When titles do not matter, but responsibility does: Personal liability for de facto directors in construction

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Overview

The recent Supreme Court of New South Wales decision in Brown v Etna Developments Pty Ltd [2025] NSWSC 358 delivers a compelling reminder that company directors – and even individuals acting as de facto directors – can be held personally liable for negligent acts during construction projects. This case underscores the importance of clearly understanding the roles and responsibilities of company agents, particularly when their conduct effectively places them in a position of control, decision-making, or assumed responsibility. For developers, builders, and those managing construction operations, it reinforces the real personal risk of informal or decentralised decision-making structures.

Background

The plaintiffs, Edmund Brown and Irena Saric, owned a residential property adjoining a construction site managed by Etna Developments Pty Ltd (Etna). Building works were carried out by Nutek Construction Pty Ltd (Nutek). During excavation, both companies failed to implement adequate safety and geotechnical measures to protect the plaintiffs’ land.

A significant collapse followed, rendering the plaintiffs’ property ‘virtually worthless’, cutting off vehicle access, and creating an ongoing risk of further subsidence. Expert evidence confirmed that the excavation was the proximate cause of the instability. Of particular significance, two individuals, despite never formally appointed as directors, had overseen and directed key elements of the excavation.

Findings

The Supreme Court found both Etna and Nutek liable in negligence and trespass. However, through the course of the proceedings, Etna entered into external administration and Nutek entered into Liquidation. The Court also made critical findings about the personal liability of the individuals who had operated as de facto directors of Nutek.

Justice Rees found that these individuals had:

  • exercised operational control over the site;
  • made key decisions about how the works were carried out;
  • failed to obtain adequate geotechnical advice; and
  • ignored foreseeable risks to neighbouring properties.

The Court held that by assuming effective control, they had stepped into the role of de facto directors1 – and, in doing so, owed a personal duty of care to the plaintiffs.2 Their failure to take reasonable precautions, despite knowledge of the risks, amounted to actionable negligence.3 Damages were awarded against Etna and the liability of Nutek was apportioned between the individual defendants based on their respective levels of responsibility.

Key Takeaways

  1. Titles Are Irrelevant – Agency and Responsibility are Everything

A de facto director is a person who is not formally appointed but who performs the functions of a director. Courts will examine conduct, not corporate records, to determine if someone is effectively in control. Those who direct operations, make strategic decisions, or hold themselves out as ‘in charge’ may face the same liabilities as appointed directors.

This case confirms that personal liability is not limited to officially registered directors. Individuals who act with authority and influence over corporate decisions—particularly where safety is at stake—can be held personally liable.5

  1. Construction Work Involves Heightened Duties

Directors and controllers of construction projects must proactively obtain expert advice and comply with all relevant safety and engineering standards. Courts will not accept cost-cutting or ignorance as a defence to property damage.6

  1. Review Internal Governance and Insurance

Firms involved in construction projects should review their governance structures and ensure appropriate professional indemnity insurance is in place. Those exercising effective control must be clearly informed of their obligations—and the potential personal exposure.7

If you or anyone you know is involved in construction or development and would like advice on managing director liability, contractor oversight, or professional indemnity risk, Bradbury Legal is a specialist building and construction law firm. Contact us on (02) 9030 7400, or at info@bradburylegal.com.au

 

Footnotes

  1. Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 at [113]–[115]; ASIC v King [2020] HCA 4 at [46]–[55]; Deputy Commissioner of Taxation v Austin (1998) 28 ACSR 565 at 574–575.
  2. Perre v Apand Pty Ltd (1999) 198 CLR 180 at [103]–[105]; Bryan v Maloney (1995) 182 CLR 609 at 627–628.
  3. Smith v Jenkins (1970) 119 CLR 397 at 403–405; Hamilton v Whitehead (1988) 166 CLR 121 at 128.
  4. ASIC v King [2020] HCA 4 at [54]–[55]; Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 at [113].
  5. ASIC v King [2020] HCA 4 at [54]–[55]; see also Grimaldi at [113].
  6. Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515 at [23]–[25]; Parsons v Raby [2007] NSWSC 1059 at [55]–[59].
  7. Hamilton v Whitehead (1988) 166 CLR 121; Walker v Wimborne (1976) 137 CLR 1 at 6–7 (per Mason J).

 

Freeze Now, Enforce Later: Understanding Freezing Orders in NSW

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A freezing order, also known as a Mareva injunction, is a powerful legal tool designed to prevent a party from disposing of or dealing with assets before a judgment can be enforced. In New South Wales, these orders are frequently sought in cases involving fraud, insolvency or complex commercial disputes. Their central aim is to preserve the enforceability of a future court judgment by preventing the dissipation of assets in the meantime.

What Is a Freezing Order?

A freezing order is an interlocutory injunction that restrains a party from dealing with specified assets, usually pending the outcome of litigation. The purpose is not to give a plaintiff a security interest in those assets, but rather to preserve the status quo so that any eventual judgment can be enforced.[1] These orders are typically granted under Rule 25.11 of the Uniform Civil Procedure Rules 2005 (NSW) and are often sought ex parte (without notifying the respondent) to avoid alerting the other party and triggering the very asset dissipation the order is designed to prevent.

Criteria for Granting a Freezing Order

Courts apply strict and well-defined criteria when determining whether to grant a freezing order. The applicant must satisfy all of the following:

  1. Good Arguable Case
    The applicant must demonstrate a “good arguable” case on the substantive claim. In Lambros v Urbanlux Homes Pty Ltd (in liq)[2021][2], the Court clarified that while the case need not have a greater than 50% chance of success, it must be plausible and capable of serious argument—higher than speculative but lower than proof on the balance of probabilities.
  2. Real Risk of Asset Dissipation
    There must be credible evidence that the respondent is likely to dispose of, hide, or deal with assets in a manner that could frustrate the enforcement of a future judgment.
  3. Danger That Judgment Will Be Unenforceable
    The court must be satisfied that, without the order, there is a real risk that a judgment in favour of the applicant would be wholly or partly unsatisfied due to the unavailability of the respondent’s assets.
  4. Balance of Convenience and Interests of Justice
    The court must be persuaded that the benefit of preserving the applicant’s potential remedy outweighs the inconvenience or prejudice to the respondent. Courts will also consider whether an undertaking as to damages has been offered by the applicant to compensate the respondent if the order proves unjustified.
  5. Jurisdictional Nexus
    There must be a connection between the respondent or the assets and the jurisdiction. The Supreme Court of NSW must have authority over the respondent or the relevant assets.

Scope and Enforcement

Freezing orders can apply to a wide range of assets, including bank accounts, real property, shares and personal valuables. They can also extend to assets located both within and outside Australia. Additionally, these orders can bind third parties, such as banks that hold assets on behalf of the respondent.

Key Considerations for Applicants

While freezing orders are powerful tools for preserving assets, they are discretionary and exceptional remedies that courts do not grant lightly.[3] Applicants seeking a freezing order should be mindful of the following:

  • Undertaking as to damages: Applicants must be prepared to compensate the respondent if the order is later found to have caused unjust harm, particularly if the freezing order is ultimately unjustified.
  • Access to funds: Orders generally allow respondents to access funds for reasonable living or business expenses, as specified in the order.[4]
  • Full and frank disclosure: In ex parte applications, applicants are under a strict duty to disclose all relevant facts, including those adverse to their case.[5] A failure on the part of the applicant to do so may result in the order being set aside.
  • Proportionality: The scope of the order must be proportionate to the value of the claim and tailored specifically to the risk of asset dissipation.

In Bennett (bht Jones) v State of NSW & Anor [2022][6], the Court reaffirmed its cautious approach to freezing orders, highlighting the need for a real danger of asset dissipation supported by clear and reliable evidence. The case underscores the importance of thorough preparation and detailed investigation of the respondent’s conduct when seeking such relief.

Freezing orders are also particularly effective in situations involving allegations of fraud, misappropriation of funds or asset stripping. They are also increasingly used in cross-border litigation, given their availability against third parties or foreign respondents in certain cases.

Final Thoughts

Freezing orders are a powerful litigation tool, but they must not be sought lightly. As an extraordinary and intrusive remedy, they demand careful attention to the evidence, full disclosure and precise drafting. Courts will closely scrutinise whether the legal criteria—especially in an ex parte setting—have been properly met.

Notwithstanding, when used wisely, freezing orders can mean the difference between a hollow victory and an enforceable judgment—underscoring the value of a strategy that enables litigants to freeze now, enforce later.

 

[1]  Jackson v Stirling Industries Ltd (1987) 162 CLR 612; Cardile v LED Builders Pty Ltd (1999) 198 CLR 380.

[2] NSWSC 1615 at [39].

[3] Frigo v Culhaci [1998] NSWCA 88, approved in Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at [51]; Severstal Export GmbH v Bhushan Steel Ltd (2013) 84 NSWLR 141 at [57].

[4] Goumas v McIntosh [2002] NSWSC 713 at [23].

[5] See Rees J in Madsen v Darmali [2024] NSWSC 76 at [12]–[15].

[6] NSWSC 1406.

The Price of Refusal – costs consequences of unreasonably rejecting Calderbank offers

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A Calderbank offer is a special type of settlement offer made in an attempt to resolve anticipated or commenced litigation and derives the name from the case that first established the relevant principles, Calderbank v Calderbank [1975] All ER 333.  It is special in that a valid Calderbank offer may:

  • if you are the successful party in litigation, increase the percentage of legal costs you recover from the unsuccessful party; or
  • if you are the unsuccessful party in litigation, decrease the percentage of legal costs you pay the successful party.

A properly advised litigant will be factoring legal costs into their overall litigation strategy and will use Calderbank offers to strengthen their position by either recovering more costs or paying less costs.  This “costs protection” element differentiates Calderbank offers from standard offers to negotiate or settle litigation.  It also forces a party receiving an offer to give careful thought to the risk involved in not accepting the offer given the potential consequences for legal costs recoverable or payable.[i]

The principles are encouraged by the courts and tribunals because they facilitate the efficient and economic disposal of litigation in accordance with modern case management principles which are directed towards avoiding waste and delay in litigation generally.[ii]

Costs of the proceedings

The costs of the proceedings are typically dealt with after there has been judgment on the substantive issues of the case.  This is because the practical result or outcome of the judgment often determines which party is responsible to pay costs.  This is known as the guiding principle that “costs follow the event” with the event being the practical result or outcome e.g. the plaintiff succeeded in their claim for damages for breach of contract.[iii]

Costs are ordinarily awarded on an “ordinary” basis[iv] but, in special circumstances, may be awarded on an “indemnity” basis.[v]  In simple terms, the indemnity basis (85-95% of actual costs) is a higher percentage of recovery of actually incurred costs compared with ordinary costs (65-75% of actual costs).  In short, the difference will generally be 10-15% higher if recovering on an indemnity basis.

However, costs are always in the discretion of the court or tribunal having regard to various factors. One factor that is weighed in exercising that discretion is the existence of Calderbank offers that were not accepted.  In particular, establishing that you issued a valid Calderbank offer that was a better outcome than the outcome that was obtained by proceeding to judgment may both affect:

  1. the party responsible for paying costs; and
  2. the “basis” on which costs will be assessed.

Examples

The examples below are not automatic or guaranteed outcomes given costs are always at the discretion of the court or tribunal[vi] and there are many competing factors that are taken into account such as delinquent conduct by the party that made the offer in the litigation.  The examples are presented for simplicity and ignoring competing factors that might arise.

Successful Plaintiff that makes an offer

Take the following example:

  • proceedings were commenced on 1 January 2024;
  • a valid Calderbank offer was made on 1 July 2024 by the Plaintiff to settle for $600,000 and rejected (unreasonably) by the Defendant; and
  • judgment was entered on 1 December 2024 in favour of the Plaintiff for $900,000.

As a matter of commonsense, the Plaintiff’s Calderbank offer would have been a better outcome for the Defendant had it accepted the offer rather than proceeded to judgment.

The law recognises this logic and gives effect to it by increasing the percentage of legal costs recoverable by the successful Plaintiff by using the indemnity basis for part of the overall legal costs payable by the Defendant.  Specifically, in our example, the consequence of unreasonably rejecting a Calderbank offer that was better than the ultimate outcome is that the court or tribunal may exercise its discretion to order that:

  • the Defendant pays the Plaintiff’s costs on an ordinary basis between 1 January 2024 to 1 July 2024 i.e. before the offer; and
  • the Defendant pays the Plaintiff’s costs on an indemnity basis between 2 July 2024 and 1 December 2024 i.e. after the offer.

In short, the successful Plaintiff recovers an overall higher percentage of part of their legal costs.

Unsuccessful Defendant that makes an offer

As a variation on that example, let us assume the following facts instead:

  • proceedings were commenced on 1 January 2024;
  • a valid Calderbank offer was made on 1 July 2024 by the Defendant to settle for $600,000 and rejected (unreasonably) by the Plaintiff; and
  • judgment was entered on 1 December 2024 in favour of the Plaintiff for $400,000.

As a matter of commonsense, the Defendant’s Calderbank offer represented a more favourable result for the Plaintiff than the judgment.  In that scenario, the court or tribunal may exercise its discretion to order that:

  • the Defendant pays the Plaintiff’s costs on an ordinary basis between 1 January 2024 to 1 July 2024 i.e. before the offer; and
  • the Plaintiff pays the Defendant’s costs on an indemnity basis between 2 July 2024 and 1 December 2024 i.e. after the offer.

In short, the unsuccessful Defendant manages to recover that part of their legal costs incurred only because the Plaintiff did not settle on reasonable terms.

To Consider

For completeness, the underlying concept of a Calderbank offer has been formalised in Division 4 of Part 20 of the Uniform Civil Procedure Rules 2005 (NSW) as “Offers of Compromise”, however those types of offers are outside the scope of this article.

Noting the costs consequences associated with making and rejecting Calderbank offers, it is crucial that litigants use them in a way that promotes settlement of disputes to achieve their “just, quick and cheap” obligations and, otherwise, to protect their own position on costs.

 

 

[i] Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602 at [24]. Bluth v Boyded Industries Pty Ltd (No 2) [2024] NSWCA 194 at [43].

[ii] See section 56 of the Civil Procedure Act 2005 (NSW) (CPA).

[iii] See rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR); see e.g. New Island Developments Pty Ltd v New Island Investments One Pty Ltd (No 2) [2024] NSWSC 454 at [29].

[iv] In the courts, section 98(1) of the CPA and rule 42.2 of the UCPR. In the Tribunal, section 60(4) of the Civil and Administrative Tribunal Act 2014 (NSW).

[v] See rule 42.5(b) of the UCPR.

[vi] Section 98(1) of the CPA; see e.g. Whitney v Dream Developments Pty Ltd [2013] NSWCA 188 at [25].