Kincumber Nautical Village Pty Ltd v Morris & Ors

The RLLC Act

1. The objects of the RLLC Act are set out in s 3: 3 Objects of Act The objects of this Act are as follows - (a) to improve the governance of residential communities, (b) to set out particular rights and obligations of operators of residential communities and home owners in residential communities, (c) to enable prospective home owners to make informed choices, (d) to establish procedures for resolving disputes between operators and home owners, (e) to protect home owners from bullying, intimidation and unfair business practices, (f) to encourage the continued growth and viability of residential communities in the State.
2. There are particular provisions in the RLLC Act which regulate the contractual arrangements between a home owner and an operator. Under s 26 of the RLLC Act a written site agreement is required for each occupied site in a land lease residential community. Home owners pay site fees to an operator on a periodic basis for occupation of a residential site under a site agreement (see s 4(1)) of the RLLC Act).
3. Section 65 of the RLLC Act sets out how site fees may be increased. It states: 65 How site fees may be increased (1) Site fees payable under a site agreement can be increased only if the increase is made in accordance with this Division. (2) A site agreement may provide that site fees payable under it may be increased in accordance with either of the following procedures - (a) at specified intervals (or on specified dates) by a fixed method, which may be either - (i) by fixed amounts, or (ii) by a fixed calculation (for example, in proportion to variations in the Consumer Price Index or in the age pension), (b) by notice (otherwise than by a fixed method).
4. Section 66 of the RLLC Act contains further provisions dealing with increases of site fees by a fixed method as follows: 66 Increase of site fees by fixed method (1) This section applies to a site agreement that provides for the increase of the site fees by a fixed method. (2) A site agreement must not provide that the site fees may be increased by more than one fixed method. If more than one method is specified, the method that results in the lower or lowest increase of site fees is the applicable method. (3) The operator must not increase (or attempt to increase) the site fees that are to be increased according to a fixed method otherwise than in accordance with that method and this section. Maximum penalty - 50 penalty units. (4) The operator must give at least 14 days' written notice to the home owner of any increase in site fees, even if the timing of the increase is specified in the site agreement. (5) The notice must - (a) specify the amount of the increased site fees, and (b) specify how the increased site fees have been calculated, and (c) specify the day on and from which the increased site fees are payable, and (d) include such other information as may be prescribed by the regulations, and (e) be in the approved form (if any). (6) The home owner is not required to pay any increase in the site fees until notice of the increase is given as required by this section. (7) The terms of a site agreement fixing the method of future increases of site fees cannot be challenged under this Act. However - (a) the terms of the agreement may be varied if the parties enter into a written agreement to do so, and (b) this subsection does not affect any right that the home owner has, apart from this Act and the Civil and Administrative Tribunal Act 2013, to challenge any of the terms. Note - A home owner may be able to take action over unfair contract terms under the Australian Consumer Law of the Commonwealth. (8) A fixed method of increase may - (a) be for a specified period or for the duration of occupancy of a residential site by a home owner, and (b) have effect for longer than the term of a site agreement for a fixed term.
5. A standard form residential site agreement is set out in Schedule 1 to the Residential (Land Lease) Communities Regulation 2015. The residential site agreements entered into between Kincumber and the home owners appear to follow the standard form agreement. The standard form agreement provides for the rent to increase by either "Fixed method" or "Notice (non-fixed) method" and a box is marked to select which one applies. In relation to an increased by a fixed method, the standard form agreement goes on to state: Your site fees will be increased (select only ONE option) - in proportion to variations in the CPI by $____ by ____% by ____% of the increase to the single/couple (cross out whichever is not applicable) age pension each time the pension increases Note - if your site fee increases are linked to increases in the age pension, your site fees will increase ONLY by the percentage of the age pension increase specified above other (specify)
6. In the home owners' site agreements the box next to "other (specify)" was ticked and all other boxes were crossed. Their agreements then set out how the rent increase was to be determined as described in [7] above.

The proceedings before the Tribunal

1. In their applications to the Tribunal, the home owners argued that the method for increasing the rent as set out in their site agreements is not a "a fixed method" because it is neither a fixed amount nor a fixed calculation as required by s 65(2)(a) of the RLLC Act, but rather comprises a series of calculations. They submitted that, by providing a formula which includes a number of calculations, the calculation cannot be said to be a fixed calculation and it is therefore not a fixed method. The formula is therefore in breach of s 66(2) of the RLLC Act which specifically provides that a site agreement must not provide for the site fees to be increased by more than one fixed method. They argued that as the site agreement specified more than one fixed method of increasing site fees, the method that results in the lower or lowest increase would therefore be applicable (s 66(2)).
2. Should the Tribunal find that the rent increase clause in the site agreements was in breach of the RLLC Act, the home owners then sought various orders about how a rent increase should be determined.
3. Before the Tribunal Kincumber raised a number of arguments but its primary position was that the formula by which a rent increase is to be calculated as set out in the site agreements is a fixed method within the meaning of s 65(2)(a) and s 66(2) of the RLLC Act. As such, the terms of the site agreement could not be challenged under the RLLC Act (s 66(7)) and the Tribunal therefore had no jurisdiction to deal with the applications.
4. The Tribunal noted that the calculation of the rent increase includes inter alia a fixed percentage, a CPI increase and a proportion of outgoings. The Senior Member stated that each of these would on their own comprise a fixed method. She found that it followed that the site agreements provide for fee increases by more than one fixed method and thus fell foul of s 66(2) of the RLLC Act as it was not a fixed method of calculating a rent increase.
5. In her reasons, the Senior Member noted that the site fee increase notice itself gave some weight to that interpretation of the clause. She stated that the rent increase notice lists the components, including a component referred to as "the amount resulting from the fixed calculation". She stated that "it is clear that the method involves the application of a CPI calculation plus a fixed calculation plus a share of outgoings". The Senior Member noted that the final amount had been rounded up and stated that there was no authority for that rounding up.
6. Having found that the rent increase was not a fixed method, the Tribunal found that it was not precluded by s 66(7) from determining the dispute. The Member then went on to consider what orders ought to be made pursuant to s 157 of the RLLC Act and made the following orders: 1. that Kincumber must not breach the RLLC Act by applying more than one fixed method in increasing site fees; and 2. that Kincumber must comply with s 66 of the RLLC Act and must apply the fixed method which produces the lowest or lowest increase in site fees.
7. The Senior Member also made other findings, but these were not determinative of the application before her. She found that the element of the site fee increase term in the site agreement which requires the fees to be increased on the basis of the effect of any change in the rate of GST included in the site fees to be uncertain. However, she was not satisfied that this finding rendered the whole term uncertain.
8. In addition, while acknowledging that the Tribunal does not have power to declare a term of a contract to be unfair under the Australian Consumer Law, the Tribunal referred to the Appeal Panel's decision in Clark v Electrical Home-Aids Pty Ltd [2017] NSWCATAP 63 where the Appeal Panel held at [102] that the Tribunal is able to make a finding that a term of a contract is unfair. The Senior Member was of the view that the site agreement is not a standard form contract and therefore the provisions of the Australian Consumer Law dealing with unfair contract terms do not apply to the agreement.
9. The Senior Member went on to say that, if she were wrong on the standard form contract point, she would find that the rent increase term is an unfair term.

The appeal

1. Kincumber appeals from the decision of the Tribunal on the following grounds: 1. The Tribunal erred in finding that it was not precluded from determining the dispute by s 66(7) of the RLLC Act. 2. The Tribunal erred in finding that the site agreements provide for fee increases by more than one fixed method, in breach of s 66(2) of the RLLC Act. 3. The Tribunal erred in law by interpreting the site agreements by reference to site increase notices issued pursuant to, and after the formation of, those agreements. 4. The Tribunal erred in finding that the element of the site fee increase term, which requires the fees to be increased by taking into account the effect of any changes in the rate of GST, is uncertain and will not apply. 5. The Tribunal ought to have found that the terms of the site agreement providing for fee increases are not open to challenge by reason of s 66(7) of the RLLC Act. 6. The Tribunal ought to have found that the site agreements do not provide for fee increases by more than one fixed method within the meaning of s 66(2) of the RLLC Act. 7. The Tribunal erred in finding that there was no authority for the site fee increase notices to round up the site fee increases and should have found that the site agreements, properly construed, provided authority for the rounding up. 8. The Tribunal ought to have dismissed the applications made by the home owners.

Legal principles - internal appeals

1. Section 80(2) of the Civil and Administrative Tribunal Act 2013 (NCAT Act) provides that internal appeals other than on a question of law require the leave of the Appeal Panel.
2. In Prendergast v Western Murray Irrigation Ltd [2014] NSWCATAP 69 at [13], the Appeal Panel said that the following are errors of law: 1. whether the Tribunal provided adequate reasons; 2. whether the Tribunal identified the wrong issue or asked the wrong question; 3. whether it applied a wrong principle of law; 4. whether there was a failure to afford procedural fairness; 5. whether the Tribunal failed to take into account a relevant (that is, a mandatory) consideration; 6. whether it took into account an irrelevant consideration; 7. whether there was no evidence to support a finding of fact; and 8. whether the decision is so unreasonable that no reasonable decision-maker would make it.
3. The circumstances in which the Appeal Panel may grant leave to appeal from decisions made in the Consumer and Commercial Division are limited to those set out in cl 12(1) of Schedule 4 of the NCAT Act.
4. In this matter the Appellant submits that the Tribunal made an error (or errors) of law in its construction of the provisions of the RLLC Act. Leave to appeal is therefore not required.
5. For the reasons which appear below we are satisfied that the Tribunal made an error of law with respect to its interpretation and application of the provisions of the RLLC Act.

Consideration

1. The principal issue in this appeal is whether a formula for calculating site fee increases that comprises a number integers or components falls within the meaning of the term "a fixed method" in ss 65 and 66 of the RLCC Act. There is little discussion in the Tribunal's decision of the meaning of "a fixed method" or "a fixed calculation". The Tribunal seems to have accepted the argument put forward by the home owners that, because the rent is increased in accordance with a formula which includes a number of components, it cannot be said to be a fixed calculation and is therefore not a fixed method. The Tribunal placed emphasis on the fact that the increase must be by a fixed method.
2. The parties are in general agreement that the clear intention of the legislature in setting out in Part 6, Division 3 of the RLCC how site fees may be increased is to limit variability and to prevent home owners having a lack of certainty when signing up to a new site agreement with an operator. The RLCC therefore provides for an operator to increase site fees by "a fixed method" at specified intervals or on a specified date (or otherwise by notice). Importantly, rent increases by way of a fixed method cannot be challenged in the Tribunal whereas an increase by notice can be.
3. There is no definition within the RLLC Act of the term "a fixed method" or indeed "a fixed calculation". The question is therefore one of statutory construction. The submissions of both parties refer to the principles of statutory construction and the fundamental principle set out in Project Blue Sky Inc v Australian Broadcasting Tribunal [1998] HCA 28; 194 CLR 355 that the starting point is the text.
4. The home owners point out that the Macquarie Dictionary defines "fixed" as meaning "definite; not fluctuating or varying" and that the Oxford English Dictionary defines "fixed" as "definitely appointed or assigned; not fluctuating or varying: definite, permanent". Kincumber agrees that "fixed" in the context of the RLLC Act means definite.
5. Where the parties disagree, is whether a method which adds multiple components together is "a fixed calculation" and therefore "a fixed method". The thrust of the home owners' submissions is that what is meant by a fixed calculation is, in effect, a relatively simple calculation and would not include a complex calculation as this would not be in accordance with the objects of the RLLC Act and would be contrary to the legislative intent of providing home owners with sufficient certainty, at the time of entering into the site agreement, as to how the site fees are to be increased.
6. The home owners also point to the standard form site agreement which provides for an operator to select one option from a menu about how the site fees will be increased. They imply that, because the first four options describe a single, simple calculation e.g. a percentage, so must whatever calculation is included under the "Other" option be a simple calculation.
7. The Tribunal stated at [15]: The subject calculation includes inter alia a fixed percentage, a CPI increase and a proportion of outgoings. Each of these would on its own comprise a fixed method. It follows that the site agreements provide for fee increases by more than one fixed method, falling foul of s 66(2).
8. The Senior Member appears to suggest that, where a calculation comprises a formula containing multiple components or integers, each of those components is to be considered a separate fixed method. In her view, it seems that a fixed calculation cannot include a formula which adds together separate components or integers. It is not clear to us why the meaning of "a fixed calculation" should be constrained in such a way. Apart from the requirement that a calculation be "fixed", there is nothing in the RLLC Act which stipulates how a calculation under s 65(2)(a)(ii) may be performed or what such a calculation may involve. As Kincumber points out, if each of the components itself is "fixed" (as the Tribunal found), a formula adding those components together must also be "fixed".
9. Both the Macquarie Dictionary and the Oxford English Dictionary state that "calculation" means a "computation". As noted above, the parties agree, as do we, that a calculation will be "fixed" if it is definite. Kincumber refers to the case of Rizzi v Grazcos Co-operative Limited [1981] HCA 37; (1981) 153 CLR 669 where the High Court considered the meaning under workers compensation legislation of an award "fixing or providing for the fixing of a rate for a weekly or longer period". The Court held at 675: To fix a weekly rate, in the ordinary meaning of that expression, includes to prescribe a standard by the application of which the sum payable for a week's work can be calculated or ascertained definitely.
10. Kincumber argues that the same reasoning should apply in this case so that "a fixed calculation" in s 65(2)(a)(ii) should be construed as needing a standard by the application of which a site fee increase could be calculated or ascertained definitely. We agree. In providing for a site fee increase in accordance with a fixed calculation it is not the amount of the increase which is relevant but whether the method for calculating the increase allows a home owner at the time they enter into this site agreement to know with certainty how an increase is to be calculated and that the method of increase will not vary from year to year. In our view there is no bar on such a calculation comprising a formula containing multiple integers or components.
11. On any ordinary meaning, the term "a fixed calculation" can be a formula which includes a number of different components added together. The fact that s 65(2)(a)(ii) contains two simple calculations by way of example to demonstrate what is included in "a fixed calculation" does not confine the meaning of the term to those simple calculations. Similarly, the fact that the standard form site agreement set out in a Schedule 1 to the Regulation contains options for ticking a box to include a single calculation such as a percentage, does not in any way mean that a more complex calculation is prohibited by the RLCC Act. Nor is it clear to us why, the use of a more complex calculation is indicative of "unfair business practices" and therefore not in conformity with the objects of the RLCC Act as argued by the home owners.
12. In our view, the fact that the site fee increase clause in the site agreements the subject of these proceedings contains a number of components or integers is irrelevant, so long as the calculation is "fixed", that is, is definitely ascertainable. The clause in question provides a calculation from which the site fee increase in any given year can be calculated or ascertained definitely and is "a fixed calculation" and therefore "a fixed method" for increasing site fees. In support of that conclusion, although not determinative of it, we are inclined to the view put forward by Kincumber that the intention of the legislature in providing for a fixed method is to prevent an operator including alternative methods of calculating site fee increases in a site agreement and then relying upon the method which results in the greater increase. This is evident from the terms of s 66(2).
13. We are satisfied that the Tribunal erred in its construction of ss 65 and 66 of the RLLC Act and was wrong to conclude that there was a breach of s 66(2). The Tribunal ought to have concluded that, pursuant to s 66(7) of the RLLC Act, the terms of the site agreement providing for fee increases were not open to challenge and that the Tribunal lacked jurisdiction to determine the applications.
14. For these reasons, the appeal must be allowed. The parties agree that, if the appeal is allowed on the grounds that there was no breach of s 66(2) of the RLLC Act, that brings the matter to an end before the Tribunal and there is no need to address other issues raised in the Tribunal's decision. We do note, however, that the Tribunal's finding that there was no authority for the rounding up of the increase is in error. The vast majority of the site agreements contain the relevant clause authorising the rounding up and, for those that do not have this clause, rounding up was not applied.
15. While it is not an issue we must now decide, Kincumber included as a ground of appeal that the Tribunal erred in finding that the element of the site fee increase term which requires the fees to be increased by taking into account the effect of any changes in the rate of GST is uncertain. The notices of increase the subject of the applications did not in fact include any increase by reference to any increase in the rate of GST or similar tax, however, we note that in our view the provision relating to increases in GST or similar tax is not so uncertain as to be unenforceable.
16. We also note that there was some discussion during the hearing of the appeal of the Tribunal's view on whether the site fee increase term is an unfair term under the ACL. This, however, is not an issue that arises in this appeal for determination.

Orders

1. We make the following orders: 1. Appeal allowed. 2. The decisions made in matter RC 19/47649 and in the other related matters listed in Schedule 1 to that decision are set aside.

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: 14 September 2021