International Retirement Communities Pty Ltd v Orr & Merrett - [2007] SADC 89

DISTRICT COURT OF SOUTH AUSTRALIA
(District Court Administrative and Disciplinary Division: Appeal Under Residential Tenancies Act 1995)
INTERNATIONAL RETIREMENT COMMUNITIES PTY LTD v ORR & MERRETT
[2007] SADC 89
Judgment of His Honour Judge Chivell
27 August 2007
ADMINISTRATIVE LAW
Retirement Villages Act, 1987. Appeal from decision of Residential Tenancies Tribunal pursuant to s20. Dispute between administering authority of retirement village and two residents concerning interpretation of Agreement to Loan and Grant Licence and Licence Agreement. Whether particular payments "infrequent and irregular". Whether such payments must be paid, in the first isntance, from a Sinking Fund established by the Agreement to Loan and Grant Licence. Whether Residential Tenancies Tribunal exceeded powers in s14 to make retrospective orders.
Held - orders of Residential Tenancies Tribunal varied.
Retirement Villages Act, 1987 s20; District Court Act s42E, referred to.
Charter Reinsurance Co Ltd v Fagan [2006] 2 WLR 726; Francese v Corporation of the City of Adelaide (1989) 51 SASR 522; Carisfield Estates Pty Ltd v Douglas (1998) 201 LSJS 84, applied.

INTERNATIONAL RETIREMENT COMMUNITIES PTY LTD v ORR & MERRETT
[2007] SADC 89

This is an appeal from a decision of the Residential Tenancies Tribunal (“the Tribunal”) made on 4 September 2006. The appeal is brought pursuant to s20 of the Retirement Villages Act 1987 (“the Act”) as it was set out in 2006. The Act has been amended since then, and the sections have been re‑numbered.
The relevant provision is now s39, but it is in the same terms as s20. Section 20 provided:
(1)An appeal lies to the District Court against any decision of the Tribunal under this Act.
(2)The appeal must be instituted within 28 days after the appellant receives notice of the Tribunal’s decision unless the District Court, in its discretion, allows a longer period for instituting the appeal.
(3)On an appeal under this section, the District Court may-
(a)confirm, vary or quash the Tribunal’s decision;
(b)make any decision that should have been made in the first instance;
(c)make any incidental or ancillary orders.
The appeal is also governed by s42E of the District Court Act which states:
(1)The Court must, on an appeal, examine the decision of the original decision‑maker on the evidence or material before the original decision‑maker but the Court may, as it thinks fit, allow further evidence or material to be presented to it.
(2)The Court, on an appeal-
(a) is not bound by the rules of evidence but may inform itself as it thinks fit; and
(b) must act according to equity, good conscience and the substantial merits of the case without regard to technicalities and legal forms.
(3)The Court must, on an appeal, give due weight to the decision being appealed against the reasons for it and not depart form the decision except for cogent reasons.
The Tribunal was considering a dispute between the respondents and the appellant. The appellant is the “administering authority” in relation to the retirement village in question, namely the Hillsview Retirement Village at Happy Valley, and the respondents are “residents” of the retirement village as both terms are defined in s3 of the Act.
The dispute was before the Tribunal pursuant to s14 of the Act. As there was argument about the extent of the power of the Tribunal to make the orders in question here, it is necessary to set out the power given it by s14:
14 - Tribunal may resolve disputes
(1)A party to a dispute between an administering authority and a resident of a retirement village may apply to the Tribunal for resolution of the matters in dispute.
(2)On an application under subsection (1)-
(a)     if the Tribunal finds that a party to the dispute has breached, or failed to comply with, a residence contract or service contract, the Tribunal may-
(i)by such order as it considers appropriate in the circumstances, restrain the breach of the contract or require action in performance of the contract;
(ii)order the payment of an amount payable under the contract;
(iii)order the payment of compensation for loss or injury, other than personal injury, caused by a breach of the contract or a failure to comply with the contract;
(b)     .....
(c)     .....
(3)     .....
(4)     .....
(5)     .....
(6)     .....
(7)     .....
(8)The Tribunal may make an order under this section notwithstanding that it provides a remedy in the nature of an injunction or order for specific performance in circumstances in which such remedy would not otherwise by available.
(9)The Tribunal may make ancillary or incidental orders for the purposes of proceedings under this section.
The dispute involves the interpretation of agreements entered into by the parties; firstly, an “Agreement to Loan & Grant Licence”, and secondly, a “Licence Agreement”. Copies of both agreements, entered into by both respondents, are in the Appeal Book. I am happy to adopt the explanation given by Mr Stanley QC as to how the agreements operate; namely that a resident enters into an arrangement with the operator of the retirement village whereby the resident grants a loan to the operator, in consideration for which the operator grants to the resident a licence to occupy a unit in the village.
Another party to the agreements is Tower Trust (SA) Ltd (“the Trustee”). Its role is described in the “Particulars”, which do not appear to form part of the agreement, as “responsible for preserving and protecting the interests of the resident”. The Trustee is not a party to these proceedings.
Essentially, the dispute concerns the interpretation of the following paragraphs of the agreements:
·Paragraph 2.24 of the Agreement to Loan & Grant Licence:
“the Maintenance Fees” in relation to any period of 12 Months in respect of the Resident means:
2.24.1 the reasonable proportion agreed by the Trustee of the aggregate amount from time to time specified by the Manager to be the reasonable estimate of the Total Operating Costs of the Retirement Village in respect of that period BUT no increase in the amount specified pursuant to this Sub‑clause shall take effect:
2.24.1.1without the approval of the Trustee not later than 30 days from the date of service of a notice given by the manager to the Resident stating the amount of the proposed increase and the date from which the Manager proposed that increase to take effect; and
2.24.1.2at any time before the expiry 6 Months from the date of the last preceding increase or the Commencement Date (as the case may be)
2.24.2 (except where Sub‑clause 2.24.1 applies) - the amount appearing in Item 8 of the First Schedule
in respect of that period of 12 Months; (AB 81-2)
·Paragraph 2.38 of the Agreement to Loan & Grant Licence:
“Total Operating Costs” bears the same meaning the expression bears under and pursuant to the Licence;
·Paragraph 2.24 of the Licence Agreement:
“Total Operating Costs” in relation to the Retirement Village means all Losses and outgoings and allowances in relation to the Retirement Village and all improvements thereon including (but not limited to) all costs charges expenses fees outgoings and Losses payable by or on behalf of the Manager in or about the ownership management supervision operating cleaning maintenance and keeping of the Retirement Village (including the Unit) and Common Area and associated facilities AND without limiting the generality of the foregoing the expression extends to and includes:
2.24.1        .....
2.24.2        .....
2.24.3        .....
2.24.4        .....
2.24.5        .....
2.24.6        ......
2.24.7        cost of painting and undertaking other surface treatments;
2.24.8        .....
2.24.9        .....
2.24.10      .....
2.24.11      .....
2.24.12at the election of the Manager - an amount (not exceeding 5.00% per annum in respect of any Year) of all other amounts comprised in the Total Operating Cost referred to or fixed pursuant to the proceeding provisions this Sub‑clause which in the reasonable opinion of the Manager or the Trustee should be set aside for or paid into a fund established to cover infrequent and irregular repairs and renovations and replacements and maintenance (“Sinking Fund Costs”) of the Unit or Common Areas or units AND for the purpose of this Sub-Clause:
2.24.12.1all Sinking Fund Costs shall be taken into account in determining the Total Operating Costs only in the event that no fund has been established pursuant to this Sub‑clause; or
2.24.12.2if a fund referred to herein is maintained at the time by the Manager pursuant to this Sub‑clause - to the extent to which the Sinking Fund Costs exceed the amount standing to the credit of that fund at the time
as the case may be;
The Tribunal dealt with two separate categories of maintenance costs in the orders made on 4 September 2006:
·maintenance and renovation work, including painting, done to the wooden footbridge balustrades and wooden shade awnings; and
·reinstating units after they have been vacated and before they are re‑licensed.
The Tribunal adopted the following reasoning:
I interpret the Total Operating Costs to mean that every item of expenditure, including painting, in the operation of the Village (excluding land taxes, structural work and matters for which a resident is responsible) is paid for from the day to day Maintenance Fund unless such work is “infrequent and irregular” in which case the Sinking Fund is charged.
The fact that painting and other items are specifically listed in clause 2.24.1 to 2.24.11 does not mean those items can only be paid for from the Maintenance Fund. What clause 2.24.1 to 2.24.11 does is to particularise some of the types of outgoings which fall within the Total Operating Costs of the Village. One category of such items is those repairs and renovations which are irregular and infrequent. Painting is not excluded from the irregular and infrequent repairs.
Therefore, if the repair work, which may include painting, is “irregular and infrequent” it must be charged to the Sinking Fund. (AB 172)
As to the balustrades and awnings, the Tribunal found that their maintenance was both infrequent and irregular, since it was only done on an “as needs” basis.
As to the reinstatement of the units, the Tribunal held:
I accept that one must consider the entire Village when assessing whether the cost of reinstatement of the units should come from the Maintenance Fund or the Sinking Fund. In order to come from the Sinking Fund reinstatement work must be infrequent and irregular.
There can be no prediction of exactly when a resident will terminate an agreement thus needing reinstatement work on their unit. The work must therefore by irregular. It does not occur at regular intervals. Is it also infrequent? “Infrequent” is defined in the new Oxford Dictionary of English to mean:
“Infrequent - adjective not occurring often; rare:
        her visits were so infrequent.
        DERIVATIVES infrequency noun, infrequently
        adverb
        ORIGIN mid 16^th cent. (in the sense ‘little used,
seldom done, uncommon’) from Latin infrequent-
from in- ‘not’ + frequent - ‘frequent’
“Frequent” is defined to mean:
“Frequent - adjective occurring or done
        on many occasions, in many cases, or in quick
        succession; frequent changes in policy / the showers will
become heavier and more frequent.”
I accept the evidence given by the applicants that units are not repaired until they are prepared for re licensing.
There are 136 units in the Village and according to Mr Heath’s evidence some units will not have been painted for twenty years as the paint work is still quite good. Mr Heath in his letter of 24 July 2006 to the Tribunal states the average stay in a unit is “more than ten years”. Given that ninety per cent of the reinstatement is painting, these two pieces of evidence from Mr Heath lead me to conclude that the reinstatement of units in preparation for re licensing is, across the whole 136 units, “infrequent” within the meaning of that word. Being both irregular and infrequent the reinstatement costs including painting must be charged to the Sinking Fund. I shall require that this be done from 1 July 2002. (AB 173-4)
Having made those findings, the Tribunal ordered:
1.The cost of the maintenance and renovation work, including painting, done to the wooden foot bridge balustrades and wooden shade awnings at the Village (other than the cost of structural work which should, in the first instance be met from the Capital Replacement Fund) shall be met from the Sinking Fund until such time (if ever) as IRC has in place a program for the frequent and regular repair and maintenance of these items; and
2.The cost of the reinstating units prior to re licencing shall be met from the Sinking Fund and I direct the administering authority to put in place such accounting procedures as are reasonably necessary to identify the actual costs involved in such work. (AB 176)
The Notice of Appeal initially contained seven grounds, but grounds 1-3 were not pressed. In essence, the appellant’s contentions were summarised by Mr Stanley as follows:
·the Licence Agreement does not make it mandatory that irregular and infrequent painting costs be met from the Sinking Fund, but rather that it could be met from either fund at the appellant’s discretion;
·the reinstatement work on the units was not irregular and infrequent;
·the orders that costs incurred since 1 July 2002 be met from the Sinking Fund were beyond power conferred on the Tribunal by s14(2)(a) of the Act.
I note that, in not pressing grounds 1-3, the appellant no longer seeks to contest the Tribunal’s finding that the work on the balustrades and awnings was infrequent and irregular (ground 3). So the only factual issue left before me is whether the reinstatement work falls into that category (ground 6).
For the purposes of these reasons, I propose to deal with these issues in a different order:
1.whether the reinstatement work on the units was irregular and infrequent;
2.if so, whether the licence agreement requires that the costs thereof be paid from the sinking fund;
3.whether the Tribunal had power to make orders in relation to costs incurred since 2002.
1. Irregular and Infrequent
The Tribunal made the following findings of facts in relation to this issue:
·the bulk of the work done in this regard is painting;
·in order to determine whether a particular activity is irregular and infrequent, the whole village must be considered rather than individual units;
·when a unit requires reinstatement is unpredictable - it is therefore irregular, in the sense that it does not occur at regular intervals;
·some units have not been painted for 20 years;
·the average stay in a unit is more than 10 years;
·on that basis, reinstatement work, 90% of which is painting, is infrequent;
·accordingly, the reinstatement work on the units is both irregular and infrequent.
Mr Stanley argued that these findings were inconsistent, in that having correctly directed herself that regard must be had to the whole village, the Member proceeded to consider the regularity and frequency with which individual units were painted.
The appellant sought to meet this difficulty by filing an affidavit sworn by Mr Heath, a Director and the Chief Executive Officer of the appellant company. The information in the affidavit can be summarised as follows:
·there are 233 units in the residential village;
·the number of units resold, and therefore reinstated, since 1999 were:
1999 - 11
2000 - 16
2001 - 17
2002 - 7
2003 - 9
2004 - 7
2005 - 17
2006 - 22
2007 - 20
Total - 126
Average - 14 per year
Mr Stanley submitted that these figures demonstrate that reinstatements were both regular and frequent.
Both parties referred to the Macquarie Dictionary definitions of these two words. “Irregular” is defined as “not characterised by any fixed principle, method or rate”, and “infrequent” is defined as “not frequent - not occurring often or in close succession”.
Mr White, counsel for the respondents, argued that these definitions were of limited utility, in that the “fixed principle” could simply be that the work is done whenever it is required. He argued, and I think correctly, that the words are to be contrasted with their opposites, namely “regular” and “frequent”, in the sense that would prevail if an established plan for maintenance had been developed which would enable the appellant to set an annual maintenance fee in respect of these costs. He submitted that the variations evident in the table referred to above would make that impossible, hence the need to establish a “sinking fund” to cover unpredictable contingencies.
I think that this argument is correct as a matter of logic, and also gives effect to the principle referred to by Mr Stanley, namely that “like any commercial contract, it must be construed in its context, and against the background of the commercial purpose it was intended to fulfil”. (T31) (see Charter Reinsurance Co Ltd v Fagan [1996] 2 WLR 726 @ 762).
Mr Stanley referred to Francese v Corporation of the City of Adelaide (1989) 51 SASR 522 in relation to the meaning of “irregular”. That case concerned whether overtime worked by an employee was “in accordance with a regular and established pattern” within the meaning of the Workers Rehabilitation and Compensation Act 1986. King CJ had regard to the objectives of the Act in ascertaining the meaning of those words, and held that overtime could be regular and established even if it was worked in an “uneven or disjointed” pattern, but not if it was worked merely “occasionally or spasmodically” (p527).
Having regard to the rather specialised context of worker’s compensation in that case, I doubt that the reasoning adopted by his Honour can be easily applied here.
Having regard to the total number of units, the low turnover of units (between about 3.5% and 10% per annum), the variations in turnover from year to year, and having regard to the commercial purpose identified by Mr White for which the sinking fund was set up, I find that the conclusion of the Tribunal that the reinstatement costs were both irregular and infrequent was justified and correct. I see no “cogent reason” within the meaning of s42E of the District Court Act to depart from it, even having regard to the further evidence put before me on the appeal.
2. Is use of the sinking fund mandatory?
As I outlined earlier, para 2.24.12 of the Licence Agreement entitles the manager to set up a sinking fund “to cover infrequent and irregular repairs and renovations .....” (my underlining).
Mr Stanley argued that if a cost was not irregular and infrequent, it could not be paid from the sinking fund. That must be correct. However, he submitted that if an expense is irregular and infrequent, it may be paid from the sinking fund. He argued that in those circumstances, the cost could be paid from either the maintenance fund or the sinking fund at the discretion of the manager.
In my opinion, that argument is not correct, for the following reasons:
·if the use of the fund was entirely discretionary, there would have been no point in setting it up;
·there would be no criteria by which the discretion should be exercised;
·the fact that using the sinking fund is financially beneficial to the appellant, and financially detrimental to the respondents, cannot be a criterion for exercising the discretion, yet this seems to be the only criterion open on the appellant’s argument;
·the appellant’s argument overlooks the use of the words “to cover” in the agreement. In my opinion, the ordinary meaning of those words is that, in the event that the manager decides to establish a sinking fund, as it is entitled to do in its discretion, then the sinking fund should be used to cover, that is it should be resorted to in the first instance in order to cover irregular and infrequent maintenance costs when they arise.

In Carisfield Estate Pty Ltd v Douglas (1998) 201 LSJS 84, similar issues were examined by the Full Supreme Court. In that case a sinking fund had been set up pursuant to a clause in the Licence Agreement in the same terms as para 2.24.12 here. In addition, there was a Capital Replacement Fund, and the dispute was about that rather than about the sinking fund. However, the Court went about the process of identifying the purposes for which the Capital Replacement Fund had been established, and decided that items of a capital nature such as air conditioners, hot water services and the like should be paid for out of the Capital Replacement Fund, and only if there were insufficient funds in that fund should the payment come from the sinking fund. The Court did not analyse the purpose of the sinking fund closely, but the opinions of all three judges was clear - there was no unfettered discretion vested in the manager to choose which fund to draw on in a given circumstance. For example, Prior J, with whom Millhouse J agreed, said at p90:
..... I am not persuaded that there is an absolute or unfettered discretion in the appellant. Rather, I think it depends upon such facts as may be established in any particular case.
Although Lander J disagreed with the majority as to the scope of the orders which the Residential Tenancies Tribunal were empowered to make, which I will mention again shortly, his Honour’s reasoning was the same (see p100).
I agree with Mr White’s argument that the appellant is not entitled to use the sinking fund as some sort of “rainy day” provision which is set aside, to the commercial advantage of the appellant only, to meet an “unforeseen calamity”. (T49). The language of the agreement does not permit that interpretation. If it used words such as “unexpected”, “unforeseen”, or “extraordinary”, the situation might be different (see, for example, Lamag Holdings Pty Ltd v Reylan Pty Ltd (1992) NSW ConvR 55-654, NSW Court of Appeal delivered 19 November 1992).
I therefore conclude that the Tribunal was correct in holding that where a sinking fund has been established, “irregular and infrequent repairs and renovations and replacements and maintenance costs” should always be met from the sinking fund in the first instance, and that it is only in the event that there is no, or insufficient, money in the sinking fund that such expenses should be met from the maintenance fund.
3. The Powers of the Tribunal
I set out again the order made by the Tribunal on 4 September 2006:
ORDER
Pursuant to Section 14(2) of the Act, I require that from 1 July 2002:
1.The cost of the maintenance and renovation work, including painting, done to the wooden foot bridge balustrades and wooden shade awnings at the Village (other than the cost of structural work which should, in the first instance be met from the Capital Replacement Fund) shall be met from the Sinking Fund until such time (if ever) as IRC has in place a program for the frequent and regular repair and maintenance of these items; and
2.The cost of the reinstating units prior to re licencing shall be met from the Sinking Fund and I direct the administering authority to put in place such accounting procedures as are reasonably necessary to identify the actual costs involved in such work. (AB 176)
Mr Stanley argued that in purporting to make both those operate from 1 July 2002, the Tribunal went beyond power. I have already set out the powers conferred by s14(2)(a) of the Act as it stood then. Mr Stanley argued that when a finding has been made that a party has breached or failed to comply with a contract, the Tribunal may make orders:
·to restrain a breach of the contract;
·requiring performance of the contract;
·requiring payment of an amount due under a contract;
·making payment of compensation for loss or injury caused by a breach of the contract.
Mr Stanley argued that neither of the orders were authorised by s14(2)(a). Mr White argued that the power to require performance of the contract is the same as a power to rectify the breach, which involves making orders with retrospective effect.
Mr White also argued that the power to order payment of compensation for loss or injury caused by a breach extends to a power to make orders whereby accounts could be revisited and adjusted. He acknowledged the practical difficulties involved in requiring compensation payments to all residents affected by the issues dealt with here, particularly as some of them may have left or died.
In Carisfield Estates (supra), this issue was the basis of the disagreement between Lander J and the majority. Lander J was prepared to make broad‑ranging orders of a general nature, for example:
The sinking fund may be applied towards defraying operating costs of the estate (either in respect of individual units or the common areas) in the nature of repairs, renovations, replacements and maintenance which are of an infrequent and irregular nature and not of a capital nature. (p101)
Prior and Millhouse JJ took a much narrower view of the Tribunal’s powers. Prior J said at p90:
Any order of the Tribunal should be confined to particular matters identified in the dispute before it.
His Honour then went on to specifically make orders dealing with air conditioners, hot water services and the like, rather than making pronouncements of general application.
Section 14 of the Act was in substantially the same terms when Carisfield Estates was decided in December 1999, with the same powers invested in the Tribunal as set out above. The decision of the Full Supreme Court is obviously binding on me, as it was on the Tribunal.
It follows then, that the scope of the Tribunal’s orders in this case was much wider than was necessary to resolve the particular dispute before the Tribunal. The orders should have been confined to the particular matters of dispute, and to the particular disputants, before it.
I indicated to the parties that I would hear further argument as to the precise terms of the orders to be made in the event that I ruled that the appeal should be allowed. In view of what I have said above, although I agree with the reasoning of the Tribunal on the first two issues, the appeal should be allowed as the orders made go beyond power.
Accordingly, I will hear counsel about the form of the orders I should make pursuant to s20(3) of the Act.