Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Express Clearances Pty Ltd v Breakfast Point Realty Pty Ltd [2022] NSWCATAP 39 Hearing dates: 01 February 2022 Date of orders: 15 February 2022 Decision date: 15 February 2022 Jurisdiction: Appeal Panel Before: S Westgarth, Deputy President G Curtin SC, Senior Member Decision: (1) Appeal upheld. (2) The proceedings are remitted to the Consumer & Commercial Division of the Tribunal for hearing before the same Member for the purposes of determining whether the Appellant is entitled to compensation (and if so in what amount) in light of the finding that the Respondent did not provide its services with due care and skill. (3) Subject to any order to the contrary made in the Consumer & Commercial Division, the parties should be free to file and serve additional evidence. (4) If the same Member is unable to hear these proceedings on remittal the proceedings should be heard by another Member of the Consumer & Commercial Division. Catchwords: APPEAL- consumer claim against a real estate agent managing residential rental premises – failure to refer to principal for instructions- breach of agreement and of obligation to provide service with due care and skill. Legislation Cited: Australian Consumer Law (NSW) Civil and Administrative Tribunal Act 2013 NSW Fair Trading Act 1987 NSW Residential Tenancies Act 2010 (NSW) Cases Cited: Nil Category: Principal judgment Parties: Express Clearances Pty Ltd (Appellant) Breakfast Point Realty Pty Ltd (Respondent) Representation: D Sorbara (Director of the Appellant) A Beveridge (Director of the Respondent) File Number(s): 2021/00319194 Publication restriction: Nil Decision under appeal Court or tribunal: New South Wales Civil & Administrative Tribunal Jurisdiction: Consumer & Commercial Division Citation: Not applicable Date of Decision: 22 October 2021 Before: K Timbs, Tribunal Member File Number(s): GEN 21/00440 REASONS FOR DECISION Background 1. This is an appeal from a decision published on 22 October 2021 in which the Tribunal made an order dismissing the Appellant's application. The Appellant had brought a claim against the Respondent by which the Appellant had sought an order that the Respondent pay it the sum of $12,750 as compensation. 2. The Appellant owned a residential rental property which had been rented to a tenant under an agreement regulated by the Residential Tenancies Act 2010 (NSW) (the RT Act). The tenant had breached the terms of the tenancy by leaving the premises within the fixed term of the tenancy and the Appellant had recovered from the tenant the sum of $5,000 as a break lease fee. The Respondent was the managing agent of the Appellant landlord in respect of the property and the Appellant's claim was that the Respondent had breached the terms of the exclusive management agency agreement entered into between the Appellant and Respondent in 2007 and had failed to comply with the guarantee contained in s 60 of the Australian Consumer Law (NSW) which contains a guarantee that a service provider will provide services with due care and skill. The basis for the alleged breach is explained below. Essentially the Appellant's case was that the Respondent had entered into the residential tenancy agreement on terms disadvantageous to the Appellant and without the Appellant's consent. 3. The premises were vacant for approximately 10 weeks after the departure of the tenant and were then leased to a new tenant at a lesser rental than the previous tenant had paid. The Appellant's claim against the Respondent sought to recover the amount of money necessary to have put the Appellant in the same position as the Appellant would have been had the previous tenant complied with its obligations under the tenancy agreement and had the tenancy agreement reflected terms approved by the Appellant. 4. We will refer to the decision under appeal as the Decision. The Tribunal was exercising its jurisdiction in respect of consumer claims as provided for in the Fair Trading Act 1987 (NSW). 5. The uncontested facts are set out below. 6. Since 2007, the Respondent had managed the rental premises owned by the Appellant pursuant to the terms of an exclusive management agency agreement. Clause 6(ii) of that agreement provided that at the end of each tenancy the agent is "authorised to: (ii) Refer to the Principal for instructions concerning re-leasing and advertising/promotion". 7. On 26 June 2018 the Appellant and a tenant entered into a residential tenancy agreement for a term of 18 months. That agreement was signed by the Respondent's employee on behalf of the Appellant. The rent was $1,250 per week. The term commenced on 19 July 2018 and ended on 15 January 2020. 8. In May 2019 the tenant broke the lease and abandoned the tenancy. The tenancy agreement contained provision in clauses 41 and 42 for the tenant to pay a break-fee of four weeks' rent in circumstances where the tenant ends the agreement before the end of the fixed term and where more than half of the term has expired. That amount totalled $5,000 (which was recovered from the tenant). 9. The Tribunal found that residential tenancy agreements between the Appellant and tenants entered into through the Respondent in respect of the premises in the period from 2007 until this tenancy of 26 June 2018 had all deleted clauses 41 and 42. As those clauses were not contained in the standard tenancy agreement for the whole of the period from 2007 (and appear to have been introduced in 2019 ), we take the Tribunal's finding to mean that the relevant clauses were not contained in the earlier tenancy agreements as opposed to having been included but deleted. 10. The Respondent was engaged to find a replacement tenant following the tenant's departure in May 2019. Ten weeks elapsed before a fresh tenancy agreement was entered into and then at an amount of $1,000 per week. 11. The Appellant's claim against the Respondent totalled $1,250 for each of the 10 weeks when the premises were vacant and a further claim for a period of 21 weeks at the rate of $250 per week representing the shortfall between the new weekly rent for the period until the old tenancy agreement would have expired (January 2020). From that amount the Appellant gave credit in respect of the sum recovered from the previous tenant and thus the Appellant's claim was for $12,750. The Appellant alleged that had the tenancy agreement followed the same format as previous tenancy agreements (in which clauses 41 and 42 had been crossed out), the Appellant would have recovered from the tenant the full shortfall of $12,750 instead of $5,000. This state of affairs was attributed to the Respondent not exercising due care and skill. 12. A summary of the Decision is as follows (excluding the facts described above): 1. The evidence of Mr Sorbara on behalf the Appellant was that he did not give any instructions to the Respondent to leave clauses 41 and 42 in the tenancy agreement (those clauses had been deleted in all earlier tenancy agreements) and that the Respondent did not discuss with him whether or not those clauses should be left in or crossed out. His evidence was that he left it to Ms Beveridge of the Respondent to manage the property and that he relied upon her knowledge, skill and diligence in matters to do with the management of the property. 2. The Tribunal found that the Respondent did not breach any express or implied term of the management agency agreement. 3. Ms Beveridge's evidence was that she intentionally decided not to cross out clauses 41 and 42 (as she had done with previous agreements negotiated on behalf of the Appellant) because in February 2018 the Real Estate Institute (REI) advised her that it was best practice not to delete those clauses because of an impending change to the RT Act that would specify maximum break lease fees. 4. The Tribunal found that the impending changes referred to only applied to tenancy agreements entered into after the 23 March 2020 (some 21 months after the subject lease was entered into). 5. The Tribunal accepted the evidence of Ms Beveridge and stated that it was satisfied that the Respondent did not fail to delete the provisions by mistake and that its action was in accordance with recommendations for best practice by the relevant industry body (at [9]). 6. The Respondent acknowledged that Mr Sorbara was not informed of the Respondent's change in practice from deleting to leaving in clauses 41 and 42. Issues of break lease fees had not arisen with respect to earlier tenancies in respect of which the Appellant and the Respondent were involved. 7. The Tribunal concluded that it was satisfied that the failure to advise the Appellant of the change in policy did not amount to a failure to exercise due care and skill. Notice of Appeal 1. The grounds of appeal may be summarised as follows: 1. Ground 1: the Tribunal did not consider clause 6(ii) of the managing agency agreement and erred in finding that there was no breach of the terms of the management agency agreement. 2. Ground 2: the Tribunal erred in accepting the evidence of Ms Beveridge that she acted in accordance with best practice recommended by the REI when there was no evidence provided of such recommendation and in circumstances where the change in legislation relied upon by Ms Beveridge did not come into effect until March 2020 (21 months after the residential tenancy agreement was entered into). 3. Ground 3: the Tribunal erred in failing to find that the Respondent failed to provide its service with due care and skill. 1. The Appellant's submissions are adequately summarised in the description of the grounds of appeal, as set out above. Respondent's Position 1. The Respondent did not file a Reply to Appeal but has provided a bundle of documents concerning the tenancy and the efforts made to re-lease the premises following the former tenant's departure. 2. During the hearing of the appeal Ms Beveridge elaborated upon the explanation for her decision to change her practice in June 2018 from crossing out clauses 41 and 42 of the tenancy agreement to leaving them in. From that date she left those two clauses in tenancy agreements issued from her office (with the consequence that those clauses determined that there would be a break lease fee applicable). Ms Beveridge said that she attended a lecture of the REI and understood that a recommendation was being made by a spokesperson for the Institute that it would be better for landlords to leave clauses 41 and 42 in leases (rather than crossing them out) as that would facilitate the ability of the Tribunal to award compensation in the form of the amount of the break lease fee. Presumably that position was being promoted over the alternative, which was to permit a landlord to claim compensation under s 107(1) of the RT Act, which is unlimited in its amount but is open to reduction if there is a proven allegation that the landlord has failed to mitigate. 3. Ms Beveridge's explanation during the hearing (as described in the above paragraph) is somewhat different to the explanation recorded by the Member at paragraph 9 of the Decision. Paragraph 9 suggests that the decision to leave clauses 41 and 42 "in" (as given to the Tribunal) was based upon a view about an impending change to the legislation, whereas the explanation given at the hearing of the appeal was more to do with the ease of proving the tenant's obligation to pay a fixed fee as compared with obligations imposed by the landlord to prove loss and that the loss could be reduced by a proven failure to mitigate. The explanation recorded at paragraph 9 of the Decision seems implausible for two reasons. First, legislative changes are usually prospective and if the thought was that the tenancy agreement should comply with the proposed changes in legislation then one would reasonably expect an agent to take a view as to whether the impending change was adverse to landlords or not. If adverse, it would have been sensible to leave the tenancy agreement as it had been with previous tenancies. Second, the change, when it occurred in March 2020, imposed a mandatory break lease fee regime and clauses 41 and 42 were removed. Leaving clauses 41 and 42 "in" (which was inconsistent with the new regime) would have had the effect that Ms Beveridge was not in fact following what she thought was best practice but was rather following the option under the old regime of agreeing to a break lease fee pursuant to clauses 41 and 42. 4. We will now turn to our decision with respect to the appeal. Consideration 1. Appeals from decisions of the Consumer and Commercial Division of the Tribunal may be made as of right on a question of law or with leave on one or more of the grounds set out in clause 12 schedule 4 of the Civil & Administrative Tribunal Act. 2. In this case, there was a clear obligation contained in clause 6(ii) of the Management Agency Agreement on the Respondent to refer to the Appellant for instructions concerning re-leasing. In our view there was a breach of cl 6(ii) and breach of the Respondent's obligation to provide its services with due care and skill under the ACL by the Respondent unilaterally changing earlier established terms of the residential tenancy agreement by entering into the agreement with the tenant in June 2018 with clauses 41 and 42 remaining in. That had the effect that the Appellant's claim for compensation against the tenant was limited to four weeks rent in the circumstances of this case, rather than a larger sum had those clauses been deleted as per the previous practice. At the very least, given the potential to impact the Appellant's financial interests, the decision not to delete those clauses was for the Appellant to make, not for the Respondent, a proposition with which the Respondent agreed during the hearing of the appeal. 3. In our view, the failure of the Respondent to obtain the Appellant's instructions constituted a breach of the Respondent's obligations and a failure to provide its services with due care and skill. 4. The Tribunal did not expressly refer to clause 6(ii). The Tribunal held that there was no specific term that required the Respondent to delete clauses 41 and 42 and also held that the Respondent had authority to prepare the residential tenancy agreement "with or without" those clauses. In our view the Tribunal's reasons are inadequate in that no consideration was given to clause 6(ii). That clause is inconsistent with the Tribunal's finding concerning the extent of the Respondent's authority. 5. Further the Tribunal's reasons in finding that the Respondent acted in accordance with REI best practice are inadequate for two reasons. First, it is difficult to accept that the REI would recommend making an immediate change to a residential tenancy agreement to conform with changes to legislation which are most likely to be of prospective effect. Secondly it is difficult to accept that any REI recommendation would recommend that an agent should not comply with clause 6(ii) which requires that the agent refer to the principal for instructions. 6. Accordingly, grounds 1 and 3 of the appeal are upheld. There is no need to deal with ground 2. 7. However, the Decision did not, and did not need to, consider what the Appellant's loss (if any) was as a result of the Respondent's failure to provide its service with due care and skill and whether that loss was caused by the Respondent's breach. 8. We were not provided with the transcript of the hearing and there is no evidence before us as to what the Appellant probably would have instructed the Respondent to do had the Respondent sought the Appellant's instructions whether to continue the practice of deleting clauses 41 and 42 or whether the Appellant would have accepted the Respondent's new policy of leaving those clauses in. It is not obvious to us, nor is it clear on the evidence, that had the Respondent fully explained the two choices available to the Appellant, that the Appellant would have not agreed to adopt the new practice of leaving clauses 41 and 42 in. There needs to be evidence establishing a causal connection between the failure of the Respondent to seek instructions and the entry into the tenancy agreement containing clauses 41 and 42. 9. Another issue on causation is whether the Appellant would probably have recovered the damages claimed from the tenant. That is, would the Appellant have been any better off financially had the clauses been deleted. If, in fact, the tenant was essentially penniless, than deleting the clauses would not have ensured the Appellant received any more compensation from the tenant than it did. 10. Because evidence does not appear to have been put forward by the Appellant as to what the Appellant would have done had the issue of leaving in or crossing out the two clauses been explained to Mr Sorbara, because there was no opportunity given to Ms Beveridge to cross-examine or otherwise contest the likely assertion by the Appellant that the Appellant would have preferred to continue with the previous practice of deleting clauses 41 and 42, and because we do not have such evidences as there was as to the tenant's financial position, we do not think that justice can be served by upholding the appeal and awarding compensation in the sum requested to the Appellant. Rather, the appropriate order is for the proceedings to be remitted to the Tribunal (before the same member preferably) for the purposes of determining whether the Appellant is entitled to compensation in the light of our finding that the Respondent has breached its obligations of due care and skill in the provision of its services, that being a guarantee contained in s 60 of the Australian Consumer Law. 11. In conclusion, we make the following orders: 1. Appeal upheld. 2. The proceedings are remitted to the Consumer & Commercial Division of the Tribunal for hearing before the same Member for the purposes of determining whether the Appellant is entitled to compensation (and if so in what amount) in light of the finding that the Respondent did not provide its services with due care and skill. 3. Subject to any order to the contrary made in the Consumer & Commercial Division, the parties should be free to file and serve additional evidence. 4. If the same Member is unable to hear these proceedings on remittal the proceedings should be heard by another Member of the Consumer & Commercial Division. ********** 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: 15 February 2022