Duran and Duran v Tafra Pty Ltd

NCAT Consumer and Commercial|2015-08-03

REASONS FOR DECISION

The applicants are the owners of a rental property in West Hoxton NSW. The respondent is the former managing agent of the rental property. The dispute involves the respondent's allegedly negligent management of the property, allowing a tenant to accrue significant rent arrears before vacating the property.
The applicants appeared and gave sworn evidence. Mr Zappia, the director of the respondent and a licenced real estate agent who was the managing agent of the rental property, appeared and gave sworn evidence.
The application was filed with the Tribunal on 28 April 2015. The applicant's seek the respondent pay the applicants $7,266.42 for failure to manage the property with due care and skill. In essence, the applicants claim the respondent failed to regularly send monthly rent ledger trust accounts, causing the applicants to be unaware that their tenant had fallen significantly into rent arrears, and failed to take timely action to have the tenant evicted. The applicants assert the respondent failed to act "fairly and honestly" and acted in a "deceptive" manner in respect of management of the property.
The matter was listed before the Tribunal on 5 June 2015, when the parties appeared and the matter was set down for hearing with directions that each party file and serve any documentary evidence it sought to rely upon at the hearing. The applicants filed and served documents in accordance with Tribunal orders. The respondent filed and served documents 4 days outside the timetable set down by the Tribunal.
In the application filed with the Tribunal, the applicants did not identify how they calculated the figure of $7,266.42 in respect of their loss, nor was it clear at the hearing the basis on which they calculated this amount. In the chronology and summary of argument the applicants filed with the Tribunal, the applicants quantified their loss as "$14,810.00" including 17 weeks lost rental income and "damage caused by the tenant" of "over $2,000.00". However, the applicants had not sought leave, nor been granted leave, to amend their application.

APPLICANT'S DOCUMENTS

The documents the applicant relied upon included: 1. A chronology of events and summary of the applicants argument; 2. The managing agency agreement in respect of the property; 3. The residential tenancy agreement between the landlord and the tenant commencing 23 January 2009; 4. Tax invoices from the respondent to the applicants dated January 2014; February 2014; March 2014; and June 2014 in respect of the respondent's commission and monthly administration fee in respect of management of the property; 5. Bank records of the applicants for the period 10 February 2015 to 15 June 2015; 6. A periodic inspection report in respect of the property dated 9 October 2010; 7. Photographs of the outside of the property showing the property in a damaged condition.

RESPONDENT'S DOCUMENTARY EVIDENCE

Although the respondent had filed and served its documents 4 days outside of the timetable set down by the Tribunal, the Tribunal granted leave for the respondent to rely upon the documents at the hearing, as the majority of the documents were business documents that had been sent to the applicants, and there was no prejudice to the applicants by reason of the documents being served 4 days out of time.
The respondent's documents included: 1. A chronology and submission prepared by Mr Zappia; 2. A letter from the respondent to the tenant of the property regarding rent arrears dated 6 February 2015; 3. Tax invoices from the respondent to the applicants for the monthly periods from January 2014 to April 2015 respondent's commission and monthly administration fee in respect of management of the property. Each invoice sets out the period the tenant had paid rent to; 4. Property inspection reports in respect of the rental property dated 26 November 2011; 28 January 2013; 1 February 2014; and 21 February 2015; 5. Rent ledger for the property.

APPLICANT'S EVIDENCE

The applicants' evidence can be summarised as follows:
The applicants contracted with the respondent on 27 October 2008 to manage the rental property. Between October 2008 and October 2011 the applicants lived next door to the rental property. In October 2011, they moved to a different suburb;
On 23 January 2009, the property was rented to Ms Sadhu ('the tenant'), and a written residential tenancy agreement executed. The rent for the property was $290.00 per week which rose to $375.00 per week in 2014;
In June 2014, the applicants went to the Philippines on business. At that stage, the tenant was not in arrears of rent. The applicants expected to be overseas for a short period of time, but because of family issues, did not return to Australia until March 2015. According to the applicants, they had limited access to the internet where they were staying in the Philippines;
The applicants stated that they informed Mr Zappia that their son would be able to give instructions regarding management of the property while they were overseas. However, the applicants did not instruct their son to contact Mr Zappia on a regular basis as they thought they would be overseas for a short period of time;
The applicants stated they did not receive any "statements" (i.e. commission and monthly administration fee statements, including the date rent had been paid to) between April 2014 and February 2015;
In December 2014, the applicants noticed that "erratic" amounts had been deposited into their company account, because the tenant had not been paying rent;
In December 2014, Ms Duran telephoned Mr Zappia and requested copies of accounts. According to Ms Duran, Mr Zappia said he had sent them in the mail. Ms Duran stated she requested the statements be emailed and Mr Zappia promised to do so. The statements were not emailed;
On 9 January 2015, Ms Duran again telephoned Mr Zappia, because no accounts had been received. According to Ms Duran, Mr Zappia was rude to her and could not tell her how much the tenant was in arrears of rent. Further, Mr Zappia stated that he had emailed the statements;
After Ms Duran spoke to Mr Zappia on 9 January 2015, the applicants instructed their son to go to the property and speak to the tenant in respect of the issue of rent arrears. The son of the applicants went to the property and spoke to the tenant, who said she had not paid rent for 2 months because she was waiting for a rent ledger account from the agent so that she could contact her Superannuation fund in respect of an advanced payment, and was intending to vacate the property on 21 February 2015 in any event.
In late January and early February 2015, the applicants made numerous telephone calls to Mr Zappia requesting that he provide statements and attempt to get the tenant to pay rent arrears. According to the applicants, Mr Zappia told them that he would only go to the property after the tenant had vacated the property;
On 24 February 2015, Ms Duran telephoned Mr Zappia and told him the tenant had moved out. Ms Duran asked about how the landlord would recover the unpaid rent. According to Ms Duran, Mr Zappia was dismissive and said it would be "very hard" to recover the unpaid rent. Mr Zappia said he would apply for the bond from Rental Bond Services;
On 8 April 2015, Ms Duran telephoned Rental Bond Services, who told her the bond had been paid to her agent. According to Ms Duran, Mr Zappia had not informed her the bond had been paid out. On 23 April 2015, the respondent paid the applicants the bond amount of $1,065.85;
The applicants stated the property was in poor condition when the tenant left, and they have not subsequently rented the property. The applicants intend to sell the property.

RESPONDENT'S EVIDENCE

Mr Zappia's evidence is summarised as follows:
When the applicants lived next door to the property, they often dealt directly with the tenant, making the relationship between the tenant, the agent, and the landlord difficult to manage;
Mr Zappia denied that he had not sent monthly statements to the landlord. According to Mr Zappia, the applicants had never informed him they were going overseas, or told him that their son was representing them in their absence;
Mr Zappia stated that the tenant started to fall behind in rent "during August and September 2014". The tenant told Mr Zappia that she was having financial difficulties, but would catch up the following month. According to Mr Zappia, Ms Duran telephoned him in September 2014, and he told her of the situation with the tenant. Ms Duran did not state she was overseas. According to Mr Zappia, Ms Duran told him that her husband would speak to the tenant about rent arrears;
Mr Zappia stated that in October 2014, the tenant continued to promise to catch up with rent arrears, and that she would try to get an advance from her Superannuation fund. According to Mr Zappia, in a telephone discussion with the landlords, he was instructed to give the tenant more time to catch up rent arrears before taking action;
In November 2014, the tenant requested a copy of the rent ledger from Mr Zappia, so that she could approach her Superannuation fund. Mr Zappia stated that he forwarded the ledger to the tenant, and in a telephone call from Ms Duran, informed her he had done so;
According to Mr Zappia, the tenant remained in rent arrears, which were increasing, and not responding to calls. In late January 2015, the agent issued a Notice to Terminate for non-payment of rent under the Residential Tenancies Act 2010, and the tenant vacated the property on 18 February 2015;
Mr Zappia asserted that, prior to the tenant leaving, Mr Duran telephoned him in January 2015 insisting that Mr Zappia go to the property and collect unpaid rent and inspect the property. According to Mr Zappia, he told Mr Duran that he could not attend the property without appropriate notice before the tenant vacated, and that he could not force the tenant to pay rent arrears;
The outgoing inspection was performed by Mr Zappia on 21 February 2015, and the outgoing inspection report sent to the applicants. The bond was refunded to the applicants. After the bond was taken into account, the tenant owed $6,171.65 in rent arrears;
Mr Zappia asserted that the applicants had failed to mitigate any loss, because they had allowed landlord insurance on the property to lapse. He denied that he did not keep the landlord informed of the situation regarding the tenant's failure to pay rent.

JURISDICTION

The applicants are "consumers" within the meaning of Section 3 of the Consumer Claims Act 1998, and the claim is a "consumer claim" within the meaning of Section 3A of that Act. Proceedings have been brought within the relevant limitation period in Section 7 of the Consumer Claims Act 1998, and the Tribunal has jurisdiction.

RELEVANT LAW AND LEGAL PRINCIPLES

For the applicants to succeed in the claim, they must prove on the balance of probabilities that the respondent breached a term of the managing agency agreement, or a relevant provision of the Australian Consumer Law 2010 ('the ACL' which has been adopted as a law of NSW pursuant to Section 28 of the Fair Trading Act 1987). The applicants must further prove loss arising from the breach, and any loss is not too remote from the breach, applying the principles of Hadley v Baxendale (1854) 9 Ex 341. Further, if the applicants prove loss arising from the breach which is not too remote, the Tribunal must consider whether they took reasonable measures to mitigate (i.e. avoid or reduce) the loss. The respondent bears the onus of proof in respect of failure to mitigate (Karacominakis v Big Country Developments Pty Ltd (2000) NSWCA 312 at [187]).
In respect of the provisions of the ACL the salient provision is the guarantee implied into consumer contracts (and the applicant's come within the definition of "consumer" under Section 3(a) of the ACL, as the contract with the managing agent is a contract to provide services in trade or commerce for an amount less than $40,000.00) that services be provided with due care and skill under Section 60 of the ACL. The applicants, in their submissions, also raise misleading or deceptive conduct (Section 18 of the ACL).

APPLICATION OF LAW TO FACTS

On the face of it, Mr Zappia waited a considerable period of time before issuing a notice to terminate for non-payment of rent on the tenant while rent arrears continued to accrue to very significant levels, and such a delay does not appear to reflect favourably on the efficient management of the tenancy by the respondent. Mr Zappia's explanation is that the tenant made various promises to pay, and that he did not have instructions from the applicants to issue a termination notice. The applicants assert that they did not realise the extent of rent arrears until December 2014. Mr Zappia denies that he failed to keep the applicants informed of the situation, and he asserts the applicants did not instruct him to issue a notice to terminate earlier than he did. The applicants assert that they did not give instructions to issue a notice to terminate earlier because the respondent did not make them aware of the rent arrears of the tenant.
The Tribunal is not satisfied the applicants have proved on the balance of probabilities that the respondent breached a term of the managing agency agreement, or the guarantee that services be provided with due care and skill under Section 60 of the ACL.
There is no expert evidence, such as a report by another real estate agent, that an agent acting in a reasonably diligent manner would have managed the property differently. Although the Tribunal is aware of the process of making applications to terminate residential tenancies for non-payment of rent under the Residential Tenancies Act 2010 and has specialised knowledge in respect of such matters, in the circumstances of this matter the Tribunal cannot appoint itself as an expert, and find that an earlier notice to terminate should have been issued, without any expert evidence to support such a finding. The obligation of the Tribunal is to make findings of fact based on evidence, unless the factual issue is a matter of common knowledge or judicial knowledge, and the Tribunal must be careful not to confuse its experience as a specialist jurisdiction in respect of tenancy matters, with actual independent expert evidence regarding the manner in which the property was managed (Strinic v Singh [2009] NSWCA 15 at [58]-[62]; Metropolitan Petar v Mitreski [2009] NSWSC 106 at [18]; Dasreef Pty Ltd v Hawchar [2011] HCA 21 at [47] and [142]).
If the agent had sought instructions and (upon receiving instructions) issued a notice to terminate earlier, it remains a matter of speculation as to if and when the Tribunal would have terminated the tenancy, if the tenant had not vacated pursuant to the notice. Under the relevant provisions of the Residential Tenancies Act 2010, a tenant must be 14 days in arrears of rent when the notice is issued and served, and give the tenant 14 clear days to vacate the premises. The Tribunal retains discretion under Section 87 of the Residential Tenancies Act 2010 whether or not to terminate a tenancy, and if the tenancy is terminated, may suspend the date of vacant possession for a period of time. On the evidence before it, the Tribunal cannot calculate with any certainty when the tenancy would have been terminated had the agent acted earlier to seek instructions to issue a notice to terminate.
In respect of breach by reason of the failure to send ledgers, the respondent's sworn evidence is that he did send the ledgers and the applicants were overseas. The respondent's obligation under the managing agency agreement is to send the ledgers, and if the applicants were not receiving ledgers whilst they were overseas, they were in a position to check their accounts, and to arrange for their son in Australian to contact the respondent regarding the management of the property. Even if the applicants had proved to the requisite standard of proof that the agent failed to send monthly ledgers, the Tribunal is not satisfied that any such breach caused loss to the applicants.
Further, even if expert evidence had been served by the applicants from an independent expert real estate agent that a notice to terminate should have been issued earlier, and the Tribunal could ascertain when the tenancy was likely to be terminated, and the applicant's had proved breach of contract or a provision of the ACL by the agent, such loss is too remote from any breach by the respondent. Pursuant to the principle in Hadley v Baxendale (1854) 9 Ex 341 damages are only recoverable for breach of contract as may fairly and reasonably be considered as arising naturally (that is, according to the usual course of things) from the breach, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract, as the probably result of the breach.
In this matter, the applicants have a legal right to bring proceedings against the former tenant for unpaid rent. According to the applicants, no such proceedings have been taken, and they are unaware of where the former tenant now resides because no forwarding address was provided by her. However, in circumstances where the applicants have unexercised legal rights against the former tenant for unpaid rent, any claim against the agent managing the property in respect of such loss is too remote and lacking in proximity (Hamilton v Bevans Real Estate Gerringong Kiama [2011] NSWCTTT 622).
Although the applicants raised "misleading and deceptive conduct" by the respondent, there was no clear evidence as to what the alleged misleading and deceptive conduct was. Rather, the claim against the respondent was on the basis of the respondent failing to act with due care and skill by failing to keep the applicants adequately informed about the issue of rent arrears, and failing to advise the applicants earlier that a notice to terminate for non-payment of rent should be issued. The Tribunal is not satisfied that the applicants have proved the respondent breached Section 18 of the ACL, applying the principles concisely summarised by Brereton J in Perpetual Trustee Company Limited & Anor v Ishak [2012] NSWSC 697 at paras [75]-[76].
In light of the Tribunals findings regarding breach of contract and breach of the ACL, it is unnecessary to make findings regarding whether the applicants failure to have landlord's insurance in respect of the property constitutes a failure to take reasonable measures to mitigate loss.
As the applicants were never granted leave to amend their application to seek an amount above $7,266.42, it is unnecessary to make findings regarding the issues of damages to the property and loss of rent after the tenant vacated the property. Further, having failed to prove, to the requisite standard of proof, breach by the respondent, such issues are irrelevant. However, for the sake of completeness, the Tribunal will deal with such issues. There was no evidence other than photographs of damage to the property, so there was no evidence to quantify loss, such as quotes or tax invoices evidencing the cost of repairing the property. In any event, if the tenant breached the tenant's obligations by leaving the property in a damaged and unclean state under Section 51(3) of the Residential Tenancies Act 2010, the applicants may claim against the tenant, and any loss is too remote from any breach of the contract or the ACL by the respondent. There is no evidence to support any loss of rental income after the tenant vacated the property, and any such loss is also too remote.
For the above reasons, the application is dismissed. G.J. Sarginson General Member Civil and Administrative Tribunal of New South Wales 18 September 2015 I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 16 October 2015

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