WANT v PARBHU AND PATEL AS TRUSTEES OF THE IMPALA TRUST [2019] NZCA 674

WANT v PARBHU AND PATEL AS TRUSTEES OF THE IMPALA TRUST [2019] NZCA 674 [19 December2019]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA589/2018[2019] NZCA 674BETWEEN NICOLE WANTAppellantAND SUNIL DENNIS PARBHU AND KUMUDPATEL AS TRUSTEES OF THE IMPALATRUSTRespondentsHearing: 7 November 2019Court: Kós P, Miller and Brown JJCounsel: C J Nicholls for AppellantR J Thompson for RespondentsJudgment: 19 December 2019 at 3 pmJUDGMENT OF THE COURTA The appeal is dismissed.B No 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, togetherwith usual disbursements, would otherwise have been payable.____________________________________________________________________REASONS OF THE COURT(Given by Kós P)[1] Mr Parbhu and Ms Patel are trustees of the Impala Trust. The Trust ownsa commercial building in Lower Hutt. Eighteen years ago the Trust sought resourceconsent 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 tobe used as a caretaker's residence only".[2] In November 2015, the Trust entered into a fixed term lease of the livingquarters with Ms Want. She was not employed by them as a caretaker. So the tenancywas inconsistent with the resource consent condition. The tenancy became periodicfrom May 2016.[3] Ms Want fell into arrears. The Trust took her to the Tenancy Tribunal inNovember 2016, seeking termination for non-payment and orders for payment of rentarrears (some $8,100) and certain other sums. But the landlord's actions led toMs Want making enquiries of the local authority. She then discovered the breach ofresource 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 ofher bond payment and $1,000 exemplary damages. Alternatively, were the tenancyfound to be lawful, she sought abatement of rent under s 59(4) of the ResidentialTenancies Act 1986 and exemplary damages in respect of various alleged breaches ofthe Act.1[4] Ms Want moved out of the premises in November 2016, between the first andsecond hearings in the Tribunal. In March 2017, the Tribunal concluded thatthe tenancy was unlawful, following the decision of the High Court in Anderson v FMCustodians Ltd.2 Applying that decision, the only orders the Tribunal could make werethose contemplated by s 137 of the Act. The Tribunal ordered restitution of the rentand bond paid by Ms Want, totalling $14,000. The Tribunal declined to awardexemplary damages.[5] The Trust appealed to the District Court. Judge Tompkins dismissed the appealon the basis that the District Court (and the Tribunal) were bound by FM Custodians.31 We refer to the Residential Tenancies Act 1986 as "the Act" hereafter.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 123.3 Parbhu v Want [2018] NZDC 3080 [District Court judgment].[6] The Trust then appealed to the High Court. Cooke J disagreed withthe interpretation of the Act reached by Duffy J in FM Custodians. He held the Actapplicable to residential tenancies which were inconsistent with, or in contraventionof, the Act or other legal requirements.4 So he set aside the decision of the Tribunaland remitted the case to that body for further consideration.[7] 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.[8] The Act has since been amended, in a form broadly consistent with the decisionof Cooke J.6 The amendments are not retrospective, but (as Mr Nicholls was disposedto acknowledge) the present appeal is no longer one of general public significance.We shall, therefore, be relatively brief.Legislation[9] The purpose of the Act is evidenced by its long title:An Act to reform and restate the law relating to residential tenancies, to definethe rights and obligations of landlords and tenants of residential properties,to establish a tribunal to determine expeditiously disputes arising betweensuch landlords and tenants, [10] The Act was to protect both landlords and tenants by introducing "firm, fairand readily enforceable rules", as the Hon Phil Goff, the Minister of Housing,observed when the Residential Tenancies Bill was introduced:7The 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 oftenants. It provides a procedure through a mediation service and tenancytribunal for the swift and simple resolution of tenancy disputes. The Bill givesprotection to reasonable landlords and tenants against irresponsible orunreasonable behaviour by the other party. As the law leans in favour ofneither side in the tenancy relationship it will not find full favour with the4 Parbhu v Want [2018] NZHC 2079 [High Court judgment].5 Parbhu v Want [2018] NZHC 2411 [Leave judgment], pursuant to s 120 of the Act.6 Residential Tenancies Amendment Act 2019.7 (19 September 1985) 466 NZPD 6896. See also Ziki Investments (Properties) Ltd v McDonald[2008] 3 NZLR 417 (HC) at [53].more militant landlords or tenants. However, I believe it will be welcomed bythe vast, silent majority of landlords and tenants whose attitudes are moderate..There was unanimous agreement that current tenancy law is inadequate. It isscattered over several Acts, so it is not easily accessible to ordinary landlordsand tenants who want to know their rights and responsibilities. It containsambiguities, inconsistencies, and self-contradictions, which have createduncertainty in tenancy law. It is, in part, written in complex and archaic legallanguage that is unintelligible to most people. There is no adequate systemfor resolving tenancy disputes under the present law. The district court is tooslow and too expensive to be appropriate for many tenancy disputes.Small claims courts have sometimes assisted, but their jurisdiction is quitenarrow, and coverage over the country is patchy. Removal of tenancy disputesfrom the small claims courts will help reduce their backlog of cases and thesometimes lengthy delays in hearings.[11] At the relevant time, the term "residential premises" was defined as:8any premises used or intended for occupation by any person as a place ofresidence.Section 2(3) also provides that a lease of premises for mixed commercial andresidential purposes "shall be deemed to be residential premises unless it is provedthat the premises were let principally for purposes other than residential purposes".Section 4 then states that the Act "applies to every tenancy for residential purposesexcept as specifically provided". Section 5 provides certain express exceptions.9[12] As to inconsistency with legal requirements, two provisions are particularlyrelevant:1036 Legal impediments to occupationThe landlord shall take all reasonable steps to ensure that, at thecommencement of the tenancy, there is no legal impediment to the occupationof the premises for residential purposes.137 Prohibited transactions(1) No person shall—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 2019.10 Nor were these provisions amended in 2019.(a) enter into any transaction, or make any contract orarrangement, purporting to do, whether presently or at somefuture time or upon the happening of any event orcontingency, anything that contravenes or will contravene anyof the provisions of this Act; or(b) enter into any transaction or make any contract orarrangement, whether orally or in writing, or do anything, forthe purpose of or having the effect of, in any way, whetherdirectly or indirectly, defeating, evading, or preventing theoperation of any of the provisions of this Act.(2) Requiring any person to enter into any transaction, or to make anycontract or arrangement, in contravention of subsection (1) is herebydeclared 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) thatwould have the effect of, in any way, whether directly or indirectly,defeating, evading, or preventing the operation of any ofthe provisions of this Act shall be of no effect.(4) All money paid and the value of any other consideration forthe tenancy provided by the tenant (not being rent lawfullyrecoverable by the landlord) or, where the transaction takes the formof an option to purchase the premises to which the transaction relates,by the person on whom the option to purchase is conferred, shall berecoverable as a debt due to the tenant or prospective purchaser bythe landlord.[13] 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 anda "tenant".11 The latter is the grantee under a "tenancy agreement", which means:12in relation to any residential premises, any express or implied agreementunder which any person, for rent, grants or agrees to grant to any other persona tenancy of the premises; [14] 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 topay money.11 Section 77(1) of the Act.12 Section 2(1).Two judgments reaching inconsistent conclusionsFM Custodians[15] In FM Custodians, Duffy J found that the Act did not apply in circumstanceswhere the intended use of the premises was unlawful in terms of its resource consent.13In that case, the Court was dealing with a Tribunal decision that deprived a couple ofoccupancy of a unit in a former retirement village. Retirement villages are excludedfrom "residential premises" under s 5(1)(d) and (l). But those exclusions did not applyas the village was not registered and was no longer operating as a retirement villageor home.[16] Duffy J went on to hold that the resource consent condition that none ofthe units in the village be occupied by persons under the age of 55 years breached s 12of the Act by discriminating on the grounds of age in contravention of the HumanRights Act 1993.14 So were these "residential premises" at all, in respect of whichthe Tribunal could grant a possession order?[17] The Judge held not. The context and purpose of the Act required the meaningof "residential premises" in s 2 to be read as referring to premises that may be lawfullyused for residential purposes by any person.15 A literal interpretation of"residential premises" would invoke the full application of the Act, thereby giving ameasure of legitimacy to letting arrangements and transactions that are in breach ofother enactments, and for landlords who engage in such arrangements to usethe 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 fallingoutside the cover of this Act" because s 137 would likely be held to apply tothe tenancy. By s 137(1) and (3) they would likely be viewed as an arrangement eitherdirectly 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 powersin s 137" would be available to stop such arrangements.1713 FM Custodians, above n 2, at [73]–[74].14 At [54]. It may be observed that the appellant tenants were over 55 years of age in any event.15 At [70].16 At [65].17 At [67]–[68].The judgment on appeal[18] In the judgment on appeal, Cooke J considered whether the words read intothe Act in FM Custodians were necessary to make the Act work as Parliamentintended.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 thatmay be lawfully used for residential purposes — was a significant addition,or qualification, to the words used by Parliament. It did not appear to be consistentwith the textual focus on how premises are actually or intended to be used, as opposedto their formal or regulatory status.19 A list of exceptions was set out in s 5(1) ofthe Act, which was clearly intended to be comprehensive. It would be inconsistent tocreate a further exception as a matter of interpretation, particularly by reading wordsinto the generally expressed starting point.20[19] Furthermore, the purpose of the Act was to protect both landlord and tenant byintroducing fair and readily enforceable rules.21 The Tribunal's role was to ensure thefair and expeditious resolution of disputes between landlords and tenants of residentialpremises to which the Act applied.22 This was inconsistent with the suggestion thatthe Act applies only when the tenancy is lawfully established. Rather, the desire wasfor the Act to be comprehensive, and technicalities were to be avoided.23 Excludingtenancies where there is a problem with the legality of the tenancy would also preventa 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[20] Finally, the interpretation in FM Custodians was inconsistent with the generalscheme of the Act, there being a number of provisions suggesting the Tribunal was18 High Court judgment, above n 4, at [22], citing Commerce Commission v Fonterra Co-operativeGroup Ltd [2007] NZSC 36, [2007] 3 NZLR 767 at [22]; and Northland Milk Vendors AssociationInc v Northern Milk Ltd [1988] 1 NZLR 530 (CA).19 At [27].20 At [28].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].intended to have jurisdiction to deal with complaints about the legality associated witha tenancy, rather than such arrangements being excluded from the scope of the Act.25More legislation[21] The Residential Tenancies Amendment Act 2019 makes significantamendments to the Act. When the bill was introduced, in 2017, there was somediscussion of the implications of the FM Custodians decision. The then-Minister forBuilding and Construction, the Hon Nick Smith, observed:26There is a range of rental properties that could be unlawful for residentialpurposes, where the building is either a garage or a commercial building, orin some other way it does not comply with the relevant building health andsafety regulations. The difficulty for the Tenancy Tribunal is the ruling fromthe High Court that the Tenancy Tribunal does not have jurisdiction in theevent that it is not a residential property. So the purpose of this part of the billis to ensure that where landlords do rent out inappropriate properties, there isthe capacity to hold those landlords to account.I think we can all think of situations that occurred in Wellington because ofthe Kaikōura earthquakes — situations where commercial buildings that hadbeen deemed earthquake-prone were rented out as residential properties.I think most in this House would find that abhorrent, but it is unacceptable thatthe Tenancy Tribunal was prohibited from being able to have jurisdiction inthat area.Equally, there have been examples around the country of garages or otherproperties that are being rented out that do not go anywhere near meeting therequirements of the Residential Tenancies Act but where there are limitationson our new compliance teams being able to enforce them because of thatjurisdiction issue. My view is that the amendments in this bill that make itplain that the tribunal has full jurisdiction over unlawful residential premiseswill strengthen the regulatory environment and ensure that those people whoattempt to rent out such properties are held accountable.[22] In the bill's third reading, the tension between FM Custodians and Cooke J'sdecision was explicitly commented on by the Hon Kris Faafoi, the Associate Ministerof Housing (Public Housing):2725 At [36]–[39], having regard to ss 10, 11, 36, 45 and 77(2)(n) of the Act.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 EmploymentRegulatory Impact Statement: Application of the Residential Tenancies Act 1986 to rental premiseswhich are not lawful for residential purposes (15 February 2017) at [9]–[15].27 (23 July 2019) 739 NZPD 12477.The problem was that there was uncertainty about what happens to tenantswho have rented premises that are unlawful. My understanding at themoment is that the Tenancy Tribunal doesn't have any ability to rule in theirsituation, So what this does here I think is, after a couple of High Court decisions knownas Anderson and Parbhu, clearly clarify a conflict between two court cases orcourt rulings there around unlawful residential premises.[23] The amendments made two significant, relevant changes. First, the definitionof "residential premises" (which we set out above at [11]) was enlarged by addingthe words, "whether or not the occupation or intended occupation for residentialpurposes is or would be unlawful". That is a clear endorsement, with effect fromAugust 2019, of the approach taken by Cooke J. Secondly, a new s 78A was enacteddealing with remedies in the case of "unlawful residential premises".28 Broadly,the Tribunal may not order payments in favour of the defaulting landlord unless thatwould be unjust in the special circumstances of the case. Moreover, the Tribunal mayorder restitution of the whole or part of rentals paid.29[24] The amendments are inapplicable to this case, as they are not explicitlyretrospective. Case law tends to discourage the use of amending legislation to construeprior legislation.30 But in this case the correct construction of the Act at the relevanttime 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 FMCustodians Ltd?[25] Mr Nicholls submits that while the text of the Act would suggest the Tribunaldoes have jurisdiction over unlawful residential tenancies, the purpose and scheme ofthe Act do not. The purpose of the Act cannot have been to usurp the effect of otherenactments such as the Building Act 2004 or the Resource Management Act 1991.Here, the unlawfulness went beyond mere technicalities, and there were sound policyreasons to support building owners who are also landlords to comply with28 These are premises that cannot lawfully be occupied for residential purposes and the landlord'sfailure to comply with its statutory obligations (including under s 36: see above at [12]) hascontributed to that status: section 78A(2) of the Act.29 Section 78A(3) and (4).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.the Resource Management Act. Furthermore, there were strong policy reasons toprevent landlords from profiting from unlawful tenancies, including the acute housingshortage in many parts of New Zealand (which, it was suggested, the Court could takejudicial notice of), as this provides an economic incentive for building owners to rentout unlawful properties to desperate tenants.[26] In terms of the scheme of the Act, although a breach of s 36, which places theonus on the landlord to ensure there is no legal impediment to the occupation ofthe premises for residential purposes at the commencement of the tenancy, wouldengage the Tribunal's power to award compensatory damages under s 77(2)(n) ofthe Act, this does not deal with the wider policy argument that it is in the public interestthat building owners be punished (through an award of exemplary damages) andprecluded from profiting from illegality. Cooke J's reasoning could lead to aninconsistency whereby it became the role of local authorities to punish landlords forbreaches of the Resource Management Act committed at the commencement ofthe tenancy and for the Tribunal to punish landlords for subsequent breaches of otherActs (such as the Building Act). By following FM Custodians, the Tribunal wouldhave no jurisdiction to enquire into illegality at any point, other than to make an orderunder s 137 — a more consistent result.Discussion[27] We do not accept these submissions. Rather, we conclude that the constructionadopted by Cooke J in the judgment on appeal was correct, and that adopted by Duffy Jin FM Custodians was not. We make five points.[28] First, as both parties were disposed to accept, the text of the Act supportsthe construction adopted by Cooke J. Importantly, s 4 provides that the Act is to applyto "every tenancy for residential purposes" — focusing on the object of the tenancyrather than the exact legality of the grant of rights. There is no statutory definition ofa "residential tenancy", despite the short title of the Act. Rather "tenancy" is definedas a simple right of occupation in exchange for rent, "in relation to anyresidential premises", and these latter are further defined by reference to both use andintended use. The jurisdiction of the Tribunal expressly includes the power todetermine whether premises are "residential premises" to which the Act applies.31The list of exceptions in s 5(1) is, as Cooke J noted, evidently intended to becomprehensive.32 We would add therefore that it seems unlikely that Parliamentwould have intended so significant an implied exclusion as the gloss adopted inFM Custodians. It cannot be said that necessity compels the enlargement of s 5.[29] Secondly, we turn to purpose. As we noted above at [10], the Ministerintroducing the legislation in 1985 observed that it was intended to replace "the lawof the jungle" with "firm, fair, and readily enforceable rules governing the behaviourof both parties". The Act establishes the Tribunal as a decision-maker directed at theexpectations of reasonable parties jointly. Section 85(2) provides that it determinedisputes "according to the general principles of the law and the substantial meritsand justice of the case" but that it "shall not be bound to give effect to strict legal rightsor obligations or to legal forms or technicalities". If FM Custodians is right, then anyunspecified non-compliance with a legal requirement might take the dispute beyondthe purview of the Tribunal, projecting it instead into the more formal and expensiveprocesses of the District Court. That is a course that seems inconsistent with theobjective of fair and readily enforceable dispute resolution intended by the Act.Moreover, it seems likely to benefit one party over another, on an entirely haphazardbasis, depending on who has most to gain from the legal process. That will not alwaysbe the landlord and, here, arguably, it was the tenant. Moreover, tenants seeking toenforce standards protected by the Act (such as those in s 45 concerning cleanliness,maintenance, insulation and smoke alarms) would face arguments that illegalityexcluded the Act's application (because these were not "residential premises" afterall). Such an outcome cannot have been intended. As Cooke J observed, "[e]xcludingtenancies where there is a problem with the legality [of] that tenancy would alsoprevent a class of tenants from having access to the protective regime established bythe Act, which would be contrary to its purpose."33[30] Thirdly, as Cooke J also noted, the scheme of the Act appears to embracetenancy agreements that depart from strict regulatory requirements.34 It places them31 Section 77(2)(a) of the Act.32 High Court judgment, above n 4, at [28].33 At [34].34 At [36]–[39].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-compliancewith regulatory requirements. Section 77 provides for orders for compensation, andthe making of work orders (to rectify deficiencies). The proposition that suchdeficiencies instead eject the arrangement from the Tribunal's jurisdiction altogetheris not an appealing one. In fairness to Duffy J, it does not appear that these potentialimplications were drawn to her attention in argument, in what was a hard case.[31] Fourthly, we agree with Cooke J that s 137 does not justify the approach takenin FM Custodians. The effect of relying on that provision is that any relatively footlingbreach by a landlord (for instance, the incomplete planning or building consenting ofan otherwise eminently safe and sound accessory unit) would mean the reasonabledispute resolution provisions of the Act would not apply (again, because these werenot "residential premises" after all), but s 137(3) would make the transaction void ands 137(4) would compel total restitution of rent paid regardless of the degree of benefitachieved by the tenant under the voided tenancy. Rather, and for the reasons given byCooke 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 isnot to apply the twin sledgehammers of voiding and total restitution at every incidentalregulatory non-compliance.[32] Finally, in answer to the remaining submissions made by Mr Nicholls,we do not see the construction adopted in the judgment below as usurping regulatoryresponsibilities under building and environmental legislation. Councils will still haveprimary responsibility for enforcement of building safety and planning laws. But thatfact should not exclude a class of non-compliant tenancies for residential purposesfrom the jurisdiction of the Tribunal, requiring instead action in the District Court orefforts to get councils to undertake enforcement or abatement action. Rather, thedifficulties associated with that course are more likely to enable non-compliantlandlords to profit from their breach. To the extent it matters, it is clear that Parliamenthas reached the same conclusion in the 2019 amendments.35 At [46].Conclusion[33] 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 applyto the facts of this case?[34] We have considered this issue already in the context of the first issue.36[35] We conclude Cooke J was correct to find that s 137(1)(a) of the Act did notapply to the facts of this case.Result[36] The appeal is dismissed.[37] Ms Want is legally aided. Exceptional circumstances not existing, s 45(2) ofthe 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 thatcosts for a standard appeal on a band A basis, together with usual disbursements, wouldotherwise have been payable.Solicitors:Loughlin McGuire Barristers and Solicitors, Auckland for Respondents36 See above at [31].