behalf of the company. In my opinion, the statutory formula contemplates the directors being accustomed to act in accordance with the instructions or wishes of a person, in the sense of treating those instructions or wishes as themselves being a sufficient reason so to act, rather than making their own decisions in which those instructions or wishes are merely taken into account as one factor, external to the management of the company, bearing on what is in the best interests of the company.

However, in my opinion, a mortgagee could satisfy the statutory formula if it appeared that, at least for some decisions, the directors were treating the mortgagee's instructions or wishes as themselves being a sufficient reason so to act. In the present case, if it had been proved that the directors made one or more important decisions that were not in the interests of Buzzle, such as a decision to continue trading while insolvent, because Apple instructed or wished it to do so, that might have supported a conclusion that the directors were deferring to decision-making by Apple rather than making their own decisions in the interests of Buzzle. However, this was not proved; and in particular the primary judge (at [319]) explicitly did not find that the decision made in January for Buzzle to continue trading was influenced by any instruction or wish from Apple or Mr Likidis.

271 In my opinion the following principles flow from this decision that are relevant to this case.

(a) To establish that a defendant is a shadow director of a company it is necessary to prove:

(1) who are the directors of the company, whether de facto or de jure;

(2) that the defendant gave instructions or expressed wishes to those directors on how to act in relation to the company or that he was one of the persons who did so;

(3) that those directors acted in accordance with such instructions of wishes; and

(4) that there were accustomed so to act.[120]

(b) What is needed is first a board of directors claiming and purporting to act as such; and secondly a pattern of behaviour in which the board did not exercise any discretion or judgment of its own, but acted in accordance with the instructions or wishes of others.[121]

(c) It is not necessary that the instructions or wishes be given over the whole field of corporate activity for which the directors are responsible.[122]

(d) There is no inconsistency with a person being a shadow director and on the other hand and the board exercising some discretion or judgment in areas in respect of which the shadow director does not give instructions or express a wish. Rather, the test for a shadow director only requires that when the directors are given instructions or wishes, they are accustomed to act as s 9 requires.[123]

(e) The directors of the company must be accustomed to act as directors or the company in accordance with the person's instructions or wishes as to how they should act.[124] This requires habitual compliance over a period of time.[125]

(f) The directors who must be accustomed to act need not be all of the directors but should be a governing majority of the board.[126]

(g) Although it is not necessary to establish that a person is a shadow director that the directors of the company do not exercise any discretion of their own, there must be a causal connection between the instructions or wish of the shadow director and the act taken by the directors.[127]

(h) The fact that a person has a genuine interest of his or her or its own in giving advice to the board, such as a bank or mortgagee, the mere fact that the board will tend to take that advice to preserve it from the mortgagee's wrath will not make the mortgagee, et cetera a shadow director.[128]

(i) Similarly, the fact that the governing majority of the board accepts the views and wishes of another director (who represents and acts for another company) does not by itself make the other company a shadow director. The views or wishes of that director may be sound advice that the governing majority may consider as directors should be adopted as it is in the best interests of the company.

(j) Similarly, not every person whose advice is in fact heeded as a general rule by the board is to be classed as a de facto or shadow director.[129]

(k) On the other hand, if the instructions or wishes of the other director (who represented the putative director) were to carry out acts not in the best interests of the company, such as a decision to continue trading while insolvent, that might support the conclusion that the directors deferred to the decision making of the director who represents the putative director and were thus deferring to the decisions of the other company.[130]

(l) It is not necessary to go so far as to show that the de jure directors were subservient or had surrendered their roles.[131]

272 The liquidators submit that the evidence supports the following conclusions:

(a) All of the activities of Crewe Sharp personnel at Akron, including important high level and strategic decision-making and Mr Crewe's actual participation on the Akron board, were undertaken in furtherance of the Crewe Sharp management consultancy.

(b) Crewe Sharp did more than merely give advice to the directors of Akron in the proper performance of functions attaching to its professional capacity or its business relationship with the directors. Crewe Sharp - through Mr Crewe and Mr Sofronas - as a de facto director actively took steps for and on behalf of Akron beyond merely an advisory role, including:

(i) pursuant to the mandate letter dated 13 June 2001, it was to be a director without a formal appointment;

(ii) representing Akron at meetings with financiers;

(iii) forcing the CEO of Akron, Mr Pollock, to stand down;

(iv) actively participating in the strategic decision-making process of Akron in relation to important matters; and

(c) Management consultancy, in certain cases where it amounts to holistic management control (including by way of the appointment of an actual director), can amount to a 'shadow directorship'. That is why the definition of 'shadow director' includes a carve out to the effect that the mere provision of advice as part of a professional engagement is not enough.

(d) Crewe Sharp took holistic management control. It was doing far more than merely providing advice; it was comprehensive management control, including by way of appointment of an actual director that the other directors deferred to in light of his expertise as a management consultant, that being the purpose of the engagement of Crewe Sharp.

(e) The circumstances here go far beyond Crewe Sharp merely providing advice to Akron. Crewe Sharp (through, namely, Mr Crewe and Mr Sofronas) showed a willingness and ability to exercise control, and an actuality of control, over the management and financial affairs of Akron.

(f) The Court can infer that it was Mr Crewe and Crewe Sharp who could and should have made the decision to appoint voluntary administrators at an earlier time, which would have prevented Akron from incurring the relevant debts from trading while insolvent.

(g) It is not necessary to go so far as to show that the Sills were subservient or had surrendered their roles.[132] Crewe Sharp had the potential to control, and the power to control was put into practice.[133] Crewe Sharp directed the other directors at least in the areas of seeking sources of funding, dealing with debtors and creditors, and cash flow management. Crewe Sharp clearly had the ability to influence Akron's financial standing (it could, for example, have recalled Mr Crewe and other employees at any time) and was not merely a third party that imposed conditions on Akron in the course of commercial dealings with it. Crewe Sharp was the 'locus of effective decision making' in relation to those matters.[134]

(h) Mr Crewe's will was the will of Crewe Sharp; it is not open to say that Mr Crewe was not acting in the capacity of the governing mind of Crewe Sharp in any relevant sense, or that Mr Crewe had 'two hats' and was only wearing his Akron director hat at relevant times. Mr Crewe was wearing both hats at all relevant times, as he was being paid (and in effect directed) by Crewe Sharp to undertake the Akron directorship activities.

(i) The above facts indicate that Crewe Sharp was a de facto director of Akron during the relevant period as it (through, or together with, Mr Crewe) acted in the position of a director of Akron. It had a real influence in the affairs of the company. Further or alternatively, the above facts indicate that Crewe Sharp was a shadow director of Akron during the relevant period as it (through, or together with, Mr Crewe) directed the other directors (relevantly the Sills) how to act in relation to Akron, and the Sills acted, and were accustomed to act, in accordance with those directions.[135]

273 The liquidators submitted as follows. That Mr Crewe was a reliable witness. That under cross-examination his answers were considered and consistent. He made concessions whenever appropriate. Under the settlement deed, he was bound to give evidence, but he cannot be regarded as a witness in the plaintiffs' 'camp'. He was a witness of truth. The Court should accept Mr Crewe's evidence as truthful and should reject any suggestion that his evidence ought not to be accepted. The whole of his evidence should be accepted - in particular, the critical evidence that the holistic control that he and his staff assumed over the affairs of Akron was all done in furtherance of the management consultancy which Crewe Sharp had been engaged for. The best that CGU could do to seek to contradict this evidence was to point to a couple of documents which were signed on behalf of Akron by the other two directors - for the most part, those documents were agreements with Crewe Sharp, such that Mr Crewe had a conflict of interest (further demonstrating that his role at Akron was a Crewe Sharp role).

274 The liquidators submit that CGU attempted to discredit Mr Crewe by pointing to the denials of shadow and/or de facto directorship in the defence filed on his behalf in this proceeding. But, it is clear from his evidence that Mr Crewe did not appreciate that a company (Crewe Sharp) could be held to be a shadow director of another company. In evidence, Mr Crewe said:

I can only say that I would never have understood Crewe Sharp as an entity to be a director.[136]

275 CGU referred to the defence of the Sills in this proceeding to the allegation by the liquidators that they were accustomed to follow the direction of Crewe Sharp through Mr Crewe in relation to seeking sources of funding for Akron and other matters and that there was a pattern of behaviour in which John Sill and Rob Sill did not exercise discretion or judgment or their own but acted in accordance with the directions of Crewe Sharp, and habitually complied with those directions over a period of time, including the relevant period.[137]

276 The Sills in their defence said they denied those allegations and said that they relied on advice given from time to time by Mr Crewe but they did not fail to exercise discretion or judgment of their own.

277 CGU submitted that there was no explanation before the Court why the Sills were not called by the liquidator to establish the liquidators allegation that the Sills in substance acted in accordance with the directions of Mr Crewe and failed to exercise their own discretion and judgment as directors.

278 CGU submitted that an inference should be drawn from, the failure of the liquidators to call the Sills, that the Sills evidence would not have assisted the liquidators.

279 The liquidators submitted that the Court should not draw an adverse inference from the fact that the liquidators did not call the Sills (or Mr Sofronas or Matthew Crewe) because:

(a) the liquidators refer to the decision of ASIC v Hellicar,[138] where the Court said:[139]

Disputed questions of fact must be decided by a court according to the evidence that the parties adduce, not according to some speculation about what other evidence might possibly have been led. Principles governing the onus and standard of proof must faithfully be applied. And there are cases where demonstration that other evidence could have been, but was not, called may properly be taken to account in determining whether a party has proved its case to the requisite standard. But both the circumstances in which that may be done and the way in which the absence of evidence may be taken to account are confined by known and accepted principles which do not permit the course taken by the Court of Appeal of discounting the cogency of the evidence tendered by ASIC[;]

(b) the decision of Bell IXL Investments v Life Therapeutics[140] is inapposite because it concerned breaches of directors' duties (exercising powers for improper purposes) where the higher Briginshaw standard of proof applies. Further, in that case each of the directors gave evidence, but there is no finding that if a party does not call all the directors then it cannot have discharged its onus of proof;

(ii) the Sills and Mr Sofronas were subjected to a compulsory public examination by Akron's liquidators,[141] and the transcripts of those examinations were discovered in this proceeding and not relied on by CGU and did not lead CGU to seek to call any of those persons;

(iii) a former director may not be in the company's camp - a fortiori: when the company is in liquidation;[142]

(iv) Matthew Crewe works for Austbrokers which - as is known from Mr Hansen - acts as a broker and has a relationship with CGU (as is evident from the exchanges of emails between Mr Hansen and Ms Vuckova); Matthew Crewe's employer has a relationship with CGU, whereas Matthew Crewe never had any relationship with the plaintiffs;[143]

(v) the rule does not require the giving of cumulative evidence about the same topic, for example if five people attended a meeting and some are called, no adverse inference arises in respect of those who are not called; the rule does not compel time to be wasted by calling unnecessary witnesses;[144]

(vi) the rule cannot apply to non-calling of a witness unless it would be natural for the party to call the witness, or the party might reasonably be expected to call the witness or the missing witness would be expected to be called by one party rather than another.[145] None of these can be said to apply to the plaintiffs' non-calling of the Sills, Mr Sofronas or Matthew Crewe;

(vii) CGU could have called these persons as witnesses but did not do so. In closing submissions, it sought to rely on the Sills' defence, which cannot be relevant in the absence of CGU calling them to give evidence.

280 In my opinion, the Sills were not in the liquidators' camp and in view of their defence there seems no reason for the liquidators to call them.

281 On the other hand, the liquidators refer to the fact that the Sills were examined and that CGU has not sought to rely on any evidence given in the examination. Also the liquidators rely on clause 4.2 of the settlement agreement between the liquidators, Akron and the Sills that states:

For the avoidance of doubt, Robert Sill and John Sill deny any liability in respect of the Claims, for reasons which include that they maintain that they reasonably relied upon advice from Mr Crewe and others on the question of the solvency of Akron at all relevant times.

282 The liquidators submitted that this clause establishes that Crewe Sharp was in charge of the financial matters for Akron. The liquidators submit that Crewe Sharp was the one making the director decisions in relation to the insolvent trading.

283 Accordingly, the liquidators submitted that Crewe Sharp was a de facto director and/or a shadow director of Akron during the Relevant Period.

284 I have reservations about the weight it any I can give to the clause in the settlement agreement relied on by the liquidators. In any event, their statement does not suggest that Mr Crewe gave any directions or expressed any wishes to them but rather gave them advice. In my view their statement does not suggest or infer that the Sills did not otherwise carry out their duty to exercise their own discretion or judgment in making decisions as directors.

285 CGU submit that Mr Crewe conceded in cross-examination he never considered Crewe Sharpe was a director. Mr Crewe said that it was he that was appointed a director and chairman of Akron.

286 CGU said that the services provided by Mr Crewe were that of chairman and those services had to be provided by a natural person. CGU referred to the letter of retainer and the minutes of the first meeting that established that the service provided was that of chairman.

287 CGU says that the liquidators have not made up their mind as to whether Crewe Sharp was a shadow or de factor director.

288 CGU says that if it is sought to be contended that the other directors, the Sills, acted under the direction of Crewe Sharp through the agency of Mr Crewe then evidence would be required from a majority of directors that they acted under the instructions of Crewe Sharp through the agency of Mr Crewe.

289 CGU rely on Harlowe's Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Company No Liability[146] in support of the contention that evidence of each director's state of mind should be led to establish that the board acted for an improper purpose in issuing shares. By analogy, CGU says that the liquidators have not led evidence to establish the state of mind of the Sills as being accustomed to follow the instructions and wishes of Mr Crewe and to not bring their own judgment and discretion to bear on the advice that they received from Mr Crewe.[147]

290 CGU submit that the evidence before me goes 'nowhere near remotely suggesting that this entity, Crewe Sharp, overbore the will of the board [sic].'[148] CGU said that the board included Mr Crewe so that would lead to the 'ludicrous situation, that couldn't possibly happen of Crewe Sharp (the entity)' overbearing its sole director, Mr Crewe as a director of Akron.[149]

Resolution of whether Crewe Sharp was a director of Akron

291 The allegation that Crewe Sharp was a director of Akron relates to the period from 1 August 2009 to 1 February 2010 when Akron was placed under administration.

292 During this period, Mr Crewe was acting as the chief executive officer as well as a director. During this period the Chairman of Akron was Mr Robert Sill, who had been appointed to that position in 2004. The other director was Mr John Sill. Both Robert and John Sill held executive functions as well as membership of the board of directors.

293 There is no doubt that during this period Mr Crewe was actively involved in negotiating with the ANZ bank and dealing with the difficult financial position Akron was facing. These were not board tasks but management tasks. Of course, the board would be responsible for ultimately approving any new financing arrangement with the bank; however a board would not be expected to negotiate the agreement with the bank.

294 Mr Crewe says that there were no formal board meetings between 30 November 2009 and 1 February 2010. Mr Crewe's evidence was that nevertheless, he attended many informal meetings with the Sills during the period from 30 November 2009 to 1 February 2010.

295 The liquidators contend that the word 'person' is wide enough to include a corporation. The liquidators refer to three authorities for this proposition: Standard Chartered Bank of Australia Ltd v Antico (No 1),[150] where the Supreme Court of New South Wales held that a parent company was a shadow director of its subsidiary company; and to Ho v Akai Pty Ltd (in liq)[151] and Buzzle v Apple (appeal).

296 In Antico,[152] Hodgson J accepted that a holding company is not a director of its subsidiaries, merely because it has control of how the boards of its subsidiaries are constituted.

297 CGU do not expressly submit that a corporation could not be a director of a company. Accepting that a corporation could be a director of Akron, what is the evidence that although Crewe Sharp was not validly appointed as a director of Akron it nevertheless acted in the position of a director?

298 In Deputy Commissioner of Taxation v Austin,[153] Madgwick J said that 'whether a person acts as a director will often be a question of degree, and requires a consideration of the duties performed by that person in the context of the operations and circumstances of the particular company concerned.'

299 Crewe Sharp agreed to provide the services of Mr Crewe as a director of Akron. There was no suggestion that Crewe Sharp would act as a director. Mr Crewe was elected a director, not Crewe Sharp. Mr Crewe carried out the duties of a director in attending and preparing for meetings. The only connection that Crewe Sharp had was that it was paid for providing Mr Crewe's services and Mr Crewe was the managing director of Crewe Sharp.

300 No authority was cited for the proposition that such circumstances would deem Crewe Sharp to be a de facto director of Akron.

301 The substantive case submitted by the liquidators was that Crewe Sharp through Mr Crewe was a shadow director of Akron. The principle that a corporation could be a shadow director through the actions of its officer was accepted in Antico, Ho and Buzzle v Apple (appeal).

302 Crewe Sharp had been engaged by Akron to provide Mr Crewe's services as a director and chairman and also to provide advice on financial and management matters.

303 Accordingly, Mr Crewe would be expected to provide advice and recommendations to the board. The evidence establishes that he was most active in addressing Akron's financial difficulties including dealing with Akron's creditors including negotiating with the ANZ bank. As discussed above, this was not a board task.

304 Mr Crewe did not give evidence that the other directors during the relevant period acted in accordance with his directions or wishes. In fact, no evidence was led of any instruction or wish that he conveyed to the Sills. No evidence was led through the Sills or Mr Crewe as to how they responded to any such instruction or wish (if there were any).

305 No evidence was led that the Sills were overborne by Mr Crewe, or that they did not carry out their duties as directors to consider whether Mr Crewe's advice and suggestions was or was not in the best interests of Akron.

306 The liquidators' case is essentially based on how important Mr Crewe's role was at the time the company got into financial difficulties. The liquidators contend that Mr Crewe negotiated with the bank and had financial accounts prepared, dealt with creditors, attempted to obtain finance, was responsible for short-term cash flow, for forecasting and cash management and acted in the capacity of treasurer of Akron, took on the additional role of overseeing the operations of the occupational health and safety department and the human resources department of Akron, acting as commercial services manager, attended Akron executive meetings, and was one of the people Mr Luznik deferred to in relation to Akron's financial affairs. These activities are management activities that would normally fall within the responsibility of the CEO, which Mr Crewe was during the relevant period.

307 None of these activities involve a board decision or fall within the responsibilities of the directors. The directors, as directors, do not carry out managerial tasks. Save for some exceptions, directors as directors only have powers in meeting. Save for some exceptions, a director, as a director, has no power to conduct any aspect of the management of the company. The board, as a board, may resolve that certain management activities should or should not be pursued. It is then up to management to comply with the decisions of the board. The board may, as a board, resolve to approve or cause the company to enter into a contract or a loan agreement with the bank. Usually, the contract will have been negotiated by management and then presented to the board for approval.

308 It has been long established that directors can only exercise their powers collectively at board meetings unless the constitution of the company otherwise provides.[154] Meetings of directors are not required where a company has a sole director or where the constitution authorises board resolutions to be made by a circular resolution signed by the directors. Nevertheless, usually a board of directors (and thus a director) only has authority as directors when acting in a meeting.

309 In D'Arcy v The Tamar, Kit Hill, and Callington Railway Company,[155] it was held that directors are to act together in a meeting. There a quorum of three was prescribed for a valid board meeting. The secretary procured the approval of two members acting together and the subsequent assent of a third director to the issue of a bond. The validity of the bond was challenged as a valid board meeting was not held to approve the bond. Martin B said that although it is not necessary that there should be any fixed place of a meeting for the board, it was clear that the directors were to act together in a meeting.[156] Channell B said that:[157]

Without saying that the board are bound to meet at any particular place, yet when an authority is given to a less number to bind the whole body, they must meet in some place where all may be present, and may have the opportunity or expressing their assent or dissent.

310 Pigott B examined the actions of the directors and asked, 'Were they a meeting?'[158] As they were not a meeting, he held that the bond was not validly issued. See also, Re Haycraft Gold Reduction and Mining Co,[159] where Cozens-Hardy J said that directors must act together as a board and it is not sufficient to procure the separate authority of a sufficient number of directors to constitute a quorum.

311 This is not to say that in small company, such as Akron, directors may have also been given individual managerial duties. But those managerial duties would not have been carried out as a board function but rather as a manager/s.

312 Clearly a shadow director need not be someone who attends board meetings. The statutory definition contemplates someone as a source of influence over the board members. A de facto director, on the other hand, is somebody who acts in the position of a director. Thus, such a person would usually be somebody who participates in board decisions as a director but who was not formally appointed a director. A person who acts in a managerial position or carries out a managerial function would not normally be said to be acting in the position of a director.

313 Thus the directors, as a board, would have been actively monitoring the negotiations of Mr Crewe with the ANZ bank. The fact that Mr Crewe carried them out was entirely consistent with his managerial duties as the CEO. The fact that he carried out those negotiations does not by itself imply that Crewe Sharp was a shadow director or de facto director of Akron. The fact that a proposal about financing, or another matter concerning Akron's business, may have been put to the board by Mr Crewe is entirely consistent with the board acting as it should, particularly where Mr Crewe was the CEO.

314 To the extent that Mr Crewe's activities did involve board approval or oversight there is no evidence of what matters were taken to the board or what decisions the board took. There was no evidence of the response of the Sills to any matters suggested to them by Mr Crewe.

315 Without knowing what actions the board did or did not take, I am unable to find that any such action or inaction was done at the direction or wishes of Mr Crewe, or the board was accustomed to act pursuant to his direction or wishes.

316 No doubt the board would have to be informed of the financial developments that Akron was experiencing. Mr Crewe said in his evidence that from 30 November 2009 to 1 February 2010 he almost daily conferred with his fellow directors.

317 Mr Crewe gave evidence that board meetings were properly conducted. He said a Board Pack was prepared for each director. A meeting was held of directors to consider the matters raised in the Board Pack. Mr Crewe said the meeting discussed matters arising (presumably from the previous minutes). Proper minutes were kept.

318 The evidence did not establish or even suggest that the Sills did not carry out their duties as directors when discussing the matters referred to by the liquidators, as a board, with their fellow director, Mr Crewe. There is just no evidence that they were overborne or did not exercise any discretion or judgment of their own, but acted in accordance with the directions or wishes of others.[160]

319 As indicated, an adviser does not become a shadow director merely because the directors follow his or her advice, particularly when the adviser has been retained to give advice.

320 I am not satisfied that through the actions of Mr Crewe, Crewe Sharp became or was deemed to be a 'shadow director' or a 'de facto director' during the relevant period, or at all.

Does the Policy respond to Mr Crewe's liability or Crewe Sharp's liability (if a 'shadow' director)?

... indemnify the Insured up to the policy limit for any Civil Liability to any third party which is incurred by the Insured in the conduct of the Professional Services ...[161]

322 The liquidators contend that it is not contested that:

(b) The Policy limit was $5,000,000 (Schedule, item 7.1 of the Policy).[162]

(c) The claims against Crewe Sharp and Mr Crewe are Claims.[163]

(d) If Crewe Sharp and Mr Crewe are found to be liable for insolvent trading, it is a Civil Liability.[164]

(e) If the Policy is found to respond, CGU was notified of the facts leading to the insolvent trading claim by Crewe Sharp while the Policy was in force, as required by clause 3.1.[165]

323 The liquidators contend that as to whether the Policy responds, what remains contested is whether the liability was 'incurred by the Insured in the conduct of the Professional Services.'

324 Under clause 12.13 of the Policy,[166] Professional Services means:

The business of provision by the Insured of the Professional Services stated in the Schedule.

325 Item 3 in the Schedule provides that one such service is Management Consultancy.[167]

326 The liquidators contend that Crewe Sharp was engaged to 'provide advice' and 'act as a director' to Akron. In my view, Crewe Sharp was engaged to provide the services of Mr Crewe as a director of Akron. The issue still remains whether Mr Crewe's liability to the liquidators is covered by the Policy.

327 CGU says that under clause 3.1, CGU agrees to indemnify Crewe Sharp and Mr Crewe for any Civil Liability which is incurred by them in the conduct of the Professional Services. Item 3 of the Policy schedule exhaustively defines the Professional Services covered by the Policy. They are 'Personnel and HR Consultancy, Management Consultancy, Business Coaching, Training & Development Consultancy and debt recovery services.' Only 'Management Consultancy' is relied on by the liquidators as covering Mr Crewe's liability.[168]

328 CGU submits that the pleaded claim against Crewe Sharp and Mr Crewe under the Corporations Act is, and can only be, that they failed in their duties as company directors to prevent insolvent trading. CGU submits that a policy of professional indemnity insurance covers the responsibilities of the insureds towards those who employ their services. CGU says that the acts and omissions of the directors alleged in the proposed claim (which allege and only allege breaches of duty under s 588G(2) of the Corporations Act - breaches which can only be committed by directors (or officers))[169] is not 'a civil liability incurred in the conduct of management consulting services' (or any other Professional Service) within the meaning of the Policy.

329 CGU submits that the liquidators' case that CGU is liable to indemnify Crewe Sharp and Mr Crewe because their liability (if any) to the liquidators for insolvent trading as directors was incurred in the conduct of management consultancy services, is contained in a single paragraph of their opening submission.[170] It states:

As set out above, the management consulting business which Crewe Sharp and Mr Crewe provided to clients, including Akron, included a role which consisted of, or approximated, the role of a director within the meaning of s 9 of the Corporations Act. There is no reason to read down the scope of Professional Services ... Therefore, 'Mr Crewe's activities as a director of Akron, "and" the activities of Crewe Sharp' as a de facto or shadow director of Akron, fall within the scope of the Professional Services covered by the Policy.

330 CGU submits that this submission is the liquidators' case on the central question whether the insuring clause responds. CGU says that it is fatally flawed. CGU contends that Mr Crewe's 'activities as a director of Akron' and 'the activities of Crewe Sharp as a de facto or shadow director of Akron' can have nothing to do with the question - the critical pleaded question - of whether the liability of each of Mr Crewe and Crewe Sharp in respect of the claims made against them by the liquidators under s 588M(2) is a civil liability which was incurred by them in the conduct of management consultancy services.

331 CGU submits that what Mr Crewe and Crewe Sharp did or did not do in the conduct of Akron Roads' 'activities' and whether they provided management consultancy services that 'approximated' the role of a director, can have no relevance to that single, critical question. CGU argues that the liability of Mr Crewe or Crewe Sharp to the liquidators under the insolvent trading provisions - the failure by directors to prevent Akron Roads from incurring the pleaded debts in proscribed circumstances - is, and can only be, a liability incurred by Mr Crewe or Crewe Sharp qua directors, not 'in the conduct of management consultancy services.'

332 CGU submits that in any event, the evidence at trial did not establish the liquidators' fundamental proposition that 'the management consulting business which Crewe Sharp and Mr Crewe provided to ... Akron, included a role which consisted of, or approximated, the role of a director.'

333 Under s 588M(2):

The company's liquidator may recover from the director, as debt due to the company, an amount equal to the amount of the loss or damage.

334 Under s 588J(1) and s 588M(2), a director who is in breach of his duty under to prevent insolvent trading, may be liable to pay compensation to the liquidators.

335 As to CGU's first proposition, that the Policy only covers damage incurred by the insured in giving management consultancy advice, that it only covers damages claimed by the client against the management consultant, I can see no reason why the clause should be so construed.

336 The starting point is to ascertain whether the insured incurred a civil liability in carrying on the management consultancy business. There was no evidence called by CGU as to what activities and services management consultancy does or does not cover. Mr Crewe gave evidence that management consultancy covered the provision of services of an officer or director to act as such to assist a client. I can see no reason why management consultancy may not extend to the provision of such services to the client.

337 In my opinion, if management consultancy extends to the provision of services of individuals to act for on behalf of the client, then there is no cause to limit the construction of civil liability to civil liability to the client alone and not a civil liability to some other party who has a claim against the person acting on behalf of the client. In my opinion, civil liability would extend at least to a liability incurred by the individual made available by the business to act for or on behalf the client whilst so acting.

338 On that basis, the provision of an individual by the management consultancy firm to act as a director of the client would fall within the business of provision by the insured of the Professional Services as provided in the Policy.

339 Accordingly, the liability for Crewe Sharp or Mr Crewe to the liquidators is a liability incurred by Crewe Sharp or Mr Crewe 'in the conduct of management consultancy services' within the meaning of the Policy.

340 CGU submits that if the Policy is otherwise engaged, that the liability of Mr Crewe to the liquidators' claim under s 588M of the Corporations Act, is excluded under clause 6.5(d), that provides:

We do not provide Cover for any of the following Claims (or losses or liabilities) or any associated costs:

....

6.5 Refund of Professional Fees and Trading Debt Claims:

(d) arising from a liability to pay trading debts, trade debts or the repayment of any loans.[171]

341 The liquidators submit that s 588M of the Corporations Act is the relevant section pursuant to which Crewe Sharp's and Mr Crewe's liability arises. The liquidators contend that this liability does not create a 'liability to pay trading debts.' Trading debts are debts due to trade creditors. The liquidators submit that the liability under s 588M is not to the creditors; rather, it creates an entitlement in the liquidator to recover from the director, as a debt due to the company itself (ie to be distributed by the liquidator in accordance with the insolvency laws), compensation in an amount equal to the loss and damage suffered by the creditors.[172] The claim is a claim of the liquidators, not Akron.

342 The liquidators submit that whilst the claim arises from the incurrence of trade debts, it does not arise from a liability to pay those debts. Akron no longer has any liability to pay the relevant trade debts, and the liability of the directors is not owed to the creditors. The entitlements of the creditors themselves have merged into the Akron liquidation's proof of debt process.

343 Accordingly, the liquidators submit that the Trading Debts Exclusion does not apply.

344 CGU contends that it is well known that CGU and other insurers offer D&O insurance, which traditionally covers insurance for directors and officers of companies against claims against them arising out them carrying out their duties. That may be so. There is no reason, however, why the two policies could not overlap or why they must be mutually exclusive.

345 Further, a D&O policy would not be suitable for a management consultancy business.

346 Secondly, CGU contends that management consultancy is limited to providing advice or perhaps even performing tasks necessary to implement the advice.[173] CGU did not seek to define the limit of those tasks.

347 The underwriting manual for professional indemnity insurance tendered by CGU listed a description of activities that management consultants may perform.[174] The activities go beyond providing advice; for example, 'assist in the implementation of new systems', 'appraising, selecting, and determining the remuneration structure for executives', 'introducing new or better management techniques including leadership training', 'increasing cost effectiveness through the development of improvement programs in specific functional areas of the client's business.' The manual said that 'consultancy activities can vary widely.'

Crewe Sharp focused on providing practical, hands on experience to our client in order to improve their business and profitability. Crewe Sharp provided management consulting services to clients by:

(a) preparing a business performance valuation ...

(b) implementing the recommendations made in that report.

349 He said that he saw that as Crewe Sharp's point of difference with other management consultants in that Crewe Sharp and he actively participated in the implementation of those recommendations. Mr Crewe said that depending on the nature of the engagement, this involved the direct placement of a director or staff within the company.[175]

350 Further, Crewe Sharp may have been more readily able to assist with the negotiations with the ANZ bank by Mr Crewe being engaged as an officer or director of Akron.

351 In my opinion, the fact that D&O policies are available and the existence of the underwriting manual is not a valid reason for reading down the P.I. policy.

352 I find that, if the Policy is otherwise engaged by the claim against Crewe Sharp and Mr Crewe, the Trading Debts Exclusion is not enlivened. I accept the submissions of the liquidators distinguishing between debts incurred by trading and the liability owed to the liquidators under s 588G of the Corporations Act.

353 CGU contends that the claims of Crewe Sharp and Mr Crewe are excluded from cover by reason of clause 6.9(c) of the Policy.

354 Clause 6.9 of the Policy[176] provides an exclusion for:

Claims:

(a) Directly or indirectly based upon, attributable to or in consequence of the Insured's liability as an employer; or

(b) arising out of or in respect of actual or alleged unlawful discrimination (or other unlawful act, error or omission) by any Insured against any employee or employment applicant; or

(c) (if an Insured is either an incorporated body or a director or officer of an incorporated body) arising from any act, error or omission of a director or officer of that incorporated body while acting in that capacity; or

(d) arising from occupation (or alleged occupation) of land or buildings by an Insured; or

(e) arising from or in respect of an Insured's liability as an owner or operator of any aircraft, marine craft or motor vehicles of any kind.

355 CGU submit that Crewe Sharp and Mr Crewe were directors of an incorporated body, Akron, and the claim against them by the liquidators arises from them so acting. Thus, the exclusion is enlivened.

356 The liquidators, on the other hand, submit that the opening words in parentheses in section 6.9(c) refer, relevantly, to Crewe Sharp, (being 'an incorporated body' Insured) and Trevor Crewe (being a director of Crewe Sharp, 'an incorporated body'); ie those words in parentheses do no more than describe the 'insured' - they limit the application of this exclusion to insureds who are corporations or directors or officers thereof.[177] The liquidators submit that the only reason Mr Crewe is an 'insured' is by reason of the definition of 'insured', which includes directors of the corporate entities (if any) named as Insured in the Schedule. Therefore, the references to 'an incorporated body', in the exclusion, must for present purposes, be read as references to Crewe Sharp only.

357 The liquidators submit that the narrow scope of clause 6.9(c) is demonstrated by contrasting it with the other sub-paragraphs of clause 6.9 - which apply to any 'insured', not only to an insured which is an incorporated body or its director or officer. Therefore the reference to 'that incorporated body' is a reference to Crewe Sharp only; it does not include a management consultancy customer of Crewe Sharp, like Akron.

358 The liquidators submit that the liability for insolvent trading cannot be said to have arisen from Mr Crewe's conduct 'while acting in [the] capacity' of a director or officer of Crewe Sharp. The statutory liability under s 588G of the Corporations Act arose from his conduct while acting in the capacity of a director of Akron (under a professional engagement of Crewe Sharp).

359 The liquidators submit that CGU seeks to attribute too broad a scope to the exclusion set out in clause 6.9(c), by alleging that the opening words in parentheses refer, in essence, to the capacity in which the Insured becomes exposed to the claim. The liquidators submit that the Court should not afford CGU the widest possible construction of an exclusion. The liquidators say that this exclusion is merely intended to exclude standard D&O cover; ie cover in respect of claims arising from directorships of identified companies only.

360 In any event, the liquidators argue that if the directorship exclusion clause is ambiguous and susceptible to more than one meaning (that being, whether the words in parentheses do no more than describe the Insured or whether they describe the capacity in which the insured becomes exposed to the Claim), the clause is to be read contra proferentum to CGU, being the party who requested the inclusion of this clause.[178]

361 Accordingly, the claims in this proceeding do not arise from any act or omission done as a director or officer of Crewe Sharp; the relevant acts were done as contracted management consultants to Akron. The liquidators submit that the directorship exclusion provision does not apply.

362 Under the Policy, Crewe Sharp was listed as an Insured. Mr Crewe was also treated as an Insured - clause 12.12 provided that each current or former principal of Crewe Sharp was an insured. Principal was defined to include a director of a company covered by the Policy. There is no dispute that Mr Crewe and Crewe Sharp fell within the description of the Insured.

363 On its proper construction, the words in parenthesis identify the Insured. Thus, Mr Crewe was identified as an Insured, as he was a director of Crewe Sharp as provided in clauses 12.12. He was not identified as an Insured because he was a director of Akron. Akron was not named as an Insured in the Policy.

364 Thus the reference to 'that incorporated body' in the exclusion clause is a reference to Crewe Sharp (and the companies identified in the Policy as an Insured). In my opinion, 'that incorporated body' does not refer to a company other than the insureds.

May CGU deny indemnity through the non-disclosure or misrepresentations of Crewe Sharp?

367 CGU alleges that at all material times the Policy was a contract of insurance to which the ICA applied.[179]

368 CGU alleges that at all material times, pursuant to s 21(1) of the ICA (set out below), Crewe Sharp and Mr Crewe were under a duty to disclose to CGU, before the Policy was entered into:

(i) every matter known to them which they knew to be relevant to the decision of CGU whether to accept the risk to insure Crewe Sharp and Mr Crewe and, if so, on what terms the insurance policy would be issued; or

(ii) every matter which a reasonable person in their circumstances could be expected to know to be matters so relevant.

369 CGU alleges that Crewe Sharp and Mr Crewe knew or ought to have known of the nature and effect of their duty of disclosure. CGU gives the following particulars.

370 CGU refers to the recruitment services addendum proposal for insurance, dated 29 May (2009/2010 Proposal).[180] CGU refers to the declaration at page 8 of the 2009/2010 Proposal signed by Matthew Crewe on behalf of the proposed insureds that stated:[181]

The Proposer declares and warrants that after full and reasonable enquiry and to the best of his/her knowledge and belief all statements and particulars contained in this Proposal Form and (if applicable) addenda hereto are true and that no information whatsoever has been withheld which might increase the risk of the Underwriters or influence the acceptance of the Proposal Form and that should the above particulars alter in any way confirms that he/she will advise the Underwriters as soon as is practicable. The Proposer further declares and warrants that he/she has been duly authorized by the Directors and Officers and the Company to act as their agent in respect of all matters of any nature or kind relating to or affecting this Proposal Form and the Policy. The Proposer understands that failure to disclose any material facts which would be likely to influence the acceptance and assessment of the Proposal Form may result in the Underwriters refusing to provide indemnity or voiding the Policy in every respect. The Proposer hereby agrees and accepts that this Proposal Form and (if applicable) addenda hereto shall be the basis of the contract of insurance if entered into.

371 CGU alleges that '[on] about 10 June 2009, Crewe Sharp and Mr Crewe caused their insurance broker to send an email to CGU attaching the 2009/2010 Proposal ('Email').'[182]

372 CGU alleges that the Email stated that Crewe Sharp was a management consultancy services company which:

(a) did not provide services that CGU considered to be high risk, such as those related to capital raisings, business valuations and mergers and acquisitions;

(b) provided strategic management consultancy services centred around human resources services.[183]

373 CGU alleges that the 2009/2010 Proposal stated that Crewe Sharp required insurance cover for management consulting services.[184]

374 CGU alleges that the representations in paragraphs [](#_Ref461186 > The insured's duty of disclosure

(1) Subject to this Act, an insured has a duty to disclose to the insurer, before the relevant contract of insurance is entered into, every matter that is known to the insured, being a matter that:

(a) the insured knows to be a matter relevant to the decision of the insurer whether to accept the risk and, if so, on what terms; or

(b) a reasonable person in the circumstances could be expected to know to be a matter so relevant, having regard to factors including, but not limited to:

(i) the nature and extent of the insurance cover to be provided under the relevant contract of insurance; and

(ii) the class of persons who would ordinarily be expected to apply for insurance cover of that kind.

(2) The duty of disclosure does not require the disclosure of a matter:

(a) that diminishes the risk;

(b) that is of common knowledge;

(c) that the insurer knows or in the ordinary course of the insurer's business as an insurer ought to know; or

(d) as to which compliance with the duty of disclosure is waived by the insurer.

(a) failed to answer; or

(b) gave an obviously incomplete or irrelevant answer to;

a question included in a proposal form about a matter, the insurer shall be deemed to have waived compliance with the duty of disclosure in relation to the matter.

Insurer to inform of duty of disclosure

(1) The insurer must, before a contract of insurance is entered into, clearly inform the insured in writing:

(a) of the general nature and effect of the duty of disclosure; and

(b) if section 21A or 21B applies to the contract--of the general nature and effect of that section; and

(c) if the contract is a contract of life insurance--of the effect of section 31A; and

(d) that the duty of disclosure applies until the proposed contract is entered into.

(2) If the proposed contract is a contract of life insurance, the insurer must also, before the contract is entered into, clearly inform, in writing, any person (other than the insured) who, under the contract, would become a life insured of the matters referred to in subsection (1).

(3) If:

(a) an insurer complies with subsection (1) in relation to a proposed contract of insurance; and

(b) the insurer accepts an offer by the insured to enter into the proposed contract, or makes a counter-offer to enter into another contract of insurance with the insured; and

(c) the insurer's acceptance or counter-offer is made more than 2 months after the insured's most recent disclosure for the purpose of complying with the duty of disclosure in relation to the proposed contract;

then the insurer must give to the insured, with the acceptance or counter-offer, a reminder notice stating that the duty of disclosure applies until the proposed or other contract is entered into.

(4) If the regulations prescribe a form of writing to be used:

(a) for informing a person of the matters referred to in subsection (1); or

(b) for the reminder notice referred to in subsection (3);

the writing to be used may be in accordance with the prescribed form.

(5) An insurer who has not complied with subsection (1) and (if applicable) subsection (2) may not exercise a right in respect of a failure to comply with the duty of disclosure, unless the failure was fraudulent.

(6) If:

(a) an insurer is required to comply with subsection (3) in relation to a contract of insurance; and

(b) the insurer does not do so;

then the insurer may not exercise a right in respect of a failure to comply with the duty of disclosure in relation to a new matter relating to the contract, unless the failure was fraudulent.

(7) For the purposes of subsection (6), a new matter relating to a contract of insurance is a matter of which the insured first becomes aware after the insured's most recent disclosure for the purpose of complying with the duty of disclosure in relation to the contract.

Certain statements not misrepresentations

(1) Where a statement that was made by a person in connection with a proposed contract of insurance was in fact untrue but was made on the basis of a belief that the person held, being a belief that a reasonable person in the circumstances would have held, the statement shall not be taken to be a misrepresentation.

(2) A statement that was made by a person in connection with a proposed contract of insurance shall not be taken to be a misrepresentation unless the person who made the statement knew, or a reasonable person in the circumstances could be expected to have known, that the statement would have been relevant to the decision of the insurer whether to accept the risk and, if so, on what terms.

(3) This section extends to the provision of insurance cover in respect of:

(a) a person who is seeking to become a member of a superannuation, retirement or other group life scheme; or

(b) a person who is a holder, or is applying to become a holder, of an RSA.

A person shall not be taken to have made a misrepresentation by reason only that the person failed to answer a question included in a proposal form or gave an obviously incomplete or irrelevant answer to such a question.

General insurance

(1) This section applies where the person who became the insured under a contract of general insurance upon the contract being entered into:

(a) failed to comply with the duty of disclosure; or

(b) made a misrepresentation to the insurer before the contract was entered into;

but does not apply where the insurer would have entered into the contract, for the same premium and on the same terms and conditions, even if the insured had not failed to comply with the duty of disclosure or had not made the misrepresentation before the contract was entered into.

(2) If the failure was fraudulent or the misrepresentation was made fraudulently, the insurer may avoid the contract.

(3) If the insurer is not entitled to avoid the contract or, being entitled to avoid the contract (whether under subsection (2) or otherwise) has not done so, the liability of the insurer in respect of a claim is reduced to the amount that would place the insurer in a position in which the insurer would have been if the failure had not occurred or the misrepresentation had not been made.

385 Thus, the insurer bears the onus of establishing:

(a) that the insured has breached its duty to disclose matters relevant to the decision of the insurer to accept the risk; and/or

(b) that the insured made a misrepresentation to the insurer before the contract was entered into.

RECRUITMENT SERICES ADDENDUM

PROFESSIONAL INDEMNITY, PUBLIC & PRODUCTS LIABILITY

& DIRECTORS' & OFFICERS'/EMPLOYMENT PRACTICES LIABILITY INSURANCE

387 The full names of the insureds were filled in as follows:

SWA Corporate Human Resources Pty Ltd

Crewe Sharp Pty Ltd &

KPI Recruitment Pty Ltd

388 Under the heading of 'Your Professional Business' was a list of nine 'Recruitment and Contract Management Services.' The service 'Human resource consulting' was crossed through and the service 'Management Consulting' inserted with the 'Fees Last Year' and 'Estimate Fees This Year' filled in.

389 None of the other eight listed services had any fees filled in.

390 In response to question 3, 'Do you require cover for business activities other than the provisions of Recruitment or Contract Management Services' the 'Yes' box has been ticked and the following details given:

Management Consulting (Crewe Sharp P/L)

& see writing on previous page

391 The previous page referred to the service of 'Management Consulting' only, which was added by hand, as noted above at 388.

392 To question 6, 'Full description of business activities of the Company', the response had been inserted, 'see Attached Overview.' The attached overview was not tendered. No submissions were made on its absence by the liquidators.

393 On the next page under the heading, 'Your Professional Business', the following question appeared:

Do you require Public and Products Liability cover for business activities other than the provision of Recruitment or Contractor Management Services?

394 The 'Yes' box was ticked and 'Management Consulting (Crewe Sharpe P/L)' inserted by hand.

PART 3 - DIRECTORS' & OFFICERS LIABILITY AND EMPLOYMENT PRACTICES LIABILITY

Complete this Part only if a quotation for Directors' & Officers' Liability insurance is required. Employment Practices Liability entity cover is available as an optional extension.

Full name of the Company:

SWA Corporate Human Services Pty Ltd, Crewe Sharp P/L & KPI Recruitment P/L (inserted by hand)

...

4 Can you confirm that:

(a) the Company is involved only in the provision of recruitment and/or contract management services.

The 'No' box has been ticked. The other boxes asking other questions about the company and its incorporation have been ticked as 'Yes'.

As explained earlier, Ms Vuckova provided a separate quote for directors' and officers' liability, which was not accepted by the companies.

396 Mr Crewe gave evidence as to his knowledge of the relevance of Crewe Sharp providing director and officer services to Crewe Sharp's insurance. Mr Crewe conceded that he knew that directors and officers had additional onerous duties and statutory obligations.[195] Mr Crewe admitted that directors were exposed to pay large sums of money if they breached those duties.

397 Mr Crewe admitted that he knew that these duties were not otherwise imposed on management consultants who are not otherwise directors and officers of a company.[196]

398 Mr Crewe said that he believed he was covered for directors and officers liability under a directors and officers liability policy held by Akron. I infer from this evidence that Mr Crewe knew that directors and officers liability was usually covered by a specific directors and officers liability policy.[197]

399 Mr Crewe was asked whether he was suggesting that CGU knew before the Policy was issued that Mr Crewe was a director of Akron. Mr Crewe said that he was, because he was never aware of the fact that they did not know, given that he had been a director since 2001 and an informal director of many companies during the period. He said that it never occurred to him that CGU was not privy to the fact that he was a director.[198]

400 It was put to Mr Crewe that he knew that it was relevant to an underwriting decision by an insurance company that he assumed onerous duties as an actual director or de facto director. Mr Crewe said that he was sure it was relevant but he did not think it was that simple.

401 Mr Crewe agreed that it would be a relevant matter to an insurance company to know that the insured had assumed risks as a de facto or validly appointed director if the insured wanted to cover the risks faced by directors under the policy. Mr Crewe added that he understood that CGU knew that the insured had assumed such risks.[199]

402 The issue of disclosure only becomes relevant if the Policy is otherwise engaged by the claim made against Mr Crewe, or Crewe Sharp, by the liquidators. As it is, I have found that the Policy was engaged in relation to the claim against Mr Crewe.

403 In accordance with s 21 of the ICA, an insured has a duty of full relevant disclosure prior to the contract of insurance being entered into.

404 It is useful to confirm some general principles applicable to the ICA and the duty of disclosure.

405 The proposal form accepted by the insurer will affect the scope of the insured's duty of disclosure. However, the nature of the general duty imposed by s 21 on an insured allows a finding of non-disclosure to be made even in the circumstance where a specific question has not been asked in the accepted proposal form.[200]

406 As to what may be required to be disclosed, guidance can be found in Leading Synthetics Pty Ltd v Adroit Insurance Group Pty Ltd, where Macaulay J said:[201]

While questions asked or not asked in the proposal form are a guide to an insured (and a reasonable person) as to those matters in which the insurer is likely to be interested when making its decision, they do not necessarily set the boundaries of what a reasonable person would know to be relevant to the insurer's decision. For example, even though the insurer may not ask in the proposal: 'is the buyer's payment behaviour demonstrating any serious deterioration or otherwise signalling the development of payment difficulties?' - generally, the reasonable proponent for credit risk insurance is likely to understand that either of those two circumstances would be relevant to the insurer in deciding whether or not to take on insurance risk.

407 The matters required to be disclosed are matters relevant to the risk of issuing the insurance policy. It is not necessary for the insured to provide all information in relation to a particular matter, provided that the information disclosed, fairly indicates that more information is available, if the insurer inquires further.[202] As was stated in Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd:[203]

[t]o require an insured to disclose to an insurer, every matter known to the insured, or reasonably knowable by the insured, relevant to the decision of the insurer to enter into a contract of insurance would be to impose an extraordinarily high burden upon an insured, indeed a burden that few insured's could ever fully discharge.

408 Nonetheless, the insured cannot avoid disclosing important and unexpected details which could only be discovered if the insurer makes further inquiries.[204]

409 The High Court in Permanent Trustee Australia Limited v FAI General Insurance Company Ltd (in liquidation)[205] held that:[206]

... 'knows' in s 21(1) of the ICA is a strong word. It means considerably more than 'believes' or 'suspects' or even 'strongly suspects'. And the matter, to answer the description that par (a) of the sub-section states, must be a matter that is not only 'relevant to the decision of the insurer whether to accept the risk, and if so, on what terms, but also one that the insured knows to be such a matter.'

410 The majority also addressed the issue of whether the broker's knowledge should be imputed to the insured. They said:[207]

... It is also noteworthy, particularly if it should become necessary to deal with the other grounds of appeal, that the knowledge of which the sub-section speaks, either actual or constructive, is the knowledge of the insured, and not of any insurance intermediary, a term defined by the Act and clearly embracing an agent of the kind that Sedgwick was. This is at least to suggest that the reference to the insured is intended to be a reference to the insured personally and not to its agent or broker. However, it is not essential to our reasons to determine this point.

412 In Permanent Trustee v FAI, Gummow and Hayne JJ dissented. In doing so, they considered whether, in the case of companies, the knowledge of an agent should be treated as the knowledge of the company and in particular the knowledge of the insurance broker acting on behalf of the insured. They held that '[i]n the context of a section governing the duty of disclosure, the knowledge of an agent to effect the insurance is the knowledge of the insured.'[208] The majority did not decide the issue but merely assumed that the imputation of the agent's knowledge to the insured was correctly made by the Court of Appeal below.

413 In New Cap Reinsurance Corp Ltd (in liq) v Daya,[209] White J of the Supreme Court of New South Wales examined the two views expressed in the High Court in Permanent Trustee v FAI. White J was considering whether knowledge of an underwriting agent of the insurer should be treated as knowledge of the insurer. The matter before him was a pleading summons and White J said that it was inappropriate to decide the matter on a pleading summons. Nevertheless, his observations support the view that the agents knowledge should be imputed to the principal for the purposes of s 21.

414 The knowledge of a director who is the relevant guiding mind of an insured is knowledge of the insured for the purposes of s 21.[210] That includes matters personal to that director.

415 Turning to the facts of this case, the evidence establishes that the fact that the insured Crewe Sharp was providing officer and director services to clients was a relevant matter to the insurer CGU whether to accept the risk, and if so, on what terms.

416 I accept the evidence of Ms Vuckova, which is set out above at paragraphs 134 to 137. I reject the submissions of the liquidators that her evidence was rehearsed. In my opinion, the evidence of Ms Vuckova made rational sense. Clearly the risks entailed in becoming an officer of a client are onerous, as accepted by Mr Crewe.

417 Ms Vuckova also said that CGU would not have covered director-related services to Akron. Ms Vuckova said that if CGU found out that Mr Crewe was a director then the relationship of Mr Crewe (and Crewe Sharp) to Akron was no longer independent as he was now an officer of Akron, so any services to Akron would be excluded from the policy.[211]

418 The duty of disclosure does not require the disclosure of a matter that the insurer knows or in the ordinary course of the insurer's business as an insurer ought to know: s 21(2)(c).

419 I accept the evidence of Ms Vuckova that CGU did not know that Crewe Sharp provided director and officer services. The liquidators contended, however, that in the ordinary course of business CGU ought to have known that management consultancy could include the provision of director and officer services.

420 The liquidators relied on the fact that the CGU underwriting manual definition of management consultancy did not exclude the provision of officer and director services. The manual stated that consultancy services 'can vary widely.' The manual said 'management consultancy work may sometimes be carried out by people who are employed in another capacity, such as engineers, personnel workers, technicians, computer programmers, or system analysts.' The manual said 'experience and resume are critical.'

421 Ms Vuckova was taken to the Pro Risk proposal form signed by Matthew Crewe and sent to CGU, which listed the fees payable for the temporary placement of employees in five different categories of occupation: accountant, clerical and secretarial, nurses, engineers and draft persons, and 'others.'

422 That was followed by a request to provide further details for 'hospitality', 'medical' and 'others.' The liquidators put to Ms Vuckova that 'others' could mean 'directors and acting as directors.'[212] Ms Vuckova agreed that it could and said further, 'It could also be I think other professions that we cover under the p[i] policy.'[213]

423 Ms Vuckova said, however, that in this case she relied on the email from Mr Hansen, which is discussed at paragraphs 116 to 121 above. The email purported to describe the services provided by the insured. They did not included the provision of officer and director services. I found that Ms Vuckova was entitled to infer, as she did, that the information in Mr Hansen's email had been provided by Crewe Sharp.

424 Although it might be arguable that director and officer services may have fallen within 'other' as referred to in the 2009/2010 Proposal, the email and the information contained in it does not support the finding that in the ordinary course of the insurer's business it ought to have known that Crewe Sharp provided officer and director services. As discussed above, 'known' is a strong word that involves more than believes or suspects or even strongly suspects.[214]

425 Accordingly, the exclusion of the duty of disclosure was not enlivened by s 21(2)(c).

426 Turning to the duty of disclosure in s 21(1)(a), it is clear that Crewe Sharp knew that the fact that it was providing officer and director services was a relevant matter to the decision of the insurer. Mr Crewe said, however, that he believed that the matter was already known by the insurer and thus was not a matter that was relevant to the decision to accept the risk and, if so, on what terms.

427 In my view, that obligation to disclose was not avoided by Mr Crewe's belief. As discussed, under s 21(2)(c) actual knowledge of the insurer is required of the relevant matter, or that the insurer, in the ordinary course of business, ought to know of the relevant matter.

428 As discussed previously, a belief or even a strong belief is not sufficient to satisfy the test of knows.

429 The liquidators submit that adequate disclosure had been made by Crewe Sharp's proposal that said that the business activity of Crewe Sharp was management consulting, which encompassed the provision of officer and director services.

430 Secondly, the liquidators contend that if CGU maintained a more limited definition of 'management consultancy' that excluded the provision of director of officers services then a reasonable person in the circumstances of Crewe Sharp could not be expected to know it was a relevant matter, particularly as that limited definition was kept a secret from Crewe Sharp.

431 In response to the liquidators' submissions that it was common for Crewe Sharp to provide director activities as part of management consulting, CGU says, however, that Mr Crewe's witness statement states unambiguously that:[215]

Akron was however, the only company to which I was temporarily appointed as a director.

432 Moreover, CGU submit that Crewe Sharp's broker, Mr Hansen, stated in the Email[216] which preceded the Policy, that Crewe Sharp's business was 'all strategic management consulting centred around HR services.'

433 In this case, the fact that management consulting included the provision of director and officer services was expressly excluded by the information provided to the underwriter by Crewe Sharp's agent.

434 Accordingly, I find that Crewe Sharp did not satisfy its duty of disclosure of a matter relevant to the decision of CGU whether to accept the risk, and, if so, on what terms.

435 If I am wrong as to my conclusion under s 21(1)(a), I turn to the test under s 21(1)(b).

436 In CGU Insurance Limited v Porthouse,[217] the High Court considered the duty of disclosure of a barrister under a policy that contained disclosure obligations similar to those found in s 21 of the ICA. The High Court said that the policy did not replicate s 21 but employed a similar technique for identifying a 'known circumstance' under the policy. The Court said:[218]

The statutory test for disclosure now to be found in s 21 of the Insurance Contracts Act focuses on the 'reasonable insured', not the 'prudent insurer', and operates, first, by reference to the actual knowledge of the insured (s 21(1)(a)), and secondly, by reference to what 'a reasonable person in the circumstances could be expected to know' (s 21(1)(b)). That latter statutory phrase has been interpreted as meaning that one should take into account only factors which are 'extrinsic' to the insured, such as the circumstances in which the policy was entered into, rather than 'intrinsic' factors such as the individual idiosyncrasies of the insured. Whilst it is possible to take into account the circumstances of the insured, the ultimate question under s 21(1)(b) turns on consideration of a reasonable person's state of mind, not the insured's state of mind.

A test of disclosure, which operates by reference to both the insured's actual knowledge and the knowledge of a reasonable person in the same circumstances, is calculated to balance the insured's duty to disclose and the insurer's right to information. The insurer is protected against claims where the insured's disclosure is inadequate because the insured is unreasonable, idiosyncratic or obtuse and the insured is protected from exclusion from cover, provided he or she does not fall below the standard of a reasonable person in the same position.

437 The High Court cited with approval the observations of Brooking J in Twenty-First Maylux Pty Ltd v Mercantile Mutual Insurance (Aust) Ltd,[219] where his Honour adopted the views of Dr Tarr in Australian Insurance Law, where Dr Tarr said that the circumstances that s 21(b) require be taken into account, did not include 'intrinsic factors' such as 'individual idiosyncrasies such as imperfect understanding of English, cultural background or unfamiliarity with business or insurance practice.' Dr Tarr was of the view relevant circumstances included 'extrinsic factors' such as 'the informality attendant upon negotiations where interim cover is arranged over the telephone, or the type of policy in issue, or the exposure to advertising and promotional material.'[220]

438 Applying these principles, in my opinion, the extrinsic factors in this case includes the information conveyed to CGU in the email from the insurance broker to CGU, as well as those matters disclosed in the 2009/2010 proposal.

439 Further, based on the evidence of Mr Crewe, a reasonable person's state of mind would not have assumed or believed that CGU knew that Mr Crewe was acting as a director of Akron. Relevantly, Mr Hansen gave evidence that he did not know that Mr Crewe was acting as a director of Akron.

440 A reasonable person would have known of the onerous duties imposed on officers and directors. A reasonable person would have known that the insured had not disclosed that it provided officer and director services when it informed the insurer of its business activities. A reasonable person would know, as Crewe Sharp did, that directors and officers insurance was usually the subject of a separate policy.

441 Accordingly, I am satisfied paragraph (b) has been met in that a reasonable person in the circumstances would have known of the fact that Crewe Sharp provided officer and director services was a matter relevant to the decision of the insurer whether to accept the risk and, if so, on what terms.

442 I am satisfied that a reasonable person would know that fact to be relevant, having regard the matters set out in s 21(1)(b)(i)and (ii).

Sections 21(2)(d) and 21(3) - waiver

443 I now turn to whether the insurer waived compliance with the duty of disclosure in relation to the matter (the fact that Crewe Sharp provided officer and director services).

444 The liquidators submit that Crewe Sharp gave an obviously incomplete answer and that CGU, by failing to ask any further questions about the incomplete matter, waived compliance. The liquidators say that CGU was anxious to write the business and would have done so even if further information was provided.

445 The liquidators say that the answers discussed at paragraphs 388 to 395 were incomplete. The liquidators say that the Email, where is says 'all strategic management consulting centred around HR services' was an incomplete answer. CGU was also informed by Crewe Sharp that it provided temporary placement employees under a category of others without providing detail of services covered by 'others.'

446 The liquidators contend that these answers should have raised further questions to identify precisely the service being provided and that CGU did not ask for any further information.

447 In considering whether CGU waived the requirement of compliance with the disclosure requirement by failing to inquire further, the alleged 'obviously incomplete' answer should be viewed in the context of the other information known to the insurer and when so considered, to enliven the waiver, it must have the effect of putting the insurer on inquiry of the existence of undisclosed matters. Dew v Suncorp Life Superannuation Ltd[221] made a distinction between answers which lack detail and answers which are 'obviously incomplete.'

448 Answering 'No' to whether the company was involved only in the provision of recruitment and/or contract management services is entirely consistent with the addition by hand of 'management consulting' as one of the businesses conducted by the insureds.

449 No fees (for either 'Fees Last Year' or 'Estimated Fees This Year') were inserted for the item 'Temporary placement of employees and contracts' under the heading of 'Your Professional Business.'

450 I have formed the view that the 2009/2010 Proposal appears to have been completed with some care. Care was taken to include the business of 'management consulting' which was not a pre-listed description of the insureds' professional business. It is not clear who filled in the form.

451 The liquidators say CGU was informed by Crewe Sharp that it was in the business of 'on-hiring' its employees. The liquidators submit that if it was critical for CGU to be aware of what work all these employees were engaging in, it ought to have requested further information from Crewe Sharp.

452 As noted above, Ms Vuckova did not believe she made any further inquiries as to the business of Crewe Sharp, as according to the file, she made no note of any such inquiry.[222] Ms Vuckova accepted that management consulting can entail a wide range of activities and said that she had the opportunity to inquire further,[223] but she did not think she needed to as Mr Hansen had explained that Crewe Sharp's business was HR.

453 The notes made by the underwriter infer that Ms Vuckova believed from the forms submitted to her that the Crewe Sharp companies carried on business providing the 'following services: management consultancy, personnel consulting - white collar admin and telemarketing, personnel consulting nurses training and development.'[224] Ms Vuckova gave evidence confirming the inference.

454 I find that Ms Vuckova would not have been put on notice to inquire further and that the answers provided by the insureds were not 'obviously incomplete.' I find that CGU did not waive the requirement of compliance with the duty of disclosure.

455 I am not satisfied that there has been waiver of the duty to disclose as provided in ss 21(2)(d) and 21(3).

Section 21(2)(a) and (b)

456 In my opinion, the circumstances where a duty of disclosure is not imposed under this section are not enlivened. In particular;

(a) the undertaking by Mr Crewe of the duties of a managing director of Akron would not diminish the risk of a claim against Crewe Sharp or Mr Crewe;

(b) further, the fact that Crewe Sharp was providing director and officer services is not a matter that was of common knowledge.

Section 22 - the insurer's duty to inform

457 Section 22 of the ICA provides, in substance, that the insurer must inform the insured in writing before a contract of insurance is entered into to the general nature and effect of the duty of disclosure. Section 71(1), however, provides:

A provision of this Act (other than subsection 58(2)) for or with respect to the giving of a notice or other document or information to an insured before a contract of insurance is entered into does not apply where the contract was arranged by an insurance broker, not being an insurance broker acting under a binder, as an agent of the insured.

Means an authority given by an insurer to an insurance intermediary to enter into, as agent for the insurer, contracts of insurance on behalf of the insurer as insurer.

459 CGU submitted that Mr Hansen was not acting under a binder in relation to this policy. Accordingly, under s 71(1), CGU was under no duty to disclose to Crewe Sharp the general nature and effect of its duty to disclose.

460 The liquidators did not dispute these contentions.

461 CGU alleges that the Email and the 2009/2010 Proposal (the 2009/2010 Representations) were false.

462 The test is similar to s 21, whether the insured knows, or a reasonable person in the circumstances ought to know, that a matter is relevant. There is also overlap between ss 21 and 26 in the case where the insured has made a statement which can be said to be misleadingly incomplete; in those circumstances there may be both a failure to disclose a relevant matter under s 21 and the statement may be a misrepresentation under s 26.

463 For the purposes of s 26 a statement that is 'literally true but practically false' may be found to be misleading, 'not because of what it said, but because of what it left unsaid; in short, because of what it implied.'[226]

464 The requirements of finding that a misrepresentation has been made are discussed in Curtis v Chemical Cleaning and Dyeing Co Ltd,[227] where Lord Denning LJ said:[228]

In my opinion, any behaviour, by words or conduct, is sufficient to be a misrepresentation if it is such as to mislead the other party about the existence or extent of the exemption. If it conveys a false impression, that is enough, if the false impression is created knowingly, it is a fraudulent misrepresentation; if it is created unwittingly, it is an innocent misrepresentation; but either is sufficient to disentitle the creator of it to the benefit of the exemption.

465 CGU allege that the 2009/2010 Representations were false. I accept that the representations in the 2009/2010 Proposal were false in the sense that the proposal did not inform the underwriter of the fact that Crewe Sharp provided director and officer services[229] and created the false impression that the business of Crewe Sharp was limited to 'all strategic management consulting centred around HR services.'

466 The fact that Crewe Sharp was providing the services of Mr Crewe as a director was material to the risk to CGU. The duty on a director to prevent a company from trading whilst insolvent is a significant duty, the breach of which can lead to large damage claims, as in this case.

467 Ms Vuckova gave evidence of the vital part the 2009/2010 Proposal played in her decision as an underwriter whether to offer insurance and assessment of risk.

468 At the time of the 2009/2010 Proposal, this was a material part of Crewe Sharp's business, as Mr Crewe was acting (from April 2009) as the managing director of Akron and spending material amounts of his time managing Akron. I find, based on the evidence of Ms Vuckova, that CGU was misled by the incomplete information in the 2009/2010 Proposal (which included the Addendum).

469 I accept the evidence of Ms Vuckova that she relied on the 2009/2010 Representations in assessing the risk of insuring Crewe Sharp and that she would not have issued the policy without excluding losses arising from the provision of director services, if the 2009/2010 Representations had not been made, or the relevant matter was fully disclosed. And that the decision as underwriter is the decision of the insurer.

470 That Crewe Sharp believed the disclosure was sufficient to invite the insurer to enquire further does not prevent the statements and non-disclosure from being misrepresentation for the purposes of s 26.

471 As discussed in relation to non-disclosure, Mr Crewe (or a reasonable person) knew that it was relevant to the insurer's decision whether to accept the risk and, if so on what terms, the business activities of Crewe Sharp.

472 I briefly note the circumstances in which s 27 would apply. As discussed in relation to the duty of disclosure, whether an answer is 'obviously incomplete' under s 27 is determined objectively by reference to its fair and reasonable construction.[230]

473 Section 27 is directed to misrepresentations (in the proposal form) which arise solely because there has been either a failure to answer or an obviously incomplete or irrelevant answer given. The section does not apply to answers given which misrepresent the true position by both what they do say and what they omit.[231]

474 The liquidators did not rely on s 27 as a defence to the alleged misrepresentation.

Section 28 - remedies for non-disclosure and misrepresentation

475 The liquidators contend that in the event Crewe Sharp is found to have failed to comply with the duty of disclosure or made a misrepresentation, which is denied, any non-disclosure/misrepresentation cannot be said to have been operative on the mind of CGU, because - based on its view that the Policy does not respond to director liability - CGU would not have been concerned to know whether any director appointments were involved, so its loss caused by the alleged non-disclosure is nil (under s 28 of the ICA).

476 The liquidators say that in fact, CGU has taken a more extreme position, stating in the IA 90 notes that 'we do not cover in anyway shape or form Akron Roads.' In those circumstances, the liquidators argue that CGU cannot say that the alleged non-disclosure or misrepresentation was in any way causative of it mistakenly agreeing to write the cover for Crewe Sharp,[232] because they would have written this policy whether or not there was more specific disclosure about directorship roles undertaken by Crewe Sharp. I do not accept this submission. I accept the evidence of Ms Vuckova.

477 The liquidators submit that the Court should find that, by reason of CGU's entrenched view as to the proper interpretation of its Policy, any non-disclosure was not operative on the mind of CGU; that is to say, the loss caused by the alleged non-disclosure is zero, if s 28 of the ICA even applies at all.[233]

478 The liquidators submit that the hypothetical counterfactual proposed by Ms Vuckova for CGU has a false premise, as even if Ms Vuckova was aware of any directorships, CGU's view was that the Policy does not respond to the insolvent trading claim. Accordingly, the liquidators argue that it would not have altered CGU's approach. The liquidators submit that the hypothetical counterfactual proposed by Ms Vuckova is based on the understanding that the Policy does respond to the insolvent trading claim, and accordingly, would require additional conditions.

479 CGU has not sought to avoid the contract. I note that in my opinion the power to avoid the contract provided in s 28(2) was not enlivened. I am not satisfied that the failure to disclose by Crewe Sharp was fraudulent and any misrepresentation arising from the failure to inform CGU, as identified above, was made fraudulently.

480 I have set out above the plea of CGU as to the relief it seeks. In effect, CGU submits that its liability (if otherwise established) is reduced to zero pursuant to s 28(3) of the ICA.

481 For the purposes of s 28, the relevant evidence is that of the particular insurer as to what they would have done if not for the nondisclosure or misrepresentation.[234]

482 As stated above, I accept the evidence of Ms Vuckova that if the matters that ought to have been disclosed were known, CGU would not have issued the Policy. If matters were disclosed, CGU would have informed Crewe Sharp that the Policy would not cover the relevant business activities and therefore it would be inappropriate to issue the Policy.

483 For the above reasons, I find that the liability of CGU is reduced to zero.

484 Finally, the liquidators submit that the defence as pleaded is based on a declaration signed by Matthew Crewe on behalf of the proposed insureds, that allegedly evidences that Crewe Sharp and Mr Crewe knew or ought to have known of the nature and effect of their duty of disclosure.[235] The liquidators contend, however, the declaration referred to by CGU was in a proposal for a different policy sought for a different company (Crewe Sharp Career Bridge Pty Ltd).[236] The liquidators submit that no such declaration was given by Crewe Sharp in relation to the Policy.

485 As it is not disputed that CGU was not under a duty to comply with s 22, it was submitted that CGU is no longer relying on the declaration signed by Matthew Crewe.[237]

486 In any event, in my opinion, the evidence shows that Matthew Crewe did declare that all material information had been disclosed in relation to Crewe Sharp; the 2009/2010 Proposal signed 29 May 2009 states:[238]

I confirm that the information in this Addendum and the Proposal are true and complete.

I understand that, until a contract of insurance is entered into, I am under a continuing obligation to immediately inform ProRisk of any change to the information contained in this Addendum of the Proposal.

487 As indicated above, the 'professional insurance proposal' on the Pro Risk form signed on 28 May 2009 by Matthew Crewe referred to Crewe Sharp Career Bridge Pty Ltd but does not appear to refer to Crewe Sharp. The 'recruitment services addendum' signed 29 May 2009 by Matthew Crewe (defined above as the 2009/2010 Proposal) does include Crewe Sharp and specifies that Crewe Sharp's business activities, that it required cover for, as Management Consulting. The Addendum expressly states it is part of the Proposal.[239]

488 It is not relevant that the declaration was given on a ProRisk form. In my opinion, the inference is open that Matthew Crewe provided to Mr Hansen these ProRisk documents, with the information filled in, so that Mr Hansen could convey the forms and the information in them to the underwriter(s), and intending that the underwriter would rely on this information in providing quotes and assessing risk.

489 Matthew Crewe did not give evidence to rebut this inference.

490 I find that the liquidators have standing to seek the relief that they claim in respect of CGU's obligations in relation the liquidators' claim against Mr Crewe.

491 I find that Crewe Sharp was not a 'de facto' or 'shadow' director of Akron and accordingly is not liable to the liquidators, under s 588 of the Corporations Act. Accordingly, Crewe Sharp's Policy is not engaged as against CGU in respect of the liquidators' claims against Crewe Sharp.

492 I find that if the Policy is engaged by the claim by the liquidators against Mr Crewe, by reason of the settlement deed, CGU would be liable to indemnify Mr Crewe for his loss of $125,000.

493 I find that the Policy was engaged by the claim by the liquidators against Mr Crewe.

494 I find that the Policy exclusions relating to trading debts and directors liabilities were not enlivened.

495 I find that Crewe Sharp did not comply with its disclosure obligations, but that such non-compliance was not fraudulent.

496 I find that CGU did not waive the requirement of Crewe Sharp's compliance with its disclosure obligations.

497 I find that the liability of CGU to Mr Crewe is reduced to zero.

498 If I am wrong and the CGU's liability is not reduced to zero, then CGU's liability to Mr Crewe is $125,000.

499 I propose to make the following orders: that the application by the liquidators for declarations as against CGU is dismissed and the claim by the liquidators against Crewe Sharp as an alleged director is dismissed.

[1] CGU Insurance Ltd v Blakeley, [2016] HCA 2; (2016) 90 ALJR 272 ('CGU v Blakeley').

[2] Orders of the Honourable Justice Judd made 13 February 2015 'Pursuant to s 500(2) of the [Corporations Act] the plaintiffs have leave to continue this proceeding against Crewe Sharp Pty Ltd (in liquidation) on condition that no order or judgment against be enforced without having first obtained the leave of the Court.'

[3] Akron Roads Pty Ltd (in liq) v Crewe Sharp [2015] VSC 34.

[4] CGU Insurance Ltd v Blakeley (2015) 18 ANZ Insurance Cases 62-073.

[5] CGU Insurance Ltd v Blakeley [2015] HCATrans 232 (11 September 2015) (Kiefel and Gordon JJ) ('CGU v Blakeley').

[6] Judd J gave leave for the liquidators' claims against Crewe Sharp to continue on 13 February 2015; see above n 2.

[7] Exhibit P2, Amended Witness Statement of Trevor Paul Crewe, dated 31 March 2016, [9].

[8] Minutes of a Meeting of Directors of Akron Roads Pty Ltd Held at Dana Court, Dandenong, on Thursday 19th July 2001, 8.45 am, found at Court Book 857.

[9] Email from Mr Crewe to the Sills, dated 12 March 2009, found at Court Book 1037.

[10] Email from Herbert Fischbacher of Mason Sier Turnbull (lawyers) to Mr Crewe, dated 28 April 2009 found at Court Book 1278.

[11] Exhibit P2, Amended Witness Statement of Trevor Paul Crewe, dated 31 March 2016, [23].

[12] Exhibit P2, Amended Witness Statement of Trevor Paul Crewe, dated 31 March 2016, [25(d)].

[13] Engagement letter from Crewe Sharp to Akron, dated 10 December 2009, found at Court Book 291.

[14] Amended schedule for insurance for Crewe Sharp and related companies issued by CGU, dated 10 December 2009, found at Court Book 538.

[15] Email from ANZ bank to Evan Sofronas, Mr Crewe and others, dated 15 December 2009, found at Court Book 2278.

[16] Email from ANZ bank to Evan Sofronas, Mr Crewe and others, dated 14 January 2010, found at Court Book 2381.

[17] Letter from Akron liquidators to Crewe Sharp dated 28 May 2010, refers to the appointment of the voluntary administrators, found at Court Book 2900.

[18] Letter from Akron liquidators to Crewe Sharp dated 28 May 2010, refers to their appointment, found at Court Book 2900.

[19] Letter from Akron liquidators to Crewe Sharp, dated 28 May 2010, found at Court Book 2900.

[20] Letter from CGU to Crewe Sharp c/o Mr Hansen, dated 19 August 2010, found at Court Book 2904.

[21] Transcript of hearing, Re Akron Roads Pty Ltd (in liquidation) (No 3) (2 May 2016) T158-9, L29-2.

[22] Transcript of hearing, Re Akron Roads Pty Ltd (in liquidation) (No 3) (2 May 2016) T129.

[23] Transcript of hearing, Re Akron Roads Pty Ltd (in liquidation) (No 3) (2 May 2016) T129-30.

[24] Transcript of hearing, Re Akron Roads Pty Ltd (in liquidation) (No 3) (2 May 2016) T171, L18-20.

[25] Transcript of hearing, Re Akron Roads Pty Ltd (in liquidation) (No 3) (2 May 2016) T134, L30.

[26] Transcript of hearing, Re Akron Roads Pty Ltd (in liquidation) (No 3) (2 May 2016) T136, L21-7.

[27] Transcript of hearing, Re Akron Roads Pty Ltd (in liquidation) (No 3) (2 May 2016) T132-3, L6-12.

[28] Email from Mr Hansen to Ms Vuckova, dated 10 June 2009, found at Court Book 483-503.

[29] CGU Professional Risks Insurance Risk Schedule, IA 90 notes for 2009, found at Court Book 46A-566M.

[30] CGU Professional Risks Insurance Risk Schedule, IA 90 notes for 2009, found at Court Book 546C.

[31] Email from Ms Vuckova to Mr Hansen attaching a quotation for P.I. policy, dated 16 June 2009, found at Court Book 504-511.

[32] Email from Mr Hansen to Ms Vuckova, dated 19 June 2009, found at Court Book 512.

[33] Email from Ms Vuckova to Mr Hansen, dated 19 June 2009, found at Court Book 512.

[34] Email from Ms Vuckova to Mr Hansen, dated 10 July 2009, found at Court Book 514.

[35] Email from Ms Vuckova to Mr Hansen, dated 18 June 2009, found at Court Book 544.

[36] Exhibit P3, CGU underwriting manual confidential.

[37] Exhibit P1, Amended Witness Statement of Ross Andrew Blakeley, dated 28 May 2015.

[38] CGU Insurance Ltd v Blakeley [2016] HCA 2; (2016) 90 ALJR 272 (CGU v Blakeley).

[39] CGU Insurance Limited v Blakeley [2016] HCA 2; (2016) 90 ALJR 272 (CGU v Blakeley), is discussed in detail below.

[40] Re Akron Roads Pty Ltd (in liquidation) (No 2) [2016] VSC 199.

[41] As the High Court observed in CGU v Blakeley, [19], CGU's liability under the policy in respect of Crewe Sharp, and the operation of s 562 of the Corporations Act, were pleaded. However CGU's liability under the policy in respect of Mr Crewe, and the operation of s 117 of the Bankruptcy Act, were not pleaded.

[42] The position taken by Mr Crewe and Crewe Sharp as regards the plaintiffs' joinder of CGU is described in CGU v Blakeley, [8].

[43] Section 562 of the Corporations Act.

[49] Deputy Commissioner of Taxation v Karas [2013] VSC 410, [16].

[50] Re Beechworth Land Estates Pty Ltd (No 3) [2015] NSWSC 733; (2015) 298 FLR 233.

[51] Kation Pty Ltd v Lamru Pty Ltd; Lewis v Nortex Pty Ltd (in liq) [2009] NSWCA 145; (2009) 257 ALR 336, [20].

[52] MacGillivray on Insurance Law, (10th ed, 2003), [20-5]; Sutton on Insurance Law, (4th ed, 2015), [11.860]. No question of champerty or maintenance arises, because there is no assignment of a bare right to litigate. In any event, the plaintiffs have a genuine commercial interest in the subject-matter of the assignment (see, for example, EWC Payments Pty Ltd v Commonwealth Bank of Australia [2014] VSC 207) given that the indemnity claimed under the Policy is for a liability of Mr Crewe to the Plaintiffs.

[53] Under s 134 of the Property Law Act 1958 (Vic).

[54] Glegg v Bromley [1912] 3 KB 474, 484; Peters v General Accident Fire & Life Assurance Corporation, Ltd [1937] 4 All ER 628, 633.

[55] CGU v Blakeley, [64]-[67] and [92]-[96].

[56] CGU v Blakeley, [67] and [70].

[58] See Re Wakim; Ex parte McNally (1999) 198 CLR 511, [138]-[139].

[61] Nettle J presumably had in mind exceptions like agency or trust, not relevant here.

[62] Transcript of hearing, Re Akron Roads Pty Ltd (in liquidation) (No 3) (19 April 2016).

[63] Pleaded in paragraph 26AA of the defence of the fifth defendant to the fourth further amended points of claim (FFAPC).

[64] Transcript of hearing, Re Akron Roads Pty Ltd (in liquidation) (No 3) (3 May 2016) T252, L8-9.

[74] [2008] FCAFC 28; (2008) 166 FCR 398 ('Ashmere'), 410, [51].

[76] Ashmere, 550 [59]. See also Ainsworth [1992] HCA 10; (1992) 175 CLR 564,582; Kuczborski [2014] HCA 46; (2014) 254 CLR 51, 61, [6] (French CJ).

[79] Citing Aussie Airlines Pty Ltd v Australian Airlines Ltd (1996) 68 FCR 406, 415 (Lockhart J); Edwards [2011] HCA 8; (2011) 242 CLR 421, 436, [38] (Heydon J).

[81] Supreme Court (General Civil Procedure) Rules 2015, r 9.06(b)(ii).

[83] K Sutton, Insurance Law in Australia (LBC Information Services, 3rd ed, 1999) 1159-60 citing Fire & All Risks Insurance Co Ltd v Rousianos (1990) 19 NSWLR 57, 63 and British Traders Insurance Co v Monson [1964] HCA 24; (1964) 111 CLR 86, 92-3, cited in General Newspapers Pty Ltd v Cigna Insurance (1991) 6 ANZ Insurance Cases 61-086 (SC NSW), 77, 327; see also D K Derrington, R S Ashton, The Law of Liability Insurance (LexisNexis Butterworths, 3rd ed, 2013) [8-462].

[84] K Sutton, Insurance Law in Australia (LBC Information Services, 3rd ed, 1999) 1162 (emphasis added) citing: Dawson v Monarch Insurance Co of NZ Ltd [1977] 1 NZLR 372, 377; Roumeli Food Stores (NSW) Pty Ltd v New India Assurance Co Ltd [1972] 1 NSWLR 227, 237; Kypris v MLC Fire & General Insurance Co Pty Ltd (1981) 1 ANZ Insurance Cases 60-451 (CA NSW); AMP Fire & General Insurance Co (NZ) Ltd v Earthquake & War Damage Commission (1983) 2 ANZ Insurance Cases 60-529 (CA NZ), 78,021 citing Halsbury, Vol 25, [3].

[85] [1983] VicRp 65; [1983] 1 VR 698 ('Lucas').

1. [88] QBE v CGU (2012) 83 NSWLR 589, 598 [36]; Lumbermen's Mutual Casualty Co v Bovis Lend Lease Ltd, [2004] EWHC 2197 (Comm); [2005] 2 CLC 617 ('Lumbermens').

[89] (Sweet & Maxwell, 13th ed, 2015) [30-006].

[91] [1976] 2 QB 363.

[92] [1957] 1 WLR 45, 49.

[96] [2008] SASC 138 ('Nguyen').

[97] [2007] FCA 1040 ('Kernaghan').

[99] [2007] FCA 1040, [19]-[20].

[100] D K Derrington, R S Ashton, The Law of Liability Insurance (LexisNexis Butterworths, 3rd ed, 2013) [8-510]; see also [8-510] - [8-520] generally.

[101] D K Derrington, R S Ashton, The Law of Liability Insurance (LexisNexis Butterworths, 3rd ed, 2013) [36].

[102] The liquidators agreed not to rely on paragraphs [42]-[43], [47], [49], [50] and [56] of Exhibit P1, Amended Witness Statement of Ross Andrew Blakeley, dated 28 May 2015; Transcript of hearing, Re Akron Roads Pty Ltd (in liquidation) (No 3) (18 April 2016) T73.

[103] [2011] NSWCA 109; (2011) 81 NSWLR 47 ('Buzzle v Apple (appeal)'), (Hodgson, Young and Whealy JJA).

[104] As the relevant events occurred before the Corporations Act came into effect, the governing legislation is the Corporations Law. In most cases the provisions are identical to the corresponding sections of the current legislation.

[105] See Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd [2010] NSWSC 233 ('Buzzle v Apple (trial)'), (White J).

[106] Buzzle v Apple (appeal), 55, [42].

[107] Buzzle v Apple (appeal), 70, [187].

[108] [1994] BCLC 180 ('Hydrodam'), 183.

[110] Buzzle v Apple (trial), [241].

[111] Buzzle v Apple (trial), [242].

[112] Buzzle v Apple (trial), [247].

[113] Buzzle v Apple (trial), [248].

[114] Buzzle v Apple (trial), [250].

[115] Buzzle v Apple (trial), [235].

[116] [2005] EWHC 1638 ('Ultraframe').

[118] Buzzle v Apple (appeal), [227]-[232] (citations omitted).

[119] Buzzle v Apple (appeal), [9]-[10].

[120] Re Hydrodam, 183 (Millett J); Buzzle v Apple (trial), [241]; Buzzle v Apple (appeal), [191] (Young JA).

[121] Re Hydrodam, 183 (Millett J); Buzzle v Apple (trial), [241]; Buzzle v Apple (appeal), [191] (Young JA).

[122] Buzzle v Apple (trial), [241]; Buzzle v Apple (appeal), [191] (Young JA).

[123] ASIC v AS Nominees Ltd [1995] FCA 1663; (1995) 62 FCR 504 ('AS Nominees'); Apple v Buzzle (appeal), [208] (Young JA).

[124] Buzzle v Apple (trial), [242]; Buzzle v Apple (appeal), [191].

[125] Ultraframe, [1273]; Buzzle v Apple (trial), [248]; and Buzzle v Apple (appeal), [196].

[126] Buzzle v Apple (trial), [235] and [250]; Buzzle v Apple (appeal), [196] (Young JA).

[127] Buzzle v Apple (trial) [247]; Buzzle v Apple (appeal), [196].

[128] Buzzle v Apple (appeal), [229].

[129] Buzzle v Apple (appeal), [228] (Young JA).

[130] Buzzle v Apple (appeal), [10] (Hodgson JA).

[131] Secretary of State for Trade and Industry v Deverell {2001} Ch 340, [35] (Morritt LJ); Buzzle v Apple (appeal), 212.

[132] Secretary of State for Trade and Industry v Deverell [2001] Ch 340, [35], referred to in Buzzle v Apple (appeal), [212].

[133] Buzzle v Apple (appeal), [230]-[231].

[134] Australian Securities Commission v AS Nominees Pty Ltd [1995] FCA 1663; (1995) 133 ALR 1, 53, referred to in Buzzle v Apple (appeal), [196].

[135] Hydrodam, 183, referred to in Buzzle v Apple (appeal), [191]; and Buzzle v Apple (trial) as noted above.

[136] Transcript of hearing, Re Akron Roads Pty Ltd (in liquidation) (No 3) (2 May 2016) T145, L24-5.

[137] Third Further Amended Points of Claim dated 25 February 2016, [7(d)(xi)].

[138] (2012) 247 CLR 345 ('Hellicar').

[140] [2008] FCA 1457; (2008) 68 ACSR 154.

[141] LexisNexis Australia, Cross on Evidence, vol 1 (at service 193), [1215] referring to Chairman, National Crime Authority v Flack (1988) 86 FCR 16, 28.

[142] LexisNexis Australia, Cross on Evidence, vol 1 (at service 193), [1215] referring to Claremont Petroleum NL v Cummings [1992] FCA 446; (1992) 110 ALR 239, 259.

[143] LexisNexis Australia, Cross on Evidence, vol 1 (at service 193), [1215] referring to Shum Yip Properties Development Pty Ltd v Chatswood Investment & Development Co Pty Ltd [2002] NSWSC 13; (2002) 40 ACSR 619, [64].

[144] LexisNexis Australia, Cross on Evidence, vol 1 (at service 193), [1215] referring to Cubillo v Cth [2000] FCA 1084; (2000) 103 FCR 1, [360]; the footnote goes on to say 'But to that general rule there may be many qualifications in particular circumstances. If a meeting of directors, for example, is said to be infected by bad faith or improper motive, at least a majority would have to be called.' However, this proceeding is not that type of case.

[145] LexisNexis Australia, Cross on Evidence, vol 1 (at service 193), [1215].

[146] [1968] HCA 37; (1968) 121 CLR 483.

[147] Transcript of hearing, Re Akron Roads Pty Ltd (in liquidation) (No 3) (3 May 2016) T260.

[148] Transcript of hearing, Re Akron Roads Pty Ltd (in liquidation) (No 3) (3 May 2016) T261, L7-9.

[149] Transcript of hearing, Re Akron Roads Pty Ltd (in liquidation) (No 3) (2 May 2016) T261, L20-3.

[150] [1995] NSWSC 31; (1995) 38 NSWLR 290 ('Antico').

[151] [2006] FCAFC 159; (2006) 24 ACLC 1526 ('Ho').

[153] [1998] FCA 1034; (1998) 28 ACSR 565 ('Austin').

[154] Robert R Pennington, Pennington's Company Law, (London, Butterworths, 3rd ed, 1973) 502.

[155] (1867) LR 2 Exch 158 ('D'Arcy').

[159] [1900] 2 Ch 230.

[160] Hydrodam, 183 (Millett J); Buzzle v Apple (trial), [241]; Buzzle v Apple (appeal), [191] (Young JA).

[163] As defined in clause 12.3 of the Policy, as found at Court Book 786.

[164] As defined in clause 12.2 of the Policy, as found at Court Book 786.

[165] Akron and its liquidators refer to and rely on letters from CGU's solicitors dated 3 June 2015 and 30 March 2016 in this regard.

[168] See liquidators' opening submissions dated 6 April 2016, [43].

[169] See generally Elliott v ASIC [2004] VSCA 54; (2004) 48 ACSR 621, [101]-[110].

[170] The liquidators' opening submission dated 6 April 2016, [43].

[172] Plymin v Australian Securities and Investments Commission [2004] VSCA 54; (2004) 10 VR 369, see [165]-[188].

[173] Transcript of hearing, Re Akron Roads Pty Ltd (in liquidation) (No 3) (3 May 2016) T294-5.

[175] Exhibit P2, Amended Witness Statement of Trevor Paul Crewe, dated 31 March 2016, [7].

[177] CGU's witness confirmed that the Policy was a standard CGU document, used for a variety of insured entities: transcript of hearing, Re Akron Roads Pty Ltd (in liquidation) (No 3) (2 May 2016) 206, L19-21.

[178] North v Marina [2003] NSWSC 64; (2003) 11 BPR 21,359, [57]-[72].

[179] Defence of the Fifth Defendant to the FFAPC, [26A] ('FDD'). CGU also indicated that it did not rely on the defences arising from the 2012/2013 Insurance Policy contained in paragraphs [27]-[32] of the FDD.

[180] FDD [26B]; the 2009/2010 Proposal is located at Court Book 491-8 (-503).

[182] FDD [26C]; the Email and attached 2009/2010 Proposal is located at Court Book 551A-551U (and 483-90).

[183] FDD [26D]; the Email is located at Court Book 551A and 483.

[184] FDD[26D]; the Email is located at Court Book 551A and 483.

[193] See above at paragraph 24.

[195] Transcript of hearing, Re Akron Roads Pty Ltd (in liquidation) (No 3) (2 May 2016) T161.

[196] Transcript of hearing, Re Akron Roads Pty Ltd (in liquidation) (No 3) (2 May 2016) T163, L5-10.

[197] Transcript of hearing, Re Akron Roads Pty Ltd (in liquidation) (No 3) (2 May 2016) T163, L20-3.

[198] Transcript of hearing, Re Akron Roads Pty Ltd (in liquidation) (No 3) (2 May 2016) T167, L12-17.

[199] Transcript of hearing, Re Akron Roads Pty Ltd (in liquidation) (No 3) (2 May 2016) T167, L1-5.

[200] Stealth Enterprises Pty Ltd v Callident Insurance Ltd [2015] NSWSC 1270 ('Stealth Enterprises'); see also Leading Synthetics Pty Ltd v Adroit Insurance Group Pty Ltd [2011] VSC 467.

[201] [2011] VSC 467 [89].

[202] Halsbury's laws of Australia, 235 - Insurance, [235-450], citing Roumeli Food Stores (NSW) Pty Ltd v New India Assurance Co Ltd [1972] 1 NSWLR 227, 234; Asfar & Co v Blundell [1896] 1 QB 123, 129.

[203] (2003) 214 CLR 514 ('Permanent Trustee v FAI'), [33].

[204] Halsbury's laws of Australia, 235 - Insurance, [235-450], citing Liga Knitting Mills v Lombard Insurance Co Ltd (1983) 3 ANZ Insurance Cases, 60-551_._

[205] Permanent Trustee v FAI, (McHugh, Kirby and Callinan JJ).

[206] Permanent Trustee v FAI, 531, [30].

[207] Permanent Trustee v FAI, 531, [30].

[209] [2010] NSWSC 1226 ('New Cap v Daya').

[210] Stealth Enterprises (Schmidt J), [137]-[145].

[211] Transcript of hearing, Re Akron Roads Pty Ltd (in liquidation) (No 3) (2 May 2016) T210.

[212] Transcript of hearing, Re Akron Roads Pty Ltd (in liquidation) (No 3) (2 May 2016) T199, L14-17.

[213] Transcript of hearing, Re Akron Roads Pty Ltd (in liquidation) (No 3) (2 May 2016) T199, L17-18.

[215] Exhibit P2, Amended Witness Statement of Trevor Paul Crewe, dated 31 March 2016, [9].

[216] The Email is located at Court Book 551A and 483.

[217] [2008] HCA 30; (2008) 235 CLR 103 ('Porthouse').

[219] [1990] VicRp 81; [1990] VR 919 ('Twenty-First Maylux').

[221] [2000] QSC 183.

[222] Transcript of hearing, Re Akron Roads Pty Ltd (in liquidation) (No 3) (2 May 2016) T194-5.

[223] Transcript of hearing, Re Akron Roads Pty Ltd (in liquidation) (No 3) (2 May 2016) T194-5.

[224] CGU IA 90 notes located at Court Book 546C.

[225] Insurance Contracts Act 1984 (Cth) s 11.

[226] Rex v Kylsant, (Lord) [1932] 154.

[227] [1951] 1 K.B. 805, ('Curtis').

[229] Lord Bingham of Cornhill in HIH Casualty & General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6, [21] said 'that silence, where there is a duty to speak, may amount to misrepresentation.' see Brownlie v Campbell (1880) 5 App Cas 925, 950, (Lord Blackburn); Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [1990] 1 QB 665, 773-774, 782-3, (Slade LJ); Spencer Bower, Turner & Sutton, Actionable Non-Disclosure (2nd Ed 1990), 249-50.

[230] See Prepaid Services Pty Ltd v Atradius Credit Insurance NV [2013] NSWCA 252 ('Prepaid Services Pty Ltd v Atradius Credit Insurance').

[231] See Prepaid Services Pty Ltd v Atradius Credit Insurance.

[232] Insurance Contracts Act 1984 (Cth) s 28(1) does not apply where the insurer would have entered into the contract, for the same premium and on the same terms and conditions, even if the insured had not failed to comply with the duty of disclosure.

[233] Insurance Contracts Act 1984 (Cth) s 28.

[234] See Permanent Trustee v FAI, 686 (Handley JA); McCabe v Royal & Sun Alliance Life Assurance Australia Ltd [2003] WASCA 162; Graham v Colonial Mutual Life Assurance Society Ltd (No 2) [2014] FCA 717.

[236] The Declaration signed by Matthew Crewe for and on behalf of Crewe Sharp Career Bridge P/L is located at Court Book 503.

[237] Transcript of hearing, Re Akron Roads Pty Ltd (in liquidation) (No 3) (3 May 2016) T361.