ACK PTY LTD -v- MERCY HUMAN SERVICES LIMITED [No 3] [2026] WASC 7 (30 January 2026)

1. The parties filed papers for the judge on 11 September 2025. The final versions of the pleadings were:

(a) Eighth further amended statement of claim, filed 4 September 2025 (EFASOC);

(b) Fourth further amended defence, filed 9 September 2025 (FFAD); and

(c) Third further amended reply, filed 10 September 2025 (TFAR).

1. The trial was conducted as an eTrial. A trial bundle was prepared on the basis of a 'Trial bundle protocol' (Document Protocol). Two significant paragraphs of the Document Protocol for the purposes of the reasons are:
   1. The documents in the trial bundle are taken to be authentic, prepared by their apparent author and, in the case of a communication, sent by the person appearing to have sent it, and received by the persons appearing to have received it on or about the date which it bears.

1. If the admissibility of a tendered document is not objected to, the document speaks for itself and the trial judge is entitled to rely on it as to the truth of its contents.
2. Many of the documents in the trial bundle were referred to throughout the trial, but not all of them. As contemplated in the Document Protocol, at the conclusion of the evidence, the documents that were not referred to during the trial or were not otherwise considered to be tendered were removed. However, there were some residual issues between the parties as to whether certain documents not referred to at trial were sufficiently relevant to be admissible. These issues were not resolved until the hearing convened for closing submissions. At the conclusion of this hearing, I was handed a USB containing the final trial bundle. Each of the documents in the final trial bundle is an exhibit in the action bearing the exhibit number set out in the index to the final trial bundle. These are set out in the amended exhibit list dated 9 December 2025.[1]
3. The net result was that the trial was conducted on the basis that each document tendered as an exhibit speaks for itself and that I am entitled to rely on it as to the truth of its contents.
4. I make some observations in relation to the approach I take generally to the evidence in section 4.3.
5. In this judgment, when I refer to a fact being 'proven', it is proven on the balance of probabilities.

1. The ACK Parties filed opening submissions dated 1 September 2025, closing submissions dated 5 November 2025 and reply submissions dated 8 December 2025.[2]
2. The Mercy Parties filed opening submissions dated 12 September 2025 and closing submissions dated 2 December 2025.[3]

1. It is instructive at the outset to describe the four facilities purchased by Mercy HS in some more detail. The information in this Part is largely drawn from an Information Memorandum prepared on behalf of the ACK Parties in November 2015 for the purposes of the sale of the Belrose Care.[4]
2. The facts in this Part are not in dispute and I find them proven.

1. Grandview is in Joondalup. Its last build was around 2003, and it was last refurbished (prior to Completion) in 2014. As at Completion, it was a two level building with 105 beds, all but four of which were single beds. It employed around 114 staff.
2. Upon purchase by Mercy HS, Grandview was renamed MercyCare Joondalup.

1. Orange Grove is in Maddington. Its last build was around 2003, and it was last refurbished in 2014. As at Competition, it had 50 beds in single rooms over one level. It employed around 71 staff.
2. Adjacent to the Orange Grove site was a building which was the head office for Belrose Care.
3. Upon purchase by Mercy HS, Orange Grove was renamed to MercyCare Maddington.

1. River Gardens is in Kelmscott. Its last build was around 2002, and it was last refurbished in 2014. As at Completion it had 45 beds in single rooms over one level. It employed around 48 staff.
2. Upon purchase by Mercy HS, River Gardens was renamed MercyCare Kelmscott.

1. Tanby Hall is in Coolongup which is in the Rockingham area. At various times it is referred to as being in one or other location.
2. Its last build was around 1998, and it was last refurbished in 2014. At Completion, Tanby Hall had 54 beds in single rooms over one level. It employed around 59 staff.
3. Upon purchase by Mercy, Tanby Hall was renamed MercyCare Rockingham.

1. The facts in this section were not in issue and I find them proven.
2. The directors of ACK are, and have at all materials times been, Mr Markoff and his wife. Mr Markoff was responsible for all material decisions in relation to the operation of Belrose Care and ACK's assets, including the negotiation of the sale of Belrose Care and ACK's assets to Mercy. He is the directing mind and will of ACK.[5]
3. ACK is, and has always been, the corporate trustee of the Markoff Superannuation Fund (No 2) and the J Markoff Family Trust TA Belrose Care (Issue 1).
4. Mr Markoff has a law degree, but never practiced law. Rather, from around 1980 to mid-2016 he was a registered builder. He got into the aged care industry in 1996 as he considered that there were lucrative opportunities in this industry. In particular, the believed that, based on his previous building experience, he could build aged care facilities in a cost-effective manner. He was closely involved in the construction of the four Belrose Care facilities.
5. In 2010, Mr Markoff had discussions with a registered builder, David Elliott about the feasibility of proposed extensions at Tanby Hall and Grandview. Mr Elliott prepared sketches for a proposed extension of 65 beds for Tanby Hall.
6. For around 18 months over 2010 and 2011, Belrose Care engaged Simon Szewach as a strategy manager. Mr Szewach is Mr Markoff's nephew, but has experience in the financial sector. His main contribution to the management of Belrose Care was to develop some key performance indicators (KPIs) and a series of spread sheets into which Belrose Care staff entered data each month.
7. In around 2009 or 2010, Mr Markoff employed Nicholas Shao in the role of Finance Manager and General Manager to oversee the day‑to‑day management of the Business and the Facilities. Mr Shao has post‑graduate qualifications in accounting and business administration.[6]
8. Mr Shao reported to Mr Markoff. This reporting occurred through a combination of telephone calls, emails and a monthly report.[7]
9. The responsibilities of Mr Shao whilst at Belrose Care have some significance to the Issues in dispute. They are most accurately described by Mr Shao in his own words at the time. In a resume he prepared whilst he was still working at Belrose Care he described his 'Key Responsibilities' in the following terms:[8]
   • Effectively & efficiently manage all finances matters & related strategic & operation planning, in liaison with the Director.
   • Investigate, maintain & improve internal financial controls for the protection of company investment.
   • Manage all necessary financial system, practices & procedures in compliance with relevant Aged Care Standard, Principles & regulation, ATO, Office of State Revenue & all other relevant statutory & external bodies.
   • Finalise year-end accounts, preparation of prudential/financial compliance return & audit clearance activities.
   • Manage resident fee charges, bond, billing processes & directly undertake all complex billing/bond activities
   • Prioritise and ensure timely communication of all information & matters relevant to government department, Director & all other stakeholders.
   • Manage all general insurance risk matter including workers compensation, public & professional liability & proper covers.
   • Manage the control process of all asset purchasing
   • Identifying areas for cost cutting and improvement
   • Assist & promote company culture & continuous improvement environment throughout.
   • Assist in ensuring positive development & maintenance of public image.
10. I quote another statement by Mr Shao of his duties at [929].
11. Significantly for present purposes, Mr Shao also dealt with residents in relation to refundable bonds and deposits. The facility managers focussed more on medical and care related issues. He would explain issues relating to bonds to potential residents. This included telling them that if they use their money to pay a bond, and leave only the threshold amount in their bank account, they could receive a pension or not lose the pension which they had.[9]
12. Mr Shao was employed by Belrose Care until Completion, after which he was employed for a short period of time by Mercy HS. I deal with the circumstances of his employment and departure in Part 14.
13. There were three other head office staff. Linda Hoekstra was the Quality Coordinator. She was responsible for overseeing facility standards to ensure that they met their accreditation requirements. Ms Hoekstra reported directly to Mr Markoff. There was then an 'ACFI' coordinator (see [89]). The role of the person in this position was to submit ACFI documentation to the relevant government department and to try to maximise ACFI payments on behalf of Belrose Care. At the times relevant to the Issues in dispute, the ACFI coordinator was Carol Wing. Ms Wing was also responsible for information technology. She reported directly to Mr Markoff.[10] The third person was Jane Holt, who was a bookkeeper and general administration officer. Ms Holt reported to Mr Shao.[11]
14. Each of the facilities was managed by a Director of Nursing (DON) or facility manager (consistent with the approach adopted in the documents at the time, I will use these titles interchangeably depending on the context of the evidence I am considering). The DONs reported to Mr Markoff, though also to Mr Shao, at least on financial matters.
15. The responsibilities of DONs included:[12]
    • Operating each facility;
    • Rostering;
    • Staff recruitment;
    • Managing the day-to-day activities of the care facilities;
    • Supervising the staff, including the nursing staff;
    • Overseeing clinical work;
    • Sourcing new residents;
    • Making sure the facility complied with aged care standards;
    • Making sure the facility was financially viable including managing budgets; and
    • Maintaining all key performance indicators (KPIs) including occupancy rates, bond targets, ACFI payments and budgets.

Significantly, the DONs alone made the clinical decision as to whether a potential resident was suitable from a clinical and interpersonal perspective to be a resident at the particular facility.[13]

1. Once a month there would be a meeting of the DONs at the head office of Belrose Care at the Orange Grove site. In addition to the DONs, it would generally be attended by Mr Markoff, Mr Shao, Ms Hoekstra and Ms Wing.[14] Detailed minutes were made of these meetings.[15]
2. Cosimo Greco was a DON at Belrose Care from 2009 to 2010 and then from 2012 to 2015. In his second stint he was the DON at Tanby Hall. He is a registered nurse.
3. Ronalda Cowcher was the DON at Grandview from 2011 until it was sold to Mercy. She continued in this position following the sale to MercyCare for three years until December 2019. Ms Cowcher is a registered nurse.
4. Kristy McDougall was the DON at River Gardens from 2015 until its sale to Mercy HS. She then continued in this position for about 18 months post‑Completion. She is a registered nurse.
5. Margaret Draper was the DON at Tanby Hall in the period leading up to the sale to Mercy HS.
6. Some other DONs are referred to in the communications which are in evidence.
7. In relation to the sale of Belrose Care, Mr Markoff engaged Liverpool Partners as his commercial advisors. He primarily dealt with Craig Tocknell, though also with Jonathan Lim and Bill Maiden. For lawyers, he engaged Sladen Legal, principally dealing with Megan O'Connor.
8. When Mr Markoff was in the process of selling Belrose Care he met Luigi Pascuzzi. Mr Pascuzzi is the CEO and Managing director of TLC Healthcare (TLC). In 2016, Mr Markoff had a discussion with Mr Pascuzzi about the latter coming to work for Belrose Care and overseeing its expansion.

1. The facts in this section were not in issue and I find them proven.
2. In its first non-binding indicative offer sent to Liverpool Partners, Chris Hall, the then CEO of MercyCare, described MercyCare in the following terms:[16]

MercyCare is a leading Catholic provider of aged care, family, health and community services. MercyCare's vision is for people and communities to thrive and its mission is to bring compassion and justice to life by breaking cycles of significant disadvantage.

MercyCare's origins date back to 1846 when the Sisters of Mercy arrived in Western Australia. For the next century and a half, the Perth Congregation of the Sisters of Mercy established and developed a range of education, welfare and health services in Perth and regional Western Australia.

In the period between 1999 and 2002 the Sisters of Mercy instigated processes to establish MercyCare as both a not-for-profit civil company limited by guarantee and an official Catholic Church organisation under canon law. In creating this structure for MercyCare, the Sisters of Mercy fulfilled their long-held vision of entrusting lay people to carry forward the Mercy ethos, spirituality and mission in a contemporary way. Today, MercyCare is a lay-governed and managed organisation.

MercyCare currently employs over 700 staff and 150 volunteers, delivering more than 40 programs and services, from over 30 locations throughout Western Australia.

In the area of residential aged care, MercyCare operates a 113 bed residential aged care facility in Wembley, Western Australia. MercyCare also services over 2,000 clients each year through a range of aged Community Care Home Support packages, and successfully operates a modern 116 unit Retirement Village complex.

MercyCare's current strategic imperatives include investment in organisational capacity and service sustainability focusing on developing revenue generating initiatives to finance its mission and ensuring effective organisational scale and scope through partnerships, expansion, service integration and internal capacity building. The acquisition of the Belrose Assets is clearly in line with these imperatives and is consistent with the strategy developed by the Board of MercyCare.

MercyCare currently has net assets of approximately $112m, including cash of $82m.

1. Mercy HS is a wholly owned subsidiary of MercyCare.
2. The final decision makers as to the acquisition process at MercyCare were the board, and above them, the trustees of MercyCare.[17]
3. Mr Hall was the Chief Executive Officer (CEO) of MercyCare at all material times until mid-2018.
4. One of the direct reporters to the CEO was the Executive Director of Business, Services and Systems, in essence the Chief Financial Officer. At the time of the acquisition of Belrose Care, the person in this position was Brett Campbell. Mr Campbell has qualifications in economics, finance and accounting. The responsibilities of Mr Campbell included leading and directing the finance, business analytics, corporate risk, purchasing and IT teams (who directly reported to him), attending finance risk and audit committee meetings, and attending board meetings as required and when relevant to his particular area.
5. The team dealing with the acquisition of Belrose Care was led by Mr Campbell. The members of the team were Colin Ross, who was the manager, and Ben Culman, who was an analyst.
6. MercyCare engaged Adrian Arundell from Azure Capital Pty Ltd as its commercial advisor and Mitch Artus and Bronwyn Davies from HWL Ebsworth as its legal advisors.
7. Another of the direct reporters to the CEO was the Executive Director of Aged Care Services. In the period when MercyCare was acquiring Belrose Care, this was Carlo Calogero.
8. One of the direct reporters to the Executive Director of Aged Care Services Reporting was the Manager of Residential Aged Care. In the period when MercyCare was acquiring Belrose Care, this was Donna Matthews.
9. After acquiring Belrose Care, the reporting structure set out above remained. However, in early July 2016, Mr Campbell left and was replaced by David Holden. Mr Holden has accounting and business qualifications. He was the acting CEO for about six months from around mid-2018.
10. Mr Calogero resigned in November 2016 and was replaced in February 2017 by Rebecca Tomkinson.
11. One of the managers reporting to Mr Campbell, and later Mr Holden, was the Finance Manager. Throughout the relevant period this was Martinus Vorster. Mr Vorster has tertiary qualifications in accounting. He was employed by MercyCare between August 2015 and March 2018.
12. In the lead up to Completion, Ms Matthews also left and was replaced by Margaret Ingleton, who commenced on 26 August 2016. Ms Ingleton remained at MercyCare until April 2022.
13. The DONs were renamed 'Service Managers'. The four Service Managers from the Belrose Care sites reported to Ms Ingleton as did the Service Manager of MercyCare Wembley.
14. Around September or October 2016, Susan Powell took over from Ms Draper as the Service Manager at MercyCare Rockingham (Tanby Hall). She had been a clinical nurse at Tanby Hall from mid-2016. She was in the position of Facility Manager until 2020.
15. The responsibilities of the facility managers were more or less the same as the DONs in the Belrose Care structure.
16. In November 2016, MercyCare employed Samantha Spiro as Business Development Manager. She had qualifications in nursing and considerable experience in business development in the health care sector. Ms Spiro reported to the Executive Director of Aged Care Services. Another employee involved in admissions was Miika Lowery.
17. Another employee of MercyCare mentioned in evidence was Trang Dai. Her title was 'Risk and Special Projects Manager, Business Services and Systems'.
18. And another was Angela Johnston, who was the 'Manager People Services'.

1. The ACK Parties called Mr Markoff and relied on the Markoff Statement. The ACK Parties also called Mr Shao, Mr Greco, Ms McDougall, Ms Cowcher, Mr Szewach, Mr Pascuzzi and Mr Elliott.
2. The Mercy Parties called Ms Ingleton, Mr Campbell, Mr Vorster, Ms Spiro, Mr Holden and Ms Powell.
3. Both parties made detailed submissions about how the court should assess the witnesses.[18]
4. As mentioned in section 2.2, the trial was conducted on the basis that each document tendered as an exhibit speaks for itself and that I am entitled to rely on it as to the truth of its contents. In making factual findings, I place most weight on 'contemporary materials, objectively established facts and the apparent logic of events'.[19]
5. In my assessment, each of the witnesses was doing their best to recall events which happened between 7 and 15 years ago. The evidence of each witness was honest and as accurate and reliable as one might expect given the impact of the passage of time on memory. Where I do not accept the evidence of a witness on a particular issue, I set out my reasons for doing so. Otherwise, I generally accept the evidence of each witness.
6. Mr Shao's first language is not English, something evident from time to time in his written communication. When giving evidence, he spoke English with a heavy accent. However, my impression listening to him during the trial, and reviewing the transcript, is that ultimately he understood all the questions he was asked and was able to communicate his response to the questions.
7. The parties in closing submissions[20] rely on the principles set out in Jones v Dunkel dealing with the consequences that may flow from the unexplained failure to call a witness who that party may be expected to call.[21] However, the inferences that I have drawn, and the findings I have made, are readily open on the evidence and I was able to do so confidently without the need to utilise the reasoning discussed in that case.

1. Before delving into the detail, it is necessary to place the dispute in the context of the regulatory regime within which aged care facilities operate. The opening submissions of each party contain a detailed analysis of the regulatory regime. At the conclusion of the evidence phase of the trial, the parties, at my request, filed a glossary of common terms and funding arrangements. I have incorporated this helpful material into the analysis in this Part. The regulatory regime is also dealt with in the closing submissions.
2. The centrepiece of the regulatory regime for the purposes of determining the issues in dispute at the relevant time period, 2008 to 2018, is the Aged Care Act 1977 (Cth) (ACA). Significant amendments to the ACA and the regime it supported came into effect on 1 July 2014. It is necessary to look at the regime before and after this date.
3. It is well recognised that the regime regulating residential aged care is complex. In Regis Aged Care Pty Ltd v Secretary, Department of Health Justice Mortimer observed:[22]

... The Aged Care Act enacts a complex scheme, which turns on the provision of subsidies by the Commonwealth to providers of aged care... [T]here is nothing to prevent any person or corporation providing private aged care for individuals on a paid contractual basis, but without subsidies it would be an expensive and difficult undertaking, to say the least. In all practical senses, the provision of subsidies means that the overwhelming majority of Australians in aged care live in facilities regulated by the Aged Care Act.

In return for the receipt of a variety of subsidies for providing aged care, persons and corporations submit to close and specific regulation of who can become a provider of aged care, the manner in which they provide aged care to members of the Australian community and the standards to which that care must be provided. Providers also submit to a range of regulations concerning what they may charge people for the provision of aged care...

The Act implements a regulatory structure consisting, broadly, of direct regulation through the Act itself and regulation through a series of legislative instruments called 'Principles' and 'Standards'. Compliance with these Principles and Standards is sought to be achieved by making compliance a statutory obligation, as part of an approved provider's 'responsibilities'.

The link, constantly made in the scheme, is between the provision of subsidy, and control of the conduct of those who provide aged care: that is, provision of public funds for the supply of aged care services to members of the Australian community, in return for the observance of the restrictions the parliament has seen fit to impose. Key amongst them, and more so after the 2013 amendments, are restrictions on the fees that can be charged to recipients of aged care.

1. In Secretary, Department of Health (as successor to the Secretary, Department of Social Services) v DLW Health Services Pty Ltd the Full Court of the Federal Court observed to similar effect:[24]

The Act provides for the payment of subsidies to aged care providers and the payment of grants for other matters connected with the provision of aged care.

It is unsurprising that the scheme is complex, as it deals with the allocation of vast amounts of public money to many different providers for the care of large numbers of vulnerable people with differing needs.

The Act sets out the scheme at a general level and leaves the detail of matters such as eligibility for subsidies and the amount of the subsidies to delegated legislation. Under delegated legislation, individual care recipients are classified according to the level of care they need, and a monetary amount for each classification is prescribed. In broad terms, the higher the care needs of an individual care recipient, the higher the classification and the higher the amount of the daily subsidy paid to the aged care provider for the care of that person.

1. Sitting under the Act are a multitude of associated legislative instruments.

1. Liverpool Partners provided a helpful summary of the sources of funding for residential aged care in the Information Memorandum:[25]

1. As set out in this diagram, broadly speaking, funding of residential care, whether by the government or by the resident, had two aspects: funding relating to a resident's personal and clinical care and funding relating to a resident's accommodation.
2. Funding relating to a resident's personal and clinical care in turn had, again broadly speaking, two components. The first is the basic daily fee or standard resident contribution. This provides for the resident's daily living costs such as meals, cleaning, laundry, heating and cooling. It is paid by every person moving into residential aged care. The maximum basic daily fee is capped at 85% of the single basic aged pension.[26]
3. The second component is the basic subsidy or residential care subsidy, and relates more to clinical care.[27] The ACA provides a complex formula for determining the amount of the residential care subsidy, with various additions and reductions.[28] The basic subsidy amount is based on an Aged Care Assessment where the care needs of the resident are assessed by the provider using the Aged Care Funding Instrument (ACFI). The ACFI can be seen as a funding tool used by providers to claim care subsidies for each resident at a residential aged care facility. The level of subsidy received depended on a resident's care needs assessed (as high, medium or low) across the three domain categories, namely activities of daily living, behaviour and complex health care. There were twelve questions across the three categories relating to nutrition, mobility, personal hygiene, toileting and continence, cognitive skills, wandering, verbal behaviour, physical behaviour, depression, medication and complex health care.[29] The higher a resident's care needs, the higher care subsidy (ACFI subsidy) paid to the provider.[30] Once admitted, a resident's Aged Care Assessment can be reassessed as their care needs increase.
4. The residential care subsidy paid by the government could be reduced.[31] This is based on a means test. To the extent that the residential care subsidy paid is reduced by the care subsidy amount, the resident is required to pay a means tested care fee.[32] This is subject to daily, annual and lifetime caps. The government pays the remainder of the cost of their care to their provider. If a resident does not pay any means tested fees, the government pays the full cost of their care to their provider.
5. As to accommodation funding, the level of government support provided depended on an assessment of the resident's means and ability to pay their accommodation fees and ongoing care fees. The means assessment determined whether the potential resident was:

(a) fully supported;

(b) partially supported; or

(c) self-funded.

1. For a fully supported resident, the provider would receive an accommodation supplement.
2. Where the resident was self-funded, the resident would make payments towards their residential accommodation by a:[33]

(a) Refundable Accommodation Deposit (RAD);

(b) Daily Accommodation Payment (DAP); or

(c) combination of RAD and DAP.

1. A RAD is lump sum room price that a resident (not eligible for government support) has agreed to pay to a residential aged care provider for their accommodation costs.[34] A RAD could be paid by a resident with any level of care needs who entered into a facility on or after 1 July 2014.
2. A DAP was an amount paid by a residential aged care resident (not eligible for government support) for their accommodation. It was calculated by reference to a statutory formula.[35]
3. In relation to RADs, in Regis Mortimer J observed:[36]

Refundable deposits are a flexible way (including after a person has entered an aged care facility) of adjusting the amount a person may need to pay by way of a daily payment (without altering the total sum payable): see s 52J-2. Approved providers are prohibited by s52J-5 from accepting refundable deposits which, in the circumstances specified, would leave a person with assets below the 'minimum permissible asset value' set by the statute. In other words, this is a provision designed to prevent approved providers from encouraging, or requiring, aged care residents to provide such large lump sums that their asset base is unduly depleted. It should be borne in mind this restriction is imposed... in circumstances where approved providers have access to refundable deposits for capital works and improvement purposes. Provisions such as s 52J-5 are designed to preclude approved providers requiring too great a lump sum from people, so the approved providers can use the money in the meantime.

... [T]his feature of the scheme reflects a legislative intention that prospective and current residential care recipients not be required to pay more than they can afford by way of a lump sum.

1. Where the resident was assessed to be partially supported, the resident would make payments towards their residential accommodation by a:[37]

(a) Refundable Accommodation Contribution (RAC); a

(b) Daily Accommodation Contribution (DAC); or

(c) combination of a RAC and DAC.

So both a DAC and a RAC are means-tested payments made by a resident for their room where the resident does not have the means to make the full payment themselves.[38] The remainder is subsidised by the Government by way of an accommodation supplement.

1. Significantly for the purposes of the present dispute, ACA s 52F‑4 provided that an approved provider must not require a potential resident to choose how to pay an accommodation payment or accommodation contribution before the person enters the service. I consider this issue in more detail in section 5.5.
2. Refundable deposits (RADs and RACs) 'are a flexible way (including after a person has entered an aged care facility) of adjusting the amount a person may need to pay by way of a daily payment (without altering the total sum payable)'.[39] As Justice Mortimer observed, the provider is prohibited from accepting refundable deposits which would leave a person with assets below the 'minimum permissible asset value' set by the regulatory regime. The purpose of this provision is to ensure a residential care recipient is not required to pay more than what he or she could afford.[40]
3. DAPs and DACs are sources of revenue, which could be used by the provider without restriction.[41]
4. By contrast, providers were only allowed to use RADs and RACs for permitted uses.[42] These uses included reasonable capital expenditure for things like the acquisition of land to build premises needed for providing residential care, or to acquire, erect, extend or significantly alter premises used or proposed to be used for providing such care.[43] There were also rules as to the permitted investment of refundable deposits.[44]
5. An aged care provider could retain income derived from the investment of a RAD or a RAC.[45] That income was therefore an additional form of revenue for the provider.
6. Both a RAD and a RAC were required to be refunded when a resident died or permanently left the care of the facility.
7. The total RAD and RAC balance was a liability on the aged care provider's balance sheet. The aged care provider had to maintain sufficient liquidity so that it could refund balances expected to fall due to aged care resident payers in the following 12 months.[46]
8. Relevant to the present action, there were two further supplements which a provider could receive.
9. The first was a Significant Refurbishment Supplement. A significantly refurbished facility received an increased accommodation supplement for eligible residents.[47]
10. The second was a Higher Accommodation Supplement. This would be received if the facility had more than 40% of residents that are low means or are supported residents or more than 40% of residents that are assisted, concessional, low-means or supported residents. A facility with this profile of residents received an uplift of the accommodation supplement for each day it maintains the 40% of higher ratio above. This could be stacked with the Significant Refurbishment Supplement.[48]

1. For the time periods relevant for present purposes, the ACFI payment arrangements before 1 July 2014 were the same as those after 1 July 2014.
2. In the regulatory regime prior to 1 July 2014, the distinction between a low-care resident and a high-care resident was more pronounced then after 1 July 2014.
3. Low care residents who entered a facility prior to 1 July 2014 paid for their accommodation through an accommodation bond. An accommodation bond was a refundable lump-sum payment which, subject to limited exceptions, was paid to a residential aged care facility for their room by low-care residents with sufficient means if they entered into residential aged care prior to 1 July 2014.[49]
4. An accommodation bond had to be refunded upon the death of the resident or if they permanently left the facility. However, at the time of refund, a retention amount could be deducted from the accommodation bonds, which became revenue for the provider.[50]
5. High-care residents, if they had sufficient means, paid an accommodation charge, being a rental-style payment for their room.[51]
6. The determination of whether or not a high-care resident had sufficient means to pay an accommodation charge turned on whether they were a supported resident. A person would be a supported resident if the person was admitted to a residential aged care facility (between on or after 20 March 2008 and before 1 July 2014) and their assets at the time of entrance were equal to or less than the amount determined by the Secretary by legislative instrument. The parties provided the example that, as at 20 March 2014, a resident who had $45,000 in assets or less would be classified as a 'fully supported' resident. Residents who had more than $45,000 in assets, but less than $116,136.00 would be classified as 'partially supported'.[52]

• 114 A supported resident was eligible for government support through the accommodation supplement to cover the cost of their room. Some supported residents could be required to pay an accommodation bond (if low care) or an accommodation charge, provided the amount did not lead to their assets falling under the minimum permissible value.[53]

1. There is an earlier category of resident referred to as a concessional resident. A concessional resident was a resident who was determined (by a relevant assessment or determination) as having insufficient means to pay for their accommodation. Their accommodation, that is, the cost of their room was, subsidised by the government. These residents entered into a residential aged care facility prior to 20 March 2008. They could not be required to pay an accommodation bond or accommodation charge.[54]

1. In the documents tendered at trial and the evidence given, the terms used do not always accord with their statutory definitions. When a reference is made in a document or by a witness, I will generally use the same expression. In broad terms, the key distinction was between a bonded resident and a concessional resident. A bonded resident generally refers to a resident who made a lump sum accommodation payment. That is, a pre‑1 July 2014 resident who paid an accommodation bond and a post‑1 July 2014 resident who paid a RAD or a RAC. I use the term 'bonds' in this sense.
2. A concessional resident was a resident who was fully supported by the government. As a matter of pure logic, the total number of residents is not always equal to the number of bonded residents and the number of concessional residents as I have just defined them. This is because there is a third class, being residents who were not fully supported, but who chose to pay a DAP or a DAC (rather than a RAD or a RAC).

The approved provider must not require the person to choose how to pay an accommodation payment or accommodation contribution before the person enters the service.

1. In other words, an approved provider must not require a potential resident to choose between, depending on their means:

(a) a RAD or a DAP; or

(b) a RAC or DAC,

1. Rather, the election as between a RAD/DAP or RAC/DAC had to be documented in an accommodation agreement which had to be entered into ordinarily within 28 days of the resident entering the facility.[55]
2. More specifically:

(a) a person had to be given an accommodation agreement before entering a service;[56]

(b) the provider had to enter into an accommodation agreement with the person before or within 28 days of them entering the service;[57]

(c) the accommodation agreement had to include a term that the person must within 28 days of entering the service choose between paying a RAD or DAP (or a combination of both);[58] and

(d) the provider was not permitted to require a person to choose between paying a RAD and a DAP (or a combination of both) before they entered the service.[59]

1. There was no equivalent provision to ACA s 52F-4 prior to 1 July 2014; nor was there a need for one given the way the regime was structured.
2. ACA s 52F-4 protected a prospective resident's freedom of choice and aligned with the objects of the Act which were to, amongst other things, encourage diverse, flexible and responsive aged care services that facilitated the independence of, and choice available to, those recipients.[60]
3. Justice Mortimer's observations in Regis on the concept of 'choice' in the ACA are apposite to ACA s 52F-4:[61]

Use of the word 'choice' in this context suggests a decision between options in the light of what might be most appropriate for a person's aged care, bearing in mind that it may be the case that it is not the older individual who is making these 'choices', but her or his family.

The provisions of the Aged Care Act must be construed in the practical context in which they arise. People need, or wish, to access aged care services in a tremendous variety of circumstances. Sometimes, it is involuntary. Sometimes, it is in circumstances of great urgency. Sometimes there will be real geographic constraints on where a person needs to be cared for, because of family arrangements, but also personal preferences in terms of established networks, access to particular treating medical professionals and the like. Sometimes personal preferences in terms of the nature of a facility will be critical to the continued physical and psychological well-being of a prospective resident. There may therefore be all sorts of reasons why whatever 'choice' is being exercised is constrained in away where people are not able, as in the hypothetical private commercial context, to elect to contract elsewhere and with another party.

1. In the Plaintiffs' Closing Submissions, the following appears (my italics):[63]

1. It was perfectly permissible under the Act for Belrose before the sale to Mercy and for Mercy thereafter to:

(a) advertise that a room was available at a RAD price of a specified amount;
>
> (b) reject applicants who were concessional residents;
>
> (c) discuss with prospective non-concessional/bonded residents the benefits of a RAD vs DAP before entry into service, and for prospective non concessional/ bonded residents to be persuaded to obtain a RAD; and
>
> (d) provide an accommodation agreement that provided a choice as to payment before entry into service, and for that resident to choose a RAD following discussion of the proposed benefits between a RAD and a DAP.

I disagree with the italicised portion. That type of conversation is exactly the type of conversation which ACA s 52F-4 is designed to prevent, at least prior to the resident entering into an accommodation agreement. That type of persuasive conversation carries with it the very real risk of an implied threat or consequence, at least in the mind of the prospective resident, that if they are not persuaded to offer a RAD, then they will not be offered the position.

1. A great deal of evidence and submissions in this case deals with the issue of the supported resident ratio. The supported resident ratio is a ratio of the number of concessional and assisted residents to residents who are not so assisted. It is contained in the bed licence issued to a residential aged care provider. For example, in the bed licence granted on 18 January 2007 for Grandview, the condition in relation to concessional residents was in the following terms:[64]

1. It is a condition of this allocation that this place be used to provide care to concessional and assisted residents to the extent that it is necessary to bring or maintain the proportion of care for residents to the level of the applicable concessional ratio for the region (as varied from time to time) across the total number of places held at the service at the location for which these places are allocated.

The concessional and assisted ratio for the region in which this service is located is 21.50% although service providers should note that the ratio can change from time to time.

1. The supported resident ratios are determined by the Secretary of the Department of Health. They are based on regions.[65] The Department produces a Determination and associated maps from time to time.
2. It is not in issue that Mercy HS was obliged to comply with the minimum supported resident ratio for each facility for the region in which it was located.[66] ACA s 63-1(d) is to the effect that Mercy HS, as an approved provider, had a responsibility to comply with any conditions to which the allocation of any of the places included in the service is subject.
3. The ACK Parties submit that the position is 'much less clear' during the time Belrose Care operated the facility.[67] I disagree. ACA s 63‑1(d) applied equally to Belrose Care. At all material times, it was under an obligation to comply with the minimum supported resident ratio for each facility.
4. Mr Markoff gave evidence to the effect that, based on his research at the time, the minimum concessional resident ratios were not enforceable.[68] He operated without regard to them.[69] I accept that he had this view, but it was wrong.
5. The supported resident ratio attaches to the bed licence of the particular facility, and must be complied with by that facility. Mr Shao was of the view that the position could be aggregated across facilities in the same area.[70] Shortly after Completion, Ms Ingleton raised this issue with the Department of Health who advised that this was not the case, and that each facility had to meet the condition in its licence.[71]
6. It is not in issue that the minimum supported resident ratios at Completion and for the following two years were:[72]

(a) Orange Grove (Maddington) - 22.6%.

(b) Grandview (Joondalup) - 21.5%.

(c) River Gardens (Kelmscott) - 22.6%.

(d) Tanby Hall (Rockingham) - 22.6%.

1. A central Issue in this action is whether Belrose Care had the policy in relation to bonds set out in EFASOC paragraph 9 (Pleaded Bond Policy), being:

In the seven years prior to Completion, the Business adopted a policy of pursuing and prioritising the intake of Bonded Residents over Concessional Residents (as defined below) and increasing, to the extent possible, the amount of the:

(a) 'Accommodation Bonds' (in the period up to 30 June 2014); or

(b) 'Refundable Accommodation Deposits' (in the period from 1 July 2014 to 27 September 2016) (Refundable Deposits),

1. Whether the Pleaded Bond Policy existed was a significant focus of much of the contested oral evidence. The examination‑in‑chief and cross‑examination of the witnesses centred on the documents of Belrose Care. That is not surprising given the length of time that has passed. Multiple witnesses were asked about the same document. This being so, the most coherent way to summarise the evidence is to use the documents referred in chronological order as the framework. The uncontested evidence of each witnesses who spoke about the document is considered together and in the context of each document. This analysis is set out in section 6.2. I find the facts set out in that section proven.
2. The documents referred to by the parties will necessarily be a sample of the communications and reports provided during this two year period. However, the volume of the material referred to by the parties is an ample representative sample on which to determine the issues in dispute.
3. I reiterate that in the Document Protocol it was agreed that if 'the admissibility of a tendered document is not objected to, the document speaks for itself and the trial judge is entitled to rely on it as to the truth of its contents'.
4. Some of the evidence led was not material to determining the issues in dispute (section 6.3). Each of the witnesses who gave evidence relevant to whether or not the Bond Policy existed also gave some more general evidence. This is summarised in sections 6.4 (Mr Markoff), 6.5 (Mr Shao), 6.6 (Mr Greco), 6.7 (Ms Cowcher) and 6.8 (Ms McDougall).
5. My factual findings and determination are set out in section 6.9.

1. On 17 November 2008, Mr Markoff sent a memo to 'Management' on the subject of 'Admissions and facility reporting'.[73] It relevantly provided:
   1. WHAT RESIDENTS ARE WE ADMITTING?
      1. Non-concessional
      2. Bonded low care selling house - minimum $250k* but no maximum
      3. Bonded low care not selling house - as above but paying drawdown & interest**
      4. Low care respite - with potential bond
      5. High, high care respite if no potential bond

* May be negotiable; contact JM for advice

** Invoiced monthly in arrears; contact HO for advice

1. Mr Markoff said that he prepared this document so that everybody would know his attitude to bonds, which was that 'we needed to aim for, totally bonds'. This document was given to the DONs.[74]
2. And: [75]

Right. Apart from in this document, were there any other instructions you gave about bonds or non-concessional residence?---I communicated largely verbally.

Yes?---And I would have been - I would have been chasing them up on bonds all the time.

1. On 3 April 2010, a 'Strategy Day' was held at the Belrose Care Head Office in Maddington. It was attended by Mr Markoff, Mr Shao, Mr Szewach and the four DONs. The minutes are in evidence.[76] Under the heading 'Roles and responsibilities of the DON', the following appears:

The other key important requirement a DON is to maintain all financial KPI's including occupancy, bonds, ACFI and maintaining their budget.

1. Along similar lines, in a discussion on 'Running Facilities', the following appears:
   1. Financial
      1. Bonds
      2. ACFI
      3. Occupancy rates (including respite)
      4. Staffing levels
2. And then:

1. 44 standards met with 100% compliance
2. a DON that is aware and has control of their facility
3. Low staff turnover (retention)
4. High occupancy
5. Maximising ACFI
6. Bonds
7. Keeping expenses within budget
8. Good reputation within the community
9. Well maintained and presented facility
10. Happy relatives and residents
11. Strong staff morale
12. Successful audits
13. Controlled number of complaints
14. Lack of agency
15. Controlled expenses
16. Professional polish
17. Solid reporting
18. Family visits/meetings
19. High satisfaction surveys

1. There was then a reference to a new policy for ACFIs, under the heading 'ACFI':

This session was conducted by Lyn and was aimed at rolling out the new ACFI policy for the DONs. Lyn went into great detail and expressed gratitude to all the DONs for their great work to date at maximising ACFI funding. However in saying that, Lyn also recognised that there was still more to do and has agreed to work with each of the DONs ensuring that ACFI is maximised within the next six months.

1. On 29 June 2010, Mr Szewach sent Mr Markoff an email informing him that he had asked the DONS to start recording information in new templates to complete a facility performance report at the end of the month.[77] Mr Szewach said that the bond targets in these templates were discussed by Mr Markoff and himself, but that in the end it was Mr Markoff who determined the targets.[78]

1. During 2011 there were regular Executive Meetings attended by, among others, Mr Markoff, Mr Shao and the DONs.[79]
2. During 2011 the DONs had targets for bonds.[80]
3. On 8 April 2011, Mr Shao sent Mr Markoff an email advising him of the then bond balance. It read in part:[81]

Please see the window below shows the balance of all the accounts. We have in total 12.56 Millions in the bank at the moment. Oh, Noreen just convince one of her resident pay extra bond, so she get around $250k extra paid to us, in total the resident paid around $480k to us, the cheque will be present and show up on our account this evening.

And that was a situation in which an applicant for a room was asked to pay more than the advertised or set price, yes?‑‑‑Yes.

And you were writing to Mr Markoff to tell him, because you thought that was a good thing?‑‑‑It is, because you can pay the bond up to 550. So anything between the ask amount and they pay to the 550, I think it's good to the business.

And you thought Mr Markoff would be pleased to hear that?‑‑‑Yes.

That practice continued throughout 2013, didn't it?‑‑‑Sorry, what do you mean?

This practice of encouraging prospective residents to pay a bond equivalent to the proceeds of their - of their house sale, less $45,000 - that was a practice that continued throughout 2013?‑‑‑Yes.

1. Mr Markoff agreed that this was an example of a prospective resident being asked or encouraged to pay more than the advertised or set bond price, a practice which continued through to 2013.[83]
2. On 19 October 2011, Mr Shao sent an email to the 'Orange DON', Anne Gordon, saying, in part:[84]

I notice your concessional rate is 36% something, it only need one or 2 more concessional residents for you to get extra ACFI payment, please only accept concessional high care residents and bonded low care residents from now. Thanks.

I presume we still have to have low care bonded first?

Yes, if we can get bond, always get bond first, if not, concessional high care is the next choice. Thanks.

Yes?‑‑‑And when the residents get a 40 per cent concessional rate, I think there is an extra ACFI payments will be paid to every resident. So that is why I told the Orange Grove facility manager to take in one or two more concessional to reach that 40 per cent, so we can get a much higher ACFI payment.

...That is always Mr Jeffrey Markoff's preference. He always focused on getting bonded residents over anything.

And did you relay that instruction to staff?‑‑‑Yes. This is always - every time he came to Perth ‑ ‑ ‑

Yes?‑‑‑ ‑ ‑ ‑ he mentioned that to everyone.

1. On 16 February 2012, Mr Shao sent Mr Markoff an email commenting on the profit and loss for each facility. So far as is relevant it reads:[87]

I have done January profit and lost for each facility. Overall we had profit of $494,059 and it is about $75,000 less than we expected. The overall reason of not catch up with our budgeted amount is because of the following reasons, but the two main reasons are : empty beds and ACFI drop.

1. Tanby Hall is getting more and more bonded residents come in instead of accept concessional resident, our bond amount increase over $1m at Tanby Hall. As result of this, ACFI income will drop accordingly.
2. Empty bed. Grandview has 6 empty beds and Tanby Hall has 6 empty beds in January, as they all have few HHH residents pass away. Both RG and OG has 2 empty bed as well. The empty beds result of ACFI dropped significantly as they lost the most high payment residents. (every year when the hot weather comes, we always have large number of death, hope this will change after we put the new air-con system in). I have discussed this with Carol and facility managers, now Grandview have filled all their low care beds, (Adie really does a good job on this, she gets 3 bonded residences in in January (one signed agreement late and bonds fall into Feb), Carol manage to get rid of one high care resident at Tanby Hall actually very low care, and they replaced them with reasonable low care bonded resident and high care residence. A policy now in place, for facility to take high care resident, they must be concessional and our assessor will come to resident's family do pre-assessment to determine if worth for us to take them on board or not. Carol and all facility manager agree ACFI will start come back in March as they have already adjust the claim but it take over one month to show the outcomes on the payment.

...

Despite of above, I find when we get residents in and explain to them about how bond works, the facility sometimes are misleading the family, and not tell them all information they need to know. Most of the family did not realise when they hold more money with themselves and not pay to us as bond, they will get pension reduced and income test fee charged, and put the bond to us only lost interest income which is less than the money they have to pay as extra. I have persuade few residents to put more bond money in after they sell the house. So we need to look into this second to educate our admin staff also the facility manager not only work on $300k bond but the sale value of the house (it normally much greater than $300k).

1. In relation to this email, Mr Shao agreed that he had directed or suggested to the DONs at each facility and the administration staff to encourage new bonded residents or their families to place all of their house sale proceeds with Belrose Care as a bond even if the sale proceeds were higher than the advertised or set room price.[88]
2. When cross-examined on this email, Mr Markoff said that he could not remember Mr Shao reporting to him like this every month. Rather, Mr Shao reported to him if there were issues. He agreed that there was a budgeted profit which had to be met if possible. And:[89]

And then when we get to the bottom of the document, the first page, the 'despite of above' that you've just read and he goes on to talk about what families do not know about the financial contributions that they make and the need to educate administrative staff, you understood him to be telling you, didn't you, that the staff needed to be educated to encourage applicants for residency to pay more than the set or advertised bond price if they had the means to do so?‑‑‑Yes.

So is that another example of Mr Shao professionalising the intake of bonds?‑‑‑Yes.

And is this an example of maximising bonds in accordance with the policy you allege in these proceedings?‑‑‑To the best of his abilities, yes.

And this was something that Belrose had been doing since at least 2011?‑‑‑Yes

1. On 10 August 2012, Ms Gordon sent an email to Mr Shao which read:[90]

Hi Nicholas

Do you think we could sneak in a low care concessional?

He is currently here in respite but needs permanent care and he is delightful. Won't be long before he will be high care.

Regards

Anne

No Anne, I got lot trouble with Jeffrey today, and I do not want he find out that we take low care concessional resident in. Sorry but Jeffrey is hunting on me, so I need to be careful.

1. As to the reason for his response, Mr Shao explained:[91]

And your response?‑‑‑I said no. Yes. Because low-care concessional means basically when they come in, we lost money. So average daily care, the time for a resident per day, is about $106.

Yes?‑‑‑But a low-care concessional, I think they can get about $80. So if you get someone in, it means, like, you give away $30 a day.

Yes. And so you've responded no?‑‑‑Yes.

Yes. And was that a typical situation?‑‑‑No. There's no circumstances - we never take low care concessionals.

1. On 13 November 2012, Mr Greco sent an email to Mr Shao attaching a record of calls made by Mr Greco to potential new residents. It reads:[92]

Hello Nicholas

I have updated the form further.

I have had many other calls and ACAT Forms sent through many admitted as per new admissions to Tanby - but several rejected due to LC no bond or too aggressive.

I will continue updating this form with Christine from now on.

1. From the record of calls it is apparent that from early September to early November 2012, 21 calls were made of which ten were noted as being 'unsuitable'. Mr Greco explained that some were unsuitable as they were too aggressive. Mr Greco explained that 'Not suitable' included that the person was wandering, intrusive, aggressive or had aggressive tendencies. If the applicant's aged care assessment showed that the applicant had been exhibiting aggressive tendencies, he could not admit them to Tanby Hall. This was because Tanby Hall was an open facility and did not have a locked dementia specific unit. To do so would place staff and other residents at risk. Mr Greco said that he had the autonomy to make that clinical decision.[93]
2. On 20 December 2012, Mr Shao sent the DONs an email regarding financial performance for the month of November 2012. It reads:[94]

Please see attached profit and lost for Nov 12. You will be able to see where you doing good and where you need to draw attention to. GV maintenance cost due to painting project, so you can ignore that one, please see how you can improve others, (i.e., salary expenses), Tanby Hall please look into your food cost. River Gardens need to look into your income section. This month all of our ACFI except TH not as good as we planned, so please get your ACFI look into this and see how to improve it, or I have start to call them. ϑ

No need to look into resident allied health, we put those TV and brackets there to not capitalise them. Admin cost over is because of the Prudential Compliance Bond Interest payment to resident. Please if you have any query about the profit and lost, feel free to drop me an email I also attach bond position report for your reference, Jeffrey just give me a half hour lesson about how important of the bond, so I think you all knows the importance of the bond to the business, please work on this and Jeffrey said once our financials getting better, he will make sure everyone benefit from that.

1. In relation to this document, Mr Greco said that 'we understood that to be that we were driven to try and attract as many bonded residents as possible to each of our facilities'. He said that the issue of bonds was discussed at each one of the DON meetings every month, including the number of bonded residents they already had. Their 'main drive was to try and attract as many bonded residents as many bonded residents as we possibly could'.[95]

1. On 8 January 2013, Mr Markoff sent Mr Shao, the DONs and others an email about the financial performance over 2012. It reads (so far as is relevant):[96]

We can only be grateful 2012 is nearly over. We have had problems with the Agency and they continue to plague us even though I believe the worst of it is over. Our financial position was a shocker due to Enid at Tanby, reduced ACFI and increased vacancies. For the first time in years our Bonds have gone backwards and there may be a query on this as to our viability even though our financial position, from a prudential point of view is more than adequate, but you know how they are. Basically everyone has done a good job and I have the highest hopes for the coming year. We have spent a small fortune to upgrade our facilities and will shortly be using our extra facility allocation at Tanby and Orange Grove. Further expenses on Icare, the bus and on human resources with Craig have increased our standards even further. These upgrades were necessary to keep pace with compeditors and address our deteriorating Bond position. I cannot emphasise the importance of doing better next year with Bonds. I have engaged in a serious advertising campaign in the local papers in 2013 by only taking the front pages to push for Bonded residents. It is vital that we keep a track of enquiries and which local newspaper made them aware of us through the spreadsheet already provided. Our website is being substantially upgraded from poor to excellent and am hopeful of increased enquiry from this.

Things have not gone well but I believe things are now in place for us to rectify errors of the past and go forward with optimism into the future to improve our already high standards and rectify our financial situation.

1. Mr Markoff said that the upgrades included repainting, replacing the soft and hard furnishings, and to the gardens. He said that the advertising was done in The West Australian and the local papers in the area surrounding each facility.[97]
2. On 29 January 2013, Mr Markoff sent the DONs, copied to Mr Shao and others, an email which included the following:[98]
   1. We have for the last few weeks been advertising in the local papers on the front pages. Please let me know if you have had ANY response from these adds. Have you been monitoring where references come from? Please reply to item 2.

Item 2

Increased numbers of calls for low care with no bond and people looking for respite. They seem to become angry when we say we do not have a respite bed available.

It is often good to talk to people {if they have the potential of a bond} who want respite if there is a possibility of a bond later on. It is better to take a respite who may stay than a concessional High Care. Talk to Margaret on this as she seems good at it.

1. As to his response, Mr Markoff said:[99]

You say it's better to take a respite ...

who may stay than a concessional high care, and the question is, how is it better?---Respite was on a definite time, so we could choose how long we wanted to keep - keep them, whereas high, high, high care people wouldn't stay with us long, but dare I say, we delivered excellent care, and so they might stay with us for .... quite a time.

GETHING J: Before they die and the bed then becomes available?‑‑‑I'm sorry, sir?

Before they die and the bed then becomes available to someone else?‑‑‑Yes.

1. There was an executive management meeting on 27 February 2013. The minutes record:[100]

Jeffrey discussed vacancies and that we should not have lengthy vacancies. If there are no bonds, we must take high care.

1. Mr Markoff did not dispute that this was something he said at the meeting. As to his explanation:[101]

So you were telling the facility managers, weren't you, in this meeting, that they were not to prioritise bonds over occupancy if it meant leaving a bed vacant for a long time?‑‑‑No.

...

This point that you raise here, where you tell the facility managers that they shouldn't have lengthy vacancies, this was a very typical thing for you to do, wasn't it, to communicate to the facility managers directly or through Mr Shao about what they should be emphasising at any point in time, whether it was improving occupancy or improving ACFI or improving bonds?‑‑‑Bonds was always the priority.

Well, not on this occasion, Mr ‑ ‑ ‑?‑‑‑But circumstances change ‑ ‑ ‑

Not on this occasion, Mr Markoff, clearly?‑‑‑Well, I do not know what went behind that, but we always took in high care - high care where we had a lot of vacancies.

Well, it says - it speaks for itself. You do not leave a bed vacant for a long time if there are no bonds?‑‑‑It says 'lengthy vacancies', not ‑ ‑ ‑

Yes?‑‑‑ ‑ ‑ ‑ 'vacancy'. It's plural, and there may have been many vacancies.

And in that case, you didn't prioritise bonds?‑‑‑That's right.

Thank you. And what you did from time to time is you would look at how many vacancies there were, you would look at the level of ACFI funding that was coming in, you would look at your bond levels, and you would direct the staff about which to emphasise from time to time?‑‑‑No. You do not understand. What we did, bonds, bonds, bonds. And if for some reason you couldn't get bonds, then you looked at other strategies. We never varied from maximising and trying to get in bonds at our own expense. Everything else was subjugated to that.

Do you mean just prior to 1 July 2014 or throughout your time operating Belrose Care?‑‑‑Throughout my time.

Including 2015 and 2016?‑‑‑No. That was different because MercyCare had insisted that we keep the bonds down. So we had to lower our bonds so they do not go over 50 million.

And that was what, the one and only time that you did not prioritise bonds?‑‑‑Yes.

1. Mr Shao said that of the statement in [167], this meant high care concessionals. And:[102]

... he didn't stipulate that they had to be respite beds or high care at very end stage of life. You just understood the direction to be high care concessionals on whatever basis?‑‑‑Yes.

1. Ms Cowcher, on being taken to these minutes, agreed that at February 2013, the priority was occupancy, and agreed that occupancy was a priority throughout her time at Belrose Care. She was asked if this was a higher priority than getting a bonded resident, to which she responded:[103]

... Well, the preference was certainly for a bonded resident, and if we were down to - usually your biggest issue comes in January because unfortunately people die over December for whatever reason, and the number - your numbers of deaths go up, then no one wants to put their elderly mother or father in a home in January because that's a bit mean doing that; therefore, it's harder to fill the beds. So there wouldn't be a bond or anything, but it was then said, 'Well, if you can't - I would keep two, and the last two I would just keep looking for' - and this was talking to Nicholas about this to try and get people that would be with an ACFI, a high care ACFI.

1. In May 2013, Mr Shao sent an email to all DONS asking them, at Mr Markoff's request, to for their thoughts on a software packed by the name of 'Bondmax'. Mr Greco was not convinced of the economics of doing so:[104]

The information could be of assistance.

However, we are doing this already in trying to increase the bond paid by prospective residents.

The ultimate decision of whether the outlay of $48K for the first year will be recouped by any real increase in deposited bond moneys remains questionable.

...

In relation to the last sentence, Mr Greco said that, at that time, there were some residents who were applying to come into Tanby Hall who did not have the bond set by the business. Mr Greco would have to refer these residents to Mr Markoff or Mr Shao to decide whether they would be accepted. However, he would always try and 'maximise by seeking people who could afford to pay the bonds set on site'.[105]

1. On 23 September 2013, Mr Shao sent an email to all DONs advising them that the bond amount for low care residents had increased:[106]

Jeffrey asks me to tell everyone from today 23rd Sep 2013, our low care bond requirement will be $358k. Anyone come in with bond below that amount need to let head office know before we accept any residents. Thanks.

Did anyone come in, and head office was contacted with potential lower bond?‑‑‑Yes. I remember, at the Grandview, they do have a two small bedrooms, and a shared large bedrooms designed for couple, but not always have a - couples come in, so with that two bed, sometimes, they can't really get, like, a 350 bond, so they do call me, saying that, 'I'm really struggling to fill the bed, I have this one, they have a lower bond amount. What do you think?' So we go through their ACFI levels - because there's two things: one, how much bond they pay, and another thing, how much ACFI they can generate.

Yes?‑‑‑And then if I feel - potentially got a case, I would then discuss with Jeffrey, and then get his permission, then we will take them in. But we never take any resident without a lack of approval.

1. On 11 December 2013, Mr Shao sent Mr Markoff an email discussing whether they could increase the bond amount:[108]

The one in Wembley you can not compete with them as they are in very good area.

We should compare with the facility near midland which they charge bond $250k. we doing $350 very well at the moment with flexibility, if they do not have enough bond money, we do not simply say no but will look into the situation, like give them the room smaller not in good location, but still taking them in.

At the moment $350k will be the highest we can go, above that you will lost client as the house around here just do not have that price. With those residents who has bigger house, we always ask them to pay more bond and most of the time it do happen. I always make sure check the asset test and when house sold we ask the price and tell them the income test fee charge, they normally will go with higher amount of bond option. We actually do have couple of the resident choose to pay up to $750k bond. In bond section, I think we are doing above the market ratio for sure.

Of note from this document is the practice of Belrose Care of accepting bonds from residents in excess of the $350,000 usual bond price, up to $750,000.

1. In cross-examination, Mr Markoff accepted that this email ([174]) was another example of a resident or prospective resident being asked or encouraged to pay a bond above the set or advertised bond price. He agreed that if a resident chose to offer $750,000, he was prepared to accept it as a bond.[109]
2. Mr Shao gave evidence to the effect that before 1 July 2014, Belrose Care did not advertise its bond prices. They always kept the minimum amount to themselves. The minimum was $350,000, though they were always willing to take a higher bond. There was an upper threshold of $750,000 without government approval. Belrose Care took a number of $750,000 on a couple of occasions. After 1 July 2014, it was compulsory for RAD prices to be put online.[110]

1. On 9 January 2014, Mr Greco sent Mr Shao an email attaching some information about an increase in the accommodation supplement that applied to newly built or significantly refurbished premises.[111] Mr Shao replied on 30 January 2014 (apparently having been on leave in the interim):

About higher Accommodation supplement has not been formalised yet. It will start from 1st July 2014.

I will say it worth for us to try as your concessional rate are very high and we done the office and get carpet plus Air-con plus all furniture done for Tanby Hall, I am sure we should fit in the condition, there is no harm to try. I will keep an eye on that and make sure we lodge for you. Thanks.

Many thanks Nicholas,

I have also secured 2 $200K bonds, plus increase 350K bond to $450K.

The 1st deposit 12K with balance on sale of house.

The second came in High Care and we fixed him is now low care New ACAT done - Family paid $50K deposit and remainder on sale of unit.

I presently have one room under refurbishment and one room just finished with potential candidate Palliative Resident possible admit next week.

I will keep trying.

1. Mr Greco said of these emails that they were about the possibility of Tanby Hall applying for a higher accommodation supplement for a significantly refurnished service. Mr Shao subsequently applied for the supplement as suggested by Mr Greco.[112] He added that the email refers to a person who came in as high care and improved to the point of being low care.[113] Mr Greco also said that he did not regularly ask residents to pay a higher bond than was advertised.[114]
2. On 22 January 2014, Mr Shao sent the DONs at Grandview, Tanby and Orange Grove an email in the following terms:[115]

I have discussed with Jeffrey about the high care 'interest free' agreement, as from 1st July everyone need to pay a bond to get in the facility, he decide to stop this for now and we will start to prepare the changes for July. I will recommend you take more high care concessional resident when high care bed available to maintain your concessional ratio, as from July Jeffrey will require anyone come in with a bond.

1. Mr Shao said of the last sentence that he was endeavouring to comply with minimum ratio rule by sending this email.[116]
2. In cross-examination, Mr Greco said of this email that from time to time he received directions like this from Mr Shao on behalf of Mr Markoff. He said that if there was a high volume of empty beds at a particular site, they would admit concessional residents either for respite or end-of-life palliative care because 'they would not be there for long term'.[117]
3. On 12 February 2014, Mr Shao sent an email to the DONs in the following terms:[118]

Jeffrey just called about the bond situation recently, so he is targeting on Bond again. Not sure when but soon I think he will call you guys emphasis you need to concentrated on Bond as he believe if working harder, we can get bond in.

(please note we are not allow to take high care bond anymore till 1st July 2014)

1. Mr Markoff said of this email:[119]

... Do you recall calling Mr Shao at around this time and saying in terms that Belrose needed to get more bonds in?‑‑‑I was constantly saying that. On this particular time, I do not remember.

So you were constantly ringing Mr Shao to say, 'You need to get more bonds'?‑‑‑Not just him, everybody. That's what I was - that's what I did.

But if you had had a policy, Mr Markoff, you wouldn't have needed to do that, would you?‑‑‑Doesn't matter.

Because they would already know?‑‑‑Yes. But I'm dealing with people, and when I'm dealing with people, I would re-emphasise things.

He says:

You need to concentrate on bond as he believe if working harder, we can get bond in.

So you didn't think that the DONs were maximising bonds at this point?‑‑‑That's right.

And that they needed to work harder to maximise bonds?‑‑‑That's what I believed.

... Mr Shao, where you say to the DONs 'I -' or Jeffrey - 'just called about the bond situation recently, so he's targeting on bond again', and were you suggesting this was something new?‑‑‑No, no, it's just because, at that time, we actually got a certain level of bond which is quite good, so he do not really keep - mention that. So when we have a vacant bed he always calls that, 'We need a bond resident', but when the bed is - sort of, like, a few, he do not really mention that, but we still know that, if any vacant bed, we need to fill in with the bonded residents. That's why I think - because we are having some vacant bed, that's why he writes that again, 'We want to talk about bond, we need to get bond resident come in.'

1. In cross-examination, in the context of this document, Mr Shao was asked whether Mr Markoff would change his mind:[121]

I just wanted to ask you a question about exhibit 132, where we were at earlier this morning, in a different context, and this comment that you make down the bottom about Geoffrey targeting on bonds again. You gave evidence yesterday ... that Mr Markoff wouldn't target bonds if the bond level was good, but if it went down, he would mention that everybody had to get more in. Do you remember saying that yesterday?‑‑‑Yes.

And was your evidence to the effect that that was the circumstance in which he wrote this email - sorry - that he told you those things that you wrote in this email?‑‑‑Yes. When he called me, he said he wants to get a more bond in, so I write that email.

This is actually a different situation, wasn't it? Because as I've just shown you, three weeks before in January, you had been telling the DONs to target high-care concessionals?‑‑‑Because there's changes, and they have the high-care weekend - high-care bed licence (indistinct) weekend.

But ‑ ‑ ‑?‑‑‑But then he changed his mind, so I have to write an email to let everyone take in bond.

I understand. And he used to change his mind quite a bit, didn't he?‑‑‑Not quite a bit. He always wanted a bond.

Even ‑ ‑ ‑?‑‑‑That's - he never changed his mind - mind for that.

All right. Do you mean throughout the time that you were employed at Belrose Care right up to completion of the sale?‑‑‑No. At the end, he said, 'Stop taking bonded residents'.

1. Mr Greco said of the email at [182] that the main and ongoing drive of the business was to attract as many bonds as possible to the sites. As part of this, the DONs would make contact with social workers and discharge coordinators at hospitals who referred people to ages care facilities to see if they would refer more residents that were able to pay the bond.[122]
2. Mr Greco gave evidence that from time to time he would receive telephone calls from Mr Markoff about bonds. The DONs would also have telephone calls with each other to share strategies. 'We all tried working together to try and maximise the amount of bonds we were attracting to our sites'.[123]
3. Also on 12 February 2014, Mr Shao sent Mr Markoff an email dealing with concessional supplements:[124]

I read the concessional supplement which will start 1st July 2014 again. As before we do not have facility over 40% concessional residents, but now Tanby Hall's concessional ratio 47% and Orange Grove 40%, do you want me look into this supplement again?

However, if next year you only take bonded residents, this supplement will not apply to us still as supplement will only begiven for facility has over 40% concessional residents. If we would like to target on the supplement, we might need to spend bit money on upgrade as they require $10000 minimum spend on each residents to meet the criteria. Means we will need to spend on Tanby Hall $540,000 (this one might easy as we build extension and add air-con, replaced carpet, add furniture and painting in the facility, we might just need to do the vinyl floor will be enough for that $10000 per resident) and Orange Grove $500,000 (this one a bit hard, as we only paint facility furniture, air‑con, only about $5000 per residents, have another $5000 to go).

Please consider this and instruct what you want to do then I will act accordingly.

1. Mr Markoff responded to this obliquely in response to another email from Mr Shao (see [192]).
2. Mr Shao was taken to the statement:[125]

We didn't before have a facility over 40 per cent, but now Tanby Hall's concessional ratio is 47 per cent, and Orange Grove is 40.

And you are asking whether Mr Markoff wants you to look into the supplement again?‑‑‑This is actually called significant refurbishment supplement.

Yes. Yes?‑‑‑Yes.

And you could get that if you have significantly refurbished, and concessional ratio ‑ ‑ ‑?‑‑‑Over 40 per cent.

‑ ‑ ‑ was over 40 per cent?‑‑‑Yes.

Yes. In the next sentence, you say, 'however, if next year, you only take bonded residents, this supplement will not apply to us still, as supplement will only be given for facilities it - has over 40 per cent concessional residents.' Do you recall what the response was to that statement, that, 'If we take bonded residents, ratio will drop below 40 per cent, and we won't get the supplement. I think Jeffrey would still proceed, because Tanby Hall do get it - like, a refurbishment, that's the facility (indistinct) the extension.

And so you're asking him, in the next sentence, 'If we would like to target on the supplement, need to spend money on upgrades'?‑‑‑Yes.

Do you see that? Was that money spent?‑‑‑Yes.

1. Mr Shao confirmed that Mr Markoff approved the upgrade referred to in this email and that the upgrade was in fact undertaken. He gave evidence that while a 40% concessional resident ratio had to be obtained in order to get the significant refurbishment supplement, there was no requirement to remain at that ratio afterwards. This was different to the ACFI uplift that was paid when the facility had 40% or more concessional residents. Mr Shao was not sure whether that uplift ceased on days where the ratio fell below 40%.[126]
2. On 12 February 2014, Mr Shao also sent Mr Markoff an email dealing with the bond position:[127]

Please see attached Bond position for each facility up to Jan 2014.

As you can see bond has been very quiet recently, we only had 2 bonded residents move in since Dec 13 till now (from Tanby Hall), but Tanby Hall got more bonded residents move out than move in, so their bond position actually go to negative (bond out more than bond in).

River Gardens today got a bonded resident move in, so start to work again since Margaret is back.

The only thing I am constantly hammering is the lack of bonds. I mention it all the time yet the Tanby situation does not seem to be of consequence to you. I am to say the least surprised.

If you look the bond position report, you will find out Anne this year bond part doing really well. She get the most bond in four facilities, and her bond position in this year are the best (positive $688k), so I guess when you talk to her, she will bring this up to you.

Her bond amount is the lowest, correct. But that is due to the past financial years. When her bond increase, her ACFI dropped a lot, this is the problem me and Carol trying to fix now, that's why I try to calculate the concessional supplement to see if we can get bit from there or not.

Just for your reference, Margaret just get another bond, but only for $250k, I said get it for now as she still has 3 empty beds to fill.

1. Of note is the fact that Mr Shao's perception was that the bond position was good, even though his email of the previous day noted that the concessional ratio at Tanby was 47% and Orange Grove 40%.
2. Mr Shao was taken to the statement of Mr Markoff which says:

The only thing I am constantly hammering is the lack of bonds, I mention it all the time.

When asked whether this was a true statement, Mr Shao said:[128]

Yes. Like I said, he always have this bond, every meeting, this is his ultimate goal; want to get everyone coming with a bond. Yes.

1. Shortly after his email to Mr Shao, Mr Markoff sent this email to Mr Greco:[129]

I was not aware your bond position was as bad as it was. You used to be good at getting bonds. What happened? I will speak to you on Tuesday next.

1. Mr Greco said that as residents passed away and had their bonds paid out, this would put the DONs in a more challenging position to try and source more residents who could afford to pay the bond.[130]
2. Mr Greco said that if there was a vacant bed and no resident able to pay a bond available, the DONs would admit someone for two, four or six weeks respite care so there would still be income coming in while they were trying to source a bonded resident. In his way, the room would be free every couple of weeks.[131]
3. Mr Greco said that at Tanby Hall if a prospective resident ever tried to negotiate the bond room price (pre 1 July 2014), he would refer them to Mr Markoff or Mr Shao to make the ultimate decision. He could not recall whether Mr Markoff and/or Mr Shao ever accepted a lower bond price.[132]
4. If there was nobody willing to pay a bond, either in full or in part, Mr Greco would have a look at the aged care client record for the applicant and their assessment by the social worker, to determine what their care needs were. He would also have a look at their assets declaration form. He would look at the information to see if Tanby Hall could provide the care needed. With concessional residents he would look at their prognosis, their longevity. In his words:[133]

... The aim of our approach was to try and maintain as many bonded residents as possible, so a lot of the residents who came in concessional were with multiple comorbidities, and their health status wasn't that good, and their prognosis is not good, either. So even though we were admitting concessional, they may only have been with us for four, to six, eight weeks before they passed. So we were providing that end of life palliative care.

Okay. And what if you had more than one vacant bed? In your experience, what would you do?‑‑‑So again, we would still utilise our ability to accept respite people and short term concessional admissions, with really high care needs towards end of life, with a short prognosis. But majority of the time, I would just rotate respite clients through the facility until I could source someone with a bond.

1. On 31 March 2014, a social worker from an external organisation sent Mr Greco an email in the following terms:[134]

Please find the attached ACCR for Mr John Benton and Mr Robert Smith. Please let me know if you have availability for them.

Thank you for the referrals.

I have one Bonded room under refurbishment presently.

The room is for bonded entry only. Has Mr Benton submitted Assets Declaration and is he able to meet bond.

All HC and concessional rooms full.

1. Mr Greco said that when he wrote 'the room is for bonded entry only', he meant that they were trying to admit as many bonded residents as possible. This is why there was an inquiry about the assets form.[135]
2. At the end of June 2014, Mr Shao applied for a 'Higher Accommodation Supplement for Significantly Refurbished Premises' for Tanby.[136] The total amount spent on the refurbishment was $645,000. He then notified Mr Greco of this by email on 30 June 2014, attaching a summary of what was submitted. Mr Greco then forwarded the documents to a person in administration at Tanby, with the comment:[137]

We have applied for accommodation supplement due to fact that over 55% of residents here are concessional.

This will improve our funding.

I am not sure where to file these documents though.

The application was approved on 27 August 2014. At that time, the concessional ratio for Tanby Hall was 50%.[138] The supplement was worth around $15,000 in additional revenue.

1. Mr Greco said that this was the application form for the supplement. Tanby Hall subsequently received the supplement. This meant that if the concessional residents were kept above 40%, Tanby Hall would receive an additional supplement from the government. He then said:[139]

Yes. And during your time, so until about August 2015, you strived to keep the concessional ratio above 40 per cent, didn't you?‑‑‑No. No. The main drive was to admit as many bonded residents as possible. And the concessional people that were living with us had been there historically. But as people passed away, our main drive was to admit people that were bonded residents or people who could pay the RAD or DAP. That was our main objective. The fact that we had the concessional people is why we applied for that, not that we were specifically aiming to have our concessionals above 40 per cent. No.

1. On 23 June 2014, Ms Gordon (DON at Orange Grove) sent Mr Shao an email about an empty bed:[140]

I have one empty bed and at least one more coming up very quickly.

Do you want me to admit now under the old system or wait until July 1?

I will say we fill the bed for now but pick the good ACFI please. We need to get either bond or High ACFI if not both ϑ

1. In cross-examination, it was put to Mr Shao that in that situation he was not prioritising a bond over a high ACFI:[141]

You are not prioritising a bond over high ACFI there, are you? You're just saying, 'Get one or the other, or if you can, both'?‑‑‑No. This is a very special occasion at that time. It's because at that time, they still have a high care and a low care bed. And we have already used up all of our low care bed licence there, only have a high care. So I tell them to take high care ACFI.

So when you're talking about a high care bed, is that a reference to the minimum concessional resident ratio that applies?‑‑‑No.

Something different?‑‑‑Mmm.

Can you just explain that to his Honour?‑‑‑Before 2014, the licence category-ed to tell you how many high care bed you have, how many low care bed you have in each facilities. You need to basically stick on those bed. If you have a high care bed, you cannot take a low care resident come in.

So that limited the number of bonds you could take in?‑‑‑Yes.

Yes. Every high care bed had to be concessional?‑‑‑Yes.

1. As to this email exchange, Mr Markoff said:[142]

Do you say that that direction to the Orange Grove facility manager was consistent with the policy you allege in these proceedings?‑‑‑Yes. But I do not know the whole circumstances again.

...

So the DON could have acted in accordance with his recommendation by filling the bed with a high ACFI that wasn't bonded?‑‑‑I do not think he was giving her a choice. He was saying, 'We need to get - we need to get a bond, and if we can't get in a bond, we get a high ACFI.'

Is that how you read that?‑‑‑That's how I read it.

1. On 23 July 2014, there was an Executive Management meeting. Under the heading 'Financial Report' the following appears:[143]

Financial Report

Discussed facilities budgets. The annual budget summary was tabled.

...

Concerns that GV has four empty beds. Nicholas will check with Jeffrey re taking high care concessional's.

...

1. Mr Markoff was cross-examined on the minutes of these two meetings and challenged on his bond policy:[144]

Do you accept that as at July 2015, facility managers were being directed to discuss and evaluate ACFI and bond where possible with Mr Shao before offering a place to a new resident?‑‑‑They weren't deciding.

Just listen to the question. Do you accept that as at July 2015, facility managers were being directed to discuss and evaluate ACFI and bond where possible with Mr Shao before offering a place to a new resident?‑‑‑At times, I'm sure.

And when at times that was done, do you accept that was for the purpose of balancing the competing requirements in the business for ACFI income and bonds?‑‑‑Yes.

And you accept that that's inconsistent with the implementation of a policy to maximise bonds?‑‑‑Not at all.

Can I also ask you this. The direction to discuss and evaluate ACFI and bond with Mr Shao where possible before offering a bed, that was not a direction that had been given previously, was it?‑‑‑No. Not that I can remember.

Which was why the facility managers were being directed to do it now?‑‑‑I do not know.

And - sorry. You do not know?‑‑‑I do not know why they were being directed to do it then.

Do you mean you do not remember?‑‑‑That's right.

And you do not suggest that discussing ACFI and bonds and evaluating them with Mr Shao as a facility manager is equivalent to Mr Shao reviewing admissions, do you?‑‑‑If this occurred, it was certainly not a common practice.

So I will just ask again. This wasn't a practice of Mr Shao reviewing admissions, was it?‑‑‑Well, this particular issue was. This particular point of time, it was.

But the decision rested with the facility managers, though, didn't it, whether to admit a resident or not? He didn't have a power of veto, did he?‑‑‑Yes, he did.

And you're saying that this conveys that?‑‑‑I - I'm not sure what that conveys.

But he wasn't subject to the KPI targets, was he? It was the facility managers who were?‑‑‑Yes. But he directed the facility managers.

As to whether they could meet their KPI targets or not?‑‑‑Yes, if they asked.

If they asked?‑‑‑Yes.

1. On 23 July 2014, Mr Shao sent Mr Markoff an email addressing concerns about ACFI levels at Orange Grove:[145]

Yes, we have a long meeting with Anne to go through the ACFI with her, to find out the reason why ACFI dropped but staff salary increased. As you know it is very hard to change Anne's mind and we finally get a progress that she realise when ACFI level dropped, staff level need to dropped. They do mentioned the low care bonded resident move in cause the ACFI being low, and they will review about 6 of the new residents now to see if can lift up ACFI. I will keep an eye on their ACFI and see If there is any progress. ACFI change will not show immediately, will take about 2-3 months, I will monitor it and report back to you.

Another thing is Grandview now has 4 empty beds and they have no one with money show interest. I wonder if we can fill 2 bed with very high ACFI concessional for now as otherwise their ACFI will dropped a lot as they lost 4 HHH care. So far only River Gardens got that 3 new residents, and others got none. We still not clear the impact for the changes to us but all managers said if they need to sell the room for $400k+, they need better bed sheets and pillows and beautiful bedspreads. We are working on it and see if we can make it more presentable.

1. In cross-examination, Mr Shao said:[146]

So you had a concern here that at this facility the ACFI funding level was dropping, and you were concerned it was too low?‑‑‑Yes, lower than the average, yes.

Sorry?‑‑‑Lower than the target, yes.

Yes. And so you were raising with Mr Markoff whether it would be acceptable to put in some high care concessionals to lift the ACFI funding?‑‑‑Not - not high care. It's - we reviewing - it's to - to make the - the financial performance better is either increase income or reduce expense. So this is where I had a meeting with - and go through. When the ACFI dropped, her staff level should have dropped to reduce expense as well.

You see in the second paragraph, first sentence, 'another thing is', and then you emphasise:

Grandview now has four empty beds, and they have no one with money showing interest. I wonder if we can fill two beds with very high ACFI concessional.

?‑‑‑Yes.

Yes. So what you were trying to do here was balance, against just always prioritising bonds, waiting for a bonded bed to come in, to actually instead fill it with an ACFI concessional, high care concessional to improve the ACFI funding level?‑‑‑Yes. I suggested it but I think Jeffrey replied to say no.

Well, you remember that, do you?‑‑‑He - he ‑ ‑ ‑

Do you remember that?‑‑‑Sort of remember. He - he still wanted bond, yes.

You remember the response to this email on 23 July 2014, do you, as you're sitting here now?‑‑‑Not clearly, but I - I remember Jeffrey never see these types - agree. He always wanted bond.

Well, I suggest you wouldn't have asked if you genuinely thought he never would agree to it?‑‑‑Because the Grandview - Ronalda says that she really think we should take high care, so I just take a chance to ask him, but nine time of 10, he was a no.

And the one time out of 10, he would say yes? Well, you've just shrugged your ‑ ‑ ‑?‑‑‑Occasionally, yes, when we really keep asking. Yes.

1. In cross-examination on the email at [209], Mr Markoff explained (my emphasis):[147]

Right. So Ann was the facility manager at Orange Grove at this point, was she?‑‑‑She was.

Yes. And Mr Shao you understood was raising with you a concern about the level of ACFI she was bringing into the facility?‑‑‑Yes.

And that was because you needed a certain minimum level of ACFI in order to make the business sustainable; is that right?‑‑‑No.

So isn't the point that you understood was being made to you in this first paragraph is that something needed to be done to improve the ACFI funding level at Orange Grove, because it had been taking in so many bonds?‑‑‑Yes.

...

So in the second paragraph, Mr Shao is telling you he has got four empty beds at Grandview, and you understood him to be, in effect, asking you if he could fill two with very high ACFI concessionals?‑‑‑Yes.

Yes. And the reason he was asking you that was because there was no policy. It was a matter of balancing ACFI occupancy and bonds from time to time in accordance with your directions?‑‑‑Yes.

1. On 24 July 2014, Mr Shao sent an email to the Grandview DON (Ms Cowcher) saying:[148]

I have just talked to Jeffrey about the empty beds you got and he agree you can take 2 high care concessional resident on but they need to be in really good ACFI, prior we take them on, we need to do an assessment to determine the care level and ensure we get good ACFI about it, maybe we need to send Jennet to visit the family or get them in to visit our facility so we can do the assessment. Please be aware from now we need to get his approval to take high care concessional as he want bond for every room.

1. On 25 August 2014, Mr Markoff sent an email to Ms Wing about an empty room:[149]

Please keep the room vacant to see if we can get a bond. If another room becomes available we will consider taking in clinical and if a third becomes available before a bond is taken we will definitely convert to clinical. Please follow this through. Anne seems willing, though not happy to change to clinical if necessary. If there is a problem with her compliance please let me know.

1. Mr Markoff said that he wanted the kept room vacant so that someone could move straight in.[150]

1. On 17 February 2015, Mr Greco (DON Tanby) sent to someone at an external organisation an email in the following terms:[151]

I have two empty bonded rooms here at Tanby if you have any prospective clients.

I am trying to arrange a morning tea at Tanby for the 12th of March would you be interested in attending?

1. Mr Greco said that the purpose of this email was to see if the addressee had any prospective clients. From time to time, he would arrange morning teas with social workers, discharge coordinators from hospitals and nurses from other hospitals to 'try and boost our presence in the region.'[152]
2. On 20 March 2015, Ms Cowcher sent Mr Markoff and Mr Shao an email seeking advice in relation to an empty bed:[153]

Hi everyone need advice please I have one empty bed I have applications from 61 concessional people and no one with bonds.

Do you wish me to wait until someone with the required $490 turns up or do I take a concessional. Also Regents Gardens has had 8 empty beds for a few months.

I will wait for your advice.

Mr Shao responded shortly afterwards by email, saying:

Just get any client interested the bed in to have a look and see how much they willing to pay, price needs to be around $400k figure, if below need to get Jeffrey's approval. In saying that, it will not stop you admit resident with less money, just Jeffrey need to aware this is happening. Thanks.

To which Ms Cowcher replied: 'Got it thanks will keep plugging away'.

1. Mr Markoff was cross-examined on this email. He explained:[154]

The reason she was inquiring was because there was no policy, was there? She just had to ask for direction, and she would be given it, in accordance with what your preference was at the time?‑‑‑The policy was to take in bonds at all costs, and if there - if there was a problem, and that couldn't be done, then she would speak to either Nicholas or myself.

So you just said take in a bond at all costs?‑‑‑Well, maybe that's a wrong use of terminology.

Well, it's what you just said, Mr Markoff. So if the policy ... was to bring bonds in at all costs, and she understood what that policy was, she wouldn't have been writing an email in these terms, would she? Because she would know she would just have to wait till the bonded resident came along?‑‑‑I retract the all costs.

Right. So what do you say the policy was?‑‑‑The policy was to take in bonds wherever possible, and if, for some reason, we had a lot of beds, or as she thought, there was a dearth of people with bonds in the area, should she take in a non-bond, or should she wait?

So ‑ ‑ ‑?‑‑‑She was just asking the question.

All of what you've just said in answer to that question was part of the policy, was it?‑‑‑Yes.

And all of the facility managers knew that?‑‑‑Yes.

Because you had put it in writing somewhere?‑‑‑I'm not sure. I can remember putting in writing to specific - to specific DONs, and it was said at meetings. I can't remember addressing that to - as a policy to everyone concerned.

1. On 22 April 2015, there was an Executive Management meeting. Under the heading 'Financial Report' the following appears:[155]

Financial Report

Nicholas will discuss any budget issues with the individual managers and will email the budget to them.

Nicholas discussed budget and asked the DONs to be cautious about equipment as there has already been a lot of purchases of capital equipment this financial year. Nicholas ... provided documentation regarding resident turn over. It was discussed whether industry changes were causing issues.

1. Ms McDougall, when taken to this document, agreed that when a vacancy arose the first thing considered was the level of care that was required and could be provided.[156]
2. On 11 May 2015, Mr Shao sent Mr Markoff an email reporting on a number of matters at the Facilities:[157]

... I have been to River Gardens and Grandview had a long chat with key staff and request them cut the pay:

River Gardens: Both 2 457 visa RN has resigned and Lindy now replaced one with local EN and one with AIN. She only employed one Junior RN to do 4A claim, one day a week. She has delete the 2x floating shift, instead just add one hour to make sure things get done, Noreen will reduce to three day per week after accreditation, Chris has already resigned and not replaced, Admin Natasha reduced to 4 day a week, Carrina is oversee the admin office when Natasha is absence. However, she do mentioned as there are lot changes so staff turn over is higher so sometimes she has to use few agency but once settle down it will show the reduction.

Grandview: Ronada has reduced one shift from upstairs, and when 2 lifestyle staff left, she replaced 2 with one with shorter hours, she said will look into Physio hours and see if can reduce a bit or not, at the moment Chris the CN was in operation and Ronalda did not replace her but just oversee that position, she did not use RN but EN to in charge Downstairs.

I will go to Tanby Hall this week and talk about the roster this week with Cosimo, will ask him to reduce one night shift (11 hours) and move laundry back to day shift, feels that not economic as overall day shift cheaper and shorter. And I will go through his roster to see if we can reduce more. Still feels his night shift is a killer but need to find out his other shift before recommend changes.

Our bed is full now and I clearly told them the maximum waiting time for us is one week, bed need to be filled within a week, everything need to go around this goal, if we cannot find bonded one, we will fill with concessional high care with your approval. But we will not wait for more than a week to fill the bed.

I also have told them all unnecessary expenses will be rejected and put on hold to make sure these three months profit looks good.

Hope you are happy with this outcomes and I will keep working on this to ensure it will happen, will check the pay hours to make sure what they said has happened.

1. In relation to the third last paragraph (Our bed is full...) this confirmed that this was something he told the DONs, and that what he was doing was prioritising occupancy over bonds. And then:[158]

Now, can I just ask you - this is an email at May 2015. Would you agree with this proposition that in relation to accommodation bonds and RADs up to this point, this point being between September 2009 and May 2015, the focus on where to target the admission of residents moved, from time to time, between targeting high ACFI, targeting high occupancy, or targeting high bonds, but mostly the focus was on attracting bonds?‑‑‑Yes.

1. Mr Markoff was also cross-examined on this email. In relation to the third last paragraph (Our bed is full...) he explained:[159]

Do you say that what's set out there by Mr Shao in that paragraph is consistent with the policy that you allege in these proceedings?‑‑‑No.

You were content, though, for him to proceed in this way at this time?‑‑‑I'm surprised if I - if I agreed to that.

Okay?‑‑‑His English isn't very good. It has improved. It doesn't make sense, 'our bed is full now', whatever that means.

Well, what do you think it means, Mr Markoff?‑‑‑I do not know.

Well, it obviously means that there are no vacancies?‑‑‑Yes. But that doesn't match with what he says later.

Well, clearly what he's saying is, 'The beds are full, but when a vacancy arises, the maximum waiting time, I've told them, is a week'?‑‑‑'I thought there was a vacant bed.'

That's the way I read it, but maybe you're right.

Well, he has just said 'our bed is full now', and that's pretty clear, isn't it, Mr Markoff?‑‑‑No, it's not clear from him. He had some language problems.

In any event, now that we've had that discussion, do you say that this paragraph is consistent with the bond policy you allege in these proceedings or not?‑‑‑It is not.

Okay. I suggest to you that this is yet another example of what actually was going on. There wasn't a policy to maximise bonds. What happened was occupancy, ACFI and bonds would be managed and emphasised differently from time to time depending upon your requirements?‑‑‑No. No.

Can I just summarise the position - and you let me know whether you agree with this or not - in the period between September 2009 and May 2015, Mr Markoff. In that period, prior to 1 July, it was important for you, wasn't it, to make sure that ACFI funding met the budgeted figures at the expense of bonds in order to make sure that the facilities operated sustainably?‑‑‑No, again.

And after 1 July 2014, you had a clear interest in increasing the RAD balance, didn't you?‑‑‑Yes.

And that was because, during this period, you still had the intention to develop the facilities further, didn't you?‑‑‑Yes.

And the idea of increasing the RAD balance was so that you could have, in effect, a big enough source of interest-free funding to undertake those developments?‑‑‑That was one of the reasons.

So it was a war chest of sorts that you were building?‑‑‑Yes.

However, that objective of building the war chest gave way from time to time to occupancy concerns and ACFI funding concerns to make sure that the business remained sustainable and profitable. Isn't that right?‑‑‑No again.

1. On 15 May 2015, Ms Cowcher sent Mr Markoff an email seeking advice in relation to an empty bed:[160]

I have someone for our empty bed who is willing to pay a bond of $450, however due to the family being on a farm they cannot get down to the city to help their dad until the 28th of May (currently in transitional care).

His ACFI is reasonable.

Nicholas said you want the beds filled immediately I can fill by Monday with a concessional but not one with a high ACFI.

Please advise.

Sign him up for respite for two weeks and then transfer him to permanent unless you have someone to go to the farm.

1. Ms Cowcher accepted that this email chain shows that at the time, Mr Markoff's focus was maintaining high occupancy.[161]
2. On 28 May 2015, Mr Shao sent the DON's an email dealing with concessional residents:[162]

Just to make it clear, with admission any concessional resident, Jeffrey need to approve it and it has to be HHH care resident. Please make sure about this. Thanks.

1. Mr Greco responded shortly afterwards saying:[163]

From recollections of discussions at the last executive meeting where we discussed leaving beds vacant in the hope of filling them with RAD residents.

Jeffrey explained that in view of the learned feedback he had received from prospective purchasers that he is better served by admitting concessional residents and increasing his cash flow.

Jeffrey then informed us to keep beds filled and to admit concessional residents rather than leaving beds vacant.

Today I am hearing from HO that we are not to admit any resident without prior discussion and approval whether they be concessional or RAD.

I have reviewed all documentation received via email and have not found any written directives from HO in relation to admission restrictions.

I would like this discussion to be formalized as an Agenda Item at the next executive meeting on June 3rd so that we can all have a clear direction on whom we are permitted to admit to our facilities.

I am only saying for concessional resident need to get Jeffrey's approval as he only want HHH concessional resident if we only have option to take concessional.

Also with RAD resident, if amount too low also need to get his approval, sometimes it is just a courtesy email or call but cover yourself, as overall our advertised bond amount is $490k, if we accept 200k, 300k resident, we then rather put that price in to attract more attention. In conclusion, when standard price not adopted, we need to get an approval otherwise there is no rule at all. I feel this is an common practice, all other facility is doing it so we did not really put in writing.

1. Mr Markoff confirmed that the second sentence in Mr Greco's email ('Jeffrey explained') was something he actually said in that meeting. He accepted that, at this point, with an eye to a sale, he thought that the better option was to not concentrate on maximising bonds, but instead bring in concessional residents to bring in revenue. At this point, he accepted that concessional residents were to be prioritised over bonds.[164]
2. Mr Shao could not recall Mr Markoff saying what is recorded as being said by him in this email, but:[165]

But it was in fact the case, wasn't it, that at this point of time - being late May 2015 - Belrose was in contemplation of the sale, admitting concessional residents and increasing cash flow in priority to attracting bonds?‑‑‑He changed that rules a few times during the sale period, yes.

1. When cross-examined on this email, Ms Cowcher agreed that Mr Markoff had told the DONs he was selling Belrose Care, and it appeared that he had done so prior to 28 May 2015. She could not recall specifically when. Ms Cowcher also agreed that in late May 2015, Mr Markoff's direction to the DONs was to maintain high occupancy.[166]
2. When cross-examined on this email, Ms McDougall confirmed that occupancy KPIs were in place for the DONs. She also confirmed that at the time she received these emails, she was aware Mr Markoff was selling Belrose Care.[167]
3. When cross-examined on this email, Mr Greco said that 'HHH' is a reference to an ACFI rating in which the applicant has a high rating across all three domains. As such, they would be eligible for more government funding than, for example, an applicant who was an LLL rating.[168] Mr Greco agreed with the suggestion by counsel for the Mercy Parties that in these emails it appeared that he was getting mixed messages from Mr Shao, and that it was unclear what type of resident he should focus on. What was clear at this time was that he had to maintain a high level of occupancy.[169] In re‑examination, he added:[170]

And in relation to that first sentence, where it refers to you need to get Jeffrey's approval as he only want HHH concessional resident, do you know why that was, why Jeffrey only wanted an HH concessional resident?‑‑‑Okay. So again, our main ambition was to admit bonded or people who could pay the RAD DAP. But if the only option for us was to admit a concessional person, Jeffrey would have preferred them to have been the higher category of care for the higher funding.

1. On 15 July 2015, there was an Executive Management meeting. The minutes relevantly record under the heading 'Financial Report':[171]

Nicholas discussed budget and asked the DoN's to be cautious about equipment as there has already been a lot of purchases of capital equipment this financial year.

...

15/7/15 Nicholas discussed that we had been concentrating on getting bonds but now the acfi is low for some residents. Carol said that where possible acfi and bond should be evaluated and discussed with Nicholas prior to offering a bed. DoN's to use the ACFI calculator in iCare to estimate the acfi level.

And so the idea here was that, you were to become involved in evaluating admission applications, to get the right balance between maintaining a good ACFI level, and maintaining a good bond level?‑‑‑Yes.

And this was a new direction to have you involved for discussion and evaluation for every resident, wasn't it? For every admission?‑‑‑We always thought for doing that.

I beg your pardon?‑‑‑We're always doing this discussion, when some residents move in.

But not in relation to every admission?‑‑‑No, but this past ‑ ‑ ‑

So this was new?‑‑‑Yes.

1. On 9 December 2015, Mr Shao sent Ms Cowcher and the ACFI coordinator at Grandview (Janet), copied to Ms Wing:[173]

Please see below changes of ACFI number, it has been dropped $100k just within three months' time.

I know it is not anyone's fault but with this care level, we might have to adjust the staff level again. Remember when we adjust the staff level it is based on what we get in July, and now we got $100k less than July, we might have to go through it again and this is last thing I want to do.

1. Ms Wing responded the next day saying:[174]

13 deaths! All HHH , empty beds !!! following this we have still 3 empty beds. The beds that have been filled consisted of 3 concessional one of whom died and 9 with bonds since August. Most of these bonded residents are low ACFI, as we were told to bring in the bonds. These residents could have managed in the community well or with different type of accommodation like your Singaporean couple!!!!

Perhaps we are being greedy in our expectation of the ACFI return, with residents who require limited care.

Forward strategic planning would have been the answer for a balance between both like other organisations have completed.

Reducing staff is not the answer it is a panic thought, even with these low ACFI the amount of work they are is in different way and not claimable, because they are able and expect a hotel like service from us.

I am not sure of your totals we have been looking at the sub-totals. There are 4 ACFI to go in this month, we have 3 empty beds, 1 has a $480 bond offered but she drives so her ACFI will be low.

While I am on the ACFI, we must make sure we get a physiotherapy for next month , because if they get audited and a physio assessment has been completed by a RN, the auditors refuse to accept this, so can we please move on this or it will mean more expense with an agency physio.

Janet does a good job, it is a difficult position balancing new/reviews/mandatory ACFIs, telling her staff may be cut causes undue stress which we do not need.

Well said Carol, I think Janet is owed an apology. Staffing is not her problem, it is mine.

Maybe I have made wrong impression about it. What I means is I do not want to do it, not going to do it.

The ACFI has been very low have several reasons, empty beds and priority bonds. What we can do is try our best keep pushing ACFI as high as we can at meanwhile when staff calling sick, please if we not replacing them unless really needed. The ACFI drop has affected the financials significantly, I need to figure out how to saving cost, such as Medical cost (when care needs lower, for sure medical cost should drop?) food cost (when less resident, for sure should be less people need food?).

But overall I know Janet always doing good job and it is not her fault to have ACFI in this situation, but the email is just to ask if we can make extra effort to get ACFI better. Thank you all for tolerant with me all the time, Merry Christmas.

1. In cross-examination on this email exchange, Ms Cowcher agreed that at December 2015 there was a focus, along with bonds, in trying to ensure ACFI funding increased.[177]
2. On 14 December 2015, Mr Markoff sent Ms Cowcher what I would describe as a terse email:[178]

UNDER NO CIRCUMSTANCES ARE YOU TO TAKE LOW CARE CONCESSIONALS TAKE TWO HIGH, HIGH CARE CONCESSIONALS

Hi Jeffrey, please do not shout at me.

I understand at the moment all applications seem to be low care. We have one woman coming in on Wednesday her bond is $480.

I will continue to try and source those with bonds it seems to be very difficult at this time of year. I will only take high care concessional only, just concerned we will have 5 empty beds over Christmas.

I understand the problems of taking people in at this time of year but under no circumstances do we take in low care concessionals.

Take in Respite and or the highest care concessionals or stay vacant until you can.

1. On 20 January 2016, Ms Cowcher sent Mr Markoff an email responding to an email from him (which is not in evidence) about bond levels at Grandview:[179]

Jeffrey unfortunately I have not yet received your e-mail on PC as it runs hours behind I did however get this message on my phone last evening.

Although I did not see the content of Carols report to you I am sure she would have mentioned:

* 16 people that have left since early December.

* many show arounds who are concessional with potential low ACFI scores (therefore not offered a bed).

* placement consultants again with concessional with potential low ACFI scores.

* we have one person with a bond coming in on Friday a second person with a bond letting us know later this week.

* as the vacancies are on the first floor many are turned off by the many residents in tub chairs and ask if they can be accommodated down stairs, some accept yes when on is available others say call us when you have one.

* I have contacted the hospital looking for respite we have on lady who is now very unhappy as she was swimming in the ocean in December and now she is living with people whom she cannot communicate with.

The above are the problems.

What are we doing : in constant touch with care waiting, calling the hospital last person they sent died in the ambulance on the way.

Ringing the aged care consultants.

If the brief is to continue taking in only bonds or high ACFI. Then I cannot see a quick end to this situation.

Please know I am not happy with this either as 14 of the sixteen people were HHH and now they are gone.

How do you wish me to proceed.

Thanks for that explanation. You are usually so good with bonds so I was surprised at this. Do your usual best to get them filled. If you have to take concessionals they need be very high.

1. Ms Cowcher said that said that this email chain shows the focus of Belrose Care at the time was taking only bonds or high ACFI.[180]
2. On 22 January 2016, Mr Markoff sent Mr Shao a succinct email dealing with bonds:[181]

From now on only BONDED residents are to be considered.

1. Mr Shao accepted that this was a change of position from what had pertained previously.[182]
2. In cross-examination, Mr Markoff accepted that this email was a change in position:[183]

So you were changing your position, weren't you, from the prior, which was, 'Let's take concessionals over bonds in order to improve cashflow'?‑‑‑Yes.

And was this direction an implementation of the policy or something different?‑‑‑It was because of potential sale to MercyCare.

So just answer my question. Was this an implementation of the policy you allege in these proceedings or something different?‑‑‑As it was my direction, it was a policy.

When you issue a direction, it's a policy; is that your evidence?‑‑‑Yes.

Okay. So each time you issue a direction, that's a separate policy?‑‑‑Yes.

1. On 22 February 2016, there was an Executive Management Meeting attended by, among others, Mr Markoff, Mr Shao and all DONs. In the minutes there is an addition dated 22 March 2016 which reads:[184]

22nd March 2016

Jeffrey discussed that bonds are no longer imperative. A concessional resident can be replaced with a concessional and a bonded resident with another bond.

When taken to this statement, Mr Markoff accepted that this was something that he said at the time, that it was a new policy direction to facility managers and that it was different to the policy of maximising bonds.[185]

1. Mr Shao also accepted that this was an example of Mr Markoff changing focus and emphasis yet again.[186]
2. Ms McDougall did not agree that this was direction to not focus on bonds, rather:[187]

... Yes, but the concessional replacing concessional, so if it's a concessional resident, then - that passes, then it's replaced with a concessional. If it's a bonded that has passed, it's replaced with a bond.

1. Ms Cowcher accepted that this was a direction not to focus on bonds.[188]
2. On 3 March 2016, Mr Markoff sent Mr Shao another succinct email dealing with bonds:[189]

Getting in the bond money is the most important job I have ever given you.

That was a direction that you gave in the context of preparing for the sale process; is that right?‑‑‑Yes.

And getting the bonds in, you thought, improved your position as vendor in the sale process?‑‑‑No.

1. On 24 March 2016, an administrator officer at River Gardens sent to Mr Shao, copied to Mr McDougall, an email about two potential new residents:[191]

It looks as though Robert (Paddy) Whitely is the top of our wait list at the moment.

I have attached his ACAT.

I called Sheresa, the social worker to ask about the equipment we would need to cater for his obesity. She tells me he is 116kg and requires a bariatric bed and commode. She also mentioned to me that he has a manual tilt wheelchair, I presume it is his own but will confirm.

Sheresa is liaising with Paddy's public trustee administrator who seems to think that financially a bond of some kind would be possible.

Sheresa will confirm when next speaks to them and let me know what she finds out.

Phil Pannell is being discharged from hospital today, and is continuing palliative care here. We do not have any bariatric beds or commodes at river gardens, so if we do take Robert when a bed becomes available we will need to have that equipment arranged.

No we do not take Robert.

If you do not have any resident paying bond, you can get a concessional high care in but we will not take any new resident which require new equipment. Thanks.

1. The emails reveal a potential bonded resident was not admitted, due to a need for new equipment if admitted. Ms McDougall agreed that in this circumstance managing expenditure was prioritised over attracting a bonded resident.[192]
2. Mr Shao agreed:[193]

So you were refusing this chap irrespective of his capacity to pay a bond; yes?‑‑‑Yes.

And the reason was because if the business was about to be sold, there was no value to the vendor in spending money on new equipment?‑‑‑Because, just particularly, buy a bariatric bed for these residents - not because the sale - is not viable. It's because you get a bed for the resident. What - if he departed from the facility, what are you going to use for the bed?

So the point being that the emphasis here was on managing expenditure?‑‑‑Yes.

And you prioritise that above getting a bond in on this occasion?‑‑‑I think at that time, Jeffrey changed his mind. He wanted to get a few concessional in, so that's why I said you can get a concessional high care over this resident who needed special equipment.

Well, your direction is fairly clear, with respect, Mr Shao. You say:

If you do not have any resident paying bond, you can get a concessional high care in, but we will not take any new resident which require new equipment.

?‑‑‑Yes.

So you were prioritising the management of expenditure over attracting bonds; yes?‑‑‑For this one, yes.

1. On 1 April 2016, Mr Markoff sent Mr Shao yet another succinct email dealing with bonds:[194]

Please let the Dons know that we are to go back to being aggressive about getting bonds and to do all that is necessary to get them.

1. In cross-examination, it was pointed out to Mr Markoff that this was the same date the exclusivity agreement was signed. He accepted that this was a change of position again, a new policy under the circumstances. He asserted that this was part of what I have termed the Pleaded Bond Policy. He accepted that the reason why he instructed the DONs in this email to go back to being aggressive about getting bonds was because he thought it would assist him in the sale process.[195]
2. Mr Shao was cross-examined on this email:[196]

Did you understand that he was changing position yet again?‑‑‑Yes.

Yes. What did you understand him to mean by be 'aggressive'?‑‑‑Just try to get - to take whatever to get a bonded resident in.

Did you understand it to preclude looking after ACFI targets and occupancy targets?‑‑‑Yes. They prepared to sacrifice that to get bonded residents come in.

Did it change how long a bed was left vacant for?‑‑‑Yes.

In what way?‑‑‑They were willing to wait for a couple of weeks for the bed to be weakened to get a more bonded resident come in.

Did you understand that the profitability of the operation - the facilities for that month could be compromised or reduced in order to achieve higher bonds?‑‑‑Yes.

1. Ms Cowcher agreed that the approach in the minutes of the meeting on 22 February 2016 ([246]) was a different approach to that set out in the email of 1 April 2016. However, she added that she could not ever remember a time when working for Mr Markoff that bonds were not a priority.[197]
2. On 27 May 2016, Ms McDougall sent Mr Shao an email about which new residents should be targeted:[198]

I have a high-care concessional moving in on Monday. I have had a resident pass away last night. I have a waitlist of DVA and $$. Are we still only admitting high care concessionals? If so this bed could be empty for a while. Nicki contacted the social workers again yesterday.

Yes we will do not want bonded resident. Take high care concessional please.

1. Ms McDougall agreed this reflected a change in approach from that in the email of 1 April 2016 ([255]):[199]
2. On 10 June 2016, an administration officer at River Gardens sent to Mr Shao, copied to Mr McDougall an email about someone seeking respite care:[200]

We have just been asked for Respite from this family, could you please look at the ACAT attached and let me know asap if she is suitable. The family initially want two weeks respite care, but they are talking about permanent care so it could end up that they ask for permanent care at the end of her respite.

Could you please let me know asap what you think as I told the family I would get back to them asap with availability.

First I think the ACAT assessment already expired? It is over 6 months old, we have experienced this before that with expired ACACT assessment we did not get paid at all. So if you can please check.

Second is if they have done asset assessment or not? We only take concessional at the moment.

Third is this lady seems still capable to look after herself? So if we would accept her we might need her to attend onsite for interview. At meanwhile, if she is after two weeks respite now and new ACACT says she is High care, we can take her for 2 weeks then see f we accept her or not.

1. Ms McDougall agreed that this email correspondence reaffirmed the instruction to take concessional residents.[201] (see above Exhibit 431).
2. On 15 June 2016, there is an email chain between Ms McDougall and Mr Shao about which new residents to accept. It begins with an email from Ms McDougall.[202]

I've received an ACCR today from a man who doesn't own home, but has $100K of assets. I have spoken to Jayne and we think that this make him a concessional resident, but wanted to double check with you.

The next thing is I have done an approx.. ACFI score (which is very hard as ACCR's not always accurate and/or things change since the ACCR was done). I have a score of LMM. He is low in ADL's because his ACCR says he is continent?? He is on oxygen. I do not have an oxygen concentrator here.

Please advise what you would like me to do.

Can we get him do a means test and then decide? By the look we wont get high ACFI but will spend fair bit money on him? If you need oxygen connector, please rent one from Air-Liquide for now. Thanks.

Ok, if we have 2 empty beds there, we will then take this one for now. Hope later on we can change it to high care.

Oh. With one empty bed we can wait. I think this resident is not the best choice. Can we just wait?

As long as my KPI is not reflected as is not me stopping the occupancy.

I understand. I think all facility have same issue. Jeffrey only want to accept high care concessional and there is not many around. We have to wait and hope the best.

1. Ms McDougall gave evidence that at the time she sent this email she was concerned about her occupancy KPI. She agreed that she was reassured by Mr Shao to not worry about that and keep a bed open because the prospective admission was not a concessional with high care.[203]
2. In relation to his last message in this email chain, Mr Shao explained:[204]

This is something that Mr Markoff had told you, at this point in time?‑‑‑Yes.

And that's why you were implementing it by telling the facility manager?‑‑‑Yes.

And, again, this is a situation in which high-care concessionals are being prioritised above bonded residents?‑‑‑Yes.

So in this period from mid-2015, when the sale process commenced, but no contract had yet been signed with a purchaser, the focus on attracting bonds or attracting concessional high-care - that changed a lot from time to time, didn't it?‑‑‑Yes.

And always at the direction of Mr Markoff?‑‑‑That's right.

1. Mr Markoff accepted that by May 2016 and through June 2016 the parties had started negotiating the words of a deferred payment clause. In this context, he was taken to the statement attributed to him in Mr Shao's last message. He accepted that he had changed his position again at this point away from pursing bonds and that his reason for doing so was because he thought it would assist him in the sale process.[205]

6.3 Evidence that is not material to the issues in dispute

1. There was evidence led at the trial about that Belrose Care had KPI reports which the DONs had to complete monthly.[206] These were prepared based on a template developed around 2010 to 2012 by Mr Szewach.[207] The versions of these KPI reports in evidence appear to be incomplete, have errors and contain information that does not make sense.[208] Aside from the fact that these KPI reports contain information about the value of bonds collected and KPIs targets for the number and percentage of residents who paid a bond, I can make no further finding from this evidence.[209] Mr Markoff said that he was not familiar with the spreadsheets and received only summary information.[210]
2. There was evidence led at trial about the practice of Belrose Care in the period prior to 1 July 2014 of taking interest free loans from people who were high care and unable (lawfully) to pay a bond. Mr Markoff accepted that Belrose Care did do this on occasion. This practice was ceased following communications from Medicare.[211] This could only potentially be relevant to an assertion that Mr Markoff was prepared to act unlawfully to maximise the amount of bonds. However, there is insufficient information for me to make such a strong finding, so I will treat this evidence as being of no relevance to the issues in dispute.[212]

1. There is, in my assessment, a recuring theme in Mr Markoff's evidence of over-emphasising the evidence in support of what I have termed the Pleaded Bond Policy and downplaying the evidence which did not tend to support it.
2. For example, Mr Markoff gave evidence as to his practices in relation to concessionals:[213]

Whilst ACK ran Belrose, the four facilities, did it ever accept concessional residents?---On occasions.

In what circumstances?---If there was a person in desperate need, there was no - I didn't want to take in concessional but if there was a person in desperate need, then we would take in a concessional. I can remember - I can remember a situation in Tanby Hall where if they took in one more concessional or two more concessionals, we would get a bonus for 40 per cent concessionals. If we had many beds vacant, as sometimes happened, then, we would take in a high, high care concessional who would not be with us for so long. So their bed would become available when bonds arrived. I am just trying to think when else we would take in high care. This is before 2014, I am talking.

However, this evidence ignores the fact that on the figures of Belrose Care in the Information Memorandum, concessional residents were around 21% of all residents.[214]

1. In another example, Mr Markoff was taken to the financial reports of Belrose Care for November 2011 to January 2012.[215] He accepted that this showed that at least in the period prior to 1 July 2014, Belrose Care was setting a budget that drove the extent to which bonds and ACFI funding were pursued. There was a budget for ACFI funding and an expectation that it would be met. Then:[216]

And so you had to keep an eye on how much ACFI funding you were getting in, in order to achieve budget?‑‑‑Yes.

And that necessarily meant that you had to make sure that not too many bonds were coming in to compromise the budget figure for ACFI funding?‑‑‑No.

You disagree with that?‑‑‑Strongly.

His response seeks to downplay the evidence which does not tend to support the Pleaded Bond Policy.

1. Another example is when Mr Markoff was cross-examined on whether Belrose Care had an ACFI policy. He was taken the minutes of a strategy day on 3 April 2010 at which he attended.[217] There was a reference to a session aimed at rolling out the new ACFI policy for residents: 'This session was conducted by Lyn and was aimed at rolling out the new ACFI policy for the DONs'. Mr Markoff did not accept that Belrose Care had an ACFI policy.[218] Mr Markoff was then taken to the minutes of what is described as an ACFI meeting of 7 October 2014. The minutes record:[219]

Forward planning for ACFI staff.

Policy and ACFI portfolio given out to read by staff present.

Do you accept, now that I have shown you that, that there was a written ACFI policy for Belrose Care?---No.

In my view, this again shows a pre-occupation with advancing his case about the Pleaded Bond Policy: if there was a written ACFI policy, why wasn't there a written bond policy given its importance?

1. Another theme that emerges from the evidence was that Mr Markoff was changing the practices of Belrose Care in relation to bonds over the course of the sale process. This is evident from the communications which I have set out at [243], [246], [255], [259]. This was also evident in the period in between Execution and Completion (see section 10.2).
2. In cross-examination, Mr Markoff was challenged that the change from taking concessionals to improve cashflow to taking only bonded residents was because he thought at that time increasing the bond balance was the way to increase the purchase price. He disagreed:[221]

... Now, this change from taking concessional residents to improve cashflow to now only taking bonded residents, it was because you thought at this point in time that increasing the bond balance was the way to increase the sale price; is that right?‑‑‑No.

...

You were going to require, weren't you, any offeror for the business to treat the RAD balance as, in effect, funds that you would retain?‑‑‑What do you mean I would retain?

Well, let's take the $80 million offer that Mercy made?‑‑‑Yes.

You would receive cash. I think it was about 27 million. I can't remember the exact number. And the rest was you retaining the benefit of the RAD balance?‑‑‑Yes.

So you received those moneys in your hands?‑‑‑They took on the obligation, if that's what you mean.

Yes. But you received the RAD balance for your own purposes?‑‑‑I do not remember how the cheques went around, but there were several cheques that went around because the bonds were seen as - as a liability by MercyCare. So there were several cheques that went around. I do not know how it was perceived by our lawyers.

But you received the benefit of the RAD balance, didn't you?‑‑‑I do not know.

So do you say you received $27 million or thereabouts or $80 million in the transaction?‑‑‑80.

Thank you. And the bigger the RAD balance, the bigger that gross number; you would agree?‑‑‑No.

This is an example of Mr Markoff disagreeing with a proposition that, in my view, was self-evidently correct.

1. Along similar lines is the communication which flowed from a 21 June 2016 email from Ms Holt to Mr Markoff about the bond position in particular dealings with refunds where there was a probate dispute:[222]

Normally we would receive the refund paperwork from the family between 3 weeks and 3 months. I require a copy of the death certificate and a copy of the will. If the will is not supplied then I need probate of the will. This is the requirements according to the Aged Care Act.

Sometimes there is family arguments of the bond refund money and no paperwork has been submitted to have the bond refunded. Below are our pending refunds:

The others are current.

Payment of bond by residents. The government has allowed 6 months to finalise the selling of the house etc. The resident normally pays on the settlement of the house when sold, but they have the choice to pay the whole amount or part of the amount and a daily payment to cover the interest on the outstanding balance or pay nothing up front and pay the daily interest on the whole amount.

We have residents doing all of the above. Mainly they pay the bond when they can.

1. Mr Markoff forwarded this email to Mr Tocknell and Ms O'Connor adding:[223]

We hold $50,015,182 in Bonds currently. As you can see from attached there is $866,825 trapped in probate family disputes. This is most unusual but it is very relevant to us as we want the bond figure down so that it is easier to go up to $12 million after two years. When the final Bond figure is agreed upon this $866,825 needs to be notionally deducted from the final figure even if it is not done so at settlement.

1. It was put to Mr Markoff in cross-examination that this was inconsistent with the Pleaded Bond Policy, which he accepted:[224]

And what you were trying to do at this point was reduce bonds and increase concessional residence so that the bond figure was as low as you could get it to increase your chances of a deferred payment?‑‑‑Yes.

And that endeavour was not consistent with the policy you allege in these proceedings of maximising bonds?‑‑‑That's correct.

...

And this was the position that you were referring to in your email to Mr Tocknell and Ms O'Connor, that the bonds that are set out in this bond register, you were trying to reduce the total balance so that you had a better chance of getting an uplift in the two years after completion?‑‑‑Yes.

To increase your chances of getting a deferred payment?‑‑‑Yes. Well, I'm sure the dates were the same, yes.

The Pleaded Bond Policy took second place to endeavouring to maximise the ultimate sale price.

1. Another inconsistency is seen in a letter from King & Collins, Mr Markoff's lawyers, to HWL Ebsworth dated 21 December 2018. It reads in part:[225]

1. In the years immediately prior to the sale of the Businesses to Mercy, ACK had operated and improved the Business so that it would, and did in fact, attract a high percentage of bonded, as opposed to concessional, residents (Bonded Residents Policy).
2. Mr Markoff accepted that he gave those instructions. As to the relative differences:[226]

So that is different again, Mr Markoff. What that is talking about is operating and improving the business so that it would indeed, in fact, attract a high percentage of bonded as opposed to concessional ‑ ‑ ‑?‑‑‑I am sorry. I am not seeing a lot of difference between these paragraphs.

Okay. It doesn't talk about proactively pursuing bonds, does it, just attracting people to offer bonds through operating and improving the business?---This was a given, what you are - - -

Sorry. What was a given?---That we would be attracting as many bonds as we could at the highest level.

So this doesn't reflect the policy?---Well, yes. It does, to - to attract bonds. I do not know how it can otherwise be read.

All right. Now, it says, in the years immediately prior to the sale. Was that in the seven years, or at least the seven years prior to the sale, or some other period of time?---Well, no. It must be in several years - the - a minimum of years.

All right. So just so that I can be clear, because I'm not sure you answered the question, do you accept that you instructed King & Collins as to the contents of the policy in these terms?---Yes. I do.

1. Mr Shao was cross-examined on his understanding of the minimum concessional resident ratio:[227]

Mr Shao, you were aware, weren't you, that there was a minimum concessional resident ratio at each facility, wasn't there?‑‑‑There is a rule, but it never, ever get anyone from Departments - you know ‑ ‑ ‑

That's not quite what I asked you. I asked you this question: you were aware that there was a minimum concessional resident ratio that applied to each facility, weren't you?‑‑‑Yes.

Yes. And was that both before and after 1 July 2014?‑‑‑Yes.

And did you understand it was a condition of the allocation of the bed licences?‑‑‑No, that's not the condition. That's the compliance requirement.

... So you didn't understand that it was a condition of the bed licence?‑‑‑No.

...

You have also referred to the concept of high care beds ‑ ‑ ‑?‑‑‑Yes.

‑ ‑ ‑ which is tied to the bed licence, I understand on your evidence, as far as you're concerned?‑‑‑That's before 2014, July.

And then it changed?‑‑‑Yes.

So as far as you are aware, post-1 July 2014, it was just the concessional resident ratio that you say nobody bothered complying with?‑‑‑That's right.

But you were bothered to comply with it, weren't you?‑‑‑We just have that concessional in Tanby Hall, and we are meeting that requirement.

I'm sorry. I haven't quite caught what you said?‑‑‑Because we have that concessionals in Tanby Hall, which the facility community relatively low income, so we have more concessional there.

I'm talking about the minimum concessional resident ratio ‑ ‑ ‑?‑‑‑Yes.

‑ ‑ ‑ that you understood to be a rule ‑ ‑ ‑?‑‑‑Yes.

‑ ‑ ‑ that nobody complied with. That rule you complied with, though, didn't you? You endeavoured to comply with it?‑‑‑Yes. We complied.

1. Mr Shao was cross-examined as to the minimum concessional resident ratio at River Gardens (Kelmscott). He said:[228]

And you were aware, weren't you, in 2014 - that's both before and after the reforms, that Kelmscott - that's River Gardens facility - from at least 2010, was not meeting the minimum concessional ratio?‑‑‑Like I explained it, we averaged in south - all the facilities in the south of the river.

But you knew that Kelmscott was not meeting by itself the minimum concessional ratio?‑‑‑We operated as a group. So the - every time we average them, we put in all the facilities.

I'm not asking you to justify what happened?‑‑‑Yes.

I'm just asking you what happened and what you knew about what happened. So you knew ‑ ‑ ‑?‑‑‑River Garden, no.

Pardon?‑‑‑River Gardens, they do not have over 22 per cent concessional.

1. Mr Shao was also cross-examined as to communications with Mr Markoff about the minimum concessional resident ratios:[229]

And did Mr Markoff ever tell you that Belrose did not have to comply with those ratios?‑‑‑Sorry. What's the question?

Did Mr Markoff ever tell you that Belrose Care did not have to comply with those ratios?‑‑‑He do mention he said that rule never been checked, but we still feels that in order to reduce any trouble, if we can comply, we will comply by taking high care concessional.

All right. So can I understand your evidence then that Mr Markoff said it's never checked, but he wanted you to comply with it?‑‑‑He didn't say want me to comply for that.

All right. He didn't tell you not to comply with it?‑‑‑Yes. He didn't mention anything. He just says it has never been checked, so means if it's not compliant, that's okay.

He said that to you?‑‑‑My understanding to that is that.

So did he say to you, 'If you do not comply, it's okay'?‑‑‑He didn't say that, but from what he's saying, I feels he mean to that. But we still complied by taking high care concessional residents coming in.

1. Mr Shao understood that pre‑1 July 2014, there were no partial bonds. Bonds were only available for low care residents. Low care residents attracted lower ACFI funding. However, a resident who came in as a low care resident could deteriorate and become high care over time. If that occurred, higher ACFI funding would be received. But they would still remain on a bond until they died or left the facility.[230]
2. Mr Shao was cross-examined on Mr Markoff's preferences as regards admissions:[231]

You gave some evidence yesterday which I understood to be to the effect that if beds were vacant for a period of time, and no bond was available, then Mr Markoff's preference, you understood, was to admit someone who would only have the bed for a short time?‑‑‑Yes, respite care.

Yes, yes. But that wasn't always the case, was it?‑‑‑Yes.

Well, in this case, it wasn't, was it?‑‑‑This one - because I think it - they still have high care bed weekend, and he cannot take bond for - for high care, so that's why ‑ ‑ ‑

No?‑‑‑ ‑ ‑ ‑ he took concessional.

Yes. So you have to take someone who is high care, and there's no point in focusing particularly on respite or someone who will only be there a short time because you will have to replace them with another high care concessional?‑‑‑Yes. If there's a weekend low care bed, we would fill with respite.

And am I right in guessing that there are administrative costs attached every time a person enters or leaves the facility?‑‑‑Yes. The clean, need to get the- the - the ready.

And the paperwork?‑‑‑Yes.

1. As to his understanding of Mr Markoff's approach generally, Mr Shao said:[232]

And so what was the approach to vacant beds?‑‑‑Jeffrey's preference, always bond first, and then before July 2014 will be bonded, and then high-care concessional. And then, for the bed vacant for a long time Jeffrey sometimes to - instruct us to taking a respite residents come in for a couple of weeks, while waiting for the bonded residents, but he always wants to get a bonded resident. That's why I write this email to Ronalda, and tell her that, 'Get anyone who have a bit of money, but not 400, but they still can pay some bond, and we can negotiate if it's lower.'

1. Mr Shao went on to say that occasionally he would negotiate higher bonds than the advertised price. This could be done up to a threshold. And:[233]

Did you ever negotiate higher bonds than the advertised price, do you recall?‑‑‑I think there's a threshold you can charge how much, I think 550 - when I'm there, that's the maximum. If you charge more they need to be, like providing special services. I see. Could you apply for approval? Once upon a time, I think Jeffrey do look into that, but is it - like, you need to upgrade the facility - of the room to be a certain size, and you need to provide like a choice of meal, something like that. So he has done a lot of design, but I think it then later on, because he decided to retire, so he didn't proceed with the idea. But hey, we do look into that before.

I see?‑‑‑So we want to charge more bond.

1. In cross‑examination, Mr Shao accepted that maintaining a high level of occupancy was a key driver of profitability. He also accepted that maintaining a high level of ACFI funding was a driver of profitability.[234]
2. As to the role of bonds:[235]

You understood, of course, that the bonds that received had to be repaid when a resident died or left the facility?‑‑‑It's different. Before 2014, every month, the retention was deducted from the bond (indistinct) after that, then the retention was cancelled. So yes, the full amount of the bond or refundable accommodation deposit will be fully refunded.

I think the retention amounts pre-1 July 2014 were a relatively small proportion of the bond, the total bond amount, weren't they?‑‑‑Yes, because the bond amount also quite small, and then the bond increased dramatically after this 2014. Yes.

Just stay with the bond position pre-July 2014?‑‑‑Mmm.

The retention payments were a relatively small component of those bonds, weren't they?‑‑‑Three or four hundred dollars a month, yes.

And you understood that in order to maintain security of repayment, there were restrictions on how Belrose Care could use those bond moneys?‑‑‑Yes.

...

The value of them to the financial operation of Belrose Care was as a source of interest-free capital investment?‑‑‑Yes.

And they did not of themselves significantly contribute to profitability?‑‑‑Yes and no. Sometimes the return from the investment of the bond are quite significant as well.

Sorry. I just didn't quite catch that last part?‑‑‑Sometimes the - the investment Jeffrey did by using the bond are quite significant to the company's profitabilities as well.

But not sufficient to pay the expenses of operating the facility?‑‑‑Purely bond, no.

No?‑‑‑You have to [have] ACFI as well.

You have to have ACFI. And in fact, it's not just you have to have a bit of ACFI. ACFI is what pays the bills, isn't it?‑‑‑No. The residents also pay a daily - like, a daily bed fees, which is $56 a day. And then on top is ACFI, and another income is the interest income from the bond and the investment return from the bond. So it's combined.

...

Would you agree with me that the ACFI funding in the Belrose Care operation was the main component that funded the expenses of operating the facilities?‑‑‑If talking about the big part of the payment from the department, yes.

1. Mr Shao accepted that this meant that the overall levels of ACFI funding had to be considered:[236]

... In any event, because bonded residents at the point of admission had to be low care, it was important, wasn't it, to keep an eye on how that affected the levels of ACFI funding that you were receiving overall?‑‑‑Yes. That's where Carol - Carol Wing's job.

But my point is this, Mr Shao: because the bonded residents were all admitted on a low-care basis, you had to keep an eye both on the level of bonds and the level of ACFI overall, for all residents, to make sure that the profitability of the operation could be maintained?‑‑‑Yes.

1. In relation to whether there was a 'policy' in relation to bonded residents, Mr Greco said:[237]

Now, you gave some evidence earlier that there was a drive to attract as many bonded residents as possible, during your time at Belrose Care. Now, that was never a written Belrose Care policy in relation to that drive at all, was there? There was nothing ever reduced to writing?‑‑‑There was no - we didn't have a policy to that effect, no, but it was something that we discussed, and openly discussed and supported as a team at Belrose, to try and attract as many bonded residents as possible to our organisation. But again, with safety and best practise in mind; we would always look at mitigating risk, and even though somebody may have had a full bond, if they were aggressive and posed a risk to the organisation or to other residents, no, we wouldn't admit them.

Yes, I see. So even if a bonded resident came along, if they weren't clinically suitable, they wouldn't get a place at Tanby Hall; is that right?‑‑‑That's correct. If we couldn't provide the safe care for them and others, that's correct.

1. Mr Greco gave evidence that the 'main driver' of getting in as many bonds as possible did not change in his two periods at Belrose Care. The reason for this approach, from his understanding, was to maintain the financial viability of the business. Belrose Care was a stand-alone business of about 220 beds. It was very difficult for a standalone business of this size to maintain its financial viability and keep the business and all the facilities running. He said that as part of this approach, if he had two applicants for one vacant bed, one was concessional and one was bonded, he would always go for the bonded resident.[238]
2. Mr Greco gave evidence that he would speak to prospective non‑concessional residents or their families about options for paying for accommodation. As regards the post‑1 July 2014 regime:[239]

And if they couldn't or didn't have the money to pay for the whole bond, they could do a RAD DAP set up where they could pay as much as they could towards the bond and pay the remainder as an accommodation fee. But that was up to the families, depending on the advice from their financial advisers.

And if people could pay for their accommodation, in your experience, would they generally pay a bond or a DAP?‑‑‑Normally, they would pay the RAD, the bond.

And why was that?‑‑‑It is better off for the person. It saves them a lot of money in interest in paying fortnightly fees. And at the end of the term, once they have passed away, the bond is then released in its entirety back to the family or to the estate.

1. Mr Greco gave evidence about Tanby Hall's ratio of concessional residents to bonded. He could not recall the exact figures, but said that he was able to increase the bonded resident intake.[240]
2. Mr Greco gave evidence that while he was at Tanby Hall refurbishments were done. This included new electric style hospital beds, new flooring and carpeting, televisions in each room, new furnishings and new paintings. They wanted to make the facility look more appealing and more contemporary. This was done to try and attract more people to the facility who would be prepared to pay a bond.[241]

1. Ms Cowcher was taken to Exhibit 217 (Belrose policies and procedures, resident admission, resident care) and Exhibit 2156 (Belrose policies and procedures, behaviour management, resident care). Ms Cowcher could not recall whether there was a similar document relating to prioritising certain residents.[242]
2. She agreed in cross-examination that the documents shown to her indicated no consistency in terms of a desired resident profile, with some caveats:[243]

And now, so given all those documents I have taken you to, Ms Cowcher, do you agree with me that there was no discernible regularity to the directions you received in terms of time frames?---In terms of time frames, no. But throughout the whole time I worked with Nicholas and Geoffrey, I always tried to get bonded residents, always.

But there was no consistency, or from at least what I have taken you ‑ ‑ ‑ ?---Yes.

But during your time at Belrose Care there was no consistency in terms of a desired resident profile. Do you agree with that?---Well it looks that way, doesn't it? From all the documents you have showed me. But I know that I always was to get bonded residents.

I see. And would you - would it be fair to describe the approach by Mr Markoff and Mr Shao as being ad hoc?---No. I - I think sometimes Nicholas would misinterpret things, and - but - and you can see with the way he writes his emails. Beautiful the way he writes them, little bits of missing in that. And yes, I do not think it was ad hoc.

All right. But in amongst all of this you still always came back to your guiding factor, didn't you?---Yes.

Which was whether the facility could provide the care?---Yes. Always. Always.

1. Ms McDougall was taken to Exhibit 217 (Belrose policies and procedures, resident admission, resident care) and Exhibit 2156 (Belrose policies and procedures, behaviour management, resident care). Ms McDougall could not recall whether there was a similar document relating to prioritising certain residents.[244]
2. Ms McDougall was asked about all of the exhibits shown to her relating to bond policies of Belrose Care, and said:[245]

So in considering all those documents that I've just taken you to, Ms McDougall, do you agree that there was no discernible regularity as to these email directions you would receive?---There is irregularity. Yes.

Sorry. Say that - - -?---Yes, there is irregularity.

Irregularity?---But - - -

Yes?---We took each case - well, I took each case to Nicholas by a case-by-case anyway, so - - -

Okay. And in terms of the content of those directions that you would receive, there was no consistency to what those directions were?‑‑‑Sorry. Can you repeat that?

Yes. So in terms of the directions that you received, whether it be at meetings or by these emails that I've taken you to, do you agree that there is no consistency in terms of the desired resident profiles?---That's how it shows. Yes.

So yes. And so it would be fair to describe the approach by Mr Shao and Mr Markoff to the financial profile of residents as being ad hoc, , is that a fair assessment?---Yes. It was case-by-case, ad hoc, yes.

6.9 Determination - Did Belrose Care have the Pleaded Bond Policy?

1. Each of Mr Greco, Ms McDougall and Ms Cowcher came across as genuinely doing their best to recall events of more than 10 years ago. Their evidence‑in‑chief came across as being very definitive: bonds were the absolute priority at the expense of everything else. However, in cross-examination, they each accepted that there were other considerations when considering whether the admit a new resident, in particular the clinical decision of whether the potential resident was appropriate for the facility at that time. I accept the totality of their evidence (in chief, cross-examination and re-examination) as being honest, accurate and reliable. Their perceptions were genuinely held.
2. I come to the same conclusion in respect of Mr Shao, and find his evidence in section 6.5 to be honest, accurate and reliable, and that his perceptions were genuinely held.
3. For the reasons I set out in section 6.4, I have some concerns about the reliability of Mr Markoff's evidence. At times he over-emphasised the evidence in support of what I have termed the Pleaded Bond Policy and downplayed the evidence which did not tend to support it. I place much more weight on what he said at the time as documented in the extensive communication which I have summarised in this Part, than his observations looking back on that communication.
4. Even with the caveat in the preceding paragraph, it is clear that from the beginning of the documents that are in evidence, Mr Markoff placed a high priority on maximising the value of the bonds held by Belrose Care. This high priority was matched by strong language from time to time - 'The only thing I am constantly hammering is the lack of bonds'; [192]; 'go back to being aggressive about getting bonds' [255]. Up until the sale process, the high priority was consistent.
5. In hindsight, the reason for this high priority is obvious: every extra $350,000 bond which Belrose Care received would ultimately be an extra $350,000 which Mr Markoff would receive as part of the sale process. I do not accept his evidence to the contrary ([274]).
6. This conclusion becomes even firmer once the sale process commenced. The priority given to maximising the value of the bonds held by Belrose Care give way to a higher priority of maximising the sale price of Belrose Care. This is evident in the changes in direction set out at [243], [246], [255] and [259]. Then once the SPA is executed, the priority became maximising the prospect that a Deferred Payment would be made ([276]).
7. In looking at what was the 'policy' of Belrose Care in relation to bonds, the starting point is that there is no documented policy relating to bonds. There were other formal written policies ([295] and [297]), but none for bonds.
8. I observe here that at least after 1 July 2014 it would have been difficult for Belrose Care to have drafted a formal written policy on bonds. This is because the Pleaded Bond Policy sits uncomfortably with the freedom of choice guarantee by ACA s 52F-4 (see section 5.5). Presumably any policy would have reflected Mr Markoff's actual practice, which was:[246]

If there were two applicants for the one vacant room, both of which were acceptable from a clinical perspective, is your evidence that you would always choose the person who would offer a bond?---Yes.

But that would not be something you would necessarily know before the person moved in?---Yes. It is.

Well, it was not something that you could require anybody to make a choice about before you admitted them?---We would get an indication from them.

Did you seek an indication from them?---Yes.

All right. And you would seek that indication, and then, preference a bond over a DAP. Is that right?---Yes.

And do you describe that as maximising bonds?---Yes.

This approach again does not sit comfortably with the freedom of choice guaranteed by ACA s 52F-4. Nor would Mr Markoff's direction to DONs: 'go back to being aggressive about getting bonds and to do all that is necessary to get them' [255]. Nor would an approach reflecting what is in the Plaintiffs' Closing Submissions which I set out in section 5.5.

1. On the one hand, to reflect the Pleaded Bond Policy, the written policy would be telling staff to pursue and prioritise the intake of bonded residents over concessional residents to increase bonds to the extent possible. On the other hand, the written policy would have to tell staff that they must not require a potential resident to choose how to pay an accommodation payment or accommodation contribution before the person enters the service. In other words, the potential resident could not be made to choose whether or not they would going to pay a bond before entering the service. It is not clear to me how these two requirements could ever be reconciled. I add that what is conspicuously absent from the documentary trail from Belrose Care in the period after 1 July 2014 is any mention whatsoever of the right of a prospective non-concessional resident to choose between a RAD and a DAP.
2. In the absence of a formal written policy, if the Pleaded Bond Policy existed, it could only be inferred from the practices of its staff. This is the approach suggested in the Plaintiffs' Closing Submissions, that it is in the form of a 'direction or approach taken by the organisation which everyone in the organisation understood'.[247]
3. It mainly fell to Mr Shao to give effect to Mr Markoff's high priority on maximising the value of the bonds held by Belrose Care.
4. One contextual point is that the decision as to whether a potential resident's clinical needs could be accommodated or whether they were suitable for the facility rested with the facility managers ([44]). These requirements took precedent over whether the resident was intending to pay a bond.
5. Another contextual point is that the profitability of each facility had to be maintained. This meant that there was need to maximise both ACFI payments and occupancy. This is again apparent in communications which I have set out in this Part - see for example [209], [221], [234] and [236]. It is also apparent from the Information Memorandum, which I summarise in section 7.3, that this is in fact what Belrose Care did.[248]
6. I do not accept that the variations in practice in relation to the type of resident which staff were being asked to focus on constituted 'rare exceptions' to the Pleaded Bond Policy. There are just too many variations.
7. In the end, I find in terms of Mr Shao's evidence in response to a proposition put to him by counsel for the Mercy Parties set out at [222], which for ease of reference I will repeat:[249]

Now, can I just ask you - this is an email at May 2015. Would you agree with this proposition that in relation to accommodation bonds and RADs up to this point, this point being between September 2009 and May 2015, the focus on where to target the admission of residents moved, from time to time, between targeting high ACFI, targeting high occupancy, or targeting high bonds, but mostly the focus was on attracting bonds?‑‑‑Yes.

Of all the witnesses, Mr Shao was in the best position to know what the actual practice of Belrose Care was as he was the person responsible for both giving effect to Mr Markoff's high priority of maximising the value of the bonds held by Belrose Care and running a profitable aged care business, each involving extensive communication with the DONs. This position was also consistent with Mr Markoff's evidence at times (for example [211]).

1. I find that between September 2009 and May 2015, in relation to accommodation bonds and RADs, the focus on where to target the admission of residents moved, from time to time, between targeting high ACFI, targeting high occupancy, or targeting high bonds, but mostly the focus was on attracting bonds (Belrose Actual Practice). This, in my view, is an accurate assessment of the large volume of evidence which I have summarised in this Part. It is also consistent with the practice which Belrose Care adopted in the period between Execution and Completion which I set out in section 10.2.
2. The Mercy Parties make the point that a 'company policy, in respect of what was said to be a fundamental aspect of the operation of a sizeable business, should have been capable of clear and firm articulation from the outset of these proceedings'. They point out the various different ways in which the alleged policy has been expressed during the course of the dispute.[250] I agree with this submission. It is hard to escape the conclusion that the Pleaded Bond Policy has been constructed for the purpose of the litigation. It is telling that in none of the contemporaneous documents in evidence is the Pleaded Bond Policy set out in the terms in which it is pleaded.
3. It does not matter whether the Belrose Actual Practice is described as a practice or a policy. Either way, the ACK Parties have not proven that Belrose Care had the Pleaded Bond Policy (Issue 6). I reiterate that I have difficulty in seeing how the Pleaded Bond Policy could be consistent with the freedom of choice prospective residents are entitled to by ACA s 52F-4.

1. There are three Issues which arise from the process through which Belrose Care was sold.
2. The first is that the ACK Parties assert that MercyCare knew about its policy in relation to bonds and the effect of that policy before entering into the SPA and Land Contract (Issue 7). I deal with this Issue in section 7.11.
3. The second is that the ACK Parties alleged in the first response by MercyCare to ACK, it made what the ACK Parties refer to as the Business as Usual Representation (Issue 10). This is said to form part of the context which made later statements misleading. In this Part I set out the context on which the Business as Usual Representation was said to have been made, before returning to consider the allegation in detail in Part 18.
4. The third is that the circumstances in which the Deferred Payment Clause was negotiated is said to be relevant to the Issue of whether there was any misleading conduct in the negotiation process (Issue 8). I deal with this Issue in detail in Part 8, but the evidence in this part provides to context for that later evidence.
5. The contemporary materials, objectively established facts and the apparent logic of events provide the most persuasive evidence as to what occurred in relation to the decision by Mr Markoff to sell Belrose Care and the process which he put in place to do so. The oral evidence about the sale process comes primarily from Mr Markoff. His evidence about the sale process is in two parts. The first is his evidence of what he in fact did. His evidence in this regard is set out in this Part and I accept it as being honest, accurate and reliable. The second is his evidence of what he would have done had MercyCare not made the representations which the ACK Parties say it made. This goes to the issue of reliance which I deal with in Part 21.
6. Mr Campbell provided the bulk of the evidence from the perspective of MercyCare. I accept his evidence, and that of the other MercyCare employees mentioned, as being honest, accurate and reliable.
   1. With the caveat of Mr Markoff's evidence of what he would have done, the facts set out in this Part were not in dispute. With this caveat, I find the facts in this Part proven.

1. Mr Markoff first decided to explore the sale of Belrose Care in 2013 or 2014. He upgraded all the facilities so that each could be 'presented in its best light'.[251] Around May 2015 Mr Markoff decided that he was not going to develop the facilities, but instead was going to try and sell them. He then started to put in place some steps to bring about the process of sale. Then, or shortly after, he let his management team know of this decision.[252] Mr Shao was aware of this from around mid‑2015. Mr Shao also said that for some time, Mr Markoff had been telling 'everyone' that it was his plan to retire at 70.[253]
2. As mentioned, Mr Markoff engaged Liverpool Partners as his commercial advisors for the sale. He described Mr Tocknell as the 'person he employed to handle the sale of the business'.[254] He engaged Ms O'Connor as his lawyer.

1. As I have already mentioned, in November 2015 an Information Memorandum was prepared on behalf of the ACK Parties for the purpose of the sale of the Belrose Care. It was prepared by Liverpool Partners, and identified by Mr Tocknell as being the contract, along with Mr Lim who is identified as a director of Liverpool Partners.
2. The Information Memorandum is expressed to contain confidential information for use solely by selected parties interested in acquiring Belrose Care.
3. Mr Markoff verified the contents of the Information Memorandum before it was published. In cross‑examination, he identified three inaccuracies in it. The first was that is said that a bed costs $200,000 to build, whereas his evidence was that it would only cost him $100,000 per bed. The second was that the River Gardens expansion was said to be 160 beds, but it was going to be less than that. The third was it said that the occupancy was 99.2%, but it was in fact less than that.[255]
4. The sale process involved Liverpool Partners sending the Information Memorandum to entities that had identified that they might be interested in purchasing Belrose Care. Those entities could then respond by submitting, if they wished, a non-binding indicative offer. These would be made without access to any information beyond that contained in the Information Memorandum. The submission of a non‑binding indicative offer would then qualify the potential purchaser for access to the data room. The data room was virtual, that is, online.[256] This was for the purpose of conducting due diligence.[257]
5. This process is reflected in the indicative sale timetable set out in the Information Memorandum, which is an instructive summary of the proposed sale process:[258]

Information Memorandum made available to interested parties

• Transaction structure and consideration;
• Approvals and processes;
• Funding;
• Advisers;
• Principal terms and conditions;
• Ability to meet the indicative timetable; and
• Other relevant information.

The short-listed parties will be notified that they are confirmed short-listed parties.

Notification by Wednesday

2 December 2015

The short-listed parties will be invited to visit each of the sites and meet with management.

Monday

7 December to Friday 11 December 2015

The short-listed parties will be given access to a virtual data room and management presentations / site visits. This access will be provided as part of a due diligence process and all care will be taken to ensure that it does not interrupt the business operations.

Due diligence is to be completed within 4 weeks.

Monday

1 February to Friday

26 February 2016

The Vendor will draft transaction documents and make these available to short-listed parties.

The short-listed parties will be required to provide their final binding offer, including a mark-up of the draft Sale and Purchase Agreement

1. The introduction contains a table setting out the 'Acquisition opportunity overview' which is also instructive to quote:[259]

• Belrose is a multi-facility private provider of residential aged care in Western Australia. Belrose owns and operates a portfolio of modern, high quality aged care facilities, located in metropolitan areas.
• Belrose is a very efficient operator with strong key metrics:

Average facility size (number of places) (post-brownfield) 139

• Belrose is an efficient operator, providing investors with a solid base on which to bolt on additional facilities.
• Belrose currently has 254 places with brownfield development opportunities for a further c300 beds (additional licences are required), providing an excellent opportunity for investors to acquire a beachhead asset in WA with an immediate development pipeline to generate strong returns (300 brownfield beds across the facilities plus 30-60 ILUs at Orange Grove). See Section 3.2 for further information on the brownfield opportunities.

• The Vendor intends to sell 100% of the business and properties via an asset sale.
• The operating business is held within a discretionary trust (operating business) and SMSF (the freehold properties). See Section 6.1 for further information on the corporate structure.

• Belrose is privately owned by Jeffrey Markoff ('Vendor'). Jeffrey has positioned the business well to benefit from substantial developmental growth. Aged 68, Jeffrey is now seeking to realise value given the next phase of investment required.
• A stronger balance sheet is required to provide financial flexibility to execute the significant brownfield growth opportunities.
• For these reasons, the Vendor's preferred course is as follows:
  • - Fully divest of the business; and
  • - Given the Vendor's background as a builder, the Vendor is open to assisting the acquirer in developing the brownfield growth opportunities.

Footnote 1 noted that the figure for the 'Average new RAD/ Bond price' was for the 12 months through to 30 June 2015. Footnote 2 was that the 'Average RAD/Bond liability' was as at 31 August 2015 and represented the value of bonds net of retentions and/or agreed upon drawdowns.

1. In relation to the regulatory changes as at 1 July 2014 it was noted that:[260]

The changes create more choice for residents, the opportunity for providers to access greater capital funding via RADs, and greater scope to charge residents for additional optional services.

1. When dealing with 'Key strengths and investment highlights', the Information Memorandum notes the growing demand for aged care places. In this context, the attractiveness of bonds is noted:[261]

Access to interest free capital - RADs are an interest free source of capital, which can be used to fund investment in facilities and repay debt.

In the same section, but dealing with the strong financial track record of Belrose Care it is noted:[262]

Belrose has delivered strong cash flows while investing in its business. Belrose has modest maintenance capex requirements (having refurbished the facilities in FY2014) and benefits from RAD cash flows.

1. In an 'Industry Overview' the increasing wealth of older Australians is noted:[263]
   • The average wealth of older Australians has steadily increased in Australia in the last 10 years as wealth more wealth is accumulated in superannuation (driven by mandatory contributions and tax concessions). This has been accompanied by real growth in residential house prices, with Australian residential property prices increasing by 4.6% CAGR between 2003 and 201326.
   • Increased wealth amongst older Australians may lead to greater capacity for residents to pay for residential aged care services, including RADs.
2. The Information Memorandum sets out the percentage of residents at each facility with full or partial RADs, along with the average RAD liability (as at 31 August 2015):[264]

In terms of the balance, as at the same date, 7% were 'unbonded non‑concessional residents', 21% were 'concessional residents' and 1% of places were unoccupied.[265]

1. There then follows a table under the heading 'High quality portfolio with significant upside':[266]

• 254 places located in a cluster of 4 facilities within Perth Metropolitan areas perpetuates higher demand for aged care services.

• Modern accommodation that meets resident expectations, underpinning occupancy and accommodation payments.

Potential to increase RAD pool through increased RAD prices and fully bonded residents

• Bond upside provides an interest-free source of capital to fund growth.
• Average bond liability of $229.9k vs average median house price of c$437k vs Belrose's minimum advertised RAD price of $350k.
• 32.3% of Belrose's places are fully bonded, with a further 39.0% partially bonded.

Strong development potential (c300 beds + 30-60 independent living units

• Brownfield development opportunities offer excellent returns by increasing scale of facilities and maximising the potential already owned.
• All 4 facilities have significant brownfield development opportunities, which could take the average facility size to 139, with additional opportunity for ILUs at Orange Grove.

1. In relation to 'Operational efficiency' the Information Memorandum identifies three dimensions. The first is occupancy, with the statement that Belrose Care 'has consistently maintained high average occupancy across its portfolio of facilities'. A five‑year historical graph is provided, followed by the comment:[267]

Belrose seeks to maximise occupancy at each of its facilities through local area marketing and setting of advertised RAD prices to manage demand from potential residents for all places. Where required, Belrose may also accept residents who do not pay a RAD (e.g. residents who do not satisfy the relevant means test) in order to maximise occupancy.

1. The second dimension is ACFI, with the comments:[268]

Belrose charges a daily care payment, determined by the aged care financing instrument (ACFI). It fluctuates with resident's circumstances, based on their healthcare requirements, their behaviour, including their state of dementia, and their daily living requirements (such as bathing / toilet assistance).

Belrose regularly reviews residents' care needs to maximise the amount of Government funding received for services provided. Improved documentation and compliance standards have resulted in an increase in the basic subsidy received per bed day by Belrose.

There is then a graph showing the average ACFI per day increasing from $154 in the FY2012 to $162 in the FY2015.

1. The third dimension is RADs with the statements:[269]

Belrose's minimum advertised RAD price at 31 August 2015 of $350,000 vs average RAD liabilities of c$229,92534 and average median house prices of c$437,177, provides a substantial potential source of interest-free capital funding for regulated permitted purposes over time (including aged care facility acquisitions, brownfield developments and greenfield developments).

Belrose will also seek to ensure the prices of RADs appropriately reflect the relative standard of Belrose's accommodation offering in each local area market and level of demand. Importantly, the brownfield growth opportunities discussed above provide opportunity to tier the quality of facility / rooms in order to charge premium RAD prices.

As at 31 August 2015, Belrose had received full accommodation bonds or RADs for c32% of places and partial bonds for 39% of places. Following 1 July 2014, Belrose has the ability to increase the number of residents that are charged a RAD.

1. The Information Memorandum contains detailed financial information for Belrose Care. For present purposes, a relevant item is revenue, being:[270]

Revenue increased 2.0% year on year, largely a result of increased ACFI assessment rates, offset by the abolishment of the dementia supplement on 31 July 2014. Furthermore, resident contributions have increased post the regulatory changes from 1 July 2014, with a larger number of beds having DAPs applied to them.

Pro Forma Historical

Cash Flows

Net cash flows before interest, tax and financing activities

Net cash flows before interest, tax and financing activities

1. To this is added the notes:[272]
   • Net cash flows increased significantly, with a pick-up in RAD inflows post the June 2014 regulatory changes.
   • In addition, maintenance capital expenditure was lower with Belrose having refurbished the facilities in FY2014.
2. In the section headed 'Material assumptions underlying the Forecast Financial Information' there is a mention of RADs in the following terms.[273]
   • Prices for accommodation are set at an individual facility level, taking into consideration the attributes of the facility and the publicly advertised prices. The average RAD liability is forecast to be $272,991 as at 30 June 2016 (vs average RAD liabilities of C$229,925 as at 31 August 2015 and average median house prices of C$437,177).
   • The proportion of residents paying RADs and DAPs is also set at an individual facility level. Approximately 70% of new residents are assumed to make an accommodation payment, with approximately 70% of these residents assumed to pay for their accommodation with a RAD, and therefore approximately 30% choosing to pay for their accommodation with a DAP.
   • RADs on the brownfield developments are assumed to be received during FY2018 when the new beds become operational, and assume that 70% of the beds receive bonds averaging $495k each.
3. One of the major selling points identified in the Information Memorandum was the potential to expand each facility. The expansion were referred to as 'Brownfield development beds'. Mr Markoff explained that a 'Brownfield' development is a development on an existing site in contrast to a 'Greenfield' development which is undertaken on a new site.[274]
4. For Grandview, the Brownfield development identified was an additional 55 beds, taking the total number of beds to 160. The additional beds were to be developed by adding an additional floor to the existing building. There were detailed plans for the redevelopment in the annexures to the Information Memorandum. As to the status of this development, the Information Memorandum says that planned redevelopment with architectural drawings has been completed, but that planning approval is required.
5. For Orange Grove, the Brownfield development identified was an additional 50 beds, taking the total number of beds to 100. There were detailed plans for the redevelopment in the annexures to the Information Memorandum. As to the status of this development, the Information Memorandum again says that planned redevelopment with architectural drawings has been completed, but that planning approval is required.
6. For River Gardens, the Brownfield development identified was an additional 119 beds, taking the total number of beds to 166. There were detailed plans for the redevelopment in the annexures to the Information Memorandum. As to the status of this development, the Information Memorandum again says that planned redevelopment with architectural drawings has been completed, but that planning approval is required.
7. For Tanby Hall, the Brownfield development identified was an additional 76 beds, taking the total number of beds to 130. The adjoining land is the house next door which Belrose Care owns. A site plan is included. There were detailed plans for the redevelopment in the annexures to the Information Memorandum. As to the status of the redevelopment, the Information Memorandum says that the adjoining land has been acquired, but that planning approval is required.
8. In total, the Brownfields developments identified took the total number of beds from 254 to 554.

1. In an email dated 25 November 2015 reporting on his progress, Mr Tocknell provided Mr Markoff with advice to the effect that his price expectation was too high:[275]

Common feedback across all interested parties is that our broad price expectation is super high versus other acquisition development opportunities, which we do not disagree with. Clearly not the message we are conveying to them, though.

1. Mr Markoff's price expectation at this time was $100 million, but he understood what Mr Tocknell was saying.[276]
2. It is apparent that the issue of whether to proceed with the sale or undertake the Brownfields developments was a live issue in the early stages of the sale process. In an email from Mr Tocknell to Mr Markoff of 30 November 2015, the former writes:[277]

Further to my email on Friday containing all non-binding indicative offers (NBIOs) received, we would like to arrange a call today to discuss your options. Some initial thoughts include:

- Option 1: Continue sale process with a few shortlisted parties, maintain competitive momentum throughout due diligence and potentially creeping up the price as a result;

- Option 2: Develop brownfield beds and look to sell again in ~5 years.

Let's discuss the pros and cons of the options today if you are free. To aid our discussion I have attached a PDF containing:

- A summary of the NBIOs + valuation guidance received from non-bidding parties; and

- A valuation analysis of developing brownfield beds and selling in 5 years' time.

When would be a good time to give you a call?

1. Mr Markoff described the potential buyers as coming in two tranches. The first tranche was 'TLC, Homestyle, TriCare and Opal'.[278]
2. There were two further potential buyers in the second tranche. The first was the Roshana Group of Companies (Roshana), whose principal director was Roshana Jalagge. Mr Jalagge was speaking to Mr Markoff about the sale just before Christmas 2015.[279] Mr Markoff described Mr Jalagge 'as another person who was in or wanted to get into the aged care industry'.[280]
3. Roshanna provided a non-binding indicative offer by letter dated 23 December 2015. The offer was for $51 million for the Facilities and $48 million in relation to the bonds, totalling $99 million, on a walk in‑walk out basis. The offer was on the basis that Belrose Care would transfer all residents' bonds into the account of Roshana on settlement.[281]
4. The second was MercyCare. Mr Markoff first knew about the interest of MercyCare from an email from Mr Tocknell on 16 December 2015.[282]

1. The underlying catalyst for MercyCare to consider the purchase of a residential aged care business was its sale of the Mount Lawley Hospital around 2014. This caused what Mr Campbell described as a 'significant scale problem'. MercyCare then set about looking to acquire a 'scalable business' that it knew something about, being either childcare or residential aged care.[283] For some 20 to 30 years, MercyCare had been operating a single residential aged care facility in Wembley which had around 113 beds. However, the financial performance of that facility was average. The rationale for the purchase of Belrose Care was to 'to pick up a commercial business to grow the scale of this business, but equally, to put some money back into MercyCare to support the overall viability or sustainability of MercyCare.'[284]
2. Following an internal review of the Information Memorandum and a meeting with Mr Tocknell, a memorandum written by Mr Ross dated 18 December 2016 identified 'an opportunity to purchase a well‑established operation that has real growth potential'. It was noted that:[285]

Asset sale, with the Vendor looking for $50m for the core business, and to also obtain cash of $50 from the business, being the RAD money - with the acquirer taking on the liability.

1. Mr Campbell prepared a draft document titled 'Executive Leadership Team Decision Paper', dated 18 January 2016. This sought the approval of the leadership team to submit a Non‑Binding Initial Offer (NBIO) of $51 million for the purchase of Belrose Care.[287] This document set out that the vendor would walk away with the RAD deposits, leaving MercyCare with the RAD liability. The RAD deposits were identified as $42m in June 2015 and $45m in December 2015. In the section entitled 'Risk Identification and Management' the cashflow issues in MercyCare assuming the RAD liability were identified:

RAD debt - as explained earlier, the transaction involves the current owner taking the existing RAD debt, with MercyCare assuming the liability. The RAD liability as at 30th June 2015 was $42.1m, and in discussion with Liverpool Partners it sat at $45m in December 2015. If there was to be an event that resulted in multiple payouts of the RAD liability to a number of residents, such as a fire or an outbreak of a disease, then this would result in a sizable cash outlay. In addition, with new government regulations, there may be a shift away from paying RADs and more of a move to DAPs.

There is also the risk that although recent transactions have been conducted on a cash and debt free basis, the industry may see this as overpaying and future transactions may revert or change to conditions that are not so much in the vendors favour. MercyCare would then be seen to have paid very much at the top of the market.

1. Mr Campbell said that this draft was never finalised and was not taken any further.[288] It is nonetheless instructive as to the issues being considered internally by MercyCare at the time.
2. MercyCare's first non-binding offer was contained in a letter to Liverpool Partners dated 19 January 2016 (First NBIO). It was signed by Mr Hall, following internal committee approvals.[289] This offer was for $51 million cash, together with taking on the RAD liability.[290] More specifically:[291]

Transaction Structure and Consideration

In determining a value for the Belrose Assets, we have considered a range of valuation approaches including: multiple of earnings, discounted cash flow and net asset backing methodologies. Primary drivers of our valuation are that FY2015 normalised EBITDA is A$5.4m, FY2016 EBITDA is likely to be A$5.7m, future RAD related inflows (excluding the impact of redevelopment) are in line with historic averages and that net assets at 30 June 2015 are no less than -A$35.1m (including RADs of A$42.1m) at completion.

Based on this analysis we have derived a price for 100% the Belrose Assets of A$51m.

This price is on the basis of a debt free, cash free transaction, with the RAD liabilities being assumed by MercyCare.

The acquisition may be undertaken by a newly incorporated subsidiary of MercyCare and, if this was the case, MercyCare would guarantee that entity's obligations under the SPA.

1. At as 30 June 2015, the RADs were $42 million, resulting in a total consideration of $93 million.[292]
2. Relevantly for the present proceedings, the First NBIO contained the following statement:[293]

Vision for Belrose Assets

MercyCare does not intend to make any significant changes to the manner of operation of the Business in the event MercyCare is the purchaser of the Business. In particular, MercyCare envisages keeping most, if not all, the current staff and management. Further, it is MercyCare's intention that the Business would continue to be operated from current premises.

The representation in this paragraph is referred to in EFASOC paragraph 12 as the Business as Usual Representation. As mentioned, I deal with this representation in Part 18.

1. In the First NBIO, Mr Hall went on to elaborate on what was meant by the statement in [364]:[294]

As noted above, MercyCare does not intend to make any significant changes to the manner of operation of the Business in the event MercyCare (or its subsidiary) is the purchaser of the Business. The only anticipated change from the current structure would be to integrate operations with the existing residential aged care facility under the Aged Care Services Directorate, led by Carlo Calogero (Executive Director).

1. The assumptions on which the NBIO was made are also of relevance, in particular the statement as to RADs:[295]

Assumptions

Primary assumptions in formulating this NBIO are as follows:

• Information contained in the Information Memorandum (IM) is materially accurate, including the quantum of the RADs and the operating metrics;
• The aged care facilities forming part of the Business continue to enjoy current levels of occupancy;
• Employee levels remain at current levels and employee levels and qualifications are appropriate for the scale and nature of the Business;
• Material Business contracts (including the residential care agreements) which will be assigned or novated pursuant to the SPA containing usual commercial terms;
• The Business complies with all laws and regulations (including accreditation, building approvals, associated licences, and current standards);
• There is no material change to the legislative regime governing the operation of the Business;
• The normalisations in the IM are reasonable;
• Future RADs receipts are in line with historical trends;
• The only liabilities that will be transferred with the Business are the RAD liability and the agreed employee liability;
• Appropriate capital expenditure has been spent on the facilities in recent years; and
• The development described in the IM is based on reasonable assumptions.

1. MercyCare then undertook a due diligence process. It engaged KPMG to undertake financial due diligence. KPMG produced a document entitled 'MercyCare Limited Project Kaigo - Draft Financial due diligence report' dated 19 February 2016.[296] It then produced a document entitled 'MercyCare Limited Project Kaigo - Financial due diligence report' dated 1 March 2016 (KPMG Report).[297]
2. The KPMG Report considered the issue of the mix of residents at the four Belrose Care facilities as at 31 December 2015, reporting:[298]

1. Management have identified brownfield development opportunities for a further 300 beds spread throughout the existing four facilities. The opportunity falls outside our scope and period under consideration and is not covered in this report.
2. The analysis presented in the IM of full vs partial accommodation bonds/RADs as at 31 August 2015 contained an error. The spreadsheet provided in the VDR supporting the IM analysis had classified bonds/RAD payments that exceeded the full bond/RAD amount (eg where payments included interest) as partial and not full, bonds/RADs.

Source: IM, 09 01 KPI Reports and 05.01.08 Bond balance summary Dec 15.

1. Another relevant point from the KPMG Report is the discussion of the RAD liability, in particular the 'potential risk of the RAD liability unwinding with a resulting net cash outflow'. Under the heading 'Transaction structure and treatment of RADs', the following observations are made:[299]

- We understand that the vendor has stipulated that the transaction be structured on a cash free debt free basis, with the RAD liabilities being assumed by the Buyer. Based on the 31 December 2015 balance sheet MercyCare would assume a RAD liability of $46.3 million.

- MercyCare acknowledge that there is a potential risk of a cash outflow in the scenario of an extreme event (e.g. facility fire or disease) but are treating the liability as a permanent liability that is satisfied by incoming residents paying RADs at an amount greater than the liability of a departing resident (i.e. inflows from new deposits are expected to exceed outflows from refunded deposits, such as on a resident's death).

- Following the aged care Government reforms that took effect from 1 July 2014, which resulted in all residents, and not only those requiring low care or extra services, having the option to pay a full or partial RAD, net inflows from new deposits have increased. Belrose generated $8.7 million of net cash inflows from RADs during FY15 with a further $4.2 million generated during FY16YTD. This is largely a consequence of the average RAD liability at 31 December 2015 being c.$245,000 whilst current advertised (per Belrose website) RAD prices range from $350,000 to $550,000 (depending on the type/quality of accommodation across its facility portfolio).

- The RAD uplift potential on the basis of all residents that have been at the facilities for longer than three years as a 31 December 2015 (65 residents) being replaced by full paying RAD residents at the average full RAD for the last six months (c.$387,000) is c.$11.0 million.

Followed by three recommendations: [300]

- MercyCare will need to ensure that post transaction it closely monitors the mix/profile of residents that contribute RADs (48% of residents have paid a full accommodation bond/RAD with a further 24% partially bonded, as at 31 December 2015) to reduce the potential risk of the RAD liability unwinding with a resulting net cash outflow.

- Funding for the RAD liability to outgoing residents would also be required were replacement incoming residents to elect to pay a full DAP.

- Consider insurance or other funding strategies to cover the period between the payout of existing RADs and the inflow of RADs from new clients in the case of extreme events.

1. In cross-examination, Mr Campbell was taken to a graph in the KMPG Report showing a steady increase in the amount of bonds/RAD balances from July 2012 to October 2015.[301] The graph was:[302]

Yes. And if we go to PDF page 35, you would have noticed the graph in the top left-hand quadrant showing increased RADs pretty consistently from July '12 to October '15. Would have seen that at the time?‑‑‑Possibly, but yes.

And you would infer from that a concerted effort by the business to increase RADs over that time wouldn't you?‑‑‑I didn't infer anything of it.

You can recall not inferring anything?‑‑‑No.

1. From MercyCare's perspective, three main issues of concern were identified at this stage. The first was RAD liability. As Mr Campbell explained:[304]

So refundable accommodation deposits are a loan from the resident that they hand over $200,000. And when they leave, you give them back $200,000. So it's effectively a loan. ... So that liability, you have always got money to pay. In this deal, the structure of this deal right from the get-go was if we bought this, we would take on that liability. At that stage, I think it's $43 million. We would take on that liability, and there would be no cash for it. So if a resident subsequently left, you would have to pay out that cash. [But] ... usually when they leave, you've already got that money. So - so taking - effectively taking on a liability that will fall due somewhere in the next three to five years, that was always a - a significant matter of interest for us in terms of, does that cause us significant financial problems in the future.

1. The second was that MercyCare staff were being paid more than Belrose Care staff.
2. The third was that that the Belrose Care buildings required a reasonable amount of investment. Again, in Mr Campbell's words:[305]

we ultimately formed a view that - that we were going to need $2 million within the first 12 to 18 months of the acquisition for refurbishments, for equipment, for other bits and pieces, and we thought, most likely, $10 million within three years. So - so another $12 million is a - is a - is a fairly sizeable - is a fairly sizeable investment.

1. Mr Campbell and his team prepared a briefing document for the board of MercyCare (in the form of powerpoint slides) dated 3 March 2016.[306] In relation to RAD's the following appears:[307]

Refundable Accommodation Deposit (RAD)

- Either lump sum (RAD) or Daily Accommodation

• New resident then pays RAD used to refund exiting resident

1. Mr Campbell explained the final dot point:[308]

... the RAD concept ... had a feature where, if people didn't have $200,000 ... they could pay whatever and the difference is made up by daily accommodation payment. So ... if the room price was 200,000, and you only paid $100,000, that's the loan. The rest - the payment gets - becomes a daily amount of money people pay. It costs them a bit more money, but there's no liability associated with it. We were aware of market trends on the East Coast. And indeed KPMG, of their report to us in regards to this too, also highlighted this, that, in general terms the aged care industry had moved where the DAP payments were getting up to be about a third of all payments.

Now, in Belrose, as the information appeared, DAP payments were only about - about 7 per cent of the balance. So the reason we're highlighting this for the board, again, ... if you're taking on $43 million worth of liability and the next person to come in pays a DAP, so you pay out $200,000 and the next person is paying you X many dollars a day. Now, you get to keep that money, but you've got a real timing difference between $200,000 ... and daily payments. So for us, ... the industry shift to DAPs was really concerning in the structure of this deal.

1. On the next slide, under the heading 'Risks and Issues Arising', RAD's are again identified:[309]

- Inherit RAD liability: $48m

- Major event (close/rebuild)

- Move to payments (not lump sum)

1. Mr Campbell elaborated on this point:[310]

... I was just trying to explain, so when residents go in, ... they negotiate an accommodation price with you, the total price. They get to choose how much of a deposit they make, or if they make payments. And again, so the industry was seeing a great shift - certainly on the East Coast was seeing a shift towards a third of people paying these moneys as a - as a DAP. In the - even in - even for Belrose, 48 per cent of the RADs were being paid in full. So that - you know, that was at another end of the market. So they had done really well in attracting significant RAD moneys. We thought there was a great risk - just an economic risk in this deal, that as you replace residents, more people would go to DAPs. How quickly that happened would equal how painful that could be.

1. I interpose here to note Mr Campbell's recognition that residents had a choice to pay a RAD or a DAP.
2. On 11 March 2016, Mr Arundell sent an email to Mr Ross reporting on a telephone conversation which he had with Mr Tocknell. His summary was:[311]

- He said you communicated the three issues well (capex, employees, RAD retention)

- He is clear that offer is $75m gross and $27m net

- He said that if there is any room to go up (he mentioned $80m) then it would be good to know the maximum value

- He suggested putting in a revised indicative offer by next Friday - so at least they knew where you stood. He said that it would good for them know things like: any outstanding key DD issues, status of financing, any major SPA issues. He said that is there were no DD issues and no financing conditions then this could be in your favour if he needed/wanted to re‑engage after next Friday

1. Mr Ross forwarded the email to Mr Campbell, saying:

Very interesting - not being told 'no'.

Talking $80m - so that even gives us some room to play if we think our max is $85m.

1. Mr Campbell was cross-examined on this email and other internal documents setting out the analysis of the value of the Belrose Care business.[312] The information was to the effect that the value was somewhere between $75 million and $85 million. Mr Campbell was cross-examined as to the view of MercyCare depending on how the negotiation played out. Specifically, Mr Campbell was asked 'if push came to shove, you would have been prepared to pay $85 million'. Mr Campbell denied this and stated that $85 million was the absolute top but that $80 million is what they were prepared to pay. Mr Campbell was cross-examined as to whether MercyCare was leaving $5 million of negotiating room however, Mr Campbell denied this and said that the negotiating room he had was up to $80 million. The range of $75 million - $85 million rather, reflected the range in which the deal would be worth it for MercyCare. However, Mr Campbell could neither reject nor support the proposition that he would not have sought further financial approval if the deal had not been done at $80 million.[313]
2. At this time, MercyCare knew from Liverpool Partners that there were other buyers, but had no independent knowledge of this.[314]

1. By letter to Liverpool Partners dated 18 March 2016, MercyCare submitted a revised non-binding indicative offer (Second NBIO). This offer was approved by the board of MercyCare and signed off on by Chris Hall.[315] The Second NBIO was $80 million, on the basis that the balance of the accommodation bonds was $48 million. It was on the basis that the conditions and assumptions in the First NBIO continued unless inconsistent with the matters set out in that letter.[316]
2. Mr Markoff said that he was 'devastated' to receive the Second NBIO:[317]

Why is that?---Because we had two offers in the millions, in the millions, and Craig thought we could build that up to over 100 million, which I - I thought we would get over $100 million. So when this came in, I was in - quite taken back.

Yes. And did Craig's view expressed to you change at all?---I'm sorry?

Did Craig Tocknell's view about what could be achieved change at all?‑‑‑Yes.

How did it change and when?---He - well, after we got this - this 80 million, he thought we - you know, we could probably build it up, but it wasn't going to be in the 100 million-plus.

I see. And so what was your view about selling to anyone after you had received this offer?---I actually thought - when I received that, I thought probably that the sale wouldn't go ahead.

1. Mr Campbell prepared a document entitled 'Finance Risk and Audit Committee Information Paper', with a subject reference 'Update on Belrose Care Acquisition', dated 18 March 2016.[318] This document notified the committee that a revised NBIO of $80 million had been submitted. It stated:

Arising from the due diligence process, and after taking into consideration the opinions of Board and Trustees surrounding capital exposure, RADs and salaries, the view of management was that when compared to the option to buy land and build, the value of Belrose Care for MercyCare lay in the region of $75-$85m.

Consequently, a discussion was held on March 9, 2016 between MercyCare and the vendor's agents, Liverpool Partners, during which MercyCare stated that a non-binding offer of $75m could be expected, being a cash consideration of $27m as well as assuming the RAD liability of $48m.

As this was considerably less than the vendor's initial expectations no formal process was undertaken at the governance level to submit the offer. The agent responded two days later, in a call to Azure Capital, to inform MercyCare that a revised non-binding indicative offer should still be submitted, and that MercyCare should state any outstanding due diligence issues, the status of financing as well as any major SPA (Sale and Purchase Agreement) issues.

1. Issues relating to the RAD liability continued to be mentioned:[319]

RAD LIABILITY

The acquisition involves the current owner taking the existing RAD cash, with MercyCare assuming the liability. The RAD liability currently sits at $48m.

If there was to be an event that resulted in multiple payouts of the RAD liability to a number of residents, such as a fire or an outbreak of a disease, then this would result in a sizable cash outlay. In the event of fire, insurance coverage would minimise the financial impact on MercyCare.

There continues to be a risk of more regulatory and or market movement away from paying large deposits (RAD) and more of a move to daily payment (DAP). This would impact the cash flow with sizable one off outlays against smaller regular inflows. A gradual move away from RADs to more residents paying a combination of RADs and DAPs has been modelled over a ten year period, as has a more aggressive shift also been modelled.

Management are satisfied that the risk of this shift in Accommodation Deposits while significant has been sufficiently factored into modelling and analysis that underpin the valuations.

1. Mr Campbell was cross-examined on point 4 of the recommendations:

That if Management receives a further invitation / response from the seller to negotiate that appropriate Board and Trusts approvals will subsequently be sought...

It was put to Mr Campbell that the intention of MercyCare here was that if a deal couldn't be done at $80 million that Mr Campbell would seek the requisite approval to go higher. Mr Campbell denied this and explained that MercyCare was not in the deal at this point, only looking to enter into negotiations and looking for exclusivity.[320]

1. Mr Campbell was also cross-examined on the conclusion:[321]

The submission of a NBIO for $80m does not commit MercyCare to a future acquisition.

MercyCare's non-binding offer is substantially below the price the vendor is apparently seeking ($105m) noting MercyCare would not achieve value at the vendor's desired price.

Issuing an NBIO ensures that if the vendor cannot agree terms (including price) with any of the other interested parties, then MercyCare is still within the process and may subsequently be contacted to enter into further negotiations.

Mr Campbell accepted that this included the possibility of further negotiations on price.[322]

7.8 Responses to interested parties other than the Mercy Parties

1. In a letter dated 19 March 2016, Mr Tocknell provided Mr Markoff with an analysis of the three non-binding offers received.[323] In summary:

July 2016 post all but commercial DD + contracts negotiation

$102m (less $7m RAD difference?) subject to customary adjustments

July 2016 post DD, contracts negotiation, plus raising of equity and debt capital

1. Mr Tocknell went on the say that while MercyCare's offer had reduced having completed due diligence, it was ready to complete. Importantly, they had accepted structuring the agreement to maximise after tax proceeds to Mr Markoff. Opal's offer was assessed to be inferior to MercyCare's on price, timing and risk. Roshana 'has not made any material progress over the last three months and big questions remain over credibility of offer and ability to complete'. Among other things, Roshana had not undertaken any due diligence over the preceding three months.[324] Mr Tocknell noted that while a 'key condition' was that the existing DONs (described by name) accept employment offers, MercyCare would not be making an employment offer to Mr Markoff, Mr Shao or Ms Holt.
2. A regards Opal, Mr Markoff did not consider its non-binding offer to be attractive as it was unlikely to maximise the after tax proceeds to him, so he was not interested in pursuing their offer further.[325]
3. As regards Roshana, Mr Markoff did not think that its offer was credible. When giving evidence about his response to Roshana's non‑binding offer, he said:[326]

... And did you have any discussions with Mr [Jalagge] about his letter of intent and this non-binding offer?---I did.

And when - what were those discussions?---This was - it was after he didn't seem credible. He took me out to lunch and told me he was quite happy to pay another 10 million.

And what happened in relation to his interest after that?---He didn't seem credible to - he didn't seem credible to Craig Tocknell or myself.

Why didn't he seem credible to you?---Well, just the way he was flippant about this 10 million, and he wouldn't hand over his financials.

1. At some point, Mr Jalagge provided Mr Markoff with a letter from Bankwest dated 2 February 2016. The author, a senior manager at Bankwest Commercial Lending, described Mr Jalagge as a 'valued client', who had dealt with the bank with 'utmost professionalism and integrity'. The bank was keen to support their acquisition of Belrose Care.[327] Mr Markoff said that this letter was not worth the paper it was printed on.[328]
2. On 9 May 2016, Mr Jalagge sent Mr Markoff an email confirming an increase in its offer:[329]

It was great speaking to you today.

As discussed, I'm willing to put a $106 million cash offer with a refundable deposit of $20 million.

I received a call from Craig and he informed me to put a non-refundable deposit of $20 million within 24 hours.

I do not accept his terms and he has treated myself and my company in a bad manner and I have informed him this is not the way I do business. Nobody in this industry will comply to that demand made by him.

I need a reasonable time period to present the offer. I'm very serious and committed to see this through.

Therefore,if you are open to discuss my offer, I'm happy to discuss ASAP and go ahead with it.

1. To which Mr Markoff responded:[330]

I think you conduct yourself in a very questionable manner. You have been given every opportunity to conduct yourself correctly but have always shown yourself to be lacking. Your last chance is to put down on paper what it is you want before you would put down a $20 million non - refundable deposit. Do this tomorrow by 3:00 pm Eastern Standard time. You have had four months to consider this so if you are serious you must know what you want. If you cannot do this that will be the end of our communication. No extension will be given on this time frame.

1. Accordingly, Mr Markoff decided to negotiate exclusively with MercyCare.[331]

1. On 1 April 2016, ACK, Mr Markoff and MercyCare entered into an Exclusive Dealing Agreement. By this agreement, MercyCare was granted during the 'Exclusive Dealing Period' the exclusive right to progress the proposed acquisition of Belrose Care on the terms and conditions of set out in that agreement. The Exclusive Dealing Period was from 8.00 am on Wednesday, 30 March 2016 and expiring at 5:00 pm on Friday, 6 May 201. It was later extended to 31 May 2016.

1. At this point in the analysis, it is instructive to highlight the evidence as to the intentions of MercyCare as regards RADs. I make five findings.
2. The first is that MercyCare valued Belrose Care on the basis that the RAD balances would increase. In the First NBIO MercyCare advised Liverpool Partners that it had valued Belrose Care on the basis that 'future RAD related inflows are in line with historic averages' ([366]). KPMG identified that the RAD uplift potential on the basis of residents who had been at the facilities for longer than three years as at 31 December 2015 (65 residents) being replaced by full paying RAD residents at the then average of the last six months was around $11 million ([369]). This assumption continued in the Second NBIO ([384]).
3. The second is that, right from the outset, MercyCare was concerned that, if the RAD balances fell significantly, this would create cashflow issues. This was because the sale structure was to allow ACK to keep the cash comprising the RAD balances and assume the liability to pay out RADs as residents departed. If more money was paid out on existing RADs than came in on new RADS, it would have to find the cash to make up the difference ([360], [369], [372], [375] to [378], [387], [440], [443], [444]). This was a risk specifically identified by KPMG in its financial due diligence ([369]). This risk could in part be managed on the basis that inflows from new deposits were expected to exceed outflows from refunded deposits ([369]). KPMG recommended that MercyCare ensure that, post‑Completion, it closely monitored the mix or profile of new residents that contribute to RADs to reduce the potential risk of the RAD liability unwinding with a resulting net cash outflow ([369]). It was thus in the commercial interest of MercyCare to at least keep RADs (and bonds) at the same level as when they acquired Belrose Care.
4. The third is that a risk was identified of an event which could result in multiple payouts of RADs such as a fire or an outbreak of disease ([360], [369], [387]). KPMG recommended MercyCare consider insurance or other funding strategies in case of such an extreme event ([369]), a recommendation which MercyCare considered ([387]).
5. The fourth is that two factors identified which may cause RAD balances to reduce were a regulatory change or market movement towards new residents paying at DAP rather than a RAD ([360], [376], [378], [387], [444]). The risk was described as 'significant' ([387]).
6. The fifth is that MercyCare undertook modelling to ensure that if this risk eventuated, the transaction was still of sufficient value to MercyCare ([387]).

1. Issue 7(a) is whether the effect of the adoption of the Pleaded Bond Policy was that the evident majority of residents accommodated at the business facilities in the seven years prior to Completion were bonded residents and not concessional residents.[332]
2. In EFASOC paragraph 10, there is a table setting out the percentage of residents who were bonded at each facility since 2009. These figures were not admitted by the Mercy Parties.[333] In the Plaintiffs' Opening Submissions, counsel identified the exhibits from which this information is derived.[334] I find these facts proven. The information in this table is to the effect that in the seven years prior to Completion, the evident majority of residents accommodated at the business facilities were bonded residents and not concessional residents, so I find this proven.
3. I further find that this was by reason of the Belrose Actual Practice ([314]). This was the way in which the business of Belrose Care was in fact operated. It was not because of the Pleaded Bond Policy, as that policy did not exist.
4. Issue 7(b) contains two parts. I will come back to the first part at [415]. The second part is whether the Mercy Parties were aware 'the evident majority of residents accommodated at the Business Facilities in the seven years prior to Completion were Bonded Residents and not Concessional Residents' before executing the Land Contract and the SPA.[335]
5. I find that MercyCare knew the information contained in the Information Memorandum. So it knew the information in [335].
6. I find that MercyCare knew the information contained in the KPMG Reports. So it knew the information which I have set out at [368].[336]
7. The facts in [409] and [410] are a sufficient basis for me to further find that at the time it executed the SPA and the Land Contract it knew that the 'evident majority' of residents accommodated at Belrose Care as at the date of the Information Memorandum had either a full or partial RAD and so were not concessional residents.
8. As to the knowledge of MercyCare of the position over the previous seven years, in the TFAR the ACK Parties plead that, from the KPMG Report, 'MercyCare and Mercy (from the date of its incorporation) was aware that, following the aged care Government reforms that took effect from 1 July 2014 giving residents the option to pay a full or partial Refundable Deposit, net cash inflows from Refundable Deposits had increased with the Belrose Care Business having generated $8.7 million of net cash inflows from Refundable Deposits during the 2015 financial year, and a further $4.2 million generated between 1 July 2015 and around 19 February 2016'. As this information is apparent from the KPMG Report[337] (quoted at [369]), I find that the Mercy Parties had this knowledge. However, I also observe that the KPMG Report credits the rise to other factors, such as legislative reform and increased bond amounts, neither of which are said to comprise the Pleaded Bond Policy ([369]).
9. However, I am not persuaded that the Mercy Parties had any knowledge of the mix of bonded and concessional residents in prior periods of time. There is no historical information to this effect in either the Information Memorandum or the KPMG Reports. In the Plaintiffs' Closing Submissions, they refer to the fact that the KPI Reports for the facilities were in the virtual data room for due diligence.[338] However, there was no cross-examination of any witness, in particular Mr Campbell and Mr Vorster, about whether each knew this information. Given its absence in the KPMG Report, there is no basis for me to infer that it was in fact known by senior management at MercyCare. Neither in written or oral submissions did Counsel for the ACK Parties draw my attention to any other document in fact seen by the Mercy Parties, or created by the Mercy Parties, which records or evidences historical information about the mix of bonded and concessional residents.
10. I find that the ACK Parties have not proven that, before executing the Contracts, MercyCare or Mercy was aware of the fact that the evident majority of residents accommodated at the Business Facilities in the seven years prior to Completion were bonded residents and not concessional residents. In the one year prior yes, but not the seven years prior.
11. The first part of Issue 7(b) is whether the Mercy Parties were aware of the Pleaded Bond Policy prior to executing the SPA and the Land Contract.[339] The immediate answer to this issue is 'no' as the ACK Parties have not proven that Belrose Care in fact had the Pleaded Bond Policy ([316]).
12. As to the extent of its knowledge of what I have termed the Belrose Actual Practice, nowhere in the extensive written or oral submissions did Counsel for the ACK Parties direct my attention to any document recording or evidencing that, prior to executing the SPA and the Land Contract, any employee of MercyCare knew that:

(a) Belrose Care had a policy of pursuing and prioritising the intake of, in general terms, non-concessional residents; or

(b) Belrose Care had a policy of increasing, to the extent possible the amount of refundable deposits.

(I deal with the issue of what information arose from the communications when the Deferred Payment Clause was being negotiated in section 8.6). Nor have I found any such document in my review of the exhibits.

1. Neither the Pleaded Bond Policy nor the Actual Bond Practice is mentioned in the KMPG Report. Nor is either something that KPMG discerned from the material it reviewed in the course of due diligence and reported to MercyCare.
2. I readily accept that MercyCare, corporately, knew the information set out in both the Information Memorandum and the KPMG Report. However, I am not persuaded that its knowledge of the bond practices of Belrose Care went any further. The Pleaded Bond Policy is not set out in the Information Memorandum. This is at odds with the importance now placed on it by the ACK Parties: if it was as important as the ACK Parties now say that it is, one would have expected it to be mentioned, if not highlighted, in the Information Memorandum. The logical place for the Pleaded Bond Policy to have been highlighted was in the section on Operational Efficiency in the discussion of RADs ([339]). Its absence is conspicuous.
3. Nor can the existence of the Pleaded Bond Policy, or even the Actual Bond Policy, be discerned or inferred from the Information Memorandum. From the Information Memorandum, it was apparent that Belrose Care:

(a) was operating with high occupancy, 99.2% ([331]);

(b) had increased its average ACFI per day from $154 in the FY2012 to $162 in the FY2015 ([338]);

(c) had 71.3% of its residents with either a full RAD or a partial RAD ([335]); and

(d) was generating just under $5 million in net cashflows from operations ([342]).

If anything, this suggests an operational approach practice of balancing all three aspects of 'operational efficiency' identified in the Information Memorandum (of which RADs is mentioned last) ([337] ‑ [339]).

1. Mr Campbell was cross-examined on an email dated 11 October 2016 from Mr Ross. This set out detailed information about bonds which he obtained from 'Nicholas Shao's assistant' (that is, Ms Holt). For present purposes, the key information was:[340]

Bonds are sticking around the $48m level as at end of May, and occupancy levels are consistently at the 97-98%.

Bond balances have increased by $7.3m since July 2015.

Throughout the year across the four sites, 42 bonds have been paid out, and there have been 42 new bonds.

Does look like he is paying out bonds when they fall due though if 42 in and 42 out.

Average bonds paid out were $298,570 (total paid out $12.54m) and new bonds averaged $455,240 (total $19.12m).

The increase between the average new bonds and average paid bonds is $156,670 ($455,240 - $298,570).

The increase between the average new bonds and average paid bonds from March 2016 is only $51,000, indicating that Markoff isn't chasing the increase in bonds anymore.

1. In cross-examination, Mr Campbell confirmed in this email the new bonds average was $455,240. Mr Campbell was cross‑examined as to his knowledge of the prioritisation of bonds at Belrose Care:[341]

And you knew, didn't you, that Belrose, I think you referred to businesses chasing bonds, but this was a business that chased bonds?

Chase bonds? No, I'm not - I'm not sure that's my language, is it? We were aware that this is a business that had high occupancy and had a higher level of bonds, so it achieved both things together. That's, sorry, but that's really important in running a facility. If you just - yes okay, maybe I did say, chase bonds. if you just pursued bonds, sorry... If you're just about bonds, your occupancy will suffer, and you will, financially, really suffer. And, but Belrose did achieve both, high occupancy... occupancy and strong bond numbers... RAD numbers.

1. Conversely, as to the objective of Belrose Care, Mr Campbell stated:[342]

I do not know what their business objective was. I could observe that they had high occupancy and had high ... RADs.

1. In relation to the amendment of the rules in 2014, Mr Campbell confirmed that this had the impact of enabling people who didn't previously pay a bond, to now pay a RAD, lifting the whole industry. However, Mr Campbell denied having any knowledge of the operation of Belrose Care prior to 2014, nor the fact that Belrose Care's bonds had gone up year on year.[343]
2. I find that, prior to executing the SPA and Land Contract, the Mercy Parties, through senior personnel involved in the transaction, were aware that the RADs (and bonds) at the Belrose Care facilities 'were at a pretty strong level'[344] but not how, from an operational perspective, that was achieved.
3. It follows that I also find that prior to executing the SPA and Land Contract, the Mercy Parties had no knowledge that Belrose Care had a policy of pursuing and prioritising the intake of, in general terms, non‑concessional residents or a policy of increasing, to the extent possible, the amount of refundable deposits.
4. In summary, I find that the ACK parties have failed to prove that, prior to executing the SPA and Land Contract, the Mercy Parties had knowledge of either the Pleaded Bond Policy or the Belrose Actual Practice.
5. There is one further aspect of the knowledge of MercyCare at this point. On 6 June 2016, Mr Culmann sent Mr Campbell an email reporting on some research which he had undertaken on minimum supported resident ratio. It read:[345]

FYI - Dept of Health website: minimum Supported Resident Ratios are mandated by the Commonwealth.

All aged care services, whether or not they are certified, are required to meet the supported resident ratio - formerly known as the concessional resident ratio - which applies to their region. Sanctions may be applied to those services that do not meet the required ratio. Exceptions to the requirement are homes that provide only extra service or the distinct part of a home that provides extra service.

https://www.dss.gov.au/our-responsibilities/ageing-and-aged-care/tools-and-resources/ageing-and-aged-care-research-and-statistics/residential-care/supported-resident-ratios

So it looks like Belrose facilities are roughly sitting at the minimum permissible level for their region.

1. In cross-examination, Mr Campbell confirmed his familiarity with the concept of minimum supported resident ratios. He accepted that he received this email which stated that in Mr Culmann's view Belrose Care was complying with the requisite ratios.[346] As I have set out in section 5.6, Mr Culmann's view was incorrect.

8. Negotiation of the Deferred Payment Clause 8.1 Issues

1. Issue 8 is: What were the circumstances in which cl 9.1.4 of the SPA was negotiated and agreed? SPA cl 9.1.4 is what I refer to as the Deferred Payment Clause.
2. Again, the contemporary materials objectively established facts, and the apparent logic of events provide the most persuasive evidence as to what occurred in relation to the negotiation of the Deferred Payment Clause. With the exception of Mr Markoff, the evidence of the witnesses was largely based on the documents. With the same exception, I find the facts set out in this Part proven including the knowledge of the other witnesses.
3. As to Mr Markoff, for ease of reference, I have interposed his evidence about a particular document into the chronology. Again, his evidence is in two parts. The first is his evidence of what he in fact did and his actual perceptions at the time. His evidence as to his actual intentions and expectations is inadmissible on the issue of the construction of the terms of the SPA ([769]). However, his evidence does become relevant to the misleading conduct claims which is the context in which I will make specific findings based on his evidence which I have set out in this Part. The second is his evidence of what he would have done had MercyCare not made the representations which the ACK Parties say it made. As with Part 7, this Issue goes to reliance which I deal with in Part 21.

1. The Issue of a Deferred Payment Clause appeared to have first been committed to paper by Mr Tocknell in an email to Mr Arundell of 24 March 2016. Given how central this clause is to the issues in dispute, I will quote Mr Tocknell's email in full:[347]

We have given some further thought to a potential deferred payment structure that would provide additional value to Jeffrey whereby the perceived risk around the RAD liability does not eventuate.

Our suggestion would be that simple is best here, so cutting through the noise of RAD/DAP vs full RAD mix and the daily timing of movements, the perceived risk ultimately plays itself out with a lower/higher RAD liability pool if net cash outflows/inflows have occurred.

- The following assumes a RAD balance at Completion of $48m

- No deferred payment is made if the RAD balance is less than the Completion balance plus $2m ($48m + $2m = $50m) 2 years after Completion

- 50% of any RAD balance above the Completion balance plus $2m ($50m) 2 years after Completion

- The deferred payment is capped at $6m

- The RAD balance 2 years after Completion = $61m

- Increase = $61 m less $48m = $13m

- $13m x 50% = $6.5m

- Deferred payment = $6m (capped)

- MercyCare receive $13m and pay Jeffrey $6, netting $7m

- The RAD balance 2 years after Completion = $49m

- Increase = $49m less $48m = $1m

- No deferred payment

- The RAD balance 2 years after Completion = $45m

- Decrease = $45m less $48m = $3m

- No deferred payment

We are happy to discuss the above or other suggestions you might have over the weekend.

1. Mr Campbell said that this email was the first time the issue of a deferred payment structure had been mentioned. However, it had been discussed in a meeting earlier that day.[348]
2. Mr Arundell responded to Mr Tocknell by email of 28 March 2016:[349]

The initial response to this framework has been positive.

We are therefore lining a meeting with Chris Hall (CEO) for Tuesday/Wednesday to discuss further - as he will have ultimate sign off on whether this works or not.

Irrespective of the structure, Chris has made it very clear to us [...] that he will require exclusivity for MercyCare to continue. In this context, please find attached an Exclusivity Agreement.

Can you please review the agreement. It would be good to get your feedback before we meet Chris - so that we can propose the framework to him knowing whether you have any issues (or not) with the exclusivity terms.

1. Mr Campbell accepted that the reference to 'the initial response to this framework has been positive' was a reference to his initial view, the initial modelling undertaken and a brief conversation with Mr Hall. Further he explained that:[350]

the initial scenarios we undertook didn't suggest that we thought we would get to the earn-out because of our different views of the market. But we thought, the - we didn't see the mechanism hurting MercyCare. We ... either thought there wasn't going to be a result, or if there was an uplift, there was going to be a moderate uplift. But even in a moderate uplift, we saw value on both sides of the equation.

Mr Campbell confirmed that MercyCare required exclusivity to proceed, and that this had been the position of MercyCare prior to the revised offer being made on 18 March 2016: '[w]e didn't want to spend any more time if there were multiple parties'. This was ultimately agreed to.[351]

1. Mr Campbell could not recall whether there were any discussions prior to this about MercyCare making a commitment to pursue bonds, and therefore try to achieve the $12 million target. Further, Mr Campbell clarified that 'my view is ... we had not ... at that stage agreed to anything here apart from [that] we would look at this matter'. Mr Campbell gave evidence that the only people in MercyCare that knew about this deal was the deal team, Mr Hall, Ms Ross, Mr Culmann and himself. They were analysing whether this could be a workable term.[352]
2. On 30 March 2016, Mr Arundell sent Mr Tocknell and Mr Maiden the executed Exclusivity Agreement. In response, Mr Maiden wrote:[353]

Thanks for this. Are you in a position to give us a revised offer letter so that we can present this document in concert with the revised bid including the earn out structure? Per our conversation yesterday, it will be more compelling to present this to Jeffrey as a package in that context.

1. Mr Arundell forwarded this email to Mr Campbell and Mr Ross. Mr Campbell accepted that he understood this email to mean that Mr Markoff wanted a revised letter of offer, and that part of the package was to be a tentative agreement about a deferred payment structure.[354]
2. Mr Campbell ultimately responded by email of 30 March 2016 to Mr Maiden and Mr Tocknell, copied to Messrs Arundell, Hall and Ross advising that MercyCare was open to the 'earn out structure'. In full:[355]

MercyCare notes that our NBIO (of 18 March 2016) remains current. MercyCare is open to the earn out structure and it is one of a number of items that needs to be further considered and negotiated in the context of finalising the transaction. In this regard, we note there are a number of items that fall into this category, in particular from our end, the completion of the disclosure letter which is fundamental in MercyCare being able to finalise the acquisition.

As previously noted, MercyCare has completed most, if not all, of its due diligence and is able to settle quickly with minimal conditions. In this regard, on the basis of the likelihood of being granted exclusivity, MercyCare has recommenced the process getting its advisors to continue with the relevant documentation and other matters. However, on the basis of the latest correspondence, MercyCare will cease further work until such time as the vendor has executed the exclusivity agreement.

As abovementioned, MercyCare is keen to progress negotiations quickly with a view to being able to finalise all matters within the next 30 days.

1. Mr Culmann, in a memo dated 31 March 2016 to Mr Campbell and Mr Ross, prepared a detailed analysis 'Quantifying the risk of a movement from RADs to DAPs in the Belrose Acquisition'.[356] It is sufficient to quote the section headed 'Background':

Upon acquisition of the Belrose assets MercyCare would assume the entire existing RAD liability held in the Belrose balance (anticipated $48m as at closing). Because of the vendor retaining all funds relating to this liability, there is a risk that MercyCare faces a cash outflow in the future triggered by a shift from deposits (RADs) to daily payments (DAPs). If a leaving resident will be refunded his deposit of $400k and the new resident replacing him pays via daily payments, there will be a significant one-off cash outflow of $400k. This may result in short to medium term funding issues as DAPs provide a steady income stream rather than a one-off cash inflow replacing the outflow.

This short paper analyses the likelihood as well as the impact such scenarios could have on MercyCare's operating cash flows and finds that the risk of a large cash outflow is low to very low.

The agreed earn-out mechanism works as follows:

• If the RAD balance increases by at least $2m over the following 2 years after the transaction date, the vendor receives an earn-out payment of 50% of the total uplift.
• If the increase in the RAD balance is below $2m or negative, the vendor receives no earn-out payment.
• The earn-out payment is limited to a maximum of $6m.

I observe that in three of the four scenarios considered, the percentage of concessional residents remained at 22%, being what MercyCare understood to be the current structure. In the fourth scenario, the number of concessional residents dropped to 0% on the assumption that resident structure will 'converge to industry predictions'. None of the scenarios considered a resident mix in which the percentage of concessional residents was higher than 22%.

1. On 4 April 2016, Mr Culmann sent a short email to Mr Campbell dealing with the impact of an increase in RAD balances:[357]

The sentence below as discussed:

'If RAD deposits increase by at least $12m over the next 2 years after the acquisition, MercyCare would share the maximum agreed amount of $6m with the vendor. In such an event the Net Present Value of the acquisition would increase from $42m to $79m (net of $6m), due to the increased cash flow received from RADs, and as a result, higher interest earnings.'

1. Mr Hall authored a MercyCare Board Discussion Paper dated 4 April 2016 with the subject 'Residential Aged Care Acquisition Opportunity Update and Offer'.[358] The recommendation was for the Board to approve the acquisition of Belrose Care, subject to various management processes being undertaken. The background provides a useful summary of the process to that date:[359]

An initial non-binding indicative offer (NBIO) of $51 m for the acquisition of the business assets and properties of Belrose Care was submitted on 20 January 2016. The offer was on a debt free, cash free basis, with the RAD liabilities being assumed by MercyCare. As at 30 June 2015, the Refundable Accommodation Deposits (RADs) were $42m, resulting in a total consideration to the vendor of $93m.

Arising from the due diligence process, and after taking into consideration feedback from the Board and Trustees regarding issues of capital exposure, RADs and staff salaries, management reassessed the value of the Belrose Care acquisition opportunity, as compared to the option to buy land and build, to lay in the region of $75 to $85m.

Following receipt of professional and legal advice regarding the amended value of the proposed acquisition, management submitted a revised NBIO for $32m on 18 March 2016. RAD liabilities are assumed to be $48m, resulting in a total consideration to the vendor of $80m.

The revised offer was significantly less than the original MercyCare NBIO submission but less than what the vendor's agent indicated would be acceptable to the vendor (being $105m). Accordingly, further negotiations were entered into with the vendor's agents, resulting in the inclusion, into the offer, of an arrangement to share any potential uplift in the value of the RADs, to a maximum of $6m.

An Exclusive Dealing Agreement was then signed on 1 April 2016, covering the five weeks ending Friday 6 May, 2016. This agreement is designed to ensure that the Vendor can only deal with MercyCare, providing MercyCare with a significant advantage in successfully completing the negotiations, should it wish to do so.

Both parties (MercyCare and Belrose Care) have agreed to act and negotiate in good faith with a view to entering into formal legal documentation regarding the sale and purchase of the business. The agreement does not, however, impose any legal obligation on either party to buy or sell the business.

1. The discussion under the heading 'Share of RAD Uplift' is, in my view, an instructive statement of the corporate intention of MercyCare as regards RADs at this time:[360]

A previously identified risk in this acquisition is any significant movement that may occur from RAD's to DAP's. MercyCare's final offer has accounted for this risk. As a critical part of the recent negotiations MercyCare has agreed (though non-binding) to share in the potential uplift of RAD's over the first two years of ownership.

If the RAD balance subsequently increases over the first two years of MercyCare's ownership, MercyCare agrees to pay the vendor 50% of the increase, capped at $6m in July 2018. If the additional RAD balance is less than $2m, then the conditional deferred payment is nil. The purpose of this conditional deferred payment is to share the additional value as a result of any material increase in RAD balances.

It is highlighted that in MercyCare's financial modelling a conservative approach to RAD/DAP has been maintained, specifically no significant uplift in RAD has been modelled [Base case models RAD's to increase by 3% p.a.]. Including the shared Base case models RAD's to increase by 3% p.a. RAD uplift on the base case would likely result in an additional payment to the vendor of $1.7m in June 18, leaving an NPV of $41m (down from $42m), continuing to be well in excess of the Hurdle rates.

It remains management's view that a significant RAD uplift is unlikely to occur. However, if RAD deposits increase by at least $12m over the first two years of ownership, MercyCare would share the maximum agreed amount of $6m with the vendor. In such an event, the Net Present Value of the acquisition would increase significantly to $79m (net of $6m), due to the increased cash flow received from RADs, and higher interest earnings (refer to Appendix 2 to this report). It is noted that the per bed price would rise to $339,000 under this arrangement, but again a very strong NPV of $79m.

It is recommended that the Board approves this arrangement for which the necessary consent will be required from the Trustees for the expenditure of any additional capital funds associated with this purchase.

In short, MercyCare considered that RADs would be unlikely to increase to a level that would trigger the additional payment, but if they did, this would be a positive outcome for MercyCare.

1. The risk of cashflow issues arising from RAD payouts was again highlighted:[361]

The acquisition involves the current owner taking the existing RAD cash, with MercyCare assuming the liability. The RAD liability currently sits at $48m.

If there was to be an event that resulted in multiple payouts of the RAD liability to a number of residents, such as a fire or an outbreak of a disease, then this would result in a sizable cash outlay. In the event of fire, insurance coverage would minimise the financial impact on MercyCare.

There continues to be a risk of more regulatory and/or market movement away from paying large deposits (RAD) and more of a move to daily payment (DAP). This would impact the cash flow with sizable one‑off outlays against smaller regular inflows.

As a result, a gradual move away from RADs to more residents paying a combination of RADs and DAPs has been modelled over a ten year period, as has a more aggressive shift also been modelled.

Management is satisfied that the risk of this shift in Accommodation Deposits, while it may be significant, has been sufficiently factored into modelling and analysis that underpin the valuations. As mentioned earlier, an arrangement to share potential RAD uplift has been agreed with the vendor in case RAD balances grow over the first two years.

1. This document went to the board who accepted the recommendations which it contained.[362]
2. In a draft of the SPA sent by Ms O'Connor to Ms Davies by email on 29 April 2016, an amendment was proposed to place obligations on MercyCare as to how it would conduct the business after completion.[363] With the tracked changes retained, clause 8.1 was proposed to read:[364]
   1. DEFERRED PAYMENT

8.1 Entitlement

8.1.1 Subject to clauses 8.1.2 and 8.1.3, the Purchaser must pay to the Vendor an amount equal to 50% of the amount by which the Subsequent RDB/ABB Adjustment Amount exceeds the Actual RDB/ABB Adjustment amount (Additional RAD balance).

8.1.2 If the Additional RAD bBalance is less than $2 million, no payment is due to the Purchaser under clause 8.1.1.

8.1.3 The maximum amount payable by the Purchaser to the Vendor under clause 8.1.1 is $6 million.

8.1.4 The Purchaser agrees that in conducting the Business after Completion it will:

8.1.4.1 adopt the same policies as the Vendor in relation to; and

8.1.4.2 otherwise operate in good faith to

Actively promote Accommodation Bonds and Refundable Deposits in respect of all Residents who enter into Resident and Accommodation Agreement with the Purchaser after the Completion Date.

1. Mr Markoff was cross-examined in relation to this draft:[365]

And what Ms O'Connor has inserted at 8.1.4 is a proposed inclusion into this clause that the purchaser agrees that in conducting the business after completion, it will (1) adopt the same policies as the vendor in relation to, and (2) otherwise, operate in good faith to - and then it says, 'actively promote accommodation bonds and refundable deposits'. Do you say that that was the policy that was in place at the time, to actively promote bonds?‑‑‑Yes.

And do you regard that as the same or different from the other versions of the policy that I've shown you up to this point?‑‑‑My rudeness - my rudeness to Ms O'Connor was the fact that I do not think that she was drafting the contract very well.

All right?---And so I do not know the difference between 'pursue bonds' and 'maximise bonds', but my gut feeling was that MercyCare was trying to stick it up us.

All right?---And I expressed that view, and when I was assured that, 'Yes. You're protected', I went ahead.

We will come to that in moment, Mr Markoff. But let's just stay with what you thought the policy was at this point. Did you instruct Ms O'Connor to put this language in the draft?---I didn't instruct her on language, on that language.

All right. So this is just what she put in?---I had - now, I had - I put in some language, Mercy Care put in language, she put in language, and that is the way it went.

All right. So is your best recollection as we are sitting here today that this was probably Ms O'Connor's language and not yours?‑‑‑Yes.

1. In an email to Ms Davies dated 3 May 2015, copied among others to Mr Markoff, Ms O'Connor foreshowed further amendment to the provisions regarding deferred payment:[366]

Further to the below, in relation to the provisions regarding the Deferred Payment, I am instructed by my client that he requires the sale and purchase of business agreement to be further amended in relation to the Deferred Payment in respect of the following:

1. To require that the purchaser report on a three monthly basis to the vendor in relation to the Accommodation Bonds and Refundable Deposits, including the number of incoming residents and exiting residents (both bonded and concessional).
2. The reference to the policy regarding Accommodation Bonds and Refundable Deposits in the sale and purchase of business agreement will also need to be further clarified to confirm that the policy regarding proactively seeking bonds includes delaying taking in a new resident to ensure that taking in bond residents is the priority.

The concept of the Deferred Payment generally can be discussed in further detail at the meeting tomorrow.

1. Mr Markoff was cross-examined as to his intentions at the time of this email:[367]

You were copied into this email that is in front of you right now from Ms O'Connor. You instructed her to write that email, didn't you?‑‑‑Well, maybe not exactly the wording, but ‑ ‑ ‑

The substance of it. You instructed her to write the substance of that email, didn't you?‑‑‑Well, let me read it again. Yes.

It had occurred to you, hadn't it, that the clause needed to be tightened up so that it would be clear that Mercy had to delay taking in new residents to prioritise bonded residents?‑‑‑Yes.

In other words, that they would have to leave a bed vacant?‑‑‑Yes.

Which would involve foregoing income while the bed was vacant?‑‑‑Yes.

And the reason why you specified this as an additional requirement at this point was because you wanted to improve your prospects that the deferred payment clause would become payable?‑‑‑Yes.

And your concern was that without being as specific as this in the deferred payment clause, MercyCare would not be proactive about promoting RADs?‑‑‑Yes.

And it would not leave beds vacant to wait for a bonded resident to come along?‑‑‑Yes.

And if they didn't do those things, that the deferred payment would not eventuate?‑‑‑May not eventuate.

And one of the things that was exercising your mind was that MercyCare was a not-for-profit registered charity?‑‑‑Yes.

Who you thought was probably more likely to favour concessional residents over bonded residents for charitable reasons?‑‑‑No.

So that was a rolled-up question. Did you think that they were probably likely to favour concessional residents over bonded residents?‑‑‑Yes.

And did you think that was for charitable reasons that they would do that?‑‑‑Not necessarily.

You thought that if they did favour concessional residents over bonded residents, that would prejudice your prospects of getting the deferred payment?‑‑‑Yes.

And the deferred payment in the amount that you wanted, which was $6 million?‑‑‑Yes.

So you wanted the wording of the clause to be as clear and specific as possible about the obligation to proactively promote bonds. Yes?‑‑‑Yes.

And to leave beds vacant for bonded residents. Yes?‑‑‑Yes.

1. On 9 May 2016, Mr Artus sent Ms O'Connor an amended version of the SPA, with the comment: 'Whilst I consider that we are now very close to having an agreed sale agreement, my client is not bound until the Agreement is duly executed'.[368] Significantly, the amendments proposed to cl 9.1 were rejected:[369]

8.9. DEFERRED PAYMENT

8.19.1 Entitlement

8.1.29.1.1 Subject to clauses 9.1.28.1.2 and 9.1.38.1.3, the Purchaser must pay to the Vendor an amount equal to 50% of the amount by which the Subsequent RDB/ABB Adjustment Amount exceeds the Actual RDB/ABB Adjustment Amount (Additional RAD Balance).

8.1.29.1.2 If the Additional RAD Bbalance is less than $2 million, no payment is due to the Purchaser under clause 9.1.18.1.1.

8.1.39.1.3 The maximum amount payable by the Purchaser to the Vendor under clause 9.1.1 8.1.1 is $6 million.

8.1.4 The Purchaser agrees that in conducting the Business after Completion it will:

8.1.4.1 adopt the same policies as the Vendor in relation to; and

8.1.4.2 otherwise operate in good faith to,

actively promote Accommodation Bonds and Refundable Deposits in respect of all Residents who enter into Resident and Accommodation Agreement with the Purchaser after the Completion Date.

1. On 17 May 2016, Mr Arundell sent Mr Campbell, Mr Ross, Mr Artus and Ms Davies an email following a conversation with Mr Tocknell. The following relevant point appears:[370]

- They are urgently waiting for the language around Mercycare running the business on a commercial basis during the deferred payment period. They would like this before this afternoon's call [urgent].

1. On 17 May 2016, Mr Campbell sent an email to Mr Hall and others updating them on a phone hook up with representatives of Belrose Care (though not Mr Markoff). Under the heading 'Major issues that we know of', the following appears:[371]

Including a commitment in the SPA giving assurance that MC will run the operation commercially in regards to the RAD balances (which we are working up). This seems very important to the Vendor (urgent) and there is risk that he will be unrealistic on this matter, which we see as minor. This all goes to the earn out on RAD balances in 2 years' time and seems to be taking on real importance for the Vendor.

1. On 18 May 2016 at 8:40am AEST, Mr Markoff sent an email to Mr Tocknell, copied to Ms O'Connor, relevantly stating:[372]

Please inform Mercycare we gave them the right to EXCLUSIVE negotiations because they agreed we could have the maximum we could on the property value [bearing in mind we expect to be audited so we will not be stupid] and they would continue our policy of prioritising bonds. We have no interest in their valuation priorities through M3.

Please confirm, if they wish to continue negotiations that they have not moved the goalposts.

1. Mr Markoff was cross-examined on this email. He accepted that when he wrote this email he was waiting for MercyCare to send him their new proposed version of the Deferred Payment Clause. He accepted that the Deferred Payment Clause was a compromise of the positions of the parties. He was taken to the statement about 'they would continue our policy of prioritising bonds', and cross-examined:[373]

That wasn't true, was it?‑‑‑Yes. It was.

They had not agreed to continue your policy of prioritising bonds?‑‑‑I - I thought they had.

Well, what you were actually trying to do was verbal them here, wasn't it?‑‑‑What do you - you mean, lie to it? Lie?

Yes?‑‑‑No.

You knew that they had not agreed to that policy, didn't you?‑‑‑I can't remember when they agreed to the policy.

At this point, was it essential to you that the policy was expressly referenced in the deferred payment clause?‑‑‑Yes.

1. On 18 May 2016, at 11:49 (whether am or pm is not clear), Mr Markoff sent an email to Ms O'Connor, copied to Mr Tocknell, instructing her to stop work:[374]

You are no longer authorised to act on our behalf [and will not be paid for work done other than for the bonds] until the bond situation is sorted out to my satisfaction.

1. Mr Markoff explained that, from his perspective:[375]

Megan didn't seem to be - understand that Nicholas Shao had to be employed - had to be employed to follow the same pattern that he had followed at us, at Belrose.

...

Yes?---I thought - I thought she wasn't - she hadn't grasped what I was saying, that - the Mercy Care were trying to weasel out of Nicholas Shao ‑ ‑ ‑

Yes?--- - - - being in charge of bonds. And I chastised her ‑ ‑ ‑

Yes?---And that - that's why I was rude. But then - then, she seemed to come good, or she told me she had come good.

1. In cross-examination, Mr Markoff said that the reference to the 'bond situation' was a reference to the negotiation and agreement of the Deferred Payment Clause.[376]
2. As to his understanding of MercyCare's agenda, Mr Markoff said:[377]

In your understanding, what was their agenda?---Their agenda was to continue running our facilities as they ran their facilities.

And how did you understand they ran their facilities?---Not to maximise bonds.

And the reference to weasel words - otherwise, why all the weasel words - it - - -?---They were trying to use words that did not do what we wanted them to do, and have Nicholas Shao prioritise bonds. Say they were going to do it, but then, not do it.

1. Mr Markoff added that there were verbal communications in addition to the emails.[378]
2. On 19 May 2016 at 8:38 am (which I infer is AEST), Mr Markoff sent an email to Mr Tocknell, copied to Ms O'Connor, proposing some wording for bonds:[379]

For the bonds what about something like:

'The policy of prioritising and maximising Bonds is to be continued under the leadership of Nicholas Shao as he has done for the last four years. If he ceases to be employed by Mercycare his successor [s] are to continue the policy.' A three monthly report is to be provided to Jeffrey Markoff on bond levels.

Speak to you shortly.

1. Mr Tocknell responded by email sent at 8:44 am, also copying Ms O'Connor:[380]

Bill and I will talk you through some proposed wording at 9am, which we feel is more robust and compelling than the proposal below.

Speak shortly.

1. Mr Markoff was cross-examined on these emails:[381]

Now, on 19 May at 8.38 am, you write to Mr Tocknell, cc'ing your lawyer, with a proposed clause to put into the deferred payment provision. Yes?‑‑‑Yes.

And had Mr Tocknell asked you to prepare some wording you would be happy with?‑‑‑No.

You just did this off your own bat?‑‑‑Well, there was back and forth between Craig, Megan and myself. I never thought that I could tell Megan what to do to make sure Nicholas was there. So I just - I just made some proposals.

So this was your offer of wording to Mr Tocknell to consider; yes?‑‑‑Yes.

And this was wording that you would be happy to see in the contract subject to Mr Tocknell's advice and Ms O'Connor's advice?‑‑‑Yes.

All right. And you wanted bonds not only to be prioritised but also maximised?‑‑‑Yes.

So you understood there to be a difference between those two words ‑ ‑ ‑?‑‑‑No.

‑ ‑ ‑ as to their meaning?‑‑‑No.

No?‑‑‑No.

They meant the same thing?‑‑‑To me, yes.

All right. So you were just using two words to mean ‑ ‑ ‑?‑‑‑I'm reinforcing it. I'm reinforcing it.

I see. And then the 'to be continued under the leadership of Nicholas Shao, as he has done in the last four years', can I ask you about that last four years. Was he not prioritising or maximising bonds before then?‑‑‑He was.

So the reference to the four years was from which date, 2012?‑‑‑I do not know why that figure is in there.

Well, see, these are your words, aren't they?‑‑‑I understand, but I'm just telling you now, I do not know why that four years is in there.

In any event, this wording you formulated because it continued to be of the utmost importance to you, didn't it, to have specific reference to the policy in the clause? Yes?‑‑‑Yes.

And it also was of the utmost importance to you to have in the clause that Nicholas Shao was to continue to lead the implementation of that policy?‑‑‑Yes.

1. On 19 May 2016 at 7:51 am AWST (9:51 am AEST), Mr Tocknell sent Mr Arundell an email dealing with two of the then outstanding issues. Relevantly, it reads:[382]

Update on the first two key issues below having had a good call with Jeffrey this morning...

1. Wording. I can get Jeffrey over the line with the following to be inserted in clause 8.1. We need to get this one resolved today as Jeffrey is starting to get nervous.

The Purchaser and Vendor are aligned in respect to the Purchaser's intention to continue, in the conduct of the Business post Completion, the policy of pursuing Accommodation Bonds and Refundable Accommodation Deposits in respect of Residents who enter into Resident and Accommodation Agreements with the Purchaser after the Completion Date, which may include certain strategies to maximise Refundable Accommodation Deposits.

The Purchaser confirms that it will act in good faith and not act to deliberately decrease Accommodation Bonds and Refundable Accommodation Deposits for the purpose of reducing the amount of the Deferred Payment (if any) due to the Vendor under clause 8. 1.1.

The Purchaser and Vendor acknowledge that certain factors, such as the choice of the Resident, are outside the control of the Purchaser in the conduct of the Business.

The Purchaser will provide the Vendor with reports on the balance of Accommodation Bonds and Refundable Accommodation Deposits and the number of incoming and exiting Residents (Reports) such Reports to be provided on a semi-annual basis with the first Report due to be provided by the Purchaser to the Vendor on the date that is six (6) months after the date of Completion.

Mr Arundell then forwarded this email to Mr Campbell, Mr Artus, Mr Ross and Ms Davies, with a request to review the wording 'ASAP'.[383]

1. Mr Markoff was then cross-examined on this email. He explained:[384]

All right. Now, this is an email at - sorry; can we just get the date and time, please, - 19 May at 7.51 am Western Standard Time. And Mr Tocknell says to Mr Arundell in numbered paragraph 1 - sorry, above numbered paragraph 1, that he had a call with you that morning. Do you recall that?‑‑‑No.

He then says:

I can get Jeffrey over the line with the following to be inserted in clause 8.1. And we need to get this one resolved today as Jeffrey is starting to get nervous.

Had you approved that wording to go to MercyCare's representatives?‑‑‑I can't recall doing that.

Do you recall being happy with that wording at the time?‑‑‑No.

Are you happy with that wording, looking at it now?‑‑‑No.

Because it doesn't mention anything about prioritising bonds? Is that one problem with it?‑‑‑Just off the top of my head, I do not like the fact that it - it puts a thing on not act to deliberately not to decrease accommodation bonds. That seems - that seems wiggle room.

All right. So let's just answer my questions. Is it a problem for you that it doesn't refer to a policy of prioritising bonds?‑‑‑Yes, and maximising bonds. Yes.

So that is also a problem. It doesn't refer to a policy of maximising bonds? Yes?‑‑‑I was never happy with the wording of the contract, but I was assured by my solicitor that I was protected. I can't remember if this was included in the contract or not. I remember I was always complaining.

So just coming back to my questions, it doesn't refer to any strategies to maximise RADs, I do not - yes. Sorry.

Which may include certain strategies to maximise RADs.

In the first paragraph. You see that?‑‑‑Yes.

You were happy with that wording or not?‑‑‑In my understanding of the wording. I was happy.

And your understanding was what?‑‑‑That would add an extra dimension to - to get - take in bonds. It would - whatever the normal thing was, this was another strategy that may be employed to take in bonds, an addition.

In addition to existing strategies?‑‑‑The normal strategies. Yes.

What normal strategies are you talking about? Your normal strategies?‑‑‑Yes.

And did that include things like selling RADs above the set or advertised price?‑‑‑Yes.

And it involved things like encouraging residents to pay all of their house proceeds as a bond even if it was above the set price?‑‑‑If necessary, yes.

And it involved not observing the concessional resident ratio?‑‑‑That's right.

And it doesn't mention anything about Mr Shao, does it, here in this clause? I can't see it?‑‑‑No. It doesn't.

And you were happy with that, were you, that it didn't mention anything about Mr Shao?‑‑‑No. I wasn't happy.

All right. So it had to mention something about him?‑‑‑Yes.

1. Mr Markoff said of these emails that if MercyCare had not agreed with the clause set out in the emails he would have stopped negotiating with them:[385]

If Mercy had not agreed to include those words, what would you have done?---Stopped negotiating with them.

And then what?---Well, I would have gone to anyone else that I thought might be interested.

And who would that have been - who would that have included?‑‑‑Roshana, in case I was wrong, and possibly Opal.

1. On 19 May 2016 at 11:14 am (AEST from the context), Mr Tocknell sent an email to Mr Markoff and Ms O'Connor, copied to Mr Maiden, seeking to progress things:[386]

Thanks for the progress made this morning, we are very close now.

In light of your email below to Meagan, I just wanted to let you know that the ball is currently in our court in terms of marking up the contracts with agreed amendments etc. so we are currently causing delays by having Meagan put pens down. Your call, but my suggestion would be that Meagan is now allowed to continue progressing the transaction so that we can get to a position where you have certainty of the transaction next week.

Happy to discuss further.

1. On 19 May 2016 at 11:39 am (I infer AWST), Mr Artus sent an email to Mr Campbell, Mr Arundell, Mr Ross, copied to Ms Davies, with some amended wording for the clause relating to bonds:[387]

- The Purchaser and Vendor are aligned in respect to the benefit Purchaser's intention to continue, in the conduct of the Business post Completion, the policy of pursuing Accommodation Bonds and Refundable Accommodation Deposits in respect of Residents who enter into Resident and Accommodation Agreements with the Purchaser after the Completion Date., which may include certain strategies to maximise Refundable Accommodation Deposits.

- The Purchaser confirms that it will act in good faith and not act to deliberately decrease Accommodation Bonds and Refundable Accommodation Deposits for the purpose of reducing the amount of the Deferred Payment (if any) due to the Vendor under clause 8.1.1.

- The Purchaser and Vendor acknowledge that notwithstanding the above certain factors, such as the choice of the Resident, applicable laws and other factors, are outside the control of the Purchaser in the conduct of the Business and may have a detrimental affect to the accumulation of the Bonds and Deposits.

- The Purchaser will provide the Vendor with reports on the balance of Accommodation Bonds and Refundable Accommodation Deposits and the number of incoming and exiting Residents (Reports) such Reports to be provided on a semi-annual basis with the first Report due to be provided by the Purchaser to the Vendor on the date that is six (6) months after the date of Completion.

Shortly afterwards, 1:45 pm AEST (11:45 am AWST), Mr Arundell forwarded this email to Mr Tocknell, copied to Mr Maiden, with the comment 'Per my voice mail'.[388]

1. Mr Tocknell removed the track changes from the text sent to him by Mr Arundell, and by email at 2:00 pm (AEST) sent it to Mr Markoff:[389]

Further to our earlier discussions, MercyCare have agreed to apportioning $50m to the land contract so I believe that's a good result.

In addition, MercyCare have accepted the proposed wording re the bonds with the slightly amended wording being as follows:

- The Purchaser and Vendor are aligned in respect to the benefit, in the conduct of the Business post Completion, of pursuing Accommodation Bonds and Refundable Accommodation Deposits in respect of Residents who enter into Resident and Accommodation Agreements with the Purchaser after the Completion Date.

- The Purchaser confirms that it will act in good faith and not act to deliberately decrease Accommodation Bonds and Refundable Accommodation Deposits for the purpose of reducing the amount of the Deferred Payment (if any) due to the Vendor under clause 8.1.1.

- The Purchaser and Vendor acknowledge that notwithstanding the above, certain factors, such as the choice of the Resident, applicable laws and other factors, are outside the control of the Purchaser in the conduct of the Business and may have a detrimental affect to the accumulation of the Bonds and Deposits.

- The Purchaser will provide the Vendor with reports on the balance of Accommodation Bonds and Refundable Accommodation Deposits and the number of incoming and exiting Residents (Reports), such Reports to be provided on a semi-annual basis with the first Reports due to be provided by the Purchaser to the Vendor on the date that is six (6) months after the date of Completion.

As expected, they have including an acknowledgement for certain factors outside of their control and indeed your current control, which in my opinion is fair given they have accepted the tougher wording in the first two bullets above.

If this acceptable to you, I will make arrangements for it to be included in the contract. Please confirm at your earliest opportunity.

Again, there is no reference to the policy and no reference to prioritising or maximising bonds?‑‑‑Yes.

And there is no reference to Mr Shao's role?‑‑‑Yes.

And he describes in the third paragraph the wording in the first two bullet points as tougher wording. Did you agree with him that it was tougher wording?‑‑‑It seems less tough. It seems just the opposite. You are talking about the third...paragraph?

So you didn't agree with him?‑‑‑I wouldn't have agreed with that. No.

And you still needed to have express reference to the policy and prioritising and maximising bonds?‑‑‑Yes.

And you still wanted to have, and indeed were insisting on having, a reference to Mr Shao in there?‑‑‑Yes.

1. At 4:43 pm (I infer AEST) on 19 May 2016, Mr Markoff sent Ms O'Connor a conciliatory email, which reads:[391]

As usual I went too far in my email and should not have done so. Please continue with your good work.

I am concerned with the third paragraph as it is too loose. I think there needs to be words like 'prioritise bonds as we have in the past' or 'under the stewardship of Nicholas Shao'.

In their existing facility they definitely do not prioritise bonds and this has been my concern from the beginning. Their third point is about as affective as catching water with a net.

The second point says they will not deliberately act to reduce bonds but it has to be pro-active in increasing bonds as if not they will just naturally decline if not managed. There are many more concessional prospective residents than bonded so the intake has to be managed and not just accept first come, first served.

In all our prior discussions during these deliberations I have been wrong. On this one I am right and I believe they have their own agenda that does not accord with ours. Otherwise why all the weasel words?

Nicholas is to be employed by them and if they are to continue our policy why will they not let him continue to manage this process as he has done so successfully for the last four years or so.

In the alternative perhaps they may pay $2 million every nine months until the full amount is paid or some similar arrangement.

1. Mr Markoff accepted in cross-examination that he had a tendency to 'go too far' with Ms O'Connor. He continued:[392]

Are you referring to something that's in this draft clause here that Mr Tocknell sent you?‑‑‑Yes. I just thought the whole thing was too loose. I just referred to the third paragraph. I thought she wasn't doing her job.

All right. So we will go back up to that email that you sent to Ms O'Connor, and you say:

I think there needs to be words like 'prioritise bonds as we have in the past', or 'under the stewardship of Nicholas Shao'.

Right?‑‑‑Yes.

That was very important to you at that time?‑‑‑Yes.

And the thing that you were consistently telling Ms O'Connor was this, wasn't it, that it was the wording of the deferred payment clause that had to be tightened, so that you were protected as much as possible in relation to the deferred payment entitlement?‑‑‑Yes.

And you go on to say to her that:

In MercyCare's existing facility, they definitely do not prioritise bonds.

See that?‑‑‑Yes.

And you say that there was something you knew about the Wembley facility to allow you to draw that conclusion?‑‑‑Just anecdotal. Anecdotal. I didn't examine their bond register.

Well, you knew it was a facility in Wembley, didn't you?‑‑‑Yes.

And you knew that that was a higher socioeconomic area than the facilities - the areas in which your facilities were in?‑‑‑Yes.

And that would normally suggest to you that it would be easier to get RADs in Wembley than it would at your facilities?‑‑‑Yes.

And yet you had a view that - from anecdotes, you said?‑‑‑From - yes.

That they didn't prioritise RADs?‑‑‑From anecdotal evidence, yes.

And the anecdotal evidence was what?‑‑‑Just ‑ ‑ ‑

Just people in the industry talking to you?‑‑‑Yes. Yes.

I see. So at this point, you're clearly not relying on anything that MercyCare has told you about its intentions to pursue RADs, are you? You've ‑ ‑ ‑?‑‑‑Well, I won't say about anything. I'm sure there were some things in there I agreed with.

Well, you just told his Honour that you were relying on anecdotes within the industry that they definitely do not prioritise bonds at the Wembley facility?‑‑‑Yes, that's right.

Right?‑‑‑Well, I - I do not know for sure. I'm telling you, that's what I was told.

But that concern was what drove you to insist on a watertight contractual obligation?‑‑‑That was part of it, yes.

And then if I can come to the second point, you see there - sorry. Yes, sorry. The second point says they will not deliberately act to reduce bonds, but it has to be proactive in increasing bonds, as if not, they will just naturally decline if not managed. That was a view you held at the time?‑‑‑Yes.

And that's a view you retain to this day?‑‑‑Not - not as strong, I guess, as - not as strong. Not as strongly.

So at the ‑ ‑ ‑?‑‑‑I should have said, may naturally decline.

Right. But at the time, you thought that unless ‑ ‑ ‑?‑‑‑Yes. At the time.

‑ ‑ ‑ you put in some obligation that they had to proactively increase bonds, they would naturally decline?‑‑‑Yes.

And was your understanding of - sorry. Was the meaning you attributed to proactively increasing bonds at that time a reference to doing things such as encouraging residents to pay bonds above the set or advertised price?‑‑‑No.

Was it just things like advertising?‑‑‑That was one of the things.

Was it things like improving the facilities?‑‑‑That also.

And making sure that the prices of the RADs were competitive with others in - that were comparable?‑‑‑I didn't - I wasn't in charge of that.

But is that the kind of thing you had in mind?‑‑‑Well, if people thought - if Nicholas and the DONs thought that, yes, I would go along with it.

All right... In the next paragraph:

In all our prior discussions during these deliberations, I've been wrong. On this one, I'm right, and I believe they have their own agenda that does not accord with ours.

So you thought that MercyCare had an agenda that did not involve seeking to maximise, prioritise or increase bonds?‑‑‑That's right.

And then you say:

Otherwise, why all the weasel words?

?‑‑‑Yes.

Now, are they weasel words that you saw in the draft clause that was below this email?‑‑‑Not necessarily. Just their whole attitude over the period of time, instead of just agreeing to what we wanted to do. It was quite simple what we wanted to do, which - and that's what we - that's what I stuck with and I thought I was getting, and they were jockeying in position.

So the fact that they didn't capitulate to what you wanted meant that they were using weasel words; is that how it goes?‑‑‑Yes.

1. At 3:27 pm (AWST) on 19 May 2016, Mr Tocknell texted Mr Arundell in the following terms:[393]

We've got a bit of work to get Jeffrey over the line - he's not happy!

3 key points being (1) some wording re maximising bonds in para 1, I.e. What Mitch took out; (2) some more specific wording re not prioritising confessionals in para 2; and (3) tightening up para 3.

Your sense on the above if I can draft something that again is fairly non comittal?

Mr Arundell forwarded this text by email to Mr Campbell and Mr Ross.

1. At 6:34 pm (I infer AEST) on 19 May 2016, Mr Tocknell sent Mr Markoff an email with proposed amended wording:[394]

Further to your earlier message and email below, I have amended as per the red Text below for your review, seeking to address your 3 key points:

(i) Include some additional wording in paragraph 1 re prioritising / maximising bonds.

(ii) Specifically refer to concessional residents in paragraph 2.

(iii) Tighten up paragraph 3.

Proposed wording:

• - The Purchaser and Vendor are aligned in respect to the Purchase's intention to continue benefit in the conduct of the Business post Completion, of pursuing Accommodation Bonds and Refundable Accommodation Deposits in respect of Residents who enter into Resident and Accommodation Agreements with the Purchaser after the Completion Date, which may include certain strategies to maximise Refundable Accommodation Deposits.
• - The Purchaser confirms that it will act in good faith and not act to deliberately decrease Accommodation Bonds and Refundable Accommodation Deposits including by actively prioritising concessional Residents, for the purpose of reducing the amount of the Deferred Payment (if any) due to the Vendor under clause 8.1.1.
• - The Purchaser and Vendor acknowledge that notwithstanding the above, certain factors, such as the Resident's ultimate choices of the Resident, and changes in applicable laws and other factors, are outside the control of the Purchaser in the conduct of the Business and may have a detrimental affect to the accumulation of the Bonds and Deposits.
• - The Purchaser will provide the Vendor with reports on the balance of Accommodation Bonds and Refundable Accommodation Deposits and the number of incoming and exiting Residents (Reports), such Reports to be provided on a semi-annual basis with the first Reports due to be provided by the Purchaser to the Vendor on the date that is six (6) months after the date of Completion.

• MercyCare would be confirming in the above that they intend to continue your policy of maximising bond income, to act in good faith, and to not deliberately act to decrease the bonds.
• Reasonable recognition is made to factors outside of their control, but that doesn't change what they are communicating to you in paragraph's 1 and 2.
• Bluntly speaking, 99% of buyers would tell us to bugger off if we tried to put any of the above language in a sale contract!
• The $6m is not guaranteed, it was always negotiated in good faith to be on a contingent basis, this is the commercial reality. What MercyCare are saying above though, is that they are aligned with you on the key issues that will drive the 6m payment - they achieve their intentions of continuing your policy, and you are both further in the money.

I can't guarantee that I can get all of the above amendments past MercyCare as the wording is very strong, but are you happy for me to go into bat for you based on the above amendments?

1. In cross-examination, Mr Markoff gave evidence that this was not sufficient:[395]

Was that sufficient for your purposes?‑‑‑No.

No?‑‑‑No.

And what about in the next dash point? Was his addition in red sufficient for your purposes?‑‑‑No.

And what about in the third dash point?‑‑‑I will make it easier by saying none of his suggestions would satisfy me.

All right. So then when we drop down past the proposed clause and he says 'my view on the above is as follows' and he sets out what his view is - see that?‑‑‑Yes.

You didn't accept that view?‑‑‑No.

Was it the case, Mr Markoff, that around this time, you started to appreciate that MercyCare was not going to accept your preferred wording with express reference to the policy and maximising and prioritising bonds?‑‑‑Well, at some stage, I can't remember whether it was May or June, but yes, there was a time when I thought that.

1. At 7:14 pm AEST on 19 May 2016, Mr Arundell sent Mr Tocknell a revised clause, asking:[396]

Can you work with this?

The Purchaser and Vendor are aligned in respect to the Purchaser's intention to continue, in the conduct of the Business post Completion, the policy of pursuing Accommodation Bonds and Refundable Accommodation Deposits in respect of Residents who enter into Resident and Accommodation Agreements with the Purchaser after the Completion Date, which may include certain strategies to maximise Refundable Accommodation Deposits.

The Purchaser confirms that it will act in good faith and not act to deliberately decrease Accommodation Bonds and Refundable Accommodation Deposits for the purpose of reducing the amount of the Deferred Payment (if any) due to the Vendor under clause 8.1.1.

The Purchaser and Vendor acknowledge that certain factors, such as the choice of the Resident, applicable laws and other factors, are outside the control of the Purchaser in the conduct of the Business.

The Purchaser will provide the Vendor with reports on the balance of Accommodation Bonds and Refundable Accommodation Deposits and the number of incoming and exiting Residents (Reports) such Reports to be provided on a semi-annual basis with the first Report due to be provided by the Purchaser to the Vendor on the date that is six (6) months after the date of Completion.

1. Mr Tocknell responded by email at 9:13 am (I infer AEST) on 20 May 2016:[397]

Thanks Adrian, that's a good start and very close to what I have proposed to Jeffrey (see below for what is with Jeffrey to review).

Can MercyCare accept the few additional amendments highlighted below?:

- The Purchaser and Vendor are aligned in respect to the Purchaser's intention to continue, in the conduct of the Business post Completion, of pursuing Accommodation Bonds and Refundable Accommodation Deposits in respect of Residents who enter into Resident and Accommodation Agreements with the Purchaser after the Completion Date, which may include certain strategies to maximise Refundable Accommodation Deposits.

- The Purchaser confirms that it will act in good faith and not act to deliberately decrease Accommodation Bonds and Refundable Accommodation Deposits including by actively prioritising concessional Residents, for the purpose of reducing the amount of the Deferred Payment (if any) due to the Vendor under clause 8.1.1.

- The Purchaser and Vendor acknowledge that certain factors, such as the choice of the Resident's ultimate choices, and changes in applicable laws and other factors, are outside the control of the Purchaser in the conduct of the Business.

- The Purchaser will provide the Vendor with reports on the balance of Accommodation Bonds and Refundable Accommodation Deposits and the number of incoming and exiting Residents (Reports) such Reports to be provided on a semi-annual basis with the first Report due to be provided by the Purchaser to the Vendor on the date that is six (6) months after the date of Completion.

The concessional residents wording is important to Jeffrey but I see it as just an example of the wording preceding it rather than adding any additional obligations.

'and other factors' is extremely vague but in any instance is again only an example for the preceding wording re 'certain factors' so hopefully is uncontentious.

Advising Jeffrey that the above is accepted by MercyCare will help a lot, so would appreciate at least a steer asap.

1. At 9:34 am AEST on 20 May 2016, Mr Tocknell sent an email to Mr Markoff reporting on what he had been able to negotiate:[398]

Further to yesterday's email, I am pleased to confirm that I have managed to negotiate the below position:

Green wording = is agreed by MercyCare. Red wording = I am still negotiating on but think I can get them to agree.

- The Purchaser and Vendor are aligned in respect to the Purchase's intention to continue benefit, in the conduct of the Business post Completion, of pursuing Accommodation Bonds and Refundable Accommodation Deposits in respect of Residents who enter into Resident and Accommodation Agreements with the Purchaser after the Completion Date, which may include certain strategies to maximise Refundable Accommodation Deposits.

- The Purchaser confirms that it will act in good faith and not act to deliberately decrease Accommodation Bonds and Refundable Accommodation Deposits, including by actively prioritising concessional Residents, for the purpose of reducing the amount of the Deferred Payment (if any) due to the Vendor under clause 8.1.1.

- The Purchaser and Vendor acknowledge that notwithstanding the above, certain factors, such as the Resident's ultimate choices of the Resident, and changes in applicable laws and other factors, are outside the control of the Purchaser in the conduct of the Business. and may have a detrimental affect to the accumulation of the Bonds and Deposits.

- The Purchaser will provide the Vendor with reports on the balance of Accommodation Bonds and Refundable Accommodation Deposits and the number of incoming and exiting Residents (Reports), such Reports to be provided on a semi-annual basis with the first Reports due to be provided by the Purchaser to the Vendor on the date that is six (6) months after the date of Completion.

I'll call you shortly to get your thoughts.

1. Mr Markoff was still of the view that the clause was not acceptable:[399]

And he emails you the following morning. So this is Friday, 20 May. And he's telling you that the parts in green have been agreed by MercyCare, and the parts in red he's still negotiating. But your position is the same, isn't it, that this is not an acceptable clause for you at this point?‑‑‑I'm not a lawyer, and it seemed to me that I - that it was not acceptable.

...

So one of the reasons it wasn't acceptable to you is because it didn't contain express reference to the policy of maximising and prioritising bonds?‑‑‑If that - well, that would be one of the reasons. Yes.

And there wasn't a reference to Mr Shao?‑‑‑That's right.

...

Now, just to be clear, this wording was not acceptable to you, was it?‑‑‑No.

Because it didn't refer to the policy of prioritising or maximising bonds?‑‑‑I do not remember what the - why it was not acceptable to me, like, at the time. I can't remember.

Was the wording about Mr Shao acceptable to you? Was the wording about Mr Shao acceptable to you?‑‑‑No.

So were there any, as far as you were concerned, weasel words in that clause?‑‑‑I do not know what stewardship work, and who's Craig to negotiate a contract?

So just to answer my question, as far as you were concerned, did you consider there to be any weasel words in that clause?‑‑‑The word 'stewardship' may have been.

Anything else?‑‑‑Okay. I will read the whole paragraph. The word 'pursuing may not be good enough'. I think I agreed to the word 'may', but I wouldn't now.

Well, it has been crossed out here?‑‑‑Okay. Yes. Good. That was good. So that's what I - that's what I can see from reading it.

So you wouldn't be happy about having 'may' in there?‑‑‑No. I think it did get in there, though, somehow.

All right. Any other weasel words?‑‑‑I'm sorry?

Any other weasel words?‑‑‑Well, to me, I can't find anything else.

1. At 10:05 am AEST on 20 May 2016, Mr Tocknell sent a further email to Mr Arundell:[400]

I have just had a long call with Jeffrey. Upshot is that I think the following wording will get him across the line. Seeing 'Nicholas Shao' in there is top priority for him getting comfortable.

- The Purchaser and Vendor are aligned in respect to the Purchaser's intention to continue, in the conduct of the Business post Completion, of pursuing Accommodation Bonds and Refundable Accommodation Deposits in respect of Residents who enter into Resident and Accommodation Agreements with the Purchaser after the Completion Date, which may includes certain strategies to maximise Refundable Accommodation Deposits under the stewardship of Nicholas Shao (or Nicholas' replacement if applicable).

- The Purchaser confirms that it will act in good faith and not act to deliberately decrease Accommodation Bonds and Refundable Accommodation Deposits, including materially increasing the mix of concessional Residents, for the purpose of reducing the amount of the Deferred Payment (if any) due to the Vendor under clause 8.1.1.

- The Purchaser and Vendor acknowledge that certain factors, such as the choice of the Resident's ultimate choices, and changes in applicable laws and other factors, are outside the control of the Purchaser in the conduct of the Business.

- The Purchaser will provide the Vendor with reports on the balance of Accommodation Bonds and Refundable Accommodation Deposits and the number of incoming and exiting Residents (Reports) such Reports to be provided on a semi-annual basis with the first Report due to be provided by the Purchaser to the Vendor on the date that is six (6) months after the date of Completion

FYI - Jeffrey is offline after 11am Sydney time so doesn't leave us long if we want to get this agreed today.

1. Mr Arundell forwarded this email to Mr Campbell, Mr Ross, Mr Artus and Ms Davies, with the comment:[401]

Seems our changed wording was received after Craig had suggested revised wording to Jeffrey - refer below.

1. There appears to have been a meeting between the representatives (but not Mr Markoff) on 20 May 2016. Following this meeting, Mr Tocknell sent an email on 21 May 2016 (which was a Saturday) to Mr Markoff, copied to Ms O'Connor:[402]

I am free at 10am Monday. Meagan, can you confirm that time works for you? I will send a meeting invite separately - Jeffrey we will call you on your mobile.

Tough negotiations continued on the deferred payment wording into yesterday evening. We have now received wording that MercyCare have signed off on. See below with green words being specific inclusions negotiated in relation to including Nicholas Shao and concessional residents in the wording...

- The Purchaser and Vendor are aligned with respect to the Purchaser's intention to continue, in the conduct of the Business post Completion, pursuing Accommodation Bonds and Refundable Accommodation Deposits in respect of Residents who enter into Resident and Accommodation Agreements with the Purchaser after the Completion Date, which includes certain strategies to maximise Refundable Accommodation Deposits. The Purchaser will involve Nicholas Shao while employed by the Purchaser (in a role reporting to the Purchaser's finance manager), or Nicholas' replacement if applicable, in the development and implementation of those strategies.

- The Purchaser confirms that it will act in good faith and not act to deliberately decrease Accommodation Bonds and Refundable Accommodation Deposits, including materially increasing the mix of concessional Residents, for the purpose of reducing the amount of the Deferred Payment (if any) due to the Vendor under clause 8.1.1.

- The Purchaser and Vendor acknowledge that certain factors, such as Resident's ultimate choices, and changes in applicable laws, are outside the control of the Purchaser in the conduct of the Business.

- The Purchaser will provide the Vendor with reports on the balance of Accommodation Bonds and Refundable Accommodation Deposits and the number of incoming and exiting Residents (Reports) such Reports to be provided on a semi-annual basis with the first Report due to be provided by the Purchaser to the Vendor on the date that is six (6) months after the date of Completion.

As discussed, MercyCare are very sensitive to what wording is used if it was ever to become public but have done all they can to show you they are aligned with you by including the wording you have requested.

Let's chat through on Monday.

1. Mr Markoff could not recall organising a phone conference for 10 am the next Monday.[403]
2. In relation to the second last paragraph ('As discussed, MercyCare...') Mr Markoff explained:[404]

What did you understand the sensitivity of Mercy was if something was to become public?‑‑‑My concern was always MercyCare's mission statement was to help the poor and underprivileged, whereas by - by maximising bonds and prioritising bonds, they were going against their mission statement, which was to help the poor and underprivileged.

1. On Monday 23 May 2016 at 9:26 am (I infer AEST), Mr Tocknell sent Mr Arundell an email which included recording an agreement on the Deferred Payment Clause:[405]
   1. Wording for deferred payment clause. The wording you proposed on Friday evening (below) is agreed.

The Purchaser and Vendor are aligned with respect to the Purchaser's intention to continue, in the conduct of the Business post Completion, pursuing Accommodation Bonds and Refundable Accommodation Deposits in respect of Residents who enter into Resident and Accommodation Agreements with the Purchaser after the Completion Date, which includes certain strategies to maximise Refundable Accommodation Deposits. The Purchaser will involve Nicholas Shao while employed by the Purchaser (in a role reporting to the Purchaser's finance manager), or Nicholas' replacement if applicable, in the development and implementation of those strategies.

The Purchaser confirms that it will act in good faith and not act to deliberately decrease Accommodation Bonds and Refundable Accommodation Deposits, including materially increasing the mix of concessional Residents, for the purpose of reducing the amount of the Deferred Payment (if any) due to the Vendor under clause 8.1.1.

The Purchaser and Vendor acknowledge that certain factors, such as Resident's ultimate choices, and changes in applicable laws, are outside the control of the Purchaser in the conduct of the Business.

The Purchaser will provide the Vendor with reports on the balance of Accommodation Bonds and Refundable Accommodation Deposits and the number of incoming and exiting Residents (Reports) such Reports to be provided on a semi-annual basis with the first Report due to be provided by the Purchaser to the Vendor on the date that is six (6) months after the date of Completion.

This email is said to contain what is defined in the EFASOC as the May 2016 Representation.[406] I will refer to this email as the 23 May Email.

1. Mr Markoff was then taken to this email in cross-examination. He said that he could not recall the 23 May Email and was not familiar with it (my italics):[407]

Let's go to 638. Now, you must recognise this email, Mr Markoff?‑‑‑I do not recall it, but I will read it. Yes, I see that.

You're very familiar with this email, aren't you?‑‑‑No, I'm not familiar with it, but obviously the purchaser and vendor agree for whatever.

So just come back to my question. You're not familiar with this document?‑‑‑No. Not off the top of my head.

All right. Let's go to the most recent version of the statement of claim, 6B, please. Paragraph 6B. Keep scrolling down, please, the next paragraph. Thank you.

You see paragraph 6B?‑‑‑I do.

You plead this email at that paragraph in your statement of claim. Still do not recall it?‑‑‑No.

And then if we go to 6G, you say, in subparagraph (b), that if MercyCare hadn't made the representations you say arise from that email, you wouldn't have continued negotiating the other terms of the contract?‑‑‑Yes.

Still do not remember it?‑‑‑No. But I remember - what were the representations made?

You do not remember that?‑‑‑No.

I see. So if we just go back to 638. Can you tell his Honour what representations arise from that email that you rely upon?‑‑‑The representation that Nicholas Shao would continue in the maximising and pursuing of bonds.

You say that representation is the one that arises from that email that you relied upon to continue negotiating the agreement?‑‑‑ Yes.

I see. Now, that wording changed, though, didn't it, in the sale and purchase agreement that was ultimately signed?‑‑‑Yes. There were lots of changes of words.

The wording changed from what's set out here in the email, didn't it?‑‑‑To what?

Just answer my question?‑‑‑I do not - you will have to show it to me.

So you're not sure, as you're sitting here, whether the wording in the contract for the deferred payment clause changed from this email?‑‑‑No, I'm not sure.

In any event, you knew that it was the wording that had been - that was agreed to in the SPA is the wording that you needed to get right?‑‑‑I thought it protected me.

You weren't relying on anything in an email negotiating wording. You were relying on the wording in the contract, weren't you?‑‑‑I do not know how the law works. It may have been relying on something else as well.

Well, what's your case, Mr Markoff?‑‑‑I - I - I'm not - I do not have a case. I'm saying I do not know. I - my lawyer said that was fine, so I thought of it as fine. My lawyer knew what I wanted, and I thought that was the contract.

The wording, as it was agreed and signed off in the sale and purchase agreement, Mr Markoff, that was the best you thought you could do, wasn't it?‑‑‑It wasn't the best I thought I could do. That's what I required to do. It wasn't a matter of - it wasn't a matter of anything else. That's what was required.

But it didn't have anything about the policy mentioned in it, did it?‑‑‑Yes, it did.

1. Mr Markoff was cross-examined as to what he would have done had the representation pleaded as arising from the 23 May Email not been made:[408]

Let's now go to a different topic, which is what you would have done if you had not entered into the sale and purchase agreement with MercyCare and Mercy Human Services on the terms that you did. So this is a new topic. In your statement of claim, the most recent version, you say that if MercyCare had not made the May 2016 representation - that's the 23 May email I took you to yesterday - you would have discontinued negotiating the other ‑ ‑ ‑?‑‑‑What was that representation? Just remind me.

Well, I asked you that, and you said you didn't know?‑‑‑Okay. Well ‑ ‑ ‑

Would you like to see the email again?‑‑‑Well, if I didn't know, I didn't know. It doesn't matter.

Let's pull it up for the sake of fairness...

...

429, I think we are.

You remember this email from yesterday?‑‑‑Yes, I do.

And part of your case is to say that if MercyCare hadn't made a representation that you've alleged in your pleadings in this email, you would have discontinued negotiating the other terms of the contract and instead would have required payments commensurate with what you say was your preferred value of 86 million to 102 million dollars?‑‑‑Yes.

Now, if we go to your current statement of claim, please, and I will just show you that at 6G. It's the passage that I've just read out. Do you see where it says the heading Particulars there at the bottom of page 4?‑‑‑Yes, I do.

And there's a small (i)?‑‑‑Yes.

And I was reading from that when I read the last line, 'commensurate with ACK's and Markoff's preferred value of 86 million to 102 million dollars'?‑‑‑Just one moment. Yes...

1. On 27 May 2016 at 5:56 pm (AEST), Ms O'Connor sent an email to Ms Davies, copied among others to Mr Markoff.[409] This contained a copy of the SPA with the amended recorded in track changes.[410] This draft contained clause 9.1.4.1 in accordance the text I have quoted at [484].
2. On 20 June 2016, Mr Artus sent Ms O'Connor a further draft of the SPA.[411] The amended text read:[412]

9.1.4.1. The Purchaser and Vendor are aligned with respect to the Purchaser's intention to continue, in the conduct of the Business post Completion, pursuing Accommodation Bonds and Refundable Deposits in respect of Residents who enter into Resident and Accommodation Agreements with the Purchaser after the Completion Date, which may include certain strategies to maximise Refundable Deposits. The Purchaser will involve Nicholas Shao while employed by the Purchaser (in a role reporting to the Purchaser's finance manager), or Nicholas Shao's replacement if applicable, in the development and implementation of those strategies.

9.1.4.2. The Purchaser confirms that it will act in good faith and not act to deliberately decrease Accommodation Bonds and Refundable Deposits, including materially deliberately increasing the mix of concessional Residents, for the purpose of reducing the amount of the Deferred Payment (if any) due to the Vendor under clause 9.1.1.

9.1.4.3 The Purchaser and Vendor acknowledge that certain factors, such as a Resident's ultimate choices, and changes in applicable laws, are outside the control of the Purchaser in the conduct of the Business and that any change as a result of these factors will not be a breach by the Purchaser of its obligations under this clause 9.1.

9.1.4.4 The Purchaser will provide the Vendor with reports on the balance of Accommodation Bonds and Refundable Deposits and the number of incoming and exiting Residents (Reports) such Reports to be provided on a semi-annual basis with the first Report due to be provided by the Purchaser to the Vendor on the date that is six (6) months after the date of Completion.

There was a comment next to the amendment to clause 9.1.4.1 which read: 'HWLE: it is not possible to pursue Accommodation Bonds for residents entering after the Completion Date'.

1. On 26 June 2016 at 5:07 pm (AEST), Ms Davies sent Ms O'Connor a further draft of the SPA, saying:[413]

Further to our telephone conversations on Friday and this afternoon, please see attached a further draft of the above. We have accepted all the changes shown in our last draft (sent to you on 20 June 2016) and marked up all further changes (including the agreed reinsertions of matters deleted in our previous draft).

Please note our client has yet to review this draft so it is provided on the basis that it is subject to instructions.

1. This text in [488] became the final text of the cl 9.1.4, save that the word 'materially' remained in clause 9.1.4.2.

During the course of negotiations on the SPA, as ACK and Markoff did not accept MercyCare's offer of $80 million for the Business and Business Assets and MercyCare would not pay more than $80 million, the parties agreed to a compromise by the inclusion of a deferred payment provision under which ACK would be entitled to a further amount (capped at $6 million) in certain circumstances as specified in paragraph 7 below.

On the basis of the evidence set out in this Part, I find these facts proven.

1. As at [416], I observe that nowhere in the extensive written or oral submissions did Counsel for the ACK Parties direct my attention to any document recording or evidencing that any employee of MercyCare knew that:

(a) Belrose Care had a policy of pursuing and prioritising the intake of, in general terms, non-concessional residents; or

(b) Belrose Care had a policy of increasing, to the extent possible, the amount of refundable deposits.

1. In the Plaintiffs' Closing Submissions, there is a submission to the effect that I could find that the Mercy Parties had this knowledge from the communications through which the Deferred Payment Clause was negotiated.[414] The initial text of the Deferred Payment Clause referred to a policy by Belrose Care to the same 'policies' as Belrose Care, to 'actively promote' bonds [446].[415] There are then references to the ACK Parties wanting:

(a) a clause to the effect that 'proactively seeking bonds includes delaying taking in a new resident to ensure that taking in bond residents is the priority' [448];

(b) 'a commitment in the SPA giving assurance that MC will run the operation commercially in regards to the RAD balances' [452]; and

(c) 'some wording re maximising bonds' and 'some more specific wording re not prioritising confessionals' [472].[416]

In my view, these few references in the course of extensive communications do not evidence the existence of the Pleaded Bond Policy, nor knowledge of it by MercyCare.

1. I remain of the view which I expressed at [425] that, prior to executing the SPA and the Land Contract, neither MercyCare nor Mercy HS, was aware that:

(a) Belrose Care had a policy of pursuing and prioritising the intake of, in general terms, bonded residents over concessional residents; or

(b) Belrose Care had a policy of increasing, to the extent possible, the amount of bonds and/or refundable deposits.

1. What is clear from these references, and the evidence in this Part as a whole, is that Mr Markoff wanted a commitment from MercyCare to prioritise and maximise bonds. What is also clear is that MercyCare was not prepared to give Mr Markoff a commitment in those terms. What MercyCare was prepared to do was agree to the final wording of SPA cl 9.1.4. Clause 9.1 gave Mr Markoff the opportunity, but not the entitlement, to receive a further payment. I make findings in these terms.

9. Terms of the Land Contract and SPA 9.1 Land Contract

1. Issue 5 is in broad terms: What are the relevant terms of the Land Contract?
2. The Land Contract was between ACK as trustee for the Markoff Superannuation Fund (No 2), Mr Markoff, Mercy HS and MercyCare.[417] It was executed on or about 1 July 2016.[418]
3. The vendor of the land for Grandview was ACK as trustee for the Markoff Superannuation Fund (No 2). The legal and beneficial owner of the remaining land was Mr Markoff at the time of execution, but would be ACK as trustee for the Markoff Superannuation Fund (No 2) at the time of settlement.
4. Mercy HS was the purchaser. MercyCare guaranteed the performance by Mercy HS of its obligations under the Land Contract.
5. The purchase price for the four properties was $50 million.
6. The Mercy Parties place particular reliance on the 'Entire Agreement' clause:[419]

(a) This Contract and the Business Asset Sale Agreement constitute the entire agreement between the parties with respect to the subject matter of this Contract and the Business Asset Sale Agreement and contain all of the representations, warranties and agreements of the parties in relation to the subject matter of this Contract and the Business Sale Agreement as at the Contract Date.

(b) The parties acknowledge they have not relied on any oral statement, representation, undertaking or agreement made before the Contract Date relating to the subject matter of this Contract and not contained in this Contract or the Business Asset Sale Agreement.

1. Beyond that the terms of the Land Contract are not relevant to the determination of the issues in dispute.[420]

1. The SPA was between ACK (Vendor), Mr Markoff (Vendor Principal), Mercy HS (Purchaser) and MercyCare (Guarantor).[421] It was executed on 1 July 2016.
2. In broad terms, by the SPA:

(a) ACK agreed to sell the business which I have defined as Belrose Care to Mercy HS as a going concern;

(b) Mr Markoff agreed to certain restraint of trade; and

(c) MercyCare agreed to guarantee the performance of the obligations of Mercy HS under the contract.

1. By cl 3.1 and cl 3.4, the SPA was collateral and interdependent with the Land Contract and Completion having to occur simultaneously with 'Settlement' as defined in the Land Contract.
2. The SPA provided for payment of the purchase price in three tranches.[422] The first was a deposit of $3 million payable within five business days of execution of the SPA, which was to be released to ACK in accordance with the terms of the SPA. The second was a payment on Completion, being $27 million, subject to some adjustments on Completion.[423]
3. The third tranche was the Deferred Payment. That phrase was defined in cl 2.1.40 to mean 'the monies potentially payable by the Purchaser to the Vendor pursuant to clause 9.1'. Given its centrality to the issues in dispute, I will quote SPA cl 9.1 in full:

9.1.1 Subject to clauses 9.1.2 and 9.1.3, the Purchaser must pay to the Vendor an amount equal to 50% of the amount by which the Subsequent RDB/ABB Adjustment Amount exceeds the Actual RDB/ABB Adjustment Amount (Additional RAD Balance).

9.1.2 If the Additional RAD Balance is less than $2 million, no payment is due to the Purchaser under clause 9.1.1.

9.1.3 The maximum amount payable by the Purchaser to the Vendor under clause 9.1.1 is $6 million.

9.1.4 The Purchaser acknowledges and agrees:

9.1.4.1 The Purchaser and Vendor are aligned with respect to the Purchaser's intention to continue, in the conduct of the Business post Completion, pursuing Refundable Deposits in respect of Residents who enter into Resident and Accommodation Agreements with the Purchaser after the Completion Date, which may include certain strategies to maximise Refundable Deposits. The Purchaser will involve Nicholas Shao while employed by the Purchaser (in a role reporting to the Purchaser's finance manager), or Nicholas Shao's replacement if applicable, in the development and implementation of those strategies.

9.1.4.2 The Purchaser confirms that it will act in good faith and not act to deliberately decrease and Refundable Deposits, including materially increasing the mix of concessional Residents, for the purpose of reducing the amount of the Deferred Payment (if any) due to the Vendor under clause 9.1.1.

9.1.4.3 The Purchaser and Vendor acknowledge that certain factors, such as a Resident's ultimate choices, and changes in applicable laws, are outside the control of the Purchaser in the conduct of the Business and that any change as a result of these factors will not be a breach by the Purchaser of its obligations under this clause 9.1.

9.1.4.4 The Purchaser will provide the Vendor with reports on the balance of Accommodation Bonds and Refundable Deposits and the number of incoming and exiting Residents (Reports) such Reports to be provided on a semi-annual basis with the first Report due to be provided by the Purchaser to the Vendor on the date that is six (6) months after the date of Completion.

1. The ACK Parties define cl 9.1.4.1 as the Alignment Term, which I will adopt. They define cl 9.1.4.2 as the Express Good Faith Term, which I will also adopt.
2. There then follows a series of examples as to how the Deferred Payment is to be calculated.[424] The balance of SPA cl 9 deals with the calculation and mechanics of payment.
3. The phrase 'Subsequent RDB/ABB Adjustment Amount' is defined in SPA s 2.1.100 to mean:

Subsequent RDB/ABB Adjustment Amount means the sum of:

2.1.100.1. an amount equal to the difference between:

2.1.100.1.1. the amount of all Refundable Deposits that have been paid to the Vendor or the Purchaser and have not been repaid; and

2.1.100.1.2. any amounts that have been, or are permitted to be, deducted or retained by the Purchaser from the Refundable Deposits under the Act as at that time, and under the Resident and Accommodation Agreement and the Resident Agreement; and

2.1.100.2. an amount equal to the difference between:

2.1.100.2.1. the amount of all Accommodation Bonds that have been paid to the Vendor or the Purchaser and have not been repaid; and

2.1.100.2.2. any amounts that have been, or are permitted to be, deducted or retained by the Purchaser from the Accommodation Bonds under the Act as at that time, and under the Resident and Accommodation Agreement and the Resident Agreement;

each as at midnight on the 2 year anniversary of Completion;

1. The phrase 'Actual RDB/ABB Adjustment Amount' is defined in SPA cl 2.1.12 to mean:

Actual RDB/ABB Adjustment Amount means an amount equal to Refundable Deposit Balance and the Accommodation Bond Balance both as at midnight on the day of Completion;

1. The phrase 'Accommodation Bond' or 'AB' is defined in SPA cl 2.1.1 to mean:

Accommodation Bond or AB means, in relation to a person, an amount of money that does not accrue daily and is paid or payable to the Vendor for the Resident's entry, prior to 1 July 2014, to the Facility through which care is, or is to be, provided by the Vendor, and in respect of which the Vendor holds a Licence but for the avoidance of doubt does not include any interest accruing on the Accommodation Bond which interest the Vendor is entitled to retain;

1. The phrase 'Accommodation Bond Balance' is defined in SPA cl 2.1.2 to mean:

Accommodation Bond Balance means in relation to all Accommodation Bonds (other than any accommodation bond that is to be paid by periodic payments), at a particular time, an amount equal to the difference between:

2.1.2.1 the amount of all Accommodation Bonds that have been paid to the Vendor and have not been repaid; and

2.1.2.2 any amounts that have been, or are permitted to be, deducted under the Act, the Aged Care (Transitional Provisions) Act 1997 as at that time and the relevant Resident and Accommodation Agreements and the relevant Resident Agreements; and

2.1.2.3 less the amount of any Accommodation Bond Interest;

but for the avoidance of doubt, does not include Accommodation Bonds received by the Purchaser on or after Completion paid pursuant to a Residential Agreement entered into between the Vendor and the relevant Resident prior to Completion and does not include the Actual Unpaid Bond Balance;

1. The phrase 'Refundable Deposit' or 'RD' is defined in SPA cl 2.1.86 to mean:

Refundable Deposit or RD means each Accommodation Contribution or Accommodation Payment that:

2.1.86.1 does not accrue daily; and

2.1.86.2 is paid as a lump sum by or on behalf of the relevant Resident;

but for the avoidance of doubt does not include any amount that is included in an Accommodation Bond;

1. 'Accommodation Contribution' is defined to in effect mean at RAC[425] and 'Accommodation Payment' to in effect mean a RAD.[426]
2. The phrase 'Resident and Accommodation Agreements' in defined in SPA cl 2.1.91 to mean:

Resident and Accommodation Agreements means the contracts entered into by the Vendor and each relevant Resident who entered into care on or after 1 July 2014;

1. The phrase 'Refundable Deposit Balance' or 'RDB' is defined in SPA cl 2.1.87 to mean:

Refundable Deposit Balance or RDB means, in relation to the Refundable Deposits, at a particular time, an amount equal to the difference between:

2.1.87.1 the amount of all Refundable Deposits that have been paid to the Vendor and have not been repaid; and

2.1.87.2 any amounts that have been, or are permitted to be, deducted or retained by the Vendor from the Refundable Deposits under the Act as at that time and the relevant Resident and Accommodation Agreements and the Resident Agreements,

but for the avoidance of doubt does not include any amount that is included in an Accommodation Bond Balance or the Actual Unpaid Bond Balance;

1. Schedule 4 contained a series of conditions to Completion. The seventh condition is: 'There is no Material Adverse Effect as at the Completion Date'. The phrase 'Material Adverse Effect' is defined in cl 2.1.73 to relevantly include:

2.1.73.3.1 the Refundable Deposit Balance; and

2.1.73.3.2 the Accommodation Bond Balance,

(excluding Accommodation Bonds and Refundable Bonds paid by persons who have ceased to be Residents) is greater than $51 million; or

2.1.73.4.1 the Refundable Deposit Balance; and

2.1.73.4.2 the Accommodation Bond Balance,

(excluding Accommodation Bonds and Refundable Bonds paid by persons who have ceased to be Residents) is less than $45 million ...

1. The ACK Parties also rely on the 'Further Action' clause in SPA cl 26.10, which reads:[427]

26.10 Further Action

Each Party must do or cause to be done all acts and things necessary or desirable to give effect to this Agreement and refrain from doing all acts and things that could hinder performance by any Party.

The ACK Parties defined this term as the Duty to Co-Operate, which I will adopt.

1. The ACK Parties then assert that the contained 'a term implied in law that the parties would do all things as necessary to enable the other party to have the benefit of the SPA'.[428] I will refer to this as the Implied Term.
2. The ACK Parties rely on SPA cl 15.1.1 in relation to Mr Shao. That clause provides:

15.1.1 Not less than 10 Business Days prior to the Completion Date (and in respect of any Employees hired by the Vendor during the 10 Business Days prior to Completion as soon as practicable after the hiring of that Employee by the Vendor), the Purchaser must offer in writing to employ all Employees, other than the Excluded Employees, with effect from the Completion Date, in a position substantially similar to the Employee's position immediately prior the Completion Date and on terms and conditions of employment no less favourable than the Employee's current terms and conditions.

Mr Shao was not listed as an 'Excluded Employee' in Schedule 1 (only Mr Markoff and Ms Holt). Mr Shao is also listed in SPA cl 2.1.63 as one of the 'Key Personnel'.

1. The ACK Parties rely specifically on three further clauses which deal with the indemnity provided by MercyCare:[429]

(a) by cl 14.2.2, Mercy agreed to indemnify ACK in respect of any loss which ACK may sustain or incur 'by reason or on account' of any non-performance of any terms of the SPA;

(b) by cl 26.5, Mercy agreed that if it defaulted in the performance of any of its obligations under the SPA it would pay to the 'Plaintiffs' who exercise any right, seek a remedy conferred under the SPA or otherwise, the fair and reasonable costs incurred by the 'Plaintiffs'; and

(c) by cl 19.1.3, MercyCare agreed to indemnify ACK against all loss resulting from ACK having entered into the SPA including from Mercy's failure to perform its obligations under the SPA.

1. The Mercy Parties rely on two further clauses of the SPA. The first is the Entire Agreement clause in cl 26.7:[430]

This Agreement constitutes the sole and entire agreement between the parties and no warranties, representations, guarantees or other terms or conditions of any nature not contained and recorded therein will be of any force or effect.

1. The second is the Implied Terms clause in cl 26.8:[431]

Any terms, conditions, provisions, covenants or powers which would otherwise apply to or be implied in this Agreement by virtue of any law shall not apply to or be implied in this Agreement except to the extent included in the express terms of this Agreement and only to the extent to which such covenants or powers are not capable of exclusion under any such law.

10. Execution to Completion 10.1 Issues arising

1. In between execution of the SPA and Land Contract on 1 July 2016 and Completion on 27 September 2016 there were three matters of significance to the present dispute. The first is the manner in which Belrose Care dealt with bonds. The second is the conversations between Mr Markoff and executives of MercyCare. The third is what happened at a meeting on 21 September 2016 convened by Ms Ingleton. There were also some matters relating to the employment of Mr Shao by Mercy HS which I will deal with in Part 14.

10.2 The manner in which Belrose Care dealt with bonds

1. On 26 July 2016, Mr Markoff sent Mr Tocknell, copied to Ms O'Connor, an email about bonds:[432]

We have about $49 million in Bonds. The last few months I have made sure our income is up [what with Government cutbacks] but at the expense of Bonds so that we owe about $4 million leaving a nett Bond Position of about $45 million. We have a couple of palliative residents who are unlikely to last more than a few weeks. This may put our Bond position below the $45 million mark.

When new residents come into the facility they often say they intend to pay a Bond but in fact do not. I do not want them [Mercycare] to say we have these bonds coming in [at the final adjustment] when in fact they will not. That is why the Bond tally for settlement has to be cash in hand less money owed which at settlement will be about $45 million, but maybe a little less.

After Residents and Staff this has always been my real area of concern as I am sure the $12 million additional Bonds can be achieved in two years as we have come off our high to ensure income as required in the contract. This is the opposite to our policy of maximising Bonds. I wanted you to be aware of this position and there to be no disputes at the last minute although I am sure there will not be.

This email chain contains other correspondence about the mechanics of the adjustment of bonds at settlement which it is not necessary for me to quote.

1. Mr Markoff was again cross-examined on the basis that what was in the email was inconsistent with the Pleaded Bond Policy:[433]

So, Mr Markoff, looking at the email that you sent Mr Tocknell that's in front of you now, in the first paragraph, the second sentence:

The last few months, I have made sure our income is up, what with government cutbacks, but at the expense of bonds ‑ ‑ ‑

Etcetera. You confirm that that is what you had been doing?‑‑‑I didn't - no. I - I didn't ‑ ‑ ‑

But this is your email to Mr Tocknell?‑‑‑Yes. But I can't remember doing that.

You say:

The last few months, I have made sure our income is up, but at the expense of bonds.

?‑‑‑Well, it must be. I must have said it because it's there.

All right. And in the bottom paragraph, the second sentence after you say - sorry. I will go back. The first sentence in the last paragraph:

After residents and staff, this has always been my real area of concern, as I am sure the $12 million additional bond can be achieved in two years as we have come off our high to ensure income as required in the contract.

You see that?‑‑‑Yes.

So this was your position, was it, that as long as you reduced the total bond balance as much as possible before completion, you were bound to get the $6 million under the deferred payment clause?‑‑‑No.

When you say, in the next sentence:

This is the opposite to our policy of maximising bonds.

That is a reference to coming off your high of bonds and increasing income?‑‑‑That's what it is.

All right. And that was the thing that you had been doing for the last two months or last few months. I beg your pardon?‑‑‑Well, it would seem so.

Yes. And the policy of maximising bonds that you are referring to is the direction that you would give from time to time to the Directors of Nursing and Mr Shao about getting bonds in?‑‑‑Yes.

1. On 2 August 2016, Mr Shao sent the DON's an email dealing with the mix of residents to take:[434]

We have now reached our targeted bond bench mark and would like to be flexible on taking mix of Concessional and Bonded resident, please be aware that we now will take bonded residents which can make payment within a month. But also we will still take high care concessional. Please if you can let me know who you are taking before you admit any resident. Just need to make sure the ratio will be right before end of September.

Thank you all for the hard work to get the bonded/concessional residents in, I trust after September we will again switch back to taking bonded resident only, by then your life will be so much easier.

1. Mr Markoff accepted that this email reflected instructions that he had given to Mr Shao. He also accepted that it was not consistent with the policy of maximising bonds alleged in the action.[435]
2. Mr Shao said of his email of 2 August 2016:[436]

The minimum bond - sorry - the targeted bond benchmark that you refer to here was the minimum bond balance required at completion under the sale and purchase agreement, wasn't it?‑‑‑Yes.

Yes. You understood, didn't you, at this point that Mr Markoff wanted to maintain the bond balance as close to that minimum as possible?‑‑‑Yes.

So you directed the facility managers to be flexible on taking a mix of concessional and bonded residents for that purpose?‑‑‑Yes.

1. Ms Cowcher agreed this email showed Mr Shao letting the DONs know the bond target had been reached and there was now flexibility to take concessionals. Ms Cowcher added that if Mr Markoff and Mr Shao were giving conflicting directions, she would follow the direction of Mr Markoff.[437]
2. On 4 August 2016, Mr Shao sent the DON's an email dealing with the mix of residents to take:[438]

Just to confirm from now on we no longer taking any concessional resident, this is Jeffrey officially told me after the lunch yesterday. He would like to take resident, either will pay bond now or paying bond later. He said we now have enough concessional resident in the facility and we back to what we use to do now. This is due in part of the sale contract condition that bond balance cannot below $45m and now we are very close to that bottom line.

Please from now on if you can briefing me before confirm/admit resident to ensure that we are happy to accept the resident from financial point of view. Thanks.

1. Mr Shao accepted that this was a change in position from the email two days before. As to why:[439]

So that was the reason for it, wasn't it, that you were looking for bonds again to make sure you didn't go below that ‑ ‑ ‑?‑‑‑Yes.

‑ ‑ ‑ threshold in the contract?‑‑‑Mmm.

1. Ms McDougall agreed that in the two days from 2 August to 4 August, the direction from Mr Markoff to the DONs changed from taking a mix of concessional and rent-paying residents to no longer taking any concessional residents.[440]
2. As to Mr Shao's recollection:[441]

So can I summarise it this way, Mr Shao. Do you agree that in the period between the execution of the sale and purchase agreement and completion, the objective at Belrose Care was to keep the bond balance as low as possible without going below the threshold, the minimum threshold under the SPA?‑‑‑Yes.

And you gave directions to the facility managers from time to time to achieve that objective, didn't you?‑‑‑Yes.

1. Mr Markoff was cross-examined to the effect that this was inconsistent with the policy of maximising bonds alleged in the action:[442]

So that reflected a direction that you gave Mr Shao two days later?‑‑‑Yes.

Would you say that was consistent with the policy of maximising bonds?‑‑‑That policy changed from day to day due to the contract...with MercyCare.

1. Completion was on 27 September 2016. The Actual RDB/ABB Adjustment Amount (as defined in the SPA) as at Completion was $44,302,508.10 (Issue 3).[443]
2. At Completion, the actual proportion of concessional residents at each facility was as follows (along with the minimum):[444]

The data for the specified dates has been captured from the '% achieved for service' data in the Supported Resident Ratio summary tables contained in the Medicare Payment Statements.[445] I observe that these numbers represent a marked increase in the proportion of concessional residents over the preceding 12 months from an average across all facilities of 21% ([335]). This was despite the considerable efforts of Belrose Care staff set out in some detail at [215] - [266].

1. I find the facts set out in this section, including the perceptions of the witnesses, proven.

10.3 Conversations between Mr Markoff and executives of MercyCare

1. Prior to the SPA and the Land Contract being signed, Mr Markoff did not have any discussions with representatives of MercyCare directly about their terms.[446]
2. After execution, but before Completion, there were two such conversations.
3. The first was in a telephone conference call with Mr Holden and about five other people. Mr Markoff gave evidence that he wrote down what he wanted to say in his diary then read it directly out to Mr Holden. His diary was in evidence. His note was:

The bond issues was the other major issue for me so I was happy to have you agree that things would continue as they have in the past under Nicholas Shao. It is in both our interests that this policy continue.

Mr Markoff's note of the reply from Mr Holden was: 'We signed off this, so we are happy'.[447]

1. In cross-examination, Mr Markoff confirmed that he wrote out the question he was going to ask Mr Holden in advance so that he had it as an accurate record of exactly what he put to Mr Holden. As to why:[448]

And the reason you did that was because you were hoping to elicit an answer from him that would be helpful in any claim you might bring against MercyCare in the future?‑‑‑If necessary, yes.

Yes. So let's go to 360. I'm sorry about that. I had the wrong reference in my notes. Just scroll down to this page 912. This is PDF page 2. This is in the middle of the page what you had written out beforehand?‑‑‑Yes.

And you wrote that because you knew that the clause you had signed was not sufficient to protect your position?‑‑‑No.

You wanted to be able to say that MercyCare had represented to you that things would stay as they had in relation to bonds under Nicholas Shao once they took over the business?‑‑‑Yes.

And you thought that might be helpful in a legal claim?‑‑‑I was hoping I was wrong, but just in case.

Well, you were trying to entrap Mr Holden to make some kind of admission, weren't you? Well, you scoff, Mr Markoff, but that's exactly what you were trying to do, weren't you?‑‑‑I was trying to - to get him just to reinforce what - what had already been agreed.

Do you think that's amusing ‑ ‑ ‑?‑‑‑No. I think what you ‑ ‑ ‑

‑ ‑ ‑ what I just put to you? Do you think it's amusing what I just put to you?‑‑‑No, I don't.

So let's drop down to the next page. And you didn't write these words that you attribute to Mr Holden as he spoke them, did you?‑‑‑It was a couple of minutes after. Yes.

Right. And you can't be sure that you had it exactly as he said it?‑‑‑If it's not exactly, it's pretty much exactly.

It's not exactly. He said, 'We signed off on this so we are happy.' You understood him to say, 'Well, we've signed the SPA'?‑‑‑Yes.

Yes. And that's the effect of what Mr Holden said to you, wasn't it, that MercyCare would run the business in accordance with the SPA?‑‑‑Yes.

And as far as you were concerned and understood from this conversation, he simply confirmed to you what you already knew was that MercyCare was going to stick by the wording of the contract?‑‑‑Yes.

1. Mr Holden gave evidence of a phone call he had with Mr Markoff in which Mr Markoff emphasised the importance of the Deferred Payment Clause to the SPA. Mr Holden recalled telling Mr Markoff that MercyCare would comply with the SPA.[449]
2. Mr Holden's evidence is consistent with that of Mr Markoff.
3. I find that this first conversation took place in the terms of the evidence of Mr Markoff and Mr Holden. The key point is that Mr Holden said that Mercy HS was going to run the Belrose Care businesses it had acquired in accordance with the SPA.
4. The second occasion was during a walk-through of the Belrose Facilities on 2 August 2016. The walk-through was organised by Liverpool Partners. From MercyCare, Mr Hall, Mr Calogero and Mr Holden attended. Some key messages for staff appear to have been agreed, but are not material to the issues in dispute.[450]
5. Mr Holden's recollection of this visit was that the facilities were tired and had not been maintained to the standard Mercy HS would have expected.[451]
6. Mr Markoff gave evidence of a conversation outside Orange Grove with Mr Hall. His evidence of the conversation was:[452]

And to the best of your recollection, what was the substance of that discussion?---I, first of all, said to him, 'I hope you're going to keep the' - we had service badges. That is people got a badge for one year service, three year service, five year service, and the staff loved them. And I said, 'Look, I hope you're going to keep the service badges. It costs you nothing, and the staff love them'. And he said - he said, 'Yes, but let's just let - have things settle down first'. And the second thing I said, 'Now, you're going to equalise the - the salaries between our organisation and your Wembley organisation'. MercyCare had to pay their people a lot more than - than we had to pay our people. We were a very desirable employer. And he said, 'Yes. Yes. We will - we will do that, but we won't do it immediately'. And then I said - I said, 'Well, the issue that mainly concerns me was that the - that you honour the Nicholas Shao clause and maximise bonds'.

And what did he say in response, to the best of your recollection?‑‑‑His reply was - he was offended almost and said, 'We're a Catholic organisation, Jeffrey. We wouldn't do anything wrong'.

1. Mr Markoff's recollection of this conversation was challenged in cross‑examination, however he remained confident in the accuracy of his recollection.[453] Mr Hall did not give evidence. Accordingly, I find that this second conversation took place in the terms of the evidence of Mr Markoff.

At a meeting of, among others, the management staff of Mercy held six days prior to Completion, on 21 September 2016, Mercy's Director of Residential Care, Margaret Ingleton, informed all present that:

(a) she was responsible for reviewing the admission of future residents into the Business Facilities; and

(b) when Mercy took over the Business Facilities, 40% of future residents admitted would be Concessional Residents.

Particulars

The attendees at the meeting included Margaret Draper and Nicholas Shao.

1. The Mercy Parties admit that a meeting took place on 21 September 2016 which Ms Ingleton chaired and that a power point was prepared for the purpose of that meeting, which was referred to during that meeting, but otherwise deny the paragraph.[455]

1. Turning to the evidence, Ms Draper was the DON at Tanby Hall (Rockingham) as at 21 September 2016, though was soon to retire. She died on 14 July 2024, well before the trial. The ACK Parties sought to admit a handwritten note made by her (Draper Note) in the presence of Mr Markoff on 21 September 2016.[456] Mr Markoff said that the meeting took place in his office at the Belrose Care head office in Maddington, and that in addition to Ms Draper, Mr Shao was also there. The Draper Note was prepared at his request.[457] The Draper Note is on Belrose Care notepaper. It reads:

Meeting at Mercy Care 21.9.2016

Margaret Ingleton said that when Mercy Care takes over 40% of admissions will be concessional.

Maintenance personal Gary stipulated that no more risk taking was to occur. He is available 24/7 for emergency problems. Also indicated that if something was to break more than 5 times then do not fix. Get a new one.

I asked Margaret Ingleton who to call for information on bonds suggesting Nicholas and she replied that I must run all questions past her.

[signature]

Margaret Draper

1. Counsel for the Mercy Parties objected to the admission. In a separate decision, I ruled that it was admissible pursuant to Evidence Act 1906 (WA) (EA) s 79C(1)(a).[458] For the reasons which I set out in that decision, I was also of the view that the Draper Note was probative, but of minimal weight, and that the Mercy Parties would not be unduly prejudiced by its admission. So I did not reject its admission on discretionary grounds.[459] I remain of the view that I expressed in that decision that the fact that the statements in the Draper Note cannot be tested by cross-examination makes it difficult for me to place any meaningful weight on them.

1. On 20 September 2016, about a week before Completion, Mr Shao emailed Mr Markoff, sending him a copy of the agenda for the 21 September 2016 meeting. Mr Markoff responded by email saying: 'Make notes'.[460] As to why:[461]

And the reason you wanted him to make notes was because you wanted a record of anything said on behalf of the Mercy parties at that meeting that might strengthen your position in respect of a claim to do with the deferred payment clause?‑‑‑Yes.

And did you have a conversation with Mr Shao before that meeting in which you identified the topics that you were interested in hearing if anything was said about them?‑‑‑I do not think so.

Had you discussed with Mr Shao your concerns that the facilities would be operated at a 40 per cent concessional resident ratio?‑‑‑Yes.

And that is because you understood that that was the ratio that Wembley was operating at?‑‑‑I think I had that discussion with him.

Did you ask Mr Shao to make a note of anything said about him not having responsibility for RADs in his new role?‑‑‑Not specifically.

Had you discussed with Mr Shao your concerns he would not be given that responsibility?‑‑‑No.

1. Mr Markoff cannot give any admissible evidence as to what occurred at the 21 September 2016 meeting.

1. Mr Shao gave evidence that he attended an integration meeting at which he met Ms Ingleton. He could not recall the date of the meeting. It is common ground that this is the 21 September 2016 meeting. Mr Shao said that at this time he was still assisting Mr Markoff with the financial aspects of completing. He could not recall seeing the agenda for the meeting, though he accepted that he had emailed a copy of it to Mr Markoff on 20 September 2021. He assumed that he did so at Mr Markoff's request, Mr Markoff still being his employer at that time. He understood Mr Markoff's response to this email to be to the effect that he had to make notes and send them to Mr Markoff. He thought that this was appropriate as he was still an employee of Belrose Care.[462]
2. In cross-examination, Mr Shao said that before he attended the meeting, he was not expecting anyone from Mercy HS to say anything about its approach to attracting bonded residents.[463] Mr Markoff had not, before he sent the agenda, discussed with Mr Shao his concerns that the facilities would be operated at a 40% concessional resident ratio. However, Mr Shao did understand from Mr Markoff, before he went to the 21 September 2016 meeting, that if someone on behalf of the Mercy Parties said, at this meeting, that the facilities would be operated at a 40% concessional resident ratio, that would be helpful to Mr Markoff. However, he did not understand from Mr Markoff, before he went to the meeting, that if someone on behalf of the Mercy Parties said at the meeting that he would not have any specific responsibility for attracting or managing RADs while employed by Mercy HS, that that would be something helpful for Mr Markoff to know.[464]
3. Mr Shao went to the meeting with Ms Draper, whom he accepted was his best friend at Belrose Care. Mr Shao did not make any notes of the meeting, but did so later that day or the following day.[465]
4. Mr Shao did not recall having a meeting with Mr Markoff and Ms Draper in the Belrose Care head office after the 21 September 2016 meeting. Rather, he thought he had a telephone call with Mr Markoff. As to what was said:[466]

Did he ask you whether Ms Ingleton or anyone else from Mercy had said anything about intended or - intended concessional resident ratios at the Belrose Care facility after completion?‑‑‑Yes.

Did he ask you whether Ms Ingleton or anyone else from Mercy had said anything about an intended 40 per cent concessional resident ratio at the Belrose Care facilities after completion?‑‑‑Yes.

Did he ask you whether Ms Ingleton or anyone else from Mercy had said anything about your role in admissions at the Belrose Care facilities after completion?‑‑‑On the meeting, no.

Pardon?‑‑‑We haven't discussed this on the meeting.

I'm sorry, I just can't quite ‑ ‑ ‑?‑‑‑Well, there's no discussion about this topic on the meeting.

1. Mr Shao's notes of the meeting read as follows:[467]

Report of Meeting held at Mercy Care Head office 21st Sep 2016

Meeting was hold on 21st Sep at Mercy Care head office with all manager attend, the new Direct of residential care Ms Margaret Ingleton gone through all the business actives need to take care of after transfer, policy and procedures to be follow as well. On the meeting Margaret confirm all the resident intake/admission will be reviewed by her and aiming 40% concessional to maximize the ACFI income.

I also notice the employment with Mercy might not be continued after transfer happened. This based the fact below:

1. Detailed job description never been provided, only advice business as usual and after transfer they will figure out something for me to do.
2. Email address was created to me not based on their staff standard format, being initial plus surname, temperate email address was given to me as nicholas@mercycare.com.au .
3. Business card was provided to all the other managers but not me.
4. During transfer period, all terms and conditions Mercy offered to their manager has not been offered to me, include a business credit card and corporate car/parking.
5. Mercy only request information from me and did not provide any feedback/information to me about my employment and future plan.

1. In cross-examination, Mr Shao confirmed that Ms Ingleton did not say anything about his role. As to the statement about concessional residents:[468]

And then you go on to say, I assume it reads this way:

On the meeting, Margaret confirm aiming 40 per cent concessional to maximise the ACFI income.

See that?‑‑‑Yes.

Were you expecting her to say that?‑‑‑No.

They were not her exact words though, were they? You wouldn't have been able to remember those the following day, exactly what she said?‑‑‑I won't remember exactly what, that's right.

Pardon?‑‑‑I won't remember exactly what she says, but she means she want to take 40 per cent concessional.

So are you - have you written down here what you thought she meant, or what the words were that she actually spoke?‑‑‑She speak 40 per cent, yes.

She said 40 per cent?‑‑‑Yes.

And you remember that?‑‑‑Yes.

You do not remember, though, whether she was talking about the Wembley facility or the - the existing Wembley facility that Mercy Care was operating, or the Belrose Care facilities?‑‑‑She talk about the Belrose facility because we never - on that meeting, she never mentioned any word about the Wembley facility.

So you're saying that she used the language of - that the actual words were, 'Margaret' - so sorry. I will go back a step. Just tell me what she said exactly word for word about the 40 per cent?‑‑‑I want to remember, but ‑ ‑ ‑

GETHING J: What can you remember?‑‑‑On that meeting, I know that Wembley facility never on that topic. It has never been mentioned.

CAHILL, MS: So that's ‑ ‑ ‑?‑‑‑So everything is about ‑ ‑ ‑

That's what she didn't say?‑‑‑Yes.

Please just tell me the exact words she did say?‑‑‑I do not know what she exactly say, but she talked to all the facility manager how to operate the business because all the facility managers attend the meeting, they want to go to Wembley, they are managing their own facility, and she aiming to get a 40 per cent concessional ratio to meet - to maximise the ACFI.

I suggest to you, Mr Shao, that Ms Ingleton did not say anything like that in the meeting and that all that you were doing was reflecting in the statement something that you thought Mr Markoff would like to hear?‑‑‑After the meeting, we actually discussed - I discussed with a few facility manager. They all confirmed they have that impression the - Margaret means to get a 40 per cent concessional.

Right. So - but not by email. Just verbally you had this discussion, so there's no ‑ ‑ ‑?‑‑‑Yes. We just called. Yes.

Yes. So there's no contemporaneous emails that would support what you're saying?‑‑‑No.

No. And you didn't query what she said in the meeting?‑‑‑No.

Didn't say, 'My goodness me. What about bonds? How are we going to get bonds in if you've got 40 per cent concessional residents?'? Nothing like that?‑‑‑No.

1. Mr Shao took annual leave between 26 September and 7 October 2016.[469]
2. On 12 October 2016, Mr Shao sent Ms Ingleton an email which read:[470]

Gary tole me you need a token to access to all four facilities, I do have one here for you, can you please let me know where you want me deliver it to?

Also with new resident admission, facility still calling here, do you want us to advise if we accept the resident or we need to direct them to you for decision to be made? What's the concessional ratio we will aiming for? As Martin want me start to get a budget done, I will need some idea type of the resident admission changes to make sure the budget is more accurate. Such as if we aiming for 40% concessional resident, ACFI subsidies will increase but Daily accommodation payment will drop.

Some idea will help me to get them started. Thanks

1. Ms Ingleton responded on 13 October 2016 saying:[471]

I have got the fob from Colin - thank you.

Re: admissions - please direct queries to me.

As I do not have clarify yet on the current concessional ratios, ACFI etc, I'm not in the position to advise you - sorry!

Ms Ingleton then forwarded a copy of her email to Mr Shao to Mr Calogero, copied to Mr Holden and Mr Vorster, adding:[472]

Please refer to the email from Nicholas below..........

At this stage I'm just winging it, and essentially replacing like for like with new residents to be admitted to the facilities. If I can't do that I'm aiming for high ACFIs.

Can you please advise me if that's acceptable until we have a clearer picture financially?

Mr Calogero replied that this was an appropriate strategy at this stage.

1. Mr Shao was cross-examined on the 12 October 2016 email to the effect that what he said in this email was inconsistent with his testimony as to what Ms Ingleton said at the meeting. If Ms Ingleton had told him that the concessional ratio was 40%, why did he need to ask her what the concessional ratio was? He said that he had not received the minutes of the meeting and did not know exactly what had been decided, so was trying to confirm the position. It was put to him that he was trying to get Ms Ingleton to commit in writing that she was aiming for 40% concessional ratios across the four facilities because he thought this would be in Mr Markoff's interests. Mr Shao denied this.[473]
2. On 14 October 2016, Mr Shao sent Ms Ingleton's response to Mr Markoff, with the note 'FYI'.[474] Counsel for the Mercy Parties then pressed the point that he was trying to help Mr Markoff:[475]

So this email to Ms Ingleton and her response was all about trying to ensnare her to make some kind of admission about 40 per cent concessional resident ratios that you thought might assist Mr Markoff in a claim. Isn't that right?‑‑‑No. At that time, he never planned to make a claim. He just wants to get his money paid, I think.

1. Counsel then returned to Mr Shao's email:[476]

So this email to Ms Ingleton and her response was all about trying to ensnare her to make some kind of admission about 40 per cent concessional resident ratios that you thought might assist Mr Markoff in a claim. Isn't that right?‑‑‑No. At that time, he never planned to make a claim. He just wants to get his money paid, I think.

All right. Now, let's have a look ‑ ‑ ‑?‑‑‑At that time, just given no (indistinct) yet. Why I create something for him to do a claim?

Let's have a look at Ms Ingleton's response. We can look at it on this document. It is also at the earlier 548, your Honour, for reference, but ‑ ‑ ‑

Ms Ingleton responded to you:

Hi Nicholas. I have got the fob from Colin. Thank you. Readmissions, please direct queries to me.

That was consistent with what you say she said in the meeting. Yes?‑‑‑Yes.

And then, she says:

As I do not have clarity yet on the current concessional ratios, ACFI, etcetera, I am not in the position to advise you. Sorry.

Now, Mr Shao, if you genuinely believed that she had said to you on 21 September that there were going to be 40 per cent concessional resident ratios across the four facilities, or words to that effect, I suggest you would have at this point gone back to her and said, I thought you said it was going to be 40 per cent?‑‑‑No.

You didn't do that, did you?‑‑‑What she writes there is, 'I do not know the current concessional ratio on ACFI', so - which means is the facilities current situation rate, she do not have any idea yet.

Exactly?‑‑‑So she ‑ ‑ ‑ So she can't advise you about what she's budgeting for. So she do not know if they need to increase or decrease the concessional ratio.

Exactly?‑‑‑Yes.

She's telling you that she wasn't in a position to be able to say what concessional resident ratio should be targeted, because she didn't have enough information about the resident mix in the facilities?‑‑‑But in that meeting, she definitely said she want 40 per cent concessional.

Well, she definitely didn't, did she, Mr Shao, because your own emails reveal that she didn't - you're just shrugging and raising your eyebrows?‑‑‑No.

...

... Mr Shao, that portion of your statement that you made and provided to Mr Markoff, referring to what Ms Ingleton - you say - said about concessional resident ratios, in the 21 September meeting, was false, to your knowledge, wasn't it?‑‑‑She definitely say 40 per cent. That's one thing I am 100 per cent sure. You can ask any other facility managers, she definitely mentioned that on that meeting. Then later on, whatever she read on her email, I do not know why, but she definitely speak, on that meeting, 40 per cent concessional ratio.

1. Ms Ingleton recalled the meeting on 21 September 2016. The meeting was held at the MercyCare head office on Ord Street. She identified the agenda for the meeting[477] and the minutes.[478] The relevant portion of the minutes relating to the admission of new residents reads (in context):
   1. Policies and Procedures - Trang Dai/Margaret Ingleton (Refer general presentation slides):
      1. We're attempting to update all key forms and templates used for external purposes with MercyCare details and have uploaded by Day 1 to the intranet.
      2. Please do not send any forms externally with Belrose logos - please let us know if you need any changed.
      3. Margaret will write a letter indicating that 'we are in a process of transition and the Belrose process and procedures will continue to apply until transition is complete...'
      4. Question raised re Staff Handbooks. Margaret to look at. Lindy can assist.
      5. Agreed staff must give Margaret a call around decisions on admitting new residents (ie. To maintain concessional ratios, etc).
      6. Manager Handbook was discussed. Will be distributed before Day 1.
      7. Residents contracts will still be completed on site.
      8. Uniforms - are coming but wont be ready by Day 1. ID tags must be worn from Day 1.
2. Ms Ingleton gave evidence that she recalls the meeting having occurred. She said that she organised the meeting and that it was a 'meet and greet'. Ms Ingleton said that she cannot specifically recall a discussion on the topic of resident admissions. When counsel for the Mercy Parties put to her that the ACK Parties allege that at this meeting, she said that when Mercy HS took over the Belrose Care facilities, 40% of future residents would be concessional residents, she responded by saying:[479]

I would[n't] say that I - I wouldn't have been in any position to make any statement like that. ... [A]s the director of residential aged care, I didn't have the authority to say something like that. That would have ‑ ‑ ‑

Who did? Who did?---That would have had to have come from an executive, either the leadership team or the ED, Carlo. I do not believe I even had the information to even base anything like that on at that particular time. I had been in Mercy Care all of three weeks.

So what sort of information would you have needed in order to say something like that?---I would have had - needed to have the whole history of where they were at the moment and what MercyCare was hoping to - to do in the - in the future, and I - I do not recall or believe I had anything at that stage on 21 September.

Right. And is there anything else you want to say in response to that allegation?---Only that I recall that... MercyCare Wembley, the one and only site they had on 21 September, didn't operate at 40 per cent. It... was lower than 40 per cent. So why anyone would think others were going to be different, I do not know.

In these proceedings, the plaintiffs allege that at a meeting on 21 September, you informed those present that, in effect, you were responsible for reviewing the admission of future residents into the Melrose facilities. What do you say in response to that allegation?‑‑‑Well, that is what is on page 5 in the two lines, is that for admissions, 'Margaret would like to be advised about those'. I can't quite remember the wording of what it was, but that would have been part - part of - if that did come up, and obviously it did because it is in two lines, that I - I would have wanted to just get a feel for what was actually happening on the sites, what the - what - what the - the waitlists, what - what potential residents were there, what admissions, how the managers made their decisions. So it would be - early days, I would have been - liked to be across it, but I think in the actual minutes, it has in there that things are to be maintained. So that's what's actually in the minutes. It's to maintain... how it is.

1. In cross-examination, Ms Ingleton denied that at the 21 September 2016 meeting she knew MercyCare Wembley was aiming to meet a 40% concessional resident ratio to get maximum supplements from the government. She did not accept that she anticipated on 21 September 2016 operating the four Belrose Care facilities at 40% minimum concessional ratio.[480]
2. When taken to the minutes (which I have quoted at [569]), Ms Ingleton agreed that concessional ratios were discussed at the meeting. She said that Wembley's target concessional ratio was under 40%. This changed in late 2017, after the facility got a significant refurbishment supplement.[481]
3. Around the time of the 21 September 2016 meeting a document entitled 'Mercy Human Services Manager Handbook' was prepared.[482] Ms Ingleton said that this was produced by Trang Dai and it was reviewed and approved by herself.[483] Under the heading 'Objective' it reads:

The objective of the Manager Handbook is to outline what's changed, what's not changed within the key processes for Mercy Human Services (MHS).

No change to the current processes unless specified or until further notice. If MHS staff have any queries or require further clarifications, refer to the contact details in the respective workstreams.

1. And then under the sub-heading 'Policies and Procedures', it reads:
   • No change unless specifically notified by the Director Residential Aged Care and/or key contact details
   • If in doubt, apply current policies and procedures

Ms Ingleton is noted as the contact person on this issue.

1. Mr Vorster was taken to the agenda for the integration meeting on 21 September 2016.[484] He recalled it was chaired by Ms Ingleton and remembered that Ms Ingleton put together a handbook for the facility managers to make processes clear.[485] He identified this as the Mercy Human Services Manager Handbook.[486] Mr Vorster said he had input in the drafting of the finance aspect of the handbook and was listed as a contact if staff had any questions about finance. He said that where there was 'no change' is listed regarding an activity, this was a reference to no change in the processes from the Belrose Care facilities.[487]

1. For completeness' sake, I add that Ms Powell was also at the 21 September 2016 meeting, but has no recollection of what was said.[488]

1. In determining what was said at the 21 September 2016 meeting, I place the most weight on the contemporaneous communications which were in the routine course of business and not specifically for the purposes of one or the other party.
2. I start with the minutes. As set out in the minutes, I find that Ms Ingleton told those present at the meeting that staff must give her a call around decisions on admitting new residents. This finding is consistent across the Draper Note, Mr Shao's oral evidence, Mr Shao's notes and Ms Ingleton's evidence. It is also consistent with what is set out in the Mercy Human Services Manager Handbook.
3. I find that the reason for Ms Ingleton wanting to know about new admissions was, among other things, to maintain concessional ratios (as set out in the minutes). So there was some discussion about maintaining concessional ratios. I accept Ms Ingleton's evidence that she also wanted to know about admissions 'to get a feel for what was actually happening on the sites'.
4. However, I am not persuaded that the conversion about maintaining concessional ratios went any further. This is because:

(a) it is not recorded in the detailed minutes, which one would have expected had the contested statement been made;

(b) it is not set out in the contemporaneously produced Mercy Human Services Manager Handbook, again something that one would have expected;

(c) instead, the Mercy Human Services Manager Handbook makes it clear that there would be no change to Belrose's policies and procedures;

(d) Ms Ingleton's denial makes sense given that she had only been at Mercy HS for three weeks at that time and had insufficient information to make any decisions about the position of Mercy HS on the admission of new residents;

(e) in the absence of cross-examination, the Draper Note is of minimal weight;

(f) Mr Shao's oral evidence is inconsistent with his email of 12 October 2016;

(g) rather, the comment by Mr Shao in his email - 'What's the concessional ratio we will aiming for?' - was his actual recollection at the time;

(h) Ms Ingleton's response was also her actual position at the time, and is consistent with her oral evidence; and

(i) the internal communication post‑Completion does not contain anything to the effect that Mercy HS was aiming for a 40% concessional ratio - rather, it is entirely consistent with the evidence of Ms Ingleton.

1. I regard Mr Shao's note as being influenced by his conversations with Mr Markoff, probably subconsciously rather than intentionally. I do not need to make any stronger finding than that Mr Shao was mistaken in his recollection of his statement, and that his later recollection was accurate.
2. It follows that the ACK Parties have not proven the allegation in EFASOC paragraph 19 that at the 21 September 2016 meeting, Ms Ingleton informed all present that when Mercy took over the Belrose Care facilities, 40% of future residents admitted would be concessional residents.

1. As with the evidence relating to the bond practices of Belrose Care, it is instructive to review the documentary evidence in chronological order to present a comprehensive picture of the bond practices of Mercy HS over the 2 years between Completion and the time at which the Deferred Payment Clause had to be calculated. Section 11.2 deals with the period from Completion to the end of 2016, section 11.3, 2017 and section 11.4, 2018 to the end of September 2018, at which point the deferred payment was to be calculated. I deal with evidence in a thematic manner later in these reasons when dealing with the Issues in dispute.
2. As with Part 6, the documents referred to by the parties will necessarily be a sample of the communications and reports provided during this two year period. However, the volume of the material referred to by the parties is an ample representative sample on which to determine the Issues in dispute.
3. Where the evidence of a witness related to a specific document, I set it out in sections 11.2, 11.3 and 11.4. Where I have included evidence of a witness in this Part, I find that evidence to be honest, accurate and reliable and find in terms of it. I end the chronology with a summary of the position two years after Completion (section 11.5). I find the facts set out in sections 11.2 to 11.5 proven.
4. I then set some further, more general evidence of, Mr Vorster (section 11.6), Mr Holden (section 11.7), Ms Ingleton (section 11.8) and Ms McDougall (section 11.9).
5. In section 11.10 I set out some recurring themes which emerge from the evidence.
6. In terms of definitions, a key dispute in the case is the way in which Mercy HS dealt with 'concessional residents'. It is apparent from the evidence from the Mercy Parties, that from an operational perspective, the percentage of concessional residents was taken from reports received from Medicare. In practical terms, a concessional resident was a resident who was wholly government funded, that is, who did not provide a RAD, a DAP, a RAC or a DAC (see for example, the figures quoted at [711]).

1. Ms Ingleton gave evidence that she observed the facilities that Mercy HS took over from Belrose Care were run down and requiring investment. She said there was old equipment and infrastructure and was generally out of date. The state of these facilities acquired from Belrose Care was very different to the MercyCare Wembley facility, which was well maintained and up to date. Following making these observations, she went to head office and advised putting some capital towards replacing equipment.[489]
2. Ms Powell was taken to a document entitled 'MyVitals - Summary' for September 2016 for MercyCare Rockingham (Tanby Hall). She described this as a 'Provider Assist Report' of a type which she received regularly.[490] The information in this document was to the effect that as at September 2016, that is Completion, the 'Supported Ratio' was 43.47%.[491]
3. On 3 and 4 October 2016, there was email communication between Ms Ingleton and the Grand CNM (Clinical Nurse Manager), someone by the name of Chris. On 3 October 2016, the Grand CNM wrote:[492]

We will have an empty bed in a few days. Do you have any preference should we be trying to fill it with a bond, concessional or high ACFI?

Or should we just fill it?

What is the ACFI and RAD of the resident who is moving towards end of life?

He was high, high, high on ACFI.

He paid a bond of $400,000.

Do u have a similar profile potential resident on your wait list?

1. On 12 October 2016, there was email communication between, among others, Mr Shao, Ms Ingleton and Mr Calogero which I have set out at [564] and [565].[493] I find in terms of this evidence. The effect of this email was that at this time the approach of Mercy HS regarding admissions was 'like for like', but if that could not occur then they would aim for high ACFIs. I observe that, based on the reasoning identified by KPMG ([369]), a like for like approach would have the practical effect of increasing RAD balances given the RAD balance (or bond balance) paid out to the resident who left would in all probability be less than the RAD received from the new resident.
2. On 12 October 2016, there was email communication between Ms Ingleton and the 'Grand ACFI' (ACFI Co-ordinator), Janet Alderson. Ms Alderson wrote:[494]

I spoke to staff at Birralee I would not be able to claim high ACFI for this gentleman though he does have money and possible would wish to pay a DAP. They have sent me info on a couple of other residents who would be high ACFI but are concessional. If you could let me know which way to go.

1. Ms Ingleton was cross-examined on this email chain:[495]

So you've been asked a question about (indistinct) like a potential resident; do you accept that?---From (indistinct).

'And you wouldn't be able to claim high ACFI for that potential resident, though he does have money, and possibly would wish to pay a DAP. They have sent me info on a couple of other residents who would be high ACFI but are concessional.' And your response is, 'Please go with a resident with a high ACFI.' So that's a direction, isn't it, that for a choice between a non-concessional resident that was being suggested there with low ACFI, and high ACFI but concessional, you've directed the (indistinct) this email to go with the concessional; do you accept that?‑‑‑Yes.

1. On 27 October 2016, there was email communication between Ms Ingleton and Ms McDougall, now the Service Manager at MercyCare Maddington:[496]

We had a resident pass away last night. She was palliative.

She was concessional. Who would you like me to admit? Concessional? RAD? Care level?

Hopefully a peaceful passing for this lady.

Preference would be high ACFI with RAD, otherwise high ACFI concessional.

1. When giving evidence about this email exchange, Ms McDougall said that there was no direction to prefer concessional residents, and the preference was high ACFI with RAD, otherwise high ACFI concessional.[497]
2. On 9 November 2016, there was email communication between Ms Ingleton and Ms McDougall about 'KPIs'. The communication concluded with Ms Ingleton writing:[498]

We haven't put any alternative KPIs in place as yet and hence the same KPIs would continue to be done as previously.

Ms McDougall confirmed that in this chain she was informed that no new KPI's were in place as of yet, and to continue with the same KPI's as previously.[499]

1. There was a meeting of the Residential Aged Care Senior Management Team on 10 November 2016, the minutes of which are in evidence.[500] It was attended by Ms Ingleton, Ms Wing, Ms Hoekstra, Ms McDougall, Ms Draper, Ms Cowcher and Sun-Marie Meiring (then the Service Manager at Maddington). The minutes are to the effect that there was no discussion of concessional residents.[501]
2. On or about 13 November 2016, Ms Spiro was appointed to the role of Business Development Manager at MercyCare with a specific role of marketing aged care services with a view to increasing occupancy and admissions.[502] The 'Job Purpose' is described as:[503]

The Business Development Manager is responsible for supporting the Aged Care Directorate's Residential Aged Care Services (RACS) and Community and Home Support Services (CAHS) to meet residential and client growth targets.

The Manager's primary goal is to increase the visibility and awareness of MercyCare's RACS and CAHS to protect their current business levels and maximise their growth. Accordingly, the role is performance based and specific Key Performance Indicators (KPIs) will be developed.

1. Ms Ingleton said that Ms Spiro's role as the Business Development Manager was to raise the profile of MercyCare. She said that the managers (including herself) worked with Ms Spiro to ensure she understood the five facilities and what they had to offer.[504]
2. There was a meeting of the Residential Aged Care Senior Management Team on 8 December 2016, the minutes of which are in evidence.[505] It was attended by Ms Ingleton, Ms Wing, Ms Hoekstra, Ms Draper, Ms Cowcher and Ms Meiring, with Ms McDougall noted as an apology (as she was on leave).[506] The minutes are to the effect that there was no discussion of concessional residents.

1. On 10 January 2017, Ms Ingleton sent an email to various people including Mr Vorster to convene a meeting to discuss financial and management reports for the residential aged care facilities. The matters for discussion were:[507]

Would like to discuss getting monthly reports for each RAC facility on:

Occupancy

Average ACFI

Number of admissions

Value of RADs

Concessional ratio

Pre-entry leave

Also like to discuss:

Report for RAC overall on RAD/DAP payment mix

Review of max RADs at each facility

Being part of RAC Stewart Brown benchmarking

1. On 31 January 2017, Ms Ingleton had email communication with a person by the name of Shirley McManus, whose title was 'Team Leader Health State Network WA - Aged Care' for the Australian Government Department of Health.[508] Ms Ingleton wrote:

I have a query about the supported resident ratio.

The MercyCare group operates 5 residential aged care facilities in the Perth Metro area but under two different entities:

1. Mercy Community Services Inc ABN 96 487 116 582, operating the facility:

1. Mercy Human Services Ltd ABN 21 612 759 654, operating the facilities:

- MercyCare Rockingham RACS ID 7218

- MercyCare Maddington RACS ID 7270

- MercyCare Joondalup RACS ID 7241

- MercyCare Kelmscott RACS ID 7245

I would like to clarify about the supported resident ratio. My understanding is that the Department looks at whether an organisation is meeting the supported resident ratio by taking into account the ratio across all its facilities together, not individually i.e. the supported resident ratio across the 5 MercyCare residential aged care facilities as a total.

Could you please advise if my understanding is correct.

Thank you for your enquiry regarding the supported resident ratio for services under the two separate Approved Provider entities - Mercy Community Services Inc and Mercy Human Services Ltd.

It is currently a condition of allocation for each residential aged care service to meet the supported resident ratio for the region in which they are located.

For your information, in 2016 the Government requested the Aged Care Financing Authority (ACFA) to provide advice in relation to cost neutral mechanisms to ensure access to care for supported residents. In October 2016, ACFA called for submissions and the consultation paper (refer to link below) provides a good summary of current supported resident ratio requirements and possible future options.

https://agedcare.health.gov.au/call-for-submissions-possible-options-for-changes-to-the-supported-resident-ratio-rules-in-residential-aged-care