Scouller v Stockland Property Services Pty Ltd
[2017] QCAT 347
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- Unreported Judgment
- Scouller v Stockland Property Services Pty Ltd[2017] QCAT 347
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Scouller v Stockland Property Services Pty Ltd[2017] QCAT 347
Scouller v Stockland Property Services Pty Ltd[2017] QCAT 347
CITATION: | Scouller and Anor v Stockland Property Services Pty Ltd [2017] QCAT 347 |
PARTIES: | John Leslie Scouller Ronald Vivian Murray (Applicants) v Stockland Property Services Pty Ltd (Respondent) |
APPLICATION NUMBER: | OCL020-17 |
MATTER TYPE: | Other civil dispute matters |
HEARING DATE: | On the papers |
HEARD AT: | Brisbane |
DECISION OF: | Member Olding |
DELIVERED ON: | 28 August 2017 |
DELIVERED AT: | Brisbane |
ORDERS MADE: |
(a) an estimate of short-term incentives (bonuses) payable for the year should have been included and, if so, what the estimate should have been; and (b) whether the 2016-17 budget should be recast to identify the service charge for each category of general service and, if so, what those categories should be, by: 25 September 2017.
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CATCHWORDS: | REAL PROPERTY – RETIREMENT VILLAGES – budget for general service charges – where surplus carried forward – whether cost of bonuses included – where budget failed to identify each general service charge Retirement Villages Act 1999 (Qld), s 102A, s 106, s 107, s 108 Australian Retirement Homes Ltd v Ash [2013] QCA 355 |
This matter was heard and determined on the papers pursuant to s 32 of the Queensland Civil and Administrative Tribunal Act 2009 (Qld) (QCAT Act).
REASONS FOR DECISION
- [1]This dispute relates to the Fig Tree Village retirement village. The Applicants are residents of the village and the Respondent is the retirement village scheme operator.
- [2]The Applicants assert that the Respondent’s calculation of the general services charges and budget presented for the 2016-17 financial year fail to comply with the requirements of the Retirement Villages Act 1999 (Qld) (the Act)[1] in several respects.
- [3]Their complaints relate to three aspects:
- The prohibition against increases in general services charges by more than the CPI increase for the financial year; in particular, the treatment of a surplus carried forward from the 2015-16 year.
- The treatment of short-term incentives/bonuses payable to staff.
- A number of “transparency” issues.
- [4]The Respondent denies that there is any non-compliance.
- [5]The Tribunal has jurisdiction to hear disputes about compliance with the Act by a retirement village scheme operator and to make orders it considers to be just to resolve the dispute.[2]
- [6]The resolution of the disputed items turns on the proper interpretation and application of provisions of the Act. These are set out below before dealing with each issue in turn. The facts, as set out under each topic, are not in dispute.
- [7]However, in considering this matter on the papers, it became apparent that there are two issues raised by the Applicants that could not be resolved without giving the parties the opportunity for further input.
- [8]In respect of the short-term incentives issue, further information is required and, when that information is to hand, it will be necessary for an opportunity to be given to the parties to make further submissions.
- [9]Also, in respect of one “transparency” issue – the format of the budget – it is not altogether clear from the application and submissions precisely what the Applicants are seeking. Nor is it clear that the parties have a shared understanding of what is in dispute in respect of this item.
- [10]I will therefore rule on those items where it is appropriate to do so and make further directions for the fair and efficient resolution of the remaining two issues.
Statutory framework
- [11]Division 7 of part 5 of the Act – contains various provisions relating to the calculation of charges for general services, which relevantly include:
102A General services charges budget
- (1)The scheme operator must adopt a budget (the general services charges budget) for each financial year for charges for general services.
- (2)For subsection (1), the general services charges budget must—
- (a)allow for raising a reasonable amount to provide the general services for the financial year; and
- (b)fix the amount to be raised by way of contribution to cover the amount.
. . .
- (6)If, at the end of a financial year for which a general services charges budget is adopted, there is a surplus or deficit for the charges, the surplus or deficit must be carried forward and taken into account in adopting the general services charges budget for the next financial year.
- (7)Subsection (6) applies despite section 106(1).
106 Increasing charges for general services
- (1)A scheme operator must not increase the total of general services charges for a retirement village for a financial year by more than the CPI percentage increase for the financial year.
Maximum penalty—200 penalty units.
- (2)In this section—
CPI means the all groups consumer price index for Brisbane published by the Australian statistician.
CPI percentage increase, for a financial year, means the percentage increase between—
- (a)the CPI published for the quarter ending immediately before the start of the financial year; and
- (b)the CPI published for the quarter ending immediately before the end of the financial year.
total of general services charges, for a financial year, means the sum of all charges for general services for the financial year, other than the following charges—
- (a)a charge for a general service that has been increased by more than the CPI percentage increase for the financial year and that the retirement village residents, by special resolution at a residents meeting, have approved;
- (b)a charge for a general service that has been increased by more than the CPI percentage increase for the financial year and that is allowed under section 107.
107 Resident’s responsibility for paying increased general services charge
A resident is not required to pay a charge for a general service under a residence contract to the extent that the charge is more than that payable under the contract and increased under section 106, unless the excess is attributable to an increase in—
- (a)rates, taxes or charges levied under an Act in relation to the retirement village land or its use; or
- (b)the salary or wages of a person engaged in the retirement village’s operation and payable under an award, certified agreement or other industrial instrument made, approved, certified, or continued in force under—
- (i)the Industrial Relations Act 2016; or
- (ii)a Commonwealth Act; or
- (c)insurance premiums, or insurance excesses paid, in relation to the retirement village or its use; or
- (d)maintenance reserve fund contributions.
108 New services to be approved by majority of residents
- (1)A scheme operator may offer residents a service not already supplied under the scheme, for which a services charge is to be, or may be, made, only if the residents agree to it being supplied by special resolution at a residents meeting.
- (2)Subsection (1) does not apply to—
- [12]The broad effect of these provisions is to cap annual increases in general services charges at the rate of increase in the CPI (with some exceptions for costs outside the control of the operator or to which the residents consent).
The carried-forward surplus issue
- [13]The Respondent calculated the total 2016-17 general services charge by reference to a budget, which included as revenue for 2016-17 a surplus of $40,000 carried forward from the 2015-16 year.
- [14]The combination of budgeted total general service charges and other revenue, and the carried-forward surplus, would cover the budgeted cost of providing the general services. The total of the general service charges struck in this way does not exceed the total of the 2015-16 general service charges uplifted for the increase in the movement in the CPI in the 2015-16 year.
- [15]Nevertheless, the Applicants say this is unfair because the surplus comes from the residents’ funds contributed as general service charges in the previous year.
- [16]The Applicants also say the calculation is wrong at law. They say the provisions require a three-step process: (1) Preparation of the budget; (2) “Compliance check in terms of s 106(1)”; and (3) Calculation of the amount to be raised by way of contribution.
- [17]In preparing the budget to “fix” contributions for the forthcoming year, a check of whether the total of general service charges proposed to be included as budgeted revenue may be necessary to ensure that the s 106 prohibition on increases in excess of the CPI increase is not breached. But it does not follow, as the Applicants say, that a surplus or deficit is carried forward only after the budget is prepared.
- [18]Under s 102A(6), a surplus or deficit “must be carried forward and taken into account in adopting the general services charge budget for the next financial year”. The budget must both “allow for raising a reasonable amount to provide the general services for the financial year” and “fix the amount to be raised by way of contribution to cover the amount”: s 102(2).
- [19]I do not see how that could be interpreted other than as requiring that a surplus or deficit in one year must be taken into account in fixing the contributions for the next. A surplus can only be taken into account by treating it as revenue, as it is treated in the Respondent’s budget.
- [20]The Applicants’ approach effectively compares budgeted expenses (excluding those to which s 107 is said to apply) in 2015-16 and 2016-17 to determine whether the increase exceeds the CPI movement. I say “effectively” because (putting aside other sundry income) if the surplus is excluded from the budgeted revenue when the so-called “s 106 compliance check” is undertaken, what is left is total budgeted expenses matched by the proposed general services charge to cover those expenses. Consistent with this, the worksheet attached to the Applicants’ submissions, setting out what the Applicants submit to be the required compliant approach, refers to the amount that is the total of the budgeted general service charges as “Total Expenses”.
- [21]Notwithstanding the Applicants’ submissions to the contrary, this approach is inconsistent with the reasoning in Australian Retirement Homes Ltd v Ash [2013] QCA 355. In that case, the Court of Appeal rejected a submission that s 106 required a comparison between the budgeted cost of providing the various services in the year in which the budget is adopted and under the previous year’s budget. Rather, as the Court held, it requires a comparison of the amounts charged by the operator to the residents. That amount is struck through the budget process, which, as s 102A stipulates, must take into account any carried forward surplus or deficit.
- [22]In support of their position, the Applicants point to the consumer protection objects of the Act stated in s 3. The difficulty for the Applicants in that regard is that the Respondent’s construction fits comfortably within those objects by providing for increases in charges to be capped by the CPI increase.
- [23]I reject the Applicants’ contentions in relation to the carried-forward surplus.
The short-term incentives (bonuses) issue
- [24]The Respondent included provision for short-term incentives or bonuses to be paid to staff in the 2016-17 budget. The Applicants contend that this offends s 108(8).
- [25]Section 108 provides that an operator may only make a charge for a new service if the residents agree by special resolution. Consistent with that principle, s 108(8) provides that “[t]he operator may not charge the residents for the new service before the service is supplied to the residents”.
- [26]Section 108 is concerned with charges for new services. It is not concerned with charges for existing services. There is no suggestion that there is a new service associated with the short-term incentives. Accordingly, s 108(8) is not relevant to this dispute.
- [27]The Applicants also ask: “[a]s a bonus may not be paid in any one year, how can it be a ‘service’ if in fact no bonus is paid?” A bonus is clearly not a service. One might more helpfully ask whether it is appropriate to include in the budget an amount that the operator acknowledges may not be paid.
- [28]The answer is to be found in s 102A(2)(a). The general services charges budget must “allow for raising a reasonable amount to provide the general services for the financial year”. It is in the nature of budgets that an attempt is made to estimate revenue and expenses in advance and that actual revenue and expenses may differ from budgeted revenue and expenses. This is implicitly acknowledged in the provision for surpluses or deficits to be carried forward.
- [29]Accordingly, I do not accept that uncertainty about whether a bonus will be paid in itself means that the potential cost of paying bonuses should not be included in making a reasonable allowance for the cost of providing general services. Is it otherwise unreasonable to include the cost of bonuses?
- [30]Ordinarily, it will be reasonable to include an operator’s legitimate employment costs. There is, for example, nothing inherently unreasonable in an operator’s remuneration arrangements exceeding award rates. It would not be unreasonable to include in the budget the employment costs of an operator that makes a judgement in good faith that paying wages exceeding award rates is appropriate to attract and retain suitable staff.
- [31]These are judgements that the operator is best placed to make. In determining a reasonable allowance for costs, including employment costs, the Tribunal could not replace the operator’s judgement with its own judgement on such matters in the absence of evidence suggesting that the amount included in the budget for employment costs is not reasonable. Further, residents are afforded a degree of protection against the impact of such decisions by the s 106 CPI cap on increases in the total of general service charges.
- [32]Is the position any different if the operator makes a judgement in good faith that conditions allowing staff to enjoy performance bonuses are appropriate to attract and retain staff? It seems to me that there is nothing in the nature of a bonus per se that means including the potential cost of the bonus would not be reasonable.
- [33]Indeed, it would ordinarily be reasonable to include at least an estimate of the amount of bonuses likely to become payable. A budget that did not include an estimate of the employment costs likely to be paid would not meet the s 102A(2)(a) requirement to allow for raising a reasonable amount to provide the general services.
- [34]The Respondent included one-third of the short-term incentives potentially payable. There is no evidence that suggests this is not a reasonable estimate.
- [35]However, it is necessary to consider the criteria against which eligibility for a bonus is to be judged. It is likely to be reasonable to include in the budget the estimated cost of a bonus that would be earned if, for example, resident surveys reveal a high level of satisfaction with related services. It may not be reasonable to include the estimated cost of bonuses that are earned or partly earned by reference to, for example, achievements unrelated to the provision of services to residents.
- [36]This is not to say that any such conditions attach to the Respondent’s arrangements for payment of short-term incentives. The difficulty is that neither the residents nor the Tribunal knows the criteria for payment of the incentives.
- [37]Accordingly, I will make directions for the Respondent to provide copies of the criteria and allow the parties to make further submissions on whether having regard to those criteria it is reasonable to include an estimate of the costs of the bonuses in the budget. Those submissions would helpfully address both whether the estimated cost of the bonuses should be included and, if so, on what basis the costs should be estimated.
The transparency issues
- [38]The Applicants raise a number of issues in relation to the transparency of the 2016-17 budget.
- [39]
[46] The defined term “total of general services charges” in s 106 comprehends that there is a charge for each general service from which a summation of charges can be derived. The repeated references in the section to “a charge for a general service” makes that clear. On the construction of the defined term which I prefer, and having regard also to s 107 to which the definition expressly refers, the charge for each general service comprehended by the definition is the charge for that service which the scheme operator requires the resident to pay. Thus the definition also comprehends that the scheme operator will charge the resident an identified amount for each general service under the residence contract.
[47] Notwithstanding, it remains open to the scheme operator to levy a composite general services charge on residents. However, what is significant is that the operation of s 106 requires that the charge levied on residents individually for each general service be specifically identified.
[48] This definition was enacted in 2006 when s 102A was enacted. In my view, it influences the content of the general services charges budget. Importantly for present purposes, the budget must state the dollar amount of the charge for each general service to be paid by residents individually. In accordance with conventional practice for budget presentation, both the dollar amount for the financial year in question and the corresponding dollar amount for the immediately preceding financial year would be stated, thereby facilitating ready identification of those increases to individual general services charges which require special resolution under s 106(2) (if any) or are covered by s 107.
- [40]In short, “s 106 requires that the charge levied on residents individually for each general service be specifically identified”.[4]
- [41]The 2016-17 budget lists revenue against three categories: Maintenance Fees; Prior Year Surplus; and Sundry Income (which the notes indicate comprise various “usage charges” to residents, including for electricity, water, telephone and internet) and lists expenses under five categories: Occupancy; Utilities; Repairs & Maintenance; Management & Administration; and Staff Costs.
- [42]At the foot of the budget, the amount of $946,357 appears as “Total General Service Charge”. This is the same number that appears as the revenue item for “Maintenance Fees”.
- [43]Notwithstanding the comments in the Ash case extracted above, and the separation of certain expenses into categories such as “Repairs & Maintenance” and “Management & Administration”, the budget does not identify separate charges for each category of general services, only the total of $946,357. In other words, the budget groups expenses by category, but does not similarly identify separate charges for each general service.
- [44]While the Applicants cite the passage from Ash extracted above, it is not clear, at least from their application, that they primarily attack the budget on the basis that it does not separately identify the various charges. Rather, their complaints seem to be mainly about the degree of specificity and categorisation of various expenses. I will return to this as necessary below.
- [45]The Applicants’ specific “transparency” complaints are addressed individually below.
Water and Electricity
- [46]The Respondent pays a contractor to read electricity and water meters. Because the number of electricity and water meters is the same, the charge is apportioned in the budget equally between the cost of supplying water and the cost of supplying electricity.
- [47]The Applicants say the meter reading charge should appear separately in the budget. However, meter reading is not an end in itself and should not be regarded a separate general service. The cost of the meter reading is part of the cost of providing the metered service.
- [48]It is difficult to see how the equal apportionment of this cost to the cost of supplying water and the cost of supplying electricity is inappropriate and the Applicants do not appear to suggest otherwise. The Respondent is not seeking to engage the exemption from the CPI cap under s 107 in respect of the meter reading cost, nor is it evident that it would be able to do so in the future. The Applicants may readily compare the costs of supplying water and electricity from year to year.
- [49]Accordingly, I would not order that the 2016-17 budget be recast to require a separate line item in the budget for the meter reading cost.
Employment Costs
- [50]The Applicants complain that budget does not “show Employment costs for award payments (S107) and above award payments (s 106) separately to allow for accurate checks on budget compliancy being completed”.
- [51]Section 107 limits charges payable by a resident to the amount payable under the resident’s contract, increased for CPI movements. There are exceptions where the excess of a charge over the CPI-indexed amount “is attributable to an increase in” certain costs including wages payable under an award or other industrial instrument.
- [52]The section only comes into play if there is an excess over the amount payable under a resident’s contract increased for CPI under s 106. Where there is no such excess, s 107 has no role to play.
- [53]Since there is no such excess - the Respondent does not seek to engage the exception under s 107 – no purpose would be served in requiring the budget to be recast to show award and above award payments, even if they could be readily calculated.
- [54]The Respondent has indicated that it accepts that it will be required to identify s 107 expenditure if the application of that provision becomes relevant to future budgets. It would not be just to order the Respondent to recast the 2016-17 budget to require separate identification of s 107 expenditure when s 107 is irrelevant to the 2016-17 budget.[5]
- [55]I decline to order that the budget be recast for this item.
Budget Format – Green Acre
- [56]The budget includes columns headed “Greenacre Budget 16/17” and “GST Portion”. The Applicants say this is confusing and should be removed.
- [57]The calculation of Goods and Services Tax (GST) for retirement villages is complex. Most businesses make predominantly taxable or GST-free supplies and are therefore entitled to input tax credits in respect of most of their acquisitions. Retirement villages commonly make both taxable and input taxed supplies, which gives rise to a need to apportion charges and expenses between taxable activities, which are creditable, and input taxed activities, which are not. Green Acre is a reference to an example calculation published by the Australian Taxation Office to assist retirement village operators in calculating GST.[6]
- [58]The inclusion of the GST calculations in the budget increases transparency for residents and is explained in the accompanying notes. Ordering removal of these columns from the budget would not be appropriate.
Budget Format – other issues
- [59]The Applicants raise other issues with the format of the budget.
- [60]One is a claim that it should separately identify “s 106 and s 107 items”. I have already dealt with this in relation to employment costs above. Section 107 is irrelevant if there are no amounts in excess of the CPI indexed charges. No order is appropriate in relation to this issue.
- [61]The Applicants also variously claim that the budget needs to be recast to comply with s 106 and with the Ash case. It seems that, based on statements in the Application, the Respondent may have construed the Applicants’ complaint, as originally formulated, to require separation of “s 106 and s 107 items”, as discussed above, and a statement of the general service charges for each individual resident.
- [62]From their submissions in reply, it seems the Applicants may be seeking that the budget be recast to state the amount payable by residents for each general service – that is, a separate charge for gardening, water supply and so on. That would seem to be consistent with the statement of the Court of Appeal in Ash extracted above.
- [63]However, the Applicants do not suggest what individual categories of general service charge should be specified in the budget. To order that the budget must be compliant with s 106 or the cited paragraphs in Ash, as the Applicants urge, without specifying how such compliance is to be achieved, may well leave the parties in dispute on this issue, especially since the Respondent has thus far maintained that the budget is compliant.
- [64]In view of these factors, I will allow the parties an opportunity to make submissions about whether and, if so, by reference to what categories of general services, the budget should be recast to separately identify the charges for each general service.
Footnotes
[1]All legislative references are to the Act unless otherwise indicated.
[2]The Act, s 21, s 22, s 191(1), s 210.
[3]Australian Retirement Homes Ltd v Ash [2013] QCA 355.
[4]Ibid, [47].
[5]The cases cited by the Applicants – Tew & Kelly v Masonic Care Queensland [2008] QCCTRV 6 and Mayer v Queensland Villages (Samford Grove) Pty Ltd [2009] QCCTRV 4 – are not authority for the proposition that s 107 expenditure must be separately listed as expenses for each general service charge regardless of whether s 107 is relevant to the calculation of general service charges. Additionally, these cases must be read with care as they pre-date Australian Retirement Homes Ltd v Ash [2013] QCA 355.
[6]Australian Taxation Office Retirement Villages Industry Partnership – Green Acres – Example A.