HOUSING NZ CORPORATION V THE DISTRICT COURT AT AUCKLAND AND ANOR CA CA644/07

HOUSING NZ CORPORATION V THE DISTRICT COURT AT AUCKLAND AND ANOR CA CA644/07 21 October 2008IN THE COURT OF APPEAL OF NEW ZEALAND CA644/07 [2008] NZCA 430BETWEEN HOUSING NEW ZEALAND CORPORATION Appellant AND THE DISTRICT COURT AT AUCKLAND First Respondent AND MERYN ROSS BRADBURN Second Respondent Hearing: 2 July 2008 Court: William Young P, Hammond and Chambers JJ Counsel: K L Clark QC and L Theron for Appellant A E L Ivory as Amicus Curiae Judgment: 21 October 2008 at 4 pmJUDGMENT OF THE COURT A The appeal is allowed. B The "holding" set out at [49](c) of the High Court judgment dated 1 November 2007 is set aside. C Declarations are made: (a) There is no legislative intent, express or implied, that "special circumstances" must be taken into account before income-related rent is calculated under s 43(1) and (2) of the Housing Restructuring and Tenancy Matters Act 1992.(b) The discretion conferred by s 43(4) of the Act does not confer on an applicant for income-related rent a right to be heard as to the exercise of the discretion. (c) The discretion conferred by s 43(4) does not import an obligation on Housing New Zealand to give notice to applicants for income-related rent that there is an opportunity to apply for the exercise of the discretion. D No order as to costs. REASONS OF THE COURT(Given by Chambers J)Housing New Zealand rents[1] Housing New Zealand Corporation, the appellant, is a Crown agent that provides housing services for people in need. In 2003, HNZ took over about 1,600 properties from the Auckland City Council when that council decided to reduce substantially its portfolio of pensioner houses. The late Meryn Bradburn had been a council tenant for many years. On the change of ownership, he became a tenant of HNZ. His rent thereafter was calculated in accordance with the Housing Restructuring and Tenancy Matters Act 1992. That Act provided for market rents and, where applicable, income-related rents. Mr Bradburn's rent was of the latter kind. [2] In 2004, Mr Bradburn became concerned about the way in which his rent was assessed. In particular, he challenged HNZ's decision to include his wages from his part-time employment in his assessable income for the purposes of calculating his rent. He appealed to the State Housing Appeal Authority. It confirmed HNZ's rent calculation.[3] Mr Bradburn then appealed to the District Court. One of his grounds of appeal was that neither HNZ nor the authority had exercised the discretion provided by s 43(4) of the Act, which reads as follows:If satisfied that special circumstances justify its doing so, the company [HNZ] may, in its absolute discretion, set for and accept from a tenant of any HNZ housing a rent lower than the rent otherwise required by subsection (2) or subsection (3) to be paid for the housing by the tenant.[4] The reference in that subsection to "the rent otherwise required by subsection (2)" is a reference to income-related rents, as calculated under the Act. The reference to rents "required by subsection (3)" is a reference to market rent. [5] Judge Nicola Mathers delivered a reserved decision: Bradburn v Housing New Zealand DC AK CIV 040-004-2409 10 February 2006. She found that HNZ should have given Mr Bradburn notice of his right to apply for special circumstances in terms of s 43(4), but had not done so. She referred the matter back to HNZ with a direction that Mr Bradburn be given an opportunity to provide all relevant information for a fresh determination under s 43 of the Act. [6] HNZ was very concerned about this decision, as it had not been its policy to notify its tenants of this discretionary power. Judge Mathers's decision had considerable financial and administrative implications for HNZ, in particular as to the way in which it fixed its rents. Accordingly, it resolved to apply to the High Court for judicial review of the District Court's decision. The two key issues on review were whether Judge Mathers had erred in her characterisation of the scope of the s 43(4) discretion to reduce rental and whether she had had jurisdiction to hear the appeal. [7] By the time of the High Court hearing, Mr Bradburn's concerns had been sorted out. Notwithstanding that, Ms Duffy QC appeared for him on the judicial review application so that there was a contradictor. Presumably her fee was paid by either legal aid or HNZ.[8] Winkelmann J delivered her decision on 1 November last year: Housing New Zealand Corporation v Auckland District Court [2008] NZAR 389. Her conclusions were set out in the "result" part of her judgment:[48] It follows from the above that Housing New Zealand did err in failing to advise Mr Bradburn of the existence of the discretion, and in failing to consider the material he put before them as to the variability of his income in determining whether special circumstances existed. [49] I have held: (a) The District Court did have jurisdiction to hear the appeal because it arose from a failure by Housing New Zealand to turn its mind to whether to exercise its discretion under s 43(4), not to a decision under s 43(4). (b) There is no obligation on Housing New Zealand to consider whether special circumstances apply under s 43(4) wherever it is in receipt of an application for income-related rent, but Housing New Zealand should consider that issue if a tenant claims special circumstances. (c) There is an obligation on Housing New Zealand to ascertain whether special circumstances might exist for the purposes of the exercise of its discretion in s 43(4) by giving an applicant notice of an opportunity to apply for special circumstances before it calculates an income-related rent under s 43(1) and (2). (d) The District Court was not in error in finding that there had been no exercise of the discretion under s 43(4) in Mr Bradburn's case.[9] At [50], the judge invited HNZ to "file submissions as to the form of declarations it seeks in the light of the above findings". So far as we are aware, HNZ never did that. Instead, it elected to appeal against the inchoate "findings". That is less than satisfactory, but in the circumstances we have been prepared to proceed as if the "findings" had been converted into formal declarations. [10] By memorandum filed in May, HNZ advised that it now attacked only the finding in [49](c). [11] By the time of the hearing before us, Mr Bradburn had died. Ms Duffy is now a judge. In these circumstances, the President appointed Mr Ivory as amicus curiae. We are grateful to Mr Ivory for the submissions he presented. Essentially hesupported Winkelmann J's reasoning, although even he felt obliged to concede the judge's findings might have been "too widely drawn".Issue on the appeal[12] There is only one issue on this appeal. That is whether Winkelmann J was right when she held HNZ must give notice of an opportunity to apply for special circumstances to applicants for income-related rent before it calculates their income-related rent. The answer to that question turns on the nature and scope of the discretion conferred by s 43(4) and on the legislative scheme for rent-fixing viewed as a whole.Must Housing New Zealand give notice of an opportunity to apply for special circumstances to applicants for income-related rent before it calculates their income-related rent?Legislative history[13] The Housing Restructuring Act 1992 introduced market rents in place of income-related rents for state tenants. By moving away from the provision of properties at income-related rents to a system of providing state houses at market rent with direct income supplements to low-income households, the Act signalled a fundamental change in the way the state delivered housing assistance to low-income households. A principal objective was that HNZ should be profitable. [14] The policy underlying the 1992 Act did not find favour with the new Labour-led Government elected in 1999. Its policy was to revert to the pre-1992 position where state tenants paid income-related rents. The new Government also did not approve of HNZ having a profit-making objective. This new policy was approved by Parliament in the Housing Restructuring (Income-Related Rents) Amendment Act 2000 (the Amendment Act). That Act amended the principal Act by inserting a new Part 5 (ss 42-65) and made a number of consequential amendments to other legislation, notably the Social Security Act 1964.[15] The Social Security Act is an important part of the overall legislative structure for state assistance to low-income households. Relevantly, it provides for benefits to be granted to meet special hardship or need, including an accommodation supplement. The Amendment Act amended the Social Security Act to exclude HNZ tenants from the accommodation supplement and repealed the provision for the rent rebate entitlement and tenure protection allowance. That was because, of course, HNZ tenants were now to have, where appropriate, income-related rents. [16] The only other Act that needs mentioning is the Housing Restructuring and Tenancy Matters (Information Matching) Amendment Act 2006, which changed the name of the Housing Restructuring Act 1992 to the Housing Restructuring and Tenancy Matters Act 1992.Housing New Zealand[17] Before we analyse the new Part 5 introduced by the Amendment Act, we want to say a few words about HNZ itself. HNZ owns or manages more than 66,000 standard rental properties, plus a further 1,500 homes for community groups that provide housing services. HNZ has approximately 1,000 staff, of whom about 345 have a tenancy management function, ie a direct relationship with a tenant. About 91% of HNZ tenancies involve tenants who are on income-related rents, the remainder being on market rents. [18] In organisational terms, HNZ operates over 11 regions. Within those, it has 43 neighbourhood units and over 50 "heartland" service centres. Neighbourhood units are HNZ's local offices, which vary significantly in size. For example, there is a staff of three in the West Coast neighbourhood unit based in Greymouth, covering approximately 330 properties along the West Coast. In Auckland, on the other hand, there are 16 neighbourhood units, three community renewal offices, two metropolitan service centres, and two heartland service centres. These various offices employ approximately 150 tenancy management staff, who administer close to 29,000 tenancies. Income-related rents are charged on approximately 27,000 tenancies in Auckland.[19] In short, HNZ is, by New Zealand standards, a very large enterprise, dealing with tens of thousands of properties and tenants. Specific tenancies are dealt with by front-line staff, spread all over the country. [20] It is reasonable to assume Parliament was aware of these facts when enacting the Amendment Act. The scale of HNZ's services would, of course, have been apparent from its annual reports to Parliament. [21] With that background, we now turn to consider Part 5.The Part 5 scheme[22] The income-related rent regime introduced by the Amendment Act works in the following way. If a tenant applies for calculation of an income-related rent, and HNZ is satisfied it has sufficient and accurate information, it calculates an income- related rent for that tenant: s 43(1)-(2). If the tenant does not apply for income- related rent, the rent must be the market rent for the time being: s 43(3). [23] Income-related rent is calculated under ss 46-52 and Schedule 2, collectively described in the Act as the "calculation mechanism": s 42(1). An income-related rent is the higher of: (a) a rent calculated by reference to household income; and (b) a rent calculated by reference to benefit levels. [24] A rent calculated by reference to household income is 25% of net assessable income, up to the rate of New Zealand Superannuation: s 46(2) and Schedule 2, cl 1. If the tenant earns more than New Zealand Superannuation, 50% of the net assessable income above the superannuation rate is included as rent: s 46(2)(b) and schedule 2, cl 3. Assessable income is HNZ's estimate of the tenant's weekly income from all sources, with certain adjustments: ss 47-52. Mr Ivory correctly described the adjustments as "inherently individual". The calculation mechanismoperates so as to take into account the individual tenant's income on the one hand and financial and other commitments on the other. [25] The Crown funds the difference between income-related rent and market rent by reimbursing HNZ when it accepts from a tenant an income-related rent rather than a market rent: s 65. [26] Before we turn to how s 43(4) fits into the Part 5 scheme, we shall set out the essence of Winkelmann J's reasoning.Winkelmann J's reasoning[27] Her Honour's essential reasoning is contained in the following part of her judgment:[24] The role of Housing New Zealand has been radically altered by the 2000 reforms. It is no longer constrained merely to act as landowner/landlord, but is to play a role in giving effect to the Crown's objectives of providing affordable housing responsive to individual tenants' income and need. From these materials I conclude that the Act was designed to ensure that housing services are delivered in a business-like and effective manner but also in a manner responsive to social needs, including the needs of communities and individual households. Although s 43(1) is the key provision designed to achieve these policy objectives it operates utilising a relatively rigid calculus as to income. Section 43(4) provides Housing New Zealand with flexibility to respond if market or income-related rents do not adequately respond to need in a particular situation. The s 43(4) discretion must be exercised to promote those objections but subject to the constraint that it will only be in "special circumstances" that the otherwise mandatory provisions of s 43(2) and (3) are departed from. [25] I reject Housing New Zealand's argument that the s 43(4) discretion is limited as it contends; to provide only the type of discretion a landlord would need to vary its rental. Such a limitation on the discretion is inconsistent with the purposes of the Act. It would have been open for Parliament to enact clearly that the discretion in s 43(4) was limited so as to exclude welfare or financial considerations additional to those circumstances already accounted for in the statutory calculation from consideration as a special circumstances. It did not do so.[28] In other words, she saw s 43(4) as an important feature of the scheme; indeed, she seems to have seen the subsection as crucial to achieving HNZ's socialpolicy objectives, in view of what she saw as "a relatively rigid calculus as to income". [29] Although Winkelmann J did not go so far as to hold that HNZ must alwaysconsider whether to exercise the s 43(4) discretion when fixing market or income- related rent (at [32]), she did nonetheless consider HNZ was obliged to notify tenants of the exercise of the discretion. Her conclusions in this regard were as follows:[39] The issue here is whether Housing New Zealand is obliged to notify the tenant of the existence of the discretion, not the criteria upon which it is exercised. However, the notions of administrative fairness identified inAnkers [v Attorney-General [1995] 2 NZLR 595 (HC)] have application. Although the discretion is clearly set out in the Act, few people other than government officials or lawyers will ever come to read that Act. If tenants are not told by Housing New Zealand of the existence of the discretion, they are shut out of the decision-making process just as surely as were the plaintiffs in Ankers who were not told of the existence of the criteria they must meet. Tenants therefore should be told of the existence of the discretion. [40] Housing New Zealand also submitted that seeking details of special circumstances would give rise to false expectations on the part of tenants that they may be entitled to a lower rent than income-related rent, and that such expectations might not be met in Housing New Zealand's absolute discretion. Such concerns are no reason to foreclose participation in the decision-making process, and of course the obvious point is that Housing New Zealand's approach denies the possibility of reduced rent to those who are able to make out special circumstances.Housing New Zealand's submissions[30] Ms Clark QC, for HNZ, presented detailed and careful submissions to us. She set out why, in her respectful view, the High Court's analysis of the nature of the s 43(4) discretion was wrong. [31] Ms Clark submitted the judge had fallen into error because she had not mentioned, still less analysed, any of the provisions in Part 5 except s 43(1)-(4) and the provisions to which s 43(2) and (4) are subject. In particular, Ms Clark submitted the judge had overlooked the discretions that are built into the calculation of income-related rent and the fact that the Act is a housing-related Act in a broader legislative context, which includes in particular the Social Security Act, a statute providing for a comprehensive set of benefits in response to individual need.[32] The discretions are significant: (a) HNZ is required to "estimate the person's weekly income from all sources": s 47; (b) Tax and ACC premiums are to be deducted from weekly income for the calculation of assessable income, either at the rate paid or at a rate estimated by HNZ, as HNZ sees fit in the particular case: s 47(a) and (b); (c) HNZ is required to include "the appropriate weekly proportion" of periodic payments or goods and services received by the person: s 48. "Appropriate weekly proportion" is not defined, so HNZ has a discretion as to the proportion of periodical payments or goods and services to be taken into account; (d) HNZ has a discretion to increase its estimate of weekly income if it thinks that a tenant has deprived himself or herself of income or property: s 51; (e) If the income produced over the 52 week period from the day on which the estimation of income is made is not regarded as producing an appropriate income, HNZ may estimate income by using any other 52 week period, or using such shorter period as it decides: s 52(a); (f) HNZ can increase or reduce weekly income by adding or deducting from estimated income any items which it is satisfied are likely to increase or reduce the income: s 52(b). [33] While those discretions are significant, it is also important to note they are controlled. One would expect nothing else, given the size of HNZ's operation and the need for tenants in like circumstances to be treated the same. [34] Ms Clark submitted that the nature of the 43(4) discretion had been misconceived in two significant respects. First, she said the judge had regardeds 43(4) as central to the analysis of the statutory objective of providing social assistance. That was a fundamental interpretative error, she submitted, because the provision of social assistance was, and is, achieved by the enactment of Part 5 itself. Secondly, she submitted the judge had regarded the role of s 43(4) as being to alleviate the rigidity of the statutory calculus. That overlooked the degree of prescribed discretion already built into the statutory regime. The judge's approach had the effect of avoiding the mechanisms, thresholds and formulas which the legislation deliberately prescribes. Responsiveness to those in need is at the heart of the comprehensive and detailed statutory scheme enacted in Part 5 and is not dependent on the exercise of the discretionary power conferred by s 43(4). [35] In her submission, the High Court's approach frustrates the purpose of the legislation. To make s 43(4) a linchpin in the rent-setting process thwarts the certainty and objectives of the statutory scheme. [36] In Ms Clark's submission, it was the judge's error as to the role of s 43(4) which then led to an erroneous conclusion that tenants must be told of the exercise of the discretion to ensure they were not shut out of the decision-making process. If tenants must be told of the existence of the discretion, that inevitably means they must be afforded a "hearing" as to why the discretion should be exercised in their favour. Yet, Ms Clark submitted, there is not a hint in the Act of any such entitlement. Given the scale of HNZ's enterprise, it is inconceivable, she submitted, that Parliament, had it intended to confer these procedural entitlements and obligations, would not have provided an express method by which these entitlements were to be exercised. [37] Ms Clark made two further criticisms of the High Court's decision. First, she noted that the finding that HNZ had to give "notice of an opportunity to apply for special circumstances before it calculates an income-related rent" was difficult to reconcile with the finding that HNZ was not obliged to consider special circumstances when fixing income-related rents: High Court judgment at [32] and [49](b).[38] Secondly, she noted that a further error in the High Court's approach was that the entitlement to be notified of an opportunity to apply for a reduced rent was confined to applicants for income-related rent. The court did not conclude that HNZ had the same obligation to notify tenants who paid market rent. Yet, Ms Clark observed, s 43(4) applies to those tenants as well.Our analysis[39] We accept Ms Clark's analysis in its entirety. Parliament set out the calculation mechanism in detail. It contained discretions to be exercised by HNZ staff, albeit within carefully prescribed limits. Her Honour over-emphasised its rigidity. The calculation mechanism was the means by which Parliament envisaged HNZ would fulfil its obligations to provide affordable housing to people in need. Provided it complied with the calculation mechanism, it would be reimbursed by the Crown for the difference between market rents for the housing and the income- related rents charged: s 65. But there is no provision in the statute for Crown reimbursement if HNZ, pursuant to cl 43(4), set a rent below that required by the calculation mechanism. If s 43(4) was intended to have the extended role envisaged by the High Court, that would have potentially huge financial repercussions for HNZ, as one could envisage thousands of applications for special relief each year which, if granted, would not be reimbursed by the Crown. [40] The size of the organisation, to which we earlier referred, is also of relevance in this regard. HNZ has more than 66,000 properties under its management, each one of which will be subject to at least annual rent review. If the High Court judgment is right, then each of those tenants – or at least those on income-related rents – would need to be notified annually of the possibility of applying for "special circumstances". That would obviously require significantly more staff, as it could reasonably be expected that many tenants in straitened circumstances would subjectively view their circumstances as "special". It is inconceivable HNZ could delegate to front-line staff power to determine "special circumstances". This would completely undermine the calculation mechanism, as front-line staff would no doubt have widely differing perceptions as to what circumstances were "special".[41] If the High Court interpretation is right, HNZ would be faced with two unpalatable choices. One possibility would be to instruct staff that "special circumstances" meant something truly extraordinary. The problem is that such an instruction would probably be unlawful. Even if it did pass muster legally, it would be a recipe for disaster in terms of HNZ's relations with its tenants. It would effectively be inviting them to apply, only then to reject the overwhelming majority of applications. Parliament could not possibly have envisaged that situation. [42] The alternative would be to develop an extremely detailed policy as to how staff were to operate a "special circumstances" scheme. Yet that cannot have been Parliament's intention either. Why would Parliament have set out a detailed calculation mechanism, with formulas and prescribed discretions, only then to have a further detailed set of rules for a "special circumstances" regime? In our view, that would be incompatible with the overall structure of Part 5. In particular, we can see no rationale as to why the Crown picks up the tab for the difference between market rents and income-related rents but, on the High Court's model, would not reimburse HNZ for the difference between income-related rents fixed by the calculation mechanism and income-related rents fixed pursuant to some "special circumstances" regime. [43] The expanded role envisaged by the High Court for s 43(4) also does not sit comfortably with the overall social welfare structure which Parliament has put in place. There will always be hard cases which are seen unfairly to fall outside established welfare programmes. For instance, a tenant on an income-related rent might strike financial difficulties through death in the family, sickness, accident, unemployment, and so on. In one sense, tragedies of those kinds might well amount to "special circumstances". But that does not mean s 43(4) needs to be wheeled in. For a start, many of those tragedies could lead to a rent adjustment under the calculation mechanism: note, in this regard, s 57. But even if they did not, the social security regime established under the Social Security Act is designed to target specific issues of that kind and to provide financial relief through specific benefits, such as child disability allowance, invalid's benefit, domestic purposes benefit, widow's benefit, independent youth benefit, unemployment benefit, and sickness benefit. In addition, the Act provides for emergency benefits and temporaryadditional support aimed at addressing hardship which is not otherwise catered for under the Social Security Act: see in particular ss 61 (emergency benefit) and 61G (temporary additional support). [44] In our view, the function of s 43(4) is exactly as described by Ms Clark. The subsection is properly regarded as an enabling provision, empowering HNZ to initiate or effect rent reductions in limited (special) circumstances which, but for the existence of s 43(4), HNZ would be powerless to address. [45] Once it is recognised that the purpose of s 43(4) is simply empowering in the sense just discussed, it becomes clear that Parliament could not have envisaged a scheme of applying for a "special circumstances" rent reduction and, accordingly, it could also not have envisaged that HNZ would be under a duty to notify tenants of their ability to apply. Of course, Parliament would have wanted to ensure that those in need should have means of bringing those needs to the state's attention. HNZ's function in meeting those needs is met by its providing accommodation at below market rents, a function for which it is reimbursed by the Crown. In so far as that state assistance is insufficient, those in need look to the Ministry of Social Development and the Social Security Act. It is not HNZ's function under s 43(4) to alleviate financial need, as that would be to give HNZ tenants discretionary state assistance for general financial hardship that is not available to private sector tenants. [46] In our view, the High Court was wrong to hold that HNZ had a duty to give applicants for income-related rent notice of an opportunity to apply for special circumstances. That error arose from a misconception as to the role of s 43(4). As soon as that misconception is cleared up, it becomes obvious there is no right "to apply for special circumstances" to HNZ before the income-related rent is calculated. If there is no right to apply, then obviously there can be no obligation to advise of such a (non-existent) right.Result[47] HNZ sought to have the "holding" set out at [49](c) of the High Court judgment set aside. It also sought declarations as follows:(a) There is no legislative intent, express or implied, that "special circumstances" must be taken into account before income-related rent is calculated under s 43(1) and (2) of the Housing Restructuring and Tenancy Matters Act 1992. (b) The discretion conferred by s 43(4) of the Act does not confer on an applicant for income-related rent a right to be heard as to the exercise of the discretion.(c) The discretion conferred by s 43(4) does not import an obligation on Housing New Zealand to give notice to applicants for income-related rent that there is an opportunity to apply for the exercise of the discretion. [48] As is clear from our reasons above, the appeal is allowed. The declarations sought by HNZ are granted.Solicitors: Housing New Zealand Corporate Legal, for Appellant