Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Beattie v Wesley Mission [2017] NSWCATAP 12 Hearing dates: 4 October 2016 Date of orders: 16 January 2017 Decision date: 16 January 2017 Jurisdiction: Appeal Panel Before: Cowdroy ADCJ, QC, Principal Member A Boxall, Senior Member Decision: Appeal dismissed Catchwords: Leave to appeal; appeal as of right; guiding principles; retirement village budget; budget amendments; variation of expenditure; making good deficit; carry forward of deficit; contingencies. Legislation Cited: Civil and Administrative Tribunal Act 2013, sections 17, 36, 80, Schedule 4 Retirement Villages Act 1999, sections 4, 99, 115A, 116, 117, 120C, 128 Retirement Villages Regulations, regulations 20 and 33, Cases Cited: Collins v Urban [2014] NSWCATAP 17 Sakkara Investment Holdings Pty Limited as trustee for Sakkara Landings Trust v The Residents Committee of The Landings Retirement Village [2016] NSWCATAP 52 Category: Principal judgment Parties: Lorraine Beattie (Appellant) Wesley Mission (Respondent) Representation: Solicitors: L Beattie (Appellant in person) BBW Lawyers (Respondent) File Number(s): AP 16/32979 Decision under appeal Court or tribunal: NSW Civil & Administrative Tribunal Jurisdiction: Consumer and Commercial Division Date of Decision: 22 June 2016 Before: G Meadows, Senior Member File Number(s): RV 16/07113 REASONS FOR DECISION 1. By Notice of Appeal filed on 18 July 2016 Lorraine Beattie (the Appellant) appeals against the decision of the Tribunal's Consumer and Commercial Division delivered on 22 June 2016 in Lorraine Beattie v Wesley Mission NCAT Application RV 16/07113. In this decision the Tribunal dismissed her claim for orders pursuant to the Retirement Villages Act 1999 (NSW) (the Act) against Wesley Mission (variously, the Respondent or the Operator). The Respondent operates a retirement village in Sylvania NSW, known as the Frank Vickery Village (the Village). 2. As appears from the decision under appeal, the Appellant is a resident in the Village and has been a resident there since approximately 1999. Until her retirement the Appellant had experience in bookkeeping and accounts in her various occupations. The application was brought pursuant to section 128 (1)(a) and (1)(l) of the Act. The former subsection empowers the Tribunal, on application by a resident or residents or an operator, to make: "(a) an order directing the resident or residents or operator to comply with the requirement of this Act or the regulations …. ……………………………………………………. (l) any other order prescribed by the regulations for the purposes of this section". A preliminary matter: new evidence 1. The Respondent gave notice that it intended to seek to rely upon additional material at the hearing of this appeal. In the event, much of this evidence comprises: 1. financial statements, both audited and unaudited, relating to the operation of the Village for the financial years 2012/13, 2013/14, 2014/15 and 2015/16; and 2. budgetary material referrable to that period. 1. Since: 1. the Appellant, when asked her views, had no objection to the admission of this evidence; and 2. the Appeal Panel believed that it would be assisted in its deliberations by the clarity which these financial statements would provide, the Appeal Panel decided to admit this additional material in the appeal. Background 1. The circumstances which underlie this appeal concern the budgets for the operation of the Village for the financial years ended 30 June 2013, 30 June 2015 and 30 June 2016 (respectively, FY2012/13, FY2014/15 and FY2015/16). 2. At the original hearing, the issues raised by the Appellant in respect of these budgetary and financial dealings fell into three categories: 1. Budgetary Shortfall Issues The Appellant alleged that the amounts of: 1. $169,711 comprising expenditure in relation to salaries and wages for FY2012/13, and 2. $52,810 for property insurance in FY2014/15, were omitted from the budgets for those financial years approved by the residents. These additional expenditures were to a significant degree compensated for in the operations of the Village by savings on other classes of expenditure, for which the budgeted amounts exceeded the actual expenditures. The Appellant sought orders that the Respondent comply with the Act, and pay those amounts to the residents. The financial consequence would be that these expenditures would be met by the Respondent from its own funds, rather than out of residents' contributions, and that savings on other expenditure categories which have off-set these expenditures would be carried forward as surpluses in the Village's accounts. The essential of the Appellant's argument was that these shortfalls were, whether qualitatively or quantitatively, of such a character that they could not properly be considered as variations between actual and budgeted expenditure which attract the latitude afforded by Act, either in section 116(3) for "minor variations" or in section 116(3A) for the retrospective reallocation between budgetary categories without resident approval of discrepancies between budgeted and actual expenditure. The shortfalls were, the Appellant argued, variations to the relevant budgets, which under section 117 of the Act should have been approved by the residents of the Village. 1. Deficit Carry-forward Issue The Appellant disputed that the deficit of $46,733 recorded by the Village for FY2012/13 and carried forward in the accounts of the Village, by being debited to the Village's accumulated surplus, was in fact a deficit which could properly be so carried forward. 2. Contingencies Issue The Appellant alleged that the amounts included in the approved budgets for each of FY2014/15 and FY2015/16 in respect of excesses payable in connection with motor vehicle insurance claims were "contingencies". Regulation 20 of the Regulations to the Act provides that the annual limit for "contingencies" in any budget is $100. The Appellant therefore sought an order that so much of the aggregate budgeted amounts as exceeded $200 in total be returned to the residents. Findings of the Tribunal 1. In relation to the Budgetary Shortfall Issues: 1. the Tribunal referred to the relevant provisions of the Act and the Regulations under the Act, as follows: Section 116 Expenditure to be in accordance with approved annual budget (1) A proposed annual budget is taken to be an approved annual budget if …[certain procedures are followed]. (3) The operator must not expend money received by way of recurrent charges otherwise than in accordance (apart from minor variations) with the approved annual budget or any amendment authorised under section 117. Maximum penalty: 100 penalty units (3A) An operator does not contravene subsection (3) if the expenditure that was otherwise than in accordance with the budget: (a) was a variation in expenditure between items in the approved annual budget, and (b) does not reduce the level of services provided by the retirement village, and (c) does not cause the total expenditure provided for by the approved annual budget to be exceeded. Section 117 Amendment of approved annual budget (1) The operator of a retirement village may seek the consent of the residents to amend an approved annual budget except if: (a) the budget is taken to be an approved annual budget because of section 116 (1) (b), or (b) the budget is an approved annual budget modified in accordance with an order of the Tribunal that is referred to in section 116 (2). (2) If the residents consent to the amendment, the operator is authorised to expend money in accordance with the approved annual budget as amended. (3) If the residents do not consent to the amendment, the operator may apply to the Tribunal for an order approving the amendment. If the Tribunal make such an order, the operator is authorised to expend money in accordance with the approved annual budget as amended. (4) In the case of an amendment that relates to further expenditure, the Tribunal is not to make an order under subsection (3) unless the Tribunal is satisfied that: (a) there is an urgent need for the further expenditure, and (b) the further expenditure was not reasonably foreseeable when the proposed annual budget was approved under section 116; and 1. the Tribunal found that: 1. the increases in actual expenditure did not constitute "amendments" as referred to in section 117; 2. the Respondent was entitled to rely upon the provisions of section 116(3A) because: 1. the changes in expenditure and their effect on the budget were variations in expenditure as between items in the approved budget, 2. the level of services was not reduced in the Village, and 3. the total expenditure was not exceeded, or alternatively if it were the budget was brought in to balance by utilising Regulation 33 and by the Respondent making good the remaining net deficit. 1. In relation to the Deficit Carry-forward Issue: 1. The Tribunal referred to the relevant provisions of the Act and the Regulations under the Act, as follows: Regulation 33 Making good of deficit (1) For the purposes of section 120C (3) (c) of the Act, the operator of a retirement village may carry forward a deficit to a subsequent financial year to the extent that the deficit is caused by: (a) maintenance (but not replacement) of an item of capital in circumstances where the maintenance was for the purposes of rectifying any of the matters set out in section 92 (2) (a)-(k) of the Act, or (b) an increase in the cost of the following: (i) utilities (other than telephone), (ii) statutory charges including rates and taxes, (iii) wages and salaries increased under an award or an industrial agreement, (iv) workers compensation and public liability insurance; and 1. The Tribunal rejected the submissions of the Appellant that the budget was placed in deficit by the increased expenditure complained of and that therefore such regulation was used improperly to transfer an amount of expenditure from one line item to another. 2. The Tribunal found that: "The budget as a whole is made up of many items and whether there is a surplus or a deficit (or equilibrium) depends on the final balance between all those items including any recourse to Regulation 33. It cannot be said that the items complained of put the budget in deficit, or that the transfer pursuant to Regulation 33 was wrongfully used to offset the blowout in salary and wages. Every item, once finally accounted for, contributed in some way to the final result". 1. In relation to the Contingencies Issue: 1. The Tribunal referred to the relevant provisions of the Act and the Regulations under the Act, as follows: Section 115A Proposed annual budget may provide for contingencies The regulations may limit the amount that a proposed annual budget may allocate for contingencies. Regulation 20 Limit on contingencies in annual budget For the purposes of section 115A of the Act, the maximum amount that may be allocated for contingencies in a proposed annual budget is $100; and 1. The Tribunal found: 1. That the allowances or estimates in the relevant budgets relating to motor vehicle expenses were not "contingencies" in the sense used in Regulation 20. 2. That this regulation referred to section 115A of the Act which provides that the regulations may limit amounts to be budgeted for "contingencies", and considered that this word, in the absence of any definition, should be understood in the sense of an unknown or unforeseeable incident, occurrence or expense rather than in the sense of an attempt to estimate what might possibly or probably will happen. 3. That: "In my opinion, the allowance for motor vehicle expenses is to be regarded in a similar fashion to an estimate for, say, maintenance. It cannot be known with any certainty either that maintenance will be required or if it is required, in what amount. Similarly and indeed notoriously with motor vehicles, repair or accident repair expenses can neither be predicted or costed in advance. I do not agree with the applicant's characterisation of that item to be a "contingency" even if that word was used by the operator at some stage." 1. For these reasons the Tribunal found that the Appellant had not proved her case on the balance of probabilities. Grounds of appeal 1. In the Notice of Appeal, the orders purportedly made are set out incorrectly, the orders challenged being summarised as follows: "That residents should pay large sums which were acknowledged omissions from the village budgets prepared by the Mission in two years. That specific contingencies for motor vehicle accidents is [sic] different to contingencies for maintenance which covers [sic] multiple areas". 1. The grounds of appeal provide follows: "No approval was sought from residents to amend either of the budgets. The amounts are not normal expected variations but large, foreseeable omissions by the operator. The respondent emphasised "variations". Clauses [sic] in the [Act] were incorrectly applied or mis-used to access funds to cover flawed budgeting. A contingency is a contingency when identified in a breakdown of motor vehicle expenses or in a specific contingency line item. The amounts involved total over $228,000 due to careless budgeting by the operator and no responsibility accepted." 1. In the Notice of Appeal, the Appellant further claims that the Respondent used residents' surplus funds and other sources to cover large, unbudgeted expenses; leave is sought to adduce evidence because the Tribunal member allegedly did not accept the Appellant's file nor take in documents to support her submissions. Further, it is claimed, no recognition was given to a number of sections of and regulations under the Act which were breached and the Appellant maintains that the sound recording of the proceedings refers to the use of the word "variations" to mean omissions. Reply to Appeal 1. A Reply to Appeal has been filed which submits that leave should be opposed to the Appellant on several grounds: 1. Firstly, it is submitted that the "Orders Challenged on Appeal" do not reflect the reasons nor the findings below. 2. Secondly, the Respondent submits that the majority of the Grounds of Appeal are not proper grounds of appeal but rather submissions which have already been considered and determined adversely to the Appellant. 3. Further, it is submitted that there is no error of law identified or alleged nor any error of fact made on 22 June 2016. 1. The Respondent submitted that the Appellant is not entitled to rely upon the grounds set out above for these reasons: 1. The Respondent disputes that any provisions of the Act were incorrectly applied and misused as claimed by the Appellant and no ground to support such allegation has been established. 2. The Respondent states that the ground of appeal in relation to contingencies is unclear; that there is no identifiable issue or reason identified; that if the Appellant seeks by such ground to raise the issue of contingencies in retirement village budgets, then such claim has already been determined adversely to the Appellant. 3. As to the appeal ground that the decision of the Tribunal was against the evidence or the weight of evidence, the Respondent submits that no reasons have been provided to support the Appellant's assertion to that effect; that the Respondent and the Appellant were given an opportunity file all documents and materials on which they relied and further the Appellant was granted further opportunity to provide such materials; that both the Appellant and the Respondent filed all documents and materials prior to the hearing and no leave was granted to rely upon additional materials at the hearing of the application on 22nd June 2016. Further, it is submitted that each party was given the opportunity to make detailed submissions and of the Tribunal has made its findings based upon those materials. 1. The Respondent opposes the grant of leave because the Appellant has not sought any orders the Tribunal to be challenged on appeal; has not made out any grounds of appeal to support the appeal; that all issues of law and fact have been determined already by the Tribunal when the Appellant was given a fair and reasonable opportunity to make submissions; that the Respondent has always maintained that the claim was devoid of merit; that additional cost will be incurred if leave is granted and of the Respondent will be seeking payment of those costs at the conclusion of the appeal. Leave to appeal 1. In her Notice of Appeal, the Appellant seeks leave to appeal. She apparently does so on the basis of section 80(2)(b) of the Civil and Administrative Tribunal Act 2013 (the NCAT Act), as modified in its operation to decisions of the Tribunal's Consumer and Commercial Division by section 17 and clause 12 of Schedule 4 of the NCAT Act. The net effect of these provisions is that: 1. an internal appeal against a decision of that Division may only be made if either: 1. the appeal is on a question or questions of law; or 2. the appeal is made with the leave of the Appeal Panel; and 1. the Appeal Panel may only grant leave to appeal if it is satisfied that: 1. the appellant may have suffered a substantial miscarriage of justice, and 2. that miscarriage was because at least one of the following circumstances applies: 1. the decision under appeal was not fair and equitable; 2. the decision under appeal was against the weight of evidence, and 3. significant new evidence has arisen. In Collins v Urban [2014] NSWCATAP 17 an Appeal Panel held that it should be accepted that a substantial miscarriage of justice may have been suffered because of any of the circumstances referred to in cl 12(1)(a), (b) or (c) where there was a "significant possibility" or a "chance which was fairly open" that a different and more favourable result would have been achieved for the appellant had the relevant circumstance in para (a) or (b) not occurred or if the fresh evidence under para (c) had been before the Tribunal at first instance. 1. The Appellant bases her application for leave on clause 12(1)(b) of Schedule 4 to the NCAT Act, which is the second of these circumstances. She says that she suffered a substantial miscarriage of justice because the Tribunal's decision was against the weight of evidence, and then purports to particularise the evidence to which she considers the Tribunal should have given more weight. This particularisation, however, does not in reality disclose any questions going either to the evidence or the Tribunal's assessment of the evidence. Rather, it indicates, as was apparent from the Appellant's arguments to the Tribunal, that her appeal goes to the interpretation of certain provisions of the Act, including notably Division 5, entitled Proposed and approved annual budgets, of Part 7 of the Act. 2. The Tribunal is conscious that: 1. The Appellant is self-represented, and cannot reasonably be expected to approach the formulation and articulation of her grounds of appeal or the basis on which she appeals with the exactitude that the Tribunal might expect from a lawyer; 2. Under section 36(2) of the NCAT Act it is required to seek to give effect to the guiding principle, as defined in the preceding sub-section (1), when it exercises any power under the NCAT Act or the procedural rules applicable under the NCAT Act, or interprets any provision of the NCAT Act or those procedural rules; and 3. This guiding principle is to facilitate the just, quick and cheap resolution of the real issues in the proceedings. 1. By the time the Appellant and the Respondent had respectively articulated to the Appeal Panel their positions on the question of leave, three things had become apparent: 1. The real issues in the appeal went to the interpretation of certain provisions of the Act and the Regulations made under it and were in substance questions of law only, so that the appeal is one which the Appellant is entitled under section 80(2)(b) of the NCAT Act to make as of right; 2. Both sides had effectively argued their respective cases on the appeal itself, so that the just, quick and cheap resolution of the real issues identified above was best facilitated by recognising the Appellant as entitled to make the appeal and treating the hearing accordingly; and 3. The Respondent's solicitor had fully articulated his client's case on the issues of statutory construction, so that the Respondent was not materially disadvantaged in any way by proceeding as set out below. 1. Accordingly, the Tribunal decided that: 1. the appeal itself as one which the Appellant is entitled under section 80(2)(b) of the NCAT Act to make as of right; and 2. it would treat the day's proceedings as the substantive appeal. The Budgetary Shortfall Issues 1. The starting point is section 116(3) of the Act, which provides that the operator of a retirement village must not "… expend money received by way of recurrent charges otherwise than in accordance …. with the approved annual budget or any amendment authorised under section 117". The expression "recurrent charges" is defined in section 4 of the Act, as being "… any amount (including rent) payable under a village contract on a recurrent basis, by a resident of a retirement village". The precise definition of "village contract" is not immediately relevant; for present purposes, it is sufficient to note that it includes any contract under which a resident obtains his or her rights to reside in the retirement village, to obtain services in the village made available by or on behalf of the operator of the village, or to use storage or parking space within the village. 2. Section 116(3) does not prohibit the operator spending more on the operation of the village than is provided for in an annual budget. Rather, it prohibits, subject to various exceptions, the operator from using recurrent charges – that is to say, moneys paid by residents on a recurrent basis under the relevant village contract – to fund expenditure in excess of the budget. This provision is complemented by section 120C(1) of the Act, which requires that a deficit in the annual accounts of a retirement village is generally to be made good by the operator of the village. 3. The general obligation is, however, to be read subject to the other provisions of the Act. These include relevantly: 1. Section 117, which allows an operator to seek amendments to the annual budget of a village, by seeking the consent of the residents or, in certain circumstances, the approval of the Tribunal under sub-sections 117(3) and (4). Section 117 is permissive in nature, not mandatory, and nothing in it requires an operator to seek consent for a variation to the budget if it can meet over-budget expenditure in any other way permitted by the Act; 2. Section 116(3A), which subject to the satisfaction of three conditions allows expenditure budgeted for a particular purpose in the annual budget to be transferred, to the extent not utilised for its original purpose, to make up shortfalls between budgeted and actual expenditure in other items in the budget; and 3. Section 120C(3)(c) and regulation 33 made under that section, which contemplate the carrying forward of a deficit to the following financial year in certain conditions. We will return to section 120C and regulation 33 later, when we deal with the next issue raised by the Appellant. 1. In the present application, it was common ground between the parties that the second condition to the availability to the operator of relief under section 116(3A) – that the use of residents' fees to meet expenditure which has been reallocated between budgetary categories did not cause the level of services for residents in the Village to be reduced because of the additional expenditure – was satisfied in each of the relevant financial years. In its reasons, the Tribunal noted that this was the case: "…it is agreed the level of services provided by the retirement village was not reduced …". Moreover, the Appellant reconfirmed to the Appeal Panel that she accepted that there had been no reduction in service levels during the relevant financial years. 2. The third condition to the availability to the operator of relief under section 116(A)(3) is that the expenditure of residents' fees on expenditure which has been reallocated as between budgetary categories does not cause total expenditure to exceed the budgeted expenditure. The Tribunal found that this was not in dispute between the parties: "…it is agreed …… the total expenditure was not exceeded or if it was, the budget was brought into balance including by utilising Regulation 33 and by relatively small payments made by the operator …". Whether Regulation 33 was properly utilised to carry-forward a deficit from FY2012/13 is, in fact, something which the Appellant disputes in this appeal, and to which the Appeal Panel returns later in these reasons. The outcome of that dispute, however, goes to whether the relevant deficit should be met from the Village's accumulated surplus or residents' contributions for the following year, or by the Operator from its own funds; it does not affect the consensus which the Tribunal found between the parties, that this third condition was satisfied. Logically, if all that the reallocation between budgetary categories contemplated by section 116(3A) does is to establish a net amount of over-budget expenditure for a financial year which must be met in either of those ways, then the third condition must necessarily be satisfied. This is what the Tribunal found, and which according to its reasons was accepted by the parties. 3. The Appellant's contention is that the first condition to the availability to the operator of relief under section 116(3A) is not satisfied. This is because the relief is available where there is, in the words of section 116(3A)(a), "…a variation in expenditure between items in an approved annual budget …". The difference between the parties comes down to the proper meaning in that paragraph of the word "variation": 1. The Appellant says that: 1. Not every difference between actual and budgeted expenditure is such a variation. Where the difference is the consequence of either: 1. an omission from the budget of expenditure which was reasonably foreseeable at the time at which the budget was prepared, or 2. the inclusion in the budget of expenditure which it is reasonably foreseeable at that time will not in fact be made, the difference is not such a variation, and cannot engage section 116(3A)(a). In the case of a difference described in (i), it cannot be off-set against savings in other budgetary categories; in that of a difference described in (ii), it cannot be used to off-set over-budget expenditure in other categories. 1. In the case of the large differences in FY2012/13, the Appellant says: 1. The higher than budgeted costs for wages and salaries were entirely foreseeable, and the Operator's error in estimating them should not be subsidised by savings in other budget items. The difference should be paid by the operator. 2. The lower than budgeted costs for support services provided by the Operator's head office were also foreseeable, because at the time the budget was approved a challenge before the Tribunal had been commenced by certain residents to the way in which head office support costs were calculated. The possibility of this challenge being successful was, the Appellant argues, foreseeable. In consequence, any savings in expenditure on head office support costs were not variations, within the meaning of section 116(3A)(a), and should not be off-set against expenditure overruns on other items. The surplus should be transferred to the Village's surplus account for the residents' benefit. 3. The FY2012/13 budget provided for $50,000 to be transferred to the Village's Major Maintenance Fund, which the Appellant says is the Village's capital works fund under section 99 of the Act. This transfer, she says, was not made, but rather the funds budgeted for this purpose were reallocated to cover the shortfall on wages and salaries. The relevant transfer should, she says, be made. 1. In FY 2014/15 there was a change after the approval of the budget in the way in which property insurance costs were allocated as between, on the one hand, the Village and, on the other, an aged care facility operated by the Operator on an adjoining site comprised in the same land title. The effect of this change was to increase significantly the share of these insurance costs allocated to the Village. The reallocation was a consequence of the Operator's inadequate budgeting and cost allocation, the Appellant says, and should be borne by the Operator, rather than off-set by savings in other categories of expenditure. 2. The Operator was obliged to seek the approval of the residents to the expenditure reallocations under section 117 of the Act. 1. The Respondent says that: 1. The word "variation" when used in the context of section 116(3A)(a) is entirely objective in meaning. It covers equally any circumstance where as a factual matter the budget for a financial year allocates expenditure of $X to a particular category of expenditure, but actual expenditure on that category during that financial year is any amount other than the budgeted amount, whether $(X+Y) or $(X-Y). 2. It does not matter what the reason for the discrepancy is. If there is a discrepancy between budgeted expenditure of a particular kind and actual expenditure of that kind, the first condition under section 116(3A) is satisfied. 1. The Appeal Panel agrees with the Respondent. This is for the following reasons: 1. The primary meaning of the word "variation" is, according to the Shorter Oxford Dictionary, "Difference, divergence, or discrepancy between two or more things or persons", and nothing in the Act generally (or in Part 7, Division 5 of Part 7 or section 116 of the Act more specifically) requires any departure from that plain and ordinary meaning in the context of section 116(3A). 2. The underlying objective of section 116(3A) is clear. It is to allow the operator of a retirement village to use residents' contributions for a financial year to fund operating expenditure in that same financial year of a particular kind which exceeds the approved budgeted amount for expenditure of that kind from approved but unutilised expenditure in some other budgetary category without obtaining resident approval. This facility is subject to the provisos, that: 1. the residents' services are not as a result reduced, and 2. the overall budgeted expenditure is not as a result exceeded. That is to say, the operator has freedom subject to those two conditions to adjust expenditure to meet actual operating needs, within the overall aggregate expenditure authorised by the budget, but untrammelled by the budget's detailed allocation of expenditure between particular categories. 1. That objective is not served if a normative gloss of the kind proposed by the Appellant is applied to the word "variation". 2. The Respondent had no obligation to seek the residents' approval to the reallocations: 1. Section 117 is facultative in nature, and allows (but does not oblige) an operator to seek the approval of residents to incur expenditure on particular items which exceeds the corresponding budgetary allowance for those items. 2. If an expenditure variation cannot be considered as statutorily authorised as either a minor variation under s116(3) or as a reallocation of expenditure between categories under section 116(3A), the operator has several choices open to it. It may variously: 1. choose not to make the expenditure, if it can do so consistently with its statutory and contractual obligations to residents, 2. fund the expenditure from its own resources and bear the cost itself, 3. in appropriate cases to which section 120C(3)(c) and regulation 33 apply, make the expenditure and carry-forward to the following financial year any resulting deficit, 4. seek the residents' approval for a variation to the budget, or 5. if the residents do not give their approval, in certain circumstances seek the Tribunal's approval of the proposed variation. 1. The Appellant referred in her argument to the conditions set out in section 117(4), which deal with the circumstances in which a budget variation may be approved by the Tribunal. These conditions are, however, entirely irrelevant in the present case, since there was no application before the Tribunal for the approval of budget variations, and the restrictions set out in section 117(4) on the Tribunal's ability to do so must necessarily have no bearing on the present matter. 1. The provisions of section 99 concerning capital works funds, to which the Appellant referred, are equally irrelevant to the issues in this appeal: 1. That section requires, in section 99(4)(a), an operator to pay into a village's capital works fund "…. such portion of the recurrent charges as may be required under an approved annual budget ..". 2. In the Appeal Panel's view, nothing in section 99 excludes proposed expenditure to which it applies from the general budget variation and reallocation process provided for under sections 116 and 117. 3. If, after those variation and reallocation processes have been undertaken for a financial year, there remains a budgeted amount to which section 99 applies, then that amount must be dealt with in accordance with the section, as must the capital works fund itself. However, the obligation in section 99(4)(a) can only operate once all permitted budget variations for the relevant financial year have been effected, whether those variations: 1. are minor variations addressed under the parenthesis to section 116(3), 2. variations approved by the residents under section 117, or 3. variations dealt with through off-setting adjustments under section 116(3A). 1. Section 99 is a provision which deals with an exceptional situation, where recurrent charges paid by the residents of a village in one year are used to fund capital works in subsequent years. In such a case, the present residents of a village effectively subsidise future residents by funding future capital maintenance, from which the current residents may not necessarily benefit. For this reason, it is both: 1. consistent with the broad policy of the Act, that recurrent charges be used primarily for the benefit of the residents who pay them, and 2. in the interests of the present residents who pay the recurrent charges, that it remain open to them and the operator to use the variation and reallocation processes under sections 116 and 117 to vary a current year budget (or reallocate items in it) so that current year recurrent charges are able to be applied principally for current year expenditure rather than sterilised, from the time the budget is initially approved, in a capital works fund whose purpose is to meet the cost of capital works which may be incurred in subsequent budgetary years. 1. In its decision in Sakkara Investment Holdings Pty Limited as trustee for Sakkara Landings Trust v The Residents Committee of The Landings Retirement Village [2016] NSWCATAP 52, a differently constituted Appeal Panel held that the onus of demonstrating that the conditions which allow an operator to rely on section 116(3A) rests with the operator. While there is no specific reference to that decision in the Tribunal's reasons, the Appeal Panel: 1. notes that Tribunal stated in its reasons that it accepted the arguments of the Operator; 2. further notes that the Tribunal accepted that both the Appellant and the Respondent agreed that both the second and third conditions to the availability of section 116(3A) were satisfied; and 3. is satisfied in all the circumstances from the Tribunal's reasons that the Tribunal considered that the relevant onus had been discharged. 1. Deficit Carry-forward Issue 2. The Appellant disputed that the deficit of $46,733 recorded by the Village for FY2012/13, and carried forward in the accounts of the Village to the following financial year, was in fact a deficit which could not properly be so carried forward. 3. The audited financial statements of the Village for FY 2012/13 show that: 1. In that financial year, the Village had a deficit of $46,733; 2. Of that deficit, $29,570 was debited to the Village's Accumulated Surplus, pursuant to Regulation 33 of the Retirement Villages Regulations; and 3. The balance of the deficit, being $17,163, was met by the operator, in accordance with section 120C(1) of the Act. 1. In particular, note 1 on page 7 of the audited financial statements states that to the extent the total deficit included maintenance which was for the purpose of rectifying matters set out in section 92(2)(a) to (k) of the Act, it was debited to the Village's accumulated surplus in accordance with Regulation 33. This section lists certain items of urgent capital maintenance or replacement expenditure which Regulation 33(1)(a) allows to be carried forward to in the accounts of a village; in this case, this carry-forward is effected by debiting the Village's accumulated surplus with the amount carried forward.. 2. This accounting treatment was approved by the Village's auditors, Deloitte Touche Tohmatsu, who in their audit report dated 22 October 2013 state without qualification that the Village's financial statements (including the sections referred to above) "… present fairly, in all material respects, the financial performance of the Frank Vickery Retirement Village for the financial year ended 30 June 2013 …". 3. The Appellant alleges that "… almost $30,000 was appropriated from the residents' surplus under this clause [Note: this refers to Regulation 33] to cover some of the omitted wages ..". This claim: 1. takes no account of either the Village's audited financial statements or the auditors' report on them, which state explicitly that the amount carried-forward under Regulation 33 fell within the prescribed categories of expenditure approved for carry-forward; 2. is unsupported by any evidence that the cost overruns for wages and salaries in FY2012/13 had any effect on the amount which was debited to the Village's surplus under Regulation 33; and 3. is, in the Appeal Panel's view, based on a fundamental misunderstanding of the approach prescribed by the Act and Regulations for financing deficits incurred by retirement villages. 1. The Act and Regulations require as follows: 1. First of all, it must be determined whether there is (and, if so, the amount of) any deficit. In doing so, any variation to the budget under section 117, any minor variations allowed under section 116(3) to be met from recurrent charges and any reallocation of expenditure between budgetary categories permitted under section 116(3A) must be taken into account, as must any variation in recurrent charges permitted under Division 4 of Part 7 of the Act. 2. Once the deficit is calculated, the Act requires in Section 120C(1) that it be made good by the operator of the village, and section 120C(2) prohibits generally the carry-forward of any such deficit. 3. Section 120C(3) provides for regulations prescribing circumstances in which the operator of a village may carry forward a deficit. 4. Regulation 33, which is set out above, allows for a deficit to be carried forward – that is to say, met from the village's accumulated surplus or from the following financial year's recurrent charges, rather than by the operator itself – to the extent that it arises as a result of circumstances specified in that regulation. Hence, there are four steps involved in dealing with a deficit in the annual operations of a retirement village: first, calculate the deficit; secondly, identify how much of it is referrable to causes prescribed by regulation 33; thirdly, carry forward that amount in the village's account; and fourthly, cause the operator to make good the balance of the deficit. 1. That is precisely what appears to have happened in the present case for FY2012/13. An aggregate deficit of $46,733 was calculated, and of this amount $29,570 was identified as being referrable to causes prescribed by Regulation 33. This amount was carried forward, by being debited to the Village's accumulated surplus. The balance, $17,163, was met by the Operator. All of this is clear from the Village's audited financial statements for FY2012/13. That the expenditure variations to which the Appellant objects are as an arithmetical matter taken into account in calculating the net deficit does not mean that those variations were themselves carried forward; rather, what was carried forward was so much of the net deficit as fell within the limited expenditure categories which are permitted to carried forward in accordance with Regulation 33. This is clear from the audited financial statements. 2. The Appeal Panel therefore rejects the Appellant's claims on the Deficit Carry-forward Issue. Contingencies Issue 1. The Appellant alleged that the amounts included in the approved budgets for each of FY2014/15 and FY2015/16 in respect of excesses payable in connection with motor vehicle insurance claims were "contingencies". Regulation 20 of the Regulations to the Act provides that the annual limit for "contingencies" in any budget is $100. The Appellant therefore sought an order that so much of them as exceeded $200 in total be returned to the residents. 2. The Tribunal rejected the Appellant's claim, observing that: "Contingency" is otherwise not defined in the RV Act or the RV Regulations. I understand the word to be used in the sense of an unknown or unforeseeable incident, occurrence or expense, rather than in the sense of an attempt to estimate (or even guess) what may possibly or probably happen as in this particular case". 1. The Appeal Panel agrees with the Tribunal's decision on this point, and rejects the Appellant's argument. The budgetary process provided for in Division 5 of Part 7 of the Act both: 1. necessarily requires the operator (in formulating the budget) and the residents (in approving it) to make estimates, predictions and even guesses as to both the revenue and expenditure of the village for the financial year to which the budget relates; and 2. in the variation procedures under section 117, in the allowance in section 116(3) for "minor variations" and in the readjustment provisions in section 116(3A) both recognises the imperfections of human foresight and provides practical methods for addressing the financial consequences of these imperfections. In issuing and considering a budget, both the operator and the residents deal with contingencies. The budget itself is nothing other than a plan to address contingencies, in the classic sense of that word, as being ".. an event conceived as of possible occurrence in the future ..": Shorter Oxford Dictionary. If one were to take the Appellant's argument to its logical extreme, however, every prediction, estimate or guess in a village budget would be a "contingency" with the result that the aggregate maximum expenditure which a budget could provide for would be $100, consistently with section 115A of the Act and Regulation 20. This would clearly be an absurd outcome, but it is precisely where the Appellant's argument, taken to its logical end, inescapably leads. 1. When the overall scheme of the budgetary process in Part 7 of the Act is considered, it is apparent that the purpose of section 115A is to ensure that any budget proposed by the operator and eventually approved by residents breaks estimated expenditure down into identifiable (and meaningful) categories of expenditure, for which a reasonably informed estimate can be made. In the words of the Tribunal's reasons, it requires "…an attempt to estimate (or even guess) what may possibly or probably happen as in this particular case". It does so by prohibiting, in section 115A, the allocation of any significant amount of expenditure to an innominate and unspecified class of potential expenditure: what the Tribunal's reasons call "…an unknown or unforeseeable incident, occurrence or expense". Colloquially, the Act requires that a budget divide proposed expenditure into labelled "buckets" of proposed outgoings; what it prohibits is the substitution for these "buckets" to any significant degree of a general "bucket" labelled "Contingencies" (which might loosely be described as a "slush fund"). 2. Hence, in the Appeal Panel's view, the amounts included in the approved budgets for each of FY2014/15 and FY2015/16 in respect of excesses payable in connection with motor vehicle insurance claims are an estimate of expected expenditure on account of motor vehicle accidents, not a general budgetary reserve against unspecified and unforeseeable contingencies. They are not, therefore, "contingencies" in the sense of section 115A. That a staff member may have colloquially described these budgetary estimates as "contingencies", as the Appellant claims, does not convert them into contingencies for the purposes of section 115A. 3. The Appeal Panel therefore dismisses the Appellant's appeal. I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 16 January 2017