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Sep 1, 2012 - damages under s 1324 of the Corporations Act: Will McCracken v ..... While the exceptions to Foss v Harbottle have been abolished after 2000 ...

A RECONSIDERATION OF S 1324(10) OF THE CORPORATIONS ACT 2001 (CTH): DAMAGES IN LIEU OF AN INJUNCTION Forthcoming in (2018) 36(4) Company and Securities Law Journal Dr Katy Barnett* In light of the recent sad passing of Professor Robert Baxt, the time is opportune to raise an issue of particular interest to him: the operation of s 1324 of the Corporations Act 2001 (Cth) and, specifically, the interpretation of sub-section 10 which provides for damages in lieu of an injunction. Professor Baxt was a keen supporter of s 1324(10), as he conceived of it as an extra weapon in the armory of those who had been adversely affected by breaches of directors’ duties.1 It is reasonably clear that s 1324 applies to breaches of directors’ duties (i.e. breaches of ss 180–183 of the Corporations Act).2 However, cases such as McCracken v Phoenix Constructions (Qld) Pty Ltd suggest that the power to award damages in lieu of an injunction for breaches of directors’ duties must be read narrowly in light of the other provisions of the Corporations Act.3 For a breach of director’s duties under ss 180–183, s 1317H of the Corporations Act provides that compensation may be given to the company who suffered damage, but pursuant to s 1317J, only ASIC or the company itself has standing to seek such damages. McCracken held that this limitation also applied to s 1324(10), although there is no specific limitation in these terms imposed in the wording of s 1324(10). Despite predictions that the broad wording of s 1324(10) might lead to more generous results,4 McCracken has been consistently and recently followed by courts,5 although not always without question.6

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Associate Professor, Melbourne Law School, University of Melbourne and Joint Author (with Dr Sirko Harder) of Remedies in Australian Private Law (2nd edn, Cambridge University Press, 2018). Thanks to Professor Ian Ramsay and Dr Rosemary Langford for their encouragement and help with this article, and to Justice Ashley Black for stimulating my curiosity in the first place. 1 See eg, Robert Baxt, ‘Will Section 574 of the Companies Code Please Stand Up! (And Will Section 1323 of the Corporations Act Follow Suit)’ (1989) 7 CSLJ 388; Robert Baxt, ‘Directors Counsel: Giving more stakeholders the right to sue’ Company Director Magazine (1 September 2011 accessed at http://www.companydirectors.com.au/director-resource-centre/publications/company-directormagazine/2011-back-editions/september/directors-counsel-giving-more-stakeholders-the-right-to-sue on 16 May 2018); Robert Baxt, ‘Do directors owe duties to creditors?’ Company Director Magazine (1 September 2012, accessed at http://www.companydirectors.com.au/director-resourcecentre/publications/company-director-magazine/2012-back-editions/september/directors-counsel-dodirectors-owe-duties-to-creditors on 16 May 2018); Robert Baxt, ‘Duty to All?’ Compoany Director Magazine (1 December 2014, accessed at http://www.companydirectors.com.au/director-resourcecentre/publications/company-director-magazine/2014-back-editions/december/directors-counsel-duty-to-all on 16 May 2018). 2 Airpeak Pty Ltd v Jetstream Aircraft Pty Ltd (1997) 15 ACLC 715; Emlen Pty Ltd v St Barbara Mines Ltd (1997) 15 ACLC 1107. Cf Mesenberg v Cord Industrial Recruiters (1996) 130 FLR 180 which has been roundly criticized and is likely to be wrong: RP Austin and IM Ramsay, Ford’s Principles of Corporations Law (17th edn, Lexis Nexis, 2018) [10.310.24]. 3 [2012] QCA 129, [2013] 2 Qd R 27 [30]–[40] (Fraser JA) (‘McCracken’). 4 Apart from the Baxt articles referred to in footnote 1, see Victoria Schnure Baumfield, ‘Injunctions and damages under s 1324 of the Corporations Act: Will McCracken v Phoenix Constructions revive the narrow approach?’ (2014) 32 C&SLJ 453. Judicially, see Re Colorado Products Pty Ltd [2014] NSWSC 789, (2014) 101 ACSR 233, [399] (Black J) (suggesting that the High Court may take a broader interpretation). 5 See recently, Day v Woolworths Ltd & Ors [2016] QCA 337 [75] (Jackson J); Macks v Viscariello [2017] SASCFC 172; Frigger v Banning [2017] FCA 1589; Seaman v Silvia [2018] FCA 97. 6 Re Colorado Products Pty Ltd [2014] NSWSC 789, (2014) 101 ACSR 233 [397]–[402].

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As a remedies lawyer, the narrow interpretation of s 1324(10) in McCracken is of interest to me precisely because that section looks so similar to the provisions known as ‘Lord Cairns’ Act provisions’,7 named after the original Act,8 which allow for the award of damages in lieu of specific relief in a very broad set of circumstances. The conclusions which have been reached by judges in the corporate context are very different. Directors have been held not to have a legal duty to persons other than the company, and directors do not owe an enforceable duty towards creditors.9 The situation is complicated by the restrictions around who may take action against company directors, particularly with regard to shareholders and creditors, who have traditionally only had limited recourse. Shareholders are able to take action against directors only in limited circumstances,10 either via a derivative action on behalf of the company or directly. Creditors only have a personal remedy for loss or damage pursuant to s 588M(3) of the Corporations Act against directors who have traded while insolvent in contravention of s 588G.11 Section 1324(10) potentially allows for shareholders and creditors to have a broader right of recourse. The core of the court’s concern with regard to the potential breadth of s 1324(10) is visible in Perry J’s judgment in Executor Trustee Australia Ltd v Deloitte Haskins & Sells: It would be a strange result if, as though by some kind of side wind, some general power to award damages with respect to contraventions of the Code could be regarded as having been created by s 574(8) [the predecessor to s 1324(10)] other than in circumstances in which a liability to pay damages is expressly provided for in the other substantive provisions of the Code, or possibly by the general law. This is particularly so, given that s 574 is, for the reasons which I have indicated, a section which must be regarded as focusing upon the manner in which the jurisdiction to grant injunctions is created and falls to be exercised.12 However, I suggest that s 1324(10) does not necessarily undermine the Corporations Act by a side wind if the award made under it is properly understood as a substitute for the injunction.

INJUNCTIONS AND THE DAMAGES IN LIEU OF AN INJUNCTION IN THE CORPORATIONS ACT On its face, the power to award an injunction under s 1324 of the Corporations Act is very broad. Like its cousin under the skin, s 232 of the Australian Consumer Law,13 it allows for the award of an injunction in much broader circumstances than Equity and the common law.14 Section 1324(1) of the Corporations Act 2001 (Cth) provides:

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See Supreme Court Act 1933 (ACT), s 34; Supreme Court Act 1970 (NSW), s 68; Supreme Court Act (NT), s 14(1)(b); Civil Proceedings Act 2011 (Qld), s 8; Supreme Court Act 1935 (SA), s 30; Supreme Court Civil Procedure Act 1932 (Tas), s 11 (13); Supreme Court Act 1986 (Vic), s 38; Supreme Court Act 1935 (WA), s 25(10). 8 Chancery Amendment Act 1858 (21 & 22 Vict c 27) (still in force in Ireland). Replaced by Judicature (Northern Ireland) Act 1978 (UK) s 92 and Senior Courts Act 1981 (UK) s 50 in the United Kingdom. 9 Spies v The Queen (2000) 201 CLR 603 held that that directors do not have a legal duty to persons other than the company. 10 See discussion in Ramsay and Austin, n 2, [10.230] – [10.300.9]. 11 Corporations Act 2001 (Cth), ss 588N to 588W provide further detail on liability. 12 Executor Trustee Australia Ltd v Deloitte Haskins & Sells (1996) 135 FLR 314, 323. 13 Australian Consumer Law contained in Competition and Consumer Act 2010 (Cth), sch 2. See discussion in Katy Barnett and Sirko Harder, Remedies in Australian Private Law (2nd edn, 2018, CUP) [11.62]–[11.68]. 14 Australian Securities and Investments Commission v Mauer-Swisse Securities Ltd (2002) 42 ACSR 605; Australian Securities and Investments Commission v Storm Financial Ltd (in liq) (No 2) (2011) 29 ACLC 1063, [49]. See Ramsay and Austin, n 2, [10.310.21].

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(1) Where a person has engaged, is engaging or is proposing to engage in conduct that constituted, constitutes or would constitute: (a) a contravention of this Act; or (b) attempting to contravene this Act; or (c) aiding, abetting, counselling or procuring a person to contravene this Act; or (d) inducing or attempting to induce, whether by threats, promises or otherwise, a person to contravene this Act; or (e) being in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of this Act; or (f) conspiring with others to contravene this Act; the Court may, on the application of ASIC, or of a person whose interests have been, are or would be affected by the conduct, grant an injunction, on such terms as the Court thinks appropriate, restraining the first-mentioned person from engaging in the conduct and, if in the opinion of the Court it is desirable to do so, requiring that person to do any act or thing. The rules as to standing for seeking an injunction are also relaxed. Section 1324(2) states that applications for injunctions may be made by the regulator or ‘by any other person whose interests have been or would be affected by the refusal or failure to do that act or thing’.15 “Interests” are interpreted broadly to mean those of: any person (which includes a corporation) which go beyond the mere interest of a member of the public. It is not necessary that personal rights of a proprietary nature or rights analogous thereto are or may be affected nor need it be shown that any special injury arising from a breach of the Act has occurred.16 Moreover, pursuant to s 1324(6), a prohibitive injunction can be awarded regardless of whether or not the person intends to repeat or continue engaging in the conduct, regardless of whether or not the person has previously engaged in conduct of the kind, and regardless of whether or not there is imminent danger of a substantial damage to any other person. Section 1324(7) provides the same as s 1324(6), but in relation to mandatory injunctions. Of course, despite the breadth of the provisions, the terms of the injunction must be specific enough to enable a defendant to comply with the terms of the order. 17 The important provision for present purposes is s 1324(10) of the Corporations Act which provides: (10) Where the Court has power under this section to grant an injunction restraining a person from engaging in particular conduct, or requiring a person to do a particular act or thing, the Court may, either in addition to or in substitution for the grant of the injunction, order that person to pay damages to any other person.

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My emphasis added. Broken Hill Proprietary Co Ltd v Bell Resources Ltd (1984) 8 ACLR 609, 613 (Hampel J). Followed in Brookfield Multiplex Ltd v International Litigation Funding Partners Pty Ltd (2009) 74 ACSR 447, [105]–[111]. 17 Australian Securities and Investments Commission v Maxwell (2006) 59 ACSR 373, [140]–[143]. 16

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Again, on its face, this seems to allow for a very broad range of damages orders to be made. Before concentrating on this provision, it is necessary to step back and consider how Lord Cairns’ Act provisions have been interpreted in a more general setting.

LORD CAIRNS’ ACT PROVISIONS It has been noted that s 1324(10) and its predecessors in the State Companies Codes bear a strong resemblance to Lord Cairns’ Act.18 In particular, the present provision resembles the ‘plain English’ versions of Lord Cairns’ Act which apply in some Australian States.19 An example is s 38 of the Supreme Court Act 1986 (Vic) which states: If the Court has jurisdiction to entertain an application for an injunction or specific performance, it may award damages in addition to, or in substitution for, an injunction or specific performance. The original aim of Lord Cairns’ Act in the 19th Century was to allow Chancery courts to award damages where specific relief was no longer available, including where there was delay or another equitable bar.20 It is necessary for specific relief to have been hypothetically available at the issue of proceedings, because the impossibility of granting specific relief is a jurisdictional question.21 Thus, if specific relief was impossible at the time when the plaintiff commenced proceedings, there is accordingly no jurisdiction to award Lord Cairns’ Act damages. However, the mere presence of an equitable bar preventing the award of an injunction does not prevent the award of Lord Cairns’ Act damages. For example, an injunction has been refused because it will cause hardship to the defendant, it does not follow that Lord Cairns’ Act damages will be barred for the same reason.22 The court must consider, independently of whether an injunction will cause hardship to the defendant, whether liability for Lord Cairns’ Act damages will cause hardship to the defendant. Moreover, even if neither the plaintiff nor the defendant has sought Lord Cairns’ Act damages, the court can still exercise its discretion to award them if it is appropriate and the plaintiff has sought specific relief.23 The measure of damages pursuant to Lord Cairns’ Act is radically unclear. It appears that at the least, awards can be made for losses occurring in the future where a quia timet injunction could have been

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Executor Trustee Australia Ltd v Deloitte Haskins & Sells (1996) 135 FLR 314, 318–323. Cf Permanent Trustee Australia Ltd v Perpetual Trustee Co Ltd (1994) 15 ACSR 722, 727. 19 Supreme Court Act 1933 (ACT), s 34; Civil Proceedings Act 2011 (Qld), s 8; Supreme Court Act 1986 (Vic), s 38. The intention of the ‘plain English’ versions seems simply to have been to simplify the language of the prolix 19th Century provision: see Katy Barnett and Michael Bryan, ‘Lord Cairns’s Act: A Study in the Unintended Consequences of Legislation’ (2015) 9 J of Eq 150, 159–162. 20 Barnett and Harder, n 13, [12.29]–[12.30]. 21 W Covell, K Lupton and J Forder, Principles of Remedies (6th edn, LexisNexis 2015) [11.15]. 22 See Bosaid v Andry [1963] VR 465, 479. 23 Betts v Neilson (1868) LR 3 Ch App 429, 441; Catton v Wyld (1863) 32 Beav 266, 55 ER 105; Lady Stanley of Alderley v Earl of Shrewsbury (1875) LR 19 Eq 616; Willison v Van Ryswyk [1961] WAR 87; Barbagallo v J & F Catelan Pty Ltd [1986] 1 Qd R 245, 252. See also ICF Spry, The Principles of Equitable Remedies (9th edn, LBC 2014) 657.

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made at the time of filing,24 for consequential losses flowing from the breach,25 and controversially, for damages for distress in equity.26 Courts have also used Lord Cairns’ Act to make ‘reasonable fee’ awards which represent a middle ground between an injunction and no remedy. The nature of the latter award is uncertain, with reasonable fee awards having been said variously to be compensatory, restitutionary, gain-based and vindicatory.27 The English Supreme Court has recently stated categorically that they are compensatory,28 but in my opinion, this is unlikely to be the final word on the matter. At base, however, it is submitted that the aim of Lord Cairns’ Act is intrinsically substitutionary, and Lord Cairns’ Act damages are a pecuniary substitute for specific relief where specific relief is no longer available. Lord Cairns’ Act damages have occasionally been awarded for statutory wrongs even absent a specific provision in the statute if the statute discloses an intention to create a private cause of action.29 Thus we are faced with the bizarre situation that Lord Cairns’ Act damages are more readily available for breach of a statute which does not explicitly mention their availability than in the Corporations Act, where Parliament explicitly did appear to intend to create a private cause of action.

WHY HAS S 1324(10) BEEN INTERPRETED SO NARROWLY? Courts are afraid to interpret s 1324(10) in line with the way in which it is drafted because they are afraid that it will allow for awards which would not otherwise be available. First, the jurisdictional hurdles which would apply for injunctions at common law for the purposes of Lord Cairns’ Act (eg, adequacy of damages) do not apply to injunctions pursuant to s 1324 generally. On the face of the provision, there is no need for adequacy of damages or any other kind of jurisdictional hurdle other than a contravention of the Act in the terms contained in s 1324(1). Secondly, standing is relaxed according to the terms of s 1324(2), and any other person whose interests have been or will be affected by a contravention of the Corporations Act may apply for an injunction. Prima facie, this means that the situations to which s 1324(10) might apply are very broad, 30 although the courts have at times attempted to limit the application of the section.31 Professor Baxt suggested that both shareholders and creditors might be persons whose interests have been or would be affected by the refusal or failure to do that act or thing in relation to the predecessor section in the Companies Code equivalent to s 1324 of the Corporations Act.32 His prediction has been borne out, and it is now certainly the case that creditors can have standing under s 1324 as a person whose

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Leeds Industrial Cooperative Society Ltd v Slack [1924] AC 851, 859; Barbagallo v J & F Catelan Pty Ltd [1986] 1 Qd R 245, 252; Alacina Pty Ltd v Townsville Port Authority [2009] QSC 126 [4]. However, Tasmanian legislation does not allow for awards in relation to future loss: Supreme Court Civil Procedure Act 1932 (Tas), s 11(13)(b). 25 See eg, Catton v Wyld (1863) 55 ER 105; 32 Beav 266; Fritz v Hobson (1880) 14 Ch D 542. 26 Giller v Procopets [2008] VSCA 236, (2008) 24 VR 1. 27 Barnett and Harder, n 13, [16.66]–[16.76]. 28 Morris-Garner v One Step (Support) Ltd [2018] UKSC 20. 29 Matthews v ACP Publishing Pty Ltd (1998) 157 ALR 564, 573 (Beaumont J) re s 35(5) of the Copyright Act 1968 (Cth). Cf Wentworth v Woollahra Municipal Council (1982) 149 CLR 672, 683, where planning statutes did not evidence an intention to create a private cause of action. 30 See Re Idylic Solutions Pty Ltd [2013] NSWSC 106 supporting this view. Cf Mesenberg v Cord Industrial Recruiters (1996) 130 FLR 180. 31 For a detailed discussion see Baumfield, n 4, 455–460. 32 Baxt, ‘Will Section 574 of the Companies Code Please Stand Up!’, n 1, 390–400.

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interests have been affected.33 However, it has been said in McCracken that, despite the breadth of s 1324(1), ‘it does not follow that s 1324(10) empowers the Court to award damages of any nature in favour of every person who is entitled to apply for an injunction.’34 The rule in Foss v Harbottle35 has traditionally provided that where the directors of a company commit a wrong, only the company itself has standing to sue the directors, subject to certain common law exceptions. While the exceptions to Foss v Harbottle have been abolished after 2000 pursuant to s 236(3) of the Corporations Act, Part 2F.1A now governs the availability of derivative actions. Under s 237, third parties such as shareholders must seek leave to apply to bring an action against directors. Creditors have limited possibilities of action, although as noted previously they can bring a claim pursuant to s 588M if they suffered loss or damage through a director causing a company to trade while insolvent. Section 1324(10) on its face opens up the persons who can bring an action against directors in ways which seem incompatible with other sections of the Corporations Act. It was for this reason that the court held in McCracken that the power to award damages under s 1324(10) should be limited to cases where damages were already available under other sections of the Corporations Act, to avoid undermining other strictures upon compensatory awards.36 However, it will be suggested that any remedy available under s 1324(10) must substitute for the injunction, and accordingly can be crafted to operate appropriately. McCracken involved a joint venture between Coastline Pty Ltd, a company directed by Mr McCracken on the one hand, and his wife, Mrs McCracken, on the other. Mr McCracken was the sole director and shareholder of Coastline Pty Ltd. Mrs McCracken owned land in Townsville, upon which the joint venture proposed to build units and sell them for a profit. The joint venture agreement left blank the apartments to be owned by Mrs McCracken. Coastline Pty Ltd (‘Coastline’) entered into a construction management agreement with Phoenix Constructions (Queensland) Pty Ltd (‘Phoenix’) to build the units. However, Phoenix then sued Coastline for breach of contract. In response, Mr McCracken caused Coastline to enter into a deed whereby titles to all the unsold units under the joint venture were transferred to Mrs McCracken. This mean that the company lost any contractual right to profit from the units, and had no valuable assets left. At first instance, the trial judge awarded Phoenix damages in lieu of an injunction representing the amount that they could have claimed from the company in breach of contract. Phoenix could not sue any other parties because Mrs McCracken was now bankrupt, and Coastline also had no assets left. Mr McCracken was in breach of s 182(1) because he had improperly used his position as director to cause detriment to the company and to gain an advantage for himself and Mrs McCracken. This section is a civil penalty provision which may give rise to liability pursuant to Part 9.4B of the Act, including orders for compensation of a corporation pursuant to s 1317H for harm caused. The Queensland Court of Appeal, as noted earlier, held that such damages were not available and cited a concern that s 1324(10) should not be allowed to give parties who would not otherwise have an action under the Corporations Act recourse. The Court of Appeal gave several reasons for its conclusion. First, the focus of s 1324 was on the availability of injunctions and not on the creation of rights to damages, and accordingly, s 1324 must be read in light of other provisions which confer specific remedies for certain contraventions. In this case, the relevant sections dealing with compensation for breach were ss 1317E–1317J, the provisions 33

Allen v Atalay (1993) 11 ACSR 753; Airpeak Pty Ltd v Jetstream Aircraft Ltd (1997) 23 ACSR 715. McCracken v Phoenix Constructions (Qld) Pty Ltd [2013] 2 Qd R 27; [2012] QCA 129 [34]. 35 (1843) 2 Hare 461, (1843) 67 ER 189. 36 McCracken v Phoenix Constructions (Qld) Pty Ltd [2013] 2 Qd R 27; [2012] QCA 129 [34]. 34

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dealing with liability for civil penalty provisions.37 As noted earlier, s 1317J gives standing only to ASIC and the company affected, and consequently the court said that a broad construction of s 1324(10) ‘would make a dead letter of the provisions in Pt 9.4B which create and regulate the power to award compensation.’38 Phoenix had attempted to argue that the reference to ‘damages’ in s 1324(10) meant that the provision could coexist with ‘compensation’ under s 1317H, but was unsuccessful in this.39 It is certainly true that the open-textured word ‘damages’ in Lord Cairns’ Act provisions has arguably allowed courts to award to a broader range of damages awards than just compensatory damages,40 but given that Phoenix was seeking a compensatory award in this case, the argument was unconvincing. The second reason the court gave for its conclusion was that Phoenix’s loss was merely derivative of the company’s loss, and that any loss was in fact suffered by Coastline. The court said: The construction of s 1324(10) advocated by Phoenix would then produce the very surprising result that, even though the creditor’s claim is merely derivative upon the corporation’s recoverable loss, either there might be double recovery (recovery by the creditor and the corporation) at the expense of the officer who contravened s 182(1), or the creditor might recover damages at the expense of the corporation. 41 The court said that this construction would also mean that every creditor would have a right to claim damages, and that an award might prejudice the interests of other creditors and contributories.42 As Professor Baxt noted, 43 the court went against the express drafting of s 1324(10) and held that the relaxed standing requirements under s 1324(1) did not apply to s 1324(10) because of the statutory context. 44 Moreover, the court noted that Perry J in Executor Trustee Australia Ltd45 had relied on the English case of Johnson v Agnew46 in which Lord Wilberforce stated that Lord Cairns’ Act did not create a right to damages which did not previously exist.47 However, by so holding, the Queensland Court of Appeal allowed Mr McCracken to strip his company of assets in order to avoid liability to a creditor. This seems far from ideal as a matter of public policy, and it seems to be precisely the kind of scenario where the flexibility and latitude which s 1324(10) gives to the courts should have been fully utilised. As Baumfield has also suggested, the proper approach to this dilemma should have been to ask how an award of damages could have provided a proper substitute for an injunction.48 The injunction which would have sought by Phoenix would have been to rescind the transfer of the units to Mrs McCracken. This was no longer possible because Mrs McCracken was bankrupt and any assets still in her hands were subject to the orders of her trustee in bankruptcy. Accordingly, Mr McCracken ought to have been required to make ‘pecuniary rescission’49 37

McCracken v Phoenix Constructions (Qld) Pty Ltd [2013] 2 Qd R 27; [2012] QCA 129 [24]. McCracken v Phoenix Constructions (Qld) Pty Ltd [2013] 2 Qd R 27; [2012] QCA 129 [27]. 39 McCracken v Phoenix Constructions (Qld) Pty Ltd [2013] 2 Qd R 27; [2012] QCA 129 [27]. 40 See Katy Barnett, ‘Lord Cairns’ Act and Statutory Interpretation – Give the Court an Inch and They’ll Take a Mile’ in Prue Vines and Scott Donald (eds), Statutory Interpretation in Private Law (forthcoming). 41 McCracken v Phoenix Constructions (Qld) Pty Ltd [2013] 2 Qd R 27; [2012] QCA 129 [28]. 42 McCracken v Phoenix Constructions (Qld) Pty Ltd [2013] 2 Qd R 27; [2012] QCA 129 [29]. 43 Baxt, ‘Do Directors Owe Duties to Creditors’, n 1. 44 McCracken v Phoenix Constructions (Qld) Pty Ltd [2013] 2 Qd R 27; [2012] QCA 129 [30]–[39]. 45 Executor Trustee Australia Ltd v Deloitte Haskins & Sells (1996) 135 FLR 314, 322–23. 46 [1980] AC 367, 400. Interestingly, in Morris-Garner v One Step (Support) Ltd [2018] UKSC 20, [47] Lord Reed has recently doubted (correctly in my view) this holding in Johnson v Agnew. 47 McCracken v Phoenix Constructions (Qld) Pty Ltd [2013] 2 Qd R 27; [2012] QCA 129 [31]. 48 Baumfield, n 4, 466–69. 49 The term ‘pecuniary rescission’ is taken from P Birks, ‘Unjust Factors and Wrongs: Pecuniary Rescission for Undue Influence’ [1997] RLR 72. For discussion of how this principle works, see further Barnett and Harder, n 13, [18.74]–[18.77]. 38

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to Coastline: in other words, he should have transferred a sum to Coastline representing the value of the units he had wrongfully transferred. The award Phoenix could have been given would have been a rateable share of the assets of Coastline in accordance with their status as unsecured creditors. This would have assisted not only Phoenix, but also other unsecured creditors who were prejudiced by Mr McCracken’s breach of director’s duties. Moreover, it would not have been inconsistent with s 1317H: it would have been entirely consistent with it, as the pecuniary compensation for the breach of director’s duties would have been given to the company. Two objections may be made to my suggested analysis above. First, it might be objected that Coastline had not itself sought a compensatory order pursuant to s 1317H. It is submitted that no such order is necessary for an award to be made pursuant to s 1324(10) requiring Mr McCracken to provide pecuniary rescission to Coastline, as that effectively complements the power under s 1317H. The terms of s 1324(10) give sufficient flexibility and discretion to the court to make such an award without undermining the broader structure of the Act. A second objection is that it has been held that any applicant for damages under s 1324(10) must seek and be able to obtain an injunction at judgment before an award of damages in lieu can be made.50 It is suggested here that if the High Court or other superior court has a chance to reconsider this line of authority, then it should be disapproved. There is no reason in principle for placing this fetter on the court’s discretion. First, it does not seem logical to require an injunction to be awarded in fact, given that the broader purpose of Lord Cairns’ Act style provisions is to provide for relief in situations where an injunction is no longer available.51 Secondly, the claimant should not even be required to have applied for an injunction. There may be reasons why an award of damages in lieu of an injunction might be appropriate notwithstanding the fact that the claimant may not have applied for an injunction. It is suggested that guidance should be drawn from Lord Cairns’ Act jurisprudence to require simply that it is necessary that an injunction could have been granted when proceedings were filed. The requirement that any award of damages is a clear substitute for an injunction provides the necessary limitation on availability.

CONCLUSION In this short discussion, it has been suggested that a better understanding of the Lord Cairns’ Act provisions on which s 1324(10) of the Corporations Act are based may be helpful to understanding how it should be applied in the context of directors’ duties. Specifically, it should be understood that such an award represents a substitute for an injunction and thus close attention must be paid by the court to the nature of the injunction which could have been awarded at the outset of the proceedings, in order to ensure any damages award properly substitutes for it. Section 1324(10) is broad and flexible, but it can be interpreted in such a way as to harmonise with other parts of the Act, specifically those involving directors’ duties, compensation for breach of civil penalty provisions and derivative actions. To give the provision this operation would not undermine the Corporations Act, but allow it to operate in the manner which Parliament appears to have intended from the breadth of the wording of the section. Moreover it will ensure that directors cannot transfer assets from a company to frustrate the demands of a creditor because, in the event that the transaction cannot be rescinded, they should be required to give pecuniary rescission of the value of any property wrongly transferred 50

See eg, Re Colorado Products Pty Ltd [2014] NSWSC 789, (2014) 101 ACSR 233, [402]; Dungowan Manly Pty Ltd v McLaughlin (2012) 90 ACSR 62, [2012] NSWCA 180, [5] (Bathurst CJ); Artistic Builders Pty Limited v Elliot & Tuthill (Mortgages) Pty Limited [2002] NSWSC 16; 10 BPR 19-565 [132] (Campbell J); Waterhouse v Waterhouse (1999) 46 NSWLR 449, 490–91 (Windeyer J); Executor Trustee Australia Ltd v Deloitte Haskins & Sells (1996) 135 FLR 314, 317–18 (Perry J). Cf Permanent Trustee Australia Ltd v Perpetual Trustee Co Ltd (1994) 15 ACSR 722, 728 (Cohen J). 51 See eg, Gracia Pty Ltd v QCAPT Pty Ltd (1998) 16 ACLC 1134.

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back to the company itself, and s 1324(10) can be used to facilitate relief for creditors who otherwise have no recourse against directors.

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