a short history of the liTigation
29 It is not necessary to refer to every proceeding between the present parties or between Overton and other lessees. It is, however, necessary to refer to some of the proceedings in order to understand the issues arising in the present appeal.
30 On 21 August 1996, Overton applied to the Residential Tenancies Tribunal for orders that the lessees pay the shortfall in operating expenses for the 1994, 1995 and 1996 financial years and pay Overton's estimate of the level of contributions required to meet outgoings for the 1997 financial year. On 16 December 1996, the Tribunal ruled that it did not have power to grant the relief sought.
31 In January 1997, Overton commenced proceedings against 84 of the lessees in the Local Court to recover shortfalls in contributions. This provoked proceedings by 112 lessees in the Equity Division of the Supreme Court of New South Wales seeking orders restraining Overton from prosecuting such proceedings. Orders to that effect were made on 27 February 1997, but on terms that allowed Overton to pursue its claims in the Supreme Court. A condition of the stay was an undertaking of the lessees to increase their contributions by ten per cent. Thus from 1 March 1997, the Murphys' contributions increased from $71.96 to $79.15 per week (exclusive of the pensioner rebate). The lessees were also directed to elect a representative party to act on behalf of all of them.
32 A statement of claim was duly filed in the Supreme Court in which claims were made on behalf of at least 112 lessees (on the material available to us the numbers are not clear). The lessees invoked the Retirement Village Industry Code of Practice 1995 ("Code of Practice"), claiming that it overrode the terms of the leases. Overton filed a cross-claim against the lessees in which it sought to recover what it claimed were arrears of contributions under the leases. A defence to cross-claim was filed by the lessees asserting matters similar to those ultimately determined by the primary Judge in the First and Second Judgments.
33 On 23 December 1997, Windeyer J held that the Code of Practice did not give rise to private rights. An appeal to the Court of Appeal was effectively dismissed: Murphy v Overton Investments Pty Ltd, unreported, 3 September 1998.
34 In March and April 1998, Windeyer J made orders under the Supreme Court Rules, Pt 72, referring the issues arising under the cross-claim to Mr Peter Taylor SC for report. The parties agreed that Mr Taylor should deal, in the first instance, only with the "common defences" such as those based on construction of the leases. Mr Taylor's report of November 1998 dealt only with those issues.
35 The claims referred to the referee related to the period before 15 May 1998. The amounts claimed by Overton totalled $1,502,203. This total included shortfalls and outstanding contributions of $647,468 and what was described as "legal and accounting expenses" of $496,799. Almost all of the balance comprised interest.
36 The precise make-up of the legal and accounting expenses of $496,799 is not entirely clear, since the referee's report breaks up the figure by years rather than by description of each component (apparently because the parties did not adduce evidence as to how the expenses were made up). A schedule incorporated in a judgment of Windeyer J delivered on 10 December 1998 (Murphy v Overton Investments, Pty Ltd 1181/97) shows the break-up of a different figure for legal and accounting charges, namely $583,518. The two largest items concerned the proceedings in the Residential Tenancies Tribunal ($184,738) and the Commercial Tribunal ($184,904), brought by the Director-General of Fair Trading against Overton apparently alleging breaches of the Code of Practice. The schedule also included proceedings in the Equity Division ($144,368) and in the Administrative Law Division ($20,529) where Overton had challenged the validity of the Code of Practice.
37 The referee found that Overton was estopped, or otherwise barred, from retrospectively charging certain additional amounts to the Maintenance Fund in respect of years prior to the year ended 30 June 1997. The extent to which Overton was estopped or barred is not relevant to the present appeal.
38 Overton commenced charging accounting and legal expenses to the Maintenance Fund in April 1997. The referee's report noted that Overton based its claim for auditing and accounting charges on cl 5(c)(x) of the Lease Memorandum. The referee observed that, while most of these charges did not relate to the usual day-to-day aspects of the operation of the Village, they did relate to the then current dispute and its predecessors in the courts. In his view, given the nature of the dispute (that is, one that related to outgoings incurred in the operation of the Village), it was difficult to accept that the accounting costs incurred in the course of the dispute were not sufficiently related to the operation of the Village so as to be recoverable under cl 5(c)(x).
39 The main issue before the referee in relation to legal fees concerned the costs of the proceedings in the Commercial Tribunal, where Overton was found to have breached the Code of Practice and was ordered to pay costs. The referee commented that it was not entirely clear whether the lessees' claim was that the costs Overton sought to recover had not been properly incurred, or whether Overton's conduct in claiming them breached its obligations of good faith and best endeavours under cl 21 of the Trust Deed. Insofar as the contention rested on the first basis, he rejected it:
"There was no evidence directed, in the course of the hearing, to explain in any detail, the real nature of the issues in these various proceedings. Without such an explanation it is imprudent, at least, to make any finding adverse to Overton."
40 The second basis for the claim was also rejected. It was not a breach of the obligation of good faith to claim costs from the lessees merely because Overton had suffered adverse costs orders in the proceedings. The adverse costs orders had related to the lessees' costs and those of the Director-General of Fair Trading. The costs of Overton itself were different both "conceptually and actually". Moreover, the evidence did not allow a complete understanding of the precise issues involved in each of the proceedings and, in particular, the considerations that prompted the costs orders. The referee also considered it relevant that the parties to the litigation were not co-extensive with the residents of the Village who were required to contribute to the Maintenance Fund pursuant to the terms of the Lease Memorandum.
41 A further complication facing the lessees was that they were unable to quantify the costs in issue (a defect which they sought to remedy in subsequent proceedings before Windeyer J). Their position was that if any substantial part of the costs claimed by Overton had been incurred in breach of Overton's obligations, the whole claim had to fail. The referee rejected this approach:
"The only basis for the Residents to resist the claim is to establish either that the costs do not relevantly relate to the operation of the Village or to establish that they were incurred, or claimed, in breach of the duties of good faith and best endeavours. However, neither of those breaches operate as a condition precedent to Overton's right of recovery. Accordingly, in order to make good any defence, the Residents must be able to identify not only a proven breach of the duties but also to quantify the loss that flows from that breach. That task cannot be undertaken on the evidence before me."
42 On 10 December 1998, Windeyer J gave a judgment addressing the question of whether the referee's report should be adopted in relation to the legal and accounting charges. His Honour pointed out that there was no question of the charges being unreasonable, although the quantum demonstrated "the disastrous consequences of [the] dispute". He noted that the charges mostly related to work done to provide evidence and to give evidence. He further noted that Overton had made it clear that it did not seek to recover any portion of the costs it had been ordered to pay to the lessees. Moreover, it had not been suggested by the lessees that the charges had been incurred or paid in breach of Overton's duties of good faith and best endeavours under the Trust Deed.
43 Windeyer J considered that, as a matter of construction, cl 5(c) of the Lease Memorandum applied to fees payable to persons who provided services to Overton in relation to the operation of the Village. While it was necessary to show some relevant connection between the fees and the operation of the Village, the words read in context were apt to embrace the expenses in question, or most of them.
44 His Honour pointed out that the evidence before him did not identify the various issues arising in the proceedings which had given rise to the costs claimed. The lessees' attitude had been that either all or none of the costs should be disallowed. No application had been made to refer any matter back to the referee. Windeyer J considered that, on the material before him, it was not possible to hold that the charges had no connection with the operation of the Village. The proceedings in the Residential Tenancies Tribunal, the Administrative Law Proceedings (challenging the validity of the Code of Practice) and the Commercial Tribunal proceedings all related to the operations of the Village, as did the Local Court proceedings. Windeyer J said this about the costs incurred in connection with the challenge to the validity of the Code of Practice:
"First, of course, such costs were not identified before the referee and are not identified in the additional evidence; second, the argument as to the validity of the Code was by no means hopeless; and thirdly, the validity of the Code had an obvious connection with the operation of the village."
Finally, his Honour thought that there was nothing in the argument that the term "legal charges" in cl 5(c)(x) meant something other than legal costs.
45 The matter returned to Windeyer J on 17 December 1998, there being no agreement as to the amounts owing on the basis of the referee's report. Overton had filed a notice of motion seeking orders striking out portions of the amended defences of the lessees to Overton's cross-claim. His Honour expressed the view that the proceedings on the existing cross-claim should be brought to an end and that the individual claims by the lessees in the amended defences to the cross-claim should be pursued by separate actions. These claims included the Contracts Review Act defences.
46 At a hearing held on 4 February 1999, Windeyer J expressed doubts as to whether it was possible to entertain the lessees' claims as cross-claims. His Honour said this:
"[s]ubject to entering judgment for the amounts [due to Overton by reason of adoption of the referee's report], the lack of representative parity [party?] and the way these things have gone, makes it desirable to bring them to a conclusion and anybody who want[s] to bring any cross claims ought to be allowed to do so and an appropriate stay ought to be put into place to enable that to happen. I do not think it is a procedurally good way to go ahead, to have 40 different cross claims in this action."
A direction was made that the lessees file individual statements of claim by 13 February 1999.
47 The lessees chose not to comply with the direction. Instead, on 23 February 1999, Mr Murphy filed a representative proceeding in the Federal Court under Part IVA of the Federal Court of Australia Act 1976 (Cth). Mr Murphy purported to institute the proceeding on behalf of most of the lessees, including Mrs Murphy. The allegations pleaded in the statement of claim overlapped with those made in the amended defence to the cross-claim in the Equity Division proceedings.
48 A further hearing took place before Windeyer J on 24 February 1999. Discussion took place as to whether judgment should be entered for Overton and whether a stay in respect of the whole or portion of the judgment should be granted. Issues of calculation and apportionment arising out of the referee's report were debated at subsequent hearings on 16, 23 and 30 March 1999. On the last of these occasions directions were made:
"…to enable:
(i) the entry of judgment by consent against each respective [lessee], as set out in the list of agreed amounts;
(ii) further argument on the question of the amount of the judgment to be entered against each respective [lessee] in accordance with the list of disputed amounts;
…
(iv) such further orders as the Court deems fit."
49 On 23 April 1999, counsel for Overton proffered proposed short minutes of order. Discussion ensued concerning a stay. The discussion makes it plain that the matter of a stay was still at large, although there was agreement in principle that those lessees who paid fifty per cent of the proposed judgment amount should have a stay with respect to the balance. Counsel for the lessees sought to extend the benefit of the stay to all of the parties to the class action in the Federal Court.
50 In the course of discussion about the form of the proposed orders, counsel for Overton referred to the fact that the lessees' pleadings still contained defences "which have not been disposed of by the determination of the common issues which your Honour has dealt with". Windeyer J then said this:
"I am proposing to make an order so that there can't be doubt about this because I have said I was going to do it but the order I was going to make to bring the proceedings under control, that matters arising under [the estoppel and Contracts Review Act defences] be brought by separate action."
His Honour also said that he was prepared to grant a stay and that it was therefore necessary to identify anyone who was not a party to the Federal Court proceeding.
51 Windeyer J then proceeded to give reasons for making the orders that he was about to make. In the course of those reasons his Honour said this:
"The matters now raised in the Federal Court, or at least two of the pendant claims, were always recognised, perhaps incorrectly, as being part of the matters for determination in the action in this Court. I consider that this provides justification for a stay. I should say however that I have no way of determining the likelihood of success of those parties who are represented in the class action. It is not possible to come to separate decisions as to what is an appropriate condition in respect of particular residents. No evidence was put before me to make that possible. It is obviously very desirable that the representative action be determined as quickly as possible, but that depends upon how long it takes to get ready and the state of business in the Federal Court. Counsel for the residents affected said that the condition of the stay could be payment of 50 per cent of the judgment sum… it would be unfair to Overton not to require a substantial payment but for the reason I have given I consider that the stay should be ordered… The stay should operate until the conclusion of the Federal Court proceedings or earlier order of this Court as Overton should have the opportunity to apply to have the stay removed if circumstances, including delay in the pursuit of the representative action, justifies that course."
52 After further discussion as to the form of the final orders, Windeyer J made orders relevantly as follows:
"2. The report of the referee be adopted.
…
4. All matters arising under paragraphs 4 to 67 of the further amended defence to cross-claim [that is, the estoppel and Contracts Law Act issues] be brought to trial by separate actions by residents raising such defences and that judgments be entered on the cross-claim without regard to such defences, but subject to any application for a stay.
…
6. Judgment be entered for the cross-claimant on the cross-claim against individual cross-defendants for the separate amounts [specified].
7. Order that interest on such judgments accrue at the daily rate shown in the last column of such document.
…
12. Order that proceedings for enforcement of the judgments against the cross-defendants other than [named persons] be stayed upon condition that the cross-defendants obtaining the benefit of such stay pay to the cross-claimant 50% of the amount shown against the name of such cross-defendant…within 21 days of this date and further order that such stay continue until the conclusion of Federal Court Proceedings No. 159 of 1999 or earlier order of this Court." (Emphasis added.)
53 Overton appealed to the New South Wales Court of Appeal from certain of the orders made by Windeyer J on 23 April 1999. The lessees filed a cross-appeal. They persisted with their cross-appeal (which Overton contended was incompetent) despite Overton not proceeding with its appeal. The substance of the lessees' complaint was that Windeyer J had denied them procedural fairness by disposing of the cross-claim without hearing the merits of the defences of the lessees based on estoppel and the Contracts Review Act. It may well be that the lessees were motivated to persist with the cross-appeal because, in the meantime, orders had been made in this Court by the primary Judge that the representative proceedings no longer continue as such: Murphy v Overton Investments Pty Ltd [1999] FCA 1123.
54 The Court of Appeal delivered judgment on 21 June 2001: Overton Investments Pty Ltd v Murphy. Mason P, with whose judgment Sheller and Beazley JA agreed, held that the lessees had not been denied procedural fairness. The lessees, in Mason P's words had (at [80]):
"consented to or at least acquiesced in a procedure devised to enable the individual defences to be pursued in an alternative appropriate manner by those cross defendants who still wished to do so. The procedure was further moulded to meet the residents' decision to file a single representative proceeding in the Federal Court. This was commenced as the vehicle for an additional number of what I will neutrally term 'counter claims', including claims of misleading or deceptive conduct under the Trade Practices Act and claims of unconscionability and negligence."
While Windeyer J had indicated his thinking on 17 December 1998, he had remained open to persuasion had the lessees wished to "stand their ground and insist upon the defensive issues tendered in their defence to cross-claim". As Mason P observed (at [92]):
"the critical fact is that the residents acquiesced in the effective transfer of their limited individual defences from the debit side of the Supreme Court Cross Claim ledger to the enhanced credit side of the Federal Court proceeding's ledger."
55 The Court of Appeal struck out the cross-appeal as incompetent (for reasons that are irrelevant to this appeal), granted leave to the lessees to cross-appeal and dismissed the cross-appeal.
56 On 17 August 1999, while the appeal to the New South Wales Court of Appeal was pending, the primary Judge made the orders that the proceedings in this Court no longer continue as representative proceedings. On 30 and 31 August 1999, 94 lessees filed fresh applications in the Federal Court, each accompanied by a statement of claim which replicated the relief sought by Mr Murphy in the representative proceedings.
57 On 7 March 2000, the primary Judge commenced hearing the Murphys' claim, together with proceedings brought by two other lessees, Mr Neville Carnegie and Mrs Rita Brasington. The intention was that these should be "test cases", although apparently there has been no formal agreement among the multitudinous parties to that effect. It appears that the proceedings involving Mr Carnegie and Mrs Brasington have been held over pending the determination of the Murphys' claim.
58 As we have noted, the primary Judge dismissed the Murphys' proceedings in the First Judgment, delivered on 15 June 2000. The Full Court gave its judgment on the appeal on 2 May 2001: (see [5] above). As already noted, the primary Judge delivered the Second Judgment, in respect of which the present appeal has been brought, on 7 December 2001.