North Adelaide Nursing Home PL v Seely No. Scgrg-00-680
[2000] SASC 455
•22 December 2000
NORTH ADELAIDE NURSING HOME PTY LTD v SEELY
[2000] SASC 455
Civil
1................ WICKS J......................... The plaintiff was incorporated as North Adelaide Private Hospital Pty Ltd on 26 June 1972. It was incorporated by Mr Luigi Penna and his wife Maria Penna and a number of other persons who subscribed its Memorandum of Association. At all material times, Mr Penna is and was a director of the plaintiff and authorised to act on its behalf.
Shortly after its incorporation, the plaintiff purchased a nursing home situated at 26 Le Fevre Terrace, North Adelaide and proceeded to continue to conduct the business of a nursing home on the premises.
In February 1980 the plaintiff sold the Nursing Home to Mr and Mrs Penna.
During 1980 the premises were upgraded in order to meet standards set by the Commonwealth Department of Health as a condition precedent to the Commonwealth subsidising the home. The work of upgrading was substantially completed by 21 January 1981. Various items of repair still needed to be done but the work had progressed sufficiently for the Department of Health to authorise an increase in the bed capacity of the home from 24 to 33. The increase took effect from 8 December 1980.
On 10 June 1981, the plaintiff changed its name from North Adelaide Private Hospital Pty Ltd to North Adelaide Nursing Home Pty Ltd.
Despite the fact that the premises were transferred to Mr and Mrs Penna, they continued to carry on the business of the Nursing Home through the plaintiff, North Adelaide Nursing Home Pty Ltd. The Nursing Home premises were leased to the plaintiff and a nursing home approval granted under the National Health Act 1953 was in force in respect of the premises for various periods including the period 1 July 1982 to 30 June 1984. The approval was in respect of an approved number of beds in the home being 33. The Nursing Home had 33 residents or thereabouts being provided with nursing care as approved and funded under the National Health Act 1953.
Prior to the end of 1982, the defendants, Mr and Mrs Seely were employed at the Nursing Home, Mr Seely as a technician and Mrs Seely as matron.
The Legislation and the approval of the Nursing Home under the National Health Act 1953
Under s 40AA of the National Health Act 1953, the proprietor of a nursing home was at liberty to apply for approval of the premises as an Approved Nursing Home. If the application met certain criteria, the premises were approved as a nursing home for the purposes of the National Health Act. Such approval was subject to a number of conditions, one of which was that the number of beds available for qualified nursing home patients would not at any time exceed the number of beds as determined from time to time by the Permanent Head of the relevant Commonwealth Department as the approved number of beds in relation to the Nursing Home. No alteration to the premises which would have the purpose or effect of enabling the number of beds available to be increased could be made without the approval of the Permanent Head.
The National Health Act 1953 drew a distinction between the expression “the proprietor of a nursing home” which was an expression which did not have a definition in the National Health Act and the expression “proprietor” which was defined in the National Health Act to mean in relation to a private nursing home - the owner of the business or undertaking carried on at that nursing home.
In Nagrad Nominees Pty Ltd v Howells & Anor (1981) 38 ALR 145, when speaking of the National Health Act, Northrop J observed at p 147:
"A ‘proprietor’ is defined to mean, inter alia, ... in relation to a private home - the owner of the business or undertaking carried on at the nursing home ...
Under s 40AA the proprietor of premises, being a nursing home, may apply for approval of the premises as an approved nursing home: s 40AA(1). In this sub-section the word ‘proprietor’ does not have the defined meaning, but refers to the owner of premises. The approval sought is with respect to premises."
Also, he said at p 149:
" It should be noted that approval and conditions are given and imposed with respect to premises being a nursing home. A proprietor, in the defined sense, of a nursing home need not be the proprietor of the premises in which the nursing home business is being conducted. The proprietor of an approved nursing home is the owner of the business or undertaking carried on in the nursing home. The fees to be charged are in respect of accommodation and nursing care of a kind provided in a nursing home. The fees are paid to the proprietor of that business. To give effect to that concept, s 40AD provides for the proprietor, namely the owner of the business carried on at the approved nursing home, to make application for an alteration to the conditions applicable to the nursing home. The demarcation, therefore, made by the Act is between the owner of the fee simple of the site on which the nursing home is being conducted and the owner of the business being carried on at that site."
I do not think that the reference in s 40AA of the National Health Act to “the proprietor” of the nursing home must necessarily refer to the owner of the fee simple of the site on which the Nursing Home was conducted. Where the owner of the nursing home business was the registered proprietor of the land and improvements, that person was the proprietor of the nursing home and the person entitled to apply for approval of the premises (as distinct from the business carried on the premises) as an approved nursing home. On the other hand, a lessee of the land and buildings (the lease conferring exclusive possession of the nursing home on the lessee for the duration of the lease) could equally have been the proprietor of the nursing home. The lessee would be the “proprietor” of the land and improvements.
The effect of these provisions was to tie the approval of the nursing home to particular premises. If the premises were sold or leased, the buyer or lessee would need to arrange for the existing approval to be terminated and for a fresh approval in the name of the buyer or lessee to be obtained. Under these arrangements, it was not possible for the approval or licence in respect of the nursing home beds to be disposed of separately and apart from the approval in relation to the premises themselves.
If therefore, under the National Health Act provisions, the defendants had made a decision at the expiration of the lease to cease to conduct the Nursing Home business, it would not have been possible for them to keep the Nursing Home approval separately and apart from the other assets which would have to be handed back to the plaintiff.
It seems to me that the expression “bed licence” so far as it related to a particular bed in the Nursing Home was a misnomer and found no mandate for its use in s 40AA and the following sections of the National Health Act. In a sense, the Nursing Home approval under that Act was indivisible. There did not appear to be a separately identified piece of property relating to a particular bed in the Nursing Home. Under the National Health Act, the only licence involved was the nursing home approval itself. If a person wished to set up a nursing home, a nursing home approval would need to have been obtained, one of the conditions of which would have been a restriction on the number of beds in the nursing home. The only way a bed could have been transferred to the proprietor of some other approved nursing home would have been for the nursing home approval in one case to be altered by increasing the number of beds and in the other to be altered by decreasing the number of beds. Such an arrangement could only have been given effect to by enlisting the co-operating of the Secretary for the Department of Health and Family Services. A transfer as such was not involved.
The provisions of the National Health Act dealing with nursing homes were repealed by the Aged Care (Consequential Provisions) Act 1997. These provisions came into force generally on 7 October of that year although some parts of the Act came into force on an earlier date. Section 20 of the Aged Care (Consequential Provisions) Act operated as a transitional provision in relation to Approved Nursing Homes. Section 20 provided that if an approval of premises as an Approved Nursing Home under the National Health Act 1953 was in force on 7 October 1997, the date of commencement of the Aged Care Act 1997, the Secretary of the Department of Health and Family Services (“the Secretary”) was taken to have allocated under subs 14-1 of the Aged Care Act to the person conducting the business of a nursing home a number of places (within the meaning of the Aged Care Act) equal to the number of beds to which the approval under the National Health Act related immediately before the date to which I have referred. Under the Aged Care Act 1997, a place became transferable if the transfer was approved by the Secretary.
Various conditions govern the right of the Secretary to approve a transfer of a place. An allocation of a place operates when the transferee is in a position to provide care with respect to the place concerned. In addition, for such approval to take place, various conditions are set out in s 16-1 of the Aged Care Act, none of which would appear to create an insurmountable difficulty. “Place” is defined in the Aged Care Act for the purposes of that Act and the Aged Care (ConsequentialProvisions) Act as a capacity within an aged care service for provision of residential care ... to an individual, “aged care service” means an undertaking through which aged care is provided and “aged care” includes residential care.
Mr Penna’s version of the 1982-83 negotiations
According to Mr Penna, he was approached by Mr Seely to see whether he was interested in leasing the Nursing Home. There were three or four discussions on the topic with Mr and Mrs Seely and these took place at Mr Penna’s office at 65A South Terrace, Adelaide. At the time, Mr Penna was a practising solicitor. In evidence, he said that he could not recollect verbatim what was said at the meetings but could remember the effect of it. He said that these discussions took place with both Mr and Mrs Seely.
At the first meeting, the defendants enquired of Mr Penna whether he would be interested in leasing the Nursing Home and if so on what conditions. At the first meeting, Mr Penna did not give the defendants any indication one way or the other whether he would be prepared to lease the Nursing Home and if so, on what conditions.
The second meeting followed at Mr Penna’s South Terrace Office. On this occasion he indicated that he would be prepared to lease the Nursing Home to the defendants. He indicated the amount of money that he was looking for at the letting, pointing out that the rent was claimable in fees from the patients. A figure of $65,000 per annum for rent was mentioned.
There was also a discussion about plant and equipment. Mr Penna indicated that plant and equipment would remain where it was and that the defendants would be required to maintain it. He said that they would be required to replace any item which became useless or worn out. They would be required to repair machines if they required repair. They would maintain all the bedding as it was and the beds themselves. In general, they would maintain the home in running order in exactly the same way as it was given to them at the time of hand-over and comply with all directions issued to them by the various government departments. There was no discussion on the topic of goodwill.
There was discussion as to what would happen at the end of the term. On that topic, Mr Penna said in evidence:
"Yes, they would leave the place in exactly the same way as I gave it to them, fully running, including the various bed accreditations, or bed licences or bed approval. All the bedding, all the beds, all the equipment in running order ... Generally, the whole place was to remain and be maintained and given back to me in the same way as I gave it to them."
The defendants accepted these conditions.
Mr Penna was asked whether he could distinguish what was said on the first, second and third meetings. He said that the first conversation was simply to ascertain whether he was interested in leasing the home to the defendants and if so, his terms and conditions. In the second conversation the terms and conditions were discussed and agreed to. The third meeting was simply to finalise the terms and conditions and provide for the handing over of the business. There may have been four instead of three meetings but matters were discussed in the order just mentioned.
Mr Penna was asked whether the expression “walk-in/walk-out” was used in the course of negotiations. He said that such expression was used and continued as follows:
"Q What was said and by whom about that matter?
A...... I said to them ‘Do you understand that I’m allowing you to walk into the place and run the nursing home as it is? You are not charged for anything which is required to run a nursing home. You are not required to pay for anything, so that when the time comes that you hand it back to me, I want you to do it exactly the same way’. That’s why - the expression used was ‘walk-in, walk out’ in that sense, an exclamation sense.
Q...... Did Mr or Mrs Seely say anything?
A...... Yes.
Q...... What did each of them say?
A...... Yes."
Mr Penna was asked whether there was any discussion on the subject of the Department of Health (C’wlth). Mr Penna replied that he and the defendants had to go to the Department of Health and submit documentation to transfer the approval from North Adelaide Nursing Home Pty Ltd to the defendants.
In cross-examination by counsel for the defendants, Mr Penna denied that his discussions at the meetings which were held at South Terrace, Adelaide, were with Mr Seely alone and that Mrs Seely did not attend any of the meetings. Mr Penna admitted that he did not keep any notes in respect of his conversations with Mr Seely. A diary as such was kept only for appointments.
It was put to Mr Penna that he did not remember what was said some seventeen years ago. He admitted that he could not remember verbatim what was said at the meetings. He said, however: “I remember what I remember” presumably referring to a partial recollection.
In cross-examination, it was put to Mr Penna that at a Christmas party at the Nursing Home in December 1982 he had asked Mr Seely whether he wished to take over the Nursing Home business at LeFevre Terrace, North Adelaide. He denied making such an approach. He admitted subsequently having a number of meetings with Mr Seely at his, Mr Penna’s, office at 65A South Terrace, Adelaide. He said that Mrs Seely was present at every meeting. He denied having any meetings with the defendants at the Nursing Home. Such a denial, on occasions, was not dogmatic. For example, in answer to a question of whether he ever spoke to the defendants about taking over the business when he was on the premises occupied by the Nursing Home, his reply was: “I don’t recollect, no”. His attention was drawn to a reference in par 9 of the Statement of Claim to the effect that some discussions took place at the premises of the Nursing Home. His response was that at that stage an agreement to lease was already in place in the sense that the parties had agreed to all the terms and conditions.
In cross-examination, Mr Penna agreed that during the discussions concerning the taking over of the operation of the Nursing Home from the plaintiff, Mr and Mrs Seely would pay rent for the premises in accordance with the lease, that they would pay all operating expenses in the conduct of the Nursing Home and would assume the conduct of that business and its risks and responsibilities.
It was put to Mr Penna that in the discussions to which I have referred, there was no discussion about bed licences being transferred back to Mr Penna. His response was “On the contrary”. It was put to Mr Penna that the defendants would leave the place in exactly the same way as Mr Penna gave it to them. He agreed that the premises would be fully running and that this would include various bed approvals granted under the National Health Act 1953.
Mr Penna was asked when he prepared the lease of the premises to Mr and Mrs Seely in 1983, whether he considered including a clause in the lease about bed approvals. He said that he did consider including such a clause and when asked to identify the clause, pointed to clause No 8. That clause provided that the lessees, the defendants, would do their utmost to comply with and keep all permits, licences, authorities, powers and approvals at[sic] presently held or subsequently acquired for the proper and better conduct of the businesses and activities lawfully permitted upon the premises whether such permits etc was required by Federal, State, Local Councils, Authority or Board’s laws, rules and regulations or by suppliers of any services or products.
Mr Seely’s version of the 1982-83 negotiations
Mr Seely said in evidence that he attended a Christmas party at the Nursing Home in December 1982 where he met Mr Penna. Mr Seely was asked if he would like to take over the Nursing Home. He said that he could not afford to do so. Mr Penna suggested that he knew a way in which it could be done. They agreed that they would meet later to discuss the matter. Some time afterwards, Mr Seely arranged to discuss the matter at Mr Penna’s office at 65A South Terrace, Adelaide.
The gist of the conversation was that the defendants were to lease the Nursing Home, the land and buildings, plant and equipment. They were also to take over the business. The approval was to be transferred to them. Mr Seely enquired as to the rent and was told that it would be $65,000 per annum. There was no discussion on the figure. Mr Penna indicated that there might be some adjustment in respect of monies owing to his company as prior owner. There would also be an adjustment in relation to employee entitlements such as annual leave and long service leave. There was to be a rent review every two years. Mr Penna indicated that licences would have to be transferred and arrangements made in respect of group tax, payroll tax and “the normal sorts of things that would be transferred over”.
It was arranged that Mr Seely would write to the Department of Health to notify them that the defendants were taking over the business of the Nursing Home. He was also to contact suppliers, open bank accounts, register a business name and attend to other similar matters associated with the takeover of the business.
Mr Seely said that his wife did not attend meetings which Mr Seely had with Mr Penna at the latter’s offices at 65A South Terrace, Adelaide.
It was put to Mr Seely that the defendants had agreed to leave the Nursing Home in exactly the same way as Mr Penna gave it to them in the first place. Mr Seely denied that anything of that kind was said.
In cross-examination, Mr Seely said that he had been contacted by Mr Penna regarding the leasing of the Nursing Home at the Christmas party in the grounds of the home. Mr Seely then gave the following evidence:
"Q...... Had you had a conversation with Mr Penna on the topic of taking over the nursing home.
A Yes.
Q...... Can you tell His Honour who spoke and what was said by each of the persons who did speak in that conversation.
A...... I’m not able to go into that detail. I don’t remember it like that. I remember being approached by Mr Penna, being asked if I wanted to take over, and I think I said I couldn’t afford to and he said he knew a way and we would meet later."
Two months or so later, Mr Seely contacted Mr Penna and made an appointment to see him about the Nursing Home at his office at 65A South Terrace, Adelaide where the matter of the defendants taking over the Nursing Home was discussed. When asked to relate the conversation that took place Mr Seely responded by saying that he did not remember the conversation verbatim but the gist of it was that the defendants were to take over the business and the nursing home approval would be transferred to them and they would run the business.
Mr Seely was told what the rent was. He said that it was $65,000 per annum but did not explain how the figure was arrived at. The lease included all of the beds, furniture, office furniture, crockery etc that were required to run the Nursing Home. When the defendants left the premises they would have to leave all of those items behind.
In cross-examination, Mr Seely gave the following evidence:
"Q...... Did he say to you that you would leave the place in exactly the same way as he gave it to you?
A Yes, I think so.
Q...... Fully running, including the various bed accreditations or bed licences or bed approvals.
A...... No.
Q...... Can you be certain of that.
A...... Well, I don’t think bed accreditation was a term being used anyway. That only came about in the last year or two, two years.
Q...... Did he say something like that.
A...... No, I don’t think so.
Q...... Did he say anything about bed licences or approvals?
A...... Yes, they were being transferred to me and that’s why I had to make application [referring to an application to the Department of Health].
Q...... But did he say what was to happen to them at the end of the arrangement?
A...... Not that I know of; no, I don’t remember it. I was entering into something new, not what I was getting out of in X number of years. I didn’t even think about it."
It was put to Mr Seely that Mr Penna said to him:
"... ‘Do you understand that I’m allowing you to walk into the place and run the nursing home as it is; you are not charged for anything which is required to run a nursing home, you are not required to pay for anything, so that when the time comes and you hand back to me, I want you to do it exactly the same way?’"
Mr Seely was asked whether he remembered Mr Penna saying anything like that. He replied,
"I remember words to the effect that I would go in and lease it, the buildings, land, and we’d transfer the other things over to me, and that was it, that’s all I remembered."
Referring to bed licences, it was put to Mr Seely that he did not regard the bed licences in respect of the Nursing Home as an asset of his until 1997 when the Aged Care Act was enacted and which introduced the notion of a “place” being an item of property which could be transferred from one nursing home to another. Mr Seely’s response was:
"I didn’t look upon them as an asset of mine. I looked upon them as they were transferred over to me, and I was the approved provider, so they were my approvals."
It was put to Mr Seely that he agreed to replace items of plant and equipment which became useless or worn out. He said that he did not recall those words but he knew that he had to make replacements in order to keep working. He did not recall similar words being used in relation to the repair and replacement of machinery or the maintenance of bedding and beds although he had readily acknowledged that the maintenance of all of these items was his responsibility.
The Witnesses
In this matter, I have not formed an adverse view of the credit of any of the principal witnesses, Mr Penna and Mr and Mrs Seely. I did not hear from Mrs Penna but it appears that she took no active part in the affairs of the Nursing Home other than, perhaps, to supply a signature to the foot of the agreement for lease. Some of the events under consideration occurred many years ago and detailed recollection would be unlikely. It does not surprise me that Mr Penna has a general recollection of events which occurred and of matters discussed in the early part of 1983. He recalls the effect of what was discussed. It does not surprise me, however that he is unable to recall particular conversations. On the other hand, Mr Seely was able to recall very little of the effect of what was said in 1983 but he did recall some things. As a practical matter, I think that Mr Penna had the edge here. He was a trained lawyer, although not practising at the time. He was familiar with the general terms and conditions of a lease. He was able to conceptualise the terms of an agreement and would not find it difficult to have a general recollection of an agreement for sale or lease of property and of its principal terms and conditions. On the other hand, Mr Seely was not a trained lawyer; nor was he an experienced businessman, the Nursing Home project being the first, or at all events the first major project undertaken by him. In these circumstances, I would not expect him to retain a clear understanding of the arrangements made between the plaintiff and the defendants, even if he had a reasonable understanding of what was planned at the outset. I find that Mr Penna’s version of the 1983 agreement between the parties to be the more likely one to have occurred. I prefer his evidence on the topic.
Mr Penna was cross-examined on the fact that his name had been struck off the roll of legal practitioners in May 1982. A copy of an affidavit relating to these proceedings was admitted in evidence. It appears that in the period from August 1978 to August 1980 certain irregularities occurred in relation to Mr Penna’s trust account. A special audit was arranged and irregularities discovered. Following the making of enquiries, Mr Penna’s counsel intimated that Mr Penna desired to apply to this Court to have his name removed from the Roll of Practitioners. Proceedings were taken to have Mr Penna’s name struck from the Roll of Practitioners and this was done in April 1982.
Unfortunately, I have only a limited amount of material before me in relation to the disciplinary proceedings against Mr Penna. By all accounts the conduct which gave rise to the disciplinary proceedings occurred in the period 1978 to 1980. The conduct was completely out of character. He agreed to the disciplinary proceedings in question being referred directly to this Court without the need for an investigation by the Statutory Committee. I would have some misgivings in acting on the affidavit alone. I would be interested to know the attitude taken by the Full Court when considering Mr Penna’s case.
In the circumstances I have decided that I should not place any significant weight on the affidavit to which I have referred.
The expert witnesses
I did not find the evidence of Messrs Bila or Holmes of any assistance in the way that I have decided this case.
Mr Butcher gave unchallenged evidence to the effect that the fair market rental of the premises on the basis that the Nursing Home business was removed was no more than $21,000 per annum net.
Mr Cyril Lampard, a certified practising accountant, with expertise in the nursing home industry, gave evidence to the effect that bed licences in that industry had an intrinsic value and that that was the position as far back as 1980-1983. From the view to which I have come in relation to the nature of the approval granted under the National Health Act, I do not believe that from the legal point of view there is such a thing as a bed licence. All that exists is an approval of a nursing home as a whole. A condition of that document, and it is nothing more, merely limits the number of beds to a specific number. It may be that from a commercial point of view it has become the custom to treat arrangements under the National Health Act in relation to nursing homes as creating something which, with some latitude, could be regarded as having the attributes of a licence of some kind.
Despite what I have said, it appears that the market place has identified an item known as a “bed licence” applicable to a nursing home. Mr Lampard gave evidence based on his direct knowledge and experience to the effect that since 1980, there had been a market in bed licences and that within the market, buyers and sellers have ascribed at ever increasing intrinsic value to those licences.
On Mr Lampard’s evidence, the market value of the bed licences applicable to the Nursing Home in 1983 was of the order of $165,000 to $200,000.
Whether the Nursing Home was viable
Mr Penna was cross-examined on the question of whether the Nursing Home business was viable. Certain accounts were produced to suggest that the Nursing Home Business was not viable and was of no or limited value. Proprietary company accounts are often distorted and are often managed in such a way as to obtain maximum taxation benefits for the owners. In this case, I have seen nothing in relation to the Nursing Home’s accounts which would suggest that it was struggling in any way and that a valueless asset was being handed to Mr Seely. Having regard to the evidence of Mr Lampard, the so-called bed licences also had a significant value.
Findings as to written terms of agreement
I find that the agreement between the plaintiff and the defendants was in part in writing and that so far as there was a written agreement between the plaintiff and the defendants, it is contained in the Agreement for Lease dated 1 July 1983 between the plaintiff as lessor and the defendants as lessees. The principal provisions that are relevant are as follows:
Clause 2(b) - to pay rates and taxes and charges for gas, electricity, oil, telephone and all like services.
Clause 2(e) - not to use the demised premises otherwise than for purposes set out in Schedule 3 and to comply with all written requests of various health authorities State and Federal.
Schedule No 3 permitted use: licensed nursing home.
Clause 2(f) - to maintain the demised premises including the interior and exterior of all improvements and all the lessor’s fixtures and fittings in good and substantial repair and at the expiration or sooner determination peaceably to surrender and yield up the demised premises together with the lessor’s fixtures and fittings in all respects and where appropriate in good working order as the same are now. No obligation is imposed on the lessees in respect of structural maintenance replacement or repair.
Clause 2(g)(iv) - to comply with statutes and other legislation affecting or relating to the lessees’ use of the demised premises.
Clause 2(1) - not without the prior consent of the lessor to make any alteration or addition to the demised premises without the lessor’s consent and all such installations save where they are the lessor’s fixtures shall remain the property of the lessee which shall be responsible for maintenance.
Clause 3(b) - that the lessee may at or prior to the expiration of the lease carry away fixtures, fittings, plant and equipment including trade fixtures brought upon the demised premises by the lessee.
Clause 4(h) - Right of renewal. The lessees are to have the option to renew the lease for a further term of six years on the same terms and conditions excluding the right of renewal.
Clause 8 - notwithstanding anything contained to the contrary the lessees shall do and perform all acts, deeds and things and generally do their upmost to comply with and keep all permits, licences, authorities, powers and approvals at present held or subsequently acquired for the proper and better conduct of the businesses and activities lawfully permitted upon the said premises whether such permits, licences, authorities powers and approvals are required by any Federal, State, Local Council’s authority or board’s laws, rules and regulations or by the supplies of any services or products.
Clause 9 - that the lessee shall keep and properly maintain the premises as a licensed nursing home and in proper maintenance and repair the building, plant and equipment, furniture, beds and bed requirements, linen, blankets etc and generally do such things requiring maintenance as directed by the lessor or any government or statutory authority.
Schedule 4 to the agreement sets out plant and equipment to be leased to the defendants along with the buildings and approvals. The agreement for lease was dated 1 July 1983. The term commenced on 1 May 1983 and expired on 30 April 1989. There was a right of renewal for a further six years. It is of course not uncommon for a formal lease or agreement for lease to be prepared some time after the term has actually commenced.
I find that it was an express term of the lease that the defendants preserve the approval of the Nursing Home as an Approved Nursing Home under the National Health Act 1953. In my opinion, clauses 8 and 9 of the lease can be relied upon for this purpose.
Findings as to oral terms of agreement
I find that the agreement was oral in part and that so far as it was oral, it comprised agreement in discussions between Mr Penna on behalf of the plaintiff and either the defendants or Mr Seely alone acting on behalf of both defendants which took place in or about April 1983 at Mr Penna’s office at South Terrace, Adelaide.
I find that in so far as the agreement was oral, it comprised conversations between Mr Penna acting on behalf of the plaintiff on the one hand and the defendants or Mr Seely alone on the other. These conversations took place in or about April 1983. Material conversations which took place at that time and which I find made up that part of the agreement between the plaintiff and the defendants that was oral were as follows:
(a).... There was a discussion about plant and equipment. Mr Penna indicated that plant and equipment would remain where it was and that the defendants would be required to maintain it. He said that they would be required to replace any item which became useless or worn out. They would be required to repair machines if they required repair. They would maintain all the bedding as it was and the beds themselves. In general, they would maintain the home in running order in exactly the same way as it was given to them at the time of hand-over and comply with all directions issued to them by the various government departments.
The defendants agreed to these terms.
(b).... There was discussion as to what would happen at the end of the term. On this topic Mr Penna said on behalf of the plaintiff they [the defendants] would leave the place in exactly the same way as Mr Penna on behalf of the plaintiff gave it to them, fully running, including the various bed accreditations or bed licences or bed approval. All the bedding, all the beds, all the equipment in running order ... generally the whole place was to remain and be maintained and given back to Mr Penna on behalf of the plaintiff in the same way as it gave it to the defendants.
The defendants accepted these terms.
(c).... The defendants were asked whether they understood that Mr Penna was allowing them to walk into the place and run the nursing home as it was at the time. The defendants were not to be charged for anything required to run the home. They were not required to pay for anything, so that when the time comes that they would be required to hand the nursing home back to the plaintiff it would be handed back in exactly the same way."
The defendants accepted these terms.
I find that the plaintiff was to lease the Nursing Home to the defendants along with all fixtures and fittings, plant and equipment and all items of personal property needed to run the home. It was intended that the plaintiff would surrender the approval of the Nursing Home premises as an Approved Nursing Home and that the defendants would concurrently make an application for the approval of the premises as an Approved Nursing Home in the name of the defendants.
Under clause 9 of the underlease, the defendants are required to keep and properly maintain the premises as a licensed nursing home. On 25 March 1983, Mr Penna wrote to the Commonwealth Director of Health in South Australia advising that he intended to let the Nursing Home to Mr Seely as and from 1 May 1983 and sought approval for the change of ownership. On the same date Mr Seely wrote to the Director of Health in South Australia asking for a transfer of approval No 6883 from the plaintiff to Mr and Mrs Seely. At the time, it was contemplated that on the termination of the lease in any manner, the process would simply be reversed. The chattels would be handed over to the plaintiff. The approval of the Nursing Home would continue in force.
Finding as to implied term
In my opinion, in addition to the express terms of the lease, a term should be implied. Such term would read as follows:
A (1) In this clause A:
“a leasehold interest” includes all or any one or more of the following, namely, an estate or interest as lessee or underlessee whether at law or in equity;
“place” has the same meaning that it has in the Aged Care Act 1997; and
“the Nursing Home” means the nursing home situated at 26 Le Fevre Terrace, North Adelaide.
If on or before the time when the Nursing Home ceases to be the subject matter of a leasehold interest granted by the plaintiff in favour of the defendants, the present scheme relating to approved nursing homes is replaced by a scheme created by legislation of the Commonwealth of Australia whereby places are allocated to the defendants in respect of the Nursing Home, the defendants shall, on the Nursing Home ceasing to be subject to a leasehold interest granted by the plaintiff in favour of the defendants, transfer all of such places to the plaintiff. The above transfer of places to the plaintiff shall nevertheless be subject to the approval of the Secretary for the Department of Health and Family Services.
The question then arises as to whether an implied term of that kind can properly be included in the agreement referred to above. The leading case on the topic is BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1978) 52 ALJR 20 at p 26. In that case, the Privy Council held that for a term to be implied in a contract certain conditions must be satisfied and these are as follows:
It must be reasonable and equitable - The Aged Care Act 1997 and related legislation could not reasonably have been foreseen. The clause enables the plaintiff to be placed in the same position after the enactment of the Aged Care Act1997 and related legislation as it would have been placed in if the underlease in favour of the defendants had been terminated before the repeal of the relevant provisions of the National Health Act 1953. Apart from the rent reserved by the underlease, the defendants had paid and were to pay no consideration for any of the assets of the business including the places created by the Aged Care Act and related legislation, all of which were to be returned to the plaintiff on termination of occupation of the premises.
It must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it - I repeat what I said in (1) above.
(3)..... It must be so obvious that “it goes without saying” - It is an obvious and important element of the entire agreement. I repeat what is said in (1) above.
(4)..... It must be capable of clear expression - There would seem to be no difficulty on that account.
(5)..... It must not contradict any express term of the contract - No express term has been contradicted.
In my opinion, an implied term in the terms suggested by me should be included in this contract.
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (supra) was applied by the High Court in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1981-1982) 149 CLR 337.
Operation of the agreement relating to the letting of the Nursing Home
As from 1983, the agreement between the plaintiff and the defendants relating to the letting of the Nursing Home to the defendants comprised written terms contained in the agreement for lease, oral terms arising from the various conversations between Mr Penna and the defendants, or at all events between Mr Penna and Mr Seely and the implied term. This agreement worked very satisfactorily. The defendants took possession of the Nursing Home and successfully operated it for seventeen years or so. Rent was paid regularly to Mr Penna and the defendants carried out their obligations in managing the home.
It is clear to me that Mr Penna did not intend to make a gift of the Nursing Home business to the defendants. The Nursing Home was a very valuable asset and I cannot accept that it was intended that the business would simply be handed over for nothing in return. During the continuance of the lease, the plaintiff enjoyed a good income from the rent received.
Fiduciary relationship
Counsel for the plaintiff has argued that there is a fiduciary relationship here between the plaintiff on the one hand and the defendants on the other, the defendants being the fiduciaries. As to the nature of a fiduciary relationship, I refer to Hospital Products Limited v United States Surgical Corporation & Ors (1984) 156 CLR 41 per Mason J at p 96:
" The accepted fiduciary relationships are sometimes referred to as relationships of trust and confidence or confidential relations (cf. Phipps v Boardman ([1967] 2 AC 46 at p 127), viz., trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company, and partners. The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. The expressions ‘for’, ‘on behalf of’, and ‘in the interests of’ signify that the fiduciary acts in a ‘representative’ character in the exercise of his responsibility, to adopt an expression used by the Court of Appeal."
In my opinion the present relationship is not a fiduciary one. There is no suggestion that the plaintiff placed itself in the hands of the defendants. All that happened here was that a business undertaking was handed over to the defendants on the basis that when the lease arrangements expired the defendants would have to surrender the lease and hand back all other assets used in connection with the Nursing Home to the plaintiff. They would also hand back or transfer to the plaintiff any approvals, licences and places (within the meaning of the Aged Care Act). All that is a far cry from a fiduciary relationship, the essential nature of which is that one person places himself in the hands of another, the relationship being essentially one of trust and confidence.
Termination of the underlease
The underlease granted by the plaintiff as underlessor to the defendants as underlessees was for a term of six years commencing on 1 May 1983 and expiring on 30 April 1989. The agreement for the underlease contained an option to renew the underlease for a further six years on the expiry of the original term on 30 April 1989. On 21 March 1989, Mr Seely wrote to Mr Penna in the following terms:
"DEAR LOU,
Please accept this letter as confirmation to exercise our option and renew the lease for a further term as per our discussions.
THANKING YOU,
YOURS SINCERELY,
(Signed)
JOHN SEELY"It is clear from this letter that Mr Seely had in mind the option to renew the underlease for a further term of six years expiring on 30 April 1995. The letter can be taken as evidencing an oral agreement to renew the underlease in respect of the Nursing Home premises for a further six years from 1 May 1989 up to and including 30 April 1995.
On 27 April 1989, Mr Penna on behalf of the plaintiff and Mr Seely on behalf of the defendants executed a document in the following terms:
"THE MOMORANDUM[sic] OF LEASE made between North Adelaide Nursing Home Pty. Ltd. (Lessor) and John M. Seely and Concepta Attracta Seely (Lessee) and dated the1st day of July 1983 Is hereby extended until the 30th day of April 2001.
Notwithstanding anything therein contained to the contrary.
Dated this 27th day of April 1989.
Signed [L Penna]
for and on behalf of
North Adelaide Nursing Home Pty. Ltd
(Lessor)Signed [J M Seely]
for and behalf[sic] of
John M. Seely and
Concepta Attracta Seely
(Lessee)"
The document is not in exercise of a right or option of renewal. It is an agreed extension of the underlease dated 1 July 1983. Until 1 May 1995 it operated concurrently with the extension of lease. On the expiry of the extension on 30 April 1995 the above document operates on its own. The document makes no mention of rent. Rent, however, is not an essential feature of a lease: Hayes v Seymour-Johns (1981) 2 BPR 9366, Francis Longmore & Co Ltd v Stedman (1948) VLR 322, Bagust v Rose (1963) 80 WN (NSW) 604.
The head agreement for lease was for a period of 12 years and one month commencing on 1 May 1983. There is no evidence that the head agreement for lease was extended for any period beyond 31 May 1985. From that date onwards the defendants became tenants by estoppel on the basis that in respect of the underlease, the plaintiff had no title to grant: Lee v Ferno Holdings Pty Ltd (1993) 33 NSWLR 404, Butt, Land Law 3rd Ed par 1535. There is no evidence that the title of the plaintiff as underlessor was subsequently fed: Butt, Land Law 3rd Ed par 1535. The doctrine of feeding title is applicable to leases as well as other forms of property.
In the course of taking evidence, reference was made to a letter dated 17 August 1995 written by Mr Penna to Mr Seely which read in part:
"In the matter of the lease your proposal is O.K. I will draw something up for you to sign."
No-one was able to say what the proposal was or whether anything had been drawn up for Mr Seely to sign. The document may have been a further extension of the lease beyond April 1995. However, there is simply no evidence on the point.
The position would appear to be that the plaintiff relies upon the terms of the above document dated 27 April 1989 and maintains that the defendants’ lease in respect of the Nursing Home expires on 30 April 2001. On the other hand the defendants maintain that the lease has not been extended beyond 30 April 1995 and that they are currently underlessees holding over. Clause 4 of the underlease deals with the question of holding over. It provides that in the event of a holding over occurring, the underlessee is to become a monthly tenant whose tenancy is to be terminable on one month’s notice in writing expiring at any time.
In my opinion, the document dated 27 April 1989 is in force and the defendants are underlessees in relation to the premises of the Nursing Home until 27 April 2001 when their underlease will expire unless renewed in the meantime.
Transfer of places
The termination of the underlease on 30 April 2001 unless terminated in the meantime will trigger the implied term in the agreement discussed earlier in these reasons. Under that term, on the termination of the underlease, the defendants, subject to the approval of the Secretary for the Department of Health and Family Services (C’wlth) are required to transfer all places (within the meaning of the Aged Care Act 1997) allocated to the defendants by the Secretary abovementioned in relation to the Nursing Home situated at 26 Le Fevre Terrace, North Adelaide.
Remedies
Rule 84.01 provides that the Court can at any stage direct the entry of judgment and make such order as the nature of the case requires notwithstanding that the applicant does not make a claim for relief extending to the judgment of order in the summons, provided that such judgment of order can be made without injustice to any other parties.
On 4 September 2000 an order was made by consent for a split trial as follows:
"1..... That this action (including the counterclaim) proceed to trial on all issues except the following:
(1)...... the assessment of damages under paragraph 22.5 of the Amended Statement of Claim;
(2)the assessment of equitable damages under paragraph 22.6 of the Amended Statement of Claim;
(3)...... the assessment of any unjust enrichment of the defendants at the plaintiff’s expense pursuant to paragraph 22.7 of the Amended Statement of Claim.
(4)the taking of such necessary and proper accounts, directions and enquiries as may be directed by the Court;
(5)...... the assessment of any damages and/or compensation (including loss of use of money) in respect of the defendants’ loss and damages and/or to the extent of the plaintiff’s unjust enrichment pursuant to paragraph 16 of the Amended Counterclaim;
(6)the assessment of damages for loss or damage to the defendants pursuant to s 82 of the Trade Practices Act 1974 and s 84 of the Fair Trading Act 1987 (SA) or such of them as may be applicable pursuant to paragraph 16A.3 of the Amended Counterclaim;
(7)...... the determination of any amount in which the defendants are entitled to be reimbursed and/or indemnified in respect of expenditure incurred by them and referred to in paragraph 17.2 of the Amended Counterclaim;
(8)the assessment of damages and/or equitable compensation referred to in paragraph 17.3 of the Amended Counterclaim;
(9)...... the determination of a liability to indemnify and the assessment of damages under paragraph 19 of the Amended Counterclaim;
2.... That all issues referred to in paragraph 1 of this order be not tried until further order.
3.... That the costs of the application be costs in the cause.
4.... That further consideration of this application be adjourned to a date to be fixed.
5.... That the parties may be at liberty to apply for further orders and directions."
I comment on the relief claimed by the plaintiff in the Statement of Claim as follows:
Paragraph 22.1. A declaration that the bed licences and places are the legal and beneficial property of the plaintiff.
I consider that the places belong to the defendants at the present time. The plaintiff’s rights rest in contract. Once the implied term is given effect to and the places are transferred, they will become property to which the plaintiff has title free of any adverse claim or interest on the part of the defendants.
Paragraph 22.2. In the alternative, a declaration that the defendants hold the bed licences and places on trust for the plaintiff. Bed licences, if they ever existed, no longer exist.
In my opinion, on the facts of this case there can be no trust in relation to the places.
Paragraph 22.3. An order that the defendants do execute and perform all such matters, deeds, instruments and things as shall be necessary to transfer the legal and equitable interests and benefit in the bed licences and places to the plaintiff, or alternatively to a nominee of the plaintiff approved by the proper authority under the Aged Care Act 1997 (C’wlth).
I do not believe that it is possible to make an order in these terms. What is really required here is a mandatory injunction to enforce the plaintiff’s rights. In Meagher, Gummow and Lehane, Equity Doctrines and Remedies 3rd Ed, at par 2192 the learned authors say:
" There are two kinds of mandatory injunctions, the restorative and the enforcing ...
As to the second kind, some writers take the view that it is a misnomer to describe a mandatory order compelling a defendant to perform some positive contractual obligation as a mandatory injunction, alleging that it is really a species of specific performance. But such orders are habitually referred to as ‘injunctions’. Thus Long Innes J in Sydney Consumers’ Milk and Ice Co Ltd v Hawkesbury Dairy and Ice Society Ltd (1931) 31 SR (NSW) 458 at 471, said: ‘Both on principle and on authority, therefore, I have come to the conclusion that in cases where an injunction is sought to compel the performance in specie of an executed contract, the Court has a discretion’. The High Court thought likewise and in Burns Philp Trust Co Pty Ltd v Kwikasair Freightlines Ltd (1963) 63 SR (NSW) 492, the Full Supreme Court of New South Wales granted a mandatory injunction to enforce one single positive stipulation in a contract, expressly adding a mandatory injunction to the negative injunction granted at first instance. The truth of the matter is first, that ‘specific performance’ is a term usually reserved for an order enforcing the whole of an agreement, whilst an order compelling performance of a single positive contractual obligation is called a mandatory injunction; and secondly, that in the realm of contract all forms of injunction, mandatory or prohibitory, approximate in some degree to decrees of specific performance."
In addition to a declaration I would envisage that a judgment in this case would contain a clause to the effect that in the event of failure of the defendants to transfer the places to the plaintiff on having been lawfully required by the plaintiff to do so, the plaintiff would be at liberty to apply for a mandatory injunction to compel the transfer of such places to the plaintiff. As to the use which can be made of a mandatory injunction in these circumstances, reference should be made to Wilcox v Steel (1904) 1 Ch 212 and Nicholls v Ely Beet Sugar Factory (1931) 2 Ch 84. In particular, reference is made to the formal order referred to at the end of the report in each case. See generally Atkin’s Court Forms Vol 22 (1991 Issue) at p 106ff.
Paragraph 22.4. A declaration the defendants are in breach of the lease and the agreement in:
22.4.1 . purporting to terminate the lease as at 31 August 2000.
22.4.2 . purporting to sell the bed licences and places.
22.4.3 . purporting to transfer the residents.
22.4.4.. purporting to request the Commonwealth Department of Health and Aged Care to consent to transfer the bed licences and places to anyone other than the plaintiff;
22.4.5.. purporting to destroy the Nursing Home business at the premises.
I have insufficient information at my disposal to enable declarations of the kind to which I have just referred to be made.
22.5...... An order that the defendants pay damages for breach of lease and of the agreement to be assessed.
There is insufficient evidence at this stage for damages to be assessed. This matter is however subject to the order for a split trial referred to above.
22.6...... An order that the defendants pay equitable damages for breach of trust to be assessed.
As I have found there to be no trust, no damages can be assessed under this head. The same comment as in paragraph 22.5.
22.7...... An order that the defendants account to the plaintiff for any unjust enrichment of the defendants at the plaintiff’s expense.
A claim under this heading would need a great deal of further explanation. The same comment as in paragraph 22.5
I dismiss the claim for the declarations sought by the defendants in paragraph 15 of the counterclaim. I dismiss the claim of the defendants in paragraph 16 of the counterclaim for damages and/or compensation. During the course of argument, Mr Besanko QC intimated that the claims under paragraph 16A of the counterclaim would not be pursued by the defendants. I therefore dismiss the claims for relief under that paragraph. I have found that there was no trust arising out of a fiduciary relationship. Accordingly, the matter referred to in paragraph 17 of the Statement of Claim does not arise.
In the circumstances I am of opinion that the plaintiff is entitled to the following relief:
An order that the injunction in this action made on 4 August 2000 be dissolved.
An order that the plaintiff be granted a mandatory injunction to take effect on and after 1 May 2001 to compel the transfer by the defendants to the plaintiff of the beneficial right title and interest in all places (within the meaning of the Aged Care Act 1997) allocated to the defendants by the Secretary for the Department of Health and Family Services (C’wlth)) in respect of the Nursing Home situated at 26 Le Fevre Terrace, North Adelaide. In this paragraph, “place” shall have the meaning ascribed to it in the Aged Care Act 1997.
An order that the defendants be restrained and an injunction is hereby granted restraining them whether by themselves their servants agents or otherwise from taking any steps to:
(a).... sell, transfer, complete any alleged sale or transfer, charge or otherwise dispose of or encumber any of the places which currently exist in relation to the Nursing Home situated at 26 Le Fevre Terrace, North Adelaide.
(b)dispose of, charge, or otherwise alienate, dissipate or encumber any funds or monies or other consideration paid or payable to the defendants by way of deposit or part payment pursuant to any alleged sale, transfer or disposition of the said places.
This paragraph (3) shall not apply to anything done in favour of the plaintiff or with the consent in writing of the plaintiff. In this paragraph, “place” shall have the meaning ascribed to it in the Aged Care Act 1997.
An order that the parties be at liberty to apply upon short notice to dissolve or vary the injunction in paragraph (3).
3
0