Shuang Song v Edgar Kaler and Nabeela Caunhye; Edgar Kaler and Nabeela Caunhye v Shuang Song and Greg Timms

[2023] NSWCATCD 70

Civil and Administrative Tribunal

New South Wales

• Amendment notes

Medium Neutral Citation:

Shuang Song v Edgar Kaler and Nabeela Caunhye; Edgar Kaler and Nabeela Caunhye v Shuang Song and Greg Timms [2023] NSWCATCD 70

Hearing dates:

24 April 2023

Date of orders:

23 June 2023

Decision date:

23 June 2023

Jurisdiction:

Consumer and Commercial Division

Before:

N Kennedy, General Member

Decision:

1. Greg Timms is removed as a respondent in matter RT 23/08058.

2. The Residential Tenancy Agreement is terminated in accordance with section 93 of the Residential Tenancies Act 2010 as the landlord would in the special circumstances of the case suffer undue hardship if the Tenancy Agreement is not terminated.

2.   The Residential Tenancy Agreement is terminated immediately and possession is to be given to the landlord on the date of termination.

3.   The order for possession is suspended until 21 July 2023.

4.   The tenant shall pay the landlord a daily occupation fee at the rate of $125.71 per day from the day after the date of termination, namely 22 July 2023 until the date vacant possession is given to the landlord.

5.   Within 60 days of the date for possession of the premises specified in these orders the landlord may request the relisting of the application to determine the amount of the occupation fee owing.

6. The landlord, Shuang Song, is to pay the tenants, Edgar Kaler and Nabeela Caunhye, the sum of $4710 on or before 30 June 2023.

7. The application for compensation in matter RT 23/08058 is dismissed.

8. Any application in respect of the costs of the application is to be made by written submissions and documents filed and served within 14 days of the date of publication of this decision. Such submissions should address the question whether the application for costs can be dealt with on the papers and without an oral hearing pursuant to s 50(2) of the Civil and Administrative Tribunal Act.

9. If either party files submissions and documents in accordance with order 4 above, the other party may file and serve submissions and documents in response within a further 14 days. Such submissions should address the question whether the application for costs can be dealt with on the papers and without an oral hearing pursuant to s 50(2) of the Civil and Administrative Tribunal Act.

Catchwords:

LEASES AND TENANCIES — Residential Tenancies Act 2010 (NSW) — Hardship; LEASES AND TENANCIES — Residential Tenancies Act 2010 (NSW) — Termination — Grounds for frustrated agreement

Legislation Cited:

Residential Tenancies Act 2010 (NSW)

Residential Tenancies Regulation 2019 (NSW)

Civil and Administrative Tribunal Act 2013 (NSW)

Civil and Administrative Tribunal Rules 2014 (NSW)

Foreign Acquisitions and Takeovers Act 1975 (Cth)

Cases Cited:

Perpetual Finance Corporation Ltd v Blain and Another (1996) 9 BPR 16,243
State of New South Wales v Austeel Pty Ltd [2004] NSWSC 81

Trawadros v Grubisic [2020] NSWCATCD 1

Orford v Hardiman [2021] NSWCATCD 136

Megerditchian v Kurmond Homes Pty Ltd [2014] NSWCATAP 120

CPD Holdings Pty Ltd t/as The Bathroom Exchange v Baguley [2015] NSWCATAP 21

Australian Building and Construction Commissioner v Pattinson [2022] HCA 13

Australian Securities and Investments Commission v Commonwealth Bank of Australia [2020] FCA 790

Torpey v Stewart [2021] NSWCATAP 248

British Westinghouse Electric and Manufacturing Company Limited v Underground Electric Railways Company of London Limited [1912] AC 673

BM & JA Holdings Pty Limited v Clarence Street Developments Pty Limited [2012] NSWSC 1236

Hyndes v Maddak Pty Ltd [2021] NSWCATAP 302

Rurik v Travers [2020] NSWCATAP 242

Yang v NSW Land and Housing Corporation [2016] NSWCATCD 37

Texts Cited:

Anforth & Ors Residential Tenancies, Law and Practice, NSW, 7th ed, The Federation Press

Category:

Principal judgment

Parties:

Matter RT 23/04434

Shuang Song (Applicant)
Edgar Kaler and Nabeela Caunhye (Respondents)

Matter RT 23/08058

Edgar Kaler and Nabeela Caunhye (Applicants)
Shuang Song and Greg Timms (Respondents)

Representation:

Solicitors: Adam Michael Vainauskas, Stephen Wawn & Associates (Landlord)

Edgar Kaler and Nabeela Caunhye (Self Represented Tenants)

File Number(s):

RT 23/04434; RT 23/08058

Publication restriction:

None

REASONS FOR DECISION

Introduction

1. The application in matter RT 23/04434, is an application by Shuang Song (the landlord) for an order for termination pursuant to section 109 of the Residential Tenancies Act 2010 (RT Act) as the agreement has been frustrated. In the alternative, the landlord is seeking an order for termination pursuant to section 93 of the RT Act as, in the special circumstances of the case, the landlord would suffer undue hardship if the residential tenancy agreement (the agreement) was not terminated.

2. The application in matter RT 23/08058, is an application by the tenants that the tribunal make a declaration that a notice of termination was not given in accordance with the RT Act.

3. Additionally, the tenants have claimed for compensation pursuant to section 187(1)(d) due to the landlord’s breach of section 49 of the RT Act, should the tribunal terminate the tenancy. The tenant’s sought compensation in the amount of $20,000, however, the tenants have submitted to the jurisdictional limit of $15,000.

4. The tenants identified that they would withdraw the claim for compensation should the Tribunal refuse to terminate the tenancy.

Procedural History

5. The landlord’s application in matter RT 23/04434 was made on 31 January 2023.

6. The tenant’s application in matter RT 23/08058 was made on 19 February 2023.

7. The landlord’s application was listed for a Conciliation and Hearing on 23 February 2023. The tenants, the landlord and the landlord’s representative attended that hearing. The tenant’s application was listed for Conciliation and Hearing on 16 March 2023, however, both matters were raised and conciliated on 23 February 2023 at the conciliation hearing in matter RT 23/04434. The parties were unsuccessful in reaching a conciliated agreement in relation to both matters. The hearing listed on 16 March 2023 in matter RT 23/08058 was vacated and both matters (RT 23/04434 and RT 23/08058) were adjourned to be set down for a Special Fixture hearing together.

8. Both matters were set down for a final hearing together on 24 April 2023.

9. Leave was granted for both parties to be legally represented on 19 April 2023.

Evidence and Hearing

10. The landlord served an evidence bundle on 30 March 2023 to both the Tribunal and the tenant. The tenant acknowledged they had been served a copy of the landlord’s evidence. The landlord’s bundle was admitted into evidence and marked Exhibit A1.

11. The landlord sought to further adduce a bundle of evidence at the hearing, being the landlord’s affidavit dated 18 April 2023. This affidavit outlined the updated and current situation with the Foreign Investment Review Board (FIRB) matters related to this application. The documents annexed to the affidavit of the landlord, dated 18 April 2023, were not reasonably available to the landlord at the time of the service of Exhibit A1.

12. The tenant objected to the affidavit being admitted into evidence. The basis of the objection was that the landlord’s time for service in accordance with the directions of the Tribunal made on 23 February 2023 had passed. No prejudice to the tenant was identified should the landlord be granted leave to further adduce the landlord’s affidavit dated 18 April 2023 at the hearing.

13. In considering the submission from both parties and the Tribunals guiding principal (section 36 of the Civil and Administrative Tribunal Act 2013 (NCAT Act)), I find it is in the interests of justice to grant leave to the landlord to further adduce the affidavit of the landlord dated 18 April 2023. The affidavit was admitted into evidence and marked Exhibit A2. A copy of this evidence was provided to the tenants at the hearing.

14. The tenant served an evidence bundle on 9 March 2023 to both the Tribunal and the landlord. The landlord acknowledged they had been served a copy of the tenant’s evidence and has reproduced a copy of this evidence in the landlord’s bundle Exhibit A1. The tenant’s bundle was admitted into evidence and marked Exhibit R1.

15. The tenant’s sought to further adduce a bundle of evidence, being a letter of termination of Mr Kaler’s employment on the basis of poor performance. The letter is dated 19 April 2023 and was not reasonably available at the time the tenant’s evidence was served. The tenant submitted the evidence was relevant to the compensation claim.

16. The landlord objected to the document being admitted into evidence. The basis of the objection was on the grounds the document had no relevance to the issues in contention. No prejudice to the landlord was identified should the tenant be granted leave to further adduce the document at the hearing.

17. In considering the submission from both parties and the Tribunals guiding principal (section 36 of the NCAT Act), I find it is in the interests of justice to grant leave to the tenant to further adduce the letter of termination of employment for Mr Kaler. The document was admitted into evidence and marked Exhibit R2. A copy of the document was provided to the landlord at the hearing.

18. The tenants attended the hearing and Ms Caunhye gave oral evidence under oath to tell the truth. The landlord was represented by a solicitor, Mr Vainauskas. Each party was given an opportunity to present their case in accordance with the rules of procedural fairness.

Background

19. The dispute arises from a standard form residential tenancy agreement made on 12 January 2023. The term of the agreement is 12 months commencing on the 3 February 2023, with the fixed term ending on 2 February 2024. The rent payable under the agreement was $880.00 per week, with the first payment payable on the 3 February 2023. The rental bond was lodged with the Rental Bond Services in the amount of $3520.

20. The landlord is a foreign person for the purposes of the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FAT Act). The purchase of the premises in 2016 by the landlord was subject to the FIRB approval, which the landlord received on 6 January 2016. The approval by the FIRB was subject to conditions, which relevantly include:

1. The premises must be used as the landlord’s principal place of residence; and

2. The premises could not be rented.

21. The landlord entered into a residential tenancy agreement as a tenant on 12 January 2023, to rent an alternative premises as their primary place of residence, with that residential tenancy agreement commencing on 13 January 2023.

22. On 27 January 2023, the landlord became aware that the agreement between the parties breached the FIRB conditions imposed on the landlord for the purchase of the property in 2016. On being made aware of the FIRB conditions, the landlord immediately informed the real estate agent of their error in entering into the agreement and instructed the agent of the landlord’s need to end the agreement. It is agreed that the agent forwarded this information to the tenant.

23. On 27 January 2023 the landlord issued to the tenants and agent a notice of Termination for a frustrated agreement. The termination date listed on this notice was 25 January 2023. The notice was not addressed directly to the tenants, it was addressed to ‘Tenants and Greg Timms (Agent)’.

24. On the 30 January 2023, the landlord issued to the tenants a Notice of Application for a Termination Order for a frustrated agreement, as the premises had ceased to be lawfully usable as a residential premises, or in the alternative the landlord would suffer hardship should the tenancy not be terminated.

25. On 30 January 2023, the landlord made an offer of settlement to the tenants to resolve the dispute. The landlord’s offers can be summarised as:

1. The agreement is terminated due to the agreement being frustrated and the landlord is to pay the tenant’s the sum of $5000 compensation; or

2. The tenants take over the landlord’s tenancy of an alternative premises, with the permission of the landlord to that agreement, and the landlord will pay the tenant’s the sum of $2475 in compensation as a set-off for the 12 months of increased rent. If the landlord of the alternate premises does not agree to transfer the tenancy agreement to the tenants, the offer will default to the third offer below; or

3. The tenants enter into a licence with the landlord, whereby the tenants will reside without a licence fee, for a period of 2 months, or until the tenants secure an alternative tenancy, whichever comes first. The tenants pay a surety of $3500 into the landlord’s representative’s trust account, to be returned to the tenants on vacant possession, pending any damage to the premises during the licence period.

26. The tenant’s declined all the landlord’s offers of settlement and counter offered:

1. The agreement is terminated and compensation to be paid to the tenant by the landlord in the amount of $30,000; or

2. The landlord continues to rent part of the premises to the tenants and the landlord move back into the premises as a housemate.

27. The landlord declined these offers, as continuing to rent any part of the premises would constitute a continued breach of the FIRB conditions. The landlord rejected the counteroffer for compensation of $30,000, as the landlord submitted that this amount exceeded a reasonable compensation for the loss suffered.

28. An amount of compensation to be paid to the tenants, should the agreement be terminated by consent, could not be agreed between the parties.

29. On the 31 January 2023, the landlord filed the application RT 23/04434 seeking termination orders based on a frustrated agreement pursuant to section 109 of the RT Act, or in the alternative, termination due to undue hardship to the landlord pursuant to section 93 of the RT Act.

30. On 2 February 2023, the tenants were provided with a set of keys for the premises by the landlord’s agent, and the tenants occupation of the premises commenced. The tenants were residing in the premises at the time of the hearing.

31. On 21 February 2023 the landlord issued a further Notice of Termination on the grounds of a frustrated agreement and hardship to the landlord giving a vacant possession date of 31 March 2023.

32. The tenants have given oral evidence that at some time after being made aware of the FIRB conditions imposed on the landlord, the tenants made a telephone call to the FIRB to report the landlord’s breach. The date of this telephone call, and it’s content, are not detailed in the evidence, however, a confirmation email confirming contact from the tenants to the FIRB was sent to the tenants on 22 February 2023.

33. On 28 March 2023, the landlord made a further offer to the tenants of compensation to terminate the tenancy void ab initio, with a vacant possession date of 24 April 2023. The landlord offered to repay all rent paid by the tenants to the date of the offer (being $8,800) and the bond would be released to the tenants, subject to any damages claimed for breaches to section 51(3) of the RT Act. This offer was open until 4:00 pm on 4 April 2023. This offer was not accepted by the tenants.

34. On 12 April 2023, the landlord made a voluntary disclosure to the FIRB for a breach of FIRB conditions by the landlord.

35. At the time of the hearing, the FIRB had acknowledged the self-report by the landlord but had not made any decision as to any penalties to be imposed on the landlord for this breach. The landlord provided evidence that the FIRB have indicated that any penalty imposed on the landlord as a result of the breach, would be determined pending the outcome of these proceedings.

Contentions of the Parties

36. The landlord contends that the tenancy agreement has been frustrated as the premises are not lawfully usable as a tenancy due to the FIRB condition imposed upon the landlord at the purchase of the premises in 2016. These conditions remain in force.

37. In the alternative, the landlord contends that the tenancy agreement should be terminated due to the undue hardship the landlord would suffer, if the tenancy was not terminated. The landlord contends that the hardship suffered would be the penalties that may be imposed by the FIRB, including any increased severity in penalties as a result of the landlord’s failure to rectify the breach, should the tenancy not be terminated. Additionally, the landlord has submitted that stress and anxiety related to the impending penalties is a contributing factor to the undue hardship claimed.

38. The tenants contend that the agreement has not ceased to be lawfully usable as a residence and therefore the agreement is not frustrated.

39. The tenants contend that the notice of termination was not given in accordance with the RT Act.

40. The tenants contend that any hardship suffered by the landlord as a result of penalties imposed on the landlord for the breach of the FIRB conditions are of the landlord’s own making and therefore do not constitute hardship.

41. The tenants contend that the termination of the agreement would impose a hardship on the tenants. The tenants further contend that if the Tribunal terminates the tenancy, the tenants should be appropriately compensated.

42. If the Tribunal makes an order to terminate the tenancy, then the tenants also contended in their written submissions, that the landlord had failed in their obligation to take all reasonable steps to ensure that at the time of entering into the agreement, there was no legal impediment to the occupation of the residential premises as a residence for the period of the tenancy.

43. The tenants contend that they should be compensated for the non-economic losses related to the landlord’s breach of section 49 of the RT Act. That is, the landlord’s failure to take all reasonable steps to ensure no legal impediment to the occupation of the premises as a residence at the time of entering into the tenancy, has caused the tenants stress and anxiety due to a possible termination of the agreement.

44. The landlord contends that the earliest that the landlord was fully aware of the FIRB conditions that potentially affected the tenancy agreement, was the 27 January 2023.

Jurisdiction

45. In order for the Tribunal to exercise its powers contained in the RT Act, the Tribunal must be satisfied there is a residential tenancy agreement between the parties in compliance with section 13 of the RT Act, pursuant to section 6 of the RT Act.

46. The landlord has supplied a copy of a Standard Form Residential Tenancy Agreement, this agreement is uncontested.

47. The RT Act, section 187(4)(a) and regulation 40(b) of the RT Regulation prescribe the jurisdictional monetary limit of the tribunal for matters other than the bond to be $15,000. The claim before the Tribunal by the tenants exceeds the jurisdictional limit, however, the tenants have submitted to the jurisdictional limit.

48. I find the Tribunal has jurisdiction to hear the claims in matter numbers RT 23/04434 and RT 23/08058.

Considerations

Section 109 - Termination claim due to frustrated agreement

49. Section 83 of the RT Act states:

83   Termination orders

(1)  If the Tribunal makes an order terminating a residential tenancy agreement under his Act, it must also make an order for possession of the residential premises specifying the day on which the order takes or took effect.

(2) An application to the Tribunal by a landlord for a termination order—

(a) must be made after the termination date specified in the relevant termination notice and within the period prescribed by the regulations, and

(b) must be made only if vacant possession of the premises is not given as required by the notice.

50. Regulation 39(2) of the RT Regulation states:

39   Times for making applications to Tribunal—ss 44(2), 83(2)(a), 98(4), 115(3), 125(3), 134(3), 141(2), 175(3) and 190(1) of Act

…

(2) For the purposes of section 83(2)(a) of the Act, the prescribed period is within 30 days after the termination date specified in the relevant termination notice.

…

51. Section 82 of the RT Act states:

82   Termination notices

(1)  A termination notice must set out the following matters—

(a)  the residential premises concerned,

(b)  the day on which the residential tenancy agreement is terminated and by which vacant possession of the premises is to be given,

(c)  if the notice is not given under section 84, 85, 96 or 97, the ground for the notice,

(d)  any other matters prescribed by the regulations.

(2)  A termination notice must be in writing and be signed by the party giving the notice or the party’s agent.

(3)  A termination notice for a periodic agreement may specify a day other than the last day of a period for the payment of rent as the termination date.

52. Section 109 of the RT Act states:

109   Agreement frustrated — destruction of, or uninhabitable, premises

(1)  This section applies if residential premises under a residential tenancy agreement are, otherwise than as a result of a breach of an agreement, destroyed or become wholly or partly uninhabitable or cease to be lawfully usable as a residence or are appropriated or acquired by any authority by compulsory process.

(2)  The landlord or the tenant may give the other party a termination notice.

(3)  The termination notice may end the residential tenancy agreement on the date that the notice is given.

(4)  The termination notice may specify a termination date that is before the end of the fixed term of the residential tenancy agreement if it is a fixed term agreement.

(5)  The Tribunal may, on application by a landlord or tenant, make a termination order if it is satisfied that a termination notice was given in accordance with this section and that this section applies to the residential premises

53. Section 113 of the RT Act states:

113   Defects in termination notices

The Tribunal may make a termination order for a residential tenancy agreement or any other order even though there is a defect in the relevant termination notice or the manner of service of the notice if—

(a)  it thinks it appropriate to do so in the circumstances of the case, and

(b)  it is satisfied that the person to whom the notice was given has not suffered any disadvantage because of the defect in the notice or service or that any disadvantage has been overcome by the order and any associated order.

54. An application for an order for termination of a tenancy pursuant to section 109 of the RT Act, must be made within 30 days of the termination date on the notice of termination, pursuant to section 83(2)(a) of the RT Act and regulation 39(2) of the Residential Tenancy Regulation 2019 (RT Regulation). Additionally, section 83(2)(b) of the RT Act requires that the application is made only if vacant possession has not been delivered by the tenant as required by the termination notice.

55. The notice of termination served on the 27 January 2023, terminated the agreement on 25 January 2023. The landlord’s application was made on 31 January 2023, within 30 days of the termination date on the notice of termination and the tenants have not vacated the premises.

56. The Notice of Termination served by the landlord for a frustrated agreement on the 27 January 2023. The notice terminated the agreement on 25 January 2023, 2 days prior to the issuing of the notice. Section 109(3) provides for the agreement to be terminated on the date the notice is served, but there is no provision to terminate the agreement prior to the issuing of the notice. Therefore, the Notice of Termination dated the 27 January 2023 was defective as it was not compliant with section 109 of the RT Act.

57. The notice served on the 27 January 2023, with a termination date of 25 January 2023, has a time defect. Terminating the tenancy on a date prior to notifying the tenant of the termination date poses a disadvantage to the tenants which cannot be overcome by the order sought or any associated order. The tribunal declines to exercise it’s discretion under section 113 to cure the defects in the Notice of Termination served on 27 January 2023.

58. Therefore, the Tribunal declines to make an order for termination pursuant to section 109 of the RT Act. The application for termination pursuant to section 109 of the RT Act is dismissed.

59. The notice of termination served on the 21 February 2023 terminated the agreement on 31 March 2023. The landlord’s application was made on the 31 January 2023. The application in matter RT 23/04434 was made prior to the notice being issued and the termination date in the notice served on 21 February 2023 had not passed at the time of the application. The grounds stated in this notice were for a frustrated agreement and hardship to the landlord.

60. The tribunal cannot make termination orders based on the notice of termination served on 21 February 2023 under this application. The application in matter RT 23/04434 in relation to the notice served on 21 February 2023, does not comply with section 83(2) of the RT Act.

Tenant’s claim - Was the notice given in accordance with the RT Act?

61. The tenant’s application in relation to the landlord's notice of termination not being served in accordance with the RT Act, was made within 23 days of the notice being served. This time is within the time limitation in section 40 of the NCAT Act and rule 23(3)(b) of the Civil and Administrative Tribunal Rules 2014, being 28 days from the day on which the tenant became entitled under the RT Act to make the application.

62. For the reasons given above, namely that the Tribunal has declined to exercise its discretion to terminate the tenancy pursuant to section 109 of the RT Act, a declaration that the notice dated 27 January 2023 was not given in accordance with the RT Act is unnecessary.

63. The application by the tenant’s was made prior to the second Notice of Termination dated 21 February 2023, and the Tribunal cannot make a determination as to whether this notice was given in accordance with the RT Act under the application RT 23/08058.

Section 93 - Termination claim due to hardship to the landlord

64. Section 93 of the RT Act states:

93   Hardship to landlord

(1)  The Tribunal may, on application by a landlord, make a termination order if it is satisfied that the landlord would, in the special circumstances of the case, suffer undue hardship if the residential tenancy agreement were not terminated.

(2)  The Tribunal may, if it thinks fit, also order the landlord to pay compensation to the tenant for the tenant’s loss of the tenancy.

(3)  The tenant must take all reasonable steps to mitigate the loss and is not entitled to compensation for any loss that could have been reasonably avoided by the tenant.

(4)  A landlord may make an application under this section without giving the tenant a termination notice.

(5)  The Tribunal may make a termination order under this section that takes effect before the end of the fixed term if the residential tenancy agreement is a fixed term agreement.

65. The Tribunal notes that section 93(4) of the RT Act make the provision for a landlord to make an application for termination pursuant to section 93 of the RT Act, without serving the tenant with a notice of termination. Although the Tribunal cannot consider the notice of termination dated the 21 February 2023 in these proceedings, the Tribunal must still consider the landlord’s application pursuant to section 93 of the RT Act for termination.

66. The operation of section 93 of the RT Act was explained by the Tribunal in Tawadros v Grubisic [2020] NSWCATCD 1, where the Tribunal stated at [36] – [39]:

The landlords as the applicants bear the onus of proof and must provide evidence which satisfies the Tribunal on the balance of probabilities that the order being sought in the application can be made.

The Tribunal has a discretion whether to make a termination order. The evidence must be sufficient to satisfy the Tribunal that the landlord would "in the special circumstances of the case, suffer undue hardship if the residential tenancy agreement were not terminated".

In the event the landlords are able to satisfy the Tribunal of the matters required by section 93 for termination, the making of the order is not mandatory. The use of the word "may" in the section confirms that the Tribunal retains a discretion about whether to make an order for termination.

The landlords’ application under section 93 for an order terminating the residential tenancy agreement must be considered in stages. Firstly, the Tribunal must determine if there are "special circumstances". Secondly, if "special circumstances" are established, the Tribunal must determine the question of "undue hardship". Finally, is it appropriate for the Tribunal to exercise its discretion to terminate the tenancy.

67. The Tribunal must apply the three-step process referred to in Tawadros v Grubisic in determining whether the tenancy should be terminated pursuant to section 93.

Are there ‘special circumstances’ in this matter?

68. “Special circumstances” are circumstances that are out of the ordinary. They do not have to be extraordinary or exceptional: Megerditchian v Kurmond Homes Pty Ltd [2014] NSWCATAP 120 at [11], citing Santow JA in Cripps v G & M Dawson [2006] NSWCA 84 at [60]; see also CPD Holdings Pty Ltd t/as The Bathroom Exchange v Baguley [2015] NSWCATAP 21.

69. The landlord submitted that the restrictions imposed on the landlord’s purchase of the premises in 2016, coupled with the potential outcomes faced by the landlord constitute circumstance out of the ordinary and therefore special circumstances.

70. The conditions of the purchase for the landlord imposed by the FIRB relevantly include that the premises must remain the landlord’s primary place of residence and the premises cannot be rented. The landlord obtained the permission to purchase the premises in 2016 through their legal representation. The landlord has provided an affidavit dated 22 March 2023, in which the landlord states that they were unaware of the imposed conditions of the purchase until after the tenancy agreement had been signed.

71. The maximum potential penalties faced by the landlord for the breach of the imposed FIRB conditions under the FAT Act are:

72. Penalties of 10 years imprisonment; and/or 15,000 penalty units being $4,125,000; and

73. The greatest of the following:

74. Double the amount of capital gain that was made or would be made on the disposal of the interest in the relevant residential land; or

75. 50% of the consideration for the acquisition of that interest; or

76. 50% of the market value of that interest.

77. The tenants did not address the issues of ‘special circumstance’ directly, other than to point out that the circumstances have only arisen due to the landlord’s mistake.

78. The cause of the ‘special circumstances’ need not be determined, but rather whether the ‘special circumstances’ exist in the matter.

79. I find, in the full circumstances of the matter, that the circumstances are uncommon or unusual and are therefore special circumstances under section 93 of the RT Act.

Would the landlord suffer undue hardship if the tenancy was not terminated?

80. What constitutes "undue hardship" was considered in State of New South Wales v Austeel Pty Ltd [2004] NSWSC 81 at [22]. The Court relevantly stated:

"Hardship" is defined in The Macquarie Dictionary, Federation Edition, The Macquarie Library, at page 865, as "a condition that bears hard upon one; severe toil; trial; oppression, or need". The New Oxford Dictionary of English, Clarendon Press, Oxford 1998, defines "hardship" at page 837, as "severe suffering or privation". "Undue" has been defined relevantly as, "not proper, fitting, or right; unjustified" and "unwarranted or inappropriate because excessive or disproportionate": The Macquarie Dictionary at 2043; The New Oxford Dictionary of English at 2017. Lord Denning MR said that undue hardship: "simply means excessive. That is greater hardship than the circumstances warrant. Even though a claimant has been at fault himself, it is an undue hardship on him if the consequences are out of proportion to his fault": Liberian Shipping Corporation v A King & Sons Ltd [1967] 1 Lloyd's Rep 302 at 307.

81. The landlord bears the onus of proving they will suffer undue hardship if the agreement is not terminated.

82. The potential penalties faced by the landlord due to the breach of the FIRB conditions have been listed above. The landlord submitted that the threat of these penalties, including the stress and anxiety suffered by the landlord in relation to the severity of the potential penalties, constitutes a hardship.

83. The landlord submits that the potential penalties themselves, as well as, the stress and anxiety suffered by the landlord as a result of the potential penalties, are disproportionate or onerous considering the breach occurred due to a miscommunication and mistake by the landlord in not understanding the imposed conditions of the FIRB. Therefore, the landlord submits the potential penalties constitute undue hardship.

84. The landlord has submitted that they cannot enter into alternative accommodation and must, as an FIRB condition, have the premises as their primary residence. Further, the landlord cannot enter into a share arrangement with the tenants, as suggested by the tenants, as the FIRB condition preclude renting the premises, without exception.

85. The tenants have submitted that there is no hardship to the landlord as the FIRB have not yet penalised the landlord, nor have they given any indication what penalty will be imposed, if any.

86. The tenants submitted the communication in relation to the FIRB breach investigation does not indicate what penalty may be imposed at this point, or that termination and the rectification of the breach would lead to a reduction in the penalty imposed.

87. The tenants submitted that if the penalty was not to change should the tenancy be terminated, then the Tribunal should not terminate pursuant to section 93 of the RT Act.

88. The High Court noted in Australian Building and Construction Commissioner v Pattinson [2022] HCA 13 at [18], factors that may be considered in considering civil penalty regimes as including, among other factors, the deliberateness of the contravention and the period over which it extended. Additionally, in Australian Securities and Investments Commission v Commonwealth Bank of Australia [2020] FCA 790 at [78], that the size of the penalty is a matter of discretion, and all circumstances must be weighed. The FAT Act also gives a range and alternative penalties, indicating that a singular definite penalty is predetermined. Therefore, not predetermined in every circumstance.

89. The landlord has submitted that the rectification of the breach by termination may be a relevant factor in the determination of any penalty applied to the landlord for the FIRB condition breaches. Equally, should the tenancy not be terminated, the length of the breach would be increased, a factor contributing to the circumstances that may be considered in determining any penalty imposed on the landlord for the FIRB breaches, constituting an undue hardship for the landlord.

90. The landlord has made a number of attempts to resolve the dispute and rectify the FIRB conditions breach. Each of these attempts have been unsuccessful.

91. The tenants submitted that it was open to the landlord to sell the premises to rectify the FIRB conditions breach without necessarily terminating the tenancy and the landlord had not taken any steps to adequately explore this alternative remedy.

92. The landlord submitted in response to the tenants claim that the landlord could not have sought to sell the premises to rectify the breach as it may have taken too long to remedy the breach and therefore decided to pursue proceedings through the Tribunal, the most direct action to rectify the breaches.

93. I find in considering the full circumstances of the matter that the potential maximum penalties faced by the landlord, including incarceration for a 10 year period, over $4,000,000 in fines and possible negative impacts on future visa applications and stress of the impending penalties constitutes undue hardship within the meaning of section 93 of the RT Act.

Is it appropriate for the Tribunal to exercise its discretion to terminate the tenancy?

94. Both parties have provided some evidence of alternative rental premises available in the area, or an alternative area sought by the tenant.

95. The tenants have submitted that the tenants will face hardship if the tenancy is terminated, including moving costs, green card application ‘change of address’ costs and the likelihood of a higher rent.

96. The tenants have submitted that the uncertainty of the longevity of the agreement as a result of these proceedings has caused stress to the tenants.

97. The tenants have submitted that the rental market is difficult at present and they may be unsuccessful in securing an alternative rental premises. However, as discussed above the tenant has not made any applications for alternative premises in the month leading up to the hearing.

98. The landlord has provided a number of available alternative premises for rent in the same suburb as the premises.

99. If considering the full circumstances above, including the negative impacts on the landlord and the tenants, I find it is appropriate for the Tribunal to exercise its discretion to terminate the tenancy.

100. The Tribunal addressed the balance of the application of discretion in whether to suspend possession, or not, in Orford v Hardiman [2021] NSWCATCD 136 at [20], where the tribunal stated:

Having reached this conclusion the section 84 termination application must be approached in the usual way. The Tribunal must make a termination order. The only matter in its discretion is whether the order for possession should be suspended, and if so, by what period of time, to allow the tenant further time to move from the property. In the exercise of this discretion the Tribunal is to balance the relative hardship to the landlords and tenant from the order being suspended: s 114 of the RT Act.

101. In balancing the hardship for the tenants to pack and relocate to an alternative premises against potential penalties against the landlord for the length of the breach of the FIRB conditions, I find that the order for possession should be suspended until 21 July 2023.

Should the Tribunal award compensation to the tenant’s pursuant to section 93(2) of the RT Act?

102. The tenant must take all reasonable steps to mitigate any losses and is not entitled to compensation for any loss that could have been reasonably avoided pursuant to 93(3) of the RT Act.

103. The tenant has stated that a termination order would cause the tenant to incur a cost to change the address on the tenant’s green card application. The tenants have lodged the green card application through an agent and the fee incurred to change the address on the application is imposed by the agent. The landlord has provided evidence that the address on the green card application can be changed without incurring a penalty if it is changed directly with the Department of Homeland Security US Citizenship and Immigration Services.

104. The tenants gave oral evidence that the rental market is difficult to secure a premises and they have not been successful in securing alternative accommodation.

105. The tenants gave oral evidence that the tenants had not made any rental applications in the month proceeding the hearing. The tenants have not provided evidence of any rental applications since the termination notice served on 27 January 2023, other than the email communication on 27 January 2023 with the landlord about one application.

106. The landlord has provided evidence of alternative properties available in the same area as that of the premises at the time of the commencement of the tenancy. The tenant has provided limited evidence of alternative properties and the properties shown are not all in the same or similar area. I accept the landlord’s evidence of the difference in the rent for the same area as $70/week. There will effectively be approximately 7 months left on the lease after the vacant possession date above. Therefore, the reasonable amount of compensation for the increase in rent is $1960.

102. The tenants have provided evidence of moving costs for entering the premises subject of these proceedings and moving and packing costs estimated for leaving the premises. The cost of at least one move was a foreseeable cost as the tenants were intending to relocate. The tenants have sought packing costs in addition to moving costs for having to relocate again. The tenants have submitted that packing to relocate would require days off work to complete. However, one of the tenants was not working at the time of the hearing. I find the reasonable moving costs would be $2750.

103. I find in the full circumstances of the matter and taking into consideration the tenant’s failure to take steps to mitigate their losses over the month prior to the hearing by making no alternative tenancy application and one tenant not working at the time of the hearing, the appropriate compensation pursuant to section 93(2) of the RT Act is $4710.

Section 49 of the RT Act – Occupation of residential premises as residence

109. Section 49 of the RT Act states:

49 Occupation of residential premises as residence

(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) A landlord must ensure that the tenant has vacant possession of any part of the residential premises to which the tenant has a right of exclusive possession on the day on which the tenant is entitled to occupy those premises under the residential tenancy agreement.

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

Has the landlord breached section 49 of the RT Act?

110. The tenants have claimed the landlord breached section 49 of the RT Act at the commencement of the tenancy. The parties entered into the agreement on 12 January 2023 and the tenant’s application was lodged on 19 February 2023, within 3 months of the commencement of the agreement.

111. An application for breach of the agreement must be made within 3 months of the applicant becoming aware of the breach, pursuant to section 190(1) of the RT Act and regulation 39(9) of the RT Regulation. The tenant’s application is within the time limitations.

112. The tenants have submitted that there is no legal impediment to the occupation of the premises as a residence. However, in the alternative, that if there is a legal impediment to the occupation of the premises as a residence, then the landlord has breached section 49 of the RT Act, in which the tenant seeks compensation for non-economic losses being stress.

113. The tenants have provided a letter of termination for poor performance in Mr Kaler’s job as evidence of stress. There has been no other evidence provided of stress caused by a legal impediment to the tenancy other than limited oral evidence at the hearing.

114. The landlord had clearly identified hardship as an alternative reason for termination from prior to commencing occupation in the Notice of Application for a Termination Order dated 30 January 2023.

115. The Appeal Panel has noted in Torpey v Stewart [2021] NSWCATAP 248; Hyndes v Maddak Pty Ltd [2021] NSWCATAP 302; Rurik v Travers [2020] NSWCATAP 242, that compensation due to mental distress, including disappointment, distress or frustration, which cannot be described as a physical or psychiatric injury, is not caught by the restrictions on non-economic loss contained in section 16 of the Civil Liabilities Act 2002 (NSW).

116. The tenant’s moved into the premises in accordance with the residential tenancy agreement and the agreement has not been terminated due to a legal impediment to the premises being occupied as a residence. There is no evidence provided of a requirement from any government body deeming the premises unable to be occupied as a residence.

117. The FIRB conditions imposed on the landlord do not prevent the premises from being occupied as a residence. The tenants have not provided sufficient evidence that there was a legal impediment to the premises being occupied as a residence.

118. In the event that I am wrong and there is a legal impediment to the occupation of the residence, the Tribunal must determine if the tenant should be awarded compensation for the breach.

Did the tenant take action to mitigate their losses?

119. The landlord will not be liable for compensation or damages if the tenant has not taken all reasonable steps to mitigate his losses. British Westinghouse Electric and Manufacturing Company Limited v Underground Electric Railways Company of London Limited [1912] AC 673; BM & JA Holdings Pty Limited v Clarence Street Developments Pty Limited [2012] NSWSC 1236.

120. Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd (1976) 1 NSWLR 5 at 9 held that the landlord bears the onus of proof in respect to the failure to mitigate:

Although a plaintiff cannot recover full loss consequent upon a defendant’s breach of contract, where he could have avoided such loss by taking reasonable steps, nonetheless a defendant who seeks to rely upon a failure to mitigate must show that the plaintiff ought, as a reasonable [person], to have taken certain steps for the purpose of doing so.

121. It has been discussed above that the tenants have provided limited evidence of actions taken by the tenants to find an alternative premises.

Compensation

122. In Yang v NSW Land and Housing Corporation [2016] NSWCATCD 37, the Tribunal stated at [52]:

The guiding principle for assessing damages is that a party is to be put in the same position, not in a better or worse position, that the party would have been in had the breach not occurred.

123. The tenancy has been terminated on the grounds of hardship to the landlord. The tenants have been awarded appropriate compensation for the termination. The application for compensation is dismissed.

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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

Amendments

11 August 2023 - Formatting amendments.

Decision last updated: 11 August 2023