When titles do not matter, but responsibility does: Personal liability for de facto directors in construction
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
- 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
- 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
- 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
- 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.
- Perre v Apand Pty Ltd (1999) 198 CLR 180 at [103]–[105]; Bryan v Maloney (1995) 182 CLR 609 at 627–628.
- Smith v Jenkins (1970) 119 CLR 397 at 403–405; Hamilton v Whitehead (1988) 166 CLR 121 at 128.
- ASIC v King [2020] HCA 4 at [54]–[55]; Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 at [113].
- ASIC v King [2020] HCA 4 at [54]–[55]; see also Grimaldi at [113].
- 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].
- Hamilton v Whitehead (1988) 166 CLR 121; Walker v Wimborne (1976) 137 CLR 1 at 6–7 (per Mason J).