McColl v Hearse [2016] SACAT 38

Procedural fairness - apprehended bias - Tribunal member referred to respondent's business during hearing

Ebner v Official Trustee in Bankruptcy [2000] HCA 63; (2000) 205 CLR 337

1. This is an application for an internal review of a decision made by Member Duffy on 25 May 2016 that Peter (Pedro) McColl give vacant possession of a property at Welland in favour of Timothy Hearse. The order for vacant possession was to take effect on 22 June 2016. However on 21 June 2016, Judge Cole, in her capacity as Deputy President of SACAT, granted a stay in respect of the vacant possession order. She did so on the basis that the issues were complex and the balance of convenience favoured a stay until the issues can be resolved.

2. The circumstances surrounding the alleged tenancy are highly unusual. Mr McColl was previously the owner of the subject property at Welland. His business encountered financial difficulties and a bank was about to exercise its rights as mortgagee to apply to the Supreme Court for an order for possession and sale of the property. So as to avoid that occurring Mr McColl negotiated an agreement with Mr Hearse. The two men were business acquaintances but not friends. The substance of the agreement was that Mr Hearse would buy the property for an amount sufficient to meet the sum owed by Mr McColl to the bank and to cover the cost of stamp duty and conveyancing.

3. It is necessary to set out the complete terms of the agreement.

2 P McColl will continue to reside for 12 months no rent payable

3 during which time P McColl will maintain house to same standard as purchased [photos supplies]

5 the purpose of this agreement will be to sell house with in one calendar year from purchase

6 selling cost include interest from settlement date at 20% {1 full year interest = $137462.90]

8 electricity water gas esl are to be paid when due by P McColl

9 after all costs expences ,interest, taxes,improvements and original purchase price are taken in to consideration

Then if there is monies over and above any profit will be split 50/50 between P. McColl and The Whyalla Property Trust

8 should have added council rates ,insurance [in the unlikely event you walk away at within the 12 months]

10 P.McColl can deposit monies toward repurchase during 12 month period thus reducing interest 11. P.McColl can purchase within 12 months period at original purchase price plus pay all contract fees,interest,holding expences,and any improvements incurded during this agreement

The various spelling errors and other idiosyncratic features appear in the original document. It has been reproduced exactly.

4. The document was prepared as an email but the printed version was signed by both parties and witnessed. I was informed that following the agreement the property was immediately conveyed into the ownership of Mr Hearse.

5. As I said to the parties during the course of the hearing, their agreement has many unsatisfactory features. It was most unwise to use such an informal document to record an agreement involving a large sum of money and very unusual arrangements. They would have been far better served if they had engaged a legal practitioner to prepare a document that recorded their agreement in terms that left no room for uncertainty.

6. The member conducted hearings on 28 April 2016 and 25 May 2016. The purpose of the adjournment was to enable the member to conduct legal research given the highly unusual nature of the agreement.

7. In his statement of reasons dated 25 May 2016 the member stated that the only issue was to determine whether the agreement constituted a residential tenancy agreement and thereby SACAT would have jurisdiction to determine the dispute. The member found that a residential tenancy agreement had commenced on 12 August 2014 when the agreement had been signed. He found that the tenancy was for a fixed term which had expired. Mr McColl had not vacated the property despite numerous requests from Mr Hearse for him to do so. He noted that Mr Hearse would discontinue proceedings in the Magistrates Court. He suspended the order for vacant possession on the grounds of hardship and ordered that it would take effect on 22 June 2016. The member did not provide any explanation for his conclusion that there was a residential tenancy.

8. Mr McColl stated in his application for internal review that he believed that the member was biased towards the landlord because he apparently knew him from Whyalla and they drank together at the pub. He also stated that he was unhappy with the decision. He is unemployed and waiting for the proceeds of the sale of the house as he believes that he is entitled to the profits upon the sale. The intention had always been to sell the property after 12 months and that was written in their agreement.

9. At my request, the member has prepared a supplementary statement of reasons dealing with the allegation of bias. He noted in his supplementary reasons dated 29 June 2016 that there had not been any need for him to determine the credibility of either party. The matter had turned upon whether the agreement constituted a residential tenancy agreement. The member stated that he did not know Mr Hearse. He had never met him prior to the SACAT hearings and had never drank with him in a pub or at any other place. He was aware that Mr Hearse owns a boat business in Adelaide and a good many years ago he had bought two boats from that business. However, to the best of his recollection, he had no dealings with Mr Hearse in relation to either transaction. He was also aware that Mr Hearse had purchased a fishing tackle business and associated property in Whyalla about ten years ago. The business had closed shortly before the transaction that is in dispute in these proceedings or very shortly thereafter. The member had no knowledge of the arrangements concerning the sale of the tackle business but the fact of the sale was common knowledge in Whyalla (where the member lives).

10. At the commencement of the internal review hearing I drew the attention of Mr McColl to the supplementary statement of reasons prepared by the member. I asked whether in light of the denial by the member that he knew Mr Hearse, he wished to maintain that ground of review. He said that a member of the Tribunal registry staff had suggested to him that he should include that allegation. The staff member had assisted him to complete the application for internal review over the telephone. Mr McColl stated that he did not wish to pursue the allegation of bias.

11. Notwithstanding the withdrawal by Mr McColl of the allegation of bias, given the reference by Mr McColl to a member of the Tribunal staff, I have made enquiries about that matter. The staff member informed me that he had asked Mr McColl to state his grounds for internal review. Mr McColl said that the member knew Mr Hearse and drank with him in the pub. The staff member simply recorded the information provided to him by Mr McColl. He did not tell Mr McColl to make up that allegation. I unequivocally accept his explanation.

12. The transcript shows that the member stated during the hearing that he had some knowledge of Mr Hearse's business interests because he lived in Whyalla. Importantly, he also said that he did not know Mr Hearse personally. It may be that Mr McColl misunderstood or did not recall correctly what the member had said. It was not prudent for the member to refer in the hearing to his personal knowledge of the business interests of one of the parties. That should generally be avoided by SACAT members.

13. I am satisfied that a reasonable apprehension of bias does not arise under the test in Ebner v Official Trustee in Bankruptcy [2000] HCA 63; (2000) 205 CLR 337, ie might a fair minded lay observer reasonably apprehend that the decision maker might not bring an impartial mind to the resolution of the question that must be decided. Given that Mr McColl has abandoned that ground of review, the issue does not require any further consideration.

14. I turn to the legal issues relating to the jurisdiction of the Tribunal. Section 24(1)(a) of the Residential Tenancies Act 1995 (the RT Act) confers exclusive jurisdiction upon the Tribunal to hear and determine a tenancy dispute. However, s 24(2) provides the Tribunal does not have jurisdiction to hear and determine a monetary claim if the amount claimed exceeds $40,000 unless the parties give their written consent for the Tribunal to hear and determine the matter. While the transaction between Mr Hearse and Mr McColl was for a sum very much greater than $40,000, the applicant seeks only an order for vacant possession. As there is no monetary claim, s 24(2) does not operate to exclude the jurisdiction of the Tribunal.

15. The term "residential tenancy agreement" is defined in s 3(1) of the RT Act to mean "an agreement ... under which a person grants another person, for valuable consideration, a right ... to occupy premises for the purpose of residence". The operation of that definition needs to be considered in conjunction with s 5 of the RT Act which provides that the Act does not apply to certain specified classes of agreement. Two of the classes of agreement referred to in s 5(1) are relevant to the present matter.

16. Paragraph 5(1)(d) excludes the following agreements from the jurisdiction of the Tribunal:

(d) an agreement conferring a right to occupy premises for the purpose of residence but under which no rent is payable; or

an agreement under which families exchange houses for an agreed period would not be a residential tenancy agreement if no rent were payable under the agreement.

17. A further exclusion is found in paragraph 5(1)(e), ie:

(e) an agreement for the sale of land that confers a right to occupy premises for a period of 28 days or less on a party to the agreement;

18. It is clear that paragraph 5(1)(e) does not apply in the present circumstances. The right of occupancy conferred upon Mr McColl under the agreement with Mr Hearse was for 12 months. The exclusion in paragraph 5(1)(e) is limited to rights of residence not exceeding 28 days. I infer that the purpose of this exclusion was to ensure that an arrangement whereby the vendor of a home was permitted to remain in occupation for a short period after settlement was not treated as a residential tenancy agreement.

19. Clause 2 of the agreement provides that Mr McColl is to reside in the property rent free for 12 months. That clause is directly relevant to paragraph 5(1)(d) of the RT Act which provides that the Tribunal has no jurisdiction over an agreement under which no rent is payable for the right to occupy premises for the purpose of residence. If that clause was considered in isolation from the balance of the contract, then the agreement would clearly lie outside the jurisdiction of the Tribunal.

20. An agreement will be a "residential tenancy agreement" if the right to occupy premises for the purposes of residence is granted for valuable consideration. Whether Mr McColl has agreed to provide consideration for the right to reside in the property is not easy to determine because of the many drafting deficiencies in the agreement. I have given much thought to that question but have concluded that it is not necessary to decide the issue.

21. As I have already noted, it is an essential element of the definition of "residential tenancy agreement" in s 3(1) that valuable consideration has been given to secure the right to occupy premises for the purpose of residence. The concept of "valuable consideration" has been defined to mean "some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other".[1] That definition makes clear that valuable consideration may be something other than the payment of money or a promise to pay money.

22. At common law it was not necessary that rent be paid in money. Rent might be paid by way of services, such as ploughing the owner's land, or the provision of crops or livestock.[2] That definition is somewhat narrower than that of "valuable consideration". Thus, for example, an act of forbearance would constitute valuable consideration but would not appear to be rent at common law.

23. It is also necessary to consider whether the RT Act has departed from the common law meaning of rent. The term "rent" is defined in s 3(1) to consist of "(a) the amount payable under a residential tenancy agreement for the right to occupy premises for a period of the tenancy". While the definition also includes a paragraph (b), that clearly does not apply in the present situation.

24. I consider that the meaning of "rent" has been narrowed under the RT Act from that which applied at common law. That is because the reference to "the amount payable" clearly contemplates the payment of money rather than any other form of valuable consideration. If that was not the case, paragraph 5(1)(d) would be largely, if not entirely, otiose.

25. The example that appears following paragraph 5(1)(d) of the Act provides a practical example of the point I have just made. It also serves to explain why the legislature has included in the definition of "residential tenancy agreement" a requirement that there be valuable consideration but has then excluded from the application of the Act agreements that do not provide for the payment of rent. The example refers to an agreement under which families exchange houses for an agreed period without payment of rent. But for the fact that paragraph 5(1)(d) excludes from the application of the Act agreements under which no rent is payable, such an agreement would be a residential tenancy agreement because the exchange of mutual promises whereby each family is given the right to occupy the other family's house for an agreed period would constitute valuable consideration. Clearly, as a matter of public policy, it was not thought appropriate for such arrangements to be subject to the Act and the jurisdiction of the Tribunal.

26. Mr Hearse suggested during the course of the internal review hearing that he had paid $50,000 less than the market value of the property for its purchase. That discount represented the value to Mr McColl of the right to reside in the property and could be regarded as the payment of rent. There are several difficulties with that contention. I do need not address those difficulties because the alleged arrangement contradicts the express provision in the contract that no rent is payable. That latter fact alone is sufficient for me to determine that no rent is payable under the agreement.

27. I consider it clear that even if valuable consideration did pass between Mr McColl and Mr Hearse with respect to the right to reside in the premises, the fact that no rent was payable under the agreement has the result that the Act does not apply. That is the clear effect of paragraph 5(1)(d).

28. Because of my finding that the RT Act does not apply to the agreement between Mr Hearse and Mr McColl, I set aside the decision granting vacant possession of the subject property to Mr Hearse with effect from 22 June 2016.

29. I urge the parties to reach a mutually agreed settlement to give effect to their bargain. If they cannot do so, the matter will need to be resolved in an appropriate court. I also suggest that the parties would be greatly assisted if they were to obtain professional legal advice.

[1] Currie v Misa (1875) LR 10 Ex 162, Lush J.

[2] See Woodfall's Law of Landlord and Tenant (27th ed) at 297.