Background

A rare decision regarding compensation for non-pecuniary loss has been recently handed down from the High Court of Australia. The case considers whether recovering compensation for distress and disappointment is limited to damages caused by physical inconvenience. The landmark decision will potentially have significant implications for government and community housing providers in all Australian jurisdictions, as well as private residential landlords.

What happened?

Ms Young (the Applicant), an elderly Indigenous woman and public housing tenant in the remote Aboriginal community of Ltyentye Apurte, near Alice Springs, had been residing in a property that did not have a back door for a period of 68 months. The Applicant instead relied on a mesh-steel door she had installed herself which was not secure. It was submitted that the landlord, a statutory housing corporation established under the Housing Act 1982 (NT), failed to take reasonable steps to provide and maintain the security devices and ensure the property was reasonably secure. The Residential Tenancies Act 1999 (NT) (the Act), requires the premises to be secure, and this requirement had been incorporated as a term in the prescribed tenancy agreement. On this basis, the Applicant applied to the Civil and Administrative Tribunal of the Northern Territory (the Tribunal) seeking compensation damages for the landlord’s failure to comply with a statutory imposed term of a residential tenancy agreement, which caused distress and disappointment to the Applicant.

The elements to prove

For a successful claim of compensation for distress and disappointment caused by a breach of contract, the prior law required that an applicant must satisfy the common law elements that the loss;

• resulted from physical inconvenience caused by the breach; or
• the object of the contract is to ‘provide enjoyment, relaxation or freedom from molestation’.

In this instance, the Applicant challenged the established common law principles that cater only to applicants who suffer physical (not mental) inconvenience. The Applicant argued that compensatory damages should be awarded for tangible and intangible loss suffered by a party due to another party’s broken contractual promise.

The findings

The Tribunal dismissed the application, holding that the back door was not a “security device” within the meaning of the Act. On appeal, the Supreme Court of the Northern Territory overturned the decision of the Tribunal and found that the landlord breached the term of the tenancy agreement by failing to ensure there was a back door fixed in the external doorway of the property. The Supreme Court held an external door is indeed a security device, awarding the Applicant $10,200 in compensation for distress or disappointment. The landlord subsequently appealed this decision, and the Court of Appeal set aside the compensation awarded, holding that section 122(1) of the Act did not entitle the tenant to damages for distress or disappointment, the Court of Appeal held that a central objective of a residential tenancy agreement was not to provide pleasure, entertainment, or relaxation, and therefore compensation was not available unless it was consequential upon physical inconvenience. The Applicant then made a final appeal to the High Court of Australia.

The final decision

In a majority decision, the High Court rejected the Court of Appeal’s interpretation, and held that the relevant term of the residential tenancy agreement was to provide the tenant with the peace of mind that comes with secure premises. The High Court ruled that the landlord breached that obligation and acknowledged that the Applicant had a right to seek compensation because of that breach, which includes compensation for disappointment and distress. The High Court finally awarded $10,200 in compensation and ordered that the respondent pay the costs of the first and second grounds of the appeal, in favour of the Applicant.

The New South Wales position

For comparative purposes, in New South Wales, section 191(3) of the Residential Tenancies Act 2010 (NSW) outlines the possible considerations the NSW Civil and Administrative Tribunal (the NSW Tribunal) may apply when determining whether a landlord has satisfied their obligation to ensure the residential premises is reasonably secure. The NSW Tribunal must consider the physical characteristics of the premises, insurance of property, likelihood of break-ins and unlawful entry, and the action taken or those that should have reasonably been taken by the tenant and landlord in the security of the premises.

What does this decision mean for landlords?

This case is now the leading authority in respect of non-pecuniary loss and will have significant implications for the residential tenancy sector. The legal development in this case has already prompted a class action investigation to review over housing conditions for Indigenous tenants living in public housing in remote communities. We expect more cases like this will emerge in the near future.

Final thoughts

Considering this landmark decision, large scale public and government housing providers must be aware that the assessment of damages for breach of residential tenancy terms may be subject to determination against common law principles. A breach of contract may cause the aggrieved party to suffer disappointment and distress arising from a breach of a tenancy agreement, and under the guidance of this leading authority, seek compensation for non-pecuniary loss.