Scandolera v Dingwall

[2017] NSWCATCD 41

Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation:	Scandolera v Dingwall [2017] NSWCATCD 41
Hearing dates:	16 January 2017
Date of orders:	24 February 2017
Decision date:	24 February 2017
Jurisdiction:	Consumer and Commercial Division
Before:	John Levingston, General Member
Decision:	1 The application is dismissed. 2 The Rental Bond Services is directed to pay the whole of Bond number E785856-8 of $920.00 plus any interest to the Landlord Terry Dingwall.
Catchwords:	RESIDENTIAL TENANCY - occupation of premises as residence – legal impediment as no development consent from Council – whether landlord took all reasonable steps - illegality - unjust enrichment – quantum meruit
Legislation Cited:	Civil and Administrative Tribunal Act 2013 ss 28, 29, 36, 62 Schedule 4 Environmental Planning Assessment Act 1979 (NSW) (EPA) s121B Residential Tenancies Act 2010 s49, 175, 187
Cases Cited:	McEvoy v McEvoy [2012] NSWSC 1494 Minister for Immigration v Pochi (1980) 4 ALD 139 Minister for Immigration and Multicultural Affairs v Yusuf [2001] HCA 30; 206 CLR 323 Minister for Immigration and Multicultural Affairs v Singh [2000] FCA 845; 98 FCR 469 Re Minister for Immigration and Multicultural Affairs; Ex parte Durairajasingham [2000] HCA 1; 74 ALJR 405 Moore and White v Lesbian Space Inc [1997] NSWRT 154 Morrissey v Moody [2001] NSWRT 14; Jones and Parkes v Offe [1996] NSWRT 17 Van Loon and Leeder v Maloney [2006] NSWCTTT 737 Azan v Brearley [2008] NSWCTTT 1226 Dalitz & Reed v Falzon [2012] NSWCTTT 305 Bygrave v Harris & Obrien [2012] NSWCTTT 268 Yango Pastoral Company Pty Ltd v First Chicago Australia Ltd [1978] HCA 42; (1978) 139 CLR 410 Fitzgerald v FJ Leonhardt Pty Ltd [1997] HCA 17; (1997) 189 CLR 215 Pavey and Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221 Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation [1988] HCA 17; (1988) 164 CLR 662 David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353 William J. Davis, Inc. v Slade, 271 A.2d 412 (D.C.App. 1970) Miller v Brown & Ors [2010] WADC 102 Brown v Southall Realty Co. 237 A.2d 834 (D.C.App. 1968)
Texts Cited:	Anforth & Ors, Residential Tenancies, Law and Practice, NSW, 6th ed, The Federation Press, Sydney
Category:	Principal judgment
Parties:	Darren Scandolera - Applicant Terry Dingwall -Respondent
Representation:	Mr Mehmedbasic, Solicitor for the Applicant Respondent in person Solicitors: Applicant, Messrs SBC Lawyers & Solicitors.
File Number(s):	RT 16/40234
Publication restriction:	Nil

reasons for decision

Application

1. This is an application filed 6 September 2016 by a tenant in which the tenant currently claims for orders for repayment of all rent paid to the landlord on the ground that the residential tenancy agreement was illegal: Residential Tenancies Act 2010 (RTA) s49(1); and repayment of the whole of the bond of $920 to the tenant: RTA s163. There were earlier applications under RTA ss 44 and 50 which were not the subject of submissions for the applicant and are not considered here.

2. A landlord or tenant may claim for a bond under RTA s175 and the claim for repayment of the rent paid should be made under RTA s187(1)(c) for money or (d) for compensation.

3. There was no application by the landlord for two days’ rent claimed which exceeded the Bond.

4. The Tribunal does not proceed on pleadings and I have read the application as based on ss 175 and 187(1)(c) and (d) in respect of the remedies sought.

Jurisdiction

5. This Tribunal has jurisdiction under the Civil and Administrative Tribunal Act 2013 (NSW) (CATA) ss 28, 29 and Schedule 4 (Consumer and Commercial Division), Part 3 (Functions of Division), cl 3 (Functions allocated to Division); which by cl 3(1) includes the Residential Tenancies Act 2010 (NSW) (RTA), and by cl 3(2) provides:

Subclause (1) extends to:

(a) any functions conferred or imposed on the Tribunal by statutory rules made under legislation referred to in that subclause, and

(b) any functions conferred or imposed on the Tribunal by or under this Act or enabling legislation in connection with the conduct or resolution of proceedings for the exercise of functions allocated by that subclause (including the making of ancillary and interlocutory decisions of the Tribunal).

6. The Tribunal has power to make orders under the RTA and the limit of jurisdiction is $30,000 for a bond claim and $15,000 for arrears of rent and water: RTR clause 23 and RTA s187(4)(a).

Facts

7. The material facts are set out in the following paragraphs. A decision maker must consider and find all the material or relevant facts on which the determination is made: McEvoy v McEvoy [2012] NSWSC 1494; see also Minister for Immigration v Pochi (1980) 4 ALD 139 at 159-160. Relevant or material facts are the facts essential to making the determination and which are the facts on which the decision maker based its decision: Minister for Immigration and Multicultural Affairs v Yusuf [2001] HCA 30; 206 CLR 323 at 346 [136]. The test of materiality was discussed in Minister for Immigration and Multicultural Affairs v Singh [2000] FCA 845; 98 FCR 469 at 482 [56]-[57]; approved in Minister for Immigration and Multicultural Affairs v Yusuf [2001] HCA 30; 206 CLR 323 at 346 [137]; but does not require “that all pieces of conflicting evidence relating to a material fact be dealt with … A fact is material if the decision in the practical circumstances of the particular case turns upon whether that fact exists.” This process involves identification of the factual elements in the relevant section of the statute which the applicant must prove to obtain a determination, including facts that are not controversial. Where there is a dispute the decision maker determines the disputed facts on the balance of probabilities, and the process involves weighing the evidence, and drawing conclusions or inferences: Ansett Transport Industries (Operations) Pty Ltd v Taylor (1987) 18 FCR 498. The reasons are not required to deal with or dispose of every fact that was not material to the determination: Re Minister for Immigration and Multicultural Affairs; Ex parte Durairajasingham [2000] HCA 1; 74 ALJR 405 at 417-418 per McHugh J. Whenever possible the reasons should also include references to the sources of the relevant evidence, usually in the exhibits or given in oral evidence: Minister for Immigration and Multicultural Affairs v Yusuf [2001] HCA 30; 206 CLR 323. This level of detail is not always possible or practical in this Tribunal which has an element of informality with a guiding principle of “just, quick and cheap”: CATA s 36 (Guiding principle to be applied to practice and procedure); as there is more often than not, insufficient time to permit this, and although there is a sound recording of the proceedings there is no transcript to include a reference to the oral evidence of a witness.

8. The respondent landlord lived with his family in the upper storey of the two storey residential house at [address redacted, Doonside] (the Property). The Property was built with an internal garage on the ground floor which also had a toilet and shower. As the landlord’s children grew up his daughter wanted a separate bedroom and the garage was converted to accommodate her, and became a self-contained flat (the Flat). After some years the landlord’s daughter ceased using the Flat and when one of the landlord’s friends moved from Queensland and needed accommodation he stayed in the Flat. After the Queensland friend moved out, the landlord decided he would rent out the Flat.

9. Renting out the Flat seemed like a good idea to the landlord, but the problem was that the landlord had never lodged a Development Application (DA) with Blacktown City Council (the Council), obtained a Development Consent (DC), or an Occupation Certificate (OC) authorising the use of the Flat for residential accommodation.

10. On or about 17 August 2013 the landlord made a residential tenancy agreement with the applicant for the Flat for a fixed term of 26 weeks ending 15 February 2014 with a weekly rent of $230 (the Agreement). The Agreement was in the standard form set out in the Regulations Schedule 1.

11. The applicant tenant also paid a bond of $920.00 (the Bond) which was lodged with the Rental Bond Services.

12. It appears that although the relations between landlord and tenant were cordial for many years, a dispute arose, and on 3 June 2016 the landlord served a Notice of Termination on the tenant alleging breach of the Agreement on the ground of nuisance caused by the tenant and requiring the tenant to give vacant possession of the Flat on 30 June 2016 (the Notice). The Notice was sent by post, and on application of the postal rule: Interpretation Act s76; it was delivered on 9 June 2016. 14 days later is 23 June 2016 so that the Notice was valid.

13. The tenant did not give vacant possession, and the landlord did not make application for its enforcement. This Notice lapsed as no application was brought by the landlord or the tenant.

14. On 28 July 2016 the landlord served a second Notice of Termination on the tenant alleging breach of the Agreement on the grounds of nuisance and 15 days rent arrears, and requiring the tenant to give vacant possession on 5 December 2016 (the Second Notice). This was also served by post and was valid.

15. In or about August 2016 the tenant made enquiries of the Council about the Flat and was informed that the Flat was not authorised for use as a residential dwelling.

16. On 31 August 2016 the Council served on the landlord a Notice of Intent to Give an Order (the Council Notice), which was not in evidence but was referred to in a subsequent notice from the Council dated 11 October 2016.

17. The landlord and tenant continued performance of the Agreement.

18. On 31 October 2016 the Council served an Order under the Environmental Planning Assessment Act 1979 (NSW) (EPA) s121B which relevantly provided in respect of the tenancy (the Order):

…an inspection of the subject land by a Council officer revealed that a section of garage has been modified to form a secondary dwelling, without any form of planning approval.

…

Stage 1

“Cease the use of the garage for the purposes of a secondary dwelling”

and required removal of unauthorised works and compliance within 90 days, by 28 January 2017.

19. The tenant continued to pay rent which the parties agree was paid up to and including 2 November 2016.

20. On 3 December 2016 the tenant gave vacant possession of the Flat.

21. The tenant had not paid rent from 3 November 2016 and if the rent was payable to 3 December 2016 it amounted to 4 weeks ($920.00) and two days ($65.71), totalling $985.71.

22. The Tribunal received no assistance from the parties identifying the relevant provisions of the EPA concerning the alleged illegality. The applicant has assumed that the Order establishes illegality, without explaining the basis of the illegality. This becomes relevant to an analysis of the type of conduct discussed later.

Contentions

23. The applicant tenant contends that the landlord is in breach of RTA s49(1) with the result that the Agreement is illegal, void and unenforceable, and the respondent is liable to repay to the applicant all rent paid up to a maximum of $30,000 by operation of RTA s23(a); and a refund of the Bond.

24. The respondent denies the claim and contends that he is entitled to recover unpaid rent of $985.71 from the Bond.

Law

25. As I have said earlier, the Tribunal does not proceed on pleadings and is required to identify the legal issues arising on the evidence before it. The material facts raise a number of issues, including: RTA s49 (Occupation of residential premises as residence); Illegality of the Agreement; Unjust enrichment and restitution; Tenancy at will; Common law right of the landlord to receive payment for use; Estoppel; Frustration of the Agreement; and Principles of equitable relief.

26. However, the tenant’s submissions are limited to illegality and its consequence. These reasons are limited to determination of these issues, which are discussed in the following paragraphs.

RTA s49

27. The starting point in this matter is RTA s 49 which relevantly provides:

(1) A landlord must take all reasonable steps to ensure that, at the time of entering into the residential tenancy agreement, there is no legal impediment to the occupation of the residential premises as a residence for the period of the tenancy.

(2) ….

(3) This section is a term of every residential tenancy agreement.

28. It is an essential term of the Agreement that there was no legal impediment to the tenant’s occupation of the Flat as a residence for the period of the Agreement: RTA s 49(1).

29. Section 49(1) requires that the landlord “take all reasonable steps” to ensure that there is no lawful impediment to use of the Flat as a residence.

30. In this matter the tenant contends there was a legal impediment for occupation of the Flat as a residence as there was no Council approval for human occupation under the EPA, which caused the Council to serve the Order on the landlord. EPA s121B (Orders that may be given by consent authority or by Minister etc) relevantly provides:

(1) An order may be given to a person by:

(aa) …

(a) a council, or

(b) …

to do or to refrain from doing a thing specified in the following Table if the circumstances specified opposite it in Column 2 of the Table exist and the person comes within the description opposite it in Column 3 of the Table.

Column 1	Column 2		Column 3
To do what?	In what circumstances?		To whom?
To cease using premises for a purpose specified in the order			(a) Premises are being used for a purpose that is prohibited (b) Premises are being used for a purpose for which development consent is required but has not been obtained (c) Premises are being used in contravention of the conditions of a development consent		Owner of premises, or person by whom premises are being used for the purpose specified in the order

31. The tenant’s contention is premised on the Order, but the words of the Order do not specifically identify that the Flat is being used for a purpose that is prohibited as it refers to use of the garage as a secondary dwelling, which leaves open Column 2 circumstance (b) as being the ground as development consent is required but has not been obtained. Circumstance (c) does not apply.

Reasonable steps

32. What constituted reasonable steps in these circumstances? The Flat consisted of an internal garage which had years before been converted for occupation as a residence.

33. There was no evidence before the Tribunal of what was required to convert the Flat into a residential property, for example, whether this type of improvement required the landlord to go through the process of lodging a DA, obtaining a DC, appointing a private certifier, doing the conversion works, and eventually obtaining an OC, none of which had been done.

34. The landlord was not aware that he required Council consent to convert the internal garage into a residence. He believed that all was required was for him to make the Flat suitable for occupation as a residence. The alterations made to the internal garage by fitting it out for occupation as a residence was, so far as he was aware, all that was required as the “reasonable steps”. In this matter, the landlord believed there was no legal impediment as the internal garage had for many years been used for occupation as a residential property, firstly by his daughter; second by a friend; and lastly by the applicant for three years.

35. The tenant contends that if the Agreement could not be lawfully because of a legal impediment to doing so, the Agreement was unlawful from the start (void ab initio). There is support for this proposition in Anforth & Ors, Residential Tenancies Law and Practice New South Wales 6th ed at [2.49.2] stating that where s 49 applies, the landlord is in fundamental breach of his core promise and there is a total failure of consideration flowing to the tenant and the landlord will be liable for any economic loss suffered by the tenant.

36. Anforth also refers to the distinction between RTA s 49 and the former RTA s 20 and refers to s 49 as a “considerable weakening of the former position under then s 20.”

37. A consequence of s 49 is that once the breach is discovered, the tenant must immediate vacate the Flat. The tenant in this matter did not do so despite knowing of the legal impediment from 31 August 2016.

38. There are a number of early cases decided by the predecessors to this Tribunal where illegality has been considered and the tenant awarded compensation, or repayment of his rent in full or a part thereof, or determined as an abatement of the rent: Moore and White v Lesbian Space Inc [1997] NSWRT 154; Morrissey v Moody [2001] NSWRT 14; Jones and Parkes v Offe [1996] NSWRT 17; Van Loon and Leeder v Maloney [2006] NSWCTTT 737; Azan v Brearley [2008] NSWCTTT 1226; and Dalitz & Reed v Falzon [2012] NSWCTTT 305.

39. In Bygrave v Harris & Obrien [2012] NSWCTTT 268 the Tribunal refused an application for a refund of the entire rent paid during a tenancy when it was found that the use of premises as a separate building was not authorised by the local council. The Tribunal determined that the tenant had received what had been bargained for, and applied the law of restitution and unjust enrichment.

40. This Tribunal should follow Bygrave’s case for the reasons explained in the following paragraphs.

Illegality

41. The starting point for illegality is Yango Pastoral Company Pty Ltd v First Chicago Australia Ltd [1978] HCA 42; (1978) 139 CLR 410 at 413 per Gibbs ACJ cited with approval in Fitzgerald v FJ Leonhardt Pty Ltd [1997] HCA 17; (1997) 189 CLR 215 per Dawson and Toohey JJ agreeing with McHugh and Gummow JJ:

There are four main ways in which the enforceability of a contract may be affected by a statutory provision which renders particular conduct unlawful: (1) The contract may be to do something which the statute forbids; (2) The contract may be one which the statute expressly or impliedly prohibits; (3) The contract, although lawful on its face, may be made in order to effect a purpose which the statute renders unlawful; or (4) The contract, although lawful according to its own terms, may be performed in a manner which the statute prohibits.

42. The tenant does not identify which of the above four main ways applies, and Order referring to EPA s121B. The Order only refers to there being no consent for the secondary dwelling by which it could be lawfully occupied. There was no evidence about whether the landlord may have been entitled to obtain consent, or whether or not he was entitled to an exemption arising from an existing use. Nevertheless, the evidence is that the landlord accepted the force and effect of the Order.

43. In addition, the material facts show that although the Agreement was not capable of being lawfully performed, having been made, the Council did not order immediate cessation of the tenancy, but by its Order allowed the tenancy to continue provided that it ceased ease by 28 January 2017. The parties complied with the Order as the tenant gave vacant possession on 3 December 2016.

44. Anforth also points out that not all illegality will render occupation unlawful, citing Miller v Brown & Ors [2010] WADC 102 where the property was unlawfully subdivided and cottages constructed which where let to family members on a life tenancy basis. The Court held that the unlawful subdivision did not obviate the existence of the tenancies, which operated as tenancies at will. A tenancy at will arises where a person is in possession of property with the owner's consent but not by virtue of a tenancy for a certain term: Austin Park Pty Ltd v Canon Foods Services Pty Ltd [2001] WADC 227 at [20]. Whether or not there was a tenancy at will created by the illegality of the Agreement was not argued in this matter and no determination of this issue is required.

Unjust enrichment

45. Monies paid by a tenant under an illegal residential tenancy agreement are not automatically repayable to the tenant. The rent paid may be retained by the landlord if consideration for it has been supplied. The general law has relied upon the doctrine of unjust enrichment where it would be unfair for one party such as the tenant in this case, to rely upon illegality to retain a tangible benefit which had accrued to the tenant under the Agreement. See Pavey and Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221, at pp 256-257 per Deane J. (with whom Mason and Wilson JJ. agreed); Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation [1988] HCA 17; (1988) 164 CLR 662, at p 673); David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353 and the discussion on unjust enrichment.

46. The Agreement satisfied all the requirements of a tenancy, except for the illegality which was unknown for about three years. After the Notice and the Order, the parties continued with the Agreement, and the tenant was a knowing participant in the illegality about which he now complains as he continued to live in the Flat and pay rent after the first Council notice on 31 August 2016 and after the Order on 31 October 2016 through to giving vacant possession on 3 December 2016, although he did not pay rent for about the last month. If I am wrong in my analysis of the principles, the tenant would not be entitled to recover rent paid or payable for the period from 31 August 2016 to the date of vacant possession because of his participation in the illegality.

47. To allow the tenant to now succeed in his claim for repayment of the whole of the rent paid would be contrary to the High Court’s approach to unjust enrichment.

48. This raises the principle of quantum meruit, which expression means "the amount he deserves" or "what the job is worth". Quantum meruit is closely associated with unjust enrichment and restitution.

49. In this matter the value of the Flat to the tenant was the agreed amount of $230, agreed before the Council Notice was issued to the landlord. This was the continuing value which the tenant was prepared to pay after the said Notice and after the Order were delivered to the landlord. The tenant did not seek a reduction in the amount after he became aware that the Flat was not approved for use as a residence. He was content to continue paying $230 per week after both events, until he unilaterally stopped paying anything four weeks and two days prior to giving vacant possession. I find that $230 per week was a reasonable amount to pay, whether classified as a rent or occupation fee.

50. Anforth discusses the quantum meruit approach which has been recognised in courts of the United States, determining that the landlord is entitled to retain a reasonable rent for the time that the tenant resided in the premises based on a quantum meruit approach, citing William J. Davis, Inc. v Slade, 271 A.2d 412 (D.C.App. 1970). Where the tenancy is a violation of building codes the written lease is void ab initio and a tenancy at will exists. Anforth points to the public policy basis which is to encourage tenants to report housing code violations, citing Brown v Southall Realty Co. 237 A.2d 834 (D.C.App. 1968).

Remedy

51. The tenant claims a refund of all rent paid under RTA s 187(1)(c) and (d). The tenant must prove entitlement to a remedy. RTA s187(1)(c) provides for a money order and (d) for compensation. Both are predicated on a legal principle, in this case economic loss (rather than non-economic loss). There is no legal basis for exemplary damages to the tenant or punishment of the landlord, or reward to the tenant. Economic loss requires the tenant to prove a loss for which he is to receive money, or compensation. However, the tenant has not proved economic loss. For the whole of the period he occupied the Flat and paid rent, or perhaps more accurately described as an occupation fee where the Agreement is illegal.

The Bond

52. The RTA s175 (Powers of Tribunal) applies to a bond claim. The Bond is held by the Rental Bond Services. The tenant claims his Bond, which the landlord opposes as he claims against that security for the unpaid rent of $920 plus two days.

53. On the application of the principles discussed above, the tenant was aware of the illegality and continued to take the benefit of the Flat. He cannot be heard to complain about the illegality, and must pay the balance of the unpaid rent which is secured by the Bond.

54. The landlord has not filed his own claim so that his application can only be considered in respect of the available security. The landlord’s claim or the two days rent which exceeds the amount of the Bond must be dismissed.

Conclusion

55. The orders are made in the interests of justice as between the parties to determine their dispute.

J Levingston

General Member

Civil and Administrative Tribunal of NSW

24 February 2017

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

Decision last updated: 11 July 2017