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Federal Court of Australia - Full Court Decisions |
Last Updated: 20 May 2002
Murphy v Overton Investments Pty Limited [2002] FCAFC 129
CONTRACT - Contracts Review Act 1980 (NSW) - unjust contracts - lease of unit in retirement village - representation that figures on which weekly maintenance fee was calculated covered all expenditure incurred in operating the village - representation false - primary Judge finds that lease affected by "procedural injustice" - whether primary Judge erred in concluding that the unjust consequences of the procedural injustice could be avoided by giving the lessees a reasonable opportunity to dispose of their lease - whether primary Judge erred in finding that the lease was not substantively unjust in permitting the village manager to recoup legal and accounting fees.
ESTOPPEL - cross-claim by manager for recovery of maintenance fees in the Supreme Court of New South Wales - defences to cross-claim rely on Contracts Review Act - judgment entered against lessees but contemplates fresh applications in Federal Court - whether Supreme Court judgment precludes reliance on Contracts Review Act claim in Federal Court.
Trade Practices Act 1974 (Cth), s 82
Contracts Review Act 1980 (NSW), ss 4(1), 7(1), 8, 9, 12, 16
Federal Court of Australia Act 1976 (Cth), s 27, Pt IVA
Retirement Villages Act 1999 (NSW)
Federal Court Rules, O 52 r 22
Murphy v Overton Investments Pty Ltd [2000] FCA 801, referred to.
Overton Investments Pty Ltd v Murphy [2001] NSWCA 183, referred to.
Re Wakim; Ex parte McNally [1999] HCA 27; (1999) 198 CLR 511, cited.
Murphy v Overton Investments Pty Ltd [2001] FCA 500; (2001) 112 FCR 182, referred to.
Australian Securities and Investment Commission v Edensor Nominees Pty Ltd [2001] HCA 1; (2001) 204 CLR 559, cited.
Murphy v Overton Investments Pty Ltd [2001] FCA 1725, referred to.
Murphy v Overton Investments Pty Ltd, unreported, 3 September 1998, referred to.
Murphy v Overton Investments Pty Ltd, unreported, 10 December 1998, referred to.
Murphy v Overton Investments Pty Ltd, unreported, 17 August 1999, referred to.
Murphy v Overton Investments Pty Ltd [1999] FCA 1123, referred to.
Blair v Curran [1939] HCA 23; (1939) 62 CLR 464, cited.
Baltic Shipping Co v Merchant "Mikhail Lermontov" (1994) 36 NSWLR 361, cited.
Minister for Immigration and Multicultural Affairs v Jia [2001] HCA 17; (2001) 178 ALR 421, cited.
Allesch v Maunz [2000] HCA 40; (2000) 203 CLR 172, followed.
Warren v Coombes [1979] HCA 9; (1979) 142 CLR 531, cited.
Abalos v Australian Postal Commission [1990] HCA 47; (1990) 171 CLR 167, cited.
State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq) [1999] HCA 3; (1999) 160 ALR 588, cited.
Cabal v United Mexican States [2001] FCA 427; (2001) 108 FCR 311, followed.
Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833, followed.
West v AGC (Advances) Ltd (1986) 5 NSWLR 610, cited.
Elders Rural Finance Ltd v Smith (1996) 41 NSWLR 296, cited.
Antonovic v Volker (1986) 7 NSWLR 151, cited.
Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256, cited.
Lovell v Lovell [1950] HCA 52; (1950) 81 CLR 513, cited.
Gronow v Gronow [1979] HCA 63; (1980) 144 CLR 513, cited.
Norbis v Norbis [1986] HCA 17; (1986) 161 CLR 513, cited.
Esanda Finance Corporation Ltd v Tong (1997) 41 NSWLR 482, cited.
JOHN JAMES MURPHY & ANOR v OVERTON INVESTMENTS PTY LIMITED
N 1664 OF 2001
LINDGREN, SACKVILLE & STONE JJ
SYDNEY
16 MAY 2002
IN THE FEDERAL COURT OF AUSTRALIA |
|
NEW SOUTH WALES DISTRICT REGISTRY |
|
BETWEEN: |
JOHN JAMES MURPHY AND DAPHNE MURPHY APPELLANTS |
AND: |
OVERTON INVESTMENTS PTY LIMITED RESPONDENT |
JUDGES: |
LINDGREN, SACKVILLE & STONE JJ |
DATE OF ORDER: |
16 MAY 2002 |
WHERE MADE: |
SYDNEY |
1. The appeal be allowed in part.
2. The cross-appeal be dismissed.
3. The proceedings be remitted to the primary Judge for determination in accordance with these reasons.
4. The appellants file and serve written submissions as to the costs of the appeal on or before 23 May 2002.
5. The respondent file and serve written submissions on the costs of the appeal on or before 30 May 2002.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA |
|
NEW SOUTH WALES DISTRICT REGISTRY |
|
BETWEEN: |
JOHN JAMES MURPHY AND DAPHNE MURPHY APPELLANTS |
AND: |
OVERTON INVESTMENTS PTY LIMITED RESPONDENT |
JUDGES: |
LINDGREN, SACKVILLE & STONE JJ |
DATE: |
16 MAY 2002 |
PLACE: |
SYDNEY |
THE COURT:
THE APPEAL
1 This litigation arises out of claims by the respondent ("Overton"), the developer of the Heritage Retirement Village ("the Village") at Padstow, to recoup outgoings from residents of the Village who occupy the units under individual leases. So far the dispute between Overton and the residents has generated proceedings, of one kind or another, in the Residential Tenancies Tribunal, the Commercial Tribunal, the Local Court, the District Court, the Supreme Court of New South Wales (Administrative Law and Equity Divisions), the New South Wales Court of Appeal (twice), the Federal Court at first instance (two separate hearings plus interlocutory hearings), the Full Court of the Federal Court (twice, including the present appeal) and the High Court of Australia (a pending special leave application from the judgment of the Full Court).
2 The present appellants (Mr and Mrs Murphy) are two of more than ninety residents or former residents of the Village who have sought relief against Overton in this Court. (We generally refer to residents of the Village as "lessees" but, as the context should make clear, a reference to "lessees" does not necessarily embrace all residents of the Village at a particular time.) The melancholy history of the litigation, in this Court and others, is set out by the primary Judge in the first of two extensive judgments in which he dismissed two proceedings, one brought by each appellant, which he had heard together: Murphy v Overton Investments Pty Ltd [2000] FCA 801 ("First Judgment"), Appendix 1. It will be necessary to recount some of this history later.
3 In the course of one journey made by the present parties to the New South Wales Court of Appeal, Mason P, not normally given to judicial hyperbole, described the dispute as having "spiralled out of control and hardened into destructive siege warfare on several fronts": Overton Investments Pty Ltd v Murphy [2001] NSWCA 183, at [3]. Not surprisingly for litigation of this description, the costs incurred by Overton and the residents (including the Murphys) are already likely to have exceeded the total amounts in dispute by a substantial margin. Regardless of the outcome of this appeal, the litigation would seem to be far from over, with many more claims waiting in the wings. It is true that the proceedings in this Court have been prolonged because of jurisdictional issues created by the decision of the High Court in Re Wakim; Ex parte McNally [1999] HCA 27; (1999) 198 CLR 511. Even so, this litigation invites the observation that there is a limit to what courts can do to save the parties from themselves.
4 In the First Judgment, the primary Judge dismissed the Murphys' claims against Overton under the Trade Practices Act 1974 (Cth) ("Trade Practices Act"), for damages for negligence and for orders giving effect to estoppels said to have flowed from Overton's conduct. In that judgment, his Honour held that the Federal Court lacked jurisdiction to entertain the Murphys' alternative claim for relief under the Contracts Review Act 1980 (NSW) ("Contracts Review Act") by reason of the decision of the High Court in Re Wakim.
5 On appeal from the First Judgment, a Full Court of this Court, by majority (Branson and R D Nicholson JJ; Gyles J dissenting) affirmed the judgment of the primary Judge dismissing all claims other than those under the Contracts Review Act: Murphy v Overton Investments Pty Ltd [2001] FCA 500; (2001) 112 FCR 182 On the jurisdictional point, however, the Court unanimously held, on the authority of Australian Securities and Investment Commission v Edensor Nominees Pty Ltd [2001] HCA 1; (2001) 204 CLR 559 (a decision handed down after the First Judgment), that the Court had jurisdiction to entertain the Murphys' Contracts Review Act claim. Accordingly, the proceedings were remitted to the primary Judge for determination of that claim.
6 In reasons for judgment delivered on 7 December 2001, Murphy v Overton Investments Pty Ltd [2001] FCA 1725 ("Second Judgment"), the primary Judge rejected the Murphys' claim for relief under the Contracts Review Act. On 14 December 2001, his Honour again dismissed both proceedings. The Murphys have now appealed from those dismissals.
7 Overton has filed both a notice of contention and what purports to be a notice of cross-appeal, seeking to challenge the primary Judge's reasons for concluding that the Murphys were not estopped or otherwise barred, by reason of certain orders made by the Supreme Court of New South Wales and the New South Wales Court of Appeal, from pursuing their claims under the Contracts Review Act. Since Overton did not seek to vary or discharge the orders made by the primary Judge, it should have filed only a notice of contention: Federal Court Rules ("FCR") O 52 r 22. Nothing, however, turns on this formal defect and we will treat the matters raised in the notice of cross-appeal as if they were raised in the notice of contention, as, in substance, the parties did.
8 Section 7(1) of the Contracts Review Act relevantly provides as follows:
"(1) Where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following:(a) ...
(b) ...
(c) ...
(d) it may, in relation to a land instrument, make an order for or with respect to requiring the execution of an instrument that:
(i) varies, or has the effect of varying, the provisions of the land instrument, or
(ii) terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the land instrument."
The expression "land instrument" is defined by s 4(1) to mean:
"an instrument that transfers title to land, creates an estate or interest in land or is a dealing within the meaning of the Real Property Act 1900".
9 The matters to be considered by the Court on an application under the Contracts Review Act are specified in s 9. It provides as follows:
"(1) In determining whether a contract or a provision of a contract is unjust in the circumstances relating to the contract at the time it was made, the Court shall have regard to the public interest and to all the circumstances of the case, including such consequences or results as those arising in the event of:(a) compliance with any or all of the provisions of the contract, or
(b) non-compliance with, or contravention of, any or all of the provisions of the contract.
(2) Without in any way affecting the generality of subsection (1), the matters to which the Court shall have regard shall, to the extent that they are relevant to the circumstances, include the following:
(a) whether or not there was any material inequality in bargaining power between the parties to the contract,
(b) whether or not prior to or at the time the contract was made its provisions were the subject of negotiation,
(c) whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any of the provisions of the contract,
(d) whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract,
(e) whether or not:
(i) any party to the contract (other than a corporation) was not reasonably able to protect his or her interests, or
(ii) any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom he or she represented, because of his or her age or the state of his or her physical or mental capacity,
(f) the relative economic circumstances, educational background and literacy of:
(i) the parties to the contract (other than a corporation), and
(ii) any person who represented any of the parties to the contract,
(g) where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed,
(h) whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act,
(i) the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect,
(j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act:
(i) by any other party to the contract,
(ii) by any person acting or appearing or purporting to act for or on behalf of any other party to the contract, or
(iii) by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract,
(k) the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party, and
(l) the commercial or other setting, purpose and effect of the contract.
(3) For the purposes of subsection (2), a person shall be deemed to have represented a party to a contract if the person represented the party, or assisted the party to a significant degree, in negotiations prior to or at the time the contract was made.
(4) In determining whether a contract or a provision of a contract is unjust, the Court shall not have regard to any injustice arising from circumstances that were not reasonably foreseeable at the time the contract was made.
(5) In determining whether it is just to grant relief in respect of a contract or a provision of a contract that is found to be unjust, the Court may have regard to the conduct of the parties to the proceedings in relation to the performance of the contract since it was made."
10 The position of persons who are made parties to the contract is addressed in s 12(2) of the Contracts Review Act:
"(2) The Court shall not exercise its powers under this Act in relation to a contract unless it is satisfied:(a) that the exercise of those powers would not prejudice the rights of a person who is not a party to the contract, or
(b) that, if any such rights would be so prejudiced, it would not be unjust in all the circumstances to exercise those powers,
but this subsection does not apply in relation to such a person if the Court has given the person an opportunity to appear and be heard in the proceedings."
11 Section 16 imposes a limitation period for bringing an application for relief under the Contracts Review Act:
"An application for relief under this Act in relation to a contract may be made only during any of the following periods:(a) the period of 2 years after the date on which the contract was made,
(b) the period of 3 months before or 2 years after the time for the exercise or performance of any power or obligation under, or the occurrence of any activity contemplated by, the contract, and
(c) the period of the pendency of maintainable proceedings arising out of or in relation to the contract, being proceedings (including cross-claims, whether in the nature of set-off, cross-action or otherwise) that are pending against the party seeking relief under this Act."
12 Section 8 of the Contracts Review Act provides that Schedule 1 has effect with respect to ancillary relief that may be granted in relation to an application for relief. Schedule 1 relevantly provides as follows:
"1. Where the Court makes a decision or order under section 7, it may also make such orders as may be just in the circumstances for or with respect to any consequential or related matter, including orders for or with respect to:(a) the making of any disposition of property,
(b) the payment of money (whether or not by way of compensation) to a party to the contract,
(c) the compensation of a person who is not a party to the contract and whose interest might otherwise be prejudiced by a decision or order under this Act,
...
and such orders in connection with the proceedings as may be just in the circumstances.
2. The Court may make orders under this Schedule on such terms and conditions (if any) as the Court thinks fit.
...
4. In this Schedule:
disposition of property includes:
(a) a conveyance, transfer, assignment, appointment, settlement, mortgage, delivery, payment, lease, bailment, reconveyance or discharge of mortgage,
(b) ...
(c) the release or surrender of any property, and
(d) ...
whether having effect at law or in equity."
THE FACTS
13 The facts in this case were set out at length by the primary Judge in the First Judgment (which runs to 115 pages, including appendices). The facts referred to in this section are largely drawn from that judgment.
14 By a lease dated 20 October 1992 ("the Lease"), Overton granted a lease for a term of ninety-nine years (but subject to earlier termination) to the Murphys. The Lease related to Unit 53 in the Village, described as a "B" type unit. The Murphys paid a "Lease Price" of $215,750. It appears that Mr Murphy still resides in Unit 53, but that Mrs Murphy, by reason of illness, ceased to reside there on 1 April 1997.
15 On 31 December 1985, Overton had entered into a deed of trust (the "Trust Deed") with Perpetual Trustee Company Limited ("the Trustee"). The intention of the Trust Deed was expressed in Recital G as follows:
"that certain benefits and obligations to the extent provided for herein, shall extend to every person who applies to lease a Unit from [Overton] under this Deed for such time and for so long as that person remains a Lessee and every unit shall be leased and held subject to the provisions of this Deed."
16 The Trust Deed required any agreement for lease and any lease of a unit in the Village to be substantially in the form of the Fifth Schedule to the Trust Deed. The Fifth Schedule contained a form of Agreement for Lease and a form of Lease in registrable form under the Real Property Act 1900 (NSW). The latter included Annexures "A" and "B". Annexure "A" was a "Reference Schedule" which allowed for details peculiar to the individual lease to be inserted. Annexure "B" contained lease covenants and agreements which were in fact those of a memorandum filed in the Office of the Registrar-General Y452314 (the "Lease Memorandum"). Relevant terms of the Lease Memorandum and of the Trust Deed are set out in the First Judgment, Appendices 3 and 4. The primary Judge summarised the effect of these provisions as follows (at [27]) (the words in parentheses are ours):
"· A Lessee pays a total consideration, being the Lease Price, for the grantof a lease.
* Total Rent is 25 per cent of the consideration paid for such lease.
* The Lease Deposit is 75 per cent of that consideration.
* Overton is entitled to appropriate 10 per cent of the Total Rent every six months until, after five years, the Total Rent has been fully appropriated.
* After five years, no further rent is payable by a Lessee.
* Perpetual advances to Overton, by way of interest free loan, 97.5 per cent of the Lease Deposit paid by each Lessee [in fact, cl 10 of the Trust Deed provided for the Lessee to lend interest free to Overton 97.5 per cent of the Lease Deposit and the amount of the Total Rent, 2.5 per cent of the Lease Deposit being "Retained Monies" to be invested by the Trustee in an "Authorised Investment"].
* In the event of surrender of a lease, the Lessee will receive one-half of the excess, if any, of the Lease [Deposit] paid by any new Lessee for the grant of a new lease of the outgoing Lessee's unit, over the Lease [Deposit] originally paid by the outgoing Lessee [in fact, Overton was required to repay to the Lessee the amount ("Refunded Rent"), if any, of the Total Rent which had not been appropriated pro rata to the end of the month in which the refund became payable ("Accrued Rent"), plus the Lease Deposit adjusted in accordance with the provisions of the Trust Deed. The "one-half of the excess" referred to by his Honour (that half was called "Lessee's Capital Gain") is a result of one of the adjustments required by the Trust Deed].
* If the original Lease [Deposit] [is the same as] the Lease [Deposit] payable by the incoming lessee, the outgoing Lessee would receive a refund of the Lease Deposit [adjusted in accordance with the provisions of the Trust Deed] plus any unappropriated amount of the Total Rent."
* [If the original Lease Deposit is more than the Lease Deposit paid by the incoming lessee, the outgoing Lessee would receive the Lease Deposit adjusted in accordance with the provisions of the Trust Deed less the whole of the difference between the original Lease Deposit and the Lease Deposit paid by the incoming lessee ("Lessee's Capital Depreciation"), plus any Refunded Rent.]
17 Clause 15 of the Trust Deed entitled Overton to payment of one twelfth of 20 per cent of the Total Rent on the last day of each month during the first five years of the term of the lease. It was therefore entitled to appropriate the whole of the Total Rent (25 per cent of the Lease Price) over the first five years of the lease. In the Murphys' case the Total Rent amounted to $53,937.50. We should note that the better view would seem to be that the provisions of the Trust Deed governing the refund of the Lease Deposit entitle the Lessee to a refund of only 97.5 per cent of the original Lease Deposit. However, as the difference between an entitlement in the Lessee to a refund of 97.5 per cent or 100 per cent of the Lease Deposit makes no difference to the disposition of the appeal and was not an issue to which submissions were directed, it is not necessary to decide this point.
18 In the Trust Deed, Overton covenanted "with the Lessees for the benefit of each of them jointly and severally", inter alia, to use its best endeavours to carry on and conduct the Village in a proper and efficient manner (cl 21). Overton also covenanted to carry out and perform its obligations and functions in good faith (cl 22(1)). Overton was empowered to pay "outgoings" from its own funds (cl 22(2) [second]) but was
"entitled to claim reimbursement of all amounts so paid [with interest]...from the Lessees by the inclusion of such amounts in the next succeeding contribution by the Lessee's [sic] to Outgoings."
19 The Lease Memorandum established the mechanism for recovery by Overton from lessees of contributions to the expenditure incurred in operating the Village. Clause 5 of the Lease Memorandum relevantly provided as follows:
"5. CONTRIBUTION TO OUTGOINGS(a) In addition to paying the Lease Price, the Lessee shall... contribute to the Outgoings... in respect of the Premises and the Village and facilities thereof in accordance with this Clause.
(b) The Lessor may from time to time notify the Lessee of the Lessor's current estimate of the Lessee's contribution to the Outgoings... in respect of the Premises and the Village and facilities thereof in relation to any particular period... and the Lessee shall thereupon make payment of the amount of such estimated contribution either monthly or at such other intervals and on such dates and in such amounts as the Lessor shall determine. As soon as practicable after the end of each period in respect to which contribution has been levied, an adjustment shall be made between the Lessor and the Lessee by the payment of any deficiency in the amount of such contribution actually paid by the Lessee to the Lessor or the crediting of any excess by the Lessor against any future such contributions....
(c) Without in any way limiting the generality of the foregoing the Outgoings in respect of which the Lessor may levy contributions shall include provision for:
...
(v) expenditure incurred in carrying on the operations of the Village;
(vi) interest upon any monies borrowed or raised in respect of or for the administration of the Village;
...
(x) payment of amounts relating directly to the running of the Village comprising salaries and wages of staff of the Village and all fees and sums payable to persons not being staff of the Village who provide goods and/or services to the Village or to the Lessor or to the Trustee in relation to the operation of the Village including but without limiting the generality of the foregoing auditing and legal charges, consultants fees, wages and costs of administration generally;
...
(xiv) any such other reasonable and proper expenses and outgoings as the Lessor may from time to time decide.
...
(g) In addition to the Outgoings and Outgoings of Apartments in this clause, the Lessor may require the Lessee to pay and discharge and to keep the Lessor indemnified against all other outgoings, charges and liabilities for which the Lessor shall determine the Lessee to be separately liable in respect of the Premises, including (but not by way of limitation) any liability arising from any requirement of any competent authority or other body where such requirement applies to or in respect of the Premises.
(h) Any contribution in respect of Outgoings levied by the Lessor under this clause shall become due and payable to the Lessor or as the Lessor may direct in writing within seven (7) days of receipt of notice of the levy...".
20 In practice, Overton prepared a budget of estimated expenditure for each year and calculated the contributions necessary from lessees on the basis of that budget. The contributions so calculated were the maintenance fees that lessees were required to pay on a weekly or monthly basis. At the end of the period, Overton's auditors would prepare an account of the expenditure actually incurred in operating the Village and the income from contributions and from the operation of the Village. This was referred to as the "Maintenance Fund".
21 In the First Judgment, the Primary Judge made a large number of factual findings concerning representations made by Mrs Taylor, Overton's Agent, to the Murphys prior to their entering the lease. As his Honour remarked in the Second Judgment (at [70]), in summary those findings indicated that Mrs Taylor had failed to reveal the full level of expenditure that was recoverable from them under the Lease.
22 It is convenient to set out the paragraphs of the First Judgment particularly relied on by the Murphys in the Contracts Review Act proceedings:
"178 ...it was known to Mrs Taylor and, in any event, a person in the position of Overton offering leasehold interests for sale, as it was doing, must be taken to have known, that it was of importance for a prospective resident in the Heritage Village to make a reliable judgment as to what the commitments of that prospective resident would be if a lease was entered into. A prospective lessee would have no information as to the likely quantum of maintenance fees payable under a lease other than such as was provided by Overton. Overton alone had available to it the information upon which any reliable judgment must be founded.179. Clearly, no prospective resident could expect any guarantee concerning the level of maintenance fees. Exceptional circumstances could always arise that could have a significant effect on the maintenance fees that would be payable in the ordinary course. Fire or other natural disaster, for example, was always at least a theoretical possibility. Nevertheless, Overton must be taken to have understood that, by furnishing any estimate to a prospective lessee as to the likely quantum of maintenance fees payable by residents, there would be an expectation that Overton would disclose any information known only to it that would be relevant to the making of a judgment as to the reliability of any such estimate.
180. Mrs Taylor told Mr and Mrs Murphy that the maintenance fee for the unit of the type that Mr and Mrs Murphy were interested in was at that stage $55.71 a week. That of itself was not misleading or deceptive or likely to mislead or deceive. That was an accurate statement as at the time it was made.
181. However, Overton went further. It furnished Mr and Mrs Murphy with a copy of the Information Booklet. The Information Booklet was clearly a promotional tool. Nevertheless, it bore the character of a document included as a source of information. In referring to Overton's policy of removing the problems of home maintenance from the resident and stating that all bills had been budgeted for in the maintenance fees, and in describing the items that the maintenance fees had been budgeted to cover, the Information Booklet was calculated to give rise to an expectation that, to the extent that those items and maintenance expenses had not been adequately budgeted for in the estimated maintenance fees, that fact would be disclosed to prospective lessees.
182. In stating that "present budget figures would indicate a level of cost payable" in respect of a "B" type unit of $55.71 per week, the Information Booklet was calculated to give rise to an expectation that any information that was material or relevant to the reliability of such an estimate would be disclosed. The fact that expenditure incurred by Overton in order to provide the amenities and facilities referred to in the Information Booklet had not been taken into account in calculating the estimate of maintenance fees payable was material and relevant information. The failure to disclose that information would be misleading or deceptive to a prospective lessee or would be likely to mislead or deceive a prospective lessee.
183. The maintenance fee of $55.71 per week was calculated on the basis of the budget for the period ended 30 June 1992 and the budget for the period ending 30 June 1993. Mr and Mrs Murphy were given a copy of the latter budget and Mr Murphy enquired as to whether it was accurate and was told that it was. However, it is now clear that some expenditure that, under the terms of the Lease Memorandum, Overton would have been entitled to include in the budget for the purpose of estimating the Lessees' contribution to Outgoings under clause 5(b), was under provided for in that budget. The quantum of the under provision, however, is not capable of easy determination.
...
186. ...[t]here is ...evidence from which an inference can be drawn that expenditure that Overton was entitled to provide for in the budgets in the two years in question and to recover from Lessees, was not provided for or recovered. One piece of evidence is Pannell Kerr Forster's letter of 10 March 1994 and the model attached to it. The model indicated that the amount that could have been recovered by Overton in respect of the year ended 30 June 1993 was more than twice the amounts provided for in the budget and the actual accounts of the Maintenance Fund for that period."
23 We interpose to observe that the letter from Pannell Kerr Forster, which was discussed at some length by the primary Judge, indicated that for the year ended 30 June 1993 the amount actually charged to the Maintenance Fund was $490,107, compared with a budgeted amount of approximately $452,000. The letter also indicated that a total of $1,018,548 could have been charged to the Maintenance Fund, had all operating expenses been so charged. We continue with the findings made by the primary Judge:
"189. That evidence leads inexorably to an inference that the figures upon which the maintenance fee of $55.71 per week was calculated did not adequately provide for all of the expenditure actually incurred or likely to be incurred in the operation of the Heritage Village. Under the terms of the Lease Memorandum, Overton was entitled to recover the whole of that expenditure from Lessees by way of maintenance fees.
190. Clause 5(c) of the Lease Memorandum set out in considerable detail the items of expenditure with respect to which levies could be made upon Lessees for contribution to the expenditure incurred in operating the Heritage Village. The Reference Schedule in the Lease contained the estimate by Overton of the initial contribution that Mr and Mrs Murphy would be called upon to pay, of $55.71. Clause 5(l) of the Lease Memorandum made unequivocally clear that the figure was no more than an estimate and was subject to determination and variation from time to time in accordance with the Lease Memorandum. Mr Murphy read clause 5 and understood it. He understood that, notwithstanding the estimate, there was no limit on the extent to which, at least in theory, the maintenance fee could be increased to cover the expenditures referred to in clause 5 of the Lease Memorandum.
191. Nevertheless, the statement of an estimate of the outgoings in both the Lease and Information Booklet would fairly give rise to an expectation on the part of a recipient of those documents, who was an intending lessee, that Overton would disclose the fact that expenditure that Overton was entitled to take into account in arriving at that estimate had not in fact been taken into account. That expectation was clearly not fulfilled. I consider that, in all of the circumstances, it was misleading or likely to mislead for Overton to furnish the information contained in the Information Booklet, the Lease and the statements attributed to Mrs Taylor about the maintenance fee of $55.71 without disclosing that the estimate was calculated on figures that did not adequately provide for all expenditure actually being incurred in the operation of the Heritage Village.
...
195. Mr and Mrs Murphy had received a copy of the budget for the Maintenance Fund in respect of the period ending 30 June 1993. In the meeting at the end of August 1992, Mr Murphy asked how accurate that budget was. Mrs Taylor's response was that, while the budget had shown a surplus of $18,200, the surplus turned out to be "$18,500 odd" for the period ended 1991-1992 and that she expected that the surplus of $22,000 for the 1992-1993 budget was "conservative". A question must arise as to what was meant and understood by references to "the accuracy" of the budget.
200. ...[T]he statement concerning the accuracy of the budget must also be considered in the light of the fact that the budget under provided for expenditure being incurred and likely to be incurred by Overton in operating the Heritage Village. In so far as Overton continued the policy of bearing itself part of the expenditure incurred in operating the Heritage Village, the budget was accurate. However, in so far as the budget failed to take account of expenditures being incurred and likely to be incurred, it was quite inaccurate. Mrs Taylor must be taken to have known that Mr and Mrs Murphy would rely on a response concerning Mr Murphy's enquiry as to the accuracy of the budget....
202. ...There is no doubt that Mr and Mrs Murphy had regard to the estimate furnished by Overton in making a decision as to whether they would enter into a lease. If Overton had disclosed the extent of the under provision for expenditure, I am satisfied that Mr and Mrs Murphy would have given further serious consideration as to whether they would enter into a lease with Overton. Alternatively, they would have reconsidered very carefully the decision they had made to enter into the Lease.
203. I consider that it is more likely than not, therefore, that Mr and Mrs Murphy would not have entered into the Lease had they been told that the estimate of maintenance fees did not accurately reflect the expenditure that Overton was incurring in operating the Heritage Village. Further, had Mr and Mrs Murphy been told that the budget was not accurate because it did not take account of all expenditure, it is more likely than not that they would not have entered into the Lease.
...
233. It is a fair conclusion from the evidence, however, that the conduct of Overton during 1992 induced an assumption on the part of Mr and Mrs Murphy that, in arriving at the estimate of $55.71 per week, Overton had taken into account all expenditure being incurred or likely to be incurred in operating the Heritage Village...".
24 Reference should also be made to a finding made earlier in the First Judgment. The primary Judge observed (at [84]) that it was difficult to reconcile Mr Murphy's asserted belief that Overton had made some promise about the level of maintenance fees with his evidence that he had read and understood the provisions of the Trust Deed and the Lease. (The Murphys had been represented by a solicitor in connection with their "purchase" of the unit.) The primary Judge continued:
"85. I am satisfied that he believed and understood that his and Mrs Murphy's obligations and liabilities were as specified in the legal documentation. On the other hand, he had a belief or expectation, induced by Overton's conduct, that in the ordinary course of things, the maintenance fees that he or Mrs Murphy would be called on to pay would not increase disproportionately to increases in the age pension. Mrs Murphy's state of mind was not relevantly different. Their belief and expectation was a factor that they took into account in deciding to enter into the Lease."
25 On 1 July 1994, Overton wrote to all lessees advising that contributions to outgoings would be increased by 18.37 per cent. The effect was apparently to increase the Murphy's contribution from $60.79 per week (exclusive of a pensioner rebate of $5.08 per week) to $71.96 (exclusive of the pensioner rebate).
26 Mr Murphy had become president of the Residents' Committee in May 1994. The primary Judge found (First Judgment at [140]) that he was well aware by October 1994 that Overton had put forward a proposal for a further 17.69 percent increase in contributions in respect of the year ended 30 June 1995. He was also aware that Overton was intending to recover the deficit of $128,601 for the year ended 30 June 1994 (that is, the difference between the budget and actual expenses in respect of items included in the budget) and that it intended to recover any deficit for the year ended 30 June 1995. The primary Judge found (at [159]) that by 7 November 1994 (the date of a letter sent on behalf of the residents to Overton):
"[I]t was clear to Mr Murphy that Overton was not in any way limiting claims for contribution to outgoings by reference to CPI or any other factor. In so far as Mr Murphy had had a belief in April 1994 that the 18.37 per cent increase would have kept the accounts balanced until the Heritage Village had been completely built, that belief had come to an end by November 1994. By 14 November 1994, Mr Murphy had the clear belief that any hope that he may have had earlier in the year that the 18.37 per cent increase was going to be the last increase that he would see for some time, had been brought to an end."
His Honour also found (at [146]-[147]):
"As the events from March through to October 1994 unfolded, Mr Murphy saw that the atmosphere in the Heritage Village was becoming quite unhappy so far as the relationship between residents and management was concerned. He was aware that two of the Lessees had set about selling their interests between April and October 1994.However, from Mr Murphy's point of view, he did not wish to leave the Heritage Village or to sell or surrender the Lease. He hoped that the problem could be sorted out. He appreciated that he could possibly have sold if he had chosen to sell but that, having thought about that option, his preferred course was to try to work out and solve the dispute somehow."
27 On 27 November 1996, Overton wrote to all lessees, including the Murphys, advising that it would not provide any funding from its own resources to make up any shortfall in the funding from the lessees. This amounted (as the primary Judge found) to an unequivocal communication of a decision to bring all expenditure incurred by Overton in the operation of the Village to the account of the Maintenance Fund. The letter indicated that the budgets for the 1994, 1995 and 1996 financial years would be redrafted to include revenue and expenditure in respect of all services provided by the Village.
28 According to the primary Judge, several significant matters emerged from the letter of 27 November 1996. These were (at [170]):
". the expenditure to be included in the budget was increased from $618,120 to $977,260;* all expenditure for the provision of user pay services were brought into the Maintenance Fund;
* an Administration Service Charge of $60,000 to cover the services of Mr James as resident administrator was brought into the Maintenance Fund."
There was evidence that the weekly outgoings payable by the Murphys following the announcement of 27 November 1996 amounted to $133.85, although in fact they did not pay the full amount.
A SHORT HISTORY OF THE LITIGATION
29 It is not necessary to refer to every proceeding between the present parties or between Overton and other lessees. It is, however, necessary to refer to some of the proceedings in order to understand the issues arising in the present appeal.
30 On 21 August 1996, Overton applied to the Residential Tenancies Tribunal for orders that the lessees pay the shortfall in operating expenses for the 1994, 1995 and 1996 financial years and pay Overton's estimate of the level of contributions required to meet outgoings for the 1997 financial year. On 16 December 1996, the Tribunal ruled that it did not have power to grant the relief sought.
31 In January 1997, Overton commenced proceedings against 84 of the lessees in the Local Court to recover shortfalls in contributions. This provoked proceedings by 112 lessees in the Equity Division of the Supreme Court of New South Wales seeking orders restraining Overton from prosecuting such proceedings. Orders to that effect were made on 27 February 1997, but on terms that allowed Overton to pursue its claims in the Supreme Court. A condition of the stay was an undertaking of the lessees to increase their contributions by ten per cent. Thus from 1 March 1997, the Murphys' contributions increased from $71.96 to $79.15 per week (exclusive of the pensioner rebate). The lessees were also directed to elect a representative party to act on behalf of all of them.
32 A statement of claim was duly filed in the Supreme Court in which claims were made on behalf of at least 112 lessees (on the material available to us the numbers are not clear). The lessees invoked the Retirement Village Industry Code of Practice 1995 ("Code of Practice"), claiming that it overrode the terms of the leases. Overton filed a cross-claim against the lessees in which it sought to recover what it claimed were arrears of contributions under the leases. A defence to cross-claim was filed by the lessees asserting matters similar to those ultimately determined by the primary Judge in the First and Second Judgments.
33 On 23 December 1997, Windeyer J held that the Code of Practice did not give rise to private rights. An appeal to the Court of Appeal was effectively dismissed: Murphy v Overton Investments Pty Ltd, unreported, 3 September 1998.
34 In March and April 1998, Windeyer J made orders under the Supreme Court Rules, Pt 72, referring the issues arising under the cross-claim to Mr Peter Taylor SC for report. The parties agreed that Mr Taylor should deal, in the first instance, only with the "common defences" such as those based on construction of the leases. Mr Taylor's report of November 1998 dealt only with those issues.
35 The claims referred to the referee related to the period before 15 May 1998. The amounts claimed by Overton totalled $1,502,203. This total included shortfalls and outstanding contributions of $647,468 and what was described as "legal and accounting expenses" of $496,799. Almost all of the balance comprised interest.
36 The precise make-up of the legal and accounting expenses of $496,799 is not entirely clear, since the referee's report breaks up the figure by years rather than by description of each component (apparently because the parties did not adduce evidence as to how the expenses were made up). A schedule incorporated in a judgment of Windeyer J delivered on 10 December 1998 (Murphy v Overton Investments, Pty Ltd 1181/97) shows the break-up of a different figure for legal and accounting charges, namely $583,518. The two largest items concerned the proceedings in the Residential Tenancies Tribunal ($184,738) and the Commercial Tribunal ($184,904), brought by the Director-General of Fair Trading against Overton apparently alleging breaches of the Code of Practice. The schedule also included proceedings in the Equity Division ($144,368) and in the Administrative Law Division ($20,529) where Overton had challenged the validity of the Code of Practice.
37 The referee found that Overton was estopped, or otherwise barred, from retrospectively charging certain additional amounts to the Maintenance Fund in respect of years prior to the year ended 30 June 1997. The extent to which Overton was estopped or barred is not relevant to the present appeal.
38 Overton commenced charging accounting and legal expenses to the Maintenance Fund in April 1997. The referee's report noted that Overton based its claim for auditing and accounting charges on cl 5(c)(x) of the Lease Memorandum. The referee observed that, while most of these charges did not relate to the usual day-to-day aspects of the operation of the Village, they did relate to the then current dispute and its predecessors in the courts. In his view, given the nature of the dispute (that is, one that related to outgoings incurred in the operation of the Village), it was difficult to accept that the accounting costs incurred in the course of the dispute were not sufficiently related to the operation of the Village so as to be recoverable under cl 5(c)(x).
39 The main issue before the referee in relation to legal fees concerned the costs of the proceedings in the Commercial Tribunal, where Overton was found to have breached the Code of Practice and was ordered to pay costs. The referee commented that it was not entirely clear whether the lessees' claim was that the costs Overton sought to recover had not been properly incurred, or whether Overton's conduct in claiming them breached its obligations of good faith and best endeavours under cl 21 of the Trust Deed. Insofar as the contention rested on the first basis, he rejected it:
"There was no evidence directed, in the course of the hearing, to explain in any detail, the real nature of the issues in these various proceedings. Without such an explanation it is imprudent, at least, to make any finding adverse to Overton."
40 The second basis for the claim was also rejected. It was not a breach of the obligation of good faith to claim costs from the lessees merely because Overton had suffered adverse costs orders in the proceedings. The adverse costs orders had related to the lessees' costs and those of the Director-General of Fair Trading. The costs of Overton itself were different both "conceptually and actually". Moreover, the evidence did not allow a complete understanding of the precise issues involved in each of the proceedings and, in particular, the considerations that prompted the costs orders. The referee also considered it relevant that the parties to the litigation were not co-extensive with the residents of the Village who were required to contribute to the Maintenance Fund pursuant to the terms of the Lease Memorandum.
41 A further complication facing the lessees was that they were unable to quantify the costs in issue (a defect which they sought to remedy in subsequent proceedings before Windeyer J). Their position was that if any substantial part of the costs claimed by Overton had been incurred in breach of Overton's obligations, the whole claim had to fail. The referee rejected this approach:
"The only basis for the Residents to resist the claim is to establish either that the costs do not relevantly relate to the operation of the Village or to establish that they were incurred, or claimed, in breach of the duties of good faith and best endeavours. However, neither of those breaches operate as a condition precedent to Overton's right of recovery. Accordingly, in order to make good any defence, the Residents must be able to identify not only a proven breach of the duties but also to quantify the loss that flows from that breach. That task cannot be undertaken on the evidence before me."
42 On 10 December 1998, Windeyer J gave a judgment addressing the question of whether the referee's report should be adopted in relation to the legal and accounting charges. His Honour pointed out that there was no question of the charges being unreasonable, although the quantum demonstrated "the disastrous consequences of [the] dispute". He noted that the charges mostly related to work done to provide evidence and to give evidence. He further noted that Overton had made it clear that it did not seek to recover any portion of the costs it had been ordered to pay to the lessees. Moreover, it had not been suggested by the lessees that the charges had been incurred or paid in breach of Overton's duties of good faith and best endeavours under the Trust Deed.
43 Windeyer J considered that, as a matter of construction, cl 5(c) of the Lease Memorandum applied to fees payable to persons who provided services to Overton in relation to the operation of the Village. While it was necessary to show some relevant connection between the fees and the operation of the Village, the words read in context were apt to embrace the expenses in question, or most of them.
44 His Honour pointed out that the evidence before him did not identify the various issues arising in the proceedings which had given rise to the costs claimed. The lessees' attitude had been that either all or none of the costs should be disallowed. No application had been made to refer any matter back to the referee. Windeyer J considered that, on the material before him, it was not possible to hold that the charges had no connection with the operation of the Village. The proceedings in the Residential Tenancies Tribunal, the Administrative Law Proceedings (challenging the validity of the Code of Practice) and the Commercial Tribunal proceedings all related to the operations of the Village, as did the Local Court proceedings. Windeyer J said this about the costs incurred in connection with the challenge to the validity of the Code of Practice:
"First, of course, such costs were not identified before the referee and are not identified in the additional evidence; second, the argument as to the validity of the Code was by no means hopeless; and thirdly, the validity of the Code had an obvious connection with the operation of the village."
Finally, his Honour thought that there was nothing in the argument that the term "legal charges" in cl 5(c)(x) meant something other than legal costs.
45 The matter returned to Windeyer J on 17 December 1998, there being no agreement as to the amounts owing on the basis of the referee's report. Overton had filed a notice of motion seeking orders striking out portions of the amended defences of the lessees to Overton's cross-claim. His Honour expressed the view that the proceedings on the existing cross-claim should be brought to an end and that the individual claims by the lessees in the amended defences to the cross-claim should be pursued by separate actions. These claims included the Contracts Review Act defences.
46 At a hearing held on 4 February 1999, Windeyer J expressed doubts as to whether it was possible to entertain the lessees' claims as cross-claims. His Honour said this:
"[s]ubject to entering judgment for the amounts [due to Overton by reason of adoption of the referee's report], the lack of representative parity [party?] and the way these things have gone, makes it desirable to bring them to a conclusion and anybody who want[s] to bring any cross claims ought to be allowed to do so and an appropriate stay ought to be put into place to enable that to happen. I do not think it is a procedurally good way to go ahead, to have 40 different cross claims in this action."
A direction was made that the lessees file individual statements of claim by 13 February 1999.
47 The lessees chose not to comply with the direction. Instead, on 23 February 1999, Mr Murphy filed a representative proceeding in the Federal Court under Part IVA of the Federal Court of Australia Act 1976 (Cth). Mr Murphy purported to institute the proceeding on behalf of most of the lessees, including Mrs Murphy. The allegations pleaded in the statement of claim overlapped with those made in the amended defence to the cross-claim in the Equity Division proceedings.
48 A further hearing took place before Windeyer J on 24 February 1999. Discussion took place as to whether judgment should be entered for Overton and whether a stay in respect of the whole or portion of the judgment should be granted. Issues of calculation and apportionment arising out of the referee's report were debated at subsequent hearings on 16, 23 and 30 March 1999. On the last of these occasions directions were made:
"...to enable:(i) the entry of judgment by consent against each respective [lessee], as set out in the list of agreed amounts;
(ii) further argument on the question of the amount of the judgment to be entered against each respective [lessee] in accordance with the list of disputed amounts;
...
(iv) such further orders as the Court deems fit."
49 On 23 April 1999, counsel for Overton proffered proposed short minutes of order. Discussion ensued concerning a stay. The discussion makes it plain that the matter of a stay was still at large, although there was agreement in principle that those lessees who paid fifty per cent of the proposed judgment amount should have a stay with respect to the balance. Counsel for the lessees sought to extend the benefit of the stay to all of the parties to the class action in the Federal Court.
50 In the course of discussion about the form of the proposed orders, counsel for Overton referred to the fact that the lessees' pleadings still contained defences "which have not been disposed of by the determination of the common issues which your Honour has dealt with". Windeyer J then said this:
"I am proposing to make an order so that there can't be doubt about this because I have said I was going to do it but the order I was going to make to bring the proceedings under control, that matters arising under [the estoppel and Contracts Review Act defences] be brought by separate action."
His Honour also said that he was prepared to grant a stay and that it was therefore necessary to identify anyone who was not a party to the Federal Court proceeding.
51 Windeyer J then proceeded to give reasons for making the orders that he was about to make. In the course of those reasons his Honour said this:
"The matters now raised in the Federal Court, or at least two of the pendant claims, were always recognised, perhaps incorrectly, as being part of the matters for determination in the action in this Court. I consider that this provides justification for a stay. I should say however that I have no way of determining the likelihood of success of those parties who are represented in the class action. It is not possible to come to separate decisions as to what is an appropriate condition in respect of particular residents. No evidence was put before me to make that possible. It is obviously very desirable that the representative action be determined as quickly as possible, but that depends upon how long it takes to get ready and the state of business in the Federal Court. Counsel for the residents affected said that the condition of the stay could be payment of 50 per cent of the judgment sum... it would be unfair to Overton not to require a substantial payment but for the reason I have given I consider that the stay should be ordered... The stay should operate until the conclusion of the Federal Court proceedings or earlier order of this Court as Overton should have the opportunity to apply to have the stay removed if circumstances, including delay in the pursuit of the representative action, justifies that course."
52 After further discussion as to the form of the final orders, Windeyer J made orders relevantly as follows:
"2. The report of the referee be adopted....
4. All matters arising under paragraphs 4 to 67 of the further amended defence to cross-claim [that is, the estoppel and Contracts Law Act issues] be brought to trial by separate actions by residents raising such defences and that judgments be entered on the cross-claim without regard to such defences, but subject to any application for a stay.
...
6. Judgment be entered for the cross-claimant on the cross-claim against individual cross-defendants for the separate amounts [specified].
7. Order that interest on such judgments accrue at the daily rate shown in the last column of such document.
...
12. Order that proceedings for enforcement of the judgments against the cross-defendants other than [named persons] be stayed upon condition that the cross-defendants obtaining the benefit of such stay pay to the cross-claimant 50% of the amount shown against the name of such cross-defendant...within 21 days of this date and further order that such stay continue until the conclusion of Federal Court Proceedings No. 159 of 1999 or earlier order of this Court." (Emphasis added.)
53 Overton appealed to the New South Wales Court of Appeal from certain of the orders made by Windeyer J on 23 April 1999. The lessees filed a cross-appeal. They persisted with their cross-appeal (which Overton contended was incompetent) despite Overton not proceeding with its appeal. The substance of the lessees' complaint was that Windeyer J had denied them procedural fairness by disposing of the cross-claim without hearing the merits of the defences of the lessees based on estoppel and the Contracts Review Act. It may well be that the lessees were motivated to persist with the cross-appeal because, in the meantime, orders had been made in this Court by the primary Judge that the representative proceedings no longer continue as such: Murphy v Overton Investments Pty Ltd [1999] FCA 1123.
54 The Court of Appeal delivered judgment on 21 June 2001: Overton Investments Pty Ltd v Murphy. Mason P, with whose judgment Sheller and Beazley JA agreed, held that the lessees had not been denied procedural fairness. The lessees, in Mason P's words had (at [80]):
"consented to or at least acquiesced in a procedure devised to enable the individual defences to be pursued in an alternative appropriate manner by those cross defendants who still wished to do so. The procedure was further moulded to meet the residents' decision to file a single representative proceeding in the Federal Court. This was commenced as the vehicle for an additional number of what I will neutrally term `counter claims', including claims of misleading or deceptive conduct under the Trade Practices Act and claims of unconscionability and negligence."
While Windeyer J had indicated his thinking on 17 December 1998, he had remained open to persuasion had the lessees wished to "stand their ground and insist upon the defensive issues tendered in their defence to cross-claim". As Mason P observed (at [92]):
"the critical fact is that the residents acquiesced in the effective transfer of their limited individual defences from the debit side of the Supreme Court Cross Claim ledger to the enhanced credit side of the Federal Court proceeding's ledger."
55 The Court of Appeal struck out the cross-appeal as incompetent (for reasons that are irrelevant to this appeal), granted leave to the lessees to cross-appeal and dismissed the cross-appeal.
56 On 17 August 1999, while the appeal to the New South Wales Court of Appeal was pending, the primary Judge made the orders that the proceedings in this Court no longer continue as representative proceedings. On 30 and 31 August 1999, 94 lessees filed fresh applications in the Federal Court, each accompanied by a statement of claim which replicated the relief sought by Mr Murphy in the representative proceedings.
57 On 7 March 2000, the primary Judge commenced hearing the Murphys' claim, together with proceedings brought by two other lessees, Mr Neville Carnegie and Mrs Rita Brasington. The intention was that these should be "test cases", although apparently there has been no formal agreement among the multitudinous parties to that effect. It appears that the proceedings involving Mr Carnegie and Mrs Brasington have been held over pending the determination of the Murphys' claim.
58 As we have noted, the primary Judge dismissed the Murphys' proceedings in the First Judgment, delivered on 15 June 2000. The Full Court gave its judgment on the appeal on 2 May 2001: (see [5] above). As already noted, the primary Judge delivered the Second Judgment, in respect of which the present appeal has been brought, on 7 December 2001.
SOME FURTHER ISSUES
59 We were told that the primary Judge intends to embark on the hearing of the application by Mrs Brasington in July 2002. We were also told that his Honour will address in that hearing Overton's cross-claim against Mrs Brasington. It appears that the cross-claim relates to contributions, including legal and accounting expenses, allegedly due in respect of the period from 15 May 1998 (in effect, the cut-off date for the orders made by Windeyer J) to 29 June 2000. It is contemplated, so we were informed, that the hearing of the cross-claim may resolve issues common to the cross-claims brought by Overton against the other ninety or so lessees who have commenced proceedings in the Federal Court, although past experience does not inspire confidence that this will necessarily occur.
60 The reason why the cross-claim is limited to contributions due until 29 June 2000 is that on that date Overton transferred its interest as registered proprietor of the Village to Cuzeno Pty Ltd ("Cuzeno"), which thereupon became registered as proprietor. By virtue of the registration of Cuzeno as proprietor, Overton's interest as lessor under the Lease with the Murphys was assigned to Cuzeno. Overton provided vendor finance to Cuzeno and took a registered mortgage over the Village. Perhaps coincidentally, the transfer to Cuzeno took place two days before the commencement date of the Retirement Villages Act 1999 (NSW), which established a new regime in relation to the payment of recurrent charges by residents of retirement villages.
61 Overton has not filed a cross-claim against the Murphys in the Federal Court proceedings. Rather, for reasons that have not been fully explained, Overton has instituted separate proceedings in the District Court of New South Wales against the Murphys claiming contributions in respect of the period from 15 May 1998 to 29 June 2000. The Murphys have apparently pleaded defences relating to the construction of the relevant clauses of the Lease, as well as invoking the Contracts Review Act.
62 Mr Moore, counsel for the Murphys, said that determination of the cross-claim against Mrs Brasington was likely to decide most but not all the issues in the District Court, although this observation also might have a tinge of optimism about it. The reason for Mr Moore qualifying even his optimistic assessment was said to be that the claim by Overton against the Murphys is greater than the claims against any other lessees, in that it includes a sum of about $80,000 in so-called "unit legals". These (so we were told) are legal expenses incurred by Overton that have been charged by it to the Murphys and not to any other lessees. We were also informed that the District Court proceedings have been stayed pending the outcome of the cross-claim against Mrs Brasington in this Court.
63 The precise content of the so-called "unit legals" was never fully explained. A statement of charges issued by Overton to the Murphys in February 2000 (which was in evidence before the primary Judge) showed a total of $108,657 due by the Murphys in respect of contributions for the period from 15 May 1998 to the date of the statement. We were told that approximately $80,000 of this sum was referable to the so-called "unit legals". Mr Moore said that a large part of this sum comprised costs incurred by Overton in the terminated representative proceeding in the Federal Court, over and above the costs awarded against Mr Murphy as the representative party in those proceedings. Mr Moore did not quantify those costs or explain how the balance of the $80,000 was made up. He did say, however, that the distinguishing characteristic of the unit legals was that they were incurred by Overton in defending litigation relating to its conduct before the Lease was entered into.
THE CONTRACTS REVIEW ACT PROCEEDINGS
ISSUES IN DISPUTE
64 There was much disagreement between counsel as to what issues were or were not before the primary Judge on the Murphys' claim for relief under the Contracts Review Act. It must be said that the course of argument revealed considerable uncertainty, if not confusion as to the issues his Honour was asked to address.
65 The relief sought by the Murphys, as specified in an amended application they were given leave to file during the trial, was as follows:
"4. A declaration that the lease dated 20 October 1992 between the Applicant and spouse and the Respondent as Lessor is unjust within the meaning of s 7 of the Contracts Review Act 1980 (NSW).5. An order pursuant to s 7(1)(d) of the Contracts Review Act 1980 (NSW) that the respondent execute an instrument that has the effect so far as is possible of avoiding the unjust consequences of the lease."
There was some debate before his Honour as to whether the Murphys should be required to specify with greater precision the relief they sought. It appears that the view was taken that the precise form of relief could be determined if and when a finding was made that the Lease was unjust within the meaning of s 7(1) of the Contracts Review Act. Mr Moore, who also appeared for the Murphys before the primary Judge, explained to his Honour what he envisaged would happen:
"I would be submitting that the contract is unjust and that the relief by virtue of that injustice is either to limit outgoings to a percentage of the pension or if your Honour does not accept that global approach then zero in on specific outgoings, abnormal legals, accounting and the like and then quantify the extent to which they have been overpaid in the past and the precise dollar or x-dollars could be calculated."
66 It must be said that the absence of a document specifying the relief sought by the Murphys has contributed to the uncertainty that has characterised the conduct of this appeal. It was not until the second day of the appeal that Mr Moore, at the insistence of the Court, produced a document, in the form of a draft deed between Overton and the Murphys, that identified the relief sought. In our view, the absence of such a document at an earlier stage contributed to the parties' shift in position and to the lack of definition of issues that has attracted judicial comment throughout this litigation.
67 The primary Judge identified (Second Judgment, at [65]) three "independent heads of claims" made by the Murphys:
* the representations made by Mrs Taylor, as found in the First Judgment, relating to the level of outgoings for which the Murphys would be liable under the Lease;
* the provisions in the Lease that entitled Overton to recover from the Murphys contributions in respect of certain legal and accounting expenses incurred by Overton; and
* the provisions in the Lease relating to interest.
No issue has been raised on appeal concerning the provisions relating to interest and we say no more about them.
68 There was much discussion on the appeal as to whether the primary Judge addressed, or had been asked to address, the unit legals as an element of the Murphys' Contracts Review Act claim. Ultimately Mr Moore accepted that his Honour had not been asked to address, and had not addressed, the question whether the unit legals fell within cl 5 of the Lease, nor whether they were recoverable by Overton from the Murphys. In particular, it was accepted that his Honour had not addressed the question of construction that presumably will fall to the District Court to decide (if the proceedings there continue), namely whether cl 5(c) (v), (x) or (xiv) of the Lease Memorandum (incorporated in the Lease) allow Overton to recover fees incurred by it in defending allegations arising out of pre-Lease negotiations.
69 A reading of the transcript of the proceedings before the primary Judge suggests that the unit legals were mentioned in the course of argument, although they had not been referred to in the Murphys' pleadings. Despite invitations from his Honour to formulate and present contentions relating to the unit legals, the Murphys did not do so. The failure to pursue these questions before the primary Judge narrows the issues on the appeal. It may also have consequences for any further attempt by the Murphys, whether in existing or future proceedings, to invoke the Contracts Review Act.
70 There was also considerable debate as to whether the Murphys had put to the primary Judge that he should take into account, in determining whether the Lease was unjust for the purposes of the Contracts Review Act and, if so, what relief, if any, should be granted, the fact that Unit 53 was the Murphys' home and not merely an investment. On the appeal, Mr Moore submitted that his Honour's discretion had miscarried because, although he had allowed them a reasonable period to rearrange their affairs, he had failed to take into account that the Murphys were elderly people who had entered into the Lease in order to acquire a home for their retirement. The contention was that they should not have been treated in the same way as investors who might be expected to make a commercial decision to realise an investment if it turned out not to have the qualities represented by the vendor.
71 It is not at all clear that his Honour treated the Murphys as if they were simply investors, since he assessed their claim on the basis that they should be allowed a reasonable period after becoming aware that false representations had been made in which to rearrange their affairs. His Honour was obviously aware that the Murphys were (or in Mrs Murphys' case, had been) living in Unit 53. In any event, an examination of the transcript of argument before his Honour and of relevant passages in written submissions indicates that the argument relied on by Mr Moore on the appeal was not put to the primary Judge. It is true that a submission was made that the Murphys were "locked in" to the Lease. But this was put in the context of purely commercial considerations. It was said that the Murphys faced a situation where, after nearly five years in occupation, most of the "Total Rent" paid by them had been appropriated under the terms of the Lease (that is, nearly twenty five per cent of the Lease Price paid by them for the Lease as explained at [16] above) and outgoings had greatly increased. It was not suggested to his Honour that it was unjust to limit the Murphys to a relatively short period in which to reorganise their affairs on the ground that, as elderly people, they could not have been expected to move out of their retirement home even if such a move had been sensible from a commercial perspective.
THE PRIMARY JUDGE'S REASONING
72 The primary Judge first addressed and rejected Overton's argument that the Murphys were estopped from pursuing their claims under the Contracts Review Act by reason of the orders made by Windeyer J in the Supreme Court of New South Wales and the orders made by the New South Wales Court of Appeal dismissing the lessees' appeal. We shall return to this issue later (see [86]-[94] below).
73 His Honour then considered the Murphys' substantive claim for relief under the Contracts Review Act. He pointed out that, under the Act, it is the contract or its provisions that must be unjust. It is not the transaction but the contract that must be examined. His Honour distinguished between a contract that is unjust because its terms, consequences or effects are unjust and a contract that is unjust because of the unfairness of the methods used to make it. The former he characterised as "substantive injustice"; the latter as "procedural injustice".
74 The Murphys' case on procedural injustice rested on the findings of fact, the most important of which are extracted earlier in this judgment (see [22]-[23] above), demonstrating that Mrs Taylor had failed, in the pre-Lease discussions, to reveal the full extent of the outgoings to which the Murphys could be required to contribute under the Lease. There had been no suggestion that the outgoings were excessive for what the Murphys received as occupiers of the Village. Mr Murphy had understood that the Village was to be self-funding. But he had been misinformed as to the relationship that his liability to contribute towards the outgoings would bear to the age pension. And the Murphys lacked the capacity that Overton had to ascertain the extent of the contributions Overton was entitled to recoup from the lessees. But for Overton's conduct, they would not have entered into the Lease.
75 The primary Judge then addressed each of the considerations identified in s 9(2) of the Contracts Review Act. He concluded that, having regard to Overton's misleading conduct, the Lease was attended with procedural injustice and was unjust in the circumstances in which it was entered into.
76 The primary Judge next considered whether it was just to make an order requiring the execution of an instrument varying the provisions of the Lease, or otherwise affecting the operation or effect of the Lease, for the purpose of avoiding any unjust consequence or result. The unjust consequence or result in this case was that the Murphys could be required to contribute to outgoings a greater proportion of their income than they had understood.
77 In his Honour's view (at [89]):
"[i]n the absence of any evidence that the value of the leasehold interest granted by the Lease was less than the consideration paid for its grant, that unjust consequence or result would be avoided if Mr and Mrs Murphy were not required to contribute to outgoings to a greater extent than they had understood they would be required to contribute, until they had had an opportunity to dispose of their leasehold interest and realise the investment they had made."
78 The primary Judge pointed out that he had concluded in the First Judgment that Overton had maintained the position from March 1994 that it intended to recover full reimbursement for all expenditure incurred in operating the Village. The Murphys had accepted that they were able to manage the increase of 18.37 per cent in contributions with effect from 1 July 1994. His Honour continued (at [90]):
"They were not called upon to bear any further increase until 27 November 1996. They effectively had more than two years within which to rearrange their affairs, including selling their leasehold interest under the Lease, or surrendering it if need be, so as not to be in a position where the maintenance fees would be beyond their means - see paragraph [234] of [the First Judgment, where these findings are stated.]. There was no evidence that, if Mr and Mrs Murphy had disposed of the Lease within a reasonable time after March 1994, they would have realised an amount that was less than the consideration they had paid for its grant."
The primary Judge added that, for the reasons given in the First Judgment for concluding that no actionable estoppel had arisen in relation to the grant of the Lease, he considered it was not appropriate to make any order under s 7(1)(d) of the Contracts Review Act.
79 The Murphys' estoppel claim, to which his Honour referred in the Second Judgment, was that Overton had been estopped by reason of its conduct in 1992 from claiming contributions to expenditure in excess of a limit fixed by reference to the amount of the single pension from time to time. In the First Judgment, his Honour found that it was not possible to characterise any statement by Mrs Taylor as a promise concerning the future action of Overton. However, Mrs Taylor's conduct had induced the Murphys to assume, erroneously, that the estimate of $55.71 per week for contributions took into account all expenditure incurred or likely to be incurred in operating the Village. Insofar as it would be unconscionable for Overton to depart from that assumption, his Honour accepted that it would be estopped from doing so.
80 In the First Judgment, his Honour gave as an example of unconscionable conduct the case where maintenance fees were increased at short notice, in circumstances where the Murphys had insufficient time to reorganise their affairs so as to enable them to meet the increased expenditure. It might also have been unconscionable for Overton to insist upon the increase if there were evidence to demonstrate that the Lease Price paid in October 1992 had been calculated taking into account all relevant expenditures. There had been no such evidence. In these circumstances, the only estoppel that could arise was one that would have prevented Overton requiring an increase in maintenance fees without giving reasonable notice of its intention to do so. In fact, Overton had effectively given in excess of two years' notice before further increases were required.
81 The primary Judge next addressed in the Second Judgment the Murphys' substantive injustice argument. Their complaint, as pleaded, was the unfairness of cl 5 of the Lease insofar as it permitted Overton to recover legal and accounting costs incurred by Overton in litigation against the lessees (or any of them) and/or against the Director-General of Fair Trading. His Honour summarised (at [100]) the Murphys' contention relating to the injustice of cl 5 as follows:
". Mr and Mrs Murphy were advised that the contributions shown in the estimates covered all outgoings recoverable under the lease and that, by implication, that included outgoings by way of legal or accounting costs;. Mr and Mrs Murphy had no appreciation, nor should they have been expected to have any appreciation, that Overton would be entitled to recover from them legal costs incurred in litigation against residents or against the Director-General of the Department of Fair Trading or any other officer or department of the New South Wales Executive, regardless of what order, if any, was made by the Court or Tribunal in which such litigation was conducted.
It was made clear in oral argument that the second ground includes a complaint that claims for legal and accounting costs may be made against particular Lessees, rather than the residents in toto."
82 The primary Judge repeated the findings made at [85] of the First Judgment (see [24] above). He noted that the legal and accounting expenses were not matters that could have been disclosed by Mrs Taylor in the pre-Lease discussions, since they could not then have been anticipated. Mr Murphy, upon whom Mrs Murphy had relied, understood that the Village was to be self-funding. The determination by Windeyer J was that the legal and accounting expenses in question fell within one or other of the following categories (corresponding to cl 5(c)(v), (x) and (xiv) of the Lease) (Second Judgment, at [102]):
". expenditure incurred in carrying on the operations of the Village;. amounts relating directly to the running of the Village comprising fees and sums payable to persons who provide services for the Village or to the Lessor in relation to the operation of the Village including legal charges and consultants fees;
. such reasonable and proper expenses and outgoings as the lessor may from time to time decide."
83 In the following passage (Second Judgment, at [103]), his Honour rejected the Murphys' submission:
"It is not for this Court to consider the correctness of the determination made by the referee as adopted by Windeyer J in the Equity Proceeding. However, if the expenses in question fall within those categories, there is nothing unjust in requiring the residents to contribute towards those expenses. The concept underlying the Heritage Village was that the manager, namely Overton, was to provide various facilities and services on the basis that the costs of so doing would be borne by the Lessees. The manager of the Heritage Village should not be in a position whereby it would be out of pocket as a result of providing the facilities and services required by the Lessees. By extension, if costs are incurred by particular Lessees, there is no reason why those costs should be borne by Lessees who did not incur them. Certainly, that would not be an unjust consequence of the Lease. The provisions of clause 5 are no more than was reasonably necessary for Overton to protect its legitimate interests in not having to subsidise the operations of the Heritage Village."
84 Finally, the primary Judge considered the application of the time limits in s 16 of the Contracts Review Act. He pointed out that an application for relief may be made only during one of the periods specified in s 16. In his view, s 16(a) (the period of two years after the date of the Lease) was clearly not satisfied. He also considered that s 16(b) (two years after the time for the exercise or performance of any power or obligation under the Lease) would permit relief only in respect of the exercise or performance of any power or obligation under the Lease after 23 February 1997, the proceedings having been commenced on 23 February 1999.
85 His Honour was disposed to the view that the proceedings in the Federal Court had been commenced during the "pendency of maintainable proceedings arising out of or in relation to the contract", within the meaning of s 16(c) of the Contracts Review Act. This was so because, at 23 February 1999, Overton's cross-claim in the Equity Division of the Supreme Court was still pending. It was not necessary, however, for his Honour to express a final view on this issue and he did not do so.
THE NOTICE OF CONTENTION
RES JUDICATA AND ESTOPPEL
86 Overton submitted that the primary Judge erred in holding that the Murphys were not prevented by the doctrine of res judicata or related principles from pursuing their Contracts Review Act claims in this Court. Overton's submissions on the appeal largely replicated those it made to the primary Judge. We are in substantial agreement with his Honour's reasons for rejecting Overton's arguments. Accordingly, we propose to state our reasons briefly.
87 Mr McInerney, who appeared for Overton on the appeal, argued that the orders made by Windeyer J on 23 April 1999 were not intended to preserve the entitlement of the lessees to bring fresh proceedings relying on the contentions raised in their defence to Overton's cross-claim in the Supreme Court. As we followed the argument, it was that Order 4, which contemplated a separate action by lessees in relation to the issues raised in their defences, was not intended to detract from Order 6, which entered judgment for Overton against the individual lessees for specified amounts. According to Mr McInerney, Order 4 contemplated that Overton could defeat any subsequent proceedings instituted by the lessees by invoking res judicata or issue estoppel. In other words, Order 4 was intended to allow Overton to take full advantage of the judgment entered in its favour and of the fact that the lessees, although having the opportunity to do so, failed to press their pleaded defences to Overton's cross-claim.
88 This interpretation of Order 4 flies in the face of its language and of the events leading up to the making of the orders. On 4 February 1999, Windeyer J had expressed the view that the lessees' defences to Overton's cross-claim should not be pursued in the Supreme Court proceedings, but that "anybody who wants to bring any cross-claims ought to be allowed to do so". His Honour at that time contemplated separate proceedings in the Supreme Court. By 23 April 1999, the date the orders were made, the lessees had elected to commence proceedings in the Federal Court. It is perfectly clear that Windeyer J contemplated that the entry of judgment should be no barrier to the pursuit by the lessees of their individual claims founded on the matters pleaded in the defence to Overton's cross-claim.
89 This intention is reflected in the language of Order 4 which, for convenience, we repeat:
"All matters arising under paragraphs 4 to 67 of the further amended defence to cross-claim [that is, the estoppel and Contracts Law Act issues] be brought to trial by separate action by residents raising such defences and that judgments be entered on the cross-claim without regard to such defences, but subject to any application for a stay." (Emphasis added.)
Order 4 refers to all matters pleaded in the defence being brought to trial by separate actions by the lessees. Judgment was to be entered on the cross-claim without regard to the defences. Order 4 was clearly intended to preserve the entitlement of the lessees to raise the matters pleaded in the defence to cross-claim, notwithstanding that those matters had not been dealt with in the Supreme Court. It was not intended that the lessees should be free to bring separate proceedings, but that these proceedings would inevitably be dismissed because of the lessees' failure in the Supreme Court to press the issues pleaded in their defences to the cross-claim.
90 Overton's second argument concentrated on the proceedings in the Court of Appeal. According to Mr McInerney, the lessees' cross-appeal from the orders made by Windeyer J on 23 April 1999 proceeded on the assumption that his Honour's orders had effectively disposed of their defences to Overton's cross-claim in the Supreme Court. In other words, so Mr McInerney argued, the cross-appeal proceeded on the assumption that the effect of the orders made by Windeyer J was to shut the lessees out from litigating the issues raised by their pleaded estoppel and Contracts Review Act defences. It followed, so the argument ran, that the Court of Appeal acted on the same assumption and that it had made a "finding" to that effect. That finding was legally indispensable to the decision of the Court of Appeal and gave rise to an issue estoppel or an estoppel founded on the doctrine of res judicata.
91 In our opinion, it is not correct to say that the lessees' argument on the cross-appeal was conducted on the assumption identified by Overton. The written submissions filed by the lessees in the Court of Appeal certainly referred to adverse consequences flowing from the entry of judgment against them in the Supreme Court and from the lifting by Windeyer J of the partial stay on 9 August 2000. The lessees argued that Windeyer J had "abrogated his responsibility" to determine the individual defences to Overton's cross-claim in the Supreme Court. But the lessees neither asserted nor conceded that the orders had shut them out from pursuing their Contracts Review Act claims elsewhere. The cross-appeal to the Court of Appeal was not conducted on the common assumption identified by Overton.
92 Even if it had been so conducted, the primary Judge correctly pointed out that an issue estoppel binds the parties only in respect of any issue of fact or law which was legally indispensable to the making of the decision: Blair v Curran [1939] HCA 23; (1939) 62 CLR 464, at 531. The Court of Appeal dismissed the appeal on the ground that the lessees had acquiesced in the course adopted by Windeyer J, specifically in his Honour's transfer of the individual defences from the debit side of the Supreme Court cross-claim ledger to the enhanced credit side of the Federal Court proceeding's ledger. It was not legally indispensable to the Court of Appeal's decision that the effect of Windeyer J's orders was to preclude the lessees from pursuing their Contracts Review Act claims. On the contrary, the Court of Appeal plainly took the view that whatever difficulties the representative proceedings in the Federal Court had encountered, the orders made by Windeyer J did not of themselves bar the lessees from pursuing their Contracts Review Act claims in the Federal Court. Indeed the Court of Appeal pointed out that the lessees had negotiated the terms of a partial stay dependent upon a combination of judgment being entered against them and appropriate proceedings being instituted by them in the Federal Court.
93 Overton's third argument was that, regardless of Windeyer J's intention in making the orders of 23 April 1999, their effect was to create an inconsistency between the judgment entered in favour of Overton and any order that might be made pursuant to the Contacts Review Act. We agree with the answer given by the primary Judge to this contention (at [53]):
"In the absence of Orders 4 and 12, there could be no doubt that the effect of Order 6 would have been to preclude the agitation by the Residents of the matters raised by the estoppel and Contracts Review Act defences. However, to give that effect to Order 6 would be to ignore completely the express and explicit provisions of Orders 4 and 12 and the background against which the orders of 23 April 1999 were made. The orders of 23 April 1999 clearly contemplate that the matters raised by the estoppel and Contracts Review Act defences would be tried on their merits. By that stage, they had already been raised in the Federal Court proceeding to which express reference was made in the orders. The orders were clearly not intended to preclude those matters from being litigated by the Residents. It would not be reasonable to give them that effect."
94 As the primary Judge remarked, the course adopted in the proceedings in the Equity Division was unusual and doubtless reflected Windeyer J's view that it would be unduly unwieldy for a very large number of individual claims to be litigated in the form of defences to a cross-claim in debt. But the orders as a whole were moulded so as to leave it open to the lessees to litigate those claims notwithstanding the entry of judgment in favour of Overton. It may be that the primary Judge could not have made an order pursuant to s 7(1)(a) of the Contracts Review Act refusing to enforce the provisions of the Lease, since the lessees' obligation to pay outgoings had already been enforced and had merged in the judgment. But the lessees sought relief under s 7(1)(d) of the Contracts Review Act. Bearing in mind the terms of Order 4 and its relationship with Order 6, an order made under the Contracts Review Act requiring, for example, execution of an instrument having the effect of varying the provisions of the Lease would not be inconsistent with the judgment.
TIME LIMITS
95 Overton made a brief submission challenging the primary Judge's tentative view that the proceedings in this Court claiming relief under the Contracts Review Act were instituted within the time specified in s 16(c) of the Act. As we have noted, the primary Judge thought that the proceedings in this Court, which were commenced on 23 February 1999, had been made during
"the period of the pendency of maintainable proceedings arising out of or in relation to the contract, being proceedings...that are pending against the party seeking relief under this Act."
His Honour pointed out that the proceedings had been instituted in this Court while the proceedings in the Equity Division of the Supreme Court were still pending. In the latter proceedings Overton had cross-claimed for arrears of contributions under the leases.
96 Mr McInerney appeared to accept that the Equity Division proceedings were "maintainable proceedings" within s 16(c) of the Contracts Review Act. He submitted, however, that s 16(c) should be read as applying only to a claim for relief under the Contracts Review Act made in the "maintainable proceedings" themselves and not in separate proceedings. Mr McInerney did not explain why such a restrictive interpretation of s 16(c) should be adopted.
97 In Baltic Shipping Co v Merchant "Mikhail Lermontov" (1994) 36 NSWLR 361, Handley JA (with whom Kirby P and Mahoney JA agreed) rejected (at 364-365) a restrictive interpretation of s 16(b) of the Contracts Review Act. His Honour observed that a restrictive interpretation of a remedial statute of this kind, which produces anomalous and capricious results, should not be adopted if another and wider meaning is fairly open on the language.
98 In the present case, there is nothing in the language of s 16(c) which suggests that it is to be confined to an application for relief in the maintainable proceedings themselves. The paragraph is concerned to specify the period for making an application for relief; it is not concerned with the forum in which a claim for relief might be made. To read the provision in the way suggested by Mr McInerney would mean that the fate of a claim under the Contracts Review Act could depend on the court or tribunal (see definition of "court" in s 4(1)) in which the claim happened to be commenced. A proceeding might be time barred by reason of the claimant's choice of forum even if that choice was otherwise procedurally proper. In our view, it is not appropriate to read words into s 16(c) so as to produce such a result.
99 The proceedings claiming relief under the Contracts Review Act were instituted within the period provided for by s 16(c) of the Act.
DID THE PRIMARY JUDGE ERR IN DISMISSING THE CONTRACTS REVIEW ACT CLAIM?
THE NATURE OF THE APPEAL
100 Neither party devoted close attention to the nature of the appeal to this Court from the judgment of the primary Judge, nor to the basis on which it is appropriate for the Full Court to overturn a decision to grant or withhold relief under the Contracts Review Act. Both questions are important to the outcome of the appeal.
101 An appeal to the Full Court of this Court is by way of rehearing: Minister for Immigration and Multicultural Affairs v Jia [2001] HCA 17; (2001) 178 ALR 421, at 439, per Gleeson CJ and Gummow J. In Allesch v Maunz [2000] HCA 40; (2000) 203 CLR 172, which concerned a provision equivalent to s 27 of the Federal Court of Australia Act 1976 (Cth), Gaudron, McHugh, Gummow and Hayne JJ said this (at 180-181):
"For present purposes, the critical difference between an appeal by way of rehearing and a hearing de novo is that, in the former case, the powers of the appellate court are exercisable only where the appellant can demonstrate that, having regard to all the evidence now before the appellate court, the order that is the subject of the appeal is the result of some legal, factual or discretionary error, whereas, in the latter case, those powers may be exercised regardless of error. At least that is so unless, in the case of an appeal by way of rehearing, there is some statutory provision which indicates that the powers may be exercised whether or not there was error at first instance. And the critical distinction, for present purposes, between an appeal by way of rehearing and an appeal in the strict sense is that, unless the matter is remitted for rehearing, a court hearing an appeal in the strict sense can only give the decision which should have been given at first instance whereas, on an appeal by way of rehearing, an appellate court can substitute its own decision based on the facts and the law as they then stand." [Citations omitted.]
102 The principles governing the review by a Full Court of findings of fact are as stated in Warren v Coombes [1979] HCA 9; (1979) 142 CLR 531; Abalos v Australian Postal Commission [1990] HCA 47; (1990) 171 CLR 167; and State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq) [1999] HCA 3; (1999) 160 ALR 588. Where the question is what inferences should be drawn from the undisputed or established facts, the position is as recently explained by the Full Court in Cabal v United Mexican States [2001] FCA 427; (2001) 108 FCR 311, at 362, per curiam:
"In general on an appeal by way of rehearing from a judge sitting without a jury an appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or which, having been disputed, are established by the findings of the trial judge. In deciding what is the proper inference to be drawn, the appellate court will give respect and weight to the conclusion of the trial judge. However once having reached its own conclusion it will not shrink from giving effect to it.Notwithstanding the fact that the learned primary judge's review was conducted on the papers, and without any opportunity to consider the demeanour of the witnesses, the weight to be accorded to the evidence of the experts was primarily a matter for his Honour to determine. This Court can consider whether he fell into appealable error in that regard but it will not approach that evidence as though this were a rehearing de novo in which his Honour's views count for nought. If, after giving full weight to his Honour's views, we are persuaded that the conclusions which he reached were erroneous we must set aside his finding of fact. We cannot however simply substitute for his Honour's findings of fact those findings which we would have made had we been the judges on review who determined this matter at first instance."
But as Allsop J recently observed in a helpful review of the authorities (Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833, at [24], Drummond and Mansfield JJ agreeing):
"The demonstration of error may not be straight-forward where findings or conclusions involve elements of fact, degree, opinion or judgment or when the findings or conclusions in question can be seen as made with the advantage of hearing the evidence in its entirety, presented as it unfolded at the hearing with the opportunity over the course of the hearing and adjournments for reflection and mature contemporaneous consideration and assessment, in particular in a long and complex hearing....This is not to elevate ordinary factual findings to the protected position of those based on credit, but it is to make clear, first, the advantages of the trial judge and, secondly, the need for demonstration of error. The inability to identify error may arise in part from the unwillingness of the appeal court to be persuaded that it is in as good a position as the trial judge to deal with the issues, because of the kinds of considerations referred to in [the previous paragraph]. Or, it may be that the nature of the issue is one such that (though not a discretion) there cannot be said to be truly one correct answer. In such cases the availability of a different view, indeed even perhaps the preference of the appeal court for a different view, may not be alone sufficient...".
103 In order to determine the approach to be taken on an appeal to this Court from a judgment granting or refusing to grant relief under the Contracts Review Act, it is necessary to consider both the operation of that Act and the nature of the decision made in the first instance. McHugh JA in West v AGC (Advances) Ltd (1986) 5 NSWLR 610, with whom Hope JA agreed, explained the operation of the Contracts Review Act (at 620-621) this way:
"Under s 7(1) a contract may be unjust in the circumstances existing when it was made because of the way it operates in relation to the claimant or because of the way in which it was made or both. Thus a contractual provision may be unjust simply because it imposes an unreasonable burden on the claimant when it was not reasonably necessary for the protection of the legitimate interests of the party seeking to enforce the provision:...cf s 9(2)(a), 9(2)(e), 9(2)(f), 9(2)(i), 9(2)(j). More often, it will be a combination of the operation of the contract and the manner in which it was made that renders the contract or one of its provisions unjust in the circumstances. Thus a contract may be unjust under the Act because its terms, consequences or effects are unjust. This is substantive injustice. Or a contract may be unjust because of the unfairness of the methods used to make it. This is procedural injustice. Most unjust contracts will be the product of both procedural and substantive injustice....
[T]he provisions of s 9(2) do not exhaustively indicate the criteria as to what can be taken into account in determining whether a contract or any of its provisions is unjust. The provisions of s 9(2) of the Act are concerned for the most part with matters of procedural injustice. But the court is entitled to have regard to all the circumstances of the case, subject to s 9(4) and the public interest."
McHugh JA also stressed (at 621) that it is the contract or its provisions which must be unjust: "the Contracts Review Act regulates contracts not investments".
104 There has been a difference of opinion in New South Wales as to whether a decision that a particular contract is or is not unjust should be characterised as "discretionary". In Elders Rural Finance Ltd v Smith (1996) 41 NSWLR 296, Mahoney P, adhering to a view he expressed in dissent in Antonovic v Volker (1986) 7 NSWLR 151, at 165-166, described such a decision as discretionary because it (at 301):
"involved an assessment of the significance and seriousness of factors relevant to [the trial Judge's] decision, the weighing of the factors, and the determination of whether there had been at the time a contract that was unjust".
In the same case, Meagher JA, although reaching a different conclusion on the appeal, recognised (at 305):
"the doubly discretionary nature as to relief under the Act: once as to whether any order should be made, and once more as to the content of the order which is made".
105 In Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256, all three members of the Court of Appeal dismissed an appeal from an order made under the Contracts Review Act. Meagher JA regarded the decision of the trial Judge that the contract in question was unjust as discretionary. It was therefore not liable to be set aside unless one of the well-recognised grounds for interfering with such a decision had been established such as error of law, failing to take account of relevant considerations, taking into account irrelevant considerations or manifest unreasonableness: cf Lovell v Lovell [1950] HCA 52; (1950) 81 CLR 513, at 532-533; Gronow v Gronow [1979] HCA 63; (1980) 144 CLR 513, at 519-520; Norbis v Norbis [1986] HCA 17; (1986) 161 CLR 513. Indeed, Meagher JA held that the appeal should be dismissed even though he stated explicitly that he would not have reached the same conclusion as the trial Judge.
106 Kirby P said (at 261) that a determination that a contract is "unjust" involves the application of a legal criterion to the facts as found. He continued (at 261-262):
"The existence, or otherwise, of the facts which give rise to the application of the statute are open to general appellate review. Once the statute is found to apply, the decision whether to grant relief (and if so in what form) is truly a discretionary decision of the kind with which appellate courts are well familiar. In respect of such discretionary decisions, appellate courts observe a high degree of self-restraint for reasons which are well-known and need no elaboration. But on the question whether or not the statute applies to the facts found, appellate courts are not inhibited by the authorities on discretion."
107 His Honour then went on to say that the classification of a decision that a contract is "unjust" is a "somewhat barren one", for this reason (at 262-263):
"Even if the decision that the contracts here in question were `unjust' is not discretionary in character there are many reasons for the exercise of care in the appellate review of the decision reached by the trial judge concerning the application of the Act. Most of these have already been mentioned. They include the long trial and abundant evidence; the importance of evaluating the knowledge and capacities of the several witnesses; and the assessment of the quality of their actions. This Court has said on a number of occasions, including recently, that the very open-ended and evaluative nature of the statutory criterion (`unjust') imports a reason for restraint in the conduct of appellate review: see Idameneo No 9 Pty Ltd v Bandeski [1991] ASC 56-047. In part this restraint derives from the proper acknowledgment of the advantages which the trial judge has, mentioned above. In part, it derives from a modest appreciation of the fact that opinions of what constitutes injustice will vary from one judicial decision-maker to another. So long as there is an adequate basis for the opinion to be reached, conscientiously and honestly in a particular case, the appellate court should approach with caution the substitution of its opinion for that of the trial judge."
108 Samuels JA adhered to the view he had earlier expressed in Antonovic v Volker, that the determination that a contract is unjust is not a true discretionary discretion, but is subject to the principles of review laid down in Warren v Coombes. This meant that if the appellate court considers that the trial judge has drawn incorrect inferences from the proven facts, it is the duty of the court to interfere: see at 270-271.
109 The weight of judicial opinion supports the proposition that, regardless of whether a decision that a contract is or is not unjust should be classified as discretionary, an appellate court should exercise restraint before interfering with the decision of a trial judge who has had the benefit of hearing the witnesses and evaluating the state of mind and conduct of the relevant persons. This is not by any means to say that an appellate court will never intervene. If, for example, a trial judge, having found a contract to be unjust, fails to consider whether any remedial orders go no further than is necessary to alleviate injustice to the weaker party, the discretion to make remedial orders may miscarry: Esanda Finance Corporation Ltd v Tong (1997) 41 NSWLR 482. But the appellate court will pay due regard both to the need to demonstrate error on the part of the trial Judge and the nature of the decision he or she is required to make.
110 It seems clear that where a court has found a contract or a provision of a contract to be unjust at the time it was made, the decision whether to grant or withhold relief pursuant to s 7(1) of the Contracts Review Act is a discretionary decision. The scope of appellate review is therefore limited to the grounds available in relation to discretionary decisions.
THE MURPHYS' SUBMISSIONS
111 The Murphys did not suggest that the primary Judge had misstated the law governing applications for relief under the Contracts Review Act or that he had failed to have regard to the statutory criteria for determining whether a contract is unjust. Nor did they suggest, subject to one qualification, that his Honour's findings of fact were erroneous. The one qualification was that Mr Moore argued that his Honour had erred in finding that there was no evidence that, if the Murphys had disposed of the Lease within a reasonable time after March 1994, they would have realised an amount less than they had paid for it. This error, so it was argued, vitiated his Honour's decision, despite his finding that the making of the Lease was attended with procedural injustice, to refuse to make an order under s 7(1)(d) of the Contracts Review Act.
112 The Murphys also attacked the primary Judge's finding that the provisions of cl 5 of the Lease were no more than was reasonably required for Overton to protect its legitimate interests. According to Mr Moore, it was unjust for the Lease to require the Murphys to contribute to legal and accounting expenses which had been incurred by Overton in consequence of proceedings instituted to obtain relief from the injustice created by Overton's own conduct. The Murphys raised a particular complaint about their potential liability to pay the so-called unit legals pursuant to cl 5 of the Lease.
113 As we have noted, the proceedings before the primary Judge were conducted without the benefit of a document setting out the precise relief sought by the Murphys. In the course of argument on the appeal, Mr Moore, in response to requests from the Court, produced a draft deed between Overton and the Murphys. He submitted that this deed, if executed, would avoid the unjust consequences of the Lease. The operative clauses of the draft deed are as follows:
"1. Overton shall, within 28 days, pay to the Murphys the sum of $13,190.71 being the amount of the Windeyer J judgment debt dated 23 April 1999, together with interest at Supreme Court interest rates, from the dates when the said judgment debt was paid, until the date of repayment.2. Overton is not entitled to recover as outgoings any of the invoices set out in the last Statement by Overton to the Murphys, dated 24 July 2000....
3. Overton shall, within 28 days, pay to the Murphys the sum of $40,750, which sum is the difference between the Lease Price paid by the Murphys to acquire their leasehold interest in Unit 53 at the Heritage Retirement Village on 20 October 1992, and the value of their leasehold interest as at the date of the hearing before Emmett J on the basis that the level of outgoings was $109.62 per week or $475.00 per month.
4. Insofar as the Murphys are liable to Cuzeno for any outgoings set out in [the Statement], Overton indemnifies the Murphys for all such liability."
114 Mr Moore explained the terms of the draft as follows:
* Clause 1 would require Overton to refund the amount of the judgment entered against the Murphys on 23 April 1999. The Murphys paid part of the judgment debt shortly after the orders were made by Windeyer J (his Honour having granted a partial stay of the judgment by Order 12). The balance of the judgment was paid shortly after 9 August 2000, when Windeyer J refused to extend the stay he had granted in Order 12. Mr Moore told the Court that, of the sum of $13,170.91, about half ($6,225.98) was attributable to what he described as "abnormal legal and accounting expenses". The balance of the judgment debt was attributed to shortfalls in levies or contributions to the Maintenance Fund.
* Clause 2 would prevent Overton recovering as outgoings any amounts charged by it after 15 May 1999, over and above the maintenance fees actually paid by the Murphys. The invoice (referred to in the draft deed as the "Statement") included substantial amounts in respect of the unit legals. As already explained (see [68]-[69] above), the possible application of cl 5 of the Lease to unit legals, and the injustice of any such application in relation to the Murphys, was not raised as an issue before the primary Judge.
* Clause 3 would require Overton to repay to the Murphys the difference between the Lease Price paid by them ($215,750) and the value of Unit 53 as at the date Overton ceased to be the manager ($175,000). The latter valuation was made by Overton's valuer as at February 2000, on the assumption that the maintenance fees at that time were $109.62 per week. The latter figure appears to be the fees charged to lessees by Cuzeno after Overton ceased to be the Manager on 29 June 2000.
* The indemnity provided for in cl 4 is designed to overcome any problem associated with action taken by Cuzeno to recover arrears of maintenance fees from the Murphys, having regard to the fact that Cuzeno was not a party to the litigation.
REASONING ON SUBSTANTIVE INJUSTICE
115 We shall deal first with the contention that the primary Judge erred in finding that the Murphys had not established their claim that the Lease was substantively unjust.
116 Much of the argument on this question related to the unit legals. Indeed, according to Mr Moore, the unit legals comprised the bulk, in monetary terms, of the Murphys' claim. Clause 2 of the proposed deed (see [114] above) would have the effect of denying Overton the right to recover the unit legals.
117 As we have explained, the unit legals were not in issue before the primary Judge. The Murphys' position before his Honour was that cl 5 of the Lease, on its proper construction, does not entitle Overton to recover the unit legals. His Honour was not invited to rule on that issue of construction. Indeed, the District Court has not yet ruled on the issue, so it is not known whether Overton is entitled to recover the unit legals from the Murphys. In these circumstances, there is no basis for holding that his Honour erred in failing to conclude that cl 5 of the Lease was unjust insofar as it permits Overton to recover unit legals from the Murphys. The issue simply did not arise for determination by his Honour.
118 The remainder of the Murphys' submissions was directed to that component of the judgment entered by Windeyer J against the Murphys that related to legal and accounting expenses (that is, $6,225.98 out of the total of $13,170.91). The submissions did not arise above the level of suggesting that another Judge might have assessed the material differently. There was no suggestion that the primary Judge misunderstood the concept of "substantial injustice" for the purposes of the Contracts Review Act or that he had failed to address the matters he was required by s 9 of the Act to take into account. Nor was it contended, on this aspect of the case, that the primary Judge had made any erroneous finding of fact that might have infected his determination that cl 5 of the Lease was not unjust within the meaning of s 7(1) of the Contracts Review Act.
119 The primary Judge took as his starting point the construction of cl 5 adopted by Windeyer J. Accordingly, cl 5 entitled Overton to recover the three categories of expenditure identified at [102] of the Second Judgment (see [82] above), corresponding to the terms of cl 5(c)(v), (x) and (xiv) of the Lease. His Honour found that cl 5 was entirely consistent with the concept of a self-funding retirement village and that there was nothing unjust in requiring the lessees to contribute to the three categories of expenses associated with carrying on the operations of or running the Village. He explicitly found that the provisions of cl 5 were no more than was reasonably necessary for Overton to protect its legitimate interests. He also pointed out that Mrs Taylor could not have disclosed the existence of legal and accounting expenses in the pre-Lease discussions, because no-one at that time had any reason to believe that they would be incurred. In other words, even if the Murphys had understood the full extent of the expenses incurred in running the Village in 1992, they would not have been alerted to the possibility of having to contribute to expenses incurred by Overton in defending or maintaining legal proceedings.
120 In essence, the Murphys submitted that they should not have to pay costs incurred by Overton in resisting legal proceedings brought against it by a public official and in bringing proceedings against lessees (Overton has not sought to recover from the lessees those costs it has been ordered to pay). But there was no suggestion put to the primary Judge challenging the referee's conclusion that Overton had not breached its duty under the Trust Deed to act in good faith. Nor was an attempt made to quantify or break down the legal and accounting expenses so as to demonstrate, for example, that some had been improvidently or improperly incurred. In substance, the Murphys repeated the claims that the referee had rejected, in large measure because they were insufficiently supported by detailed evidence.
121 For the reasons we have given, an appellate court must exercise caution before interfering with a decision that a contract is not unjust within the circumstances at the time it was made. The Murphys have not shown any basis justifying setting aside the decision made in the present case that cl 5 of the Lease was not unjust within the meaning of s 7(1) of the Contracts Review Act.
REASONING ON PROCEDURAL INJUSTICE
122 The Murphys submitted that the primary Judge had erred in concluding that the unjust consequences of the procedural injustice flowing from Overton's conduct could be avoided by giving them a reasonable opportunity to dispose of their leasehold interest and dispose of the investment they had made. They advanced a number of grounds in support of this submission. Some of these grounds overlapped.
Not an Investment But a Home
123 First, the Murphys contended that the primary Judge had failed to take into account that they had not acquired the Lease as an investment, but as their home. Moreover, they were elderly retired people who could not be restored to their pre-Lease position. In effect, the Murphys sought to rely on aspects of the reasoning of Gyles J in his dissenting judgment on the appeal from the First Judgment.
124 Gyles J in dealing with the Murphys' estoppel argument, held that Overton had unilaterally and unconscionably departed from the assumption induced by it concerning the extent of recoverable outgoings. In his Honour's view, the only way to overcome the prejudice sustained by the Murphys was to impose an appropriate restraint on Overton increasing contributions during the lives of the Murphys. Gyles J observed that it was unrealistic to equate entry into a retirement village with a commercial transaction (at [132]) and that it was necessary to bear in mind that by the time Overton had made its position clear the Murphys were faced with a "whole new set of circumstances" (at [150]).
125 We express no view as to this aspect of the reasoning of Gyles J, since an application for special leave to appeal from the judgment is pending in the High Court. The critical point for present purposes is that an argument in the terms now advanced was not put to the primary Judge in the context of the Contracts Review Act claim. It was not suggested that, independently of financial considerations that might have "locked in" the Murphys, they could not have been expected to leave the Village even after what would otherwise have been a "reasonable" period. His Honour's discretion on the question of relief could hardly have miscarried because of a failure to take account of a consideration never raised by the Murphys in argument and which the legislation does not require to be taken into account. It is no answer to say (as Mr Moore did) that in some cases an appellate court may permit an argument of law to be advanced even though it was not put at trial. Here the question is whether the primary Judge erred in the exercise of a discretion which required a large number of matters to be weighed in the balance. The balance is not to be altered at this stage of the litigation by introducing new factors into the equation.
126 In any event, the primary Judge was well aware of the personal circumstances of the Murphys and of their motivation for acquiring the Lease of Unit 53. He made detailed findings on those matters in the First Judgment. There is no reason to think he did not take those matters into account in determining how the unjust consequences of the Murphys entering into the Lease could be avoided. The use of the word "investment" at [89] of the Second Judgment (see [77] above) is not inconsistent with his Honour's weighing in the balance the personal circumstances of the Murphys. His Honour took the view that, in all the circumstances, the Murphys were entitled to be protected against disproportionate increases in the maintenance fees for a reasonable period, but not for their lifetimes.
The Reasonable Period
127 The Murphys then submitted that, even if they could have been expected to dispose of their interest after a reasonable period, that period should not be regarded as having expired until after the Overton's "unequivocal" announcement of 27 November 1996 (see [27] above). But this submission (and others dependent on it) overlook his Honour's reasoning process. He found in the First Judgment, at [159], that by 7 November 1994, at the latest, the Murphys had understood that Overton did not intend to limit its claims for contributions to outgoings by reference to the CPI or any other factor. Mr Murphy had understood that the sale of the Unit was an option (First Judgment, at [147]), but his "preferred course" was to attempt to resolve the dispute. In view of these findings of fact, which were not challenged, there was no error in the primary Judge approaching the question of relief on the basis that the Murphys effectively had more than two years to rearrange their affairs, including disposing of their leasehold interest, to ensure that the maintenance fees would not be beyond their means.
128 Mr Moore pointed out that at [90] of the Second Judgment, the primary Judge appears to have taken the view that the Murphys could or perhaps should have given consideration to rearranging their affairs in March 1994, rather than November 1994. This, however, reflects his Honour's findings that by March 1994 Overton had made it clear to the lessees, including the Murphys, that it intended to enforce its legal entitlements to recover full reimbursement of all expenditure incurred in operating the Village and that, to do so, it would be necessary to increase the fees payable by the lessees substantially (First Judgment, at [269]). Moreover, at a meeting on 31 March 1994, which had been attended by Mr Murphy, a representative of Pannell Kerr Forster had told those present that Overton could have claimed reimbursement of $1,018,548 as the cost of running the Village (that is, more than double the amount then provided for in the budget) (First Judgment, at [108]). While Mr Murphy did not believe at the time that Overton would or could try to recover the full amount, his Honour found that by March 1994, Mr Murphy was not simply accepting what Overton's representative was telling him and was wanting his own advice about his rights and obligations under the Lease (First Judgment, at [152]). It was therefore (at [153])
"difficult to conclude, in the light of the correspondence and communications during 1994, that Mr Murphy was under any misapprehension as from 31 March 1994 as to the legal entitlement of Overton to recover from residents by way of maintenance fees the full expenditures incurred by Overton in operating the Heritage Village and that Overton was asserting that the total expenditure was greater than the amount included in the budget for the period ending 30 June 1994."
129 While it was not until November 1996 that Overton unequivocally stated its intention to recover its full entitlements under the Lease, there was material before the primary Judge that justified him in finding that by March 1994 the Murphys were on notice of Overton's position and of the fact that total recoverable expenditure, although not precisely quantified, was considerably greater than had been allowed for in current or past budgets. It was open to him to take that finding into account in determining the period that had been available to the Murphys to reorganise their affairs.
A Capital Loss?
130 The Murphys' next submission was that the primary Judge had overlooked evidence that had the Murphys attempted to dispose of their Lease, they would have sustained a considerable capital loss. In particular, his Honour was incorrect, so it was argued, in finding (Second Judgment, at [90]) that there was no evidence that, if the Murphys had disposed of the Lease within a reasonable time after March 1994, they would have realised an amount that was less than the consideration they had paid for its grant. This finding had overlooked both the valuation evidence and the entitlement of Overton under the Trust Deed and the Lease to appropriate 10 per cent of the "Total Rent" (that is, 2.5 per cent of the total consideration for the Lease) every six months over a five year period.
131 The valuation evidence relied on in support of the Murphys' submission relating to capital losses was given by the Overton's valuer (whose evidence the primary Judge preferred over that of the Murphys' valuer). The valuer was asked to value Unit 53 at various times on a variety of assumptions. The valuer estimated the value of Unit 53
* as at March 1994, at $215,000, on the assumption that maintenance fees were then $60.79 per week (the maintenance fee then payable);
* as at November 1996, at $207,000, on the assumption that maintenance fees were then $71.96 per week (the maintenance fee then payable); and
* as at November 1996, at $175,000, on the assumption that maintenance fees were $133.85 per week (the maintenance fee necessary to give effect to Overton's announced policy on 27 November 1996).
132 Mr Moore interpreted this evidence as showing that the Murphys would have sustained a capital loss if they had disposed of their Lease on any of the three dates covered by the valuations. According to the calculations he provided, if, for example, they had disposed of their Lease in March 1994 for $215,000 they would have realised only $198,818.75 (that is, the incoming Lease Price of $215,000 less $16,181.25, being 30 per cent of the Total Rent of $53,937.50 paid by the Murphys). Had they disposed of their Lease shortly before November 1996 they would have realised only $158,456.25 (that is, the incoming Lease Price of $207,000 less $48,543.75, being 90 per cent of the Total Rent of $53,937.50 paid by the Murphys).
133 If what we have suggested about the operation of the Lease and the Trust Deed (see [16]-[17] above) is correct, the amount refunded to the Murphys would have been slightly less than the amount which Mr Moore's calculations suggested. The calculation would require account to be taken of the fact that the Murphys would be entitled to a refund of only 97.5 per cent of the Lease Deposit, plus the Refunded Rent. On this basis, for example, if the Murphys had disposed of the Lease in March 1994 for $215,000 they would have received a refund of $194,961.19 rather than Mr Moore's figure of $198,818.75. Nothing turns on the difference between Mr Moore's calculations and ours.
134 As Mr McInerney pointed out, the valuation evidence was not used in this way at the first trial. Indeed, the Murphys changed tack between the first and second trials. At the first trial, they were concerned to avoid being defeated by the three year limitation imposed by s 82(2) of the Trade Practices Act. Accordingly, they were at pains to contend that they had suffered no loss by reason of Overton's misleading conduct prior to Overton's full recovery announcement of 27 November 1996. In the remitted Contracts Review Act proceedings they contended that they would have suffered a significant capital loss if they had disposed of their Lease at any time between March 1994 and November 1996.
135 One possible difficulty facing this submission is that the valuation evidence before the primary Judge did not specifically address the value of the Lease (in the sense of the Lease Price that an incoming lessee would pay) during the 32 month period between March 1994 and November 1996. His Honour did not identify the point at which a reasonable time for the Murphys to have rearranged their affairs after March 1994 would have elapsed. If that time is taken to have elapsed, say, in mid-1995 (which would have allowed the Murphys slightly over a year in which to reorganise their affairs), there was no direct evidence as to the value of the Lease at that time. It is perhaps possible, although we think it unlikely, that this is what his Honour had in mind when he said that there was no evidence that if the Murphys had disposed of the Lease within a reasonable time after March 1994, they would have realised an amount that was less than the consideration they had paid for the Lease.
136 On the other hand, the valuation evidence can be interpreted as suggesting that the value of the Lease throughout the period March 1994 to November 1996 was not likely to have been very different from the Lease Price paid by the Murphys in October 1992 (that is, $215,750). It is true that the prices of units in the Village may have fluctuated significantly during the period between March 1994 and November 1996. Nonetheless, there is nothing to suggest that the Lease Price for a B-class unit would have been substantially greater during this period than the valuations as at March 1994 and November 1996 suggest.
137 On the assumption that the value of Unit 53 was not significantly greater during this period than the Lease Price paid by the Murphys, it seems clear that they would not have recovered the whole of the amount they paid to Overton had they disposed of the Lease at any time between March 1994 and November 1996. Under the terms of the Trust Deed and the Lease, it seems that the Murphys would have received a refund of a sum equivalent to 97.5 per cent (or perhaps 100 per cent) of the Lease Deposit paid by them (the Lease Deposit being 75 per cent of the Lease Price). They would not, however, have received a refund of an amount equivalent to the Total Rent (25 per cent of the Lease Price). They would have been entitled to a refund of only that which the Trust Deed called "Refunded Rent", which was defined to mean the amount calculated as the difference between the Total Rent and the Accrued Rent from time to time pro rata to the end of the month in which the refund became payable. The appropriated portion at the date they disposed of their Lease would have varied depending on the length of time that had elapsed since the Murphys acquired their Lease in October 1992.
138 It is not entirely clear whether his Honour appreciated that the Murphys, had they disposed of the Lease between March 1994 and November 1996, would have received an amount less than the Lease Price of $215,750 paid by them in October 1992. His Honour's reference to the "consideration they had paid for its grant" at [90] of his Second Judgment may have been intended to relate only to recovery of the Lease Deposit as distinct from the whole of the Lease Price. But his Honour had included references to the Lease Price (rather than the Lease Deposit) in his summary of the relevant provisions of the Trust Deed and the Lease. The likelihood, therefore, is that his Honour did not appreciate that the Murphys, had they disposed of the Lease during the period between March 1994 and November 1996, would not have received an amount equivalent to the full Lease Price paid by them.
139 The finding made by the primary Judge cannot be described as one that involved elements of degree, opinion or judgment. Rather, his Honour assumed that there was nothing in the evidence to support the conclusion that, had the Murphys disposed of the Lease within a reasonable period after March 1994 they would have realised less than they had paid for it. In fact there was evidence to support such a conclusion.
140 If what we have said thus far is correct, it is difficult to avoid the conclusion that the primary Judge's exercise of discretion to refuse relief was affected by a misapprehension as to the facts. The finding to which we have referred appears to have been a significant factor influencing his Honour to the view that the unjust consequences flowing to the Murphys from Overton's misleading conduct could be avoided if they had a reasonable opportunity to dispose of their Lease. His Honour may well have formed a different view had he appreciated that the Murphys would not in fact recover the full Lease Price if they disposed of their Lease. In short, his Honour's discretion to grant or withhold relief pursuant to s 7(1) of the Contracts Review Act miscarried.
WHAT SHOULD BE DONE?
141 It is deeply regrettable that this litigation should be further prolonged. But we see no alternative to the matter being remitted to the primary Judge. However, the remitter should be solely for the purpose of determining whether and, if so, what relief should be granted to the Murphys in order to avoid any injustice flowing from Overton's pre-Lease conduct. In a case of this nature, it is inappropriate for an appellate court, which has not seen the witnesses or been taken to all evidence relevant to the exercise of discretion, to exercise the discretion afresh. Indeed, neither party invited us, should we form the view that the primary Judge's discretion miscarried, to do anything other than remit the proceedings to the primary Judge.
142 We do not rule out the possibility that upon reconsidering the matter, his Honour may reach the same conclusion as he did in the Second Judgment. For example, so far as we are aware, there was no evidence as to whether the Total Rent paid by the Murphys should be regarded as a capital investment by them or (as rental would normally be regarded) as a recurrent expenditure. Nor were we taken to the Trust Deed, Lease or any other documentation for the purpose of shedding light on this question. It may be that the Murphys received sufficient benefits in return for the Total Rent or the appropriated part if it (the Accrued Rent) to justify a finding that they would have suffered no loss of capital had they disposed of the Lease during the period before March 1994 and November 1996. These are matters for the primary Judge.
143 We note that no argument was put to us that the primary Judge should have exercised his discretion to grant relief under the Contracts Review Act adversely to the Murphys by reason of the approach to the question of loss taken by the majority of the Full Court on appeal from the First Judgment. Branson and R D Nicholson JJ held that the Murphys had failed to establish that they had sustained any loss for the purposes of s 82 of the Trade Practices Act, since they had failed to adduce evidence of the position had they not acquired the Lease but proceeded with their alternative plan to enter another retirement village. It may be that the discretion to grant or withhold relief under the Contracts Review Act is not to be constrained by the failure of a claimant to establish loss for the purposes of another statute. As the point was not argued before us we say no more about it.
144 Mr Moore seemed to suggest that if the proceedings were remitted to the primary Judge the Murphys would necessarily be free to adduce further evidence on their Contracts Review Act claim, subject only to the requirement that the evidence be relevant and admissible to that claim. This is not so. The proceedings are to be remitted only for the limited purpose we have identified. Moreover, neither party should be at liberty to adduce further evidence except with the leave of the primary Judge. We have in mind that the parties should not assume that they are entitled to remedy any evidentiary gaps resulting from the manner in which they presented their respective cases. The onus will be on the party wishing to adduce further evidence to point to a cogent reason why such a course should be permitted.
CONCLUSION
145 The proceedings should be remitted to the primary Judge for determination consistently with these reasons. As we have explained, the purpose of remitting the proceedings is solely to enable the primary Judge to determine whether and, if so, what relief should be granted to the Murphys to avoid any injustice flowing from Overton's pre-Lease conduct. No further evidence is to be adduced without the leave of the primary Judge.
146 We shall give the parties an opportunity to make submissions on costs.
I certify that the preceding one hundred and forty-six (146) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Lindgren, Sackville & Stone. |
Associate:
Dated: 16 May 2002
Counsel for the Appellants: |
Mr G Moore with Mr S Newton |
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Solicitor for the Appellants: |
The Aged-Care Rights Service Inc |
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Counsel for the Respondent: |
Mr A McInerney with Mr R Hiatt |
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Solicitor for the Respondent: |
Gadens Lawyers |
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Date of Hearing Date of Final Submissions: |
11 & 12 April 2002 15 April 2002 |
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Date of Judgment: |
16 May 2002 |
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