Guo v Korck
[2019] NZHC 1541
•3 July 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-123
[2019] NZHC 1541
UNDER Section 119 of the Residential Tenancies Act 1986 IN THE MATTER
of an appeal from the Decision of the District Court on 10 January 2019
BETWEEN
GARY GUO
Appellant
AND
GRANT D W KORCK
First Respondent
AND
LARA A KORCK
Second Respondent
Hearing: 26 June 2019 Appearances:
Appellant, Self-represented
First and Second Respondents, Self-represented
Judgment:
3 July 2019
JUDGMENT OF WALKER J
This judgment was delivered by me on 3 July 2019 at 2.00 pm Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
GUO v KORCK & ANOR [2019] NZHC 1541 [3 July 2019]
Introduction
[1] This appeal is about the ambit of the tenant immunity for damage to a landlord’s property under ss 268 and 269 of the Property Law Act 2007 (“PLA”).
[2] The appellant, Mr Guo, is the landlord of a property at 12 McCahon Place, Auckland (“the property”). The respondents, Mr and Mrs Korck, were tenants in the property with their three children and two toy poodle dogs, between 28 April 2017 and 29 December 2017.
This appeal
[3] Mr Guo appeals against a decision of Judge Harrison of the District Court delivered on 10 January 2019. That decision quashed an order of the Tenancy Tribunal (“Tribunal”) dated 7 May 2018, in so far as it found the Korcks liable to pay Mr Guo
$10,000 to replace damaged carpet at the property. The Tribunal adjudicator had found that the damage was caused by the Korck family’s two dogs over a period of time.
[4] The District Court held that the damage to the carpets was not intentionally caused within the meaning of s 269(3)(a) of the PLA. The tenants were therefore exonerated from paying for the damage because the landlord had insurance over the property.
[5] Mr Guo’s grounds of appeal were developed in careful and focused oral submissions at the hearing. They are that the Judge:
(a)Did not rely on any principle or authority in support of the conclusion that the permission for the two dogs under the tenancy meant that damage by the dogs was not intentionally done or caused.
(b)Misinterpreted the decision in Tekoa Trust v Stewart.1
(c)Omitted to consider the tenants’ representation that the pet dogs were house-trained and their written undertaking not to allow their pet dogs
1 Tekoa Trust v Stewart [2016] NZDC 25578.
to urinate or defecate inside the house as part of their application to rent the property.
(d)Adopted an incorrect test in his assessment of whether the damage was intentionally done or caused under s 269(3)(a) PLA.
[6] Mr Guo asks this Court to quash the decision of Judge Harrison and reinstate the order made by the Tenancy Tribunal. In addition, Mr Guo asks for:
(a)loss of rent due to carpet replacement work;
(b)the cost of replacement of a garage door remote;
(c)reimbursement for payment of water rates;
(d)reimbursement for the filing fee in the Tenancy Tribunal;
(e)reimbursement of an attachment order application fee;
(f)High Court filing fee reimbursement.
[7] I record that items (b) and (c) have already been dealt with in that part of the order of the Tribunal that was not quashed by the District Court.2 Item (a) was not claimed in front of the Tribunal as the carpet was only replaced after the hearing.
[8]Mr and Mrs Korck submit in response:
(a)The tenancy agreement expressly permitted two dogs on the property; additional rent was paid to accommodate this and Mr Guo therefore assumed any inherent risk of damage.
(b)They went out of their way to ensure that Mr Guo was not out of pocket when they left the property earlier than the term of the tenancy agreement.
2 Korck v Guo [2019] NZDC 209 at [26].
(c)They acknowledge some damage was incurred to specific areas of the carpets and were prepared at the time of the handover to release their bond directly to Mr Guo as compensation but were dissuaded from doing after contacting a Tribunal representative.
(d)They continue to dispute that their dogs are responsible for all the damage and maintain that the Tribunal did not have all the evidence before it.
(e)They deny the damage was intentionally done or caused.
[9] The nub of the respondents’ case in effect is that they support the District Court’s determination that the damage was not intentionally done or caused so they are immune from liability under s 269 of the PLA.
[10] In addition, the Korcks assert a claim against Mr Guo for damage to reputation arising from an alleged breach of privacy. Mr Guo denies there is any basis for such claim but, in any event, this aspect of the dispute is outside the ambit of this appeal.
Background
[11] The tenancy was for a fixed term of one year and commenced on 28 April 2017. The weekly rental was $840 and a bond of $3,360 was paid by Mr and Mrs Korck. The fixed term was cancelled by agreement effective from 29 December 2017. The Korcks found a replacement tenant for the property.
[12] Mr Guo had been reluctant to accept tenants with dogs. He initially declined the application to rent by the Korcks. He was persuaded eventually by representations from the Korcks that the dogs were house-trained. The Korcks acknowledge the “Declaration for Carpets” document which they emailed to Mr Guo’s tenancy agent in their bid to overcome Mr Guo’s reluctance to rent the property to them because of the pet dogs. It reads in part:
“We the Korck family are happy to at our cost get the carpets professionally cleaned on a 6 monthly basis….They [the dogs] are walked twice a day
morning and night so don’t do any business inside (sic) they are house trained.”
[13] The tenancy agreement specifically referenced the dogs and an additional sum of $20 per week was offered and paid to Mr Guo by the Korcks because of the dogs.
[14]Clause 8 of the tenancy agreement provided:
Carpet is to be professionally cleaned on termination of this tenancy agreement and supply landlord with a copy of the receipt and flea treatment.
[15] In addition, special clauses were added to the standard form tenancy agreement:
16.The tenant agrees to have carpets professionally cleaned, deodorised and sanitised on a six-monthly basis and provide receipt to owner.
17.All dog excrement is to be picked up and disposed of in an appropriate manner on a daily basis.
[16] On handover of the property in December 2017, Mr Guo discovered that the carpet was extensively stained. The stains covered a large area of the carpet and were prominent due to the light colour of the carpet, though the carpets had been cleaned professionally. There was evidence from a professional cleaner that the Korcks had attempted to remove the stains by using vinegar resulting in a chemical reaction with the cleaning agent. This had made the situation worse.
[17] Mr Guo and the Korcks negotiated a settlement of all issues at the end of the tenancy which saw them forfeit the bond. However, as recorded by the Tribunal, the Korcks withdrew from it. Instead, they commenced a claim in the Tribunal for a full refund of their bond and recovery of overpayment of rent. Mr Guo made a cross application to recover the cost of replacing the carpet.
The Tribunal’s decision
[18] Although there were disputes as to the existence and extent of staining to the carpets, the Tribunal concluded that:3
3 Korck and Korck v Guo [2018] NZTT Waitakere 4116745; 4119629.
The evidence [was] compelling that the carpets were so badly damaged that it was reasonable to replace them.
[19] The Tribunal recorded that Mr Guo was not insured for intentional damage. Before me, Mr Guo provided a letter from his insurer, AMI, informally stating that there is no cover under the policy for what they termed “intentional damage”:
The first stain could be considered accidental damage and a claim may be considered subject to the policy excess $2,500 (sic). The rest of the stains were likely resulted from ongoing letting dog running free indoors and therefore were intentional.
[20] The Tribunal held that the Korcks did not have the benefit of immunity under the PLA because the damage to the carpet was intentionally caused. The adjudicator relied on the decision in Tekoa Trust v Stewart which he described as directly comparable, and the following definition of intentional damage in that case:4
Conduct will be intentional when it is deliberate, and not accidental, and the (resulting damage) ... will be intentional if the defendant meant to cause it or (probably) knew that it was virtually certain to result.
[21] The Tribunal permitted Mr Guo’s claim for the carpet replacement cost less a discount for depreciation. It ordered compensation of $10,000.
The District Court decision
[22]On appeal, Judge Harrison:
(a)Did not expressly disavow the test adopted by the adjudicator, namely whether the Korcks knew that the damage was virtually certain to result;
(b)Disagreed that the Tekoa Trust decision was comparable because the tenancy agreement between Mr Guo and the Korcks permitted dogs on the property;
4 Tekoa Trust v Stewart [2016] NZDC 25578 at [15], citing Sir Bruce Robertson (ed) Summary Proceedings (online looseleaf ed, Brookers) at [S011.03].
(c)Held that the landlord approved the presence of the pet dogs subject to special cleaning requirements in the agreement, so he clearly contemplated some damage to the carpet to be avoided or mitigated by the cleaning requirements;
(d)Held that although, according to the Tribunal, the carpets were damaged beyond fair wear and tear, the damage was not intentional and the Korcks were not obliged to pay for the replacement of the carpet.5
[23] The practical result was that the Korcks were entitled to repayment of the overpaid rental and bond which had been credited against the amount the adjudicator had found owing to Mr Guo, along with the money they had paid to date towards the compensation order of the Tribunal.
This appeal
[24]This appeal is under s 119 of the Residential Tenancies Act 1986 (the “RTA”):
119 Appeal on questions of law to High Court
(1)Any party to an appeal under s 117 of this Act who is dissatisfied with the decision of the District Court Judge as being erroneous in point of law may appeal to the High Court on that question of law.
(2)Every appeal under this section shall be dealt with in accordance with the High Court Rules.
[25] The wording of s 119 makes it clear that this Court can only be concerned with questions of law. As Duffy J determined in Anderson v FM Custodians Limited, the approach identified in Austin, Nichols & Co v Stitchting Lodestar does not apply6 the procedural rules on appeals under this provision must be tailored to meet the clear language of s 119(1). As such, this appeal is not a general appeal and the proper approach does not permit a rehearing or reconsideration on the merits.
[26] Instead, I must consider whether the District Court Judge misinterpreted the RTA or PLA, or misdirected himself on the relevant law. If there is no misdirection
5 Korck v Guo [2019] NZDC 209 at [25].
6 Anderson v FM Custodians Limited [2013] NZHC 2423 distinguishing Austin, Nichols & Co v Stitchting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.
but the lower court’s conclusion was so misconceived that it reached an unlawful conclusion, that too can be an error of law for the purposes of s 119.7 Rarely, an appellate Court is entitled to allow an appeal where the final conclusion of the fact- finding body is so insupportable as to amount to an error of law, or the proper application of the law requires a different answer.8
A question of law?
[27] I am satisfied that, at its core, Mr Guo’s appeal raises a question of law. In short, whether permitting a tenant to have dogs on the premises means that any resulting damage is not “intentionally done or caused” within the meaning of s 269(3)(a) of the PLA. The answer depends on what “intentionally done or caused” means in this statutory context, and the extent to which the terms of a tenancy agreement inform the meaning.
Discussion and analysis
[28] Clause 3 of the tenancy agreement is a standard clause stating that “[t]his tenancy is subject to the Residential Tenancies Act 1986”. Clause 8 also appears to be a standard term requiring the tenants to professionally clean the carpets on termination of the tenancy agreement” to which has been added in handwriting “and flea treatment”. No doubt this was because of the permission for the two dogs to be at the property.
[29] The special clause 16 is intended to cover additional cleaning in respect of house-trained dogs. Mr Guo explained that the special clause 17 was to protect the interests of his neighbours in keeping the lawn and garden clear of excrement. Mr Guo also accepted the Korcks’ offer of an additional rental payment of $20 per week because of the poodles. He describes this payment, which amounted to $1,000 over the course of the tenancy, as an appreciation of the likely greater wear and tear on the property.
7 Vodafone New Zealand Limited v Telecom New Zealand Limited [2011] NZSC 138 at [51].
8 At [52].
[30] The tenancy agreement included an outline of the main provisions of the RTA. This included the tenant’s responsibility not to damage or permit damage to the premises under the heading “Tenants responsibilities”. This largely reflects s 40(2) of the RTA which states:
(2)The tenant shall not-
(a)intentionally or carelessly damage, or permit any other person to damage, the premises; or
…
(4) Where any damage (other than fair wear and tear) to the premises is proved to have occurred during any tenancy to which this Act applies, it shall be for the tenant to prove that the damage did not occur in circumstances constituting a breach of subsection (2) (a).
[31]Sections 268 and 269 PLA read:
268Application of sections 269 and 270
(1)Sections 269 and 270 apply if, on or after 1 January 2008, leased premises, or the whole or any part of the land on which the leased premises are situated, are destroyed or damaged by 1 or more of the following events:
(a)fire, flood, explosion, lightning, storm, earthquake, or volcanic activity:
(b)the occurrence of any other peril against the risk of which the lessor is insured or has covenanted with the lessee to be insured.
(2)Section 269 applies even though an event that gives rise to the destruction or damage is caused or contributed to by the negligence of the lessee or the lessee’s agent.
(3)In this section and sections 269 and 270, lessee’s agent means a person for whose acts or omissions the lessee is responsible.
269Exoneration of lessee if lessor is insured
(1)If this section applies, the lessor must not require the lessee—
(a)to meet the cost of making good the destruction or damage; or
(b)to indemnify the lessor against the cost of making good the destruction or damage; or
(c)to pay damages in respect of the destruction or damage.
(2)If this section applies, the lessor must indemnify the lessee against the cost of carrying out any works to make good the destruction or damage if the lessee is obliged by the terms of any agreement to carry out those works.
(3)Subsection (1) does not excuse the lessee from any liability to which the lessee would otherwise be subject, and the lessor does not have to indemnify the lessee under subsection (2), if, and to the extent that —
(a)the destruction or damage was intentionally done or caused by the lessee or the lessee’s agent; or
(b)the destruction or damage was the result of an act or omission by the lessee or the lessee’s agent that—
(i)occurred on or about the leased premises or on or about the whole or any part of the land on which the premises are situated; and
(ii)[constitutes an imprisonable offence; or]
(c)any insurance moneys that would otherwise have been payable to the lessor for the destruction or damage are irrecoverable because of an act or omission of the lessee or the lessee’s agent.
[32] The Court of Appeal clarified in Holler v Osaki that ss 268 and 269 apply to residential tenancies.9 Consequently, the PLA bars claims against tenants for insured damage, unless it occurs in the circumstances referred to in s 269(3)(a)-(c). In short, residential tenants are immune from such claims where the damage is caused carelessly but not where the damage is done or caused intentionally.
[33] The provisions of the RTA, particularly s 40, do not sit easily with the exoneration of tenants where the landlord is insured. For the sake of completeness, I record that the Residential Tenancies Amendment Bill (No 2), in its current form will amend the provisions for responsibility for damage by making them more consistent with the PLA, repealing s 40(4).10 The Bill is currently in its second reading.
[34] The Tribunal issued a practice note in respect of tenant liability for damages after the Holler decision.11 It states that it applies in all applications to the Tribunal in
9 Holler v Osaki [2016] NZCA 130, [2016] 2 NZLR 811 (CA).
10 Residential Tenancies Amendment Bill (No 2) 2017 (258-2).
11 Practice Note - Tenant Liability for Damages 2016/1, issued under s 115 RTA.
which a landlord claims damages compensation from the tenant for damage which is more than fair wear and tear. It reads:
Applications by Landlords for damages
1.In any claim by the landlord for damages the landlord must first establish, on the balance of probabilities, that the damage occurred during the course of the tenancy and that it exceeds fair wear and tear.
2.If that is established, the tenant must show on the balance of probabilities that the damage was not intentionally caused by either the tenant or any person in or on the premises with the tenant’s permission. For the purposes of section 40(4) of the Act, “the lessee” in the PLA means the tenant, and “the lessee’s agent” means “a person or persons on the premises with the permission, express or implied, of the tenant”, reflecting section 41 of the Act.
3.Where it is established that the damage is careless, the landlord must disclose whether or not the premises are insured for the event from which the damage arose. Where the landlord holds insurance, the landlord must provide the Tribunal with the insurance policy and the Schedule to the policy, the latter being the source of the details of coverage. As with all documents submitted as evidence, two copies of the original must be provided.
4.If the landlord has insurance for the event that caused the damage in question, the tenant is exonerated from paying for the damage caused by his or her carelessness, or that of any person on the premises with the tenant’s permission.
5.If the damage is intentional, the tenant does not have the benefit of the landlord’s insurance. Compensation can be awarded by the adjudicator in accordance with the provisions of the Act.
...
[35] I proceed on the basis that the landlord has established on the balance of probabilities that the damage occurred during the tenancy and it is for the tenants, here the Korcks, to show that the damage was not intentionally caused if they are to enjoy the benefit of the exoneration provisions.
[36] The first question is whether s 269 PLA is engaged in this case. Section 268 provides that s 269 applies where the landlord’s premises are damaged by an event or peril against the risk of which the lessor is insured. Based on the information provided by Mr Guo, it is likely that Mr Guo’s policy would respond to accidental carpet damage or even damage which was negligently caused, subject to payment of the contracted excess. Insurance policies are generally designed to cover accidental loss
and to exclude intentional loss; insurance is against contingencies and not against certain events.12 To put it another way, as a matter of contractual construction, there is a longstanding principle that an insured party cannot recover for loss and damage intentionally caused.13
[37] The protection for the tenant under s 268 PLA is not limited to the extent of the indemnity or cover which the landlord is entitled to under his insurance policy. Even if the excess payable means it is impractical to claim under the policy, there is still insurance in terms of s 268 as it is the insurer who carries the risk of any cover being inadequate.14
[38] However, I doubt that there can be said to be an event or peril that a landlord is insured against if the damage is not accidental, as that term is understood in the insurance context. Accidental damage generally encompasses damage arising from an insured party’s carelessness or negligence. In contrast, the threshold for denying protection for the tenant in s 269(3)(a) is something over and above carelessness. In my judgment, on the plain wording of s 269(3) it is also something over and above recklessness. Nation J noted in Linklater v Dickison that in the insurance context, courts have held that clauses which attempt to exclude the insurer’s liability for careless or negligent acts are effective only where an insurer can prove an insured has been reckless, grossly irresponsible or grossly careless.15
[39] The meaning of s 269(3)(a) must be ascertained from its text and in light of its purpose.16 There little guidance from the section itself, save that there must be a difference between damage intentionally done and damage intentionally caused, otherwise the latter is redundant. In my view, the focal point for the former is the damage, rather than the action causing the damage, and the damage must be the desired consequence. There is no suggestion that the Korcks wanted the outcome of damaged carpet in this case.
12 Robert Merkin and Chris Nicoll (eds) Colinvaux’s Law of Insurance in New Zealand (Thomson Reuters, Wellington, 2014).
13 Beresford v Royal Insurance Co Ltd [1938] AC 586.
14 Linklater v Dickison & Ors [2017] NZHC 2813 at [39] and [40].
15 At [30].
16 Holler v Osaki [2016] NZCA 130, [2016] 2 NZLR 811 (CA) at [18] citing s 5(1) of the Interpretation Act 1999.
[40] More relevantly, the second part of s 269(3)(a) refers to damage intentionally caused. The question is – does this encompass damage which the Korcks were aware was virtually certain to happen because it occurred persistently, although it was not the intended outcome? In other words, by keeping the pet poodles roaming in the house when, in view of their past behaviour, it was certain that they would perform natural bodily functions, damaging the carpet, should the ensuing damage be regarded as intentionally caused?
[41] Mr Guo accepts that one or even two stains on the carpet caused by the dogs could be accidental rather than intentional. He also accepts that the Korcks did not set out to damage the carpet. He relies on the extent of the damage, both in terms of how many rooms were affected and the number and size of the stains, to infer that the dogs urinated in the house on multiple occasions over a long period. This is a reasonable conclusion. It is also reasonable to conclude that the Korcks knew, after a few episodes of the dogs urinating inside, that further damage was certain if the dogs remained inside. The damage could have been mitigated; it was not. This, he says, determines whether the resulting damage is intentionally caused, rather than relying on any breach of the tenancy agreement.
[42] I agree. I accept Mr Guo’s submission that this conclusion does not depend on a breach of the tenancy agreement. If it did, however, then the Korcks had an obligation to notify Mr Guo as soon as possible after discovery of any damage to the premises, and did not do so.17
[43] I also accept Mr Guo’s submission that permitting the dogs on the premises under the terms of the tenancy agreement did not mean that he assumed all risk of damage. He was entitled to rely on the Korcks’ assurances that the dogs were house- trained. What Mr Guo did accept was only that there would be greater wear and tear on the property because of the dogs. To that extent only, his permission for the dogs informed the tenant’s obligations. It did not mean that all damage, whatever the extent, caused by the dogs urinating on the carpet is fair wear and tear or unintentional. I record for the sake of completeness the Tribunal’s finding that the carpet had been
17 Residential Tenancies Act 1986, s 40(d).
damaged beyond fair wear and tear, requiring replacement. The Korcks do acknowledge there was some damage to the carpet. The Tribunal found that the evidence of extensive damage was compelling. There is no evidence contradicting that, even if I was permitted to re-examine the factual findings.
[44] Testing my conclusion by reference to the purpose of the legislation, the provisions of the PLA are intended to prevent landlords or landlords’ insurers making claims against tenants who negligently cause damage to premises. The immunity is limited to negligently caused damage, this being the type of damage covered by insurance. It allocates risk but, in my judgment, it is not intended to encompass the position where the damage is not an insurable risk, i.e. because it is not negligently caused. The fact that AMI determined that the carpet damage fell outside the policy terms is instructive. Indeed, it is arguable that s 269 is not even applicable as the landlord is not insured for the particular peril.
[45] I conclude that the District Court Judge made an error of law when he determined that, because the tenancy permitted the two dogs, the damage by the dogs was not intentionally caused within the meaning of s 269(3)(a). I set aside the decision of the Court and re-instate the Order of the Tenancy Tribunal subject to one amendment. The additional rental of $1,000.00 paid by the Korcks in respect of the dogs is to be deducted from the Order along with the amount of compensation paid to date by the Korcks under the attachment order.
[46] In addition, I make an order that the following disbursements are to be paid by the Korcks to Mr Guo:
(a)High court filing and hearing fees $1180.00
(b)Attachment order application $50.00
[47] I am not prepared to award Mr Guo compensation for loss of rental over the period of re-carpeting. This issue was not before the Tribunal or District Court for
obvious reasons of timing. In any event, there was no evidence that the property would have been rented in the relevant period.
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Walker J
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