Crewe Sharp Pty Ltd (in liquidation) (Crewe Sharp) carried on the business of management consultancy. Mr Crewe was the managing director of Crewe Sharp. Crewe Sharp provided management consultancy services to Akron Roads Pty Ltd (in liquidation) (Akron Roads). Akron Roads provided civil construction services. Crewe Sharp made Mr Crewe available to act as a director, chairman and at times managing director of Akron Roads.
Whilst Mr Crewe was acting as a director of Akron Roads, Akron Roads became insolvent and eventually went into liquidation. In this proceeding, the liquidators of Akron seek damages against the directors of Akron, including Mr Crewe, for failing to prevent Akron from incurring debts of $14,657,189.05 when insolvent (between 1 August 2009 and 1 February 2010) under s 588M of the Corporations Act 2001.
The liquidators also seek damages under s 588M against Crewe Sharp alleging it was a shadow director of Akron under s 9 of the Corporations Act 2001.
Crewe Sharp has a professional indemnity insurance policy with CGU Insurance Limited (CGU) with a limit of $5 million per claim. The High Court of Australia held in CGU Insurance Ltd v Blakeley (2016) 90 ALJR 272, that the liquidators of Akron have standing to seek a declaration, as against CGU, that it is liable under its policy of insurance with Crewe Sharp, to indemnify Crewe Sharp and Mr Crewe in respect of the liquidators claim against them for damages for failing to prevent Akron from trading when insolvent.
In substance, under s 562 of the Corporations Act 2001, the liquidators of Crewe Sharp are obliged to pay to the liquidators of Akron any insurance compensation in respect of the claim by the liquidators of Akron. Similarly, under s 117 of the Bankruptcy Act 1984, the trustee in bankruptcy of the bankrupt is obliged to pay to the liquidators of Akron any insurance compensation in respect of the claim by the liquidators of Akron.
The liquidators of Akron entered judgment by consent against Mr Crewe for $12,992,880.05 and an assignment to the liquidators of the benefit of Mr Crewe's cover under the insurance policy taken out by Crewe Sharp (up to $5 million). Despite the judgment sum, under the terms of settlement Mr Crewe was only obliged to pay $125,000 (which he has paid). The liquidators claim that the assignment gives them a similar right to seek a declaration against CGU, that the High Court recognised would exist if Mr Crewe was at risk of being bankrupted, even though there is now no risk of Mr Crewe being bankrupted. The liquidators have settled against the other individual directors of Akron.
The Court finds that the liquidators do have standing to seek the declaration against CGU in respect of Mr Crewe's cover.
The Court finds that the extent of CGU's potential liability to Mr Crewe is limited to the sum that Mr Crewe was obliged to pay the liquidators under his settlement with the liquidators, being $125,000. The Court finds that the policy would only cover the actual loss to the insured, being the sum of $125,000.
The Court finds that Crewe Sharp was not a shadow director of Akron and dismisses the claim of the liquidators against Crewe Sharp for damages and accordingly dismisses the claim by the liquidators for a declaration against CGU that it is obliged to indemnify Crewe Sharp for the damages claimed by the liquidators.
The Court finds that the CGU insurance policy issued to Crewe Sharp covers the claim made by Mr Crewe. The Court finds that the directorship exclusion and the trading debt exclusion clauses do not apply as contended by CGU.
The Court finds, however, that there was non-disclosure of a 'relevant matter' within the meaning of s 21 of the Insurance Contracts Act 1984: in substance that Mr Crewe was acting as the managing director of Akron. The Court finds that Crewe Sharp also made misrepresentations to CGU within the meaning of s 26 of the Insurance Contracts Act 1984.
The Court finds that the non-disclosure and the misrepresentation were not deliberate. The Court finds, however, that CGU did not know of the 'relevant matter' and would not have entered into the policy if it had known of the 'relevant matter.'
The Court finds, therefore, that CGU's liability to Mr Crewe is reduced to zero.
The Court therefore dismisses the liquidators claim for a declaration that CGU is obliged to indemnify Mr Crewe in respect of the damages recovered by the liquidators of Akron against Mr Crewe.