Shearman v Dosen Holdings
[2025] ACTSC 265
•25 June 2025
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Shearman v Dosen Holdings |
Citation: | [2025] ACTSC 265 |
Hearing Date: | 7 March 2025 |
Decision Date: | 25 June 2025 |
Before: | Burns AJ |
Decision: | See [41] |
Catchwords: | APPEAL – CIVIL LAW – Contracts – Consumer law – Judgment – appeal from a decision of a Magistrate – claims for damages – misleading and deceptive conduct – common property of the complex affected by defects – appeal upheld |
Legislation Cited: | Competition and Consumer Act 2010 (Cth), sch 2, ss 4, 236 |
Cases Cited: | Argy v Blunts & Lane Cove Real Estate Pty Ltd [1990] FCA 51; 26 FCR 112 |
Parties: | Isobel Christina Shearman (First Appellant) Yanni Liu (Second Appellant) Cameron James McDougall (Third Appellant) Lewis Meegan (Fourth Appellant) Tanya Rosanne Doyle (Fifth Appellant) Caillan Shaw Colville (Sixth Appellant) Rachel Jacinta Treglown (Seventh Appellant) Dosen Holdings Pty Ltd (First Respondent) Gjoko Dosen (Second Respondent) Frane Dosen (Third Respondent) |
Representation: | Counsel WDB Buckland ( Appellants) |
| Solicitors O'Connor Harris & Co ( Appellants) | |
File Number: | SCA 22 of 2024 |
Decision Under Appeal: | Court/Tribunal: ACT Magistrates Court Before: Magistrate Temby Date of Decision: 28 March 2024 Case Title: Shearman v Dosen Holdings Citation: [2024] ACTMC 4 |
BURNS AJ:
Introduction
1․This is an appeal from a decision of a Magistrate. In the proceedings before the Magistrate, seven plaintiffs (the appellants in the present proceedings) claimed damages against a number of defendants, including the respondents to the present appeal. The appellants are the owners of seven of the eight units in Units Plan 3917, being a residential development comprising eight units and associated common property located in Turner in the Australian Capital Territory (ACT).
2․The appellants purchased their units from the first respondent, Dosen Holdings Pty Ltd (Dosen). They purchased their units in the period between November 2019 and April 2020. The second and third respondents were directors of Dosen during that period. They were also the builders who were responsible for the construction of the units complex on behalf of Dosen. For convenience I will refer to the second and third respondents collectively as “the directors”.
3․After the appellants purchased their units, it became apparent that the common property of the complex was affected by defects. Initially, the directors made some minor, unsuccessful attempts to fix the defects. The appellants then retained experts and lawyers to pursue their rights culminating in the proceedings before the Magistrate.
4․In the proceedings before the Magistrate the appellants pursued claims for damages based upon (1) breach of contract and (2) misleading or deceptive conduct contrary to the Australian Consumer Law (ACL). The ACL is found in Sch 2 to the Competition and Consumer Act 2010 (Cth) and applies in the ACT by operation of s 7 of the Fair Trading (Australian Consumer Law) Act 1992 (ACT).
5․On 28 March 2024, the Magistrate entered judgment for the appellants against the respondents and delivered written reasons: see Shearman v Dosen Holdings [2024] ACTMC 4 (Shearman). The Magistrate found for the appellants on their contractual claims against Dosen, and on certain limited contractual claims against the directors. Relevantly for the purposes of the present appeal, the Magistrate dismissed the appellants’ claims for misleading or deceptive conduct against the respondents.
6․In dismissing the appellants’ claims for misleading or deceptive conduct, the Magistrate’s reasoning was summarised by the appellants as follows:
a.the conduct of Dosen was misleading or deceptive, in that it was aware (through the third respondent) of defects in the common property and yet made representations in the contract for sale that there were no unfunded defects in the common property; but
b.there was no evidence that the appellants had specifically relied upon that clause of the contract, so his Honour could not be satisfied that the Dosen’s misleading and deceptive conduct was causative of any of the appellants’ loss; and
c.his Honour was further not satisfied that either of the directors were involved in Dosen’s conduct such that his Honour would not have extended liability to them if he had been satisfied that Dosen’s conduct did cause the appellants loss or damage.
7․In the present appeal, the appellants submit that the Magistrate erred in dismissing their claims for misleading or deceptive conduct.
8․The respondents did not take any part in the proceedings before the Magistrate beyond filing a defence, and they have not taken any part in the present appeal. I was satisfied that the respondents had been appropriately served with the relevant documents and were aware of the date for hearing of the appeal. I infer that they have deliberately chosen not to participate in this appeal.
9․This fact does not change the onus of proof in this appeal. The obligation to demonstrate error on the part of the Magistrate rests on the appellants.
10․The Grounds of Appeal pleaded by the appellants are:
a)Ground A: The learned Magistrate erred in holding that the second and third respondents were not involved in the misleading or deceptive conduct of the first respondent in circumstances where his Honour found that the first respondent, a corporation, was aware of certain facts, matters or circumstances which meant that it had engaged in misleading or deceptive conduct, when such knowledge or awareness could only have been held by natural persons who acted on behalf of the first respondent, being the second and third respondents.
b)Ground B: The learned Magistrate erred in holding that the appellants had not relied upon any misleading or deceptive conduct of the first respondent, and as such had not suffered any loss or damage by reason of that conduct.
c)Ground C: The learned Magistrate erred in failing to consider whether the first respondent was involved in the misleading or deceptive conduct of its real estate agent, and whether in turn the second and/or third respondents were involved in the first respondent’s involvement in the real estate agent’s conduct.
11․I am satisfied that the appellants should succeed on all three Grounds.
Ground B: Reliance by appellants on Dosen’s misleading or deceptive conduct
12․It was not in dispute that the ACL applies to the transaction of purchasing residential property in which each of the appellants and Dosen engaged. The provisions of the ACL prohibited Dosen from engaging in misleading or deceptive conduct in those transactions. Section 236 of the ACL provides that any person who suffers loss or damage because of conduct of another person that contravenes the provisions of the ACL may recover that loss or damage from that other person or any person involved in the contravention.
13․The Magistrate found that Dosen was aware that there were defects in the common property and that those defects were unfunded. In that regard the Magistrate said:
[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.
14․In these passages, the Magistrate identifies the defects and the basis for concluding that Dosen was aware of the defects and that they were unfunded. While the Magistrate refers to being satisfied that Dosen “ought to have known” that the defects were unfunded at the time of the sale of the units to the appellants, the only reasonable and rational inference is that it did know that they were unfunded.
15․The representation which the Magistrate found to be misleading or deceptive is in clause 33.1 of the draft contracts for sale provided by Dosen and which were ultimately executed by the individual appellants for the purchase of their respective units. As recognised by the Magistrate, clause 33.1 contained the following warranties:
(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”.
16․The Magistrate identified the conduct of Dosen which was misleading as:
[P]roviding a draft contract for sale for the marketing of the units which contained representations … 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.
17․This was misleading because Dosen was aware that there were unfunded defects in the common property.
18․The Magistrate held that in order to recover damages for Dosen’s misleading conduct it was necessary for the appellants to establish that they had relied on the representations contained in clause 33.1 when entering into the contract for sale. In so holding, the Magistrate cited the decision of McWilliam AsJ (as her Honour then was) in Dong v Song (No 2) [2018] ACTSC 180, where her Honour referred (at [43]) to the decision of the plurality of the High Court (Gummow, Hayne, Heydon and Kiefel JJ) in Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; 238 CLR 304 (Campbell), where it was said regarding ss 42 and 68 of the Fair Trading Act 1987 (NSW), at [102]:
References to misrepresentation or reliance must not be permitted to obscure the need to identify contravening conduct (here, misleading or deceptive conduct) and a causal connection (denoted by the word “by”) between that conduct and the loss and damage allegedly suffered.
(Emphasis added.)
19․The Magistrate went on to give the following reasons for concluding that the appellants had not established that they had suffered loss or damage because of Dosen’s misleading 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.
20․In the present proceedings, the appellants drew my attention to McHugh J’s judgment in Henville v Walker [2001] HCA 52; 206 CLR 459 (Henville), where his Honour said, at [106]:
If the defendant’s breach has “materially contributed” to the loss or damage suffered, it will be regarded as a cause of the loss or damage, despite other factors or conditions having played and even more significant role in producing the loss or damage. As long as the breach materially contributed to the damage, a causal connection will ordinarily exist even though the breach without more would not have brought about the damage. In exceptional cases, where an abnormal event intervenes between the breach and damage, it may be right as a matter of common sense to hold that the breach was not a cause of damage. But such cases are exceptional.
(Citations omitted.)
21․The appellants submitted that the Magistrate erred in determining the question whether the appellants had suffered a loss or damage because of Dosen’s misleading conduct on the basis that the issue was determined by the failure of the appellants to give direct evidence that they relied on the warranties found in clause 33.1 of the draft contract. I agree.
22․The case advanced by the appellants in the Magistrates Court was that:
(a)Dosen made representations in the draft contract that:
(i)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 the draft contract; and
(ii)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 the draft contract;
(b)these representations were false or misleading because there were defects in the common property of which Dosen and the builders were aware each of the appellants were provided with a copy of the draft contract prior to agreeing to purchase their unit;
(c)each of the appellants consulted solicitors for the purpose of undertaking the conveyance of their unit;
(d)each of the appellants engaged in conversations with representatives of Dosen prior to entering into the contract in which they were advised that, in effect, the units were well constructed;
(e)in reliance on the representations in clause 33.1 of the draft contract each appellant entered into the contract; and
(f)by entering into the contract and completing the purchase each appellant suffered loss or damage.
23․As is clear from the extracts from Campbell and Henville set out above, as part of establishing a claim against the respondents for misleading or deceptive conduct contrary to the ACL the appellants needed to prove a causal connection between the misleading or deceptive conduct and any loss sustained by them. They could prove that connection by oral evidence that they relied on the misleading or deceptive representations when entering into the contract. In many cases where such evidence is given by a plaintiff, however, a defendant will submit that this evidence should not be accepted and is a product of hindsight. In such cases, courts will often look to the circumstances surrounding the transaction in which the misleading or deceptive representation was made to consider the likelihood of the plaintiff having entered into the transaction if the representation had not been made.
24․Where there is no direct evidence of reliance, a court may nevertheless infer the fact of reliance from the circumstances surrounding the transaction. This process of inference is similar to the process of considering the likelihood that a plaintiff would have entered into the transaction in circumstances referred to in the previous paragraph.
25․The transactions that were the subject of these proceedings were transactions for the sale of real property which required a contract in writing. Where parties evidence their agreement by entering into a written contract, it should ordinarily be inferred that any warranties included in the written agreement materially contributed to the party in whose favour those warranties operate entering into the agreement. This is particularly so where the transaction effected by the contract is the purchase of residential property, which, it may be accepted, is a very substantial transaction for the purchaser and are warranties directed towards matters of which the vendor is aware and of which a purchaser is unaware or unlikely to be aware.
26․The Magistrate, with respect, should have considered the nature of the transaction, the nature of the misleading conduct, and what was said about the quality of the construction by Dosen or its agents pre-contractually, and then asked the question whether, in the context of the whole transaction, it should be inferred that the warranties made in clause 33.1, which were in large part simply a distillation of representations already made by Dosen and its representatives, materially contributed to each appellant entering into the contract and suffering loss or damage.
27․Unsurprisingly in such a substantial transaction, there was evidence before the Magistrate that each of the appellants sought reassurance from Dosen or its representatives about the quality of the construction of the units complex. There was evidence that it was part of the agents’ “sales pitch” to emphasise the quality of the construction and the maintenance of the complex. It is not difficult to infer that these were matters of significance in the appellants’ decision-making processes. As I have said, these representations found final form in clause 33.1 of the draft contract.
28․In any event, it may readily be inferred that the solicitors acting on behalf of each individual appellant were aware of the terms of clause 33.1 of the draft contract. As agents for each of the appellants they were clearly aware of the warranties in clause 33.1. It would be unthinkable to determine otherwise. Without such warranties, no competent solicitor could have advised their client to proceed with the purchase.
29․The Magistrate should have found that the warranties made by or on behalf of Dosen, and which ultimately found form in clause 33.1 of the draft contract, materially contributed to the appellants entering into their contracts and suffering loss and damage.
30․The appellants succeed on this Ground.
Ground A and Ground C: The involvement of the directors in the misleading or deceptive conduct
31․As noted above, s 236 of the ACL provides that any person who suffers loss or damage because of conduct of another person that contravenes the provisions of the ACL may recover that loss or damage from that other person or any person involved in the contravention. It was alleged by the appellants that the directors were persons who were involved in Dosen’s misleading or deceptive conduct.
32․It was accepted by the Magistrate that the real estate agents appointed by Dosen to sell the units made representations to each of the appellants about the quality of the build. These representations were made by the real estate agents on behalf of Dosen, and it may be inferred that they were made based on information provided by Dosen. The only rational inference from the fact that the directors were also the builders of the units complex, and that they had made unsuccessful attempts to rectify the defects prior to the sale of the units, was that both directors were aware of the defects.
33․The only rational inference is that the information provided to the real estate agents regarding the misleading representations made by them was provided by the directors. This inference may be more safely drawn where the directors chose not to give evidence or call any evidence at the trial before the Magistrate. The directors were persons who could clearly give relevant evidence on behalf not only of themselves but also on behalf of Dosen. Their unexplained failure to give evidence allows me to more safely draw the inferences which I have.
34․The appellants submit that in passing on the misleading information provided by the directors, the real estate agents were involved in the misleading or deceptive conduct of Dosen. I agree.
35․In their Amended Statement of Claim, the appellants pleaded that the directors were involved in Dosen’s misleading or deceptive conduct in that they, on behalf of Dosen:
(a)provided the misleading or deceptive information to the real estate agents;
(b)provided instructions to the real estate agents;
(c)provided a draft contract for sale for the marketing of the units which contain the representations in clause 33.1; and
(d)authorised and requested the real estate agents to act on behalf of Dosen in relation to the sales of units in Units Plan 3917.
36․In the Magistrate’s decision, this pleading was not clearly addressed. The Magistrate approached the alleged involvement of the directors in Dosen’s conduct on the basis that the appellants were alleging that the directors involvement was “in executing some of the contracts that Dosen entered into” with the appellants. The Magistrate went on to say that the directors had signed the contracts for sale in their capacity as directors or “mere corporate organs” of Dosen.
37․In approaching the appellants’ claims against the directors in this way the Magistrate fell into error. This approach was too narrow when the alleged involvement by the directors was as set out at [35] above.
38․I am satisfied that if the Magistrate had correctly addressed the issue, the only rational conclusion available was that the directors were involved in the misleading or deceptive conduct of Dosen. This was a propriety limited company with only three shareholders, two of whom were the directors. The directors were also the builders of the units plan. It is trite to say that a company can only act through human agents. It defies commercial reality that, in such a small company, the directors/builders would not be intimately involved in significant company activity, such as the marketing of the units. I am more safely able to come to this conclusion because of the unexplained failure of the directors to give evidence or call evidence on these issues.
39․As the appellants observed, such a finding could be made without any finding of misleading or deceptive conduct on the part of the real estate agents: Argy v Blunts & Lane Cove Real Estate Pty Ltd [1990] FCA 51; 26 FCR 112. Accordingly, the conclusion which I have reached, and which the Magistrate should have reached, does not require any adverse findings against the real estate agents.
40․I am satisfied that these Grounds are made out.
Orders
41․For those reasons the following orders are made:
(1)The appeals will be upheld.
(2)The orders of Magistrate Temby of 28 March 2024 are varied by adding the following additional orders:
(a)Judgment be entered against Gjoko Dosen and Frane Dosen jointly and severally:
(i) In favour of Isobel Shearman in the sum of $35,937.47
(ii) In favour of Yanni Liu in the sum of $16,876.60
(iii) In favour of Cameron McDougall in the sum of $19,326.43
(iv) In favour of Lewis Meegan in the sum of $16,740.50
(v) In favour of Tanya Doyle in the sum of $19,326.43
(vi) In favour of Caillan Colville in the sum of $16,332.19
(vii) In favour of Rachel Treglown in the sum of $15,379.48.
(b)Gjoko Dosen and Frane Dosen are to pay interest on the sums above in accordance with paragraphs 165 to 169 of Magistrate Temby’s decision of 28 March 2024.
(c)Gjoko Dosen and Frane Dosen are to pay the plaintiff’s costs of the proceedings.
(d)Any amount paid by Dosen Holdings Pty Ltd, Gjoko Dosen and Frane Dosen in satisfaction of the judgment or costs orders made against them operates to reduce the liability of Dosen Holdings Pty Ltd, Gjoko Dosen and Frane Dosen in the amount of that payment.
(3)The respondents to pay the appellants’ costs of the appeal.
| I certify that the preceding forty-one [41] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Acting Justice Burns. Associate: Date: 25 June 2025 |
0
5
3