Shearman v Dosen Holdings
[2024] ACTMC 4
•28 March 2024
MAGISTRATES COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Shearman v Dosen Holdings |
Citation: | [2024] ACTMC 4 |
Hearing Date: | 30 November 2023 |
Decision Date: | 28 March 2024 |
Before: | Magistrate Temby |
Decision: | See [170] |
Catchwords: | CIVIL – CONTRACTS – CONSUMER LAW – defects in common property of residential apartment complex – interest of unit owners – breach of contractual warranty– breach of Australian Consumer Law – assessment of loss – damages – discretionary costs order under rule 1722. |
Legislation Cited: | Unit Titles (Management) Act 2011 ss 88, 89(2)(b), 119 Australian Consumer Law (ACL) ss 18, 30, 236 Fair Trading (Australian Consumer Law) Act 1992 (ACT) (FTA) ss 18, 30 Competition and Consumer Act 2010 (Cth) (Competition Act) FTA ss 6, 7. Strata Schemes Management Act, ss 74(1), 106(1) Court Procedure Rules 2006 ss 1722, 1723 |
Cases Cited: | Dong v Song (No 2) [2018] ACTCA 80 Accounting Systems 2000 (Developments) Pty Ltd CCH Australia Ltd (1993) 42 FCR 470 Australian Competition and Consumer Commission v Valve Corporation (No 3) [2016] FCA 196 Stav Investments Pty Ltd v Taylor; LK Group Investments Pty Ltd v Taylor [2022] NSWSC 208 Rialto Sports Pty Limited v Cancer Care Associates Pty Limited; CCA Estates Pty Limited; Davjul Holdings Pty Limited; Armmam Pty Limited [2022] NSWCA 146 Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 236 CLR 272 Bellgrove v Eldridge[1954] HCA 36; (1954) 90 CLR 613 |
Parties: | Isobel Christina Shearman (1st Plaintiff) Yanni Liu (2nd Plaintiff) Cameron James McDougall (3rd Plaintiff) Lewis Meegan (4th Plaintiff) Tanya Rosanne Doyle (5th Plaintiff) Caillan Shaw Colville (6th Plaintiff) Rachel Jacinta Treglown (7th Plaintiff) Dosen Holdings Pty Ltd ( 1st Defendant) Gjoko Dosen ( 2nd Defendant) Rajna Dosen ( 3rd Defendant) Frane Dosen ( 4th Defendant) |
Representation: | Counsel Mr Buckland (Plaintiff) Solicitors Mr Harris (Plaintiff) |
File Number: | CD 190 of 2023 |
MAGISTRATE TEMBY:
Introduction
1․The Plaintiffs are seven of the eight owners of units in Units Plan 3917, which is a residential development comprising eight units and associated common property located in Turner (the Premises). They purchased their units from the First Defendant (Dosen Holdings Pty Ltd (Dosen)).
2․In each of the contracts for sale, Dosen warranted that it was unaware of any unfunded defects in the common property, however that was not true. The principal questions are whether Dosen is obliged to compensate the Plaintiffs for the breach of that warranty and, if so, how the Plaintiffs’ loss is to be calculated.
3․The Plaintiffs seek damages for misleading or deceptive conduct (a claim under the Australian Consumer Law (ACL)), and for breach of contract. In addition:
(a)Ms Shearman seeks to rely on a guarantee that she was given by Gjoko and Frane Dosen (Mr Dosen), who were then directors of Dosen; and
(b)Ms Treglown seeks an order requiring the payment of $30,000 to her, with respect to Dosen’s promise in her contract to establish a sinking fund for Units Plan 3917.
4․The matter proceeded to hearing on 30 November 2023. The Plaintiffs were represented by Counsel. The Defendants did not appear and the hearing proceeded in their absence.
5․Affidavits affirmed by each of the Plaintiffs, as well as two affidavits affirmed by the Plaintiffs’ solicitor, were read. The exhibits to the affidavits, as well as an expert report, were tendered. In the absence of the Defendants, this evidence was unchallenged. I note that there was nothing in what I read to suggest that the Plaintiffs’ evidence was not truthful and reliable.
6․For the reasons which are set out in this decision, I have concluded that the Plaintiffs are entitled to be compensated for Dosen’s breach of the warranties contained in their contracts for sale, with their loss being the cost to rectify the defects in the common property. In addition, Dosen must pay Ms Treglown the unpaid amount he promised to contribute to the sinking fund for Units Plan 3917, being $30,000, which Ms Treglown has undertaken to pay into the sinking fund.
Factual issues
7․The key factual issues were:
(a)whether there were defects in the common property of the Premises at the time the Plaintiffs purchased their units;
(b)whether any defects in the common property were unfunded; and
(c)to the extent that there were unfunded defects in the common property, whether Dosen was aware that that was the case when it entered into the contracts for sale with each of the Plaintiffs.
Whether there were defects in the Premises when they were purchased by the Plaintiffs
8․The units were purchased as follows (with each party’s unit entitlement set out in brackets):
(a)Unit 1, by Ms Shearman, by contract exchanged on 25 November 2019 and settled on 20 December 2019 (124 units);
(b)Unit 2, by Ms Liu, by contract exchanged on 5 December 2019 and settled 30 days thereafter (124 units);
(c)Unit 3, by Mr McDougal, by contract exchanged on 20 December 2019 and settled on 31 January 2020 (142 units);
(d)Unit 5, by Mr Meegan, by contract exchanged on or about 27 February 2020 and settled on 24 April 2020 (123 units);
(e)Unit 6, by Ms Doyle, by contract exchanged on 18 April 2020 and settled 30 days thereafter (142 units);
(f)Unit 7, by Mr Colville, by contract exchanged on 25 October 2019 and settled on 27 November 2019 (120 units); and
(g)Unit 8, by Ms Treglown, by contract exchanged on 4 November 2019 and settled on 10 December 2019 (113 units).
9․From early 2020, the existence of defects in the Premises became known to some of the Plaintiffs. Among other things, Ms Shearman noticed that the exhaust fan in her shower did not work properly, that one of her door jams had soft and spongy timber, that her bathroom ceiling was deteriorating, that the external tiles above Unit 2 had fallen into the courtyard of Unit 2, that there were water stains on the pipes that came through the roof of the underground car park, and that there was leaking in the car park area every time it rained (causing water to run across the floor and leak onto parked cars and into unit owners’ storage areas).
10․With respect to the last of these issues, I note that, in January 2020, a tenant of Unit 6 advised Ms Shearman that:
There was major tile work done to the terrace at the side of the building a couple of years ago. The tiles had all lifted and broken. It let a lot of water into the downstairs car parking area and they were working on that terrace on and off for about 18 months.
11․Ms Liu also saw the tiles (eight in number) that had fallen from the front of the second floor balcony into her courtyard. After Ms Shearman made enquiries of Mr Dosen, on Ms Liu’s behalf, Mr Dosen attended to fix the issue with the tiles. This was done in late February 2020.
12․Following heavy rainfall in April 2020, Ms Treglown, Mr McDougal and Mr Colville noticed that the roof in the underground garage to the Premises was leaking. Mr Colville observed:
(a)water running into the underground storage and car parking area through holes in the ceiling (in which downpipes from the northern terrace were housed); and
(b)water was getting in under the tiles on the northern terrace. Mr Colville noticed that the tiles had bulged upwards and, if they were stepped on, water would come out around the sides of the tiles.
13․A number of the defects which had been identified by some of the Plaintiffs were brought to the attention of Mr Dosen. For example:
(a)Ms Shearman advised Mr Dosen in around late January 2020 that there were tiles falling into the courtyard of Unit 2, and that there was a leaking bathtub faucet, leaking sink and rotten timber in her unit. Mr Dosen undertook to look at these issues. While he did attend the Premises, and agreed to fix the issues identified by Ms Shearman, he did not do so; and
(b)Mr McDougal spoke to Mr Dosen in late April or early May 2020 about water leaking into his storage cage in the underground garage. Mr Dosen advised Mr McDougal that it had been happening for a while and was the result of the way in which Mr Dosen tiled the northern podium above Mr McDougal’s storage cage. He said to Mr McDougal:
It is very annoying because it has been happening for a while. I should never have tiled that northern podium above your storage cage in the way that I did and I would never do it again. I tiled that podium directly onto the concrete which results in the seal breaking over time as the concrete expands and contracts due to temperature differences. It’s going to require the tiles to be re-sealed to protect your storage cage from water in the future. This will be an ongoing issue because it will need to be re-sealed every few years.
14․On 23 February 2021, the strata manager for the Premises commissioned a building report in relation to damage caused to the ceiling of Ms Shearman’s bathroom. The report concluded that:
… it is my opinion that high volume discharge from stormwater outlet from upper onto lower roof has resulted in water penetrating into roof space and collecting onto plasterboard ceiling in bathroom causing primary damage.
Secondary damage is believed to be from slow deterioration via poor ventilation to bathroom area as shower vapour is being vented directly into nonventilated roof space …
Expert report
15․Mr George Pudja, of Peak Consulting, prepared a report for the Plaintiffs, dated 25 May 2023. Mr Pudja is a licensed builder and building consultant with 28 years of licensed practice. I accept that he has specialised knowledge based on his experience and that the matters set out in his report are based on that knowledge.
16․The report identifies a number of defects in the property. In general terms, they are as follows:
(a)in Unit 1:
1․ the sliding door and window do not have a subsill or sill flashing. This has resulted in water ingress and damage to timber reveals, skirtings and architraves. There is evidence of a previous, poor, attempt to address this defect;
2․ there is drumminess in the floor tiling in the kitchen and bathroom areas, which exceeds the 5% of floor area tolerance provided for in the Guide to Standards and Tolerances 2007;
3․ the floor tiling areas do not have flexible movement joints at floor junctions;
4․ the top and bottom edges of the interior and entry doors have not been sealed;
5․ there are watermarks to the ceiling lining within Unit 1, which correlates with the line of the balcony of Unit 4 above, with some of the marks having occurred subsequent to a previous attempt to remediate the balcony;
(b)in the external façade:
1․ there is cracking and crazing (glaze defect) to the cement render;
2․ there is spot corrosion at the front and rear of the Premises, caused by metal impurities in the cement render;
3․ previous balcony remediation carried out by the builder to many of the units presents with inconsistent detailing and unfinished sections;
4․ there are significant areas of drummy, loose, cracked and missing tiling to the podium and entry common areas which create leaking to the underground garage and storage areas. Some temporary waterproofing has been done to the podium areas, but complete renovation is required;
5․ waterproofing of the podium tile areas has not been properly executed;
6․ the wall-mounted air-conditioning unit servicing Unit 1 is discharging condensate to the common area footpath below, which causes it to be wet and slippery;
(c)in the underground garage:
1․ there are numerous points of leakage around drainage pipe penetrations and through slab junctions into the garage area, dripping onto cars and creating wet patches and staining, which are also a slip hazard;
2․ there is leakage around electrical mains power cable penetrations into a storage cage, rendering the cage unusable;
3․ the perimeter garage walls display significant efflorescence and dampness, suggesting that previous waterproofing measures have failed; and
(d)in the roof areas, there are a number of areas where it appears that a lack of adequate fall has been provided for, as well as other apparent defects, however there was no observed ill effect as a result.
17․In the report, Mr Pudja recommends that certain remedial action be taken, and provides an estimated rectification cost. He opines that:
(a)the issues he identified in relation to Unit 1 are original build defects which were notified to the builder during the statutory warranty period but not rectified (despite some attempts). He estimates the cost of remediation to be $19,060.80;
(b)the issues he identified in relation to the external façade should be addressed to achieve adequate weatherproofing and compliance with relevant code and standards. He estimates the cost of remediation to be $133,821.60;
(c)the issues he identified in relation to the underground garage should be addressed to improve the weather resistance of the Premises and achieve compliance with relevant Australian Standards. He estimates the cost of remediation to be $2,280.00; and
(d)since the defects in the roof areas are not showing any ill effect, no immediate action is needed.
18․The total estimated cost of remediating the defects identified by Mr Pudja is $155,162.40.
Conclusion
19․I am satisfied that the evidence establishes that there were defects in the common property of the Premises at the time the Plaintiffs purchased their units.
20․The defects are identified in the Peak Consulting report. While the Peak Consulting report was produced in 2023, the issues that it identifies were identified by the Plaintiffs in their evidence as being ones they observed (at least in terms of their impact) soon after they moved in and I am satisfied that they existed at the time the units were purchased by the Plaintiffs.
Whether the defects were unfunded
21․The rectification of defects in the common property of a unit titles complex may, theoretically, be funded from an owners corporation’s sinking fund or from a special purpose fund. However:
(a)Dosen did not establish a special purpose fund for Units Plan 3719; and
(b)while Dosen ultimately contributed $8,000 to the sinking fund for Units Plan 3719, section 88 of the Unit Titles (Management) Act 2011 limits the capacity for the owners corporation to use funds in the sinking fund to pay for rectification works. It provides that: “An owners corporation for a units plan may only make payments from its sinking fund if the payments are consistent with the sinking fund plan”.
22․There is no evidence that a sinking fund plan was established for Units Plan 3917 or, if it was, what its terms were. I also note that the Defendants did not plead in their Defence to the Amended Statement of Claim, or otherwise submit, that the balance in the sinking fund could be used to fund any defects in the common property.
23․I am not satisfied that the funds that Dosen contributed to the sinking fund could be used to pay for rectification works for the common areas.
24․There being no other source of funds at the time the Plaintiffs entered into their contracts for sale, from which defects in the common property could be rectified, I am satisfied that the defects in the common property were unfunded.
Contingent consideration of sinking fund balance
25․In case I am wrong in concluding that the balance in the sinking fund could not be used to fund the rectification of the defects in the common areas of the Premises, I have set out below my findings in relation to the financial position of Units Plan 3917 and, in particular, the status of the sinking fund.
26․There are a number of documents which provide information regarding the financial position of Units Plan 3917 at relevant times, including the minutes of the inaugural meeting of the owner of Units Plan 3917 held on 17 September 2019, meeting notes of an informal meeting of the owners of Units Plan 3917 held on 30 March 2020, the financial reports produced for the May 2020 annual general meeting, the settlement statements and certificates that were produced pursuant to section 119 of the Unit Titles (Management) Act 2011 (section 119 certificates) in relation to the sale of the units to the Plaintiffs, and information provided by the strata manager to Ms Treglown’s solicitors in April 2020.
27․Not all of the information contained in these documents can be reconciled with each other, and some of the information would seem to be incorrect. However, I am satisfied that the following findings can be made in relation to the financial position of Units Plan 3917 at relevant points in time, including the status of its sinking fund.
28․On 17 September 2019, Dosen established a budget for Units Plan 3917 for a period of two years. The first year was described in the budget as running from 1 October 2019 to 30 May 2020. It appears that the second year was to run from 1 June 2020 until 31 May 2021.
29․A total budget of $22,028.50 was set for the first year.
30․There were no funds in either the administrative or the sinking fund as at 1 October 2019.
31․Dosen transferred an amount of $38,000 to the owners corporation towards the end of 2019, or early 2020. From that amount, $20,028.50 was allocated to the 2019/20 year in satisfaction of the contributions of unit owners for the whole of that year, and $2,002.85 was allocated to the sinking fund.
32․I note that the levies adjustments that were made on the sale of most of the units did not require the unit owners to fully reimburse Dosen for the levies it ended up paying and it appears that the owners did not otherwise make any levies contribution for the 2019/20 year. The Plaintiffs therefore appear to have received a benefit to which they were not entitled under the sales contracts. However, a levies adjustment was expressly agreed between Dosen and each of the Plaintiffs prior to the settlement of the contracts, and Dosen did not raise any issue about the over-payment of levies in its Defence to the Amended Statement of Claim. I therefore take this issue no further.
33․The balance of the funds contributed by Dosen was $15,968.65. Subject to a small discrepancy (of $0.05), this figure was reflected in the income and expenditure statement for the 2019/20 year as being the starting balance for the 2019/20 year (even though no accounts were established until at least October 2019), allocated between the administrative fund ($9,971.43) and the sinking fund ($5,997.17). I note that other documents record that it was envisaged that the starting balances were intended to be $9,971.50 and $5,997.15, respectively, which totals $15,968.65 (being the balance of the funds remaining once the 2019/20 year contributions were taken from the amount contributed by Dosen).
34․While the section 119 certificates that were produced for the sale of Units 5 and 6 suggest that the sinking fund balance was $7,499.33 between 4 and 7 February 2020, that does not appear to be correct. Following Dosen’s contribution (in late 2019 or early 2020), there was an amount of $8,000 allocated to the sinking fund (being the combination of the “starting balance” for the 2019/20 year ($5,997.15) and the contributions for that year ($2,002.85)). From that point, until 31 May 2020, that was the balance in the sinking fund (or, perhaps, $8,000.05, if the financial reports are to be believed).
35․The total balance for the administrative fund as at 31 May 2020 was $10,860.36, being (subject to a discrepancy of $0.01) the combination of the “starting balance” for the 2019/20 year ($9,971.43) and the surplus of income ($20,028.50) over expenditure ($19,139.56) for that year. The discrepancy is explained by the fact that the income and expenditure statement records income of $20,028.49, rather than the $20,028.50 contribution that appears to have been taken from Dosen’s payment.
Conclusion with respect to contingent finding
36․There were no funds in the sinking fund (or the administrative fund) of Units Plan 3719 until at least late December 2019 or early January 2020. While the section 119 certificates that were provided to each of the Plaintiffs with respect to the sale of their units did not show any funds in the sinking fund until 4 February 2020, updated section 119 certificates were not produced between 1 October 2019 and that date so they do not assist a great deal in understanding precisely when Dosen contributed funds to the sinking fund. They do, however, provide the best evidence available as to whether there were funds in the sinking fund at the time Dosen contracted for the sale of each of the units.
37․I find that there were no funds in the sinking fund at the time that Dosen contracted for the sale of Units 1 to 3 and 7 and 8 (Ms Shearman, Ms Liu, Mr McDougal, Mr Colville and Ms Treglown’s units), and that there was $8,000 in the sinking fund by the time Dosen contracted for the sale of Units 5 and 6 (Mr Meegan and Ms Doyle’s units).
38․Mr Pudja opines that the cost to rectify the defects is $155,162.40. I am aware of increases in costs in the construction industry since 2020, however, insofar as there were funds in the sinking fund at the time Units 5 and 6 were purchased, I do not consider that building and construction costs have increased so much since early 2020 that $8,000 would have been sufficient to rectify the defects at that time.
39․Accordingly, I am satisfied that, even if the balance in the sinking fund is taken into account, the defects in the common property were unfunded or, in the case of Mr Meegan and Ms Doyle, largely unfunded at the time the Plaintiffs purchased their units.
Whether Dosen was aware that there were unfunded defects at the time he sold the units to the Plaintiffs
40․The Premises were built by Dosen in 2012 and 2013. Dosen owned the units until their sale (which occurred between late 2019 and the middle of 2020). Dosen leased the units between May 2013 and 2019.
41․The evidence discloses that Dosen was at least aware of the major defects, being the waterproofing and tiling issues on the balconies and podium areas, prior to any of the Plaintiffs purchasing their units. Mr Pudja identifies that those areas have been subject to prior remediation efforts with respect to tiling and waterproofing, and the evidence does not suggest that any remediation works have been undertaken in the intervening period. Mr Pudja’s observation is supported by the information provided to Ms Shearman by a tenant of Unit 6, that major tile work had been undertaken in relation to the terrace as a result of tiles lifting and breaking and water entering the underground garage.
42․I infer that it was Dosen which attempted those remediation works given that it owned, and was responsible for the maintenance of, the Premises between 2013 and 2019.
43․I also note that Mr Dosen advised Mr McDougal that he should never have tiled the northern podium in the way that he did, tiling directly onto the concrete, and that there would be an ongoing issue for the unit owners to deal with. I infer from the communications that Mr Dosen had with Ms Shearman and Mr McDougal after they purchased their units that it was Mr Dosen who was responsible for construction and maintenance of the units on behalf of Dosen. It is also clear that Dosen, through Mr Dosen, was aware that the rectification works it had undertaken had not entirely resolved the defects in the waterproofing and tiling of the common areas.
44․Clearly, then, Dosen was aware that there were defects in the common property that were unfunded at the time most of the Plaintiffs purchased their units (because there were no funds in the sinking fund). Further, even if Dosen considered that the funds in the sinking fund could be used to pay for rectification works, Dosen must have been aware, by the time that Units 5 and 6 were sold (when there were funds in the sinking fund), that these defects would cost more than $8,000 to rectify. It was Dosen’s expectation (as revealed by Mr Dosen to Mr McDougal) that they would present ongoing issues and, by that time, Ms Shearman had advised Mr Dosen that the defects were causing ongoing issues.
45․Whether Dosen was aware of the other defects identified in the Peak Consulting report is difficult to assess. The fact that it had previously attempted to remedy a number of the defects demonstrates knowledge of the issues, but might also suggest that Dosen considered that the issues had been rectified. Ultimately, I cannot be satisfied that Dosen was aware of them.
46․However, I am satisfied, on the balance of probabilities, that Dosen (as the builder of the Premises and the entity which leased and maintained the Premises between their construction in 2013 and their sale in 2019 and 2020) ought reasonably to have had knowledge of those defects.
47․As the Plaintiffs submitted, if the defects (at least in terms of their general nature or signs of them) were obvious to the Plaintiffs, they ought to have been obvious to Dosen. Further, the defects identified in the Peak Consulting report are defects caused by the way in which Dosen had constructed the Premises and Dosen has previously tried to address and, or, which had physical signs evidencing them.
48․All of the defects identified in the Peak Consulting report arose from the way in which Dosen constructed the Premises and should have been apparent to Dosen given its knowledge of how the Premises were constructed, its knowledge of the defects it had previously attempted to remedy and given the opportunity it had to undertake an inspection of the units, in particular to check whether previous remediation works had been effective, prior to the sale of the units. Dosen had the expertise to identify each of the defects identified in the Peak Consulting report.
49․In relation to the defects impacting Ms Shearman’s unit I note, in particular, that the report obtained by the strata manager in February 2021 identified that the damage to Ms Shearman’s ceiling was evident from watermarks to the ceiling lining within her unit, which correlated with the line of the balcony of Unit 4 above, and that some of the marks occurred subsequent to a previous attempt by Dosen to remedy the balcony. The ongoing nature of the issues should have been apparent to Dosen.
50․As noted above, Dosen clearly had knowledge of defects in the balconies and podium tile areas, and the impact of those defects on the underground garage, which the Peak Consulting report identifies was the subject of previous attempts at remediation. Mr Dosen acknowledged to Mr McDougal that Dosen had adopted an inappropriate method to tile the podium area.
51․I am satisfied that Dosen ought to have been aware that the defects in the common property, as identified in the Peak Consulting report, were unfunded at the time he sold the units to the Plaintiffs.
Consideration of misleading and deceptive conduct claim
52․At the hearing, the Plaintiffs’ Counsel provided a written outline of the Plaintiffs’ case. In that document, the Plaintiffs submitted that their primary case is that judgment should be awarded against each of the Defendants in favour of all of the Plaintiffs in the sum of $135,766.75, plus interest from 25 May 2023. They explained their case in this way:
8.The conduct of the first defendant in making the promises in the sales contracts with each plaintiff was misleading and deceptive, in that there were no funds in the body corporate and the common property contained latent or patent defects, as set out in the Peak Consulting report. This is a breach of the ACL which entitles the plaintiffs to damages against that company.
9.The second, third and fourth defendants were involved in the first defendant’s misleading or deceptive conduct as directors of that company. Each of those persons executed the sales contracts with the first, third, sixth and seventh plaintiffs, and appears to have executed the contracts with the second and fifth plaintiffs. By reason of their involvement, per section 2 of the ACL, those natural persons are liable to the same extent as the company.
10.The total cost to rectify the defects in the common property is set out in the Peak Consulting report at $155,162.40 as at 25 May 2023. However, the plaintiffs can only claim for their individual costs as unit owners, being their liability to pay excess levies, and not for the total costs of repair to the body corporate. As a result, the plaintiffs can only claim 7/8ths of the total costs of repair, which is why the plaintiffs claim the amount of $135,766.75, plus interest from 25 May 2023, being the date of the Peak report.
53․As pleaded, the Plaintiffs’ primary claim is that Dosen engaged in misleading and deceptive conduct, contrary to sections 18 and 30 of the Australian Consumer Law (ACL) as applied in the ACT by the Fair Trading (Australian Consumer Law) Act 1992 (ACT) (FTA). The Plaintiffs’ submissions, however, appeared to focus on section 18 of the ACL and I have confined my reasons to a consideration of section 18.
54․The Plaintiffs say that the Second to Fourth Defendants (the non-corporate Defendants) were involved in Dosen’s misleading or deceptive conduct. The Plaintiffs allege that the Second to Fourth Defendants, on behalf of Dosen, made certain representations about Units Plan 3917 without disclosing the true circumstances of the units plan. In the written outline handed up at the hearing, the involvement is said to arise by virtue of the fact that: “Each of those persons executed the sales contracts with the first, third, sixth and seventh plaintiffs, and appears to have executed the contracts with the second and fifth plaintiffs”.
55․The representation relied on is set out in paragraph 21 of the Amended Statement of Claim, and is:
In providing a draft contract for sale for the marketing of the units which contained representations in clause 14 that there were no unfunded latent or patent defects in the common property, and that there were no actual, contingent or expected unfunded liabilities of the body corporate of Units Plan 3917.
56․The true circumstances are alleged to be as set out in paragraphs six to eight of the Amended Statement of Claim, namely:
(a)that Dosen had failed to comply with its obligations under the Unit Titles (Management) Act 2011 (in addition to failings which I have found above, the Plaintiffs also allege that Dosen failed to appropriately maintain the common property); and
(b)that between May 2019 and October 2019, there were defects and maintenance issues in the units and common property which were apparent to Dosen, or would have been apparent to an owner in Dosen’s position acting reasonably, which Dosen failed to repair, being:
1․ defective tiling and waterproofing of the outdoor podium on the northern side of the building, leading to water ingress in the basement;
2․ defective installation of the exhaust vent system;
3․ defective tiling of balconies and other external areas; and
4․ leaks in the windows of Unit 1 and Unit 5.
57․The reference to clause 14 in paragraph 21 of the Amended Statement of Claim is clearly a reference to paragraph 14 of the Amended Statement of Claim. Clause 14 of the contracts for sale concerns “off the plan” purchases and is not relevant to these proceedings.
58․Paragraph 14 of the Amended Statement of Claim refers to the various representations of Mr Lewis:
(a)That the apartment block was 7 years old but had been kept in the hands of the original builder until their sale.
(b)That the development was “very well built”.
(c)That the development had been “carefully maintained by the original builder”.
(d)That the development was “as new”.
(e)That the first defendant had recently incorporated Units Plan 3917 and would comply with all the obligations imposed on the body corporate by law.
(f)That the first defendant would fund the liabilities of the body corporate and establish a sinking fund (collectively, the Sales Statements).
59․I note that Dosen engaged IPG Dickson (ACT) Pty Ltd (IPG Dickson) to act as its real estate agent for the purposes of selling the units in the Premises. Mr Aaron Lewis was the natural person responsible for providing real estate agency services on behalf of IPG Dickson.
60․In the course of acting as Dosen’s real estate agent, Mr Lewis made certain representations to the Plaintiffs, prior to the purchase of their units. The representations made to each of the Plaintiffs were not identical, however he made representations to each of the Plaintiffs either that the units had been well built or well maintained (and to some Plaintiffs he made both representations).
61․Paragraph 14 of the Amended Statement of Claim must be understood in the context of paragraph 17. It pleads:
To the extent that the Sales Statements were made in writing, they were made in, amongst other places, the copy of the contract for the sale of the units which was available as part of the marketing materials published by the fifth and sixth defendants, specifically clause 33.
62․Each of the contracts for sale that Dosen entered into with the Plaintiffs adopted a standard form contract, titled “The Law Society of the Australian Capital Territory: Contract for Sale”. That contract contained the following warranties in clause 33.1:
(a)“to the Seller’s knowledge, there are no unfunded latent or patent defects in the Common Property or Owners Corporation assets” other than “defects arising through fair wear and tear” and “defects disclosed in this Contract”; and
(b)“to the Seller’s knowledge, there are no actual, contingent or expected unfunded liabilities of the Owners Corporation that are not part of the Owners Corporation’s normal operating expenses, other than liabilities disclosed in this Contract”.
63․Clause 33.1 of the contracts for sale does not explicitly contain the “Sales Statements”. However, I do not consider that the fact that clause 33.1 of the contracts for sale does not contain, in terms, the “Sales Statements” is fatal to the Plaintiffs’ case under the ACL. This is because:
(a)the “Sales Statements” are, taken together, consistent with the warranties given in clause 33.1 of the sales contracts – in broad terms it might be said that they are contained within that clause, in the sense that the statements are within the scope of the warranties set out in clause 33.1;
(b)it is not necessary that the Plaintiffs establish that the warranties given in clause 33.1 of the sales contracts reflected earlier representations in order to succeed in a claim under the ACL; and
(c)the allegation in paragraph 21 (as relying on paragraphs 14 and 17) is clear – it is the warranties in clause 33 that are the misrepresentations upon which the Plaintiffs rely to found their claim under the ACL.
64․In this respect, it is not clear from the evidence whether a draft contract was available to each of the Plaintiffs when they inspected their respective units, but it is necessarily the case that a draft contract was presented to each of the Plaintiffs for consideration and execution before contracts were exchanged between Dosen and each of the Plaintiffs. None of the Plaintiffs gave evidence that they sought any amendments to clause 33 of the sales contracts at any stage, albeit that some of the Plaintiffs requested that additional clauses (conditions, warranties and guarantees) be included in their contracts.
65․I infer that the drafts of the sales contracts which were given to the Plaintiffs prior to their execution (including any copies of the contract that were made available to the Plaintiffs during or following their inspections of their respective units) contained the same wording in clause 33.1 as appears in the signed versions of the contracts.
Relevant legal principles
66․Sections 6 and 7 of the FTA incorporate schedule 2 to the Competition and Consumer Act 2010 (Cth) (Competition Act) (being the schedule which comprises the Australian Consumer Law), and the regulations made under that Act, as part of the FTA. The legislation as applied is referred to as the Australian Consumer Law (ACT) (ACL).
67․Subsection 18(1) of the ACL states:
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.
68․Subparagraph 2(2)(a)(i) of the ACL states:
(2) In this Schedule:
(a) a reference to engaging in conduct is a reference to doing or refusing to do any act, including:
(i) the making of, or the giving effect to a provision of, a contract or arrangement …
69․If a contravention of section 18 of the ACL is established, section 236 provides for recovery of loss or damage suffered “because of the conduct” against the person who contravened section 18, “or against any person involved in the contravention”.
70․Section 2 of the ACL defines the word “involved” in the following way:
"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.
71․Section 236 provides for the making of a damages award where a person has suffered loss as a result of a contravention of section 18 of the ACL (which is contained in Chapter 2 of the ACL). It states:
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.
72․In Dong v Song (No 2) [2018] ACTSC 180 (Dong v Song), McWilliam AsJ (as her Honour then was) set out a helpful summary of the meaning of the expressions used in the above provisions that are relevant to the Plaintiffs’ claim, at [29] to [48]:
‘In trade or commerce’
29. The expression ‘in trade or commerce’ refers only to conduct which is itself an aspect or element of activities or transactions which, of their nature, bear a trading or commercial character: Concrete Constructions (NSW) Pty Ltd v Nelson[1990] HCA 17; (1990) 169 CLR 594 at 602-603 (Concrete Constructions). The phrase is restricted to ‘the central conception’ of trade and commerce, rather than the broader field of activities in which corporations may engage, either in the course of, or for the purposes of carrying on, some overall trading or commercial business: Concrete Constructions at 603.
Misleading and deceptive
30. The characterisation of the conduct must be undertaken by reference to the circumstances and context. On a claim by an individual, the relevant circumstances include the knowledge of the person who claims to have been misled and any common assumptions or practices established between the parties or in the particular activity or business in which they are engaged: Miller & Assocs Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31; 241 CLR 357 (Miller) at [20].
31. The approach is an objective one and involves asking whether the impugned conduct viewed as a whole has a tendency to lead a person into error: see Campbell at [25] per French CJ; Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; 250 CLR 640 (ACCC v TPG) at [49] per French CJ, Crennan, Bell and Keane JJ); Miller at [15] per French CJ and Kiefel J.
32. An intention to deceive is not necessary: Google Inc v Australian Competition and Consumer Commission[2013] HCA 1; 249 CLR 435 at [9], Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661 (Yorke v Lucas) at 666, Puxu Pty Ltd v Parkdale Custom Built Furniture Pty Ltd [1982] HCA 44; (1982) 149 CLR 191.
33. However,a person cannot engage in conduct in contravention of the section unless the person has actual knowledge of the matter said to be misleading or deceptive: Gurr & Gurr v Forbes(1996) 80 ATPR 41-491; cited in Semrani v Manoun; Williams v Manoun[2001] NSWCA 337 at [61].
34. Those well-established principles were also referred to by Refshauge J in Jardine v Vaughan; Clarkson Williams Partners Pty Ltd (Third Party) (No 3) [2015] ACTSC 33 (Jardine) at [151]. His Honour was there dealing with an earlier version of the legislation, but the principles remain applicable to the ACL.
Accessorial liability
35. A person (including a body corporate: see s 2C of the Acts Interpretation Act 1901(Cth))will only be regarded as ‘involved’ in a contravention if the person intentionally participated in the contravention. This requires actual, not constructive, knowledge of the essential matters or facts that make up the contravention: Yorke v Lucas at 667; Compaq Computer Australia Pty Ltd v Merry [1998] FCA 968; (1998) 157 ALR 1 (Compaq Computer)at 4-5; and Quinlivan v Australian Competition and Consumer Commission[2004] FCAFC 175;160 FCR 1 at [9].
36. Being ‘knowingly concerned’ in a contravention (see par (c) of the definition of ‘involved’) requires association with, implication in, or a practical connection with the contravening conduct: Qantas Airways Ltd v Transports Workers’ Union ofAustralia [2011] FCA 470; 280 ALR 503 (Qantas Airways) at [324]-[325];Trade Practices Commission v Australian Meat Holdings Pty Ltd[1988] FCA 244; (1988) 83 ALR 299 Wilcox J at 357 citing Ashbury v Reid[1961] WAR 49 (Ashbury v Reid).
37. A person cannot become ‘involved’ in an act merely by reason of his (in this case) knowledge of the conduct pursued; there has to be something that implicates the person such that they become associated with the conduct: see R v Tannous (1987) 10 NSWLR 303 (R v Tannous) at 307-308 citing Ashbury v Reid at 51.
38. The requisite actual knowledge must be present at the time of the contravention. A later acquisition of knowledge of the essential matters is not sufficient: Fair Work Ombudsman v South Jin Pty Ltd [2015] FCA 1456 at [234].
39. It is the knowledge of the alleged accessory and not what might be postulated of a hypothetical person in the position of the alleged accessory which must be demonstrated, although what might be postulated of such a hypothetical person is not irrelevant. Knowledge must be the only rational inference available: Pereira v Director of Public Prosecutions (1988) 82 ALR 217 (Pereira)at 219-220 per Mason CJ, Deane, Dawson, Toohey and Gaudron JJ.
40. However, it is not necessary that the person physically do anything to further the contravention. It is sufficient if the person, by what he said and agreed to do, in fact became associated with and thus involved, in the relevant sense, in the conduct constituting the contravention. R v Tannous at 308; cited in Leighton Contractors Pty Ltd v Construction, Forestry, Mining and Energy Union[2006] WASC 144; 154 IR 228 per Le Miere J at [29]; Qantas Airways at [325].
41. It is unnecessary to prove that the respondent knew that his actual participation was a breach of the statute (in this case, the ACL) or could be characterised as such: Rural Press Ltd v Australian Competition and Consumer Commission [2003] HCA 75; 216 CLR 53. This is consistent with the common law and statutory principle that no person will be excused from liability because of ignorance of the law: Walden v Hensler[1987] HCA 54; (1987) 163 CLR 561.
42. Where there is a combination of suspicious circumstances and a failure to make enquiry, it may be possible to infer actual knowledge, described as willful blindness: see Zamora (No 2) [1921] 1 AC 801 at 812; Pereira at 219-220; Compaq Computer at 5.
Loss and damage
43. A causal connection must be established between the relevant conduct and the loss and damage suffered: Campbell at[102] per Gummow, Hayne, Heydon and Kiefel JJ.
44. Such connection may be satisfied by acts done in reliance upon the misrepresentation. If those acts result in economic loss, that will ordinarily be recoverable: Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514 (Wardley) at 525-526 per Mason CJ, Dawson, Gaudron and McHugh JJ.
45. However, the question of reliance includes taking account of the fact that the person to whom the misrepresentation is made must exercise reasonable care for their own interests: ACCC v TPG; see also Taco Co of Australia Inc v Taco Bell Pty Ltd [1982] FCA 136; (1982) 42 ALR 177. In Argy v Blunts & Lane Cove Real Estate PtyLtd[1990] FCA 51; (1990) 26 FCR 112 at 138, Hill J said:
A case may perhaps be imagined where an applicant is so negligent in protecting his own interests that there will be a finding of fact that the representation complained of was not in the circumstances a real inducement to his entering into a contract. In such a case the element of causation between misrepresentation and damage will have been severed by the intervention of the negligence of the applicant.
46. Turning then to the measure of the loss or damage, the assessment of damages for misleading or deceptive conduct usually involves a comparison between the position in which the person who suffered the loss or damage is in and the position the person would have been in had there been no contravening conduct: Marks v GIO Australia Holdings Ltd [1998] HCA 69; 196 CLR 494 at [42] per McHugh, Hayne and Callinan JJ.
47. In the case of misrepresentation which induces the plaintiff to enter into a contract to purchase property (such as a business), the plaintiff’s loss, apart from any question of consequential damage, is measured by the difference between the price paid or payable under the contract and the value of the property at the date of the contract: Wardley at 530.
48. This measure is often traced (as it was in Wardley)to Potts v Miller [1940] HCA 43; (1940) 64 CLR 282 at 297 (Potts v Miller),a case concerning an action in deceit, where the measure of damages was stated to consist of the loss or expenditure incurred by the plaintiff in consequence of the inducement upon which reliance was placed, diminished by any corresponding advantage in money or money's worth obtained on the other side of the transaction.
73․I also note that misleading conduct, for the purposes of section 18 of the ACL, may arise from a representation given in a contract: Accounting Systems 2000 (Developments) Pty Ltd CCH Australia Ltd (1993) 42 FCR 470. As Edelman J said in Australian Competition and Consumer Commission v Valve Corporation (No 3) [2016] FCA 196, at [222]:
Since ‘engaging in conduct’ includes ‘the making of, or the giving effect to a provision of, a contract or arrangement’, representations contained within a contract are capable of being misleading or deceptive conduct. Indeed, a contractual provision can constitute misleading conduct even towards persons who are not party to the contract.
Issues arising with respect to Plaintiffs’ ACL claim
74․The issues that the Plaintiffs’ claims under the ACL raise are:
(a)what is the conduct complained of;
(b)was the conduct in trade or commerce;
(c)was the conduct misleading or deceptive;
(d)whether the Second to Fourth Defendants were involved in any contravention of the ACL by Dosen; and
(e)whether the Plaintiffs suffered any loss or damage because of the conduct of Dosen.
What is the conduct complained of?
75․As discussed above, the conduct complained of is “providing a draft contract for sale for the marketing of the units which contained representations [in clause 33 of the contracts] that there were no unfunded latent or patent defects in the common property, and that there were no actual, contingent or expected unfunded liabilities of the body corporate of Units Plan 3917” when, in fact:
(a)Dosen had failed to comply with its obligations under the Unit Titles (Management) Act 2011; and
(b)there were defects in the common property.
76․Although the Amended Statement of Claim pleads a correlation between representations made by Mr Lewis and the warranties in clause 33 of the contracts, the Plaintiffs did not separately rely on any representations made by Mr Lewis as founding their claim under the ACL.
Was the conduct in trade or commerce?
77․Dosen admits that it was engaged in trade or commerce in selling the units to the Plaintiffs and admits that marketing contracts were provided to Mr Lewis and IPG Dickson, however Dosen denies the balance of paragraph 21 of the Amended Statement of Claim. In my view, Dosen was engaged in trade or commerce in making the representations contained in clause 33 of the sales contracts.
78․It was a necessary part of the sales process that a draft contract would be proffered on behalf of Dosen to potential purchasers. There is nothing to suggest that the version of the sales contract that IPG Dickson made available to purchasers was not prepared on Dosen’s instructions. There is no indication in the Defendants’ defence that IPG Dickson or Mr Lewis acted beyond authority in making the contracts available to potential purchasers on its behalf, nor in providing execution copies of the contracts to the Plaintiffs.
79․Accordingly, I am satisfied that Dosen made the representations contained in the warranties set out in clause 33.1 of the sales contracts and that it was engaged in trade and commerce when it did so. The representations were made from the time that the units were offered for sale.
Was the conduct misleading or deceptive?
80․In my view, Dosen’s conduct was misleading. The representations made in clause 33.1 of the sales contracts were likely to lead each of the Plaintiffs into error because they indicated that there were funds available to address any defects in the common property when, as explained earlier in these reasons, that was not the case, and Dosen was aware that that was not the case.
81․I note that Dosen admits that it failed to comply with its obligations under the Unit Titles (Management) Act 2011 by failing to establish and contribute to a sinking fund, by failing to establish and maintain bank accounts and by failing to hold meetings of the owners and take minutes of those meetings. To some extent, its failure to comply with those obligations may have contributed to the fact that the defects in the common area were unfunded, however I am of the view that the conduct that was misleading was the statement in clause 33.1 of the contracts for sale that there were no unfunded defects in the common property.
Conclusion in relation to Dosen
82․I am satisfied that Dosen contravened section 18 of the ACL, by engaging in conduct, in trade or commerce, that was misleading. I am satisfied that Dosen contravened section 18 with respect to the provision of each of the contracts for sale that were given to the Plaintiffs and, specifically, in making the representations contained in the warranties in clause 33.1 of the contracts.
Were the Second to Fourth Defendants involved in any contravention?
83․The involvement of the Second to Fourth Defendants in Dosen’s conduct, relied on by the Plaintiffs, is that those parties made representations on behalf of Dosen by executing some of the contracts that Dosen entered into with the Plaintiffs.
84․Mr Dosen is, and always has been, a director of Dosen. Gjoko and Rajna Dosen were appointed directors of Dosen on 11 January 2019, however Gjoko Dosen ceased being a director on 4 April 2020 and Rajna Dosen ceased being a director on 21 October 2019.
85․I note that the contracts entered into with Ms Shearman, Mr McDougal, Mr Colville and Ms Treglown were purportedly signed by each of the Second to Fourth Defendants on behalf of Dosen, but that the Third Defendant had ceased to be a director of Dosen by the time those contracts were signed. However, there is nothing to suggest that, because she signed the contracts, they were invalid.
86․As I have noted above, the Second to Fourth Defendants executed the contracts for the sale of Units 1, 3, 7 and 8. However, I do not know which of the Defendants signed the contracts with the other Plaintiffs. Accordingly, the Plaintiffs’ claim against the Second to Fourth Defendants, for accessorial liability under the ACL, can only relate to the claims of Ms Shearman, Mr McDougal, Mr Colville and Ms Treglown.
87․Section 2 of the ACL contains a number of ways in which a person may be “involved” in a contravention. The Plaintiffs did not articulate the basis upon which they relied. Presumably, reliance is placed on paragraph (c), “has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention”.
88․As noted above, being “knowingly concerned” in a contravention requires association with, implication in, or a practical connection with the intervening conduct. As Mason ACJ, Wilson, Deane and Dawson JJ held in Yorke v Lucas [1985] HCA 65, at [17], (speaking of an equivalent provision in the Trade Practices Act 1974 (Cth): “the proper construction of par.(c) requires a party to the contravention to be an intentional participant, the necessary intent being based upon knowledge of the essential elements of the contravention”.
89․In my view, the evidence does not establish that the Second to Fourth Defendants, by executing the sales contracts, were knowingly concerned in, or party to, Dosen’s contravention. In my view, the Second and Fourth Defendants signed the contracts for the sale of Units 1, 3, 7 and 8 merely in their capacity as directors with authority to bind Dosen (that is, as mere “corporate organs”), and the Third Defendant signed the contracts in the belief that she had the capacity to do so, forgetting that she had ceased to be a director by the time those contracts were executed. Of itself, I do not consider that signing the contracts made the Second to Fourth Defendants “intentional participants” in the misrepresentations made by Dosen in clause 33 of the contracts.
Did the Plaintiffs suffer any loss or damage because of Dosen’s conduct?
90․As noted above, a causal connection must be established between Dosen’s misleading conduct and the loss suffered by the Plaintiffs. The Plaintiffs plead that, in purchasing their respective units, they each relied on the Defendants’ misleading or deceptive conduct, which caused them loss and damage. The loss and damage is said to be having to make contributions by way of special levy towards the costs of repair to the defects in the common property.
91․The warranties given in the sale contracts reflected a representation that should have been within Dosen’s knowledge. At the very least, it constituted a representation about matters that were within Dosen’s capacity to verify (both in terms of its access to the units and in terms of the expertise of Dosen and its knowledge of the units). On the other hand, the representation was about something that would be difficult for the Plaintiffs to appreciate and it would be reasonable, in my view, for the Plaintiffs to rely on Dosen’s representations.
92․However, none of the Plaintiffs gave evidence that they placed any reliance on the representations that were made in clause 33 of the sales contracts in making their decision to execute the contracts and purchase their respective units. Mr Meegan states that he was influenced by what Mr Lewis said to him about the quality of the unit, and I think it can safely be inferred that what Mr Lewis said to the other Plaintiffs would have influenced their decision to proceed as well. However, the ACL case pursued by the Plaintiffs at the hearing was not that what Mr Lewis had said involved misleading or deceptive conduct (for which Dosen was responsible), but that the misleading or deceptive conduct was the making of the representations in clause 33 of the sales contracts.
93․I also note that, while Ms Shearman, Mr McDougal, Mr Colville and Ms Treglown were evidently concerned about possible issues arising at the Premises and the owners corporation’s capacity to fund any rectification works to deal with those issues, they addressed their concerns by having additional clauses added to their contracts which included tailored warranties and conditions. None gave evidence as to the significance to them, of the warranties contained in clause 33, in requesting that the additional clauses be added.
94․Accordingly, although I am satisfied that Dosen contravened section 18 of the ACL, I am not satisfied that the Plaintiffs suffered any loss because of Dosen’s conduct.
Defendants’ defences to the Plaintiffs’ ACL claim
95․In their Defence to the Amended Statement of Claim, the Defendants make:
(a)a contributory negligence claim; and
(b)a claim that the Plaintiffs failed in their maintenance obligations with respect to the common property.
Consideration of Defendants’ contributory negligence claim
96․The Defendants say, in their Defence to the Amended Statement of Claim, at [31], that:
… any damage that would be payable to the Plaintiffs should be reduced on account of the Plaintiff’s contributory negligence and failures to obtain a report on the condition of the Units and Common Property …
97․The Defendants did not appear at the hearing and accordingly did not articulate the legal basis for this claim. Presumably they sought to rely on section 137B of the Competition Act.
98․A finding of contributory negligence requires an assessment of whether the Plaintiffs contributed to their own loss by failing to take reasonable care of, relevantly, their property or economic circumstances: Stav Investments Pty Ltd v Taylor; LK Group Investments Pty Ltd v Taylor [2022] NSWSC 208 at [543], citing Astley v Austrust [1999] HCA 6 at [30]. Ward CJ said in Stav Investments, at [543] to [545]:
… Contributory negligence is to be determined objectively: a plaintiff will be guilty of contributory negligence where they expose themselves to a risk which might reasonably have been foreseen and avoided, and suffer damage within the class of risk to which they exposed themselves (Joslyn v Berryman (2003) 214 CLR 552; [2003] HCA 34 at [16] and [32] per McHugh J).
544 In the context of misrepresentation, and misleading and deceptive conduct, Sir Nicholls VC in Gran Gelato Ltd v Richcliff (Group) Ltd[1992] Ch 560 at 574 held that “[i]n principle, carelessness in not making other inquiries provides no answer to a claim when the plaintiff has done that which the representor intended he should do”. Of relevance in determining whether reliance upon a misrepresentation was negligent is whether a due diligence process was undertaken; whether there was an obligation (or indeed an ability) to “double guess” the representation given; and whether there was exhibited a lack of care in performing the actions induced by, and consequent upon, the misrepresentation (ABN AMRO at [1470]). Where the information available to the plaintiffs did not identify with sufficient clarity the risks of the investment, where the defendants failed to disclose those risks which they themselves knew about, and where instead the defendants made repeated representations as to the lack of risk, the plaintiffs were entitled to accept the defendants words and deeds at face value, particularly in light of their repeated inquiries as to the possible risk, and the defendants repeated assurances that the risk had been “dealt with” in response (ABN AMRO at [1480]).
545 The suggestion that there was a failure to look after the plaintiffs’ own interests because they invested in Yatango Mobile when they were aware it was in financial distress is hardly an attractive argument when the defendants were pressing for the investment.
99․As noted above, Mr Lewis, as Dosen’s agent, made a number of pre-purchase representations to the Plaintiffs as to the high quality of the units which were ultimately purchased by the Plaintiffs. The Defendants do not admit those representations were made, but at the same time do not say Mr Lewis had no authority to make the representations, nor that they were untrue.
100․Further, the contracts for sale for each of the units contained warranties at clause 33.1 that, to the knowledge of Dosen, there were no unfunded defects in the common property or liabilities of the Owners Corporation. As is discussed below, in considering the Plaintiffs’ contractual claims, the contracts for the sale of Units 1, 3, 7 and 8 also contained additional warranties and conditions consistent with the warranties in clause 33 and the contract for the sale of Unit 1 contained a guarantee given by Gjoko and Frane Dosen with respect to the performance of Dosen’s obligations.
101․In my view, the Plaintiffs did not fail to look after their own interests. The Plaintiffs were entitled to proceed on the basis that the representations made on Dosen’s behalf by Mr Lewis, in combination with the warranties contained in the sales contracts, meant that they did not need to take any further steps to protect their interests. There was no basis to second guess the warranties contained in clause 33.1 of the contracts for sale.
102․Accordingly, had I found that Dosen’s contravention of section 18 of the ACL caused the Plaintiffs loss, I would not have reduced any award for contributory negligence.
Consideration of Defendants’ maintenance obligations claim
103․The Defendants say, in their Defence to the Amended Statement of Claim, at [36] and [38], that:
… a reasonable person in the Plaintiff’ position would have, with the knowledge of defects located in the Common Property, sought that the Owners Corporation repaired defects immediately or as soon as practicable to mitigate the risk of any further damage in that Common Property [and] … the Plaintiffs were obliged to raise issues or defects affecting Common Property as soon as possible so that the Owners Corporation could seek that defects are repaired as soon as practicable in line with maintenance obligations.
104․The Defendants say that any liability found against them should be reduced proportionate to the extent of the failure to adhere to maintenance obligations imposed by the Unit Titles (Management) Act 2011. The Defendants did not appear at the hearing of this matter and therefore did not provide any further explanation for their claim, nor lead any evidence in support of it.
105․There is no evidence before me that the Plaintiffs have failed to comply with their obligations under the Unit Titles (Management) Act 2011, nor that any inaction on their part has contributed to the loss that they have suffered.
106․Accordingly, had I found that Dosen’s contravention of section 18 of the ACL caused the Plaintiffs loss, I would not have reduced any award for a failure to properly maintain the Premises.
Consideration of breach of contract claim
107․In the Plaintiffs’ written outline, the Plaintiffs put an alternative case to their ACL claim, submitting that the Court should make the following orders:
(a)judgment against Dosen in favour of all of the Plaintiffs in the sum of $135,766.75, plus interest from 25 May 2023;
(b)judgment against the Second and Fourth Defendants in favour of the First Plaintiff in the sum of $36,073.50 plus interest from 25 May 2023; and
(c)an order that any monies paid by the Second and Fourth Defendants to the First Plaintiff pursuant to any judgment made against them operate to discharge the liability of Dosen, and that the Second and Fourth Defendants’ liability to pay the First Plaintiff will be satisfied upon full payment of the judgment sum by Dosen.
108․The basis for the Plaintiffs’ alternative case is explained as follows:
11.The factual basis for the relief claimed in Order 2 is largely the same as that for Order 1. The difference is that the basis for Order 2 is the contracts for sale between the plaintiffs and the first defendant.
12. In contract, there is no right to recover against directors of a company unless those persons are also parties to the contract. This is the primary difference between Orders 1 and 2.
13.For Order 2, the plaintiffs sue on the contracts not as representations but as binding legal documents in and of themselves. Thus, for Order 2, the promises in each of the contracts regarding unfunded defects in the common property are sued on as contractual promises which were breached and not as representations which were misleading or deceptive.
14.The same evidence identified above proves the breach of this clause in each contract. This is the Peak Consulting report which identifies the defects in the common property.
15.In the contract for sale between the first plaintiff and the first defendant, the second and fourth defendants guaranteed the first defendant’s performance of the contract. This guarantee was not present in any of the other plaintiffs’ contracts. This is why there are additional orders sought by the first plaintiff against the second and fourth defendants – she seeks to enforce the guarantee against those defendants.
16.The amount of the order against those defendants in the first plaintiff’s favour is calculated by the costs to repair Unit 1, being the first plaintiff’s unit, plus 1/8th of the cost to repair the other defects in the common property. As there are specific defects in relation to the common property immediately adjacent to Unit 1, the first plaintiff may be liable to contribute an additional amount for the repair of those defects, given that she is the owner most affected by those issues and the only owner to obtain the benefit of them. This liability arises from the possibility of a special resolution calling for disparate proportional contributions in section 89(2)(b) of the Unit Titles (Management) Act 2011.
109․The Plaintiffs also seek a further order that, upon the undertaking of the Seventh Plaintiff to pay monies received by her pursuant to the order sought into the sinking fund of the owners corporation for Units Plan 3917, judgment against Dosen in the sum of $30,000 plus interest from 10 December 2019.
110․The basis for this claim is a special condition in the Seventh Plaintiff’s contract with Dosen. The Plaintiffs say:
18.That clause was a promise by the first defendant that it would deposit $38,000 in the sinking fund for UP 3917 on or before settlement of the sale of that unit. Contrary to this promise, that amount was not deposited into the sinking fund.
19.The evidence discloses that, upon examination of the owners corporation’s accounts at the first meeting of the members, only $8,000 had, in fact, been contributed to the sinking fund. While $38,000 had been transferred into the owners corporation accounts, $30,000 of that amount had been contributed to the admin fund and paid out for other purposes. The sinking fund was thus short $30,000, compared to where it ought to have been at the time the seventh plaintiff’s unit settled.
20.This was a breach of the contract with the seventh plaintiff. The seventh plaintiff’s loss is the fact that the sinking fund was not at the level which was promised in the contract, and she is entitled to damages necessary to bring that fund back to that level, plus interest.
21. As the seventh plaintiff accepts that the sinking fund is an account of the body corporate, she proffers an undertaking to pay any monies received by her in satisfaction of Order 3 into the sinking fund of UP 3917.
Relevant contractual provisions
111․The key contractual provision relied on by the Plaintiffs is clause 33.1 of the contracts for sale. I have discussed this provision in the context of the Plaintiffs’ ACL claim.
112․As set out in the Plaintiffs’ outline, the Plaintiffs rely on a number of other contractual promises in support of their contractual claims.
113․Pursuant to clause 33.2 of the standard terms of contract, Dosen was “taken to have knowledge of a thing [relevant to the above warranties] if the Seller has actual knowledge, or ought reasonably to have knowledge, of that thing”.
114․In addition, Ms Shearman’s contract contained a guarantee given by Gjoko and Frane Dosen, by which those Defendants agreed to guarantee “the performance and observance by the Seller [Dosen] of all its obligations under this Contract, before, on and after Completion”.
115․Gjoko and Frane Dosen also agreed, in Ms Shearman’s contract, “to keep the Buyer indemnified against any liability, loss, damage or claim due to the default of the Seller which the Buyer may incur in respect of this Contract”.
116․Ms Shearman and Mr McDougal’s contracts also contained a further warranty, in clause 54 of the contract, given by Dosen and (in Ms Shearman’s case) by Gjoko and Frane Dosen as guarantor, that:
(a)They are not aware of any defects related to the units or the common property at Units Plan 3917 (including structural defects)
(b)They have not undertaken any significant repairs to the building Units Plan 3917 in the time since the units plan was registered (because none have been necessary)
(c)Tenants and former tenants of the units in Units Plan 3917 have not notified the Seller or its agents or officers of any issues at Units Plan 3917 in relation to water ingress to the building in the time since the units plan was registered.
117․As to this clause, while the Plaintiffs plead a breach of that warranty in their Amended Statement of Claim, it did not appear to me at the hearing that Ms Shearman and Mr McDougal wished to pursue this aspect of their claim.
118․Mr Colville’s contract contained a special condition which stated that: “On completion the seller will draw a cheque or show evidence that a sum of $38,000 has been paid to the body corporate for the Sinking Fund”. Like Ms Shearman and Mr McDougal’s claims under paragraph 54 of their contracts, it did not appear to me at the hearing that Mr Colville wished to pursue a claim in relation to this special condition.
119․Ms Treglown’s contract also included a special condition, by which “The seller warrants they will deposit the sum of $38,000 into the sinking fund for the units plan on or before settlement”. While the Defendants’ Defence to the Plaintiff’s Amended Statement of Claim asserts that this warranty merged on completion, I do not agree.
Contractual issues
120․The key issues that the Plaintiffs’ contractual claims raise are:
(a)whether Dosen breached the contractual warranties it gave to the Plaintiffs;
(b)whether the Plaintiffs suffered a loss as a result of any breach of the contractual warranties; and
(c)if so, how that loss is to be calculated.
121․A determination also needs to be made as to whether Ms Shearman is entitled to rely on the guarantee that was given to her by Gjoko and Frane Dosen and whether Dosen should be required to contribute an amount to the sinking fund for Units Plan 3917, in satisfaction of the special condition included in the contract for sale it entered into with Ms Treglown. As to this issue, consideration needs to be given to the sum Dosen ought to be required to contribute and whether any obligation to make that contribution is satisfied if it is otherwise required to compensate the Plaintiffs for unfunded defects in the common property.
Whether Dosen breached the contractual warranties it gave to the Plaintiffs
122․The Plaintiffs rely on the warranties given by Dosen in clause 33.1 of the contracts for sale in support of their breach of contract claim. For the same reasons as I have set out above in paragraphs [80] to [82], in concluding that Dosen engaged in misleading conduct by making the representations in clause 33.1 of the contracts for sale, I am of the view that Dosen breached the warranties contained in that clause.
123․I am fortified in that view by the terms of clause 33.2 of the sales contracts which, as noted above, provides that Dosen is taken to have had knowledge of a thing relevant to the warranties in clause 33.1 if Dosen had actual knowledge, or ought reasonably to have had knowledge of the thing.
124․I have explained above why I consider that Dosen ought reasonably to have been aware of all of the defects identified in the Peak Consulting report and ought to have been aware that those defects were unfunded.
125․The defects were not identified in the contacts for sale. Further, as pleaded by the Plaintiffs, the defects are not defects which arise from fair wear and tear.
126․The Plaintiffs say that the breach is that Dosen “failed to provide a unit in a units plan with common property which did not contain latent or patent defects”. That is not correct, as the warranty was not that the common property did not contain any defects – it was that it there were no unfunded defects in the common property.
127․Nevertheless, as I have discussed above, the defects were unfunded. Even if the balance in the sinking fund is taken into account:
(a)the defects were entirely unfunded at the time that Dosen sold Units 1 to 3, 7 and 8; and
(b)only $8,000 was held in the sinking fund at the time Units 5 and 6 were sold. This contrasts with the cost to repair the defects (in 2023 dollars) of $155,162.40, which makes clear that, even by the time that Units 5 and 6 were sold (by which time the sinking fund had been established), there were unfunded defects in the common property.
128․Accordingly, I am satisfied that Dosen breached clause 33.1 of the contracts for sale.
Whether the Plaintiffs suffered a loss
129․The Plaintiffs plead that, as a result of Dosen’s breach of the sales contacts, the Plaintiffs have suffered loss and damage, being the obligation to make contributions by way of special levy towards the costs of repair of the defects in the common property.
130․The measure of loss is to place the Plaintiffs in the position in which they would have been had the warranties proved to be correct: Stav Investments Pty Ltd v Taylor; LK Group Investments v Taylor [2022] NSWSC 208. Had the warranties proved to be correct, the owners corporation would have had sufficient funds to pay for the rectification of any defects in the common property.
131․On one view, that supports the Plaintiffs contention that their loss is the exposure they face to having to pay a special levy. However, the NSW Court of Appeal decision in Rialto Sports Pty Limited v Cancer Care Associates Pty Limited; CCA Estates Pty Limited; Davjul Holdings Pty Limited; Armmam Pty Limited [2022] NSWCA 146 (Rialto) identifies a different way of characterising the Plaintiff’s loss.
132․In Rialto, the Court of Appeal noted that the interest of an individual unit holder in the common property is an equitable interest as tenant in common with the other unit holders, such that damage to the common property is an infringement of those proprietary interests: at [106] and [110]. At [110] – [115], Gleeson JA (as her Honour then was, and with whom Bell CJ and Macfarlan J agreed) said:
Damage to common property such as that alleged in this matter is an infringement of the lot owner’s proprietary interest in the common property as an equitable tenant in common with the other lot owners. The consequence of any such damage is a diminution in the value of the lot owner’s interest in the common property. It should be accepted that the lot owners have standing to claim damage for their proportionate share of the cost of rectifying damage to the common property. That lot owners do suffer loss if there are defects in common property is consistent with what was said in Brookfield by way of obiter: at [150] (Crennan, Bell and Keane JJ), [45] (Hayne and Kieffel JJ) and [173] (Gageler J).
The final argument raised by Rialto is that the lot owners cannot recover damage insofar as remedial works to the common property have not yet been undertaken and which the lot owners could never undertake themselves. This only relates to the southern facade as the cladding has already been replaced.
The short answer is that the lot owner can recover the costs of rectification of incomplete or defective building work in accordance with the contract: Tabcorp Holdings Ltd v Bowen Investments Pty Ltd(2009) 236 CLR 272; [2009] HCA 8 at [13]- [15]. Provided the remedial work is necessary and reasonable (Bellgrove v Eldridge[1954] HCA 36; (1954) 90 CLR 613 at 919; [1954] HCA 36), it is not the point that the work may be never done by the owners corporation because either (a) Rialto has majority control of the owners corporation and may be opposed to rectification of the southern façade, or (b) the respondents are unwilling for whatever reason, such as costs, to commence proceedings against the owners corporation for breach of statutory duty in respect of failure of the owners corporation to discharge the obligation to maintain and keep in a state of good and serviceable repair the common property: s 106(1) of the Strata Schemes Management Act.
Moreover, how a lot owner deploys any damages recovered from the party in breach is a matter for the lot owner.
No loss
Rialto’s submission that the claim for damages is not a form of damages compensable for breach of contract because it represents the cost of compliance of the lot owners with their statutory obligations to pay contributions levied by the owners corporation, mischaracterises the lot owners loss.
The lot owners did not contend that the amount of the statutory levy is the appropriate quantification of loss or that loss is only incurred when a levy is imposed. Among other reasons, an owners corporation holding a significant amount in a capital works fund under s 74(1) of the Strata Schemes Management Act, may not always levy contributions in the full amount of the cost of rectification of defective common property. The lot owners’ loss is not dependent upon the owners corporation levying a contribution, nor is the loss only accrued when the levy is imposed.
133․There is a difference between this case and Rialto, in that the contractual obligation that was breached in Rialto was an obligation imposed on the developer (Rialto) to “cause the construction and completion of the Building in a proper and workmanlike manner in accordance with the Development Consent” (a warranty of good workmanship). Here, the warranty that was given in clause 33.1 was not that the common property would be free of defects (or be constructed in a proper and workmanlike manner), but that Dosen was not aware of any unfunded defects.
134․This directs attention to the financial position of the owners corporation, since the only way that defects could be funded, at the time the Plaintiffs purchased their units, would be if the owners corporation held funds to pay for the rectification works. Indirectly, it also directs attention to the possibility that the Plaintiffs might have to pay a special levy to fund the rectification works. However, following Rialto, I am of the view that the loss suffered by the Plaintiffs is the diminution in the value of each of their respective interests in the common property, not the exposure of the Plaintiffs to any future obligation to pay a special levy.
135․One way this can be demonstrated is, for example, by considering the position of a unit owner who sold (or was seeking to sell) their unit before any resolution was passed for a special levy. That unit owner would still have suffered a loss, because the value of their unit would be less than it would have been if the warranty had proved to be correct (because there are defects in the common property which need to be rectified and the owners corporation does not have sufficient funds to pay for the rectification work).
Calculation of loss
136․The Peak Consulting report identifies that the cost to rectify the defects in the common property is $155,162.40. There is nothing to suggest that the work recommended in the report is not necessary and reasonable, nor that the estimated cost of the work is not reasonable. I note that the report excludes from the recommended rectification works, those defects identified in the report which do not appear to have had an adverse impact on the Premises.
137․The Plaintiffs concede that they are not entitled to receive compensation with respect to the whole of that amount because they are only 7 of the 8 unit owners. The owner of Unit 4 has an interest in the common property which needs to be accounted for. Accordingly, the Plaintiffs seek 7/8ths of the total rectification cost identified by the Peak Consulting report.
138․While I agree with the Plaintiffs that account should be made for the fact that not all of the unit owners are represented in these proceedings, I consider that the calculation of the loss suffered by the Plaintiffs should reflect their unit entitlements, which reflects the Plaintiffs’ interest in the common property.
139․I have set out earlier in these reasons the Plaintiffs’ respective unit entitlements. The unit entitlements attached to Unit 4 were 112 units, meaning that the aggregate number of unit entitlements was 1000 units. The Plaintiffs share of the unit entitlements is therefore 888/1000 (a slightly higher fraction than 7/8).
140․The Plaintiffs seek judgment in favour of all of the Plaintiffs, based on their share of the total cost to rectify the defects in the common property. At a percentage of 88.8%, that would equal $137,784.21.
141․However, Ms Shearman’s claim on the guarantee given to her by Gjoko and Frane Dosen (discussed further below) raises a question as to whether the loss caused to her by Dosen’s breach of her contract for sale is higher than the loss suffered by the other Plaintiffs. In that claim, Ms Shearman seeks an additional award of damages, in the sum of $19,060.80, on the basis that there are specific defects in relation to the common property immediately adjacent to Unit 1, the rectification of which will primarily benefit Ms Shearman. Given that Ms Shearman is the unit owner most affected by these issues, it is submitted that there is the possibility of a special resolution being called for disparate proportional contributions in paragraph 89(2)(b) of the Unit Titles (Management) Act 2011.
142․I have explained above why I consider that the assessment of the Plaintiffs’ loss is to be undertaken by reference to the diminution in the value in their respective interests in the common property, not by reference to the possibility of a resolution being passed for the payment of a special levy. However, I agree that, for the reasons given by the Plaintiffs as to why a special resolution might be passed, Ms Shearman’s loss (in terms of the diminution of the value of her interest in the common property) is greater than the loss suffered by the other Plaintiffs.
143․While this difference is only reflected in the orders that the Plaintiffs seek with respect to Ms Shearman’s claim against Gjoko and Frane Dosen, it seems to me that it is appropriate to take account of the disparate scope of loss suffered by Ms Shearman vis-à-vis the other Plaintiffs in determining the appropriate award of damages to be awarded against Dosen. As identified in Rialto, each of the Plaintiffs have suffered a loss, in terms of the diminution in the value of their interest in the common property, and I consider that they are each entitled to an award of damages in their favour.
144․In this respect, I note that the Peak Consulting report estimates that:
(a)the cost to rectify defects predominantly affecting Ms Shearman’s unit (being the loss suffered by Ms Shearman alone) is $19,060.88; and
(b)the cost to rectify the other defects is $136,101.60 (suffered by each of the Plaintiffs according to their respective unit entitlements). Accounting for the total unit entitlements of the Plaintiffs (excluding Unit 4), their loss with respect to these defects is $120,858.22.
145․The total loss suffered by the Plaintiffs is therefore $139,919.10. As I am not satisfied that the balance in the sinking fund could be used to pay for rectification works, I have not made any allowance for that balance in this calculation.
146․The Plaintiffs’ individual losses are:
(a)Ms Shearman - $35,937.47
(b)Ms Liu - $16,876.60;
(c)Mr McDougal - $19,326.43;
(d)Mr Meegan - $16,740.50;
(e)Ms Doyle - $19,326.43;
(f)Mr Colville - $16,332.19; and
(g)Ms Treglown - $15,379.48.
Guarantee given by the Second and Fourth Defendants to Ms Shearman
147․In addition to the relief sought against Dosen, Ms Shearman relies on the guarantee that Gjoko and Frane Dosen gave her. As paragraph 30A of the Amended Statement of Claim correctly pleads, Gjoko and Frane Dosen guaranteed the performance of Dosen’s obligations under its contract for sale with Ms Shearman. In this respect, Gjoko and Frane Dosen also agreed to keep Ms Shearman indemnified against any liability, loss or damage that she might incur due to the default of Dosen in respect of her contract for sale.
148․In my view, Ms Shearman is entitled to rely on the guarantee that was given to her by Gjoko and Frane Dosen. I note that they admit in their Defence to the Amended Statement of Claim that they gave the guarantee, without any qualification.
149․Accordingly, Gjoko and Frane Dosen are liable to indemnify Ms Shearman for the loss she has suffered as a result of Dosen’s breach of her contract for sale. Gjoko and Frane Dosen are, together with Dosen, jointly and severally liable with respect to the damages award that is made in Ms Shearman’s favour.
Consideration of Ms Treglown’s claim with respect to Sinking Fund
150․Ms Treglown seeks a further order, that she be compensated for Dosen’s failure to comply with the special condition that was included in her sales contract. Dosen warranted that it would deposit the sum of $38,000 into the sinking fund for Units Plan 3917 on or before settlement of the contract for Ms Treglown’s purchase of her unit. Dosen admits that it did not do so, and admits that its failure to do so breached Ms Treglown’s contract for sale.
151․I note that the Amended Statement of Claim also pleads a misleading or deceptive conduct claim on behalf of Ms Shearman, in relation to a similar representation about the sinking fund that was made to her by Dosen, however that claim was not pursued at the hearing.
152․As noted above, the measure of loss is to place Ms Treglown in the position in which she would have been had the warranty proved to be correct: Stav Investments Pty Ltd v Taylor; LK Group Investments v Taylor [2022] NSWSC 208. Had the warranty proved to be correct, an amount of $38,000 would have been in the sinking fund of Units Plan 3917 by at least 10 December 2019. At that time, there were in fact no funds in the sinking fund.
153․As I have discussed above, Dosen contributed funds after that date, which resulted in the sinking fund having a balance of $8,000 by the end of the reporting period (31 May 2020). As a result, Ms Treglown seeks payment of the difference, being $30,000, which she undertakes to pay into the sinking fund.
154․I agree that Dosen is obliged to pay that sum.
155․I considered whether payment of this sum would reduce the Plaintiffs’ losses arising from Dosen’s breach of the warranties in clause 33.1 of the contracts for sale, but I am not satisfied that it would.
156․As I have noted above, I am not satisfied that any balance in the sinking fund could be used to pay for the rectification work in the common areas. In addition, the promise made to Ms Treglown was not that an amount would be contributed to the sinking fund for the purposes of addressing defects in the common property, but simply that Dosen would contribute $38,000 to the sinking fund. That promise was in addition to the warranty that Dosen gave in clause 33.1 that there were no unfunded defects in the common area of the Premises.
157․In this respect, it is to be kept in mind that Dosen had failed to establish and contribute funds to a sinking fund during the period that it was the owner of the Premises, before Ms Treglown purchased her unit. Relatedly, Mr Lewis had said to Ms Treglown, before she entered into her contract, that:
As a goodwill gesture, the builder intends to put $38,000 into a sinking fund so the owners corporation will have no trouble financing any necessary work in the future … A sinking fund is a bank account set aside in a Body Corporate’s books for long-term maintenance. Some of the Strata fees go into this account every year to accumulate money so the Body Corporate can maintain the building. The builder will kick-start it with $38,000.
158․I am of the view that Dosen’s promise to Ms Treglown to contribute $38,000 to the sinking fund was in addition to the warranty given to the Plaintiffs that there were no unfunded defects in the common area. Accordingly, I have concluded that Dosen is obliged to compensate the Plaintiffs for the losses they have suffered arising from the breach of clause 33.1 of the contracts for sale and, as well, satisfy the obligation to pay the remaining $30,000 to the sinking fund.
Costs
159․The Plaintiffs seek a monetary judgment to enable them to fund the rectification of defects in the common property of the Premises, plus their costs. In this respect, they submit that rules 1722 and 1723 of the Court Procedures Rules 2006 should not apply as the Plaintiffs have minimised their costs by being jointly represented. They say that the claim has, in effect, been brought on behalf of the owners corporation, with respect to the common property of the Premises.
160․As the Plaintiffs have succeeded in their claims, there should be a costs order in their favour.
161․Absent an order to the contrary, however, the Plaintiffs would only be able to recover the relevant percentage of the court scale of costs (rules 1722 and 1723 of the Court Procedures Rules). As I take the view that there should be judgment in favour of each Plaintiff for their respective loss, rather than a single judgment in favour of all of the Plaintiffs, the application of rule 1722 would mean that, for most of the Plaintiffs, they would only be able to recover 67% of the prescribed scale of costs. Ms Shearman would be entitled to 80% of the prescribed scale of costs with respect to her claim. Further, it should be noted that the prescribed scale of costs is not the same thing as the Plaintiffs’ actual costs (and, indeed, is likely to be considerably less than the Plaintiffs’ actual costs).
162․In my view, this would not be an appropriate outcome in this case. This is because, to a significant extent, the case that was put on behalf of the Plaintiffs focused on the claims that were common to all of the Plaintiffs. I also note that the Plaintiffs were represented by a single firm and single Counsel, with one set of pleadings, rather than each Plaintiff running their own case separately from each other, and the hearing progressed in an efficient fashion.
163․The total loss suffered by the Plaintiffs, with respect to their common claims for unfunded defects, was $139,919.10. The prescribed percentage for that sum is 100%.
164․Accordingly, I consider that it is appropriate to make an order that rule 1722 of the Court Procedures Rules does not apply to the assessment of the Plaintiffs’ costs.
Interest
165․In the Plaintiffs’ written outline they seek interest:
(a)on the awards of damages that are to be made, from 25 May 2023; and
(b)with respect to the further sum that is to be contributed to the sinking fund, from 10 December 2019.
166․I agree that they are the appropriate dates from which interest should run.
167․While Dosen breached the contacts for sale that it entered into with each of the Plaintiffs on and from the date of settlement for those contracts, the cost of rectification that is identified in the Peak Consulting report takes into account increases in construction costs up until the date of the report (being 25 May 2023).
168․On the other hand, Dosen was required, by its contract for sale with Ms Treglown, to contribute $38,000 to the sinking fund by the time her contract settled, on 10 December 2019. Dosen should pay interest on the balance of that sum which it did not pay, being $30,000, from that date.
169․The rate of interest which is to apply is the applicable rate under part 2.2 of schedule 2 to the Court Procedures Rules 2006.
Orders
170․I make the following orders:
1․ Judgment be entered against Dosen Holdings:
a.in favour of Ms Shearman in the sum of $35,937.47.
b.in favour of Ms Liu in the sum of $16,876.60.
c.in favour of Mr McDougal in the sum of $19,326.43.
d.in favour of Mr Meegan in the sum of $16,740.50.
e.in favour of Ms Doyle in the sum of $19,326.43.
f.in favour of Mr Colville in the sum of $16,332.19.
g.in favour of Ms Treglown in the sum of $15,379.48.
2․ Dosen Holdings pay Ms Treglown the sum of $30,000.
3․ Dosen Holdings pay interest on the sums identified in orders 1 and 2 in accordance with paragraphs [165] to [169] of this decision.
4․ Dosen Holdings pay the Plaintiffs’ costs.
5․ Gjoko and Frane Dosen are, together with Dosen Holdings, jointly and severally liable with respect to the damages award that is made in Ms Shearman’s favour, including the interest that is payable on that award.
6․ Rule 1722 of the Court Procedures Rules does not apply to the assessment of the Plaintiffs’ costs.
171․I note that Ms Treglown has undertaken to pay the sum of $30,000 that Dosen must pay to her under order 2 into the sinking fund of Units Plan 3917. Order 2 has been made on the basis of that undertaking.
| I certify that the preceding one hundred and seventy-one [171] numbered paragraphs are a true copy of the Reasons for Decision of His Honour Magistrate Temby. Associate: Niamh Dwyer Date: 28/03/2024 |