Ash v Australian Retirement Homes Limited [2011] QCAT 476

CITATION: Ash v Australian Retirement Homes Limited [2011] QCAT 476 PARTIES: Mr Eric John Ash v Australian Retirement Homes Limited APPLICATION NUMBER: OCL039-11 MATTER TYPE: Other civil dispute matters HEARING DATE: On the papers HEARD AT: Brisbane DECISION OF: Ms Michelle Howard, Member DELIVERED ON: 7 September 2011 DELIVERED AT: Brisbane ORDERS MADE: [1] That Australian Retirement Homes Limited provide to Eric John Ash within 8 weeks of the date of these orders an audit report from an independent auditor which examines and reports on the insurance costs and off-site administrative and management costs for Peregian Springs Country Club, in particular as follows: i. Insurance (a) Examines the methodology of apportioning the total costs of insurance, including premiums and excesses, for all entities covered by Industrial Special Risks insurance policy number 04FX007212; (b) Identifies the proportion of those costs applicable to the company’s retirement village portfolio; and (c) Identifies the methodology of apportioning that portfolio cost across each village; and specifically that cost allocated to Peregian Springs Country Club. ii. Off-site Administrative and Management Costs -- 1 of 7 -- 2 (a) Examines the methodology of apportioning the total costs of the company’s off-site administrative and management services; (b) Identifies the proportion of those costs applicable to the company’s retirement village portfolio; and (c) Identifies the methodology of apportioning that portfolio cost across each village; and specifically that cost allocated to Peregian Springs Country Club. [2] That Australian Retirement Homes Limited pay to Eric John Ash costs in the sum of $75 within 14 days of this order. CATCHWORDS: RETIREMENT VILLAGES – where non- compliance with mediation agreement COSTS – whether in the interests of justice to make order Retirement Villages Act 1999, s 191 Queensland Civil and Administrative Tribunal Act 2009, ss 100, 102 APPEARANCES and REPRESENTATION (if any): This proceeding was heard on the papers in the absence of the parties pursuant to section 32(2) of the Queensland Civil and Administrative Tribunal Act 2009 (QCAT Act). REASONS FOR DECISION [1] Mr Ash is a former resident of Aveo Peregian Springs Country Club. His independent living unit remains unsold and accordingly, he continues to pay his share of the monthly general service charge. It appears from the material before the tribunal that Aveo Live Well is a business name used by Australian Retirement Homes Limited (Retirement Homes), which is the scheme operator. Aveo Live Well is FKP Property Group’s retirement division. [2] Mr Ash and Retirement Homes reached an agreement following a mediation conference late in 2010. The agreement provides for Retirement Homes insurance costs and off-site management costs to be referred to an independent auditor to be examined and reported on according to agreed terms of reference which are set out in the agreement. A copy of the independent auditor’s report was to be provided to Mr Ash no later than 28 February 2011. Given subsequent events, it is useful to set out the agreed terms which are as follows: -- 2 of 7 -- 3 1. The parties have agreed to resolve their dispute relating to a Dispute notice under the Retirement Villages Act 1999, filed by the applicant against the respondent in the Queensland Civil and Administrative Tribunal (“QCAT”) at Brisbane. 2. The parties agree that the respondent‟s insurance costs and the off- site administrative and management costs are to be referred to an independent auditor to be examined and reported on pursuant to the following Terms of Reference: i. Insurance (a) Examine the methodology of apportioning the total costs of insurance, including premiums and excesses, for all entities covered by Industrial Special Risks insurance policy number 04FX007212; (b) Identify the proportion of those costs applicable to the company‟s retirement village portfolio; (c) Furthermore, identify the methodology of apportioning that portfolio cost across each village; and specifically that cost allocated to Peregian Springs Country Club. ii. Off-site Administrative and Management Costs [1] Examine the methodology of apportioning the total costs of the company‟s off-site administrative and management services; [2] Identify the proportion of those costs applicable to the company‟s retirement village portfolio; [3] Furthermore, identify the methodology of apportioning that portfolio cost across each village; and specifically that cost allocated to Peregian Springs Country Club. A copy of the independent auditor‟s report is to be provided by the respondent to the applicant by no later than Monday the 28th February 2011. 3. The parties agree to file this agreement in QCAT, pursuant to section 163 of the Retirement Villages Act 1999. [3] Mr Ash subsequently filed an application for a tribunal hearing seeking orders that Retirement Homes comply with the terms of the mediation agreement; that he be entitled to question the content of the independent auditor’s report as necessary to ensure it complies with the mediation agreement; and costs. [4] Mr Ash submits that the material from Ernst and Young finally provided to him under cover of correspondence dated 18 March 2011 supposedly in compliance with the mediation agreement, does not comply with the agreement. He refers to statements in Ernst and Young’s covering -- 3 of 7 -- 4 correspondence entitled ‘Final Status Letter-Examination of the Administration fee and insurance apportionment calculation’. The correspondence includes ‘This status letter has been compiled to provide you with our preliminary findings in respect of the procedures we performed on your behalf, in terms of our instructions‟. [5] It further states ‘This letter does not constitute a report. You have indicated that you do not require a report in this matter. In compiling this status letter we have relied on certain information provided to us by Aveo Live Well (“Aveo‟) and FKP Property Group‟s (“FKP”) retirement division‟. It refers to the background for the work as relating to a resident’s dispute regarding apportionment of administration fees and insurance premiums for the period 1 July 2010 to 31 December 2010. [6] Further, it contains a variety of specified limitations as follows: „The scope of our engagement is set out in our engagement letter and is highlighted below as agreed with you throughout our engagement. Limitations We draw to your attention the following limitations: 1. We were not required to and did not undertake an audit in accordance with Australian Auditing Standards. Consequently, no assurance will be expressed. 2. We have not verified the authenticity or validity of the documentation made available to us. 3. We have not verified all transactions recorded in the administration fee allocation. 4. We have not been requested to quantify the total administrative costs or the current allocation to individual residents at Peregian ILU. 5. We have not interviewed all parties from whom possible further information may be forthcoming. 6. We have included information that we obtained verbally in this document. We cannot verify that this information is credible or truthful. 7. We have not discussed the findings in this document with the applicant in the Queensland Civil and Administrative Tribunal proceedings. 8. We have not been requested to perform an assessment on the cost allocation methodology to the villages. 9. If additional or new documentation or information is brought to our attention subsequent to the date of this feedback document, which -- 4 of 7 -- 5 would affect the findings detailed below, we reserve the right to amend and qualify our findings accordingly. [7] Appendix A to the Final Status Letter then sets out certain ‘procedures,’ ‘completion status’ for those procedures and ‘findings’ apparently based on work done to date to perform the procedures specified. [8] Many of the findings in the appendix, as the limitations specified suggest, refer to discussions with staff of Retirement Homes as the apparent source of information. [9] Retirement Homes submits in essence, that it obtained a report in compliance with the mediation agreement; that Ernst and Young preferred to call their report a status letter, rather than a report, for reasons relating to their own definitions, but that the findings are the same in each and that the status letter allowed the information to be provided in a shorter time and a simpler format. The delays in providing any report are attributed to the January floods in Brisbane, even though it appears Retirement Homes did not engage Ernst and Young until 10 February 2011, and the confinement of a particular staff member who had to provide information to Ernst & Young. [10] The tribunal may, in determining Mr Ash’s application, make orders it considers just to resolve a retirement village issue.1 [11] Whatever information the status letter contains, it is clear that there has not been an audit. The mediation agreement states that certain matters are to be referred to an independent auditor. It is clear from the agreement that the parties intended that the matters identified be referred to an auditor and that a report be produced. The clear inference is that the report was to be an audit report, in relation to the matters identified for examination. This would require of necessity that an audit be undertaken. Further, the agreement did not confine the inquiry to be undertaken to the 6 month period identified in Ernst and Young’s correspondence. [12] The status letter states specifically that an audit was not done and was not required by Retirement Homes, and that it is based on unverified information and discussions. In my view the mediation agreement has not been complied with through the provision of the status letter, as opposed to an audit report. I consider it appropriate to make orders requiring that Retirement Homes provide to Mr Ash an audit report addressing those matters identified in the mediation agreement. It is apparent that an audit has yet to be done before the required audit report can be prepared. Therefore, I will allow a reasonable time frame for its preparation of 8 weeks from these orders. [13] Mr Ash seeks an order that he be entitled to question the content of the report. I do not consider it appropriate that I make orders regarding this matter. He may raise such issues as may arise from the report when he has it as he sees fit regarding its content in the absence of an order. 1 Retirement Villages Act 1999, s 191. -- 5 of 7 -- 6 [14] Mr Ash also submits that Ernst and Young who prepared the report are not independent as required by the mediation agreement. He makes this submission, as best I can understand it, on two bases. Firstly, their failure to report in a manner that would satisfy expert witness requirements under the Accounting Professional and Ethical Standards Board, and their lack of independence since appointment on 26 November 2010 as auditor of FKP. [15] Retirement Homes submit that Ernst and Young were not engaged as an expert witness under the Accounting Professional and Ethical Standards Board. Further, they submit that Ernst and Young do not have a conflict of interest and are able to report in the matter independently, without compromise of their professional judgment, and that their appointment as auditor for FKP does not affect their capacity to exercise objective and impartial judgment. It also notes that Ernst and Young have advised in it’s engagement letter that it is not aware of a conflict of interest, but should one arise it would advise Retirement Homes. [16] Ernst and Young’s representative/s was/were not engaged in the capacity of expert witness/es and so I do not need to address this argument further. The Corporations Act 2001 (Commonwealth) makes provision for auditor independence creating offences for contravention.2 It is not sufficient to create a conflict of interest that Ernst and Young are appointed as auditors for FKP. They are an experienced firm who regularly undertake audits. It is reasonable to expect that they are well aware of their professional and legislative obligations, and if a conflict arises, that they will, as their correspondence indicates, then determine their involvement in a particular audit. On the material before me, I am unable to discern a conflict of interest as a result of their involvement. Therefore, I make no orders excluding Ernst and Young as possible auditors for purposes of providing the audit report. [17] Mr Ash also seeks an order for costs. On the material before me, I cannot see that he has incurred costs which could be the subject of a costs order under section 102 of the QCAT Act, if I was prepared to make an order, except for his filing fee for the application of $75. Under the QCAT Act, usually parties are expected to bear their own costs in tribunal proceedings in the absence of a modifying provision in an enabling Act to the contrary.3 However, the tribunal has the discretion to award costs against a party if the interests of justice require it.4 Retirement Homes has failed to act in compliance with the mediation agreement providing only material which falls very short of what the mediation agreement required, necessitating this application. Further, on the material before me, it made little attempt to comply with the time frames agreed. In my view, it is in the interests of justice that Retirement Homes pay to Mr Ash the $75 filing fee which he has incurred. I consider it appropriate to make orders to that effect. [18] In summary, I make orders as follows: 2 Sections 324CD, 324CE, 324CF, 324CG. 3 QCAT Act, s 100. 4 QCAT Act, s 102. -- 6 of 7 -- 7 1. That Australian Retirement Homes Limited provide to Eric John Ash within 8 weeks of the date of these orders an audit report from an independent auditor which examines and reports on the insurance costs and off-site administrative and management costs for Peregian Springs Country Club, in particular as follows: i Insurance a) Examines the methodology of apportioning the total costs of insurance, including premiums and excesses, for all entities covered by Industrial Special Risks insurance policy number 04FX007212; b) Identifies the proportion of those costs applicable to the company’s retirement village portfolio; and c) Identifies the methodology of apportioning that portfolio cost across each village; and specifically that cost allocated to Peregian Springs Country Club. ii Off-site Administrative and Management Costs d) Examines the methodology of apportioning the total costs of the company’s off-site administrative and management services; e) Identifies the proportion of those costs applicable to the company’s retirement village portfolio; and f) Identifies the methodology of apportioning that portfolio cost across each village; and specifically that cost allocated to Peregian Springs Country Club. 2. That Australian Retirement Homes Limited pay to Eric John Ash costs in the sum of $75 within 14 days of this order. -- 7 of 7 --