The potential difficulties facing executives and former executives embroiled in bribery investigations and criminal proceedings were recently demonstrated in a recent decision of the Supreme Court of Victoria – Court of Appeal in Note Printing Australia Ltd v Leckenby.
John Leckenby, a former chief executive of NPAL (but not a director), was charged with conspiring to bribe foreign officials to secure bank note printing contracts for NPAL. As Leckenby’s cover under his D&O insurance policy would not be sufficient to meet future total trial costs, he sought to rely on NPAL’s officer indemnity.
The indemnity extended to liability for legal costs and expenses incurred in defending an action giving rise to a liability incurred as an officer of NPAL. In the event of proven guilty conduct, indemnified costs and expenses must be repaid to the company.
NPAL, relying on statutory provisions which prohibit indemnities for unlawful activities, refused to indemnify Leckenby until the outcome of the trial was known and instead sought to provide him with an advance by way of a secured loan. The Supreme Court of Victoria upheld the indemnity on the grounds that it remained operative until there was a finding of guilt as there was an obligation to repay NPAL indemnified monies if proven guilty and that a claim for cover included a criminal charge.
The result of the case may not be that surprising but it does illustrate the importance for officers and employees of having effective and extensive D&O cover from the outset reinforced by clear contractual indemnities for back-up cover.
The case has particular importance for those “closely connected” officers and directors exposed to the UK Bribery Act. Under Section 14, actual or purported senior officers who have consented or connived in the commission of a corporate bribery offense may also be guilty of that offense. Consequently, it’s very important to identify who might be classed as a senior officer for the purpose of providing effective and extensive cover.
The NPAL case also illustrates that D&O cover can often be used up in pre-trial costs leaving little for actual trial costs. The same observation can be made in respect of existing or former officers having to deal with external or internal investigative inquiry costs which should not be overlooked or under-estimated when considering the amount of D&O cover required.
Even if adequate cover does exist, either under D&O policies or uncapped indemnities, any monies provided as cover will have to be repaid in the event that guilty conduct is established. While it may be tempting for exposed officers to retain expensive and high powered legal services on the back of such cover, there could be a nasty financial sting in the tail if guilt is eventually conceded or ultimately established. Perhaps greater emphasis should be placed on that risk when trying to establish the need for “tone at the top.”
A copy of the decision in Note Printing Australia Ltd v Leckenby (2015 VSCA 215) is here.
Alistair Craig, a commercial barrister practicing in London, is a frequent contributor to the FCPA Blog.