Parbhu v Want
[2018] NZHC 2079
•15 August 2018
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2018-485-184
[2018] NZHC 2079
UNDER THE Residential Tenancies Act 1986 IN THE MATTER OF
an appeal from the decision of the District Court dated 4 February 2018
BETWEEN
SUNIL DENNIS PARBHU AND KUMUD PATEL
Appellants
AND
NICOLE WANT
Respondent
Hearing: 30 July 2018 Appearances:
R J Thompson for the Appellant C J Nicholls for the Respondent
Judgment:
15 August 2018
JUDGMENT OF COOKE J
Table of Contents
Introduction [1]
Anderson v FM Custodians Ltd [7]
Arguments on appeal [12]
What is the correct interpretation and application of the Act? [20]
(a)Text [23]
(b)Purpose [29]
(c)Scheme [37]
Relevance of section 8 [41]
Does s 137 nevertheless apply? [45]
Other arguments advanced on appeal [48]
Status of Anderson v FM Custodians Ltd [54]
Summary and result [57]
PARBHU v WANT [2018] NZHC 2079 [15 August 2018]
Introduction
[1] Mr Parbhu and Ms Patel are the trustees of the Impala Trust (the Trustees). They own a commercial building on Eastern Hutt Road, Taita, Lower Hutt. Some 16– 17 years ago an application was made to establish living quarters on the premises for an on-site caretaker. The application was granted on 16 November 2001 subject to conditions, including the condition that “the living quarters are to be used as a caretaker’s residence only”. The reason given for granting the application was to “allow the applicant as owner and manager … to stay on-site and manage the business without having to employ night time security supervisors”.
[2] On 19 November 2015, the Trustees entered a fixed term tenancy with the respondent, Ms Want. Ms Want is not employed by the Trustees as a caretaker. The occupancy was accordingly inconsistent with the resource consent condition. The fixed term tenancy became a periodic tenancy from 1 May 2016. The factual circumstances that led to the parties entering into the tenancy agreement were described in the following way by the Tenancy Tribunal adjudicator:1
The Landlord rented the premises to the Tenant with the knowledge that doing so would not comply with the restricted resource consent for the premises. However, Mr Parbhu genuinely felt the limited consent was a mere technicality and believed Level 2 to be a quality residence for any resident, himself included, and appropriate for the tenant to live there. That the initial application to the Tribunal was rent arrears suggests the Trust genuinely believed the tenancy was a lawful tenancy. The Trust did not deliberately set out to deceive the Tenant nor breach the Act and Mr Parbhu had no understanding of the potential detriment the Tenant may have suffered by living in a premises that did not have consent for that purpose.
[3] Both parties subsequently made claims before the Tenancy Tribunal concerning the tenancy. When the Tribunal first addressed the position in its decision of 17 November 2016, it made an order granting the Trustees possession and terminating the tenancy. The remainder of the applications were adjourned until 15 December 2016. That separation of questions for determination arose simply because the Tribunal did not have time to deal with all issues on 17 November.
1 Parbu v Want TT Lower Hutt 4050364, 22 March 2017 at [41].
[4] When the resumed hearing took place, the issue concerning compliance with the resource consent condition, which had been identified only in a preliminary way at the earlier stage, was focused upon. In its subsequent decision, dated 22 March 2017, the Tribunal concluded that the breach of the condition meant that the tenancy was unlawful, and that it was bound by the earlier decision of this Court in Anderson v FM Custodians Ltd.2 As such the only orders that the Tribunal could make were those contemplated by s 137 of the Residential Tenancies Act 1986 (the Act). As a consequence, the Tribunal held that it did not have general jurisdiction to hear the claims, and ordered restitution of all rent and bond that had been paid by Ms Want under s 137, totalling $14,000.3 The Tribunal declined to award exemplary damages.
[5] The Trustees appealed to the District Court. In a reserved decision dated 22 February 2018 Judge A I M Tompkins dismissed the appeal on the basis that the Tribunal, and the District Court, were bound by what the High Court had held in FM Custodians.4 The Trustees now appeal to this Court.
[6] Appeals to the High Court are limited to questions of law under s 119 of the Act. The principles relevant to such an appeal were summarised by the Supreme Court in Vodafone New Zealand Ltd v Telecom New Zealand Ltd.5
Anderson v FM Custodians Ltd
[7] The judgment of this Court in Anderson v FM Custodians Ltd is central to the decisions of the Tribunal and the District Court. In that decision, the Court dealt with an appeal from the District Court upholding a Tenancy Tribunal decision depriving a couple of occupancy of a unit in a former retirement village. The Act excludes such villages from the scope of residential premises (see s 5(1)(d) and (l)) but the Court held that the exclusion did not apply as the village was not registered, and it appears it was no longer operating as a retirement home.6 The Court then held that the resource consent requirement that none of the units in the village be occupied by persons under
2 Anderson v FM Custodians Ltd [2013] NZHC 2423.
3 Parbu v Want, above n 1.
4 Parbu v Want [2018] NZDC 3080.
5 Vodafone New Zealand Ltd v Telecom New Zealand Ltd [2011] NZSC 138, [2012] 3 NZLR 153 at [50]–[51].
6 Anderson v FM Custodians, above n 2, at [8].
the age of 55 years was a breach of s 12 of the Act as it involved discrimination on the grounds of age in contravention of the Human Rights Act 1993 (although the appellants in that case were over 55 years of age). The Court then concluded that the following issue arose:
[60] At the core of the questions raised by these two grounds of appeal is the question of whether the definition of “residential premises” in s 2 should be read literally to mean any premises that are in fact used or intended to be used by any person as residential, notwithstanding any law to the contrary, or whether the purpose of the legislation is better achieved by adopting a constrained meaning of “residential premises” that requires the use or intended use of such premises to be otherwise lawful. On the latter view, because Unit Q could not be lawfully occupied by any person as a residence, but only by persons over 55 years of age, it would fall outside the definition of residential premises in s 2. This would mean the Tribunal had no jurisdiction to make the orders under s 65. The respondents would have to bring proceedings in this Court relying on s 105 of the Land Transfer Act to regain possession of Unit Q.
[8] The Court addressed the issues, including policy issues, relevant to that interpretation question, noting that the question was “finely balanced”.7 Her Honour addressed arguments for suggesting that the Act should apply, but then said:
[65] On the other hand, a literal interpretation of “residential premises” would invoke the full application of the RT Act, as it is hard to see how the RT Act could be understood to apply in some respects but not in others. Thus, this interpretation would give a measure of legitimacy to letting arrangements and transactions that are illegal under other enactments. It would allow landlords who let premises as residential in contravention of other enactments, such as the Resource Management Act, to be able to use remedies provided by the RT Act against those tenants. It would also mean that if any of the former tenants in the village, who were given notice terminating their tenancies on the ground they were under 55 years old (see [53] and [55]), had complained to the Tribunal that this amounted to age discrimination under s 12, the Tribunal would have either had to rule against this discrimination in the face of the Council’s requirement for compliance with the resource consent, or to tolerate this breach of s 12. These unsatisfactory outcomes demonstrate how unworkable it would be if the RT Act were to be interpreted in a way that saw it being applied to any situation where premises were factually in use as residential premises and no regard was paid to their legally permitted use.
[9] The Court went on to hold that there was “no risk that constraining the scope of the RT Act would create a group of essentially second-class tenancies, by reason of
7 At [64].
falling outside the cover of this Act”.8 That was because s 137 would likely be held to apply. That section provides:
137 Prohibited transactions
(1)No person shall—
(a) enter into any transaction, or make any contract or arrangement, purporting to do, whether presently or at some future time or upon the happening of any event or contingency, anything that contravenes or will contravene any of the provisions of this Act; or
(b) enter into any transaction or make any contract or arrangement, whether orally or in writing, or do anything, for the purpose of or having the effect of, in any way, whether directly or indirectly, defeating, evading, or preventing the operation of any of the provisions of this Act.
(2)Requiring any person to enter into any transaction, or to make any contract or arrangement, in contravention of subsection (1) is hereby declared to be an unlawful act.
(3)Subject to subsection (4), any provision of any transaction, contract, or arrangement entered into in contravention of subsection (1) that would have the effect of, in any way, whether directly or indirectly, defeating, evading, or preventing the operation of any of the provisions of this Act shall be of no effect.
(4)All money paid and the value of any other consideration for the tenancy provided by the tenant (not being rent lawfully recoverable by the landlord) or, where the transaction takes the form of an option to purchase the premises to which the transaction relates, by the person on whom the option to purchase is conferred, shall be recoverable as a debt due to the tenant or prospective purchaser by the landlord.
[10] The Court observed that tenancies that cannot be lawfully used as such would likely be viewed as an arrangement that either directly or indirectly had the effect of defeating, evading or preventing the operation of the Act. The Court held:
[69] I am satisfied, therefore, that the purposes and policy of the RT Act will not be jeopardised by reading the definition of “residential premises” in a way that recognises the influence the resource consent in this case has on the use of the subject premises. I also consider that this interpretation is consistent with the general public interest of ensuring that illegal conduct is not profitable.
[70] For all of the above reasons, I find that the context and purpose of the RT Act requires the meaning of residential premises in ss 2 and 65 to be read
8 At [67].
as referring to premises that may be lawfully used for residential purposes by any person. Section 65 in my view was never intended to provide a remedy for persons in the position of the respondents to remove the occupants of a unit in a defunct retirement village.
[11] The Court’s judgment has caused some difficulties. A number of Tenancy Tribunal decisions, particularly in recent years, have followed the decision.9 Some decisions have attempted to distinguish, or not apply it, however.10 Legislative change has now been proposed and is set out in the Residential Tenancies Amendment Bill.11 The regulatory impact statement provided by the Ministry of Business, Innovation and Employment (the Ministry) described the problems giving rise to the need to the amendment in the following way:12
Problem definition
Tenancy Tribunal does not have discretion to award appropriate remedies
9.The Anderson decision has had a constraining effect on the ability of the Tribunal to exercise discretion in ordering appropriate remedies. In most cases the Tribunal has only awarded partial or full rent refunds. Unlike other disputes, the Tribunal does not have the ability to investigate and adjudicate on a case by case basis, in accordance with its duty under the RTA to “exercise its jurisdiction in a manner that is most likely to ensure the fair and expeditious resolution of disputes” (section 85).
9 Bellinger v Zhang TT North Shore 4015460, 20 June 2016 (tenancy of a “container”, which was not lawfully compliant as a residential premise); Weir v Giles TT Lower Hutt 4017655, 11 May 2016 (Skyline building at the rear of a residential property with no bathroom facilities and no separate consent to be used as a dwelling); Gilchrist v Challenge Rentals Property Management Ltd TT Wellington 4009288, 27 June 2016 (commercial building converted into residential accommodation with no consents for the property to be used as residential accommodation); Shields v Stone Property Management Ltd TT Auckland 4027787, 12 July 2016 (address lacking the required building consents relating to the re-installation of the kitchen in the premises); Chief Executive, Ministry of Business, Innovation and Employment v Silan TT Manukau 4057600, 15 March 2017 (conversion of a garage into a dwelling without any form of building consent and without complying with the requirements of the Resource Management Act 1991); Pihama v Yinwen TT Lower Hutt 4045048, 16 December 2016 (conversion of a lower floor to a self- contained flat with no building consent, not meeting the construction standards of the BuildingAct 2004 or the minimum site requirements normally required for resource consent approval); and Ministry of Business, Innovation and Employment v Prime Property Group Ltd TT Wellington 4071192, 6 June 2017 (tenancy in disused office tower revealed after Kaikoura earthquake).
10 Edwards v Wongeoon Vast Ltd TT Christchurch 4091009, (building of which the tenancy premises formed part, which had been converted from a single dwelling to three dwellings and did not have building or resource consent); Inglis v Parry [2017] NZDC 26036 (lack of building consent for the conversion of part of the dwelling).
11 Residential Tenancies Amendment Bill (No 2) 2017 (258-2), cl 18 — inserting a new s 78A into the Act.
12 Ministry of Business, Innovation and Employment “Regulatory Impact Statement: Application of the Residential Tenancies Act 1986 to rental premises which are not lawful for residential purposes” (15 February 2017) at 5–6.
10.There is a wide spectrum of residential premises which could fall into the category of “unlawful” (for example due to a lack of resource consent or building certification), from well-appointed but unconsented “granny flats” (which are safe and habitable in all respects) through to badly converted garages or cottages on farms with inadequate plumbing and insulation (which are genuinely unfit for rental purposes). While there may be some situations in which a full rent refund may be [appropriate], there may be others where it would not, for example a subsidiary unit on an existing property for which the landlord has not obtained the relevant resource consent for residential use or which does not comply with the relevant district plan. In such circumstances, it would be unfair for opportunistic tenants to obtain a rent refund “windfall”.
Lack of protection for tenants
11.The Tenancy Tribunal’s lack of jurisdiction over disputes in these cases means that tenants living in unlawful residential premises are not consistently afforded the protections and standards under the RTA, for example: bond lodgement requirements; smoke alarms; insulation; requirements in respect of buildings, health, and safety; cleanliness requirements; termination notice requirements; rent increase obligations; and rights to quiet enjoyment.
Role of MBIE Tenancy Compliance and Investigations Team unclear
12.It has become unclear whether the Tenancy Compliance and Investigations Team (in the Ministry of Business Innovation and Employment) is able to take action against landlords in breach of minimum obligations under the Act in respect of unlawful residential premises, because of the effect of the Anderson decision.
Inadequacy of legislative deterrents
13.The issue has highlighted the inadequacy of legislative deterrents available to discourage landlords from offering tenancies over unlawful premises. Councils have the ability to require compliance or failing that, issue infringement notices or take prosecutions against property owners (including landlords) under the Building Act 2004, for example for:
a. changing the use of a building without notifying and obtaining approval of the council (e.g. from commercial to residential);
b. carrying out building work which does not comply with the building code (whether or not a building consent is required);
c. carrying out building work without the required building consent; and
d. knowingly permitting a person to use a building for which the building is unsafe or unsanitary or that has inadequate means of escape from fire.
14.However, it is understood that many such offences are not prosecuted and neither are many infringement fines issued, as they are not brought
to the attention of councils and because of the resources required to prove non-compliance. Infringement fines for failure to comply with these requirements under the Building Act are generally only between
$1,000 and $5,000. In any case, the Building Act has very few requirements (and penalties) to regulate premises at the point at which they are offered for rent.
15.It is unfair that some landlords can continue to benefit while evading legal requirements, while the vast majority of landlords are rightfully complying with their obligations.
Arguments on appeal
[12] By way of summary, the appellants argued that the tenancy fell within the general jurisdiction of the Tribunal notwithstanding the decision of the High Court in Anderson v FM Custodians. They said that that was clear from the wording of the sections in the Act. Mr Thompson particularly stressed s 8, which allows parties to contract into the Act even when the tenancy would otherwise be excluded, which he contended demonstrates that the Tribunal had jurisdiction. He further argued that this was what the parties had done here. He pointed out that under s 77 the Tribunal had jurisdiction to determine all questions as to its jurisdiction, and it also emphasised the non-technical way the Tribunal was required to undertake its functions under s 85 of the Act.
[13] Mr Thompson argued that the decision in Anderson v FM Custodians had been met with concern because it unduly restricted the application of the Act, as expressed by the Tenancy Tribunal in Pihama v Yinwen,13 and the comments of the Ministry. He argued that Anderson v FM Custodians should not have been followed, that its findings in relation to s 137 were only obiter, and the District Court was not bound to apply it given the different factual circumstances.
[14] Mr Thompson further argued that the doctrine of res judicata operated as a consequence of the Tribunal’s first decision, relying on the principles outlined in Beattie v Premier Events Group Ltd.14 He said that the first decision of the Tribunal had been sealed, and had not been appealed. Finally, he argued that the words in brackets in s 137(4) allowed the appellants to recover lawfully charged rent, and that
13 Pihama v Yinwen, above n 9, at [16].
14 Beattie v Premier Events Group Ltd [2014] NZCA 184, [2015] NZAR 1413.
in any event a common law claim for quantum meruit applied to allow the rent to be recovered.
[15] The respondent argued that the second decision of the Tribunal, and the decision of the District Court, were rightly decided.
[16] In response to the appellants arguments, Mr Nicholls argued that the Tribunal and the District Court were bound by the doctrine of precedent, and they were not in error. In terms of the provisions of the Act, none of the exceptions to applicable tenancy agreements in s 5 applied. Furthermore, the attempt to distinguish the facts and circumstances of Anderson v FM Custodians from the present case was artificial. He argued that before s 8 could apply there needed to be a conscious recognition by both parties that the Act did not apply to the proposed premises, and then a further conscious decision by both parties to contract into it. The Tribunal was well aware of the existence of the tenancy agreement here, and for that reason did not fail to understand the application of s 8, which simply did not apply in its terms.
[17] In terms of the application of s 137, Mr Nicholls contended that it applied when considered as a whole. The Anderson v FM Custodians decision sent a clear public policy message to building owners that needed to be honoured. For these reasons, the District Court was right to say that the previous decision of that Court in Inglis v Parry was wrongly decided.15
[18] In terms of the res judicata argument, Mr Nicholls relied on the District Court decision, noting that the Tribunal in its first decision was dealing with the factual circumstances that existed at that time. The Tribunal’s first decision was only tentatively expressed, and the first hearing was only a part heard hearing. Moreover s 85 would be relevant to how res judicata would be applied.
[19] In terms of quantum meruit, he argued the District Court had dealt with this issue appropriately. Properly interpreted the only orders that the Court could make were under s 137 of the Act.
15 Inglis v Parry [2017] NZDC 26036.
What is the correct interpretation and application of the Act?
[20] On appeal this Court has the function of identifying the correct interpretation and application of the Act to the facts of the present case. In doing so, and unlike the District Court and Tribunal, it is not bound by the earlier decision of this Court in Anderson v FM Custodians, albeit that the decision has considerable persuasive authority.
[21] Having carefully considered the relevant interpretation questions, I have reached a different conclusion from that reached in Anderson v FM Custodians. For the reasons explained below, in my view the Act does apply to tenancies for residential occupation in circumstances where that tenancy involves inconsistency or contravention of other legal requirements, or inconsistency or contravention of the requirements of the Act itself. In my view Parliament intended that the Tribunal have full jurisdiction to deal with all such cases, and the ability to grant appropriate remedies in light of those issues.
[22] One of the relevant considerations relates to the approach to statutory interpretation given that the Court in Anderson v FM Custodians read words into the relevant provisions. A number of leading authorities have outlined the appropriate approach to the questions of statutory interpretation. In Commerce Commission v Fonterra Co-operative Group Ltd, the Supreme Court emphasised that text and purpose were the key drivers of statutory interpretation, that text should always be cross-checked against the purpose, and that regard could be had to the immediate and general legislative context.16 The President of the Law Commission has recently suggested in a personal paper that the earlier decision of the Court of Appeal in Northland Milk Vendors Association Inc v Northern Milk Ltd17 provides the best articulation of the principal function of a court when approaching its task of statutory interpretation.18 I agree with that view. There the Court described the interpretative function as “… to make the Act work as Parliament must have intended”.19 This
16 Commerce Commission v Fonterra Co-operative Group Ltd [2006] NZSC 36, [2007] 3 NZLR 767 at [22].
17 Northland Milk Vendors Association Inc v Northern Milk Ltd [1988] 1 NZLR 530 (CA).
18 Douglas White “A Personal Prospective on Legislation: Northern Milk Revisited – Soured or Still Fresh” (2016) 47 VUWLR 699.
19 Northland Milk Vendors Association Inc v Northern Milk Ltd, above n 17, at 538 per Cooke P.
carries with it the approach described in Fonterra Co-operative Group.20 Such an approach can involve the Court reading words into the statute in order to achieve that objective, as the Court did in that case. But the courts cannot create policy on their own. To do so would “usurp the policy-making function, which rightly belongs to Parliament”.21 The Court in Anderson v FM Custodians read words into the Act. So the question is whether this is necessary to make the Act work as Parliament must have intended.
(a) Text
[23] The starting point is the text of the enactment. The relevant provisions here are in ss 4 and 5, which begin in the following terms:
4Act generally to apply to all residential tenancies
This Act applies to every tenancy for residential purposes except as specifically provided.
5Act excluded in certain cases
(1)This Act shall not apply in the following cases:
(a) where the premises are commercial premises:
…
[24]The term “commercial premises” is defined in s 2 in the following way:
commercial premises means premises that are not residential premises
[25]And “residential premises” is defined in the following terms:
residential premises means any premises used or intended for occupation by any person as a place of residence
[26] Section 5 continues with a comprehensive list of tenancies and occupation rights that are excluded in paragraphs (b) to (x).
[27] In Anderson v FM Custodians, the Court read into the definition of residential premises in s 2 the words “that may be lawfully used for residential purposes by any
20 Commerce Commission v Fonterra Co-operative Group Ltd, above n 16.
21 Northland Milk Vendors Association Inc v Northern Milk Ltd, above n 17, at 538 per Cooke P.
person”.22 That is a significant addition to, or qualification to, the words used by Parliament. Moreover, the addition does not appear consistent with the words Parliament has used. It is significant that residential premises are not defined by reference to any formal or regulatory status, but rather by how the premises are actually being used. This is further emphasised by the reference to the “intended” use of the premises. Neither are “commercial premises” given such a regulatory or technical meaning – premises are only treated as such if they do not meet the definition of residential premises. This interpretation is also reflected in s 4 by its reference to “every tenancy for residential purposes”, which bring in the associated concept of the purpose of the tenancy.
[28] This all suggests a starting point for qualifying residential tenancies that focuses on the purpose of the tenancy, as opposed to its technical legality. A long list of exceptions to such tenancies covered by the Act is then set out in s 5(1). The intention to be comprehensive is apparent. Parliament appears to have turned its mind to the full range of occupation arrangements that are, and are not, within the scope of the Act. It does not appear consistent with the comprehensive assessment of such occupancy arrangements to create a further exception as a matter of interpretation, particularly by reading words into the generally expressed starting point. I note that the list includes situations potentially relevant to the caretaker arrangements arising in this case. Under s 5(1)(n), a premises used as a place of residence by the landlord or a member of the landlord’s family is excluded. And under the definitions in s 2 a caretaker arrangement involving other persons is treated as a “service tenancy”, being a type of residential tenancy contemplated by the Act (where the occupancy is part of an employment contract, or contract for services).
(b)Purpose
[29] These points are further supported by consideration of the purposes of the Act. The long title of the Act relevantly provides that the Act is:
An Act to reform and restate the law relating to residential tenancies, to define the rights and obligations of landlords and tenants of residential properties, to establish a tribunal to determine expeditiously disputes arising between such landlords and tenants …
22 Anderson v FM Custodians, above n 2, at [70].
[30] When introducing the Bill that became the Act the Minister of Housing, the Hon Phil Goff, stated:23
The Bill is a landmark in tenancy law reform in New Zealand. Long overdue, it is designed to replace the law of the jungle in tenancy relations with firm, fair, and readily enforceable rules governing the behaviour of both parties. It clearly defines the rights and responsibilities of both landlords and of tenants. It provides a procedure through a mediation service and tenancy tribunal for the swift and simple resolution of tenancy disputes. The Bill gives protection to reasonable landlords and tenants against irresponsible or unreasonable behaviour by the other party. As the law leans in favour of neither side in the tenancy relationship it will not find full favour with the more militant landlords or tenants. However, I believe it will be welcomed by the vast, silent majority of landlords and tenants whose attitudes are moderate.
…
There was unanimous agreement that current tenancy law is inadequate. It is scattered over several Acts, so it is not easily accessible to ordinary landlords and tenants who want to know their rights and responsibilities. It contains ambiguities, inconsistencies, and self-contradictions, which have created uncertainty in tenancy law. It is, in part, written in complex and archaic legal language that is unintelligible to most people. There is no adequate system for resolving tenancy disputes under the present law. The district court is too slow and too expensive to be appropriate for many tenancy disputes. Small claims courts have sometimes assisted, but their jurisdiction is quite narrow, and coverage over the country is patchy. Removal of tenancy disputes from the small claims courts will help reduce their backlog of cases and the sometimes lengthy delays in hearings.
[31] Whilst there was clearly a focus on the rights of tenants, as Asher J outlined in Ziki Investments (Properties) Ltd v McDonald, the Act sought to protect both the landlord and tenant by the fair and readily enforceable rules, and accordingly the Court “… should strive to find a resolution that is fair to both a reasonable landlord and a reasonable tenant, rather than the tenant alone”.24
[32] The nature of the role to be performed by the Tribunal against that background is set out in s 85, which provides:
85 Manner in which jurisdiction is to be exercised
(1)Subject to the provisions of this Act and of any regulations made under this Act, the Tribunal shall exercise its jurisdiction in a manner that is most likely to ensure the fair and expeditious resolution of
23 (19 September 1985) 466 NZPD 6896.
24 Ziki Investments (Properties) Ltd v McDonald [2008] 3 NZLR 417 (HC) at [53].
disputes between landlords and tenants of residential premises to which this Act applies.
(2)The Tribunal shall determine each dispute according to the general principles of the law relating to the matter and the substantial merits and justice of the case, but shall not be bound to give effect to strict legal rights or obligations or to legal forms or technicalities.
[33] These various sources suggest that the purposes of the Act are not consistent with the suggestion that it only applies when the tenancy is lawfully established as a matter of technical requirements. The background suggests a desire to be comprehensive – that is to establish a complete code for all tenancies for residential purposes. The objective of the Act was to have a clear set of rules which universally apply, and to have a Tribunal for the fair and expeditious resolution of all issues. Technicalities were to be avoided, as particularly emphasised by s 85. This is reflected in the choice made to define residential premises as a matter of substance, rather than any regulatory classification or legal definition. To exclude the Act, and the regime established by the Act, when there are issues about the legality of the tenancy would be contrary to these purposes.
[34] Excluding tenancies where there is a problem with the legality associated with that tenancy would also prevent a class of tenants from having access to the protective regime established by the Act, which would be contrary to its purpose. That was a potential implication identified in Anderson v FM Custodians, which the Court concluded was answered by the interpretation that s 137 could apply to such tenancies on the basis that they would likely be seen as arrangements that had the effect of defeating, evading or preventing the operation of the Act. Thus, tenants would indeed have a remedy, being a full restitution of the rent paid.
[35] I have difficulty with that interpretation of s 137 for the reasons that I outline below. But I accept that this approach provides a partial answer to the problem about excluding a category of tenancies that would be expected to be covered by the Act. It is far from a full answer, however, as the difficulties referred to by the Ministry in its regulatory impact statement demonstrate. I also accept, however, that this approach is consistent with a policy desire to prevent landlords profiting from unlawful tenancies.
(c)Scheme
[36] The general scheme of the Act is also not consistent with an approach that excludes unlawful tenancies from its general jurisdiction. There are a number of provisions in the Act that suggest the Tribunal was intended to have jurisdiction to deal with complaints about the legality arising in association with a tenancy, rather than that such arrangements were excluded from the scope of the Act. First, s 36 provides:
36 Legal impediments to occupation
The landlord shall take all reasonable steps to ensure that, at the commencement of the tenancy, there is no legal impediment to the occupation of the premises for residential purposes.
[37] That seems to directly contemplate situations, such as the present, where resource consent issues may mean that the residential occupation should not take place. Secondly, when listing the landlords’ responsibilities, the following is included:
45 Landlord’s responsibilities
(1) The landlord shall—
…
(c) comply with all requirements in respect of buildings, health, and safety under any enactment so far as they apply to the premises; and
…
(1A)Failure by the landlord to comply with any of paragraphs (a) to (ca) of subsection (1) is declared to be an unlawful act.
…
[38] The Tribunal has jurisdiction to enquire into breaches of the landlords’ obligations in both respects. If there is an impediment to the premises being used for residential purposes, the Tribunal can enquire into that issue, conclude whether the landlord has breached its obligations in that respect, and award the tenant damages under s 77(2)(n). Other breaches associated with resource consents, or building consents, appear to be covered by s 45(1)(c). This strongly supports the argument that
the regime established by the Act was intended to cover situations where the tenancy is provided in breach of legal requirements.
[39] I also note that s 11 provides that any agreement that is inconsistent with the Act shall be of no effect unless it is expressly permitted, or the Tribunal concludes that it should be permitted. Section 10 provides that the onus of proof is on any party who seeks to contend that the Act does not apply. These provisions again suggest that the Act was intended to be a comprehensive code, and that it sought to address any questions of legality or legitimacy that might arise with a residential tenancy.
[40] For these reasons, I do not agree with the interpretation adopted in Anderson v FM Custodians. It follows that the Tribunal had jurisdiction to deal with all of the issues that the parties had raised in the present case.
Relevance of section 8
[41] Before dealing with the implications of this finding, it is appropriate to address an argument stressed by the appellants. Mr Thompson argued that s 8 demonstrated why the approach adopted in Anderson v FM Custodians could not be correct. Section 8 provides:
8 Parties to excluded tenancies may agree that Act shall apply
(1)Nothing in any of sections 5 to 7 shall prevent the parties to a tenancy that would otherwise be excluded from this Act by virtue of any of the provisions of those sections, being a tenancy of any premises used or intended to be used for residential premises, from agreeing in writing that all or any of the provisions of this Act shall apply in respect of the tenancy, either without modification or with such modifications as they may so agree.
(2)Without limiting subsection (1), any such agreement may confer upon the Tribunal, in respect of the tenancy, all or any of the jurisdiction conferred on the Tribunal by this Act in respect of tenancies to which this Act applies.
[42] Mr Thompson contended that this section allowed parties to contract into the Act even when they were not within the class of permitted residential premises, and argued that this is what had occurred in the present case. This meant that the Act could apply notwithstanding the inconsistency with the resource consent condition. He
argued that unlawful residential tenancies could not be excluded by the Act if s 8 directly contemplated that the parties could agree to bring them within the Act.
[43] I agree that s 8 provides additional support for the view that the proviso read into the Act in Anderson v FM Custodians does not reflect the proper interpretation of the Act, as it further demonstrates the comprehensive nature of the regime established by the Act. But whilst the parties can bring occupancies otherwise excluded from the Act within its ambit by such an express s 8 agreement, it seems to me that any such agreement would remain subject to the provisions of the Act, including the requirements of s 36 and s 45(1)(c). That is reiterated by s 11. The words “being a tenancy … used or intended to be used for residential premises” in s 8 would also exclude commercial premises by definition. Section 8 appears to be focused on the occupancies listed in s 5(1) that are otherwise excluded. It does not operate to make an unlawful tenancy a lawful one. So by itself it does not defeat the logic of Anderson v FM Custodians.
[44] I also do not think s 8 applies in this case. That is because there is nothing about the present tenancy that makes it a tenancy excluded by the provisions ss 5–7 for the reasons outlined above.
Does s 137 nevertheless apply?
[45] I have already concluded that I do not agree with the interpretation adopted in Anderson v FM Custodians. During the course of Mr Nicholls submissions, however, an argument was identified that s 137 would apply in this case even if the key interpretation adopted by the Court in Anderson v FM Custodians was not accepted. That argument is that the relevant tenancy agreement here falls within s 137(1)(a) because the very entry of the contract involved a contravention of s 36. When the contract was entered into the landlord knew of the restriction, and that the tenancy was not permitted. So it can be argued that such an agreement falls within s 137(1)(a).
[46] I do not accept that that is the correct approach to s 137, largely for the reasons submitted by Mr Thompson in reply. For the same reasons, I do not agree that s 137 applies in the way suggested by the Court in Anderson v FM Custodians. Section 137 is directed at agreements that seek to contract out of the requirements of the Act. That
is apparent from s 137(1)(b), in which the language is directed at what can be described as anti-avoidance. The same is true of s 137(1)(a), which is not simply directed to provisions of an agreement that are inconsistent with the requirements of the Act (which are dealt with by s 11), but rather to agreements “purporting to do … anything that contravenes” the provisions of the Act. The requirement for a contravention suggests an intended abuse of the Act. Thus, s 137(1)(a) is directed to improper contractual agreements attempting to overcome the Act. There might be some tenancy agreements for premises that are not appropriate for residential occupation that might fall within this section given the requirements of ss 36 and 45 and the terms of the agreement in question. But the present case — and similar cases where there are regulatory problems with the residential tenancy but no attempt to contract inconsistently with the Act, or to avoid or override the Act in the contract — does not seem to me to fall within s 137. Rather such cases fall within the other provisions of the Act allowing the Tribunal to provide appropriate remedies.
[47] The Tribunal will accordingly have jurisdiction to deal with issues affecting the tenancy, such as resource consent or building consent issues, in light of the facts and circumstances of the case. In some situations, regulatory failures of this kind may have no meaningful adverse impact on the tenant such that the Tribunal may decide to provide no remedy for the infringement. But in other cases, for example where the landlord has let out substandard premises, the Tribunal will have jurisdiction to give appropriate remedies. Such an approach avoids the “one size fits all” approach that complete reliance on s 137 entails.
Other arguments advanced on appeal
[48] The above conclusions make it unnecessary to fully address the other arguments that were advanced on appeal, which I can address briefly.
[49] First, Mr Thompson argued, as he did in the District Court, that the first decision of the Tribunal of 17 November 2016 raised the principle of res judicata, and that it was inappropriate for the adjudicator in the second decision of 22 March 2017
to revisit the question of jurisdiction. The District Court held for a series of reasons that res judicata could have no operation.25
[50] I agree with the District Court that res judicata has no application in these circumstances. A decision is final and binding between the parties, for better or for worse, subject to appeal.26 But an appeal court is not confined by res judicata principles. It is true that the first decision here was not itself appealed, but that is hardly surprising as the order made by the Tribunal was not contested – Ms Want vacated the premises. Just because that decision was not appealed does not mean that the appeal court was compelled to accept the legal analysis undertaken in the first decision. On appeal, the District Court’s very function was to assess what the correct legal analysis is (here that it was bound by Anderson v FM Custodians). For the same reason, this Court is required to do so – it is not compelled to follow the legal logic of the first decision because of the principle of res judicata.
[51] Indeed, I am of the view that the Tribunal itself would not have been compelled to follow the legal logic of its first decision. It came to realise that Anderson v FM Custodians, and the High Court’s interpretation of the statutory provisions, was binding upon it. Overlooking the application of a key provision forms part of the normal jurisdiction to recall a judgment.27 Given s 85(2), the legal technicalities preventing recall of decisions that have been sealed do not apply so absolutely. Provided a fair procedure was followed it would have been open to the Tribunal to reconsider its decision based on the new information it had received relating to the application of the Act.
[52] The appellant also contended that notwithstanding Anderson v FM Custodians it was allowed to have charged rent, and could not be compelled to return it to Ms Want, either because of the wording in brackets in s 137(4) – “not being rent lawfully recoverable by the landlord”, or through the application of quantum meruit. I do not accept that the words in s 137(4) are intended to create an exception to the required restitution – rather they are words that are describing the character of what it
25 Parbhu, above n 4, at [39]–[43].
26 See Commissioner of Inland Revenue v Redcliffe Forestry Venture Ltd [2012] NZSC 94, [2013] 1 NZLR 804 at [28].
27 Commissioner of Inland Revenue v Redcliffe Forestry Venture Ltd, above n 26, at [28].
is that must be restituted. And once the section requires, as a matter of law, those amounts to be restituted, there is simply no scope for the common law principles of quantum meruit to override that requirement, even with the support of s 85.
[53] Had it been necessary, therefore, I would have held against the appellant on these arguments.
Status of Anderson v FM Custodians Ltd
[54] Given the above conclusions, it may be appropriate to provide some guidance on the status on Anderson v FM Custodians in light of this decision.
[55] This Court is obliged on appeal to determine the present case in light of its understanding of the correct interpretation and application of the Act. In doing so it has adopted a different approach from the earlier decision of the Court in Anderson v FM Custodians. But equally this Court has no jurisdiction to overrule Anderson v FM Custodians. Subject to any decision of the Court of Appeal, in the future the District Court and the Tribunal will need to deal with the fact that there are now two High Court decisions that do not adopt the same view of the proper interpretation of the Act.
[56] The position may be remedied by the amending legislation that is proposed. But the proposed s 78A is not without its own interpretative issues. For example what type of regulatory difficulties make the occupation unlawful under s 78A(2), and what kind of circumstances would be regarded as special circumstances for the purposes of s 78A(4)? An alternative approach might simply be to identify a breach of s 36 as an unlawful act, with the limit of exemplary damages covered by s 109 and schedule 1A capped by the amount of rent paid by a tenant. That would allow a degree of flexibility to the Tribunal of the kind referred to in the Ministry’s regulatory impact statement, whilst also providing the desired legislative deterrent. I note, however, the Bill has already been reported back from the Select Committee. It may nevertheless be helpful for a copy of this judgment to be provided to the Ministry, and I will duly make a direction that the Registrar provide a copy to the Chief Executive.
Summary and result
[57] For these reasons the appeal is allowed, and the order made by the Tribunal under s 137 is set aside.
[58] The proceeding is remitted to the Tribunal for consideration of the undetermined claims before the Tribunal in light of this judgment.
[59] I direct that the Registry provide a copy of this judgment to the Chief Executive of the Ministry of Business, Innovation and Employment.
[60] The parties asked that the question of costs be reserved, particularly given that the respondent is legally aided. Should the question of costs not be agreed, any application seeking costs should be filed within 15 working days of the release of this judgment, and any memorandum in response within 10 working days thereafter. The memoranda should not be longer than 10 pages in length.
Cooke J
Solicitors:
Loughlin McGuire & Roud Lawyers, Auckland for the Appellant
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