Erhan v Darko - [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 not pleaded by the respondents (at [87]).
4However, the appellant conducted his case at trial on the basis that the respondents were relying on section 4 such that he cannot now complain on appeal that it was not pleaded (at [93]).
5The statutory presumption under section 4 of the Australian Consumer Law is confined to the question whether the representations of the primary contravenor are misleading. It does not obviate the need for proof by the applicant that an individual liable by way of accessorial liability was knowingly involved in contravention and had actual knowledge that there were not reasonable grounds for the representation (at [113]).
6The Magistrate erred by conflating the position in respect of Sophisticated with the position in respect of the appellant. The Magistrate should have included an element that the Court was satisfied that the appellant knew that the representation was made and that there were not reasonable grounds for making it (at [115]).
7The Magistrate did not reason that, as sole director of Sophisticated, it could be inferred that the appellant knew that there were not reasonable grounds for making the representation. However, if she did, such reasoning would have been erroneous (at [119]-[120]).
8The Magistrate erred by failing to have regard to evidence given by the appellant that the 31 day time limit for completion of the works was definitely achievable. However, that evidence would not have been sufficient to discharge the onus if it had lain on the applicant (at [132]-[133]).
9It is not possible to determine the case on appeal because the Magistrate’s reasons are inadequate in making credit or factual findings (at [143]).
10Appeal allowed. Judgment set aside. Matter remitted to Magistrates Court for retrial (at [144]).

Competition and Consumer Act 2010 (Cth); Australian Consumer Law sch 2, ss 2(1), 4, 4 (2), 18(1), 236; Misrepresentation Act 1972 (SA) s 7; Trade Practices Act 1974 (Cth) ss 75B, 51A; Uniform Civil Rules 2020 (SA) rr 2.2(1), 67.2, 214.1, referred to.
Australian Competition & Consumer Commission v Universal Sports Challenge Ltd [2002] FCA 1276; Body Bronze International Pty Ltd v Fehcorp Pty Ltd [2011] VSCA 196; Dig It Landscapes Pty Ltd (in liq) v Bupa Aged Care Australia Pty Ltd [2022] FCA 47; Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82; Hatt v Magro [2007] WASCA 124; Pollock v Hicks [2015] NSWCA 122; Quinlivian v Australia Competition and Consumer Commission [2004] FCAFC 175; Robertson Street Proprieties Pty Ltd, v RPM Promotions Pty Ltd [2005] QCA 389; Yorke v Lucas (1985) 158 CLR 661, considered.

ERHAN v DARKO & ANOR
[2023] SASC 180
Magistrates Appeal: Civil

BLUE J: Mehmet Erhan appeals against judgment entered against him by a Magistrate in favour of Millicent Darko and Mugicho Ruigira for $50,000 damages for involvement in misleading conduct plus interest and costs. He seeks an extension of time to appeal.
On 29 December 2019 Mr Erhan’s company Sophisticated Home Renovations Pty Ltd (Sophisticated) entered into a contract with Ms Darko and Mr Ruigira to undertake building work at their home for $55,000 with a completion date of 31 January 2020.[1]
[1] Mr Erhan denied that there was a contract but the Magistrate found that there was. Mr Erhan does not appeal against that finding.
Ms Darko and Mr Ruigira paid $50,000 to Sophisticated towards the contract price for the works. The works were not completed by 31 January 2020. On 9 February 2020 the parties fell into dispute and Mr Erhan told Ms Darko and Mr Ruigira that Sophisticated would not be completing the job or refunding the monies paid.
Ms Darko and Mr Ruigira instituted an action in the Magistrates Court against Mr Erhan seeking damages for misleading conduct under the Australian Consumer Law (the Australian Consumer Law) enacted by the Competition and Consumer Act 2010 (Cth) or alternatively misrepresentation under the Misrepresentation Act 1972 (SA) (the Misrepresentation Act). Ms Darko and Mr Ruigira pleaded that Mr Erhan 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.[2] They pleaded that these representations were false because Mr Erhan had no intention of completing the works upon the receipt of $50,000 and the works would not be completed by 31 January 2020.
[2] They also pleaded that Mr Erhan made representations about being a licensed builder. However, the Magistrate did not find that they were made. Ms Darko and Mr Ruigira do not contend on appeal that the Magistrate erred in this respect. They can be ignored for the purposes of the appeal.
Ms Darko and Mr Ruigira pleaded that Mr Erhan thereby engaged in misleading conduct and was liable as a primary contravenor. The Magistrate rejected that case and it can be ignored for the purposes of the appeal.
Ms Darko and Mr Ruigira pleaded in the alternative that Sophisticated engaged in misleading conduct and Mr Erhan was liable as a person involved in Sophisticated’s contravention.
In her reasons for judgment, the Magistrate stated that section 4 of the Australian Consumer Law provides that, when a representation is made about a future matter and the representor does not have reasonable grounds for making the representation, it will be found to be misleading and, to defeat the statutory presumption, the representor must adduce some evidence of their reasonable grounds.
The Magistrate concluded that no evidence concerning reasonable grounds for the representation or genuine intention was adduced by either party. Accordingly, Ms Darko and Mr Ruigira failed to discharge the burden of proof under the Misrepresentation Act, and Mr Erhan failed to displace the statutory presumption under the Australian Consumer Law. The Magistrate assessed damages at $50,000.
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.
There was a dispute on the evidence about what else was said. Mr Erhan gave evidence that he said that completing the works by 31 January 2020 was subject to the weather and no additions to the works (as well as prompt payment). Mr Ruigira gave evidence that the only condition mentioned by Mr Erhan was prompt payment.
Mr Ruigira gave evidence that Mr Erhan said that he would complete the work one week before 31 January 2020 provided that they gave him cash at hand before engaging the tradesmen and paid the cash quickly. Ms Darko gave evidence that Mr Erhan said that he would complete the work before 31 January 2020 provided that they had the cash flow. Mr Erhan denied saying that he would complete the work before (as opposed to by) 31 January 2020.
Mr Ruigira gave evidence that Mr Erhan said that he would do the work for $55,000. Ms Darko gave evidence that they agreed a price less than the amount of $60,000 shown on the invoice sent by Mr Erhan later that night (implicitly $55,000). Mr Erhan gave evidence that he said that he would need to work out costs and get back to them.
Ms Darko and Mr Ruigira gave evidence that Mr Erhan asked to be paid in cash. Mr Erhan denied this and said that it was Ms Darko and Mr Ruigira who wanted to pay him in cash.
Late that evening, Mr Erhan sent a quotation (in the form of a tax invoice) by Sophisticated addressed to Mr Ruigira. It set out works to be undertaken and showed a proposed price of $60,000. The works comprised:
·remove existing fencing and old shed and supply and install replacement perimeter fencing with a single gate to left side of house;
·supply and install pool fencing with access gate;
·supply and install timber pool decking with lighting and power point;
·supply and install concrete basketball court;
·compact rubble and sand at front and back yards, level yard and supply and install artificial turf;
·supply and install timber sleepers to existing vegetable garden;
·remove all external concrete (including driveway) and supply and install replacement external concrete paving;
·supply and install aggregate path to front door and driveway to roller door;
·repair and service existing roller door including new motor with remote and replacement framing;
·repaint swimming pool; and
·repaint internal walls of existing house.
Under the heading “Comments” appeared the following:
Payment terms for 31 day handover
·$40,000 to start job
·$10,000 half way 15 days once work commences
·$5000 balance to be paid no later than February 28th 2020
Ms Darko sent a text message to Mr Erhan saying:
Thanks for your time and the quote. As discussed earlier today, we will be able to afford 50k by the completion of the job at the end of January and 5k by the end of Feb 2020. That is our max. Your quote is higher than the amount that we agreed on today. We are happy to pay a 50% deposit of the discussed 50k in the next day or two depending on the bank.
Mr Erhan sent a text message in response saying:
So the total job will be 55k. To start the job, I will require 40k seeing you want it done in a month and I’ll require cash flow. Then you can pay 10k mid job and the balance 5k by February. Just remember I cannot do the exposed aggregate concrete for 55k if you want it then it will cost you 60k…
Mr Erhan sent a revised quotation (in the form of a tax invoice) by Sophisticated addressed to Mr Ruigira. It showed a price of $55,000. It was otherwise identical to the $60,000 quote, except that the aggregate path to front door and driveway to roller door was deleted.
Ms Darko sent a text message in response saying “OK” and she would let him know when to pick up the funds.
On 30 December 2019, Ms Darko and Mr Ruigira paid $10,000 to Mr Erhan on behalf of Sophisticated. On the same day, Mr Erhan sent an email to Mr Ruigira acknowledging receipt of $10,000 and identifying payments of $30,000 due on 3 January 2020, $10,000 due on 15 January 2020 and $5,000 due on 28 February 2020.
On 3 January 2020 Ms Darko and Mr Ruigira paid $30,000 to Mr Erhan on behalf of Sophisticated.
On 13 January 2020 Mr Erhan sent two quotations (in the form of tax invoices) by Sophisticated addressed to Mr Ruigira. The first was to supply a CCTV security system for $1,800. The second was to supply and install an electric sliding gate for $7,800 and a custom entry gate with extra post and letterbox for $900.
Ms Darko and Mr Ruigira gave evidence that they had believed that the front gate was included in the original price of $55,000 but they agreed to pay the amount quoted for the gate. The gate was supplied and installed but there were issues in relation to its electric cabling and remote control.
On 15 January 2020 Ms Darko and Mr Ruigira paid $10,000 to Mr Erhan on behalf of Sophisticated.
In mid January 2020 Mr Erhan told Ms Darko and Mr Ruigira that it would be necessary to install stormwater pipes to take water from the shed to the street.
On 18 January 2020 Mr Erhan provided a quotation (in the form of a tax invoice) by Sophisticated addressed to Mr Ruigira to supply and install stormwater pipes for $2,500. This work was subsequently undertaken by Sophisticated.
By 31 January 2020 the works the subject of the 29 December 2019 contract were not complete. Ms Darko and Mr Ruigira gave evidence that Mr Erhan asked them to give him another week to finish the job and they agreed.
On 8 February 2020 Mr Erhan sent an email to Mr Ruigira acknowledging payment of $2,500 for the stormwater pipes.
On 9 February 2020 the parties fell into dispute. Mr Erhan said that he would only undertake certain concreting work if he were paid an extra $4,580. Ms Darko and Mr Ruigira said that Mr Erhan had previously agreed to do that concreting work instead of artificial turf as part of the work for which he was to be paid $55,000 because concreting was cheaper. Mr Erhan denied this. Mr Erhan told Ms Darko and Mr Ruigira that Sophisticated would not be completing the job or refunding monies paid.
It was an agreed fact that at that time the works the subject of the 29 December 2019 contract were not complete, except for the perimeter fencing and pool decking.
It was an agreed fact that the works not completed were:
·pool fencing;
·basketball court;
·artificial turf to front of house;
·concrete paving;
·roller door;
·pool painting; and
·internal painting.
Mr Ruigira gave evidence that the shed, concrete and pool fence were removed but no part of the original works was completed apart from the fencing and the decking. Mr Erhan did not give evidence disputing this. Mr Erhan did not discover any invoices from suppliers or subcontractors for works undertaken.
There was a dispute on the evidence as to what was said on 9 February 2020. Ms Darko and Mr Ruigira gave evidence that Mr Erhan made threats of physical violence to Ms Darko and Mr Ruigira. Mr Erhan denied that and gave evidence that Ms Darko made a threat to him that she was a lawyer and abused him.
Ms Darko and Mr Ruigira engaged Webster Lawyers who sent letters to Sophisticated or Mr Erhan dated 17 February 2020 and 3 March 2020 (which were not tendered). Sophisticated engaged Van Dissels Solicitors, who replied to Webster Lawyers on 17 March 2020.

On 15 April 2020 Sophisticated applied to the Australian Securities and Investments Commission to be voluntarily deregistered.
In July 2020 Ms Darko and Mr Ruigira and Sophisticated, by their respective solicitors, entered into an agreement involving the performance of work by Sophisticated and payments made by Ms Darko and Mr Ruigira with a view to resolving the dispute between the parties. It was common ground at trial that the dispute was not ultimately resolved by that agreement.
Ms Darko and Mr Ruigira engaged five contractors to complete some of the work the subject of the 29 December 2019 agreement and purchased materials to complete some of the work themselves. They paid a total of $48,108 to those contractors and for those materials. They undertook the pool painting, the turf and the concrete themselves.
On 12 February 2021 Sophisticated was deregistered by the Australian Securities and Investments Commission.
In May 2021 Ms Darko and Mr Ruigira instituted the action against Mr Erhan.
Trial
Evidence was given by Ms Darko and Mr Ruigira, and by Mr Erhan.
There were numerous conflicts between the evidence given by Ms Darko and Mr Ruigira on the one hand and Mr Erhan on the other hand such that they could not both be telling the truth.
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, and
c)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.
Under the heading “Was Mr Erhan a ‘person involved’ for the purpose of s 236 of the ACL?”, the Magistrate relevantly said:
… in this case there is no need to traverse a matrix of complex facts or seek guidance from the authorities to find that ‘knowing involvement’ for the purpose of s. 236 of the ACL.
The respondent submits that it has not been shown that he knew that the statements made were misleading or deceptive.
For a person to be knowingly involved in a contravention for the purpose of s 236, they must have actual knowledge of the representations and of the circumstances which give those representations the character of being misleading or deceptive or likely to mislead or deceive. Importantly, it does not need to be shown that the person actually knew that the representations were misleading, deceptive or false; it is only necessary to show that the person knew the relevant facts and circumstances which made them so.
It is self-evident that where the representations were made by Mr Erhan personally for the purpose of inducing the applicants to enter a contract with Sophisticated, he is knowingly involved in a contravention of the ACL.
As a sole director and beneficiary of Sophisticated, it can be clearly inferred that Mr Erhan was apprised of all the relevant circumstances which might render the alleged representations misleading or deceptive conduct for the purposes of s 18 ACL.
(footnotes omitted.)
The Magistrate addressed the pleaded case of Ms Darko and Mr Ruigira that Mr Erhan made representations that he was a licensed builder and could not have owned and run a building company if he was not a licensed builder. The Magistrate was not satisfied that Mr Erhan said that he personally was licensed, as opposed to saying that he would engage licensed tradespeople to undertake the works.
Under the heading “The Completion Representations” the Magistrate relevantly said:
Mr Erhan was asked about the 31 day handover and gave evidence to the effect that the applicants wanted the work done in advance of a family gathering and that he told them that he could get it done within that timeframe.
He told the court that he specified the payment terms to ensure that he could meet the timeframe by paying for materials and tradespeople in advance. He also told the Court that the 31 day timeframe was subject to the weather and any owner-requested variations to the scope of works.
The question for the court is whether Mr Erhan represented to the applicants that Sophisticated would complete the works by 31 January 2020 if the payment terms were met and if so, whether he had reasonable grounds for making that representation. In that context, a finding that Mr Erhan placed conditions on the representation would be supplementary to the apparently uncontroversial finding that the representation was made.
Under the heading “Did the Completion Representations amount to a breach of the Misrepresentation Act or the ACL?” the Magistrate relevantly said:
By representing to the applicants that the work would be completed by 31 January 2020 if payment terms were met, Mr Erhan was not making a representation of fact but rather a representation as to a future matter.
…
A remedy will only be available under the ACL if Mr Erhan had no reasonable grounds for making the representation. As previously mentioned, there is no onus on the respondent to prove he had reasonable grounds for his representation, he just needs to adduce some evidence in order to discharge the statutory presumption and shift the onus to the applicants.
Under the heading “Implied representation of fact” the Magistrate relevantly said:
I am satisfied that the completion representations contained the implied representations that, as a matter of fact:
·Sophisticated had the capacity, ability and expertise required to complete the scope of work by 31 January 2020;
·Sophisticated genuinely intended to complete the scope of work by 31 January 2020;
·Sophisticated had reasonable grounds for representing that it could complete the scope of work by 31 January 2020.
Under the heading “Was the intention genuinely held, or held on reasonable grounds?” the Magistrate relevantly said:
The parties agree that the work was not completed by 31 January 2020. In essence, the applicants rely on the fact of non completion as, ipso facto, evidence Mr Erhan had no genuine intent to complete the work sometime, or had no reasonable grounds for the representation when it was made. No evidence about Mr Erhan’s state of mind as at 29 December 2019 was adduced by the applicants or volunteered by Mr Erhan
Neither party proffered any evidence about the nature and scope of projects that Sophisticated had previously completed, or about the timeframes that it had worked within. In terms of trading history, Mr Erhan was asked about tax invoice number 47 issued to the applicants on 29 September 2019. He denied that the invoice number implied that it was Sophisticated’s 47th job saying, "I can start the numbering wherever I want". He did not give any positive evidence as to how many previous jobs Sophisticated had been contracted to complete.
The applicants did not suggest by evidence or submissions that Sophisticated had a history of failing to meet deadlines. Conversely, Mr Erhan proffered no evidence of Sophisticated’s past compliance with landscaping contract terms.
Mr Erhan conceded on cross examination that he had no formal qualifications in building or landscaping, but no materials were tendered by the applicants suggesting Sophisticated did not have suitably qualified and licenced tradespeople available to undertake work. Conversely, Mr Erhan did not put any evidence of standing arrangements with sub-contractors before the court.
Neither the applicants nor Mr Erhan gave or tendered any evidence about the availability of sub-contractors to commence work immediately and dedicate the necessary resources to complete the works on time.
I have reviewed the tender documents, considered the oral evidence, and read the written submissions and I find that no evidence concerning the reasonable grounds for the representation (or genuine intention) was adduced by either party.
Accordingly, the applicants have failed to discharge the burden of proof under the Misrepresentation Act and Mr Erhan has failed to displace the statutory presumption under the ACL.
For the foregoing reasons I find that Mr Erhan did not breach s. 7 of the Misrepresentation Act but he was knowingly involved in the conduct of Sophisticated that breached s. 18 of the ACL.
The legislative regime
Subsection 18(1) of the Australian Consumer Law provides:
18 Misleading or deceptive conduct
(1)A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
Subsection 236(1) provides:
236 Actions for damages
(1)If:
(a) a person (the claimant) suffers loss or damage because of the conduct of another person; and
(b) the conduct contravened a provision of Chapter 2 or 3;
the claimant may recover the amount of the loss or damage by action against that other person, or against any person involved in the contravention.
Subsection 2(1) defines “involved” as follows:
involved: a person is involved, in a contravention of a provision of this Schedule or in conduct that constitutes such a contravention, if the person:
(a)has aided, abetted, counselled or procured the contravention; or
(b)has induced, whether by threats or promises or otherwise, the contravention; or
(c)has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or
(d)has conspired with others to effect the contravention.
Section 4 provides:
4 Misleading representations with respect to future matters
(1)If:
(a)     a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act); and
(b)     the person does not have reasonable grounds for making the representation;
the representation is taken, for the purposes of this Schedule, to be misleading.
(2)For the purposes of applying subsection (1) in relation to a proceeding concerning a representation made with respect to a future matter by:
(a)     a party to the proceeding; or
(b)     any other person;
the party or other person is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary.
(3)To avoid doubt, subsection (2) does not:
(a)     have the effect that, merely because such evidence to the contrary is adduced, the person who made the representation is taken to have had reasonable grounds for making the representation; or
(b)     have the effect of placing on any person an onus of proving that the person who made the representation had reasonable grounds for making the representation.
(4)Subsection (1) does not limit by implication the meaning of a reference in this Schedule to:
(a)     a misleading representation; or
(b)     a representation that is misleading in a material particular; or
(c)     conduct that is misleading or is likely or liable to mislead;
and, in particular, does not imply that a representation that a person makes with respect to any future matter is not misleading merely because the person has reasonable grounds for making the representation.
Extension of time
Mr Erhan seeks an extension of time in which to appeal.
The Magistrate made orders on 16 December 2022. Under rule 214.1 as modified by subrule 2.2(1) of the Uniform Civil Rules 2020 (SA) (the Uniform Civil Rules), an appeal was required to be instituted by 13 January 2023. The appeal was instituted on 20 February 2023.
The Magistrate had appointed the Public Trustee as litigation guardian for Mr Erhan. A solicitor from the Crown Solicitor’s Office for the Public Trustee acted as counsel for Mr Erhan at trial. The Public Trustee, acting as litigation guardian, decided not to appeal against the judgment. The appointment of the Public Trustee as litigation guardian was not revoked until shortly after the institution of the appeal.
An affidavit by Mr Erhan affirmed on 22 November 2022 was tendered at the hearing of the appeal. He deposed to the fact that he was not aware that there was a time limit to institute an appeal until he was informed of it by Registry staff on filing the notice of appeal on 20 February 2023.
Mr Erhan deposed to the fact that from 16 December 2022 onwards he looked for legal representation. He spoke to two or three law firms who were recommended by the Law Society, who requested payment of monies into trust. Mr Erhan did not have funds at that time to pay monies into trust and found it not possible to obtain legal representation. Ultimately, he decided to prepare and file the notice of appeal himself.
Mr Erhan deposed to having had prior mental health issues. He said that the stress of the judgment affected his levels of anxiety which affected how he dealt with the matter to some extent.
For the reasons given below, there is merit in the grounds of appeal. The delay in instituting the appeal is not extensive and was explained by Mr Erhan. In the circumstances, it is appropriate to exercise my discretion to extend the time to appeal to 20 February 2023.
Entitlement to rely on section 4
The first grounds of appeal are that the 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.
These grounds raise three sub-issues:
1Is reliance on section 4 of the Australian Consumer Law required to be pleaded?
2If so, was such reliance pleaded?
3If not, did Mr Erhan conduct his case at trial on the basis that the applicants were relying on section 4 such that he cannot now complain on appeal that it was not pleaded?
Requirement to plead
Subrule 67.2(2) of the Uniform Civil Rules relevantly provides:
67.2—Pleading rules
...
(2)A pleading must—
(a)     set out the affirmative facts relied on by the party to establish the party’s claim …;
(b)     identify any statutory provision relied on by the party to establish the party’s claim …; and
(c)     give fair notice of the party’s case to the opposing party so as to avoid the opposing party being taken by surprise at or in preparation for trial.
Sections 18 and 236 of the Australian Consumer Law in combination create a statutory cause of action for damages for conduct that is misleading or deceptive or likely to mislead or deceive (collectively misleading conduct). They do not in general define what amounts to misleading conduct, leaving that to the ordinary meaning of the words.
Subsection 4(1) of the Australian Consumer Law effectively partially defines misleading conduct as including (without limiting the general concept of misleading conduct) making a representation with respect to a future matter without having reasonable grounds to do so.
Whenever a person makes a representation as to a future matter wholly or partially within their control, without being exhaustive and depending on the circumstances, it may be that they implicitly represent that:
1they presently intend to act in the future so that the future matter will occur as represented;
2they have the capacity and ability (absent unforeseen/unforeseeable circumstances) to ensure that the future matter occurs; and/or
3there are reasonable grounds for representing that the future matter will occur.[6]
[6] See the discussion in Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd(1984) 2 FCR 82 at 88 per Bowen CJ, Lockhart and Fitzgerald JJ.
Each of these implied representations is a representation as to present fact. Each is required by subrule 67.2(2) to be pleaded.
Subsection 4(1) is effectively a statutorily implied representation whenever a person makes a representation as to a future matter. It effectively forms part of a cause of action of misleading conduct where an applicant relies on it in relation to a representation as to a future matter. It is required by both paragraph (a) and paragraph (b) of subrule 67.2(2) to be pleaded.
In addition, if the fact that the applicant is relying on subsection 4(1) is not pleaded, the applicant will not give fair notice to the respondent of their case. Reliance on subsection 4(1) is therefore also required by paragraph (c) of subrule 67.2(2) to be pleaded.
Reliance on section 4 of the Australian Consumer Law was required to be pleaded in a form that gave notice of the applicants’ case in this respect.
Is it pleaded?
Paragraphs 21 and 22 of the Statement of Claim relevantly pleaded:
21On 29 December 2019 the respondent … said words to the effect that:
…
21.2 The respondent would complete the works upon receiving an up-front payment of $50,000.00 with the remaining $5,000.00 to be paid upon completion;
21.3 The works would be completed by 31 January 2020 which is why payment was required upfront.
…
22In fact, the quotation representations were false in that:
…
22.2 The respondent had no intention on completing the works upon the receipt of $50,000 from the applicants; and
22.3 The works would not be completed by 31 January 2020.

The alternative plea of accessorial liability was contained in paragraph 28, which pleaded:
28.In the alternative to the plea in paragraph 24A, if the representations pleaded in paragraph 21 above are held by this Honourable Court to have been made by Sophisticated and not the respondent (which is denied), then by reason of the matters pleaded in [specified paragraphs], the respondent:
28.1 aided, abetted, counselled, or procured (within the meaning of subparagraph (h) of the definition of involved in section 2 of the ACL) the contravention of Sophisticated pleaded in paragraph 24A above; and/or
28.2 was directly or indirectly, knowingly concerned in, or a party to (within the meaning of subparagraph (h) of the definition of involved in section 2 of the ACL) the contravention of Sophisticated pleaded in paragraph 24A above.
Ms Darko and Mr Ruigira contend that, because paragraph 21 refers to a future event, namely completion of the works, they adequately pleaded reliance on section 4.
However, merely to plead reference to a future event is insufficient in itself to indicate that an applicant’s case is relying on section 4, or that the respondent lacked reasonable grounds for making the statement as to the future. This is compounded in the present case by the pleading in paragraph 22.2 that Mr Erhan had no intention of completing the works. Paragraph 22.3 is open to being read in the same way, namely that Mr Erhan had no intention of completing the works by 31 January 2020.
The observations made by Jackson J in Dig It landscapes Pty Ltd (in liq) v Bupa Aged Care Australia Pty Ltd[7] are applicable:
…Dig It's case as to why the alleged representations were misleading or deceptive is not at all clear from the ASOC. It is still not clear after opening submissions and would not be clear if the proposed amendment were allowed.
…
But even if I were disposed to find that all of the alleged representations had been clearly pleaded as representations with respect to future matters, that would not be enough. It would still be necessary for Dig It to say why the alleged representations were misleading or deceptive at the time they were made. It does not follow from their (assumed) character as representations in respect of future matters that Dig It must be alleging that there were no reasonable grounds for making them. There is an infinite variety of ways in which conduct can be misleading or deceptive, and it should not be taken that there are closed categories.
There are at least two well recognised ways in which representations to future matters can be misleading or deceptive. They emerge from the following passage from Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd:
The non-fulfilment of a promise when the time for performance arrives does not of itself establish that the promisor did not intend to perform it when it was made or that the promisor's intention lacked any, or any adequate, foundation. Similarly, that a prediction proves inaccurate does not of itself establish that the maker of the prediction did not believe that it would eventuate or that the belief lacked any, or any adequate, foundation. Likewise, the incorrectness of an opinion (assuming that can be established) does not of itself establish that the opinion was not held by the person who expressed it or that it lacked any, or any adequate, foundation.
Here, Dig It claims that the alleged representations were promissory in nature. So they could have been misleading because Bupa had no intention to fulfil them, or they could have been misleading because Bupa had no reasonable grounds to think that they could or would be fulfilled. Bupa was entitled to know whether either or both of these were alleged (or, conceivably, whether the misleading nature of the alleged representations was put on some other basis). Dig It's pleading is deficient because it does not say why the alleged representations were misleading, leaving Bupa without prior notice of the case to be put against it in that regard.[8]
[7] [2022] FCA 47.
[8] At [11], [15]-17]. (Citation omitted)
Reliance on section 4 of the Australian Consumer Law was not pleaded.
Conduct at trial
During the applicants’ opening at trial, counsel for the applicants referred to accessorial liability. The following exchange occurred between counsel for the applicants and the Magistrate:
Her Honour: That’s the lowest threshold for your client to get over at law … It is a lower threshold than that that’s required under the Misrepresentation Act … and essentially requires Mr Erhan to satisfy me as to his … reasonable basis for making those representations… But I just want to be clear that’s essentially what the case is; that Mr Erhan was knowingly involved in these particular representation that are set out in para. 21.
Mr Bouras:Yes.
…
Her Honour:     You say he was not only knowingly involved but he must have known at the time that they were false.
Mr Bouras:Yes.
Her Honour:     And he had no reasonable basis for believing otherwise.
Mr Bouras:Yes.
Her Honour:     And in those circumstances you get over the ACL test, if you like.
Mr Bouras:Yes.
Counsel for Mr Erhan made no objection to the identification of the case in this manner.
In his written closing address, when addressing the question whether the representations were misleading, counsel for the applicants said:
Given that the representations pleaded in paragraphs 21.2 and 21.3 of the Statement of Claim … are representations as to future matters, pursuant to section 4 of the ACL those representations are taken to be misleading unless the respondent establishes by admissible evidence that he had ‘reasonable grounds’ for making them. For the reasons that follow, the respondent has not discharged that evidential burden.
In his written closing address, counsel for Mr Erhan made no complaint about the applicants’ reliance on section 4. He addressed it on its merits, saying:
The Respondent himself has not been shown to know that the statements made were misleading or deceptive, or alternately that the company had no reasonable grounds for making them.
No affidavit or other evidence was adduced on appeal from Mr Erhan’s counsel that he did not understand at trial that the applicants were relying on section 4 of the Australian Consumer Law.
Given his conduct at trial, Mr Erhan acquiesced in the applicants relying on section 4 despite the fact that reliance on it was not pleaded. He is bound by that conduct.
However, while Mr Erhan must have known that the applicants were relying on section 4 implying a representation that Sophisticated had reasonable grounds for the future statements and imposing an evidentiary onus on him to adduce some evidence that Sophisticated had reasonable grounds for them, he was not put on notice that the applicants relied on section 4 (if they did) to impose on him an evidentiary onus to prove that he did not know that there were not reasonable grounds for the future statements. I address this below.
Conclusion
Subject to the caveat in the previous paragraph, these grounds of appeal considered collectively are not established.
The statutory presumption
The next ground of appeal is that the statutory presumption is confined to whether the representations of the primary contravenor are misleading and does not obviate the requirement for 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.
For economy of expression I refer to a person alleged to be liable by way of accessorial liability as an accessory without implying that the person is in fact so liable.
The law
Subsection 4(2) of the Australian Consumer Law provides:
For the purposes of applying subsection (1) in relation to a proceeding concerning a representation made with respect to a future matter by:
(a)a party to the proceeding; or
(b)any other person;
the party or other person is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary.
The references to the “party” and the “other person” in the chaussette to subsection 4(2) are clearly intended to be read distributively with the references in paragraph (a) to “a party to the proceeding” and in paragraph (b) to “any other person” respectively. In other words, the subsection operates as if it provided:
(a)For the purposes of applying subsection (1) in relation to a proceeding concerning a representation made with respect to a future matter by a party to the proceeding, the party is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary.
and
(b)For the purposes of applying subsection (1) in relation to a proceeding concerning a representation made with respect to a future matter by any other person, the other person is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary.
Thus, in a proceeding against a primary contravenor (a “party”), the primary contravenor is deemed in the absence of evidence to the contrary not to have had reasonable grounds for making the representation. In a proceeding against an accessory, the primary contravenor (an “other person”) is deemed in the absence of evidence to the contrary not to have had reasonable grounds for making the representation.
Subsection 4(2) does not deem an accessory to know that the primary contravenor lacked reasonable grounds for making the representation. Subsection 4(2) simply does not address the requirement for a person to be knowingly concerned or “involved” in a primary contravention.
In Yorke v Lucas[9] the High Court addressed the definition of person involved contained in section 75B of the Trade Practices Act 1974 (Cth) (the Trade Practices Act), which was in the same terms as the definition of person involved contained in section 2 of the Australian Consumer Law. The High Court held that paragraphs (a), (b) and (d) and the limb of paragraph (c) referring to an accessory being a party to a contravention required an accessory to be an intentional participant in the contravention with knowledge of the elements of it. The High Court held that the limb of paragraph (c) referring to an accessory being knowingly concerned in a contravention requires knowledge of the essential facts constituting the contravention.
[9] (1985) 158 CLR 661.
Mason ACJ, Wilson, Deane and Dawson JJ said:
A contravention of s. 52 involves conduct which is misleading or deceptive or likely to mislead or deceive and the conduct relied upon in this case consisted of the making of false representations. Whilst Lucas was aware of the representations - indeed they were made by him - he had no knowledge of their falsity and could not for that reason be said to have intentionally participated in the contravention.
…
The appellants also rely upon par.(c) of the same section which extends the definition of a person involved to a person who has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention. There can be no question that a person cannot be knowingly concerned in a contravention unless he has knowledge of the essential facts constituting the contravention. It cannot, therefore, be suggested that Lucas falls within the first limb of par.(c)…
…
We have already indicated why par.(a) requires knowledge. Paragraph (b), which speaks of inducing a contravention by threats, promises or otherwise, and par.(d), which speaks of conspiring with others to effect a contravention, both clearly require intent based upon knowledge… In our view, the proper construction of par.(c) requires a party to a contravention to be an intentional participant, the necessary intent being based upon knowledge of the essential elements of the contravention.[10]
[10] At 667-668, 669-670.
In the case of a representation that there are reasonable grounds for a statement about a future matter (whether express or implied by section 4 of the Australian Consumer Law), an accessory is only knowingly concerned if the accessory knows that there are not reasonable grounds for the statement.
In Quinlivan v Australian Competition and Consumer Commission[11] the Full Court of the Federal Court held that, where a statement is made about a future matter and the applicant relies on section 75B of the Trade Practices Act, the accessory is only liable if the accessory knows that there are not reasonable grounds for the statement. Heerey, Sundberg and Dowsett JJ said:
From the interaction of these provisions three conclusions emerge. First, s 51A does not detract from the Yorke principle that actual knowledge of the essential elements of the contravention is required if s 75B or s 80 is to apply. Where the contravening conduct involves misrepresentation, whether as to a future matter or not, this principle requires actual knowledge by the accessorial respondent of the falsity of the representation. This is an essential matter which must be alleged and proved.
…
Accordingly, where s 75B or s 80 accessorial liability is in issue in relation to a representation with respect to a future matter, the existence or otherwise of reasonable grounds will be relevant. If reasonable grounds exist, there will have been no contravention and thus no question of accessorial liability will arise. However, as against the accessorial respondent, the onus will be on the applicant to show the respondent had actual knowledge that
·the representation was made and
·it was misleading or
·the corporation had no reasonable grounds for making it.[12]
[11] [2004] FCAFC 175, (2004) 160 FCR 1.
[12] At [10], [15]. (Citations omitted)
This decision has been followed in various intermediate court of appeal decisions, including Robertson Street Properties Pty Ltd v RPM Promotions Pty Ltd,[13] Hatt v Magro,[14] Body Bronze International Pty Ltd v Fehcorp Pty Ltd[15] and Pollock v Hicks.[16] These decisions relate to the interaction of section 51A and the definition of person “involved” in section 75B of the Trade Practices Act. However, their reasoning applies equally to the interaction of section 4 and the definition of person “involved” in section 2 of the Australian Consumer Law.
[13] [2005] QCA 389 at [37] per Keane JA (with whom McMurdo P and McPherson agreed).
[14] [2007] WASCA 124 at [42], [50] per Steytler P (with whom Wheeler JA agreed).
[15] [2011] VSCA 196, (2011) 34 VR 536 at [69] per Macauley AJA (with whom Harper and Hansen JJA agreed).
[16] [2015] NSWCA 122 at [66] per Gleeson JA (with whom MacFarlan and Emmett JJA agreed).
There is a difference between subsection 51A(2) of the Trade Practices Act and subsection 4(2) of the Australian Consumer Law in that the presumption in subsection 51A(2) was simply expressed to deem the corporation, in a proceeding concerning a representation by the corporation with respect to a future matter, not to have had reasonable grounds for making the representation. This was ambiguous as to whether the presumption only applied (to the corporation’s state of mind) in a proceeding against the corporation or also applied (to the corporation’s state of mind) in a proceeding against an accessory.
In Quinlivan v Australian Competition and Consumer Commission[17] the Full Court of the Federal Court held that the presumption only applied in a proceeding against the corporation and not in a proceeding against an accessory. Heerey, Sundberg and Dowsett JJ adopted the reasoning of Emmett J in Australian Competition and Consumer Commission v Universal Sports Challenge Pty Ltd.[18] Their Honours said:
Secondly, the reversal of onus in s 51A(2) does not apply where the accessorial liability of s 75B or s 80 is relied on. This question was considered by Emmett J in Australian Competition and Consumer Commission v Universal Sports Challenge Pty Ltd. … his Honour said (emphasis in original):
“43    In the present case, Universal is no longer a party to the proceeding because, as I have said, the proceeding has now been dismissed as against Universal. Accordingly, it is no longer possible for Universal to adduce any evidence in the proceeding. On one view, if s 51A(2) applies as against Mr Kotowicz, it would give rise to an irrebuttable presumption so far as he is concerned. That is to say, since Universal cannot adduce evidence to the contrary, it is deemed, as against Mr Kotowicz not to have had reasonable grounds for making any relevant representation. No evidence led by Mr Kotowicz would lead to any different conclusion.
44      One view of s 51A is that it provides that a corporation is deemed, as against any party to a proceeding, not to have had reasonable grounds for making a representation unless that party adduced evidence to the contrary. That, however, is not what the section says. There could well be good policy reasons for imposing on a person who makes a representation with respect to a future matter the evidentiary onus of demonstrating that the representation was not misleading. It is a different matter altogether, however, to impose such a burden on a person who did not make the representation, albeit a person who was knowingly involved in the making of the statement.
45      That is a good reason for construing s 51A as giving rise to a deeming only as against a principal contravener of the Act. That is to say, it does not have any relevance as regards a claim against a person who is only alleged to have been involved in or to have been a party to a contravention by another person. That is the present case.” [19]
[17] [2004] FCAFC 175, (2004) 160 FCR 1.
[18] [2002] FCA 1276.
[19] At [11]. (Citations omitted)
By contrast, as observed above, subsection 4(2) of the Australian Consumer Law explicitly provides that the presumption that the primary contravenor does not have reasonable grounds applies not only in a proceeding against the primary contravenor but also in a proceeding against an accessory. However, it does not enact any presumption that the accessory knows that the primary contravenor does not have reasonable grounds.
In two intermediate appellate court decisions that considered the interaction between section 51A and the definition of person “involved” in section 75B of the Trade Practices Act, the Court referred to the construction of subsection 51A(2) adopted in Quinlivan referred to at [105] above but went on to consider the position on the assumption that, on its proper construction, the presumption that the primary contravenor does not have reasonable grounds applies in a proceeding against the accessory. Those decisions held that nevertheless there was no presumption that the accessory knew that the primary contravenor did not have reasonable grounds.
In Hatt v Magro[20] Steytler P (with whom Wheeler JA agreed) said:
The third difficulty is that it is not clear what part, if any, s 51A(2) played in the trial Judge's reasons. It seems to me from what he said to the effect set out in (e) and (f) that he did not regard that section as having any operation in respect of the appellants. However, counsel for Mr Magro contended that the operation of the section may have led to the trial Judge's decision that the Club had contravened s 52, even though he did not mention it in that context. It has been held that s 51A(2) cannot be relied upon to establish the contravention by the principal in a case which proceeds only against the accessories. If that is correct, it was not open to the trial Judge to rely upon s 51A(2) if, indeed, he did so. An alternative approach might be that s 51A(2) continues to apply in such a case, but only for the purpose of determining whether there has been a contravention by the principal (irrespective of whether or not the claim is against the principal, or the accessory, or both). However, even this approach would not relieve a plaintiff of the obligation to prove that an accessorial defendant was involved in the contravention and, hence, that the defendant had actual knowledge of all of the essential elements of that contravention, including, where applicable, an absence of reasonable grounds for making a representation as to a future matter. It is consequently plain that s 51A(2) is, on any basis, of no practical assistance in establishing the accessorial liability of the appellants.[21]
[20] (2007) 34 WAR 256 at [50].
[21] At [50].

In Body Bronze International Pty Ltd v Fehcorp Pty Ltd[22] Macauley JA (with whom Harper and Hansen JJA agreed) said:
Even if, contrary to my previously expressed view, Fehcorp could employ s 51A and the failure of Body Bronze to prove that it intended to fulfil its contractual obligation at the time of entering the Franchise Agreement, to establish a contravention of s 52 against Body Bronze, that does not assist Fehcorp in establishing that either Meneilly or Mitchell were involved in such contravention.[23]
[22] (2011) 34 VR 536.
[23] At [71].
In conclusion, subsection 4(2) of the Australian Consumer Law does not enact a presumption that an accessory knows that the primary contravenor does not have reasonable grounds for making a statement as to a future matter. When the statutory presumption operates to deem the primary contravenor not to have had reasonable grounds, both the evidentiary onus and the persuasive onus of proof lie on the applicant to prove that the accessory knew that the primary contravenor did not have reasonable grounds.
The Magistrate’s reasoning
The Magistrate relevantly said in the last paragraph reproduced at [55] above:
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, and
c)the misrepresentation … involved a representation as to a future matter and Mr Erhan … did not adduce any evidence that he had reasonable grounds for making the representation...
For the reasons given above, the statement in paragraph (c) involves an error of law. The Magistrate conflated the position in respect of Sophisticated with the position in respect of Mr Erhan. The Magistrate should have said that element (c) comprised the misrepresentation involving a representation as to a future matter and Mr Erhan did not adduce any evidence that Sophisticated had reasonable grounds for making the representation. However, more importantly the Magistrate should have included a fourth element (d) that the Court was satisfied that Mr Erhan knew both that the representation was made and that there were not reasonable grounds for making it.
This error of law vitiates the Magistrate’s ultimate conclusion expressed in the last three paragraphs reproduced at [60] above that, no evidence concerning reasonable grounds for the representation having been adduced by either party, Mr Erhan had failed to displace the statutory presumption under section 4 and was knowingly concerned in the conduct of Sophisticated that breached section 18 of the Australian Consumer Law.
The applicants’ contention
On appeal, Ms Darko and Mr Ruigira do not contend that the statutory presumption under section 4 of the Australian Consumer Law encompasses a presumption that Mr Erhan knew that there were not reasonable grounds for the representation. If they had advanced that contention, I would have rejected it for the reasons given above.
Rather, Ms Darko and Mr Ruigira contend that the reference to “the foregoing reasons” at the beginning of the last paragraph reproduced at [60] above is a reference to the Magistrate’s finding in the last paragraph reproduced at [55] above that, as sole director and beneficiary of Sophisticated, it can be inferred that Mr Erhan was apprised of all the relevant circumstances which might render the alleged representations misleading conduct for the purposes of section 18 of the Australian Consumer Law.
I reject that contention. A natural reading of the last three paragraphs reproduced at [60] above is that the Magistrate was relying on the statutory presumption under subsection 4(2) and the lack of evidence adduced by Mr Erhan which she had just referred. In addition, in the passage reproduced at [55], the Magistrate did not refer to future matters, reasonable grounds or section 4 of the Australian Consumer Law. The Magistrate referred only generically to misleading conduct under section 18 of the Australian Consumer Law.
In any event, even if the construction of the Magistrate’s reasons advanced by Ms Darko and Mr Ruigira were correct, the postulated reasoning by the Magistrate would itself have involved an error of law.
Ms Darko and Mr Ruigira bore both the evidentiary and the persuasive onus of proof that Mr Erhan knew that Sophisticated did not have reasonable grounds for making a statement that the works would be completed by 31 January 2020. In circumstances where Mr Erhan was the sole directing mind and will and actor and speaker on behalf of Sophisticated, it was clear that Sophisticated’s statements were his statements and its state of mind was his state of mind.
However, the question whether Sophisticated had reasonable grounds for stating that the works would be completed by 31 January 2020 involved an objective test, namely whether a reasonable person in the position of Sophisticated would have had reasonable grounds for making the statement. It would not follow from the fact that a reasonable person would not have had reasonable grounds that Sophisticated or Mr Erhan knew that there were not reasonable grounds for making the statement.
If the Magistrate had made a finding that Ms Darko and Mr Ruigira had proved that Sophisticated did not have reasonable grounds for making the statement (rather than relying on the presumption under subsection 4(2)), the Magistrate would necessarily have made findings as to the facts by reason of which Sophisticated lacked those reasonable grounds. The Magistrate would then have had a foundation to make a finding that Mr Erhan knew those facts and knew that Sophisticated lacked reasonable grounds for the statement.
However, as the Magistrate found that there was no evidence adduced by either party as to reasonable grounds, that left a vacuum to which findings as to Mr Erhan’s knowledge could not attach. The Magistrate lacked any factual foundation or factual subject matter for a finding that Mr Erhan knew the facts by reason of which Sophisticated lacked reasonable grounds or knew that it lacked reasonable grounds.
It would have been illegitimate and impermissible for the Magistrate to have reasoned (if she did) that Mr Erhan knew whatever Sophisticated knew and, if there were not reasonable grounds for Sophisticated’s statement, ipso facto Mr Erhan knew that.
Conclusion
This ground of appeal is established. The Magistrate erred in concluding that, because no evidence was adduced as to whether there were reasonable grounds for stating that the work would be completed by 31 January 2020, it followed that Mr Erhan was knowingly concerned in a contravention of section 18 of the Australian Consumer Law by Sophisticated.
In addition, for the reasons given above, Mr Erhan was not given fair notice that the statutory presumption would be relied upon in relation to the issue of his knowledge as opposed to the issue of the existence of reasonable grounds.
The appeal must be allowed and the Magistrate’s judgment set aside. I address below the question whether on appeal judgment should be entered in favour of Mr Erhan or the matter remitted to the Magistrates Court for retrial.
Rebuttal of the statutory presumption
The final ground argued on appeal is that the Magistrate failed to have regard to evidence given by Mr Erhan that the 31 day time for completion was definitely achievable. As observed above, this ground was not included in the notice of appeal but was argued on appeal without objection by Ms Darko and Mr Ruigira.
During Mr Erhan’s evidence in chief, he said that the applicants had advised him that they wanted the job done within a timeframe and he advised them that he could have it done within that timeframe. When asked why he included in the first 29 December quotation the requirements for payment of $40,000, $10,000 and $10,000, he said:
Because of the fact that they needed it in such a short time, I needed to make sure that all the materials and … all the trades people are paid upfront and … when it comes to building a lot of the issues are cashflow and yeah. So the clients had requested to have no paper trail and requested the job be cash but I just wanted to touch base on the 31-day handover. That was subject to, obviously, weather conditions and also no additional works on top of the actual scope of the original agreement because that was definitely achievable seeing as it’s a very basically straightforward job that they requested.
The Magistrate did not refer to this passage of evidence in her reasons for judgment. The Magistrate said in the passage reproduced at [60] above that no evidence about Mr Erhan’s state of mind as at 29 December 2019 was volunteered by him and no evidence concerning reasonable grounds for the representation (or genuine intention) was adduced by either party. Those statements are incorrect because, in his evidence reproduced in the previous paragraph, Mr Erhan gave evidence at least that it was his belief as at 29 December 2019 that the scope of works was definitely achievable.
It was incumbent on the Magistrate to refer to this evidence and address the question whether it discharged the evidentiary onus. The Magistrate’s reasons are inadequate in failing to address it.
This does not entail that Mr Erhan’s evidence reproduced above was sufficient to discharge the evidentiary onus that Sophisticated had reasonable grounds for making the representation. As observed above, the test for reasonable grounds is an objective test. It was not sufficient merely for Mr Erhan to say that it was definitely achievable. To discharge the evidentiary onus, it was necessary for him to give evidence of objective facts by reason of which a reasonable person in the position of Sophisticated would have considered that there were reasonable grounds for making the statement. The passage from his evidence reproduced at [130] above did not discharge the evidentiary onus.
Disposition of the appeal
Mr Erhan contends that, if the Magistrate’s erroneous reliance on the statutory presumption is set aside, it leaves standing the Magistrate’s conclusion that Ms Darko and Mr Ruigira did not prove that Sophisticated lacked reasonable grounds for making the statement about completion of the works and it follows that the Magistrate should have dismissed the claim against him. Mr Erhan invites me to make an order on appeal dismissing the claim.
However, the case of Ms Darko and Mr Ruigira in relation to lack of reasonable grounds and lack of genuine intention was circumstantial. They did not have direct evidence of Mr Erhan’s state of mind, either as the sole directing mind and will of Sophisticated or as an accessory. Their circumstantial case relied upon conduct by Mr Erhan after 29 December 2019.
Ms Darko’s and Mr Ruigira’s circumstantial case relied on numerous matters. Those matters included the fact that none of the works except the perimeter fencing and pool decking were completed by 31 January 2020 or 9 February 2020. They relied on the fact that the cost to them of completion of the works (some of which they undertook themselves) was $48,108 compared to the contract price of $55,000. They relied on the refusal by Mr Erhan to refund any of the $50,000 paid for the works. They relied on Mr Erhan’s conduct in applying in April 2020 to deregister Sophisticated. They relied on the fact that Mr Erhan did not have any educational building qualifications and had apparently been in the building business for only a relatively short time. They relied on the fact that Mr Erhan did not produce any invoices or other documents relating to Sophisticated’s engagement of subcontractors or purchase of materials. They relied on Mr Erhan’s conduct and communications with them during January and February 2020.
The Magistrate did not make credit findings about the evidence of the parties. The Magistrate did not make findings about any disputed primary facts except not being satisfied that Mr Erhan said that he personally was licensed, as opposed to the tradespeople he would engage being licensed.
The Magistrate avoided the need to make credit findings or primary factual findings as a result of the erroneous approach that she took to the onus of proof. If the Magistrate had not made that error, it would have been incumbent on the Magistrate to make credit findings, make primary factual findings and analyse and address the circumstantial case of Ms Darko and Mr Ruigira in relation to lack of reasonable grounds and lack of genuine intention.
All that the Magistrate said about the issue of reasonable grounds is reproduced at [60] above. The Magistrate said that no evidence was adduced of Sophisticated’s prior history of undertaking building works or the timeliness thereof, any arrangements that Sophisticated had with subcontractors or their availability to commence and complete the work. The Magistrate then expressed a rolled up conclusion that no evidence concerning reasonable grounds for the representation (or genuine intention) was adduced by either party.
The Magistrate failed to address the circumstantial case advanced by Ms Darko and Mr Ruigira. The Magistrate did not make critical factual findings. For example, Mr Erhan gave evidence that his statement about completion of the works by 31 January 2020 was expressed to be conditional on prompt payment, the weather and no additional scope of works. The Magistrate made no finding about the alleged conditions relating to the weather or additional scope of works. The Magistrate made no finding whether Mr Erhan said that he could complete the works before 31 January 2020. It was a critical prerequisite to considering whether there were reasonable grounds for the representation to first find what was the content of the representation.
The Magistrate observed in the first paragraph reproduced at [60] that the applicants’ case was essentially a circumstantial one relying upon subsequent conduct by Sophisticated and Mr Erhan. However, the Magistrate made no findings about that subsequent conduct.
Once the Magistrate’s erroneous reliance on section 4 of the Australian Consumer Law is removed, the Magistrate’s reasons are manifestly inadequate. In the circumstances, it is not possible for Mr Erhan to rely on that part of the Magistrate’s reasons that is favourable to him.
Given the lack of credit or other factual findings, I am in no position to determine that judgment should be entered for Mr Erhan. The matter must be remitted to the Magistrates Court for retrial.
Conclusion
An extension of time to appeal should be granted. The appeal must be allowed, the judgment by the Magistrate set aside and the matter remitted to the Magistrates Court for retrial.
I will hear the parties concerning the orders to be made, including as to costs.