In The Matter of Tosich Construction Pty Ltd & The Corporations Law

The case between Tosich Construction Pty Ltd (in liquidation) and FAI Insurance Limited involved a dispute concerning the distribution of funds from a resolution sum derived from the liquidation of Tosich Construction Pty Ltd. The liquidator of the company sought to enter into an insurance agreement with FAI Insurance Limited, which would involve the payment of a premium by FAI and the assignment of a share of the resolution sum to FAI as part of the agreement. The central legal issues revolved around whether such an agreement constituted a champertous contract, which would be illegal under Australian law due to its nature of funding litigation, and whether the assignment of a share of the resolution sum was permissible under the Corporations Law.

The court had to determine whether the proposed insurance agreement was champertous, which would render it void under public policy considerations, or if it constituted a legitimate insurance arrangement. Additionally, the court needed to consider whether the assignment of a share of the resolution sum to FAI Insurance was a permissible transaction under the Corporations Law, given the liquidator's duty to maximize returns for creditors.

In reaching its decision, the court referenced several precedent cases, including Grovewood Holdings Plc v James Capel & Co Ltd, Oasis Merchandising Services Ltd; Ward v Aitken, and Movitor UTSA Pty Ltd v Ultra Tune Australia Pty Ltd, to understand how courts had previously dealt with similar issues. The court found that the agreement between the liquidator and FAI Insurance did not constitute a champertous contract as it did not involve funding litigation. Instead, it was a legitimate insurance arrangement. The court also concluded that the assignment of a share of the resolution sum to FAI Insurance was not prohibited under the Corporations Law, as it was a means of compensating FAI for its premium payment and did not contravene the liquidator's duty to creditors.

The court ruled in favour of the liquidator and FAI Insurance, allowing the terms of the insurance agreement to proceed as negotiated. The liquidator was permitted to disclose the terms of the agreement to creditors and the Committee of Inspection for their approval. The court's decision enabled the liquidator to secure insurance coverage for the company's liabilities while ensuring that FAI Insurance received compensation for its premium payment in a manner that complied with the Corporations Law.