Alloura Waters Retirement Village Residents Committee v Living Choice Australia Pty Ltd

NCAT Consumer and Commercial|2014-03-21

BACKGROUND FACTS, PROCEDURAL MATTERS & OVERVIEW OF MATTERS IN DISPUTE 1Alloura Waters Retirement Village (the "Village") is located in Davistown in the Central Coast region of New South Wales. The Village was first constructed in or about 1991. 2The applicant is the Residents' Committee for the Village (hereinafter referred to as either the "applicant" or the "Residents' Committee") established under s 70 of the Retirement Villages Act 1999 (the "RVA"). 3The respondent is the Village Operator (hereinafter referred to as either the "respondent" or the "Operator"). The Operator acquired the Village in or about December 2003. 4By application lodged on 3 July 2013, the applicant sought relief under s 116(4) of the RVA to refund recurrent charges where it is said that the Operator expended the recurrent charges otherwise than in accordance with the approved annual budgets of the Village for the financial years ended 30 June 2012 and 30 June 2013. 5On 14 August 2013 the matter was listed for Conciliation & Directions when the Tribunal made procedural directions for the parties to exchange the documents which each sought to rely upon at a formal hearing. 6On 18 September 2013, pursuant to an extension of time for the prior procedural directions, the applicant lodged with the Tribunal, and served upon the respondent, a bundle of documents which included a document referred to by the applicant as "Expanded CTTT application". The document adds other items in the applicant's claim which were not in the original application lodged with the Tribunal on 3 July 2013. 7The respondent submitted that the Tribunal should refuse to accept the additional items as an amended application because they were included by the applicant without the Tribunal's leave. The Tribunal's record of the directions hearing on 14 August 2013 did not disclose any order granting leave to amend the application. However, the applicant submitted that a representative of the Committee asked the presiding member on 14 August 2013 whether the applicant could provide more details as to the particular orders sought and to link them to budgets, accounts and invoices, and the member suggested that this be done in the applicant's documents including a written submission. 8The guiding principle to be applied for practice and procedure in the Tribunal is that of facilitating the just, quick and cheap resolution of the real issues in the proceedings. In doing so, the Tribunal is to act with as little formality as the circumstances of the case permit and according to equity, good conscience and the substantial merits of the case without regard to technicalities or legal forms. The Tribunal is not bound by the rules of evidence and may inquire into and inform itself on any matter in such manner as it thinks fit, subject to the rules of natural justice. The Tribunal is also to ensure that all relevant material is disclosed to the Tribunal so as to enable it to determine all of the relevant facts in issue in any proceedings: s 36 and s 38 of the Civil and Administrative Tribunal Act 2013. 9Following an (unsuccessful) half day mediation session on 14 November 2013, there was a further directions hearing on 13 December 2013. On that occasion, procedural directions for the parties' further documents, including any witness statements, were made. Order 4 of the Tribunal's record states: "The applicant has leave to amend the claim in accordance with the amended application filed on 18 September 2013. Item F in the expanded application is withdrawn. There is not to be not (sic) further addition of any items by further amendment of the claim". 10The application including the additional items in dispute, raise significant and complex matters of fact and law. Such issues bear upon:

LEGISLATIVE FRAMEWORK FOR RETIREMENT VILLAGES IN NSW

The Tribunal's Jurisdiction 14The Tribunal's jurisdiction to hear and determine the matters in dispute is contained in the RVA and the Retirement Villages Regulation 2009 (the "RVR"). Where a dispute arises between a resident or residents and the operator of a retirement village, the parties may apply to the Tribunal for an order in respect of the dispute: s 122 RVA. A Residents Committee of a retirement village, such as the applicant, may, at the request of one or more of the residents of a village, apply to the Tribunal on behalf of the residents concerned for any order for which a resident may apply: RVR reg 39. 15The range of orders which the Tribunal may make include: an order directing compliance with the RVA or the RVR, an order for payment of an amount of money, an order for compensation and an order directing performance of work or to remedy a breach of a village contract or a village rule: s 128 RVA. The Tribunal may make ancillary orders (s 126 RVA) and there is no monetary limit on the Tribunal's jurisdiction: s 127 RVA.

The Objects and Purpose of the Legislative Framework 16A "retirement village" as defined (s 5 RVA) is a complex containing residential premises that are predominantly or exclusively occupied by retired persons who have entered into village contracts with an operator. In this regard "retired person" means a person who has reached the age of 55 years or has retired from full-time employment: see definition in s 4 of the RVA. 17Not only does the legislative scheme regulating any retirement village dispute facilitate the provision of social benefits and standards as regards the living arrangements for retired persons, but also it recognises the potential financial and other possible vulnerabilities of retired persons. In this regard it contains significant elements of consumer protection: Hansard, Retirement Villages Bill 1999, Second Reading. Further the social policy behind the scheme does not seek to impose an unfair burden on operators of retirement villages, as it recognises that the business of providing facilities for retired persons should be permitted to be profitable for operators: Hansard, Retirement Villages Bill 1999, Second Reading. This is manifested in legislative requirements which focus upon the obligation of residents to pay for certain defined categories of expenditure which are incurred by operators, subject to compliance by operators with particular information answering, reporting, auditing and other processes as identified in the RVA and the RVR. 18The objects of the legislation as set out in s 3 of the RVA are to set out particular rights and obligations of residents and operators of retirement villages; to facilitate resident input, where desired by residents, into the management of retirement villages; to establish appropriate mechanisms for the resolution of disputes between residents and operators of retirement villages; and to encourage the retirement village industry to adopt best practice management standards.

The Rights of Residents of a Retirement Village and the Obligations of an Operator of a Retirement Village in respect of financial management of a village 19Divisions 2 and 3 of Part 6 of the RVA deal with residents' rights and an operator's obligations. An operator of a retirement village must, on reasonable request of a Residents' Committee, meet the Committee or a representative of the Committee (s 72 RVA). An operator must also hold in each financial year an annual management meeting of the residents; it must invite written questions of the residents to be put to the operator at least 7 days prior to the meeting; it must ensure residents have reasonable opportunity to put questions to the operator at the meeting; and it must answer questions in reasonable detail or if not possible as soon as practicable after the meeting (sections 72, 72A and 72B RVA). Importantly, an operator must not obstruct a Residents Committee in the exercise of its functions: RVA s 70(6)(b). 20Part 7 of the RVA is concerned with the financial management of retirement villages. An operator has obligations in respect of "items of capital", being fixtures, fittings, furnishings and non-fixed items (for example, whitegoods, portable air conditioners, fans, tables and chairs), as defined (s 4 RVA; reg 5 RVR), but only in respect of items of capital which are not owned by a resident of the retirement village and which relate to a building or structure in a retirement village, any plant, machinery or equipment used in the operation of the village, and any part of the infrastructure of the village (s 92 RVA). An operator must maintain the items of capital for which it is responsible in a reasonable condition having regard to the age of the item, its prospective life, and the money paid to the operator by residents (including ingoing contributions), and if it is not practicable to maintain an item of capital, an operator "may" replace the item within a reasonable time after becoming aware of the need for replacement: s 93 RVA.

'Capital maintenance' items 21It is the responsibility of an operator to allocate a sufficient amount for "capital maintenance" as defined (RVA s 4) when preparing a proposed annual budget for the village. This includes maintenance and repairs to capital items in the village and for those items inside a resident's unit for which an operator is responsible. Examples of maintenance include: carpet cleaning, air conditioner servicing, painting the village, repairing footpath cracks, replacing tap washers and replacing faulty stove elements. 22The RVA (s 4) defines capital maintenance as:"works carried out for the purpose of repairing or maintaining an item of capital and includes works prescribed by the regulations as being capital maintenance, but does not include works that are prescribed by the regulations as not being capital maintenance". In this regard, the relevant regulation is RVR reg 5 which prescribes, as not being capital maintenance, work done to substantially improve a capital item beyond its original condition or work done to maintain or repair an item of capital that it would be more cost effective to replace. Furthermore, "capital replacement" as defined (RVA s 4), being works carried out for the purpose of replacing an item of capital, expressly excludes capital maintenance.

Recurrent Charges and the Capital Works Fund 23Residents of a retirement village pay amounts referred to as "recurrent charges" (defined in s 4 RVA) under a village contract on a recurrent basis. Most villages, including Alloura Waters, have a "capital works fund" (defined in s 99 RVA). It is a fund where any part of the recurrent charges is set aside for longer term capital maintenance (i.e. funding capital maintenance for the village in a period that extends beyond the end of the financial year to which the budget relates). Therefore, the costs of capital maintenance can be paid from the recurrent charges or from the village's capital works fund (s 97 RVA). 24However, recurrent charges and the capital works fund cannot be used to substantially improve a capital item beyond its original condition or to maintain or repair an item of capital that it would be more cost effective to replace (RVR reg 5). These are not capital maintenance items for the purposes of the RVA and the RVR or, to put it another way, these are capital replacement items. 25There are also some matters in the operation of a village that are not to be financed out of recurrent charges: s 112(3)(b) RVA and reg 26 RVR. The matters include an operator's fees for membership of industrial or professional associations, overseas travel, marketing vacant units, payroll tax, and Head Office management and administration fees; however, such management and administration fees may be paid from recurrent charges if associated with the cost of providing services to residents: see reg 26(e).

Annual Budgets of a retirement village 26Where an operator proposes to use any recurrent charges or any part of the capital works fund to fund capital maintenance, an operator must, in the proposed annual budget for the village, list each item of capital maintenance that is proposed to be carried out, specify, in respect of each item, the expected cost, include, in respect of each item, any quotes that the operator has obtained, and include provision for urgent capital maintenance (s 98 RVA). 27At least 60 days before the commencement of each financial year of a retirement village, the operator must supply each resident of the village with a proposed annual budget itemising the way in which the operator proposes to expend the money to be received by way of recurrent charges from the residents of the village during the financial year (s 112 RVA). The matters that must be dealt with in a proposed annual budget include the amount of recurrent charges payable by residents of the village during the year (including any expected increases in those charges in line with a fixed formula); the method by which that amount has been calculated; the total expected income from recurrent charges for the village for the year; the effect of the expected surplus or deficit (as the case may be) for the current year on the finances of the village; all proposed categories of expenditure; the proposed expenditure on each of those categories; the proposed expenditure on each of them as indicated in the approved annual budget for the current year, and the likely actual expenditure on each of them for the current year; the total proposed expenditure of the village for the year; and the expected surplus or deficit for the year (Reg 17 RVR). 28Residents who are of the opinion that an operator is not maintaining or replacing when necessary items of capital for which an operator is responsible may apply to the Tribunal for an order directing the operator to carry out specified maintenance or replace the item within a time to be specified in the order: s 96 RVA. 29A resident of a village may apply to the Tribunal for an order directing the refund of overpaid recurrent charges on any grounds: s 109 RVA.

Expenditure to be approved by residents 30Expenditure is to be in accordance with an approved annual budget. Section 116 of the RVA provides: (1) A proposed annual budget is taken to be an approved annual budget if: (a) the residents of a retirement village consent to expenditure in accordance with the proposed annual budget, or (b) the Tribunal orders that the expenditure of the operator is to be as itemised in the proposed annual budget. (2) However, if the Tribunal makes any other order in relation to the proposed annual budget, the approved annual budget is taken to be that budget modified to accord with the order. (3) The operator must not expend money received by way of recurrent charges otherwise than in accordance (apart from minor variations) with the approved annual budget or any amendment authorised under section 117. (3A) An operator does not contravene subsection (3) if the expenditure that was otherwise than in accordance with the budget: (a) was a variation in expenditure between items in the approved annual budget, and (b) does not reduce the level of services provided by the retirement village, and (c) does not cause the total expenditure provided for by the approved annual budget to be exceeded. (4) If the operator: (a) contravenes subsection (3), or (b) did not (despite any order of the Tribunal under section 113) supply a proposed annual budget in respect of a current financial year, a resident may apply to the Tribunal for (and the Tribunal may make) an order directing the operator to refund the recurrent charges paid by the resident during so much of the financial year as has passed at the time the order is made."

THE RESIDENTS' CASE (EVIDENCE & SUBMISSIONS) 31In these proceedings, the principal relief sought by the residents is an order under s 116(4) of the RVA to refund recurrent charges on the basis that the Operator is said to have expended recurrent charges otherwise than in accordance with the 2012 and 2013 budgets for the Village. The residents' case is put in the Expanded CTTT Application with a written submission dated 17 September 2013, and supporting documents (numbered 1 to 90 in an index of documents), provided to the Tribunal and the other party on 18 September 2013, as Items A to G (with Item F withdrawn) together with a further allegation that contrary to s 70(6)(b) of the RVA, the Operator has obstructed the Residents' Committee in the exercise of its functions. I will follow this categorisation of the issues for the Tribunal's determination because the evidence and submissions of both parties adopt the Items as the means of addressing the issues in dispute between them. 32In addition to the documents produced on 18 September 2013, the applicant relies upon Statements of Brian Anthony Paton, Colin Ross Beveridge, John McLoskey, Ian Kay and William John Plant. Mr Paton, Mr Beveridge and Mr Plant also gave sworn oral evidence, on which each was cross examined by the respondent's representative. Ms McGlynn also gave sworn oral evidence and was cross examined. 33The applicant relied upon further written submissions dated 18 May 2014 (lodged pursuant to directions made at the conclusion of the formal hearing) which responded to the respondent's submission dated 20 March 2014 and also provided a closing submission.

Item A - Vacant unit levies payable by the Operator 34The applicant seeks an order for the respondent to refund an amount of $2,388.00 to residents being levy payments due, but not paid by the Operator, for vacant property no. 162 in the period from 1 July 2011 to 12 January 2012. Unit no. 162 was previously the live-in manager's unit and following a change to a week day only Village Manager the Operator refurbished it. 35Pursuant to s 103(1) of the RVA, an operator of a retirement village must pay in relation to any new residential premises an amount equivalent to the recurrent charges for general services payable under a village contract in respect of comparable premises in the village. Section 103(2) defines "new residential premises" to mean residential premises that are not and have never been the subject of a village contract. Under s 4 of the RVA "residential premises" means any premises or part of premises (including any land occupied with the premises) used or intended to be used as a place of residence. 36The applicant submits that there was shortfall of $2,388.00, for six months' levies @ $398.00 per month, between the actual total recurrent charges and the amount budgeted for, which reduced the final surplus. It contends that the respondent budgeted levies for unit no. 162 for the 12 month period from 1 July 2011 to 30 June 2012 and it therefore should have paid for the whole financial year and not six months only. Those submissions are made on the basis the Tribunal must find that unit no 162 was, at the material time, a new residence and intended for use as a residence: see, for example, the Statement of Mr Plant dated 28 February 2014 (at paragraph 264).

Item B - Costs of marketing vacant units 37The applicant seeks an order for the refund to the residents of $10,266.00 on account of marketing costs for vacant units. This amount comprises an Accreditation assessment fee and associated costs such as stationery and wages and salaries for vacant units. 38As referred to above, for the purposes of s 112(3)(b) of the RVA, particular matters are prescribed in the RVR which must not be financed by recurrent charges, such as costs associated with marketing vacant units within a retirement village, including such costs that may have been included in wages and salaries: reg 26(c) RVR. 39In the 2012/13 budget, the Operator charged $1,366.00 being 50% of the Accreditation assessment fee which the applicant says is promoted as a marketing benefit for sale of vacant units. It also says that Village management and staff are engaged in a significant amount of time for the accreditation process and their salaries and wages referrable to that time should not be charged as a residents' cost. The applicant contends that the costs of the Village Accreditation process are a sales and marketing cost relating to the sale of vacant units and are therefore an Operator's cost. It is submitted that the Accreditation process is aimed or "targeted" (Mr Plant's Statement, paragraph 272) at prospective residents, not existing residents, is used for sales purposes, and accordingly, must not be a cost charged to residents.

Items C, D & E - Capital maintenance/Capital replacement (RVR reg 5(1)(b)) 40The applicant outlines a series of items of expenditure (hereinafter referred to as the "Claims Schedule") charged as costs of residents of the Village. It seeks relief by way of refund to residents of such of the amounts of expenditure charged to residents as capital maintenance items as the Tribunal determines are capital replacement items, or such further or other relief as may be required in the circumstances, such as a work order (e.g. in the case of Item E in respect of the replacement of brick pavers). 41It is submitted that the items on the applicant's Claims Schedule are not "capital maintenance" (as defined in the RVA) and therefore must be at the Operator's cost: RVR reg 5(1)(b). In particular, the applicant argues that any maintenance request should not be a factor in determining whether an item is capital maintenance or capital replacement. In the applicant's submission the words 'repair' and 'maintain' are interchangeable and do not bear materially upon characterisation of an item of capital as maintenance or replacement. 42There are some items on the Claims Schedule which are conceded in whole or in part by the respondent to be items at the Operator's cost. 43The applicant seeks the Tribunal's ruling on the items which remain in dispute as it submits that the principles to be applied in the demarcation between capital maintenance items (at the residents' cost) and capital replacement items (at the Operator's cost) require elucidation: see, for example, Mr Paton's statement dated 27 February 2014 (at paragraph 12) and Mr Plant's statement dated 28 February 2014 (at paragraph 214).

Item G - Expenditure not in accordance with the budget approved by residents 44This relates to expenditure items allowed for in the approved annual budgets of the Village which have not been expended in the financial year as budgeted (i.e. where there are variances between budget and actual). In essence, the applicant argues there has been a saving in expenditure and that saving has been improperly used (i.e. without residents' approval) on other items of Village expenditure (specifically, property repairs and maintenance, the cost of a safety inspection report and the premium for bus third party insurance). 45It appears, although this is not entirely clear, that the applicant seeks relief on Item G by way of a refund to residents at least in respect of the amount of $2,200.00 (the cost of the Safety Inspection Report) and the amount of $3,471.00 (the premium for bus third party insurance). At paragraph 296 of his Statement dated 26 February 2014, Mr Plant states: "There should be an agreement to consult on expenditure not in accordance with approved budgets". This may be the real basis of the applicant's claim under Item G. 46In support of this claim, the applicant relies on s 116(3) of the RVA which requires expenditure, apart from minor variations, to be spent in accordance with an approved budget. It contends that the budget approval process requires calculations to be made 'line by line' and that s 116(3A) of the RVA is contradictory because it negates the value of residents approving budgets which authorise the Operator to manage and spend the residents' money.

Claim under section 70(6)(b) RVA - Obstruction of Residents' Committee 47The applicant says that the Residents' Committee is obstructed in the exercise of its functions by the respondent's failure to deal in a timely manner with requests for information about the Village budgets and further that even when information is given (usually following unreasonable delay) the information is inadequate. In some instances, it is said there is no response at all from the Operator to requests for information. 48To support that submission, the applicant refers to correspondence between the parties forming part of the bundle of documents received on 18 September 2013 as evidencing a lack of co-operation on the respondent's part which materially affects the Residents' Committee's ability to perform its functions under the RVA. For example, in his Statement dated 22 February 2014 Mr McLoskey (convenor/chairman of the applicant's Finance Sub-Committee) observes that from September 2013 the respondent has provided quarterly financial reports only (ceasing the prior practice of providing monthly financial reports). Mr McLoskey states: "Monthly Reports enabled us to follow up questions regularly received from residents in a timely manner which is not possible with quarterly reports".

THE RESPONDENT'S CASE (EVIDENCE & SUBMISSIONS) 49With the exception of the conceded items, the respondent submits all other claims (Items A, B, C, D, E and G and the claim in relation to obstruction of the Residents' Committee) must be dismissed. 50As a general submission it is put on behalf of the respondent that all of the applicant's claims in these proceedings are unsubstantiated; that is, the findings of fact and law required to found a basis for the relief requested are simply not made out to the requisite standard of proof (i.e. the balance of probabilities) or at all, whether having regard to the documents and submissions relied upon and the applicant's evidence at the formal hearing, or to the Tribunal's enquiry (s 38(2) of the Civil and Administrative Tribunal Act 2013) as to the relevant facts, matters and circumstances which bear upon the various claims put in the applicant's case.

Item A - Vacant unit levies payable by the Operator 51The Operator responds by saying that the applicant is fundamentally incorrect in requiring the respondent to contribute towards recurrent charges for unit no. 162 at any time prior to 1 December 2011 pursuant to s 103 of the RVA, in circumstances where unit no. 162 could not, as matter of fact, be categorised as "new residential premises" within the meaning of that expression as defined in the RVA: see s 103(2) and s 4(1) as to definition of "residential premises". This is because although the manager's unit (no. 162) was scheduled for completion on 30 June 2011, in fact refurbishment was not completed until 30 November 2011 and thus the subject premises were unavailable for leasing until 1 December 2011: Statement of Ms Osgood dated 22 October 2013 (at paragraph 26). 52In essence, the respondent submits this claim must be dismissed because unit no. 162 was never available to be the subject of a village contract until 1 December 2011. The Operator also points out that the applicant has referred to a draft levy document in its submission: Statement of Ms Osgood dated 22 October 2013 (at paragraph 27). Therefore, even if s 103 of the RVA did apply (which on the respondent's submission, it does not), the figure of $398 per month is an incorrect assumption of the amount of the levy.

Item B - Costs of marketing vacant units 53The Operator's response to this claim is that it must be rejected because the applicant has not established a relevant basis upon which the cost of the accreditation should be removed from an approved budget or for that item to be refunded by the respondent. 54It is submitted that accreditation is not a marketing cost but is in fact a self-assessment and self-improvement process which is a management tool designed to provide continuous improvement in the management and operation of retirement villages to the benefit of all stakeholders including managers, operators and residents: see Statement of Ms Osgood dated 22 October 2013 (at paragraphs 29 to 35). 55It is also submitted that the involvement of Village staff (such as Mr Spencer) in activities designed to promote the Village do not fall within reg 26(c) of the RVR. In particular it is put on the respondent's behalf that there is no evidence of any village staff member being involved in the marketing of any specific vacant units or that any of the functions and meetings to which the applicant refers in its submission relate solely to the marketing of vacant units. 56Further, it is said that even if accreditation is a marketing cost within s 112(3)(b) of the RVA and reg 26(c) of the RVR, the applicant has not put forward a proper basis of calculation as to the salaries and wages associated with preparing for accreditation, support meetings and functions.

Items C, D & E - Capital maintenance/Capital replacement (RVR reg 5(1)(b)) 57Other than for particular items conceded without admission by the respondent in order to narrow issues in dispute, the respondent does not accept that any of Items C, D and E of the applicant's claim relate to categories of expenditure which are properly characterised as capital replacement items and therefore the responsibility of the Operator. 58The respondent has delegated authority as to repairs and maintenance matters to the Village Manager. It relies upon the evidence of Mr Spencer as to the process he undertook to assess expenditure related to items of capital in order to determine whether the expenditure constitutes repairs, maintenance or replacement. In particular, the Supplementary Statement of Mr Spencer has an accompanying folder of invoices dealing with the nature of expenditure for each of the disputed items. 59The Operator also relies upon the Statement of the Auditor, Mr Walker, which outlines the audit process undertaken in the Village and relevantly, the review and confirmation of the systems undertaken by the Operator to comply with its obligations under the legislation particularly noting the existence of the disputes as to repairs and maintenance. In summary, the respondent says the evidence substantiates that the Operator understands the operation and effect of the definition of "capital maintenance" under the RVA; that it understands the distinction between capital maintenance and capital replacement; that it has (where appropriate) adjusted its decision upon review; that it has verified its approach with the auditor; and that it applied its systems to the expenditure and subject of the claim. 60In respect of Item D-11 Appliances (as set out in the Claims Schedule), the applicant contended that the appliances would have been more economical to replace. The respondent submits, however, that there is no evidence provided by the applicant (e.g. invoices, quotes, estimates or other information) to substantiate the claim of alternative appliances at prices which are cheaper at a retail outlet. 61For item E3 (relating to brick paved roadways) the applicant's position is that the residents prefer the driveways to be concrete or stencilled concrete rather than brick pavers. The residents also prefer the Operator to replace all of the brick paved driveways with concrete and stencilled concrete. Those preferences are based on a proposal for road repairs by replacing pavers with stencilled concrete in a large area near unit no. 63 to a value of approximately $40,000.00. 62On the other hand, the Operator submits that the grounds and roadways are well maintained with minor maintenance only required. It relies on a safety report prepared by GP Flanders of Investigation Systems Pty Ltd: see annexure H of Ms Osgood's statement of 22 October 2013. In all the circumstances, the respondent contends that the expenditure and works being undertaken by the Operator are correctly characterised and dealt with as capital maintenance.

The process for characterising expenditure of repairs and maintenance in the Village - who bears the onus 63The respondent submits that its evidence as set out in the statements of Mr Spencer, Ms Osgood and Mr Walker demonstrate that there is a clear structure and mechanism for achieving the objectives of preparing a budget on a year to year basis which addresses capital maintenance as defined in the legislation; which identifies the expenditure in a proposed annual budget and its subsequent form of an approved annual budget; which prepares a longer term capital works program to maintain and repair items of capital in the Village; and which establishes a process to identify whether or not works are capital maintenance within the meaning of the legislation and to account for expenditure accordingly. It is put that this structure or mechanism meets the obligations of the Operator under the legislation to seek approval for and determine an approved annual budget (RVA s 114), to provide quarterly accounts to residents in accordance with s 118 of the RVA, and to provide audited accounts (s 118). 64It is submitted that the process of characterising expenditure undertaken by the Operator, the communications between the Residents' Committee and the Operator in respect of residents' queries regarding expenditure and the audit process (which concludes with an audit sign off confirming that the accounts provide a true and fair view in accordance with the Operator's obligations under the retirement villages' legislation), allows the Tribunal to be satisfied that the characterisation of expenditure by the Operator as set forth in the accounts, can be relied upon and is correct. It is put that the process for approving budgets, and for providing ongoing financial reporting and audit certificates is designed to bring finality to expenditure and actions in each financial year and that the process should have some value and weight in Tribunal proceedings absent some compelling reason or evidence. 65On that basis, the respondent argues that the applicant must present something more than simple statements of disagreement or objection with items of expenditure that have been characterised in the accounts as capital maintenance, for such items to be treated as not being capital maintenance. To do otherwise, so it is said on behalf of the respondent, is to put the Tribunal in an "impossible" position of having to characterise an action after the event in the absence of any evidence in support.

Item G - Expenditure not in accordance with the budget approved by residents 66The respondent submits that there is no sound basis for this claim and that it must be rejected in full as there is no residents' complaint about a reduction in level of services and nothing to suggest any excess of total expenditure for the approved budget. 67It is also said that there is no inconsistency between s 116(3) and s 116(3A) of the RVA and that both subsections operate to allow for variations in circumstances and to accommodate changes in funds' allocation.

Claim under section 70(6)(b) RVA - Obstruction of Residents' Committee 68The respondent submits that none of the evidence or other material support findings of fact that there has been obstruction of the functions of the Residents' Committee. 69While the respondent acknowledges that there has been protracted negotiation and extensive correspondence as regards issues in dispute, any residents' frustration that this has not led to resolution and compromise, should not be categorised as obstruction by the Operator.

DECISION 70In making my determinations on each of the various matters in dispute between the parties, I have given due and careful consideration to the evidence and submissions of the Residents' Committee and the Operator, respectively. 71While the detail of each submission or piece of evidence may not be expressly referred to in these Reasons, the evidence and submissions to which I have had regard is that contained in the written materials provided to the Tribunal pursuant to prior procedural directions or in the sworn oral evidence (subject to cross examination) and in the submissions made by the Residents' Committee representatives and by the Operator's representative, respectively, during the formal hearing on 21 March 2014 and 30 April 2014.

Onus of Proof 72In Queens Lake Village Pty Ltd v Queens Village Residents Association [2011] NSWDC 21 it was observed (at [66]) that the Tribunal: "has been assigned the role of resolving disputes in a transparent and fair manner, or not in a manner that is arbitrary or unfair to a party". I respectfully concur with Levy SC DCJ. As his Honour puts it (see [2011] NSWDC 21 at [72]) the fairest manner in which the objectives of the retirement villages' legislation are met is: "for determinations and interpretations to proceed transparently on identified facts in evidence". 73There is force in many of the submissions (referred to above) which are put by the respondent as regards the onus of proof in this case. However, I do not agree with the respondent's submission that the applicant has made the Tribunal's task 'impossible' by the manner of presentation of the applicant's case. Nor do I agree the task is impossible because the applicant cannot accept the Operator's proposition that there is already in place a mechanism and structure to meet the Operator's obligations under the legislation for approving budgets, and for providing ongoing financial reporting. While the task may be difficult in these proceedings, it is not to be stigmatised as impossible so long as the Tribunal proceeds transparently on identified facts of evidence. 74Accordingly the onus is on the applicant to the civil standard (i.e. the balance of probabilities) to lead evidence of facts matters and circumstances which explain why the expenditure in the Operator's budgets is incorrectly characterised. It is not acceptable for the applicant to seek to reverse the onus of proof by submitting there must be findings of fact and law in the applicant's favour if it is the Operator who cannot justify a characterisation of expenditure.

Findings of the Tribunal as regards Item A in the applicant's claim - the vacant unit levies payable by the Operator 75I accept the evidence of Ms Osgood that unit no. 162 became available for occupation (and therefore leasing) from 1 December 2011 following completion of the refurbishment of what had previously been the manager's unit. Ms Osgood was not challenged or cross examined in relation to this part of her evidence. 76Accordingly, I find, as a matter of fact, that unit no. 162 became "new residential premises" within the meaning of s 103(2) of the RVA, when the subject premises were available for leasing from 1 December 2011. Until that time the premises (unit no. 162) were not the subject of a village contract. "Village contract" as defined (s 4 RVA) includes a "residence contract" being a contract that gives rise to a "residence right". This categorisation is fundamental to the scheme of the legislation which is to regulate the rights and obligations of an operator of a retirement village and its residents. The "residence right" (as defined in s 4 of the RVA) of a person in a retirement village means the person's right to occupy residential premises in a retirement village, being a right arising from a contract (usually, a contract under which the person purchased the residential premises). 77For the foregoing reasons, the applicant's claim for a refund in an amount of $2,388.00 is not allowed.

Findings of the Tribunal as regards Item B in the applicant's claim - the costs of marketing vacant units 78The accreditation process is consistent with the objects of the legislation (s 3 RVA) which includes encouraging the retirement village industry generally to adopt best management standards. For Alloura Waters Retirement Village, it is the responsibility of the Village Manager to implement the Accreditation program as part of the Village Manager's position description: see annexure A and paragraph 10 of Ms Osgood's Statement dated 22 October 2013. There are 12 standards listed in the Accreditation Handbook which is part of the applicant's bundle of documents received on 18 September 2013. I am satisfied that the standards relate to the operation and maintenance of the Village and not to 'marketing' or 'marketing vacant units'; see also Ms Osgood's Statement dated 22 October 2013 (at paragraph 34). 79In the circumstances I find that Accreditation for the Village does not fall within the meaning of "marketing vacant units" (reg 26(c) RVR). 80I do not find that there is any evidence of a Village staff member being involved in the marketing of any specific vacant units or that any of the functions and meetings referred to by the applicant in its evidence relate solely to the marketing of vacant units. I accept the respondent's evidence that the functions and meetings are to build and maintain relationships with current as well as prospective residents: Ms Osgood's statement dated 14 February 2014 (at paragraphs 4 to 7). 81In my opinion, having regard to the evidence in these proceedings and also the objects of the RVA (s 3), the legislative framework allows an operator to recover costs of staff (that are funded by resident recurrent charges), where the staff members apply their time to a marketing or promotional function which benefits all residents of a village, whether current and prospective or new residents. Put another way, the intent of reg 26(c) is to limit an operator's ability to recover the cost of staff engaged in marketing activities relating to specific vacant units being sold whether for the operator or departed residents. 82For these reasons, the applicant's claim for a refund in the amount of $10,266.00 is rejected in full.

Statement of Principles as regards differentiation of capital maintenance items and capital replacement items in retirement village financial reports 83Before analysing the specific item C, D and E matters as listed on the applicant's Claims Schedule, it is necessary to outline the legal principles which should guide and inform the Tribunal in making determinations as to whether items of capital are capital maintenance items or capital replacement items. 84Residents of a retirement village bear the financial burden (via the capital works fund and/or recurrent charges) for capital maintenance items; whereas an operator of a retirement village is responsible for capital replacement items. This is apt to create tension between residents seeking to displace their obligation to pay any part of maintenance and an operator seeking to respond to matters arising from the operation of a village from time to time and to maintain the village. 85The definition of "capital maintenance" (s 4(1) RVA) refers to "works carried out for the purpose of repairing or maintaining ..." (emphasis added). Apart from the definition in s 4(1), reg 5(1)(b) of the RVR offers further elucidation of the meaning of "capital replacement" by indicating that: "(i) work done to substantially improve an item of capital beyond its original condition, (ii) work done to maintain or repair an item of capital in circumstances where it would have been more cost effective to replace the item of capital" (emphasis added) will not constitute capital maintenance. 86In Smith v Sakkara Investment Holding Pty Ltd [2011] CTTT 162 (20 August 2011) Senior Member G Meadows, after noting that the legislation does not define 'replace', 'repair', 'maintain' or 'improve' in the context of capital maintenance and capital replacement, said he was required to consider what is the normal or everyday meaning of those terms. I respectfully agree. 87According to Osborn's Concise Law Dictionary 8th edition, 'repair' is defined as: "the making good of defects in property which has deteriorated from its original state. The work required may involve curing defects arising from defective design or construction of the building, but it must fall short of effectively reconstructing the premises or improving them." Similarly, 'replacement' is defined in the Concise Oxford Dictionary, 6th Edition as: "replacing or being replaced; person or thing that takes the place of another". On the other hand, the ordinary meaning of 'improvement' according to that Dictionary is: "improving or being improved; the addition or alteration that adds to value". 88A repair involves restoring the efficiency of function of the property without changing its character and may include restoration to its former appearance, form, state or condition. A repair replaces something or corrects something that is already there and has become worn out and dilapidated by ordinary wear and tear, by accidental or deliberate damage, or by the operation of natural causes. A minor incidental degree of improvement, addition or alteration may be done to property and still constitute a repair; however, if the work amounts to substantial improvement, addition or alteration it will be capital replacement: as Senior Member Meadows observed in Smith v Sakkara, supra, a new door is capital replacement but fixing the mesh and preserving the insect repellent function of the door is capital maintenance. 89I am also satisfied that the facts matters and circumstances bearing upon, or relating to, 'repairs and maintenance', and not only 'repairs', are to be considered for the Tribunal's enquiry as to whether or not there is a capital maintenance item for the purposes of the legislation. To proceed otherwise is at odds with the intent of the legislation which expressly refers to 'repairs and maintenance'. 90It necessarily follows, in my opinion, that in adverting to whether there is a capital maintenance item, the Tribunal must apply the word 'maintenance' separately from the word 'repair'; that is, both words are not to be applied interchangeably to the characterisation of a capital maintenance item as the applicant submits. The Oxford paperback dictionary definition of 'maintain' is: "1. To cause to continue, to keep in existence; 2. To keep in repair, 'the house is well maintained'". Similarly the definition of 'maintenance' is the noun defined as: "1. Maintaining, being maintained; 2. Keeping equipment etc. in repair". 91Accordingly, to maintain an item of capital in a retirement village is not necessarily the same thing as to repair it. Maintenance is work done to keep an item of equipment functioning efficiently or to extend its economic life by enhancing or improving it. Ordinarily 'maintenance' involves repair work which is performed to prevent defects' damage or deterioration; but in some contexts including in the context of a retirement village, 'maintenance' may take on a wider meaning that includes repairing as well as other operations which are apt to enhance an item of capital. So long as the work done does not substantially improve the item of capital beyond its original condition it is to be treated as a capital maintenance item and not a capital replacement item: see, for example, Carey Bay Retirement Village Residents Committee v Anglican Care (Retirement Villages) [2011] NSWCTTT 497 (24 October 2011), where Senior Member R Connolly (at paragraph 21) found that the costs incurred in the labour and materials for obtaining and replacing a defective WC Cistern improved an item of capital beyond its original condition and that it must therefore be treated as a capital replacement item. 92When considering each of the specific Items C, D and E, which are in dispute, I must advert to both concepts of 'repair' and 'maintenance'. Put another way, I must have regard to:

Whether the activity is in the nature of an action that rectifies something or does something to an item of equipment that is not functioning to bring it to its functional state (in which case it is a 'repair');
Whether the activity is in the nature of an action that anticipates or prevents the further deterioration of an item of equipment or capital without enhancing or substantially improving an item beyond its original condition (in which case it is 'maintenance'). 93Both forms of expenditure are within the definition of "capital maintenance" under the legislation. 94The respondent referred me to taxation cases which are said to be in aid of analysing the proper characterisation of a capital maintenance item and a capital replacement item in circumstances where the repair is of subsidiary components and not of the entirety of equipment. The respondent contends that such cases are authority for the proposition that the replacement of a component of an overall item of capital is not, in itself, 'capital replacement' when the item of equipment is viewed as a whole. However, I do not find these cases (where the subject matters in dispute bear upon the application of revenue legislation) of any real assistance in the application of the RVA and the RVR, which is, as referred to above, consumer protection legislation for the residents of retirement villages. I prefer the common sense and purposive approach followed in Tribunal decisions such as Smith v Sakkara supra and Carey Bay Retirement Village v Anglican Care supra. 95Of course, each case must be determined on its own facts, and the Tribunal must have regard to the substance, and not the form, of the transaction under review. Relevantly, in respect of some items in dispute in these proceedings, even if an invoice refers to 'replacement' of an item of capital, that circumstance, in itself, cannot be determinative of the enquiry as to proper characterisation whether capital maintenance or capital replacement. The Tribunal's enquiry is always objective and all of the factors as outlined above must be taken into account.

Findings of the Tribunal as regards specific Item C matters as listed in the applicant's Claims Schedule 96Item C2 in the Claims Schedule refers to the following costs: New Computer for reception staff ($682.38), New Australian Flag ($165.00), Rubber Ramps ($218.00 and $280.00), Cleaning supply Aqua Mop ($220.00) and Cleaning Supply Microfibre Mop covers ($197.77), Outdoor sign holder ($221.32) and Custom made sign ($154.00). I do not accept the applicant's submission that because these are new and replacement items they must be categorised as capital replacement items and therefore, payable by the Operator. I find that the computer, flag, ramps, sign holder and sign are costs connected with the Operator's management or administration fees. They are also costs which can be paid out of the residents' recurrent charges because, within reg 26(1)(e) of the RVR, they are costs associated with providing services to residents of the Village. 97I also find that the aqua mop and covers are not to be categorised as items of capital for the purposes of the legislation. They are items used almost daily by the Operator in the ordinary course of carrying on its business of operating the Village. As such they are maintenance items intended to be used up or worn out by use and should be considered business inputs (or 'consumables') readily used in the ordinary course of carrying on business. 98There is a claim by the applicant which is made in respect of crockery (Item C3, in the amount of $732.00. However, I do not find that the crockery is an item of capital. I accept the applicant's evidence (see for example Mr Spencer's statement made on 22 October 2013 at paragraph 39) that the item claimed relates to crockery which is used in the dining area on a daily basis, that it is prone to some damage as a result of regular use (e.g. accidental breakage or breakage through regular washing up), and that in those circumstances it is a consumable. 99Item C4 is in respect of fire control equipment: emergency signs, fire hydrant system (with rising spindle soft seat valves and metal support pillars) and fire hydrant fittings (with landing valves) totalling $9,003.50. While these items of equipment may be categorised as items of capital, I am not satisfied that they are capital replacement items. Having regard to the general principles outlined earlier in these Reasons, I find that the items of fire control equipment are capital maintenance items which are not to be categorised as capital replacement. 100Some of Items C-5 (Light fittings - IXL and motion sensor lights; Plumbing Fittings - Mixer taps; Carpet and underlay replacement due to storm damage) and C-7 (Replacement of Locks & Security Devices but not maintaining locks) in the Claims Schedule have been conceded by the respondent and credited to the residents through the 30 June 2013 proposed annual budget in the manner detailed by Ms Osgood in her statement dated 22 October 2013 at paragraphs 24 and 25. Although such concessions and crediting back is said to have been done by the respondent without any admission on its behalf, I am satisfied that applying the general principles earlier referred to, the items conceded are, in fact, capital replacement items properly payable by the Operator. As regards other Items C-5 and C-7 in the Claims Schedule, I find that they are capital maintenance items. 101Item C-6 in the Claims Schedule relates to the costs (totalling $2,125.76) of fixing Digital Television Aerials. I find that these costs were properly payable to the suppliers and that the amount of $2,125.76 is to be categorised as a capital maintenance item. The costs are associated with identifying the causes of faulty equipment and then having the equipment repaired to bring it into a functional state.

Findings of the Tribunal as regards specific Item D matters as listed in the applicant's Claims Schedule 102Item D-5 relates to Guttering in an amount of $4,225.00 comprising replacement of 15 metres of guttering ($1,805.00) and replacement of 18 metres of guttering ($2,420.00). I accept Mr Kay's evidence for the applicant that the 2 areas of guttering needed replacement because during heavy rainfall, water overflowed and flooded the adjacent walkways and grassed areas. The relevant photographs (documents 60 and 61 in the applicant's bundle of documents) show the original guttering which overflowed during heavy rain, and the replacement guttering. The original guttering is shallower than the replacement guttering which has a squarer and deeper profile. As well as the guttering 6 metres of new downpipe was installed to assist in coping with heavy rain. It is submitted that this is an improvement within the meaning of reg 5(1)(b) of the RVR because there has been no overflowing since the replacement gutters were installed. 103On the other hand, the respondent says the cost is properly categorised as a capital maintenance item. Ms Osgood (her Statement dated 22 October 2013 at paragraphs 36 to 38) says the 2 areas of guttering were rusted, from which it can be inferred that was the reason (i.e. the guttering was used and deteriorated) for replacement in the 2 areas. She also points out, which I accept, that both areas of the replaced guttering are, in fact, part of a total of 236 metres of guttering. On that basis it is said that the guttering replacement was a subsidiary component of an entirety; that is, the two areas of guttering which were replaced are physically, commercially and functionally an inseparable part of an entire guttering system and as such the replacement of a component of an overall item of capital is not, in itself, 'capital replacement' when the item of capital is viewed as a whole. 104It is certainly the case that the parameter of whether a (replaced) item is, in fact, a discrete system, or a component or part of an entire system, can be a helpful guide in categorising capital maintenance and capital replacement items. However, in the application of the retirement villages legislation, and in particular, reg 5(1)(b) of the RVR, it is always going to be a matter of degree and each case must be determined upon its own facts. Furthermore, while it may be the case Fair Trading NSW advised the applicant (see Mr Spencer's statement dated 13 February 2014) that the work done on the guttering was repairs, and not capital replacement, I am not bound by any advice given by Fair Trading NSW. In any event, it is far from clear that when the advice was given, Fair Trading NSW was apprised of all relevant facts matters and circumstances. 105In this instance, I am satisfied that the applicant has adduced sufficient evidence to establish, on the balance of probabilities, that the guttering in the 2 subject areas is a capital replacement item and therefore, cannot be paid from recurrent charges. I find that the principal reason why the guttering in the 2 areas had to be replaced was not deterioration (i.e. rusting) but rather to effect an improvement in the guttering system in the particular areas where a large expanse of roof and a steep pitch meant new guttering with a higher profile was required to prevent overflowing during heavy rain. In my opinion, the replacement guttering was work done to substantially improve an item of capital beyond its original (in this instance, shallower) condition, and on that basis it is a capital replacement item payable by the Operator which ought to be credited back to the residents as the Operator has done in respect of conceded items. 106Item D-6 in the Claims Schedule refers to the cost of replacing toilet cisterns ($1,250.00), supplying and installing inlet valves ($979.00) and the inlet valves and other work performed in Invoice 2635 ($295.00) carried out in a vacant unit. The applicant further submits that the cost ($7,268.00) of the hot water service tempering valves (see Item D-7 of the Claims Schedule and document 63 in the applicant's bundle of documents) is a cost payable by the Operator. However, I accept the respondent's evidence (see particularly Mr Spencer's statements) that these items amount to repairs or maintenance in circumstances where there have been maintenance requests initiated by residents or other staff members, and that matters which require repairs or maintenance have been identified. Accordingly, I find that these items are categorised as capital maintenance items and properly payable from recurrent charges. 107The claims set out in Item D-8 of the Claims Schedule are presented by the applicant as capital replacement items and in some instances as relating to prior budget years which cannot be brought forward to the annual budget approved for 2012/2013. There are 4 components within these claims: (a) replacement of air conditioner fans ($5,497.80); (b) uneconomical repairs ($3,289.00) in circumstances where some of the relevant invoices of the supplier, Temperature Control (document 64 of the applicant's bundle of documents) refer to replacement of components or recommend replacement; (c) the costs of the supplier, Temperature Control relating to prior budget years ($1,100.00); and (d) an incorrect charge to the capital works fund ($6,239.20). 108A part of component (a) of Item D-8 is conceded by the respondent; i.e. $902.00 to replace fan motor. The amount of $902.00 has been credited back (in my opinion, properly) to the residents through the 30 June 2013 budget. I am satisfied that as to the balance of the items in dispute, such items amount to repairs or maintenance in circumstances where there have been maintenance requests initiated by residents or other staff members, and that matters which require repairs or maintenance have been identified. In the circumstances, I find that such items are categorised as capital maintenance items and that they are properly payable from recurrent charges. 109Item D-9 of the Claims Schedule relates to costs ($10,670.00) in respect of Air Conditioner Control Units which the applicant submits are capital replacement items at the Operator's cost. I am satisfied that the costs are repairs or maintenance in circumstances where there have been maintenance requests initiated by residents or other staff members, and that matters which require repairs or maintenance have been identified. I find that the costs in respect of Air Conditioner Control Units are categorised as capital maintenance items and properly payable from recurrent charges. 110There are also allegations of incorrect accounting treatment of the costs of the Air Conditioner Control Units (similar to the allegations for Items D-8(c) & (d)) and a further allegation that the costs should be a separate item that is capitalised and depreciated by the Operator so that the residents are not being asked, contrary to s 97(3)(c) of the RVA, to pay for depreciation. 111In respect of such allegations for Items D-8 (c) and (d) and Item D-9, I am not satisfied that the applicant has proved, on the balance of probabilities, any accounting errors in the budgets, such as expenses wrongly charged in a financial year or that there is an incorrect charge to the capital works fund. I accept the respondent's evidence and in particular that of the auditor Mr Stephen Walker: see his Statement dated 13 February 2014. Mr Walker explains the audit process undertaken in the Village and relevantly confirms the systems (as referred to by Mr Spencer and Ms Osgood in their statements) which were put in place by the Operator to comply with the respondent's obligations under the retirement villages' legislation. I find that the respondent has established an audit process through Mr Walker which begins with the auditor seeking information as to the accounting processes undertaken by the Operator to ensure the proper classification of expenditure; which then undertakes a regular review of quarterly management accounts to raise queries during the course of a financial year; which further undertakes tests of expenditure during the course of a year to confirm the proper treatment of the expenditure before year end; which then enables the auditor to raise queries with the Operator before a final audit opinion is signed off; and which concludes with an audit sign off confirming that the accounts provide a true and fair view in accordance with the Operator's obligations under the Corporations Act and the retirement villages' legislation. 112In its final submission (received by the Tribunal on 19 May 2014), the applicant says that the expression of a true and fair view of the accounts of the Village does not mean the financial statements, as audited, are 100% accurate. Rather, it is put for the applicant that a true and fair view of the Village accounts means 'fairly accurate' only. Such submission may be correct as a general statement; however, it is of little assistance to the Tribunal in these proceedings. The applicant's allegations of inaccuracies in the accounts refer to specific matters of incorrect accounting treatment of particular costs and a further allegation that the costs of the Air Conditioner control units should be a separate item that is capitalised and depreciated by the Operator so that the residents are not being asked, contrary to s 97(3)(c) of the RVA, to pay for depreciation. There is no independent evidence to support these (serious) allegations. Beyond mere assertions by the application, I have no proper basis to doubt the auditor's evidence insofar as its bears upon the applicant's allegations of inaccuracies in the audited accounts. 113Item D-10 of the Claims Schedule relates to the costs ($4,370.00) associated with canvass repairs in the woodwork room and unit no. 35 which are said to be capital replacement items at the Operator's cost. However, I am satisfied that the costs are, in substance, repairs and maintenance. I find that the costs in respect of the canvass repairs are categorised as capital maintenance items and properly payable from recurrent charges. 114For Item D-11 of the Claims Schedule, the allegation is that the cost ($1,736.00) of the repair of the appliance items cannot be capital maintenance because the costs amount to work done to maintain and repair an item of capital in circumstances where, within the meaning of reg 5(1)(b)(ii) of the RVR, it would have been more cost effective to replace the items of capital. The applicant has not established, on the balance of probabilities, that the repairs were uneconomical. There are no invoices, quotes, estimates, or other information put into evidence to substantiate the claim of cheaper prices at a retail store. 115The applicant makes further claims in respect of Items D-12, D-13 and D-14 in the Claims Schedule for the costs of Centron swipe readers in the Village security system ($1,207.87), Flashing 'capital improvement' to raise the level of the roof to the top of the guttering to prevent rain water entering ($3,014.00), and Troy Roofing Capping lift well ($2,700.00), respectively. 116As regards Item D-12, I am not persuaded by the argument that the swipe readers are discrete items of capital and that the cost of their replacement should be borne by the Operator. In the circumstances, I am satisfied that the replacement of the readers is, in substance, a matter of repair or maintenance, in order to make good the efficient functioning of the security system. I find that the costs of replacement of the readers are categorised as capital maintenance items and that they are properly payable from recurrent charges. 117For Item D-13, I accept the submission of the applicant that the new flashing was installed to correct a building defect; specifically, to raise the level of the roof to the top of the guttering to prevent rain water from entering and that, in those circumstances, it is not to be categorised as repair or maintenance. I find that the new flashing was work done to substantially improve an item of capital beyond its original condition, within the meaning of reg 5(1)(b)(i). On that basis, I agree with the applicant that it is a capital replacement item payable by the Operator. Its cost ($3,014.00) ought to be credited back to the residents in the same way that the Operator has effected a crediting back of costs totalling $4,593.83 in respect of conceded items. 118As to the costs of Troy Metal Roofing (Item D-14 in the amount of $2,700.00), I have had regard to the supplier's invoice bearing date 7 March 2012, which is document 81 in the applicant's bundle of documents. I find that the invoice evidences a limited scope of works; namely, to apply capping at the top of the lift well to reduce water ingress. In the circumstances, I am satisfied that the work is categorised as repair or maintenance (i.e. to prevent further water leakages) and is properly payable from recurrent charges. 119Also in respect of Item D-14, the applicant requests that regardless of the Tribunal's finding as to whether or not the cost is payable from recurrent charges, an order under s 93 of the RVA for maintenance or replacement for the lift well and leak points in unit nos. 201, 232 and 240 is appropriate in the particular circumstances. In my view, the applicant's request for an order under s 93 is misconceived. Section 93(1) puts an obligation on an Operator to maintain each item of capital having regard to its age, prospective life and the money paid to the Operator by the residents under the village contract including ingoing contributions. Section 93(2) provides that if it is not practical to maintain an item of capital in accordance with the section, the Operator "may" replace the item. Section 93(3) states that the Operator "must" carry out the maintenance or replace an item of capital within a reasonable time after becoming aware of the need for maintenance or replacement of the item. The legislation is clear: the decision to replace an item of capital is a discretionary matter for the Operator. It is not available to the Tribunal to direct an Operator to incur a replacement cost of an item of capital in circumstances where the Operator has formed a proper view that maintenance is an appropriate action and maintenance is, in fact, being undertaken by the Operator.

Findings of the Tribunal as regards specific Item E matters as listed in the applicant's Claims Schedule 120There are two issues that arise for determination in regard to Item E-3 of the Claims Schedule. The first issue relates to the cost (said to be $40,000.00) of replacing the brick paved roadway bend near and in front of unit no. 63 with either concrete or stencilled concrete. There is no written quote in the amount of $40,000.00; however, the applicant's representatives gave evidence to this effect: the Operator had told the residents in the context of discussions between the parties as to whether the residents would withdraw their application to the Tribunal that the cost would be about $40,000.00. The respondent's evidence establishes that the budget presented to the Residents' Committee included provisions of $5,000.00 each for brick paving, repairs and re-sanding, and for roadway repairs and re-sanding, respectively. Further, the annual maintenance schedule provided to the residents as part of the capital works expenditure specifically allowed for repairs and re-sanding to the roads and pathways of the Village as required: see items 23, 24, 29 and 30 of Annexure F of Ms Osgood's statement dated 22 October 2013. Moreover, the safety report of Investigation Systems Pty Ltd confirms that the grounds of the Village are well maintained with minor maintenance only required. The applicant's preference that the roadways are concrete or stencilled concrete, rather than brick pavers, is not a material matter for me in characterising whether the expenditure on roadways is capital maintenance or capital replacement. I am satisfied on all the evidence that the expenditure and works being undertaken by the Operator are correctly characterised and dealt with as capital maintenance. 121The second issue arising under Item E-3 in the claims Schedule is the applicant's request for an order under s 93 of the RVA directing the respondent to provide a plan for repairing/replacing the remaining brick pavers in the Village. In this regard, the applicant points out, and I accept that the brick paved roadways constitute about 30% of the total Village roadways; the other roadways being the more desirable (at least, in the residents' opinion) because they are concrete or stencilled concrete. I decline to make any order under s 93 as requested. The applicant's representative, Mr Plant, conceded under cross examination that the respondent's decision to repair, and not replace, the brick paved roadways was a management decision. Such concession was, in my opinion, wholly appropriate in the circumstances. It is also consistent with the discretion given to the Operator under s 93(2) of the RVA. As I found in respect of Item D -14 (relating to Troy Metal roofing), it is simply not available to the Tribunal to direct an Operator to incur a replacement cost in respect of an item of capital in circumstances where the Operator has formed a proper view that maintenance is an appropriate action and maintenance is, in fact, being undertaken by the Operator. 122Item E-4 of the Claims schedule is a claim for an order that an amount of $3,844.00 be refunded to residents because the costs relate to the replacement of 'failed' fence posts. In the applicant's submission, this is a capital replacement item. The parties agree that the costs, as referred to in the Jol Simpson invoices, relate to metal fences that are around 13 years old (i.e. erected in or about 1999) and which have rust damage causing failure during storms and impact. 123The applicant argues that the costs incurred are caused by the failure of the posts and in those circumstances, the full cost of the repairs is an Operator's cost, and therefore not to be funded from recurrent charges, because it is capital replacement. I do not accept that argument. I find that the costs in the Jol Simpson invoices are to be characterised as repair or maintenance. They are costs which are properly payable from recurrent charges. In making that finding I accept the evidence of Ms Osgood that 2 posts were replaced out of a total length of boundary fence being 1,200 metres and therefore the work done did not change the overall character of the item; that the replacement of the two posts related to them having become rusted through ordinary use and natural deterioration; that the work relating to the realigning of a brick pier and repainting of a gate arose due to storm damage; and that the replacement of posts from various units related to damage to the posts caused by rotting, normal use and fair wear and tear.

Findings of the Tribunal as regards Item G in the applicant's claim - Expenditure not in accordance with budget approved by residents 124I accept the respondent's submission that there is no sound basis for this claim in the absence of evidence that there was a reduction in the level of services provided by the Village or that the variations between budget and actual caused the total expenditure provided for in the approved annual budget to be exceeded. 125Mr Plant was cross examined in relation to the operation of s 116 of the RVA in the particular circumstances. His evidence was to the effect that he accepted the budget may change over the financial year on a 'line by line' basis but that the total expenditure may not be exceeded unless the approved annual budget is amended under s 117 of the RVA. 126I find that there is no inconsistency between s 116(3) and s 116(3A). These provisions are underpinned by an imperative of flexibility; i.e. the flexibility which is required of an operator in certain circumstances to institute good and common sense management practice. Section 116(3A) provides a means for prudent operators of retirement villages to vary or adjust expenditure items in an approved budget so long as any such variations and adjustments are not at the expense of reducing the level of services or do not cause the total expenditure to be exceeded. In circumstances where the provisions of (a), (b) and (c) of s 116(3A) are satisfied, variations or adjustments to accommodate changes in funds' allocations during a financial year are permitted under the legislation. 127For the foregoing reasons this claim is dismissed.

Findings of the Tribunal as regards the applicant's claim under section 70(6)(b) RVA - Obstruction of Residents' Committee 128While the word 'obstruct' is not defined in the legislation, it should be given its ordinary and everyday meaning (i.e. to stop or to hinder) in the context of the other words used in s 70(6)(b). 129In respect of the context, the functions and role of a Residents' Committee, as set out in the legislation include: to meet with the Operator (s 72); for the Operator to provide information to the Committee in relation to proposed expenditure (s 113(2)) and to variations to recurrent charges (s 107(4)); to allow the Committee to put a proposal in relation to what is to occur with any surplus (s 120B); to be engaged in any discussion relating to amendment of Village rules (s 51); for the Operator to provide a copy of the safety inspection report to the Committee (s 58A); to be engaged in decisions relating to variation of services (s 60) and the application of the capital works fund (s 99); for the Operator to provide to the Committee quarterly accounts (s 118(3)) and annual reports (s 119); and for the Operator to provide audited accounts (s 118). 130I am not satisfied on the evidence that the Operator has stopped, hindered or otherwise obstructed the formation of the Residents' Committee; or the ability of the Residents' Committee to correspond or communicate with the Operator; or for the Residents' committee to seek information from the Operator. Nor am I satisfied on the evidence that by reason of any act or omission of the Operator the functions and role of the Residents' Committee, as set out in the legislation, are not being undertaken or occurring. 131In cross examination Mr Beveridge and Mr Paton agreed that the Operator did not hinder the operation or functions of the Residents' Committee. Their complaint was that the information provided should have been more extensive. This does not amount to obstruction of the Committee's functions. 132I find on the evidence that the Operator has supported the functions of the Residents' Committee by responding to queries and requests for information. I am not satisfied that there has been any intimidation or harassment of Committee members by the Village staff or the director of the Operator. 133As there is no evidentiary foundation for this claim it must be dismissed.

GENERAL OBSERVATIONS AS REGARDS THE TRIBUNAL'S APPROACH TO RESIDENTS' APPLICATIONS CHALLENGING EXPENDITURE 134Any resident or residents' committee of a retirement village has a legitimate right to challenge expenditure incurred by an operator to ensure that it is properly characterised and charged; however, the resident or committee must be mindful that an application rests or falls on the case as presented and the evidence provided. Mere assertions or bald statements of disagreement or non-acceptance of an Operator's budgets which are unsubstantiated by transparent and identified facts in evidence will be of little assistance to the Tribunal in determining the real issues in dispute. 135In my view, the matters that guide and inform the Tribunal when considering applications where residents are challenging expenditure of operators, include:

Whether an operator has applied the relevant provisions of the legislation in characterising items of expenditure as capital maintenance or capital replacement;
Whether an operator has allowed residents an opportunity to raise issues of concern as regards characterisation of items of expenditure during the relevant financial year via the quarterly management accounts and/or via its general communications with a resident or residents or (where applicable) a residents' committee;
If it is proved that an operator has not done so, then there is probably cause for the Tribunal to grant relief to an applicant or applicants;
Where proper process is observed by an operator and a final audit supports that process (in particular, there is credible evidence to establish compliance with s 114 and s 118 of the RVA), a residents' challenge to audited accounts must have a strong foundation of transparent and identified facts in evidence;
It is not enough for an applicant to rely upon a simple expression of disagreement as regards an accounting treatment of particular items of expenditure or even upon an invoice that refers to 'replacement' without other context to suggest it is not a capital maintenance item;
There has to be a cogent and structured argument and disagreement supported by a proper factual analysis and preferably, where accounts have been audited, an expert opinion to substantiate a challenge that the accounts do not at least in respect of the items of expenditure that are challenged, provide a true and fair view in accordance with an operator's obligations under the retirement villages' legislation. 136In this application, I accept without reservation that the applicant was, genuinely, in doubt as to the principles to be applied in demarcation of items of capital as maintenance or replacement, and that this was a material consideration in it pursuing this application. In my view, the principles for application by the Tribunal as regards demarcation may be summarised as follows:
Determining the proper characterisation of an item of capital and whether it is capital maintenance or capital replacement, depends on its own facts matters and circumstances;
An objective test applies to characterisation of these matters, and it is to the substance, and not to the form, of the transaction underlying the expenditure item that the Tribunal must look in making its determinations;
A statement in an invoice regarding 'replacement' is not necessarily determinative of there being a capital replacement item;
In construing the relevant statutory framework, a purposive, common sense and business efficacy approach is to be preferred, with the Tribunal always keeping in mind the benefits intended by the legislation;
The RVA and the RVR contain significant consumer protection provisions balanced by recognition of an operator's need to be able to continue its operations profitably;
In the context of consumer protection legislation, profitability cannot be the dominant consideration so that fairness to consumers is at least as dominant as a balancing consideration to be weighed in the exercise of a balanced approach: Queens Lake Village Pty Ltd v Queens Village Residents Association [2011] NSWDC 21 at [70];
In determining whether or not there is a capital maintenance item for the purposes of the legislation, the Tribunal must consider the facts matters and circumstances bearing upon, or relating, to 'repairs and maintenance', and not only 'repairs';
The Tribunal has to look to the nature of the expenditure incurred in relation to an item of capital and ask whether the expenditure changes the character or function of the item so that if the work done has the effect of substantially improving an item of capital beyond its original condition it cannot be characterised as capital maintenance;
On the other hand, if the expenditure is necessary to ensure an item of capital, in fact, works (i.e. repairs), or is to allow the item of capital to continue to function or to preserve its ability to work (i.e. maintenance), and it cannot be said, objectively, that it would be more cost effective to replace the item rather than repair and maintain it, then it is apt to be characterised as capital maintenance.

ORDERS 137The Tribunal notes the concessions made by the respondent in respect of particular items in the Claims Schedule totalling $4,593.83 and further that such amount has been credited back to the residents through the 30 June 2013 proposed annual budget. Although such concessions were made by the respondent without admissions, the Tribunal finds the concessions were properly made and that they relate to items which are correctly characterised as capital replacement. 138In respect of the items in dispute on the Claims Schedule, the Tribunal finds Items D-5 (Guttering in the amount of $4,225.00) and D-13 (installation of Flashing in the amount of $3,014.00) are capital replacement items payable by the Operator, and directs that the costs of such Items totalling $7,229.00 are to be credited back to the applicant in the same way that the Operator has effected a crediting back of costs totalling $4,593.83 in respect of conceded items. 139The applicant has not made out a case for orders in respect of any other matters with the consequence that the balance of the application must be dismissed. D Charles General Member Civil and Administrative Tribunal of New South Wales 1 July 2014 I hereby certify that this is a true and accurate record of the reasons for decision of the New South Wales Civil and Administrative Tribunal. Registrar

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 31 July 2014

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