Overview

This case provides a salutary reminder to company officers completing insurance proposals to think carefully before answering questions about facts, circumstances, or omissions that might give rise to a claim.

Chubb Insurance won a $4.5 million dispute under a directors’ and officers’ (D&O) insurance policy, after the Federal Court found the former CEO of fleet hire company, Orix, failed to disclose knowledge of alleged bribes paid by Orix to procurement officers of certain customers.

CEO John Joseph Carter signed a D&O renewal proposal on behalf of Orix on October 30, 2014. On April 2 the next year, he was arrested and charged with four counts of corruptly receiving a benefit and one count of knowingly dealing with proceeds of crime.

Mr Carter notified Chubb of the charges in June. Initially, Chubb accepted the claim and advanced $657,277.38 to Mr Carter for defence costs. Mr Carter also sought cover relating to civil proceedings.

Later, after reviewing additional information, Chubb denied liability for the claim under the policy and also claimed repayment of the defence costs advanced to Mr Carter. The criminal proceedings against him were discontinued in September 2019.

Justice John Halley said the critical issue in the insurance dispute was the extent of Mr Carter’s knowledge when he signed the proposal of the alleged bribes or inducements Orix had been making and the consequential likelihood of a claim being brought.

Chubb said Mr Carter made a fraudulent non-disclosure by responding “no” to a renewal question about his awareness “after enquiry, of any fact, circumstance, act or omission” that may lead to a claim. Given his position as CEO of the company and his attendance at corporate governance courses, as well as the company’s own policies, Mr Carter was not believed when he said he did not think Orix’s actions in paying inducements to customers’ personnel might lead to legal action against him or the company.

Case Report

The following Case Report by DW Fox Tucker’s Debra Lane was first published in the LexisNexis Australian Insurance Law Bulletin 2025 . Vol 39 No 8 on 13 August 2025

John Carter (Mr Carter) was Managing Director and Chief Executive Officer of Orix Australia Corporation Ltd (Orix), a company which supplied fleets of motor vehicles and other related services to various other companies, including Coca Cola Amatil Ltd (CCA) and GrainCorp Ltd (GrainCorp). Mr Carter claimed indemnity under a Directors and Officers (D&O) liability policy for defence costs incurred in defending criminal charges and civil proceedings against him by Orix and the Australian Securities and Investments Commission (ASIC). The insurer, (Chubb), denied liability on the basis of fraudulent misrepresentations and fraudulent non-disclosures and also sought recovery of substantial sums previously advanced to Mr Carter by way of defence costs.

Chubb alleged that Mr Carter was aware of a course of conduct by Orix which involved payment of bribes and illegal inducements to procurement managers of major customers of the company.

Mr Carter had himself signed the proposal for renewal of the D&O insurance and in the course of doing so failed to disclose the company’s payments of bribes and illegal inducements.

Consideration was given as to whether Mr Carter was aware of potential claims at the time of policy renewal, to the duty of disclosure under s 21(1) of the Insurance Contracts Act 1984 (Cth) (ICA) and the rights available to Chubb as insurer under s 28(3) of the ICA.

It was “held” that Mr Carter had failed to disclose the bribes and illegal inducements to Chubb and thereby had engaged in fraud as a result of which Chubb was entitled to deny indemnity to him and was also entitled to repayment of sums already advanced for defence costs.

Background facts

Following the submission of the proposal signed by Mr Carter on 30 October 2014, Chubb issued Orix with the D&O policy for the period 31 December 2014 to 31 December 2015. Mr Carter was an insured within the meaning of the policy.

On 25 March 2015, the New South Wales (NSW) police executed a search warrant at the offices of Orix. On 2 April 2015, Mr Carter was arrested and charged with four counts of corruptly receiving or soliciting a benefit contrary to s 249B(1) of the Crimes Act 1900 (NSW) (Crimes Act) and one count of knowingly dealing with proceeds of crime pursuant to s 193B(1) of the Crimes Act (the criminal charges).

Mr Carter claimed an indemnity pursuant to cl 1.1 of the policy and sought payment of “emergency defence costs” under cl 2.3 of the policy.

The claim under the policy

Chubb initially accepted that defence costs (as defined in cl 3.5 of the policy) were payable but reserved its rights under the policy and at law as further information came to light. Pursuant to that acceptance and reservation, Chubb advanced the sum of $657,277.38 (including goods and services tax) to Mr Carter for costs.

Following its review of the material served by NSW police in the criminal proceedings brought against Mr Carter, on 13 April 2017 Chubb notified Mr Carter that:

• It believed Mr Carter engaged in and was aware of fraudulent non-disclosure by Orix to Chubb at the time the policy was entered into.
• The advancement of defence costs under the policy were suspended.
• It sought repayment of the sums advanced.

In September 2019, the criminal proceedings against Mr Carter were discontinued.

Mr Carter commenced proceedings against Orix and Chubb initially in the NSW Supreme Court (later transferred to the Federal Court) claiming the sum of

$3,230,369.95 which he claimed to have expended in defending the criminal charges.

Mr Carter’s claim against Orix was dismissed and proceeded against Chubb only.

Chubb’s position

In its defence Chubb contended that:

• During Mr Carter’s tenure as Chief Executive Officer and Managing Director of Orix, he was aware of a course of conduct that involved, in broad terms:
  • the payment of bribes and provision of illegal inducements to Bryan Pereira, the procurement manager of CCA, a fleet customer of Orix and
  • two transactions which amounted to the payment of bribes and provision of illegal inducements to one Tony Chidiac, the procurement manager for GrainCorp, also a fleet customer of Orix

• Mr Carter did not disclose this knowledge and therefore gave a false declaration and thereby caused Orix to make a fraudulent misrepresentations- tions and fraudulent and non-disclosures when he signed the proposal on behalf of Orix.

  Orix commenced proceedings (initially in the Supreme Court of NSW, subsequently transferred to the Federal Court) seeking compensation pursuant to s 1317H of the Corporations Act 2011 (Cth) from Mr Carter for contraventions of ss 180,

  181 and 182(1), certain declarations, equitable compensation for breach of fiduciary duties, dam- ages for breach of contractual duties and damages and/or compensation pursuant to s 236 or 237 of the Australian Consumer Law in Sch 2 to the Competition and Consumer Act 2010 (Cth) with respect to Mr Carter’s conduct in relation to the transactions with CCA and GrainCorp.

Chubb alleged that at the time Mr Carter signed the proposal, he:^[1]

• knew the relevant facts regarding the CCA and GrainCorp transactions
  • did not disclose the information he knew
  • declared that the information in the proposal was true and correct in every detail and
  • caused Orix to make fraudulent representations and engage in fraudulent non-disclosure

The issues

The parties agreed a list of 55 issues to be determined to facilitate the resolution of the proceedings.

These included the nature of the arrangements that Orix entered into with Mr Pereira and Mr Chidiac and Mr Carter’s knowledge thereof, whether Mr Carter made fraudulent representations to Chubb in connection with the renewal of the policy, whether Chubb was entitled to deny indemnity to Mr Carter and whether Chubb would have offered any policy to Orix if Mr Carter had disclosed the relevant arrangements in the proposal.

Although the issues were discrete, the matters relevant to each at times substantially overlapped and many matters were equally relevant to establishing:^[2]

• the nature of the impugned conduct
• whether the impugned conduct could constitute the payment of a bribe or provision of an illegal inducement and
• Mr Carter’s knowledge of the impugned conduct and whether it could constitute the payment of a bribe or the provision of an illegal inducement

Justice Halley concluded that none of the critical propositions advanced by Mr Carter had substance or otherwise precluded Chubb from denying indemnity to Mr Carter and recovering the sums advanced.

Mr Carter’s various denials of his knowledge of the payment of bribes and provision of illegal inducements were found to be implausible given the extent of his involvement in the impugned transactions as demonstrated by the contemporaneous documents and what His Honour called the inherent logic of events.

There was little, if any, ambiguity in emails passing between Mr Carter and another employee of Orix, a Mr Georgiou, concerning the impugned transactions both as to their content and their purpose in promoting the commercial interest of Orix in its commercial dealings with CCA.

His Honour dismissed as fanciful the contention that Mr Georgiou was seeking to deliberately implicate Mr Carter in the relevant emails because on no plausible view was Mr Carter a peripheral observer or did not have any real or substantive appreciation of the payment of bribes and provision of illegal inducements to Mr Pereira and Mr Chidiac. His Honour thought it could be readily inferred from the nature of the payments made in response to the requests made by Mr Pereira that Mr Carter knew the payments had not been authorised by CCA.

It was accepted that Mr Pereira was responsible for the establishment of the so called CCA marketing account and its use as a slush fund for his benefit. There was no doubt that Mr Carter and other employees of Orix consented to and facilitated the establishment and use of the CCA marketing account as a slush fund to be disbursed at Mr Pereira’s sole discretion.

The case advanced by Chubb always proceeded on the basis that Mr Carter knew that Mr Pereira did not have the authority of CCA to direct the distribution of funds in the manner he did.

Orix was under no legal obligation to provide such consent or to facilitate the establishment and operation of the CCA marketing account in the manner it did; rather, Mr Carter consented to and facilitated the estab- lishment and use of the CCA marketing account as a slush fund because he recognised that it was in Orix’s best interests to secure the ongoing support of Mr Pereira in Orix’s commercial dealings with CCA.

Mr Pereira’s actions leading to the creation of the CCA marketing account could not establish that he had the apparent authority of CCA to deal with the monies in the account given its use, (to the knowledge of at least Mr Carter and Mr Georgiou), as a slush fund for the benefit of Mr Pereira.

His Honour expressed himself to be comfortably satisfied on the balance of probabilities, having regard to the quality of evidence required to reach such a serious and adverse conclusion, as required by s 140(2) of the Evidence Act 1995 (Cth) that Mr Carter had actual knowledge that:

• The CCA marketing account was an account into which rebate monies and introducer fees were paid.
• Funds were disbursed in the account pursuant to instructions given by Mr Pereira.
• CCA was not aware of the existence of the CCA marketing account.

The proposal

On 30 October 2014, Mr Carter signed the acknowledgement and the proposal on behalf of Orix which contained various personal assurances from Mr Carter as the person signing the proposal on behalf of Orix and included a declaration in the following terms:

We (the undersigned):

. . .

declare that after enquiry that the statements, particulars and information contained in this application and in any documents accompanying this application are true and correct in every detail and that no other material facts have been misstated, suppressed or omitted;

. . .^[3]

None of the arrangements with Mr Pereira or Mr Chidiac were disclosed in the proposal or otherwise to Chubb.

Chubb contended that by this Orix made a fraudulent non-disclosure. Given Mr Carter’s knowledge of the arrangements with Mr Pereira and Mr Chidiac, the declaration and the answer to the Facts and Circumstances Question were both dishonestly made by Mr Carter. 

The Facts and Circumstances Question, to which a negative response was given in the Proposal, was as follows:

Is the Company, or any director, officer or employee aware, after enquiry, of any fact, circumstance, act or omission which may give rise to a claim that may be covered under a Directors & Officers Liability Insurance policy?^[4]

Chubb contended that pursuant to cl 7 of the policy it was entitled to deny indemnity to Mr Carter as a person engaged in or aware of the fraudulent non-disclosure or misrepresentation made by Orix to Chubb. In the alter- native, Chubb sought to rely on s 28(3) of the ICA to reduce any claims Mr Carter made on the policy to nil on the basis that:^[5]

• By giving the answer to the Facts and Circumstances Question and making the declaration, Mr Carter and Orix fraudulently misrepresented the risk to Chubb before the policy was entered into.
• By failing to disclose to Chubb the fact that Mr Carter (and through him, Orix) knew about the slush fund arrangements, Orix fraudulently breached its duty of disclosure under s 21 of the ICA.
• Had the duty of disclosure not been breached or the misrepresentations not been made, Chubb would not have offered any policy on any terms to Orix.

Chubb also contended it was entitled to repayment of the sums advanced from Mr Carter because:

• Clause 5.5(a) of the policy expressly provided that if defence costs had been advanced, they must be repaid to Chubb if Mr Carter was not entitled to such a payment and, pursuant to cl 7 of the policy, Mr Carter, as a person engaged in, or aware of, the fraudulent non-disclosure or misrepresentation made by Orix to Chubb, was not entitled to any indem- nity under the policy.
• If there was a judgment in the proceedings finding that Mr Carter engaged in the alleged conduct then there would be a judgment of the kind required for the operation of the exclusion in cl 4.1 of the policy.

Mr Carter gave evidence that he did not read the acknowledgement before signing the documents and that he did not understand he was giving any personal assurance to Chubb by signing the acknowledgement in the proposal. He said he did not undertake the enquiries himself nor was he told of any enquiries that might have been undertaken by others and he did not discuss the proposal with anyone else. Mr Carter signed the acknowledgement at his home on 30 October 2014, together with the proposals for civil liability insurance and financial institutions bond and electronic computer crime insurance which, in the aggregate, comprised some 70 pages, all of which had been completed in handwriting by another Orix employee by the name of Mr Forster.

Mr Carter gave evidence that he relied on Mr Forster to complete the proposals as he had done so “forever and a day”; Mr Carter did not personally satisfy himself that the proposals were complete and accurate in every way from his perspective.

Mr Carter accepted, however, that Mr Forster did not have any commercial dealings with CCA or GrainCorp. Mr Carter accepted that if the court were to find that he had actual knowledge of the dishonest or illegal conduct alleged by Chubb, then his failure to cause Orix to disclose information at the time he completed the proposal would constitute reckless indifference.

His Honour found that Mr Carter was at least recklessly indifferent to the truth of the declaration that he made in the acknowledgement, and he could not have had any real belief as to the truth of the declaration. The court was satisfied that in making the declaration Mr Carter dishonestly signed the proposal.

As to the Facts and Circumstances Question, (answered in the negative by Mr Carter in the proposal), Chubb submitted that Mr Carter could not have had any honest belief in the negative answer that he provided because he did not read the proposal before signing it and therefore, did not even know what the relevant question and answer was or, in the alternative, that he was recklessly indifferent as to whether the answer was true or false for the same reason.

In an affidavit sworn on 12 April 2023, Mr Carter gave evidence of his alleged state of mind in October of 2014 which included claims that:^[6]

• He did not believe it could be a criminal offence to make a gift to an employee of a customer.
• He did not associate providing gifts to executives of clients as bribes unless they provided a substantial benefit to perform an act in the giver’s favour against the employer of the person receiving the benefit.
• He had no knowledge of any statutory duties imposed on directors under the Corporations Act or that ASIC could prosecute an individual for breaching such duties.
• He was not aware that a director could be sued for making “management mistakes” or that Orix or ASIC could bring such proceedings.

Chubb submitted that Mr Carter gave false evidence for forensic purposes and that, in fact, he appreciated the duties he owed to Orix — as described in detail in Orix’s Code of Ethics.

His Honour was unable to accept Mr Carter’s evidence that he was not aware or only had an incomplete and limited understanding of the statutory duties he owed to Orix under the Corporations Act, and his obligations to act in good faith and honestly and to avoid conflicts of interest at the time he signed the proposal. The judge considered his evidence inherently implau- sible given his experience, the corporate governance courses that he had attended and the concessions and acknowledgments he otherwise made in the course of his cross examination. His alleged limited and idiosyncratic understanding in 2014 of his duties, responsibilities and liabilities as the Managing Director of Orix was found to be not credible.

Orix had a Compliance Manual, a Gifts and Gratuities Policy and a Code of Ethics during Mr Carter’s term as Managing Director of the company.

The Code of Ethics included the following, directed at bribes and improper inducements:

The giving of money or gifts at substantial value to gain a business advantage over a competitor is unacceptable and, in some cases, constitutes a criminal act. Where such behaviour deprives a rival company of an opportunity to compete fairly, it is morally reprehensible.^[7]

The judge was satisfied that Mr Carter knew the following matters about the payments to Mr Pereira’s company, Supplementary Retirement Scheme (SRS), at the time he signed the proposal on 30 October 2014 containing the declaration and the negative answer to the Facts and Circumstances Question about the payments to SRS:

• Mr Pereira was an employee of CCA.
• SRS was a nominee company of Mr Pereira.
• SRS invoiced Orix in excess of $300,000 for fees that were not supported by any service performed by SRS as the SRS invoices were simply to facilitate the payment out of funds that had been allocated to the credit of ledgers kept in relation to the introduction element that had been included in quotations by Orix.

Although Mr Carter did not accept he would have understood that there was a potential for any claim from ASIC, Orix or CCA arising from this conduct, he did accept that if a director or senior manager engaged in and knowingly facilitated unlawful conduct, there was a possibility that the director or senior manager could face a claim by someone.

Further, the judge was satisfied that Mr Carter authorised payment of $145,000 from the CCA marketing account for the purpose of buying a Mercedes vehicle for Mr Pereira and that it was implausible that he would not have understood that there was not at least the potential for a claim and investigation to be advanced as a result. Mr Carter accepted in cross examination that if a senior manager or director with knowledge of certain things they would have understood that:

• It was not a proper use of funds recognised in the CCA marketing account.
• The magnitude of the spending for Mr Pereira’s personal benefit would have provided a very substantial encouragement to Mr Pereira to favour Orix in CCA’s fleet dealings.
• It would have been unlawful.
• It would have been in breach of Orix’s Code of Ethics.
• It would have been a matter that Chubb would have wanted to know in assessing an insurance risk.

His Honour was comfortably satisfied on the balance of probabilities that at the time he answered the Facts and Circumstances Question in the negative, Mr Carter knew, by reason of his knowledge of at least, what he described as the SRS Facts, the Mercedes purchase, the Personal Benefit Facts, the Inspection Fee Facts, the GrainCorp Facts and the Chua Payment Facts, that they may give rise to a claim that may be covered under a D&O liability policy or was recklessly indifferent as to what might give rise to a claim covered by a D&O liability policy

ICA

Section 21 of the ICA requires that there be knowledge of a matter before there is a duty to disclose it. If a matter is not known to the insured, then it is not necessary to consider either limb of materiality under paragraphs (a) or (b) of the section.

His Honour considered the meaning of “known to the insured” for the purposes of s 21(1) of the ICA to be well settled, citing ABN AMRO Bank NV v Bathurst Regional Council^[8] and All Class Insurance Brokers Pty Ltd (in liq) v Chubb Insurance Australia Ltd (No 2),^[9] and decided the following authoritative statements as to its construction could be distilled from those authorities:

• The term “known” in the phrase “every matter that is known to the insured” has its ordinary English language meaning.^[10]
• “Knows” means considerably more than believes or suspects or even strongly suspects.^[11]
• Constructive knowledge is insufficient, actual knowledge is required.^[12]

Knowledge of a matter for the purposes of s 21 includes an opinion held by the insured: Prepaid Ser- vices Pty Ltd v Atradius Credit Insurance NV^[13] and Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (in liq)^[14] where Gummow and Hayne JJ held that the “insurer” for the purposes of s 20(1) (a) of the ICA is the particular insurer and not the “prudent insurer” but that the assessment of whether the risk would be accepted is to determined on an objective basis.

The ultimate question raised in s 21(1)(b), however, turned on the consideration of a reasonable person’s state of mind, as opposed to the insured’s state of mind raised in s 21(1) (a).

Chubb relied upon the ICA defence pursuant to s 28(3) in the alternative to the fraud term defence discussed above.

His Honour noted there were two remedies provided by s 28:

• avoidance, if the making of the misrepresentation or the non-disclosure was fraudulent and
• a reduction to the amount of the liability of the insurer in respect of the claim that would place the insurer in the position it would have been in if the misrepresentation had not been made or the failure to disclose had not occurred

The availability of those remedies had to be read subject to cl 7 of the policy however, which affected the entitlement to rely on the remedies available under s 28 ICA.

However, the waiver did not extend to circumstances where:

• the non-disclosure or misrepresentation was fraudulent or
• the non-disclosure or misrepresentation was not causally related to the claim made or investigation arising

Chubb submitted that had the fraudulent misrepresentations and fraudulent non-disclosures not been made it would not have offered any policy on any terms to Orix and in those circumstances submitted it was entitled under s 28(3) ICA to reduce its liability to nil in respect of the claims made by Mr Carter.

His Honour was satisfied that Chubb had established its ICA defence and was entitled to reduce its liability to nil under the policy.

First, he had determined that Mr Carter had actual knowledge of dishonest or fraudulent conduct as at the date that he answered the Facts and Circumstances Question in the negative and made the declaration and appreciated that it was necessary to disclose that conduct to Chubb or was recklessly indifferent to what Orix was required to disclose.

Second, he accepted the counter-factual evidence given by Chubb employees that if the matters in question had been disclosed to them renewal would not have been recommended and Chubb would not have agreed to enter into the policy.

Whilst accepting that all counter-factual evidence must be carefully scrutinised, the Judge was satisfied that the counter-factual evidence given by Chubb’s underwriters was inherently plausible and persuasive.

As to the claim for reimbursement for defence costs already advanced, Chubb submitted that if there was a judgment in the proceedings finding that Mr Carter engaged in the conduct alleged with respect to the slush fund arrangements, the SRS arrangements and the GrainCorp transactions, then there would be such a “judgment” for the purposes of cl 4.1. Further, Chubb submitted that the conduct amounted to bribery or the provision of an illegal inducement and there was conduct that was “dishonest or fraudulent act or omission of the insured or an intentional breach of the law”.

Given the findings that Chubb had succeeded in establishing both fraudulent misrepresentation and fraudulent non-disclosure and there was now to be a judgment in its favour, cl 4.1 would be engaged, although both the fraudulent misrepresentation and fraudulent non-disclosure claims succeeded independently of any reliance by Chubb on cl 4.1 of the policy.

It was agreed that the costs claimed under the policy by Mr Carter, if he was entitled to indemnity under the policy (not including interest and costs) were $4,502,494.09. It was further agreed that the total amount of $723,005.12 was to be repaid to Chubb if Mr Carter was ordered to repay Chubb the amount it had advanced previously, not including interest and costs.

Given the findings that Mr Carter was not entitled to indemnity under the policy, the total amount to be repaid by Mr Carter to Chubb was, accordingly, $723,005.12.