Want v Parbhu
[2019] NZCA 674
•19 December 2019 at 3 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA589/2018 [2019] NZCA 674 |
| BETWEEN | NICOLE WANT |
| AND | SUNIL DENNIS PARBHU AND KUMUD PATEL AS TRUSTEES OF THE IMPALA TRUST |
| Hearing: | 7 November 2019 |
Court: | Kós P, Miller and Brown JJ |
Counsel: | C J Nicholls for Appellant |
Judgment: | 19 December 2019 at 3 pm |
JUDGMENT OF THE COURT
AThe appeal is dismissed.
BNo order for costs is made. Pursuant to s 45(5) of the Legal Services Act 2011, an order is made that costs for a standard appeal on a band A basis, together with usual disbursements, would otherwise have been payable.
____________________________________________________________________
REASONS OF THE COURT
(Given by Kós P)
Mr Parbhu and Ms Patel are trustees of the Impala Trust. The Trust owns a commercial building in Lower Hutt. Eighteen years ago the Trust sought resource
consent to permit living quarters within the premises for an onsite caretaker. Consent was granted. But it was subject to a condition that the “living quarters are to be used as a caretaker’s residence only”.
In November 2015, the Trust entered into a fixed term lease of the living quarters with Ms Want. She was not employed by them as a caretaker. So the tenancy was inconsistent with the resource consent condition. The tenancy became periodic from May 2016.
Ms Want fell into arrears. The Trust took her to the Tenancy Tribunal in November 2016, seeking termination for non-payment and orders for payment of rent arrears (some $8,100) and certain other sums. But the landlord’s actions led to Ms Want making enquiries of the local authority. She then discovered the breach of resource consent condition. Asserting that there was no lawful tenancy at all, she sought an order that the rent she had paid be returned. She also sought return of her bond payment and $1,000 exemplary damages. Alternatively, were the tenancy found to be lawful, she sought abatement of rent under s 59(4) of the Residential Tenancies Act 1986 and exemplary damages in respect of various alleged breaches of the Act.[1]
[1]We refer to the Residential Tenancies Act 1986 as “the Act” hereafter.
Ms Want moved out of the premises in November 2016, between the first and second hearings in the Tribunal. In March 2017, the Tribunal concluded that the tenancy was unlawful, following the decision of the High Court in Anderson v FM Custodians Ltd.[2] Applying that decision, the only orders the Tribunal could make were those contemplated by s 137 of the Act. The Tribunal ordered restitution of the rent and bond paid by Ms Want, totalling $14,000. The Tribunal declined to award exemplary damages.
[2]Parbhu v Want TT Lower Hutt 4050364, 22 March 2017 [Tenancy Tribunal decision] at [30], citing Anderson v FM Custodians Ltd [2013] NZHC 2423, (2013) 15 NZCPR 123.
The Trust appealed to the District Court. Judge Tompkins dismissed the appeal on the basis that the District Court (and the Tribunal) were bound by FM Custodians.[3]
[3]Parbhu v Want [2018] NZDC 3080 [District Court judgment].
The Trust then appealed to the High Court. Cooke J disagreed with the interpretation of the Act reached by Duffy J in FM Custodians. He held the Act applicable to residential tenancies which were inconsistent with, or in contravention of, the Act or other legal requirements.[4] So he set aside the decision of the Tribunal and remitted the case to that body for further consideration.
[4]Parbhu v Want [2018] NZHC 2079 [High Court judgment].
The present appeal, which is by special leave granted by the High Court, is brought by Ms Want.[5] She seeks to restore the original order of the Tribunal.
[5]Parbhu v Want [2018] NZHC 2411 [Leave judgment], pursuant to s 120 of the Act.
The Act has since been amended, in a form broadly consistent with the decision of Cooke J.[6] The amendments are not retrospective, but (as Mr Nicholls was disposed to acknowledge) the present appeal is no longer one of general public significance. We shall, therefore, be relatively brief.
Legislation
[6]Residential Tenancies Amendment Act 2019.
The purpose of the Act is evidenced by its long title:
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, …
The Act was to protect both landlords and tenants by introducing “firm, fair and readily enforceable rules”, as the Hon Phil Goff, the Minister of Housing, observed when the Residential Tenancies Bill was introduced:[7]
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.
[7](19 September 1985) 466 NZPD 6896. See also Ziki Investments (Properties) Ltd v McDonald [2008] 3 NZLR 417 (HC) at [53].
At the relevant time, the term “residential premises” was defined as:[8]
any premises used or intended for occupation by any person as a place of residence.
Section 2(3) also provides that a lease of premises for mixed commercial and residential purposes “shall be deemed to be residential premises unless it is proved that the premises were let principally for purposes other than residential purposes”. Section 4 then states that the Act “applies to every tenancy for residential purposes except as specifically provided”. Section 5 provides certain express exceptions.[9]
[8]Section 2(1) of the Act. The definition has since been amended: see below at [23].
[9]None of these provisions were amended in 2019.
As to inconsistency with legal requirements, two provisions are particularly relevant:[10]
[10]Nor were these provisions amended in 2019.
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.
…
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.
As to the Tribunal’s jurisdiction, s 77 provides it has jurisdiction to determine (in accordance with the Act) any dispute that exists between a landlord and a “tenant”.[11] The latter is the grantee under a “tenancy agreement”, which means:[12]
in relation to any residential premises, … any express or implied agreement under which any person, for rent, grants or agrees to grant to any other person a tenancy of the premises; …
[11]Section 77(1) of the Act.
[12]Section 2(1).
Section 78 then provides an array of orders which the Tribunal may make, including declaratory powers to determine status, and orders to yield possession or to pay money.
Two judgments reaching inconsistent conclusions
FM Custodians
In FM Custodians, Duffy J found that the Act did not apply in circumstances where the intended use of the premises was unlawful in terms of its resource consent.[13] In that case, the Court was dealing with a Tribunal decision that deprived a couple of occupancy of a unit in a former retirement village. Retirement villages are excluded from “residential premises” under s 5(1)(d) and (l). But those exclusions did not apply as the village was not registered and was no longer operating as a retirement village or home.
[13]FM Custodians, above n 2, at [73]–[74].
Duffy J went on to hold that the resource consent condition that none of the units in the village be occupied by persons under the age of 55 years breached s 12 of the Act by discriminating on the grounds of age in contravention of the Human Rights Act 1993.[14] So were these “residential premises” at all, in respect of which the Tribunal could grant a possession order?
[14]At [54]. It may be observed that the appellant tenants were over 55 years of age in any event.
The Judge held not. The context and purpose of the Act required the meaning of “residential premises” in s 2 to be read as referring to premises that may be lawfully used for residential purposes by any person.[15] A literal interpretation of “residential premises” would invoke the full application of the Act, thereby giving a measure of legitimacy to letting arrangements and transactions that are in breach of other enactments, and for landlords who engage in such arrangements to use the remedies provided by the Act against those tenants.[16] There was no risk this “would create a group of essentially second-class tenancies, by reason of falling outside the cover of this Act” because s 137 would likely be held to apply to the tenancy. By s 137(1) and (3) they would likely be viewed as an arrangement either directly or indirectly defeating, evading or preventing the operation of the Act. They would therefore be prohibited by s 137. The “full range of penalties and powers in s 137” would be available to stop such arrangements.[17]
The judgment on appeal
[15]At [70].
[16]At [65].
[17]At [67]–[68].
In the judgment on appeal, Cooke J considered whether the words read into the Act in FM Custodians were necessary to make the Act work as Parliament intended.[18] Cooke J first considered the text of the Act. The gloss on the definition of “residential premises” adopted in FM Custodians — limiting them to premises that may be lawfully used for residential purposes — was a significant addition, or qualification, to the words used by Parliament. It did not appear to be consistent with the textual focus on how premises are actually or intended to be used, as opposed to their formal or regulatory status.[19] A list of exceptions was set out in s 5(1) of the Act, which was clearly intended to be comprehensive. It would be inconsistent to create a further exception as a matter of interpretation, particularly by reading words into the generally expressed starting point.[20]
[18]High Court judgment, above n 4, at [22], citing Commerce Commission v Fonterra Co-operative Group Ltd [2007] NZSC 36, [2007] 3 NZLR 767 at [22]; and Northland Milk Vendors Association Inc v Northern Milk Ltd [1988] 1 NZLR 530 (CA).
[19]At [27].
[20]At [28].
Furthermore, the purpose of the Act was to protect both landlord and tenant by introducing fair and readily enforceable rules.[21] The Tribunal’s role was to ensure the fair and expeditious resolution of disputes between landlords and tenants of residential premises to which the Act applied.[22] This was inconsistent with the suggestion that the Act applies only when the tenancy is lawfully established. Rather, the desire was for the Act to be comprehensive, and technicalities were to be avoided.[23] Excluding tenancies where there is a problem with the legality of the tenancy would also prevent a class of tenants from having access to the protective regime established by the Act, which Cooke J was not satisfied could be resolved by application of s 137.[24]
[21]At [29]–[31], having regard to the Act’s long title; (19 September 1985) 466 NZPD 6896; and Ziki Investments (Properties) Ltd v McDonald, above n 7, at [53].
[22]Section 85(1) of the Act.
[23]As expressly stated in s 85(2).
[24]High Court judgment, above n 4, at [33]–[35].
Finally, the interpretation in FM Custodians was inconsistent with the general scheme of the Act, there being a number of provisions suggesting the Tribunal was intended to have jurisdiction to deal with complaints about the legality associated with a tenancy, rather than such arrangements being excluded from the scope of the Act.[25]
More legislation
[25]At [36]–[39], having regard to ss 10, 11, 36, 45 and 77(2)(n) of the Act.
The Residential Tenancies Amendment Act 2019 makes significant amendments to the Act. When the bill was introduced, in 2017, there was some discussion of the implications of the FM Custodians decision. The then-Minister for Building and Construction, the Hon Nick Smith, observed:[26]
There is a range of rental properties that could be unlawful for residential purposes, where the building is either a garage or a commercial building, or in some other way it does not comply with the relevant building health and safety regulations. The difficulty for the Tenancy Tribunal is the ruling from the High Court that the Tenancy Tribunal does not have jurisdiction in the event that it is not a residential property. So the purpose of this part of the bill is to ensure that where landlords do rent out inappropriate properties, there is the capacity to hold those landlords to account.
I think we can all think of situations that occurred in Wellington because of the Kaikōura earthquakes — situations where commercial buildings that had been deemed earthquake-prone were rented out as residential properties. I think most in this House would find that abhorrent, but it is unacceptable that the Tenancy Tribunal was prohibited from being able to have jurisdiction in that area.
Equally, there have been examples around the country of garages or other properties that are being rented out that do not go anywhere near meeting the requirements of the Residential Tenancies Act but where there are limitations on our new compliance teams being able to enforce them because of that jurisdiction issue. My view is that the amendments in this bill that make it plain that the tribunal has full jurisdiction over unlawful residential premises will strengthen the regulatory environment and ensure that those people who attempt to rent out such properties are held accountable.
[26](4 July 2017) 723 NZPD 19224. See also 19226, 19232–19233 and 19237; (8 November 2018) 734 NZPD 8219–8221 and 8225; and 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 [9]–[15].
In the bill’s third reading, the tension between FM Custodians and Cooke J’s decision was explicitly commented on by the Hon Kris Faafoi, the Associate Minister of Housing (Public Housing):[27]
The problem … was that there was uncertainty about what happens to tenants who have rented premises that are unlawful. … My understanding at the moment is that the Tenancy Tribunal doesn’t have any ability to rule in their situation, …
So what this does here I think is, after a couple of High Court decisions known as Anderson and Parbhu, clearly clarify a conflict between two court cases or court rulings there around unlawful residential premises.
[27](23 July 2019) 739 NZPD 12477.
The amendments made two significant, relevant changes. First, the definition of “residential premises” (which we set out above at [11]) was enlarged by adding the words, “whether or not the occupation or intended occupation for residential purposes is or would be unlawful”. That is a clear endorsement, with effect from August 2019, of the approach taken by Cooke J. Secondly, a new s 78A was enacted dealing with remedies in the case of “unlawful residential premises”.[28] Broadly, the Tribunal may not order payments in favour of the defaulting landlord unless that would be unjust in the special circumstances of the case. Moreover, the Tribunal may order restitution of the whole or part of rentals paid.[29]
[28]These are premises that cannot lawfully be occupied for residential purposes and the landlord’s failure to comply with its statutory obligations (including under s 36: see above at [12]) has contributed to that status: section 78A(2) of the Act.
[29]Section 78A(3) and (4).
The amendments are inapplicable to this case, as they are not explicitly retrospective. Case law tends to discourage the use of amending legislation to construe prior legislation.[30] But in this case the correct construction of the Act at the relevant time may readily be inferred from its text, purpose and context prior to amendment.
First issue: was Cooke J correct to reject the reasoning in Anderson v FM Custodians Ltd?
[30]See, for example, Whakatane District Council v Bay of Plenty District Council [2010] NZCA 346, [2010] 3 NZLR 826 at [23]; and Ross Carter Burrows and Carter Statute Law in New Zealand (5th ed, LexisNexis, Wellington, 2015) at 610–611.
Mr Nicholls submits that while the text of the Act would suggest the Tribunal does have jurisdiction over unlawful residential tenancies, the purpose and scheme of the Act do not. The purpose of the Act cannot have been to usurp the effect of other enactments such as the Building Act 2004 or the Resource Management Act 1991. Here, the unlawfulness went beyond mere technicalities, and there were sound policy reasons to support building owners who are also landlords to comply with the Resource Management Act. Furthermore, there were strong policy reasons to prevent landlords from profiting from unlawful tenancies, including the acute housing shortage in many parts of New Zealand (which, it was suggested, the Court could take judicial notice of), as this provides an economic incentive for building owners to rent out unlawful properties to desperate tenants.
In terms of the scheme of the Act, although a breach of s 36, which places the onus on the landlord to ensure there is no legal impediment to the occupation of the premises for residential purposes at the commencement of the tenancy, would engage the Tribunal’s power to award compensatory damages under s 77(2)(n) of the Act, this does not deal with the wider policy argument that it is in the public interest that building owners be punished (through an award of exemplary damages) and precluded from profiting from illegality. Cooke J’s reasoning could lead to an inconsistency whereby it became the role of local authorities to punish landlords for breaches of the Resource Management Act committed at the commencement of the tenancy and for the Tribunal to punish landlords for subsequent breaches of other Acts (such as the Building Act). By following FM Custodians, the Tribunal would have no jurisdiction to enquire into illegality at any point, other than to make an order under s 137 — a more consistent result.
Discussion
We do not accept these submissions. Rather, we conclude that the construction adopted by Cooke J in the judgment on appeal was correct, and that adopted by Duffy J in FM Custodians was not. We make five points.
First, as both parties were disposed to accept, the text of the Act supports the construction adopted by Cooke J. Importantly, s 4 provides that the Act is to apply to “every tenancy for residential purposes” — focusing on the object of the tenancy rather than the exact legality of the grant of rights. There is no statutory definition of a “residential tenancy”, despite the short title of the Act. Rather “tenancy” is defined as a simple right of occupation in exchange for rent, “in relation to any residential premises”, and these latter are further defined by reference to both use and intended use. The jurisdiction of the Tribunal expressly includes the power to determine whether premises are “residential premises” to which the Act applies.[31] The list of exceptions in s 5(1) is, as Cooke J noted, evidently intended to be comprehensive.[32] We would add therefore that it seems unlikely that Parliament would have intended so significant an implied exclusion as the gloss adopted in FM Custodians. It cannot be said that necessity compels the enlargement of s 5.
[31]Section 77(2)(a) of the Act.
[32]High Court judgment, above n 4, at [28].
Secondly, we turn to purpose. As we noted above at [10], the Minister introducing the legislation in 1985 observed that it was intended to replace “the law of the jungle” with “firm, fair, and readily enforceable rules governing the behaviour of both parties”. The Act establishes the Tribunal as a decision-maker directed at the expectations of reasonable parties jointly. Section 85(2) provides that it determine disputes “according to the general principles of the law … and the substantial merits and justice of the case” but that it “shall not be bound to give effect to strict legal rights or obligations or to legal forms or technicalities”. If FM Custodians is right, then any unspecified non-compliance with a legal requirement might take the dispute beyond the purview of the Tribunal, projecting it instead into the more formal and expensive processes of the District Court. That is a course that seems inconsistent with the objective of fair and readily enforceable dispute resolution intended by the Act. Moreover, it seems likely to benefit one party over another, on an entirely haphazard basis, depending on who has most to gain from the legal process. That will not always be the landlord and, here, arguably, it was the tenant. Moreover, tenants seeking to enforce standards protected by the Act (such as those in s 45 concerning cleanliness, maintenance, insulation and smoke alarms) would face arguments that illegality excluded the Act’s application (because these were not “residential premises” after all). Such an outcome cannot have been intended. As Cooke J observed, “[e]xcluding tenancies where there is a problem with the legality [of] 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.”[33]
[33]At [34].
Thirdly, as Cooke J also noted, the scheme of the Act appears to embrace tenancy agreements that depart from strict regulatory requirements.[34] It places them before the purview of the Tribunal, rather than projecting them into the District Court. Both ss 36 and 45 give the Tribunal jurisdiction to review landlord non-compliance with regulatory requirements. Section 77 provides for orders for compensation, and the making of work orders (to rectify deficiencies). The proposition that such deficiencies instead eject the arrangement from the Tribunal’s jurisdiction altogether is not an appealing one. In fairness to Duffy J, it does not appear that these potential implications were drawn to her attention in argument, in what was a hard case.
[34]At [36]–[39].
Fourthly, we agree with Cooke J that s 137 does not justify the approach taken in FM Custodians. The effect of relying on that provision is that any relatively footling breach by a landlord (for instance, the incomplete planning or building consenting of an otherwise eminently safe and sound accessory unit) would mean the reasonable dispute resolution provisions of the Act would not apply (again, because these were not “residential premises” after all), but s 137(3) would make the transaction void and s 137(4) would compel total restitution of rent paid regardless of the degree of benefit achieved by the tenant under the voided tenancy. Rather, and for the reasons given by Cooke J, we agree that s 137 has a more limited remit — it is directed at agreements “that seek to contract out of the requirements of the Act”.[35] The purpose of s 137 is not to apply the twin sledgehammers of voiding and total restitution at every incidental regulatory non-compliance.
[35]At [46].
Finally, in answer to the remaining submissions made by Mr Nicholls, we do not see the construction adopted in the judgment below as usurping regulatory responsibilities under building and environmental legislation. Councils will still have primary responsibility for enforcement of building safety and planning laws. But that fact should not exclude a class of non-compliant tenancies for residential purposes from the jurisdiction of the Tribunal, requiring instead action in the District Court or efforts to get councils to undertake enforcement or abatement action. Rather, the difficulties associated with that course are more likely to enable non-compliant landlords to profit from their breach. To the extent it matters, it is clear that Parliament has reached the same conclusion in the 2019 amendments.
Conclusion
Cooke J was correct to reject the reasoning in FM Custodians.
Second issue: was Cooke J correct to find that s 137(1)(a) of the Act did not apply to the facts of this case?
We have considered this issue already in the context of the first issue.[36]
[36]See above at [31].
We conclude Cooke J was correct to find that s 137(1)(a) of the Act did not apply to the facts of this case.
Result
The appeal is dismissed.
Ms Want is legally aided. Exceptional circumstances not existing, s 45(2) of the Legal Services Act 2011 means no order for costs may be made. At Mr Thompson’s request, and pursuant to s 45(5), we make an order specifying that costs for a standard appeal on a band A basis, together with usual disbursements, would otherwise have been payable.
Solicitors:
Loughlin McGuire Barristers and Solicitors, Auckland for Respondents
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