Misleading or Deceptive Conduct in Property Transactions: How Buyers Can Protect Themselves

Failure to Disclose Known Defects

Shearman v Dosen Holdings Pty Ltd [2025] ACTSC 265

In this case before the Supreme Court of the Australian Capital Territory, a developer and its director were aware of significant waterproofing and construction defects affecting common areas of a development. Despite this, the contract included warranties stating that there were no unresolved defects.

The Court held that these representations were misleading. The purchasers were entitled to compensation, and both the developer and its director were found personally liable.

The Court emphasised that, in establishing misleading or deceptive conduct, a buyer must demonstrate reliance on the relevant representation and a causal link between that reliance and the loss suffered. In property transactions, contractual warranties—particularly those relating to matters within the vendor’s knowledge—are likely to be regarded as material to a purchaser’s decision.

Key takeaway:

Buyers should carefully review contractual warranties, particularly those relating to defects or the condition of the property. Any inconsistency between contractual statements and the actual condition may indicate misleading conduct.

Non-Disclosure of the True Purchasing Entity

Liang v Chen [2020] VSC 106

In proceedings before the Supreme Court of Victoria, an investor provided funding of approximately $1.48 million to an individual borrower for the purpose of acquiring and developing land. However, the borrower had already arranged for a controlled company to act as the actual purchaser and failed to disclose this arrangement.

The Court found that this omission constituted misleading or deceptive conduct. Had the investor been aware of the true structure, they would not have entered into the transaction. The company was also held liable as a participant in the conduct.

The Court reaffirmed that misleading conduct is not limited to express statements. It may arise from silence or omissions where, in the circumstances, there is a reasonable expectation of disclosure.

Key takeaway:

In financing or joint development arrangements, it is critical to verify the identity of all relevant parties. A failure to disclose the involvement of a company or third party may amount to misleading conduct.

Misleading Investment Representations by an Agent

Chen v Chu [2024] NSWSC 1139

In the Supreme Court of New South Wales, a real estate agent encouraged clients to purchase 28 off-the-plan properties and participate in a “deposit release” arrangement. The agent represented that the investment would generate returns of approximately 15% per annum and that the developer was financially stable.

In reality, the development group operated as a Ponzi-style scheme and subsequently collapsed, resulting in losses exceeding $7.4 million.

The Court found that the agent had not merely passed on information but had endorsed and amplified misleading representations without any reasonable basis. As a result, the agent was held personally liable for the investors’ losses.

The Court also clarified that, in establishing causation under section 236 of the ACL, a claimant need only show that the misleading conduct was a contributing cause of the loss—not necessarily the sole or dominant cause.

Key takeaway:

Buyers and investors should exercise caution when presented with high-return investment opportunities, particularly where claims about financial stability or returns are unsupported by verifiable evidence.