Plaintiff v Defendants

TORT - WRONGFUL INTERFERENCE WITH CONTRACTUAL RELATIONS - Lessee merged with another entity during term of lease - Whether merged entity (A) induced lessee's breaches of lease - Held: A liable for tort of wrongful interference with contractual relations between lessor and lessee - Allstate Life Insurance Company & Ors v ANZ Banking Group Ltd [1995] FCA 1368; (1995) 58 FCR 26; Emerald Construction Co Ltd v Lowthian [1966] 1 WLR 691.

EXEMPLARY DAMAGES - Whether A liable for exemplary damages - Held: Exemplary damages awarded.

DAMAGES - LOSS OF OPPORTUNITY - Whether lessor lost a valuable opportunity as a result of breach of lease - Whether obstacles facing lessor would have prevented lessor from exploiting opportunity to conduct a profitable nursing home business - Lessor completed development of an apartment complex at premises following lease - Whether any award of damages should take account of profit from apartment development - Held: Lessor lost opportunity to conduct profitable nursing home business at premises after expiry of lease - Opportunity had significant value - Lost opportunity should take into account net profit from apartment development - British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673; Tay v Koh [1998] WASCA 138; Manwelland Pty Ltd v Dames & Moore Pty Ltd [2001] QCA 436; Brown v Dream Homes SA Pty Ltd [2008] SASC 295; (2008) 102 SASR 93.

LANDLORD AND TENANT - DAMAGES - Lessee breached obligation to deliver up premises at end of lease in as good repair, order and condition as they were at commencement of lease ('make good obligation') - In developing apartment complex, lessor did not conduct any of the precise make good works and would never do so - Whether lessor can recover the costs that would have been incurred had it performed the precise make good works - Held: lessor entitled to recover cost of precise make good works - Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 236 CLR 272; Joyner v Weeks [1891] 2 QB 31; Maori Trustee v Rogross Farms Ltd [1994] 3 NZLR 410; Gagner Pty Ltd v Canturi Corporation Pty Ltd [2009] NSWCA 413.

**1 The plaintiff, Fenridge Pty Ltd, is a company owned and controlled by Dr Mark Santini, a general medical practitioner and businessman. In 1991, Fenridge purchased the land and improvements at 36-38 Benambra Street, Preston ('the premises'), subject to an existing lease dated 3 December 1990.

2 The improvements on the land included a purpose built nursing home building known as 'Preston & Districts Nursing Home', which had been constructed by the previous owner in the early 1980s.

3 During the term of the lease, following assignments with Fenridge's consent, the nursing home was operated by a series of companies. Between August 2000 and August 2005, a company related to Moran Health Care Group Pty Ltd, the third defendant, was the lessee and operator. It then sold its business and assigned the lease to the first defendant, Retirement Care Australia (Preston) Pty Ltd ('RCA'). RCA then engaged Moran to manage the nursing home on its behalf. RCA was the lessee of the premises when the lease ended on 28 February 2008. Moran is a defendant because it guaranteed RCA's obligations under the lease; as did its ultimate owner, the late Douglas Moran. His executor is the fourth defendant.

4 By the terms of the lease, the lessee covenanted: (1) to keep the premises continuously open for business as a private nursing home during the currency of the lease (the 'continuous business obligation'); and (2) to deliver up the premises to the lessor at the end of the lease in as good repair, order and condition as they were at the commencement of the lease, 'fair wear and tear' excepted (the 'make good obligation').

5 Fenridge claims that RCA breached these covenants by ceasing its nursing home business about four months before the lease ended, and by failing to make good the premises at the end of the lease. Further, Fenridge claims that the breach of the continuous business obligation was intentionally induced by the fifth defendant, Regis Group Pty Ltd, with knowledge of the terms of the lease. Regis had by then merged with RCA.

6 Fenridge also contends that there were implied terms of the lease, to the effect that: (1) during the term of the lease, the lessee was required to do all things necessary to maintain and preserve 'the approval of the premises' as a nursing home under applicable legislation; (2) at the end of the lease, the lessee was required to do all things necessary to enable the lessor or its nominee to continue the nursing home business at the premises; and (3) at the end of the lease, the lessee was required to do all things necessary to transfer its 'allocated places' at the premises to Fenridge at the end of the lease. Fenridge claims that RCA breached those implied terms.

7 Next, Fenridge claims that RCA engaged in misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth), by misleading it about RCA's intention to close the nursing home prior to the end of the lease; and that both RCA and Regis misled the residents and staff of the nursing home, by failing to disclose that Fenridge intended to continue operating the nursing home after the lease ended.

8 Fenridge claims damages for breach of the continuous business obligation, for breach of the implied terms, and by reason of the alleged misleading conduct. Damages are claimed on the basis of diminution in value of the premises and, further, for loss of the opportunity to continue operating the nursing home profitably after the lease ended. Further, Fenridge claims exemplary damages from Regis. The defendants deny the claims. They contend that: (1) there were no implied terms; (2) RCA was not in breach of the continuous business obligation, because the lease should be 'construed on the footing that' its obligations to the residents of the nursing home were paramount - and an orderly cessation of business over a six month period was accordingly permitted under the lease notwithstanding the express words of the continuous business obligation; (3) the alleged opportunity had no value; or (4) if the opportunity had some value, Fenridge's claim is exaggerated and Fenridge must, in any event, bring to account any profit which it has made from re-developing the premises as apartments.

9 Fenridge also claims damages for breach of the make good obligation, equal to the amount required to reinstate the premises to the state in which RCA was required to deliver up the premises at the end of the lease. The defendants contend that the make good claim should fail because: (1) Fenridge has not undertaken any of the claimed make good works, as it has redeveloped the premises as an apartment complex; and (2) the make good claim is in any event grossly exaggerated for a number of reasons, including that Fenridge has failed to make proper allowance for the condition of the premises at the commencement of the lease and for fair wear and tear.

10 Based on the above summary, the issues for determination in the proceeding are:

(1) Was RCA entitled to cease operating the nursing home before the end of the lease?

(7) If Fenridge has lost a valuable opportunity, what was the opportunity worth?

(8) In calculating damages, must Fenridge give credit for any profit from the apartment development?

(9) Has Fenridge suffered recoverable loss for breach of the make good obligation? If so, in what amount?

11 As there is some overlap between the issues for determination, it is convenient to set out the factual narrative in more detail before considering each issue separately.**

**12 The previous owner of the land constructed the nursing home in or around 1980. The premises were then used continuously for the operation of a nursing home until RCA ceased operating its nursing home business on 19 October 2007.

13 There is no direct evidence as to who conducted the nursing home business until 27 February 1986, when the previous owner leased the premises to the first lessee, Omsa Nominees Pty Ltd for a period of four years commencing on 3 March 1986 (the 'previous lease'). The lease in issue was executed on 3 December 1990, nine months after the expiry of the previous lease. I infer that Omsa Nominees Pty Ltd over-held the premises as a tenant from month to month, or perhaps pursuant to an agreement for lease for a longer period, until the lease was executed. In any event, the schedule to the lease states that it commenced on 3 March 1990, when the previous lease ended. The lease was for a period of four years, with options for four further consecutive terms of four years each. If all options were exercised, the lessee could occupy the premises for 20 years, until 3 March 2010.

14 I will set out the relevant terms of the lease when dealing with the individual issues for determination.

15 In September 1991, Fenridge purchased the premises from the previous owner, subject to the lease.

16 On 16 July 1992, Fenridge consented to an assignment of the lease from Omsa Nominees to Elmore Quest Pty Ltd.

17 On 29 April 1994, Fenridge and Elmore Quest agreed to vary and extend the lease. Relevantly, they agreed, in substance, that the first further term of the lease would be 10 years (and not four years as stipulated in the lease) with options for two further consecutive terms of 10 years each. If both options were exercised, the lease would have run until 3 March 2024.

18 Until 1 October 1997, the premises were operated as a nursing home under the legislative regime established by the National Health Act 1953 (Cth). In brief summary, Commonwealth Government subsidies were paid under the National Health Act to the proprietors of nursing home businesses conducted from 'approved nursing home' premises, in respect of the residents occupying the 'approved number of beds' at those premises. There could be no subsidy unless the premises were approved. There were 60 approved beds at the premises.

19 The National Health Act was replaced on 1 October 1997 by the Aged Care Act 1997 (Cth). Under the Aged Care Act, the primary requirements of 'approved nursing home' premises and 'approved beds' were removed, and replaced with primary concepts of 'approved provider' and 'allocated places'. Government subsidies are paid to approved providers in respect of residents occupying allocated places at premises where a certified and accredited 'residential care service' is conducted by the approved provider.

20 Upon the commencement of the Aged Care Act, Elmore Quest became, by force of the Act, an approved provider holding 60 allocated places at the premises.[1]

21 On 1 August 2000, Elmore Quest assigned the lease to Moran Health Care Group (Victoria) Pty Ltd with Fenridge's consent. The third and fourth defendants guaranteed the Moran's obligations under the assigned lease. For convenience, I will refer to the Moran lessee and guarantors as 'Moran' unless it is necessary to distinguish between them.

22 In June 2001, Moran obtained the necessary approval under the Aged Care Act to transfer 15 of its allocated places at the premises to another nursing home facility conducted by it. This resulted in Moran having only 45 allocated places at the premises; although there were 48 'beds' available for occupation.

23 On 24 March 2003, Moran's accreditation at the premises was reviewed under the Aged Care Act and approved. Accreditation was granted for a three year period from 4 June 2003 to 4 June 2006. The accreditation period was later extended to 4 June 2009.

24 On 14 April 2003, Fenridge and Moran agreed to further vary the terms of the lease. Relevantly, they agreed to extend the term of the lease (which was due to expire on 3 March 2004) until 31 December 2007, with automatic extensions for two further consecutive periods of 10 years each unless Moran gave at least 18 months but no more than 24 months' notice prior to the end of the lease that it did not wish to extend the term (referred to in the variation as a 'termination notice'). Further, the parties agreed that Moran would undertake certain sprinkler and airconditioning works at the premises prior to 1 May 2003 and pay one-half of the costs of the works, with the other half to be paid by Fenridge.

25 The effect of the variation to the period of the lease, and the automatic further extensions, required Moran to give a termination notice between 31 December 2005 and 30 June 2006 if it wished to avoid automatic extension for a further term of 10 years from 31 December 2007.

26 During 2005, Macquarie Bank Limited negotiated with Moran with a view to purchasing 12 nursing home businesses from Moran in various states, including the Preston Nursing Home which is the subject of this proceeding. Macquarie Bank performed detailed due diligence enquiries for the purposes of the proposed purchase. As part of its due diligence, Macquarie Bank engaged GHD Pty Ltd to give it advice about a range of matters. In the course of its written advice, GHD advised Macquarie Bank that expenditure of approximately $345,000 was required in respect of 'Backlog Maintenance' concerning fire safety at the premises.

27 On 17 August 2005, Retirement Care Australia Operations (2) Pty Ltd ('RCA Operations'), the second defendant, agreed to purchase the 12 nursing home businesses from Moran. Under the agreement, RCA Operations also purchased at the land on which the other 11 nursing homes were conducted. The nursing home in issue was the only business conducted from premises leased by Moran. RCA Operations paid a significant sum to Moran for goodwill, including for the 45 allocated places at the premises.

28 The sale and purchase agreement was completed on 1 December 2005. On completion, Fenridge consented to an assignment of the lease from Moran to RCA, RCA Operations and the two Moran defendants guaranteed RCA's obligations under the lease, and RCA engaged Moran to manage the nursing homes.

29 RCA is a member of the Retirement Care Australia group of companies ('RCA group'). At relevant times, Anthony (Tony) Stephenson was the Chief Financial Officer of that group. In that capacity, he was responsible for overseeing the RCA group finances, operating the RCA group's national office in Sydney and co-ordinating management of the nursing home facilities owned by RCA group companies with the facility managers. His responsibilities included ensuring that RCA's management contract with Moran was performed. Mr Stephenson reported directly to the Managing Director of the RCA group holding company and its Board, and liaised with representatives of Macquarie Bank as the principal shareholder in the RCA group.

30 As appears below, from 2 July 2007, the parent company of the RCA group merged with Regis Group Pty Ltd, the fifth defendant. Following the merger, the merged entity became known simply as 'Regis'. Mr Stephenson commenced reporting directly to Regis's Chief Financial Officer, Ray Noble. He also reported to or communicated with other Regis senior management personnel from time to time, including Lindsay Bender, Regis's Director of Operations, William Appleby, Regis's National Operations Manager, and Dieter Blaich, Regis's Manager of Capital Works and Planning.

31 Until 1 July 2007 or thereabouts, Mr Stephenson was a director of RCA. He resigned at that time, but continued as its Chief Financial Officer until he obtained alternative employment in March 2008.

32 Most of the relevant personal dealings between Dr Santini, as the owner of Fenridge, and RCA were between him and Mr Stephenson. They commenced with an introductory meeting in October 2005, at which a Macquarie Bank representative was also present.

33 Dr Santini and Mr Stephenson next spoke on the telephone on 26 June 2006. They discussed the fact that RCA had until 30 June 2006 to serve a termination notice, and that the lease would be automatically extended for another 10 year period if no notice was served. In the course of the discussion, Dr Santini told Mr Stephenson of his plans to re-develop the premises.

34 The best evidence of the discussion is Mr Stephenson's letter to Dr Santini dated 30 June 2006, which Dr Santini counter-signed as agreement to its contents. The letter records that RCA welcomed the opportunity to discuss Dr Santini's development plans for the nursing home, but was not in a position to commit to supporting the redevelopment, or to extending the lease for a further 10 year period, without formal Board approval. To enable discussions to take place, it was agreed that the lease be varied by extending the final day for service of a termination notice by two months, to 31 August 2006, and also extending the lease by two months, to end on 28 February 2008. Mr Stephenson concluded his letter with a statement of his understanding about Fenridge's intentions if the lease was not renewed beyond 28 February 2008:**

We understand from our discussions with you that if the lease did expire at February 2008, Fenridge may be interested in operating the facility from that date. Although not our preferred position at this point we would consider discussing with you the transfer of some or all of the bed licences for the facility and/or the viable business to Fenridge to enable a smooth transition of the facility if the lease expires on 28 February 2008 and we would use the additional two months to discuss this issue.[2]

35 In his oral evidence, Dr Santini recalled that he and Mr Stephenson agreed that if the lease expired on 28 February 2008, and in that circumstance Fenridge intended to operate its own service 'immediately afterwards', it would be 'very sensible' for the parties to discuss a plan for a smooth handover:

because it would mean that they wouldn't have the costs associated with winding down a service and the fact that they may be left with an empty building on which they would have to pay rent as well as all the costs associated with the actual transfer of residents in accordance with the Aged Care Act.

**36 I accept Dr Santini's oral evidence of this conversation, which was broadly consistent with Mr Stephenson's letter. So, from this time, the parties agreed that it would be to their mutual benefit to discuss plans for a 'smooth transition', or 'smooth handover', as the end of the lease approached.

37 By July 2006, Dr Santini and his architect had prepared a redevelopment plan for a 60 bed nursing home at the premises, including construction of a new wing. The plans were prepared on the basis that the existing and extended nursing home buildings would be assessed by the Department of Health and Family Services ('the Department') as 'existing buildings' for the purposes of 'certification' under the Aged Care Act. This was the crucial basis underlying Dr Santini's business plans, because the cost of compliance with the 'new buildings' criteria under the Act would make the continued operation of the nursing home uneconomic.

38 On 14 July 2006, Dr Santini met with Mr Stephenson and another representative of RCA, Peter Shepheard. Discussions and email correspondence continued during July and August 2006, as the extended date for service of a termination notice approached. The discussions did not reach any conclusion. By letter dated 30 August 2006, RCA gave Fenridge a termination notice avoiding automatic extension of the lease for a 10 year period to 28 February 2018. Accordingly, the lease was to terminate on 28 February 2008. Mr Stephenson informed Dr Santini that RCA nevertheless welcomed the opportunity to continue discussions regarding Fenridge's development plans 'with a view to RCA continuing its occupation of the premises after 29 February 2008'.

39 There was a telephone discussion on 30 August 2006 between Dr Santini and Mr Stephenson. Dr Santini confirmed the discussion by email on 31 August 2006. He told Mr Stephenson that Fenridge had applied to the local council for a permit for extensions to the nursing home and that Fenridge 'may be making an application to the Commonwealth for granting us additional beds for the site to justify its ongoing viability as a RACF (residential aged care facility)'.

40 Dr Santini concluded his email by reference to his intention to continue 'negotiating an extension to our arrangements', on the basis that the termination of the lease would not be disclosed to third parties.

41 On 19 February 2007, the Aged Care Standards and Accreditation Agency (the 'Accreditation Agency') notified Mr Stephenson of the results of a review of the premises and the nursing home business on 16 February 2007. The letter stated that there were reasonable grounds to believe that the nursing home may not comply with the Aged Care Act or the 'Accreditation Standards', as set out in the Quality of Care Principles 1997 made under the Aged Care Act, and that a review audit had been arranged. The letter annexed details of the issues which needed consideration. Many non-compliances were noted. In breach of the terms of the lease, Mr Stephenson did not provide a copy of this correspondence and attachments to Fenridge.[3]

42 The review audit of the nursing home was conducted between 20 and 23 February 2007. The audit report comprised 30 pages of 'major findings', including 18 non-compliances with the 44 expected outcomes under the Accreditation Standards. In breach of the lease, RCA did not give Fenridge notice of the audit findings.

43 By letter dated 20 March 2007 from the Accreditation Agency to Mr Stephenson, RCA was advised that, as a result of the audit, the period of accreditation for the service conducted at the nursing home was reduced from 4 June 2009 to 20 March 2008. Mr Stephenson was informed that RCA would need to make an application for a further period of accreditation by no later than 27 September 2007. Again, Mr Stephenson did not think to give notice of these important events to Fenridge. In his witness statement, Mr Stephenson said that he did not consider that it was his role to ensure that the nursing home service conducted at the premises remained accredited, or to discuss the matter with Dr Santini if there was any risk of non-accreditation. In cross-examination, he said that accreditation was a matter within the responsibility of Moran as the manager of the nursing home. I do not accept Mr Stephenson's understanding of his responsibilities on this issue. The lease clearly required RCA to give notice of such important matters to Fenridge. It was not until August 2007 that Dr Santini discovered, from his own enquiries, that the period of accreditation for the service at the premises had been shortened by some 15 months, from 4 June 2009 to 20 March 2008. Upon discovering this fact, Dr Santini discussed this issue and others with Mr Stephenson on 9 August 2007. The discussions at this time are referred to below.

44 On 30 April 2007, the Accreditation Agency reminded Mr Stephenson of the need to apply for a further period of accreditation for the service at the premises by 27 September 2007. Mr Stephenson was informed that a site audit could be expected during December 2007. Mr Stephenson did not cause RCA to make any application for further accreditation, and did not inform Dr Santini of its decision not to do so.

45 On 3 May 2007, Dr Santini and his wife, Dr Karyn Matotek, spoke with Mr Stephenson on a conference telephone call. Dr Matotek is a registered psychologist specialising in the area of clinical neuropsychology. She has a special interest in the rehabilitation and management of cognitive deterioration and behaviours of concern in people living with dementia and progressive neurological disorders such as multiple sclerosis. Dr Matotek made handwritten notes during the course of this conference telephone call. Those notes provide the best guide as to what was said, given that the conversation took place nearly six years before witnesses gave oral evidence of their recollections about it.

46 Dr Matotek's notes comprise three pages. It was put to her and Dr Santini in cross-examination that the third page of the notes does not contain a record of the conversation with Mr Stephenson, but represents notes of a 'debrief' discussion between Dr Matotek and Dr Santini after the end of the conversation. Each of them denied that this was so, and Mr Stephenson could not positively say that the matters recorded on that page of the notes were not discussed during the conversation. He could not recall. In these circumstances, I accept the evidence of Dr Santini and Dr Matotek.

47 Further to Dr Matotek's notes, Dr Santini made a reasonably contemporaneous written record of the matters discussed during the 3 May telephone conference in his email to Mr Stephenson about three weeks later, on 25 May 2007.

48 Dr Santini gave evidence about the 3 May telephone conference to the following effect:

(1) By this time, 'RCA and Stephenson had not gotten [sic] back to us with any sort of firm proposal about remaining' at the premises after the end of the lease.

(2) In this context, he had decided that Fenridge would apply to the Department for allocated places at the premises (which he referred to as 'bed licences') so that it could continue a nursing home business at the premises after the end of the lease. Applications for allocated places are made annually in what are known as 'ACAR' rounds.

(3) He was concerned that, before Fenridge made an application to the Department, RCA should know of Fenridge's plans so that, if a Department officer contacted RCA, RCA would be able to confirm that RCA and Fenridge were 'working co-operatively for a handover strategy ... of residents' when the lease ended.

(4) He recalled explaining this to Mr Stephenson in the telephone conference and that Mr Stephenson said that he understood Fenridge's intentions and 'said that he would help'. He thanked him and said that he would keep him informed once Fenridge's ACAR application had been submitted, with a view to discussing 'the mechanics' of a handover strategy.

(4) In summary, Dr Santini said that there was an 'in principle' agreement to discuss the mechanics of a handover of residents from RCA to Fenridge at the end of the lease.

49 Dr Matotek gave evidence which was broadly consistent with Dr Santini's evidence. She recalled that the telephone conference was 'in order to discuss the handover process' and that Mr Stephenson agreed 'that a handover process was a good idea'. She also recalled some more specific items being discussed, to the following effect:

(1) Mr Stephenson said that RCA would like to keep their allocated places (which she referred to as 'licences') at the premises 'offline' and relocate them to another location.

(2) Mr Stephenson said that RCA would 'keep the premises operating' until the end of the lease and that RCA and Fenridge could 'work together to achieve that outcome'.

(3) There was discussion about RCA staff. Mr Stephenson said that some staff would be transferred to other locations, and Dr Santini replied that Fenridge would be interested in retaining the remaining RCA staff for its nursing home service. Mr Stephenson said that may benefit RCA, because it would reduce redundancy costs for any staff who could not be relocated.

(4) There was discussion about Fenridge's intention to assume the care of residents at the premises at the end of the lease, and how that may be achieved having regard to the need for Fenridge to have allocated places at the premises.

50 In cross-examination, Dr Matotek said that there was 'a commitment from Tony Stephenson that a handover should occur', but that the conversation 'wasn't really about details, it was more about just obtaining a direction forward and a commitment to the handover process and the details were to be arranged later, working together'. She recalled that Mr Stephenson's statement about continuing to operate a service at the premises until the end of the lease was made in the context of Dr Santini referring to RCA's continuing business obligation under the lease.

51 Dr Matotek's notes are consistent with the evidence given by her and Dr Santini. For example:

(1) The notes: '49-46 Beds. Keep existing residents'; 'interested in buying licences?'; and 'keep operational way we want it until handover. Work together'. These notes are consistent with discussion concerning a handover of an operational nursing home business at the end of the lease.

(2) The note: 'redeploying to other sites but if [can't transfer] - avoid redundancy costs'. This supports Dr Matotek's recollection that Mr Stephenson and Dr Santini discussed the possibility of RCA staff who could not be relocated to other RCA facilities being transferred to Fenridge, thus avoiding redundancy costs for RCA.

52 The first note made by Dr Matotek was this: '6 months prior to end of Feb to allow [transfer] of residents (July/Aug)'. Dr Matotek recalled that 'a timeline of six months before the end of the lease' was suggested by Mr Stephenson in connection with a handover at the end of the lease. She agreed that this was a reasonable timeline for an 'orderly process which respects the rights and well-being of residents and staff'. It was not put to her or Dr Santini that Mr Stephenson would say that he mentioned this timeline in the context of RCA commencing a transfer of all residents and staff from the nursing home to other nursing home facilities before the end of the lease. Nor was it put to Dr Matotek, or Dr Santini, that the 3 May telephone conference concerned a handover of an 'empty building' following that process being completed before to the end of the lease.

53 Mr Stephenson gave contrary evidence about the 3 May telephone conference in material respects. In his witness statement, Mr Stephenson said that he understood the main purpose of the 3 May telephone conference was for Dr Santini to inform RCA of Fenridge's application for allocated places, so that RCA would be aware of Fenridge's intentions if RCA received a communication from the Department. His witness statement then continued:**

I have reviewed [Dr Matotek's file note] and based on this file note and my own recollection, I recall that the following matters were discussed on 3 May 2007:

1. A sensible approach would be to discuss a potential handover six months prior to RCA Preston exiting the facility;
2. RCA's preference would be to retain its 45 bed licences so as to utilise the licences at RCA's alternative green field site;

1. It would be easier for RCA Preston to keep its licences in same DOHA 'planning area' as Preston;

1. That Fenridge was not interested in buying licences from RCA;
2. It would be beneficial for Fenridge if RCA Preston kept the facility operational up until the day of exiting the facility;
3. Because RCA Preston was acting on the basis that the lease was expiring, PNH's facility manager was only contracted by RCA Preston until the end of the Lease and that any potential staff transfers from RCA Preston to Fenridge needed further investigation;
4. Fenridge may lease bed licences from RCA Preston but that legal advice would need to be obtained; and
5. Fenridge had applied to ACAR for bed licences and RCA Preston may receive a phone call or correspondence from DOHA in respect of Fenridge's application.[4]

**54 Mr Stephenson then said that, during the 3 May telephone conference, no commitment was made by either him or Dr Santini 'regarding the process of RCA exiting the facility'.[5]

55 In cross-examination, for the first time, Mr Stephenson asserted that the focus of the discussions concerning 'handover' in the 3 May telephone conference 'was a handover procedure if you were closing a facility and you were transferring residents'. When further cross-examined, it became apparent that he was contending that the principal focus of the discussions concerning handover during the telephone conference was the handover of a 'vacant facility' or an 'empty building', on the basis that RCA intended to close the nursing home business before the end of the lease. As I have said, this was not put to either Dr Santini or Dr Matotek. This position is not contained in Mr Stephenson's witness statement - except, perhaps, in the use of the loose phrase 'exiting the facility'. If that were the intent of his evidence, however, I would have expected the matter to have been put to Dr Santini and Dr Matotek.

56 Mr Stephenson went on to explain that the handover of an empty building would require much more lead time and planning than a smooth handover of an existing nursing home business from one operator to another at the end of a lease:**

... in reflecting on the meeting, my clear recollection was the purpose of the meeting was potentially the Department of Health and Ageing might give me a phone call and that was the purpose of the meeting and that's how I remember the meeting. The meeting then went on to having a discussion about what would be involved in a well planned handover but the handover at this stage was actually RCA exiting the facility and transferring the residents to another facility and, as I said, that is a much more complicated process than having a process where it's one operator transferring the business to another operator which is fairly streamlined and really only involves communication, good communication to staff, residents and families, as well as approval from the Department of Health and Ageing.

Yes, but the handover that you were talking about in your email, in this phone call wasn't to another operator, it was to Fenridge, wasn't it? --- Incorrect.

Why is it incorrect? --- The discussion that I had with Dr Santini during that telephone conversation when he asked what was involved in a handover, I alluded to a handover in relation to the residents exiting the facility and going to a new facility and we discussed a social worker and the need to give residents time and their families time to make that decision which is why we talked about a period of some five months.[6]

**57 There was then further cross-examination in which Mr Stephenson acknowledged that some of the matters listed in sub-paragraphs (a) to (h) of his witness statement (quoted above) related to the handover of an empty building and others related to the handover of an existing business. For example, point e. of Mr Stephenson's notes makes no sense if RCA was going to 'exit the facility' months before the end of the lease and hand over an empty building. Any benefits to Fenridge were surely dependent on RCA 'keeping the facility operational' until the end of the lease.

58 I reject Mr Stephenson's evidence on this issue. It was not put to Dr Santini or Dr Matotek, Mr Stephenson's demeanour in giving it was evasive, and the evidence is inconsistent with the surrounding contemporaneous correspondence described below.

59 The 3 May telephone conference was arranged by an exchange of emails sent 30 April 2007. Dr Santini emailed Mr Stephenson in the following terms:**

We are currently in the process of applying for beds to continue to operate the Preston Nursing Home as a going concern. The Department has expressed interest in how we will resolve the handover.

Can we please organise a conference call later this week to arrange a hand-over and to have a common voice when discussing this facility with third parties. I am currently free all day Thursday 3/5 after 10 am.

Mr Stephenson replied about half an hour later:

Mark that is a good idea. Happy to help.

I could do 10 am to 11 am or 1 pm to 2 pm.

**60 From this email exchange, Mr Stephenson must have understood that the handover to be discussed was a handover of the nursing home residents at the end of the lease. When this was put to Mr Stephenson in cross-examination, he maintained that the focus of the telephone conference concerning handover was in respect of an empty building. I reject that evidence.

61 The subsequent email from Dr Santini to Mr Stephenson on 25 May 2007 is also inconsistent with Mr Stephenson's evidence. For completeness, that email is reproduced in full below -**

[omitting formal parts]

Dear Tony,

Following the phone meeting a few weeks ago re the Preston Nursing Home I have taken the liberty of jotting down a few points from that conversation and previous ones, together with some advice that I got from the Department.

• Fenridge remains interested in continuing a service at PNH and providing existing residents and appropriate staff with the opportunity of transferring to this service.
• I understand that as part of its obligations as an Approved Provider, RCA will need to develop a strategy for discharging the current residents and obtain DoHA approval for such a strategy.
• I understand that DOHA would view favourably any transfer of residents to a service operating in the existing premises, subject to a transfer strategy which consults residents and their families about the new service. In Fenridge's application for beds, I propose to mention that discussions are in place between RCA and Fenridge to provide existing residents with the choice of remaining at PNH in a service similar to the one that is currently operational.
• Fenridge will learn whether or not it was successful in its application for bed licences in December this year. The outcome of this round will greatly influence our planning including organising an orderly handover with RCA.
• I understand that RCA is unable to commit to a 10 year lease, but is not urgently looking to close the operation at PNH and it could consider extending the lease.

As previously discussed we are looking forward to developing a plan with you re the residents and staff. Given, the timelines that we are working under and some of the unresolved issues still outstanding, I believe it would be advantageous to all parties for Fenridge to extend the lease until November 1, 2008 to allow more time to plan and carry out an orderly hand-over strategy. I look forward to further discussing these issues.

Regards

Mark Santini

**62 Although this email purports to summarise 'a few points from that conversation and previous ones, together with some advice that [Dr Santini] got from the Department [of Health]', this email nevertheless throws light upon the likely content of the 3 May telephone conference. In particular, consistent with Dr Matotek's notes and the oral evidence, Dr Santini's email records that 'Fenridge remains interested in continuing a service at [the premises] and providing existing residents and appropriate staff with the opportunity of transferring to this service'. Further, the email made it clear to Mr Stephenson that Fenridge wanted to discuss with RCA an appropriate transfer strategy, and informed RCA that it was making an application to become an approved provider and 'for beds' (allocated places under the Aged Care Act) to enable it to continue operating the nursing home when the lease ended. Dr Santini ended his email with a proposal to extend the lease until 1 November 2007, to enable continuing discussions about an orderly handover of residents and staff.

63 There is no mention in that email of any handover involving the closure of RCA's nursing home business at the premises prior to the end of the lease and RCA handing over an empty building. If that proposition had been advanced by Mr Stephenson in the 3 May telephone conference, Dr Santini would likely have rejected it and met it head-on in correspondence.

64 My findings concerning the 3 May telephone conference reflect poorly on Mr Stephenson's credibility as a witness generally. In my opinion, his evidence in this regard was, at best, reconstruction. The findings also serve to emphasise that RCA can have been in no doubt that Fenridge intended to commence its own nursing home business at the premises immediately upon RCA vacating the premises at the end of the lease and, to that end, was expecting RCA to comply with the continuous business obligation in the lease. The fact that RCA commenced planning to cease conducting its nursing home business at the premises within a week of the 3 May telephone conference, and that there is documentary evidence to support that, provides an explanation for Mr Stephenson giving false or reconstructed evidence concerning the content of the telephone conference.

65 Although a final RCA Board decision to vacate was not made until mid September 2007, and Mr Stephenson continued to recommend to the Board that RCA continue operating the nursing home at the premises until November 2008, the documentary evidence from this time otherwise points towards an increasing likelihood that RCA would cease conducting a nursing home business at the premises prior to the end of the lease.

66 On 9 May 2007, Mr Shepheard advised a Moran/RCA project meeting 'that RCA will exit [the premises] in February 2008',[7] notwithstanding that Fenridge was 'pressuring for discussion on other proposals'. The minutes of the meeting also recorded that, at this meeting or an earlier meeting, Mr Shepheard advised the Board that the 'process for closure [of RCA's service at the premises] will commence 6 months prior to closure. Therefore target for this commencement should be September 2007'. As appears below, this is what subsequently occurred - RCA commenced vacating the premises in September 2007, five months prior to the end of the lease.

67 By email dated 9 May 2007, Errol Chittick, a project manager employed by Moran, advised other staff that RCA would be 'exiting' the premises on 31 March 2008 (later corrected to 28 February 2008) and that the process for closure of the nursing home should commence in September 2007. This indicates that the plans for closure of the nursing home prior to the end of the lease were more than mere discussion points, with those employees likely to be involved in implementing the plans being advised of them as early as 9 May 2007.

68 On 31 May and 1 June 2007, Messrs Stephenson, Shepheard and Bender exchanged emails concerning the premises. Mr Stephenson advised Messrs Bender and Shepheard that Fenridge was endeavouring to obtain allocated places for use at the premises and also had some 'offline' allocated places available for that purpose. Mr Stephenson noted that there were both positives and negatives for RCA to consider in deciding whether to extend the lease until November 2008, as requested by Fenridge. He noted that there was a need 'to get back to [Fenridge] as I think part of the process is to give them some certainty regarding the facility's operations'. Mr Bender replied that an extension to November 2008 'may well be an option' but noted the need to consider a number of issues, including whether extending the lease would involve RCA spending any money on the premises and the impact of a lease extension 'on the viability of the [premises] and more importantly on our ability to ramp down and close'. Mr Bender added that RCA would need 'at least a 6 month timeframe to decant [ie move the residents to other facilities]'.

69 On 4 June 2007, Fenridge filed an application to become an approved provider under the Aged Care Act. On 13 June 2007, Fenridge filed an ACAR application for 48 allocated places under the Aged Care Act in respect of the premises.

70 Also on 4 June 2007, Mr Stephenson prepared a draft Board paper seeking approval from the RCA Board to extend the lease to 1 November 2008. Mr Stephenson's Board paper recorded the 18 non-compliances noted by the Accreditation Agency, noted the fact that the existing accreditation was due to expire soon after the end of the lease,[8] noted the risks facing RCA about continuing accreditation of the service at the premises if the lease was extended, and stated that:**

RCA's current planning is to start the wind-down of the facility in October 2007 to allow 4 months to transfer all the high care residents and to either transfer staff to other Victorian facilities or terminate their employment. During this 4 month period the facility will cease admissions (other than respite residents) and will operate at [an] inefficient level.

By extending the lease RCA delays the wind-down process and if Fenridge are to continue the operations after the revised lease termination date RCA will avoid the wind-down period altogether as the residents and staff will be transferred to Fenridge from 1 November 2008.[9]

**71 In cross-examination, Mr Stephenson took issue with the statement in his own Board paper that 'RCA's current planning' was to start winding-down the facility in October 2007. He said that it would have been more correct for him to say that this was RCA's 'current thinking'. He acknowledged that he did not tell Dr Santini about this current thinking or current planning at any time. Instead, he emailed Dr Santini later on 4 June 2007, stating that RCA's executive and the Board were interested in Dr Santini's suggestion to extend the lease until 1 November 2008, and that he would respond formally to him the following week.

72 On 2 July 2007, the relevant company in the Macquarie Bank group which was the parent entity of the RCA group merged with Regis. On 11 July 2007, Mr Stephenson's draft Board paper concerning the proposal to extend the lease to 31 October 2008 was finalised. In the final Board paper, Mr Stephenson recommended that the lease should be extended until 31 October 2008 on certain terms, including that 'staff transfer to the new operator at the expiry of the lease'. He set out his understanding of Fenridge's intentions:**

The landlord is seeking to obtain RACF bed licences which would enable them to keep the facility continuously operational following the expiry of our lease. This would be important for the current building code requirements as well as to avoid decanting the residents and recruiting the staff for the facility.

As I understand Fenridge will be including in their application that the RCA lease is expiring and if they are successful with the bed licence application then they will be able to continue the operations without any disruption to the residents of the facility. Fenridge will know if they are successful with the bed licence application by December 07 / January 08.[10]

**73 On 1 August 2007, Dr Santini forwarded a draft variation of lease to Mr Stephenson. That draft provided for an extension of the lease term until 1 October 2008, a month earlier than had been discussed, and included obligations designed to facilitate a smooth transition from RCA to Fenridge as the approved provider conducting the nursing home business at the premises from 1 October 2008.

74 On 6 August 2007, Mr Stephenson sent an email to Messrs Bender, Appleby and Noble, asking them to discuss the outstanding issues with him and noting that Fenridge had sent through a draft lease but that he had not yet indicated whether or not RCA would be proceeding with a lease extension.

75 By this time, RCA and Regis representatives could have been in no doubt that: (1) Dr Santini, on behalf of Fenridge, was pressing for an answer as to whether the lease would be extended; (2) if no extension was to take place, Fenridge was intending to continue a nursing home service at the premises if it could, and had made applications under the Aged Care Act for that purpose; and (3) Fenridge wanted to arrange with RCA for the smooth hand-over of the nursing home business at the end of the lease.

76 By email dated 7 August 2007, Dr Santini informed Mr Stephenson of complaints which he had received about the conduct of the nursing home. He referred to allegations from a 'disgruntled neighbour' that the nursing home had failed to comply in 18 of 44 accreditation categories and there was a newspaper article to that effect, that RCA staff could be heard abusing patients, and that RCA was generally behaving as a 'bad corporate citizen'. Dr Santini said that he would be very disappointed if the allegations were true and had not been disclosed to him, particularly as he had been in regular communication with RCA and because the lease required RCA to notify Fenridge of such matters. Dr Santini concluded his email with the following:**

As we have previously discussed, RCA has a duty of care to the residents of PNH when it ceases to operate at PNH, and Fenridge is an obvious party to continue the care of these residents into the future given that many may wish to remain in the existing building. Ongoing accreditation and certification of the premises, and the period of accreditation are therefore critical issues. ...[11]

**Mr Stephenson replied that full compliance with accreditation standards had been restored.

77 There was an 'Integration Steering Group' meeting of RCA and Regis management on 27 August 2007. Messrs Stephenson, Bender, Noble, Appleby and Blaich (among others) were present. Mr Bender is recorded in the minutes as stating that a decision should be made by the end of that week as to 'where we go with the Preston lease'.

78 On the next day, 28 August 2007, there were concurrent meetings of the boards of the holding companies of the RCA group and the Regis group. The combined boards were referred to as the 'Operations Board'. Messrs Noble, Bender and Blaich attended. The minutes record:**

[Mr Bender] recommended that the lease for the Preston premises not be extended beyond February 2008 and that alternative arrangements be made for the facility's residents. The Board instructed that a phasing down and relocation plan be developed before any communication regarding this matter.

It was agreed that final recommendation and planning will be submitted to the next Board meeting for ratification.

**The next meeting of the Operations Board was fixed for 25 September 2007.

79 In cross-examination, Mr Stephenson said that at this time he did not know of the decision to allow the lease to expire on 28 February 2008. It surprised him. To his understanding, no final decision had then been made. He agreed that the minutes appear to record a 'pretty definite plan to close'.

80 Following this Operations Board meeting, Mr Appleby emailed Regis staff regarding a 'Closure Plan For Preston CONFIDENTIAL'. One of the recipients was Meigan Lefebure, the Regis State Manager for Victoria. Mr Appleby informed Ms Lefebure and other staff that the Operations Board had that day decided to close the nursing home ('we will be proceeding with a plan for the successful closure of Preston'), that the decision to close would 'hopefully' be ratified at the next Board meeting and that, in the interim, 'we need to have pull[ed] together our complete strategy for this closure'. Mr Appleby attached a closure plan he had 'pulled together in anticipation' and concluded his email as follows:**

I would like to ensure this whole thing is executed painlessly and efficiently as possible ...

Given current vacancies across Regis, RCA1 & RCA2 the anticipated ramp down will hopefully not be a prolonged effort.

Lastly, please ensure the strictest confidence with this work. This must not be discussed outside our meeting.[12]

**81 Mr Stephenson was shown this email in cross-examination. He said that he had not seen it before and was surprised that he had not been informed about the contents of the email. He said that he 'wasn't updated in relation to these issues'. When it was put to him that he was 'kept in the dark', he effectively agreed ('I wasn't informed'). When it was put to him that he would have told Dr Santini about the closure plans referred to in the email, he said that his email to Dr Santini on 6 September 2007, referred to below, 'would have been different', as would have been his 'actions'. When he was pressed about what would have been different, Mr Stephenson became evasive. Instead of stating what he would have done differently towards Dr Santini, which the cross-examiner was obviously enquiring about, he gave evidence about discussions he would have had internally within RCA/Regis and said only that he 'would have sorted out a communication process'.

82 There was a further meeting of the RCA/Regis Integration Steering Group on 3 September 2007. Mr Stephenson is reported as having been in attendance, although he said in evidence that he was present for only part of the meeting by telephone. The minutes of the meeting record that Mr Bender stated that 'the Board has agreed that Preston will be closed at the expiration of the lease. [Mr Appleby] is obtaining further information ... and a final decision will be put to the Board within the next 7 days'.

83 Dr Santini emailed Mr Stephenson on the same day, 3 September 2007, stating:**

We understand that RCA is undertaking steps to obtain re-accreditation in the context of recent non-compliances and its period of accreditation having been shortened until March 2008. I understand that an accreditation visit by the [Accreditation] Agency will be conducted some time later this year. Fenridge has already stated that it will continue to provide an accredited service at the premises when RCA vacates them and Fenridge is prepared to work with RCA to provide an ongoing service to existing residents, who wish to remain. In accordance with the lease, Fenridge requires that RCA continues to operate its service to the highest standard until the premises revert to Fenridge and that accreditation be maintained in the interim. Specifically, Fenridge requires RCA to meet all 4 standards of accreditation and the 44 accompanying expected outcomes for the remainder of the lease period. We also confirm your advice to us that Fenridge will be notified by RCA of the date of the Accreditation Agency's visit and the outcome.[13]

**84 By 5 September 2007, the RCA financial projections had been revised on the assumption that the lease would end in February 2008.

85 On 6 September 2007, Dr Santini emailed Mr Stephenson. His email concluded:**

I will be on leave from next week for about 1 month, so I would be happy to meet on site (or email/fax me if you prefer) when I get back regarding the plant, building repairs, accreditation, insurance etc.

The other matter we could discuss when I return is the hand-over. In the meantime, are you able to confirm that you will be extending to November 2008?[14]

86 In reply, Mr Stephenson sent his 6 September 2007 email referred to above, which he said in cross-examination would have been in different terms if he had known of the decision to reject Dr Santini's request for an extension of the lease to October 2008 and, instead, for RCA to commence a 'ramp down' of its nursing home business at the premises. Mr Stephenson's email is in the following terms:

Mark thanks. I will ask Peter [Shepheard] to review your comments and arrange a time to meet on your return from leave. In regards to the lease extension this is an ongoing issue of discussion. As you know the new owners of RCA are Regis and they have to come to grips with a range of issues. They are gather[ing] information regarding Preston from Moran that will help them to finalise their decision. I believe this will be completed in the next month. I am sorry for the delay but we will be in touch as soon as the matter progresses.

I hope you have a great holiday and look forward to catching up soon.

Tony Stephenson[15]

**87 Mr Stephenson's 6 September 2007 email forms a central plank in Fenridge's misleading and deceptive conduct case. It is also relevant to the claim against Regis for exemplary damages. Fenridge contends that by the time of this email, and unbeknownst to Mr Stephenson, RCA and Regis had in fact already decided that the lease would not be extended and, further, intended that RCA would vacate the nursing home well prior to the end of the lease by transferring residents from the nursing home to fill 'current vacancies' at other RCA/Regis nursing homes. I find that RCA and Regis had no intention of engaging in any form of 'hand-over' to Fenridge at the end of the lease.

88 In these circumstances, Fenridge contends that the 6 September email was misleading, because it conveyed that RCA and Regis were still grappling with 'a range of issues' concerning whether the lease would be extended, when they were not, and because the email did not inform Dr Santini about the plans for imminent commencement of the closure of the nursing home - without any hand-over at the end of the lease in accordance with the discussions between the parties to that time.

89 Based on the 6 September email, Dr Santini went on leave in the false belief that RCA and Regis were still considering: (1) whether to agree to a lease extension; and (2) if not, what arrangements should be made for a hand-over of the nursing home business at the end of the lease. Dr Santini was not given any indication that RCA and Regis intended, or were even considering, closing the nursing home business before the end of the lease.

90 The following day, 7 September 2007, Mr Appleby sent an email to an RCA/Regis employee (copied to Mr Noble and Mr Bender) attaching financial calculations made on the assumption that the nursing home was to close before Christmas 2007. The email was marked of high importance, sought urgent assistance to complete the financial calculations and stated to Mr Noble and Mr Bender that 'an out of Board ratification to proceed' would be sought if there were timing difficulties with any communications necessary to achieve closure by Christmas 2007. Although Mr Stephenson was still the Chief Financial Officer of RCA, he was not copied into this email. I infer that, as he was the person dealing with Dr Santini, a deliberate decision was made by one or more of Messrs Appleby, Noble and Bender to exclude him from any detailed knowledge or involvement in the closure plans.

91 There was another Integration Steering Group meeting on 10 September 2007. Messrs Noble, Appleby and Bender were in attendance. Mr Stephenson is also noted as having been in attendance, but I infer that this was by telephone and for part of the meeting only. The minutes of the meeting record Mr Appleby stating that a draft closure plan for the nursing home had been compiled 'with final costings being completed'.

92 On 18 September 2007, Mr Appleby emailed Mr Noble (copied to Mr Bender) stating that Regis was proceeding to close the nursing home. Mr Appleby stated that the closure decision would be kept confidential until letters were sent out to 'all the stakeholders' on Friday 21 September 2007.

93 On Friday 21 September 2007, Ms Lefebure and Mr Appleby signed letters addressed to residents and staff of the nursing home, advising them that the nursing home would be closing on Friday 14 December 2007 - two and a half months prior to the end of the lease.

94 The notice to residents informed residents and their carers of the merger between RCA and Regis, and relevantly stated:**

Since the merger, Regis have reviewed the Preston facility to assess the status of its building, in line with Regis' accepted amenity standards and the future standards that will be soon applied through federal government Certification from 2008.

This review indicated that a significant amount of work would be necessary to bring Preston & Districts Nursing Home up to the standard required by both the new federal government Certification and Regis.

In addition, the Preston & Districts Nursing Home building is leased and this lease will expire in February 2008.

Given these findings, Regis have made the difficult decision to close Preston & Districts Nursing Horne before the end of this calendar year.

Preston & Districts Nursing Home will be closing on Friday, 14 December 2007.

We fully appreciate the concern this news may bring you.

We will ensure that your interests and rights are considered at all times, and you will be given extensive support as we undertake this transition.

Our aim is to offer each Preston & Districts Nursing Home resident an opportunity to relocate to one of our Regis homes located in metropolitan Melbourne, or alternatively another suitable and convenient aged care facility, that is both Commonwealth Government accredited and funded.

A dedicated Community Liaison Officer will meet with you, and your loved ones, to discuss this option and assist you with choosing the home that best suits your needs.

...

Yours Sincerely

Meigan Lefebure

State Manager, Victoria

Regis Group

Yours Sincerely

Bill Appleby

General Manager, Operations

Regis Group[16]

**95 The notice to residents was accompanied by a document titled 'Important Information For Residents', which included information broadly consistent with the notice. Residents were advised that the nursing home would close on Friday 14 December 2007 and that they would not be able to return after that date, 'as Regis will discontinue operation of this facility post the closure date'.

96 The notice to staff was in similar terms, and stated that Regis/RCA intended to offer staff employment at other nursing homes conducted by them in Melbourne.

97 The notice to staff was also accompanied by a document, called 'Important Information For Staff'. Again, that information was broadly consistent with the notice enclosing it.

98 On the following Monday, 24 September 2007, Mr Noble wrote to Dr Santini by courier letter. This was the first contact between the two men. Mr Noble's letter to Dr Santini is in the following terms:**

As you may be aware, on July 2, 2007 Macquarie Capital Alliance Group (MCAG), the parent entity of Retirement Care Australia (RCA) merged with the well established aged care provider, Regis Group Pty Ltd (Regis).

The merger brought together 19 RCA facilities located in Queensland, New South Wales, Victoria, South Australia and Western Australia and 18 facilities owned by Regis located in Queensland and Victoria.

It was agreed that following a transition period, Regis will take over the management of the RCA facilities from their current providers of management services, Moran Health Care Group and Tricare.

The transition of management from Moran Health Care Group to Regis has now occurred in Victoria.

With regard to Preston & Districts Nursing Home, Regis have been provided with a copy of the letter from RCA dated 30 August 2006 providing Fenridge Pty Ltd with notice that RCA did not wish to extend the term of the lease beyond 29 February 2008. We have also been made aware of discussions regarding the possibility of RCA continuing its occupation of the facility after that date.

However, after due consideration of the many factors involved in continued operation of the facility Regis have made the operational decision to close Preston & Districts Nursing Home on Friday, 14 December 2007. We appreciate that you may see this as a disappointing outcome but the decision was based on the assessment of a variety of issues.

We will contact you regarding handover of the building and practical matters such as disconnection of utilities approximately four weeks before the closure date. However, please feel free to contact me if you wish to discuss this matter in the meantime.

Thank you for your support.

Yours sincerely

[Signed]

Ray Noble

Finance Director

**99 On Monday 24 September 2007, Mr Stephenson received copies of the notices sent to staff and of Mr Noble's letter to Dr Santini. He maintained in cross-examination that he was not aware of, or involved in, the decision to close the nursing home prior to the end of the lease until after it was made. I accept that evidence.

100 The Regis group Board of Directors met on 25 September 2007. The Board papers included a submission by Mr Appleby recording the fact that the decision to close the nursing home had been made previously and had been ratified by the Board on 17 September 2007. The Board paper records that the 'ramp down' had already commenced, and there were only 36 residents at the nursing home at that time. The Board paper annexed the Regis 'Operational Action Plan' for the closure of the nursing home, apparently up-dated on 7 September 2007. That Action Plan describes a process commencing on 6 September 2007 with a target completion date and commemorative closure function to be held on 17 December 2007.

101 The minutes of the Board meeting noted Mr Appleby's report and record a decision to ratify the decision to close the nursing home in accordance with the tabled recommendation and closure plan.

102 On 27 September 2007, RCA/Regis conducted information meetings with staff, residents and families at the nursing home. Active steps to relocate residents commenced from this time.

103 Also on 27 September 2007, the deadline for filing an application to extend the accreditation of the nursing home passed without any application being made by RCA, contrary to Dr Santini's understanding as set out in his email to Mr Stephenson on 3 September 2007. The date for making an application did not pass by inadvertently. It was the result of a deliberate decision by Regis, as recorded in a Board report prepared by Mr Appleby on 17 September 2007 titled 'Balanced Scorecard for the September 2007 meeting' which states:**

• Decision made not to apply for accreditation for Preston as it will be closed before Accreditation expires.

**104 Regis acted urgently to close the nursing home. It achieved full closure by 19 October 2007, about two months before its target closure date. There is documentary evidence of staff congratulating themselves on achieving this result. For example, on 4 October 2007, Grant Waldron of RCA emailed Ms Lefebure of Regis, with copies to other RCA/Regis employees including Mr Appleby, concerning staff rosters at the nursing home. Mr Waldron referred to discussions with Ms Lefebure, and stated that, in accordance with those discussions, he had treated changes to staff rosters as 'an emergency'; so as to justify giving staff only seven days' notice and not the fourteen days' notice required by the applicable industrial Award: 'we will run the argument that this is an emergency'. No emergency was involved. This was simply RCA/Regis acting with undue haste to prefer its own commercial interests over those of residents and staff. In an email sent earlier that day, Ms Lefebure had instructed Mr Waldron that urgent action was needed to move staff onto new employment.

105 On 7 October 2007, Dr Santini attended at the nursing home. He was intending to inform residents, carers and staff that Fenridge intended to ensure a continuous nursing home service at the premises. One of the nurses, Cathy Loi, approached Dr Santini and they spoke. According to Dr Santini, Ms Loi told him that residents and staff had been told that the nursing home had to close; that Fenridge had no intention of keeping the nursing home open; that most residents, 'their significant others', and the staff were very upset that the nursing home was to be closed, and that a staff meeting was being conducted later that week. According to Dr Santini, Ms Loi appeared stunned when he told her that Fenridge had every intention of continuing to operate a nursing home service at the premises. He said that Ms Loi invited him to attend the staff meeting and gave him her mobile number. He told Ms Loi that he intended to attend the staff meeting.

106 Ms Loi was not called to dispute this account, and Dr Santini's account is supported by an email sent by Ms Loi on the same day, by a letter from RCA's solicitors sent later that day, and an internal email between RCA/Regis employees at 6:38 pm that evening. I accept Dr Santini's evidence that he was invited to attend a staff meeting on 9 October and that he and his wife, Dr Matotek, attended at the premises on that day for that purpose. They were refused entry to the premises by a man who said he worked for Regis and were asked to leave.

107 By this time, Regis had engaged solicitors to act for them in connection with Dr Santini's endeavours to attend at the premises and inform staff and residents of Fenridge's intentions to continue a nursing home service at the end of the lease. By late afternoon on 9 October 2007, Regis's solicitors had sent a detailed letter to Dr Santini alleging that his attendance at the premises on 7 October 2007 was unauthorised and had caused distress and confusion to staff and residents, requiring meetings to reassure them that the 'structured closure' of the nursing home would proceed as previously advised. The letter threatened proceedings for fundamental breaches of the lease and applicable tenancy legislation and sought undertakings from Dr Santini and Fenridge in order to avoid legal proceedings against them. This letter, and other conduct by Regis at the time, showed a firm intention to actively prevent Dr Santini from approaching residents or their families with a view to informing them of Fenridge's rights under the lease and of its intention to conduct a nursing home business at the premises from the time the lease ended.

108 On 10 October 2007 Ms Lefebure sent a memo to all staff at the nursing home about Dr Santini's visit. She misleadingly described Dr Santini as 'the purported owner of the building' and asserted that it was incorrect for him to have told staff that the nursing home business would continue after RCA ceased operating the nursing home. The memo was distributed by the Director of Nursing at the premises, who was asked to ensure it was given to all staff and to call the police if Dr Santini attended at the premises again because 'he is trespassing'.

109 On 12 October 2007, Mr Noble emailed senior Regis staff including Ms Lefebure and Messrs Bender, Blaich and Appleby about the issues between RCA and Fenridge at the time. Mr Noble recorded his suggestion to Ms Lefebure that RCA:**

look at the viability of moving all remaining residents, 9 as at today, to other Regis facilities with an undertaking to move them to their preferred home as soon as a place becomes available ... I believe that the nature of this dispute will change once the facility is closed.

**110 RCA and Regis called Patricia Fairman, Regis's General Manager - Quality and Compliance, to support their case that it was necessary for Regis and RCA to commence relocating the nursing home residents about six months prior to the end of the lease, so as to ensure that the interests of residents were paramount - as required by the Aged Care Act and the User Rights Principles made under the Act. In cross-examination, Ms Fairman agreed that the course of action described in Mr Noble's email was 'not preferred' or 'not best practice', because the driving factor in the suggested course of action appeared to be RCA/Regis's interests in the early closure of the nursing home, and this did not treat the interests of residents as paramount - as the Aged Care Act requires.

111 Ms Fairman took a similar view of a later email from Mr Appleby to Ms Lefebure, in which Mr Appleby expressed agreement with Ms Lefebure 'that we need to now fast track' the closure of the nursing home and 'fully cost a strategy of very early closure'. Mr Appleby's email responded to an email from Ms Lefebure, in which she had referred to using another employee's 'powers of persuasion' to obtain the agreement of the remaining few residents to leave the nursing home and the need for Regis to act 'strategically' to 'bring forward the closure date to early November'. Ms Fairman agreed that the use of such pressure ('powers of persuasion') was inconsistent with the User Rights Principles made under the Aged Care Act.

112 There are other contemporaneous emails between Ms Lefebure and Mr Appleby to similar import. I find that they were acting to prefer Regis's commercial interests to the interests of the residents, in breach of the User Rights Principles.

113 On 10 October 2007, Fenridge's previous solicitors wrote to the directors of RCA enclosing a notice pursuant to s 146 of the Property Law Act 1958 (Vic), alleging breaches of a number of clauses of the lease, in particular the continuous business obligation. The letter stated that, if the breaches were not remedied, Fenridge intended to re-enter the premises and require RCA to transfer all of its:**

bed licences held in relation to the facility and all related registrations that may be required by any Government Statutory Authority to [Fenridge's] nominee in order for it to lawfully conduct a private nursing home from the premises (clause 6.12(b)).

**114 In the interim, the letter sought undertakings from RCA. RCA gave limited undertakings in response, which did not prevent the rapid closure of the nursing home.

115 Fenridge did not enforce its rights arising from RCA's failure to comply with the s 146 notice, and did not terminate the lease, re-enter the premises and exercise its rights under clause 6.12 of the lease. By the time the s 146 notice expired (24 October 2007), RCA had relocated all residents and staff and closed the nursing home. As appears below, the premature closure of the nursing home resulted in Fenridge losing the opportunity to conduct a nursing home at the premises on the basis that the buildings would be assessed as 'existing buildings' - thus making a nursing home business at the premises uneconomic. For its part, RCA simply continued paying rent for the premises until the end of the lease.

116 By 19 October 2007, following the exercise of 'powers of persuasion' over residents, RCA was able to re-locate all of the residents in the nursing home and to close the nursing home business by 1:00 pm on that day. This was viewed by RCA/Regis staff as a most successful outcome, with Ms Lefebure concluding her email on 18 October 2007, in anticipation of closure the next day, as one deserving of celebration:**

Thanks to Catherine's wonderful powers of persuasion, we have agreement from the relatives of the 'last' resident that he will transfer to [another nursing home] for a couple of days [as an interim measure] and be at the top of the waiting list at [another nursing home] (his preferred facility). He will transfer from [the first nursing home] to [the second nursing home] as soon as a bed is available (we expect any day now).

So ... we will now have no residents from 1 pm tomorrow afternoon.

Security is being organised for the weekend, and we can now move onto the final clean-up and pack-up as per closure action plan.

Well done everyone - thank you!

Celebrations are in order!!! Regards

Meigan Lefebure

State Manager - Victoria

Regis[17]

**117 The conduct of RCA and Regis in closing the nursing home business before the end of the lease placed Dr Santini and Fenridge in a difficult position. RCA was denying any breach of the lease on the basis of an implied term (not pursued at trial) permitting it to vacate the premises and close the business in an orderly manner during the period leading to the end of the lease, notwithstanding the express terms of the continuous business obligation. In these circumstances, Dr Santini sought to protect Fenridge's position. The first thing he did was have Dr Matotek speak with a representative of the Department on 19 October 2007. Coincidently, although Dr Santini did not know it at the time, this was the day RCA closed the nursing home business.

118 Dr Matotek informed the Department representative that RCA had 'opted to close its service and relocate all the residents by December 2007', and that 'the current service will cease to operate and the building will be unoccupied'. In these circumstances, Dr Matotek informed the Department representative that Fenridge was intending to bring forward the redevelopment of the premises, and otherwise confirmed that Fenridge would be proceeding with its current applications for approved provider status and allocated places. By this communication, Fenridge was endeavouring to preserve the opportunity for it to conduct a nursing home business at the premises from the end of the lease, if it was economically viable for it to do so.

119 Fenridge's applications to the Department did not enjoy a smooth run. By letter dated 16 December 2007 to Dr Santini, the Department advised that Fenridge's approved provider application was 'deemed' to be rejected because it was not finalised within the relevant period, due to non-compliance issues at 'Ardmillan Place', an aged care service operated by a company then controlled by Dr Santini, and his sister, and in respect of which Dr Santini was one of the Key Personnel. Dr Santini said in his witness statement that from 2002 until 2009 he was a director and 50 per cent shareholder in Derby Place Pty Ltd. Derby Place was an approved provider during this period and operated the 'Ardmillan Place' nursing home. Dr Santini, in his capacity as a general practitioner, was the Director, Clinical Care, at that nursing home.

120 The non-compliance issues at Ardmillan Place were relatively minor and were attended to within a short time. With this result in prospect, the Department's letter stated that the application for approved provider status would be reconsidered at the Department's initiative. Dr Santini acted reasonably and promptly to remedy the non-compliances at Ardmillan Place, and they ceased to stand in the way of the application for approved provider status being approved.

121 In the meantime, the Department had lost Fenridge's application for allocated places in the 2007 ACAR round. Dr Matotek learned of this in discussions with a Department representative on 18 January 2008. She provided a further copy of the application and attachments to the Department on that day. The Department apparently treated the further copy application as a new application, and rejected it because it was filed too late. The evidence supports Fenridge's claim that the application was made within time. The Department later accepted this was so and instigated an internal review of its systems as a result.

122 Between December 2007 and February 2008, Fenridge obtained access to the premises for Dr Santini and quantity surveyors engaged by him, for the purposes of obtaining evidence concerning the condition of the premises and preparing a detailed list of items to form the basis of a make good claim at the end of the lease. The surrounding circumstances in which the resulting list of items and costs was prepared are considered separately below.

123 The premises remained vacant until the end of the lease at midnight on 28 February 2008. But RCA remained in constructive possession. It took steps to secure the premises and prevent Fenridge having access except with its consent. It paid the rent due under the lease and asserted its rights as lessee. Apart from performing some cleaning and gardening works in the last few weeks of the lease, RCA made no attempt to comply with its make good obligations. It simply handed the keys back to Fenridge when the lease ended. Dr Santini attended the premises and took photographs of their condition at that time.

124 On 14 March 2008, the Department finally approved Fenridge's application for approved provider status. This was after the expiration of the lease at midnight on 28 February 2008. RCA and Regis rely heavily on this fact. They contend that it demonstrates that Fenridge had no prospect of continuing or commencing a nursing home business at the premises on and from midnight on 28 February 2008. Fenridge contends that its application for approved provider status would likely have been approved before the end of the lease if RCA had complied with its obligations under the lease and, consistent with its obligations under the lease, and to residents under the Aged Care Act, facilitated a smooth handover at midnight on 28 February 2008 when the lease ended. This issue is resolved below.

125 On 20 March 2008, Fenridge received a preliminary planning permit from the local council to conduct building works at the premises designed to increase its capacity from 48 residents to 60 residents. The decision to grant the permit became absolute on 28 April 2008 as no objections were received.

126 Meanwhile, on 7 April 2008, Dr Santini and Dr Matotek attended a debrief interview with Department representatives. The representatives informed them that any service conducted by Fenridge at the premises would be considered a 'new service' under the Aged Care Act and would be subject to the certification requirements for new buildings: 'as aged care services had previously ceased on the premises the subject of the application'. At the time, it appears that Dr Santini believed that the loss of existing building status had something to do with the cessation of one service and the commencement of another, irrespective of whether this happened instantaneously as part of a smooth handover. As appears below, his belief was incorrect. In any event, Dr Santini initially endeavoured to persuade the Department that, notwithstanding the lapse of time since RCA closed the nursing home in October 2007, Fenridge could obtain certification of its own service on the basis that the buildings would be assessed as 'existing buildings'.

127 Because he could not proceed with a nursing home business at the premises on the basis of the buildings being assessed as 'existing buildings', Dr Santini determined that it was not economically feasible to conduct a nursing home business at the premises. In these circumstances, he elected for Fenridge to pursue what he believed was the next best use of the premises - the development of an apartment complex. He obtained a planning permit for that purpose on 27 January 2010, and Fenridge has proceeded to complete a 21 apartment development. At the time of trial, 10 of the 21 apartments had been sold. The development has been profitable, yielding a net developer's profit to be ascertained if relevant - an issue resolved below.

128 Against the background of these facts, I proceed to consider the issues for determination.**

Was RCA entitled to cease operating the nursing home before the end of the lease?

129 The first issue for determination is whether RCA was entitled to cease operating the nursing home before the end of the lease. On its face, the continuous business obligation in cl 2.16 of the lease states plainly that RCA had no such entitlement:

2.16 [The Lessee covenants] to keep the demised premises continuously open for business during lawful business hours and conduct the Lessee's business therein in good faith and in accordance with the best methods and in a reputable manner.

**130 The lease must be construed in accordance with ordinary principles of contractual interpretation, by asking: What would reasonable persons in the position of the parties have understood the words to mean by reference to the text of the lease, the admissible surrounding circumstances known to the parties and the purpose or object of the transaction?[18] Further, the provisions of the lease must be construed in a harmonious manner, and so as to ensure the congruent operation of the various components of the lease as a whole.[19]

131 As appears above, the premises comprise a purpose-built nursing home constructed by the previous owner in the early 1980s. From that time, until RCA closed the nursing home business on 19 October 2007, the premises were continuously used for the conduct of a nursing home business. Reading the lease as a whole, it has obviously been drafted with the intention of ensuring that the premises are continuously used as a nursing home during the period of the lease, and that the nursing home business conducted at the premises by the lessee complies at all times with applicable legislative requirements governing the entitlement of nursing home businesses to receive Commonwealth Government subsidies.

132 At the time the lease was executed, the applicable legislation was the National Health Act 1953 (Cth) ('the National Health Act'). Under the National Health Act, 'the proprietor' of a nursing home business could apply for approval of nursing home premises as an 'approved nursing home'.[20] Approval as an approved nursing home was attached to particular premises,[21] on condition that the number of beds available in the nursing home for patients in respect of whom Commonwealth subsidies would be paid would not at any time exceed the 'approved number of beds' determined from time to time by the Minister in relation to the specific premises.[22] Accordingly, even though the application for the approval of premises as an approved nursing home was made by the proprietor of the business, who may not have been the same person as the owner of the premises, the approval attached to the particular premises and the entitlement to receive subsidies was limited to the 'approved number of beds' in respect of those premises.

133 Against that background, I proceed to consider the relevant terms of the lease as a whole:

(1) Clause 2.14 of the lease requires the lessee to use the premises for the purpose of conducting a nursing home business and no other purpose.

(2) Clause 2.16 requires the lessee to keep the premises 'continuously open for business during lawful business hours' (which, for a nursing home, must be 24 hours a day, seven days a week) and to conduct the lessee's nursing home business at the premises 'in good faith and in accordance with the best methods and in a reputable manner'.

(3) Sub-clause 2.15(a) requires the lessee, at its cost, to at all times comply with:**

the provisions of all Acts of Parliament regulations rules and by-laws for the time being in force and all orders or directions which may be given by the Commonwealth Health Department, Health Commission of Victoria, Commonwealth Department of Community Services or any municipal Public Health or Fire Brigade Authority or relevant department or any authority whatsoever in respect of or affecting the demised premises or the business or occupation carried out thereon [ie the lessee's nursing home business] ...

(4) Sub-clause 2.15(b) of the lease requires the lessee to advise the lessor:

of any notices orders requests or directions received by the Lessee from any of the Departments Authorities or Commissions referred to in the preceding sub-clause immediately after such notices orders requests or directions are received by the Lessee.

(5) Clause 6.13 of the lease requires the lessee:

(a) to keep the demised premises duly registered as a private nursing home throughout the term of the Lease and not to transfer such registration to any other premises;

(b) to keep the business name 'Preston & Districts Private Nursing Home' a duly registered business name for the business being carried out on the demised premises throughout the term of this Lease and any renewal hereof and upon the determination of this Lease or any renewal hereof to transfer such business name to the Lessor or its nominee;

(c) to conduct its business on the demised premises with due diligence and efficiency and in a proper and businesslike manner and in the event that any Government Department, Authority or Commission shall introduce a classification or grading system in respect of private nursing homes to use its best endeavours to ensure that the demised premises are classified or graded in the highest class or grade possible.

(6) By clause 6.12 of the lease, the lessee irrevocably appointed the lessor as its attorney, to act any time after the power to re-enter becomes exercisable or shall have been exercised, or on the termination or surrender of the lease, to enable the lessor:

(a) to execute and sign a transfer assignment or surrender of this Lease;

(b) to transfer to the name of or to the Lessor all such licences authorities and registrations as may be required by all or any governmental statutory or other bodies or authorities whatsoever in order for the Lessor to lawfully conduct from the demised premises a private nursing home pursuant to the provisions of all and any statutes by any Act or Acts of Parliament whether State or Federal or regulations; and

(c) to transfer to the Lessor the business name used in association with the conduct of the nursing home from the demised premises;

so that the Lessor may do all such acts as fully and effectually as the Lessee could formerly do and about the demised premises ... in the conduct of the private nursing home [thereon].

**134 These provisions of the lease make it plain that, in addition to the express requirement in clause 2.16 to keep the nursing home continuously open during the period of the lease, RCA was obliged to ensure that its nursing home business was operated: (1) in compliance with all applicable legislative provisions;[23] (2) 'in accordance with the best methods and in a reputable manner';[24] (3) 'with due diligence and efficiency and in a proper and businesslike manner';[25] and (4) if any classification or gradings system was introduced by government, to use its best endeavours to ensure that the premises were 'classified or graded in the highest class or grade possible'.[26] Further, RCA was obliged to keep the premises 'duly registered as a private nursing home throughout the term of the lease',[27] and to keep the business name 'Preston & Districts Private Nursing Home' duly registered as the business name for the nursing home business 'being carried out on the demised premises throughout the term of the lease'.[28]

135 In my opinion, these extra requirements reinforce the fundamental nature of the continuous business obligation in cl 2.16. Putting to one side standard lease provisions, the most important provisions in the lease are directed towards this very issue - the continued operation of the nursing home business in accordance with the highest standards for the whole of the term of the lease.

136 The only answer which RCA and Regis mount to justify their conduct in closing the nursing home prior to the end of the lease is that pleaded in paragraph 13 of their defence, in the following terms:**

As to paragraph 13 [of the statement of claim]:

(a) they admit the written terms of the lease to the extent that the same are accurately replicated, but otherwise do not admit the allegations therein;

(b) further, they say that at the time of entry into the lease and at all material times thereafter it was known and intended by the parties to the lease that:

(i) the tenant from time to time conducting the business of a residential aged care facility at the Preston Nursing Home would have statutory obligations to care for the residents of the nursing home;

(ii) the tenant from time to time conducting the business of a residential aged care facility at the Preston Nursing Home would have contractual obligations to care for the residents of the nursing home;

(iii) the proper and reputable conduct of the business of a residential aged care facility would require, conformably with the statutory and contractual obligations owed by the business operator to facility residents, the re-location of residents to another facility or other facilities in good time before the effluxion of the lease;

(iv) the lease did not require the tenant to cede its business to the landlord on the effluxion of the term of the lease; and

(v) the proper and reputable conduct of the business of a residential aged care facility required the disclosure to residents and applicants for accommodation of the pending expiration of the lease, and the assumption of new care obligations of indefinite duration only where alternative premises were available to the operator after the expiry of the lease for the discharge of those obligations.

(c) accordingly, they say that the obligations of the tenant under the lease are to be construed on the footing, alternatively it was an implied term of the lease that, the tenant from time to time (and hence RCAthe first defendant) was entitled to commence re-locating residents of the aged care facility conducted at the Premisesston Nursing Home within a reasonable time before the expiry of the lease with a view to the complete re-location of all residents before the expiry of the lease.

PARTICULARS

The term was implied by law and/or in order to give business efficacy to the lease (implied term);

(d) further, they say that a reasonable time within which to commence relocating residents of the aged care facility was 6 months before the expiry of the lease, taking account of time of the year.

(e) in any event Fenridgethe Plaintiff was not in a position lawfully to carry on a residential aged care facility at the Premisesston Nursing Home before the expiry of the lease as Fenridgethe Plaintiff was not registered as an approved provider in respect of residential care service within the meaning of the Aged Care Act 1997 (Cth).

**137 The initial pleading, in conformity with the assertion by RCA's solicitors in its 16 October 2007 letter, alleged an implied term. That implied term was abandoned by RCA and Regis before trial, because they recognised that it was directly inconsistent with the continuous business obligation. Yet the argument advanced in the defence and at trial would have the same effect. As appears below, the argument must be rejected.

138 In opening, counsel for RCA and Regis submitted that the pleading should be understood as an allegation that it was not possible for RCA to both comply with its legislative obligations and to continue the nursing home business until the end of the lease. Counsel contended that RCA's obligations under the applicable legislation required it to treat the interests of the residents as 'paramount', that the User Rights Principles made under the Aged Care Act required it to give no less than 14 days' notice before requiring a nursing home resident to leave an accredited service and that, accordingly, the continuous business obligation must be read as subject to its paramount obligation to comply with the statute and prefer the interests of residents to the commercial interests of the parties to the lease. It was contended that this was necessary to give due weight to that part of the continuous business obligation which required it to conduct the nursing home in accordance with best methods and in a reputable manner. This submission involved the following steps:

(1) Numerous prior decisions have emphasised that the legislative regime under the Aged Care Act and instruments made under it require the interests of nursing home residents to be treated as paramount,[29] with the financial interests of approved providers being 'incidental to the purpose of the legislation and subordinate to it'.[30]

(2) Under the User Rights Principles, an approved provider may ask a resident (a 'care recipient') to leave a nursing home (a 'residential care service') if the service 'is closing',[31] but only if the approved provider complies with s 23.6 of the User Rights Principles, which relevantly provides:**

(1) If the approved provider decides to require the care recipient to leave the residential care service, the approved provider must give the care recipient a written notice that includes the following information:

(a) the decision;

(b) the reasons for the decision;

(c) when the care recipient is to leave;

(d) the care recipient's rights about leaving, including the right of access to:

(i) the complaints resolution mechanisms; and

(ii) independent complaints processes; and

(iii) 1 or more representatives of an advocacy service.

Note For complaints resolution mechanisms, see s 56-4 of the Act.

(2) The approved provider must give the notice to the care recipient at least 14 days before the care recipient is to leave.

(3) The approved provider must not take action to make the care recipient leave, or imply that the care recipient must leave, before suitable alternative accommodation is available that meets the care recipient's assessed long-term needs and is affordable by the care recipient.

(4) For subsection (3), the long-term needs of the care recipient must be assessed by:

(a) an aged care assessment team; or

(b) at least 2 medical or other health practitioners who meet the following criteria:

(i) 1 must be independent of the approved provider and the residential care service, and must be chosen by the care recipient or the care recipient's representative;

(ii) both must be competent to assess the aged care needs of the care recipient.

**(3) In order to comply with s 23.6, it was necessary to allow a period of at least six months from the commencement of the process, so as to ensure that the interests of residents were treated as paramount to the interests of the parties under the lease. In this regard, reliance was placed upon the evidence of Ms Fairman.

(4) Accordingly, as it was reasonable to commence the closure of the nursing home about six months before the end of the lease, there was no breach of the continuous business obligation by notifying residents of the impending closure of the nursing home by the notices dated 21 September 2007, and thereafter proceeding to assist residents to relocate to alternative accommodation which was suitable to their assessed long-term needs. The fact that the process took less time than may ordinarily be expected is not to the point. By acting as they did, RCA was doing no more than complying with both its obligations under statute and its obligations under the lease to conduct its business 'in good faith and in accordance with the best methods and in a reputable manner'.

139 I reject RCA and Regis's submissions in this regard. In my opinion, clause 2.16 of the lease means what it plainly says. As lessee, RCA was obliged 'to keep the demised premises continuously open for business during lawful business hours and conduct [its] business therein in good faith and in accordance with the best methods and in a reputable manner'. The only business which it was entitled and obliged to keep continuously open was that of a private nursing home.[32] The other provisions of the lease to which I have referred reinforce the clear intention of the parties that RCA was obliged both to continue to conduct its nursing home business until the end of the lease and to do so in accordance with legislative requirements and good business practice.

140 This is not a case of direct inconsistency between the obligation to continue the business during the term of the lease and the obligation to comply with RCA's statutory obligations as the proprietor of a private nursing home business in receipt of Commonwealth Government subsidies under the Aged Care Act. Indeed, there was no inconsistency. RCA could and should have complied with both obligations. For example, RCA could have given the residents early notice (six months if it chose) that it intended to cease operating the residential care facility at the end of the lease on 28 February 2008 and that, unless they had made arrangements with a new approved provider of an accredited residential care service at the premises to accommodate them from that time, residents were required to leave the premises on or before that date.

141 As to the possibility that another approved provider may have been entitled to conduct an accredited residential care service from that time, whether Fenridge or another lessee, RCA could, and in my opinion should, have informed residents that the owner of the premises (Fenridge) had informed it that it intended to continue a nursing home business at the premises from the end of the lease, and that it had made the necessary applications to become an approved provider and for allocated places. It would then have been a matter for the residents and their families to make an informed choice. They could either choose to leave the premises and find suitable alternative accommodation elsewhere or, if they wished to remain at the premises if possible, deal directly with Fenridge and make their own decision as to whether Fenridge was likely to be in a position to conduct an accredited residential care service at the premises from the time the lease ended. In the meantime, in order to have complied with the continuing business obligation and other relevant obligations under the lease, RCA could and should have: (1) continued to liaise with Dr Santini with a view to a smooth handover of remaining residents from one accredited service to another at the end of the lease, if that were possible; and (2) kept the nursing home open for business - even if that meant caring for only a few remaining residents or, if there were no residents at any time, standing ready to accept residents who were seeking short-term accommodation, on the express understanding that they may have to leave the premises on or before 28 February 2008 if they could not make arrangements with another approved provider who was entitled to conduct an accredited residential care service at the premises from that time. Such a course of conduct would have given proper recognition to RCA's obligations to treat the interests of residents as paramount and involved compliance with its continuous business obligation.

142 It is, of course, possible that if RCA acted in this way it may have found it difficult to retain any residents at the premises, and thus would have had no profitable business for some time. But that is not what happened. At the direction of Regis, RCA chose to ignore the continuous business obligation in the lease. It did not give notice to residents that the service conducted by it would close at the end of the lease on 28 February 2008, but instead advised residents that the nursing home would be closed on 14 December 2007, about 10 weeks before the end of the lease. It then proceeded to undertake a rushed closure of the nursing home, and in that process acted in a way which its own expert witness, Ms Fairman, described as inconsistent with the User Rights Principles or which, at least, had the capacity to bring about that result. It preferred its own commercial interests to the interests of the residents by this conduct.

143 In addition to what I have said above concerning Ms Fairman's evidence on this issue, I note that Ms Fairman acknowledged in her evidence that: (1) a properly developed closure plan for leased nursing home premises ought to consider the terms of the lease and whether the closure plan was consistent with those terms, including taking legal advice where appropriate; (2) her evidence as to the formulation of appropriate closure plans for a nursing home did not take the lease into account, but was given on the assumption that RCA was entitled to close the nursing home when it chose to do so - without constraint by an obligation such as the continuous business obligation; and (3) if it was intended that another approved provider would commence a residential care service at the end of a lease, the interests of residents would be an important consideration in designing an appropriate strategy for a handover from one approved provider to the next in a seamless fashion.

144 As the above factual narrative demonstrates, Dr Santini and Mr Stephenson were working towards implementation of a smooth handover strategy in the event that no agreement was reached for RCA to continue its service at the premises after the end of the lease. It was clear that Dr Santini was pushing this issue, for the obvious purpose of obtaining the benefits provided for under the continuous business obligation. In order to comply with those and related obligations, including the implied terms discussed below, and to comply with its obligations to prefer the interests of residents to own commercial interests, RCA ought to have continued those discussions.

145 I conclude that RCA was not entitled to close the nursing home when it did. Closure of the nursing home more than four months before the end of the lease was a clear breach of the continuous business obligation. Deliberate conduct for the express purpose of ensuring that no business was open at the premises from well before the lease ended is properly characterised as running down the business for the purpose of closure. The conduct was obviously in breach of the continuous business obligation and, relevant to issues of inducing breach of contract and exemplary damages, must be presumed to have been engaged in for the commercial purposes of shutting Fenridge out of its stated intention to continue a nursing home business at the premises and ensuring that RCA obtained the 45 allocated places at the premises.

146 Moreover, for the reasons given above, RCA's conduct was also in breach of RCA's obligation to prefer the interests of residents to its own commercial interests while continuing to operate the nursing home during the period of the lease. It is no answer for RCA to say that it was placed in a difficult position, because it could not be sure that Fenridge, directly or through a new lessee, would be entitled to conduct an accredited residential care service at the premises from the time that the lease ended. If it had any real doubts about that it could, perhaps,[33] have brought those doubts to the attention of residents - so as to enable them and their families to make inquiries of Fenridge and make an informed decision as to what course to adopt. In any event, as the above discussion demonstrates, there were legitimate options open to RCA to comply with both its statutory and contractual obligations but it chose not to pursue any of them. Its conduct was in breach of the continuous business obligation.**

**147 In summary, Fenridge contends that three terms should be implied in the lease, to the effect that: (1) during the term of the lease, the lessee was required to do all things necessary to maintain and preserve 'the approval of the premises' as a nursing home under applicable legislation; (2) at the end of the lease, the lessee was required to do all things necessary to enable the lessor or its nominee to continue the nursing home business at the premises; and (3) at the end of the lease, the lessee was required to transfer its 'allocated places' at the premises to Fenridge (the 'allocated places term').

148 The test for implication of a term in a contract is not in doubt. In BP Refinery (Westernport) Pty Ltd v Shire of Hastings,[34] the Privy Council said that the following conditions (which may overlap) must be satisfied before a term will be implied in a particular contract: '(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract'.[35]

149 In considering whether a term should be implied into an agreement, the Court should consider the terms of the agreement as a whole in the context of admissible evidence of background facts known to the parties at or before the date of the contract, including evidence of the genesis and objective aim of the contract.[36]

150 The above discussion of the law of implied terms relates to terms implied in fact, in the specific circumstances of a particular contract. There are also implied terms which arise as a matter of law as a legal incident of contracts of a particular kind,[37] and terms which are implied as a general rule in every contract. In Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd,[38] Mason J referred to the implied duty to co-operate which is, as a general rule, implicit in every contract:**

But it is common ground that the contract imposed an implied obligation on each party to do all that was reasonably necessary to secure performance of the contract. As Lord Blackburn said in Mackay v Dick:

as a general rule ... where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect.

It is not to be thought that this rule of construction is confined to the imposition of an obligation on one contracting party to co-operate in doing all that is necessary to be done for the performance by the other party of his obligations under the contract. As Griffith C.J. said in Butt v M'Donald:

It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract.

It is easy to imply a duty to co-operate in the doing of acts which are necessary to the performance by the parties or by one of the parties of fundamental obligations under the contract. It is not quite so easy to make the implication when the acts in question are necessary to entitle the other contracting party to a benefit under the contract but are not essential to the performance of that party's obligations and are not fundamental to the contract. Then the question arises whether the contract imposes a duty to co-operate on the first party or whether it leaves him at liberty to decide for himself whether the acts shall be done, even if the consequence of his decision is to disentitle the other party to a benefit. In such a case, the correct interpretation of the contract depends, as it seems to me, not so much on the application of the general rule of construction as on the intention of the parties as manifested by the contract itself.[39]

**151 In my opinion, the intention of the parties to the lease, as manifested by the express terms of the continuous business obligation and the related terms set out below, is clear. It was intended that the lessee would do all things necessary to give Fenridge the benefit of the opportunity provided by those terms - to enable it or a nominee (a new lessee) to carry on a nursing home business at the premises from the time the lease ended. A generally implied term to that effect encompasses the first two specific implied terms put forward by Fenridge. To the extent necessary, having regard to the express terms referred to below, I would imply terms to that effect.

152 But the first two implied terms, or the more general implied term discussed above, do not deal with the position of the allocated places held by RCA at the premises as a result of the change in the legislative scheme from 1 October 2007. In the absence of it holding allocated places at the premises, Fenridge could not implement its intention to conduct a government-funded nursing home business at the premises from the time the lease ended. The allocated places term is directed to that issue.

153 In order to determine whether the allocated places term should be implied in the lease, it is necessary to consider the admissible surrounding circumstances in which the lease was executed, including the existing statutory framework, and the express terms of the lease. These matters have been set out above in considering whether RCA was entitled to cease operating the nursing home before the end of the lease.

154 Reading the lease as a whole, it was in my opinion clearly intended that, when the premises reverted to Fenridge at the end of the lease, it would have the opportunity to conduct a nursing home business at the premises under the business name 'Preston & Districts Private Nursing Home'. Under the National Health Act, Fenridge could have made its own application for the premises to be approved as an 'approved nursing home' for the same 'number of beds' as attached to the lessee's existing approval. If the lessee had complied with the continuous business obligation and related terms as to the conduct of the nursing home business, and assuming there was no valid objection by the Minister to Fenridge (or a new lessee) obtaining the necessary approval as proprietor of a nursing home business at the premises, Fenridge or a new lessee would have become entitled to conduct the same kind of nursing home business as had previously been conducted by the lessee at the premises. This intention is clear from the words of the lease and the content of the applicable legislative regime under the 1953 Act.

155 As I have said, the need to imply the allocated places term arises from the change in the legislative regime on and from 1 October 2007, when the Aged Care Act 1997 (Cth) came into effect. The Aged Care Act introduced a number of important conceptual differences to the process by which entitlements to Commonwealth nursing home subsidies arose. The concepts of an 'approved nursing home' and an 'approved number of beds', at particular premises, were replaced with concepts of 'approved provider', 'allocated places' and 'residential care service'. In order to receive government subsidies, the proprietor of a nursing home business must be an approved provider, hold allocated places approved for use at particular premises, and provide a residential care service at those premises which is both 'certified' and 'accredited'. Further, 'allocated places', a concept which replaced approved 'beds' in respect of particular premises, became easier to transfer away from the premises to which they related to other premises. These conceptual changes placed greater hurdles in Fenridge's way before it could continue a nursing home business at the premises after the lease ended. Instead of needing only to apply for the premises to again be approved as an approved nursing home, with the same approved number of beds as pertained to the lessee's business at the end of the lease, or to have a new lessee make such an application, Fenridge or a new lessee needed to become an approved provider, obtain allocated places at the premises and obtain both certification and accreditation of the residential care service to be conducted at the premises.

156 An implied term to the effect of the allocated places term, requiring the lessee to transfer its allocated places at the premises to the lessor at the end of the lease, has been held to exist in other cases.

157 In North Adelaide Nursing Home Pty Ltd v Seely,[40] Wicks J in the Supreme Court of South Australia considered a case where the relevant lease was, like here, entered into in the context of the National Health Act, and the question of ownership of subsequently issued allocated places under the Aged Care Act was in issue. The plaintiff company was the owner of the nursing home premises. At the time those premises were leased to the defendants, the plaintiff had been conducting a nursing home for some time as an approved nursing home under the National Health Act, with an approved number of beds. The plaintiff was both proprietor of the premises and proprietor of the nursing home business, and thus a 'proprietor' for the purposes of s 40AA of the National Health Act. In this context, Wicks J noted how the National Health Act operated:**

1. The effect of these provisions was to tie the approval of the nursing home to particular premises. If the premises were sold or leased, the buyer or lessee would need to arrange for the existing approval to be terminated and for a fresh approval in the name of the buyer or lessee to be obtained. Under these arrangements, it was not possible for the approval or licence in respect of the nursing home beds to be disposed of separately and apart from the approval in relation to the premises themselves.
2. If therefore, under the National Health Act provisions, the defendants had made a decision at the expiration of the lease to cease to conduct the Nursing Home business, it would not have been possible for them to keep the Nursing Home approval separately and apart from the other assets which would have to be handed back to the plaintiff.
3. It seems to me that the expression 'bed licence' so far as it related to a particular bed in the Nursing Home was a misnomer and found no mandate for its use in s 40AA and the following sections of the National Health Act. In a sense, the Nursing Home approval under that Act was indivisible. There did not appear to be a separately identified piece of property relating to a particular bed in the Nursing Home. Under the National Health Act, the only licence involved was the nursing home approval itself. If a person wished to set up a nursing home, a nursing home approval would need to have been obtained, one of the conditions of which would have been a restriction on the number of beds in the nursing home. The only way a bed could have been transferred to the proprietor of some other approved nursing home would have been for the nursing home approval in one case to be altered by increasing the number of beds and in the other to be altered by decreasing the number of beds. Such an arrangement could only have been given effect to by enlisting the co-operation of the Secretary for the Department of Health and Family Services. A transfer as such was not involved.[41]

**158 Against that background, the plaintiff agreed to lease the nursing home premises to the defendants, along with fixtures and fittings, plant and equipment and all items of personal property needed to run the nursing home. Wicks J found that the parties intended that, when the lease became operative, the plaintiff would surrender the approval of the nursing home premises under the National Health Act and the defendants would concurrently make an application for approval of the premises as an approved nursing home in their name. That is what happened.

159 The defendants did not pay any sum for goodwill, other than agreeing to pay the rentals due under the lease. This issue was discussed between the parties before the lease was entered into, and Wicks J made the following findings in that respect:**

The defendants were asked whether they understood that Mr Penna was allowing them to walk into the place and run the nursing home as it was at the time. The defendants were not to be charged for anything required to run the home. They were not required to pay for anything, so that when the time comes that they would be required to hand the nursing home back to the plaintiff it would be handed back in exactly the same way.[42]

160 In this context, Wicks J found that it was an implied term of the lease that the defendants would transfer their allocated places under the Aged Care Act to the plaintiff at the end of the lease. The precise form of the implied term was as follows:

In my opinion, in addition to the express terms of the lease, a term should be implied. Such term would read as follows:

A (1) In this clause A:

'a leasehold interest' includes all or any one or more of the following, namely, an estate or interest as lessee or underlessee whether at law or in equity;

'place' has the same meaning that it has in the Aged Care Act 1997; and

'the Nursing Home' means the nursing home situated at 26 Le Fevre Terrace, North Adelaide.

(2) If on or before the time when the Nursing Home ceases to be the subject matter of a leasehold interest granted by the plaintiff in favour of the defendants, the present scheme relating to approved nursing homes is replaced by a scheme created by legislation of the Commonwealth of Australia whereby places are allocated to the defendants in respect of the Nursing Home, the defendants shall, on the Nursing Home ceasing to be subject to a leasehold interest granted by the plaintiff in favour of the defendants, transfer all of such places to the plaintiff. The above transfer of places to the plaintiff shall nevertheless be subject to the approval of the Secretary for the Department of Health and Family Services.[43]

161 Wicks J considered that a term to that effect satisfied the test for implication in BP Refinery. In his opinion, the implied term was reasonable and equitable, necessary to give business efficacy to the contract and so obvious that it goes without saying because:

... The Aged Care Act 1997 and related legislation could not reasonably have been foreseen. The clause enables the plaintiff to be placed in the same position after the enactment of the Aged Care Act 1997 and related legislation as it would have been placed in if the underlease in favour of the defendants had been terminated before the repeal of the relevant provisions of the National Health Act 1953. Apart from the rent reserved by the underlease, the defendants had paid and were to pay no consideration for any of the assets of the business including the places created by the Aged Care Act and related legislation, all of which were to be returned to the plaintiff on termination of occupation of the premises.[44]

**162 Wicks J was satisfied that the implied term was capable of clear expression, and did not contradict any express term of the lease, thus satisfying the remaining two conditions expressed in BP Refinery for the implication of a term.[45]

163 In the course of his reasons, Wicks J placed some focus upon the fact that the plaintiff did not intend to make a gift of the nursing home business to the defendants. The defendants paid nothing for goodwill above the rentals payable under the lease, the issue was specifically discussed before the lease was entered into and it was agreed that the defendants 'would be required to hand the nursing home back to the plaintiff ... in exactly the same way' at the end of the lease.

164 Counsel for RCA placed reliance upon the fact that there was no separate goodwill payment in Seely, and there is no evidence in this case as to what arrangements were made concerning the goodwill of the nursing home business before it was leased to the original lessee in this case. For the reasons appearing below, I do not think that matters.

165 In Harrington v Harrington Services Pty Ltd (in liq),[46] Mr and Mrs Harrington purchased the land on which a nursing home business was being conducted, and the goodwill of the business, from the previous owners and operators. The contract of sale provided that the sale included the business of a nursing home previously carried on by the vendors and the goodwill of that business. At the time of the contract of sale, the premises were an 'approved nursing home' under s 40AA of the National Health Act and there was approval for 50 beds which qualified for a Commonwealth Government subsidy.

166 Mr and Mrs Harrington leased the premises to their company, the defendant. When the defendant went into liquidation, a dispute arose as to who owned the allocated places which the company had obtained when the Aged Care Act came into force in 1997. Palmer J referred to these allocated places as 'subsidy rights'. Mr and Mrs Harrington contended that they owned the subsidy rights. The liquidator contended that the company was the owner and that he could sell them.

167 Palmer J accepted Mr and Mrs Harrington's evidence that, although the lease was in a standard form with 'boiler-plate' covenants, and made no reference to the nursing home business, they intended to lease all of their rights to conduct a nursing home business at the premises to the company. Palmer J found that the lease was partly written and partly oral - 'the oral part of the lease related to all the subject matter of the lease other than the land, while the written part related to the land itself'.[47] Although this factual finding was obviously important in the conclusions reached by Palmer J, his Honour made statements of a more general nature concerning the commercial reality of a lease of premises used exclusively for the conduct of a nursing home business:**

... the absence of express reference in the memoranda of lease executed by the parties to the business as well as the premises is not surprising. If premises are exclusively used and extensively fitted out for the carrying on of an established, specialised kind of business such as that of an hotel or motel, then it may be necessarily implicit in a sale or mortgage of the premises that the goodwill of the business conducted therein is being sold or mortgaged as well, even if there is no explicit term to that effect in the contract or mortgage ... There is no reason why that proposition cannot apply equally to the lease of such premises.

In the present case, it would have been commercially absurd to have leased the nursing home premises to Harrington Services and not the nursing home business which was conducted therein. What could Harrington Services do with premises fitted out as a nursing home without being able to conduct a nursing home business, and what could Mr and Mrs Harrington as owners of the business do without the premises in which to conduct the business? In my view, it was necessarily implicit in the lease of the premises to Harrington Services that the nursing home business and its goodwill was included in the lease. Those who drew up the lease may very well have thought likewise, particularly in view of the fact that under s 40AA(1) of the National Health Act (Cth) as it was in 1980, approval for the purposes of subsidy payments attached to the premises in which the nursing home business was conducted.[48]

**168 In my opinion, that statement is not limited to cases where there is direct evidence that no payment was made by the lessee for goodwill (as in Seely) or there was an oral lease of the pre-existing nursing home business (as in Harrington). It is understandable that both Wicks J and Palmer J supported their conclusions with evidence to that effect, but in my opinion that evidence was not essential to the result in either case. The fact remains that, under the National Health Act, a lessee of nursing home premises could obtain no more than the subsidy rights which attached to the leased premises. As Weeks J said in Seely, there was no 'separately identifiable piece of property relating to a particular bed in [a nursing home]' under the National Health Act.

169 The liquidator in Harrington contended that, even if there was a lease of the nursing home business, the ownership of subsidy rights under the Aged Care Act should be determined under that Act. He contended that the provisions of the Act made it clear that the subsidy rights belonged absolutely to the company, because it was the 'proprietor' of the nursing home business under the Act and was the only entity qualified to receive those rights and the subsidies payable under them.[49] Palmer J rejected that submission. He reasoned as follows:

(1) Because Mr and Mrs Harrington leased the nursing home business to their company, and the company became the proprietor of that business, the company became entitled to receive government subsidies because of its 'limited interest in the business' as lessee and not because it was the 'owner' of an absolute interest in the business.[50]

(2) When the Aged Care Act came into operation, the entitlement to participate in the 'subsidy scheme' ceased to be dependent upon an approval which attaches to premises in which the nursing home business is conducted.[51] Instead, the right to receive subsidies was derived from the proprietor of the business becoming an approved provider with allocated places 'in respect of a specified location' and 'in respect of a particular aged care service' provided at that location.[52]

(3) The effect of this change in statutory regime was that:**

although subsidy entitlements in respect of nursing home care are not directly attached to premises, as they were under the [National Health Act], they are indirectly attached to premises because the 'approved provider' will receive the subsidies only if it has been allocated 'places' in respect of a 'specified location' at which the nursing home care is provided.[53]

**(4) The company only received subsidies because it was the lessee of the premises and the business at which the nursing home was conducted.[54]

(5) Conferral of the allocated places in these circumstances did not make the company the owner of the allocated places. There is nothing in the Aged Care Act or related legislation which 'stipulates that the recipient of "allocated places" and the resultant subsidies must be taken to hold those benefits and rights absolutely and without qualification as outright owner'.[55]

(6) Accordingly, the 50 allocated places at the premises:**

were a source of the goodwill of an existing business, received by [the company] in substitution for the previous equivalent source of goodwill under the [National Health Act], namely the approval of the premises under s 40AA(1). The allocations were, therefore, simply part of the leased goodwill of the business.[56]

**(7) It followed that the allocated places 'were assets of the leased business which had to be transferred back to the lessors [Mr and Mrs Harrington] at the expiry of the term of the lease'.

170 Palmer J did not reach this result on the basis of an implied term in fact, depending upon the circumstances of the particular case and requiring satisfaction of the conditions in BP Refinery. In his opinion, the obligation to transfer the allocated places to Mr and Mrs Harrington as lessors was 'one implied by law because it is an inherent legal incident of every lease'.[57]

171 RCA contends that these cases are distinguishable from this case, because the lessees in those cases paid nothing for the goodwill associated with the right to receive government subsidies for the conduct of the nursing home businesses at issue. In this regard, it relies heavily upon the fact that Fenridge did not call evidence as to the circumstances in which the lease was entered into, in particular as to whether or not the original lessee paid for the goodwill associated with the fact that the premises were an 'approved nursing home' with an 'approved number of beds' under the National Health Act. In this regard, Fenridge served an outline of evidence which it was expected would be given by Harry Perelberg, a director of the original lessor (Hosorhast Pty Ltd), who could have given evidence concerning the circumstances in which the original lease of the premises to Omsa Nominees Pty Ltd was negotiated and entered into. During the course of the trial, Fenridge indicated through its counsel that Mr Perelberg would not be called as a witness.

172 In my opinion, the fact that Mr Perelberg was not called does not give rise to any inference adverse to Fenridge's case concerning the allocated places term. Whether or not the original lessee paid for goodwill associated with the number of government-funded beds at the premises at the time the lease was executed, the original lessee obtained only that which Fenridge granted by the terms of the lease. By the terms of the lease, understood in the context of the legislative regime under the National Health Act, the lessee was obliged to comply with the continuous business obligation and related terms of the lease, for the obvious purpose of ensuring that, when the premises reverted to the lessor at the end of the lease, they were in a state which maximised Fenridge's chances of having the premises registered as an 'approved nursing home' with an 'approved number of beds'. Viewed in this way, any amount paid for goodwill by the original lessee was paid for the right to conduct a government-funded nursing home business at the premises for the period of the lease (which could be as long as 20 years if all options for further terms were exercised)[58] and on the terms contained in the lease. In the particular legislative regime which then applied, there was no question of the lessee being able to retain the goodwill associated with the right to receive government subsidies in respect of aged care provided at the premises, because the lessee would have no right to conduct any business at the premises when the lease ended.

173 The issue for determination is whether a term should be implied in circumstances where the legislative changes have raised a number of hurdles in the way of Fenridge obtaining the benefits intended by the continuing business obligation and related terms. In my opinion, it is necessary to imply a term to the effect of the allocated places term in order to deal with this eventuality. Such a term meets the requirements of the test stated in BP Refinery. In that respect, I agree with the reasons given by Wicks J in Seely. The only difference between that case and this case is that in Seely there was evidence that no amount was paid for the goodwill of the business, and there is no such evidence in this case. For the reasons given above, that is not fatal to the implication of the allocated places term in this case; as the lease gave the lessee no more than the right to conduct a nursing home business at the premises during the term of the lease and subject to its provisions. Under the terms of the National Health Act, there was no separately identifiable property in a bed 'licence' or allocation at particular premises.

174 I conclude that it was an implied term of the lease that, at the end of the lease, the lessee must transfer its allocated places at the premises to Fenridge. The precise content of that implied term is as follows:**

If the current legislative requirements for the receipt of Commonwealth Government subsidies in respect of aged care provided at the demised premises are altered during the term of the lease, and replaced with Commonwealth legislation giving the lessee 'allocated places' entitling it to receive government subsidies, the lessee must, subject to approval from the Secretary for the Department of Health and Family Services, transfer the allocated places to the lessor or a new lessee at the end of the term of this lease.

**175 Before leaving the issue of implied terms, some specific contentions made by RCA must be considered. It was contended by RCA that the allocated places term should not be implied because allocated places under the Act have a substantial commercial value, that RCA paid Moran for the places when it purchased 12 nursing home businesses in 2005, and that in these circumstances 'it is very unlikely that it was obvious to the parties that, having paid for such an asset in 2005, [RCA] was obliged to hand [the allocated places] over for free some 2 ½ years later'.[59] That submission must be rejected, because the lease was entered into in 1990 in the context of the subsidy scheme applying under the National Health Act. The concept of transferrable allocated places was unknown at that time. The fact that in 2005 RCA paid Moran for the 45 allocated places at the premises is not admissible evidence to either construe the lease or in determining whether the allocated places term should be implied. If RCA and its financial and legal advisers did not appreciate the significance of the fact that the premises were leased by Moran, and not owned by it, as were the other 11 nursing home premises and businesses which were purchased at the time, then the consequences are to RCA's account. They are irrelevant to construction of the lease, including as to whether the allocated places term should be implied.

176 RCA contended further that the allocated places term was not so obvious that it goes without saying because the subsequent conduct of Fenridge and Dr Santini shows that they did not believe or even contend for such an implied term at relevant times. RCA relies in particular on: (1) the fact that Fenridge applied for allocated places in its 2007 ACAR application and, in that application, stated that if it did not receive all of the places for which it applied 'then a different business model may need to be considered as additional bed licences may need to be purchased from market sources'; (2) the fact that, when Moran transferred 15 of the 60 allocated places at the premises to other premises some time after 2002, Dr Santini said in his witness statement that it was not then clear to him who owned the allocated places, and he understood at the time that there was nothing he could do about the transfer of allocated places away from the premises; and (3) Dr Santini's evidence that it was not until some time in 2008 that he first reached the view that the allocated places belonged to Fenridge, and that, even then, this view was not a 'firm view' because Dr Santini said he 'simply didn't know'.

177 In my opinion, it is impermissible for RCA to rely upon evidence of this subsequent conduct and subjective belief of Dr Santini for the purposes of construing the lease and determining whether the allocated places term should be implied.[60] Whether or not a term should be implied in a contract must be determined objectively, having regard to evidence which is admissible on that issue.[61] In my opinion, reasonable persons in the position of the parties to the lease in 1990 would, if the relevant aspects of the scheme of the National Health Act and the possibility of the legislative changes enacted by the Aged Care Act (and their consequences) were fully explained to them, have thought that a term to the effect of the allocated places term was so obvious that it goes without saying; because the lessee would otherwise receive a windfall, in the form of readily assignable allocated places of significant value for no consideration. Dr Santini's later subjective beliefs are irrelevant, as would be evidence of the subjective beliefs of the original lessor and lessee.

178 For the above reasons, and as appears below, I find that RCA breached each of the implied terms.**

**179 The tort of wrongful interference with another's contractual rights, sometimes called inducing breach of contract, is established when the alleged tortfeasor procures a contracting party to breach the contract, knowing of the contract and intending that the party procured will breach it.[62] The 'gravamen of the tort is intention'.[63] Of course, there can be no relevant intention to procure a breach of contract unless there is knowledge of the contract. The alleged tortfeasor must have 'sufficient knowledge [of the contract] to ground an intention to interfere with contract rights'.[64]

180 In some cases, an issue arises as to whether the alleged tortfeasor knew of the term of the contract which has been breached by the conduct procured. In those cases, issues of reckless indifference or wilful blindness, equivalent to actual knowledge, may arise.[65] But this is not such a case. Regis well knew of the terms of the lease, including the continuous business obligation. Regis knew of Fenridge's contentions concerning the continuous business obligation from at latest 3 September 2007, when Dr Santini wrote to Mr Stephenson stating, among other things, that Fenridge required RCA to continue to operate the nursing home 'to the highest standard' until the end of the lease and, further, to ensure continuous accreditation of the residential care service at the nursing home. This was before the final decision to close the nursing home had been ratified by the Regis board. Further, in final submissions, Regis did not dispute that it knew of the continuous business obligation. The only issue is whether Regis intended that its decision to procure RCA to close the nursing home prior to the end of the lease would, upon being implemented, constitute a breach of the continuous business obligation.

181 The requirement of intention was considered by Lindgren J (Lockhart and Tamberlin JJ agreeing) in Allstate Life Insurance Company & Ors v ANZ Banking Group Ltd.[66] That case concerned the sufficiency of a pleading alleging wrongful interference with contractual relations. It was alleged that the procuring party 'well knew' of the specific contractual term which was breached at its behest. But the pleading did not include an allegation of intention to bring about a breach of contract. The pleading was therefore insufficient and did not disclose a reasonable cause of action. In this regard, Lindgren J said:**

There is no reason why the requirement of intention should not be applied with full force in the light of the pleading that the Banks 'well knew' of the prohibition in the Indenture. The words of Jenkins LJ in DC Thompson & Co Ltd v Deakin are apposite:

"... there seems to be no doubt that if a third party, with knowledge of a contract between the contract breaker and another, has dealings with the contract breaker which the third party knows to be inconsistent with the contract, he has committed an actionable interference."

In my opinion if an alleged tortfeasor knows of the particular provision which is in fact breached but does not 'know' or 'intend' (signifying the same thing) that the contract into which he enters with the contract breaker constitutes a breach of that provision, no tort is committed.[67]

**182 In my opinion, Regis knew that RCA would be in breach of the continuous business obligation if it closed the nursing home before the end of the lease. As appears above, no question arises as to whether Regis knew of the continuous business obligation. Nor is there any issue as to whether Regis procured RCA to close the nursing home, as the ultimate decision to close it was made by the Regis Board of Directors, following the merger between Regis and the RCA group in July 2007.

183 Regis's knowledge and intention in this regard was constituted by its senior officers who were involved in the decision to recommend to the Regis Board that the nursing home be closed - Messrs Appleby, Bender and Noble. Following the final board ratification of the decision to close the nursing home, it was Mr Noble who, writing on Regis letterhead, informed Dr Santini of the decision.

184 None of Mr Noble, Mr Bender or Mr Appleby gave evidence. The only explanation for the failure to call them was that 'the documents speak for themselves'. I do not accept that explanation. If Regis wishes to contend, as it does, that it did not know that closure of the nursing home before the end of the lease would bring about a breach of the continuous business obligation, notwithstanding its knowledge of that obligation, evidence from Messrs Noble, Bender and Appleby was required to dispel the obvious inference arising from the objective facts. It was also contended that they are not in Regis's camp, because they no longer work for Regis, and they were previously sued personally and provided witness statements. In these circumstances, it was contended that no inference which is inconsistent with their witness statements could be drawn. I do not accept that submission. The witnesses were clearly in Regis's camp and it was for Regis to call them if they could give evidence to support its case. I infer that their evidence would not have assisted Regis's case on the issues of intentional interference with contractual relations.

185 Regis contends that there is no direct evidence of the requisite intention, and that the Court cannot infer it from the evidence as a whole. In this regard, reliance was placed upon a letter dated 16 October 2007 from Regis's previous solicitors to Fenridge's previous solicitors. The letter formed part of contentious correspondence between the solicitors for the parties, with each putting forward the respective cases of their clients. In this context, Regis's solicitors contended as follows:**

THE COVENANTS TO TRADE AND TO CONDUCT BUSINESS - CLAUSES 2.16 AND 6.13(C)

Having taken detailed instructions from our client, it is clear to us that by nominating a closure date in December 2007 and by progressively contracting its operations at the premises, our client is not in breach of either of these covenants. Both parties to the lease well understood that at the expiration of the lease, our client, being the licensed operator, could not walk away from the premises without making a progressive withdrawal and relocation plan for [its] residents, business and staff and leave aged residents uncared for. Your client well understands (as evidenced by its email to ours dated 25 May, 2007) that this would amount to a breach of its obligations under the applicable legislation. In that email your client stated that our client 'will need to develop a strategy for discharging the current residents ...' The contraction and closure of the business is precisely such a strategy.

It is therefore a term to be implied into the lease and/or a term upon which the parties actually reached a common intention, that because of the singular nature of the tenancy, the permitted use and our client's statutory obligations to residents, a reasonable period would be taken up in closing the business in an orderly manner notwithstanding those clauses.

**186 Regis contends that this letter gives rise to an inference that its decision to close the nursing home was made in good faith and in the belief that RCA was entitled to close the nursing home when it did - without breaching the continuous business obligation. I do not accept that submission. As I have said, the letter forms part of contentious correspondence. Regis's solicitors were putting forward a position to protect their client, based on an implied term in the lease. As appears above, although initially pleaded, the implied term case was abandoned by RCA and Regis before trial. If Regis wished to contend that its decision to procure RCA to close the nursing home before the end of the lease was made in the belief that the closure would not breach the continuous business obligation, it ought to have called evidence from its officers to establish that they relied upon legal advice to that effect in deciding to recommend closure of the nursing home before the end of the lease. That would likely have involved calling one or more of Mr Noble, Mr Bender or Mr Appleby.

187 In all the circumstances, I am not prepared to infer that Regis was acting pursuant to legal advice that closure of the nursing home before the end of the lease would not be in breach of the continuous business obligation. To the contrary, I infer that Regis, through its solicitors, was simply 'running an argument' in the course of contentious correspondence during a dispute. This is consistent with the conduct of RCA and Regis at this time. For example, as appears above, on 4 October 2007, RCA and Regis employees discussed endeavouring to justify action in breach of an industrial award on a false basis: 'we will run the argument that this is an emergency'. Further, this inference arises because the argument put forward was so tenuous as to be hopeless, and it is unlikely that competent lawyers would have advised it had any real prospect of success.

188 In all the circumstances, I find that Regis knew of the continuous business obligation in the lease, and knew that Fenridge was contending that closure of the nursing home before the end of the lease would be a breach of that obligation, but nevertheless instructed RCA to close the nursing home before the end of the lease. The situation is not dissimilar to that described by Diplock LJ in Emerald Construction Co Ltd v Lowthian,[68] that:**

The element of intent needed to constitute the tort of unlawful procurement of a breach of contract is, in my view, sufficiently established if it be proved that the defendants intended the party procured to bring the contract to an end by breach of it if there were no way of bringing it to an end lawfully. A defendant who acts with such intent runs the risk that if the contract is broken as a result of the party acting in the manner in which he is procured to act by the defendant, the defendant will be liable in damages to the other party to the contract.[69]

**189 In that case, the defendant knew of a contract but did not know of the precise terms. The passage quoted is, however, apposite to the facts of this case. Even if it be supposed that Regis had legal advice that it was arguable that closure of the nursing home before the end of the lease would not be a breach of the continuous business obligation, Regis nevertheless took the risk that the arguments put forward by its solicitors at the time would not succeed if litigation ensued. It is hard to imagine that Regis's legal advice could have gone any further than mere arguability, especially in light of the fact that the implied term was subsequently abandoned and, as appears above, that the construction arguments put forward raised a hopeless case.

190 I find that Regis intended that RCA should close the nursing home, whether or not that could be done lawfully. Regis simply made a hard-nosed business decision to prefer its commercial interests to RCA's contractual obligations and Fenridge's rights under the lease. It is liable for the tort of wrongful interference with the contractual relations between Fenridge and RCA under the lease. It is accordingly liable to Fenridge for any loss proved as a result of the breach of the continuous business obligation.

191 The question remains as to whether it is also liable for a further amount, representing exemplary damages. In my opinion, exemplary damages should be awarded.

192 The principles governing the award of exemplary damages were recently summarised by the Court of Appeal in Carter and Anor v Walker and Anor,[70] in the following terms:**

Exemplary damages are damages over and above those necessary to compensate the plaintiff. They are awarded to punish the defendant. They are intended to act as a deterrent to the defendant, and to others minded to behave in a like manner. They are also intended to demonstrate the Court's disapprobation and denunciation of such conduct. Such damages may be awarded in respect of any tort that is committed in circumstances involving a deliberate, intentional, or reckless disregard of the plaintiff's rights.[71]

193 In XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd,[72] Brennan J described the award of exemplary damages:

As an award of exemplary damages is intended to punish the defendant for conduct showing a conscious and contumelious disregard for the plaintiff's rights and to deter him from committing like conduct again, the considerations that enter into the assessment of exemplary damages are quite different from the considerations that govern the assessment of compensatory damages. This is no necessary proportionality between the assessment of the two categories.

...

The social purpose to be served by an award of exemplary damages is, as Lord Diplock said in Broome v Cassell & Co 'to teach a wrong-doer that tort does not pay'.[73]

194 Counsel for Regis emphasised that awards of exemplary damages are reserved for rare cases. They relied upon the statements of Redlich J (as he then was) in SB v State of New South Wales,[74] where his Honour said that exemplary damages:

ought only to be awarded for the more flagrant instances of 'conscious wrongdoing' where the conduct of a party is sufficiently reprehensible to require the Court to signal its disapproval of that conduct by way of an award of exemplary damages.[75]

**195 On this basis, it was contended that Regis's conduct in this case falls far short of the required standard of conscious wrongdoing, as it amounted to no more than 'a breach of a commercial contract between two experienced commercial operators'.

196 I do not accept the submission made on behalf of Regis, which characterises its conduct as mere breach of contract. This was deliberate conduct in breach of the plain and unambiguous words of the continuous business obligation. At best, Regis may have received legal advice to the effect that RCA could balance its paramount duty to the residents under the Aged Care Act and related User Rights Principles against the continuous business obligation, and act so as to honour both obligations. But that is not what it did. Under the guise of treating the interests of the residents as paramount, Regis ignored RCA's contractual obligations to Fenridge. Even if RCA was entitled to commence re-locating residents before the end of the lease, it was certainly not entitled to take that course with the express intention of re-locating all residents and closing the nursing home months before the end of the lease. All of these actions were dictated by Regis.

197 Fenridge also alleges that Regis's deliberate and contumelious disregard of its rights included Regis's disregard of the interests of the residents of the nursing home, contrary to Part 2 of the User Rights Principles made under the Aged Care Act. In this regard, Fenridge seeks to rely upon the evidence given by Ms Fairman in cross-examination. As appears above, Ms Fairman agreed in cross-examination that the course of action described in some of the emails referred to in Fenridge's particulars of the exemplary damages allegation, and referred to above, were 'not preferred' or 'not best practice', because the suggested course of action did not treat the interests of the residents as paramount - as the Aged Care Act requires. Ms Fairman also agreed that some of Regis's conduct described in the emails was inconsistent with the User Rights Principles, or may lead to that result.

198 It was submitted on behalf of Regis that its conduct towards the residents of the nursing home is irrelevant to any claim against it for exemplary damages. Reliance was placed on statements that exemplary damages are awarded for conduct 'in relation to the plaintiff',[76] or, to put it another way, conduct 'involving a deliberate, intentional or reckless disregard of the plaintiff's rights'.[77] I accept that this is the legal position. I do not, however, accept that conduct towards third parties such as the residents is incapable of being directed towards, and in disregard of, Fenridge's rights. In my opinion, Regis's conduct towards the residents of the nursing home had a direct effect upon Fenridge's rights under the lease; in particular, its rights under the continuing business obligation in clause 2.16. In other words, the expedited closure of the nursing home was in disregard of both Fenridge's rights and the interests of the residents.

199 I turn to consider the amount of exemplary damages. In my opinion, Regis's conduct is properly characterised as conscious wrongdoing of a sufficiently reprehensible kind to justify an award of exemplary damages. It acted in complete disregard of RCA's obligations to Fenridge under the continuous business obligation and other related terms of the lease. Regis must have known that this conduct would or may cause significant damage to Fenridge, because Dr Santini had repeatedly stated to Mr Stephenson that Fenridge intended that a nursing home business would be continued at the premises after the end of the lease. To that end, Dr Santini had been involved in discussions with Mr Stephenson concerning a smooth handover at the end of the lease if alternative arrangements for RCA to continue in occupation of the premises were not agreed. Regis's conduct in procuring RCA to close the nursing home well prior to the end of the lease deprived Fenridge of the opportunity to continue the nursing home business at the premises. This result ought to have been apparent to Regis and RCA. It is in my opinion necessary and desirable to denounce such high-handed commercial conduct by an award of exemplary damages. In fixing the amount, I will consider the amount of compensatory damages for which Regis is liable, and whether that award will provide sufficient denunciation for Regis's conduct.[78] As appears below, the amount of the compensatory damages cannot now be finally determined. When it is, I will fix an amount for exemplary damages.**

**200 Fenridge alleges that Mr Stephenson's email dated 6 September 2007 to Dr Santini was misleading and deceptive, because it did not disclose that RCA and Regis had decided that the lease would not be extended, that the nursing home business at the premises would be closed before the end of the lease, and that RCA had no intention of making any arrangements with Fenridge to handover the residents and staff remaining at the premises when the lease ended.

201 In his 6 September email, Mr Stephenson said in effect that RCA and Regis had not decided whether to agree to Dr Santini's proposal that the lease be extended. He said expressly that 'this [was] an ongoing issue of discussion', involving Regis gathering information and having 'to come to grips with a range of issues' before finalising their decision.

202 Fenridge contends that this statement was false, misleading or deceptive because Regis and RCA had by 6 September 2007 already decided that the term of the lease would not be extended and that they would close the nursing home prior to the end of the lease. RCA contends that Mr Stephenson's statements in the 6 September email were true, because no formal board decisions had then been made that the lease would not be extended and, instead that the nursing home would be closed before the end of the lease. They contended that, on 6 September 2007, they were only discussing draft closure plans to be implemented if those decisions were subsequently made.

203 I do not accept RCA's contentions. In my opinion, RCA and Regis had already decided that the lease would not be extended, and that the nursing home would be closed before the end of the lease, before the 6 September email was sent. The fact that Mr Stephenson did not know of this decision when he sent the email is not to the point. His email was objectively false and misleading.

204 First, by 11 August 2007, Regis had prepared a detailed draft plan to close the nursing home. Mr Appleby sent a copy of the draft plan to Ms Lefebure on that day 'to assure [her] that we are planning for some of these events'. The draft plan was secret: 'Meigan - This is for your eyes only ... PLEASE DO NOT DISTRIBUTE'.

205 Second, at the Regis group Operations Board meeting on 28 August 2007, Mr Bender recommended that the lease 'not be extended beyond February 2008 and that alternative arrangements be made for the facility's residents'. The board apparently accepted this recommendation, and gave instructions to management 'that a phasing down and relocation plan be developed before any communication regarding this matter'. The minutes conclude with the statement: 'it was agreed that final recommendation and planning will be submitted to the next board meeting for ratification'. In cross-examination, Mr Stephenson expressed surprise at these minutes, and agreed that they appeared to record a 'pretty definite plan to close' the nursing home business.

206 Third, following that Operations Board meeting, Mr Appleby emailed Regis staff, stating that the nursing home would be closed, that the decision would 'hopefully' be ratified at the next board meeting, and that, in the interim, the 'complete strategy for this closure' needed to be finalised in anticipation of that ratification. He emphasised the need for 'the strictest confidence with this work'. As appears above, Mr Stephenson was not included in this email and was effectively 'kept in the dark'.

207 Fourth, the RCA/Regis Integration Steering Group met on 3 September 2007. The minutes record that Mr Bender stated that 'the Board has agreed that Preston will be closed at the expiration of the lease ... and a final decision will be put to the Board within the next 7 days'.

208 Fifth, also on 3 September 2007, Dr Santini emailed Mr Stephenson. He repeated previous advice that Fenridge intended to continue a nursing home at the premises when RCA vacated them and, in that context, stated to Mr Stephenson that Fenridge required RCA to continue operating the nursing home 'to the highest standard until the premises revert to Fenridge and that accreditation be maintained in the interim'. In these circumstances, Mr Stephenson, and thus RCA and Regis, must have known that Dr Santini was operating under the assumption that RCA would comply with its obligations under the lease, in particular the continuous business obligation, and was vitally interested to discuss a smooth handover of the nursing home business in the event that RCA decided not to extend the lease.

209 Sixth, the conduct of RCA and Regis immediately following the 6 September email supports an inference that a decision had been made beforehand. For example, on the next day (7 September 2007) Mr Appleby informed Messrs Noble and Bender that an 'out of Board ratification to proceed' would be sought if there were timing difficulties in achieving closure by Christmas 2007.

210 Seventh, even if it be accepted that no final decision to close the nursing home had been made as at 6 September 2007, because formal Board ratification had not yet occurred, it was nevertheless misleading to state in the 6 September 2007 email that the proposed lease extension was an 'ongoing issue of discussion', that Regis still needed 'to come to grips with a range of issues' and that, in that regard, Regis were 'still gather[ing] information ... to finalise [its] decision'. Those statements were not supported by any evidence from Regis management (Noble, Bender or Appleby) and in my opinion painted a false picture of the truth: that operational decisions had been made by RCA and Regis management, that preparations to implement those decisions were at an advanced stage, and that the Board decision was a formality. Further, the 6 September email was written in the context that Mr Stephenson, and thus RCA and Regis, well knew that Dr Santini was about to leave for an extended vacation.

211 For the above reasons, Fenridge has established that it was misled by RCA. Fenridge contends that, but for the misleading conduct, it would have taken immediate steps from 6 September 2007 to put itself in a position to conduct a nursing home service at the premises from 14 December 2007 or such other date when RCA's service ceased, including by exercising the power of attorney granted to it by RCA in clause 6.12 of the lease. I will consider below whether that has been established and, if so, whether RCA's misleading conduct caused Fenridge any loss.**

**212 Fenridge makes a further or alternative claim for false or misleading conduct. It alleges that both RCA and Regis engaged in misleading conduct by the notices sent to residents and staff on 21 September 2007 and at later meetings with residents, carers and staff. The material parts of the notices are set above. Fenridge contends that it was misleading to inform residents and staff that the nursing home 'will be closing on Friday 14 December 2007' without also informing them that Fenridge or a lessee intended to continue to operate a nursing home at the premises when the lease ended. Next, Fenridge alleges that this conduct caused all residents to leave the premises by 19 October 2007, and this deprived it of the opportunity to conduct a nursing home service at the premises on the basis that the buildings would be assessed for certification as existing buildings.

213 RCA and Regis contended that there was nothing misleading about the statements in the 21 September notices, because they did intend to close the nursing home by 14 December 2007 at the latest. I accept those submissions. RCA and Regis told residents and staff what they in fact intended to do. The fact that their intention involved RCA in breaching the continuing business obligation is not to the point. Fenridge's remedy for that is for breach of contract. Further, even if this claim of misleading conduct had succeeded, Fenridge faced significant obstacles in demonstrating causation and in the assessment of any loss. Some of those obstacles do not confront Fenridge in establishing causation and loss for RCA's breach of contract and Regis's involvement in that breach.**

214 The legal principles to be applied in determining whether a loss of commercial opportunity is compensable were stated by the High Court in Sellars v Adelaide Petroleum NL & Ors.[79] Mason CJ, Dawson, Toohey and Gaudron JJ distinguished between proof of causation and proof of damages, stating that proof of causation is to be determined on the balance of probabilities as to whether a plaintiff has sustained some loss or damage,[80] and, if that hurdle is crossed, that the amount of that loss or damage is to be ascertained by reference to the Court's assessment of the degree of probabilities or possibilities.[81] These conclusions were expressed in the following terms:

...we consider that acceptance of the principle enunciated in Malec requires that damages for deprivation of a commercial opportunity, whether the deprivation occurred by reason of breach of contract, tort or contravention of s. 52(1), should be ascertained by reference to the court's assessment of the prospects of success of that opportunity had it been pursued. The principle recognized in Malec was based on a consideration of the peculiar difficulties associated with the proof and evaluation of future possibilities and past hypothetical fact situations, as contrasted with proof of historical facts. Once that is accepted, there is no secure foundation for confining the principle to cases of any particular kind.

On the other hand, the general standard of proof in civil actions will ordinarily govern the issue of causation and the issue whether the applicant has sustained loss or damage. Hence the applicant must prove on the balance of probabilities that he or she has sustained some loss or damage. However, in a case such as the present, the applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value being ascertained by reference to the degree of probabilities or possibilities. It is no answer to that way of viewing an applicant's case to say that the commercial opportunity was valueless on the balance of probabilities because to say that is to value the commercial opportunity by reference to a standard of proof which is inapplicable.

The conclusion which we have reached on this question finds support in other considerations. The approach results in fair compensation whereas the all or nothing outcome produced by the civil standard of proof would result in the vast majority of cases in over-compensation or under-compensation to an applicant who has been deprived of a commercial opportunity. Furthermore, it is an approach which conforms to the long-standing practice of taking into account contingencies in the assessment of damages.[82]

215 Brennan J delivered a separate judgment in Sellars. He summarised the principles in this way:

Provided an opportunity offers a substantial, and not merely speculative, prospect of acquiring a benefit that the plaintiff sought to acquire or of avoiding a detriment that the plaintiff sought to avoid, the opportunity can be held to be valuable. And, if the opportunity is valuable, the loss of that opportunity is truly "loss" or "damage" ...

However, a causal relationship between the loss of such an opportunity and the defendant's contravening or tortious conduct must be proved before any issue of the assessment of the amount of the loss arises...

To prove the substantiality of a prospect of acquiring a benefit or of avoiding a detriment and what would have been the plaintiff's actions if the opportunity had been offered, it will usually be necessary to tender evidence to establish the plaintiff's objectives and the contingencies in the way of their achievement. Evidence of that kind will bear upon both the existence and the value of the lost opportunity.[83]

216 These principles were summarised by Winneke P in Price Higgins & Fidge v Drysdale,[84] in the following terms:

Where it is alleged that, as a result of negligent conduct, a plaintiff has lost a valuable opportunity, the courts have required the plaintiff to prove, in making good his or her claim, that the negligence has caused the loss of an opportunity of 'some' value as distinct from 'a negligible prospect' ...

While the plaintiff is required to prove to the appropriate standard of proof the existence of a valuable loss of opportunity and the fact that it was caused by the defendant's negligence, the plaintiff is not required to prove, on the balance of probabilities, the value or extent of the loss because of the difficulties associated with proof of past hypothetical fact situations; in those circumstances the value or extent of the loss is to be ascertained by reference to degrees of possibilities or probabilities...

Such principles appear to me to be well settled. But it is apparent from their statement that the existence of the relevant loss, be it a lost commercial-opportunity or a prospective physical injury, must be proven by evidence. It seems to me that one cannot simply assume that a plaintiff has lost a valuable opportunity because events supervening upon the defendant's conduct might suggest that such a loss has occurred. To prove that the loss has, to the requisite standard, occurred and that it has been caused by the defendant's contravening conduct, the plaintiff is required to demonstrate by evidence not only that the prospect had a real value but also that, if the true position had been disclosed, he or she would have acted to secure the benefit:

To prove the substantiality of a prospect of acquiring a benefit ... and what would have been the plaintiff's actions if the opportunity had been offered, it will usually be necessary to tender evidence to establish the plaintiff's objectives and the contingencies in the way of their achievement. Evidence of that kind will bear upon both the existence and the value of the lost opportunity.[85]

**217 I will deal first with the claim for breach of contract.

218 Applying these principles to this case, Fenridge was required to prove two elements on the balance of probabilities. First, that if the opportunity had been offered (ie, if RCA had complied with the continuing business obligation and the implied terms, in particular the allocated places term) it would have acted to secure the benefit of the opportunity. Second, that the opportunity had some value, as distinct from a negligible prospect of value.

219 As to the first element, Dr Santini's clear evidence was that he intended to cause Fenridge to exploit any realistic opportunity available to it to conduct a profitable nursing home business at the premises after the lease ended. His evidence was supported by his discussions with Mr Stephenson, detailed plans for the proposed extensions, applications to the Department, and applications for approval to construct the extensions.

220 There is an aspect of the evidence in respect of this issue which, although not relied on by RCA for this purpose, should be considered. As appears above, although not relevant or admissible to interpret the lease or determine whether the allocated places term should be implied, Dr Santini did not himself know that there was such an implied term; and so did not assert the allocated places term prior to the end of the lease. Does that circumstance mean that, in considering whether Fenridge would have acted to secure the benefit of this aspect of the relevant opportunity, the Court should conclude that it would have not been exploited by Fenridge? I think not. In my opinion, the opportunity which was lost should be defined by the full extent of RCA's breaches, including breaches of the continuing business obligation and the implied terms, in particular the allocated places term. If that term has been complied with, Fenridge would doubtless have exploited the additional opportunity it provided. It matters not that Fenridge did not assert the term at the time, as it was RCA's obligation to comply with it. This approach is consistent with the 'ruling principle' governing assessment of damages for breach of contract, that a party who sustains loss by reason of the breach is, so far as money can do it, entitled to be placed in the same position with respect to damages as if the contract had been performed.[86]

221 I turn to consider whether it has been established on the balance of probabilities that the opportunity had some value.

222 It was contended on behalf of RCA and Regis that the opportunity had no value, even if the proposed extensions be put to one side, because one or more of the obstacles facing Fenridge would have prevented it from implementing its intention to conduct any nursing home business at the premises after the lease ended. They placed principal reliance upon the following contentions: (1) at the end of the lease, Fenridge was not an approved provider, did not hold any allocated places at the premises, and did not have the Department's approval to conduct a certified and accredited residential care service at the premises; (2) any application by Fenridge for certification of its own residential care service would have been assessed on the basis that the nursing home building should meet the 'new building' requirements, and it is Fenridge's own case that a nursing home business at the premises would have been unprofitable on this basis; and (3) there is real uncertainty about the ability of the premises to be redeveloped into an aged care facility which would have been economically viable.

223 I will first consider the third principal contention relied upon by RCA and Regis, that the opportunity had no value because there was 'real uncertainty' as to whether it was economically viable. I reject that contention. Hindsight may show that the 'highest and best use' of the premises at the time was the construction of a residential apartment redevelopment, as in fact happened. But that does not mean the proposed nursing home business would not have been economically viable. Dr Santini's primary objective was to conduct such a business. Taking the evidence as a whole, I find that the opportunity contended for, if carried into effect, would have resulted in an economically viable business. Dr Santini gave evidence to this effect in his witness statement:**

At that time I was satisfied that it would make commercial sense to continue to operate a service from the premises if RCA did not stay for the longer term. There was unmet demand, as confirmed in the research I had conducted (which would later be confirmed by the Darebin Report in 2009), and strong support from some Darebin Council officers and the Mayor, who ultimately assisted Fenridge in obtaining a planning permit.

**224 Dr Santini's evidence that the opportunity would, if exploited, have resulted in an economically viable business was supported by the evidence of the expert valuer, Geoffrey Brown, who placed a high value on the premises with an attached right to conduct a 48 place residential care service.

225 In cross-examination, it was put to Dr Santini that a valuer engaged by Fenridge's bank in 2002, Robert Lister, had expressed the view that the land on which the premises were constructed was too small to accommodate the necessary building extensions to ensure compliance with the privacy and space requirements to come into operation in 2008. Further, it was put to Dr Santini that Mr Lister had expressed the view that 'alterations and extensions to the [premises] could not be economically carried out to reinstate it to contain 60 allocated places'. Dr Santini acknowledged that Mr Lister had expressed an opinion to that effect in 2002, but said that he disagreed with that opinion. Mr Lister was not called by any party to give evidence. RCA did not call evidence to support his 2002 opinion. I place no weight on that untested opinion.

226 In this regard, it must be remembered that Dr Santini intended to conduct a nursing home business on the basis of the 'existing building' requirements, and Fenridge's case is based upon the existence of the allocated places term which I have found to be implied in the lease, to the effect that RCA was obliged to transfer its 45 allocated places at the premises to Fenridge at no cost when the lease ended.

227 RCA also placed significant reliance upon Mr Brown's evidence that the viability of a nursing home service at the premises would be 'extremely questionable' if the proprietor was required to purchase allocated places rather than having places issued in annual approval rounds. This submission is met by the allocated places term.

228 I will next consider Fenridge's prospects of becoming an approved provider before the end of the lease. As appears above, its application to be an approved provider encountered some difficulties and was not finally approved until 14 March 2008, 14 days after the lease ended. RCA relies heavily upon that fact. In my opinion, however, Fenridge would have become an approved provider before the end of the lease if RCA had not breached the continuous business obligation and related obligations in the lease. My reasons follow.

229 The Department was aware of Fenridge's intention to conduct a nursing home business at the premises from the end of the lease If Dr Santini had approached the Department in late September 2007 and said that RCA was definitely ceasing its service at the premises at the end of the lease but would continue its service until that time, and that Fenridge intended to conduct its own service at the premises from that date, it is likely that the Department would have dealt with Fenridge's application for approved provider status in a timely fashion, so as to enable a smooth handover to Fenridge at the end of the lease.

230 Second, the issues relating to non-compliance at Ardmillan Place were resolved, as between the Accreditation Agency and Derby Place as proprietor of Ardmillan Place, by 10 December 2007, well before the end of the lease.[87] By this time, the Department had itself initiated a review of its deemed rejection of the application for approved provider status, thus indicating that it was open to granting the application.

231 As events transpired, because of RCA's breach of the continuing business obligation, there was no urgency for the Department to consider Fenridge's application for approved provider status. The Department knew that RCA had ceased operating the nursing home in October 2007, and so there was no possibility of a smooth handover at the end of the lease. In these circumstances, Fenridge did not press its application for approved provider status as a matter of urgency. Because RCA had closed the nursing home months beforehand, there was nothing to handover at that time and, in addition, Fenridge had lost the benefit of the existing building exemption by reason of RCA's breach of the continuing business obligation.

232 That is not to say that Dr Santini did not pursue Fenridge's approved provider application. In his letter dated 19 October 2007 to the Department, the same day that he was informed that RCA had removed the last resident from the nursing home, he stated:**

The current approved provider of [the nursing home] has opted to close its service and relocate all the residents by December 2007. The current service will cease to operate and the building will be unoccupied.

The applicant will bring forward the development of the site, and will not be required to implement OHS plans or any consultative processes to accommodate existing residents. It will open its service in accordance with the timelines and service model detailed in the application, and all other aspects of the application will remain unchanged.

233 In his witness statement, Dr Santini explained this approach in the following way:

At the time I anticipated that Fenridge would soon hear whether it had received places in the ACAR. I was concerned that [the Department] would confirm that, because the service had ceased, a new service would need to open at the Premises, which would then become a 'new building', thereby rendering all my plans redundant. However, given the amount of work, resources and planning that had gone into Fenridge's Approved Provider application, its ACAR application and the planning permits, I considered that it was best to proceed as though the premises would retain their 'existing building' status. I reasoned that [the Department] was more likely to allow the new service to use the standards of an 'existing building' if I had planning permits and allocated places ready to open.

234 Dr Santini did not, however, thereafter pursue Fenridge's applications for approved provider status and for allocated places in the 2007 ACAR round with any particular vigour. He said in his witness statement that:

I believe I could have obtained that approval earlier had I been proactive about it, but ... I did not chase [the Department] to have the application granted sooner.

**That evidence accords with commonsense and I accept it.

235 I turn to consider whether Fenridge could have obtained allocated places at the premises before the end of the lease. For the reasons given above, it was an implied term of the lease that RCA was obliged to transfer its 45 allocated places at the premises to Fenridge at the end of the lease. So Fenridge was entitled to 45 allocated places on that basis. If that was not the case, I find that Fenridge nevertheless had reasonable prospects of obtaining allocated places in the 2007 ACAR round or, if not, by obtaining access (on commercial terms) to unused allocated places held by a company controlled by him and his sister in respect of the Ardmillan Place Nursing Home. My reasons follow.

236 First, as to the prospects of success in the 2007 ACAR round, for the same reasons which I have given for finding that Fenridge would likely have obtained approved provider status before the end of the lease if the continuous business obligation had not been breached, there were good prospects of Fenridge obtaining allocated places in the 2007 ACAR round if that were necessary. There is no reason to infer that, for some reason not given in evidence or relied on in the submissions, there was no need for nursing home places in the Preston area. To the contrary, Dr Santini said in his witness statement that, from a review of the local council's website, he understood there was a 'bed shortage' in the area of the nursing home. If there were residents who wished to stay on at the premises after the end of the lease, it is unlikely that the Department would have, in effect, forced them to move because it was not prepared to grant Fenridge allocated places.

237 Second, as to the prospect of obtaining allocated places from Ardmillan Place, I find that Fenridge had good prospects. Dr Santini gave evidence that the Department does not like allocated places being unused or 'warehoused' for long periods, and that the Department encourages approved providers to utilise their unused allocated places; if necessary by transferring them to other approved providers who have a use for them. This evidence was not in contest.

238 Dr Santini gave evidence that Fenridge had a 'back-up plan' to utilise some of about 75 allocated places held by Derby Place in respect of Ardmillan Place nursing home service but which were not being used:**

Given the risk that Fenridge might not have been granted places before the expiry of the lease or until a later ACAR [round], Fenridge's back-up plan was to apply to transfer places belonging to Derby Place to Fenridge. Derby Place had around 75 allocated places potentially available for transfer and [the Department] had said to Derby Place that it would prefer those places to be occupied. The Act permits the transfer of places from one location to another within the same State. Prior to finalising the ACAR [application] I spoke to [Department] officers who told me that it would be reasonably straightforward to transfer places from Derby Place's service at 'Ardmillan Place' in Moonee Ponds to a service at the premises. I was told that it required the completion of a form and that the process would take approximately 60 days.

**239 In cross-examination, RCA did not challenge Dr Santini's evidence that Derby Place had unused allocated places which could be transferred to Fenridge if needed. The cross-examination was directed to this issue - that Dr Santini later fell out with his sister, who was the other director of Derby Place and owned the other 50 per cent of its shares, and the availability of the unused allocated places for transfer was thus open to doubt. Dr Santini frankly admitted that he had a falling out with his sister and that, commercially, they have gone their separate ways. The evidence establishes, however, that Dr Santini resigned as a director of Derby Place on 3 April 2009, more than a year after the end of the lease.

240 Based on the above evidence, I find that there was a reasonable prospect that Fenridge could have obtained, at least in the short term while other avenues were explored, allocated places from Derby Place (on commercial terms) to enable it to commence operating a residential care service at the premises from the end of the lease.

241 For the above reasons, Fenridge, or a new lessee, had good prospects of becoming an approved provider with allocated places at the premises before the end of the lease. On that basis, I proceed to consider whether Fenridge, or a new lessee, could have obtained certification and accreditation for the residential aged care service that it intended to conduct at the premises after the end of the lease and, if so, whether the certification would have been on the basis that the nursing home building would be assessed as an existing building. In order to determine these issues, it is first necessary to consider the statutory regime in some detail.

242 The principal object of the Aged Care Act is to provide for Commonwealth Government funding of aged care services which are of appropriate quality and, by reason of the government funding, affordable by those who need aged care.[88] In order to qualify for government funding, the proprietor of an aged care service must be an 'approved provider', hold an 'allocated place' for each care recipient in respect of which funding is paid, obtain certification of the residential care service to be provided, and the residential care service must meet the 'accreditation requirement' under the Act.[89]

243 An approved provider can only charge residents accommodation charges in respect of a residential care service which has been certified under pt 2.6 of the Aged Care Act. In considering an application for certification of a residential care service, s 38-3 of the Aged Care Act requires the Secretary to the Department to have regard to the standard of the buildings and equipment used in the service, the standard of the residential care being provided and, if the applicant has been a provider of aged care, its previous compliance with its responsibilities and obligations under the Act. The Secretary may also consider any other matters specified in the Certification Principles 1997 made pursuant to s 96-1 of the Act. The Certification Principles list generic factors to be considered in assessing whether buildings used to provide residential care services should be certified - in particular as to compliance with building standards, fire hazard standards, other safety standards and facilities relating to the enjoyment by aged care recipients of the buildings, including the need for adequate privacy, freedom of movement, heating, cooling, lighting, ventilation and access to community services.[90]

244 The Certification Principles do not, however, contain any standards or criteria relating to the standard or quality of care to be or being provided at the service. The principal stage at which the Department considers the standard or quality of care to be or being provided by a residential care service is during the accreditation process.

245 By s 42-1 of the Aged Care Act, Government subsidies are only payable to approved providers of certified residential care services which meet the 'accreditation requirement' applying to the service from time to time. The process by which a service is accredited is described in the Accreditation Grant Principles 1999 made under s 96-1 of the Act. The details of what is required to be considered as part of the accreditation process are set out in the Quality of Care Principles 1997 made under s 96-1 of the Act. They prescribe 'Accreditation Standards' and 'expected outcomes' concerning management systems, health and personal care, resident lifestyle, physical environment and safety issues. None of these accreditation standards or expected outcomes addresses the specific terms of the privacy and space requirements which, as discussed below, constitute the principal difference between the requirements for assessment of nursing home buildings as new buildings or existing buildings.

246 Nor, apart from a generic description (with some examples) of the aspects of the building quality which must be evaluated as part of the certification process, do the Certification Principles contain any detail of the standards or criteria for assessment of building quality or attributes. Instead, s 8.13 of the Certification Principles provides that the Secretary may approve a method of evaluation for assessment. Section 8.13 provides:**

8.13 Aspects of residential care services to be assessed

The Secretary may approve a method of evaluation for an assessment only if the evaluation deals with the following aspects of the residential care service:

(a) whether the service provides a secure and safe environment for residents and staff;

(b) the exits from the service (for example, the number of exits, their width, and how they are identified);

(c) whether the service has adequate smoke-free compartments;

(d) whether the service has:

(i) adequate fire protection (for example, fire detectors, alarms and fire fighting equipment); and

(ii) appropriate emergency evacuation systems;

(e) whether there are any hazards within or outside any of the buildings;

(f) whether the service provides adequate personal privacy to residents (having regard to, for example, the number of beds in each room);

(g) whether the buildings have adequate facilities to enable residents to move freely within the buildings (for example, ramps, rails, and lifts);

(h) whether the buildings have adequate heating and cooling facilities;

(i) whether the buildings have adequate lighting and ventilation;

(j) whether the service provides a home-like environment;

(k) whether there is access to community services (for example, public transport, banks, medical care, pharmacies, shopping centres).[91]

**247 The Secretary has approved a method of evaluation for assessing whether the buildings used to provide a residential care service meet the Certification Principles. This has been done by two Department publications: (1) an 80 page document titled 'Building Quality for Residential Care Services - CERTIFICATION' (the 'Building Certification Guide'); and (2) the 'Aged Care Certification Assessment Instrument - November 2002' (the 'Building Assessment Instrument'). Both documents relate to the buildings used in the provision of residential care services, and not to the standard or quality of the care provided in those buildings. The aim of the documents is 'to provide a nationally consistent policy on certification' of nursing home buildings.[92] This is achieved by using the Building Assessment Instrument to 'score' the relevant buildings, by reference to the policies stated in the Building Certification Guide. Importantly, the space and privacy requirements for residential aged care buildings are assessed by the Department according to whether the buildings are classified in the Building Certification Guide as 'existing buildings' or 'new buildings'.

248 The Building Certification Guide has different space and privacy requirements for new buildings and existing buildings. New buildings are required to have:

(2) an average of 1.5 residents per room across the whole building;

(4) no more than four residents per shower or bath.[93]

249 Existing buildings are required to meet lesser standards of space and privacy:

(3) no more than seven residents per shower.[94]

250 The Building Certification Guide defines an existing building as any building used to provide government-funded residential aged care services which is not defined as a 'new building',[95] and defines a new building in the following terms:**

For the purposes of the privacy and space requirements of the certification program, 'new' buildings may be defined as:

(a) a building(s) constructed for the purposes of providing Australian Government-funded residential aged care services, including where the new building(s) is constructed to replace an existing residential aged care service (and not including extensions to existing buildings).

(b) a building(s) that is acquired for the purposes of providing Australian Government-funded residential aged care services that has not previously been used for that purpose, including where the acquired building(s) is to replace an existing residential aged care service.

(c) a building(s) that is acquired for the purposes of providing Australian Government-funded residential care aged services that has previously been used for that purpose, including where the acquired building(s) is to replace an existing residential aged care service but the building was used by a service that:

1. was not certified; or
2. had been certified, but whose certification had lapsed or was revoked; or
3. had ceased to use the building to provide Australian Government funded residential aged care before it was acquired by the current service.[96]

**251 The nursing home building at the premises met the existing building requirements but not the new building requirements. The extensions proposed by Dr Santini were designed to meet the existing building requirements only, as permitted by paragraph (a) of the definition of new buildings. As I have said, Dr Santini acknowledged that Fenridge could only conduct a profitable nursing home business at the premises if the buildings, and any proposed extensions, were assessed as existing buildings. In this context, Fenridge pleaded that, if RCA had not breached the continuing business obligation and related obligations, it could have continued the same residential care service that RCA had been operating at the premises, and thus would have retained the benefit of RCA's certification status for its service - on the basis that the nursing home buildings had been assessed according to the existing building requriements.

252 Dr Santini gave evidence that he at all times believed that this process was in accordance with the provisions of the Aged Care Act, and that he intended Fenridge would act in accordance with it. To his mind, the same service would continue with a change of provider, albeit with a 'new service delivery model'.

253 If Dr Santini had that understanding, he was wrong. Indeed, later in his cross-examination, he appeared to acknowledge that a new approved provider cannot 'inherit' the certification status of the earlier approved provider. If Fenridge (or a new lessee) wished to conduct a government-funded nursing home business at the premises after the lease ended, the Act required it to do more than become an approved provider holding allocated places. It also needed to apply for and obtain certification and accreditation of its own new and separate residential care service at the premises.

254 Having considered the evidence as a whole, I reject Dr Santini's evidence that he believed Fenridge or a new lessee could continue RCA's residential care service at the premises. Contemporaneous documents show that Dr Santini knew that this was not possible. For example, in Fenridge's application for allocated places in the 2007 ACAR round, made in June 2007, he made a number of statements which are consistent only with a belief that Fenridge needed to obtain certification and accreditation for its own new service to commence when the lease ended, and intended to make such an application. Dr Santini variously stated that Fenridge 'will provide a new service' when RCA ceases its service at the end of the lease, that it intended to offer continuing care to existing residents who chose to remain at the premises after the lease ended 'as part of the new service that we are proposing', and that RCA was terminating its service at the premises. More specifically, Dr Santini stated in Fenridge's application that he intended to obtain certification for Fenridge's service at the premises in two stages, to accommodate the planned building works:**

Certification is a two-step process. Step 1 can be obtained in December 2007 and involves certification for 30 beds in that portion of the existing building that will continue to be occupied during the works. Step 2 is the final certification of the facility for 48 residents (21 months from date of allocation), when the building works are completed.

**255 Dr Santini's understanding that certification was required in order for Fenridge to conduct a nursing home business after the lease ended is further evidenced by the draft variation of lease dated 31 July 2007 prepared by his solicitors and presented to RCA. In that draft, Fenridge sought to insert a new clause 8.2 in the lease, recording that Fenridge intended, by 31 December 2007, to become registered as an approved provider, to obtain 30 allocated places at the premises and to apply 'to obtain certification of the premises in accordance with the Certification Principles' made under the Aged Care Act.

256 Moreover, the evidence discloses that Dr Santini was familiar with the statutory framework of the Act and its requirements. He had prior experience at Ardmillan Place and wrote in his application for Fenridge to become an approved provider that he had been 'directly involved in all aspects of care provision including certification, accreditation and the day to day delivery of care in an approved aged care service'.

(1) Fenridge could not have continued RCA's service;

(2) Fenridge needed to apply for and obtain certification and accreditation of its own new and separate residential care service at the premises in order to be able to conduct a government-funded nursing home business at the premises when RCA's service ceased; and

(3) Fenridge's applications for certification would be assessed on the basis of the new building requirements.

258 In its final submissions, contrary to its pleadings and Dr Santini's evidence, Fenridge appeared to accept propositions (1) and (2) in RCA's defence, but contended that it did not matter whether Fenridge's proposed service was a 'new service'. For the reasons given above, I accept propositions (1) and (2). For the reasons given below, I accept Fenridge's final position - that it doesn't matter whether Fenridge's service would have been a new service, because, if RCA had complied with the continuing business obligation, Fenridge's application for certification would have been assessed by the Department on the basis that the nursing home building at the premises was an existing building.

259 The opportunity to have the building assessed as an existing building was lost when RCA ceased providing any residential aged care services at the premises before the end of the lease. At that time, Fenridge was not an approved provider and so could not conduct a government-funded residential aged care service. As a result, Dr Santini was forced to abandon his intention that Fenridge would conduct a profitable nursing home business at the premises after the end of the lease, and to instead cause Fenridge to undertake the apartment development.

260 RCA and Regis contend that, even if Fenridge or a new lessee had been an approved provider with allocated places at the premises when the lease ended, it would have been required to comply with the 'new building' requirements set out in the Building Certification Guide, because it was seeking certification of a new service which was separate from the service previously conducted by RCA at the premises. This submission was not supported by any analysis of the words of the definitions of 'new building' and 'existing building' in the Building Certification Guide. Rather, RCA and Regis relied upon statements made by a Department employee, Ms Carmel Corsetti, in an email sent to Dr Santini on 15 December 2008, when Dr Santini was seeking written confirmation from the Department to support Fenridge's case that it could have obtained the benefit of the existing building exemption if there was a continuous residential care service conducted at the premises; or, to put it another way, on the basis that there was a 'seamless handover' from RCA to Fenridge or a new lessee at the end of the lease.

261 In her email, Ms Corsetti described Fenridge's intention to rely upon the definition of 'existing building' as a desire to 'inherit' the previous certification of RCA's service. To Ms Corsetti's mind, this was 'an elaborate contrivance'. Ms Corsetti said in her email:**

In any event, there would be nothing to be gained by an elaborate contrivance designed to enable a service to, as it were, 'inherit' the certification status of another service, even if this were possible. The Secretary may, at any time, review the certification of a residential care service (see section 39-4 of the Act) and it would clearly be appropriate for the Secretary to do so in such circumstances. Any review would include an assessment of the standard of the building and equipment using the certification instrument that is current at the time of the review.

**262 Fenridge contended that Ms Corsetti's comments were directed to an attempt by Fenridge to then avail itself of the existing building exemption, as part of a new service to commence at about that time. I reject that submission. That possibility had been canvassed in earlier correspondence with another Department employee and resolved by agreement that Fenridge could not, in effect, obtain 're-certification' of the premises as an existing building - because RCA had ceased conducting its service well before that time.

263 Ms Corsetti's email does not, however, have the meaning contended for by RCA and Regis: that in her view any certification application by Fenridge before the end of the lease, for the purpose of being able to accept a seamless handover from RCA's service at the end of the lease, would have been assessed on the basis that the 'new building' requirements applied. Reading the correspondence as a whole, Ms Corsetti was in my opinion confused as to the hypothetical situation put forward by Dr Santini. She seems to have thought Dr Santini was at that time contending that Fenridge did not need to apply for certification of its own separate service, but could acquire ('inherit') RCA's certified service in some way by a seamless handover of RCA's service. That understanding was incorrect, probably because Dr Santini's hypothesis was confusing. Dr Santini expressed his hypothesis as follows:**

Fenridge's proposed course of action in 2007 was as follows:

1. The pre-existing approved provider continues to operate a residential care service at the premises with all proper certifications and registration in place in a building acquired by Fenridge in 1993; and

2. Fenridge or a nominated approved provider having applied for and obtained the allocation of places and certification of the service, commences its aged care service prior to the lapsing or revocation of the pre-existing service's certification.

Question: If Fenridge had followed the course of action that we described, then could Fenridge's service at PNH have been conducted in an 'existing building'?

Fenridge wishes to clarify its position on other matters raised in your correspondence.[97]

**264 This hypothesis involved Fenridge applying for and obtaining its own allocated places, and certification of its own service, prior to and in anticipation of RCA's service lapsing at the end of the lease, so that a smooth handover could take place from one service to the other. But the hypothesis was confused by the reference to Fenridge's service commencing prior to RCA's service lapsing, and there had been some earlier confusing correspondence from Dr Santini to other Department officers. In my opinion, all of this caused Ms Corsetti to misunderstand the hypothesis. Viewed in that context, Ms Corsetti's statement does not bear the meaning asserted by RCA and Regis. Ms Corsetti said only that Fenridge would have been required to obtain certification of its own service before handover from RCA's service; that, in assessing Fenridge's certification application, the Department would assess the nursing home building using the current certification instrument; and that instrument would also apply to any review of Fenridge's certification once obtained. If Ms Corsetti did understand Dr Santini's hypothesis, her description of the proposed course of action as 'an elaborate contrivance designed to ... "inherit" the certification status of [RCA's] service' was wrong.

265 On this basis, Ms Corsetti's email is irrelevant to the issue for determination. So, the definitions of 'new building' and 'existing building' remain to be interpreted by the Court.

266 The structure of the definitions is simple enough. A building which is not a 'new building' is treated as an 'existing building'. Paraphrasing the definition of new buildings, they include:

(a) buildings constructed for the purpose of providing a government-funded residential aged care service, but 'not including extensions to existing buildings';

(b) a building which is acquired for the purpose of providing government-funded residential aged care services where the building has not previously been used for that purpose; and

(c) buildings acquired for the purpose of providing government-funded residential aged care services which have 'previously been used for that purpose' (emphasis added), including buildings previously used by services in three particular fact situations.

In my opinion, a building is 'acquired' for the relevant purpose whenever a new approved provider takes possession of it for that purpose - including a new lessee or an owner resuming possession at the end of a lease, as in this case.

267 Does paragraph (c) of the definition include a building which is being used for the purpose of providing government-funded residential aged care services up to the moment of acquisition, where there is a simultaneous handover to another certified service? I think not. In my opinion, reading the definition as a whole, a building which is being used to provide government-funded residential aged care services at the time of acquisition is not a building 'that has previously been used for that purpose'. If that were the case, then the inclusions at the end of paragraph (c) of the definition would be otiose. The inclusions address the transfer from an existing residential aged care service to a new service where the existing service was not then in receipt of government subsidies: because it was not certified, had been certified but its certification had lapsed or was revoked, or the building had ceased to be used for the purpose of providing government-funded residential aged care services before it was acquired by the new service. These inclusions would have been unnecessary if it was intended that a simultaneous transfer from an existing certified service to another service would render the building from which the services are provided a new building for the purposes of the definition. There is no reason to suppose that this was intended. Indeed, the Building Certification Guide refers to amendments having been made to the definition of new and existing buildings for the purpose of allowing 'more residential aged care services to be considered as "existing" and therefore meet different requirements for privacy and space than "new" buildings'.[98]

268 This does not mean that the new service will 'inherit' the certification status of another service. Before the simultaneous handover, it would still be necessary for the proprietor of the new service to obtain its own certification and accreditation in accordance with the Act and the Principles made under it. For example, this would involve consideration of the character, capability and history of the applicant and that of its key personnel. But the assessment of the nursing home building is not, according to the definition in the Building Certification Guide, related to the personal attributes of the proprietor of the new service. The Department would be required to assess the building on the basis of the definition; both at the certification stage and if, as Ms Corsetti threatened in her email, the Secretary decided to review the certification of Fenridge's service once obtained.

269 In written final submissions, RCA and Regis contended also that the premature closure of the nursing home did not 'necessarily' have the consequence that Fenridge could not apply to have the building assessed as an existing building when it regained possession at the end of the lease. They relied upon a Department policy that exceptions may be made 'in a small number of cases' for buildings, which would otherwise be assessed as new buildings, to be assessed as existing buildings where it is demonstrated that a higher number of residents per room 'is culturally appropriate on an ongoing basis'; and on evidence from Dr Matotek that she and Dr Santini intended to adapt the premises for purposes including care for Aboriginal and Torres Strait Islander residents who may benefit 'from being together for cultural reasons'. I am satisfied that this aspect of Fenridge's intentions was not its dominant business model and was unlikely to have provided a sound basis for it to obtain certification of the whole of the building as an existing building on that basis, notwithstanding the cessation of a government-funded nursing home business at the premises months before the end of the lease.

270 In my opinion, Fenridge had good prospects of having the nursing home building assessed on the basis that it was an existing building, but lost that opportunity when RCA breached the continuous business obligation and ceased to use the building to provide government-funded residential aged care services at the premises before the end of the lease.

271 I turn to consider the value of that opportunity.**

If Fenridge has lost a valuable opportunity, what was the opportunity worth?

**272 In my opinion, the opportunity had significant value. My reasons follow.

273 Before considering the value of the lost opportunity, it is first necessary to deal with an anterior issue. Fenridge contends that its damages should not all be assessed on a loss of opportunity basis. It contends that its damages for breach of the continuing business obligations should be assessed by valuing three separate elements of its claim:

(1) First, the difference between the value of the premises at the end of the lease: (a) with an attached right for Fenridge or a lessee to conduct thereon a 48 place nursing home service receiving Commonwealth Government subsidies under the Aged Care Act, and with the buildings being assessed as existing buildings; and (2) without those rights but with the potential to develop the premises for apartments or other like use, as in fact happened. I will refer to this aspect of the claim as a 'diminution in value' claim.

(2) Second, the additional value of the lost opportunity to redevelop the nursing home premises into a 60 place residential aged care service, on the basis that the extended building would be assessed as an existing building.

(3) Third, the value of the lost opportunity to further redevelop the nursing home premises into a 75 place residential aged care service, again on the basis that the extended building would be assessed as an existing building.

274 I will first consider the diminution in value claim. Where a defendant's wrong causes a plaintiff to purchase an asset for more than it is worth, the usual measure of damages is: (1) the amount by which the purchase price exceeds the 'real value' of the asset at the time of purchase; and (2) any consequential losses which the plaintiff proves.[99] In assessing the 'real value' of the asset, subsequent events should be considered, provided they arise from causes 'inherent in the thing itself'.[100] But, even in purchase cases of this kind, the usual measure is 'not universal or inflexible or rigid',[101] because that measure 'is only a means of giving effect to the overriding compensatory rule'.[102] If the ordinary measure is for some good reason inapposite in the facts of a particular case:**

the court is entitled simply to assess the loss flowing directly from the transaction without any reference to the date of transaction or indeed any particular date. Such a course will be appropriate whenever the overriding compensatory rule requires it.[103]

**275 It was submitted on behalf of Fenridge that this measure of damages should be applied in this case. This submission treats the value of the premises, with the rights contended for, as equivalent to a price paid for the premises. I do not accept that this is the correct way to approach the assessment of damages in this case. Fenridge did not purchase the premises as the result of a wrong by RCA. In my opinion, on the facts here, all of Fenridge's damages should be assessed on a loss of opportunity basis. That approach is in accordance with the statements from Sellars and Price Higgins set out above. If the first aspect of the damages claims is assessed on a diminution in value basis, there is a risk that Fenridge will be over-compensated,[104] contrary to the 'overriding compensatory rule' governing damages awards.[105]

276 The first step in assessing the value of a lost opportunity is identification of the opportunity. I accept Dr Santini's evidence that he intended to proceed in the following manner at the end of the lease ('the opportunity'):

(1) achieve a seamless handover of the nursing home business to Fenridge at the end of the lease, with 45 allocated places;

(2) conduct Fenridge's service until about November 2008 on the basis that no new residents would be accepted; so that, as residents vacated or died, there would be a reduction by 'natural attrition' to 30 residents;

(3) conduct Fenridge's service with 30 residents while undertaking the proposed 60 bed extension and refurbishment of the nursing home buildings - a process expected to take until about December 2009;

(4) following these steps, for Fenridge to be the proprietor of a 60 place nursing home which it could operate, lease or sell.

277 As to Fenridge's claim that it has lost an opportunity to further expand the premises to accommodate 75 residents, I am not satisfied that Fenridge has established that it would have exploited this opportunity. The evidence is simply too vague and unsupported by any contemporaneous documents or conduct. In his witness statement, Dr Santini said only that he 'investigated the likelihood' of increasing the number of residents to 75 allocated places. He did not say what those investigations involved or what conclusions, if any, he reached as to the costs, the feasibility or profitability of a 75 place service at the premises. There is no evidence of the investigation; in particular, no plans were ever drawn and no planning or building permits were ever sought - as with the proposal for a 60 place service. In cross-examination, Dr Santini gave general evidence that the 75 place claim was based on a number of (unidentified) 'iterations' of plans for the 60 place extensions, which were based on an 'economic model which would allow [Fenridge] to operate a 75 place concessional service'. The 'economic model' appears to have been Dr Santini's desire to fully exploit the existing building assessment of the nursing home buildings and proposed extensions. In final submissions, Fenridge contended that it would have been possible to adapt the 60 place plans to include one more toilet and one more shower, and that those additions would have satisfied the privacy and space requirements for a 75 place service in existing buildings. Dr Santini gave no evidence that he intended such a course.

278 A lost opportunity may be so certain that it should be valued at 100 per cent of its full value.[106] Fenridge contends that the opportunity was such an opportunity. RCA and Regis contend that there were so many contingencies in Fenridge's way that the opportunity was valueless, and the claim therefore falls at the first hurdle.

279 In order to determine the rival submissions, it is necessary to again consider the various hurdles which Fenridge had to cross in order to avail itself of the opportunity:

(1) Fenridge needed to become an approved provider. If RCA had complied with the continuing business obligation, the implied terms and other related obligations, the above reasons show that the Department would likely have granted Fenridge's application to become an approved provider before the end of the lease.

(2) Fenridge needed to obtain allocated places. The implied term placed an obligation on RCA to transfer its 45 allocated places to Fenridge at the end of the lease. For the reasons given below, the remaining 15 places would likely have been obtained.

(3) Fenridge needed sufficient time to apply for accreditation and certification of its proposed service. In my opinion, it had enough time. On the assumption that RCA was intending to comply with the continuing business obligation, it would likely have told Dr Santini on his return from holidays in early October 2007 that it had decided not to extend the lease until November 2008. It would have been reprehensible commercial conduct for it not to have done so, given its decision not to extend the lease and Dr Santini's expressed intention to take steps enabling Fenridge to conduct a nursing home service at the premises after the end of the lease. RCA did not call evidence that it would not have told Dr Santini of its intention by this time. Accordingly, Dr Santini would have had nearly five months to pursue Fenridge's applications for certification and accreditation in anticipation of a smooth and simultaneous handover of the premises, residents and any staff who were present at the end of the lease.

(4) Fenridge's applications for certification and accreditation needed to be granted. In my opinion, for the reasons given below, this hurdle would likely have been crossed.

(5) Fenridge needed the Department to assess the nursing home buildings as existing buildings. For the reasons given above, this hurdle would likely have been overcome.

280 In my opinion, Fenridge's prospects of successfully obtaining certification and accreditation were good. From the applications for approved provider status and for allocated places in the 2007 ACAR round, the Department was aware of its intentions to conduct a nursing home business at the premises from the end of the lease. Dr Santini is and was a Doctor of Medicine, as is his wife, Dr Matotek. Both of them had experience in aged care. They were appropriate key personnel for an accredited service, as evidenced by the (albeit belated) approval of Fenridge as an approved provider on 14 March 2008, and the fact that Dr Santini had been a key personnel at Ardmillan Place for many years.

281 The Department would have considered the standard of care to be provided by Fenridge in the course of the accreditation process. Under the Accreditation Grant Principles 1999 all residential care services are required to meet the Accreditation Standards on a continuous basis once accreditation has been obtained, and the application for accreditation of the service is assessed on the basis of those standards. The Accreditation Standards are contained in schedule 2 to the Quality of Care Principles 1997, which deal with the following matters:**

(a) management systems, staffing and organisational development;

(b) health and personal care;

(c) resident lifestyle;

(d) physical environment and safe systems.[107]

**282 The Accreditation Standards deal with a combination of matters. Some of those matters are capable of being assessed by the Department before the commencement of the service, and others can only be assessed and monitored as part of the ongoing system of oversight by the Accreditation Agency. For example, before accreditation, the Department can assess the proposed management, health care, communication and other systems, programs and policies, and whether key personnel and staff are appropriately skilled and qualified. The other standards relate to performance issues in the conduct of the service once accredited, including continuing assessment by the Accreditation Agency as to whether a number of expected outcomes relating to resident care and well-being are being achieved.

283 Fenridge did not call evidence specifically directed at this issue, probably because it alleged in its pleadings that it intended to conduct the same (accredited) service as previously conducted by RCA. In my opinion, however, the Court nevertheless has sufficient information to assess the likelihood of it obtaining accreditation. As appears above, Dr Santini had previous experience as a key personnel at Ardmillan Place, an accredited service, and Dr Matotek was also well qualified to act as a key personnel in the conduct of Fenridge's proposed service. I am satisfied that Fenridge had good prospects of obtaining accreditation for its proposed service. In this regard, I note the evidence referred to above that, although the Accreditation Agency found on a review that RCA failed 18 of the 44 expected outcomes under the Accreditation Standards at the premises, RCA nevertheless maintained its accreditation for its service at the premises while those issues were resolved - albeit with a reduced period of accreditation.

284 For the above reasons, I reject RCA and Regis's contention that the opportunity would have failed at the first hurdle. I accept that Fenridge would have faced some risks in dealing with the Department, but do not think that they were significant risks in all the circumstances. I have considered the possibility that the Department would act irrationally and depart from its own definitions of new and existing buildings - for example, by insisting on the views expressed by Ms Corsetti. I do not think this was a real risk, as Ms Corsetti's views were expressed in the context of Dr Santini's troublesome attempts to have the Department enter into the dispute, were based on a misunderstanding of the hypothesis put forward by Dr Santini or, if not, were clearly wrong. If the matter had been presented to the Department as a routine simultaneous handover of a service, as it should have been if RCA had complied with the continuing business obligation and the implied terms, there is no reason to think that the Department would have stood in the way of that kind of handover.

285 The second and third aspects of the opportunity would have presented challenges for Fenridge, but I see no significant risk that they could not have been achieved. Dr Santini's estimate that 'natural attrition' would result in 30 residents at the premises by about November 2008 was not challenged and, based on his experience, I accept it. Nor was there challenge to his estimate that the extension and refurbishment works would take about a year. That period appears to be objectively reasonable. The likelihood is that the works would have taken that long because of the need to perform them while there were 30 residents occupying the premises. This process would have had its challenges, but Dr Santini said that it was his intention for the works to be performed 'sequentially and slowly' so as to minimise disruption to residents. I accept that evidence.

286 Before commencing a 60 place service at the premises, Dr Santini would have needed to obtain another 15 allocated places. Fenridge's damages case is based on it obtaining those places for no consideration, pursuant to applications in the 2008 or 2009 ACAR rounds conducted by the Department. Given Dr Santini's evidence that there was a demand for high care places in the area surrounding the nursing home, I find that Fenridge had good prospects of obtaining these 15 places without having to lease or purchase them from another approved provider. This could not be guaranteed, however, and some risk on this account should be taken into account in assessing Fenridge's prospects of exploiting the opportunity.

287 I turn to consider the full value of the opportunity. In the course of doing so, some other risks facing Fenridge achieving that full value will be mentioned.

288 In my opinion, the full value of the opportunity is represented by the following components:

(1) the net income which Fenridge would have earned from its service in the period from the end of the lease to November 2008, while the number of residents was reduced to 30. I require further evidence and/or submissions from the parties on this issue;

(2) the net income that Fenridge would have earned from its service in the period from November 2008 until December 2009, while the proposed extensions and refurbishment of the premises were taking place with 30 residents in occupation. Again, I require further evidence and/or submissions on this issue; and

(3) the value of a 60 place residential care service at the premises in January 2010, once all of the extensions and refurbishments had been completed, 15 further allocated places had been obtained and the 60 place service had commenced operation. On this issue, there is evidence as to the value and associated risks.

289 Fenridge called a valuer, Geoffrey Brown, who valued a government-funded 60 place residential care service at the premises in January 2010 at $133,000 per place, a total of $8 million.[108] Fenridge acknowledges that it must give credit against that valuation for a number of amounts:

(1) $1,525,000 - Mr Brown's valuation of the premises in the absence of any associated entitlement to conduct a residential care service thereon. On this basis, Mr Brown stated that the highest and best use of the premises was for residential development purposes, and valued them at $1,525,000 for that purpose.

(2) $480,000 - Mr Brown's valuation of the business included $480,000 for furniture and equipment;

(3) $900,000 - the costs of the proposed extensions and refurbishment; and

(4) $150,000 - the fit-out costs associated with a further 15 beds at the premises.

290 When these deductions are made, Fenridge's full claim on this aspect is reduced from $8 million to $4,945,000.

291 RCA and Regis did not directly challenge Mr Brown's valuations. Nor did they contend that other items should have been deducted to reach a net claim. Their challenge was to the assumptions made by Mr Brown in his valuation report, and other assumptions in the other adjusting items. Before considering these matters, it is important to note that RCA and Regis did not call any contrary valuation evidence, or evidence directly challenging the questioned assumptions or adjusting items. Instead they raised various risks and uncertainties attaching to this aspect of the opportunity in cross-examination. Those matters must, of course, be considered by the Court in assessing the prospects that the full opportunity would have been realised.

292 Mr Brown's key assumptions in his valuation report were as follows:

(1) The make good works required under the lease were performed before the end of the lease. That is what RCA were obliged to do, and I see no need for a reduction in Fenridge's prospects to cater for disruption to its business while the make good works were undertaken by RCA. In cross-examination, Mr Brown said that he assumed that any disruption while the make good works were undertaken would be to RCA's business during the course of the lease. Mr Brown's assumption was justified and is established for the purposes of a loss of opportunity case.

(2) The proposed extensions and refurbishment would be undertaken in accordance with existing plans for which approval had been obtained, and that certain facilities and services would be included to the 'expected standard normally associated with a refurbished facility'. This assumption extended to include an assumption that the condition of the premises after the works were completed would be 'as new', although the building would still have a 'dated appearance'.

(3) The quality of the fit-out 'would be equivalent to that of a basic comfortable aged care facility' and would cost in the order of $10,000 per allocated place.

(4) The buildings needed only to comply with the existing building requirements under the Certification Principles.

(5) Any sale of the nursing home business would be on a going concern basis.

293 I have considered the appropriateness of each of these assumptions in arriving at my overall assessment of the value of the opportunity.

294 Specific mention needs to be made of the allowance for the costs of the proposed extensions and refurbishment, in the sum of $900,000. The evidence about these estimated costs was in abbreviated form. Chris Robinson, a quantity surveyor, provided Fenridge's solicitors with an 'Indicative Cost Estimate' of $897,000 for construction costs to be incurred between November 2008 and November 2009. He was instructed to provide this estimate on the basis of a number of assumptions set out in his report. He was cross-examined about some of these assumptions and the possibility that they contained uncertainties which may have led to extra costs. It was, at least indirectly, put to him that he may have contrived his estimate. I found him an honest witness and reject any such challenge, which was not pursued in final submissions. At the end of his cross-examination, while recognising that he had not performed a detailed quantity surveying job, he nevertheless expressed the opinion that there was 'a reasonable likelihood' that his estimate would be 'somewhere near' the final costs of performing the extension and refurbishment works. There is, however, always a risk that estimated building costs will be exceeded in practice, and some allowance needs to be made for that risk in assessing the value of the opportunity.

295 Mr Robinson also acknowledged that there were certain items which were specifically excluded from his estimate, including a project contingency amount, GST, furniture, fittings and equipment and other matters. These matters must also be considered in the assessment. As to furniture, fittings and equipment, an amount of $10,000 per bed ($150,000) is included in the acknowledged deductions to be made from the full value of the opportunity. The $10,000 per bed figure is an estimate put forward by Dr Santini, based on his experience. There was no contrary evidence.

296 Doing the best I can, and taking into account the various risks and uncertainties facing Fenridge in its endeavours to achieve completion of a 60 place residential care service at the premises for the costs and in the time estimated, I assess the value of this aspect of the opportunity at 80 per cent of its full value - an amount of $3,956,000. If the allocated places term were not implied, I would have assessed this aspect of the opportunity at 65 per cent - an amount of $3,214,250.

297 As appears above, I require further assistance from the parties in order to fix the amounts for the losses of net income between the end of the lease and January 2010. In my opinion, the risks and uncertainties facing Fenridge in this respect were different than those facing it in achieving its end aim of a 60 place service at the premises. In particular, there were risks that the noise and inconvenience of the building works would lead to less than 30 residents wishing to remain at the premises throughout the works, that the Department or the Accreditation Agency would intervene to close the service for a period or periods or that the Department or Accreditation Agency would impose requirements causing Fenridge to incur costs which were not included in Mr Robinson's cost estimate. In all the circumstances, I assess the loss of net income aspect of the lost opportunity at 75 per cent of the lost income.

298 Fenridge also claims contractual interest on its compensatory damages at the rate of 18 per cent per annum, under clauses 2.23, 4.2 and 4.7 of the lease. By clause 2.23, RCA agreed to pay damages for breach of any essential term of the lease. By clause 4.2, RCA agreed to pay damages for breach of any covenant in the lease or arising from any repudiation of the lease. By clause 4.7, RCA agreed to pay interest at 18 per cent per annum on any 'moneys payable' by it under the lease. On this basis, I will include interest at that rate in calculating Fenridge's damages. I will hear the parties as to the period during which interest is recoverable and as to the amount.

299 Before leaving the value of Fenridge's lost opportunities, it is necessary to consider Fenridge's damages claim for misleading conduct by the 6 September email. Fenridge contended that if RCA had told it on 6 September that it would not extend the lease and, in addition, that it was going to terminate its service at the premises before the end of the lease, it would have then begun taking immediate steps to put itself or a new lessee in a position to conduct its own service at the premises. In final submissions, Fenridge submitted that it could, for example, have treated RCA's statement that it intended to cease its service before the end of the lease as an anticipatory breach of the continuous business obligation and, on that basis, exercised its rights of re-entry and the power of attorney in clause 6.12 of the lease. Fenridge contended that these steps would have enabled it or a new lessee to conduct a nursing home service at the premises from the time it completed those steps. The contention was not further developed in final submissions.

300 There is some support in the evidence for a finding that Fenridge may have endeavoured to exploit this opportunity. Soon after Dr Santini returned from leave in the first week of October 2007, and learned that RCA intended to cease its service at the premises before the end of the lease, he instructed Fenridge's solicitors to serve a notice under s 146 of the Property Law Act 1958 (Vic) on RCA. That notice was served by letter dated 10 October 2007, in which Fenridge's solicitors complained of RCA's threatened breach of the continuing business obligation and stated:**

If the breaches are not remedied, our client intends to re-enter the premises. Under the terms of the Lease, our client has certain rights upon re-entry pursuant to clause 6.12 of the Lease which we give notice that our client intends to exercise to protect its interests, including but not limited to the transfer of all bed licences held in relation to the facility and all related registrations that may be required by any relevant Government Statutory Authority to our client's nominee in order for it to lawfully conduct a private nursing home from the premises (clause 6.12(b)).

As soon as our client is able to effect a transfer of the bed licences to its nominee, it will take possession of the premises. Our client expects it would be in a position to do so within approximately 60 days. (Emphasis added)

**301 From the contents of this portion of the letter, it would appear that Fenridge recognised that it would have difficulty in itself becoming an approved provider in time for it be acceptable to the Department as the operator of a nursing home service at the premises, and that it would accordingly need to find an existing approved provider to lease the premises and conduct a nursing home business ('its nominee'). In addition to the probable need to locate an approved provider to lease the premises as its nominee, it is unlikely that RCA would have acquiesced in Fenridge's attempts at re-entry and exercise of the power of attorney. It is likely that Fenridge would have needed to commence legal proceedings seeking interlocutory mandatory injunctions, either requiring RCA to continue its service until the end of the lease or to permit Fenridge to re-enter the premises and exercise its rights under the power of attorney. Apart from the solicitor's letter referred to above, there is no evidence that Dr Santini would have caused Fenridge to commence any such proceedings, or as to whether he would have been prepared for Fenridge to give an undertaking as to damages. In my opinion, Fenridge has not established that it would have exploited this opportunity.

302 Moreover, had Fenridge established that it would have exploited this opportunity, it has not proved that the opportunity had other than a negligible prospect of value. In final submissions, Fenridge contended that the value of this opportunity was 'comparable' to the value of its damages for breach of the continuing business obligation and the implied terms. I do not agree. This was a different opportunity; to put itself or a new lessee (nominee) in a position to conduct a government-funded nursing home business at the premises by the time RCA ceased its service, either on the threatened date (14 December 2007) or beforehand (as in fact happened on 19 October 2007). The opportunity lost by the contractual breaches is to be assessed on the assumption that RCA had continued its service until the end of the lease and complied with the allocated places term. There were many more uncertainties facing this opportunity than those relevant to assessment of the opportunity lost by the breach of the continuing business obligation and the implied terms.

303 I will not engage in any further speculation, as the issue was not developed by Fenridge in final submissions apart from referring to the possible actions which it could have taken in the absence of the misleading conduct. In any event, there is no evidence that a new lessee from 19 October 2007 or thereabouts would have paid any greater rent than RCA in fact paid until the end of the lease. In my opinion, it has not been established that this opportunity had any real value.

304 Once Fenridge's loss of opportunity claim and interest has been fully assessed, the question remains as to whether Fenridge should bring to account the net proceeds of sale of the apartments comprising the apartment development, and the value of any unsold apartments, after deducting all development and related costs. The evidence as to the profitability of the apartment development is incomplete, but it can confidently be said that the apartment development has been successful; and it may transpire that the net sale proceeds and values exceed the value of the premises (including its development potential) as at the end of the lease, as assessed by Mr Brown. I turn to consider this issue.**

In calculating damages, must Fenridge give credit for any profit from the apartment development?

**305 RCA and Regis contend that any award of damages which the Court might otherwise have made in Fenridge's favour for breach of the continuous business obligation should take account of Fenridge's profit from the apartment development. This issue was not pleaded, as it ought to have been.[109] However, by letter dated 22 January 2003, about two weeks before the commencement of the trial, the solicitors for RCA and Regis informed Fenridge's solicitors that the defendants intended to explore at trial the extent to which any loss otherwise proved by Fenridge should be reduced by the net profit arising from the apartment development. Reference was also made to this issue in the defendants' outline of submissions, filed a few days later. The issue was raised during the course of openings, when the defendants' counsel called upon subpoenas issued to four parties to produce documents relating to the profits of the apartment development. Fenridge objected to these subpoenas, on the basis that the issue was not pleaded; and because the issue was irrelevant, as the apartment development was a collateral venture which was unconnected with the transaction at issue in the proceeding. Fenridge placed particular reliance upon the decision of the Full Court of the Supreme Court of Western Australia in Tay v Koh,[110] a case which it was submitted was indistinguishable from this case.

306 As it was clear that all of the documents were not available at trial, and the matter had not been pleaded, I determined to adopt a practical approach: the Court would consider the application for leave to amend the defence to plead the apartment profit issue as part of final submissions and, if leave were given and the Court concluded that the apartment development profits should be taken into account in assessing any damages awarded in Fenridge's favour, the Court would then consider the extent of that profit. The case proceeded on the basis that the amendment application depended on resolution of a legal issue based on the following assumed facts: (1) once it became obvious to Fenridge that it could not re-commence a nursing home business at the premises with the benefit of the existing building exemption, that option was abandoned; (2) Fenridge then considered what it ought to do with the premises; (3) Fenridge decided to pursue an apartment development with a view to making a profit above the amount likely to be received from a sale of the premises at that time; (4) the apartment development involved planning, risk-taking, financing and other development costs; (5) the apartment development has been completed, with 10 of the 21 apartments having been sold and the remainder being on the market for sale - although some apartments may be retained by Fenridge.

307 In general terms, RCA and Regis contend by their proposed amended defence that the apartment development was undertaken by Fenridge as part of its duty to mitigate its loss arising from any damage which it may establish, and that the apartment development formed part of a continuous process of evaluation of commercial opportunities for dealing with the premises after Fenridge found itself in the position that it was not economically viable for a nursing home business to be conducted at the premises.

308 I turn to consider the relevant authorities concerning this issue. The starting point is the statement of the plurality judgment of the High Court in Haines v Bendall,[111] that:**

The settled principle governing the assessment of compensatory damages, whether in actions of tort or contract, is that the injured party should receive compensation in a sum which, so far as money can do, will put that party in the same position as he or she would have been in if the contract had been performed or the tort had not been committed ... Compensation is the cardinal concept. It is the 'one principle that is absolutely firm, and which must control all else': see Skelton v Collins [1966] HCA 14; (1966) 115 CLR 94, 128 per Windeyer J. Cognate with this concept is the rule, described by Lord Reid in Parry v Cleaver [1969] UKHL 2; [1970] AC 1, 13, as universal, that a plaintiff cannot recover more than he or she has lost.[112]

**309 Next, Fenridge had an obligation to take reasonable steps to mitigate its loss.[113] Fenridge's obligation to mitigate did not require it undertake the risks associated with the apartment development. It could have chosen to simply sell the land and crystallise a loss, equal to its loss of opportunity as assessed above. The issue is whether, having decided in the ordinary and reasonable course of business to pursue the apartment development for the purpose of substantially increasing the value of the premises, the net profit from that development should be taken into account; even though there was no duty on Fenridge to undertake it.

310 It was submitted on behalf of Fenridge that it did not undertake the apartment development for the purpose of mitigating its loss of opportunity but, to the contrary, that the development was 'an independent or disconnected transaction', thus entitling it to both its full damages as assessed by the Court and to keep all of the profit of the development; subject only to the need to give credit for the undeveloped value of the premises at the end of the lease. Such a result would, in my opinion, be unreasonable, as it would result in Fenridge achieving over-compensation for the real loss caused by RCA's wrongful conduct.

311 At the heart of Fenridge's submission on this issue was the contention that the apartment development was not 'part of a continuous dealing with the situation' in which Fenridge found itself following RCA's wrongful conduct, but was in truth an independent or disconnected transaction. In this regard, central reliance was placed upon the House of Lords decision in British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd.[114] In that case, the respondent railway company purchased steam turbines and turbo alternators ('the machines') from the appellant manufacturer. The contract of sale provided that the machines would meet specifications for electricity output and fuel consumption. The machines were defective in design and efficiency and did not comply with the contract. When this became apparent, the appellant endeavoured to make alterations to improve the machines, to comply with the contractual specifcations, but these efforts were unsuccessful. After years of uneconomic operation of the machines, the respondent scrapped them and purchased new and improved machines from another supplier. The new machines were far superior and brought an end to the damage being suffered by the respondent arising from the failure of the machines supplied by the appellant. The dispute went to arbitration. The appellant claimed that unpaid balance of the purchase price for the machines. The respondent counterclaimed for the damages suffered in the period before the installation and operation of the new machines, and for the cost of the new machines.

312 The arbitrator found that the purchase of the new machines by the respondent was a reasonable and prudent course which mitigated the loss and damage which would have been recoverable from the appellant if the respondent had continued to use the defective machines in the future.[115] The arbitrator also found that the new machines were so superior to the machines supplied by the appellant in terms of efficiency and economy that, even if the machines had complied with the contractual specification, it would have been to the pecuniary advantage of the respondent to scrap them and replace them with the new machines as soon as they were available for purchase.[116]

313 In these circumstances, the appellant contended that the 'commercial life' of the machines came to an end when the respondent purchased the new machines, and that the respondent should be limited to its actual losses from operation of the machines at below specification until installation of the new machines. The respondent contended that the cost of the purchase and installation of the new machines was recoverable by them as being a necessary cost and expense incurred in mitigating their loss, which would otherwise have been greater as the machines had an expected life of 20 years and were operational for less than 10 years.

314 The arbitrator stated two questions of law for the opinion of the Court, designed to seek guidance as to which of the rival contentions should be accepted. The Divisional Court determined that the respondent's contention should be accepted, and the appellant's contention rejected. As to the profits made by the respondent by their subsequent use of the new machines, the Divisional Court held that those profits arose from transactions unconnected with the contract of sale and the respondent could not be called upon to bring them into account in the assessment of its loss.[117]

315 In determining the arbitration, the arbitrator applied the decision of the Divisional Court.

316 The appellant applied to the Court to set aside the arbitrator's award on the ground that it was bad in law. At first instance, the Court considered that it was bound by the decision of the Divisional Court, and dismissed the application. The majority of the Court of Appeal held in favour of the respondent. They agreed with the reasons of the Divisional Court, that the appellant was not entitled to have the pecuniary advantages arising from the subsequent use of the new and superior machines taken into account in the assessment of the respondent's loss.[118]

317 The House of Lords allowed an appeal. The leading judgment was delivered by Viscount Haldane LC. After noting that a successful plaintiff's obligation to mitigate his loss is limited by the standard of reasonableness in the ordinary course of business, his Lordship stated:**

But when in the course of his business he has taken action arising out of the transaction, which action has diminished his loss, the effect in actual diminution of the loss he has suffered may be taken into account even though there was no duty on him to act.[119]

318 Later, after referring to an earlier decision, Viscount Haldane stated:

... provided the course taken to protect himself by the plaintiff ... was one which a reasonable and prudent person might in the ordinary course of business properly have taken, and in fact did take whether bound to or not, a jury or an arbitrator may properly look at the whole of the facts and ascertain the result in estimating the quantum of damage.[120]

319 And later, his Lordship stated to the same effect:

I think the principle which applies here is that which makes it right for the jury or arbitrator to look at what actually happened, and to balance loss and gain. The transaction was not res inter alios acta, but one in which the person whose contract was broken took a reasonable and prudent course quite naturally arising out of the circumstances in which he was placed by the breach. Apart from the breach of contract, the lapse of time had rendered the appellants' machines obsolete, and men of business would be doing the only thing they could properly do in replacing them with new and up-to-date machines.

The arbitrator does not in his finding of fact lay any stress on the increase in kilowatt power of the new machines, and I think that the proper inference is that such increase was regarded by him as a natural and prudent course followed by those whose object was to avoid further loss, and that it formed part of a continuous dealing with the situation in which they found themselves, and was not an independent or disconnected transaction.[121]

**320 The emphasised words in the final paragraph of the above quotation formed the central plank in Fenridge's submissions on this issue. It was submitted that its actions in undertaking the apartment development were not taken with the object of avoiding its loss arising from RCA's breaches of the lease and were not part of a continuous dealing with the situation caused by RCA's breach, but should be characterised as involving 'an independent or disconnected transaction'. I do not accept those submissions, which take no account of the other emphasised words in the above quotations. In my opinion, the apartment development arose directly from and was necessitated by RCA's breaches of the lease, involved conduct designed to avoid Fenridge's losses flowing from those breaches, was the natural response of a property owner such as Fenridge to the circumstances in which it found itself, and formed part of a continuous dealing with the premises which were the subject of the lease. The apartment development was not an independent or disconnected transaction.

321 RCA and Regis placed particular reliance upon the decision of the Full Court of the Supreme Court of Western Australia in Tay v Koh.[122] They contend that the facts in that case are not relevantly distinguishable from the facts in this case and that the same result should follow. In that case, a company associated with Dr Koh purchased land in consequence of negligent misrepresentations made to it by Mr Tay. Mr Tay had represented that the land could be developed as a market, but planning permission for this purpose could not be obtained. The purchaser company was left with the land absent planning permission to develop it as intended. In these circumstances, following a consideration of its position and a lengthy delay, Dr Koh decided that the land should be developed as a shopping centre. The development was completed and profits of approximately $500,000 were realised.

322 The company sued Mr Tay for the usual measure of damages, represented by the difference between the price paid for the land and its real value in the absence of planning permission to develop the land as a market, in the sum of $185,000. There was no claim for consequential loss.

323 Mr Tay contended at the trial, and on appeal, that Dr Koh's company was obliged to bring its profit on the shopping centre development to account in extinguishment of its claim based on value difference. Both the trial judge and the Full Court rejected that argument. It does not appear as though there was any argument about whether the difference in value method was the appropriate way to approach damages in the case. This was probably because no claim for loss of opportunity or consequential losses was made.

324 The Full Court decided that the profit from the shopping centre development did not need to be taken into account in assessing damages because that development was not part of a continuous transaction commencing with the original purchase of the land, but was a collateral, independent and disconnected transaction. In doing so, the Full Court applied the decision in British Westinghouse to their view of the facts.

325 I accept that there are many similarities between the facts in Tay v Koh and those in this case. The case is distinguishable, however, because of the nature of the claim made, for inducing a purchase of the land at an over-value by negligent misrepresentation. Moreover, the result in that case depended on its facts and, as appears below, the Court of Appeal in Queensland reached a different conclusion on similar facts.[123]

326 Fenridge relies also upon the decision of the Full Federal Court in Monroe Schneider Associates (Inc) & Anor v No 1 Raberem Pty Ltd,[124] where a subsequent benefit to the successful plaintiff was treated by the Court as collateral and not part of a continuous dealing. The facts in that case are so different from those in this case that it can have no bearing on the result here. The case depended upon its facts.

327 In Manwelland Pty Ltd v Dames & Moore Pty Ltd,[125] the Court of Appeal in Queensland distinguished and disapproved Tay v Koh. In that case, the plaintiff purchased land infected with hydrocarbons with a view to conducting an industrial subdivision, developing a shopping centre, or re-selling the land after it had been cleaned up. Prior to exercising its option to purchase the land, the plaintiff obtained advice from the defendant about the costs of remediation. The advice was negligent. On the faith of the advice, the plaintiff purchased the land for the option price.

328 When the plaintiff discovered that the cost of remediation of the whole of the land would vastly exceed the amount estimated by the defendant, it determined to pursue a different course than it had intended. It subdivided the land into three lots, cleaned up lot 1, dumped the contaminated material on lot 3, and left lot 2 unremediated. It then developed a shopping complex on lot 1. By this process, the plaintiff made a considerable profit from the shopping centre complex. When that profit was taken into account, the plaintiff's loss was almost wholly extinguished. The plaintiff sued for the ordinary measure of damages, representing the difference between the price paid for the land and its true value at acquisition, a sum of $510,000. As in Tay v Koh, no substantial claim for consequential loss was made. In particular, no claim was made for the loss of opportunity to make profits from a different transaction which the plaintiff would have engaged in if it had not purchased the land. Nor was any claim made for the management time spent by the plaintiff's directors in remedying the effects of the defendant's negligence. An application to re-open the case to advance claims of these and other kinds was refused by the trial judge and on appeal.

329 Notwithstanding the similarity of the facts in Manwelland to those in Tay v Koh, the principal difference being that Dr Koh intended a specific development of the land by his company (as a market), the Court in Manwelland reached a different result. In doing so, McPherson JA (Douglas J agreeing) was critical of the approach by the Full Court in Tay v Koh.[126] In the end, however, this case also involved an application of the principles enunciated by Viscount Haldane in British Westinghouse to the facts. On the facts, the shopping complex development in Manwelland was part of a continuous dealing with the land, and the profits were therefore required to be taken into account in assessing loss. The injustice, if there be one, of the case was that the plaintiff's lawyers had failed to plead other possible heads of damage. There is no such risk in this case, where Fenridge's claims include every head of claim which could be advanced.

330 I should also mention a decision of the Full Court of the Supreme Court of South Australia in Brown v Dream Homes SA Pty Ltd.[127] In that case also, the Full Court decided that the benefits of a subsequent dealing should be brought to account in the assessment of damages. The facts of the case bear no relation to the facts in this case, Tay v Koh or Manwelland. Kourakis J (as he then was, and with whom Doyle CJ agreed) nevertheless considered Manwelland, Tay v Koh and British Westinghouse. He noted the considerable tension between Manwelland and Tay v Koh (and with the English cases). His Honour thought that the difference of opinion:**

appears to turn on the concept of 'crystallised loss' or the 'transaction date rule'. The principle underlying that concept and rule is that a readily marketable asset acquired in reliance on negligent advice should be valued at the date of the transaction for the purposes of assessing loss unless there is some special feature, like the purchaser being 'locked in' to the asset, which makes it unjust to do so.[128]

331 After referring to an English case concerning failure by a buyer to accept shares under a contract of sale for delivery on a specified date, a case which is a far cry from the facts of the present case, Kourakis J continued:

I will refer to this principle as the crystallised loss rule. The effect of the rule if it were applied in a case like Manwelland would be that a developer who decides to undertake a development of land that is worth less than the price paid for it, instead of selling it, will be required to bear any further losses incurred thereafter as a result of that decision but equally will be entitled to any profit it makes. Most would accept the proposition that a developer who was not financially locked into a development and who freely decided to proceed with it and who thereby suffered even greater losses should not be compensated for those losses by the negligent advisor. If that is so it is equally difficult to see why, in a case like Manwelland, the profit earnt because the development happened to be profitable should be offset against the difference in value at the time of purchase. Ultimately the decision in Manwelland rests on its particular facts. That was the reason given for the denial of special leave to appeal by the High Court and nothing more can safely be taken from the summary refusal of leave. The special facts of that case include the concern expressed by the Court of Appeal that the low valuation of the property accepted at trial had failed to take into account the site's full development potential, and the absence of any evidence showing that the developer would have made a greater profit on another development.[129]

**332 I do not think Kourakis J's statement that, where a development causes further losses those losses cannot be recovered, was intended to have general application. If it was, I would respectfully disagree with it. Whether or not a plaintiff was 'financially locked in to a development' is only one factor to be taken into account in determining whether further losses from a reasonably undertaken development, for the purposes of mitigating damages, may be recoverable.[130]

333 Kourakis J then considered other authorities, including Tay v Koh, and the reliance in those cases on the 'continuous transaction' approach. In his Honour's view, the continuous transaction approach 'is disconnected from any of the common law concepts governing compensatory damages [and] obviously has the potential to yield different results depending on fine factual distinctions ...'.[131] In these circumstances, Kourakis J commented that the crystallised loss approach to which he referred 'may be preferable' but that it was unnecessary to resolve the issue in that case.

334 I have considered the cases in some detail because of the submission by Fenridge that, in effect, I was bound to reach a similar result in this case to that reached by the Full Court in Tay v Koh. For the reasons given, I reject that submission. Each case of this kind must depend on its own facts.

335 In my opinion, the Court in this case should simply assess the loss flowing directly from the breaches of contract in accordance with the overriding compensatory rule. This involves valuing Fenridge's lost opportunity and taking account of the net benefits which it received from the apartment development; a development which was 'a reasonable and prudent course quite naturally arising out of the circumstances in which [Fenridge] was placed by [RCA's] breach'.[132] In these circumstances, it is in my opinion just for the Court to 'look at what actually happened, and to balance loss and gain'.[133] It is only by that method that over-compensation can be avoided and a fair and reasonable result achieved. As Hayne J said in Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd:[134]**

Reasonableness informs much of the law of contract and, in particular, the assessment of damages for breach.[135] This means, for example, that if the party wronged has acted reasonably, the wrongdoer may be liable for all the loss that the plaintiff has suffered, even if the plaintiff's conduct has increased the loss.[136] Conversely, the party wronged is not bound to take all possible steps to mitigate its loss, only those steps which are reasonable.[137]

336 I will therefore allow RCA and Regis to amend their defence to raise the issue, and give directions to enable assessment of Fenridge's net profit arising from the apartment development. Once this has been done, the Court can reach a concluded view on the amount of Fenridge's loss (if any).

Has Fenridge suffered recoverable loss for breach of the make good obligation? If so, in what amount?

**337 In summary, the make good obligation required the lessee to maintain the premises in good repair and to deliver them up to the lessor at the end of the lease in as good condition as they were at the commencement of the lease, fair wear and tear excepted. The lessee's specific obligations in this regard were as follows:

(1) During the currency of the lease, to repair, clean and maintain the premises in 'good and substantial repair, order and condition ... damage by fair wear and tear [and other matters] excepted ...' (clause 2.3.1).

(2) During the currency of the lease, to maintain all painted and papered portions of the premises in good order and condition, and to paint and/or paper those parts of the premises at the reasonable request of the lessor (clause 2.3.2).

(3) During the currency of the lease, to keep the inside and outside of the premises clean and free from dirt and rubbish (clause 2.3.3).

(4) During the currency of the lease, to give the lessor prompt notice in writing of any defect or want of repair in any services to or fittings in the premises and of any circumstances likely to cause any damage, risk or hazard to the premises when known to the lessee (clause 2.3.5).

(5) At the end of the lease, to deliver up the premises 'in a clean state and in as good repair, order and condition as at [the commencement of the lease] fair wear and tear and damage by [other specified means] only excepted ...' (clause 2.6).

338 RCA did not, during the currency of the lease, keep the premises in good and substantial repair, order and condition. To the contrary, towards the end of the lease especially, RCA allowed the condition of the premises to deteriorate to a substantial degree and did not keep the premises clean as required. Some cleaning works were done towards the very end of the lease, but the premises were otherwise delivered-up to Fenridge in a state which did not meet the description 'good repair, order and condition', even when fair wear and tear is taken into account. Fenridge contends that the cost of making the premises good is about $894,000 plus GST. RCA contends that this cost estimate is grossly exaggerated, and that its make good obligation could have been satisfied by carrying out works costing about $122,000 plus GST.

339 The estimate of about $894,000 on which Fenridge relies was prepared by a firm of quantity surveyors, Rider Levett Bucknall ('RLB'), in unusual circumstances. Dr Santini received RLB's first draft estimate of about $393,000 and made suggestions as to further items to be made good. As a result, RLB prepared a second estimate in the increased sum of $572,500. Dr Santini reviewed that estimate and suggested more items, resulting in a third RLB estimate of $898,000. Following yet further suggestions by Dr Santini, RLB prepared a fourth and final estimate of about $992,500 (since reduced to about $894,000 in circumstances it is presently unnecessary to consider). Dr Santini accepted that all of the increases were made at his 'instigation'.

340 Based on this course of events, RCA contends that RLB's final estimate should be rejected because it resulted from deliberate, dishonest and inappropriate actions by Dr Santini for the purpose of putting forward 'deliberately inflated claims', intended to deceive RCA and the Court into believing that RLB's estimate was independent, genuine and honestly arrived at. In support of this contention, RCA relied heavily on the fact that Dr Santini wrote the material substance of the executive summary at the start of RLB's final estimate. It was submitted that the inclusion of that summary was a 'deliberate intended deception'. RCA contended also that Dr Santini's involvement in the estimate was not disclosed in his witness statement and the draft estimates were not initially discovered by Fenridge. On this basis, RCA submitted that Dr Santini had been involved in 'the importuning of witnesses'.

341 In my opinion, although there is room for some disquiet about Dr Santini's involvement in the preparation of RLB's make good estimate, RCA overstates the significance of that involvement; in respect of both his credit and the ultimate findings to be made as to the scope and cost of the works required to meet RCA's make good obligation. My reasons follow.

342 First, the RLB employees who prepared the RLB estimate, David van de Staaal and Richard Price, gave evidence. Mr van de Staal prepared that part of the RLB estimate concerning building works to make the premises good. Mr Price prepared that part of the estimate concerning engineering and other services at the premises, such as lighting, air conditioning and fire detectors. RCA's principal complaint is that Dr Santini influenced Mr van de Staal's section of the RLB estimate. It was not, however, directly put to Mr van de Staal that his final estimate was anything other than a genuine estimate, albeit one which had been reviewed following suggestions by Dr Santini. Nor was it directly put to Mr van de Staal that he was subjected to or yielded to any inappropriate pressure from Dr Santini to increase his estimate.

343 Mr van de Staal was appropriately experienced to provide his final make good estimate. In his supplementary witness statement he described the process by which that estimate grew from his initial draft as a result of Dr Santini's suggestions:**

1. On 13 February 2008, I received an email from Dr Santini in response to the draft estimate. ...

(a) Dr Santini suggested some introductory paragraphs describing the job that we had undertaken. Subject to some minor changes, those paragraphs were later incorporated into the 'Executive Summary' set out in a covering letter to the estimate which was signed by Phil Robinson. I agreed with those paragraphs, which were consistent with my own observations of the condition of the Premises on the date of my inspection.

(b) Dr Santini also gave a list of items that he had been unable to locate in the draft estimate. Together with Richard Price and Phil Robinson, I considered each of those items and checked the notes and photographs from the inspection. If we considered that it was appropriate to do so, we made amendments to include the item in our estimate of make good works. I regarded this as a normal part of the process of settling the scope of works with the client. Notwithstanding the client's input into the process, it was a matter for my opinion whether the works were necessary in order to restore the Premises to a good condition in accordance with the terms of the lease.[138]

344 Earlier, in re-examination when he first gave evidence, Mr van de Staal described a similar process:

Dr Santini replied to us and said he didn't see particular items in there, so we went through those items and said yes, we recall that, or we checked with our photos and we discussed if they were genuine and if we believed they were, we included them in our estimate.

**345 I accept Mr van de Staal's evidence. I find that his make good estimate was honestly prepared and represented his own professional estimate of the scope and cost of the make good works required at the premises to comply with the lease. Whether or not that estimate should be accepted is a matter to be referred to a special referee for report.

346 Second, there is nothing in the criticism of Dr Santini for drafting the executive summary at the start of the final report. It was purely descriptive and that description was supported by other evidence. It was not put to Mr van de Staal that it was false or misleading, and, as appears above, Mr van de Staal said that he agreed with it.

347 Third, some of Dr Santini's further suggestions were derived from a list of defects dated 16 August 2007 which he prepared and gave to RCA at about that time. Out of the 68 items on the list, only four items were directly challenged by RCA as not being required. RCA reserved its position in respect of the other items.

348 In all the circumstances, I intend to refer the question of the scope and cost of the works required to meet RCA's make good obligation in the lease to a special referee or Court appointed expert.

349 Before formulating the terms of referral, it is necessary to consider whether RCA's make good obligation ceased to have any effect when Fenridge determined that it would not carry out the precise make good works which it claims but, instead, elected to pursue the apartment development. In carrying out that development, Fenridge has not conducted any of the precise make good works which were necessary to meet the contractual standard, and will never do so. In these circumstances, can Fenridge nevertheless claim the costs which would have been incurred had the works been performed? In this respect, RCA and Regis relied first on the High Court decision in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd.[139]

350 That case concerned the lease of commercial premises. The tenant covenanted that it would not make any substantial alteration or addition to the demised premises without the written approval of the landlord. The tenant breached that obligation early in the lease, by destroying the foyer of the building and substituting a new foyer to meet its requirements. The lease had many years to run. The trial judge described the tenant's conduct as involving 'contumelious disregard' for the landlord's rights and no challenge was made to that finding.[140]

351 The landlord did not terminate the lease. It sued the tenant claiming damages for breach of the lease. The trial judge awarded damages of only $34,820, representing the difference between the value of the property with the old foyer and the value of the property with the new foyer. The Full Federal Court determined that the landlord was entitled to recover much more: the full cost of restoring the foyer to its original condition ($580,000), and $800,000 for loss of rent while that restoration was taking place, even though the works would not be performed until the lease expired many years in the future. The tenant appealed to the High Court, seeking to restore the trial judge's decision. In a unanimous decision (French CJ, Gummow, Heydon, Crennan and Kiefel JJ) the High Court dismissed the appeal.

352 The following principles which are relevant to this case may be distilled from the joint judgment of the High Court:

(1) The 'ruling principle' with respect to damages at common law for breach of contract is that a party who sustains a loss by reason of a breach of contract is, so far as money can do it, entitled to be placed in the same position, with respect to damages, as if the contract had been performed.[141]

(2) The entitlement to be placed in the same situation with respect to damages as if the contract had been performed means just that. It does not mean 'as good a financial position as if the contract had been performed'.[142]

(3) It is prima facie no answer to a claim for damages on this basis that, viewed objectively, it is not to a plaintiff's financial advantage to be placed in the same situation as if the contract had been performed. It is for the plaintiff to judge whether he wants damages on that basis 'subject to the proviso, of course, that he is seeking compensation for a genuine loss and not merely using a technical breach to secure an uncovenanted profit'.[143]

(4) There is another qualification to the ruling principle, that the work to be undertaken must be necessary to produce conformity with the contractual obligation and must also 'be a reasonable course to adopt'.[144] The test of 'unreasonableness' is, however, 'only to be satisfied by fairly exceptional circumstances'.[145] For example, where a building contract required a house to be built with cement rendered external walls of second-hand bricks, but the builder used new bricks of first quality underneath the cement render. The cost of demolition and re-construction with second-hand bricks would not be a reasonable course to adopt.

353 In reliance on Tabcorp v Bowen,[146] RCA contended that, having made a decision that it would not repair the premises, but to instead proceed with the apartment development, Fenridge has suffered no loss and is merely taking advantage of a technical breach to secure an uncovenanted profit. In these circumstances, it was contended that it would be unreasonable for the Court to allow any claim for repair or reinstatement of the premises.

354 Fenridge relies principally upon the decision in Joyner v Weeks.[147] In that case, the Court of Appeal in England considered a case where the premises were left in a state of disrepair. The Court held that the 'ordinary prima facie rule' for assessment of damages for breach of a make good obligation is 'such a sum as will put the premises into the state of repair in which the tenant was bound to leave them'.[148]

355 Joyner v Weeks has some factual similarity to this case. Before the end of the lease, the landlord re-let the premises to a third person under a second lease, to commence at the end of the first lease. Under the terms of the second lease, the new tenant agreed to 'pull down and alter part of the premises'.[149] The tenant under the first lease contended that the landlord had not suffered any 'real loss', at least with regard to that part of the premises which were to be demolished by the third party under the second lease. The Court of Appeal disagreed.

356 Lord Esher MR was of the opinion that the second lease was irrelevant to the tenant's obligations under the first lease:**

In my opinion the contract between the plaintiff and the third person cannot be taken into account; it is something to which the defendant is a stranger. So, also, anything that may happen between the plaintiff and the third person under that contract after the breach of covenant is equally a matter with which the defendant has nothing to do, and which cannot be taken into account. These are matters which might or might not have happened, and, so far as the defendant is concerned, are mere accidents. The result is that there is nothing to prevent the application of the ordinary rule as to the measure of damages in such a case.[150]

**357 Lord Justice Fry emphasised that the rule was the usual, ordinary or prima facie rule, but saw nothing in the circumstances of the case to render it inapplicable.[151]

358 Both Lord Esher and Lord Justice Fry thought that the right to claim the ordinary measure of damages arose at the moment of determination of the lease.[152] They then considered whether there was anything in the circumstances of the case to defeat the application of the ordinary rule as to assessment of damages. In this regard, Lord Esher spoke in terms of the ordinary rule applying, 'unless there be something which affects the condition of the property in such a manner as to affect the relation between the lessor and the lessee in respect to it'.[153] Lord Esher did not give any examples of what he had in mind by this exception to the general rule. He could have been referring to damage to the premises by a cause not covered by the lease, which may raise issues of frustration and the like; to personal rights or equities arising between the parties to the lease; or to circumstances where the lessor has, to the lessee's knowledge, a pre-existing intention to demolish the premises at the end of the lease and in fact does so. Lord Justice Fry spoke in terms of a vested right to the ordinary measure of damages in the absence of some factor rendering that measure inapplicable. His Lordship did not, however, give any example as to what circumstances might bring about that result.

359 In Graham v Markets Hotel Pty Ltd,[154] the High Court stated that 'the general rule' for assessing damages for breach by a lessee of a covenant to deliver up the demised premises in good repair was 'settled',[155] or 'authoritatively stated',[156] in Joyner v Weeks. The High Court did not consider the circumstances in which, at common law, the general rule may be departed from. The case concerned a lease of premises in New South Wales, and was governed by s 133A of the Conveyancing Act 1919-1939 (NSW), which both established a statutory limit upon the amount of damages recoverable for breach of a make good obligation and provided a statutory exception. The section was obviously intended to abolish the effect of the decision in Joyner v Weeks. This is no equivalent statutory provision in Victoria, where the common law continues to govern.

360 The general rule stated in Joyner v Weeks was also given express approval by the Full Federal Court in the Tabcorp Holdings case.[157] In that case, all members of the Full Court referred to the decision of the New Zealand Court of Appeal in Maori Trustee v Rogross Farms Ltd.[158] Finkelstein and Gordon JJ,[159] and Rares J,[160] quoted with apparent approval the following passage from the judgment of Tippin J in the Maori Trustee case:**

The rule in Joyner v Weeks is not an absolute rule. It is, however, the prima facie rule which will be applied unless the lessee can show by sufficiently cogent evidence that in both the short and the long term the lessor will definitely suffer no loss or will suffer a loss which can definitely be assessed at less than the prima facie measure.[161]

**361 If this test is accepted as applying in Australia, the use of the word 'definitely' shows that a lessee in breach of a make good obligation has a high hurdle to cross before persuading the Court to depart from the general rule in Joyner v Weeks. Earlier in his reasons, Tippin J referred to such cases as being 'truly out of the ordinary'.[162]

362 RCA contends that the apartment development made all of the make good works claimed by Fenridge unnecessary, that none of those works have been or will ever be performed, that Fenridge's claims are therefore for hypothetical works, that Fenridge has therefore definitely suffered no loss, and that the exception expressed in Maori Trustee applies.

363 Accepting for the purposes of argument that the statement in Maori Trustee is an accurate statement of the principle to be applied, in my opinion RCA has not satisfied the heavy onus upon it to avoid the operation of the usual basis for assessment of damages for breach of a make good obligation. My reasons follow.

364 The first difficulty with RCA's submission is that it is directly inconsistent with the result in Joyner v Weeks, where the Court had definite evidence that part of the leased premises would be pulled down and rebuilt at the cost of the new lessee. The second difficulty is more fundamental. The fact that the works undertaken by Fenridge as part of the apartment development do not meet the precise description of the works required to meet the make good obligations is not, at common law, a complete answer to the claim. I say nothing about the position in jurisdictions such as New South Wales where the effect of Joyner v Weeks has been abrogated by statute.

365 In Gagner Pty Ltd v Canturi Corporation Pty Ltd,[163] the Court of Appeal of New South Wales considered a negligence claim for physical damage to premises operated as a jewellery store in a city building. The plaintiff was the lessee of the jewellery store premises and the defendant was the lessee of restaurant premises immediately above the jewellery store. The defendant's negligence caused water to escape from the restaurant premises and flow down into the jewellery store, causing damage to the jewellery store premises. After a delay of about seven months, the plaintiff closed the jewellery store for 29 working days while it undertook a complete internal refurbishment of the premises, involving some internal reconfiguration. As the water damage affected only about 10 per cent of the floor area of the jewellery store, the cost of the complete internal refurbishment was substantially greater than would have been the cost of repairing the water damage in a way that would have brought the premises back to their pre-damaged condition. Further, the refurbishment of the 10 per cent portion, while remedying the defects caused by water damage, did not meet the precise description of the works necessary to repair the water damage in a way that would have brought the premises back to their pre-damaged condition.[164]

366 The trial judge nevertheless awarded damages equivalent to the amount it would have cost to bring the premises back to their pre-damaged condition, together with an allowance for 10 working days' business interruption at an agreed daily rate. The judge held that 10 working days would have been necessary to restore the premises to their pre-damaged condition if that was all that was done.[165]

367 On appeal, the restaurant owner contended that the trial judge had erred in assessing damages in that way because the total refurbishment of the jewellery store premises did not include precise rectification of the water damage, so as to bring those parts of the premises back to their pre-damaged condition. The appeal on this ground was dismissed. It is unnecessary to consider the other issues raised on appeal.

368 The principal judgment was delivered by Campbell JA (Macfarlane JA and Sackville AJA agreeing). In his reasons, Campbell JA conducted a comprehensive analysis of earlier authorities and concluded:

(1) The general compensatory principle governs the award of damages in tort and contract.[166]

(2) 'While the law has developed some conventional practices about the ways one applies that compensatory principle in particular fact situations, those conventional practices must yield if the facts of the instant case require some different method to be adopted for assessing the appropriate amount of compensation'.[167]

(3) It was no answer to the claim that the damages awarded were 'theoretical' because the precise works required to restore the premises to their pre-damaged condition were not and never would be performed.[168]

(4) The law has developed to a stage where there is no accrued right to damages of a particular amount upon accrual of a cause of action in tort or contract.[169] The time at which damages are to be assessed and the appropriate measure of damages is to be determined at trial, 'in light of events then known, to give effect to the compensatory principle of damages'.[170]

(5) Where a plaintiff's property is damaged as a result of a tortious act or a breach of contract, the plaintiff may recover damages for:**

rectification work in a loose sense, in that it resulted in the premises no longer being defective, but that work was not rectification work in a more precise sense of doing exactly what was needed to make good the contractual shortcoming (in Hyder Consulting) or to get the premises back as close as possible to their pre-accident condition (in the present case). In both cases it could be said that therefore the rectification work (in the more precise sense) would never be carried out.[171]

**(6) A plaintiff may recover damages for rectification works in the loose sense, even where the rectification work in the loose sense 'involved construction of something quite different to that which had been the subject of the original contract'.[172]

(7) The amount recovered on this basis must not, however, exceed the amount which would have been awarded if the premises had been made good by performing works meeting the precise contractual standard or which were required to bring the premises back to their pre-damaged state.[173]

(8) The entitlement to recover damages of this kind is subject to the overriding requirement that the works must be both necessary and reasonable.[174]

369 In this case, the evidence establishes that Fenridge conducted a complete refurbishment of the premises, including both internal reconfiguration and extensions, for the purpose of altering their use from one which had become uneconomic by reason of RCA's breach of the continuing business obligation. RCA contended that the refurbishment works for the apartment development rendered the precise works required to meet its make good obligation theoretical or irrelevant, because none of the precise works, if undertaken, 'would still exist or be in use'; or, in other words, that none of the precise works would have remained as part of the completed apartment development and thus been of benefit to Fenridge in that respect. On this basis, RCA submits that it has established that Fenridge definitely suffered no loss. This was the same submission which was rejected in Gagner.

370 RCA relied on the evidence of Anthony Croucher, a building consultant who inspected the premises before and after the apartment development was undertaken. Mr Croucher said that the building at the premises 'has been totally renovated and extended with very little of the original internal areas remaining', and that he believed the engineering services in respect of which make good claims are made have been removed.

371 In my opinion, Mr Croucher's evidence is not sufficiently certain to establish the factual contention advanced; and in any event does not take this case outside of the principles in Gagner, as the apartment development works remedied the defects which RCA was required to make good in a loose sense. Mr Croucher agreed in cross-examination that, in the completed apartment development, the external walls of the building remained in the same place, many of the internal walls were retained, the entry hall, stairwell and car park remained, and that ceilings, walls, and doors where make good works are claimed were repaired. Those repairs involved, for example, replastering and repainting walls, instead of patching and painting only, replacing floor coverings with different materials rather than repairing, patching or replacing with the same or similar materials and other like matters. As to the engineering services, much of his evidence was hearsay or inference. However, even if some engineering services have been replaced rather than repaired, the repair costs would in my opinion remain recoverable under the principles stated in Gagner.

372 Applying Gagner to the facts of this case, Fenridge is in my view entitled to recover the cost of performing the precise works which were reasonably necessary to bring the premises up to the state they would have been in had RCA complied with its make good obligations during and at the end of the lease. As noted, there is a vast disparity in the evidence on this issue. I will make orders referring the questions as to what works were reasonably necessary to comply with the make good obligations, and as to the reasonable cost of those works, to a Court appointed expert or a special referee who is suitably qualified to consider issues of that kind. I will hear the parties as to the form of the referral order and as to its authority - which could be either under Order 50 of the Court rules[175] or s 65M of the Civil Procedure Act 2010 (Vic).

373 The parties joined in submitting that the Court should give some guidance to the referee as to matters of fact and law which may assist in the reference. Without being exhaustive, and reserving to the parties leave to put submissions before the Court on what further guidance may be appropriate on the basis of the evidence at trial or on legal issues, I make the following comments for the benefit of the referee.

374 First, in considering the scope of works required to meet the make good obligation in the lease, I find as a fact that the premises were in good condition at the commencement of the lease on 3 March 1990. Fenridge purchased the premises from the original landlord, Hosrohast Pty Ltd, in 1991. In his witness statement, Dr Santini said that the premises at that time:**

presented very well and were purpose built to meet both current and the likely future needs of the aged care sector. My own inspection confirmed that the Premises were in excellent condition and upkeep. Unlike many of the aged care facilities of that era, the Premises were well painted, clean, air conditioned and the general appearance suggested a building and service very well cared for.[176]

**375 This evidence was not challenged in cross-examination. It was put to Dr Santini that he could only give evidence about the condition of the premises when he first inspected them in 1991, with which he agreed, but that does not make his evidence irrelevant or deprive it of any weight.

376 A finding that the premises were in good condition at the commencement of the lease is supported by other evidence:

(1) Dr Santini gave evidence that the purchase of the premises was a large investment for him at the time. On this basis, I infer that it is more likely than not that Dr Santini would have paid particular attention to the condition of the premises at the time of purchase.

(2) In February 1997, a registered valuer engaged by Fenridge (Robert Lister) prepared a valuation report in respect of the premises. In the course of that report, Mr Lister observed that in 1997 the nursing home building had been 'completed to a good standard of finish and was in good order and structurally sound at the date of our inspection and assessment'.

377 Second, in considering the scope of works required to meet the make good obligation in the lease, the parties agree that the limit of Fenridge's claim is that contained in the evidence adduced at the trial. In other words, Fenridge cannot seek items which are not contained in the final RLB estimate.

378 Third, the referee should act on the basis that the Court has found the make good estimates of Mr van de Staaal and Mr Price to have been honestly prepared and represent their own professional estimates of the scope and cost of the make good works. Whether or not their opinions as to the scope of works, and their estimates, are objectively reasonable in the circumstances is a matter for the referee to determine on the basis of the evidence before him and the application of his or her professional expertise.

379 Fourth, in determining the scope of works required to meet the make good obligation in the lease, the referee should have regard to Fenridge's pleaded case,[177] that RCA breached the make good obligation and related obligations by failing to:

(1) maintain the premises during the currency of the lease in good and substantial repair, order and condition, in breach of clauses 2.3.1, 2.3.2 and 2.3.3 of the lease; and

(2) deliver up the premises to Fenridge at the end of the lease in a clean state and in as good repair, order and condition as at the commencement of the lease, with the exception of fair, wear and tear and damage by accidental fire, storm, tempest, act of God, inevitable accident, civil commotion and impact, in breach of clause 2.6 of the lease.

380 Fifth, as to the failure to maintain the premises in good and substantial repair, order and condition during the currency of the lease, the referee should apply the statement of Sheller JA in Alcatel Australia Ltd v Scarcella,[178] that a lessee's covenant to keep the premises in good and substantial repair imposes an obligation on the tenant:**

that so far as repair can make good or protect against the ravages of time and the elements, it must be undertaken to such a degree as to put the building in the condition it would have been in if good and substantial repair had been undertaken during the period of the lease.[179]

**381 Sheller JA acknowledged, however, that a covenant to maintain in good and substantial repair did not require the tenant to restore the premises to their original condition at the commencement of the lease. In that case, the building had been newly erected at the commencement of the lease.[180]

382 Sixth, as to the make good obligation at the end of the lease contained in clause 2.6, the referee should proceed on the basis that RCA was obliged to repair the premises to the repair, order and condition they were in at the commencement of the lease. As I have said, the only evidence about this is that the premises were in good condition.

383 Seventh, RCA bears the onus of proving that any damage to the premises falls within the fair wear and tear exception.[181] Further that exception did not negate RCA's obligation to maintain the premises in good and substantial repair during the course of the lease, including its obligation to repair any damage caused by fair wear and tear in order to prevent further damage. The referee should proceed on the basis that the position was correctly stated by Talbot J in Haskell v Marlow:[182]**

Reasonable wear and tear means the reasonable use of the house by the tenant and the ordinary operation of natural forces. The exception of want of repair due to wear and tear must be construed as limited to what is directly due to wear and tear, reasonable conduct on the part of the tenant being assumed. It does not mean that if there is a defect originally proceeding from reasonable wear and tear the tenant is released from his obligation to keep in good repair and condition everything which it may be possible to trace ultimately to that defect. He is bound to do such repairs as may be required to prevent the consequences flowing originally from wear and tear from producing others which wear and tear would not directly produce.[183]

**384 For example, while a tenant may not be responsible for the immediate consequences of a tile falling off a roof, the tenant would be liable if a failure to repair the roof caused water to enter through the roof causing damage to the premises.

385 There is one further aspect of Fenridge's make good claim which requires separate consideration. Fenridge alleged in its further amended statement of claim that RCA left the premises in a damaged condition requiring significant repair in the fire services or fittings at the premises. The only particulars given by Fenridge of this claim were that some issues concerning the insufficiency of the fire services at the premises were noted by GHD Pty Ltd in July 2005, in the course of due diligence report provided to Macquarie Bank for the purposes of determining whether to purchase the nursing home from Moran.

386 Fenridge called an expert fire protection engineer, Lawrence Reddaway, to expand upon the issues at the premises concerning fire safety which required attention. His evidence concerned deficiencies in smoke walls, smoke dampers and the nurse call system. RCA responded with an expert witness statement from Shawn Brosnan, a building surveyor with relevant experience in fire safety. The Court ordered that the two experts confer and provide a joint report containing their joint opinion as to whether the fire safety and other emergency services at the premises complied with all applicable legislation, including any requirements for accreditation and/or certification under the Aged Care Act, when the lease ended on 28 February 2008. In their joint opinion, the experts concluded, reluctantly, that the fire safety and other emergency services at the premises complied with all applicable legislation and that, therefore, there were no works required to be done in that respect to make the premises compliant with any legislative requirement. They expressed the joint view that this result was required by the applicable regulations made under the Building Act 1993 (Vic) and the certification guidelines made the Aged Care Act.

387 Fenridge nevertheless persists with its claim for the cost of fire services works. Without seeking any further amendment to the further amended statement of claim, Fenridge contended that RCA was obliged to proceed with fire safety upgrades during the term of the lease by reason of clause 3(a) of a Deed of Variation of Lease made in April 2003. This claim was not pleaded and, in my opinion, it is too late to raise it.

388 Fenridge relies also upon clause 2.3.1 of the lease, which was pleaded. It was submitted that this clause imposed an obligation on RCA to maintain the fire safety works which had been added to the premises during the term of the lease. Although there is an obligation in clause 2.3.1 to maintain any additions to the premises during the term of the lease, there is no evidence that the fire safety additions, whether or not they were compliant with applicable legislative requirements, fell into disrepair in any way before the end of the lease. I am not satisfied that Fenridge has proved any case that it suffered loss or damage as a result of the condition of the fire and emergency services at the premises when the lease ended. That issue will not be referred to the referee.**

**389 For the above reasons, Fenridge has established its case in the following respects.

390 First, that RCA breached the continuous business obligation and the implied terms, and that Regis wrongfully induced those breaches. RCA and Regis are jointly and severally liable to Fenridge for damages to be finally assessed by reference to the following components:

(1) 75 per cent of the value of Fenridge's lost opportunity to earn income in the period 29 February 2008 to 31 December 2009 from a nursing home business at the premises;

(2) 80 per cent of the value of Fenridge's lost opportunity to own the premises on 1 January 2010, together with the attached right to operate, lease or sell the redeveloped nursing home with 60 allocated places. I have assessed this aspect of Fenridge's loss, subject to adjustment for the profits of the apartment development, at $3,956,000;

(3) interest under the express terms of the lease; and

(4) an adjustment for the net profit of the apartment development.

391 The final calculation of the damages which both RCA and Regis must pay in accordance with sub-paragraphs (1) to (4) above will involve consideration of issues which have not yet been argued, or fully argued. For example:

(2) How should the net profit of the apartment development be adjusted? My preliminary view is that the amount of the net profit should replace the allowance of $1,525,000 for the value of the undeveloped premises in January 2010, as assessed by Mr Brown. But I will hear submissions on that issue.

(3) When should the net profit of the apartment development be brought to account?

392 Second, that RCA engaged in misleading conduct. Fenridge has not, however, established any loss caused by that conduct.

393 Third, that Regis's conduct is sufficiently reprehensible to justify an award of exemplary damages. The amount of the award will be fixed once Fenridge's compensatory damages for breach of the continuous business obligation are finally assessed.

394 Fourth, that RCA breached the make good obligation and that it has suffered loss as a result. The amount of that loss will be referred to an expert or special referee for assessment.

395 When the above assessments have been concluded, I will hear the parties as to interest and costs.**

RETIREMENT CARE AUSTRALIA (PRESTON) PTY LTD (ABN 51 113 960 946)

GRETA MORAN (as executor of the estate of the late DOUGLAS JOHN MORAN)

[1] Aged Care (Consequential Provisions) Act 1997, s 20.

[8] The Board paper mistakenly said that the accreditation expired on 1 March 2008, and not 20 March 2008 as was the fact.

[12] Underlining in original; emphasis added.

[18] Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451, [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, [40].

[19] ABC v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99, 109; Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522, [16].

[21] North Adelaide Nursing Home Pty Ltd v Seely [2000] SASC 455, [13].

[29] Riverside Nursing Care Pty Ltd v Bishop & Anor [2000] FCA 434, [20]; Saitta Pty Ltd v Commonwealth [2001] FCA 817, [36]; Aged Care Standards and Accreditation Agency Ltd v Kenna Investments Pty Ltd [2004] FCA 843; (2004) 138 FCR 428, [11].

[30] Saitta Pty Ltd v Commonwealth [2001] FCA 817, [36].

[32] Clause 2.14 and item 5 of the Schedule.

[33] Subject to its statutory obligations not to engage in misleading conduct and its common law obligations not to engage in conduct amounting to injurious falsehood.

[36] Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337, 348, 353.

[37] Byrne v Australian Airlines Ltd (1995) 185 CLR 410, 422-3. This case does not concern implied terms of that kind.

[38] [1979] HCA 51; (1979) 144 CLR 596.

[39] Ibid 607-8 per Mason J (citations omitted; emphasis added).

[40] [2000] SASC 455.

[41] Ibid [13]-[15] (emphasis added).

[46] [2002] NSWSC 859; (2002) 55 NSWLR 618.

[47] Ibid [27(e)] (citations omitted).

[58] As appears above, the lease was preceded by a previous lease of four years - so the initial lessee could have had the right to conduct a nursing home business for up to 24 years.

[59] Outline of final address on liability issues, [3.21].

[60] FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] VicRp 76; [1993] 2 VR 343.

[61] Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337.

[62] Allstate Life Insurance Company & Ors v ANZ Banking Group Ltd [1995] FCA 1368; (1995) 58 FCR 26, 42-5.

[66] [1995] FCA 1368; (1995) 58 FCR 26.

[67] Ibid 44-5 (citations omitted; emphasis in original).

[68] [1966] 1 WLR 691.

[70] [2010] VSCA 340; (2010) 32 VR 1.

[72] [1985] HCA 12; (1984-5) 155 CLR 448.

[73] Ibid 471 (citation omitted); quoted with approval in Lamb v Cotogno [1987] HCA 47; (1987) 164 CLR 1, 9; State of New South Wales v Landini [2010] NSWCA 157, [113].

[74] (2005) 13 VR 527.

[76] SB v New South Wales [2004] VSC 514; (2004) 13 VR 527, [630].

[77] Carter & Anor v Walker & Anor [2010] VSCA 340; (2010 32 VR 1, [284].

[78] Backwell v AAA [1997] 1 VR 182, 207-8.

[79] [1994] HCA 4; (1994) 179 CLR 332.

[84] [1996] VicRp 22; [1996] 1 VR 346.

[85] Ibid 354-5, citing Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332, 365 (per Brennan J) (emphasis added).

[86] Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 236 CLR 272, [13].

[87] See Dr Santini's letter dated 10 December 2007.

[88] Section 2-1.

[89] Sections 38-2, 42-1.

[90] Certification Principles ss 8.10(2), 8.13.

[92] Building Certification Guide, page vii.

[96] Ibid 40 (citation omitted; emphasis added).

[98] Building Certification Guide, page 42.

[99] HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640; see also, Kizbeau Pty Ltd v W G & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281, endorsing this approach in relation to claims for damages under s 82 of the Trade Practices Act.

[100] HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640, [36]-[40].

[103] Ibid [63] quoting Lord Steyn in Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1996] UKHL 3; [1997] AC 254, 284.

[104] For example, Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332, 350; Malec v JC Hutton Pty Ltd [1990] HCA 20; (1990) 169 CLR 638, 643.

[105] HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640, [63]; Haines v Bendall [1991] HCA 15; (1991) 172 CLR 60, 63.

[106] Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332, 350.

[107] Quality of Care Principles 1997, s 18.8(2).

[109] Monroe Schneider Associates (Inc) & Anor v No 1 Raberem Pty Ltd [1991] FCA 592; (1991) 33 FCR 1, 17 and the authorities there cited.

[110] [1998] WASCA 138.

[111] [1991] HCA 15; (1991) 172 CLR 60 per Mason CJ, Dawson, Toohey and Gaudron JJ (with the agreement of Brennan J).

[113] Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd [1998] HCA 38; (1998) 192 CLR 603, [134].

[114] [1912] AC 673, 689-92.

[122] [1998] WASCA 138.

[123] Manwelland Pty Ltd v Dames & Moore Pty Ltd [2001] QCA 436.

[124] [1991] FCA 592; (1991) 33 FCR 1.

[125] [2001] QCA 436.

[127] [2008] SASC 295; (2008) 102 SASR 93.

[128] Ibid [204] (citations omitted).

[129] Ibid [206] (citations omitted).

[130] Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd [1998] HCA 38; (1998) 192 CLR 603, [134].

[131] Brown v Dream Homes SA Pty Ltd [2008] SASC 295; (2008) 102 SASR 93, [217].

[132] British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673, 691.

[134] [1998] HCA 38; (1998) 192 CLR 603, [134] (citations in original).

1. [135] Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613, 618-619; see also British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673; Ruxley Electronics and Construction Ltd v Forsyth [1996] 1 AC 344; Jacob & Youngs v Kent (1921) 129 NE 889, 891-892, per Judge Cardozo.
2. [136] See, eg, Banco de Portugal v Waterlow & Sons Ltd [1932] UKHL 1; [1932] AC 452, 506, per Lord Macmillan; Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd [1976] 1 NSWLR 5, 9, per Yeldham J; Segenhoe Ltd v Akins (1990) 29 NSWLR 569, 582, per Giles J.
3. [137] For example, a party is not bound to embark upon a 'complicated and difficult piece of litigation against a third party': see Pilkington v Wood [1953] Ch 770, 777, per Harman J.

[139] [2009] HCA 8; (2009) 236 CLR 272.

[141] Ibid [13] citing Robinson v Harman [1848] EngR 135; (1848) 1 Exch 850, 855.

[142] Ibid quoting Radford v De Froberville [1977] 1 WALR 1262, 1273 (emphasis in original).

[143] Ibid [16] quoting Radford v De Froberville [1977] 1 WALR 1262, 1270.

[144] Ibid [17] quoting Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613, 618.

[148] Ibid, 46-7 per Fry LJ, 43 per Lord Esher MR.

[152] Ibid 44 per Lord Esher; 47 per Fry LJ.

[154] [1943] HCA 8; (1943) 67 CLR 567.

[157] Bowen Investments Pty Ltd v Tabcorp Holdings Ltd [2008] FCAFC 38; (2008) 166 FCR 494, [10]-[11] per Finkelstein and Gordon JJ, [39]-[40] per Rares J.

[158] [1994] 3 NZLR 410.

[159] Bowen Investments Pty Ltd v Tabcorp Holdings Ltd [2008] FCAFC 38; (2008) 166 FCR 494, [12].

[161] Maori Trustee v Rogross Farms Ltd [1994] 3 NZLR 410, 420 per Tippin J (emphasis added).

[163] [2009] NSWCA 413.

[173] Ibid [74], [105], [111]-[113].

[174] Ibid [39], [95], applying Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613, 618-9.

[175] Supreme Court (General Civil Procedure) Rules 2005.

[177] Paragraphs 34-36, further amended statement of claim, 6 February 2013.

[178] (1998) 44 NSWLR 349.

[181] Regis Property Co Ltd v Dudley [1959] AC 370, 393.

[182] [1928] 2 KB 45.

[183] Ibid 59; expressly approved in Regis Property Co Ltd v Dudley [1959] AC 370, 393-4.