OZ Minerals Holdings Pty Ltd v AIG Australia Ltd [2015] VSCA 346 (17 December 2015).[1]

Group proceedings were brought concerning alleged incorrect information in an explanatory memorandum sent to shareholders prior to a merger under the Corporations Act 2001 (Cth).  When the defendant company brought contribution proceedings against the directors of its subsidiary company (on the basis that they had been involved in preparation of the explanatory memorandum), those directors found themselves without directors and officers (D&O) insurance cover.  The Court of Appeal of the Supreme Court of Victoria (VSCA) held that an exclusion clause in the policy was triggered by the bringing of the contribution proceedings.  It appears from the judgment that the exclusion clause would not have been triggered if the subsidiary company and its directors had been joined directly as defendants to the group proceedings.

The case unfortunately illustrates the importance of carefully considering the extent of cover under a D&O policy, particularly where a merger occurs.  It appears that both sides conceded that the relevant parts of the insurance policy were less than clear on its own terms.


On or about 24 April 2008, Zinifex Limited (Zinifex) took out a policy of insurance entitled “D&O Gold Directors & Officers Liability Insurance Policy” with American Home Assurance Company trading as AIG Australia (the Insurer).[2]

The insuring clause provided cover for “Claims first made against an Insured during the Policy Period … and notified to the Insurer as soon as practicable during the Policy Period”.  It imposed an obligation on the insurer to “pay the Loss of each Insured Person arising from a Claim against such Insured Person”.  Cover was in most cases defined as being “for a specified Wrongful Act”.

An exclusion clause was the third endorsement to the policy. It was effective from 31 March 2008 and formed part of the policy.  It relevantly stated:


The Insurer shall not be liable to make any payment under this policy in connection with any Claim brought by any past or present shareholder or stockholder who had or has:

  • direct or indirect ownership of or control over 15% [or] more of the voting shares and rights of the Company or of any Subsidiary; and
  • a representative individual or individuals holding a board position(s) with the Company.

On 3 March 2008, Oxiana Limited (Oxiana)[3] and Zinifex announced that they had entered into an agreement to merge their businesses by a scheme of arrangement under the Corporations Act 2001.  Oxiana would acquire all the issued shares in Zinifex and the shareholders of Zinifex would be issued shares in Oxiana.  On or about 12 May 2008, Zinifex prepared and filed with ASIC[4] an Explanatory Memorandum for the scheme which was sent to all the shareholders of Zinifex.  After the necessary meetings were held and the shareholders of Zinifex voted in favour of the scheme, the scheme was approved by the Supreme Court of Victoria on 20 June 2008. At that point, Zinifex became a wholly owned subsidiary of Oxiana.

Zinifex paid an additional premium of A$600,000 to the Insurer to extend the time for notification of claims arising from the merger until 20 June 2015.

The group proceedings

On or about 24 February 2014, a Mr Tobias Mitic commenced group proceedings in the Federal Court of Australia against Oxiana, alleging a breach of continuous disclosure obligations under the Corporations Act and misleading or deceptive conduct, in respect of the merger between Zinifex and Oxiana.  The group proceedings were, inter alia, based on the contents of the Explanatory Memorandum published by Zinifex prior to the scheme being approved.  Most of the alleged non-disclosures or misrepresentations went to the business affairs of Oxiana, which had been reviewed by the Zinifex officers and then included or not included, as the case may be, in the Explanatory Memorandum.

The contribution proceedings

On or about 19 June 2014, Oxiana commenced third party contribution proceedings against its own wholly-owned subsidiary, Zinifex, and four other persons who were directors or officers of Zinifex at material times.  Oxiana sought contribution, indemnity and other relief from them, in the event that Oxiana was found liable to Mitic and the other plaintiffs in the group proceeding, on a basis which included that each of them was involved in the preparation of the Explanatory Memorandum, and were liable (or potentially liable) to Mitic and the group members for loss and damage.

The company and directors and officers claim on the D&O policy; the insurer rejects the claim.

Zinifex and the directors and officers (the Applicants) claimed on the policy of D&O insurance held by Zinifex.  The Insurer denied liability and relied on the exclusion clause.

The applicants sought a declaration from the Supreme Court of Victoria that the exclusion clause did not apply to their claims under the policy. Hargrave J dismissed their application at first instance. The Applicants then sought leave to appeal to the VCA.

The insurance policy and the exclusion

The Applicants and the Insurer agreed that each of the Applicants was an insured under the policy, and that their claims were notified to the insurer within the times provided by the policy as amended.  Therefore, the issue was the effect of the exclusion clause.

The alleged Wrongful Act or Acts occurred prior to 20 June 2008 when the merger scheme was approved; therefore the conditions of the Exclusion Clause were not satisfied at that time.  However, the trial judge found on the evidence that the conditions of the exclusion clause were satisfied by the time that a claim on the policy was notified to the Insurer.

The Applicants contended that the exclusion clause was only effective if it applied at the time that the relevant “Wrongful Act” occurred, whereas the Insurer contended that the exclusion clause would be effective if it applied EITHER at the time of the Wrongful Act OR at the time of notification of a claim to the Insurer.

The VSCA agreed with the trial judge and found for the Insurer.  The Applicants were denied cover under the D&O policy.


  • The judgment contains much learned and detailed discussion, however it is respectfully noted that a number of anomalies or queries are raised by the result:
  • Both the Applicants and the Insurer agreed that part of the exclusion clause could not be read literally.[5]
  • It appears that, if Mr Mitic and his group had added Zinifex or its directors and officers as defendants to the group proceedings, the exclusion clause would have had no operation.  It was only because Zinifex had been brought into the group proceedings via a contribution claim by its shareholder that the exclusion clause applied.  It is curious that something as fundamental as insurance cover for the directors of Zinifex should depend upon the way that an arm’s length third party should choose to run its case.
  • The Insurer relied on a “business common sense” construction, that the obvious reason for the exclusion clause was that a company holding more than 15 per cent of the Company’s shares with a board representative “may have had the capacity to exert some influence over the Wrongful Act giving rise to the Claim”.  However, the parties agreed that the exclusion clause did not operate at the time of the Wrongful Act.
  • The insurer also referred in its submissions to “The risk that in a contribution claim (such as the present) Zinifex Limited and a claimant shareholder may co-operate to maximise the culpability of Zinifex Limited and its insured directors and officers and minimise that of the claimant, so as to maximise the amount of the Loss to be indemnified by the Insurer”.[6]  There does not appear to have been any evidence to indicate the likelihood of such a prospect occurring in this case.
  • The trial judge and the VSCA found that the words “who had or has” in the exclusion clause must refer to a claimant having particular attributes either at the time a Wrongful Act occurs (“had”) or the time when a claim is notified (“or has”).


Many directors and officers of companies take comfort that if a claim is made against them, they will at least be entitled to legal representation in defence of the claim through their company’s policy of D&O insurance.  Therefore a case such as this, where directors and officers find that they in fact are not covered by the policy, in a situation where the lawyers for both sides admit that a literal interpretation of an important part of a crucial exclusion clause is not possible, will inevitably give rise to concern.

  • It must be conceded that this is in many respects a decision that turns on its own facts:  The factual matrix was complex, and there is great variety in the wording of D&O policies.
  • A company participating in a merger should seek specialist advice on its D&O policy terms relevant to the merger.
  • Directors and officers of a company in that situation should also review the terms of their company’s D&O policy and if in any doubt, seek separate advice.
  • From the other perspective, underwriters of D&O policies should consider this judgment carefully.  The situation would have been clearer for all concerned if the policy had stated unambiguously that the conditions of the exclusion clause could apply either at the time that a wrongful act occurred, or at the time that a claim is notified to the insurer.  Possibly the expense of a first instance application and subsequent appeal may have been avoided.

[1] Maxwell P, Kyrou JA and Robson AJA. See http://www.austlii.edu.au/au/cases/vic/VSCA/2015/346.html.

[2] On or about 1 March 2011, the rights and obligations of the Insurer were transferred to the respondent under the name Chartis Australia Insurance Limited by way of a scheme under the Insurance Act 1973 (Cth). On or about 18 February 2014, the respondent changed its name from Chartis Australia Insurance Limited to AIG Australia Limited.

[3] Oxiana Limited and Zinifex Limited later changed their names to OZ Minerals Limited and OZ Minerals Holdings Limited, however for convenience the original names were retained in the judgment and in this case note.

[4] The Australian Securities and Investments Commission, the corporate regulator in Australia.

[5] E.g. in the case of a past shareholder who was no longer a shareholder but instituted proceedings against Zinifex, the parties agreed that this situation should not be covered by the exclusion clause.  See judgment at para 56.

[6] Judgment at para 58(3)

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This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article