Australia: Queensland Court of Appeal overturns decision in Phoenix Constructions case

In brief - Court revisits creditor's right to seek damages under section 1324(10)

The Queensland Court of Appeal has overturned Justice Cullinane's primary decision in Phoenix Constructions (Queensland) Pty Limited v McCracken [2011] QSC 167 awarding a creditor damages under section 1324(10) of the Corporations Act 2001 (Cth).

In McCracken v Phoenix Constructions (Qld) Pty Ltd [2012] QCA 129, the court revisited the section and its connection to creditors. (For more information about this case please see our earlier article Creditor's right to an injunction or damages under section 1324 of the Corporations Act.)

Court of Appeal reinstates previous position regarding damages under s.1324

The decision returns us to the general rule that a director does not owe a direct duty to creditors which would give creditors the right to seek damages under the Act. It does not mean that a creditor cannot seek an injunction under section 1324(1) to prevent a director from acting in a particular way, as the Court of Appeal acknowledged that the meaning of a person whose interests have been affected is quite broad. Practitioners will still need to warn their director clients of this potential.

Will a creditor ever have a direct cause of action against a director under the Corporations Act?

The weight of authority says no. However, this does not mean that directors escape all liability to creditors. It remains the case that a liquidator can pursue a director to recover the loss suffered by a creditor or creditors.

There is also room for the Australian Securities and Investments Commission (ASIC) to seek damages under section 1324 in the name of a creditor, as we saw in Australian Securities and Investments Commission v Plymin and Others (2003) 46 ACSR 126 and, dependent on the facts, under the representative provisions of the Australian Consumer Law.

Director found to have breached section 182(1) of the Corporations Act

In the decision at first instance, Mr McCracken, a sole director of Coastline Constructions (Aust) Pty Limited, was found to have breached section 182(1) of the Corporations Act in:

  • allowing the company to enter a joint venture agreement with his wife, whereby certain land was to be developed by Phoenix Constructions (Queensland) Pty Limited (Phoenix); and
  • later authorising the company to enter an amendment to enable certain parcels of land to be removed so Mrs McCracken retained ownership over six units, valued at $7,385,000, subsequently excluding them from the pool available to repay a debt owed to Phoenix.

Justice Cullinane decided that not only was Phoenix a person who had standing to make an application unders.1324(1), it also had standing to seek damages under subsection 10. Phoenix was awarded damages of just under $1.5 million.

Director appeals Supreme Court decision

On appeal, Mr McCracken raised three issues:

  • in relation to the finding that he had breached his duties under s.182 (1) of the Act, there was a question of whether certain, allegedly relevant, evidence had been wrongly excluded. He was not successful on this matter, but this was a relatively minor issue;
  • whether Phoenix had proven that it suffered loss; and
  • whether the court had power under s.1324 (10) to award damages to Phoenix based on a breach of s.182(1).

Did Phoenix Constructions prove its loss?

At first instance, Phoenix was awarded damages in an amount which equated to its contractual claim against Coastline. Phoenix's claimed loss was merely derivative of Coastline's recoverable loss.

The Court of Appeal went on to say that, in order to show the effect of the breach, Phoenix would have had to adduce evidence of Coastline's financial position, including the state of the accounts of its creditors. It was not enough to draw an inference from the fact that Mr McCracken did not give evidence on these matters, which Phoenix had attempted to do.

Ultimately, however, this was a minor point given the court's next finding in relation to Phoenix's ability to claim damages under s.1324(10).

Award of damages under s.1324(10)

The Court of Appeal found that 8.1324(10) did not give the court power to award damages to a creditor for a director's breach of s.182 (1) of the Act and, more broadly, any civil penalty provisions.

Phoenix raised the same arguments which it had raised at first instance, namely that damages could still be awarded, even though an injunction might be refused on discretionary grounds.

Phoenix also argued that it was sufficient that a court had jurisdiction to grant an injunction, and that it was not determinative that the circumstances in which an injunction might be granted only existed at a time earlier than the date of judgment.

In considering Phoenix's arguments, the Court of Appeal looked to Justice Perry's judgment in Executor Trustee Australia Limited & Anor v Deloitte Haskins & Sells (1996) 22 ACSR 270. In that case, Justice Perry considered the equivalent provision in the South Australian Companies Code. He also commented that the same interpretation would apply to s.1324 of the Act.

In Justice Perry's view, the principal focus of s.1324 is the granting of an injunction. Damages are a substitute or supplementary remedy. The statute could not have intended to give a person, such as Phoenix, a general right to damages.

Justice Perry pointed out that, if this were the intention, there would be no need for a general right to be limited to situations where the court may have the ability to grant an injunction (at [279]). This view was embraced by the Court of Appeal.

There were a few other bases for the Court of Appeal's decision.

Nature of damages

The court noted that a meaning of damages is "a sum of money paid in compensation for damage suffered or vindication of a claimant's rights in contract and tort actions". The court went on to say that in a case such as the present, a creditor's claimed loss is merely derivative of the company's recoverable loss.

To say, therefore, that Phoenix was able to claim damages under s.1324(10) would mean that there might be double recovery (meaning recovery by both the creditor and the corporation), or that the creditor might recover damages at the expense of a corporation.

Section 1324(10) and the wider Act

The court also looked at s.1324(10) in the wider context of the Corporations Act and the breach that was the focus of Phoenix's claim.

Part 9.4B of the Act sets out remedies for breaches of the civil penalty provisions, including s.182 (1). In particular, sections 1317E, 1317G and 1317H set out three remedies, namely:

declarations; pecuniary penalty orders; and compensation orders.

Section 1317J then goes on to identify who is able to seek each of the remedies. Importantly, under the section, only ASIC and the company may apply for those remedies.

The Court of Appeal noted that to construe s.1324(10) as giving any person whose interests are adversely affected by a breach of a civil penalty provision the ability to seek and be awarded damages, did not sit well with the words of part 9.4B. In fact it would render the specific provisions of part 9.4B rather pointless.

When can damages be a substitute or supplementary remedy for an injunction?

For the Court of Appeal, the words of s.1324(10) had to be read in light of the rest of the section.

Standing under s.1324 (1) is quite broad. However, this does not mean that there is a correlation between standing under subsection 1 and an entitlement to damages under subsection 10.

Damages are a substitute or supplementary remedy to an injunction under subsection 1. The court said that this is clearly indicated by the final words of subsection 10: "either in addition to or in substitution for the grant of the injunction".

There is a direct connection between the purpose of an injunction and the purpose of damages under the section. Damages will be awarded to remedy the adverse effect caused by the particular breach of the Act for which an injunction is sought.

For example, in the current case, an injunction would have meant that property was returned to Coastline. If an injunction would not have been an effective remedy, damages could be awarded in favour of Coastline by way of compensation for the irretrievably lost property. Only in this way would damages be a substitute or supplementary remedy for the injunction.

Peter Harkin, Grazia Altieri,
Insolvency and reconstruction
Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.