One of the main areas of exposure for a company director, officer or employee is their potential liability to pay a civil penalty or fine for corporate wrongdoing.

The primary, if not sole, purpose of the imposition of a penalty is deterrence – both general and specific. In the case of general deterrence, the business community is sent a signal that regulators and the Courts will not tolerate misconduct such that one will think twice about engaging in such wrongdoing. In the case of specific deterrence, a wrongdoer does not treat the contravention as a cost of doing business in the sense that the upside of the unlawful conduct trumps the downside of being faced with a prosecution and the attendant exposures.

Obviously, there is a natural tension between the overarching policy rationale of feeling the ‘sting’ of the penalty on the one hand and the existence of an insurance policy that provides cover for fines and penalties on the other hand. This is because the burden of the penalty is extinguished or lessened if the liability to pay that penalty can be transferred to an insurance policy.

There have been cases that have considered this dilemma and particularly, whether natural persons should be ordered to personally pay the fine or penalty pursuant to implied powers under various legislation. One consequence of such powers is that an insurer may avoid indemnifying an insured for a fine or penalty and related costs exposures without having to issue a declinature.

While the current state of the law tends to indicate that the Courts have implied powers to make ‘personal payment’ orders, a recent Federal Court of Australia decision held that such powers may not be exercised if the individual wrongdoer did not act dishonestly or wilfully.

The CFMEU decision

In a 2018 decision, the High Court (by a majority) held that a union official was liable to personally pay a penalty ordered against him for contraventions of the Fair Work Act 2009 (Cth): Australian Building and Construction Commission v Construction, Forestry, Mining and Energy Union & Anor [2018] HCA 3. In that case, the High Court considered whether a judge had the power under the Fair Work Act to order either that:

• A union not indemnify a union official against a pecuniary penalty imposed on that union official (that is, a non-indemnification order); or
• A union official not seek or accept indemnity or contribution from the union in respect of a pecuniary penalty imposed on the union official (that is, a personal payment order).

While the majority determined that there was no implied power to make a non-indemnification order, they held that an implied power existed under the Fair Work Act to make a personal payment order as this was reasonably required for, or legally ancillary to, the accomplishment of the effect that the pecuniary penalty was calculated to achieve.

The Productivity Partners decision

The CFMEU decision laid the groundwork for a regulator to seek a personal payment order against an officer in the recent case of ACCC v Productivity Partners (No. 6) [2025] FCA 542. One of the central issues was whether a wrongdoer could seek and obtain the benefit of a D&O insurance policy, which provided cover for fines and penalties.

The Court proceeded on the basis that there is an implied power under the Australian Consumer Law (Cth) to make a personal payment order in the context of D&O insurance but noted that there is an outstanding appeal in the ACCC v Bluescope (No 6) [2023] FCA 1029. In the Bluescope case, the Court made an order held that a general manager of Bluescope could not seek or obtain indemnification under a D&O policy for a pecuniary penalty (ie a personal payment order) for his involvement in attempted price fixing. In reaching this decision, the judge considered the seriousness of the general manager’s conduct, and commented that it was important that the deterrent effect of the penalty being imposed was not undermined by the ability of company directors and officers to insure against the financial cost of the penalty.

In Productivity Partners, while the judge ordered that an officer of the company pay a pecuniary penalty of $400,000 for his involvement in unconscionable conduct in the provision of online vocational education and training, the judge declined to make a personal payment order against the officer having regard to the facts and circumstances of the matter.

While the judgment disclosed that the officer had the benefit of D&O insurance cover for any liability to pay the pecuniary penalty (subject, of course, to the Court making a pecuniary penalty order), the Court took into account that the officer did not engage in any dishonest or wilful misconduct, and distinguished the case from the Bluescope matter where the general manager engaged in wilful and furtive conduct that warranted the personal payment order being made there. Further, the Court observed that the officer had already suffered financially through his loss of employment and that the rationale for D&O insurance would be undermined if Courts too readily made orders preventing someone from having the benefit of it.

Against this backdrop, the Court held that it would not be fair to deny the officer the benefit of the D&O insurance in his favour and declined to make a personal payment order for the penalty.

Reflections & takeaways

Insureds & brokers

Insureds will take some comfort from the Productivity Partners decision, although it remains to be seen whether there is any appeal from the decision and whether the Bluescope appeal alters the landscape. Subject to those appeals, there is now a precedent that personal payment orders may not be made in the absence of any sinister intent having regard to all of the surrounding circumstances.

Insurers & underwriters

While some insurers and underwriters may silently welcome personal payment orders, they should not be putting their faith or hope in a judge making such orders for the purpose of avoiding the indemnification of an insured for a fine or penalty. Ultimately, cover for fines and penalties is really a function of:

• Accepting or not accepting the risk of fines and penalties cover from an underwriting perspective; and
• Offering attractive policy terms to insureds and their brokers;

which assume even greater significance in the current soft market conditions.

Further, even if a Court does not make a personal payment order, insurers and underwriters should still consider whether any adverse liability findings are sufficient to activate final adjudication triggers in fraud and dishonesty exclusions as well as whether those findings give rise to potential disclosure and misrepresentation issues for the purposes of section 28 of the Insurance Contracts Act 1984 (Cth).

Regulatory enforcement

We expect that from a regulatory enforcement perspective, regulators will consider seeking personal payment orders more often. This may also lead to requests for disclosure of a defendant’s insurance arrangements for the purpose of determining whether the regulator should seek a penalty amount in excess of available insurance limits to ensure that the sting is personally felt by the wrongdoer.  However, this may give rise to disproportionate and absurd outcomes where a tower of insurance is involved.

Legislative reform

Finally, the issue of whether personal payment orders should become the norm is probably best left to legislators. One important consideration is that Court’s use of implied powers is essentially discretionary in nature, which leaves open the pathway for a wrongdoer to avoid the burden of the penalty based on the facts and circumstances of the case. If so, such outcomes would clearly detract from, and undermine, the deterrence objective from a public policy perspective.

Further information / assistance regarding the issues raised in this article is available from the author, Michael Polorotoff, Partner or your usual contact at Moray & Agnew.