Held, refusing leave and dismissing the application;

• the Tribunal endorsed the Senior Member's approach that the contract between the parties did not adopt the 'model' agreement provided by the regulator and that the words of the contract required construction independent of any explanation by the regulator as to the purpose of the clauses;
• even if it were accepted that the parties intended, by the agreement, to give effect to the purpose of spreading the cost of capital expenditure across the residents, such an intention contributes nothing to the question of whether the calculation is to treat a part-year as one year or not;
• the applicant did not demonstrate that there was any error in the Senior Member's approach. To adopt the applicant's argument required a reading in of additional words that is not supported by any other part of the contract;
• the applicant did demonstrate a reasonably arguable case that the original decision was not correct or preferable.

Internal review - Retirement village - Dispute - Exit entitlement

South Australian Civil and Administrative Tribunal Act 2013 s 70

Made under the South Australian Civil and Administrative Tribunal Act 2013, s 70(1a)

1. These reasons are provided to the parties in respect of a decision made on 22 October 2024 by which I refused the applicant permission to proceed with an internal review.
2. In these reasons, I refer to Minda Inc as "the applicant" because it is the party seeking internal review, and I refer to Mr and Mrs Carman as "the respondents".
3. The parties were in a contractual relationship under which the respondents occupied a home in a retirement village operated by the applicant. The respondents terminated the contract and moved out of the village. This triggered a dispute between the parties about monies owed under the contract, referred to as an "exit entitlement".
4. An exit entitlement is an amount returned by a retirement village operator to a resident when the resident leaves the village. It is equivalent to the amount paid by the residents to the operator upon taking up residence in a village, less fees and deductions stipulated in the residence contract. The dispute concerned a deduction made by the operator from the respondents' exit entitlement. The applicant paid the respondents an exit fee and the respondents initiated proceedings in the Tribunal asserting that they were entitled to recover more than they had been paid. The particular deduction in dispute was calculable by reference to the length of time the respondents had lived at the village. There was no dispute that they had lived there for 28 months, but there was a dispute as to how that engaged with the contractual provisions.
5. On 30 July 2024 the Tribunal, constituted by Senior Member Lazarevich, made a decision in respect of the parties' dispute. After hearing the parties, the Tribunal issued a decision dated 30 July 2024 by which the applicant was required to pay an amount to the respondents. The amount reflected the difference between the respondents' contended-for calculation of the exit entitlement and the applicant's calculation.
6. Consistent with the fact that there is no automatic stay on a decision that is subject to internal review, and no stay was requested, the applicant paid the respondents the amount of $15,500.00, plus interest of $171.15, on 2 August 2024, to give effect to the Tribunal's decision. The applicant then filed an application for internal review pursuant to s 70 of the South Australian Civil and Administrative Tribunal Act 2013.
7. An internal review may only proceed with leave: s 70(1a). Leave (sometimes referred to as "permission"), is determined by the Tribunal by reference to the interests of justice, having regard to whether the applicant for leave has a reasonable argument that there has been the unfairness in the process or error in the outcome of the decision sought to be reviewed, and whether there is any significant principle at stake.
8. I received written submissions from the parties on the question of whether leave should be granted. I heard the parties at an oral preliminary hearing conducted by telephone to determine the question of leave to proceed. After hearing from the parties, I made a decision declining to grant leave, which I communicated to the parties orally, and informed them that I would provide written reasons.

1. The respondents Gary and Margaret Carman owned a dwelling in a retirement village administered by the applicant. They lived there from 18 January 2022 until 17 May 2024. They paid a sum of money for occupation and were entitled to recover an exit entitlement when the contract terminated. The residence contract contained, amongst other things, a clause that provided for a contribution to be made by the respondents to the village's capital replacement fund, payable by way of a deduction from the exit entitlement. The contribution was calculated by reference to the number of years that the respondents had lived in the village.
2. The relevant provisions of the residence contract included the following:

Period of Occupation means the period of time between the date on which the Resident enters into occupation of the Residence and the date on which the Resident ceases to reside in the Residence.

3. In relation to the exit entitlement, the residence contract provided:

12.3 Exit Entitlement after Settling-in Period > > If this Agreement is terminated by the Resident or the Operator after the Settling-in Period: > > a. the Operator must pay to the Resident: > > i. the Ingoing Contribution in full; plus

1. if the Subsequent Ingoing Contribution exceeds the Ingoing Contribution, the Capital Gain.

2. the Deferred Management Fee calculated in accordance with Item 10 of Schedule 5; plus
3. an amount calculated in accordance with clause 12.5; plus
4. any Aged Care Payment Amounts due to the Operator; plus
5. if the Ingoing Contribution exceeds the Subsequent Ingoing Contribution, the Capital Loss.

1. There was no dispute that the termination occurred after the settling in period and that the dispute concerned the amount referred to in clause 12.3(b)(ii), being the amount calculated in accordance with clause 12.5 which states:

12.5 Other Payments by the Resident After Termination

1. Capital Replacement Fund - a percentage of the Subsequent Ingoing Contribution calculated in accordance with Item 13 of Schedule 5 to be placed by the Operator into the Capital Replacement Fund.

1. The applicant contended that the amount it properly deducted from the respondents' exit entitlement was, in light of their period of occupation of 28 months, three per cent of the Subsequent Ingoing Contribution. The applicant contended that it was entitled to one per cent for each of the first and second completed years and one per cent for the four months of the partially completed third year of occupation.
2. The respondents contended that they were liable for one per cent for each of the first and second years of occupation, and nothing for the four months of the third partial year of occupation, resulting in a deduction from the Subsequent Ingoing Contribution of two per cent.

1. The Senior Member provided reasons for his conclusion that the respondents were only obliged to pay a sum calculated by reference to the completed years they had lived in the village, resulting in a deduction of two per cent from the exit entitlement.
2. The Senior Member approached the matter as requiring interpretation of the residence contract and in particular of Item 13 of Schedule 5.

Interpretation by reference to the whole of the contract

1. The Senior Member observed that in another part of the contract, references to periods of time included express references to parts of years, whereas Item 13 of Schedule 5 did not. He said,[2]

In respect of the Deferred Management Fee aspect, the contract uses the phrase '1 year but less than 2 years', '2 years but less than 3 years', '3 years but less than 4 years' and 4 years or more' - which makes the situation clear in respect of that fee. > > ... > > The options are effectively that 'Period of Occupation' is to be 'rounded up' from a part year to full year, so that 2.33 years means 3 years, 'rounded down' so 2.33 years means 2 years, or applied pro rata so that 2.33 years is applied by reference to 2.33 years. As set out above, for the Deferred Management Fee, the 'rounded down' approach is taken. > > I do not consider that simply because the 'rounded down' approach was taken for the Deferred Management Fee, that the 'rounded down' approach must be applied to the Capital Replacement Fund, because the author of the document used different words. > > I do not consider that simply because it used different words, or could have used different words, or that other operators use different words, that a 'rounded up' approach automatically applies either.

2. On internal review, the applicant did not take issue with this approach. It is beyond dispute, in my view, that the use of a rounding down approach in a different part of the contract, where express words are used to effect that outcome, contribute little if anything to the interpretation of clause 5.

Interpreting the contract by reference to extrinsic documents

1. The Senior Member rejected the applicant's argument that the meaning of the clause could be determined by reference to the broader context including publicly available documents that concerned the interpretation and purpose of retirement village residence contracts. He said,[3]

I do not consider that 'industry practice' can be ascertained by reference to a draft agreement on a web site, and the respondent did not use the draft agreement but created its own agreement. It is accordingly the agreement in question I need to interpret, and I do not consider this can be done by working out what other operators might or might not have done.

2. In the original proceedings and on internal review, the applicant argued that this approach was erroneous. The applicant argued that the contract must be viewed and construed in its context as a regulated agreement, in that some of the terms are controlled by the Retirement Villages Act 2016, and the legislative purposes of the regulation of the contract highlighted the policy purpose of capital replacement funds as a mechanism to ensure the costs of capital expenditure are spread evenly across residents for their protection.
3. The Senior Member rejected this contention. He observed that the contract between the parties did not adopt the 'model' agreement provided by the regulator, and that in any event the words of the contract required construction independent of any explanation by the regulator as to the purpose of clauses governing contributions by residents towards capital replacement.[4]
4. I endorse the Senior Member's approach and would add the following observation. Even if it were accepted that the parties intended, by the agreement, to give effect to the purpose of spreading the cost of capital expenditure across the residents by requiring each resident to make a contribution, calculated by reference to the length of their tenure and payable on exit, such an intention contributes nothing to the question of whether the calculation is to treat a part-year as one year or not. Either approach, as long as it is consistently applied to all residents, confers the same benefit or detriment on the parties and other residents who are not parties to the contract. If a part year is treated as a year, then the village operator obtains and passes on the 'benefit' of a full year's contributions to the other residents. If a part year is not treated as a year, then the departing resident obtains a windfall to the extent that their contribution is only based on full years.
5. However, there is no evidence that the parties agreed to implement a purpose that went beyond the arrangement between themselves, and no basis to interpret the words of the contract accordingly.
6. All that the applicant's submission highlighted was that the operator had based its setting of the rate of capital expenditure fee on the assumption that a part-year would yield a year's contribution. However, the residence contract does not say this.

1. The applicant submitted that the Senior Member had not construed the words in accordance with the tenets of construction. As to the correct interpretation of the contract, the Senior Member said,[5]

My task is to interpret the words used in their context, having regard to the meaning that would be given by the reasonable reader in the position of the parties at the time the contract was made. The natural and ordinary meaning of words should be used and one should only depart from the natural and ordinary meaning of words is so far is as necessary to avoid an inconsistency or absurdity. One may have regard to the text of the contract, read a whole, and as against the background surrounding circumstances known to the parties and to the purpose and object of the transaction (in so far as that has been agreed or proved). Since almost any dispute about the interpretation of a contract involves rival meanings, it is seldom helpful to ask why the parties did not adopt one of those rival meanings in the contract. > > I was tempted to find that the time period should be applied on a pro rata basis. However, it is unlikely that such an approach would be legally correct. It is not clear that such a term is 'necessary to give business efficacy to the contract' or is 'so obvious as to go without saying' - see generally BP Westenport Pty Ltd v Hasting Shire Council (1977) 180 CLR 266, Byrne v Australian Airlines Ltd (1995) 185 CLR 410, Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337. I also note, but recognise it is said in a different context, that the authors of Chitty on Contract when discussing the law of 'entire' versus 'divisible' obligations refer at 21-030 to the proposition that "where a party has performed only part of an entire obligation he can normally recover nothing, neither the agreed price, since it is not due under the terms of the contract, nor any smaller sum for the value of his partial performance, since the court has no power to apportion the consideration. The refusal of pro rata payment is based on the inability of the court, as a matter of construction, to add such a provision to the contract, and also upon the rule that the mere acceptance of an act of part performance under an express contract cannot come out taken alone, justify the imposition of a restitutionary obligation to pay on a quantum merit basis." That proposition is subject to the doctrine of 'substantial performance' and arises in a different context. Nonetheless I am not satisfied that I can imply a term of pro rata into the contract. > > Nor can I be satisfied that I can imply into the contract a meaning that "1% for each year of occupation" means each "1% for each year of occupation or part thereof". That is not what the contract said. It could have said that. But it doesn't. The fact that a draft contract on a web site says something similar does not mean that this contract using different words must be so interpreted nor that there is an 'industry practice' that is implied into the contract. > > At the end of the day the words are '1% for each year of occupation'. The applicants occupied for over 2 years but did not occupy for 3. I accordingly interpret the contract as requiring them to pay a Capital Replacement Fee calculated by reference to 2% not 3%. > > My decision is not based on applying any notion of 'contra proferentum' (as there is a clause of the contract ousting that doctrine) or based on saying the same construction that applied to the Deferred Management Fee should be imported into the obligations about Capital Replacement Fund. My decision is based on interpreting the words '1% for each year of occupation' and finding that as there were only 2 years of occupation rather than 3 that the appropriate percentage is 2%.

2. The applicant did not demonstrate that there was any error in the Senior Member's approach. I accept the force of the Senior Member's reasoning that to adopt the applicant's argument requires a reading in of additional words to clause 5, and that this is not supported by any other part of the contract.
3. For those reasons, I have refused the applicant's request for leave to proceed. I accept that there are broader consequences for the applicant in the Tribunal's decision in that other residence contracts are likely to have similarly-worded clauses. However, I do not consider that the applicant has demonstrated a reasonably arguable case that the original decision was not correct or preferable.

1. I confirm the oral order made on 22 October 2024 that leave is refused.