CGU Insurance Ltd v One.Tel Ltd (In Liq)

The High Court of Australia considered an appeal from the Court of Appeal of the Supreme Court of New South Wales concerning the rights of a trustee under a Deed of Arrangement and the effect of the termination of that deed. The dispute arose from proceedings commenced by the trustee, David Patrick Watson (and later his executrix, Christine Watson), against CGU Insurance Limited, the insurer of a directors and officers liability policy held by John Huyshe Greaves. Mr Greaves, a former director of One.Tel Limited (In Liquidation), had been ordered to pay substantial compensation to One.Tel and ASIC. The Deed of Arrangement, entered into by Mr Greaves, included a covenant to assign his rights under the CGU policy to the trustee.

The central legal issues before the High Court were whether the trustee could maintain proceedings to recover alleged property under the policy after the termination of the Deed of Arrangement, whether Mr Greaves's interests or rights ceased to be held by the trustee upon termination, and whether CGU had accrued rights under the Deed that precluded further recovery. The Court also had to determine the effectiveness of the covenant to assign and whether any transfer of property was void after the Deed's termination.

The High Court reasoned that the Deed of Arrangement operated as an equitable assignment of Mr Greaves's rights under the policy to the trustee. Crucially, the Court held that the termination of the Deed did not extinguish the trustee's rights or the equitable assignment. The termination did not render the assignment void, nor did it release Mr Greaves from his liabilities in a way that would prevent the trustee from pursuing the claim. The Court applied principles relating to equitable assignments and the effect of termination of deeds of arrangement, concluding that the trustee retained the capacity to pursue recovery of the alleged property.

The High Court allowed the appeal in part, overturning the Court of Appeal's decision on certain reserved questions. The Court affirmed that the trustee could maintain the proceedings and that the termination of the Deed did not cause the cessation of the trustee's interests or rights. The Court also determined that CGU did not possess accrued or binding rights under the Deed that would prevent further recovery, and that the covenant to assign was effective. Consequently, the Court answered specific questions in favour of the trustee, allowing the appeal in relation to those orders and dismissing it otherwise, with CGU ordered to pay the first respondent's costs of the appeal.