CGU Insurance Limited v One.Tel Limited (In Liquidation)

CGU Insurance Limited (CGU) and One.Tel Limited (In Liquidation) were the parties involved in this appeal before the High Court of Australia. The dispute concerned the interpretation of a directors and officers liability insurance policy and whether CGU was obliged to indemnify One.Tel for certain costs incurred during litigation. Specifically, the issue revolved around whether the costs incurred by One.Tel in defending itself against claims brought by the Australian Securities and Investments Commission (ASIC) were covered by the policy, given that these costs were incurred after the commencement of One.Tel's liquidation.

The central legal question before the High Court was whether the policy's indemnity provisions extended to cover defence costs incurred by the insured company after it had entered into liquidation. This required the Court to consider the nature of the indemnity provided by the policy, particularly in the context of ongoing litigation against a company in liquidation, and the interplay between the policy terms and the Corporations Act 2001 (Cth). The Court also had to determine whether the liquidation of One.Tel fundamentally altered the nature of the liability being indemnified.

The High Court held that the directors and officers liability insurance policy did not provide an indemnity for defence costs incurred by One.Tel after it had gone into liquidation. Their Honours reasoned that the policy indemnified the insured against liability, and in the context of a company in liquidation, the liability being considered was that of the company itself, not the directors or officers personally. The Court found that the costs of defending ASIC proceedings were not costs incurred in relation to a claim made against the directors or officers, but rather costs incurred by the company in its own defence. Consequently, the liquidation of One.Tel meant that the company was no longer carrying on business, and the indemnity for defence costs, as framed by the policy, did not extend to the post-liquidation defence expenses. The appeal was therefore dismissed.