Re Akron Roads Pty Ltd (in liquidation) (No 3)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT

CORPORATIONS LIST

S CI 2013 01736

IN THE MATTER OF
AKRON ROADS PTY LTD (IN LIQUIDATION) (ACN 004 769 895)

ROSS BLAKELEY, MICHAEL RYAN & QUENTIN OLDE (AS JOINT AND SEVERAL LIQUIDATORS OF AKRON ROADS PTY LTD (IN LIQUIDATION)	First plaintiff
and
AKRON ROADS PTY LTD (IN LIQUIDATION)	Second plaintiff
v
TREVOR PAUL CREWE	First defendant
ROBERT MARK SILL	Second defendant
JOHN MARTIN SILL	Third defendant
CREWE SHARP PTY LTD (ACN 066 670 013)	Fourth defendant
CGU INSURANCE LIMITED (ACN 004 478 371)	Fifth defendant

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JUDGE:	ROBSON J
WHERE HELD:	Melbourne
DATE OF HEARING:	18 and 19 April, 2 and 3 May 2016
DATE OF JUDGMENT :	11 November 2016
CASE MAY BE CITED AS:	Re Akron Roads Pty Ltd (in liquidation) (No 3)
MEDIUM NEUTRAL CITATION:	[2016] VSC 657

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CORPORATIONS – A director (Mr Crewe) of the corporation in liquidation (Akron) was engaged to provide management consultant services to Akron – The director (Mr Crewe) was also the sole director of Crewe Sharp, a corporation that provided management consultancy services.

CORPORATIONS – Liquidators claim against Mr Crewe as director and against Crewe Sharp as alleged shadow director of Akron for failing to prevent the company from incurring debts whilst insolvent – s 588(2) of the Corporations Act 2001 (Cth) (Corporations Act).

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).

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr P D Crutchfield QC with Dr O Bigos	King & Wood Mallesons
For the Fifth Defendant	Mr D J O’Callaghan QC with Ms R L Enbom	Norton Rose Fulbright

TABLE OF CONTENTS

Introduction.......................................................................................................................... 1
The liquidators’ claim against CGU................................................................................. 1
Matters in issue.................................................................................................................... 6
The relevant facts................................................................................................................. 7
Mr Crewe’s evidence......................................................................................................... 18
The insurance policy......................................................................................................... 21
The issuing of the CGU policy........................................................................................ 22
Evidence of Andrew Blakeley......................................................................................... 28
Standing of Akron.............................................................................................................. 28
The course of the trial....................................................................................................... 30
The deed of settlement..................................................................................................... 30
The proposed amendment............................................................................................... 31
Do the liquidators of Akron have standing to seek relief concerning CGU liability to Mr Crewe?.................................................................................................................................. 32
CGU’s submissions on the standing of the liquidators to sue CGU.......................... 37
Resolution of standing issue........................................................................................... 42
What is the effect of the settlement deed on the liability of CGU?............................ 50
Was Crewe Sharp a director of Akron?.......................................................................... 57
The relevant legal principles........................................................................................... 60
Resolution of whether Crewe Sharp was a director of Akron.................................... 74
Does the Policy respond to Mr Crewe’s liability or Crewe Sharp’s liability (if a ‘shadow’ director)?................................................................................................................. 80
Does the Trading Debts Exclusion apply?.................................................................... 84
Does the directorship exclusion apply?......................................................................... 87
Resolution........................................................................................................................... 89
May CGU deny indemnity through the non-disclosure or misrepresentations of Crewe Sharp?.................................................................................................................................. 90
Relevant provisions of the ICA....................................................................................... 93
The relevant facts on the ICA issues............................................................................... 97
Relevant legal principles................................................................................................ 100
‘Relevant matter’ within the meaning of s 21.............................................................. 102
Was the ‘relevant matter’ known to CGU?................................................................... 103
Paragraph (a) of s 21(1)................................................................................................... 104
Paragraph (b) of s 21(1)................................................................................................... 106
Sections 21(2)(d) and 21(3) — waiver............................................................................ 108
Section 21(2)(a) and (b).................................................................................................... 110
Section 22 — the insurer’s duty to inform................................................................... 110
Section 26.......................................................................................................................... 111
Section 27.......................................................................................................................... 113
Section 28 — remedies for non-disclosure and misrepresentation......................... 113
No declaration.................................................................................................................. 115
Conclusions...................................................................................................................... 116
Proposed orders.............................................................................................................. 117

HIS HONOUR:

Introduction

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.

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.

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

The liquidators’ claim against CGU

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.
[1]CGU Insurance Ltd v Blakeley, (2016) 90 ALJR 272 (‘CGU v Blakeley’).

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.

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]
[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.’

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.

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.

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.

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.

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.

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.

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.

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.

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]
[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.

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

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.

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.

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.

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.

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.

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.

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

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;
(b)interest pursuant to statute;
(c)leave to proceed against Crewe Sharp under s 500(2) of the Corporations Act;[6]
(d)costs; and
(e)any other orders or relief as this Honourable Court thinks fit.

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

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

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.

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.

Matters in issue

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

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.

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

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

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.

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

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

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

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.

The relevant facts

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

Over the course of his 40‑plus‑years’ career Mr Crewe held several senior management positions in large publicly listed and private companies in Australia.

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.’

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.

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

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.

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.

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.

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

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.

Mr Crewe personally provided management consulting services to numerous companies.

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

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.

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.

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.

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.

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.

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.

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.

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

3.Payment of Fees
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.
4.Termination
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.
5.Confidentiality
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.
6.Disclosure
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.

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.

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

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.

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.

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.

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.

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.

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

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.

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

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.

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

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

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

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.

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]
[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)].

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.

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.

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.

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.

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.

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:

(a)seeking sources of funding for Akron;
(b)dealing with debtors;
(c)dealing with creditors; and
(d)cash flow management.

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

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.

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.

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.

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.

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

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

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

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

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

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

On 9 March 2010, a meeting of Akron’s creditors appointed Messrs Olde, Ryan and Blakeley joint and several liquidators of Akron.[18]
[18]Letter from Akron liquidators to Crewe Sharp dated 28 May 2010, refers to their appointment, found at Court Book 2900.

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

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

On 19 August 2010, CGU notified Crewe Sharp that it denied liability for the liquidators’ claim against Crewe Sharp.[20]
[20]Letter from CGU to Crewe Sharp c/o Mr Hansen, dated 19 August 2010, found at Court Book 2904.

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

Mr Crewe’s evidence

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

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.

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

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

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

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

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

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

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

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.

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

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.

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

The insurance policy

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.

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.

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.

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.

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.

The issuing of the CGU policy

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.

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.

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.

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.

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

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.’

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.

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.

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.

[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.

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.

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.
[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.

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]

[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.

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

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.’

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

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.

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

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.

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.

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.
[36]Exhibit P3, CGU underwriting manual confidential.

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.

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.

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.

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.

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.’

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.

Evidence of Andrew Blakeley

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

I now turn to the issues in the proceeding.

Standing of Akron

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

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.

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.

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

The course of the trial

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.

The deed of settlement

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:
…
2.1      ‘Consent to judgment’:
(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.
…

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

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.

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.

The proposed amendment

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.

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).

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

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

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.

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?

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.

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.
[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.

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

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).
[43]Section 562 of the Corporations Act.

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.

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]
[44]CGU v Blakeley, [67].
[45]CGU v Blakeley, [67].

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]
[46]CGU v Blakeley, [90].
[47]CGU v Blakeley, [67].

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]
[48]CGU v Blakeley, [67].

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.
[49]Deputy Commissioner of Taxation v Karas [2013] VSC 410, [16].
[50]Re Beechworth Land Estates Pty Ltd (No 3) (2015) 298 FLR 233.
[51]Kation Pty Ltd v Lamru Pty Ltd; Lewis v Nortex Pty Ltd (in liq) (2009) 257 ALR 336, [20].

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.

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.

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.
[52]MacGillivray on Insurance Law, (10^th ed, 2003), [20-5]; Sutton on Insurance Law, (4^th 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.

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.

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.

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.

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

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.

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

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

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 Act1986 (Vic).

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.

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.

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.

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.

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.

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

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).

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.

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.’

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.

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.’
[221][2000] QSC 183.

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.

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.’

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.

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.

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.
[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.

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.
[224]CGU IA 90 notes located at Court Book 546C.

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.

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)

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

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.

‘Binder’ is defined:[225]

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.

[225]Insurance Contracts Act 1984 (Cth) s 11.

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.

The liquidators did not dispute these contentions.

Section 26

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

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.

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]
[226]Rex v Kylsant, (Lord) [1932] 154.

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.

[227][1951] 1 K.B. 805, (‘Curtis’).

[228]Curtis, 808.

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.’
[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 (2^nd Ed 1990), 249–50.

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.

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.

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).

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.

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.

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.

Section 27

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]
[230]See Prepaid Services Pty Ltd v Atradius Credit Insurance NV [2013] NSWCA 252 (‘Prepaid Services Pty Ltd v Atradius Credit Insurance’).

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]
[231]See Prepaid Services Pty Ltd v Atradius Credit Insurance.

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

Section 28 — remedies for non-disclosure and misrepresentation

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).

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.
[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.

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]
[233]Insurance Contracts Act 1984 (Cth) s 28.

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.

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.

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.

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]
[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.

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.

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

No declaration

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.
[235]See FDD [26B].
[236]The Declaration signed by Matthew Crewe for and on behalf of Crewe Sharp Career Bridge P/L is located at Court Book 503.

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]
[237]Transcript of hearing, Re Akron Roads Pty Ltd (in liquidation) (No 3) (3 May 2016) T361.

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.

[238]Located at Court Book 490.

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]
[239]Located at Court Book 491.

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.

Matthew Crewe did not give evidence to rebut this inference.

Conclusions

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.

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.

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.

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

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

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

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

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

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

Proposed orders

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.

[2016] VSC 657

11 November 2016