Erhan v Darko

Case [2023] SASC 180

SUPREME COURT OF SOUTH AUSTRALIA

(Magistrates Appeal: Civil)

ERHAN v DARKO & ANOR

[2023] SASC 180

Judgment of the Honourable Justice Blue 

22 December 2023

MAGISTRATES - APPEAL AND REVIEW - SOUTH AUSTRALIA - APPEAL TO SUPREME COURT - GROUNDS

MAGISTRATES - APPEAL AND REVIEW - SOUTH AUSTRALIA - APPEAL TO SUPREME COURT - PROCEDURE - TIME FOR APPEAL AND EXTENSION

MAGISTRATES - APPEAL AND REVIEW - SOUTH AUSTRALIA - APPEAL TO SUPREME COURT - POWERS OF COURT - REMISSION FOR REHEARING

CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - PERFORMANCE OF WORK - REMEDIES FOR BREACH OF CONTRACT

Appeal against judgment entered by a Magistrate in favour of the respondents for $50,000 damages for involvement in misleading conduct plus interest and costs.

The appellant’s company Sophisticated Home Renovations Pty Ltd entered into a contract with the respondents to undertake building work at their home for $55,000 with a completion date of 31 January 2020.

The respondents paid $50,000 to Sophisticated. The parties fell into dispute and the appellant told the respondents that Sophisticated would not be completing the job or refunding the monies paid.

The respondents instituted an action in the Magistrates Court against the appellant seeking damages for misleading conduct or alternatively misrepresentation under the Misrepresentation Act 1972 (SA). They pleaded that the appellant made representations that he was willing and able to complete the works, would complete them upon receiving an upfront payment of $50,000 and they would be completed by 31 January 2020. They pleaded in the alternative that Sophisticated engaged in misleading conduct and the appellant was liable as a person involved in Sophisticated’s contravention.

The Magistrate concluded that no evidence concerning reasonable grounds for the representation or genuine intention was adduced by either party. Accordingly, the respondents failed to discharge the burden of proof under the Misrepresentation Act and the appellant failed to displace the statutory presumption under the Australian Consumer Law.

The appellant appeals against the judgment effectively on three grounds:

1The Magistrate ought not to have decided the case on the basis of the statutory presumption as to future matters in section 4 of the Australian Consumer Law because it was not pleaded and Mr Erhan was denied procedural fairness in relation to adducing evidence.

2The statutory presumption is confined to the question whether the representations of the primary contravenor are misleading and does not obviate the requirement that an individual liable by way of accessorial liability be knowingly involved in contravention; the onus falls on an applicant to prove that a respondent alleged to be liable by way of accessorial liability had actual knowledge that there were not reasonable grounds for the representation.

3The Magistrate failed to have regard to evidence given by the appellant that the 31 day time for completion was definitely achievable.

Held (allowing the appeal):

1An extension of time to appeal should be granted (at [71]).

2Reliance on section 4 of the Australian Consumer Law is required to be pleaded (at [81]).

3Reliance on section 4 was…

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AGLC
Erhan v Darko [2023] SASC 180
Case
[2023] SASC 180
Decision Date

CaseChat Overview and Summary

In the case of Erhan v Darko, the appeal was lodged by Mr Erhan against a decision made by a Magistrate in South Australia. The central dispute revolved around allegations of misleading and deceptive conduct under the Australian Consumer Law (ACL) and misrepresentation under the Misrepresentation Act, related to a contract for home renovation services. The primary issue was whether Mr Erhan, as the sole director and shareholder of a company called Sophisticated, was liable for misleading conduct either as a primary contravener or as an accessory. The appeal questioned the Magistrate's application of the statutory presumption in section 4 of the ACL and whether Mr Erhan's knowledge was adequately considered.

The Supreme Court examined several legal issues, including the applicability of the statutory presumption under the ACL, the distinction between primary contravention and accessorial liability, and the admissibility of evidence related to the feasibility of the completion date. The court considered whether the statutory presumption could be applied without prior pleading and if it affected the necessity for an individual to have actual knowledge of misleading conduct. Additionally, the court assessed the Magistrate's handling of evidence regarding the feasibility of the proposed completion date. Notably, one of the grounds of appeal, concerning the knowledge requirement for accessorial liability, was not argued in the appeal and was therefore implicitly abandoned.

The Supreme Court found that the Magistrate's decision to rely on the statutory presumption under the ACL was valid, as the presumption could be applied without the necessity of prior pleading. The court also determined that the presumption did not negate the requirement for an individual to have actual knowledge of misleading conduct, thus upholding the distinction between primary contravention and accessorial liability. Regarding the feasibility of the completion date, the court concluded that the Magistrate had not erred in her consideration of the evidence. Consequently, the appeal was dismissed, and the original judgment was upheld.

Orders

Orders of the court

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Background

Background to the litigation

Mr Erhan appeals against the judgment effectively on three grounds:1The Magistrate ought not to have decided the case on the basis of the statutory presumption as to future matters in section 4 of the Australian Consumer Law because it was not pleaded, and Mr Erhan was denied procedural fairness in relation to adducing evidence.[3]2The statutory presumption is confined to whether the representations of the primary contravenor are misleading and does not obviate the knowledge requirement that an individual liable by way of accessorial liability be knowingly involved in contravention; the onus falls on an applicant to prove that a respondent alleged to be liable by way of accessorial liability had actual knowledge that there were no reasonable grounds for the representation.[4]3The Magistrate failed to have regard to evidence given by Mr Erhan that the 31 day time for completion was definitely achievable.[5][3] Ground 1(a), (b) and (c).[4] Ground 1(d). Ground 2 was not argued on appeal and was implicitly abandoned.[5] This ground was not included in the notice of appeal. However, it was argued on appeal without objection by Ms Darko and Mr Ruigira and they responded to it on the merits.Background Ms Darko and Mr Ruigira owned a home at Parafield Gardens at the material times. On 27 July 2019 Mr Erhan incorporated Sophisticated. He was its sole director and shareholder. It never had any employees. In September 2019 Mr Erhan on behalf of Sophisticated was working on the house next door to Ms Darko’s and Mr Ruigira’s house. He had a conversation with Mr Ruigira. Mr Ruigira told Mr Erhan that they had half completed concreting the shed. Mr Erhan told Mr Ruigira that he had a building company and referred Mr Ruigira to a sign at the front of the neighbours’ house bearing Sophisticated’s name. Mr Erhan said that he could complete the concreting of the shed for Mr Ruigira if he wished. It was agreed that Sophisticated would do this for $4,000. Sophisticated sent to Mr Ruigira a tax invoice on 29 September 2019 in advance of undertaking that work. Mr Ruigira and Ms Darko paid $4,000 to Mr Erhan for the work. The work was satisfactorily performed in October 2019. Mr Ruigira had a further conversation with Mr Erhan. Mr Ruigira told Mr Erhan that they were working to landscape and concrete the backyard and renovate the pool. Mr Erhan told Mr Ruigira that he could undertake that work for him if he wished. On the morning of 29 December 2019 Ms Darko sent a text message to Mr Erhan asking him to meet them to discuss the job at their house and its commencing date. It was arranged that they would meet at 6.30 pm. During the meeting, Ms Darko and Mr Ruigira identified the works that they wanted done. Ms Darko and Mr Ruigira said that they were having an important family function and a family member was going to visit them from overseas to attend the function in the first week of February. They wanted the works to be completed by 31 January 2020. Mr Erhan said that he could achieve this.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

Various documents were tendered.Reasons for judgment The Magistrate summarised the background and the issues. The Magistrate expressed reservations about the evidence of Ms Darko and Mr Ruigira, and Mr Erhan. The Magistrate did not make credit findings. She said:…I have tried to avoid unnecessary reliance on the oral evidence. Where it has been necessary to prefer one party’s version of events, I have preferred the version that is inherently more plausible in view of the agreed facts or by reference to documentary evidence. The Magistrate summarised the law in relation to the Misrepresentation Act and Australian Consumer Law causes of action. In relation to the latter, she relevantly said:For someone to be involved in the contravention, they must have sufficient knowledge of the essential facts of the misleading or deceptive conduct. Relevantly, this will be made out where a person makes representations on behalf of an entity knowing that they are false.When considering statements of intent, the ACL sets out a more beneficial regime for the consumer than the Misrepresentation Act.Section 4 of the ACL provides that when a representation is made about a future matter, and the representor does not have reasonable grounds for making the representation, the representation will be found to be misleading and deceptive conduct.To defeat the statutory presumption, the representor must adduce some evidence of their reasonable grounds. Where the court is satisfied that any evidence of reasonable grounds is adduced, it will be for the applicants to prove on the balance of probabilities that the respondent had no reasonable grounds for making the statement.…Accordingly, Ms Darko and Mr Ruigira only have a cause of action against Mr Erhan … [u]nder the ACL, if the court is satisfied that:a)Mr Erhan knowingly engaged in conduct of Sophisticated that was misleading or deceptive (or likely to mislead or deceive),b)the conduct occurred in trade or commerce, andc)the misrepresentation involved a representation of some fact or involved a representation as to a future matter and Mr Erhan either did not adduce any evidence that he had reasonable grounds for making the representation, or, if any such evidence was adduced, the Court is satisfied on the balance of probabilities that he did not, in fact, have reasonable grounds.(footnotes omitted.) The Magistrate addressed Mr Erhan’s contention that any conduct by Sophisticated or him was not engaged in trade or commerce, as required by section 18 of the Australian Consumer Law, and there was no contract with Ms Darko and Mr Ruigira, as required by section 7 of the Misrepresentation Act, because the relationship was an informal relationship between friends. The Magistrate rejected that contention by reference to the objective evidence without making any findings as to disputed primary facts. The Magistrate addressed the contention by Ms Darko and Mr Ruigira that Mr Erhan was liable for misleading conduct as a primary contravenor. The Magistrate found that at all times Mr Erhan was acting on behalf of Sophisticated. The Magistrate made that finding by reference to the objective evidence, without making any findings as to disputed primary facts. This entailed a rejection of the applicants’ primary case that Mr Erhan was the primary contravenor, leaving them with their alternative case that he was an accessory.

Ratio Decidendi

Legal Principle Established

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