Holler v Osaki

[2012] NZHC 939

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV2011-404-005536 [2012] NZHC 939

BETWEEN  ANDREAS LUIGI HOLLER AND KATHARINE MARY ROUSE Plaintiff

ANDKENJI OSAKI First Defendant

ANDTEIKO OSAKI Second Defendant

Hearing:         2 December 2011

Counsel:         E J Walton for plaintiffs

D G Collecutt for defendants

Judgment:      7 May 2012

JUDGMENT OF ASSOCIATE JUDGE ABBOTT

This judgment was delivered by me on 7 May 2012 at 3.30pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:

E J Walton, Wynn Williams & Co, PO Box 4341, Christchurch
A Meggitt, Simpson Dowsett Mackie, DX CP39001, Mt Roskill, Auckland

Counsel:

D G Collecutt, Barrister, P O Box 105270, Auckland

ANDREAS LUIGI HOLLER AND KATHARINE MARY ROUSE V KENJI OSAKI HC AK CIV 2011-404-

005536 [7 May 2012]

[1]      The plaintiffs are the owners of a residential property at 16 Bonnie Brae Road, Meadowbank, Auckland.   That property suffered damage from a fire whilst tenanted by the first defendant, Mr Osaki, and occupied by him, his wife (the second defendant) and their children.

[2]      The plaintiffs seek summary judgment against the defendants for the cost of repairing the damage, alleging that the fire was caused by Mrs Osaki’s negligence.

[3]      The defendants have opposed summary judgment on four grounds, two of which  involve disputes  of fact  which  potentially make the claim  unsuitable for summary judgment.  The other two grounds involve questions of law: firstly, that the Tenancy Tribunal  has  exclusive originating jurisdiction  over these disputes  and, secondly, that the claim is barred by ss 268 and 269 of the Property Law Act 2007.

[4]      The parties have sought a determination of the two legal issues only (without considering the  other two  factual  grounds) as  they are likely to  dispose of the application.   Counsel agree that these grounds are, in effect, affirmative defences, and that the defendants’ opposition is tantamount to a strike out application. Nevertheless, counsel accepted that it was still for the plaintiffs to show that the defendants have no arguable defence.

The background

[5]      The plaintiffs own a three bedroom house situated at 16 Bonnie Brae Road, Meadowbank, Auckland.   In about September 2006 they agreed to rent it to Mr Osaki for use as a family home for himself, his wife and their three children.

[6]      As at 19 March 2009 one of the plaintiffs, Mr Holler, had the house insured with AMI Insurance Limited under a rental property policy.

[7]      On the evening of 19 March 2009 Mrs Osaki was at home with her children. She put a pot containing oil on an element on the stove to heat the oil ahead of preparing a meal for Mr Osaki.

[8]      After turning the element up to maximum temperature, she left the kitchen to deal with a dispute between her children.  She was with the children for about five minutes before noticing smoke and flames coming from the kitchen.  She attempted, unsuccessfully, to put out the fire.   The kitchen, living room and entrance were damaged before the Fire Department was able to extinguish the fire.

[9]      A report by New Zealand Fire Service dated 30 March 2009 confirms that the origin of the fire was the pot on the stove element and that the fire was accidental, caused by the overheated cooking oil.

[10]     Mr and Mrs Osaki were aware that the plaintiffs had made an insurance claim for fire damage and had thought that they might be covered by that policy.   It is common ground that this proceeding has been brought by the insurer by way of subrogation.

[11]     The plaintiffs have sought summary judgment.   Mr and Mrs Osaki filed a notice of opposition contending:

(a)      The tenancy the subject of this proceeding was a residential tenancy, and the claim against the first defendant is therefore within the exclusive jurisdiction of the Tenancy Tribunal;

(b)At all material times the plaintiffs were insured, and the plaintiffs were prohibited by ss 268 and 269 of the Property Law Act   from requiring the lessee to pay the sums claimed;

(c)       The plaintiffs have settled their claims against the defendants; (d)     There were various defects in the plaintiffs’ claim.

[12]     The parties have sought a determination of the two legal issues raised by the notice of opposition; I therefore do not deal with the opposition based on prior settlement and defects in the form of the plaintiffs’ claim.

The problem posed

[13]     The  defendants  contend  that  the  claims  against  them  are  barred  by appropriate application of ss 268 and 269 of the Property Law Act.  These sections are enacted in Part 4 of the Property Law Act which deals generally with leases of land. The sections read:

268     Application 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.

269     Exoneration 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 indictable offence within the meaning of the Summary Proceedings Act 1957; 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.

[14]     These statutory provisions were enacted following recommendations by the Law Commission to remedy what it considered to be the unsatisfactory state of the law in relation to a lessee’s liability for destruction of or damage to leased premises, which  the  Commission  considered  did  not  reflect  economic  reality  where  the premises were insured by the lessor.1

[15]     The Court of Appeal reviewed the genesis of the sections and the history of the Law Commission’s considerations in Sheehan v Watson, and made the following conclusions as to the purpose of the reforms:2

[23]      The background materials show that s 268(1)(a) follows the draft in the report which the Commission noted extended the lessor’s liability to situations where the lessor was not insured. That is despite the heading of both the draft and enacted section. It seems from both the structure of the section and the Commission’s report that the lessor is to bear the risk of loss in  the  events  noted  in  s  268(1)(a)  whether  or  not  it  insured  or  has convenanted to insure against such risks.

1 See the history of the sections set out in Sheehan v Watson [2010] 2 NZLR 419 (HC) at [6]–[7] and

Sheehan v Watson [2010] NZCA 454, [2011] 1 NZLR 314 at [14]–[27].

2 Sheehan (CA) at [23]–[24], [26]–[27].

[24]      In any event, in the present case the lessor is insured. The common theme that emerges from a review of the Commission’s preliminary paper in

1991, the report in 1994, and the Act, is that where the lessor is insured (or has covenanted to insure) the economic reality is that the lessee has paid for

the cost of that insurance, either directly by an express clause in the lease or otherwise in the level of rental, so that it would be unreasonable to require the lessee to have to pay again for its own insurance (for the same risk) or to

face a claim by the lessor or its insurers. The reform sought to confirm the lessor was to bear the risk, not the lessee.

...

[26]      In summary, the purpose of the proposed reforms in this area was to address the unsatisfactory state of the case law and its economic unreality by:

(a)      imposing the risk of damage or destruction of the premises on the lessor, even in the absence of insurance; and

(b)     preventing the insurer, (where the lessor had insurance), from exercising by subrogation, a right to claim against the lessee.

[27]      Those objectives and the purpose of the reform would not be met if the lessor (or its insurer by subrogation), while prevented from suing the lessee, could still sue the lessee’s agents.

[16]     If ss 268 and 269 apply, they will exclude the plaintiffs’ claims against Mr Osaki (as tenant) as the exceptions for intentional or criminal acts or acts causing loss of insurance cover do not apply.  Further, it is clearly arguable that Mrs Osaki, as a person for whose acts or omissions Mr Osaki is responsible, would be able to rely on the same exclusion in light of the decision of the Court of Appeal in Sheehan.

[17]     However, the application of these apparently clear legislative provisions has been complicated in the case of residential tenancies by a related amendment to the Residential Tenancies Act 1986.

[18]     The  Residential  Tenancies Act  was  enacted  to  provide  a  comprehensive restatement of the law relating to residential tenancies, to define the rights and obligations  of landlords  and  tenants  of residential  properties, and  to  establish  a Tribunal  to  determine  disputes  between  them.3    Section  4  of  the  Residential

Tenancies Act states that it “applies to every tenancy for residential purposes except

3 Long title to Residential Tenancies Act 1986.

as specifically provided”.   Section 5 of the Residential Tenancies Act expressly provides that it does not apply to commercial premises, and in a number of other circumstances.

[19]     Section 142 of the Residential Tenancies Act (which had previously dealt with the effect of that Act on the Property Law Act 1952), was amended at the same time as the Property Law Act 2007 was introduced, to address the effect of the provisions  in  Part  4  of  the  new  Property  Law Act  (relating  to  leases)  on  the Residential Tenancies Act. The new s 142 reads:

Effect of Property Law Act 2007

(1)       Nothing in Part 4 of the Property Law Act 2007 applies to a tenancy to which this Act applies.

(2)       However, the Tribunal, in exercising its jurisdiction in accordance with section 85 of this Act, may look to Part 4 of the Property Law Act 2007 as a source of the general principles of law relating to a matter provided for in that Part (which relates to leases of land).

[20]     The purpose of s 142 was clearly to allow the Tenancy Tribunal to give effect in its determinations to the principles applying to leases, without derogating from the principles and specific provisions in the Residential Tenancies Act.

[21]     To complicate matters further in the present case, the plaintiffs are claiming damages of $216,413.28 (plus a sum for interest) either under s 41 of the Residential Tenancies Act on the basis that Mrs Osaki’s acts would have been a breach of a term of the tenancy agreement that required the tenant to take all reasonable precautions against outbreak of fire (this is the claim against Mr Osaki) or for breach of a tortious duty to take reasonable precautions to avoid outbreak of fire when using the stove (the claim against Mrs Osaki).

[22]     By reason of s 77(5) of the Residential Tenancies Act (which is an exception to the general jurisdiction of the Tenancy Tribunal under s 77(1)), the Tribunal does not have jurisdiction to order any payment in excess of $50,000.  If the claims were within the monetary jurisdiction of the Tenancy Tribunal it could conceivably apply ss 268 and 269 as “general principles” under s 142(2).  However, the claims have

been  brought  in  this  Court  as  they  clearly  exceed  the  Tribunal’s  monetary jurisdiction, and the power in s 142(2) to apply the general principles in Part 4 has been given only to the Tribunal.

The arguments

[23]     Counsel for the defendants submitted that the Court should strike out the plaintiffs’ claim on the ground that it does not have jurisdiction or that it should decline to exercise any jurisdiction to deal with this dispute.   He developed this argument on the basis of the statutory purpose of ss 268 and 269 of the Property Law Act, as identified in the reports of the Law Commission and in the judgments in Sheehan: that where a landlord is insured (and it can be taken that the tenant has paid for the cost of that insurance either directly or through the level of rental) it would be unreasonable to require the tenant to pay again for insurance for the same risk or face a claim by the landlord or the landlord’s insurers.   Further, he submitted that the sections exonerated persons for whom the tenant was responsible, and that a spouse living in the premises fell within that class of persons.

[24]     Counsel submitted that a result consistent with the statutory purpose could be achieved in one of two ways:

(a)      By having the claims determined in the Tenancy Tribunal so that it could apply the provisions of ss 268 and 269 either directly by ruling that   s 142(1) was not to apply (using the power given to it by s

77(2)(j)) or indirectly as general principles available to it under ss

85(2) and 142(2), allowing it to determine matters on their substantial merits and the justice of the case rather than strict legal rights and obligations;4

(b)By leaving the claims in this Court but construing the provisions of the  Residential  Tenancies  Act  as  conferring  on  this  Court,  when

4 Residential Tenancies Act, s 85(2).

determining matters relating to a residential tenancy, the same power to determine the matters on general principles.

[25]     Counsel argued that Parliament intended issues of this nature (whether the claims were barred) to be dealt with by the Tenancy Tribunal under its exclusive originating jurisdiction.5    He acknowledged that the Tribunal did not have the jurisdiction  to  order  payment  of  the  sums  being  sought  by  the  plaintiffs,  but submitted that if the claims were not barred they could then be transferred initially to the District Court6 and, if appropriate, then to this Court.7

[26]     In the alternative, and in the event that it was found that the Tribunal did not have jurisdiction because the claims were in excess of $50,000, counsel submitted that the Court should interpret ss 77, 85 and 142 of the Residential Tenancies Act as giving it the same powers as the Tribunal to apply general principles.  He argued that it would be illogical to limit the relief afforded to residential tenants to claims of less than $50,000, and absurd not to extend the protection afforded a tenant to a spouse (by analogy with the extension to employees in Sheehan): to do otherwise would negate the policy underlying the reforms.

[27]     Counsel relied on the finding of the Court of Appeal in Sheehan that in exceptional circumstances the Court has power to read qualifications or words into a statute to avoid an interpretation that would mean the legislation did not achieve its objective,8  both to support his submission that the protection of ss 268 and 269 should be extended to Mrs Osaki and for contending that s 142 should be construed to give this Court the jurisdiction to decide tenancy disputes on general principles.

[28]     Counsel for the plaintiffs submitted that the Tenancy Tribunal’s jurisdiction required a direct connection with the tenancy agreement, and the plaintiffs’ claims were  for damages  for  breach  of duty rather than  for payment  of a sum  owing

pursuant to the agreement.   Accordingly, she said that the claim falls outside of

5 Residential Tenancies Act, s 82(1).

6 Residential Tenancies Act, s 83(2).

7 District Courts Act 1947, s 83.

8 Sheehan (CA) at [37]–[39].

jurisdiction of the Tenancy Tribunal9 and that this Court had general jurisdiction10 to determine matters in accordance with the Residential Tenancies Act (including the issue over the application of ss 268 and 269) and it was appropriate that this Court should exercise that jurisdiction rather than follow that path suggested by the defendants (which would require a cumbersome sequence of transfers between Tribunal and Courts).  Counsel referred to the provision for transfer to the District Court11 (and particularly the reference to claims being deemed to have been commenced in the District Court) to support her argument that both it and this Court must determine matters before them in accordance with legal rights and obligations (as distinct from the “substantive merits” and “justice of the case” approach of the Tribunal).  As  s  142(1)  expressly  excludes  Part  4  from  applying  to  residential

tenancies, counsel submitted that neither the District Court nor this Court had the ability to glean general principles of law from Part 4 of the Property Law Act.

[29]     Counsel further argued that the claim in negligence against Mrs Osaki did not fall within the Tribunal’s jurisdiction as it is neither a dispute between landlord and tenant nor one relating to the tenancy.  She submitted that Mrs Osaki could not be considered to be Mr Osaki’s agent, and Sheehan should be distinguished on the ground that the employer/employee relationship in that case was of a different character to a spousal relationship.  She said that the claim against Mrs Osaki could not be “bundled up with” that against Mr Osaki to gain the benefit of the protection, and the claims should not be split to give the Tribunal jurisdiction in respect of the

claim against Mr Osaki.12

The issue for determination

[30]     The issues for the present case is whether the statutory bar in s 269 of the

Property Law Act   can be applied either directly, or indirectly by reference to s

142(2) of the Residential Tenancies Act, to a residential tenancy, and in particular, when  the  claims  being  brought  are  not  within  the  monetary jurisdiction  of  the

9 Residential Tenancies Act, s 77(5).

10 Judicature Act 1908, s 16.

11 Residential Tenancies Act 1986, s 83(4).

12 Residential Tenancies Act, s 77(8).

Tenancy Tribunal.  The latter point also raises an issue as to whether these are claims relating to this residential tenancy.

Discussion

[31]     The first point to consider is whether the monetary limit on orders that the Tenancy Tribunal can make necessarily removes its jurisdiction to determine other matters arising out of a tenancy dispute.

[32]     The starting point  is  that  the Tenancy Tribunal  has  exclusive originating jurisdiction on any dispute between a landlord and a tenant in relation to any residential tenancy:

77       Jurisdiction of Tribunal

(1)       The Tribunal has, subject to the Limitation Act 1950, jurisdiction to determine in accordance with this Act any dispute that—

(a)      exists between a landlord and a tenant or between a landlord and the guarantor of a tenant; and

(b)      relates to any tenancy to which this Act applies or to which this Act did apply at any material time.

....

82       Exclusion of other jurisdictions

(1)       Notwithstanding any other enactment or rule of law to the contrary, no court or other body shall have originating jurisdiction in respect of any matter that is within the jurisdiction of the Tribunal [except in two circumstances which do not apply in this case]

[33]     I regard s 77(5) as limiting the relief that can be given by the Tenancy Tribunal, rather than automatically removing its jurisdiction.  It follows that where a party seeks an order for a sum in excess of $50,000, the Tribunal will not have exclusive jurisdiction.  However, that does not mean that all matters in issue must necessarily be referred to a Court that can award the relief being sought.  There may be an issue that can be appropriately dealt with by the Tribunal.

[34]     This was the case Auckland City Apartments Ltd v Stars and Stripes 2000

Ltd13  where a plaintiff landlord commenced proceedings in this Court for a sum exceeding the amount which the Tenancy Tribunal could award.   The defendant tenant was successful in obtaining a stay of that claim pending a determination by the Tribunal of whether the lease in question was a tenancy agreement for residential premises in terms of the Residential Tenancies Act, and whether the Tribunal should make an order reducing the term of the tenancy in the circumstances of that case. Randerson J found that the Tribunal retained jurisdiction to determine those issues, notwithstanding  the  amount  of  the  landlord’s  claim,  and  that  the  Tribunal  had

exclusive jurisdiction to determine the two issues:14

Having considered the relevant provisions of the Act, I am of the view that the  Tribunal  does  have  jurisdiction  to  determine  the  identified  issues although it does not have jurisdiction to require a tenant to pay a sum in excess of $12,000.  Mr Gilbert does not seek that relief and accepts that this Court would continue to have jurisdiction in respect of the money claim.  I reach this conclusion because the Act does not provide that the Tribunal’s jurisdiction is to be excluded altogether where there is a claim in excess of

$12,000.   It remains open to the Tribunal to determine the discrete issues raised by the defendant while leaving to one side the money claim for which jurisdiction is excluded by virtue of s 77(5).  This may be considered to be an untidy state of affairs but in my view it is dictated by the provisions of the Act.

...

I accept that the Tribunal does not have jurisdiction in respect of a money claim in excess of $12,000 but it does not follow in my view that the other discrete issues identified may not be determined in the exclusive jurisdiction of the Tribunal.  Section 82(1) makes it clear that the Tribunal alone shall have originating jurisdiction “in respect of any matter that is within the jurisdiction of the Tribunal”.  The expression “any matter” is apt to include the discrete issues which the defendant seeks to refer to in the Tribunal. That conclusion follows in my view from the way in which s 77 is drawn with specific elements of the Tribunal’s jurisdiction being separately identified.  I therefore conclude that the Tribunal does have exclusive jurisdiction to determine the identified issues.

[35]     It  is  appropriate,  in  my  view,  that  the  Tenancy  Tribunal  determines  the question of whether ss 268 and 269 of the Property Law Act apply to these claims,

before the plaintiffs proceed with the claims in this Court.  The Tribunal has been

13 Auckland City Apartments Ltd v Stars and Stripes 2000 Ltd HC Auckland CP429/99, 9 November

1999.

14 At [15] and [17].

established as a specialist body in this field, with wide powers to consider matters on the  basis  of  their  substantive  merits  and  the  justice  of  the  case.    It  was  given exclusive originating jurisdiction and it is appropriate that it should determine, at least in the first instance, how the principles underlying ss 268 and 269 should be applied and, if so, whether it should be by a direction that s 142(1) not apply in this case or by applying the sections as “general principles”.   The Tribunal  has the specialist knowledge and experience to make this determination.

[36]     Counsel for the plaintiffs argued that the statutory purpose underlying ss 268 and 269 was not as advanced by Mr and Mrs Osaki and as identified in the Law Commission’s reports.  She referred to two bills put before Parliament to extend the protection provided by ss 268 and 269 explicitly to residential tenancies that did not pass with legislation, and argued that this indicated that there was currently no such protection. This submission does not lie easily with the clear findings of the Court of Appeal in Sheehan but if there is any basis for it, it is a matter that the Tenancy Tribunal will be able to take into account in deciding its approach to the issue.

[37]     It will be apparent from the above that I am not persuaded that the case should be determined in this Court, based on the proposition that the Tribunal does not have jurisdiction in respect of the claim against Mrs Osaki.   Counsel for the plaintiff focused her argument in this respect on ss 77(2)(k) of the Residential Tenancies Act, which gives the Tribunal jurisdiction to order the tenant to pay any sum found to be owing, either by way of rent or “otherwise pursuant to the tenancy agreement” and the fact that the claim against Mrs Osaki was for negligence. However, that is merely one order that the Tribunal can make.  It does not detract from the wide general jurisdiction afforded by s 77(1) to determine any dispute between a landlord and a tenant and relating to any tenancy to which the Act applies, and whether such claims should be barred as a matter of policy.

[38]     Although I accept that in Sheehan the Court of Appeal was addressing the extension of the protection from the named lessee to the lessee’s employees, I consider that the same arguments ought to apply by analogy as between a tenant and spouse.  I accept the submission of counsel for Mr and Mrs Osaki that the protection

should be the same for husband and wife regardless of whether both are named in the tenancy agreement or (often for reasons of convenience) only one of them is named: they should not have to take out separate cover for the wife.  Again, this is a matter that the Tenancy Tribunal can take into account when considering whether and how to apply ss 268 and 269.   For present purposes, it is sufficient to note that the plaintiff landlords were aware that the property was being occupied by both Mr and Mrs Osaki (and their children), and they can be taken to have accepted her right to be in the premises.  If ss 268 and 269 apply, I see no logical reason to treat Mrs Osaki differently from Mr Osaki.

[39]     Although  this  matter  has  come  before  the  Court  on  an  application  for summary judgment, and has been argued similarly to an application for strike out, I consider   that   the   appropriate   course   is   to   stay   the   proceeding   pending   a determination by the Tenancy Tribunal as to whether the claims are barred.  If they are not, the stay can be lifted and the proceeding can continue.   If the Tribunal determines that ss 268 and 269 apply, and operate to bar both claims, it seems inevitable that this proceeding will then be struck out.

[40]     The plaintiffs’ application for summary judgment is adjourned to a summary judgment list to be allocated by the Registrar after 1 June 2012.  In the meantime, Mr and Mrs Osaki are to file an application in the Tenancy Tribunal to determine the issue as to whether ss 268 and 269 bar the claims in this proceeding.  They are to endeavour to have that matter determined at the earliest possible date.

[41]    Any further orders needed in respect of the present proceeding will be considered at the next call.

[42]     The costs of the present application are reserved.

Associate Judge Abbott