FEDERAL COURT OF AUSTRALIA
Murphy v Overton Investments Pty Ltd [2000] FCA 801
TRADE PRACTICES – misleading or deceptive conduct – where statements that prospective lessees would be able to “afford” to live at a retirement village – whether statements were misleading or deceptive or likely to mislead or deceive – whether statements affected decision to enter into lease
TRADE PRACTICES – misleading or deceptive conduct – where representation as to estimated maintenance fee payable by lessees – where failure to disclose fact that calculation of maintenance fee did not cover all expenditure being incurred in the operation of the retirement village – whether representation as to estimated maintenance fee would fairly give rise to an expectation that there would be disclosure of the fact that certain expenditure had not been taken into account – whether failure to disclose misleading or deceptive or likely to mislead or deceive
TRADE PRACTICES – loss or damage – whether more likely than not that lease would not have been entered into if prospective lessees informed that estimated maintenance fee did not accurately reflect expenditure incurred – when loss or damage suffered – whether loss or damage suffered on entry into the lease – whether loss or damage suffered some time after entry into the lease – nature of obligation under the lease – when entitlement to reimbursement arose – when liability to reimburse arose – whether loss or liability contingent – whether cause of action statute-barred
TORTS – negligent advice – where statement that prospective lessees would be able to “afford” to live at a retirement village – where parties at arms length – whether duty of care – whether reasonable to rely on statements made
TORTS – negligent advice – where statement as to accuracy of a budget – whether duty of care – whether breach – when loss suffered – whether cause of action statute-barred
EQUITY – estoppel – whether statements constituted a promise that strict legal rights would not be insisted upon – whether an assumption induced that all expenditure incurred or likely to be incurred in operating the retirement village had been included in the maintenance fee estimate – whether unconscionable to depart from that assumption – whether reasonable notice of intention to depart from assumption
CONTRACT – whether lease unjust pursuant to the Contracts Review Act 1980 (NSW), s 7 – whether jurisdiction to make orders varying or terminating the lease
Constitution Ch III
Federal Court Act 1976 (Cth) Pt IVA
Trade Practices Act 1974 (Cth) ss 51, 52, 82, 87
Contracts Review Act 1980 (NSW) ss 4, 7
Retirement Villages Act 1989 (NSW)
Limitation Act 1969 (NSW) s 14
Real Property Act 1900 (NSW)
Silkfield Pty Ltd v Wong (1998) 159 ALR 329 cited
Wong v Silkfield Pty Ltd [1999] HCA 48 cited
Hawkins v Clayton (1988) 164 CLR 539 referred to
Murphy v Overton [1999] FCA 1123 cited
Murphy v Overton [1999] FCA 1673 cited
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 considered
Potts v Miller (1940) 64 CLR 282 referred to
Commonwealth v Verwayen (1990) 170 CLR 394 referred to
Fencott v Muller (1983) 152 CLR 570 referred to
Stack v Coasts Securities (No 9) Pty Ltd (1983) 154 CLR 261 referred to
Re Wakim; Ex parte McNally (1999) 163 ALR 270 referred to
Smith v Smith (1986) 161 CLR 217 applied
JOHN JAMES MURPHY v OVERTON INVESTMENTS PTY LIMITED
N 159 OF 1999
DAPHNE MURPHY v OVERTON INVESTMENTS PTY LIMITED
N 946 OF 1999
EMMETT J
15 JUNE 2000
SYDNEY
|
IN THE FEDERAL COURT OF AUSTRALIA |
|
|
|
|
BETWEEN: |
APPLICANT
|
|
AND: |
OVERTON INVESTMENTS PTY LIMITED RESPONDENT
N 946 OF 1999
|
|
BETWEEN: |
DAPHNE MURPHY APPLICANT
|
|
AND: |
OVERTON INVESTMENTS PTY LIMITED RESPONDENT
|
|
JUDGE: |
|
|
DATE: |
|
|
PLACE: |
REASONS
INDEX
PREAMBLE……………………………………………………………………………….paragraph [1]
THESE PROCEEDINGS........................................................................................... paragraph [4]
THE PLEADINGS................................................................................................... paragraph [10]
THE LEGAL STRUCTURE OF UNITS IN THE HERITAGE VILLAGE................. paragraph [24]
CONTRIBUTIONS TO OUTGOINGS BY LESSEES............................................... paragraph [28]
LAY WITNESSES................................................................................................... paragraph [31]
THE NEGOTIATION OF THE LEASE................................................................... paragraph [38]
MR MURPHY’S UNDERSTANDING AS AT 20 OCTOBER 1992.......................... paragraph [84]
OVERTON’S CHANGE OF APPROACH............................................................... paragraph [86]
The March Documentation.................................................................................... paragraph [87]
The Meeting of 31 March 1994............................................................................ paragraph [105]
Advisory Committee Meeting of 28 April 1994...................................................... paragraph [110]
Advisory Committee Meeting of 30 June 1994...................................................... paragraph [123]
The 18.37% Increase from 1 July 1994................................................................. paragraph [130]
The 1994 Accounts and the 1995 Budget for the Maintenance Fund....................... paragraph [135]
The Involvement of TARS................................................................................... paragraph [138]
Mr Murphy’s understanding of Overton’s position in 1994...................................... paragraph [152]
Events of 1995 and 1996...................................................................................... paragraph [160]
1992 CONTRAVENTION OF TRADE PRACTICES ACT....................................... paragraph [171]
NEGLIGENT ADVICE.......................................................................................... paragraph [192]
LOSS OR DAMAGE............................................................................................. paragraph [202]
LIMITATION OF ACTION................................................................................... paragraph [222]
PROMISSORY ESTOPPEL OR ESTOPPEL BY REPRESENTATION................. paragraph [227]
UNCONSIONABLE CONDUCT........................................................................... paragraph [235]
CONTRACTS REVIEW ACT................................................................................... paragraph [238]
CONDUCT OF OVERTON DURING 1994........................................................... paragraph [254]
RELIEF................................................................................................................. paragraph [271]
Valuation Issues.................................................................................................. paragraph [272]
Level of Outgoings.............................................................................................. paragraph [291]
Section 87 Relief................................................................................................. paragraph [293]
CONCLUSION...................................................................................................... paragraph [302]
APPENDIX 1 - History of Litigation........................................................................ paragraph [303]
APPENDIX 2 - Relief Claimed............................................................................... paragraph [323]
APPENDIX 3 - Clauses of the Lease Memorandum................................................. paragraph [325]
APPENDIX 4 - Clauses of the Trust Deed.............................................................. paragraph [326]
APPENDIX 5 - Contents of the Information Booklet................................................ paragraph [327]
PREAMBLE
2 Mr and Mrs Murphy claim that prior to entering into the Lease, misleading statements were made on behalf of Overton concerning the extent of their liability under the Lease to contribute to the expenses of operating the Heritage Village. They say that those statements induced them to enter into the Lease and that, as a consequence, they have suffered loss. They seek a remedy in respect of that loss.
3 Prior to the commencement of these proceedings, there had been a history of litigation between Overton and persons who are lessees of units in the Heritage Village (“Lessees”). The litigation concerned the liability of Lessees to contribute to operating expenses in respect of the Heritage Village. The history has some bearing on the issues raised in these proceedings. A summary of the history is contained in Appendix 4.
THESE PROCEEDINGS
· Mr Murphy’s Proceeding no longer continue under Part IVA;
· the further amended statement of claim then filed be struck out;
· the applicants other than Mr Murphy be removed as parties;
· leave be granted to Mr Murphy to file a second further amended application and second further amended statement of claim.
5 In my reasons for making those orders ([1999] FCA 1123), I referred to the decision of the Full Court in Silkfield Pty Ltd v Wong (1998) 159 ALR 329. I indicated that the outcome of the appeal to the High Court from that decision could have an effect on this proceeding if the High Court were to cast doubt on the correctness of the reasoning of the Full Court. Following the decision of the High Court in Wong v Silkfield Pty Ltd [1999] HCA 48, Mr Murphy filed a notice of motion seeking an order that my orders of 17 August 1999 be varied. Having heard argument from both sides on that motion, I dismissed the application on 25 November 1999 for reasons that I then published ([1999] FCA 1673). Since then, Mr Murphy’s proceeding has continued with Mr Murphy alone as applicant. Following the orders that I made on 17 August 1999, separate proceedings were commenced on behalf of most of the other Lessees.
6 On 7 March 2000, I embarked on the hearing of Mr Murphy’s proceeding together with proceedings N 857 of 1999 and N 878 of 1999 brought on behalf of Mr Neville Carnegie and Mrs Rita Brasington respectively. The intention of the parties was that the three proceedings would be treated as test cases, at least on an informal basis. So far as the Court is aware, there is no agreement that the determination of those proceedings will be binding on the parties in any of the other proceedings. For the reasons that I have already given in relation to decisions on questions arising under Part IVA, there is considerable doubt as to the extent to which the same questions would arise in each proceeding. Nevertheless, it was considered to be of utility to embark on the hearing of proceedings N 159, N 857 and N 878 of 1999 together.
7 However, in the course of the hearing, which commenced on 7 March 2000, it became clear that the continuation of the proceedings brought by Mr Carnegie and Mrs Brasington added unnecessary complication. Evidence has been taken from Mr Carnegie but not from Mrs Brasington. On 16 May 2000, I ordered that the further hearing of those proceedings be adjourned until after the completion of Mr Murphy’s Proceeding.
8 On 31 August 1999, proceeding N 946 of 1999 (“Mrs Murphy’s Proceeding”) had been commenced on behalf of Mrs Murphy. On 16 May 2000 I also made orders that Mr Murphy’s Proceeding and Mrs Murphy’s Proceeding be heard together and that evidence in one be evidence in the other. It may have been more convenient for Mrs Murphy to be added as an applicant in Mr Murphy’s proceeding. However, for reasons that I understand are connected with possible limitation questions, Mrs Murphy’s proceeding has been maintained as a separate proceeding. No question has been raised concerning the capacity of Mrs Murphy to participate in these proceedings.
9 Because of the pendency of the proceedings brought by other Lessees referred to above, I propose to make more fulsome findings than might otherwise have been necessary to dispose of only Mr Murphy’s Proceeding and Mrs Murphy’s Proceeding.
THE PLEADINGS
10 Under the current statements of claim, relief is claimed under the following heads:
· damages under section 82 of the Trade Practices Act 1974 (Cth) (“the Trade Practices Act”) by reason of contravention of section 52 and section 51AA of the Trade Practices Act;
· orders pursuant to section 87 of the Trade Practices Act by reason of contravention of sections 52 and 51AA of the Trade Practices Act;
· damages under the general law for negligent advice;
· declarations that as a consequence of representations made by it relating to the outgoings under the Lease, Overton is estopped from claiming contribution to outgoings in excess of a particular level;
· orders under section 7 of the Contracts Review Act 1980 (NSW) in respect of provisions of the Lease relating to recovery of outgoings generally, and relating to recovery of outgoings in the nature of legal and accounting costs and interest, in particular.
11 The current claims in Mr Murphy’s Proceeding are made in a third further amended application filed on 5 May 2000 and a third further amended statement of claim filed on 28 January 2000. The current claims in Mrs Murphy’s Proceeding are made in an amended application and an amended statement of claim, both filed on 17 May 2000. The relief claimed in each proceeding is set out in Appendix 2.
12 The current statements of claim allege that throughout the period 27 May 1992 to 20 October 1992, and continuing up to 27 November 1996, Overton made a number of representations to Mr and Mrs Murphy. Seventeen separate representations are alleged (“the Original Representations”). The statements of claim also allege that, prior to Mr and Mrs Murphy entering into the Lease, and continuing up to 30 March 1994, Overton failed to advise Mr and Mrs Murphy of some thirteen different matters (“the Relevant Matters”). The allegation is made that, in reliance upon the Original Representations and by reason of the failure of Overton to inform Mr and Mrs Murphy of the Relevant Matters:
· Mr and Mrs Murphy entered into the Lease;
· Mr and Mrs Murphy continued to believe in the correctness of each of the Original Representations up to 27 November 1996.
13 The statements of claim also allege that on 31 March 1994 Overton informed Mr and Mrs Murphy that Overton could have recovered contributions from residents in respect of the year ended 30 June 1993 in the sum of $1,018,548 but had decided to limit its recovery of outgoings in that period to $453,131 (“the March Representation”).
14 The statements of claim then allege that from 31 March 1994 to 1 July 1994 Overton made three further representations to Mr and Mrs Murphy (“the Further Representations”) as follows:
· If the Lessees increased the amount of their monthly contributions by 18.37 per cent then the amount of monthly contributions should be sufficient to reimburse Overton fully for all outgoings recoverable under their respective leases for the financial years ending 30 June 1994 and 30 June 1995;
· The payment by each of the Lessees of any increase in monthly levies of 18.37 per cent should be sufficient to ensure the commercial viability of the Heritage Village and thus preserve the value of the capital investment of each of the Lessees;
· The 18.37 per cent increase comprised 8.9 per cent by way of CPI increases over and above the amounts already paid since the commencement of the operation of the Heritage Village and 9.47 per cent by way of additional contributions required to ensure that Overton was fully reimbursed for all outgoings recoverable from Lessees for the financial years ending 30 June 1994 and 30 June 1995;
15 The Statements of claim allege that throughout the period 30 March 1994 to 27 November 1996 Overton failed to inform Mr and Mrs Murphy of any of the Relevant Matters. It is then alleged that in reliance upon each of the Original Representations, the March Representation and the Further Representations and by reason of the failure by Overton to inform Mr and Mrs Murphy of any of the Relevant Matters, Mr and Mrs Murphy:
· formed the view that any assertion by Overton that it could have recovered $1,018,548 from lessees was no more than a reference to the total expenditure of Overton during the relevant period;
· continued to believe in the correctness of each of the Original Representations;
· paid an increased monthly levy for outgoings from 1 July 1994 to 28 February 1997; and
· took no steps to surrender the Lease at a time when the value of the Lease was no less than that which Mr and Mrs Murphy had paid for it on 20 October 1992.
16 In addition it is alleged that, in reliance on the Original Representations and failure to inform Mr and Mrs Murphy of the Relevant Matters, Mr and Mrs Murphy made assumptions in the terms of the Original Representations. It is then alleged that, in the circumstances, it would be unconscionable for Overton to recover outgoings under the Lease in so far as they exceed the amounts which Mr and Mrs Murphy assumed they would be liable to pay and that Overton is therefore estopped from recovering outgoings under the Lease in so far as they exceed the amounts that Mr and Mrs Murphy assumed they would be liable to pay:
· for the duration of the Lease; or
· until reasonable notice was given of any substantial change in the level of outgoings.
17 Next, it is alleged that, by reason of the matters referred to above, it would be unconscionable for Overton to recover amounts by way of contribution to outgoings under the Lease in excess of the sum of $71.95 per week. It is also alleged that the conduct referred to would constitute a contravention of section 51AA of the Trade Practices Act. Section 51AA prohibits unconscionable conduct.
18 Finally, it is alleged that in making the Original Representations, Overton gave advice to Mr and Mrs Murphy in circumstances where Overton owed a duty to Mr and Mrs Murphy to exercise due care, skill and diligence when giving such advice. It is alleged that Overton breached its duty of care in giving advice by failing to inform Mr and Mrs Murphy of the matters referred to above.
19 Thus, while several diverse causes of action are relied upon, all causes of action arise out of the same factual circumstances. Those circumstances are the alleged representations and failure to inform Mr and Mrs Murphy of the Relevant Matters during the period 27 May 1992 to 27 November 1996. In the course of addresses, after the close of the evidence, it was accepted on behalf of Mr and Mrs Murphy that, of the Original Representations, only the following are of relevance:
· Substantially all outgoings incurred by Overton in the retirement of the operation of the Heritage Village for which Mr and Mrs Murphy were liable under the Lease, at the time the Information Booklet (as referred to below) was provided by Overton to Mr and Mrs Murphy, had been incorporated into the estimate in the Information Booklet;
· The quantum of future total outgoings would be limited to the Estimated Initial Outgoings in Schedule 6 of the Lease plus such increases in costs which were fairly and/or reasonably based on the outgoings comprised in the said estimated initial outgoings;
· The quantum of future total outgoings would be limited to the estimate set out in the Information Booklet plus such increases in costs which were fairly and/or reasonably based on the outgoings;
· Future increases in outgoings would be limited to ensure that if either Mr Murphy or Mrs Murphy passed away, the survivor on a single full age pension would always throughout the term of the Lease be able to afford to pay all outgoings for which the survivor was liable without recourse to depleting the assets of the survivor;
· So as to ensure that a resident on a single full pension would always throughout the term of the Lease be able to afford to pay all outgoings for which such resident was liable without recourse to depleting the assets of the resident, regard would be given by Overton when incurring future increases in outgoings to increases in the Consumer Price Index (“CPI”);
20 It was also accepted that the only relevant assumptions for the purpose of any estoppel were assumptions in the terms of those representations.
21 Of the Relevant Matters, only the following are relied on by Mr and Mrs Murphy as having relevance:
· At all times it was open to Overton to substantially increase the level of outgoings under the Lease without regard to the basis upon which any of “the estimates” had been calculated;
· At all times it was open to Overton to so increase future outgoings recoverable under the Lease that Lessees on a single full age pension would not be able to afford to pay all outgoings for which they were liable without recourse to depleting their assets;
· At all times it was open to Overton under the Lease to recover all outgoings incurred for such levels of expenditure as Overton in its sole discretion saw fit to incur;
· The level of outgoings levied by Overton from individual residents under their respective leases could increase so substantially that the value of the leasehold interest being acquired by Mr and Mrs Murphy under the Lease would be significantly diminished;
· Mr and Mrs Murphy would lose the ability to readily procure a replacement lessee and to surrender the Lease without sustaining a substantial loss on the Lease Deposit (as referred to below) if Overton saw fit to levy all outgoings that it was entitled to recover under the Lease;
· Overton was entitled under the Lease to recover losses from the provision of user pay services from Mr and Mrs Murphy;
22 The Original Representations are alleged to have been made partly expressly and partly by implication. In so far as they were made expressly, they are alleged to have been made orally by Mrs Patti Taylor, who was the managing director of Overton. The implication is said to arise from the following circumstances:
· Overton welcomed as residents persons in receipt of full pensions and was aware that the income of such persons was fixed such that they would be unable to finance contributions that increased over and above the sum that a resident on a full aged pension would be able to afford to pay;
· Overton was aware that Mr and Mrs Murphy were in receipt of the full aged pension and that their income would be fixed for the duration of the Lease, that increases in maintenance fees in excess of the estimate given to them would make it extremely difficult for Mr and Mrs Murphy to meet their obligations under the Lease and that Mr and Mrs Murphy were concerned about whether, as pensioners, they could afford to live at the Heritage Village;
· Mr Murphy had enquired of Overton as to the affordability of the Lease for a person who was only in receipt of a single full aged pension.
23 The Further Representations are alleged to have been made orally by Ms Julie Hough of Pannell Kerr Forster, Overton’s accountants and by Mr John James, who replaced Mrs Patti Taylor as managing director of Overton. The third of the Further Representations is also alleged to have been made by writing included in papers furnished to Mr and Mrs Murphy in connection with a meeting of Lessees held on 31 March 1994.
THE LEGAL STRUCTURE OF UNITS IN THE HERITAGE VILLAGE
“that certain benefits and obligations to the extent provided for herein, shall extend to every person who applies to lease a Unit from [Overton] under this Deed for such time and for so long as that person remains a Lessee and every unit shall be leased and held subject to the provisions of this Deed.”
25 The trust created by the Trust Deed was to be known as “The Heritage Retirement Village Trust”. It is desirable to say something about the structure of the arrangements intended to be entered into between Overton and the Lessees as provided for in the Trust Deed. The arrangements were described in some detail in a “General Information Booklet” dated 1 July 1991 issued by Overton to Lessees (“the Information Booklet”). A copy of the Information Booklet was furnished to Mr and Mrs Murphy in circumstances I shall describe below.
26 The Trust Deed requires that leases to Lessees be in a specified form. Thus, memorandum Y452314 (“the Lease Memorandum”), which had been filed in the Office of the Registrar General on 27 July 1989, was incorporated by reference into the Lease and to other leases granted to Lessees. The Lease Memorandum contains, inter alia, provisions dealing with Rent, Lease Deposits and Surrender of leases. The relevant provisions are set out in Appendix 3. The Trust Deed also dealt with the Lease Price in clauses 10 to 15 inclusive. The terms of those clauses are set out in Appendix 4.
27 The net effect of those provisions of the Trust Deed and the Lease Memorandum is as follows:
· A Lessee pays a total consideration, being the Lease Price, for the grant of a lease.
· Total Rent is 25 per cent of the consideration paid for such lease.
· The Lease Deposit is 75 per cent of that consideration.
· Overton is entitled to appropriate 10 per cent of the Total Rent every six months until, after five years, the Total Rent has been fully appropriated.
· After five years, no further rent is payable by a Lessee.
· Perpetual advances to Overton, by way of interest free loan, 97.5 per cent of the Lease Deposit paid by each Lessee.
· In the event of surrender of a lease, the Lessee will receive one-half of the excess, if any, of the Lease Price paid by any new Lessee for the grant of a new lease of the outgoing Lessee’s unit, over the Lease Price originally paid by the outgoing Lessee.
· If the original Lease Price does not exceed the Lease Price payable by the incoming lessee, the outgoing Lessee would receive a refund of the Lease Deposit plus any unappropriated amount of the Total Rent.
CONTRIBUTIONS TO OUTGOINGS BY LESSEES
“21. The Manager covenants with the Lessees for the benefit of each of them jointly and severally that it will:
(1) use its best endeavours to carry on and conduct the Village, the marketing of it and its business in a proper and efficient manner and to ensure that any undertaking scheme or enterprise to which this Deed relates is carried on and conducted in a proper and efficient manner.
………………………
(3) keep all parts of the Village which shall be of a repairable nature in proper repair, order and condition and maintain the same in reasonable working order and efficiency and not pull down, remove or injure any part of the same (except in the ordinary course of business or pursuant to any lawful requirement or with any other reasonable justification) without restoring or replacing the same;
………………………
(7) duly comply with all requirements of all proper and competent authorities having jurisdiction over the Village including without limitation ensuring that all valid notices and requirements of such authorities in relation thereto are observed and complied with.
22. (1) …the Manager shall have the full and complete rights powers and interests as are conferred upon it or possessed by it by reason of its right title power and interests in the Village, the Agreements for Lease, the Leases and the Development Consent provided that the Manager shall exercise same and shall carry out and perform its duties obligations and functions in good faith and in such manner as shall not substantially reduce or limit the rights and interests conferred upon the Lessees jointly or severally.
………………………
(2) The Manager may pay outgoings from its own funds but shall be entitled to claim reimbursement of all amounts so paid…from the Lessees by the inclusion of such amounts in the next succeeding contribution by the Lessee’s (sic) to Outgoings.”
29 The Lease Memorandum provides the mechanism for the recovery by Overton from Lessees of contributions to the expenditure incurred in operating the Heritage Village. Clause 5 of the Lease Memorandum relevantly provides as follows:
“1. INTERPRETATION
………………………
“Outgoings” … means the outgoings and expenses levied in respect of the Village in accordance with Clause 5 of this Lease.
………………………
“Premises” means the premises described in Item (1) of the Reference Schedule…
………………………
5. CONTRIBUTION TO OUTGOINGS
(a) In addition to paying the Lease Price, the Lessee shall… contribute to the Outgoings… in respect of the Premises and the Village and facilities thereof in accordance with this Clause.
(b) The Lessor may from time to time notify the Lessee of the Lessor’s current estimate of the Lessee’s contribution to the Outgoings… in respect of the Premises and the Village and facilities thereof in relation to any particular period… and the Lessee shall thereupon make payment of the amount of such estimated contribution either monthly or at such other intervals and on such dates and in such amounts as the Lessor shall determine. As soon as practicable after the end of each period in respect to which contribution has been levied, an adjustment shall be made between the Lessor and the Lessee by the payment of any deficiency in the amount of such contribution actually paid by the Lessee to the Lessor or the crediting of any excess by the Lessor against any future such contribution…
………………………
(f)(i) A Lessee’s contribution to the Outgoings… shall be levied in respect of each Unit in the Village and shall be determined as follows:
(1) (As regards Floor Area Outgoings) by determining that proportion of the Outgoings… as the floor area of the Premises is a proportion of the total floor area of the Village…
 |
(2) (As regards Per Unit Outgoings) by determining that proportion of the Outgoings… which is equivalent to a fraction determined in accordance with the following formula:
Where:
P = the proportion of Outgoings… payable by the Lessee in accordance with this Clause; and
N = the number of Units within the Village.
…………………………
(g) In addition to the Outgoings… in this Clause, the Lessor may require the Lessee to pay and discharge and to keep the Lessor indemnified against all other outgoings, charges and liabilities for which the Lessor shall determine the Lessee to be separately liable in respect of the Premises…
(h) Any contribution in respect of Outgoings levied by the Lessor under this clause shall become due and payable to the Lessor or as the Lessor may direct in writing within seven (7) days of receipt of notice of the levy…
………………………
(l) The Lessor estimates that the initial contribution which the Lessee will be called upon to pay will be the amount shown in Item (6) of the Reference Schedule. Such amount constitutes an estimate only and is subject to determination and variation from time to time in accordance with this Clause.”
30 In practice, Overton prepared a budget of estimated expenditure for each year and calculated the contributions necessary from Lessees on the basis of that budget. The contributions so calculated were the maintenance fees that Lessees were required to pay on a weekly or monthly basis. At the end of the period, Overton’s auditors would prepare an account of the expenditure actually incurred in operating the Heritage Village and the income from contributions and operation of the Heritage Village. That income and expenditure were referred to as “the Maintenance Fund”.
LAY WITNESSES
32 When Mr and Mrs Murphy entered into the Lease on 20 October 1992, Mr Murphy was 71 years of age and Mrs Murphy was 69 years of age. Mr Murphy left school at the age of 14, having completed two years of secondary education. From the age of 14 to the age of 63 he was employed by various engineering firms as a tool maker. Mrs Murphy also left school at the age of 14 and worked as a greengrocer’s assistant and as a hosiery repairer until she was 19 years of age. She and Mr Murphy married when she was 19 and she has not worked since that time.
33 Since Mrs Murphy is no longer capable of giving evidence, Mr Murphy also gave evidence concerning discussions that he had with Mrs Murphy concerning the materials furnished to them by Overton. These discussions may have a bearing on Mrs Murphy’s reliance on that material by way of inducement for her to enter into the Lease. Any conclusion as to her state of mind at any relevant time must depend upon inferences to be drawn from the objective facts in evidence.
34 Mr Murphy created the impression of being careful and meticulous. His recollection of figures and of discussions that took place more than 7 years ago appears remarkably clear. I perceived nothing about his demeanour in the witness box and his manner of giving oral evidence to suggest that he should not be believed in what he says in his affidavit and in the witness box as to conversations that took place with Mrs Taylor.
35 Mrs Kathleen Edith Hyslop, a daughter of Mr and Mrs Murphy, also gave evidence concerning conversations that she had with her mother, independently of Mr Murphy. Such conversations may be relevant to the question of Mrs Murphy’s reliance on representations allegedly made on behalf of Overton. I perceived no reason to doubt that Mrs Hyslop recounted accurately the substance of the conversations that she had with her mother.
36 Mr John James, the present managing director of Overton, also gave evidence both by affidavit and orally. Mr James’ recollection of facts upon which he was questioned was not good. He was unable to give reliable evidence about relevant events. For that reason, to the extent that there is any conflict between the evidence of Mr Murphy and that of Mr James, I would prefer the former.
37 Mrs Taylor died shortly before the Lease was signed. Overton has not sought to dispute Mr Murphy’s evidence as to his conversations with Mrs Taylor.
THE NEGOTIATION OF THE LEASE
39 In late May and early June 1992, Mr and Mrs Murphy visited a number of retirement villages, including the Heritage Village. On the first occasion that they went to the Heritage Village, they met Mrs Taylor, her son Peter, and a receptionist. Mr Murphy told Mrs Taylor that they had come to look over the Heritage Village as they were thinking of selling their home and moving into a retirement village. Mrs Taylor asked what sort of accommodation they were looking for and told them that the types of units available were units with a single bedroom, two bedrooms or a bedroom and study. Mr Murphy responded that he thought a unit comprising bedroom and study would be adequate.
40 Mr Murphy told Mrs Taylor of his wife’s medical condition and Mrs Taylor said that she would have to see the doctors that attend at the Heritage Village in case Mrs Murphy would be an excessive burden on the personal care staff. Mr Murphy also said to Mrs Taylor that they were both on a full pension and that they were looking to see what accommodation they could get and what they could afford. Mrs Taylor said that they had a number of pensioners there and that Mr and Mrs Murphy “should be able to afford to live” at the Heritage Village on the pension.
41 Mrs Taylor also said that Overton was a family business and that they would be involved with the running of the Heritage Village full time. She said that while Overton had more units to build, the fees would be the same as they were then, once the Heritage Village was completed and all the units were complete.
42 Mrs Taylor showed Mr and Mrs Murphy the facilities in the main building and the public areas. She also showed them two units. She indicated that the price of one was approximately $195,000 and that the price of the other was roughly $215,000. She said that once they moved in, the maintenance fees that were set would cover everything and that they would have no more worries because Overton “do it all”. In response to an enquiry from Mr Murphy, Mrs Taylor said that the maintenance fee for a unit with one bedroom and study would be $55.71 a week.
43 Prior to 17 June 1992 Mrs Taylor telephoned Mr Murphy and said that the doctors had cleared Mrs Murphy and that she would not be a burden on the personal care staff. Mr and Mrs Murphy then visited the Heritage Village again on 17 June 1992, accompanied by their daughter Kathleen, her husband and her husband’s mother and stepfather.
44 When Mr and Mrs Murphy and accompanying family members saw Mrs Taylor on 17 June 1992, she asked what Mr and Mrs Murphy’s position was and whether they had their house on the market. Mr Murphy said that they had not yet put their house on the market although he had seen a real estate agent who had given them a price that the agent considered they could get for the house.
45 Mrs Taylor then said that if Mr and Mrs Murphy paid a deposit of $1,000 at that time, she would hold a unit for them for three months, provided they put their house on the market straight away and kept in touch with her. Mr Murphy said he did not know whether they could afford the unit until they got a price for their house. He said that both he and his wife were very concerned as to whether they could afford to live in the Heritage Village and did not want to commit themselves to something they could not afford. He said that when one of them either passed away or went to a nursing home, the other would have to live on a single pension. Mrs Taylor said that that was no problem and that they had a lot of single pensioners there on a full pension. She said that Mr and Mrs Murphy “would be able to afford to live” there once they were able to pay the fee to come in. She said they would be able to live on a single pension till the day they die, with the same standard of living that they would now have.
46 Mrs Taylor said that the exact sum that they would have to pay for a lease was $215,750. She also said that Mr and Mrs Murphy would have to pay Overton's solicitors’ fees, registration and government taxes and stamp duty as well as their own solicitors’ and estate agent’s fees. She suggested that, when doing their calculations, they should allow approximately $10,000 for extras of that kind.
47 Mrs Taylor also said at this stage that the maintenance fees that would be payable by Mr and Mrs Murphy to Overton would cover everything, even supplying light globes. She said that the only things that Mr and Mrs Murphy would have to pay for themselves were telephone, electricity, household contents insurance and living expenses. Mrs Taylor then showed Mr and Mrs Murphy and the others Unit 53 as well as Unit 49, which was a single bedroom unit.
48 A week or two after the visit to the Heritage Village on 17 June 1992, Mr Murphy’s solicitors, Messrs Saville & Walkom, received from Overton’s solicitors copies of several documents, being:
· the Information Booklet;
· the Trust Deed;
· form of lease relating to Unit 53; and
· forecast operating budget of the Heritage Village for the period 1 July 1992 to 30 June 1993.
49 The form of lease received by Mr and Mrs Murphy consisted of a short form of lease which incorporated the provisions the Lease Memorandum. The form of lease contained an annexure described as “Reference Schedule” containing nine specific items. The Lease Memorandum contained general provisions making reference to items in the Reference Schedule.
50 Thus, in the Lease Memorandum, the term “Premises” was defined as meaning the premises described in item 1 of the Reference Schedule. Item 1 of the Reference Schedule attached to the Lease was as follows:
“All those premises known as Unit 53, Heritage Retirement Village.”
51 Item 4 in the Reference Schedule specified that the Total Rent was $53,937.50 and Item 5 specified that the Lease Deposit was $161,812.50. Those two sums added together comprise the Lease Price of $215,750. That is the consideration paid by Mr and Mrs Murphy to Overton for the grant of the Lease.
52 Item 6 in the Reference Schedule, headed “Estimated Initial Outgoings”, is as follows:
“Fifty Five Dollars and Seventy One Cents ($55.71) per week – Pensioner
Sixty Dollars and Seventy Nine Cents ($60.79) per week – Non-Pensioner.”
53 The Information Booklet is a document of some 15 pages. It contains information under the following headings:
· The Company;
· The Development;
· Services and Facilities;
· Development Parameters;
· Ongoing Management and Maintenance Program;
· How the Heritage Lease and Trust Deed System Works;
· Outlay by Resident;
· Legal Tenure of Residents and Deferred Management Fees; and
· Questions You May Like Answered.
The material in the Information Booklet relevant to the present case was contained on pages 6, 7 and 8 and in questions and answers 7 and 8. An extract of the relevant material appears in Appendix 5.
54 The critical part of the material is a statement that “present budget figures would indicate” that the cost payable weekly in respect of a unit comprising one bedroom plus study would, for a pensioner, be $55.71.
55 Mr Murphy said that, following the second visit to the Heritage Village, he and his wife read the Information Booklet together and discussed its contents. Mr Murphy drew particular matters to Mrs Murphy’s attention. Thus, he raised with her the figure of $55.71 shown as the level of cost for a pensioner for a unit comprising one bedroom plus study. He added up what it was costing them at that time for insurance, council rates “and everything in the home”. It came to about $29 a week and mowing the lawns was costing another $29 a week without having to “repair the house or paint it or anything”. He considered that the figure of $55.71 per week was reasonable because they had had the house painted not long before and it cost nearly $3,500. They therefore believed that the cost of maintenance of $55.71 per week would be quite reasonable and that they could afford that if they had enough “to buy in”.
56 Mr Murphy also noticed that the answer to question 7 stated that the average weekly fee was $47.53 but remembered that Mrs Taylor had previously said that that was an average over all the various types of unit and that the maintenance fees for their proposed unit was $55.71. Mr Murphy also read those parts of the Information Booklet that set out the items that would be covered by the maintenance fees. He said that, when considering the Information Booklet, he remembered Mrs Taylor’s explanation of what Overton’s obligations were, namely, that Overton would pay for everything and that Mr and Mrs Murphy “would have no worry once we moved in”.
57 Mr and Mrs Murphy’s consideration of, and discussion concerning, the Information Booklet took place over a number of days. Mr Murphy said that the most important item that they considered was the affordability of the Heritage Village and the fact that Mrs Taylor had stated that pensioners could always afford to live there on the pension.
58 Mr Murphy also gave evidence concerning the other features of the Heritage Village and various other factors that made the Heritage Village attractive to him. For example, the location of Unit 53 was attractive because there was only a slight ramp to walk up to one step into the unit. It was easy walking to the amenities building, being the main centre. He said that the personal care availability was of significance to him.
59 Mr and Mrs Murphy began “to get feedback”, as Mr Murphy put it, concerning the possible sale of their home. By late August 1992 it was becoming apparent to them that they were going to get nowhere near $245,000 and would not get more than about $212,000 for their home. At that point Mr and Mrs Murphy began discussing again the question of buying a unit in the Heritage Village.
60 In the meantime, Mr and Mrs Murphy had given consideration to an alternative retirement village known as “John Paul Village”. They had apparently been placed on a waiting list and had been on the list for some three months by the end of August 1992. They understood that it was anywhere from 12 to 18 months before they would be offered accommodation in the John Paul Village. Mr Murphy said that once they realised that they would receive no more than $212,000 for their house, they decided that they could not afford a unit in the Heritage Village because they would not have enough money. They would therefore have to wait until a vacancy arose at the John Paul Village.
61 At “the very end of August”, Mr and Mrs Murphy went to see Mrs Taylor and told her that the price they were going to get for their home was only $212,000 and that they would have to cancel and wait to go to the John Paul Village. Mrs Taylor asked whether they could possibly get the extra money and asked how much extra they would need. Mr Murphy said that they would need roughly $10,000, depending on the figure that would be involved for incidental expenditure of $10,000 that had been mentioned earlier. There was also some discussion about a garage space. Mr Murphy said that what they were getting would not even pay for the unit, apart from solicitors’ fees and everything else “that will have to come”. He said that it would leave them with practically nothing so they would have to cancel. Mrs Taylor then said that if they could possibly borrow the money from one of their family, they could pay the extra “to come in” and then live there on a pension, even a single pension, until “the day you die”.
62 Mr Murphy said that there were “a few things in the papers” that he had read that he was a bit concerned about. He asked how accurate was the budget that he had been given showing a surplus of $22,000. Mrs Taylor said that her son had just sent the balance sheet for 1991-92 to the auditors to be audited and that, while the budget had shown a surplus of $18,200, the surplus turned out to be $18,500 odd. She said that she expected the surplus of $22,000 for the 1992-93 budget to be conservative as there were going to be twelve more units finished in a month and the maintenance fees from them would “come on line straight away”. She said that she expected that the surplus would be more like $25,000 or $30,000. She said that they would have no worries in that respect.
63 Mr Murphy then asked Mrs Taylor about shortfalls and said that in the documents it said that if there is any shortfall they would have to pay it at the end of the year. He asked what had been the history of Overton “from day one”. Mrs Taylor said that there had been shortfalls in a few years but that Overton had paid those shortfalls and had not applied to the residents to recover it. She said that Overton’s policy was that they would pay all shortfalls until the full 160 units proposed in the development were finished. She said that she expected the full 160 units to be completed in two years time. Mrs Taylor said that the fees would then come down. She said that she would have to call a meeting of the residents to ask them whether they want the fees brought down immediately, or whether they preferred to leave them as they were for a couple of years, to build up a sinking fund for carpeting and repainting and then have another meeting to decide what to do from then on. Mrs Taylor said that after that, any rises would only be in line with the CPI and “you will always be able to afford it”.
64 Mrs Taylor asked Mr and Mrs Murphy “to think about it”. Mr Murphy said that he could not give her an answer then because he did not think any of their family could help them but that he would see what he could do about it and let her know. The conversation ended with Mrs Taylor saying that she would drop the price of Unit 53 by $5,000 and would drop the price of a garage by $5,000 so that they could have both for the sum of $215,750.
65 At that time, Mr Murphy had an investment with Mirvac Property Trust of approximately $8,500. The investment was “frozen through the Estate Mortgage collapse”. Shortly after the discussion with Mrs Taylor in late August 1992, Mr Murphy telephoned Mirvac and he was told that he could have the money from the Mirvac Property Trust at the ruling price at that time, by producing appropriate medical evidence in respect of Mrs Murphy’s condition.
66 At that time, Mr and Mrs Murphy also owned assets consisting of term deposits of $9,000, a pensioner savings account of $7,500 and a loan made to one of their daughters of $7,000. Mr and Mrs Murphy decided that with the sum of $8,500 from the realisation of their investment with Mirvac Property Trust they “could just manage the price and fees” required to enable them to enter into a lease from Overton. Mr Murphy said that he and Mrs Murphy concluded that they “would manage OK and still be able to have two trips away each year… and also have some weekends away”, on the basis that $55.71 was an accurate estimate of the fees payable, that future increases would be no greater than CPI and that persons in receipt of the full aged pension could afford to remain at the Heritage Village until they died.
67 At the meeting in late August 1992, Mr Murphy also raised with Mrs Taylor a matter of concern to his solicitor, namely whether the Heritage Village was fully insured and their equity was covered. He was also concerned about rebuilding if the Heritage Village was destroyed by any means and whether they would “be paid out” if Overton did not rebuild. Mrs Taylor could not answer that question and said that she would ask Overton’s solicitors, since no one had asked that question before. She said that she realised that it was an important matter.
68 That question was taken up by Messrs Saville & Walkom in a letter of 7 September 1992 to Owen Hodge & Son, the solicitors then acting for Overton. In their letter, Saville & Walkom said that they had possession of the Lease Memorandum and the Trust Deed but they had not been provided with the Reference Schedule to which the Lease Memorandum refers. That suggests that the form of lease that had been sent with the Information Booklet did not contain a completed Reference Schedule.
69 As soon as he got word from the Mirvac Property Trust that his investment would be returned, Mr Murphy told Mrs Taylor that he and Mrs Murphy would be proceeding to enter into a lease. Mr Murphy said that in making that decision he and his wife “weighed up the pros and cons” and “relied entirely on the promises by Mrs Taylor that once having paid the lease price to come in we would never have any financial worries thereafter”.
70 When asked what led him to make the decision to enter into the Lease, Mr Murphy said:
“Well it was a decision that had to be made. We either cancel and wait for John Paul or we just agree that we have got sufficient money to buy in and we'll be able to live on that in the retirement village for the rest of our lives without being in financial difficulties and bearing in mind our financial position over the whole of our married life, we've always lived on the bread line and always managed. We felt confident that we'd be - on the promises that were made, we'd be able to continue to manage in the village at that - once we paid the price to go in.”
When asked what promises he was referring to he said:
“That the fees would always be held within the limits of the capability of a pension, single pensioner on a full pension to be able to afford…She did mention that the CPI and the pension always move together. So that’s why it would always be within the capability of a pensioner to stay there.”
71 Mr Murphy was also asked what were the matters that led him to make the decision to enter the Lease at the Heritage Village. His response was as follows:
“In the first place it was my wife’s health and as I have already said we considered that having cashed the, or arranged to cash the shares in that we could reach the 215,750 and pay the legal costs involved and be able to move into the village and we would then be able to continue to live with the same standard of living that we already had and enjoyed for the past 10 or 15 years.”
72 In addition, Mr Murphy was asked what information about the Heritage Village he took into account in making his decision to enter into the Lease. His response was as follows:
“The affordability was the key instrument in our decision that it has always been our major focus, the affordability of what we could do in our marriage and that has always been the subject of very very close examination and we relied on the words of Mrs Taylor that we would always be able to afford it and affordability was the major key in our decision… The fact that Mrs Taylor said that the next, the village would be completed in two years and she didn’t expect to have to put the fees up in `93/4. If so only by two or perhaps at a very maximum, $3 a week but at the end of the two years that the fees would come down unless the residents agreed to leave them at that level for a period to build up a sinking fund. So we expected that the figures that were being quoted were affordable and we would be able to afford it, so why not bite the bullet, as they often say, and say, yes, right, we’ll come into the Village.”
73 When asked whether there was any other information that Mr Murphy was given that led him to conclude that the Heritage Village was “affordable” he replied:
“The fact that there was so many single pensioners already living there…Our own experience of budgeting our own family life and our own home right up to that date.”
Mr Murphy also said that, besides “affordability”, the other information that he received in relation to the Heritage Village that he took into account to make his decision was as follows:
“The fact that it was a family business and it was an ongoing, with an ongoing interest in it and that they would always be involved with the Village and check it. And Mrs Taylor assured us that the things that she was promising us then would always be there.”
74 Mr Murphy did not instruct Saville & Walkom at any time that it was his belief that some limitation or limit was to be imposed upon the outgoings that were to be paid. Mr and Mrs Murphy had meetings with Saville & Walkom on 1 October 1992, 8 October 1992 and, finally, 20 October 1992, when they actually signed the Lease. During the course of those meetings Mr Murphy told his solicitor that Mrs Taylor had agreed that she would give Mr and Mrs Murphy a garage and Unit 53 for the one price. Nevertheless Mr and Mrs Murphy went ahead and signed the Lease, notwithstanding that it related only to Unit 53 and did not include a garage. They did not make any mention of Mrs Taylor’s statements about affordability.
75 When Mr and Mrs Murphy went into the Heritage Village to take up occupancy on 17 October 1992, Mr Murphy believed that the entitlements that he and his wife would enjoy, and the obligations that he and his wife would have, would be those entitlements and obligations set out in the Lease Memorandum, the Trust Deed and the Lease. In particular, Mr Murphy believed that the entitlement of Overton to charge maintenance fees was to be found wholly within the terms of the legal documents, including the Lease Memorandum.
76 In cross-examination, Mr Murphy’s attention was drawn to clause 5 of the Lease Memorandum, particularly clause 5(l). He said that he saw that provision and understood, when he signed the Lease, that the amount in Item 6 of the Reference Schedule, of $55.71 per week, constituted an estimate only and was subject to determination and variation from time to time in accordance with clause 5. He did not think that the estimated initial outgoings figure would never be changed. He well and truly understood, when he entered into the Lease, that that figure might be varied from time to time by Overton, provided that Overton varied the figure in accordance with clause 5 and nothing else. It was important to Mr Murphy that Overton would not be allowed to increase it to whatever figure it liked. It was important, for Mr Murphy’s purpose, to have the security of a legal instrument to set out just what the rights were of each party to any “deal” that he was going into.
77 Mr Murphy said that he believed, as at 17 October 1992, that all the terms set out in the Lease Memorandum applied to him “with an explanation”. The explanation was that he had asked Mrs Taylor what was the situation with “the surplus that was shown in the budget we had of $22,000”. He said that Mrs Taylor considered that figure to be conservative “on account of 12 more units coming on line”. Further, Mr Murphy had in mind that he had asked Mrs Taylor about the shortfalls that could be charged and was told that there had been shortfalls a few times in the history of Overton but that Overton’s policy was that they would pay all shortfalls until such time as the 160 units were complete. Mr Murphy said that Mrs Taylor “firmly believed that then the fees would be able to come down and they would only then rise by the CPI from that time on”.
78 Mr Murphy had been concerned to go through the Lease Memorandum very carefully because he understood that the Lease Memorandum was the legal document that set out, on the one hand, entitlements that he would come to enjoy if he were to proceed and, on the other hand, obligations that he would incur if he were to proceed. He went through the Lease Memorandum with particular care to ensure that he understood what was in it. In particular, he read the Lease Memorandum to ensure that he understood what it was that he might have to pay. He noticed the rent provisions and the outgoings provisions. Where he felt the need to seek clarification about any question, he contacted his solicitor and sought advice.
79 Mr Murphy had a clear belief that it was the series of provisions set out in clause 5 that would govern what money he and his wife would have to pay by way of contribution to outgoings during the term of the Lease. He believed at the time of signing the Lease that the Lease Memorandum would govern his obligations in relation to outgoings for many years to come
80 Mr Murphy understood, when he signed the Lease, that the estimated initial outgoing figure of $55.71 was to be subject to the provisions of the Lease Memorandum and believed that it was subject to determination and variation from time to time. However, Mr Murphy explained that his belief was subject to the assurance that he said Mrs Taylor had given him and Mrs Murphy that they could live in the Heritage Village on a single pension for the rest of their lives. He said that he believed that there was a limit on the amount of any variation that might be imposed pursuant to clause 5 of the memorandum. He said that the limit was:
“The fact that Mrs Taylor had said, once the Village was complete and the fees were adjusted at that time, they would never go up more than the CPI from then on.”
81 When asked whether it was important for his purposes to put to one side all of the sales talk that he had received over the months so that he could focus on precisely what it was that he was getting and precisely what it was that he would have to be paying, Mr Murphy said that he did not “exactly understand that Overton could and would increase the prices beyond what I had already been promised”. He did not believe, as of 20 October 1992, that the only outgoings that he and his wife would ever have to pay would be limited to $55.71 per week. However, he said that he believed that the contribution to outgoings that he and his wife would be obliged to pay would be limited to a sum that would enable a single pensioner to live in the Heritage Village for the rest of his or her life on a full single pension.
82 He did not believe that liability to contribute to outgoings would be limited to a particular dollar amount. Rather, it was always his clear understanding that liability to contribute to outgoings was a liability to contribute to an amount that may from time to time vary whether it be up or down. Mr Murphy had in his mind at the time when he signed the Lease, that if $55.71 were to change, it would only be by $2 or a maximum of $3 a week and that in two years the Heritage Village would be completed and then the fees would come down “possibly even below the $55.71”.
83 As at 20 October 1992, Mr Murphy believed that the Heritage Village was planned to be self-funding from the residents. He understood that nobody would be subsidising the Heritage Village and that it would have a set of accounts and a budget of its own. Contributions would be made and the contributions would by paying for whatever needed to be paid for “as the Village rolled along”. However, he asserted that his belief was that, when he signed the Lease, a contribution to outgoings would stay within the capability of the pension “which is governed by the CPI”. Nevertheless, he acknowledged that the CPI concept, as he understood it, was only ever applicable to the situation that would apply after the whole of the Heritage Village was finished. He also accepted that the Heritage Village has not been completed as at the present time.
MR MURPHY’S UNDERSTANDING AS AT 20 OCTOBER 1992
85 I am satisfied that he believed and understood that his and Mrs Murphy’s obligations and liabilities were as specified in the legal documentation. On the other hand, he had a belief or expectation, induced by Overton’s conduct, that in the ordinary course of things, the maintenance fees that he or Mrs Murphy would be called on to pay would not increase disproportionately to increases in the age pension. Mrs Murphy’s state of mind was not relevantly different. Their belief and expectation was a factor that they took into account in deciding to enter into the Lease.
OVERTON’S CHANGE OF APPROACH
The March Documentation
88 On the morning of 8 March 1994, Mr Murphy received a bundle of documents under cover of a letter from Overton addressed to each Lessee and dated 8 March 1994. The documents included notice of a meeting of Lessees to be held on 30 March 1994. Also included in the bundle of documents were the following:
· copy of the operating budget for the 12 months ended 30 June 1993, which had been approved in 1992;
· report dated 17 December 1993 from Pannell Kerr Forster, relating to the Maintenance Fund for the year ended 30 June 1993;
· an analysis of the variation of the actual incomes and expenditures of the Maintenance Fund as compared to the approved operating budget in respect of the Maintenance Fund for the periods ended 30 June 1991, 30 June 1992 and 30 June 1993;
· forecast operating budget for the period ending 30 June 1994;
· spreadsheet analysis of the actual incomes and expenditure of the Maintenance Fund for the years ended 30 June 1988 to 30 June 1993 inclusive. The spreadsheet also contained the figures from the forecast operating budget for the period ending 30 June 1994 together with variations between the actual account for the period ending 30 June 1993 and the budget for the period ending 30 June 1994;
· Consumer Price Index Historical Series 2, showing changes up to and including the December 1993 quarter;
· spreadsheet analysis of the effect of movements in the CPI on contributions to outgoings and Maintenance Fund revenues for the years 1988 to 1994 inclusive;
· Ready Reckoner of the effect of theoretical adjustments on the levy of contributions outgoings to compensate for movements in the CPI for the periods ending 30 June 1988 to 30 June 1994 inclusive.
89 The Ready Reckoner included two tables showing the effect of increases in contributions under the following headings:
“1/07/93–30/06/94 INCREASED TO MATCH CPI…Increase 01-Jul-93…8.90% C.P.I. Adjustment
01/07/93 – 30/06/94…INCREASED TO BREAK EVEN Increase 01-Jul-93…18.37%… 8.09% C.P.I. Adjustment… 9.47% Deficit Adjustment”
It is significant that the Ready Reckoner foreshadowed an increase of 9.47 per cent in excess of the increase in the CPI. Mr Murphy gave no evidence of or attaching any particular significance to those figures at the time, although he said that he read the document he received on 8 March 1994.
90 The meeting convened for 9 March 1994 was held as proposed. Minutes of the meeting record that financial material had been given to each of the Lessees on the previous day and that the meeting originally convened for 30 March 1994 was to be held on 31 March 1994.
91 On 10 March 1994, the secretary of the Heritage Village Residents’ Committee wrote to Mr James recording that, at the meeting held on 9 March 1994, it had been decided to thank him “for the very comprehensive amount of material on our Maintenance Schedules ever given to us”. The letter went on to say: “For the first time in many aspects we had some real information to examine. Your approach certainly strengthens resident/management relations.” Mr. James responded on 17 March 1994 acknowledging “the kind sentiments expressed” in the letter of 10 March 1994. The cordiality of that exchange was to be shattered in the weeks and months that followed.
92 Shortly after 10 March 1994, Mr James received a letter from Pannell Kerr Forster dated 10 March 1994 relating to accounting for the Maintenance Fund. The letter records a request from Mr James, on behalf of Overton, to comment both on the items that “may” be included in the expenditure of the Maintenance Fund and also on the items “which reasonably should be met by” the Maintenance Fund. The letter of 10 March 1994 commences by saying:
“At this point it must be made clear that we have not sought legal interpretation of the Lease, but looked at the terms used in an accounting/ commercial sense only.
It is also fair to comment that the terms of the Lease are very widely drafted and therefore open to interpretation and because of this we have employed an overall attitude of ‘reasonability’ in our response. We believe this takes into account both spirit of the Lease and the underlying circumstances influencing the operation of the [Maintenance Fund].”
93 Enclosed with the letter it was a spreadsheet described as a “model” showing total outgoings for Overton for the year ended 30 June 1993 of $4,232,791. The model is entitled “Dissection of cash outflows and application of Funds for the year ended 30 June 1993.” It is divided into two sections. The first section consists of a list of expenses under the heading “Profit and Loss classification of expenses.” The expenses are divided under the following headings:
General Maintenance Total
$756,900 $490,107 $1,247,007
Building Letting Operating Amberleigh Total
$56,547 $2,074 $979,243 $3,800 $1,247,007
The top three figures appear to represent the actual allocation of expenses in Overton’s statutory accounts for the year ended 30 June 1993. The figure of $490,107 under the heading “Maintenance” represents the expenses actually allocated to the Maintenance Fund for the period out of total expenses of $1,247,007. The four figures under the headings “Building, Letting, Operating and Amberleigh” appear to represent a suggested re-allocation of the total expenses of $1,247,007.
94 The second section of the model contains a table described as “Balance Sheet Application of Funds”. It shows the following figures:
Total increase in assets $2,458,152
Total decrease in liabilities $527,632
Total application of Funds $2,985,784
The figure of $2,985,784 is then allocated to activities of Overton as follows:
BUILDING LETTING OPERATING AMBERLEIGH TOTAL
$2,120,589 $53,878 39,305 $288,012 $2,985,784
There is then a total of outgoings allocated to activities as follows:
BUILDING LETTING OPERATING AMBERLEIGH TOTAL
$2,177,136 $745,296 $1,018548 $291,812 $4,232,791
The figure of $1,08548 referred to in the letter of 10 March 1994 thus represents the sum of the figures shown in the model allocated to “operating” activities as follows:
Expenses $979,243
Total application of funds $39,305
Total outgoings allocated $1,018,548
The figure of $1,018,548 assumed significance in the ensuing weeks and months.
95 The letter of 10 March 1994 went on to say:
“Depending on where one draws the line as to ‘expenditure incurred in carrying on the operation of the Village’, on the basis of the attached model outgoings incurred and subject to recovery from the residents could have ranged anywhere between the $0 and $3,940,980.
Adopting the attitude of reasonability and eliminating building and letting activities and Amberleigh we suggest $1,018,548 could have been subject to contributions by residents providing all expenditure was necessary and reasonable and as a consequence of operating a first class village………
We do note however, that in respect of 1993 year the Lessor adopted a far more moderate approach in levying residents’ contributions. This was probably due to the continuation of policies adopted by previous management.
Commercially speaking however, to continue with this approach would be undesirable to the financial position of the Company. Attention to the establishment of a formula for regular increases in contributions on the basis of comprehensive forward projections for the fund should therefore be a matter of priority, and we understand this is currently being reviewed.”
96 On the morning of 31 March 1994, Mr Murphy received another bundle of papers under cover of a letter dated 31 March 1994 from Overton addressed to Lessees. Included in the documents were the following:
· letter dated 16 March 1994 from the Heritage Retirement Village Residents’ Committee addressed to Overton headed “Recovery of Shortfall”;
· letter dated 30 March 1994 from Overton to the President of the Residents’ Committee responding to the letter of 16 March 1994;
· references to the documentation pertaining the matters contained in the letter of 16 March 1994;
· extracts from the Trust Deed and Lease pertaining to those matters including clauses 5 and 17 of the Lease Memorandum;
· letter of advice of 24 March 1994 from Overton’s solicitors;
· letter of advice of 29 March 1994 from Pannell Kerr Forster;
· letter dated 16 March 1994 from the Residents’ Committee to Overton headed “Recovery of Shortfall”;
· letter dated 30 March 1994 from Overton to the Residents’ Committee, responding to the letter of 16 March 1994.
Also included was a copy of the letter from Pannell Kerr Forster of 10 March 1994. However, in the copy included for Lessees the figures of $4,232,791 and $3,940,980 referred to above were blanked out. Also, the “model” was not attached to the copy included for Lessees.
97 The cover sheet with Overton’s letter of 31 March 1994 referred to an annual meeting of Lessees to be held at 2 p.m. on 31 March 1994. Mr Murphy did not have an opportunity of reading the documents that he received on the morning of 31 March 1994 prior to the commencement of the meeting convened for 2 p.m. on that day.
98 The meeting was in fact held at the time fixed on 31 March 1994. Besides many of the Lessees, Mr James, Ms Stephanie Crowhurst, the administrator of the Heritage Village, Ms Julie Hough, an accountant from Pannell Kerr Forster and Ms Kerry Rendell, an assistant administrator or office worker employed by Overton, were also present. Ms Rendell recorded the proceedings.
99 The discussion at the meeting centred around the material contained in the two bundles of documents that I have described above. It is desirable, therefore, to say something more about certain of those documents before dealing with the proceedings at the meeting.
100 The budget for the year ended 30 June 1993 had provided for maintenance fees and other income to equate to the total outgoings of $452,000. The actual accounts for the Maintenance Fund for that period showed an operating profit of $6,075. That figure had been arrived at after crediting Overton’s contribution of $43,052 in respect of units not yet occupied. Those accounts, however, also showed that accumulated losses from previous years in the sum of $82,881 had been carried forward, giving accumulated losses at 30 June 1993 of $76,806.
101 The budget for the period ending 30 June 1994 showed total income of $479,000 as against total outgoings of $567,080. Thus a deficit of $88,080 was projected. In order to avoid that deficit it would be necessary for income from maintenance fees to be increased.
102 The letter from the Resident’s Committee of 16 March 1994 contained, inter alia, the following:
“1. In all discussions with Overton Investments management since the inception of the Village, and in written information received by Lessees in regard to financial information, there has never been any mention made of any shortfall, or accumulating shortfall, that Management expects to recover from Lessees.
2. The first intimation of any intention to recover a claimed shortfall was contained in the information on the actual income/expenditure and other financial details covering the whole period from inception, received for the first time by the Advisory Committee on 11.2.94, and by Lessees generally on 8.3.94.
………………………
6. …it is apparent that Overton Investments intended to, and should meet all shortfalls in accordance with the verbal and written undertakings they have given to Lessees as specified above.
Further to that, possibly the greatest selling point, and one which has played a big part in encouraging most of our present occupants to change their lifestyle and enter the Village was the often expressed fact that the Overton family had seen fit to create and establish the Village, both in the self care and later the Lodge areas, in a manner and to a standard that was befitting for their own mother (and grandmother) to live in, and were prepared to contribute towards establishing such a situation.
Both of these factors have resulted in a very relaxed and happy atmosphere generally, free from worry, having been created, which is an extremely valuable asset from both the Management and Residents point of view.
Disturbance of this atmosphere by a departure from the understood undertakings should be avoided as much as possible in the interests of all parties involved.
………………………
8. Our position is therefore that we do not agree that any shortfalls recoverable from Lessees in fact exist.
In regard to the current year’s so called Budget, what the Lessees are being asked to agree to is expenditure for the period from 1.7.93 until now, in regard to which they have never been consulted or advised, and which has then been extrapolated to produce the yearly figure indicated. The implications of this obviously need further consideration and discussion.
………………………”
103 Overton’s response of 30 March 1994 included the following relevant comments:
“The inferences contained in your letter as to the intention of the Manager are groundless. The intentions of the Manager are contained in the Documentation which evidences the contractual agreement entered into by the Manager and the Lessee.
The documentation supplied by the Manager to the residents’ representatives to the Advisory Committee on 11 February, 1994, contains no statement, either express or implied, regarding the intention of the Manager. Your statement that ‘the…intention to recover a claimed shortfall was contained in the information’ is wrong.
………………………
The Manager has no record evidencing any agreement that the Manager would meet any excess expenditure in running the Village. The Documentation provides that The Manager may pay outgoings from its own funds but shall be entitled to claim reimbursement of all amounts so paid (together with simple interest thereon calculated from time to time at the rate at which the Manager could obtain funds by way of overdraft) from the Lessees by the inclusion of such amount in the next succeeding contribution by the Lessees’ to Outgoings. The implication that there exists a financial liability of the Manager, contingent upon the continuation or discontinuation of the development of the Village, is wrong.
………………………
The Manager observes from information already supplied to the lessees, in the Manager’s notification of the convening of the meeting of Lessees on Thursday, 31st March, 1994, that the audited financial statement of the Account for the period ended 30th June, 1992, indicates that the Account was in surplus for this period. The discussion of an estimate is just that. The discussion of the treatment of a hypothetical deficit for the period has no relevance.
In response to the first section of paragraph 6 of your letter the Manager denies that it is bound to meet all shortfalls.
The Manager relies on the Documentation as to intent. What is apparent is that the relationship between the Manager and the Lessees is evidenced in the documentation which comprises the Trust Deed and the Lease, being the Memorandum of the Agreement between the Manager and the Lessees. This relationship is further defined I the operation of the Code. The provisions of the Trust Deed, the Lease and the Code place an obligation on the Lessees to familiarise themselves with the terms of the residence contract, which includes the provisions regarding contributions to outgoings, prior to entering into the agreement for the lease of an apartment or unit and independent of any representation of the Manager. The Manager is not responsible for a Lessee’s failure to protect the Lessee’s own interests.
In response to the second section of paragraph 6 of your letter, as far as the Manager is concerned, the Residents’ Committee cannot speak on behalf of each individual Lessee as regards that Lessee’s motivations.
In response to the third section of paragraph 6 of your letter, the Manager is gratified that you recognise the creation of ‘a very relaxed and happy atmosphere’. However, ascribing the creation of this atmosphere to only, specific factors is an over-simplification of the true situation.
In response to the fourth section of paragraph 6 of your letter, the Manager denies the existence of the implied undertakings.
………………………
The Auditor of the Account has confirmed that the expenses and expenditure contained in the budget of outgoings proposed for the period 1 July, 1993 to 30 June 1994 are outgoings in respect of which the Manager may levy contributions pursuant to the Lease.
………………………
The Manager’s right to require residents, as lessees, to contribute to outgoings in respect of which the Manager may levy contributions, pursuant to the Trust Deed and Lease, is independent of the agreement of residents to the budget referred to in Part 5 of the Code.
………………………
The Manager advises you that the Manager reserves it’s [sic] right to require adjustments for deficits in the Account from the Lessees who were Lessees during the periods to which the deficits relate.
The Manager advises you that the Manager does not waive it’s [sic] right to levy contributions to outgoings pursuant to the Trust Deed, the Lease and the Code. Although such agreement is not required by the Documentation, the Manager invites you to convene a meeting of residents to agree to the budget of outgoings, as proposed, for the period 1 July, 1993 to 30 June 1994.
The Manager thanks you for the referral of this information. However, the Manager refers you to the matters contained in this response generally and cannot agree that a problem requiring resolution exists.
………………………
As previously stated in this response, the provisions of the Trust Deed, the Lease and the Code place an obligation on the Lessees to familiarise themselves with the terms of the residence contract, which includes the provisions regarding contributions to outgoings, prior to entering into the agreement for the lease of an apartment or unit and independent of any representation of the Manager.
The Lessee acknowledges that the Lessee has read and understands the terms and conditions of the Lease and of the Trust Deed and further acknowledges that prior to signing the lease the Lessee has obtained legal advice on the said terms and conditions from a solicitor employed independently of the Lessor.
………………………” (Emphasis added)
104 Clause 17 of the Lease Memorandum contains the following paragraph under the heading “GENERAL”:
“(i) The Lessee acknowledges that it has read and understands the terms and conditions of this Lease and of the Trust Deed and further acknowledges that prior to signing this Lease it has obtained legal advice on the said terms and conditions from a solicitor employed independently of the Lessor.”
It is not clear whether that is the only provision that could be said to “place an obligation on the Lessees to familiarise themselves with the terms of the Residence Contract” as referred to in the penultimate paragraph of the letter of 30 March 1999.
The Meeting of 31 March 1994
106 Mr James said that he had been engaged in a long exercise since he came into the Heritage Village trying to come to terms with what expenses were being incurred and he found that there were a number of items that should have been in the budget in past years that were not. He said that he brought them into account in the current year’s budget and that is the reason why there was a shortfall of $88,080. He said to meet that shortfall, the fees would have to go up by 18.37 per cent, dating back to 1 July 1993.
107 Mr James also said that he intended to recover the $36,977 (that was a reference to the shortfall for the previous year after taking account of the figure of $43,052). Someone asked about “the figure of $76,000” for accumulated deficit over the life of the Heritage Village contained in the same document. That appears to be reference to the accumulated losses as at 30 June 1993 of $76,806. Mr James replied that Overton reserved the right to recover that if it so desired at a future date.
108 Ms Hough then addressed the meeting. She pointed out that the cost of running the Heritage Village was actually $1,018,000 (that was a reference to the figure of $1,018,548 allocated in the model). She said that as Overton only had one business and that was the running of the Heritage Village, Overton could claim the whole $1,018,000 as the cost of running the Heritage Village. But, she said, they were only claiming approximately $570,000. She said that she considered, as an accountant, that it was a reasonable budget and that the residents ought to accept it. She said that if Overton were to continue subsidising a project like the Heritage Village from their own funds, they would eventually “go broke”.
109 Questions were asked of Ms Hough as to how the figure came out to be $1,018,548. She said that she had gone over the books herself and that that was the exact expenditure that Overton expended in running the Heritage Village for the particular period. The meeting was inconclusive as to the proposed budget.
Advisory Committee Meeting of 28 April 1994
111 The meeting went on for several hours. Mr James said that the budget as presented was the budget and “that was it” and that it was “not open for discussion”. He said that the $88,000 shortfall would have to be met and that it would need the proposed 18.37 per cent increase to break even. Mr Stewart asked Mr James whether Overton would contribute something towards the $88,000 shortfall. Mr James replied no. He said that Overton had worked out a fair and accurate estimate of what the cost was going to be and that Overton would not be subsidising that shortfall. He said that it would have to be paid by the residents.
112 Mr James also said that if the residents did not pay it in that year, it would come up in the next year or the following one. He said that it would have to be paid no matter what. He said that Overton was not going to subsidise the shortfall any longer. He said that whatever the costs were, that was what they were and that they would have to be paid.
113 Mr James also said that the next stage of 36 units would be commencing in a fortnight and that, when they were completed in approximately two years, the income from those 36 units, together with the present units on the site, with the 18.37 per cent increase, would be sufficient income for the Heritage Village to be self supporting. He said that the concept was that the Heritage Village was supposed to be self supporting.
114 There was also some discussion between Mr Stewart and Ms Hough concerning the figure of $1,018,548 that had been mentioned at the meeting on 31 March 1994. Mr Stewart said that there was no way that the income from the next 36 units, even when added to those already on line, 160 units in total, would cover $1 million of expenditure. He said that Overton would have to get the cost down and that there was no way that the residents would be able to pay over $1 million.
115 Mr Stewart asked about the accuracy of the figure of $1,018,548. Ms Hough replied that she had examined the books and had gone over the books of both Overton and the Maintenance Fund and the figures were accurate. She said that was the actual expenditure that Overton had incurred in that particular financial year, but Overton sought to recover approximately half of that. She said that in the year ending 30 June 1994 the expenditure incurred in running the Heritage Village was probably going to be something in the vicinity of $1 million also and that Overton was seeking to recover only the figures stated in the Budget. She said that at some stage, when the Heritage Village is completed, the Maintenance Fund will be “self sufficient”. Pending that time, Overton must try to achieve self-sufficiency. If it does not "“it will go broke”.
116 At one stage Mr Stewart said that nobody had ever “proved” that there is $1 million that should be recovered from the Lessees and that Overton is only recovering half. He said that that was a statement that Ms Hough had come out with at the meeting. Ms Hough responded that she had “done the working papers”. Mr Stewart asked her to produce the information and prove it because, so far as he was concerned, “the Lessees are paying for what they are getting and they are paying fully for what they are getting and they are not paying any more”. Mr. Stewart said that he was disagreeing that $1 million was recoverable.
117 Subsequently, Mr Fusedale said that he would like to know where the outgoings in excess of $1 million are understated in the Budget. Ms Hough responded that the total expenditure incurred in maintaining the Heritage Village for the 1993 year was in excess of $1 million. She said that the process by which that had been ascertained was to take the accounts of Overton and to prepare a statement of source and application of funds. She said that in the allocation of expenditure of across the board activities, the allocations came up to a sum in excess of $1 million. Mr Fusedale asked again where the majority of the $1 million would be apportioned. Ms Hough referred to a wages figure being in excess of $500,000. Mr James and Ms Hough said that there were two payrolls.
118 Mr Stewart then asked Mr James whether he saw the Lessees as ever being self-sufficient and ever being able to meet the costs that he was talking about at the level he said, without excessive increases in maintenance fees. Mr James responded affirmatively. Mr Stewart said that the Lessees seem to be paying a fairly high rate in comparison to most other organisations.
119 Towards the end of the meeting, Mr James escorted Mr Phillip Vernon and Ms Ellich from the meeting room. After Mr James left, Ms Hough continued with the discussion about affordability once the proposed extra 36 units were completed. Mr Murphy said that the figures do not add up and that there were approximately 23 per cent more units to be built. Adding to the 18.37 per cent increase to the whole 160 units, the income would only be approximately $700,000. The figure would be nowhere near a $1 million. Mr Murphy said that even if the CPI went up by 3, 4, 5 or 6 per cent in the couple of years that it takes to build the extra 36 units, so would the figure of $1,018,548 go up by the same proportion. He said that there was no way that $700,000 would cover a $1 million expenditure.
120 Ms Hough said not to worry and that it would. Mr Murphy asked how it could. He said that $700,000 cannot make $1 million. Ms Hough said not to worry and that it definitely would. She said that the Heritage Village would then be self supporting.
121 When Mr James returned, he said that he wanted some sort of assurance from the residents and wanted to know how the matter could be brought to a conclusion. Mr Burnham said that there was so much information that had been received at the meeting that it would be necessary to call a meeting of the residents and get their opinion and bring it back to another meeting. It was agreed to have a residents meeting in the week after that following, so that the Advisory Committee could report back to Overton as manager of the Heritage Village.
122 Mr James said that the budget for the year ended 30 June 1994 and possibly for the year ended 30 June 1995 would both balance with the proposed 18.37 per cent increase in maintenance fees. Mr James also said that the kitchen and laundry and the house cleaning functions were making a very small profit. He said that he would “pull them out of the Maintenance Fund” and said that they would become Overton’s own business. He said that, therefore, the wages of the personnel attending to those matters would not come into the budget. He said that Overton had a contract from a cleaning firm to clean the common areas for $38,000. He said that they could do it with their own staff for half that and he would only charge the Maintenance Fund for that amount.
Advisory Committee Meeting of 30 June 1994
124 At the meeting of 30 June 1994, Mr Murphy was present together with Mr Moss and Mr Fusedale. Mrs Crowhurst and Mr James were also present together with Ms Kerry Rendell, who recorded the discussion at the meeting. Draft minutes were prepared of the meeting. The draft minutes contain a heading “Correspondence” under which the following appears:
“Outgoings Working Paper for 1994/95 Financial Year”
Attached to the draft minutes is a copy of a document headed in that way. The minutes contain a heading “Outgoings Working Paper”. Under that heading Mr James is recorded as saying:
“This isn’t going to make it better, unfortunately…What you have got is very rough form. You’ve got your Total Income at the top and Lessee’s Contributions to Outgoings… So for the purpose of a budget, that estimate, just to let you know, it’s within the ball park as far as that’s concerned. So, if you just have a look.. you can basically ignore those Lessee’s Contributions…”
125 Thus, there was clearly some discussion concerning a document relating to the year ending 30 June 1995. The document attached to the minutes contains, inter alia, the following:
“INCOME
Lessees contributions to outgoings $210,576.31
Designated Lessees contributions to outgoings $87,280.84
TOTAL INCOME: $399,162.64
Less:
TOTAL EXPENSE $544,929.91
Operating Profit/Loss ($145,767.27).”
Opposite the figure for “OPERATING PROFIT/LOSS” the figures and symbol “36.52%” appear. That represents the proportion that the excess of $544,929.91 over $399,162.64 bears to the latter figure. In other words, it represents the proportion by which total income of $399,162.64 would need to be increased to cover the total expenses of $544,929.91 shown in the budget.
126 At the bottom of the document several tables appear. One table is headed “Existing Weekly Rate”. That shows in relation to a B type unit the sum of $60.79. Another table headed “Revised Weekly Rate” shows the sum of $82.99 for B type units. Clearly enough, those figures represent the maintenance fees payable in respect of a B type unit necessary to generate income of $39,162.64 and $544,929.91 respectively, being an increase of 36.52 per cent.
127 Mr James opened the meeting and asked if the residents had accepted the budget. Mr Murphy replied that they had not. Mr James said that they definitely had to get the matter settled. He asked how they were going to come to terms with it. Mr Murphy said that he could not give an answer at the moment because the residents had “already said no” and that the Advisory Committee did not have any power to overrule that.
128 Mr James said “the budget is the budget” and that there was no way Overton could operate the Heritage Village unless it could get that amount of money. He asked Mr Murphy whether the residents had agreed to pay the 18.37 per cent increase. Mr Murphy said that at the meeting the vote was no. He said that some of the residents he had spoken to had said that they expected that the fees would rise by 20 per cent on 1 July 1994. Mr James said “No”, that he had stated that 18.37 per cent would be the rise and that that was exactly what it would be. Mr James asked each of the three members of the Advisory Committee whether they would be prepared to pay the 18.37 per cent increase. Each of them answered that he personally would pay the 18.37 per cent increase.
129 Mr James said that the next 36 units would be starting in a fortnight and that, if the residents paid the 18.37 per cent, he expected them to be finished in two years. He said that the Heritage Village would then be viable and there would be no need to have “savage” increases in fees. He said that the levies would only be going up by the CPI in the future and that everything would balance quite happily. Mr James also said that that the expenses relating to user pay services would no longer be expenses of the Maintenance Fund at all.
The 18.37% Increase from 1 July 1994
· effective 1 July 1994, the levy of contributions to outgoings will be increased by approximately 18.37 per cent;
· effective 1 July 1994, the contribution rate previously known as a “pensioner rate” will be discontinued;
· effective 1 July 1994, separate contribution rates in respect of garages will be discontinued;
· effective 1 July 1994, all expenses and revenues associated with the provision of user pays and flexi care services will be withdrawn from the administration of the outgoings contribution account;
· effective 18 July 1994, rates for user pays and flexi care services will increase;
· effective 1 July 1994 and until further notice, the rates for contributions to outgoings and the provision of user pays, flexi care services will be reviewed and adjusted, as necessary, on a quarterly basis.
The last item was explained in the following terms in the letter:
“Put more simply, the rates of contributions to outgoings will be examined and adjusted upward or downward, as required by the actual expenditure incurred, every three months instead of annually. In addition, any shortfalls or excesses in contributions will be identified and adjusted every three months instead of annually. This should result in a smoother comparison of estimated and actual contributions and avoid the necessity of large contribution adjustments and the attendant distress these adjustments may cause.”
131 A schedule was enclosed indicating the increase in contribution rates for each category of unit. The letter went on to say:
“The contribution amount indicated on the enclosed statement reflects the increase in the contribution rates for outgoings of the Heritage Retirement Village, as outlined above. The proportion of the increase in rates is consistent with the budget and estimate of outgoings presented to the Advisory Committee by the Manager in February and to the lessees in March. The effect of the rate increase will be reviewed by the Manager, in conjunction with the Advisory Committee, at the conclusion of the first quarter of the 1994/1995 financial year in September 1994. Should the proportion of the rate increase prove excessive, the Manager will seek the advice of the Advisory Committee as to the application of any surplus and the rate of contribution will be decreased. Should the proportion of the rate increase prove inadequate the Manager will require an adjustment to be paid at that time and the rate of contribution will be increased.
………………………
Consultation with the Advisory Committee regarding the adjustment levied in June 1994 for the deficiency in the amount of contributions actually paid by Lessees for the 1993/1994 financial year has revealed that the method used to proportion the deficit may be inappropriate. The Manager is reviewing the calculations and will advise adjustments if necessary, along with a schedule of the calculations applicable to your apartment, as soon as possible. Any payments by you of the deficit already notified will be credited toward the adjusted amount.
A detailed comparison of the previously prevailing rate of contributions to outgoings and the current rate applicable to your apartment are contained on page five of this advice. The Manager urges you most earnestly to seek consultation with the Manager and the Manager’s personnel should the matters contained in this correspondence, or any previous correspondence relating to the outgoings of the village, give you any cause for confusion, concern or distress.”
132 The increase in contributions of 18.37 per cent was invoiced to residents from 1 July 1994. Mr and Mrs Murphy paid the increased amount thereafter. Mr Murphy said that the matters that led him to decide to pay were that he and his wife had come to the Heritage Village in the first place to have harmony and a peaceful life. He said that all their married life they were occasionally faced with financial bills and they managed to pay them. He said that they considered that they could manage the increase even if they had to cut down on some other activities or other expenses they had. He said that they paid it because that was the most important part of their life, the home they live in.
133 Another factor that he took into account in deciding to pay the increase was that his daughter was still paying back the loan that he and Mrs Murphy had given her and that was coming into their account twice a month. He said that his and his wife’s attitude throughout their life had been to pay their bills and owe nobody anything. He said that they accepted that they were going to have to pay the account so they paid it. He also said that he had regard to the fact that the increase of 18.37 per cent would cover the running of the Heritage Village completely once the Heritage Village was completed in two years time.
134 Mr and Mrs Murphy took no steps to surrender the Lease at any time after they moved into the Heritage Village. When asked if there was a reason why they chose not to take any steps to surrender the Lease during the period March 1994 through to November 1996, Mr Murphy said that he and his wife believed and wanted to believe that the Heritage Village was their last home. They had no thoughts or wishes to go elsewhere.
The 1994 Accounts and the 1995 Budget for the Maintenance Fund
Income: $495,116
Less Expenses: $623,717
Operating Loss: $128,601
Note 3 to the Report was as follows:
“The operating loss of $128,601 largely represents expenses incurred through the maintenance fund which were not adequately covered by maintenance levies. During the year management made a conscious decision that the maintenance fund should more realistically reflect the costs of operating the Village. This has resulted in substantial increases in salaries and bus expenses when compared to the 1993 year.
In accordance with clause 22 paragraph (2) of the Heritage Trust Deed, the Manager is entitled to recoup part, or all of the loss, from the residents.
It is noted that maintenance levies were increased from 1 July 1994 and will now be reviewed on a quarterly basis and adjusted for movements in the Consumer Price Index.”
It is significant that the note refers to a “conscious decision” by Overton that the Maintenance Fund should reflect operating costs and that levies are to be reviewed on a quarterly basis as well as being adjusted for movements in the consumer price index. That indicates that, whatever might have been the position previously, maintenance fees would be increased in the future at a greater rate than CPI increases if that was necessary to cover all expenditure.
136 The budget that was provided at the same time as the report from Pannell Kerr Forster showed a deficit for the year of $79,683 derived as follows:
Contributions to outgoings: $468,829
Total outgoings: $548,624
Deficit: $79,683
The notes to the budget state:
“Gross Revenue from Contributions to Outgoings has been calculated at the rates of contribution levy current at 30/06/94.”
A table sets out the weekly, monthly and annual contribution per unit for each unit type. The figures shown are those that were notified by the letter of 1 July 1994. Specifically, the weekly contribution for a B type unit was shown as $71.95. That figure incorporates the increase of 18.37 per cent notified in the letter of 1 July 1994.
137 However, the notes to the budget also contain the following:
“To avoid the predicted 17.02% deficit, the Manager recommended that the rate of levy of contributions to outgoings be increased to the following:-
[A table sets out weekly, monthly and annual contributions for each type of unit.]
Residents have not, as yet, agreed to this increase in the contribution rate and the Manager anticipates that the projected deficit, if realised, will be recovered by way of a once off levy at the end of the financial period.”
The weekly contribution shown for a B type unit was $84.20.
The Involvement of TARS
139 Subsequently, Mr Murphy received a letter from TARS dated 21 October 1994. The letter referred to a meeting with residents of the Heritage Village on 13 September 1994 and to the fact that disputes had arisen with the management of the Heritage Village. The letter summarised the history of discussions from the death of Mrs Taylor to October 1994 when residents were given the actual accounts for the year ended 30 June 1994 and a final budget for the year ending 30 June 1995. Specifically, the letter said as follows:
“5. In March 1994, the manager provided residents with records of income and expenditure during 1990, 1991 and 1992, audited accounts for the 1992/93 financial year, and a draft budget for the 1993/94 financial year. The accounts for 1992/93 year indicated a deficit of $36 977. The 1993/94 draft budget indicated a deficit of $88 080 and proposed fee increases of approximately 18%. The manager indicated that Overton would seek to recover budget shortfalls.
6. Residents subsequently met and rejected the budget for 1993/94 on the basis that they were not satisfied with the timing and extent of consultation and were concerned that the budget deficit indicated. Most resident [sic] did however pay the fee increase as there had not been an increase for the previous three years.
7. In June 1994, Overton formally requested payment of the shortfall in the 1992/93 budget. Most residents had not paid this to date and dispute the right of Overton to claim this amount…
8. In June 1994, Advisory Committee members were given a draft budget for 1994/95 which indicated a very substantial budget deficit with a requirement for equally substantial fee increases to meet this deficit. The residents were not given an opportunity for input or agreement into that budget.
9. In October 1994, residents were given the audited accounts for 1993/94 and a final budget for 1994/95. The audited accounts for 1993/4 show a deficit of $128,601. The budget for 1994/95 indicates a deficit of $78,794 with a fee increase of 17.69% required to meet that deficit. Resident members of the Advisory Committee have had an opportunity to query aspects of this budget and are currently seeking further information.”
140 That summary of the sequence of events is significant. First, the letter represents instructions given by Mr Murphy. It represents an acknowledgment that Mr Murphy, at least by October 1994, was well aware that Overton had put forward a proposal for a substantial fee increase for the year ending 30 June 1995. The contents of the draft budget furnished on 30 June 1994 and the final budget furnished in October, extracts of which are set out above, could have left no doubt in the minds of a recipient that Overton was intending to recover the operating loss for the year ended 30 June 1994 and was intending to recover any deficit for the year ending 30 June 1995 if the recommended increase in maintenance fees was not agreed to by the residents.
141 The information contained in those paragraphs of the letter of 21 October 1994 was provided by Mr Murphy to TARS when instructing TARS. Paragraph 5 accurately reflects Mr Murphy’s understanding of the position as at March 1994. In particular, it was perfectly plain to Mr Murphy as at March 1994 that Overton intended to seek to recover budget shortfalls. It was Mr Murphy’s belief, as at March 1994, that if Overton was legally entitled to include an amount in outgoings, then it would do so. On the other hand, it was also Mr Murphy’s understanding at that time that if Overton was not legally entitled to include an amount in outgoings, then it would not do so. Further, it was his position, as at March 1994, that if he personally had a legal liability to pay outgoings, then he would honour his legal obligations. All his life he has been proud of the fact that, if he has a debt that is properly payable, then he pays it.
142 The letter of 21 October 1994 stated that advice had been sought from TARS on the following:
“1. Whether residents must meet the budget shortfalls for the 1992/3 and 1993/4 village budgets;
2. To what extent do the provisions of the Code entitle residents to veto the village budget;
3. What is the role of Advisory Committee.”
143 In relation to the first question, the letter contained the following paragraph:
“3. Clause 5 of the Lease provides that lessees must contribute to the outgoings of the Village which are specified in clause 5(c). This obligation continues until the lessee surrenders the lease and a new lease is entered into for the premises. This clause, and in particular 5(c)(v), gives Overton wide discretion with respect to items included as village outgoings.”
When Mr Murphy first read that paragraph, it accorded with his own understanding of the position. He understood, when he first got his copy of the Lease Memorandum in late June or early July 1992, that Overton had “the right to set the levies”.
144 The letter of 21 October 1994 went on to say:
“4. Clause 5(b) provides that the lessor may give lessees an estimate of the amount of contribution required for a period up to a year. As soon as practicable at the end of the period, the lessor may make an adjustment for either a surplus or deficit.
5. Clause 5(h) provides that any contribution levied is due and payable within 7 days of receipt of notice of the levy and clause 5(i) provides that except in the case of manifest error, the lessee is bound by the determination of Overton as to the amounts payable under clause 5(c).”
When Mr Murphy first read those paragraphs they also accorded with the opinion that he had already formed himself when he read the Lease Memorandum for himself. By the time Mr Murphy received the letter of 21 October 1994, he had formed a belief that the best opportunity for him to obtain some relief from the burden of the maintenance fees that were being imposed under the Lease would be to put forward an argument based on the provisions of the Retirement Village Code under the Retirement Villages Act 1989 (NSW).
145 The letter of 21 October 1994 also said as follows:
“20. Given the legal uncertainties surrounding this matter, it would be very costly for all parties if a resolution was sought in the Tribunal or courts. Further, this approach could seriously damage the relationship between the parties and adversely affect the reputation of the village which would be undesirable for all concerned. In the circumstances, I suggest that, in the first instance, a solution be sought through mediation.”
As Mr Murphy understood the position, the quality of life in the Heritage Village was in part dependent upon a happy relationship between residents and management. His instructions to TARS were to the effect that it was important for everyone to try to preserve a happy working relationship between the residents and management. He understood that the actual value of investments that Lessees had in their units could be adversely affected if the environment was unhappy. That was a factor, from Mr Murphy’s personal point of view, that was quite important.
146 As the events from March through to October 1994 unfolded, Mr Murphy saw that the atmosphere in the Heritage Village was becoming quite unhappy so far as the relationship between residents and management was concerned. He was aware that two of the Lessees had set about selling their interests between April and October 1994.
147 However, from Mr Murphy’s point of view, he did not wish to leave the Heritage Village or to sell or surrender the Lease. He hoped that the problem could be sorted out. He appreciated that he could possibly have sold if he had chosen to sell but that, having thought about that option, his preferred course was to try to work out and solve the dispute somehow.
148 On 7 November 1994, TARS wrote to Overton on behalf of the residents of the Heritage Village. The letter repeated the sequence of events set out in the letter of 21 October 1994. There was some variation in wording but paragraphs 5 to 9 of the letter of 21 October 1994 were repeated in substance.
149 In addition, the letter of 7 November 1994 contained the following:
“10. The budget for 1994/95 indicates a deficit of $78,794 with a fee increase of 17.69% required to meet that deficit. Resident members of the Advisory Committee have had an opportunity to query aspects of this budget and are currently seeking further information. Residents are concerned at the budget deficit and the fee increases indicated in this budget. They believe cuts should be made in village expenses to reduce the deficit and keep any fee increases to a reasonable level.
Residents are concerned that the disputes arising out of these events have created disharmony in the village which is causing stress to residents and damage to the reputation of the village. Residents would like to meet with representatives of your company to seek a resolution in a constructive atmosphere. We believe that such a meeting could be most constructive if facilitated by an experienced mediator.”
150 The increase of 17.69 per cent referred to in paragraph 10 of the letter of 7 November 1994 was worked out by the solicitor from TARS who wrote it. It is not clear where the deficit of $78,794 was derived or how the increase of 17.69 per cent was calculated. The figures are similar to, although not identical with, the deficit referred to in the budget furnished in October and the additional increase over and above 18.37 per cent referred to in the working paper furnished in June 1994.
151 On 14 November 1994, a meeting of residents of the Heritage Village took place. Mr Murphy presided over the meeting, in his capacity as president of the Residents’ Committee. The minutes of the meeting include the following under the heading “General Business”:
“The Chairman explained to the Meeting about the 1993/94 Profit & Loss audited A/cs which revealed a deficit of $128,601, which was approx. $40,000 in excess of the ‘budget’ presented to the Residents in March 1994. This deficit would transcribe into an approx. charge of over $1,000 per Unit!
………………………
The Draft ‘budget’ for 1994/95 reveals another deficit of $79,683!!
The pressing need for Residents and their duly elected Residents’ Representatives is to urgently negotiate with Management for a substantial reduction in this year’s outgoings, particularly in wages and salaries and cost of services when one realises already four months of the 1994 outgoings are behind us.”
Mr Murphy’s understanding of Overton’s position in 1994
153 It is difficult to conclude, in the light of the correspondence and communications during 1994, that Mr Murphy was under any misapprehension as from 31 March 1994 as to the legal entitlement of Overton to recover from residents by way of maintenance fees the full expenditures incurred by Overton in operating the Heritage Village and that Overton was asserting that the total expenditure was greater than the amount included in the budget for the period ending 30 June 1994. The question, however, is whether Overton sufficiently clearly announced that it was no longer prepared to make any concession in that regard and had indicated sufficiently clearly to Mr Murphy what the full extent of his liability would be once any previous concession had been abandoned.
154 Mr Murphy did not believe the assertion by Ms Hough that Overton would have been entitled to recover the amount of $1,018,548 for the year ended 30 June 1993. He considered that that was expenditure of Overton as the developers of the Heritage Village and that the relevant costs should not have been included in the Maintenance Fund. He said that he never believed that the figure was really a figure that Overton could or would try to recover from Lessees. He said that that was the view that he held throughout 1994, 1995 and 1996.
155 Mr Murphy discussed with Mrs Murphy a number of times between 31 March and 30 June the merits or otherwise of paying the proposed increase of 18.37 per cent in maintenance fees. He said to his wife that, even though the documents say 8.9 per cent of the increase was CPI, which they had accepted originally, an extra 9.4 per cent was being proposed at that time. He said that if they paid that “it will then balance and we won’t be getting any more overruns”. Mr Murphy gave no evidence of discussing that matter with his wife after 30 June 1994.
156 Mr and Mrs Murphy contend that it would defy credibility to suggest that Overton had informed Lessees during 1994 that it was entitled to bring to the account of the Maintenance Fund for the period ended 30 June 1993 expenses in the sum of $1,018,548 referred to in the model enclosed with Pannell Kerr Forster’s letter of 10 March 1994. That figure was the subject of considerable discussion at the meeting of the Advisory Committee of 28 April 1994 attended by Mr James and Ms Hough, together with representatives of Perpetual. It is contended that the responses given in the course of that meeting by Mr James and Ms Hough were such that the Lessees were entitled to disbelieve any suggestion that Overton was entitled to recover that sum from the Maintenance Fund for the following reasons:
· It was inconsistent with the amount of $567,080 provided for in the Budget for the period ending 30 June 1994;
· It was inconsistent with the sum of $490,108 shown as the actual expenses for the year ended 30 June 1993;
· It was inconsistent with what Mr and Mrs Murphy had been told by Overton when entering into the Lease;
· In the materials provided to Lessees for the annual meeting of 31 March 1994, the tables showed that the increase of 18.37 per cent in Maintenance Fees would be sufficient to guarantee to break even.
157 The comments made by Mr James and Ms Hough during the meeting of 28 April 1994 are curious. It is difficult to understand what was meant by saying that the increase of 18.37 per cent would make the Heritage Village break even if the actual expenses of operating the Heritage Village were in fact in the vicinity of $1,018,000. However, if the actual expenses were not as high as that, it may have been reasonable to say that an increase of 18.37 per cent may have been sufficient to ensure that maintenance fees covered expenditure.
158 In any event, in the light of the communications that took place in November 1994 and following between Overton and TARS, instructed by Mr Murphy, and in the light of the material contained in the budget for the year ending 30 June 1995, it is clear that Mr Murphy was aware, before the end of 1994, that Overton was asserting an entitlement to recover from Lessees contributions to outgoings over and above the contribution provided by the increase of 18.37 per cent that took effect on 1 July 1994.
159 By 7 November 1994, it was clear to Mr Murphy that Overton was not in any way limiting claims for contribution to outgoings by reference to CPI or any other factor. In so far as Mr Murphy had had a belief in April 1994 that the 18.37 per cent increase would have kept the accounts balanced until the Heritage Village had been completely built, that belief had come to an end by November 1994. By 14 November 1994, Mr Murphy had the clear belief that any hope that he may have had earlier in the year that the 18.37 per cent increase was going to be the last increase that he would see for some time, had been brought to an end.
Events of 1995 and 1996
160 On 17 February 1995 TARS wrote to Overton’s solicitors saying, inter alia, as follows:
“Maintenance Fees
Most residents are on fixed or decreasing incomes. Many were given assurances by company officers prior to their entry to the village, that fees would not increase substantially in the future and would remain affordable to pensioners.
Whilst residents accept that they must contribute to the cost of village services, they expect that these would be kept at reasonable level. Further, that management will consult with and seek approval of residents before making changes to the level and quality of services to which residents contribute.
Residents believe that the reasonable costs of providing services to them, should not require higher fees than they are currently paying and that with greater efficiency in service delivery, fees could possibly be reduced without compromising the current quality of services.
Residents believe the budgets and actual expenditures for 1993/94 and 1994/5 are unacceptable and in particular, the ‘wages and salaries’ item in the budgets is unacceptably high. As residents have previously suggested to Mr John James, substantial reductions in expenditure could be achieved without compromising the quality of services to residents by making the following adjustments [several adjustments were then suggested].”
161 Overton’s solicitors responded on 27 February 1995, indicating that Overton intended to apply to the Tribunal for orders:
· that the residents agree the 1993-1994 budget in accordance with the tenancy documentation and that the relevant deficit be paid by residents;
· that the residents agree the 1994-1995 budget in accordance with the tenancy documentation so that an estimate can be set to avoid deficit;
· that the residents immediately pay the arrears in respect of the 1992-1993 expenditure (being deficit over levy) in accordance with the tenancy documentation;
TARS responded on 17 March 1995 saying that residents would vigorously defend any application by Overton to recover previous budget shortfalls.
162 Communications continued between TARS and Overton’s solicitors during 1995. An inference can be drawn that Mr Murphy was aware of the communications between TARS and Overton’s solicitors during that period.
163 A report on the Maintenance Fund by Pannell Kerr Forster, dated 29 September 1995, was circulated to residents under cover of Overton’s letter dated 31 October 1995. That report related showed the following:
|
|
1995 |
1994 |
Income |
445,083 |
495,116 |
|
Less expenses |
626,173 |
623,717 |
|
Operating Loss |
181,090 |
128,601 |
Note 3, headed “Operating Loss”, provided as follows:
“The operating loss of $181,090 largely represents expenses incurred through the maintenance fund which were not adequately covered by maintenance levies. During the year management has endeavoured to implement a policy that the Maintenance Fund should more realistically reflect the cost of operating the Village and providing first class accommodation for residents.
In previous years, ‘user pay’ services were included in the Maintenance Fund. Due to the inequities that this created, it was resolved to account for these user pay services through the general account in the 1995 year. In accordance with clause 22 paragraph (2) of the Heritage Trust Deed, the manager is entitled to recoup part, or all of the loss, from the residents.”
164 Also enclosed with the letter of 31 October 1995 was a comparison of the actual accounts for the Maintenance Fund with the draft budget for the financial year ended 30 June 1995 for that period. That comparison demonstrated that the actual deficit was $101,407 greater than the deficit shown in the draft budget.
165 On 20 May 1996, Overton wrote to the residents, including Mr and Mrs Murphy, enclosing a document entitled “Draft Budget, Schedule of Costs of Services and General Maintenance Work Plan”, for the period ending 30 June 1997 (“the 1997 Budget”). Overton said that, to facilitate a process whereby residents should have the opportunity to raise enquires or concerns over aspects of the 1997 Budget with management, Overton would convene a meeting of the Advisory Committee of the residents by 20 June 1996. The letter went on to say,
“If the budget is not ‘agreed to’ the matters of concern should be reported to management as soon as possible. It is the responsibility of management to make changes to the budget or provide additional information so that the budget will be ‘agreed to’, or the Code’s dispute resolution process resolves the matter”.
166 The 1997 Budget contained the following figures:
Estimated contributions to outgoings at 1995/1996 rate $449,454.00
Proposed increase in contribution to outgoings for 1996/1997 $168,779.76
Interest received – bank $549.00
Total income $618,782.76
Total expenses – outgoing $618,120.00
Deficit $662.76
167 A meeting between the residents Advisory Committee and representatives of Overton took place on 20 June 1996. The meeting was attended by, inter alios, Mr. Murphy and Mr James. At the meeting, the residents’ representatives tabled a schedule of 21 points on which explanations were requested from Overton. On 1 July 1996, Overton wrote to residents, including Mr and Mrs Murphy, responding to those points. It is not necessary to consider the detail of those matters.
168 On 21 September 1996, a further report to the residents of the Heritage Village was prepared by Pannell Kerr Forster. That report showed an operating loss in respect of the Maintenance Fund for the year ended 30 June 1996 of $123,987. The report contained a note in relation to the operating loss in much the same terms as the note contained in the 1995 Report.
169 On 27 November 1996, Overton wrote again to all residents, including Mr and Mrs Murphy. The letter relevantly said as follows:
“Further to our correspondence of 20 May, 1996, we note that agreement between the Manager and the residents regarding a budget for the operation of the Heritage Retirement Village, for the financial year ended 30 June, 1997, has not yet occurred.
As you are no doubt aware, agreement between the Manager and the residents regarding budgets for the operation of the Heritage Retirement Village for the financial years ending 30 June, 1994, 1995 and 1996, respectively, has also not yet occurred.
During consultation with your elected representatives regarding the draft budget distributed to you on 20 May, 1996 and the draft budgets distributed for the prior years, we have noted that difficulties have arisen regarding the allocation of costs of operating the village between the accounts of the Manager and the outgoings accounts of the village, particularly in the areas of house keeping, catering and transport.
Accordingly, the Manager has re-drafted the proposed budget for the financial year ending 30th June, 1997, incorporating estimates for the revenue available from and the expenses predicted to be incurred by the provision of house keeping, catering and transport services, to be provided at The Heritage Retirement Village, pursuant to The Heritage Retirement Village Trust Deed, the Leases granting the right of occupation of units and apartment in The Heritage Retirement Village, the Retirement Village Industry Code of Practice, 1995 and the Development Approval granted by Bankstown City Council, dated 30 November, 1984 pursuant to Development Application Number 391/84.
The budget re-draft also includes provision for the employment of staff sufficient, in the opinion of the Manager, to operate the village in accordance with the provisions contained in the documents [relating to the operation of the Heritage Village].
In the budget re-draft, substantial increases are proposed in the charges to residents for house keeping and catering services. In the Manager’s opinion these increases are necessary to recoup the expenses incurred in providing those services. In the past, proposed increases in service charges to residents has resulted in a decrease in the utilisation of those services by residents. Notwithstanding that the utilisation of services by residents may decrease to zero, the availability of those services to residents is required by the provisions contained in the documents listed above, accordingly the fixed costs in making those services available, will continue to be incurred, whether or not the services are utilised by you.
Similarly, you will ultimately decide the service charges to be recouped from residents utilising the services made available, but, to the extent that these charges fail to recoup the costs of making those services available, due to the insufficiency of the service charge or insufficient utilisation of the services by residents, all residents will ultimately pay for that shortfall, through increases to the levy of contributions to outgoings.
To avoid any further doubt, the Manager of the Heritage Retirement Village and the Heritage Retirement Village Trust, has not at any time in the past been obligated, is not now obligated and will not in the future agree to be obligated, pursuant to The Heritage Retirement Village Trust Deed, the Leases, which are schedules to the Heritage Retirement Village Trust Deed. The Retirement Village Industry Code of Practice, 1989, or the Retirement Village Industry Code of Practice, 1995, to provide funding, from it’s [sic] own resources, of either an interim or permanent nature to make up any shortfall in funding from the residents, for the operation of The Heritage Retirement Village or The Heritage Retirement Village Trust.
To that end, the Manager is now undertaking a similar re-drafting of the proposed budgets for the operation of the Heritage Retirement Village, for the financial years ending 30 June, 1994, 1995 and 1996 incorporating the revenue available from and the expenses incurred by the provision of house keeping, catering and transport services, provided at The Heritage Retirement Village. In addition, the Manager has commissioned a supplementary audit of those revenues and expenditures to determine the actual revenue recouped and expenses incurred for those periods.”
170 Thus, Overton unequivocally communicated to the Lessees, including Mr and Mrs Murphy a decision to bring all expenditure incurred by it in the operation of the Heritage Village to the account of the Maintenance Fund. The following significant matters arise from the letter of 27 November 1996:
· the expenditure to be included in the budget was increased from $618,120 to $977,260;
· all expenditure for the provision of user pay services were brought into the Maintenance Fund;
· an Administration Service Charge of $60,000 to cover the services of Mr James as resident administrator was brought into the Maintenance Fund.
1992 CONTRAVENTION OF TRADE PRACTICES ACT
172 The decision of Mr and Mrs Murphy to sell their home of many years and to buy a leasehold interest in the Heritage Village was probably one of the most momentous that they made in their joint lives. Clearly, Mr and Mrs Murphy regarded the decision to enter into the proposed transaction as one of considerable moment. They pondered upon it for several months. They consulted legal advice in connection with it.
173 Further, Mrs Taylor’s statements were made, as Mr Murphy understood, by a saleswoman. He understood that Mrs Taylor was endeavouring to persuade him and his wife to make a very significant change in their circumstances and to part with what was, for Mr and Mrs Murphy and would be for most people, a substantial sum of money. Further, the statements about affordability must have been understood as predictions about the future. Mr and Mrs Murphy must be taken to have known that there could be no certainty about such matters.
174 The lack of precision attendant upon the statements attributed to Mrs Taylor is significant in that context. A statement that Mr Murphy or Mrs Murphy would be “able to afford to live” at the Heritage Village on a single pension is fraught with uncertainty. Certainly, it carried with it the notion that, after payment of maintenance fees out of a single pension, there would be some funds left. However, the quantum of those funds was unspecified. Whether the funds remaining from a single pension after paying the maintenance fees would be sufficient for a particular individual “to live” would depend entirely upon the lifestyle of that individual. It might depend upon whether the individual was accustomed to eat out regularly, to visit places of entertainment, to entertain friends and relatives, to travel and other such matters. However, Mr and Mrs Murphy did not indicate to Mrs Taylor how much either of them would require “to live on”. Mrs Taylor was given no information as to the lifestyle in which Mr and Mrs Murphy had engaged up to 1992 and in which they would expect to engage after that time.
175 On the other hand, Overton furnished Mr and Mrs Murphy with the documentation necessary to enable them to ascertain precisely what their legal obligations would be under a lease, if they entered into one. I accept that Mrs Murphy relied on Mr Murphy to assess their position. Mr Murphy frankly acknowledged that he understood that the entitlement of Overton to charge maintenance fees was to be found wholly within the terms of the legal documents. He read the Lease Memorandum carefully to ensure that he understood what was in it. In particular, he noticed the provisions relating to “Outgoings” and, when he felt the need to seek clarification about any matter, he contacted his solicitor and sought advice.
176 The question is whether it was misleading or deceptive or likely to mislead or deceive for Mrs Taylor to make statements about affordability such as those attributed to her, in circumstances where both she and Mr and Mrs Murphy knew that the relationship that was to exist between Overton on the one hand and Mr and Mrs Murphy on the other was to be governed and regulated by the Lease, which incorporated the Lease Memorandum. An assertion that Overton failed to disclose that:
· it was open to Overton to increase future outgoings recoverable under the Lease;
· it was open to Overton to recover all outgoings incurred for such levels of expenditure as it saw fit to incur;
· Overton was entitled to recover losses from the provision of user pay services;
cannot be supported in circumstances where the Lease Memorandum was furnished to Mr and Mrs Murphy and was carefully examined by Mr Murphy with the benefit of legal advice. Mr Murphy understood that the provisions set out in clause 5 of the Lease Memorandum would govern what money he and Mrs Murphy would have to pay by way of maintenance fees during the term of the Lease. He understood that the figure of $55.71 was an estimate only and was subject to determination and variation from time to time in accordance with clause 5.
177 Mr Murphy certainly did not believe that the only maintenance fees that he and his wife would ever have to pay would be limited to $55.71 per week. He understood that the liability to contribute to Outgoings could vary from time to time. He also understood that the Heritage Village was planned to be self-funding by the residents and understood that nobody would be subsidising the Heritage Village. It is significant that Mr Murphy did not mention to his solicitor any understanding that he had that Mrs Taylor had made a representation to him that he or Mrs Murphy would always be able to afford to live in the Heritage Village on a single pension.
178 Nevertheless, it was known to Mrs Taylor and, in any event, a person in the position of Overton offering leasehold interests for sale, as it was doing, must be taken to have known, that it was of importance for a prospective resident in the Heritage Village to make a reliable judgment as to what the commitments of that prospective resident would be if a lease was entered into. A prospective lessee would have no information as to the likely quantum of maintenance fees payable under a lease other than such as was provided by Overton. Overton alone had available to it the information upon which any reliable judgment must be founded.
179 Clearly, no prospective resident could expect any guarantee concerning the level of maintenance fees. Exceptional circumstances could always arise that could have a significant effect on the maintenance fees that would be payable in the ordinary course. Fire or other natural disaster, for example, was always at least a theoretical possibility. Nevertheless, Overton must be taken to have understood that, by furnishing any estimate to a prospective lessee as to the likely quantum of maintenance fees payable by residents, there would be an expectation that Overton would disclose any information known only to it that would be relevant to the making of a judgment as to the reliability of any such estimate.
180 Mrs Taylor told Mr and Mrs Murphy that the maintenance fee for the unit of the type that Mr and Mrs Murphy were interested in was at that stage $55.71 a week. That of itself was not misleading or deceptive or likely to mislead or deceive. That was an accurate statement as at the time it was made.
181 However, Overton went further. It furnished Mr and Mrs Murphy with a copy of the Information Booklet. The Information Booklet was clearly a promotional tool. Nevertheless, it bore the character of a document included as a source of information. In referring to Overton’s policy of removing the problems of home maintenance from the resident and stating that all bills had been budgeted for in the maintenance fees, and in describing the items that the maintenance fees had been budgeted to cover, the Information Booklet was calculated to give rise to an expectation that, to the extent that those items and maintenance expenses had not been adequately budgeted for in the estimated maintenance fees, that fact would be disclosed to prospective lessees.
182 In stating that “present budget figures would indicate a level of cost payable” in respect of a “B” type unit of $55.71 per week, the Information Booklet was calculated to give rise to an expectation that any information that was material or relevant to the reliability of such an estimate would be disclosed. The fact that expenditure incurred by Overton in order to provide the amenities and facilities referred to in the Information Booklet had not been taken into account in calculating the estimate of maintenance fees payable was material and relevant information. The failure to disclose that information would be misleading or deceptive to a prospective lessee or would be likely to mislead or deceive a prospective lessee.
183 The maintenance fee of $55.71 per week was calculated on the basis of the budget for the period ended 30 June 1992 and the budget for the period ending 30 June 1993. Mr and Mrs Murphy were given a copy of the latter budget and Mr Murphy enquired as to whether it was accurate and was told that it was. However, it is now clear that some expenditure that, under the terms of the Lease Memorandum, Overton would have been entitled to include in the budget for the purpose of estimating the Lessees’ contribution to Outgoings under clause 5(b), was under provided for in that budget. The quantum of the under provision, however, is not capable of easy determination.
184 The statutory accounts of Overton for the periods ended 30 June 1992 and 30 June 1993 indicate that expenditures were incurred by Overton in those periods in excess of the amounts provided for in the budgets and the amounts shown in the actual accounts for the Maintenance Fund for those periods. The working papers upon which the budget and the actual accounts for the periods ended 30 June 1992 and 30 June 1993 were based are no longer available. It has not been possible, therefore, to embark on a detailed analysis of expenditure actually incurred by Overton, either in the year ended 30 June 1992 or in the year ended 30 June 1993. Accordingly, it is not possible to determine with any precision the expenditure in operating the Heritage Village that was not provided for in the budgets and was not in fact brought to account in the actual accounts for the Maintenance Fund for those periods.
185 Nonetheless, there is evidence from which inferences can be drawn as to those matters. Figures extracted from the statutory accounts of Overton and the accounts prepared for the Maintenance Fund demonstrate that, from 1993 onwards, there was a general trend whereby the proportion of Overton’s total expenditure attributed to the Maintenance Fund increased as the proportion of the total expenditure not attributed to the Maintenance Fund decreased. That trend of itself, of course, may be equivocal. There was no evidence as to the nature of the other activities of Overton during the periods in question. There was no evidence as to the extent, if any, to which those activities varied from period to period.
186 However, there is other evidence from which an inference can be drawn that expenditure that Overton was entitled to provide for in the budgets in the two years in question and to recover from Lessees, was not provided for or recovered. One piece of evidence is Pannell Kerr Forster’s letter of 10 March 1994 and the model attached to it. The model indicated that the amount that could have been recovered by Overton in respect of the year ended 30 June 1993 was more than twice the amounts provided for in the budget and the actual accounts of the Maintenance Fund for that period. Of course, the model was no more than an estimate prepared ex post facto. Nevertheless, the estimate, based upon “an overall attitude of reasonability”, was made by the accountants responsible for reporting to residents on the Maintenance Fund. It is an indication of the view of a well-qualified person, who had considered the question, as to the expenditure that was properly attributable to the operation of the Heritage Village.
187 The report from Pannell Kerr Forster on the Maintenance Fund of 4 October 1994 referred to the making of a conscious decision that the Maintenance Fund should realistically reflect operating costs. That comment gives rise to a clear inference that, up to that time, there had not been a realistic attempt by Overton to ensure that maintenance fees would fully reimburse the expenditure incurred by it in operating the Heritage Village.
188 The third source of information concerning this question is a comparison of budgeted figures against actual figures for the Maintenance Fund. There were in fact shortfalls in most years. That is to say, the expenditure budgeted for fell short of the actual expenditure for most periods. Subsequently, Overton sought to recover the shortfalls from Lessees. In addition, Overton endeavoured to make adjustments to the accounts of the Maintenance Fund in earlier years with a view to recovery of expenditure under recovered in those years. That occurred after 27 November 1996.
189 That evidence leads inexorably to an inference that the figures upon which the maintenance fee of $55.71 per week was calculated did not adequately provide for all of the expenditure actually incurred or likely to be incurred in the operation of the Heritage Village. Under the terms of the Lease Memorandum, Overton was entitled to recover the whole of that expenditure from Lessees by way of maintenance fees.
190 Clause 5(c) of the Lease Memorandum set out in considerable detail the items of expenditure with respect to which levies could be made upon Lessees for contribution to the expenditure incurred in operating the Heritage Village. The Reference Schedule in the Lease contained the estimate by Overton of the initial contribution that Mr and Mrs Murphy would be called upon to pay, of $55.71. Clause 5(l) of the Lease Memorandum made unequivocally clear that the figure was no more than an estimate and was subject to determination and variation from time to time in accordance with the Lease Memorandum. Mr Murphy read clause 5 and understood it. He understood that, notwithstanding the estimate, there was no limit on the extent to which, at least in theory, the maintenance fee could be increased to cover the expenditures referred to in clause 5 of the Lease Memorandum.
191 Nevertheless, the statement of an estimate of the outgoings in both the Lease and Information Booklet would fairly give rise to an expectation on the part of a recipient of those documents, who was an intending lessee, that Overton would disclose the fact that expenditure that Overton was entitled to take into account in arriving at that estimate had not in fact been taken into account. That expectation was clearly not fulfilled. I consider that, in all of the circumstances, it was misleading or likely to mislead for Overton to furnish the information contained in the Information Booklet, the Lease and the statements attributed to Mrs Taylor about the maintenance fee of $55.71 without disclosing that the estimate was calculated on figures that did not adequately provide for all expenditure actually being incurred in the operation of the Heritage Village. It was conduct engaged in by Overton in trade or commerce and contravened section 52 of the Trade Practices Act.
NEGLIGENT ADVICE
193 However, in entering into and continuing the negotiations that took place during 1992, Overton on one hand and Mr and Mrs Murphy on the other hand were at arms length. Mrs Taylor was endeavouring to persuade Mr and Mrs Murphy to enter into a lease of a unit in the Heritage Village. Mr and Mrs Murphy retained solicitors to advise them in connection with the proposal. It is difficult, therefore, to characterise the statements concerning affordability attributed to Mrs Taylor as the giving of advice in circumstances where Mrs Taylor should be taken to have accepted responsibility or be taken to have known that Mr and Mrs Murphy would rely upon what she was saying. The statements were not of such a character that it would be reasonable for Mr and Mrs Murphy to rely on them in making a serious and important decision. Further, I do not consider that Mr and Mrs Murphy relied upon the statements as advice. The lack of precision as to the content of the statements about affordability is but one aspect of the unreasonableness that would be entailed in relying on the statements as a basis for a serious decision.
194 The Lease Memorandum and Trust Deed were furnished to Mr and Mrs Murphy to enable them to obtain legal advice concerning their effect and the obligations that the documents would impose upon them. I have referred above to clause 17 of the Lease Memorandum, which constitutes an acknowledgment that Mr and Mrs Murphy had read and understood the terms and conditions of the Lease and the Trust Deed and, prior to signing the Lease, had obtained legal advice from a solicitor employed independently of Overton. In those circumstances I do not consider that a duty of care was imposed upon Overton in the discussions concerning affordability that led up to the execution of the Lease.
195 Nevertheless, there is one aspect of the discussions that may have given rise to a duty of care. Mr and Mrs Murphy had received a copy of the budget for the Maintenance Fund in respect of the period ending 30 June 1993. In the meeting at the end of August 1992, Mr Murphy asked how accurate that budget was. Mrs Taylor’s response was that, while the budget had shown a surplus of $18,200, the surplus turned out to be “$18,500 odd” for the period ended 1991-1992 and that she expected that the surplus of $22,000 for the 1992-1993 budget was “conservative”. A question must arise as to what was meant and understood by references to “the accuracy” of the budget.
196 Included in the documents received by Mr and Mrs Murphy on 8 March 1994 was the report of Pannell Kerr Forster on the actual figures for the Maintenance Fund for the period ended 30 June 1993. That report showed an operating profit of $6,075, as distinct from the break even position shown in the budget for that period, being the budget that had been furnished to Mr and Mrs Murphy. That budget showed outgoings of $452,000 against a total income of the same amount. To that extent, the budget was accurate, in the sense that it accurately predicted the outgoings for which provision was made.
197 However, the report by Pannell Kerr Forster also showed that there were accumulated losses as at 30 June 1993 of $76,806. That figure was the result of operating losses incurred since the commencement of the operation of the Heritage Village. The report of 7 March 1994 said that the accumulated losses had been financed in part by Overton and were recoverable by Overton. To that extent, therefore, the budget for the period ended 30 June 1993 was not accurate in so far as it failed to disclose the need for additional levies to reimburse Overton for the amount of the accumulated losses. That was a matter that was taken up later in 1994.
198 Mr Murphy had asked Mrs Taylor about shortfalls. Mrs Taylor said that there had been shortfalls in a few years but that Overton had paid those shortfalls and had not applied to the residents to recover them. She told Mr Murphy that Overton’s policy was that Overton would pay all short falls until the full 160 units proposed for the Heritage Village were finished. Thus, although the budget may have been inaccurate in failing to disclose the accumulated losses, the existence of shortfalls in previous years was known to Mr Murphy prior to entering into the Lease.
199 The statement by Mrs Taylor that Overton would pay all shortfalls until all proposed units had been completed may well be construed as a promise on behalf of Overton not to enforce its strict legal rights under the Lease Memorandum and under the Trust Deed to recover full reimbursement in respect of periods prior to completion of the Heritage Village. To the extent that Overton seeks to recover any under provision in respect of period prior to 30 June 1995, an estoppel may well arise. Indeed, as I understand the position, in the Supreme Court proceedings, Overton was precluded from recovering shortfalls in such periods for that very reason. That, however, is not a question before me.
200 On the other hand, the statement concerning the accuracy of the budget must also be considered in the light of the fact that the budget under provided for expenditure being incurred and likely to be incurred by Overton in operating the Heritage Village. In so far as Overton continued the policy of bearing itself part of the expenditure incurred in operating the Heritage Village, the budget was accurate. However, in so far as the budget failed to take account of expenditures being incurred and likely to be incurred, it was quite inaccurate. Mrs Taylor must be taken to have known that Mr and Mrs Murphy would rely on a response concerning Mr Murphy’s enquiry as to the accuracy of the budget. I consider, therefore, that Overton was under a duty to take care in giving a response to his enquiry.
201 I consider that in the circumstances, Overton was under a duty, through Mrs Taylor, to take care, if a response was given to the enquiry, to ensure that the response was accurate to the extent of information available to Overton at the time. For the reasons I have indicated, the response was not accurate because the budget failed to take account of all of the relevant expenditure. There was, therefore, a breach of duty in the circumstances.
LOSS OR DAMAGE
202 Mr and Mrs Murphy assert in their statements of claim that, by reason of the conduct of Overton (whether that be in contravention of the Trade Practices Act or in breach of a duty to take care), they were induced to enter into the Lease. There is no doubt that Mr and Mrs Murphy had regard to the estimate furnished by Overton in making a decision as to whether they would enter into a lease. If Overton had disclosed the extent of the under provision for expenditure, I am satisfied that Mr and Mrs Murphy would have given further serious consideration as to whether they would enter into a lease with Overton. Alternatively, they would have reconsidered very carefully the decision they had made to enter into the Lease.
203 I consider that it is more likely than not, therefore, that Mr and Mrs Murphy would not have entered into the Lease had they been told that the estimate of maintenance fees did not accurately reflect the expenditure that Overton was incurring in operating the Heritage Village. Further, had Mr and Mrs Murphy been told that the budget was not accurate because it did not take account of all expenditure, it is more likely than not that they would not have entered into the Lease. Indeed, I do not understand Overton to suggest that they would have done so in such circumstances.
204 Mr and Mrs Murphy say that as a consequence of the conduct of Overton prior to their entering into the Lease, they suffered loss and damage. However, they say that the loss and damage that they suffered by entering into the Lease was not suffered until 27 November 1996 when Overton, by its letter of that date, presented a redrafted budget for the year ending 30 June 1997 showing an increase in expenditure from $618,120 to $977,260. Mr and Mrs Murphy say that they could not have ascertained any loss or damage suffered by them until Overton unequivocally claimed maintenance fees on the basis set out in that letter.
205 Mr and Mrs Murphy say that, at that time, Overton, for the first time, unequivocally communicated to them its decision to bring all expenditure incurred by it in the operation of the Heritage Village to the account of the Maintenance Fund. In addition to presenting the revised budget, Overton also brought expenditure for the provision of user pay services back into the budget calculation. Overton also included an administrative service charge of $60,000 for the services of Mr James as resident administrator. Mr and Mrs Murphy say that, prior to receipt of the redrafted budget, no damage had been suffered by the conduct complained of because there had been no unequivocal insistence by Overton on the rights that were conferred by the Lease.
206 Mr and Mrs Murphy say that the Heritage Village did not “lack the qualities represented” until Overton made its unequivocal election by its letter of 27 November 1996. Having regard to the way in which the Heritage Village was operated up to that time, and the beneficial effect that that manner of operation had upon the affordability of the Heritage Village to Mr and Mrs Murphy, they say that up to that time they obtained the full benefit that they expected to obtain by entering into the Lease. This was not a case, so they said, where they did not get what they bargained for when they entered into the Lease.
207 Mr and Mrs Murphy’s primary claim to relief is under section 87 of the Trade Practices Act. They seek to restrict Overton’s recovery of maintenance fees from them by reference to a proportion of the single pension from time to time. Primarily, they point to the proportion that the maintenance fees payable, following the 18.37 per cent increase from 1 July 1994, bore to the single pension at that time. I shall deal with the calculation below. Alternatively, they seek to quantify loss by reference to the difference in value of the Lease according to whether maintenance fees are calculated in accordance with Overton’s legal entitlement or whether there is some restriction on Overton’s entitlement to recover full reimbursement for expenditure incurred in operating the Heritage Village.
208 There is no claim for damages related to the consideration of $215,750 paid for the grant of the Lease. Indeed, there is no evidence that that consideration was other than a proper consideration for the leasehold interest that Mr and Mrs Murphy acquired. It is obvious that a leasehold interest that carries some limit on the level of maintenance fees payable by the lessee would have a greater value than a leasehold interest that does not carry any such restriction. However, the consideration of $215,750 was fixed by Overton. There was no evidence as to the extent, if any, that the consideration would have been different if the estimate of maintenance fees properly reflected all expenditure being incurred by Overton at the time in the operation of the Heritage Village.
209 The rationale for the claim that loss was suffered on 27 November 1996 is that the changes introduced by Overton in the calculation of maintenance fees that were notified by the letter of that date caused the value of the leasehold interest of Mr and Mrs Murphy under the Lease to diminish. There is evidence that the value of the Lease at the present time is less than the consideration that Mr and Mrs Murphy paid to acquire it on 20 October 1992. However, there was no causal connection between any diminution in value in 1996 and the conduct of Overton in 1992. If the Lease had a lower value because of the right of Overton to recover full reimbursement of expenditure incurred in operating the Heritage Village, that was an inherent characteristic of the Lease when it was granted.
210 It might have been possible to mount a case on the basis that the consideration paid by Mr and Mrs Murphy for the grant of the Lease was excessive or exceeded the true value of the Lease at that time, because of the potential for Overton to recover full reimbursement of expenditure. On that approach, a comparison would have to be made between the value of the Lease at that time, with all of the obligations under it, on the one hand, and the hypothetical value that the Lease might have, if there were a limit on the right to recover full reimbursement of expenditure of the nature now claimed, on the other hand. As I have said, however, there is no evidence to that effect.
211 Further, there was no suggestion that, if there had been full disclosure by Overton, Mr and Mrs Murphy would have been able to negotiate a lease with a limit of the nature now claimed by them. The only conclusion that could be drawn is that, rather than enter into the Lease, Mr and Mrs Murphy would have made other arrangements, such as taking up residence in the John Paul Village.
212 Mr and Mrs Murphy had, at least by mid June 1992, decided that they would sell their home and move to a retirement village. They contemplated the possibility of the John Paul Village but preferred the Heritage Village, if they were able to raise the consideration necessary to acquire a lease. However, there is no evidence as to the facilities provided by the John Paul Village. There is no evidence as to the terms upon which Mr and Mrs Murphy would have been able to take up residence at the John Paul Village. There is no evidence as to the cost of so doing or the legal basis upon which they could take up such residence. Accordingly, there is no basis for a conclusion that they would have been better off by not entering into the Lease.
213 There is no evidence that Mr and Mrs Murphy are not receiving value for the maintenance fees that they are paying. No attempt has been made to establish that the facilities and services to which Mr and Mrs Murphy are entitled under the Lease and the Trust Deed have a value less than the liability that Mr and Mrs Murphy have to contribute to the expenditure incurred in providing those facilities and services. Mr Murphy is continuing to enjoy the benefit of those facilities and services. Mrs Murphy is entitled to the benefit of them notwithstanding that she no longer has the capacity to enjoy them. On that basis, there has been no loss incurred by Mr and Mrs Murphy, by reason of the level of maintenance fees that they are liable to pay.
214 As a general principle, the causal connection between contravening conduct and loss or damage that is required under section 82(1) will depend upon reliance. That is to say, loss or damage is suffered by the conduct of a person because another person is induced to act in reliance upon the conduct of that first person such that that act causes loss or damage to the claimant. Mr and Mrs Murphy did not do anything to their detriment after 27 November 1996. They did not alter their position after that date in reliance upon anything said on or before that date. They did not, for example, refrain from selling Unit 53. They did not wish to leave. They did not pay any maintenance fees that they were not obliged to pay. They are legally liable, by reason of having entered into the Lease on 20 October 1992, to pay their full share of the expenditure incurred by Overton in operating the Heritage Village.
215 When a claimant is induced by a misrepresentation to enter into an agreement that proves to be to his or her disadvantage, the claimant sustains a detriment, in a general sense, on entry into the agreement. That is because the agreement subjects the claimant to obligations and liabilities that exceed the value or worth of the rights and benefits that it confers upon the claimant. However, detriment in that general sense is not universally equated with the legal concept of “loss or damage” – Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 527 (“Wardley”). Where a misrepresentation induces a claimant to enter into an agreement to purchase property, the claimant’s loss, apart from any question of consequential damage, is measured by the difference between the price paid or payable under the agreement and the value of the property at the date of the agreement – Potts v Miller (1940) 64 CLR 282 at 297-299. Thus, it would be necessary to compare the value of the benefits that are conferred on Mr and Mrs Murphy by the Lease and the Trust Deed with the value of the obligations imposed upon them. There is, however, no evidence of any disparity between the two.
216 Where, as a result of a wrongdoer’s conduct, a claimant enters into an agreement that exposes him or her to a contingent loss or liability, the claimant sustains no actual damage until the contingency is fulfilled and the loss becomes actual. Until that happens, the loss is prospective and may never be incurred – Wardley at 532. However, there is no contingent loss or liability, in that sense, in the present case. The obligation of Mr and Mrs Murphy to contribute to expenditure incurred in operating the Heritage Village arises under clause 5 of the Lease Memorandum. That obligation was created upon entry into the Lease. The fact that Overton was not insisting on full performance of the liability does not affect the existence of the obligation. It may be that no debt becomes payable by a Lessee until there is notification by Overton as contemplated by clause 5(b). Nevertheless, the obligation to contribute is incurred once a Lessee enters into a lease.
217 Clause 5(a) created an obligation for Mr and Mrs Murphy to “contribute to the outgoings in respect of the premises and the Village and facilities thereof in accordance with this clause”. Under clause 5(b) Overton was entitled to notify Mr and Mrs Murphy of Overton’s current estimate of their contribution to the outgoings in relation to any particular period. Mr and Mrs Murphy were thereupon obliged to make payment of the amount of such estimated contribution either monthly or at such other intervals and on such dates and in such amounts as Overton should determine.
218 However, clause 5(b) also provided that, as soon as practicable after the end of each period, an adjustment was to be made between Overton on the one hand and Mr and Mrs Murphy on the other “by the payment of any deficiency in the amount of such contribution actually paid by [Mr and Mrs Murphy] to [Overton].” Under clause 5(h) any contribution in respect of outgoings “levied by” Overton under the clause was to become “due and payable” within seven days of receipt of “notice of the levy”.
219 Thus, the scheme of clause 5 of the Lease Memorandum is to impose an obligation to contribute to expenditure incurred from time to time. The quantification of that obligation cannot be made until expenditure is actually incurred. No debt becomes payable until such time as a levy or a calculation of actual expenditure is made and notified to Mr and Mrs Murphy. While the actual liability to pay a sum of money cannot arise until some act of notifying on the part of Overton, any entitlement of Overton to reimbursement arises out of the Lease. It is only because of the Lease that Mr and Mrs Murphy become liable to Overton in debt at some future time.
220 Mr and Mrs Murphy undertook an obligation to pay maintenance fees in accordance with clause 5 of the Lease Memorandum on 20 October 1992 by reason of their having entered into the Lease. It was possible that Overton might never have sought to recover full reimbursement of the expenditure incurred by it, as it was entitled under the terms of the Lease. Nevertheless, the entitlement to recover from Mr and Mrs Murphy existed from the time when the Lease became binding on them. I do not consider that their obligations under the Lease were contingent in the sense that was referred to in Wardley.
221 If Mr and Mrs Murphy suffered any loss or damage as a consequence of the conduct of Overton in 1992, they did so when they entered into the Lease. There is, however, no evidence of loss or damage at that time. Indeed, they have eschewed a case based on any proposition that they suffered loss or damage at that time. It follows that they have not established any loss or damage as a consequence of the conduct of Overton in 1992 that was in contravention of the Trade Practices Act or in breach of a duty of care owed in furnishing information.
LIMITATION OF ACTION
223 Under section 14 of the Limitation Act 1969 (NSW) any such cause of action for negligence must be commenced within 6 years of its accruing. Since damage is an essential element of the cause of action arising from reliance upon incorrect advice negligently furnished, their cause of action arose when they suffered significant damage in consequence of that reliance. The period of 6 years since that time expired on 20 October 1998, prior to commencement of either Mr Murphy’s Proceeding or Mrs Murphy’s Proceeding.
224 Mr and Mrs Murphy say that they suffered loss or damage on 27 November 1996 and did not suffer any loss or damage prior to that date in consequence of the conduct of Overton in 1992. Both Mr Murphy’s proceeding and Mrs Murphy proceeding were commenced within three years after that time. Accordingly, they say, their proceedings have been commenced within the period contemplated by section 82(2). A fortiori, their proceedings have been commenced with in the time limited by section 14 of the Limitation Act 1969 (NSW).
225 It follows from what I have said above that any loss or damage suffered by Mr and Mrs Murphy in consequence of the conduct of Overton in 1992 was suffered when they entered into the Lease. Any cause of action for recovery of that loss was therefore statute barred by the time that Mr Murphy’s Proceeding and Mrs Murphy’s Proceeding were commenced during 1999.
226 Mr and Mrs Murphy assert that, by reason of the conduct of Overton during the period from March 1994 to 1996, Overton is estopped from relying on any statutory limitation provisions. However, such an estoppel would not lead anywhere. Overton relies on the limitation provisions because it says that any cause of action, either under the Trade Practices Act or under the general law, arose on 20 October 1992. If Mr and Mrs Murphy suffered any loss or damage by reason of the conduct complained of, that is the date on which that damage was suffered. If the limitation provisions have no bearing on the question, damage must nonetheless be shown as at that date. As I have indicated, however, there is no evidence that, as at that date, the Lease was worth anything less than the consideration paid to obtain it. Nor is there any evidence that the value of the services and facilities to which Mr and Mrs Murphy are entitled under the Lease is less than the value of their liability to pay maintenance fees. There was, therefore, no loss or damage as at that date, irrespective of whether any limitation provisions apply.
PROMISSORY ESTOPPEL OR ESTOPPEL BY REPRESENTATION
228 The conduct of Overton must be such as to give rise to an assumption by a person who would be placed in a position of significant disadvantage if departure from the assumption were to be permitted. The assumption must be shown to have been adopted as a consequence of the conduct of another party and it must also be shown that it would be unconscientious of that other party to depart from the assumption. Mr and Mrs Murphy rely on the proposition that an estoppel might arise from an assumption as to fact or law, present or future – see Commonwealth of Australia v Verwayen (1990) 170 CLR 294 at 444-445.
229 I do not consider that it is possible to characterise any statement made by Mrs Taylor as a promise concerning the future action of Overton. I have already dealt with the difficulties in determining the precise content of any statement that Lessees would always be “able to afford” to live in the Heritage Village on a single pension. A further difficulty with any such promise is the ambiguity as to whether the statement should be construed as:
· a promise that expenditure would not be incurred so as to impose an obligation upon Lessees in excess of the asserted limited; or
· a promise that, even if expenditure was incurred by Overton, Overton would not seek to recover full reimbursement from Lessees.
230 I do not consider that the words attributed to Mrs Taylor by Mr Murphy are capable of comprising a promise that Overton would not insist upon its legal rights under the Lease and the Trust Deed. Nor can they be construed as a promise that Overton would never seek to recover maintenance fees from Mr and Mrs Murphy in excess of any particular level. Rather, the statements by Mrs Taylor, fairly construed, can only be characterised as predictions. Assuming they can be given sufficient certainty of meaning, they may be capable of being construed as a prediction that expenditure in the operation of the Heritage Village would not increase at a greater rate than a single pension, and that the single pension would increase with increases in the CPI.
231 So far as Mrs Taylor was concerned, that was a fair prediction. There was, of course, implicit in what Mrs Taylor was saying an assumption that the maintenance fees that were currently applicable in 1992 would be sufficient to reimburse Overton in full for all expenditure then being incurred by it in the operation of the Heritage Village. That assumption, of course, was misplaced.
232 It is not clear, from the evidence, whether Mrs Taylor was aware that, in the budget for the period ended 30 June 1992, on which the estimate of $55.71 was based, there was an under provision for the expenditure that Overton was entitled to be reimbursed by Lessees. It is simply not a question to which Mrs Taylor or Mr and Mrs Murphy appear to have turned their minds in the course of the negotiations that led up to the signing of the Lease on 20 October 1992. In any event, I do not consider that Mrs Taylor’s state of mind is relevant.
233 It is a fair conclusion from the evidence, however, that the conduct of Overton during 1992 induced an assumption on the part of Mr and Mrs Murphy that, in arriving at the estimate of $55.71 per week, Overton had taken into account all expenditure being incurred or likely to be incurred in operating the Heritage Village. In so far as it would be unconscionable for Overton to depart from that assumption, Overton would be estopped from doing so. For example, it would be unconscionable to depart from that assumption if Mr and Mrs Murphy were called upon to pay increased maintenance fees on short notice in circumstances where they had organised their affairs on the basis of the false assumption, and could not immediately rearrange their affairs so as to enable them to meet the increased expenditure. It may also be unconscionable for Overton to insist upon an increase if there were evidence to demonstrate that the consideration paid by Mr and Mrs Murphy on 20 October 1992 had been determined on the assumption that current maintenance fees had been calculated after taking into account all relevant expenditures. While such an assumption was made, there was nothing to suggest that the consideration would have been any different in the absence of the assumption. Nor, as I have said, is there any evidence that the maintenance fees were in any way excessive for the services and facilities to which Mr and Mrs Murphy are entitled under the Lease and the Trust Deed.
234 It is clear that from March 1994 onwards, Overton was maintaining the position that, while up to that time there had been an under recovery of expenditure, Overton intended thereafter to seek to recover full reimbursement of all expenditure incurred in operating the Heritage Village. Mr and Mrs Murphy accept that they were able to manage the increase of 18.37 per cent with effect from 1 July 1994. They were not called upon to bear any further increase until 27 November 1996. They effectively had more than two years within which to rearrange their affairs, including selling their interest under the Lease or surrendering it if need be, so as not to be in a position where the maintenance fees would be beyond their means. If any estoppel arose, it was one that would have prevented Overton from requiring an increase in maintenance fees without giving reasonable notice of its intention to do so. It effectively gave in excess of two years’ notice before further increases were required. Accordingly, I do not consider that any actionable estoppel arises in relation to the conduct of Overton during 1992.
UNCONSIONABLE CONDUCT
236 However, Mr and Mrs Murphy had the assistance of their own independently instructed solicitors. Mr Murphy carefully considered the provisions of the Lease Memorandum, the Trust Deed and the Lease. While Mr and Mrs Murphy were not highly educated, Mr Murphy was very perceptive and had a clear understanding of the effect of the documentation intended to regulate the arrangements between Overton on the one hand and Mr and Mrs Murphy on the other hand. There was no inequality of bargaining power between Mr and Mrs Murphy and Overton. Mr and Mrs Murphy were under no compulsion to enter into the Lease.
237 Mr and Mrs Murphy were under a disadvantage, in the sense that they were unaware of the fact that the estimate of maintenance fees was not based on a calculation that took account of all expenditure that was being incurred by Overton in operating the Heritage Village. I have concluded that in those circumstances, Overton’s conduct was misleading or likely to mislead. However, there was no special vulnerability or weakness of the part of Mr and Mrs Murphy. I do not consider that the evidence justifies any conclusion that Overton made any unconscientious use of any superior position or bargaining power to the detriment of Mr and Mrs Murphy. Accordingly, I do not consider that any basis has been made out that would establish a cause of action based on unconscionable conduct, either under the general law or under the Trade Practices Act.
CONTRACTS REVIEW ACT
238 Mr and Mrs Murphy also claim relief under the Contracts Review Act 1980 (NSW). Section 7(1) of the Contracts Review Act provides that where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following:
· refuse to enforce any or all of the provisions of the contract;
· make an order declaring the contract void, in whole or in part;
· make an order varying, in whole or in part, any provision of the contract;
· in relation to a land instrument, make an order for or with respect to requiring the execution of an instruction that:
(i) varies, or has the effect of varying, the provisions of the land instrument; or
(ii) terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the land instrument.
The expression “land instrument” is defined as including an instrument that creates an estate or interest in land or is a dealing within the meaning of the Real Property Act 1900 (NSW). Clearly, the Lease is a land instrument within the meaning of that definition.
239 Mr and Mrs Murphy say that the Lease is unjust both because of the way it operates in relation to them and because of the way it was made. There are two strands in relation to their claim under the Contracts Review Act. The first strand is based on the same facts as give rise to the claims made under the Trade Practices Act. The thrust of this aspect of the claim is that the unlimited obligation created by clause 5 of the Lease Memorandum renders that provision unfair in circumstances where Mr and Mrs Murphy were reliant on the age pension for substantially all their income as Overton was aware, and had no knowledge of the extent to which Overton had under provided for expenditure in the estimate of $55.71 per week as the amount of maintenance fees.
240 The second strand of the claim under the Contracts Review Act concerns the entitlement by Overton to treat legal and accounting costs incurred by Overton in litigation and other dispute resolution with the Lessees as expenditure incurred in the operation of the Heritage Village within clause 5 of the Lease Memorandum.
241 Quite apart from the question of whether Mr and Mrs Murphy have made out a case for relief under the Contracts Review Act, a question arises as to the jurisdiction of the Federal Court to make orders under that Act. It is necessary to deal with that question.
242 The pivotal provision of the Contracts Review Act is section 7. Section 7(1) provides that where “the Court” finds a contract or a provision of a contract to have been unjust, “the Court” may do one or more of the things specified in that section. Section 4(1) of the Contracts Review Act provides that in that Act, except in so far as the context or subject matter otherwise indicates or requires:
“‘Court’ means:
(a) the Supreme Court of New South Wales; or
(b) … the District Court of New South Wales; or
(c) … a Local Court.”
There is no mention of any other court. The Contracts Review Act does not purport to confer jurisdiction on the Federal Court of Australia to make an order under section 7.
243 There is some similarity between the power or jurisdiction conferred by section 87 of the Trade Practices Act and that conferred by section 7 of the Contracts Review Act. Both confer jurisdiction to make orders declaring a contract to be void and to make orders varying the provisions of a contract. Neither section, without an order of a court, effects an avoidance or a variation. Rather, both sections confer on the relevant court a discretion to make orders having that effect.
244 By contrast, section 82 of the Trade Practices Act provides that a person who suffers loss or damage by conduct of another person may recover the amount of loss or damage by action against that other person. The right to recover damages is created by section 82 itself. The jurisdiction of a court under section 86, in relation to a claim for damages under section 82, is to determine the loss or damage that the moving party has suffered by the relevant conduct. No discretion is conferred upon the court invested with jurisdiction as to whether the claimant should receive damages. The function of the court is to determine whether damage or loss has been suffered and whether that damage or loss was suffered by conduct in contravention of the Act.
245 The Federal Court would have pendant jurisdiction to determine a controversy between Mr and Mrs Murphy on the one hand and Overton on the other concerning any rights or obligations under the Lease if that controversy arose out of the same substratum of facts, so as to be a matter, or an incident of a matter, within the jurisdiction of the Federal Court. Clearly, the first strand of the claim under the Contracts Review Act arises out of the same justiciable controversy as the claims made under the Trade Practices Act. While the second strand of the claim under the Contracts Review Act is discrete from the first, it also appears to arise out of the same substratum of factual circumstances as give rise to the claims under the Trade Practices Act.
246 While section 87 confers jurisdiction on both Federal and State Courts to make orders, section 7 of the Contracts Review Act simply does not purport to give power to or confer jurisdiction on the Federal Court to vary any land instrument. Indeed, it would be beyond the power of the Parliament of New South Wales to confer such jurisdiction on the Federal Court of Australia – see Re Wakim; Ex parte McNally (1999) 163 ALR 270 (“Wakim”). Accordingly, I do not consider that the Federal Court has jurisdiction to make an order under the Contracts Review Act, either in respect of the first strand of Mr and Mrs Murphy’s claims or the second strand of their claims – see Smith v Smith (1986) 161 CLR 217 at 237-238 and 251.
247 Where jurisdiction is conferred upon the Federal Court under the Trade Practices Act, that jurisdiction is not restricted to the determination of the federal claim or cause of action with respect to which such jurisdiction is conferred. Section 86 of the Trade Practices Act confers jurisdiction on the Court in any “matter” arising under the Trade Practices Act in respect of which a civil proceeding has been instituted under Part VI. The reference in section 86 to “matter” delineates the jurisdiction of the Court by reference to the concept of “matter” within the meaning of Chapter III of the Constitution.
248 A “matter” in the relevant sense is a justiciable controversy that may be constituted by or includes a claim arising under a federal law. However, it may also include another cause of action arising under another law, provided that other cause of action is not a completely disparate claim constituting in substance a separate proceeding and provided that it rests upon a common substratum of facts – Fencott v Muller (1983) 152 CLR 570 at 607 and Stack v Coast Securities (No. 9) Pty Ltd (1983) 154 CLR 261 at 291. The jurisdiction of the Court will extend to the whole of the justiciable controversy between the parties resting on that substratum of facts – Wakim at 310.
249 Nevertheless, I do not consider that jurisdiction under by section 7 of the Contracts Review Act can be attracted by those principles so as to invest this Court with the jurisdiction conferred on State Courts by section 7. Those matters will have to be ventilated in a State Court. It is therefore inappropriate that I express any view on the application of the Contracts Review Act in the present circumstances.
250 The second strand of the claim under the Contracts Review Act raises the question of whether or not the extraordinary legal and accounting expenses can be properly characterised as expenditure incurred in carrying on the operations of the Heritage Village. That is not a question that arises before me either in Mr Murphy’s proceeding or in Mrs Murphy’s proceeding. Indeed, it may be that the parties would be precluded from raising the question before me, having regard to determinations made in the Supreme Court.
251 The question is whether, as a matter of the proper construction of the Lease Memorandum, Overton is actually entitled to treat the legal and accounting expenses in question as “Outgoings” within the meaning of clause 5. Under clause 5(c) of the Lease Memorandum, outgoings include:
“(v) expenditure incurred in carrying on the operations of the Village;
………………………
(x) payment of amounts relating directly to the running of the Village…
(xiv) any such other reasonable and proper expenses and outgoings as the Lessor may from time to time decide;”
252 It is by no means self evident that the legal and accounting expenses in question fall within clause 5(c). The scheme of the Trust Deed and the Lease Memorandum is that Overton is under an obligation to use its best endeavours to carry on and conduct the Heritage Village in a proper and efficient manner. Under clause 21 of the Trust Deed, Overton is required to carry out and perform its duties, obligations and functions in good faith and in such manner as shall not substantially reduce or limit the rights and interests conferred upon Lessees. It must keep all parts of the Heritage Village in proper repair, order and condition and maintain the Heritage Village in reasonable working order and efficiency.
253 However, it is not intended that Overton bear the cost of doing so. It may pay outgoings from its own funds but, under clause 22(2) of the Trust Deed, is entitled to claim reimbursement of all amounts so paid from the Lessees. The mechanism for that reimbursement is provided for in the Lease Memorandum. If the legal and accounting expenses in question can fairly be said to have been incurred in carrying on operations of the Heritage Village or to relate directly to running the Heritage Village, they would, in accordance with that scheme, be recoverable from the Lessees. The resolution of that question must be left for another occasion.
CONDUCT OF OVERTON DURING 1994
255 The receipt by Mr Murphy on 8 March 1994 of the documents relating to the proposed meeting of Lessees was clearly a turning point in the relationship between Overton on the one hand and Mr and Mrs Murphy on the other. That bundle of documents included the letter of 10 March 1994 from Pannell Kerr Forster indicating that a sum of $1,018,548 could have been subject to reimbursement by residents to Overton for the period ended 30 June 1993. That figure is to be contrasted with the figure shown in the budget for that year of $452,000 and the figure shown in the actual accounts for the Maintenance Fund for that year of $490,108.
256 The material furnished to Mr Murphy on the morning of 31 March 1994 included Overton’s letter of 30 March 1994 responding to the assertion made by the Residents’ Committee that Overton should meet all shortfalls in accordance with undertakings said to have been given to Lessees. Overton’s response contained the statement that it had no record evidencing any agreement that Overton would meet any excess expenditure in running the Heritage Village. That letter also contained a denial by Overton that it was bound to meet shortfalls. In the letter, Overton unequivocally asserted that the relationship between Overton and Lessees is evidenced in the documentation comprising the Trust Deed and the Lease, incorporating the Lease Memorandum.
257 The documentation furnished during March also contained the references to proposals for increases in maintenance fees of 18.37 per cent. That increase was the subject of discussion at the meeting that took place between representatives of Overton and the Lessees on 31 March 1994. Mr James made it clear that Overton would not contribute anything towards the $88,000 shortfall that emerged from the budget for the year ending 30 June 1994. Mr James also adverted to the accumulated deficit of $76,806 as at 30 June 1993. Mr James “reserved” Overton’s right to recover that shortfall if it so desired in the future.
258 The figure of $1,018,548 was the subject of considerable discussion at the meeting of 31 March 1994. Ms Hough confirmed the view that had been expressed in the letter of 10 March 1994 that Overton was entitled to recover by way of contribution to Outgoings a figure in the vicinity of that sum although, at that stage, Overton was seeking to recover a substantially lower figure.
259 Mr Murphy said that he did not believe the assertion made by Ms Hough that Overton was entitled to recover contribution to expenditure in the sum of $1,018,548. I accept that Mr Murphy genuinely doubted that that was actually the amount that Overton was entitled to recover. However, that is not the point. The important fact is that Overton was clearly and unequivocally asserting, as early as March 1994, an entitlement to recover greater contributions to the expenditure incurred in operating the Heritage Village than it had recovered up to that time.
260 Mr Murphy’s action in being a party to the obtaining of independent advice concerning the position of Lessees confirms that he had doubts about Overton’s entitlement. On the other hand, the fact that he was sufficiently concerned to be a party to the obtaining of advice from TARS signifies that he was at least concerned that there may be some substance in the claims made on behalf of Overton.
261 The evidence does not support a conclusion that Mr and Mrs Murphy would have surrendered the Lease had there been any less equivocal statement made by Overton as to its intentions concerning recovery of full reimbursement of outgoings during 1994. They had no thoughts or wishes to go elsewhere and wanted to believe that the Heritage Village was their last home. They certainly took no steps to surrender the Lease and there is no basis for suggesting that they ever contemplated doing so or would have contemplated doing so, had Overton adopted any different attitude from March 1994.
262 The letter of 1 July 1994 received by Mr and Mrs Murphy, and by all Lessees, was an unequivocal statement by Overton that Overton intended to recover from Lessees all actual expenditure incurred in the operating of the Heritage Village. The letter said that any shortfalls, or excesses for that matter, in contributions would be identified and adjusted every three months instead of annually.
263 That attitude was maintained by Overton consistently in the period up to November 1996. Thus, note 3 to the report of Pannell Kerr Forster in respect of the Maintenance Fund for the year ended 30 June 1994 referred to “the conscious decision” made by Overton that the Maintenance Fund should more realistically reflect the cost of operating the Heritage Village. That was offered as an explanation for the substantial increases in some expenses when compared with the year ended 30 June 1993. The note drew attention to clause 22(2) of the Trust Deed entitling Overton to recoup part or all of the operating loss from the residents.
264 The budget for the year ending 30 June 1995, provided to the Lessees in October 1994, referred to a recommendation by Overton that the rate of contributions to outgoings be increased by a further 17.02 per cent to avoid the deficit shown in that budget. That increase was in addition to the increase of 18.37 per cent that had been put in place with effect from 1 July 1994. That budget contained a note that residents had not as yet agreed to the additional increase of 17.02 per cent. However, the budget warned that the projected deficit, if realised, would be recovered by way of a once off levy at the end of the financial period. Thus, there can be no doubt that Overton was asserting its entitlement to recover from the Lessees full reimbursement of all expenditure incurred by it in operating the Heritage Village, whatever the position may have been prior to March 1994.
265 That Mr Murphy understood Overton’s attitude is clear from the correspondence involving TARS. The letter from TARS to Overton of 7 November 1994 refers to “a fee increase of 17.69% required to meet” the deficit provided for in the budget for the period ending 30 June 1995. It is significant that the letter from TARS makes no assertion that Overton was not entitled to recover the expenditure incurred in operating the Heritage Village. Rather, the letter refers to the belief of residents that “cuts should be made in Village expenses to reduce the deficit and keep any fee increases to a reasonable level”. Even if Mr Murphy had had a belief as at July 1994 that the increase of 18.37 per cent would have kept the Maintenance Fund balanced, that belief was surely dispelled by 7 November 1994.
266 The report by Pannell Kerr Forster to the Lessees of 29 September 1995 reaffirmed Overton’s attitude to the recovery of expenses actually incurred. Note 3 to that report referred to the attempted implementation by Overton of a policy that the Maintenance Fund should “more realistically reflect the cost of operating the Village and providing first class accommodation for residents”. Once again, attention was drawn to clause 22(2) of the Trust Deed entitling Overton to recoup part or all of the loss from residents.
267 In the light of the above matters, I consider that by November 1994 Overton had made clear to the Lessees generally, and Mr and Mrs Murphy in particular, that Overton intended to recover, as it was entitled to do under the Trust Deed and the Lease Memorandum, all of the expenditure incurred by it in operating the Heritage Village. The only response from the Lessees, through TARS, appears to have been an endeavour to restrict the expenditure, rather than any denial of Overton’s entitlement to full reimbursement in respect to the expenditure. I do not consider that the conduct of Overton in the period from 31 March 1994 to 27 November 1996 was in contravention of the Trade Practices Act. Nor did it give rise to any estoppel.
268 Even if Overton had represented during the first part of 1994 that an increase of 18.37 per cent would be sufficient to ensure full recovery of all expenditure, it was clear by November 1994 that Overton was resiling from that position and was asserting the need for an additional increase of more than 17 per cent. That increase had in fact been foreshadowed in working papers brought into existence no later than 30 June 1994. The working paper presented to the meeting of 30 June 1994 provided for a total increase of 36.52 per cent, although only 18.37 per cent was implemented with effect from 1 July 1994. While that document was not put to Mr Murphy in cross-examination, there is no reason to doubt that it came to his attention since he was present at the meeting.
269 Whatever might have been the position prior to March 1994, I am satisfied that from March 1994 onwards, Overton made clear to the Lessees, including Mr and Mrs Murphy that it intended to enforce its legal entitlements under the Trust Deed and under the Lease Memorandum to recover full reimbursement of all expenditure incurred in operating the Heritage Village and that, in order to do so, it would be necessary to increase the maintenance fees payable by Lessees quite significantly. There was resistance to such increases and an endeavour on the part of the Lessees to restrict the expenditure. There was no evidence of complaint on behalf of the Lessees that Overton was providing unnecessary services. The dissatisfaction was concerned with whether Overton had justified the levels of expenditure for the facilities and services provided.
270 I do not consider that the conduct of Overton from March 1994 to 27 November 1996 was such as to give rise to any cause of action or any estoppel. If Mr and Mrs Murphy had been induced to enter into the Lease on 20 October 1992 by reason of a misapprehension as to the level of maintenance fees for which they would be liable, that misapprehension must have been dispelled by the end of 1994. It was open to them to dispose of the Lease at any time. They chose not to do so.
RELIEF
Valuation Issues
272 Each party adduced evidence from a valuer concerning the value of the Lease at various dates and on various assumptions. The dates and assumptions that underlay the valuation evidence adduced by Overton did not coincide precisely with the dates and assumptions that underlay the evidence adduced on behalf of Mr and Mrs Murphy. During the course of the hearing, I directed that the two valuers meet with the object of reaching common ground on as many of the valuation issues as was possible and defining any areas of difference. As a result of that meeting, the two valuers, Messrs Edmonds and Robertson, agreed that:
· as at March 1994 the value of Unit 53 on the assumption that maintenance fees were $60.79 per week was $215,000;
· as at November 1996 the value of Unit 53 on the assumption that maintenance fees were $71.96 was $207,000.
Those maintenance fees are the fees that were in fact payable at that time.
273 Evidence was adduced on behalf of Mr and Mrs Murphy as to the value of Unit 53 as at November 1996 and as at February 2000. It was common ground that the value as at February 2000 should be treated as the value as at the date of judgment. Two values were given for each date. One value was based on the assumption that the maintenance fees payable in respect of Unit 53 involved full reimbursement to Overton. The other value was based on the assumption that the maintenance fees payable were limited by reference to the amount of the single pension from time to time. In addition, a further valuation was given as at February 2000 on the assumption that Overton was entitled to full reimbursement but that a public perception that there was a dispute between the residents and the management of the Heritage Village continued.
274 There was disagreement between Mr Edmonds and Mr Robertson as to the value of Unit 53 as at February 2000 and as at November 1996 on the assumption that the maintenance fees involved full reimbursement to Overton. The difference between the two valuers arose out of a different approach taken by each of them concerning the weight to be given to sales of other units in the Heritage Village in arriving at a valuation. Clearly, the exercise that the valuers undertook involved elements of speculation beyond that which is normally involved in a valuation. It is one thing to arrive at the value of Unit 53 as it is and having regard to the rights and obligations of Mr and Mrs Murphy under the Lease as it stands. There is, however, a greater degree of artificiality involved in arriving at a value on the assumption that the rights and obligations of the parties to the Lease have been varied in some fashion by imposing a restriction on the extent of Overton’s entitlement to recover contribution to expenditure incurred in operating the Heritage Village.
275 The approach of Mr Edmonds, who was called on behalf of Mr and Mrs Murphy was to begin with a hypothetical consideration for the sale of the Lease and to deduct from that hypothetical figure:
· selling commission of 3 per cent;
· advertising costs of $750;
· holding charges to reflect the likely time to achieve a sale;
In addition, Mr Edmonds applied a further deduction in the case of valuations based on the assumption that the maintenance fees involve full reimbursement to Overton. That deduction was described as a “discount to fund increased levy”.
276 Mr Edmonds considered that the appropriate technique for ascertaining the value of Unit 53 was the direct comparison method of valuation. That method involves direct comparison of the subject property with properties that have been the subject of recent or relatively recent sales and an analysis of those sales to reflect any variance with regard to location, condition, size, aspect, style of architecture, form of title, financial formula, community facilities and ancillary improvements, such as garage facilities when compared with the subject property.
277 Mr Edmonds considered sales of other units in the Heritage Village. These were sales of type “B” units in November 1998 and November 1999 for $186,000 and $190,000 respectively. However, Mr Edmonds was of the opinion that those sales were isolated and, accordingly, were insufficient to permit a conclusion as to the value of Unit 53, although they were indicative as to the probable market value of the units sold. Mr Edmonds considered that the history of leasing and releasing of units in the Heritage Village had been erratic and observed that prices since June 1994 had been generally lower than had been paid at the time when the units were originally leased. Mr Edmonds considered that the current rate of releasing of units was low because of “the public perception of the dispute that is continuing between Overton and the residents”. He considered that, having regard to the number of units in the Heritage Village presently available for sale, a lengthy selling period was required and that the value that he adopted for Unit 53 should be discounted to take account of that fact.
278 Mr Edmonds considered that, as at February 2000, some 24 months would be required to achieve a sale of Unit 53 at the price that he adopted as his starting point. He assessed holding charges at $665 per month. The holding charges were calculated to reflect the ongoing liability to pay maintenance fees and cleaning charges pending the achievement of a sale. Mr Edmonds applied a similar discount for holding charges as at November 1996 but assumed that the time needed to achieve a sale was only six months and that the holding charges were $600 per month. In order to reflect the perceived reduction in price by reason of increased maintenance fees, Mr Edmonds applied a discount calculated as the amount required to be invested at the relevant date at 4 per cent per annum to produce an income after tax equal to the amount of the increase in maintenance fees.
279 Mr Robertson considered that Mr Edmonds’ approach ignored recent sales evidence in relation to comparable units in the heritage Village and took no account of what was actually occurring in the market place within the Heritage Village or what was likely to occur in that market place, given the assumptions that were to be made. Mr Robertson considered that while Mr Edmonds approach, which he characterised as “academic”, may be simpler to calculate, it does not arrive at a value that is market based.
280 Mr Robertson considered that, in determining the market value, taking into account the increased maintenance fees and the dispute, the question was how much a purchaser would pay and how much a vendor would accept for Unit 53, assuming it was placed on the market with the relevant maintenance fees payable and assuming the dispute remains on foot. Mr Robertson pointed out that a purchaser of Unit 53 would not be expected to have information as to what the maintenance fees were prior to any increase. Rather, the purchaser would have to decide what price was to be paid for Unit 53, on the assumption that the maintenance fees were as specified.
281 Mr Robertson disagreed with Mr Edmonds’ assessment that prices since June 1994 had been “generally lower”. Mr Robertson considered that the isolated sales of units in the Heritage Village that have occurred are useful in determining value and that the more recent sales indicate that the values arrived at by Mr Edmonds are “grossly understated”.
282 Mr Edmonds considered that a substantial loss in value of the serviced apartments in the Heritage Village was an indicator of a general loss in value of units within Heritage Village in recent years. Mr Robertson, on the other hand, considered that, because the majority of residents purchasing apartments would require the use of services and would be more likely to be frail and elderly, the impact of a dispute would be greater on the saleability of the apartments. Accordingly, he did not consider that trend to have the significance attributed to it by Mr Edmonds.
283 Mr Robertson considered that the value of type “B” units such as Unit 53 did not appear to have suffered a substantial decrease in value after November 1996 as a result of the increase in outgoings. Mr Robertson considered that the market evidence within the Heritage Village did not support the substantial discounts that Mr Edmonds applied in carrying out his valuation. Mr Robertson also pointed out that of the 46 units presently available for sale, only 10 are comparable in size to Unit 53. Mr Edmonds, in his assessment as to the time needed to sell Unit 53, made no distinction between the various units that are available for sale.
284 Mr Robertson said that the primary factors to be taken into account in determining the value of Unit 53 were:
· location of unit;
· size of unit;
· views and aspect;
· the current dispute between residents and operator;
· services provided;
· overall amenity of the Heritage Village;
· level of outgoings;
· number of units for sale;
· sales of comparative units in the Heritage Village.
In the light of those factors, and having regard to the sales that Mr Robertson considered to be comparable, he arrived at values for Unit 53 as follows:
· November 1996 on the assumption that maintenance fees were $133.85 per week - $175,000;
· February 2000 on the assumption that maintenance fees were $109.62 per week - $175,000;
· February 2000 on the assumption that maintenance fees were $139.63 per week - $160,000.
Those values compare with the values arrived at by Mr Edmonds on the same basis as follows:
· November 1996 on the assumption that maintenance fees were $133.85 per week - $131,000;
· February 2000 on the assumption that maintenance fees were $109.62 per week - $123,000;
· February 2000 on the assumption that maintenance fees were $139.63 per week - $80,000.
285 Mr Edmonds also arrived at a value as at February 2000, on the assumption that the maintenance fees are limited by reference to the single pension from time to time, of $187,000. Mr Robertson gave no valuation on that assumption.
286 The approach to damages adopted on behalf of Mr and Mrs Murphy was to determine the difference in the value of Unit 53 as at February 2000 on the basis of full reimbursement of maintenance fees and on the basis that the maintenance fees are limited to a proportion of the single pension. Under Mr Edmonds’ methodology, that would involve a comparison between the sums of $187,000 and $109,000. Mr Robertson did not arrive at a value as at February 2000 on the basis that the maintenance fees were limited to a proportion of the single pension.
287 Mr Edmonds, as I have said, also carried out a valuation as at February 2000 on the assumption that the public perception of a dispute between the residents and the management of the Heritage Village continues. That appears to me to be an inappropriate basis for valuation. One way or another, the dispute will be resolved. It may not be resolved by reason of any decision that I give in these proceedings or even on appeal from any orders that I make. Nevertheless, the dispute must come to an end one way or the other. In so far as there would be a reluctance to buy units in the Heritage Village because of the existence of a dispute, that is not a basis for compensation to be paid to Mr and Mrs Murphy for any wrongful conduct of Overton. The position, of course, might be different if the dispute were to have a lasting effect on value. However, Mr Edmonds did not suggest that the dispute would have a permanent effect on value. Rather, the suggestion was that the existence of the dispute tended to put a damper on interests for so long as the dispute is perceived to continue.
288 The artificiality of the approach adopted by Mr Edmonds causes me some disquiet as to the reliability of his methodology. Mr Edmonds began with an artificial assumption of a “gross lease consideration” for Unit 53 as at November 1996 of $220,000 and as at February 2000 of $198,000. Under the methodology adopted by Mr Edmonds, those figures could never represent the consideration payable. It is not entirely clear how those figures were derived.
289 Accordingly, I prefer Mr Robertson’s approach to the valuation issues. Certainly, the comparable sales available are limited. Nevertheless, Mr Edmonds acknowledged that comparable sales was the preferable basis for making a valuation. I am not persuaded that the sales evidence available did not form an adequate basis upon which to make an assessment of value.
290 I would prefer the valuations of Mr Robertson for the purposes of determining any relief to which Mr and Mrs Murphy would be entitled.
Level of Outgoings
292 If an adjustment were made to the current maintenance fees levied by Overton in respect of Unit 53, in order to ensure that there will be no shortfall in respect of those items, the maintenance fee would be $132.42 per week rather than some lesser sum. I consider that it is more likely than not that there will be such a shortfall and that, if it is necessary to determine the actual cost to Mr and Mrs Murphy of maintenance fees for the period ending 30 June 2000, stated as a weekly amount, the appropriate figure would be $132.42 per week. Of necessity, of course, that figure can be no more than an estimate. In so far as it is necessary for the Court to make such an estimate, I would accept that figure as a fair estimate. In so far as I have referred above to full reimbursement, the references should be taken to be a reference to that figure.
Section 87 Relief
294 Counsel for Mr and Mrs Murphy indicated that relief was claimed under section 87 by way of an order varying clause 5 of the Lease Memorandum because of a perceived risk that if damages were ordered against Overton, Overton may not be in a position to meet a judgment. That risk would be exacerbated by the possibility that, if Mr and Mrs Murphy succeed, many other Lessees may also succeed in their proceedings against Overton.
295 The statutory accounts of Overton in respect of the year ended 30 June 1999 show that Overton’s total liabilities exceed total assets by some $4,380,439. That figure is arrived at after providing for non-current liabilities of $19,375,746. Non-current liabilities comprise, for the most part, liabilities to Perpetual in respect of advances of 97.5 per cent of the Lease Deposits. The consequences on that liability of any award for damages against Overton has not been explored in the course of the proceedings. Indeed, the financial position of Overton has not been an issue in the trial at all, except to the extent that relief under section 87 was raised by counsel for Mr and Mrs Murphy in the course of final addresses. At a late stage in the hearing, counsel for Mr and Mrs Murphy sought to tender a contract for sale of the land on which the Heritage Village is constructed. The purpose of the tender was to demonstrate that any deficiency in shareholders’ funds of Overton is in fact greater than shown in the accounts as at 30 June 1999. The sale price under the contract is said to be significantly lower than the value of the land brought to account in the balance sheet. The tender of the contract was rejected.
296 Mr and Mrs Murphy contend that an order under section 87 should accommodate two distinct matters. The first object of the orders would be to limit Overton’s entitlement to recover maintenance fees from Mr and Mrs Murphy. The second object is to accommodate the consequences that would flow from a sale by Mr and Mrs Murphy of their leasehold interest. Under the arrangements that I have outlined above, the Lease would be surrendered and a new lease will be granted to the new occupants of Unit 53. On surrender, Mr and Mrs Murphy would be entitled to one half of the excess of the Lease Price paid by the new lessee over the Lease Price paid by Mr and Mrs Murphy. Clearly, a higher Lease Price would be payable by a new lessee if the maintenance fees payable under the new lease are also restricted in the way claimed by Mr and Mrs Murphy. They would benefit from such a higher Lease Price.
297 The limitation on maintenance fees is intended to be covered by a proposed new clause 5(n) to be added to the Lease Memorandum. Three alternatives are proposed. Under the first, the maintenance fees at any date would be limited to 45.24 per cent of a single pension as at that date. That proportion is the proportion that the maintenance fees, following implementation of the 18.37 per cent increase of 1 July 1994, bear to the single pension as at 1 July 1994. Alternatively, it is said Mr and Mrs Murphy should not be liable to pay maintenance fees with effect from any date at a rate in excess of the amount that bears to the sum of $55.71 the same proportion that the single pension as at such date bears to the single pension as at 20 October 1992. That formulation would have a more favourable result to Mr and Mrs Murphy. However, it was recognised that there is implicit in such a claim, an assertion that loss was suffered as at 1 July 1994 when the relevant proportion decreased. If loss was suffered at that time, then the claim would be statute barred.
298 A third alternative is to provide that the maintenance fee at any time must be exceeded by the amount of the single pension at that time by an amount that bears to the excess of the single pension at 1 July 1994 over the maintenance fees payable from 1 July 1994 following implementation of the 18.37 per cent increase, the same proportion that the CPI as at that date bears to the CPI as at 1 July 1994. That formulation would maintain the relativity of the funds available after paying maintenance fees from the single pension.
299 All three alternatives are designed to make good Mrs Taylor’s statement that a person in receipt of a single pension would always be able “to afford” the maintenance fees payable in respect of Unit 53. Mr and Mrs Murphy concede that, even after the increase that took effect from 1 July 1994, a single pensioner would still be able to afford the maintenance fees. As I have said, the alternative based on the maintenance fee as at 20 October 1992 is a fall-back position. The other two alternatives, based on the maintenance fees as at 1 July 1994, assume that any further increase would render continued occupation of Unit 53 no longer affordable.
300 Compensation for the loss in capital value of the Lease is intended to be accommodated by the inclusion of a new subclause 10(f) in the Lease Memorandum that would have the effect of requiring Overton to include in any subsequent lease of Unit 53 the same restriction on the recovery of maintenance fees. If Mr and Mrs Murphy are entitled to orders limiting the maintenance fees, it would also be appropriate to restrict the right of Overton to recover contribution to expenditure incurred in operating the Heritage Village from subsequent lessees of Unit 53. Mr and Mrs Murphy would be entitled to be compensated for the whole of the unexpired term of the Lease, not just for the period of their occupation.
301 I am not satisfied that the language of the orders proposed in the application is appropriate. However, having regard to the conclusions that I have reached, it is inappropriate for me to endeavour to formulate the relief to which Mr and Mrs Murphy might otherwise be entitled.
CONCLUSION
APPENDIX 1
HISTORY OF LITIGATION
304 In January 1997, Overton also commenced proceedings in the Local Court of New South Wales against approximately 84 of the Lessees to recover shortfalls in contributions. On 28 January 1997, 112 of the Lessees commenced proceedings 1181 of 1997 in the Equity Division of the Supreme Court seeking, inter alia, orders restraining Overton from prosecuting the proceedings in the Local Court. Proceedings 1407 of 1997 were subsequently consolidated with proceedings 1181 of 1997.
305 On 27 February 1997, Simos J made an order in proceeding 1181 of 1997 restraining Overton from prosecuting the Local Court proceedings. As a term of that order, the Lessees undertook to consent to judgment being entered against them in the Local Court proceedings for such amounts, if any, as the Supreme Court determines should be paid by them to Overton. They also undertook to increase their contributions to outgoings by 10 per cent from 1 March 1997 until determination of those proceedings in the Equity Division. In addition, Simos J directed the Lessees to take all steps to constitute a representative party to act on behalf of all of them as soon as practicable, but in any event, not later than 7 March 1997.
306 On 14 March 1997, McLelland CJ in Eq directed that proceedings 1181 of 1997 proceed by way of pleadings and on 9 May 1997, his Honour ordered that those proceedings be expedited. On 23 December 1997, Windeyer J determined preliminary questions formulated in those proceedings concerning the interaction between the 1989 and 1995 Retirement Village Industry Codes of Conduct and the leases granted by Overton. His Honour determined those questions favourably to Overton. An appeal from that determination to the Court of Appeal was dismissed on 3 September 1998.
307 Overton filed a cross claim in proceeding 1181 of 1997. The cross defendants were the 112 Lessees, who were the plaintiffs in that proceeding. The substance of the allegations made in the cross claim was as follows:
· the cross defendants are lessees under leases granted by Overton;
· pursuant to clause 5 of the leases, any contributions in respect of outgoings notified by Overton to the cross defendants are due and payable within 7 days of receipt of the notice of the amount payable;
· pursuant to clause 5 of the leases, Overton has claimed reimbursement, by way of contribution to outgoings, from the cross defendants;
· the contributions to outgoings have been calculated by Overton pursuant to clause 5 of the leases;
· Overton has notified the cross defendants in writing of the amount payable;
· the cross defendants have failed to pay the amounts notified by Overton.
In the cross claim, Overton sought an order that the cross defendants pay to Overton the amounts that continue to be outstanding under the leases as at the date of any judgment.
308 A defence to the cross claim was filed on behalf of the cross defendants. In the defence, the cross defendants made allegations similar to some of the allegations made in the present proceedings in the Federal Court. In particular, the cross defendants alleged that:
· Overton represented to the cross defendants that the contributions for the Heritage Village would never exceed an amount which could comfortably be paid by a resident on a full pension without recourse to other income and that the contributions required to be paid would never exceed CPI increases;
· as a result of that representation, the cross defendants assumed that the contributions required to be paid would not exceed the lesser of CPI increases and that sum which a resident on a full pension would be able to afford to pay without recourse to other income;
· Overton intended that the cross defendants make that assumption;
· On the basis of that assumption, the cross defendants entered into their leases with Overton;
· The cross defendants have acted to their detriment in so far as Overton is entitled to recover from the cross defendants a contribution that is in excess of that payable in accordance with the assumption;
· In the circumstances, it would be unconscionable for Overton to recover any sum greater than that which would be payable in accordance with the assumption;
309 In addition, the defences alleged that the leases were unjust within the meaning of section 7 of the Contracts Review Act in circumstances where Overton was aware that the cross defendants’ income was fixed and would not be able to finance contributions that increased over and above the lesser of CPI increases and the sum which a cross defendant on a full pension would be able to afford to pay without recourse to other income.
310 On 26 March 1998 and 3 April 1998, Windeyer J made orders under Part 72 of the Supreme Court Rules referring to Mr Peter Taylor SC for enquiry into, and report on, all of the issues arising on the cross claim as to the amounts due to Overton by the 112 cross defendants. All parties agreed that it was practicable to separate the “common” grounds of defence to the cross claim from the other grounds, relying upon misrepresentations and the Contracts Review Act. Accordingly, Mr Taylor SC made orders that, in effect, divided the reference into two parts. The first concerned the “common” defences based upon, inter alia, the construction of the leases. The second part concerned the specific defences of the nature that I have just outlined. Mr Taylor SC conducted the first part of the reference during August and October 1998 and completed his report in November 1998.
311 The matter came before Windeyer J on 17 December 1998 for the purposes of considering the report of Mr Taylor SC. At that time, there was discussion as to the further conduct of the action and how that ought to be handled in the light of an application by Overton for entry of judgment on the cross claim. By that time, Windeyer J had concluded that the particular defences to the cross claim could not be allowed to proceed as then constituted. Windeyer J observed that it had been envisaged by Simos J that a person would be appointed to represent the Lessees on the claim originally made before Simos J and that, once that claim, as to the rights of Overton to charge outgoings to the group members, was determined, judgment would be entered by consent on the actions brought by Overton in the Local Court.
312 In the light of the matters raised by the cross defendants in their defence to cross claims, Windeyer J considered that it was necessary for the Court to take some control. Accordingly, his Honour indicated that the proceedings on the existing cross claim must be brought to an end and that individual claims made in the defences must be raised by separate actions. His Honour said, therefore, that any matters raised as individual defences to the cross claim would have to be pursued by separate action. His Honour directed the solicitor for the cross defendants to be in a position to inform the Court on 4 February 1999 which cross defendants intended to pursue such separate claims.
313 On 4 February 1999, Windeyer J ordered that the cross defendants file and serve on Overton on or before 13 February 1999 a document setting out, inter alia, the cross defendant’s contentions as to the amount for which judgment should be entered against each of them in accordance with the report of the referee. His Honour also directed that each of the cross defendants who wished to bring claims against Overton file and serve by 13 February 1999 a verified statement of claim and a notice of motion seeking further directions returnable before Windeyer J on 24 February 1999. The proceedings were listed for further argument on 24 February 1999 on the question of:
· the amount of the judgment to be entered against each of the cross defendants pursuant to the referee’s report;
· whether the injunction restraining Overton from proceeding in the Local Court be dissolved;
· whether, and if so on what terms, there should be a stay of any judgment in the proceedings against the cross defendants pending determination of their claims against Overton.
314 None of the cross defendants filed or served a verified statement of claim as contemplated by his Honour. However, the solicitors for the cross defendants prepared statements of claim on behalf of some of the cross defendants. While those statements of claim were not formally filed and served on Overton, they were verified and Overton has been provided with copies of them. The substance of the claims made is much the same as those made in the pleadings presently before me.
315 On 24 February 1999, senior counsel then appearing for Overton before Windeyer J, after referring to the statements of claim, invited counsel for the cross defendants to file them in the Equity Division. That invitation was apparently repeated on 16 March 1999 in open court. The invitation was not taken up.
316 On 24 February 1999, Windeyer J made orders as follows:
· That each of the cross defendants named in a schedule make an interim payment to Overton of the amount shown in that schedule;
· That upon Overton undertaking to the Court to take no further steps in the proceedings in the Local Court, the injunction granted by Simos J on 27 February 1997 be dissolved;
· That the proceedings be listed for further argument on 16 March 1999 on the question of the amount of the judgment to be entered against each of the cross defendants pursuant to the referee’s report.
317 Seventeen of the cross defendants failed to comply with the order made by Windeyer J for an interim payment. Overton subsequently commenced proceedings against those cross defendants for contempt of Court. I do not have before me any evidence as to the result of those proceedings.
318 On 30 March 1999, after recounting much of the background outlined above, Windeyer J observed that it had been accepted or ordered that, in one form or another, separate actions needed to be brought by the cross defendants for the claims set forth in their defence to the cross claim. His Honour also observed, however, that those claims would require substantive orders if they are to be of any avail.
319 In the meantime, this proceeding had been commenced in the Federal Court on 23 February 1999. Windeyer J said on 30 March 1999 that, had the cross defendants’ claims based on misrepresentation and the Contracts Review Act proceeded as he had envisaged by separate action in the Supreme Court, it would have been appropriate to defer making any order for costs on the cross claim until those matters were determined. However, his Honour did not consider that the same position arose after this proceeding had been commenced.
320 By notice of motion filed on 23 March 1999, most of the cross defendants sought a stay of any judgment entered against them on the cross claim in proceedings 1181 of 1997. The basis for that stay was that this proceeding had been commenced in the Federal Court. It was apparently thought that, if the action in this Court succeeded in full, it was likely that the damages awarded to the cross defendants would exceed the amount of the judgments then being entered against them individually.
321 Windeyer J concluded that the cross defendants’ claims must be brought by separate action and that, accordingly, judgments could not be entered. Had the Local Court claims continued, it was likely that, if the defences to the cross claim were raised in the Local Court proceedings, they would either have been heard in the Local Court to conclusion, or the Local Court proceedings would have been stayed to allow the defences to be raised in a court having appropriate jurisdiction. His Honour considered that at least two of the pendant claims raised in this proceeding in the Federal Court were always recognised, albeit perhaps incorrectly, as being part of the matters for determination in the Equity Division. His Honour considered that that provided justification for a stay. However, his Honour considered that it would be unfair to Overton not to require a substantial payment towards outgoings for which the cross defendants were liable.
322 His Honour then ordered that:
· the report of Mr Taylor SC be adopted;
· all matters not yet finally determined by Mr Taylor SC be determined by the Supreme Court;
· all matters arising under the individual defences raised by the cross defendants, being estoppel and Contracts Review Act defences, be brought to trial by separate action by the cross defendants raising such matters but that judgments be entered on Overton’s cross claim without regard to such defences, subject to any application for a stay;
· judgment be entered for Overton on the cross claim against individual cross defendants for the amounts set forth in a schedule;
· proceedings for enforcement of those judgments against the cross defendants (subject to some exceptions) be stayed upon condition that the cross defendants obtaining the benefit of such stay pay to Overton 50 per cent of the amount shown against the name of that cross defendant in the schedule within 21 days, such stay to continue until the conclusion of the Federal Court proceeding or earlier order of the Supreme Court.
APPENDIX 2
RELIEF CLAIMED
323 The relief sought in the current application in Mr Murphy’s Proceeding is as follows:
“1. A declaration that Overton has contravened s.52 and s.51AA of the Trade Practices Act, 1974, (Comm.).
2. Damages pursuant to s.82 of the Trade Practices Act, 1974, (Comm.).
3. An order pursuant to s.87 of the Trade Practices Act, 1974, (Comm.):-
(a) Varying Clause 5 of the Lease dated 20 October 1992, between the parties by adding sub-clause (m):
(m) The Lessor shall be limited to recovering no more than 39.72% of the full single pension from time to time from the Lessee by way of outgoings under this Lease.
(b) Restraining Overton from recovering outgoings in excess of 39.72% (or in the alternative 45.24%) of the full single pension from time to time from the Applicant as Lessee and from any future Lessee of Unit 53 of the Heritage Retirement Village up to 19 October 2091; and
(c) Restraining Overton from completing any Contract for Sale of Land on which the Heritage Retirement Village is situated, unless or until it produces an acknowledgment from any purchase of the said land that they are purchasing subject to any amendments to the Lease ordered by this Court in these proceedings.
4. An order pursuant to s.7 of the Contracts Review Act, 1980 (NSW) restraining Overton from recovering outgoings in excess of 39.72% (or in the alternative 45.24%) of the full single pension from time to time from the Applicant as Lessee and from any future Lessee of Unit 53 of the Heritage Retirement Village up to 19 October 2091.
5. An order pursuant to s. 7 of the Contracts Review Act, 1980, (NSW) that Overton be restrained from recovering as outgoings under the said Lease:
(a) any amount for legal or accounting costs; and
(b) interest on moneys borrowed or raised
6. A declaration that Overton is estopped from recovering outgoings under the said Lease in excess of 39.72% (or the alternative 45.24%) of the full single pension from time to time from the Applicant as Lessee and from any future Lessee of Unit 53 of the Heritage Retirement Village up to 19 October 2091.
7. Damages under the general law.
8. Interest pursuant to s.51A of the Federal Court of Australia Act,
1976 (Comm.)
9. Costs”
324 The relief claimed in the current application in Mrs Murphy’s Proceeding is as follows:
“1. A declaration that Overton has contravened s.52 and s.51AA of the Trade Practices Act, 1974, (Comm.).
2. Damages pursuant to s.82 of the Trade Practices Act, 1974, (Comm.).
3. Orders pursuant to s.87 of the Trade Practices Act, 1974, (Comm.) to:-
(a) Vary Clause 5 of the Lease dated 20 October 1992 between Overton as Lessor and Mr and Mrs Murphy as Lessees (‘the Lease’) by adding sub-clause (m).
• (m) ‘The Lessor shall be limited to recovering from the lessee by way of outgoings under sub-clause (c) other than sub-clause (c) (iv) of this Lease, outgoings in excess of 45.24% of the full single pension from time to time, such increases to be back dated to the date of the pension increase’; or in the alternative
• (m) ‘The Lessor shall be limited to recovering from the Lessee by way of outgoings under sub-clause (c) other than sub-clause (c) (iv) of this Lease, outgoings in excess of $55.71 per week plus quarterly CPI increases to be payable from 1 January, 1 April, 1 July and 1 October of each year during the term of the Lease’; or in the alternative.
• (m) ‘The Lessor shall be limited to recovering from the lessee by way of outgoings under sub-clause (c) other than sub-clause (c) (iv) of this Lease, outgoings in excess of X-Y where:
º X = the full single pension from time to time; and
º Y = $87.09 + CPI increases since 1 July 1994.’
(b) Order that an account be taken as to the extent to which the Lessee has over-paid the Lessor under the Lease.
(c) Order that he Respondent repay the Applicant the amount of over-payment to date.
(d) Vary Clause 10 of the Lease by adding sub-clause (f) as follows:-
(f) ‘Should the Lessee of Unit 53 from time to time up to 19 October 2091, offer to surrender the Lease to the Lessor, then the lessor will use its best endeavours to re-let Unit 53 of the Heritage Retirement Village on the same terms as this Lease as amended by the orders of the Court in Federal Court proceedings No. 159 of 1999.’
(e) Order that the Respondents be restrained from completing any Contract for Sale of Land on which the Heritage Retirement Village is situated, unless or until it produces an acknowledgment from any purchaser of the said land that they are purchasing subject to any amendments to the lease ordered by this Court in these proceedings.
4. An order pursuant to s.7 of the Contracts Review Act, 1980 (NSW) restraining Overton from recovering outgoings in excess of 45.24% (or in the alternative $55.71 per week plus quarterly CPI increases from 20 October 1992) of the full single pension from time to time from the Applicant as Lessee and from any future Lessee of Unit 53 of the Heritage Retirement Village up to 19 October 2091.
5. An order pursuant to s.7 of the Contracts Review Act, 1980, (NSW) that Overton be restrained from recovering as outgoings under the said Lease:-
(a) any amount for legal or accounting costs; and
(b) interest on moneys borrowed or raised.
6. A declaration that Overton is estopped from recovering outgoings under the said Lease in excess of 45.24% (or in the alternative $55.71 per week plus quarterly CPI increases from 20 October 1992) of the full single pension from time to time from the Applicant as Lessee and from any future Lessee of Unit 53 of the Heritage Retirement Village up to 19 October 2091.
7. Damages under the general law.
8. Interest pursuant to s.51A of the Federal Court of Australia Act, 1976, (Comm.)
9. Costs.”
APPENDIX 3
CLAUSES OF THE LEASE MEMORANDUM
“4. RENT
(a) The Lessee covenants with the Lessor that the Lessee will pay to the Trustee on or before the date of commencement of the Lease… the Total Rent being the amount stated in Item (4) of the Reference Schedule.
………………………
(j) The Lessor shall on the last day of each month during the first five (5) years of the term of the Lease, be and become absolutely entitled to the Accrued Rent being one-twelfth (1/12) of twenty per cent (20%) of the Total Rent in respect of the Lease…provided always that no money shall be payable as Accrued Rent in respect of the Lease once the Total Rent shall have been fully paid or credited to the Manager. The Lessee acknowledges that, pursuant to and in accordance with the Trust Deed, the Total Rent will be lent to the Lessor and that the Lessor will be entitled to a reduction in the amount of monies owing to the extent of the Accrued Rent from time to time.”
“‘Total Rent’ means the lump sum amount of rent payable to the Trustee by a Lessee under a Lease as stated in Item (4) of the Reference Schedule and being fixed at twenty five per cent (25%) of the Lease Price.”
“‘Lease Price’ means the sum of the Total Rent and Lease Deposit payable by a Lessee.”
“‘Lease Deposit’ means the amount payable by a lessee pursuant to this Lease and the Trust Deed and being fixed at seventy-five per cent (75%) of the Lease Price.”
“6. LEASE DEPOSIT
The Lessee shall prior to the commencement of this Lease pay or cause to be paid to the Trustee as a component of the Lease Price, a Lease Deposit of the amount specified in Item (5) of the Reference Schedule which amount shall be dealt with and adjusted in accordance with the terms of the Trust Deed… and which amount shall following the said adjustment be refunded in accordance with the terms of the Trust Deed.
………………………
10. SURRENDER
(a) The Lessee shall be entitled to request the Lessor terminate and accept a surrender of this Lease at any time during the term thereof in accordance with the Trust Deed…
(b) On and from the date of any surrender and payment of Refund the Lessee shall release the Lessor from all duties and obligations under this Lease and the Trust Deed and the Lessor shall release the Lessee and any Guarantor from all liability which would otherwise arise under this Lease and the Trust Deed subsequent to such date.”
“‘Refund’ means the amount of Refunded Rent (if any) plus the Lease Deposit adjusted pursuant to and in accordance with the Trust Deed.
‘Refunded Rent’ means that amount (if any) of rent calculated by subtracting from the Total Rent the Total Accrued Rent from time to time pro rata to the end of the month in which the Refund becomes payable.”
“’Accrued Rent’ means the amount of Total Rent to which the Lessor should be entitled in accordance with clause 4 of this Lease and the Trust Deed.”
APPENDIX 4
CLAUSES OF THE TRUST DEED
“10. Payment and Acceptance of Lease Price
(1) Subject to Clause 12 the Lease Deposit and Total Rent shall be lent interest free and unsecured to the Manager by the Lessee and shall be repaid to the Lessee in accordance with Clauses 13 and 15.
(2) Subject to Clauses 11, 12 and 40 the Trustee will accept and hold on trust on behalf of the Lessees in the name of the Trustee at an Approved Bank all amounts of Lease Deposit and Total Rent paid by a Lessee provided that the Trustee shall not be required to invest such monies.
(3) Where a Lessee consists of more than one person the Lease Price shall be received by the Trustee on account of the persons comprising such Lessee as joint tenants.
11. Loan to Manager
Upon the Manager giving to the Trustee a Lease purporting to have been duly executed by the Lessee named therein and the Manager, the Trustee shall, pursuant to Sub-Clause (1) of Clause 10, pay to the Manager on behalf of the Lessee such proportion of the Lease Price received by the Trustee in respect of the said Lease as is not retained by the Trustee pursuant to Clause 12.
12. Retained Monies held by Trustee
(1) The Trustee shall be entitled to retain two point five per centum (2.5%) of each Lease Deposit received by it up to a maximum amount to be agreed upon by the Trustee and Manager from time to time. The Trustee shall invest such Retained Monies in the name of the Trustee in an Authorised Investment.
(2) The amount retained by the Trustee in respect of the Lease Price pursuant to this Clause shall be held in trust as part of the Trust Fund in accordance with the provisions of this Deed.
13. Refund of Lease Deposit and Refunded Rent
(1) Subject to the provisions of this Clause, a Refund shall become payable by the Manager at the earlier of termination of a Lease: -
(a) in accordance with the terms and conditions thereof and the vacation of such Unit by the Lessee; or
(b) by reason of the death of the Lessee or where more than one person constituted the Lessee, upon the death of such survivor;
PROVIDED ALWAYS THAT the Trustee shall have received a Lease in respect of the said Unit duly executed by the manager and the incoming Lessee together with the Lease Price.
(2) A Refund pursuant to Sub-Clause (1) of this Clause shall be payable ONLY to the following persons:-
(a) in the case of termination of a Lease by death, in accordance with Clause 42; and
(b) in the case of termination of a Lease by reason other than death:-
(i) where there is at the date of termination one person constituting such Lessee (whether as a sole Lessee or as survivor of a number of persons previously constituting such Lessee), to such person;
(ii) where there is at the date of termination more than one person constituting such Lessee, to such persons jointly.
(3) The Manager covenants with the Lessee that upon any Refund becoming payable it will repay to the Lessee (or the person so entitled) the Refund. Payment of the Refund shall be made by way of repayment of the amount of Monies Owing as adjusted pursuant this Deed (including without limitation Sub-Clause (5) of this Clause) PROVIDED ALWAYS THAT the Manager shall not be required to repay the difference (if any) between the amount o the Refund and the amount of the Monies Owing.
(4) Subject to this Clause the Manager shall pay to whomsoever is entitled the full amount of the Refund PROVIDED THAT such amount shall only be payable:-
(a) upon production by whomsoever is so entitled of a legal release in respect of such Refund; and
(b) in the case of a Refund paid to a Lessee’s legal personal representative, in accordance with Clause 42.
(5) All Lease Deposits, upon termination of their respective Leases shall be adjusted in either of the following ways as the case may require –
(a) by the addition of the Lessee’s Capital Gain; or
(b) by the subtraction of the Lessee’s Capital Depreciation,
PROVIDED HOWEVER that if a Lessee has failed to pay to the Manager its contributions towards Outgoings as and when they fall due and payable then the aggregate of such accrued Outgoings (together with any interest due thereon) in arrears at the time of the said termination shall also be deducted from the amount of Lease Deposit.
(6) No interest or other accretion or deduction shall be payable, deductible or refundable on any amount of Lease Deposit or Refunded Rent or Lessee’s Capital Gain (if any) save and except as expressly provided in this Deed and the Lease.
(7) Simultaneously with the payment of the Refund the Manager shall in the case of an adjustment to the Lease Deposit pursuant to Sub-Clause (5)(a) of this Clause be entitled to retain absolutely in its own right an amount equal to the Lessee’s Capital Gain PROVIDED ALWAYS that where the Lease Deposit is adjusted pursuant to Sub-Clause (5)(b) of this Clause no part of the Lessee’s Capital Depreciation shall be payable to the Lessee by the Manager.
(8) Notwithstanding the foregoing provisions, to the extent to which the Manager does not make payment of a Refund properly due to a Lessee, the Trustee shall pay the amount of the deficiency to the person entitled to the Refund out of the Trust Fund PROVIDED THAT the Trustee may in its absolute discretion require the Lessee to exhaust all available remedies against the Manager in respect thereof and PROVIDED FURTHER THAT should there be more than one Lessee entitled to payment pursuant to this Sub-Clause and the Trust Fund shall be insufficient to pay the total amount due, then the Trust Fund shall be applied on a pro rata basis to the said Lessees.
(9) The Manager covenants with the Trustee that upon the Trustee making any payment from the Trust Fund pursuant to Sub-Clause (8) of this Clause, the Manager will (upon request by the Trustee) reimburse the Trustee an amount not exceeding the said payment and such amount shall be held and form part of the Trust Fund.
14. Manager’s Option to pay out Lease Deposit
In the event that a Lessee (or in the case of a deceased Lessee his personal representative executor or administrator) is unable to find a suitable Qualified Person to enter into a new Lease in respect of the Unit the Manager may in its absolute discretion agree upon an amount with the Lessee and which amount shall, for the purposes of the calculation of any Lessee’s Capital Gain or Lessee’s Capital Depreciation by treated as the Lease Deposit which would have been paid by the incoming Lessee, whereupon the Manager shall refund to the Lessee his Refunded Rent (if any) and his Lease Deposit (adjusted pursuant to an in accordance with the provisions herein) and the Lessee shall deliver up to the Manager his Lease and sign such documents as the Manager considers necessary to effect any necessary surrender.
15. Accrued Rent
(1) The Manager shall on the last day of each month during the first five (5) years of the term of a Lease be and become absolutely entitled to payment of the Accrued Rent being one twelfth (1/12) of twenty percent (20%) of the Total Rent in respect of each and every Lease and such amounts shall be payable monthly on the last day of each and every month as aforesaid provided always that no monies shall be payable as Accrued Rent in respect of any Lease once the total Rent in respect of that Lease shall have been fully paid to the Manager.
(2) To the extent that the Total Rent pursuant to Clause 11 of this Deed has been lent to the Manager the Manager shall be entitled to a reduction in the amount of Monies Owing to the extent of the Accrued Rent from time to time payable pursuant to Sub-Clause (1) of this Clause.”
APPENDIX 5
CONTENTS OF INFORMATION BOOKLET
“When purchasing retirement accommodation it is important that you understand what you will receive for your capital outlay and the fees for which you will be responsible.
The Trust Deed which is part of your legal documentation guarantee that all services and facilities promised to you on purchase of your unit or apartment are forthcoming. Perpetual Trustee’s role as trustee for the Heritage is to ensure that residents’ rights are upheld and the standard of the village is maintained.
ON-GOING MANAGEMENT AND MAINTENANCE PROGRAM.
Overton Investments Pty. Limited, is committed to the on-going management of the village. This will ensure that the highest quality of services will be provided at The Heritage by staff under the control and supervision of a village administrator.
The Heritage introduces a unique REPLACEMENT PROGRAM –
THE COST OF WHICH IS INCLUDED IN THE MAINTENANCE FEES.
The replacement program supports our policy of removing the problems of home maintenance from the resident. No more unexpected bills, they have all been budgeted for in the maintenance fee.
Clerical and personal-care assistants, gardeners a handyman/driver, cleaners, as well as a cook, kitchen helpers and a night supervisor will forma highly competent and professional team able to take care of residents’ requirements.
COMMON AREAS.
* There will be no charge for residents or their visitors to use facilities such as the heated pool & spa, billiard room, library, craft room, residents’ workshop, Chapel, auditorium card areas and all recreation areas, plus the Heritage bus. All these costs are budgeted for in the maintenance fees.
* The shops, medical centre, restaurant & bar operate on a commercial basis.
*** NO PROFIT GOES TO THE MANAGEMENT FROM MAINTENANCE FEES. ***
Present budget figures would indicate the following level of cost payable monthly by Independent Living Units:
A.= two bedrooms B.= one bedroom plus study C.= one bedroom.
Independent Living
Pensioner Pensioner Non Pensioner Non Pensioner
Yearly Cost Weekly Cost Yearly Cost Weekly Cost
 |
 |
A. $3,068 $59.00 $3,332 $64.08
B. $2,897 $55.71 $3,161 $60.79
C. $2,494 $47.97 $2,759 $53.05
D. $3,096 $59.54 $3,360 $64.62
E. $3,358 $64.58 $3,622 $69.66
These levies have been budgeted to cover items such as:-
· Insurance (eg property insurance etc.)
· Land Tax
· Water Rates
· Council Rates
· Garbage Removal
· Road Sweeping
· Gardening
· Pest Control
· Village bus Expenses
· Community Centre Activities
· External Property Repairs and Maintenance
· Emergency Call System
· Common areas amenities
· Pool maintenance
· Interior Maintenance
· Administration expenses
THE REPLACEMENT PROGRAM FOR SELFCARE, FLEXICARE AND SERVICED APARTMENTS PROVIDES FOR THE REPLACEMENT OR REPAIR OF THE FOLLOWING:-
· Interior painting
· Common area Carpets
· Stove
· Dryer
· Replacement of broken wardrobe & bathroom mirrors
· Blinds
· Air Conditioner.
· Rangehood
· Taps and showers
· Bathroom fittings (towel racks showers)
………………………
Buying accommodation in a retirement village is unlike buying a home unit or a house.
When you buy into a village you acquire more than the unit accommodation. You have purchased the rights to all the facilities and services offered and documented in your lease and trust deed.
The Heritage offers all of the facilities and features of your present home and some you may not currently enjoy, but without the physical and financial burdens that maintaining such a home would normally demand.
………………………
QUESTIONS YOU MIGHT LIKE ANSWERED
……………………..
7. Q. What other costs will I incur once I become a resident?
A. Because The Heritage is designed to provide you with a worry-free, distinctive life style, Overton Investments Pty. Limited will undertake the management and operation of The Heritage and allocate these operating expenses in the same proportion that the floor area of your selected apartment or unit bears to the total floor area of the apartments or units. The anticipated amount of this weekly maintenance/service fee for a self-care unit is estimated to be around $47.53 average per week dependent on the size of the apartment.
8. Q. What are the operating expenses?
A. Your weekly maintenance/service fee pays for :-
· All exterior maintenance, repairs and upkeep of the units and the Lodge Apartments.
· All gardening and landscaping of common areas.
· Maintenance of common plumbing and electrical facilities.
· Maintenance of all streets, pathways, sewers and exterior lighting.
· Full replacement fire and hazard insurance on buildings.
· Administration expenses.
· A 24 hour medical emergency contact.
· All charges for water, gas, electricity and telephone provided for the general benefit of all within the common or service areas.
· All maintenance, repairs and upkeep of community facilities.
· Interior maintenance to the unit or apartment.”
|
I certify that the preceding three hundred and twenty-seven (327) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. |
Associate:
Dated: 15 June 2000
|
Counsel for the Applicants: |
Mr G A Moore |
|
|
|
|
Solicitor for the Applicants: |
The Aged Care Rights Service |
|
|
|
|
Counsel for the Respondent: |
Mr J C Kelly SC & Mr A J McInerney |
|
|
|
|
Solicitor for the Respondent: |
Gadens Lawyers |
|
|
|
|
Date of Hearing: |
7, 8, 9, 10, 16, 17, 21, 23 March; 7 April; 5, 16, 17, 18, 19 May 2000 |
|
|
|
|
Date of Judgment: |
15 June 2000 |
