Key John: Public Finance (State Sector Management) Bill — In Committee 
Key John: Public Finance (State Sector Management) Bill — In Committee 
[Volume:622;Page:17922] 
JOHN KEY (National—Helensville) 
: 
 I want to draw members’ attention to clause 229 which looks at the liability provisions. I think liability is an issue that is worth at least exploring today. It is a well-known fact that indemnity is provided for directors of Crown entities—and in fact for employees of Crown entities in certain instances; there have been quite a number of cases. I note from an earlier part of the legislation that it has been decided that the liability indemnity and insurance should be registered and made clear in the statement of intent. In a situation where a board member is covered under a liability indemnity or by indemnity insurance the process is that if a board member say contracts with a Crown entity and there is some form of liability or there is an action taken against that Crown entity the action is against the entity itself. Therefore the compensation payable by the Crown entity will be paid by the Crown entity or by its insurers and not by the individual directors. 
I raise that point because we are increasingly moving to a litigious world where people are likely to take legal action. So I think that in the first instance those who look to be appointed to Crown entities will be relieved that—and it is pretty standard business practice—indemnity insurance will be provided for them. But I wonder whether listing in the statement the extent of that liability insurance is a wise thing. I say that because if one looks at a number of large institutions overseas one sees that that is not in fact the case there. It is well understood that the directors will have liability insurance and it is well understood that they act as agents for the company—or in this case the Crown entity. But I do think there is an issue about specifically stating what the extent of that insurance is. 
This is why. When I was engaged by a former US investment bank that had a number of lawsuits undertaken against it the feeling of internal counsel was always that when it was known how large the indemnity insurance was the bank was likely to become a target for legal action. So the Minister might want to think about the provisions under clause 229 and the way they relate to the statements of intent for Crown entities. He might want to consider whether it is actually sensible to spell out the full level of liability insurance or whether it would be better just to say that there is a presumptive condition that liability insurance will be provided. As a director of a number of companies myself I have obviously made it clear that those entities have liability insurance but I do not think spelling it out specifically in black and white is always necessary. 
I also want to make reference to another aspect of clause 229. Again the Minister might want to look at this and proffer a view on it. The clause seems to me to be saying that liability insurance or indemnity may be provided for an action taken by a person before he or she was engaged by a Crown entity. I just need to understand that completely. One can imagine a number of scenarios where someone may be engaged by a Crown entity and thereby come within the ambit of its liability insurance. This clause seems to me to be saying that in some circumstances—and I cannot see in the legislation exactly what those circumstances may or may not be—indemnity for a past action may in fact be provided. 
It would be quite a remarkable situation if someone who is invited to join a Crown entity board and for some reason—whatever unusual scenario could possibly be dreamt up—has an action taken against him or her might be covered by the Crown entity’s liability insurance. 
I want to make reference to schedule 8 which as you commented earlier Mr Chairperson will be included in Part 7 of this legislation that we are debating under urgency and will be debating for quite some hours to come. I make reference to the huge number of Crown entities that will be affected by this legislation. It is a hugely broad range of entities ranging from arts councils to alcohol advisory boards.