When Power Shifts the Goalposts: The Enduring Warning of Bailey v MDU
Home › Case Studies › Case Law Library › Commercial & Business Cases › Business Judgment › Bailey v Medical Defence Union (1995) HCA 184 CLR 399; 69 ALJR 890; 132 ALR 1
Published: 17 November 2025 | Reviewed: 17 November 2025
(3-minute read)
Case Summary - What Happened and Why It Mattered
Bailey v Medical Defence Union is one of the High Court’s most significant decisions on contractual stability, indemnity rights, and whether organisations can change their rules to escape liability.
Dr Bailey, a long-time financial member of the NSW Medical Defence Union (MDU), was sued for catastrophic injuries caused by “deep sleep therapy” at Chelmsford Hospital. After his death, his estate continued the defence - assuming the MDU would honour the indemnity it had provided since the 1950s.
But mid-litigation, after intense media coverage, the MDU withdrew assistance, relying on amended Articles that expanded its discretion to refuse indemnity. It argued that because the Articles can be changed by special resolution, it could retroactively alter the doctor’s rights.
The High Court disagreed.
Key findings:
Dr Bailey had a contractual right to indemnity for acts done while he was a member.
That right vested at the time of the treatment (1973–74).
Later amendments to the Articles could operate only prospectively, not to strip rights concerning past events.
The estate was entitled to be indemnified up to the limits applicable at the time of the occurrence ($250,000 per act).
Section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 also imposed a statutory charge over insurance monies, protecting the injured patient if the indemnity contract failed.
In short:
An organisation cannot rewrite history to evade obligations that crystallised years earlier.
Why This Judgment Still Matters for Businesses and Professionals
The case is no longer about Chelmsford. It is about vulnerability.
Professionals and businesses routinely rely on indemnity arrangements - medical defence organisations, professional indemnity insurers, industry mutuals, and discretionary schemes. Most assume these entities will stand behind them when a claim lands.
But Bailey teaches that:
Constitutions can be amended.
Discretion can be widened.
Assistance can be withdrawn for reputational reasons.
Organisations sometimes act in self-preservation.
The High Court’s reasoning offers three enduring protections:
1. Rights vest at the moment relevant events occur.
This prevents organisations from shifting the rules once risk materialises.
2. Transparency matters more than labels.
Calling something a “membership benefit” does not deprive it of contractual force.
3. Power without oversight invites abuse.
The MDU’s internal discretion, exercised during public controversy, demonstrates how unreviewed power drifts away from fairness.
For today’s executives, founders, and professionals, the message is clear:
Do not rely on assumptions. Rely on structure.
Contracts, funding models and oversight must be designed to resist late-stage reversals - especially when the stakes are life-changing.
How to Avoid the Same Trap - Cost Safety (One-Path Funding)
Of all the Client Protection Points, the highest-ranked - and most relevant here - is Cost Safety (One-Path Funding).
Why this one?
Because Bailey v MDU is not just about indemnity. It is about security when the ground shifts beneath you. In modern disputes, the biggest vulnerability is not always liability - it is cost exposure and role confusion.
This is where Cost Safety protects clients:
One funded path means you never pay twice (trial prep + settlement work).
Fixed-fee oversight removes incentives for unnecessary escalation.
Escrow and audits ensure no party can quietly change terms midstream.
Two-lawyer collaboration ensures your strategy is not controlled by the same party that benefits from dragging the matter out.
In Bailey, the estate was ambushed by a late-stage change. Cost Safety is the architectural opposite:
it removes the power to ambush entirely.
Clean Law’s model embodies the same principle the High Court protected - that rights, once vested, must not be undermined by later manoeuvring.
Reflection
Bailey v MDU reminds us that fairness requires more than goodwill. It requires structures that remain stable when controversy rises and incentives distort.
If you want to resolve a dispute with cost protection that cannot be rewritten mid-journey, transparency and one-path discipline are the safest foundations.
See how One-Path Funding creates the contractual and financial stability professionals rarely get elsewhere.
Request a Confidential Call
If your matter carries risk or uncertainty, or you simply want protection from shifting incentives, speak with us in confidence today.
By Nicky Wang
Principal Solicitor
Legal Liaison Ltd (trading as Clean Law)
Prepared in accordance with public-interest governance,
annual Law Society trust-account audits, and ACNC-reported standards.
Disclaimer: This page is intended to provide general information only and is not legal advice. The contents may not reflect the most current legal developments and do not take into account your individual circumstances. You should not act or refrain from acting on the basis of this information without obtaining legal advice tailored to your situation.
