A huge sigh of relief for the retirement living sector as AVEO settles class action
The door on six years of angst in the retirement living industry is finally closed.
Last week we saw the class action law suit worth potentially between $100M and $500M that was aimed firmly at AVEO, settle for just $11M on its sixth day in court. And with it, the whole retirement living industry was able to breathe, after six long years of turmoil that looked like it was set to erupt again. Thank goodness they made sure it isn’t.
As a part of the settlement, which still needs to be approved by the courts, Aveo were required to pay $11M to the plaintiffs and lawyers Levitt Robinson were required to make an agreed statement, publicly, and drop the case. The case is estimated to have cost parties $10M each, so the settlement amount will barely cover the legal and administration costs of residents who were led to believe they had a case to pursue 'fee gouging in relation to its Aveo Way residential contracts’. It is unknown how much, if any, will flow through to the residents.
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The upside for all - an end to the bad press and scaremongering that reflects poorly on a whole industry and its customers. Anyone in the sector would have to admit graciously that the industry has done an extraordinary amount of work to clean up its act over the last six years.
Experts seem to agree that a class action loss could have been decimating for it all over again, with flow on effects of digging up the past likely to be seen in poor media coverage of the industry and future law suits that could have rolled on for years.
The statement associated with the settlement is rather fascinating. It reads (full edition here): “Levitt Robinson acknowledges that the introduction and implementation by Aveo and its related entities of Aveo Way contracts were lawful, in accordance with industry standards and that we are now satisfied that the Federal Court is not likely to find that its introduction has caused current or former residents of Aveo to suffer any loss.
“We express regret for any distress or anxiety which Aveo residents and staff have experienced as a result of or incidental to the Aveo class action litigation.”
Aveo, now led by Tony Randello, released a statement last week that it was ‘relieved to have this chapter behind us’. and that the ending of the case would provide ‘closure for our employees and the residents of our communities’.
The media investigation had an enormous impact on their business, with the company which had a market cap of $1.715BN in 2016, being bought by Brookfield Property Group for $1.27BN in 2019 and being forced into a turnaround situation.
I’d argue it is $11M well spent to provide closure for both Aveo and the whole industry, who lost billions of dollars in sales, and had to rebuild the critical trust of consumers over many years.
As owner of Starts at 60 during the 2017 ‘Four Corners storm’ and the years of fallout afterwards, I would find it difficult to publish factual and insightful information online about the retirement living industry for consumers. Social media posts would quickly fill up with consumer-rants about how the whole industry was evil, and no facts, insights or stories from people living in these communities could convince them otherwise. That turned quickly in Covid, when people could see for themselves how valuable it was to live in and be a part of a community. And subsequently there has been an enormous recovery in sentiment toward retirement community living. So it would have been very challenging for the industry to cop another blow.
Daniel Gannon, the Executive Director of the Retirement Living Council concurs that the settlement was a good move for all.
“Australia’s retirement living industry is pleased to see the case resolved, and acknowledge the expression of regret by law firm Levitt Robinson for any stress and anxiety it may have caused.
“There is no doubt that the television exposé that sparked the case six years ago, indeed made for tough viewing.
“The reputation of our industry suffered as a result.
“But as a sector, we chose to acknowledge the issues, front up and address them.
“In the last six years the Retirement Living Council has introduced a Code of Conduct and produced best practice guidance with the industry and for the industry.
“We have acknowledged mistakes, learned from them, and been united in our positive response as we continue to work with governments on strengthening this sector.
Want a little more background?
In 2017, an investigation by the Australian Broadcasting Corporation (ABC) program Four Corners in partnership with the Sydney Morning Herald, alleged that the Aveo Way contract was part of a wider pattern of exploitation and mistreatment of residents in Aveo retirement villages. The investigation, titled “Bleed them dry until they die,” claimed that the contract included hidden fees and charges, unfair contract terms, and clauses that allowed Aveo to benefit financially from the sale of residents' properties.
The media coverage of the investigation led to widespread public outrage and calls for greater regulation of the retirement village industry in Australia. The government responded by announcing an inquiry into the sector, which was led by former High Court judge, the Hon. Dyson Heydon AC QC.
In June 2019, the Heydon inquiry released its final report, which made a number of recommendations for improving the regulation and oversight of the retirement village industry in Australia. The report also recommended that the Aveo Way contract be banned, and that Aveo Group be required to offer refunds to residents who had signed the contract.
And according to the history books, Aveo Group did offer refunds to some residents who had signed the Aveo Way contract. Following the release of the Heydon inquiry's report, Aveo Group committed to implementing a range of changes to its business practices, including improving transparency around fees and charges, strengthening residents' rights and protections, and offering refunds to eligible residents who had signed the Aveo Way contract.
In August 2019, Aveo Group announced that it had set aside $23 million to pay refunds to eligible residents. The company stated that it would offer refunds to residents who had signed the contract after it was introduced in 2015 and who had experienced financial disadvantage as a result.
However, there were some concerns raised by residents and advocacy groups about the eligibility criteria for the refunds and the process for applying for them. Some residents reported that they had difficulty accessing information about the refunds and that the process was lengthy and complicated.
The class action was run by Levitt Robinson and funded by US firm Galactica Litigation. Levitt Robinson ran multiple advertising campaigns to seek to attract participants to the class action, with 6200 people allegedly covered by the class action, but 2,372 electing to pull out.
Overall, the introduction of the Aveo Way contract and the subsequent media scrutiny and regulatory action highlighted some of the challenges and issues facing the retirement village industry in Australia, particularly around transparency and consumer protection and forced companies to take action on contractual issues that otherwise might have taken decades to evolve.
At least all the pain will leave a valuable legacy.
Have a great Easter break.
Bec Wilson Xx
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This week’s great reading
AusSuper to launch market-linked retirement product in two to three years: Blackmore, Sharon Klyne, Investment Magazine
What is the ideal retirement age for your health? Dana G Smith, New York Times
Want a fulfilling retirement? Focus on relationships, resilience, Bec Wilson, Epic Retirement