FEDERAL COURT OF AUSTRALIA

Fig Tree Developments Ltd (formerly Village Life Ltd) (ABN 47 081 797 033) v Australian Property Custodian Holdings Ltd as Responsible Entity for the Prime Retirement and Aged Care Property Trust (ABN 74 095 474 436) [2009]

FCA 390

CONTRACT – applicant engaged to manage retirement villages under service contracts – obligation to manage villages in accordance with a defined method known as the ‘Village Life System’ – identifying key elements of System – applicant purported to assign contracts – whether consent of respondent required – whether contracts had been repudiated – whether breach of essential term or serious breach of an intermediate term – whether applicant evinced an intention to no longer be bound by contracts – whether serious breach of an intermediate term constituting repudiation – whether specific performance an appropriate remedy – whether affirmation of contracts by respondent – whether respondent had sufficient knowledge to be put on election

TRADE PRACTICES – whether media release asserting repudiation was misleading or deceptive  

Held:  The application be dismissed.

Federal Court of Australia Act 1976 (Cth) ss 17, 50

Trade Practices Act 1974 (Cth) ss 51AAB, 52

Agricultural and Rural Finance Pty Limited v Gardiner (2008) 83 ALJR 196

Australian Broadcasting Commission v Parish and Others (1980) 29 ALR 228

Australian Securities and Investments Commission v Rich (2005) 216 ALR 320

Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104

Boston Deep Sea Fishing and Ice Co v Ansell (1888) 39 Ch D 339

Carr v JA Berriman Pty Ltd (1953) 89 CLR 327

Cockerill v Westpac Banking Corporation Ltd (1996) 142 ALR 227

Elders Trustee & Executor Co Ltd v Commonwealth Homes & Investment Co Ltd (1941) 65 CLR 603

Ellison v Lutre Pty Ltd (1999) 88 FCR 116

Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26

Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (No 2) [2008] FCA 810

Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26

Jones v Dunkel (1959) 101 CLR 298

Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115

Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286

Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444

Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd (2006) 149 FCR 395

Rawson v Hobbs (1961) 107 CLR 466

Sargent v ASL Developments Ltd (1974) 131 CLR 634

Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359

Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245

Thompson & Morgan (UK) Ltd v Erica Vale Australia Pty Ltd (1995) 31 IPR 335

Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632

Tropical Traders Ltd v Goonan (1964) 111 CLR 41

Wallace-Smith v Thuis Infraco (Swanston) Pty Ltd (2005) 218 ALR 1

FIG TREE DEVELOPMENTS LTD (FORMERLY VILLAGE LIFE LTD) (ABN 47 081 797 033) v AUSTRALIAN PROPERTY CUSTODIAN HOLDINGS LTD AS RESPONSIBLE ENTITY FOR THE PRIME RETIREMENT AND AGED CARE PROPERTY TRUST (ABN 74 095 474 436)

QUD 338 of 2007

MCKERRACHER J

23 APRIL 2009

PERTH (HEARD IN BRISBANE)

THE COURT ORDERS THAT:

1.                  Confidentiality Order:

(a)     The Confidential Annexure to these reasons is to be available to Judges of this Court and to the parties but otherwise is not to be copied or reproduced by any of the parties or their legal representatives (‘advisers’) save to the extent necessary for the purposes of considering and/or conducting an appeal. 

(b)     Subject to subparagraph (a), the Confidential Annexure to these reasons is not to be shown or released to any person by the parties or their advisers.

(c)     The parties have liberty to apply within 21 days to vary the terms of these confidentiality orders.

2.                  The application be dismissed. 

3.                  The cross-claim is allowed in part.

THE COURT DECLARES THAT:

4.                  The respondent, Prime, was entitled to and did lawfully accept the conduct of the cross-respondent, Fig Tree and Fig Tree’s agents and subcontractors as a repudiation of the Wholesale Management Services Agreements made between Prime and Fig Tree and that the Wholesale Management Services Agreements are accordingly terminated. 

5.                  Unless any other order is made within six weeks, and subject to receipt of written submissions from the parties to be filed and served within 21 days, the applicant is to pay the costs of the respondent to be taxed if not agreed.

6.                  Orders 2, 3 and 4 be stayed for a period of 14 days.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

REASONS FOR JUDGMENT

INTRODUCTION

The Parties

1                     The applicant (Fig Tree) was formerly called Village Life Ltd.  Fig Tree has for some years provided management services in Australian retirement villages.  The respondent (Prime) owns retirement villages in several States.  Fig Tree and Prime are both public companies listed on the Australian Stock Exchange (ASX). 

2                     Prime has appointed Fig Tree and others over the years to manage its facilities.  This litigation relates to the management contracts for Prime’s appointment of Fig Tree at 12 aged care facilities. 

3                     The 12 facilities are in Queensland, New South Wales and South Australia.  Those facilities are Village Life Hackham 1 in South Australia, Village Life Hackham 2 in South Australia, Village Life Evanston (Gawler) in Evanston, South Australia, Village Life Elizabeth Vale at Elizabeth Vale in South Australia, Village Life Christie Downs located at Christie Downs in South Australia, Village Life Grafton located in Grafton, New South Wales, Village Life Townsville 1 and Townsville 2 at Wulguru and Thurangowa respectively in Queensland, Village Life Maryborough located in Maryborough, Queensland, Village Life Hervey Bay located in Scarness in Queensland, Village Life Gladstone in Gladstone, Queensland and Village Life Earlville located in Earlville, Queensland.

The Dispute

4                     Early in 2007, for business reasons, Fig Tree decided to rationalise some of its contractual commitments.  As a result of that process, it pursued negotiations to assign the rights and obligations it then had in respect of a number of facilities, including Prime’s 12 retirement villages, to SCV Group Ltd (SCV).  The rights and obligations with Prime were set out in each instance in agreements known as Wholesale Management Services Agreements (WMSAs).  As the evidence has unfolded, there has been a debate about the extent to which Fig Tree made known to Prime, or Prime otherwise discovered or knew of, the nature, extent and ramifications arising from the proposed assignments from Fig Tree to SCV. 

5                     Prime’s case is that the assignment agreement and related conduct constituted a repudiation of Fig Tree’s contractual obligations.  Fig Tree, on the other hand, says that there has been no repudiation and stresses that the assignment was at all times conditional on Prime giving its consent.  Fig Tree also contends that although it was not in breach, Prime had sufficient information to elect whether or not to affirm its contracts under the WMSAs with Fig Tree.  Fig Tree says Prime did so affirm.  Prime denies this.

6                     On the affirmation plea, Prime’s knowledge as to the detail of the terms and practical effect of the assignment has been of central importance.  Prime has not pleaded that Fig Tree deliberately withheld information or misled it.  Any evidence as to information that Fig Tree held but did not pass onto Prime was not admissible as to Fig Tree’s intent.  It was, however, relevant to demonstrate Prime’s lack of knowledge of some relevant facts concerning the assignment.

7                     The essential disputed issues in the case come down to these:

1.                  Did Fig Tree’s proposed or actual assignment or any of its other related conduct (as pleaded) constitute a repudiation of the WMSAs?

2.                  If Fig Tree did repudiate the WMSAs or was otherwise in breach of the WMSAs, did Prime nevertheless affirm the ongoing continuation of those contracts by its conduct (as pleaded)?

3.                  Depending on the answer to these questions, what is the appropriate relief, if any, for either party? 

Village Life Model

8                     The pleaded case involves examination of a model for the design and operation of retirement villages known as the ‘Village Life’ model.  The Village Life model was developed by Fig Tree prior to 2006.  The content of the Village Life model is something that Fig Tree jealously guards.  It maintains that it is the embodiment of a great deal of specialised experience and endeavour.  Fig Tree contends, and Prime accepts, that aspects of the Village Life model are confidential.  The Village Life model involves physical design features as well as operating systems.  The operating systems are in turn described as the ‘Village Life System’.  The physical design contemplates separate accommodation units close to and linked by covered walkways to a communal facility; and then a communal dining facility serviced by a commercial scale kitchen.  It contemplates only limited kitchen facilities in residents’ individual units. 

9                     A major element of the Village Life System is the quality and nature of delivery of food to residents.  Other fundamental elements of the Village Life System, according to Prime, were the remuneration and conditions of the on-site managers and the terms of residency enjoyed by the occupants of the villages. 

10                  In late 2005, Prime investigated an opportunity to acquire 12 of the villages then operated by Fig Tree.  Prime says that Fig Tree’s Village Life Model was a major factor in its decision to purchase the 12 villages and to enter into the WMSAs with Fig Tree.  This factor, however, is not a matter which arises on the pleadings in the sense of being related to any warranty, condition or representation.  As the case requires an objective assessment as to the significance of certain contractual terms, no weight can be given (on the pleaded case) to Prime’s subjective reaction to the Village Life model. 

Wholesale Management Services Agreements

11                  Fig Tree entered into WMSAs with Prime at all 12 locations.  The WMSAs are all in substantially similar terms.  (Some of the owners of aged care facilities with whom Fig Tree dealt were described as retail owners.  However Prime was a ‘Wholesale owner’ and was described as such by Fig Tree.)  Relevantly to the case, each of the WMSAs:

·                    defined ‘party’ to include the ‘successors and permitted assigns of the party’;

·                    importantly, provided in the preamble that Prime wished to maximise the return on its investment by having each village managed under the Village Life System;

·                    fixed a long term in excess of 20 years;

·                    made provision for the ending or termination of the agreement; and

·                    provided that in consideration of various payments contemplated by the WMSAs, Prime was entitled to have each village managed in accordance with the Village Life System. 

12                  The termination provision in each instance provided that Prime ‘may terminate this agreement by notice to [Fig Tree] at any time if the return to [Prime] reflects an occupancy rate of less than 50% for any continuous 6 month period’. 

13                  Fig Tree would let the various tenancies comprising the village, charge rent; make certain payments to Prime and receive certain payments from Prime.  It would account to Prime in a prescribed manner.  Restrictions were imposed on Prime’s ability to dispose of or review its interest in a retirement village.  No express restriction was placed on Fig Tree but any assignment of a WMSA required the consent of Prime. 

14                  The WMSAs expressly adopted the Village Life System.  That system was defined in part by ‘[Fig Tree’s] operations and standards manual, as amended by it from time to time and any other manuals substituted by [Fig Tree] throughout the Term’. 

CONFIDENTIAL EVIDENCE

15                  The specific detail of the Village Life System has been by consent, the subject of orders for confidentiality.  Those orders were made originally by Collier J on 28 November 2007 on an interlocutory basis.  The orders (with necessary variations), were renewed at trial by consent.  At the request of Fig Tree and with the consent of Prime, to the extent that the evidence touched upon the detail of the Village Life System, I was asked to close the Court to the public.  After hearing argument on that submission and on the basis of discussion referred to below I acceded to that course during such time only as there was evidence about the specific detail of the Village Life System. 

16                  Sections 17 and 50 of the Federal Court of Australia Act 1976 (Cth) relevantly read:

17(1)    Except where, as authorized by this section or another law of the Commonwealth, the jurisdiction of the Court is exercised by a Judge sitting in Chambers, the jurisdiction of the Court shall be exercised in open court. 

…

17(4)    The Court may order the exclusion of the public or of persons specified by the Court from a sitting of the Court where the Court is satisfied that the presence of the public or of those persons, as the case may be, would be contrary to the interests of justice.

50        Prohibition of publication of evidence etc.

The Court may, at any time during or after the hearing of a proceeding in the Court, make such order forbidding or restricting the publication of particular evidence, or the name of a party or witness, as appears to the Court to be necessary in order to prevent prejudice to the administration of justice or the security of the Commonwealth.

17                  In Australian Broadcasting Commission v Parish and Others (1980) 29 ALR 228 Bowen CJ said at 232-234:

This court is a court established by statute. It is clear from s 17(1) of the Federal Court of Australia Act 1976 that, in general, it is obliged to exercise its jurisdiction in open court. This provision gives statutory force to the principle that justice must be administered publicly in open court and gives recognition to the weight of public interest which attaches to that principle.

However, s 17(4) and s 50 provide for encroachment upon that principle. Under s 17(4) the public or some of the public may be excluded where the Court is satisfied their presence would be “contrary to the interests of justice”. We are all familiar with cases where this would be so. Thus, it is common to exclude persons who are to give evidence, lest they be led to trim their evidence. Again, where demonstrators or rioters would disrupt the proceedings, it may be in the interests of justice to exclude them. The categories of cases where exclusion will be proper are not closed. It will lie in the discretion of the judge, bearing in mind the injunction contained in s 17(1) and taking into consideration the interests of justice referred to in s 17(4).

…

The importance of the principle of open justice is not in doubt (see Scott v Scott [1913] AC 417; Russell v Russell (1976) 9 ALR 103; 134 CLR 495, per Gibbs J at 520) nor is the need to depart from it in the interests of justice on occasion (see Attorney-General v Leveller Magazine Ltd [1979] 1 All ER 745; [1979] 2 WLR 247, per Lord Diplock at 252; cf Halcon International Inc v Shell Transport and Trading Co [1979] RPC 97. Cases which deal with the course a court should follow where there are no sections corresponding with ss 17 and 50, although illuminating and helpful, are not decisive for a court constituted by an Act containing those sections. Such a court has the slightly different task of interpreting and applying the statute which governs it.

Open justice is the underlying assumption of s 50, not the criterion it prescribes. The section refers to preventing “prejudice to the administration of justice”. This is not a reference to the need to preserve open justice. It is, as I have already suggested, a reference to another public interest, that is, the public interest that the Court should endeavour to achieve effectively the object for which it was appointed: to do justice between the parties. (emphasis added)

18                  Although in these reasons I discuss in general terms the primary relevant features of the Village Life System, there were some 786 pages tendered which were said to be confidential documents constituting part of the Village Life System.  There was also oral evidence about such aspects. 

19                  The sense in which the material is said to be confidential may not be immediately apparent.  Clearly some of it was not.  However, I am satisfied that the request of the parties for me to continue the confidentiality orders originally made by Collier J was appropriate.  The material when taken in its entirety represents a system of operations which has clearly been developed with substantial care over a period of time.  To the extent that such intellectual property has afforded Fig Tree any market advantage or good will, such benefit may be at risk if the operational system were to be in the hands of a competitor by its being public.  I was persuaded by the parties (and the evidence supported the conclusion) that aspects of the system were sufficiently unique such that access to the confidential elements of it by competitors could be substantially prejudicial to Fig Tree. 

20                  In a confidential annexure to these reasons (Appendix B), I have summarised and included in substantially greater detail than in the publicly available reasons, the confidential material. 

21                  The confidential annexure, Appendix B will be available to Judges of this Court and otherwise, only on a limited basis in accordance with specific orders.

THE PLEADINGS IN GREATER DETAIL

22                  Each of the parties advances its own positive case. 

The Case Pleaded for Fig Tree

23                  Fig Tree asserts that Prime was not entitled to treat its arrangements with SCV as constituting a repudiation of any of the WMSAs.  Fig Tree seeks to be retained as manager of the 12 villages. 

24                  In general terms, Fig Tree relies upon the terms of the Assignment Agreement of 30 May 2007, including conditions precedent by which the consent of Prime was to be obtained.  It also relies upon its announcement of the Assignment Agreement to the ASX.  It relies upon the various steps taken in relation to giving effect to the Assignment Agreement.  It asserts that Prime had the requisite knowledge of the ASX announcement and many other aspects of the assignment.  In support of that assertion, Fig Tree relies upon a detailed analysis of events to which I refer below. 

25                  Fig Tree also refers to an exchange of correspondence between it and Prime in September and October of 2007 concluding with a letter from Prime to Fig Tree of 3 October 2007 in which Prime gave notice to Fig Tree that by:

purporting to assign its rights and by delivering management control and occupation of the villages to SCV Group, [Fig Tree] has repudiated each WMSA [and Prime] accepts [Fig Tree’s] repudiation and hereby gives notice that each WMSA is therefore terminated.  (emphasis added)

26                  Fig Tree says that Prime was not entitled to terminate the WMSAs.  It says on the proper construction of those agreements, Fig Tree was entitled to discharge its obligations under them by servants or agents or by subcontractors or delegates including SCV.  It also says that on their proper construction the WMSAs entitled Fig Tree to assign its rights and benefits under them without obtaining Prime’s consent.  In any event, on proper construction of the Assignment Agreement, Fig Tree contends that it had not purported to assign its right, powers and responsibilities without first obtaining the consent of Prime. 

27                  In the alternative, Fig Tree argues that Prime, by reason of its knowledge of and participation in a range of activities connected with the assignment, has affirmed the WMSAs even if there was any breach of them which would have otherwise entitled Prime to terminate.  It seeks consequential relief. 

The Case Pleaded for Prime

28                  Prime cross-claims and contends it was entitled to terminate the WMSAs.  It advances that claim on the following contentions.  Prime says that Fig Tree was not able to assign its performance obligations under the WMSAs without first obtaining Prime’s consent which was not and never has been given.

29                  It says that Fig Tree by entering into the agreement repudiated the WMSAs.  It says that Fig Tree in fact and in substance purported to assign its performance obligations to SCV and, by that conduct, repudiated the WMSAs.  Prime says that Fig Tree, whether by an effective assignment or by the actual fact of installing SCV as an agent manager or both, repudiated the WMSAs as Fig Tree ceased to perform all or substantially all of the management functions in the villages.

30                  Further, Prime says that Fig Tree implemented new permanent arrangements inconsistent with the Village Life System in relation to food provided to residents, in the manner in which food was prepared and served, in the terms of engagement of on-site managers and in the conditions of tenancy for residents at the villages.  By these acts Prime asserts that Fig Tree manifested an intention no longer to perform its obligations under each of the WMSAs or, at least, not in accordance with all the terms of the WMSAs and, in particular, in accordance with the Village Life System. 

31                  Prime also says that none of its conduct could amount to an affirmation of the WMSAs so as to have disentitled it to rely upon any of Fig Tree’s repudiatory conduct to justify Prime’s termination.  In particular, Prime points to the fact that it did not have sufficient relevant knowledge in order to have affirmed nor did it ever communicate that it had affirmed.

32                  Finally, Prime says that in the alternative if Fig Tree is held not to have repudiated the WMSAs and is further to be entitled to remain at the villages as manager, the conduct of Fig Tree is such that it should be required by an order for specific performance to meet its obligation to manage the villages in accordance with the Village Life System.

33                  In summary, Prime says that the nature and impact of the changes introduced during the period of SCV’s management were significant and in relation to the areas discussed above, they showed, first, in connection with food:

·                    on-site managers being required to buy pre-cooked frozen meals from a single supplier rather than to prepare freshly cooked meals on-site;

·                    communal eating areas being closed for evening meals.  Residents were required to collect frozen meal packs at lunchtime for reheating privately in the units each evening;

·                    there was no protocol to ensure the residents stored or reheated their food packs in a safe manner;

·                    SCV did not set minimum nutritional requirements nor did it confirm whether the meals provided to residents met the nutritional requirements previously set by Fig Tree.

Terms of Engagement of Managers

34                  Features of the Village Life System which were also of importance according to Prime related to the remuneration and conditions of the on-site managers, namely:

·                    managers were required to undergo training in and to observe the Village Life System including complying with the written protocols and procedures set by Fig Tree;

·                    managers were engaged by Fig Tree as independent contractors on standard form contracts and paid a weekly performance fee of approximately $60 for each unit occupied;

·                    managers lived on-site in the managers’ unit and were not required to pay rent;

·                    there were no set minimum or maximum hours of performance; and

·                    managers were required to actively promote the villages in the local area to ensure high levels of occupancy.

35                  In relation to the terms and conditions of managers on-site, Prime says that SCV:

·                    required on-site managers to enter employment agreements with SCV, not with Fig Tree;

·                    capped the hours of work for which those managers were paid and did not provide any incentive by way of a payment based on the occupancy of the villages;

·                    required on-site managers to pay rent for their on-site accommodation; and

·                    did not require managers to follow and did not provide training to new managers in the Village Life System.

Terms of Residency

36                  The final aspect of the Village Life System, which Prime emphasises, related to the terms of residence in the villages.  Those features being:

·                    the villages were specifically designed for ‘independent living’ in a community setting;

·                    residents would enter into short term (typically monthly) tenancy agreements with Fig Tree and paid rent by way of direct debit to Fig Tree;

·                    rental payments were a percentage of the residents’ pension;

·                    prospective residents were not required to undergo medical examinations when applying for residencies and were not required to pay a bond. 

37                  As to the third area, namely, the terms of the residential agreements with residents, Prime says that SCV:

·                    required residents to store and prepare their meals using facilities in their units not designed for regular food preparation;

·                    required that prospective residents enter into long term (6 or 12 month or up to three years) tenancy agreements with SCV and to pay a bond amount equivalent to four weeks rental for any unit.

38                  On those pleadings, these reasons necessarily examine a comparison of services under SCV with services under Fig Tree.  It must be emphasised that SCV is not a party to this litigation.  Any comparison of the nature of the services arises only in the context of determining whether the services supplied by SCV were the same as or similar to those which Fig Tree was contractually obliged to supply to Prime. 

EVENTS OF 2007

The Documents

39                  In terms of viewing the overall events of the relevant period, focus on the content of contemporaneous documents has assumed importance.  Such documents have not, it seems, been created with an eye to the pleaded issues that arise in the case but rather to the actual events as they were occurring. 

40                  A key date is 30 May 2007.  On that date Fig Tree and SCV entered into the Assignment Agreement under which Fig Tree agreed either to assign or to transfer to SCV its rights under each of the WMSAs.  The essential operative provision of the Assignment Agreement was cl 3 which relevantly provided that Fig Tree agreed to assign or transfer and SCV agreed to take the assignment or transfer of what was described as each of the ‘Remaining Assets’.  These Remaining Assets were Fig Tree’s rights and benefits under the WMSAs. 

41                  There were conditions precedent expressed in the agreement (set out below) that completion of the assignment or transfer was conditional on Prime’s consent being obtained either to assignment or to novation with new agreements being entered into as between Prime and SCV on terms substantially similar to the WMSA terms:

2.         CONDITIONS PRECEDENT

2.1       Completion is conditional upon the following:

…

(e)        in respect of a Wholesale Complex:

(i)         the Purchaser being satisfied (acting reasonably) that, if the Wholesale Management Rights Agreement relating to that Wholesale Complex is a Nominated Wholesale Management Agreement, the ambiguous provision contained in that agreement has been addressed in accordance with clause 5.1(b); and

(ii)        the parties obtaining any necessary consent or approval of a third party to the assignment or novation of the Wholesale Management Rights Agreement for that Wholesale Complex to the Purchaser with effect from the Completion Date; and

(iii)       the parties generally obtaining all other statutory consents and approvals that may be reasonably required to give effect to this agreement or the transactions contemplated by this agreement; and

(iv)       the parties generally obtaining all other third party consents and approvals that may be reasonably required to give effect to this agreement; and

(v)        in respect in the Wholesale Management Rights Agreements:

(A)       each of the Wholesale Management Services Agreements for the Wholesale Complex is amended or varied so as to comply with all regulatory and statutory requirements and the consent of the other party to the Wholesale Management Services Agreements to the assignment or novation of the Wholesale Management Services Agreements is obtained; or

(B)       the parties agreeing with the owner of the Wholesale Complex to:

(1)        terminate the Wholesale Management Rights Agreement for that Wholesale Complex; and

(2)        the Purchaser entering into a new contract with the owners of that Wholesale Complex on terms either substantially similar to the terms of the Wholesale Management Rights Agreement for that Wholesale Complex or otherwise on terms acceptable to the Purchaser acting reasonably and the parties obtaining any necessary consents or approvals of a third party financier to the entry into that new contract; and

… (emphasis added)

42                  The Assignment Agreement also provided for a ‘Transition Period’ which was to commence on 1 June 2007.  Fig Tree appointed SCV during the Transition Period to provide operational services as an independent contractor.  SCV was to receive payment by Fig Tree of all fees that Fig Tree was entitled to collect pursuant to the WMSAs. 

43                  Fig Tree stresses that in addition to the structure of the conditions precedent to the assignment, the nature of the Transition Period provided for (by cl 6 of the Assignment Agreement) meant that there was no assignment to SCV of Fig Tree’s rights under the WMSAs during the Transition Period and before completion.  Fig Tree agreed to pay SCV fees it obtained under the WMSAs as distinct from assigning or purporting to assign to SCV Fig Tree’s own right to collect the fees from Prime. 

44                  Both prior to and subsequent to execution of the Assignment Agreement of 30 May 2007, events are described in contemporaneous documents to which Fig Tree (predominantly) has referred.  Fig Tree contends these events demonstrate Prime’s sufficient awareness of and communication about the Assignment Agreement and the events surrounding it so as to constitute an affirmation of the WMSAs even if there were any breach of them.

45                  The first event to which Fig Tree points precedes the Assignment Agreement.  It is the establishment of the Prime Trust Due Diligence Committee (DDC) in respect of which there are minutes of 14 November 2006.  The DDC included Prime Directors, Messrs Wooldridge and Lewski and its company secretary, Mr Krishnan.  The DDC was formed to undertake the preparation of a Product Disclosure Statement (PDS) and for related activities in respect of the potential listing of Prime Trust Units on the ASX.  These minutes establish the constitution of the DDC and refer to the solicitors engaged to prepare the material contracts section of the PDS.  As will be seen in the ultimate edition of the PDS produced on 6 July 2007, that document records that each of the then directors of Prime agreed with the contents of the PDS.  The PDS discusses the assignment to SCV.

46                  On 28 February 2007, Fig Tree published its half yearly financial reports for the year ended 31 December 2006 to the ASX.  The directors reported that after careful consideration of the company’s financial position, the board had resolved to assign its management agreements with its retail, syndicate and ILF Villages, to SunnyCove for a cash consideration of $14 million subject to shareholder approval and other relevant consents.  (SunnyCove was another name by which SCV was known).  The report also refers to entry into a heads of agreement with SCV on 27 February 2007, to assign the management agreements between Village Life and the owners of the retail syndicate and ILF Villages.  Again, it referred to consents and approvals being obtained.  Fig Tree makes the point that this was a public announcement and a potential source of knowledge which Prime could have had.  There is no evidence that Prime was aware of these particular passages. 

47                  On 14 March 2007, Fig Tree made an ASX announcement to the effect that the Board of Directors of Fig Tree had called the extraordinary general meeting (EGM) of shareholders to consider the proposed assignment to SCV.  It would be held on 24 April 2007.  Again, this was a public announcement.  Again, there was no evidence that Prime was aware of it at that stage. 

48                  On 20 March 2007 the notice of the EGM with an explanatory statement was published on the ASX.  Again, this was a public announcement but there was no evidence of Prime’s awareness of its existence.

49                  On 2 April 2007 an early draft of the Prime Trust PDS was prepared.  In that draft there is a reference to Village Life as one of the entities associated with Prime and while there was no mention of SCV, that position was to change shortly after that draft was prepared. 

50                  On 16 April 2007, a further draft of the Prime PDS was prepared.  It included the first version of what eventually appears in section 6.3 of the final PDS.  The extract at that time read:

6.3       SCV Managed Properties

A number of Properties are managed by SCV Group Ltd under a 25 year Wholesale Management Services Agreement.  This Agreement was initially entered into (sic-with) Village Life Ltd, but in April 2007, the shareholders of Village Life approved the sale of these Management Agreement to SCV. 

SCV is a listed (sic) on the ASX and specialises in the management of retirement and aged care facilities.  There is no ownership relationship between Prime Trust (and APCH) and SCV. 

Prime Trust is entitled to the rent charged to each resident at each facility less a per unit management fee.  The rent charged to residents is the aggregate of a percentage of the Commonwealth government aged pension and 100% of the Commonwealth government rent assistance to pensioners. 

The management fee received by SCV enables them to provide full food and resident services.

51                  Fig Tree contends and I accept that this PDS demonstrates that the draft person prepared that content in anticipation that Fig Tree (then known as Village Life) would enter into an agreement with SCV such that SCV would replace Fig Tree in relation to the WMSAs.  It is also contended that the draft person of the PDS anticipated that the properties would be managed by SCV.  That is also a reasonable inference.  (The draft person was not called to give evidence).  At this stage the EGM of Fig Tree had not yet been held.  It may be inferred that the draft person of the early edition of the PDS was anticipating the outcome of the EGM. 

52                  On 20 April 2007, there was a further meeting of Prime’s DDC, the minutes of which suggest that drafts of the PDS were being circulated to members of the DDC for their perusal and comment. 

53                  I will not refer to every draft of the PDS.  I am satisfied that the evidence establishes that the content of the final PDS was certainly available for the members of the Committee and Prime’s directors to examine.  Of course whether in fact they did absorb every word of it is another question. 

54                  On 24 April 2007, Fig Tree published an announcement to the ASX confirming approval by shareholders at the EGM in relation to the assignment to SCV.  There is no evidence that Prime was aware of the actual announcement, but again, this is not of major importance. 

55                  On 26 April 2007 there was an addition to the relevant section of the PDS in the following terms: ‘Prime Trust can terminate the agreement if the return reflects an occupancy rate of less than 50% for any continuous 6 month period’.  There was further reference to the properties being managed by SCV. 

56                  There was an email exchange between the personal assistant of Mr Mark Roberts of SCV at 4.54 pm on 26 April 2007.  It purports to record the content of a phone message which Mr Roberts had received from Mr Kim Jaques of Prime.  It advised that Mr Jaques had phoned:

and advises that they have 14 villages and is very keen to speak/meet with Mark regarding ideas moving forward.  Kim is on the Sunshine Coast until Saturday and would make himself available to meet with Mark up to 7.00 pm on Friday night... 

57                  There was then an email exchange between Mr Jaques of Prime and Mr Roberts of SCV later in the evening in which Mr Jaques adverts to making arrangements for Mr Lewski (of Prime) and Mr Roberts (of SCV) to meet, saying ‘I look forward to seeing you at SunnyCove’s HO in Maroochydore’.  Fig Tree contends and I accept, this is objective proof of high level contact between Prime and SCV in April 2007 regarding the plans to meet to discuss ‘ideas moving forward’. 

58                  On 14 May 2007 the PDS again referred to SCV.  There was an amendment to the section dealing with properties operated by SCV.  These amendments referred to the Transition Period relating to the formal transfer of the agreements.  There is no direct evidence as to how Prime knew of the Transition Period.  Fig Tree suggests that one possibility is the contact between Mr Jaques and Mr Roberts referred to in the email exchange.  Neither person gave evidence as to whether such a meeting took place and if so, what was discussed. 

59                  There was an announcement by Fig Tree to the ASX 29 May 2007 confirming that on 28 February 2007 Fig Tree had announced entry into the heads of agreement with SCV to assign its management rights in all the relevant Village Life villages conditional on certain approvals being obtained.  It recorded that the date for satisfaction of those conditions expired on 28 May 2007.  It also recorded that Fig Tree had agreed with SCV to extend the date for satisfaction of the conditions until 31 May 2007 with a view to agreeing the final form of the Assignment Agreement.  There is no evidence that Prime was aware of this announcement or its contents. 

60                  Two days later, on 31 May 2007, Fig Tree made a further announcement to the ASX confirming entry into a formal Assignment Agreement with SCV in relation to the assignment of the management rights in all of the Fig Tree villages for $14 million.  It also referred to several conditions precedent and a phased settlement program to occur progressively over the next three to six months as conditions relating to villages were satisfied. 

61                  Prime did know of this public announcement.  Prime contends, however and I accept, that the information in the public announcement was certainly not sufficient to require it to elect whether or not to affirm or terminate. 

62                  On a more practical note, however, in email exchanges between 6 and 12 June 2007 the personal assistant for Mr Lewski of Prime emailed Mr Roberts, Managing Director of SCV following an earlier telephone conversation seeking a copy of the Village Life Operations and Standards manual.  What was specifically sought was that part of the Village Life manual identifying the ‘Management Services’ which Fig Tree agreed to provide.  Mr Lewski’s personal assistant concluded in the final email in this exchange by advising that the inquiry for the relevant sections of the Operations manual was urgent and indicated that if the relevant sections of the manual were not provided, Prime would instruct its lawyers to attend Fig Tree’s offices to view it. 

63                  On 7 June 2007, Mr Darryl Watherston of Fig Tree emailed Mr Roberts of SCV advising that ‘no information is being sent out due to a legal determination that the [Fig Tree] brochures misrepresent the current services provided’.  In other words, the information that the Fig Tree brochures described about the retirement villages did not reflect the services actually being provided by SCV at this stage.  There is no reason to infer that Prime was aware of the decision to withhold brochures or the reason for it. 

64                  On 12 June 2007, Mr Stuart Lummis, an executive of Fig Tree emailed Mr Lonie of Fig Tree concerning the Vacating Unit Advices saying that as discussed with him last week ‘SCV are destroying our business’.  This information also, was not conveyed to Prime.  Prime points to the fact that it was unaware that there was a view within Fig Tree to that effect.  Prime argues that this information would be particularly relevant to the question of whether it had sufficient information in order to affirm. 

65                  On 12 and 15 June 2007 two of Prime’s Directors (Messrs Jaques and Butler) exchanged emails on the broad topic of the ability to assign property and the need for consents and opportunities which might arise from that process.  Fig Tree suggests that this exchange illustrates that Prime was conscious of a potential for commercial advantage arising in the context of its consent to assignment being sought and obtained.  An example of this advantage is indicated 3 days later in communications on an insurance premium. 

66                  There was a further draft of the PDS on 15 June 2007.  It included at section 6.3 which is headed ‘Properties Operated by SCV Group’, an amendment to delete the reference to the Transition Period referred to in the 14 May 2007 draft and to record the fact of the public announcement made on 31 May 2007 of the commencement of operational management of the villages by SCV.

67                  There was also now in this draft of the PDS a reasonably extensive summary of the obligations of SCV under the management agreements at the villages.  Again, in the context of termination, there was reference to Prime having the power to terminate if the occupancy rate fell below 50% for a continuous period of 6 months.  No other basis for termination is indicated. 

68                  Yet a further draft of the PDS was circulated three days later without significant changes. 

69                  There was an exchange of emails on 18 and 19 June 2007 between Mr Jaques of Prime and Mr Roberts of SCV in which Mr Jaques raised the question of a collaboration between Prime and SCV in order to obtain a better insurance premium.  Reference is made to having raised the issue previously with Fig Tree but without any satisfactory outcome.  Fig Tree stresses that this exchange not only shows that Prime knew SCV was replacing Fig Tree but that Prime was seeking to obtain a commercial advantage (rather than a detriment) consequent upon that exchange occurring.  While this submission may be correct, it is peripheral to the pleaded issues insofar as the practical impact of the proposed assignment is concerned. 

70                  On 21 June 2007, Fig Tree’s Managing Director reported to the Board of Management ‘it is now likely that SCV will transition the business processes to Maroochydore by the end of July 2007, which will see the end of the business office operations apart from a skeleton team’.  Prime was unaware of and had not been informed of such a plan or the subsequent implementation of it. 

71                  On 26 June 2007 Prime held its final DDC meeting.  Consent letters by each of the then directors of Prime concerning the content of the PDS were tabled.  Fig Tree contend that the totality of the numerous drafts and the final version of the DDC’s PDS lead to the conclusion that Prime through its directors and company secretary knew that Fig Tree had entered into the Assignment Agreement with SCV.  Those persons knew that the effect of the agreement, so far as Prime was concerned, was that Fig Tree was replaced by SCV in relation to the performance of the WMSAs.  Fig Tree also contends that it should be inferred that Prime was prepared to accept such a replacement as a satisfactory status quo regardless of formalities and that the status quo was sufficiently certain to warrant Prime taking the step of telling the market about it in its own PDS.  Importantly, Fig Tree contends, it shows that Prime knew that SCV had commenced operational management of the villages.  I accept these submissions subject to the reservation that clearly Prime was not accepting that SCV could operate as it saw fit. 

72                  On this critical topic I note that Fig Tree has not adduced any evidence as to how it intended to and did ensure that SCV would provide the very important food service in a manner which conformed with the Village Life System.  There is no evidence that it did do so.  Rather, as will be seen, it simply left things to SCV. 

73                  The 25 June 2007 minutes of a Fig Tree Board meeting confirmed that it was agreed that as Fig Tree had ‘assigned its management rights to the SCV Group Limited for a consideration of $14 million, it was now appropriate that the Directors compensation and fees be restored as was previously anticipated’.  Prime says it was unaware at the time of any of these facts or that Fig Tree’s financial constraints were a driving factor behind the Assignment Agreement.  I accept that submission. 

74                  The underlying suggestion in this and related submissions is that there was an anxiety within Fig Tree to divest itself of the obligations under the WMSAs sooner rather than later with a view to becoming sufficiently liquid to enable ‘Directors compensation and fees’ to be ‘restored as was previously anticipated’. 

75                  On the day following the final PDS, 27 June 2007, Mr Roberts received an email from his personal assistant conveying a telephone message from Prime’s company secretary, Mr Krishnan concerning changes in reporting and management requirements.  It is said to be a precursor for a 30 July 2007 SCV letter to Mr Jaques of Prime which identified changes in management requirements and also the eventual transmission on 10 August 2007 of the July audit reports which formed the background to a meeting on 15 August 2007 with SCV.  Fig Tree says these communications when taken together, fully informed Prime of all information it would need to enable it to elect whether or not to affirm.  As will become evident, I disagree.  I do not accept that this information put Prime on notice as to the practical effect in the villages of the proposed assignment. 

76                  On 3 July 2007 there was an email from Mr Lonie, Managing Director of Fig Tree to Mr Dubery of Fig Tree.  It concerned the transition timetable (which had commenced on 1 July 2007) saying ‘our only ambition now is to collect the $14 m ASAP and get away from SCV’ (emphasis added).  Prime would say that this email highlighted what, at least at that stage, was Fig Tree’s ‘only ambition’ – ‘to collect the $14 m ASAP and get away from SCV’.  Prime says this was a very significant factor unknown to it.  I was not specifically addressed on whether it was appropriate to attribute this content to an objective assessment of the conduct of Fig Tree in relation to the assignment.  It would be a significant step to accept this content alone as evidencing a renunciation by Fig Tree.  But it is, nevertheless, consistent with the absence of any effective steps on the part of Fig Tree to ensure that SCV delivered the Village Life System. 

77                  There were two communications by Fig Tree of some importance on 13 July 2007.  First, Fig Tree announced to the ASX as follows:

As noted in Village Life’s announcement of 31 May 2007 relating to the assignment of the management rights of Village Life villages to SCV Group Limited, Village Life is currently endeavouring to obtain all necessary approvals to satisfy the conditions precedent under the Assignment Agreement with SCV.

In particular, this involves obtaining the consent of the owners of the villages.  ING Management Limited as responsible entity of the ING Real Estate Community Living Fund, the owner of 33 villages managed by Village Life, has already consented to the assignment of the management rights over those villages to SCV and completion of that assignment is anticipated to take place within approximately three weeks.  Village Life is in the process of seeking the consents of the owners of all other Village Life villages and completion of the assignment of the management rights of those villages will occur progressively as consents are obtained and conditions precedent relating to each village are satisfied.  (emphasis added)

78                  Secondly, a letter was sent from Fig Tree’s Managing Director, Mr Lonie to Prime in the following terms:

As you are aware, due to Village Life’s well documented challenges, it entered into an agreement with SCV Group Limited to assign the management rights in the Village Life property that you own to SCV Group Limited.

As part of those arrangements, Village Life agreed with SCV Group Limited that it was in the best interests of the property owner and SCV Group Limited that the parties enter into a replacement agreement between the owner and SCV Group Limited, so that the relationship is direct.

In so doing, Village Life and SCV Group Limited agreed that there could be no change to any term or condition of the current contract that each owner enjoys with Village Life, except to the extent necessary to comply with the current legislative requirements.  We will point out any such change to you in the information that will be provided to you with the new documents. 

We also thought it appropriate that SCV Group Limited’s credentials as a competent manager of villages are also conveyed to you for your information, which will also be included in the information package that will be sent to you. 

As you may appreciate, it has taken some time to have new documents prepared and we apologise for the delay.  We anticipate that they will be dispatched to your (sic-you) in the next week so please look out for them and, if you have any query, please do not hesitate to call the telephone number that will be provided to you to answer any question that you may have in regard to these new documents in the package. 

Please look out for and action the new documents when you receive them and again let me reiterate that you should not hesitate to call if you have any query. (emphasis added)

79                  Prime accepts this letter was sent but ‘cannot admit that it was definitely received’.  There does not appear to be any serious argument advanced as to non-receipt of the letter or any reason for non-receipt. 

80                  Fig Tree places a deal of emphasis on the two invitations in the letter to raise any queries which Prime might have.  Fig Tree contends that it could hardly be that an objective third party could conclude renunciation by Fig Tree either of the contract as a whole or of a fundamental obligation under it unless the party had contacted Fig Tree to ascertain what its intentions actually were.  However, the ultimate essential complaint of Prime relates to what was actually occurring at the villages as it eventually became known to Prime.  Prime says it did not become aware of the significant practical ramifications of the changes arising from SCV assuming management until much later. 

81                  In contrast and as an indication of Fig Tree’s knowledge of such changes (which were unknown to Prime), on 20 July 2007, Fig Tree’s Managing Director’s report to the Board of Management included the following very accurate prediction:

The key argument will be that, as the SCV system that we have let them introduce, is not identical to the VLL system, there is a fundamental failure to deliver the prescribed outcomes in accordance with the original management contract. 

We will now write to all remaining staff who will not stay with Village Life beyond the SCV handover process that they will be made redundant at the end of August 2007.  (emphasis added)

82                  On 24 July 2007 in a Fig Tree Board meeting, the redundancy of Fig Tree personnel on 24 August 2007 was noted.  No details concerning the villages were set out as they had been taken over by SCV at that stage. 

83                  On 25 July 2007 in an email from Mr Dubery to Mr Buckner each of Fig Tree, Mr Dubery confirmed that Fig Tree had given notice to its remaining staff of the termination of their employment. 

84                  Prime says that it was unaware of the ‘key argument’ view.  It was also unaware of the redundancy of staff either being proposed or when it eventuated.

85                  On 30 July 2007, the Managing Director of SCV, Mr Roberts wrote to Mr Jaques at Prime confirming that Prime would be receiving from Fig Tree shortly, information regarding the legal documentation relating to the assignment of the management rights.  He also indicated that as part of the transition and pending issue of the legal documentation to the owners, it was agreed between Fig Tree and SCV that SCV would commence the transition of the management of the Fig Tree portfolio from 1 June 2007.  The Managing Director also informed Mr Jaques that the staging of that transition allowed for the administration and rent collections to be still undertaken by Fig Tree with SCV commencing management operations in the day to day activities at community level. 

86                  In this communication under the heading ‘Key Objectives Transitional and Operational Requirements’ there was a reference to audit reports being finalised over the next fortnight and becoming available to investors.  

87                  There was also reference to the business model of SCV supporting direct employees as opposed to independent contractors. 

88                  Under the heading ‘Human Resources and Training’ there was reference to Fig Tree independent contractors being provided 90 day contracts with SCV on the same terms and conditions.  

89                  In the same lengthy letter, under the heading ‘Catering Service’ which has assumed substantial significance in these proceedings, the following passage appeared:

Over the past two months there have been several press articles which have been critical about our proposed food service.  The SCV Group have over the years trialed numerous methods of delivering food to the residents which have ranged from cooked fresh to cook chill systems.  SCV have found that the best method of ensuring consistency and quality over a wide geographic area is the cook freeze method.

The media and other misinformation have taken this to mean that residents will be receiving frozen packs of food and the residents will not receive any fresh food.  This is not the case.

A meal is always made up of various components and there will be some components that will arrive at the community frozen and will need to be cooked on site or reheated.  This provides consistency in the food and quality across communities.  The frozen components are only those of protein and no different to what you may prepare at home.

The food is still plated at the community.  Suppliers of the food are all HACCP and ANZFS compliant and comply with all state requirements and utilise nutritionists and dieticians in consultation with the SCV Group Catering Manager to assist in the formulation of recipes and menu’s (sic).  The benefit of the SCV catering service and system is the Residents can be offered two choices for lunch, up to five choices for the evening meal and can meet residents special dietary needs.

The benefit to the community manager is reduced food preparation time of a minimum ten hours per week and a minimum three hours per week reduction in external food purchasing.  The benefit to the resident is the consistency of the catering service and the benefit investor (sic) higher resident retention and higher occupancy.

90                  I do note that Mr Jaques was not called by Prime.  I am pressed by Fig Tree to draw an inference that Mr Jaques’ evidence on this topic would not have been of assistance to Prime’s case.  In my view this raises a question of onus on the affirmation issue.  I will revert to that issue in due course. 

91                  On 30 and 31 July 2007 there was an exchange of emails between the personal assistant to SCV’s Managing Director and the personal assistant to Prime’s Managing Director advising that Mr Roberts had been speaking with Mr Jaques and they had requested that a meeting be arranged: ‘Could you please liaise with Kim and advise availability for tentative appointment time of Monday, 6^th August 2007 at 2.30 pm in your office (level 2, 613 St Kilda Road, Melbourne, VIC, 3004)’.  In a response confirming the meeting it was stated that the Managing Director of Prime, Mr Lewski would also attend.  While there is no direct evidence of the meeting of 6 August 2007, Fig Tree suggests that surrounding evidence including emails on 7 and 10 August 2007 suggests that the meeting occurred. 

92                  On 7 August 2007 there was an email from Mr Roberts of SCV to Mr Jaques of Prime confirming arrangements for the meeting with SCV’s operations and marketing team on 15 August 2007.  It indicated that he looks forward to ‘meeting again’. 

93                  On 10 August 2007 there were three emails from Mr Roberts of SCV to Mr Lewski and Mr Jaques of Prime (via their personal assistants) referring to a previous meeting and a request for clarification of investor income and expenditure.  Fig Tree contends that when these communications are read together with the July Community Summary Reports, there is a strong basis for the conclusion that prior to the meeting on 15 August 2007, Prime by at least Mr Jaques and Mr Lewski knew:

·                    SCV would be providing the monthly investor reports from mid-August 2007;

·                    SCV described the Village Life food service as the fresh cook system (but on one occasion also referred to it as the cook chill system); and

·                    SCV made it clear that it was making a change to the system by introducing its own catering service. 

94                  Fig Tree also relies on the fact that Mr Lewski accepted in cross-examination that he became aware of this proposition at about the time he received the reports. 

95                  Fig Tree says it is clear, taking these written communications together, that SCV had told Prime that SCV was intending to implement the cook freeze method which was described in its 30 July 2007 letter referred to above.  It is also clear, according to Fig Tree, that SCV informed Prime that SCV proposed a maintenance and refurbishment program and also intended to implement a system for national suppliers which would involve transfer and termination of the supplier and service provider contracts with a transfer of those contracts over to SCV.  Again, Mr Lewski accepted that he was aware of this information at the time he received the reports. 

96                  Mr Lewski also confirmed that at the time he received the reports he was aware that SCV had proposed changes in the way in which the community managers would be employed including that they be employed by signing a new contract and also that SCV had issued 90 day transitional contracts in many cases.  In an email exchange on 10 August 2007 between Mr Roberts of SCV and Mr Jaques of Prime and Mr Lewski via his personal assistant, reference is made to the ‘previous meeting’.  The suggestion is that the 6 August 2007 meeting which had been proposed did in fact take place. 

97                  I accept that there can be little doubt that by mid-August Prime was receiving a deal of information of a practical nature concerning management issues which it now contends were of significant importance to the question of whether it had sufficient information to elect.  There are further questions, however, of whether it had sufficient information of the practical ramifications of proposed changes.  In this regard Prime, in contrast to Fig Tree, points to the significant practical information that it did not have until September or October 2007. 

98                  On the day preceding the above communication (9 August 2007) in an email between SCV and Mr Jaques of Prime, SCV requested approval for expenditure on a replacement clothes dryer for Elizabeth Vale 2.  Mr Jaques raised a question concerning the expenditure and gave a direction in relation to a replacement machine. 

99                  On 13 August 2007 there was a similar communication concerning taps sets; and also a similar communication on 14 August 2007 concerning hot water systems. 

100               These communications support conduct consistent with constituting affirmation according to Fig Tree. 

101               There was also a significant report dated 15 August 2007.  Investor reports for the month of August 2007 were prepared on Village Life letterheads but signed by SCV ‘managing on behalf of Village Life Ltd’.  In those reports, two pages concerning the villages at Hackham 1 and Hackham 2 expressly referred to poor press over recent times due to troublesome residents attempting to create issues with ‘SCV’s new system and processes.  This has resulted in some residents leaving the Community because of the media attention’.  There was reference to new residents moving in and confidence concerning the impact of marketing campaigns.  There was additional reference in these reports to food changes yet to be implemented.  Fig Tree asserts that this documentation shows continued knowledge by Prime concerning SCV managing the villages and of changes to the food system.  Fig Tree also argues that it provides additional support for the proposition that such knowledge was being received in circumstances which alerted Prime to the possibility of the existence of alternative rights in the sense contemplated by an election.  I will address this submission below in the Analysis. 

102               On that day (15 August 2007) there was a meeting attended by Messrs Lewski and Jaques on behalf of Prime and by SCV’s Managing Director, Mr Roberts, Christopher Bassett, chief operations officer and Mr Buckner, then SCV’s chief financial officer and two other representatives of SCV.  There is very little direct evidence of this meeting other than the contents of notes apparently prepared by Mr Buckner.  He was called to confirm he created the notes but neither he nor anyone in attendance could give detailed evidence as to what was discussed at the meeting.  There are topics recorded on Mr Buckner’s notes.  They include ‘Landlord’s right of termination’, ‘convert to retirement villages’, ‘new residency agreements not to disadvantage existing residents’, ‘SCV assignment doc-include prov re-home care’, ‘caretaker’s training for RV compliance assessment’, ‘legal representatives swap details’, ‘Prime Trust will produce own PID’ and a variety of other matters. 

103               Mr Lewski’s evidence as to the meeting of 15 August 2007 was that to the best of his recollection ‘we discussed the contents of the Community Summary Reports’.  He said that he informed Mr Roberts that the reports did not contain any significant content relating to the villages of which he had not been previously aware and that Mr Roberts agreed with that observation. 

104               Fig Tree says that the diary note of the meeting provides incontrovertible objective evidence that other topics were discussed at the meeting.  If that submission is intended to suggest that any or each topic on the diary note was discussed, I cannot accept it.  It is not clear whether this was a list of topics which might form an agenda for discussion or an aide-memoire, or whether or not the discussion on those topics actually ensued.  Again, Fig Tree relies on the fact that Mr Jaques, who may have been able to corroborate the evidence of Mr Lewski if it were true, was not called.

105               Fig Tree strongly contends that the evidence of Mr Lewski should be disbelieved.  Mr Lewski referred to the fact that at the 15 August 2007 meeting there was a brief discussion but not in any detail, on the reports relating to each of the Prime villages; that there was no discussion of any changes to the Village Life System; that SCV did refer to incomplete negotiations between it and Fig Tree; he stated that if the commercial arrangements were resolved then SCV would seek Prime’s consent for an assignment of the WMSAs.  On this topic, Mr Lewski gave evidence that he expressly reserved Prime’s rights on the assignment question pending further information. 

106               Although Fig Tree contends that Mr Lewski’s evidence on this topic (amongst several) should not be accepted, he was not challenged in cross-examination on this evidence.  This was obviously a very important issue as it went, amongst other things, to the question of whether or not at this stage Prime was conveying to SCV either directly or as Fig Tree’s agent that Prime would agree to the assignment, thereby electing to affirm. 

107               In my view the absence of cross-examination of Mr Lewski’s evidence on this topic means that Fig Tree’s submission is not open.  To the contrary, and in any event, I consider that his evidence should be accepted, it being inherently plausible.  At no time had Prime formally or informally done other than keep its position open.  It was clearly still gathering information.  It knew its consent would be needed when it had that information.  There is no evidence at all of Prime in any sense, internally or externally, saying that it would consent to the assignment.  Fig Tree also submits that Mr Lewski’s evidence that he does not recall other aspects of the discussion at the meeting should be rejected.  I disagree.  I note that even the author of the diary note had no recollection of the content of the meeting.  This is not particularly surprising.  Nor is it so in relation to Mr Lewski.  Further, it is unclear what it is that Fig Tree asserts was conveyed to Prime at this meeting which gave Prime the requisite knowledge to elect. 

108               In all the circumstances described above, Prime submits it was not at any time, prior to or during August 2007 provided with sufficient information regarding the changes which as a matter of fact had already been implemented as between Fig Tree and SCV.  Alternatively, it was not informed of the further changes that were expressly proposed, especially regarding food services, so as to require a conclusion that Prime had been put to its election whether or not to accept those changes. 

109               The difficulty for Fig Tree is that it had effectively stepped out of the picture and had been able in significant measure to achieve the objective internally expressed by one of its managing directors, to ‘get away from SCV’.  Specifically in relation to the communications between 15 and 16 August 2007, there was no evidence that Fig Tree was aware of any of the content of the communications between Prime and SCV on those dates.  There is, therefore, no evidence of any direct communication to Fig Tree by Prime of an affirmation and accordingly even if anything associated with the 15 August 2007 constituted an affirmation by Prime, the absence of unequivocal communication by Prime to Fig Tree would preclude that contention succeeding.  There is no evidence of any other communication from Fig Tree or SCV to Prime prior to 13 September 2007. 

110               On the day after the meeting (16 August 2007), emails were exchanged between SCV and Mr Jaques of Prime.  SCV requested approval for expenditure at the villages.  In a letter from SCV on the same day, there was reference to the 15 August 2007 meeting; reference to further expenditure and costing; reference to the residential tenancy agreement; and to the electronic version of the report, presumably of the day before.  It confirms that:

Mark has advised that he will liaise with you directly regarding the various other points raised with you in yesterdays’ meeting as some of these will form dialogue with Mike Gordon as well. 

Bill, please don’t hesitate to contact me directly should you require any further information relating to these matters.

111               On 23 August 2007 in a Fig Tree Managing Directors’ report it was recorded:

3.         Operationally, SCV is managing the village on a day to day basis, despite their now representing that it lacks the appropriate real estate licences to do so – on their now developed logic that they are just doing it for Village Life under Village Life’s real estate licences, which is an onerous (sic erroneous) conclusion.  However, the pragmatic position is that SCV is operating the villages and imposing its systems as was intended and, in so doing, taking full responsibility for the day to day management of the villages, as was contemplated by the Assignment Deed.  (emphasis added)

112               Once again, Prime points to the fact that this information was not conveyed to it.  Prime says it expected the Village Life System to apply not that SCV would operate the villages and ‘impose its own system as was intended’. 

113               There were further requests for expenditure on each of 27 and 31 August, 4 and 6 September, 3 and 7 September, 10 September and 18 and 19 September 2007.  It is unnecessary to go into the detail but in each instance the requests were approved by Mr Jaques.  Fig Tree asserts that it is unequivocal conduct by Mr Jaques of Prime knowing and permitting SCV to perform the WMSAs and thereby communicating that fact to Fig Tree’s agent, SCV.  These were small matters.  Taken in context, even taken collectively with all other pieces of information Prime had received, its knowledge at this stage as to the manner in which SCV would apply or was applying the Village Life System fell well short of comprehensive understanding of the changes in the villages likely to be effected by the assignment. 

114               There is also an indication in the 10 September 2007 expenditure request for a larger waste bin that in Mr Jaques response he asks the question whether the need for the bin was due to the change in the way that SCV is providing food.  Fig Tree contends this shows clearly that Prime, through Mr Jaques, was aware of a change in the way that SCV was providing food.  Prime, on the other hand, contends in its pleadings that it first became aware of the nature and extent of changes in the food system in late October 2007 after Mr Bosel reported observations he had made and received to Mr Lewski and Mr Jaques.  It would certainly seem that Mr Jaques at least at this stage, 10 September 2007, had knowledge of some of the changes in the way that SCV was providing food at least in the Maryborough village.  However, a communication about expenditure on bins at one village is hardly the way in which Prime would be informed of significant and broad ranging changes to the food system to apply universally in all villages. 

115               On 13 September 2007 Fig Tree wrote to Prime proposing that the existing WMSAs be terminated and replaced by Prime entering into new agreements with SCV.  It enclosed a proposed new agreement and invited Prime to consult with its professional advisors and to contact one or other of the two named senior executives in the event there were any questions.  The proposed agreement did not suggest any relevant change to the obligations owed by Fig Tree under the WMSAs.  In particular, the proposed new agreements with SCV still provided for all of those obligations and notably there was no change to the provisions which provided that the villages would be managed in accordance with the Village Life System.  Fig Tree contends that the effect of the agreement and the Assignment Agreement was that SCV would be obliged to continue to manage the villages in accordance with that system.  Although the proposed new agreement still contemplated that manuals and therefore the Village Life System could be altered, notably the power to alter that system would still lie with Fig Tree and it was not proposed that power be transferred to SCV. 

116               But it is necessary again to focus on Prime’s complaint that its concern was not confined to what was required under the WMSAs.  Rather, its main concern developed on learning of the changes that were actually taking place in purported performance of the WMSAs subsequent to execution of the Assignment Agreement.

117               On the following day, 14 September 2007, there were monthly investor statements identifying the date of payment as 14 September 2007.  The documents were on SCV letterheads addressed to Prime.  It revealed the amounts accounted for on the statements for August 2007 were received by Prime’s bank and accordingly that business was continuing in the usual way concerning accounting and banking receipts.  Accordingly, Fig Tree argues, this reflected continuation of the mechanism as to how Prime performed its obligation to pay various accounts, that is, by permitting relevant amounts to be deducted from what was otherwise due to it, conduct which Fig Tree argues is consistent with or constitutes affirmation. 

118               On 23 September 2007, again, in the Fig Tree Managing Director’s report to the Board of Management prepared by Mr Lonie about the assignment of management rights it was recorded ‘operationally, SCV is managing the villages on a day to day basis … however the pragmatic position is that SCV is operating the villages and imposing its system as was intended’.  Once again, Prime complains that it was unaware of this fact – indeed it was inconsistent with the obligations under the draft assignment agreement to operate the villages in accordance with the Village Life System. 

119               On 25 September 2007 the minutes of a Fig Tree Board meeting note the failure of SCV ‘to explain the changes in their operating systems in comparison to Village Life’.  Once again, Prime complains that it was unaware of this fact – indeed it was inconsistent with the obligations under the draft assignment agreement to operate the villages in accordance with the Village Life System. 

120               On 28 September 2007, Prime’s solicitors wrote to Fig Tree seeking further information and advising that they were reviewing the documents and would revert in due course.  However, on 3 October 2007, Prime purported to terminate the WMSAs and required Fig Tree to make arrangements to surrender management control and possession of each village to Prime by 17 October 2007. 

121               Prime in this communication relied on two grounds to justify its purported termination.  The first was that ‘by purporting to assign its rights’ Fig Tree had repudiated the WMSAs.  The second was that ‘by delivering management control and occupation of the villages to SCV Group’, Fig Tree had repudiated the WMSAs.  As pointed out above, the letter was sent without any further communication occurring between Prime and Fig Tree, notwithstanding the invitation expressed in the 13 September 2007 letter from Fig Tree to Prime. 

122               On 24 November 2007, Fig Tree’s Managing Director’s Report records:

the financial solution that emerged in February 2007 to sell the management rights was logical at the time but had turned into a nightmare as we have probably been to (sic-too) willing to compromise to collect the money and have thus let SCV get away with aberrations that, in any other circumstances, would not be acceptable’.    (emphasis added)

123               Of course Prime was necessarily unaware prior to termination of the Report or, more importantly of Fig Tree’s view and whether Fig Tree’s summary of the problem was correct.  It does, however, accord with the case Prime now advances and does not sit easily with arguments advanced by Fig Tree. 

Witnesses

124               Each of the parties called oral evidence.  Fig Tree was critical of Prime’s witnesses.  I have not accepted those criticisms. 

125               There were many objections raised to the content of witness statements and other documents.  To have dealt with all of those objections in the course of the trial would have been cumbersome and would have substantially delayed witnesses.  In most instances I reserved rulings on objections and took the evidence of witnesses subject to the ruling on the objections.  The objections and my rulings on them are collected as an annexure to and at the end of these reasons in Appendix A.

126               Generally speaking, the oral evidence for each of the parties was given by witnesses in one of four categories.  Each of the parties called company officers. 

127               In the case of Fig Tree, those officers were Mr Stephen Lonie, the company Managing Director; Mr Robert Dubery, the Company Secretary; and Ms Anne Kratzke, the Field Manager and Food Standards officer. 

128               In relation to Prime, it was Mr Bill Lewski, the Managing Director and Mr Michael Bosel, the General Manager who commenced in September 2007. 

129               Evidence was also given by officers of SCV, specifically the Chief Financial Officer and Company Secretary, Mr Glenn Buckner and the National Business Manager of SCV, Mr Ian John Minett. 

130               The second category of witnesses was the category of managers of the various villages.  Witnesses falling into that category were, for Fig Tree:

Mrs Christine Nash (Village Life Hervey Bay, Queensland)

131               And for Prime:

Ms Natalie Donnelly (Village Life Earlville, Queensland);

Ms Karen Dean (Village Life Hackham 1 and Hackham 2, South Australia);

Ms Marilyn Mausolf (Village Life Christie Downs, South Australia);

Ms Christene Hodgson (Village Life Gladstone, Queensland); and

Mr Mark McLean (Village Life Townsville, Queensland)

132               The third category of witnesses were residents at the villages specifically:

Ms Brenda Jackson (Village Life Christie Downs, South Australia); and

Mr Jack Hirst (Village Life Evanston, South Australia). 

133               Finally, there were expert witnesses giving opinion evidence on the manner in which the villages were managed at various times in relation to the various topics referred to above and the consequences of such management. 

134               The nature of the food changes was addressed in the evidence of the on-site managers called by Prime, namely, Mrs Donnelly, Ms Hodgson and Mr McLean.  It also came from the evidence of Ms Kratzke and Mrs Nash called by Fig Tree. 

135               Evidence was given by Mrs Christine Nash, the on-site manager in Hervey Bay.  Mrs Nash said that as an independent contractor of Village Life Hervey Bay she was required to adhere very closely to Village Life’s procedures manual which set out the content of the Village Life System.  Important features of that system as it operated between 2002 and 2006 included the requirement that residents of the village would be provided with three meals per day prepared by the on-site managers from fresh ingredients.  She said that the Village Life System also required that lunch be provided to residents in the communal area.  Residents were encouraged to come from their rental units to the communal dining area to dine with other residents.  The communal dining arrangements allowed on-site managers to assure themselves of the wellbeing of the residents through the meal book, a diary displayed in the communal dining room so that residents could notify village managers in advance of missing a meal and requiring their meal to be put aside for them.  Mrs Nash noted that if a resident did not appear for a meal without recording their name in the book that she or her husband who was the other on-site manager of Village Life, Hervey Bay would check on that resident. 

136               From 2006 Fig Tree permitted on-site managers to prepare takeaway meals for residents two nights a week so long as they did not do so on consecutive nights.  Fig Tree also permitted the managers to prepare one takeaway lunch per week.  Those meals were still prepared by the on-site managers from fresh ingredients and the managers were required to inform Fig Tree (or Village Life as it then was) of the particular days on which takeaway meals were provided to the residents.  This system continued in operation until SCV assumed management of the villages in around September 2007, according to her evidence.  In particular, the way in which lunches and dinners were prepared changed insofar as the protein component of those meals, that is, meat, eggs and vegetable proteins were typically ordered from outside suppliers and delivered on a frozen basis to the village.  Although residents continued to eat lunch meals in the communal dining areas, they were required to collect their evening meal in takeaway plastic containers from the communal dining area at lunchtime after the meals had been thawed for one to two days beforehand.  Under the SCV system residents retained the option to leave their evening meal in the communal fridge and to eat in the communal dining area at a time convenient to them although in practice, no resident ever did that in the experience of Mrs Nash. 

137               Evidence was given by Ms Dean, one of the village managers, that under the new food system introduced by SCV, she as a manager could only give the residents precooked roasts.  She could not go to a butcher and buy the fresh roasts if she wished to.  Secondly, under the new SCV food system, the food came in plastic containers similar to typical rectangular Chinese takeaway style containers and the managers were restricted to dealing with food suppliers including local butchers who were nominated by SCV.  She said that in addition to the prepared food being delivered by the food suppliers, they were to be heated and plated by Ms Dean and her partner but also served with vegetables and fruit.  The lunch was always either precooked or pre-prepared and the evening meals were a combination of pre-prepared food and other food, although most of it was prepared and came in prepared. 

138               Ms Dean gave evidence that on Christmas day she and her partner resumed serving fresh food, that is, buying in fresh meats from their own supplier because notwithstanding the fact that they were still working for SCV, she received a phone call to return to the village urgently to deal with what staff described as a riot in the dining room.  Residents had taken the evening meals from the fridge, thrown them everywhere, banging on the door and saying they had had enough.  Ms Dean says she was unable to contact SCV to have variations made to the set menu so took matters into her own hands. 

139               Ms Dean gave evidence that she could recall being informed by residents who were leaving the villages that they were leaving because they were not used to eating this type of food and they had been under the impression when joining the villages that there would be managers on duty all the time, that dinner could be eaten in the dining room and those matters were not followed through. 

140               There was not much evidence of this in the written complaints.  Ms Dean said that she would ask the residents to write down their concerns of that nature but the general response was that they did not want to cause any trouble and they just wanted to forget about it. 

141               Another manager, Ms Marilyn Mausolf, gave evidence that under the SCV system she would be cooking the vegetables and reheating the ‘protein’ for lunch.  She said that SCV dinners were put into containers and put into the community fridge for the residents to take home to their units.  Initially SCV sent food to the village at Christie Downs by way of its supplier which was referred to as a ‘starter pack’ but the food was insufficient to feed the residents of the village and she received bad feedback from the residents in relation to the food that was introduced.  She explained in cross-examination that she would not be prepared to live on the food which was supplied by SCV. 

142               Mrs Christene Hodgson, another village manager, gave evidence that at the Gladstone Village the communal dining room did not have a microwave.  She said that if she had not received an item that had been ordered from SCV’s food supplier, she was not able to get a similar item from a local supplier.  She also gave evidence that she had been informed in Bundaberg (at a SVC forum) that she would be doing things a lot differently with SCV than she had been with Village Life.  In particular, she was told that she would not be required to cook any longer under SCV but that ‘we would just be regenerating protein and preparing side salads and vegetables that we would have previously ordered [from SCV Group’s food supplier]’. 

143               Evidence was also given by Mrs Donnelly who was the on-site manager of Village Life, Earlville.  Her evidence was that SCV directed her to manage Earlville in accordance with the provision of her contract of employment with SCV rather than in accordance with the Village Life System.  She said that when SCV took over the management of Earlville, she no longer referred to the Village Life manuals for guidance about the management of the village as the SCV model was quite different from the Village Life System.  She said that Earlville changed from the Village Life System of food preparation and delivery to the SCV food system on 31 October 2007.  She was instructed by SCV that she and her husband were permitted to serve only one meal per day in the communal dining area.  She said that residents had an option of eating their take home meal in the communal dining area when it was open, although there was no microwave in that area so residents could not reheat a take home meal from there.  Under SCV, Mrs Donnelly and her husband were paid for no more than three hours work per day.  She said that prior to 31 October 2007, when the SCV system of food service was introduced, the only frozen food which Mr and Mrs Donnelly served to residents of Earlville were frozen peas, frozen beans and corn cobbs.  In contrast to this, Mrs Donnelly said that she was required to prepare and serve the frozen ready prepared food provided by the supplier nominated by SCV both at lunch and for the evening meal.  Her evidence was that it was permissible for her and her husband to supplement the SCV meals with desserts which they had prepared.  Mr and Mrs Donnelly did not have time, however, to prepare dessert within the three hours per day for which they were paid by SCV. 

144               Ms Brenda Jackson, a resident of Village Life, Christie Downs gave evidence.  Her evidence was that since it opened up in around 2003, residents prior to SCV’s management of the village had never taken more than one takeaway lunch meal and never more than two takeaway evening meals. 

145               Another resident, Mr Jack Hirst said that he left the Evanston Village in November 2007 after the SCV food had been introduced ‘because of the quality of the food that we was (sic-were) getting deteriorated’.  He could only experience the SCV food system for a month prior to leaving the Evanston Village.  It was said that month was enough for him to make his decision. 

Findings

146               The summary of the communications between May and the end of July 2007, according to Fig Tree, is that Prime had knowledge of the substance and effect of Fig Tree’s ASX announcement that a formal Assignment Agreement had been entered into for a total consideration of $14 million subject to conditions precedent and that Fig Tree was in the process of obtaining Prime’s consent.  Fig Tree says that Prime was informed of the involvement of SCV and the nature of that involvement particularly in relation to the division of management tasks and responsibilities allocated as between SCV and Fig Tree.  Fig Tree contends that Prime knew that SCV had an obligation to operate the Prime villages in accordance with the Village Life System; that Fig Tree’s intention was that Prime would receive legal documentation from Fig Tree within a short period of time after 30 July 2007; that SCV were completing audit reports of the villages which were the subject of the Assignment Agreement to be made available to Prime and other village owners; that SCV had engaged former Fig Tree managers on 90 day contracts to allow adequate time for Fig Tree’s independent contractors to assess the SCV employment contract and finally that SCV having over the years trialled several methods of delivering food to residents ranging from ‘cooked fresh’ to ‘cooked chill’ systems, found the ‘cook freeze’ method to be the best method and that the frozen components of the SCV meals were ‘no different to what you may prepare at home’. 

147               What Prime stresses, however, is that there was crucial information not communicated to it or otherwise known by Prime which was relevant to Prime’s election to affirm or terminate.  Prime points to the fact that there is no evidence of any communication from Fig Tree to Prime before the end of July 2007 which provided details of the Assignment Agreement, its implementation, or changes that SCV had either already made or were to make to the Village Life System. 

148               A dominant consideration in this regard is that the 30 July 2007 letter from SCV to Prime addressed in some detail the food delivery system which SCV proposed to use, however, according to Prime the representations made in the letter stand in stark contrast to the evidence from the managers regarding the food actually delivered under the SCV system. 

149               Prime contends and I so find that the innocuous language of the communications from Fig Tree or SCV to Prime in the May, June and July 2007 period was not notification to Prime of the full nature of the changes in respect of the management of the Prime villages.  Prime was assured that there would be no changes to its current contracts, being the WMSAs. 

150               Prime contends and I accept that (relatively soon after entry into the Assignment Agreement of 30 May 2007) Fig Tree had knowledge or opinions to which Prime did not have access as to:

(a)        the extent and permanency of Fig Tree’s handover to SCV;

(b)        SCV’s plans to introduce a management system that was materially different to the Village Life System; and

(c)        the quite different and, in some respects, poor performance by SCV of its management responsibilities.

151               The information which Prime did not have or was not communicated to Prime was that on and from 1 June 2007:

(a)        SCV had assumed operational management responsibility for all of the villages;

(b)        Fig Tree had ceased to distribute its existing promotional brochures as a result of a legal determination that the brochures misrepresented the current services provided by SCV;

(c)        SCV planned to provide a food service in the Prime villages that was to be different from the Village Life System or that there was at least a possibility of the Village Life System being varied by SCV; and

(d)        that SCV’s changing of the Village Life System model would impact on village owners.

152               I find that as at 21 June 2007, Prime was unaware that it was the view of Fig Tree officers that SCV’s poor management of the villages was ‘destroying [Fig Tree’s] business’ and that SCV’s management of the transition of responsibilities in respect of the villages had been ‘nothing less than poor’ (see the Managing Director’s Report to the Board).  Also by this date, Prime was unaware that Fig Tree’s operations would be reduced to ‘skeleton staff’ and be relocated to SCV’s offices in Maroochydore by the end of July 2007; that cash flow was a key issue for Fig Tree and the immediate critical issue for Fig Tree was to get the new WMSAs signed off by the owners so that Fig Tree could settle the remaining $13.5 million as soon as possible; that SCV had altered the terms of engagement of on-site village managers from an independent contract to a contract of employment; that SCV proposed variations of the Village Life System to suit its own purposes; and that SCV had failed to provide Fig Tree with any transition plan. 

153               Further, Prime contends and I find that by 20 July 2007 it was unaware that:

(a)        Fig Tree considered that the transfer of the operational management responsibilities to SCV on 1 June 2007 had been premature; that SCV’s ‘on the ground’ performance had been poor; and that SCV was incompetent.

(b)        Fig Tree was aware that ‘the SCV system that we have let them introduce, is not identical to the Village Life System’, raising the prospect of village owners contending that ‘there is a fundamental failure to deliver the prescribed outcomes in accordance with the original management contract’;

(c)        Fig Tree faced difficulties in maintaining the integrity of the Village Life System due to the departure of its operational staff; and

(d)        Fig Tree was rapidly shedding any real capacity to manage the Prime villages.

154               On and after 24 July 2007, Prime was unaware that Fig Tree planned for all Fig Tree on-site managers, human resources and other personnel other than some accounting and administration staff to be made redundant by 24 August 2007.  Notice of termination to staff was given on 25 July 2007 effective 24 August 2007.

155               Fig Tree emphasises for the purpose of the affirmation case, that the events in 2007 illustrate that Prime had ample knowledge.  The point is made that Prime did not call most of its Board members, its company secretary, its solicitors, other senior executives, members of the DDC to deal with the question of Prime’s knowledge.  In particular emphasis is placed on Prime’s failure to call Mr Jaques who was the director to whom the 30 July 2007 letter was sent and whom had several meetings with SCV and email exchanges with SCV.  Fig Tree contends that in accordance with Jones v Dunkel (1959) 101 CLR 298 the unexplained failure to call any of these witnesses, particularly Mr Jaques, should lead to an inference that the uncalled evidence would not have assisted Prime’s case.  In my view this submission overlooks the fact that Fig Tree has the onus on the affirmation point.  I would need to be satisfied that Fig Tree had established on the balance of probabilities that Prime had sufficient relevant knowledge.  If Fig Tree does not get to that point, the rule in Jones v Dunkel cannot be used to fill gaps in Fig Tree’s case:  Jones v Dunkel 101 CLR 298 at 308, 312 and 320-321. 

156               Fig Tree has not discharged its onus of proving that Prime did have knowledge of the significant matters that Prime has emphasised. 

THE NATURE AND EFFECT OF CHANGES UNDER SCV

157               Much of the summarised documentary evidence goes to the affirmation issue on which Fig Tree had the onus.  However this is a threshold issue in relation to whether Prime has established a repudiation by Fig Tree.

158               For Prime’s part it places significant emphasis on the Village Life model.  It contends that prior to 2006, the model which Fig Tree had developed involved physical design features and operating systems which I have described.  In the confidential annexure I have focussed on some particular features of the system which Prime submits were of importance and why that was so.  To give these reasons some context, confidential detail aside, it is necessary to discuss the evidence albeit at some level of generality. 

Food, Managers’ Terms and Residency

159               Ultimately when evidence was adduced in relation to food changes, it was in relatively narrow compass.  In saying this I do not consider that it was insignificant or insufficient. 

160               Prime contends that even if the Assignment Agreement had no effect because conditions precedent to it had not been satisfied, it was nevertheless clear on the evidence, particularly the evidence of the on-site managers and Fig Tree’s own admissions that Fig Tree had in fact ceased to perform its obligations under the WMSAs.  Accordingly, it had in practical terms effected an assignment of its performance obligations to SCV.  Prime says this is a natural conclusion suggested by steps actually taken by Fig Tree and SCV including the fact that Fig Tree released the on-site managers from their contracts and SCV entered into fresh contracts.  Those new contracts were not expressed to be conditional.  Secondly, SCV introduced longer term rental contracts to which SCV was named a party, requiring a bond to be paid and signing direct debit facilities to be paid to SCV not Fig Tree.  Additionally, from June 2007, SCV instructed on-site managers to use SCV documentation as the villages were being ‘re-branded’.  Finally, by correspondence delivered to on-site managers from SCV, it was clear that SCV considered that they had taken over exclusive operational management of the villages. 

161               Prime says that on any view, whether by effective assignment or by installing SCV as an agent manager, Fig Tree ceased to perform all or substantially all of the management functions at the villages.  Fig Tree implemented new permanent arrangements inconsistent with the Village Life System in relation to food provided to residents and the manner in which it was prepared and served, engagement of on-site managers and conditions of tenancy for residents. 

162               Prime argues Fig Tree manifested an intention to no longer perform its obligations under the WMSAs or at least, not in accordance with all the terms of the WMSAs and in particular the Village Life System.  In relation to this issue, Prime contends that the food changes went well beyond anything that might be considered a variation or modification of the Village Life System.  The food changes on Prime’s argument were fundamentally at odds with the Village Life System. 

163               Prime points out that there is no tenable suggestion that the changes were not intended to be permanent and had Prime not intervened they would have been permanent. 

164               At [33]-[37] above, I summarised the factual assertions made by Prime in the three areas it pleads.  The evidence on those topics is analysed further below.  For present purposes, however, I record that in my view, on the evidence, Prime has made good most of its complaints – particularly in relation to food.  It must be emphasised that by no means all of the complaints were specifically proven at each village.  Indeed far from it.  The complaints, however, comprise a collection of changes to be introduced (or which had already been introduced) at all of the villages.  It was a new management system across the board. 

ANALYSIS

Repudiation – the Principles

165               In Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115, the High Court (Gleeson CJ, Gummow, Hayden and Crennan JJ at [44]-[56]) held that a right to terminate a contract arises in respect either of a breach of an essential term or a serious breach of a non-essential term. 

166               The High Court held:

[44]      … conduct … which evinces an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with the party’s obligations. … may be termed renunciation. The test is whether the conduct of one party is such as to convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it.

…

See also Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 and Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26.

167               The High Court reached its decision not upon the ground of breach of an essential obligation, but upon application of the doctrine in relation to intermediate terms.  The contractual obligations with which Sanpine failed to comply were inessential.  On the true construction of the contract, not every breach would justify a termination.  The obligations were intermediate terms, but the breaches of the respondent were in a number of respects gross and their consequences were serious. 

168               The majority in the High Court also said at [44]:

There may be cases where a failure to perform, even if not a breach of an essential term … manifests unwillingness or inability to perform in such circumstances that the other party is entitled to conclude that the contract will not be performed substantially according to its requirements.  This overlapping between renunciation and failure of performance may appear conceptually untidy, but unwillingness or inability to perform a contract often is manifested most clearly by the conduct of a party when the time for performance arrives.  In contractual renunciation, actions may speak louder than words. 

169               While the ordinary remedy for breach of contract is an award in damages, a sufficiently serious breach may entitle termination.  The answer to whether there has been repudiation by a sufficiently serious breach of a non-essential term may be influenced by whether the breach will give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he or she should obtain from the contract.  Identification of the benefit is therefore important.  It is to be considered in light of the language of the contract and the circumstances in which the parties contracted. 

170               To complete this topic, regard should also be had to other aspects of the legal analysis by the majority in Koompahtoo (citations omitted).  After consideration of the well-known exposition in Tramways (1938) 38 SR (NSW) 632 comparing conditions and warranties by Jordan CJ, their Honours said:

48.       What Jordan CJ said as to substantial performance, and substantial breach, is now to be read in the light of later developments in the law. What is of immediate significance is his reference to the question he was addressing as one of construction of the contract. It is the common intention of the parties, expressed in the language of their contract, understood in the context of the relationship established by that contract and (in a case such as the present) the commercial purpose it served, that determines whether a term is "essential", so that any breach will justify termination.

49.       The second relevant circumstance is where there has been a sufficiently serious breach of a non-essential term. In Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd, the English Court of Appeal was concerned with a stipulation as to seaworthiness in a charterparty. Breaches of such a stipulation could vary widely in importance. They could be trivial or serious. The Court of Appeal held that to the accepted distinction between "conditions" and "warranties", that is, between stipulations that were in their nature essential and others, there must be added a distinction, operative within the class of non-essential obligations, between breaches that are significantly serious to justify termination and other breaches. This was a recognition that, although as a matter of construction of a contract it may not be the case that any breach of a given term will entitle the other party to terminate, some breaches of such a term may do so. Diplock LJ said[14] that the question whether a breach by one party relieves the other of further performance of his obligations cannot always be answered by treating a contractual undertaking as either a "condition" or a "warranty". Of some stipulations "all that can be predicated is that some breaches will and others will not give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract; and the legal consequences of a breach of such an undertaking, unless provided for expressly in the contract, depend upon the nature of the event to which the breach gives rise".

50.       In this way Diplock LJ set the policy of the law favouring certainty of outcome through the classification of terms as conditions against that which encourages contractual performance and favours restriction of the right to terminate to cases where breach occasions serious prejudice. As it is put in the eleventh edition of Treitel:

"[T]he policy of leaning in favour of classifying stipulations as intermediate terms can be said to promote the interests of justice by preventing the injured party from rescinding on grounds that are technical or unmeritorious."

Perhaps the adoption of other taxonomies for contractual stipulations might achieve similar outcomes. However, Hongkong Fir was decided in 1961 and has long since passed into the mainstream law of contract as understood and practised in Australia.

51.       It may be true that this Court has yet to accept Hongkong Fir as an essential element in the grounds for decision in any particular case. However, in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd, Mason ACJ, Wilson, Brennan and Dawson JJ referred to Hongkong Fir with evident approval and said that the concept of the intermediate and innominate term brings a greater flexibility to the law of contract. With that in mind, it was entirely appropriate for Campbell J to proceed with an analysis of the facts in which Hongkong Fir was applied.

52.       The practical utility of a classification which includes intermediate terms, and the consequent greater flexibility of which the Court spoke in Ankar, appears from several consequences. First, the interests of justice are promoted by limiting rights to rescind to instances of serious and substantial breaches of contract. Secondly, a just outcome is facilitated in cases where the breach is of a term which is inessential.

53.       As will appear later in these reasons, we rest our decision in the appeal not upon the ground of breach of an essential obligation, but upon application of the doctrine respecting intermediate terms.

Repudiation – Fig Tree’s General Contentions

171               The case which Fig Tree meets in the Prime cross-claim is that there has been either renunciation or repudiation by breach of an essential term or alternatively a sufficiently serious breach of a non-essential or intermediate term. 

172               Fig Tree contends that the promise to manage in accordance with the Village Life System could not possibly be an essential term.  Fig Tree argues that such a promise is a classic example of an intermediate or innominate term.  For reasons discussed in the next section, I accept that submission. 

173               Fig Tree contends that at its highest, Prime’s case would only reveal that during the transition period provided for in the Assignment Agreement, Fig Tree failed to prevent SCV from departing from the Village Life System in certain respects.  Accordingly in those respects it may be argued that Fig Tree had broken its promise to manage in accordance with the Village Life System.  Fig Tree says that the highest Prime’s evidence comes in relation to that alleged breached is in the following respects:

·                    a component of the lunch served to residents was usually pre-packaged or pre-prepared (being the ‘protein’ component);

·                    seven rather than two evening meals were take home meals;

·                    a component of most evening meals which were offered to the residents was from pre-packaged or pre-prepared food;

·                    on-site managers became fulltime employees rather than independent contractors.

174               As addressed below, I consider that this summary significantly understates the impact of the SCV changes. 

175               As a point of principle, Fig Tree contends that the benefit to which Prime was entitled under the WMSAs is the maximisation of its financial return from the properties over a 25 year term.  A central plank of Fig Tree’s case on repudiation is that Prime and its witnesses have exaggerated the alleged seriousness of the breach and the inadequacy of damages as a remedy. 

176               In relation to the question of damages, Fig Tree argues that Prime’s own business records tendered during cross-examination reveal that on 28 February 2008, Prime published to the ASX its Financial Report and made other public announcements, none of which suggested that any material loss had been suffered by Prime as a result of Fig Tree’s actions.  Although Mr Lewski explained this on the basis of a materiality threshold, Fig Tree says that his explanation was unconvincing for a number of reasons.  First, despite Mr Bosel conceding that in April and May 2008, Prime had commissioned CB Richard Ellis to conduct valuations for eight out of the 12 villages in the Fig Tree portfolio, no evidence was led from those valuers nor sought to be tendered.  On the basis of Jones v Dunkel 101 CLR 298, it was submitted it should be inferred that their evidence would not have assisted Prime’s case. 

177               Further, Fig Tree submits that when on 14 July 2008, Prime released to the market its Directors’ assessment of the outlook for the financial year ended 30 June 2009, the reference to the valuations in that release revealed only a ‘small downward movement on the Fig Tree Portfolio’.  It attributed that small downward movement to increases in discount rates since the previous valuation rather than any actions of Fig Tree. 

178               Fig Tree also argues that the expert opinion evidence called by Mr Ludlow did not take into account and was not based on any of the material in relation to the valuation reports.  It is argued that while there has been some diminution in occupancy rates of the villages, there is no admissible evidence as to causation of that diminution.  Fig Tree objected to Mr Ludlow expressing an opinion about the causal nexus and while I allowed the evidence subject to objection, I have concluded that Mr Ludlow’s evidence is admissible for reasons expressed in Appendix A. 

179               Fig Tree also contends that Prime’s evidence ‘is unreliable and exaggerated’, first, as to the severity of the damage to Prime as a result of the departure from the Village Life system and, secondly, on the basis that there was nothing intrinsically wrong with the systems which SCV sought to introduce according to the evidence of Professor Capra.  Professor Capra gave evidence as to the advantages of serving pre-prepared food of the kind offered under the SCV food system.  Her evidence was to the effect that such food is not shown to be less nutritious than freshly prepared products.  There was also evidence from Ms Dorrett as to the advantages of the pre-prepared food of the kind manufactured by Prepared Foods Australia which was the predominant supplier of the prepared food under the SCV system.  Ms Kratzke also said that one of the advantages of pre-prepared food was that the quality of the meal became less dependent on the cooking skills of the on-site managers. 

180               Significantly, Fig Tree suggests that the only evidence which exists and is uninfluenced by the litigation is the contemporaneous business records.  It says those records tell a very different story from the evidence adduced by Prime.  From that source, it is evident, according to Fig Tree, that:

·                    the vacating tenant list revealed that only four out of 253 residents leaving during the period 1 June 2007 to 30 June 2008 attributed their reasons for leaving to the now impugned ‘SCV’ changes;

·                    the resident leaving forms with respect to Hackham 1 and Hackham 2 demonstrate the exaggeration contained in the evidence of Ms Dean who was called for Prime;

·                    the survey results of the residents at the Gladstone Village about the take home day (on which they were required to take home the lunch and evening meals) demonstrate the exaggeration of Prime’s case as to the impact on the residents in requiring them to take home an extra five evening meals.

181               As to all of these submissions I observe that the fact that the extent of damage may not either have been significant or then known to be significant does not mean that a breach may not be serious.  The law permits termination for repudiation when a serious breach of an intermediate term has occurred.  Terminating may prevent significant damage being sustained in the future as a result of a serious breach of an intermediate term. 

No Repudiation by Entry into the Assignment Agreement

182               The Assignment Agreement makes it a condition precedent to any assignment of the WMSAs that Prime’s consent be obtained (cl 2.1(e)(ii)) or that Fig Tree agree with the owner of the wholesale complex (Prime) to terminate its 12 agreements with Fig Tree and enter into new agreements with SCV on terms substantially similar to the terms of Prime’s agreements with Fig Tree (cl 2.1(e)(v)(B)).  Clauses 2.1 and 9.1 of the Assignment Agreement relevantly to this issue provided:

2.         CONDITIONS PRECEDENT

2.1       Completion is conditional upon the following:

…

(e)        in respect of a Wholesale Complex:

…

(ii)        the parties obtaining any necessary consent or approval of a third party to the assignment or novation of the Wholesale Management Rights Agreement for that Wholesale Complex to the Purchaser with effect from the Completion Date; and

(iii)       the parties generally obtaining all other statutory consents and approvals that may be reasonably required to give effect to this agreement or the transactions contemplated by this agreement; and

(iv)       the parties generally obtaining all other third party consents and approvals that may be reasonably required to give effect to this agreement; and

…

9.         SPECIFIED CONTRACTS

9.1       The Vendor agrees to use its reasonable endeavours and to act promptly and reasonably in seeking to either:

(a)        obtain the consent of:

(i)         the parties to the Specified Contracts (Third Parties); and

(ii)        the Bodies Corporate,

to the assignment or novation of the Specified Contracts with effect from the Completion Date; or

(b)        terminate the Specified Contracts and enable the Purchaser to enter into contracts with the Third Parties to the Specified Contracts on terms either substantially similar to the terms of the Specified Contracts or otherwise on terms acceptable to the Purchaser acting reasonably on or before the Completion Date (New Specified Contracts).

183               I accept Fig Tree’s argument that any transfer of rights and obligations under the Assignment Agreement was subject to obtaining Prime’s consent.  If consent were not obtained, the contemplated assignment would have no force and the WMSAs between Prime and Fig Tree would continue. 

184               Fig Tree could not force Prime to give consent.  However, by cl 9.1 of the Assignment Agreement, Fig Tree bound itself to attempt to obtain Prime’s consent to assignment or novation in favour of SCV or to terminate each WMSA and enable SCV to enter into new contracts with Prime.  Both options led to the result that Fig Tree could no longer perform.  Fig Tree contends that the only way this could work as a renunciation was if cl 9.1 were interpreted such that if consent or a new agreement were not forthcoming, Fig Tree was nevertheless unequivocally promising SCV that it would terminate.  Fig Tree says this would be a ‘ridiculous construction’.  I agree that this is not the preferred construction even though Fig Tree was keen to obtain payment and walk away swiftly.  The better construction to be given to cl 9.1 is that Fig Tree would use its best reasonable endeavours.  Such a clause would be implied at law in any event.  Fig Tree contends that given the value which the Assignment Agreement attributed to the WMSAs, namely, a sum in excess of $3.5 million, SCV could be taken to be unwilling to proceed unless the conditions were satisfied.  I accept Fig Tree’s submission. 

185               Taken in isolation, I do not consider that entry into the Assignment Agreement constituted a repudiation of the obligations under the WMSA by Fig Tree.  Without Prime’s consent, no assignment would be valid.  (No consent has been given). 

186               On a different argument, Fig Tree also contends that it may subcontract its obligations under the WMSAs without Prime’s consent.  I do not agree.  A contract may expressly or impliedly prohibit vicarious performance, the question being one of construction in each case.  In Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd (2006) 149 FCR 395 Finn and Sundberg JJ observed at [59]:

It characteristically is said that it is a question of construction whether a contract itself or particular rights or obligations involve personal considerations such as to render the contract or those rights unassignable, or the obligations not delegable: see eg Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1903] AC 414 at 416–17; National Carbonising Co Ltd v British Coal Distillation Ltd (1936) 2 All ER 1012 at 1017; Australis Media Holdings Pty Ltd v Telstra Corp Ltd (1998) 43 NSWLR 104 at 118–20; see also Furmston, (ed), 6.299, 6.301–6.324; Chitty on Contracts, [19-053]; cf Cheshire & Fifoot's Law of Contract, [8.6]. However, given the particular purpose for which the contract and its terms are being construed, implicit in the question of construction are, ordinarily, issues of characterisation and of inference in which the significance to be attributed, variously, to identity, to the qualities or attributes one or both parties are expected to exhibit and to the character of the parties’ relationship, can loom large.

See also Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104, at 118-120.  Of course, the legal barrier to assignment of rights is very much lower than the legal barrier applicable to assignment of obligations under a contract.

187               As to the proper construction to be given to the question of whether performance can be vicarious, Fig Tree contends that the focus of the terms is on the mode of performance, namely, that the villages be managed in accordance with the Village Life System rather than on any particular person or attribute of Fig Tree.  I agree that the focus is on the Village Life System.  However, Fig Tree places very considerable store in the intellectual property that it has developed in the Village Life System.  The Village Life System for all practical purposes is synonymous with Fig Tree.  That is at the essence of the concerns which Prime has about the assignment to SCV of the obligations under the contract in circumstances where retention of reliable performance of the Village Life System cannot be guaranteed.  If there is one aspect of the WMSAs which is central to the relationship between the parties, it is the performance of the Village Life System or more accurately, Fig Tree’s Village Life System.  (That does not mean that each component of the Village Life System is an essential term). 

188               That the parties contemplated that the WMSAs could be assigned is a relevant consideration in deciding whether that assignment could be without consent of Prime.  Objectively viewed, what would have been in the minds of Fig Tree and Prime at the time of execution of the WMSAs was that if all of the services provided under the WMSAs and, in particular, in the context of the provision of Fig Tree’s Village Life System could be substantially guaranteed, in effect, on assignment of the contract, then there would be no proper reason for objection to the contract being assigned.  But the contractual requirement for consent was the very means of ensuring those objectives were attained. 

189               I accept Fig Tree’s submission that it is necessary to have regard to the wide range of tasks involved in managing the villages such that it would be improbable that the parties intended that Fig Tree would carry out those tasks through its employees only and through no other means such as by engaging independent contractors.  Clearly the evidence reveals that Fig Tree has always delegated the task of on-site management to husband and a wife management teams engaged by independent contracts.  However, the question is not whether some tasks such as changing a light fitting can be delegated to independent contractors but whether the performance of the Village Life system necessarily entails that it be performed, at least in a supervisory sense, by Fig Tree rather than (in a supervisory or other sense) by some other third party whom Prime has not had the opportunity to confirm can and will manage in accordance with the Village Life System. 

190               Once it can be seen that there is a personal component of each of the WMSAs, namely, the provision by Fig Tree of the Village Life System, it is clear in my view that Fig Tree cannot assign the entirety of its obligations under the WMSAs without Prime’s consent.  The fact that it may seek to assign its rights becomes a different but academic issue. 

191               While Fig Tree emphasises that the WMSAs contain no term prohibiting assignment, it does not follow that the WMSAs contemplate that assignment is permissible without consent being obtained.  Fig Tree contends that cl 22.2(f) in providing that a reference to a party includes the successors and permitted assigns of the party means ‘permitted assigns’ in the sense of permitted under the contract not permitted by Prime.  In light of the personal nature of the obligations of Fig Tree under this contract, a proper construction of the agreement requires that ‘permitted assigns’ be permitted by Prime.  These are each commercial contracts of substantial value as far as Prime is concerned.  It was entitled to protect its position by refusing assignment unless there was a guaranteed performance of the Village Life System. 

Management in Accordance with the Village Life System was not an Essential Term

192               As to the benefit to which Prime is entitled under the WMSAs, Fig Tree argues that Prime’s benefit is to obtain the maximisation of its financial return from the properties over a 25 year term.  The return is dependent, Fig Tree says, entirely on occupancy rates.  Fig Tree says that the parties must be taken to have identified what would be a substantially unacceptable occupancy rate in cl 1.3 by providing that if occupancy falls below 50% for a continuing six month period, Prime will have the right to terminate.  Fig Tree says that it is significant that the only fall in occupancy rates which Prime thought were serious enough to warrant the expression of a termination right was if the rate fell below 50% for a continuous six month period.  Accordingly, Fig Tree says that Prime’s argument that the benefit to which it was entitled was the benefit of having Fig Tree manage the villages in accordance with the WMSAs is unacceptable because it is clear that the WMSAs were about money. 

193               I have considerable difficulty with this argument.  There is an obligation to manage in accordance with the Village Life System under the WMSAs.  Each contract specifically identifies at the outset that compliance with that obligation is the very means by which Prime will maximise its investment. 

194               It is clear that the parties have not expressly identified the promise to manage in accordance with the Village Life System (or any other promise) as being an ‘essential term’.  Moreover the nature of the promise is one which is referable to a variety of other documents which fall within the definition of the Village Life System.  Those documents cover many matters, some of which are important and some of which are trivial.  The WMSAs themselves do contemplate that departures might occur and set out a regime to deal with them.  The contract also contemplates that there will be modification of the Village Life System and it appears to me that this is an important consideration.  In relation to potential breaches, Fig Tree relies on seven references in the WMSAs to possible breaches taking place.  (These are set out in Annexure B). 

195               Fig Tree relies on four references in the WMSAs to modifications of the Village Life System.  These are also set out in Annexure B.

196               The WMSAs were very long term arrangements.  Prime is described as an investor and Fig Tree is described as the manager.  Clearly it was expected that Fig Tree would handle problems which might arise from time to time in operations.  It would also seek a maximised return for the investor over a period of time.  It is improbable, in my view, that the parties would have contemplated that each and every operation or compliance difficulty, no matter how trivial and how brief, could give rise to the possibility of termination. 

197               Identification of anticipated small potential breaches and provision of a regime for dealing with them, and provision for modification appear to me to be valid arguments which on balance, lead to a conclusion that the promise to manage the villages in accordance with the Village Life System was an important but not an essential term.

The Promise to Manage the Villages in Accordance with the Village Life System was an Important Intermediate Term

198               As Fig Tree correctly points out, Prime has the onus of proof on the repudiation case.  Prime contends that the several departures from the Village Life System which were outlined in its pleading are to be regarded as evidence of renunciation by Fig Tree and as being sufficiently serious breaches of a non-essential term of the WMSA which justify termination by Prime.  (Prime also contends that the failure to manage in accordance with the Village Life System is a breach of an essential term but I am not satisfied that the term is essential). 

199               A significant feature of Fig Tree’s case is that it was not required to obtain Prime’s consent to any amendment to its Village Life System.  Fig Tree contends that the fact that the WMSA has contemplated that Fig Tree could unilaterally amend the content of the documents which defined the Village Life System was of particular significance when it comes to applying the legal test for repudiation in relation to any alleged departures from the system. 

200               The documents falling within the definition of the system cover a wide range of matters.  Some of them are clearly less important than others; some of them are quite detailed.  Fig Tree contends, correctly, that some of the clauses self evidently could not amount to promissory terms. 

201               The promise to manage in accordance with the Village Life System would be better characterised as an intermediate term, albeit an important one.  This does not mean that Prime has no remedy in the case of breach of such a term.  Its protection in the event of such a breach may be found in its ability to terminate pursuant to cl 1.3 if the occupancy rates fall low enough for long enough.  

202               Equally, in circumstances where there is a sufficiently serious breach of an intermediate term, Prime may be able to treat that breach as constituting a repudiation. 

Management in Accordance with the Village Life System after the Assignment Agreement - Food Changes

203               As to the seriousness of the departure from the Village Life System in relation to food, Fig Tree contends that the departure was trivial for the following reasons.  Fig Tree accepts that in relation to the description concerning food in the Village Life System Manuals, there were many pages devoted to the issue.  But Prime in its pleaded case only points to these aspects of those many pages not being complied with under SCV:

(a)        The food to be provided.

204               As to this, the essence of Prime’s complaint was that SCV required managers to order frozen food supplies from external contractors using a common menu nominated by SCV.  There is no dispute that the frozen food supplies related to some components of some but not all lunch and evening meals.

(b)        A second aspect of the complaint about the SCV food was that SCV did not stipulate the minimum nutritional requirements. 

205               This could only be relevant, argues Fig Tree, if it was demonstrated that the residents were not served a diet under SCV which did meet their nutritional requirements.  Fig Tree argues that Prime did not adduce evidence of such a case and Prime withdrew reliance on Mr Bosel’s evidence to the extent of complaints about nutritional value. 

(c)        The places of which and the manner in which food for the residents would be prepared.

206               This essentially replicated the complaint in (a), although it was also pleaded that SCV ‘did not permit’ managers to prepare fresh cooked meals but required them to use frozen food supplies which they were then required to regenerate and make available to residents.  Again, Fig Tree, accepts on the evidence that the frozen food supplies comprised part but not all lunch and evening meals and that the procedure described related to evening meals only. 

(d)        The places at which and manner in which food was to be provided to the residents.

207               Again, Fig Tree accepted that this was a reference to the five extra take home evening meals. 

208               Accordingly, the substantive changes made under SCV about which Prime complains according to Fig Tree were:

(a)        the introduction of pre-prepared food in relation to components of the lunch and evening meals, although not all such meals; and

(b)        the introduction of five extra take home evening meals.

209               Read in the context of what was required under the Village Life System as a whole in relation to food, it is submitted that these two departures were trivial.  Breakfast which was one third of the meals offered to the residents was unchanged.

210               It is accepted that the two changes did not comply with the Village Life System but Fig Tree does not accept that those changes were sufficiently serious as to justify termination. 

211               Another reason the introduction of the pre-prepared food was not a significant departure from the Village Life System according to Fig Tree was that it was something which Fig Tree itself had considered doing at some stage.  Secondly, the on-site managers of the Prime villages could and did serve pre-prepared or frozen food under the Village Life System albeit not from a source nominated by Fig Tree.  Fig Tree argued that the system had many uncontested advantages such as enabling the choice to be offered in situations for the evening meal, being able to ensure consistently high quality food, reduction of costs associated with meal production, less wastage, reduction of the likelihood of food poisoning, reduction of energy consumption, reduction of costs associated with maintaining equipment used in preparing food and less dependency on the cooking ability of the on-site managers. 

212               Fig Tree argued that it was an acceptable option for a food service which must cater to the residents at a facility such as the Prime villages within a limited budget.  In this context Fig Tree emphasised that the residents of the Prime villages were not paying significant sums to stay at those villages.  Fig Tree argued that for what they paid, they received housing, laundering of some items and three meals a day.  The expectation of what could be provided by way of food in such circumstances had to be measured by reference to what was paid by the residents. 

213               Fig Tree accepts that a number of residents and some managers were generally dissatisfied with the changes.  But as to this, Fig Tree argues that the residents of the villages were elderly and undoubtedly resistant to change.  It will never be known whether given time and further training of the on-site managers as to techniques in relation to the preparation and presentation of the pre-prepared food, the changes to the food would have been regarded as acceptable.

214               Fig Tree pointed to the fact that there was evidence of other residents not being unhappy with the changes.  Mrs Nash, for example, gave evidence that the residents at the Hervey Bay Village liked choosing their evening meal and liked having the flexibility of being able to have their evening meal in their units.  As to this submission, I would observe that to their credit, many elderly residents would attempt to see ‘the glass half full’ and adjust to deleterious changes in their conditions.  This does not mean that in the longer term Prime’s investment would not suffer if the changes imposed were sufficiently serious departures from the Village Life System. 

215               As to these arguments, the question will always come back to an analysis of the seriousness of the breach or breaches, if any.  Prime has never argued that trivial departures could constitute serious breaches entitling termination for repudiation. 

The Food Changes were a Serious Breach of the Village Life System Promise

216               I do not find the argument on the triviality of the food changes persuasive.  If there is a contractual method of supplying food which is objectively viewed as a matter of central importance to the contracting parties and to elderly people in retirement villages, the ‘expectation’ of what should be provided should be measured by what the contract itself provides. 

217               The totality of the evidence on the food changes established that while there were no material changes to the breakfast arrangements, there were the following changes in relation to lunches and the evening meal.  Those meals were no longer prepared on site.  Instead:

(a)        The practice was that residents would nominate the meals that they wished to consume for a period of up to a week in advance.  Those meals were described by SCV in relation to their protein component.  This was the title given in SCV’s internal literature and some correspondence.  The evidence showed that it referred to meat, egg and vegetable protein ingredients in what SCV referred to as being ‘wet dishes’;

(b)        managers would purchase the protein components from approved suppliers, in particular, from Prepared Foods Australia rather than from various local suppliers of their choosing.  They would do this rather than prepare and serve the meals that had been prepared on site from fresh ingredients;

(c)        the protein components from the meals were delivered in a frozen form to each village several days before it was required;

(d)        the meals were thawed out by managers for a period of some 24 to 48 hours prior to their consumption by the residents;

(e)        in the case of lunches, the frozen components were heated and then, depending on the actual meal provided, they would be combined with vegetables or salad which was prepared by the on-site managers.  The combined meal would be served to residents in the community dining rooms.

218               However, in the case of the evening meals, those meals would be thawed and would be added to salad or vegetables and then made available at lunchtimes for residents to collect and to take back to their units in order to reheat them and to eat them.  Fig Tree contends that the residents were, in theory, able to leave their dinner meals in the community rooms or to bring them back to the community rooms in the evening for the evening meal and to reheat them and eat them there.  This is clearly an impractical, inconvenient and unseemly practice which is probably why, as pointed out by Fig Tree’s witnesses, the residents did not exercise that theoretical option.  In any event, the microwave ovens in the community rooms were not always designed for such purposes, if they had them at all.  The concept of the residents queuing to share the use of a small domestic microwave so as to dine together would be a significant departure from the previous food delivery system under the Village Life System. 

219               Mr Bosel of Prime in his report in connection with Hervey Bay recorded that food presentation viewed for lunch was extremely poor.  He recorded that meals were provided in plastic containers which had been raised by the management team as a very poor process for their residents.  He said that comments by family or residents spoken with on the day gave rise to concern as it appeared that residents no longer have a satisfactory main meal served during the day.  In relation to Gladstone, in discussions with the managers it was reported that both managers had commented that residents and family were very concerned as to the food quality and service given that all meals were now prepared and sent from Brisbane.  Of the two residents with whom he spoke, both expressed their regret that the ‘family’ daily lunch had now been replaced with ‘plastic food’.  Mr Bosel expressed the opinion that unless there was a significant change in the focus of the village, that vacancy levels would continue to fall.

220               In relation to Earlville, Mr Bosel recorded that the new food system was to be introduced at the end of the month and ‘was causing a great deal of resentment from both the residents and the management team’.  In relation to Townsville 1 – Wulguru, it was noted that the changeover to the new system had caused similar issues to be raised. 

221               In relation to Townsville 2 – Condon, Mr Bosel reported that there was little incentive for the relief management team to increase occupancy and both had confirmed that they would not be working with the operator beyond the next few months due to the unsatisfactory changes that had occurred in the villages, particularly around the new catering arrangements. 

222               Mr Bosel also explained in his cross-examination that his concern about the possible adverse effect on Prime’s investment in the 12 villages had been ameliorated by the fact that the food service under the Village Life System had been reintroduced.  However, he said that the impact in the changeover at the time that SCV was managing was traumatic especially in relation to two villages and especially in relation to reputation.  He says that he did have concerns about significant damage to the value of the villages and he reported those concerns to Mr Jaques. 

223               Nevertheless, he did agree with senior counsel for Fig Tree that Prime’s financial reports for the half year ended December 2007 did not reflect any material loss to Prime or any loss of value in relation to the Fig Tree portfolio.  But he went on to say that there was no mention of any material loss or value in relation to the Fig Tree portfolio at that stage because Prime did not have the valuations then.  However, it is true that there was a small amount of reduction only, in July 2008. 

224               The method of provision of food by SCV was a significant and serious departure from the method described under the Village Life System and which had been operated by Fig Tree prior to the assignment.  A change of such significance without consultation with the owner of the villages, was predictably bound to cause significant repercussions. 

225               I would not infer that the food changes were insubstantial simply because Prime did not react to them earlier than it did – nor would I infer that Prime accepted them.  In my view the changes both as to the nature of the food and the system for the delivery of food to the residents was very substantial.  To raise this issue for the first time in the SCV letter of 30 July 2007 and in the community summary reports sent by SCV to Prime in August 2007 was inadequate.  I accept Prime’s submission that the references in the documents were ambiguous and buried amongst other information.  As Mr Lewski observed, there was no detail and substance in the reports and he certainly did not pick up any significant impact that they may or may not have suggested.  Prime’s submission is that in fact it did not know about the nature of the food changes proposed or ultimately implemented until mid-October 2007.  The period from mid-September to mid-October was the time at which Prime engaged the new General Manager (Aged Care & Retirement Operations), Mr Bosel.  It was early October 2007 when Mr Bosel toured the Prime villages. 

226               I have previously indicated that I accept the evidence of Mr Bosel as to what he found and I also accept his denial that his tour was exclusively or predominantly for the purpose of gathering information to be used as evidence against Fig Tree.  His evidence was that his initial purpose was to familiarise himself on his recent appointment with the Prime village operations.  Nevertheless, of course, as the tour unfolded he became aware of and concerned about the changes to food delivery and manager’s conditions which he observed and which were reported to him.  He prepared reports for Mr Lewski who at that stage was overseas.  In those reports, Mr Bosel expressed his concerns at the standard of food service under SCV and he described the reports that he had received from managers and residents concerning the changes in food service.  It also recorded Mr Bosel’s concerns arising from the change to the managers’ conditions and, in particular, to the reduced financial incentives to maintain the performance of managers and occupancy at the villages. 

227               Fig Tree’s own literature as to the importance of food unsurprisingly coincides with the importance placed on that aspect by Prime and more importantly, objectively viewed, the importance of the food system under the WMSAs.  The parties to the WMSAs worked on the premise that food was probably the single most important aspect of managing a Village Life site.  I have separately recorded in the confidential annexure the details which Fig Tree had focussed on in its literature on this topic.  In light of the confidentiality, I do not propose to repeat that detail in these reasons. 

228               In my view, the totality of the evidence called by Prime in particular does give rise to the conclusion that the nature and the impact of the changes introduced by SCV led to deep concern and dissatisfaction amongst managers and occupants of the villages concerning the reduced quantities of food (Jackson, Donnelly and Hirst); the reduced quality of the food in terms of edibility (Jackson, McLean, Donnelly and Hirst); concern at the residents’ capacity to safely store and reheat the food in their units which were not designed for the purpose (evidence of Dean, Donnelly, Hodgson and Hirst); and concern at the reduction in the scope for communal dining and social interaction.  I should indicate that insofar as there was a reference to safety in this aspect of the evidence, I treat that evidence only as being a departure from the previous system insofar as the location of delivery of food was concerned. 

229               Although Fig Tree contended that such breaches would have to be established in relation to every one of the 12 villages before there could be a conclusion as to repudiation of obligations under each of the WMSAs, in my view that is not so or at least not in the sense of requiring detailed evidence to be called on all topics from all villages.  The obligation contained in the Assignment Agreement for SCV to manage in accordance with the Village Life System appears to be a matter of lip service only.  The reality is reflected in Fig Tree’s internal documents.  It was always intended that SCV would manage in accordance with its own system.  The significant impact of SCV being permitted to do that is also evident from Fig Tree’s own internal documents. 

230               Importantly, the evidence of Ms Kratzke and Mr Lonie was that the changes that had occurred reflected initial stages of implementing a new system that would be applied across all of the villages.  The changes in the nature and delivery of food and in the managerial system were intended to apply at all of the villages.  There was the following exchange with Ms Kratzke in cross-examination:

When SCV took over responsibility for managing aspects of the villages, you were involved in organising the roll-out, as it were, of a new system for preparing and serving food to residents in the villages which SCV was now looking after.  Is that correct? ---

I was responsible in assisting with that roll-out, yes.

And you know from your role as a regional manager that roll-out was across all of the villages that SCV took responsibility for? ---

Not all, no

It was intended or planned to be rolled out to at least all of the villages that Prime owned? --- It was intended, yes, but that didn’t occur.

231               Ms Kratzke went onto explain that it did not happen at Townsville, Wulguru because the managers there did not sign the permanent employment contract with SCV.  She also explained that the new method for preparing and serving food to residents started to be introduced in the different villages from about the dates that the managers at each of the villages signed the new permanent employment agreements with SCV and that was typically mid to late September and then continuing through the balance of September and October 2007.  She also explained that the new permanent employment contracts for the on-site managers under the SCV model only paid the managers for 38 hours per week per couple even though they were required to do whatever work was necessary to complete the tasks. 

232               Ms Kratzke accepted that if a manager at a village prior to, for example, May 2007 had adopted the kind of arrangements concerning food and management that applied under the SCV model, it would not have been regarded (operationally, I infer) as compliance with the Village Life System. 

233               Prime did not know at this time that Fig Tree was seriously disappointed with the performance of SCV; that Fig Tree expected that SCV would simply introduce its own system rather than apply the Village Life System and Prime was not aware at that stage of the extent of difficulties being occasioned by the departures that SCV were implementing from the Village Life System.  Nevertheless, in my view, Prime is entitled to rely upon all matters which have now become apparent to it.  That includes the matters discovered by Mr Bosel on his tour and his report, the matters unearthed in the course of discovery given by Fig Tree in the litigation as well as Prime’s own preparation for the litigation in proofing managers and occupants of the villages concerned.  The principle flowing from Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 is that the termination of an agreement may be justified by proof of circumstances existing prior to such termination but of which the party terminating the agreement was unaware of until a later time.  Starke J at 373 held:

The fact that the appellant's misconduct was unknown to the respondent at the time of the termination of the agreement is quite immaterial. If there were, in fact, any circumstances in existence at the time of the termination of the agreement which could have justified the respondent in so terminating it, then it may justify the termination by subsequent proof of those circumstances (Smith's Law of Master and Servant, 5th ed., p. 107; Taylor v. Oakes Roncoroni & Co. (1922) 27 Com. Cas. 261 at p. 266; Swale v. Ipswich Tannery Ltd. (1906) 11 Com. Cas. 88, at p. 98).

234               When applied to the circumstances under examination in this case, Prime was entitled at trial to support its actions taken on 3 October 2007 by reference to events which existed but which were not known to it at that time. 

235               Although Prime must justify an election to terminate by reference to a legal right to do so it may justify it on any ground available at the time of the election:  Boston Deep Sea Fishing and Ice Co v Ansell (1888) 39 Ch D 339; Shepherd v Felt 45 CLR 359; Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286 at 305; per Latham CJ; Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245.  There is no need for it to prove that at the time of the election there was knowledge of the ground which ultimately justifies the election:  Thompson & Morgan (UK) Ltd v Erica Vale Australia Pty Ltd (1995) 31 IPR 335 at 347.  It is not restricted to that ground, Rawson v Hobbs (1961) 107 CLR 466.

236               The residents were accustomed to a style of food preparation and delivery which Fig Tree itself clearly contended was of pivotal importance to the Village Life System.  It was entirely foreseeable and reasonable that elderly residents as Fig Tree describes them would indeed be seriously resistant to change from a system of delivery of food upon which central importance was placed by Fig Tree in the Village Life System. 

237               Whether or not there was an effective assignment or whether it be by installing SCV as its agent to manage the villages, the WMSAs were repudiated by Fig Tree by ceasing to perform all or substantially all of its management functions in the Prime villages.  It did this by permitting or directly implementing new arrangements which were intended to be permanent and which were inconsistent with the Village Life System in relation to the nature and delivery of food provided to the residents and in connection with the engagement of on-site managers.  Taken alone, I would not regard the changes in conditions of tenancy for residents as being a significant departure but taken with the other breaches is supportive of the conclusion that Fig Tree was renouncing or repudiating its obligations under the WMSAs.  It was a renunciation in the sense described in Koompahtoo 233 CLR 115 that it evinced Fig Tree’s intention to no longer be bound by the contract or to fulfil it only in a manner substantially inconsistent with obligations under it.  Equally, the conduct constituted a repudiation in the sense described in Koompahtoo of each WMSA as being a sufficiently serious breach of an intermediate term. 

238               In my view it is clear that the WMSAs cannot be assigned without the consent of Prime first being obtained.  The fact that the WMSAs refer to others who may replace Fig Tree has no bearing on the proper construction of the agreement on the consent point.  There is a critical difference between assigning contractual rights on the one hand and assigning contractual burdens.  There may be no need to obtain consent for the assignment of the benefit of the contract but the obligation to perform a contract can rarely be assigned without consent from the other party first being obtained (Pacific Brand Support & Leisure Pty Ltd 149 FCR 395 at [32]. 

239               I also consider that the WMSAs are in the nature of a contract for personal performance for the reasons I have explained.  The Village Life System was guarded carefully by Fig Tree.  It was only Fig Tree’s system.  The performance of the WMSAs in accordance with the Village Life System was at the heart of the bargain constituted by the WMSAs.  Fig Tree may have had the right to amend the Village Life System but the factual evidence was that it had not done so in any significant way until entry into the Assignment Agreement.  To the contrary, it had adhered to that system.  The only reasonable inference is that Fig Tree believed the Village Life System to be the superior method of managing villages.  Clearly Prime shared that belief. 

Changes to the Terms and Conditions of Appointment of Managers and Terms of Residency

240               The pleaded case for Prime in relation to this issue was as follows:

From about August 2007 SCV purported to implement new permanent arrangements concerning:

…

(d)        the terms and conditions on which on-site managers at each Village were engaged:

Particulars

SCV:

(i)         required on-site managers to terminate their contracts for services to [Fig Tree] and enter into contracts of service with SCV or its related entities such as SCV Group Limited;

(ii)        capped the hours of work for which each on-site manager was to be paid at approximately 3 hours per day, and removed the former incentive system under which [Fig Tree] would pay bonuses to managers according to the number of occupied units in each Village;

(iii)       terminated the former arrangement whereby on-site managers were provided with accommodation in an on-site manager’s unit, and instead required managers to pay rent for their accommodation in such units;

(iv)       required managers to use external service providers for services such as laundry, gardening and maintenance work rather than providing a budget for such services which could be used either to engage external service providers or remunerate managers or their staff for performing the work themselves, as appropriate.

Prime further refers to and repeats the particulars as to the changed conditions regarding food preparation work set out under subparagraphs 39(a) to (c) inclusive above. 

241               Fig Tree argues that some of the on-site managers were unhappy with the changes to their conditions because they perceived that they were being paid less to do the same job (even though they were now receiving benefits such as paid leave which they did not have before and it was not intended that they would perform certain work such as the laundry).  Again, in my view, it was entirely foreseeable and reasonable that on-site managers would be far less satisfied with the engagement conditions and the limited amount of pay they received on the change from the Village Life System to the SCV system.  Because an overwhelming number of on-site managers and residents did not give evidence about their perception of the changes, Fig Tree says this should lead to an inference that most of them were satisfied.  I would not be prepared to draw that inference.  An inference of the nature described in Jones v Dunkel 101 CLR 298 is not one that the Court must draw.  In my view, the changes to the food system in particular and to a lesser extent, the engagement system, were so obvious that one needed to hear from only a handful of people to express the entirely reasonable and foreseeable concerns about the effects of introduction of such changes. 

242               Such evidence as there was, it is said, eventuated out of the efforts of Mr Bosel who went to the villages shortly after the termination with the express goal of ‘digging up dirt on Fig Tree’.  Again, I am not persuaded by the submission of Fig Tree that Mr Bosel’s express denial that he was digging up dirt on Fig Tree was disingenuous.  Given the position in which he was placed and the concerns which were emerging at that stage, it would be essential to review the existing portfolio of villages in order to ascertain whether the areas of concern and non-performance by the operator would lead to a decline in value of the investment by Prime. 

243               There is no evidence that the changes which occurred diminished Prime’s return from the properties let alone deprived Prime of substantially the whole benefit of the WMSAs.  However, while this may be so, it was early days.  Prime should not be required, in my view, to stand by idly watching significant non-compliance with an aspect of the WMSAs which on any reasonable view could have the capacity to diminish the extent of occupancy in due course. 

244               In relation to Townsville 2 – Condon, Mr Bosel reported that there was little incentive for the relief management team to increase occupancy and both had confirmed that they would not be working with the operator beyond the next few months due to the unsatisfactory changes that had occurred in the villages, particularly around the new catering arrangements. 

245               Fig Tree contends that there is no evidence that these changes diminished the on-site managers’ package.  Although the changes may or may not have diminished the package, they became employees of SCV rather than independent contractors of Fig Tree.  In that way they became entitled to statutory conditions such as paid superannuation contributions, four weeks annual leave and sick leave as well as access to relief staff during their four weeks leave and food paid for and provided by SCV.  Further, Fig Tree argues that the alteration of the on-site managers’ package was a matter between Fig Tree/SCV and its on-site managers and only became relevant to Prime if the packages diminished the return to Prime.  In any event according to Fig Tree, those alterations were not established as having been made prior to 3 October 2007 except in relation to Gladstone and Hervey Bay.  As to Hervey Bay, Fig Tree says that the change occurred just over two weeks before the date of the purported termination on 3 October 2007 and in the case of Gladstone, the change occurred barely ten days before 3 October 2007. 

246               Fig Tree argues that there was no requirement under the Village Life System that the on-site managers be engaged on the terms pleaded relating to the number of hours for which the on-site managers would be paid or the ability to perform services such as laundry other than engage an external service provider.  If they are capable of being regarded as breaches of the WMSAs which Fig Tree does not accept, they could not be regarded on Fig Tree’s argument as being breaches of such seriousness as would justify termination.  I accept this submission.

247               In relation to the food delivery system, I have concluded that the breaches were sufficiently serious (in relation to an important intermediate term) such that taken alone, the breaches warranted termination by Prime.  There seems to be little challenge and, in any event, I accept that it is established that the departures from the circumstances in which managers would be employed (as pleaded and set out above) was established.  Fig Tree’s argument is that although there were changes, there is no indication that the changes caused any damage at all to Prime and in fact that the changes may have been for the better.  I do accept that there was departure from the Village Life System of some substance in relation to the engagement of managers but I do not consider that taken alone, the changes would constitute a sufficiently serious breach of an important or intermediate term such as to justify termination. 

248               The least serious of the three breaches of the Village Life System in my view was the change in residency arrangements in respect of occupants of the villages.  The evidence appeared to establish that there had been a departure from previous arrangements but it could not be said on the evidence that the departure was a serious breach of the obligation to manage the villages in accordance with the Village Life System.  The breach concerning residents, taken alone would not, in my view, warrant termination of the contract. 

Affirmation – the Principles

249               Did Prime affirm the WMSAs despite Fig Tree’s serious breach?

250               The elements of affirmation do not appear to be controversial (Wallace-Smith v Thiess Infraco (Swanston) Pty Ltd (2005) 218 ALR 1 at [85]-[86].  The three elements required are: 

·                    knowledge of the facts said to constitute the repudiation;

·                    unequivocal conduct constituting affirmation with that knowledge; and

·                    communication of the affirmation to the alleged repudiating party.

251               Affirmation does not depend on intention to maintain the contract, notwithstanding a breach.  Rather it is ‘… an effect which the law annexes to conduct which would be justifiable only if an election had been made’ (Tropical Traders Ltd v Goonan (1964) 111 CLR 41 at 55).  Prime stresses that words or conduct ordinarily required to constitute an election must be unequivocal in the sense that it was consistent only with the exercise of one of two sets of rights and inconsistent with the exercise of the other (Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 646 per Stephen J referred to with approval in Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 at 38).  The consequences of election may be serious for the party electing.  Generally it involves abandoning a right that is available (Immer at 39 per Deane, Toohey, Gaudron and McHugh JJ).  These points were reiterated recently in Agricultural and Rural Finance Pty Limited v Gardiner (2008) 83 ALJR 196 at 50 and 59. 

252               It is also essential that to constitute an election to affirm rather than an election to accept a repudiation, the conduct must be consistent with the continued existence of the contract (Carr v JA Berriman Pty Ltd (1953) 89 CLR 327 at 348).  Continued performance, however, does not constitute affirmation when there is a reservation of the rights to terminate (Wallace-Smith 218 ALR 1 at [87]-[89], [151] and [330]).  In this regard the evidence of Mr Lewski which I accept concerning the reservation of Prime’s position at the 15 August 2007 meeting (albeit the meeting was with SCV not Fig Tree) is relevant.

253               Where knowledge is necessary to make an election effective, it must be knowledge of facts giving rise to the right to elect not simply knowledge of the right itself. 

254               Fig Tree’s position appears to be that the effluxion of time establishes affirmation.  But given the number of villages involved, the complexity of the issues, the reality is that the time concerned was relatively brief.  The first occasion on which Prime was asked by Fig Tree to make a decision was on 13 September 2007 when Prime received replacement WMSAs and was asked to sign them.  Prime at that time was never confronted with the opportunity to choose between two alternatives before it.  Even if this were not so, mere delay alone cannot constitute conduct sufficient to amount to an affirmation:  Ellison v Lutre Pty Ltd (1999) 88 FCR 116 at [55] per von Doussa, Mansfield and Goldberg JJ. 

255               It is an important consideration, in my view, that delay alone cannot ‘itself constitute conduct sufficient to amount to affirmation’:  Ellison at [55] per von Doussa, Mansfield and Goldberg JJ referring to Elders Trustee & Executor Co Ltd v Commonwealth Homes & Investment Co Ltd (1941) 65 CLR 603 at 618 and Sargent 131 CLR 634 at 656.  See also Hoy at 226 per Rares J and The Law of Rescission (O’Sullivan et al, Oxford University Press, 2008) at 23.55.  The non-defaulting party is certainly entitled to time within which to decide what its response will be to the breach of the contract.  Nothing prior to September 2007 started time running from Prime’s perspective for the purposes of any delay assessment.  Prime contends in this regard that nothing about its conduct unequivocally or even on the balance of impressions conveyed its approval of an assignment of the kind that Fig Tree in fact proposed. 

There was no Affirmation on the Evidence

256               Prime says further that in light of the limited information or knowledge it had about the practical ramifications of the SCV system rather than the Village Life System, nothing in its conduct was or was ever taken by Fig Tree as being a communication of Prime’s agreement to any assignments.  Nothing about Prime’s conduct unequivocally or even on the balance of impressions conveyed its approval of an assignment of the kind Fig Tree had conditionally implemented. 

257               On the affirmation case, Fig Tree contends that the evidence of Mr Lewski should be rejected unless it is corroborated by other reliable evidence.  According to Fig Tree, not only was there no corroboration of Mr Lewski’s evidence in relation to reserving Prime’s position but it was not supported by the only objective evidence as to what occurred at the meeting.  Fig Tree places reliance on Mr Buckner’s notes and the letter sent the following day.  If it is not already clear, in my view, neither of these documents displaces the evidence of Mr Lewski as to reserving Prime’s position, which evidence I accept.  The topic may not have been an issue which Mr Buckner thought was of particular concern to him.  It may have been an issue which Mr Buckner sought not to highlight in his notes or the letter.  He cannot recall what was discussed.  I also do not accept Fig Tree’s argument that it was unnecessary to put to Mr Lewski that his evidence about reserving the position of Prime was incorrect.  I do accept the legal submission that if the witness is otherwise generally impugned, that it is not necessary to put every single proposition of falsity to the witness.  The test is one of fairness.  The reservation of rights point, in my view, was such a significant point, that Mr Lewski should have been tested on it if it was proposed to contend as Fig Tree have now done that much of Mr Lewski’s evidence should be rejected as he was an unreliable witness. 

258               Fig Tree also argues that even if the reservation of rights in the terms it was described by Mr Lewski was made, it is a very narrow statement and applied only to the proposed future conduct of Prime’s consent for assignment being sought by Fig Tree or SCV.  Fig Tree contends that no reservation was made about the conduct which had occurred before 15 August 2007 or about the changes of which Mr Lewski and Mr Jaques were aware.  Fig Tree contends that the reason no reservation was made was because they have by their conduct at that stage communicated affirmation in relation to those matters.  I do not accept this submission.  In my view there is no evidence to support the contention that there was unequivocal conduct of Prime constituting affirmation with knowledge of the facts said to constitute the repudiation.  This is for two reasons.  First, there was not sufficient knowledge at that stage to constitute affirmation and secondly, there was simply no unequivocal conduct affirming the contract. 

259               Fig Tree contends that the evidence of Mr Lewski in relation to the reservation of Prime’s position rested on the foundation of Mr Lewski’s ‘false evidence’ that the alleged conversation with Mr Roberts from SCV was ‘the first time anyone had directly told (Mr Lewski) of Fig Tree’s intention to seek an assignment of the WMSAs’.  I do not accept this submission. 

260               Fig Tree submits that Mr Lewski’s statement that ‘… the first time anyone had directly told me of Fig Tree’s intention to seek an assignment of the WMSAs’ is a ‘ridiculous one’ and ‘utterly inconsistent with the objective evidence’, in particular, ‘the final PDS and its various previous iterations’.  I do not accept this submission.  The evidence given by Mr Lewski was of being ‘directly’ informed of Fig Tree’s intention.  While it is true that the professional advisors made reference to assignment in the PDS which he approved, I take Mr Lewski’s evidence on this topic to mean that no one from Fig Tree had directly told him of the intention to seek an assignment of WMSAs.  That indeed is what he said.  There is no evidence inconsistent with such a statement.  When it is understood in that way, the evidence is entirely plausible. 

261               Fig Tree also attacks Mr Lewski in relation to his understanding following the 15 August 2007 meeting.  Specifically, Fig Tree point to the evidence of Mr Lewski that it did not occur to him following the 15 August 2007 meeting that SCV would change the way in which the villages were operated.  Referring to his state of mind at 13 September 2007 (almost a month later), he said that he ‘did not realise that SCV Group also proposed to change the village arrangements regarding how food was to be prepared, the terms and roles of the on-site managers …’.  Fig Tree contends that these propositions cannot stand given Mr Lewski’s ‘concessions’ during cross-examination that he had received, prior to the 15 August 2007 meeting, the community summary reports.  However, this overlooks the fact that the community summary reports both in the view of Mr Lewski and in objective fact did not descend to the detail in relation to the breaches of which Prime complains and their effect. 

262               Mr Lewski said that the 13 September 2007 letter was the first correspondence which made him think that Fig Tree intended no longer to perform the WMSAs and that it confirmed to him that SCV had been in operational control for some time.  Fig Tree contends that these statements are ‘utterly disingenuous’ when compared with the objective evidence of the final PDS.  In my view, once again, Fig Tree misses the point which has been made by Mr Lewski.  It is a big leap from the minor disclosure on which Fig Tree seizes to a clear revelation of the matters which constituted the breaches.  Mr Lewski himself, in my view, clarified these matters and not in a manner as contended for by Fig Tree which was ‘unintelligible’ although I do accept that it was slightly confusing.  He said:

… What I mean to say there is that is the first instance in which evidence of how the operational changes had been implemented at the villages became   that I became aware from the feedback that I got from Bosel, who undertook visitations to the villages.  (emphasis added)

263               Once again, Mr Lewski is focussing on the manner of implementation of the operational changes.  It was reports as to the actual manner of implementation which was also the subject of complaint by Prime.  Mr Lewski repeated this again in a different way in cross-examination speaking about the middle of October being the first realisation of what was ‘physically being implemented in the Fig Tree villages operationally’ (emphasis added). 

264               I reject Fig Tree’s submission that Mr Lewski’s evidence should only be accepted if it is relevantly corroborated by other reliable evidence.  Mr Lewski did not profess a perfect memory.  Nor did he present as an advocate for Prime’s cause.  His evidence was plausible and in my view, candid. 

265               Similar attacks were made on Mr Bosel.  Again, I consider that Mr Bosel, like Mr Lewski, gave credible and plausible evidence which I accept. 

266               Fig Tree pleaded affirmation.  Fig Tree, accordingly, has the onus of proving it.  The onus of demonstrating that the non-defaulting party is precluded from relying on the breach to terminate the contract rests on the party that is in default – Cockerill v Westpac Banking Corporation Ltd (1996) 142 ALR 227 at 279 per Cooper J.  My view is that Prime never had sufficient knowledge to be put upon its election; that it was never confronted with two inconsistent alternatives; that it never unequivocally adopted the WMSAs by its own actions; and that it never communicated any affirmation of the WMSAs notwithstanding the breaches. 

The Extent of Prime’s knowledge

267               As to knowledge, however, something more should be said.  Fig Tree relies on a chain of documents in the months leading up to the purported termination by Prime.  It says those documents taken together clearly demonstrate that Prime had sufficient knowledge to be put upon its election.  I have also indicated why I do not believe that is so but insofar as knowledge is concerned, it is not sufficient in my view for Fig Tree to say that Prime’s witnesses should not be believed and a Jones v Dunkel inference should be drawn in relation to those whom it did not call.  Even in relation to knowledge, the onus is on the party in default who relies on the pleaded affirmation.  The innocent contracting party must be ‘confronted’ with two mutually exclusive courses of action between which it must in fairness to the delinquent party make a choice – Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (No 2) [2008] FCA 810 at [224]-[225].  There cannot be a confrontation of that nature unless the innocent party has knowledge on which to elect.  It has been said that the quality of that knowledge must be ‘full knowledge’ – Sargent 131 CLR 634 at 642.  The majority of the High Court said in Immer (No 145) 182 CLR 26 at 39 that ‘the consequences of election may well be serious for the party electing; in particular, election involves the abandoning of a right that is available’.  Knowledge is required not only of the facts but of the circumstances surrounding the facts:  Sargent at 642.  It has also been said election is not to be lightly inferred.  Rares J in Hoy Mobile Pty Ltd [2008] FCA 810 at [257] indicated that there must be ‘full and frank disclosure’ before a party can be put in a position where an election was necessary.  While Prime does not advance a case that Fig Tree has not been frank in its disclosure, it has certainly pointed to significant matters of which Fig Tree was aware but which were not conveyed to Prime.  They are matters of which Prime was not aware and matters of which Prime would need to be aware in order to have the necessary knowledge in order to elect. 

Communication

268               Finally, there was clearly no communication of an unequivocal act constituting an affirmation.  The proper inference on the evidence from Fig Tree’s own perspective was that it would not have treated Prime as having actually communicated its approval until it had signed the WMSAs enclosed in the 13 September 2007 letter.  This evidence was contained in the cross-examination of Mr Dubery but quite plainly there was no act which could clearly constitute communication of the affirmation at any point. 

269               At no time prior to late September 2007 did Prime have knowledge of the true nature of the changes contemplated by the Assignment Agreement.  During June and July it was told that legal documentation would be provided later.  The documents were in fact provided in late September 2007.  The documents reveal that Prime was expected to contract with SCV with whom it never proposed to bargain.

RELIEF SOUGHT BY FIG TREE AND PRIME

270               The preceding conclusions do not fully resolve the dispute.  I have concluded that Prime’s complaint in part is made out.  Fig Tree asserts and seeks a declaration that Prime’s media release to the ASX on 4 October 2007 was misleading and deceptive conduct in trade and commerce in breach of s 52 of the Trade Practices Act 1974 (Cth).  While that assertion might be considered to fail if the repudiation argument is made good, it is still necessary to examine the actual complaint about and content of, the media release.  This is to be done against a background of my conclusions on repudiation.

271               It is necessary to examine the text of the media release which Prime forwarded to the ASX on 4 October 2007.  The media release was in these terms:

Prime Trust owns 12 retirement style properties that are subject to individual 20 year Wholesale Management Services Agreements (“WMSA”) with Village Life Ltd.  These properties represent a relatively small component (circa 6%) of gross income flows to Prime Trust.  Earlier this year Village Life Ltd announced it had sold its management rights to SCV Group Ltd and shortly thereafter SCV Group Ltd announced that it had taken operational control of these premises.

Following advice from senior counsel, the Responsible Entity on behalf of Prime Trust has advised Village Life Ltd that it does not have the power to assign its rights and responsibilities in each WMSA without Prime Trust’s consent.  It is not the intention of Prime Trust to consent to the assignment and we consider each WMSA to be repudiated. 

Prime Trust emphasizes that this matter will have no adverse consequences for the existing residents of the properties; for them it is business as usual.  Similarly, no adverse impact on returns to Prime Trust unitholders from this action is anticipated.  (emphasis added)

272               Fig Tree complains that the media release represented expressly or by implication that:

(a)        it had sold or transferred the management rights under the WMSAs to SCV unconditionally;

(b)        it had sold or transferred the management rights under the WMSAs to SCV without seeking the consent of Prime;

(c)        that Fig Tree was no longer involved in the management of the villages; and

(d)        that Fig Tree had repudiated the WMSAs. 

273               There is a merger of two concepts in the complaints raised by Fig Tree.  One is the complaint that the media release wrongly suggests that there was a repudiation by an unconditional assignment agreement.  I have already held that entry into the Assignment Agreement alone was not, in my view, a repudiation because on a proper construction of the Assignment Agreement, it was subject to obtaining the consent of Prime.  While I recognise that Prime advances an argument that under the Assignment Agreement Fig Tree was implicitly obliged to assign the rights in any event whether or not consent was obtained, I do not accept that this is the better construction of the agreement.  As indicated, in my view, there was an obligation for Fig Tree to use its reasonable best endeavours to obtain Prime’s consent but it is most unlikely that SCV would have considered itself bound to proceed with the Assignment Agreement if the consent was not obtained. 

274               However, insofar as the media release is concerned, I do not believe that it does suggest that Fig Tree assigned its rights and responsibilities without obtaining consent.  First, it refers to Fig Tree making an announcement of its sale of rights and then it refers to Prime informing Fig Tree that it could not do so without obtaining consent.  It then says that Prime will not consent and it goes on to say ‘we consider each WMSA to be repudiated’.  All of that is correct until the last quoted portion which is clearly a statement of opinion in any event. 

275               But it would be artificial to assert that the media release represents that by entry into the Assignment Agreement alone, without first obtaining consent, was a repudiation.  The emphasised words ‘… and shortly thereafter SCV Group Ltd announced that it had taken operational control of those premises’, make it clear that the release as a whole and taken in context is directed to the actual events at the villages, not simply the sale of rights. 

276               It was true that SCV had taken operational control, it was true that SCV made an announcement to that effect and significantly, it was the taking of operational control by SCV, that is to say, by Fig Tree relinquishing operational control (particularly in relation to the food component of the Village Life System) to SCV which constituted the repudiation.  It was the practical operational control being relinquished by Fig Tree to SCV in a manner which failed to ensure that the villages would be managed on an ongoing basis in accordance with the Village Life System which constituted a renunciation or a repudiation.  Accordingly, the content of the media release was correct. 

FURTHER ALTERNATIVE RELIEF SOUGHT BY PRIME - SPECIFIC PERFORMANCE

277               Prime argues alternatively, if Fig Tree is held not to have repudiated the WMSAs and is further to be entitled to remain as manager, the WMSAs do require it to manage the villages in accordance with the Village Life System.  Prime seeks an order for specific performance to enforce that requirement. 

278               Prime argues that Fig Tree must be held to the terms of the WMSAs and be required to reinstate all of the arrangements which were presented as constituting the Village Life System prior to July 2007.  The same factual issues are reiterated in support of this submission.  In this context, it is irrelevant that Fig Tree in February 2008 purported to ‘take back’ or ‘resume’ its management of the villages.  As was held by Barwick CJ in Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444 at 452-453, a repudiation cannot unilaterally be withdrawn.  The Chief Justice followed that observation with the remark that only a consensual act could do so. 

279               In relation to the order for specific performance which is sought by Prime, Fig Tree contends that such an order should not be made because:

(a)        it is a dangerous one because of the practical implications which would flow from it;

(b)        there would be difficulties for Fig Tree in knowing what would be required by it by reason of such an order; and

(c)        it is not the relief which is sought by Prime in its cross claim nor is there any factual or any legal foundation for such relief. 

280               In support of these contentions Fig Tree says that Prime, in seeking that the pre-July 2007 practices be reinstated and remain in place for some 20 years is seeking a dangerously unrealistic order.  Fig Tree says that it may be presumed that there will be changes to health and hygiene issues, food service and other aspects of managing a retirement style village in the future.  Some of those changes may be imposed by legislation.  Others may arise because of an increased knowledge and understanding in the areas of medicine and food research, especially nutrition.  Further, as it is entitled to do, Fig Tree argues, Fig Tree itself might determine that modifications to the Village Life System will improve the services it can offer Prime as manager.  Prime’s order proposes that Fig Tree not be permitted to modify the Village Life System to take into account any of those matters and remain fixed for the next 20 years in 2007.  Fig Tree contends that such an order would be dangerous because it would have the capacity to expose Fig Tree to penalties or, indeed, to expose residents to health risks that could have been avoided had Fig Tree not been so restricted. 

281               Secondly, such an order for specific performance would give rise to uncertainty on the part of Fig Tree as to precisely what would be permitted and what would not be permitted.  Would it be permitted to modify the Village Life System at all in accordance with the existing WMSAs?  Fig Tree argues that a good example of uncertainty which Fig Tree would face arises in relation to the conditions of tenancy.

282               Fig Tree argues that a critical deficiency in Prime’s approach to the application for specific performance lies in the lack of articulation of the practices which it says must be reinstated and must remain in force for the duration of each WMSA. 

283               Although it is unnecessary to resolve the issue in light of my conclusion that Fig Tree has repudiated the WMSAs, if I am wrong on that conclusion, I record that I would accept Fig Tree’s submissions and I would not have ordered specific performance for the reasons advanced. 

TRADE PRACTICES ACT

284               As an additional defence to Fig Tree’s claim, Prime raised in closing arguments an argument that the announcement it made to the ASX was conduct in relation to financial services and thus excluded from the operation of the Trade Practices Act 1974 (Cth) by virtue of s 51AAB of that Act.  As the media statement by Prime was, as I have found, accurate, it is unnecessary to consider this additional defence.

CONCLUSION

285               Although Fig Tree asserts that the benefit for which Prime contracted was simply the benefit of earning rental income in the villages (and terminating if occupancy fell below a certain level), I disagree with that submission.  In the recitals to each of the WMSAs, Prime’s objective is recorded as being to obtain the benefit of maximising the return on its investment by having each village managed under the Village Life System.  This passage makes it clear, objectively, that Prime made a decision to contract with Fig Tree because it would manage in accordance with the Village Life System.  It chose to do that not simply to ensure that rental income would not fall below the minimum level at which it could terminate but rather to ‘maximise the return on its investment’ by having the villages managed under the Village Life System (emphasis added). 

286               By causing the significant changes to the food delivery services to be implemented, Fig Tree manifested an intention, regardless of the terms of the Assignment Agreement to no longer be bound by its obligations under the WMSAs to manage the villages in accordance with the Village Life System.  Fig Tree’s conduct in practically handing over the management of these food services to SCV amounted to a serious breach of an important intermediate term (to manage the villages in accordance with the Village Life System).  Insofar as delivery of food to residents in the villages was concerned, the breach of the obligation to manage the villages in accordance with the Village Life System was a serious breach.  It was a serious breach of an intermediate or innominate term.  This conduct entitled Prime to treat Fig Tree’s breach as constituting a repudiation.  Its acceptance of the repudiation and thus terminating the contract was justified. 

287               My analysis of the facts as presented by the evidence is that whatever the contractual obligations under the Assignment Agreement, Fig Tree in reality was simply walking away from its obligation to manage the villages in accordance with the Village Life System.  It was handing over control to SCV in a manner which precluded Fig Tree having any practical ability to deliver management of the villages in accordance with the Village Life System.  Because the Assignment Agreement required Prime’s consent to the assignment, entry into the Assignment Agreement taken alone, was not the renunciation but walking away from its obligations after entry into the Assignment Agreement and before the consent of Prime was obtained and in a manner in which no capacity to deliver management in accordance with the Village Life System was maintained, indicated an intention to no longer be bound by the obligation under the WMSAs to manage the villages in accordance with the Village Life System. 

288               Accordingly, Prime is entitled to the declaratory relief it seeks.  Fig Tree’s claim must be dismissed. 

289               I will make the following orders:

1.                  Confidentiality Order:

(a)     The Confidential Annexure to these reasons is to be available to Judges of this Court and to the parties but otherwise is not to be copied or reproduced by any of the parties or their legal representatives (‘advisers’) save to the extent necessary for the purposes of considering and/or conducting an appeal. 

(b)     Subject to subparagraph (a), the Confidential Annexure to these reasons is not to be shown or released to any person by the parties or their advisers.

(c)     The parties have liberty to apply within 21 days to vary the terms of these confidentiality orders.

2.                  The application be dismissed. 

3.                  The cross-claim is allowed in part.

THE COURT DECLARES THAT:

4.                  The respondent, Prime, was entitled to and did lawfully accept the conduct of the cross-respondent, Fig Tree and Fig Tree’s agents and subcontractors as a repudiation of the Wholesale Management Services Agreements made between Prime and Fig Tree and that the Wholesale Management Services Agreements are accordingly terminated. 

5.                  Unless any other order is made within six weeks, and subject to receipt of written submissions from the parties to be filed and served within 21 days, the applicant is to pay the costs of the respondent to be taxed if not agreed.

6.                  Orders 2, 3 and 4 be stayed for a period of 14 days.

Associate:

Dated:         23 April 2009

APPENDIX A – RULINGS

FIG TREE’S OBJECTIONS

290               Fig Tree’s objections and the Court’s rulings were as follows:

Michael Bosel

Paragraph 8

291               No ruling required (see transcript p 435).

Paragraphs 13, 14, 15, 16, 17, 19, 20 and 21 – breach of hearsay rule

292               Paragraph 13 deals with complaints received by Prime in relation to SCV’s management of the village at Hackham in South Australia and in particular in relation to the food issue.  There was detail about the complaint set out in par 13.  In my view the evidence is clearly relevant.  The objection on the grounds of relevance will be overruled.  There is also an objection on the grounds of hearsay.  This is a Prime business record.  It is admissible as a business record. 

293               Paragraphs 14 and 15 have been objected to on the grounds of relevance and breach of the opinion rule.  In my view there is no doubt that Mr Bosel is fully entitled to express his opinion on these topics.  He has approximately 20 years experience working in aged care residential operations and management in the United Kingdom and in Australia.  He has been the managing director of companies operating a number of aged care facilities in the United Kingdom in recent years.  He has sat on several industry boards associated with the aged care industry.  He sets out other details which fully qualify him to express the opinions contained in pars 14, 15 and 17.  That material is relevant to a fundamental issue in the case as to whether or not the Village Life System is being maintained by Fig Tree or SCV and, if not, what level of importance that attracts in the contractual relationships between Prime and Fig Tree. 

294               Paragraphs 20 and 21 are objected to on the grounds of relevance.  This evidence is relevant to the food issue. 

Mr Alan Ludlow – the Whole Affidavit

295               Fig Tree objects to the whole of the evidence of Mr Alan Ludlow on the grounds of relevance - s 56(2) of the Evidence Act 1995 (Cth) (Evidence Act) – and a breach of the opinion rule.  It is asserted that the whole of the affidavit seeks to prove the existence of facts about the existence of which the opinion was expressed (s 76 of the Evidence Act).  Mr Ludlow is a senior valuer engaged on behalf of Prime to provide an independent expert opinion. 

296               I disallow the objection on the grounds of relevance.  While it is true that Prime is not claiming damages, the question of the materiality or importance of the compliance with the Village Life System is central to the question of whether, if there is a departure from that system, the departure constitutes a repudiation of the contract.  Mr Ludlow’s evidence goes to the question of whether or not the events which are said to have taken place at the various villages are significant or otherwise to Prime.  I would accept that it is not open to an expert ordinarily to base his opinion on hearsay information received as a result of discussions held at the various villages.  However, if the content of those discussions is otherwise proved in evidence, then it is open to him to express a view in relation to those facts on the assumption that the facts exist. 

297               I do not consider that Mr Ludlow’s expert evidence can be taken as being evidence of facts which underlie the opinion in any way.  The facts which were put to Mr Ludlow, hypothetically for his opinion were the facts pleaded by Prime in pars 39(a)-(f) of Prime’s further amended defence and cross-claim.  Mr Ludlow has not purported to prove that those facts have existed but he has expressed a view as to whether those changes would have a bearing upon the capacity of a retirement village to attract and retain residents. 

298               It is open to Mr Ludlow to express those views as an expert.  The objection is disallowed.  In doing so I make clear that I do not regard anything Mr Ludlow has said as constituting evidence of facts as distinct from expressing a view based on the assumption that the pleaded changes occurred.  Should Prime fail to prove that the pleaded changes occurred, the opinion will fall away with that failure. 

PRIME’S OBJECTIONS

299               Prime’s objections and the Court’s rulings were as follows:

Ruling on document ‘MFI A5’ – the 15 August 2008 meeting notes

300               Mr Minett is the National Business Manager for SCV.  There are common directors between SCV and SCV No 1.  The records of the two companies are held in the same location.  Mr Minett was subpoenaed to produce documents pertaining to Prime concerning the matters at issue in this litigation.  On 28 July 2008 he produced a document entitled ‘SunnyCove file memo conference Prime Trust’ dated 15 August 2007.  Various initials appear on the top of the file memo.  The file memo has been marked for identification. 

301               Mr Minett confirmed that the file memo was taken from a file called Prime Trust which is located in SCV’s central office.  He was unable to identify the handwriting on the document (subsequently it has been identified). 

302               Fig Tree seeks to tender the document pursuant to s 48(e)(i) of the Evidence Act as a part of business records.  The tender of the document is opposed for a variety of reasons, not least of which is that there is nothing on the face of the document which would indicate that its content was communicated to anyone, let alone to Prime.  It is submitted for Prime that the document could quite as easily be some internal notes of topics which the unidentified author was considering raising but never raised. 

303               As against that, Fig Tree point to the content of a letter which is in evidence dated 16 August 2007, the date after the file memo.  That letter is from Christopher Bassett, Chief Operations Officer of SCV (which embraces SunnyCove) and is addressed to Mr Lewski at the Prime Retirement & Aged Care Property Trust.  The letter reads:

Dear Bill

Following yesterdays discussions please find the following information as requested;

·                Residential Tenancy Agreement – Village Life

…

·                Report on Elizabeth Vale 2

The letter continues:

I am reliably informed that an electronic version of this report may have already been forwarded on to you so please disregard if this is the case. 

304               Senior counsel for Fig Tree points to the fact that the statement concerning the electronic version of the report is correct.  The letter continues:

In relation to the Toowoomba visit we hope to walk this site sometime Friday morning the 17 August 2007.

We are currently costing out the retro fit of kitchens for resident units and will advise as soon as this information is received.

Mark has advised that he will liaise with you directly regarding the various other points raised with you in yesterdays’ meeting as some of these will form dialogue with Mike Gordon as well. 

Bill, please do not hesitate to contact me directly should you require any further information relating to these matters. 

…

305               The letter in evidence purports to be have been copied to Kim Jaques and Mark Roberts.  The initials at the top of the file memo include MR (consistent with Mark Roberts) CB (consistent with Christopher Bassett) GB, J and D.  It also refers to Kim Jaques (to whom the 16 August letter was copied) and Bill (consistent with the addressee of the 16 August letter).

306               The file memo also notes in its first line, consistent with the 16 August letter ‘sample copy of tenancy agreements to Prime Trust’.  It also notes on the first page of the memo ‘Eliz Vale, 1 Report to Prime Trust’.

307               In the case of a business record, authenticity may be proved in different ways.  It may be proven by the evidence of a person who participates in the conduct of the business and who compiled the documents.  Authentication is straightforward in the case of an author who is called, but in this instance the author is not identified.  On the other hand, there is other evidence and in particular there is the evidence of the 16 August 2007 letter the contents of which are consistent with the notes contained in the file memo being prepared by an officer of SunnyCove.  I am satisfied that the record is a legitimate business record for the purpose of s 48(e)(i).  In expressing that view, I express no view as to the probative value of the document.  The observations as to the parallels between the file memo and the letter sent the following day are drawn upon only in order to establish authenticity.  As observed by Austin J in Australian Securities and Investments Commission v Rich (2005) 216 ALR 320 at [131] once such documents are adduced in evidence it is open for the defendants (as they were in that case) to show that they have no probative value, for example, by establishing that they were drafts not acted upon or that they were based on assumptions or scenarios not widely held within the company. 

308               As observed by Austin J, the law does not overload the authenticity requirement by including within it an obligation for the tendering party to rebut all such possibilities.  Issues going to the ultimate probative value of the documents cannot be assessed and do not bear on authentication.  MFI A5 will become exhibit 5.

Ruling – Report of Professor Sandra Capra - 30 July 2008

309               Professor Sandra Capra is a Professor of Nutrition in the Faculty of Health and Science at the University of Queensland.  It is accepted that the Professor is a highly qualified nutritionist.  Objection, however, is taken to parts of the contents of a report which she has prepared on instructions from Fig Tree.  Objections were taken to a number of paragraphs on several grounds but predominantly objection is on the ground of relevance and expertise.  As to expertise, s 79 of the Evidence Act entitles a person who has specialised knowledge based on the person’s training, study or experience to express opinions on matters substantially based on that knowledge. 

310               Prime says that the Professor’s opinions are not based on specialised training or expertise, that her opinions extend beyond her area of expertise and are not, in some instances, relevant.  The Professor’s experience is extensive.  Apart from her formal qualifications, the Professor has supervised the professional practices for food service management for 20 years in numerous facilities.  The thrust of the Professor’s evidence is to comment upon the different types of food service systems, how they are described and how they are implemented and how certain expressions are used in the industry.  It is not uncommon in technical fields for words which may have a common meaning in ordinary usage to take on a more particular meaning within that industry.  Whether or not the views so expressed by the Professor will ultimately establish this is a different question.  In my view she is qualified to express the views on those topics which are set out in her report.

311               As to the objection on the basis of relevance, one of the issues in dispute is whether Fig Tree has breached its obligation to implement the Village Life System in relation to the provision of food and food services at the villages owned by Prime.  There are several issues such as whether there is a breach, whether it is a serious breach, what is the nature of the term which has been breached and what are the legal consequences which follow from a combination of some or all of those factors.  It is clear from the pleadings and the cross-examination that Prime wishes to emphasise both the practical and legal importance of compliance with the Village Life System in the context of food services.  The evidence of the Professor in my view is relevant to the issue of the degree of compliance that was necessary and the degree of compliance and manner of performance which might in a practical setting be reasonably expected. 

312               The proper construction of the contract will always be a matter for the Court but I consider her evidence on those topics may be relevant.  The weight to be attached to it will be a matter for submission in due course.