Ash v Australian Retirement Homes Ltd [2012] QCAT 25

CITATION: Ash v Australian Retirement Homes Ltd [2012] QCAT 25 PARTIES: Eric John Ash v Australian Retirement Homes Ltd APPLICATION NUMBER: OCL040-11 MATTER TYPE: Other civil dispute matters HEARING DATE: 21 September 2011 HEARD AT: Brisbane DECISION OF: R F King-Scott, Member DELIVERED ON: 24 January 2012 DELIVERED AT: Brisbane ORDERS MADE: Application dismissed. CATCHWORDS : Retirement villages – meaning of total general services charges – Whether a line by line calculation is required for the purposes of s 106 Retirement Villages Act 1999, ss 102A, 106, 107 APPEARANCES and REPRESENTATION: APPLICANT: Mr L Armstrong, agent RESPONDENT: Mr A McIntosh REASONS FOR DECISION Introduction [1] Mr Eric John Ash was formerly a resident of the AVEO Peregian Springs Country Club (“the Village”) situated at 21 Gracemere Boulevard, Peregian Springs. The Village was operated by the Respondent, Australian Retirement Homes Ltd. It was the scheme operator for the purposes of the provisions of the Retirement Villages Act 1999 (“the Act”). Mr Ash’s complaint before the Tribunal is that the scheme operator has increased the charges for various general services by more than the CPI percentage increase for each of the financial years 2006/2007 to 2010/2011 (inclusive), contrary to s 106 of the Act. -- 1 of 10 -- 2 [2] Essentially, the dispute comes down to an interpretation of the phrase ‘total general services charges’ as defined in s 106 of the Act. [3] Mr Ash contends that the scheme operator has breached s 106 of the Act in relation to the general service budgets for the financial years 2006/2007 to 2010/2011 (inclusive) because: (a) the total of general services charges increased by more than the CPI percentage increase for each of the financial years; and (b) the scheme operator failed to obtain special resolution approvals for the individual line items that increased by more than the CPI percentage increase (where the increase was not otherwise permitted by s 107(a)-(b) of the Act. [4] The scheme operator contends that though individual line items may have been increased above the CPI, the total of general services charges did not exceed the CPI. [5] Mr Ash says that the scheme operator should have sought approval from the residents by special resolution for each of the individual items, such as administration fees, audit fees, printing and postage etc, motor vehicle expenses/bus, WorkCover etc, where each item exceeded the CPI for that year. [6] The resolution of this issue requires the Tribunal to construe the meaning of the phrase ‘total general services charges’ in s 106 and whether the same meaning is to be given to the phrase ‘charges for general services’ where it appears in s 102A of the Act. [7] By way of background, I note that the Village is still under construction and is described as a developing Village. Eight new units were added in 2006/2007 and 16 new units were added in 2007/2008. As at 2011 there were 113 accommodation units in the Village. Legislation [8] Before proceeding further, it would be of assistance to set out the relevant statutory provisions. I will start by referring to the definitions contained in the dictionary which is a Schedule to the Act. general services are services supplied, or made available, to all residents of a retirement village. Examples of general services are – management and administration gardening and general maintenance shop or other facility for supplying goods for residents service of facility for the recreation or entertainment of residents personal services are optional services supplied or made available for the benefit, care or enjoyment of a resident of a retirement village. Examples of personal services are – laundry -- 2 of 10 -- 3 meals cleaning the resident’s accommodation unit services charge means a charge payable by a resident for a general or personal service under a resident contract. 102A General services charges budget (1) The scheme operator must adopt a budget (the general services charges budget) for each financial year for charges for general services. (2) For subsection (1), the general services charges budget must – (a) allow for raising a reasonable amount to provide the general services for the financial year; and (b) fix the amount to be raised by way of contribution to cover the amount. (3) The residents committee may, by written notice given to the scheme operator, ask the scheme operator to give the residents committee a copy of the draft general services charges budget for the financial year at least 14 days before the beginning of the financial year. (4) The notice must be given at least 28 days before the beginning of the financial year. (5) The scheme operator must comply with the notice. (6) If, at the end of a financial year for which a general services charges budget is adopted, there is a surplus or deficit for the charges, the surplus or deficit must be carried forward and taken into account in adopting the general services charges budget for the next financial year. (7) Subsection (6) applies despite section 106(1). 106 Increasing charges for general services (1) A scheme operator must not increase the total of general services charges for a retirement village for a financial year by more than the CPI percentage increase for the financial year. Maximum penalty – 200 penalty units. (2) In this section – CPI means the all groups consumer price index for Brisbane published by the Australian statistician. CPI percentage increase, for a financial year, means the percentage increase between – (a) the CPI published for the quarter ending immediately before the start of the financial year; and (b) the CPI published for the quarter ending immediately before the end of the financial year. -- 3 of 10 -- 4 total of general services charges, for a financial year, means the sum of all charges for general services for the financial year, other than the following charges – (a) a charge for a general service that has been increased by more than the CPI percentage increase for the financial year and that the retirement village residents, by special resolution at a residents meeting, have approved; (b) a charge for a general service that has been increased by more than the CPI percentage increase for the financial year and that is allowed under section 107. 107 Resident’s responsibility for paying increased general services charge A resident is not required to pay a charge for a general service under a residence contract to the extent that the charge is more than that payable under the contract and increased under section 106, unless the excess is attributable to an increase in – (a) rates, taxes or charges levied under an Act in relation to the retirement village land or its use; and (b) the salary or wages of a person engaged in the retirement village’s operation and payable under an award, certified agreement, enterprise flexibility agreement, industrial agreement, Queensland workplace agreement or other industrial agreement made, approved, certified, or continued in force under – (i) insurance premiums, or insurance excesses paid, in relation to the retirement village or its use; or (ii) maintenance reserve fund contributions. Applicant’s submissions [9] The Applicant’s case is: (i) the phrase ‘charges for general services’ must be given the same meaning where it appears in ss 102A and 106 of the Act; (ii) in s 102A, it is submitted that the phrase covers all charges for general services in the annual ‘general services charges budget’, regardless of whether they are funded by residents or by other contributors such as former residents, relatives of former residents or the scheme operator; (iii) the Applicant contends that the word ‘charge’ is the amount payable for a general service. The Applicant appears to accept that it is not to be construed as the cost or expenditure associated with providing the service; (iv) the Applicant submits that s 106 operates in conjunction with s 102A which is the budget provision. The Applicant says that s 106 must be construed by reference to s 102A. [10] Section 102A requires the scheme operator to adopt a budget that allows -- 4 of 10 -- 5 for raising a reasonable amount to provide for the general services for the financial year and to fix the amount to be raised by way of contribution to cover the amount. The Applicant submits that this latter requirement is not limited to residents, but extends to allow contributions from former residents, relatives of former residents and the scheme operator. [11] In setting the budget, the Applicant submits that s 102A requires the scheme operator to comply with s 106(1) so as not to exceed the CPI, save as permitted by the section. [12] It is further submitted that ‘total of general services charges’ as defined in s 106(2) is the ‘sum of all charges for general services’ less certain amounts specified in paragraphs (a) and (b) of the definition. The relevant ‘sum’ must be the sum of the ‘charges for general services’ making up the budget prepared in accordance with s 102A. It further submits that ‘the sum of all charges for general services’ means the total amount raised by the budget in order to provide the general services in the coming year, regardless of the extent to which the amount is funded by residents, the operator, former residents or relatives of former residents. [13] It is further submitted that the ‘sum’ will not necessarily equate to the total amount levied from residents because some of the charges in the budget are paid by parties other than residents, such as the scheme operator. Nor, it is submitted, will the ‘sum’ equate to the total expenditure on general services during the relative year because the actual expenditure by the operator providing general services can differ from the amount raised by the budget. [14] Further, it is alleged that the ‘sum’ does not exclude contributions by the scheme operator towards the relevant ‘charges’. Respondent’s submissions [15] The respondent describes the difficulties and challenges in the budgeting process in a developing Village. It says that as the Village grows in size (in number of residents and physically), the total quantum of general services expenditure increases, obviously because there are more residents to whom general services are required to be provided, more facilities, more staff and more expenses generally. The number of residents who are able to contribute to the general services expenditure increases as well. Subject to the pace at which the general services expenditure increases as the Village grows, the increase in residents can result in the average cost per resident decreasing as the Village grows, and the growth in the Village occurs throughout the budgeting year; that is, the change in size does not necessarily fit neatly between budgeting years. [16] The respondent maintains that these factors combine while the Village is developing to make it impractical to recover from residents by way of general services charges an amount sufficient to cover the total expenditure required to provide the general services to residents. Whilst the total expenditure is contributed to by an increasing number of residents as stages are built and become occupied, the amount by which the general services expenditure exceeds the amount practically able to be recovered from residents by way of general services charges declines progressively -- 5 of 10 -- 6 as a greater number of residents occupy units. It is not until the Village becomes fully completed and occupied that it is practical for the costs of the provision of general services at the Village to become fully resident-funded. [17] The respondent maintains that the determination of general services charges is primarily the purpose of s 102A and s 103 of the Act. The purpose of s 106 is to impose a limitation on how those general services charges can be increased from year to year, but does not determine what general services charges are made up of, or how they are calculated. [18] The evolving Village scenario is disputed by the applicant insofar as it is fully resident-funded at the end. The applicant further disputes the scheme operators only contribute to general services charges in developing Villages. He maintains that ss 104 and 105 clearly require the scheme operators to pay a share of the charges for general services for completed Villages. Further, the scenario as outlined by the respondent does not acknowledge those cases of church or charity group Villages where the scheme operators make additional voluntary contributions over and above the amount required by the Act to ensure that levies in the Village remain attractively low without compromising the quality of the services offered. [19] The respondent says it is generally accepted industry practice in a developing Village in each new financial year, following the setting of the initial general services charge payable by the first residents of the Village, that a scheme operator: (a) prepares a forecast of the cost of providing the general services for that financial year (being the amount estimated under s 102A(2)(a)); (b) sets the ‘total of the general services charges’ at an amount that results in the previous financial year’s general services charges, increasing by no more than the CPI or otherwise in accordance with s 106; and (c) contributes the shortfall from the forecast cost of providing the general services for the financial year (after the resident payments of general services charges worked out in the way set out in the preceding paragraph by way of an operator ‘contribution’). [20] It then observes that the scheme operator’s contribution is reduced over time to a point at which the Village is fully completed, and would have become fully resident-funded. [21] The respondent submits that in the above circumstances in adopting the budget under s 102A(1) a scheme operator will elect under s 102A(2) to fix amounts to be raised by contributions from residents at a level lower than the total of the forecast costs of providing the general services on the basis that the scheme operator will also make a contribution (that will not form part of the general services charge) to account for the excess. Section 102A(2)(b) does not seek to prescribe how the contributions are to be fixed by the scheme operator. It further submits that there is nothing in the Act that restricts the scheme operator from determining to take this approach and to limit resident contributions appropriately. -- 6 of 10 -- 7 Discussion and findings [22] The applicant submits that the words ‘total of general services charges’ means the total charges budgeted in advance of a financial year for the provision of all of the general services for the relevant financial year (less exceptions1) regardless of the extent to which the scheme operator seeks to actually charge the residents for those budgeted costs. [23] He argues that the phrase ‘charges for general services’ within the definition in s 106 must be given the same meaning as the equivalent phrase in s 102A and he further contends that the phrase in s 102A covers all charges for general services in the annual general services charges budget, regardless of whether they are funded by the residents or by other contributors under the Act, such as the scheme operator. [24] I agree that it should have the same meaning but I do not prescribe it the same meaning as the applicant does. In my opinion, there is nothing in s 102A(2) that limits the scheme operator from injecting funds to defray some of the expenses thus reducing the amount to be allowed for general services and, consequently, reducing the contribution of the residents and others to be fixed under s 102A(2)(b). In my opinion, the applicant is confusing expenditure with charges. Section 102A(2) is concerned with the fixing of a charge for residents and others, not the exercise of totalling the expenditure and dividing it by the number of residents. Such an interpretation is not inconsistent with the requirement of other provisions of the Act that require other parties to pay charges. [25] I agree with the respondent’s contention that the Act does not prescribe the source of the contribution or contributions to be raised under s 102A(2)(b). Further, the amount raised under s 102A(2)(a) does not necessarily have to be the same as the amount to be raised by contribution under s 102A(2)(b). [26] Section 106 prohibits the increasing of charges for ‘general services’ as defined, save in specific instances. The charges for general services are charges which are payable in respect of the liability attaching to the accommodation unit. That charge may be levied on a resident under s 103, a former resident under s 104, or a scheme operator under s 105 in respect of an unoccupied unit. [27] The definition in s 106(2) of the ‘total of general services charges’ is limited to charges for general services. I agree with the respondent’s submission that it eschews any notion that the amounts involved in the calculation include contributions made by a scheme operator to reduce the impost on the residents of the Village. As I observed earlier, it seems to be accepted by the parties that the word ‘charge’ is the amount payable for general services and not the cost or expense of providing the services.2 [28] The definition limits the charges to those that are not excluded under s 106(2)(a) or (b) as those charges that are increased by more than the CPI 1 That is, the charges in subparagraphs (a) and (b) in the definition of ‘total of general services charges’ in s.106. 2 For clarity, it is my opinion that the word ‘charge’ when used in the Act has its natural and ordinary meaning, being an impost or debt which the person charged is required to pay. -- 7 of 10 -- 8 percentage increase for the financial year and which have been approved by special resolution at a residents’ meeting, or those charges allowed under s 107. [29] The applicant contends that s 106(1) requires a ‘line by line’ analysis. He has carried out that exercise in the attachment “EA-1” to the Dispute Notice. In my opinion, in line with my approach above, such an exercise is erroneous. [30] I have referred to those charges that are excluded from the definition of ‘total of general service charges’ being those referred to in s 106(2)(a) and (b). What are not excluded are charges that may have increased by more than the CPI percentage for the financial year which have not been approved by special resolution at a residents’ meeting and which are not listed in s 107. There is no reason why such charges cannot be included in the total of general services charges. In a situation where such a charge is included and there is a CPI percentage decrease in one or some of the other items commensurate with the increased item, then there would be no increase of the total of general service charges nor a breach of s 106(1). Similarly, where the scheme operator injects funds. The above example demonstrates, in my opinion, the error in the applicant’s approach. [31] I am fortified in my conclusion by the Explanatory Note to the Retirement Villages Amendment Bill 2006, particularly clause 46, which provides: Clause 46 clarifies how general services charges may be increased. The concept of the ‘total of general services charges’ is introduced, meaning the sum of all general services charges for the year except charges for general services which have increased above CPI due to a special resolution of residents or which fall within the list in section 107. The total of general services charges must not be increased above the CPI percentage for the year – in other words the CPI percentage increase is applied to the total of general services charges instead of calculating CPI percentage increases for individual general services charges. The total of general services charges as increased as a whole by applying the CPI, is then added to the general services charges which have already been increased above CPI to give a grand total of general services charges for the year (which must then, as discussed above, be adjusted by any surplus or deficit arising from the previous year’s maintenance reserve fund or general services charges).3 (My emphasis) [32] The legislature, clearly, did not have in mind the exercise that the applicant contends for. Had the legislature intended that each of the items comprising the ‘total of general services charges’ were not to exceed the CPI for the previous financial year, it could have legislated accordingly. It did not do so. Further, s 106(1) is a penalty provision and should be 3 The use of an Explanatory Note is permissible as extrinsic material in the interpretation and provision of the Act under s 14B of the Acts Interpretation Act 1954. -- 8 of 10 -- 9 construed so as to resolve any doubt as to its meaning in favour of the person against whom any potential penalty might be imposed. [33] It may be observed in passing that the Act is very poorly drafted and contains a number of errors and inconsistencies,4 some of which have already been identified and are the subject of proposed corrective amendments; others have not been addressed. Suffice it to say that it has made the task of interpreting the provisions unnecessarily difficult. [34] The applicant relies on a decision of the former Commercial and Consumer Tribunal matter of Tew and Kelly v Masonic Care Queensland [2008] QCCTRV 6 where that Tribunal reached the conclusion that s 106 in its amended form requires the s 106 items to be separately identified. The Tribunal reached that view on the basis that it was not possible for the residents to assess whether a budget complied with s 106 unless the items that had been increased by more than the CPI in accordance with s 107 or following a special resolution of the residents under s 106. The Tribunal noted that s 106 does not require a special resolution to approve any increase in the total charges. It then concluded that the Act contemplates any such resolutions being on an item by item basis in accordance with s 106(2)(a). [35] The concern in the case of Tew and Kelly v Masonic Care Queensland (supra) was the transparency of the budget process. In the instant case, the individual service charges are identified for each financial year and the Caretakers Agreement attached to the respondent’s submissions of 1 June 2011. [36] In my opinion, there is nothing in the Tew and Kelly v Masonic Care Queensland (supra) decision that is contrary to the construction I have placed on s 106. [37] It is a curious aspect of the applicant’s case that the actual sum of charges paid by the residents did not increase above the CPI in the relevant years. It is also apparent that without the injection of funds by the scheme operator to defray costs, the total of the charges that would have been paid by the residents as charges would have increased beyond the CPI for the relevant years! It would seem that the applicant and the other residents are better off than they would have been had the applicant’s approach been accepted. Of course, such increases may not have been accepted or approved by the residents at a residents’ meeting, in which case one outcome may have been that there would have been a reduction in the quality of general services provided. [38] I find that the total of general services charges for each of the financial years 2006/2007 to 2010/2011 (inclusive) did not exceed the CPI percentage increase in each of those financial years. I also find that it is not necessary for the respondent to obtain a special resolution approval for the individual line items that increased by more than the CPI percentage increase for the financial year provided the total of general services charges in that year did not exceed the CPI percentage increase. 4 For example the calculation of CPI calculation in S106 (2) should be for the March quarters. -- 9 of 10 -- 10 Orders [39] The Tribunal makes the following orders: (i) The application is dismissed. -- 10 of 10 --