Sumal & Sons (Properties) Ltd v London Borough of Newham

On 8^th April 2011 at Stratford Magistrates‟ Court the appellant, Sumal & Sons (Properties) Limited, was found guilty, after a trial in its absence, of being the owner of a rented property without a licence contrary to section 95(1) of the Housing Act 2004 (“the 2004 Act”). The information stated that the offence was committed “on or about 10^th January 2011”. The appellant was committed to the Crown Court for sentence under section 70 of the Proceeds of Crime Act 2002 (“the 2002 Act”).

On 3^rd October 2011 at the Inner London Crown Court the appellant was sentenced by Ms Recorder Crane as follows:

Section 80 of the 2004 Act, putting it in general terms, makes provision for the introduction by local authorities of selective licensing of rented residential property in the private sector. This can be achieved by a local authority designating either the whole of its district or an area or areas within its district to such licensing. The Little Ilford Ward of the London Borough of Newham was designated a Selective Licensing Area (“SLA”). On 1^st March 2010 the SLA designation became operative. The designation was publicised in the area of the London Borough of Newham through a campaign in the local press.

The appellant has for many years been and is the owner and landlord of 48 Worcester Park Road, Manor Park, Little Ilford, Newham (“the property”). The property, which had been privately rented for a significant period of time, is situated within the SLA. As a result it had to be licensed in accordance with Part 3 of the 2004 Act.

An application pack for a licence and covering letter were sent to the appellant on 9 February 2010. There was correspondence. On 15 March 2010 and again on 27 August 2010 and on 9 December 2010 the appellant wrote to the London Borough of Newham asking why the property needed to be licensed; the London Borough of Newham replied, referring to the legislation. In that correspondence, it also drew attention to the financial discounts available if the licence were applied for promptly. It further referred to potential consequences under the 2004 Act of failure to obtain a licence (including a fine, liability to a rent repayment order and restrictions on recovery of possession). It made no mention of possible confiscation proceedings. The property was, it may be added, subsequently inspected by the Council. It was said to have two “Category 1” faults, both denied by the appellant: overcrowding (6 people in a house suitable for 3) and poor heating. However, it was ultimately accepted that the appellant was a fit and proper person to be licensed and had it only applied for a licence for the property at the relevant time one would have been issued for it. In the event, on application eventually made, the London Borough of Newham did indeed issue a licence for the property on 11 July 2011, with effect from 11 April 2011.

It appears that the appellant has a considerable number of other properties which it rents out. It apparently has a turnover of over £600,000 p.a. It had no previous convictions of any kind and it was said to be a landlord which complied with all its statutory obligations in renting out properties. Its managing director, Mr Sumal, at the time was, it is also said, experiencing the stress of divorce proceedings and so had significant distractions.

The Recorder considered various preliminary arguments to the effect that the proceedings were an abuse of process or were oppressive or were in breach of the appellant‟s rights under the European Convention on Human Rights. The Recorder rejected all those points. When she came to pass sentence, the Recorder said this:

Mr Rule renews all his points in this court. His grounds for disputing the outcome in the court below are many and varied, albeit in some respects overlapping. The ground, however, in respect of which he was actually granted leave by the single judge related to the Court‟s imposition of a confiscation order. But before turning to Mr Rule‟s arguments, it is appropriate to refer to some of the provisions of the 2004 Act.

The relevant provisions are contained in Part 3 of the 2004 Act. One of the evident purposes of those provisions was to assist local housing authorities in (amongst other things) improving social conditions and reducing antisocial behaviour in the area of its district or in any area within that district. Section 80 empowers a local housing authority to designate any such area subject to selective licensing, if the specified requirements are met.

The scheme is that a house coming within the reach of such provisions must be licensed under Part 3: see s.85. Section 87 provides for applications for licences; and s.88 and s.89 relates to the grant and refusal of licences. Section 90 provides that licences may have conditions attached to them as the Housing Authority may consider appropriate for regulating the management, use or occupation of the house concerned. Section 95 is headed “Offences in relation to licensing of houses under this Part”, and is, in the relevant respects, in these terms:

Section 96 is headed “Other consequences of operating unlicensed houses: rent repayment orders”. In the relevant respects, section 96 is in these terms:

Section 97 then goes on to make further provision about rent repayment orders among other things providing this:

Section 98 (headed: “Other consequences of operating unlicensed houses: restriction on terminating tenancies”) provides that no notice seeking a recovery of possession on termination of an assured short-hold tenancy may be given so long as a house remains an unlicensed house.

Definitions are provided for the phrases “Person having control” and “Person managing” in s.263 of the 2004 Act as follows (in the relevant respects):

In the present case, as indicated, the house was properly required to be licensed and, as found, was not licensed at the relevant time; albeit in due course, when application was made, a licence was issued. It continues to be agreed that had only the appellant so applied at the relevant time, the licence would have been issued and so no offence would have been committed.

Mr Rule‟s first point was to assert that the Crown Court had no jurisdiction to deal with the matter and that the committal for sentence purportedly pursuant to s.70 of the 2002 Act was invalid. The argument is that the Magistrates only have power so to commit in the case of an either way offence: there is simply no such power to commit under s.70 for summary offences only. If that is right, then paragraph 126 of the Explanatory Note to the 2002 Act has misunderstood the section; as have the editors of the well-known textbook in this field, Mitchell, Kennedy and Talbot, at V-008. In our view, it is not right. In our view, His Honour Judge Chapple (at a previous stage of the proceedings) had quite correctly rejected such an argument.

Section 6 of the 2002 Act , in the relevant respects, provides as follows:

There is absolutely nothing in the wording of s.70 of the 2002 Act to limit its ambit to either-way offences. On the contrary, s.70(1) – as does s.70(3) – quite generally and without qualification refers to “an offence”. There is no justification for writing in words of limitation in the way that Mr Rule‟s argument would connote. Mr Rule sought to rely on the provisions of s.70(5) as supporting his argument. In truth, however, those words are against his argument: since they clearly connote by implication that there are other offences which may be so committed to the Crown Court which are not either-way offences coming within s.3(2) of the Powers of Criminal Courts (Sentencing) Act 2000. The purpose of s.70(5) would appear to relate, in fact, to the extent of the Crown Court‟s sentencing powers under the immediately following section, s.71.

Accordingly, this preliminary argument fails. Mr Rule did submit that one would expect Parliament to be entirely clear if it were intended that the Crown Court was to deal with an offence which was otherwise summary only. In our view, the statute is indeed entirely clear on this.

Then Mr Rule sought to argue that the confiscation proceedings should have been stayed and should have been categorised as an abuse of the process. He put his case in various ways. But in the judgment of this court there is nothing in any of them.

This particular prosecutor – the local housing authority – may have had no general policy in existence at the time relating to prosecutions and claims for confiscation orders by reference to the 2004 Act. But there is nothing to show that individual consideration was not given in this case to the decision to bring these proceedings and to seek a confiscation order. Mr Rule sought to rely on the fact that a s.16 statement was only produced at a late stage in the Crown Court; and he suggested that the matter had initially simply not been thought through. That is not an inference that can properly be drawn. Further, it is not for a defendant in a case such as this to decide whether or not such a decision is taking a sledgehammer to crack a nut. It was matter for the prosecution to decide in this particular case whether or not to prosecute and whether or not to seek a confiscation order; and the decision to do so was one open to the London Borough of Newham here in the circumstances.

The case is quite different from the case of Adaway [2004] EWCA (Crim) 2831, to which Mr Rule referred. That was a case where the prosecution positively contravened its applicable policy criteria. Certainly there may be examples where a stay is justified (see, for example Shabir [2008] EWCA (Crim) 1809, [2009] 1 CAR(S) 84): but that ordinarily is likely to be a relatively rare case. In saying that, we accept that – putting it generally – in prosecutions of what may be called regulatory offences the prosecuting authority may perfectly properly decide not to seek a confiscation order (where one is in principle available) in any particular case. Further, there may be cases where, if such a decision to seek confiscation is made, the court may, on appropriate facts, grant a stay on the ground of oppression. But there was nothing in this present case to require the Recorder to stay these proceedings, and the Recorder was entitled to reject the arguments as she did. Of course, in saying that we acknowledge that certain aspects of Mr Rule‟s argument here did to some extent also mirror points he sought to make as to whether there was jurisdiction to make a confiscation order at all. We will come on to that later in this judgment.

Mr Rule, however, then sought to complain that it was in any event an abuse for the magistrates' court to commit under s.70 of the 2002 Act when the appellant had received no prior warning of the prosecutor‟s intention to pursue a committal for sentence under s.70 and to seek a confiscation order in the Crown Court. Not knowing that, Mr Rule said, the appellant would not have been in a position to make any representations on the matter to the magistrates' court. But Mr Rule could point to no statutory provision requiring the prosecutor to give prior notice to a defendant of its intentions in this regard; and the fact is that the appellant chose not to attend before the magistrates‟ court or be represented. Under s.70(2)(a) of the 2002 Act, moreover, the magistrates' court was required to commit to the Crown Court on request made. No question of abuse in such circumstances as these can arise.

To the extent Mr Rule had his other challenges asserting an abuse in this regard, then, as the Recorder rightly pointed out, they could be (as indeed they were) heard in the Crown Court. So the procedure was fully Article 6 compliant.

As to Mr Rule‟s other arguments that the confiscation proceedings were disproportionate and in contravention of the European Convention on Human Rights, those add nothing. Parliament here has decided on the terms of the 2002 Act and it is not sought to be said, and cannot be said, that the 2002 Act itself is incompatible with the Convention. The fact that it is capable in some circumstances of giving rise to draconian results is not in itself necessarily a reason for staying proceedings. Again, the Recorder was entitled to reject the argument run in this regard.

Then Mr Rule sought to renew his grounds of challenge to the sentence. He submitted that the fine was excessive. He pointed to the appellant company‟s good record, to the fact that it would have got a licence had it applied for one and to the personal distractions of its managing director. He also pointed to the fact that the initial fee, on the introductory terms offered by the London Borough of Newham, as discounted for a five year licence would be £300 if promptly paid, rather than the indicated £500. Failure to apply for a licence has meant, under the publicised procedure, that the appellant would have to pay the full £500 licence fee and moreover that would only be for an initial one year period. So, he submitted, that was quite a significant financial penalty suffered already by virtue of the failure to obtain the licence.

The fact remains that the appellant – an experienced, professional landlord – had, in the face of repeated warnings, chosen not to comply with its obligations. Further, there could be no mitigation for a plea as there had been a trial. The company has a substantial turnover of over £600,000 p.a. It is in fact generally not particularly helpful to refer – as happened here in the Crown Court – to other informally reported decisions, to the extent that any can be found, as to the level of fines imposed in this particular Housing Act context – just because the amount of the fine will depend on the particular circumstances of the particular case and also will necessarily be geared to some extent to the ability of the landlord in question to pay a particular amount. Ordinarily, a fine in this context can also properly convey a degree of “sting” geared to a particular landlord‟s financial situation. It is to be borne in mind that the maximum fine available in respect of a particular offence under s.95(1) for one particular house is £20,000. It could in fact be said that this fine in this particular case was, given the circumstances, on the moderate side – it may well be in part because, as the Recorder had indicated, she was bearing in mind the amount of the confiscation order. At all events, Mr Rule‟s suggestion that the amount of the fine was excessive is unsustainable. His initial suggestion that in this case there should, as a matter of principle, have been a conditional discharge was completely unrealistic.

We will come back to deal with the question of the costs of the proceedings in the light of our decision on the main point of this appeal: which is whether or not a confiscation order could validly be made at all in a case of this kind. To that point (the real point in this appeal) we now turn.

Section 70 of the 2002 Act (which is to be read in the context of sections 6 to 8 of that Act) is in these terms:

As an initial observation, Mr Rule re-emphasised that the present case involves what he calls a “regulatory offence” – it is not a case of dishonestly obtaining property by dishonest means, such as by the importation of illegal drugs or by the importation of alcohol and tobacco without paying the applicable duties (to take two very familiar examples). That may be so. But it cannot of itself answer the question arising. Whether what may be styled a regulatory offence can, when committed, give rise to the availability of a confiscation order will depend on the terms of the statute or regulations creating the offence, read with the terms of the 2002 Act and set in the context of the facts of the case.

It was common ground here that this was not a case of general criminal conduct.

As reiterated by the House of Lords in the case of May [2008] UKHL 28, [2008] 2 CAR 28 ordinarily there are, in this context, three questions for the court: (1) has the defendant benefited from the relevant criminal conduct? If so, (2) what is the value of the benefit; and (3) what sum is recoverable from the defendant?

There is no doubt that in general terms – and consistently with the title of the statute – the focus initially is on benefit obtained by reason of criminal conduct (the first stage of May). In the present case, as we have said, it was agreed that the property was already tenanted before the designation of the SLA and that the appellant would have obtained a licence at the correct time had only it applied for one. It may be that, for that reason, the Recorder held that the benefit was obtained “in connection with” (rather than “as a result of”) the offence committed under s.95(1) of the 2004 Act. It is established that the words “in connection with” as used in s.76(4) of the 2002 Act, widen the meaning of the words “as a result of”: see James and Blackburn [2011] EWCA (Crim) 2991; [2012] 2 CAR (S) 44 at para 49. The court gave an example in that case of what might be covered. The court, however, also stated (as part of its reasoning in that case) that the words “in connection with” must be given a narrow construction: see paragraph 65. In our view, at all events, the availability of confiscation proceedings in the context of an offence under s.95(1) of the 2004 Act cannot depend on the happenstance of whether or not the house in question was already tenanted or whether or not the landlord would have obtained a licence if only he had applied for one at the time (although, of course, such a consideration may be highly relevant on sentence). Either confiscation orders are available in cases of offences under s.95(1) of the 2004 Act or they are not.

The Recorder, in her initial ruling, held that “the purpose of the legislation is to prevent landlords who do not have the appropriate licence from renting out properties and in that circumstance the rent was obtained in connection with the failure to obtain a licence”: comments subsequently reflected in her sentencing remarks set out above. Mr Paul, in his submissions, supported that. He said that the rent obtained was obtained unlawfully; and it was unlawful as a consequence of the appellant committing the index offence.

If that is right, then plainly a confiscation order could properly be made. But is it right? Section 95(1) taken on its own confines the offence to that of having control of or managing a house which is required to be licensed but is not so licensed. The definitions in section 263 of “a person having control” or “person managing” are, however, wide: and since they focus on the receipt of (or entitlement to receive) rent, they lend initial support to Mr Paul‟s submissions.

But matters do not stop there. The 2004 Act has to be read as a whole. And within Part 3 of this statute there is express provision, in s.96(3), that no rule of law relating to validity or enforceability of contracts in circumstances of illegality affects the validity or enforceability of the provisions of a tenancy or licence requiring payment of rent or of the other provisions. It follows that such provisions – including the right to recover rent – remain enforceable: at the suit not only of a tenant but also of a landlord, notwithstanding that he has no licence for the house in question. That is inconsistent with the notion that the landlord is unlawfully obtaining rent as a result of or in connection with his breach of s.95(1).

Further, the 2004 Act provides its own code for what may happen in such circumstances. Rent repayment orders may be made by the tribunal, in the circumstances set out in s.96 or s.97 as the case may be, where the landlord has committed an offence under s.95(1). But that scenario necessarily contemplates that the landlord has (lawfully) in the interim received the rent or housing benefit. (For good measure, a further sanction is imposed by the 2004 Act on the landlord of the unlicensed house, restricting his entitlement to terminate an assured short-hold tenancy). Mr Paul sought, however, to emphasise the words “in circumstances of illegality” in s.96(3). He submitted that the statute was thereby acknowledging that receipt of rent in such circumstances was illegal. But it seems extraordinary to attribute to Parliament an intention that a landlord of an unlicensed house may lawfully seek to recover in civil proceedings rent due under the tenancy whilst at the same time making it a criminal offence actually to receive such rent so recovered. That is not a tenable proposition.

We asked counsel if the 2004 Act confers any power on the local housing authority to issue a prohibition order against a landlord from renting out a house while it is unlicensed. We were told that there is none. We were referred to sections 20 and 21 of the 2004 Act which give powers to local housing authorities to make prohibition orders in relation to premises on which there are Category 1 or Category 2 hazards (as defined). But no such power apparently is conferred in respect of a breach of s.95(1). That too is consistent with a Parliamentary intention that the continuance of the tenancy, and payment and receipt of rent thereunder, is being regarded as lawful. What is unlawful is the failure to obtain a licence.

Mr Paul referred us to the case of Nelson, Pashak and Poulet [2009] EWCA (Crim) 1573, [2010] 1 CAR(S) 82. But, while those cases are on their facts illustrative of the potentially harsh consequences that s.76 of the 2002 Act can throw up, they are plainly distinguishable from the present case: in that there property had indeed been obtained as a result of dishonest conduct. It was emphasised in the decision, it may be noted, that there has to be a causal connection. For his part, Mr Rule referred us to Rigby and Bowley [2006] [2006] EWCA (Crim) 1653, [2007] 1 CAR(S) 73. That too was a case on its own facts. There the criminal conduct in question – the confiscation was sought under the Criminal Justice Act 1988, but the relevant words correspond to s.76(4) of the 2002 Act – was held not to result in benefit. It was held (see para.17) that the increase in share price was “not the proceeds of the offence of which he was convicted nor… the positive consequence of the offending”: and so here in the present case by analogy, says Mr Rule. Nor, in that case, was the continued receipt of salary causally linked to the offending: the defendants continued to be employed despite the offence, not because of it. Again so here, says Mr Rule: the appellant continued to receive rent not because of the s.95(1) offence but in spite of it. There was no sufficient causal connection. There is, in our view, obvious force in Mr Rule‟s submissions.

As to the case of del Basso [2010] EWCA (Crim) 1119, [2011] 1 CAR (S) 41, to which we were referred, that lends no support to the respondent‟s argument. There the defendants continued, for very large profits, to put the land to park and ride use without planning consent and notwithstanding the service of an enforcement notice (thereby committing a criminal offence). They had no lawful entitlement to use the land in this way, but instead deliberately flouted the law in doing so in order to secure a profit (benefit). That is in clear distinction from the present case: where the continuance of the letting and the receipt of rent (in contrast with the failure not to have the house licensed) was not made unlawful by the 2004 Act. Putting it in other words, a licence granted under s.88 of the 2004 Act does not operate to confer on a landlord an entitlement lawfully to receive rent which he does not otherwise have.

A yet further difficulty in the respondent‟s argument is this. If it were right, then that could mean that an errant landlord could both be liable (aside from any fine) to a rent repayment order under the 2004 Act and also be liable to a confiscation order in respect of the same offending. That would be double jeopardy or double recovery. Mr Paul acknowledged that would be so. But his answer was that “in practice” that would hardly ever happen (and had not happened here). In any case, a local housing authority would “choose one or the other” remedy, he asserted: or, if it elected to pursue both, the courts could then stay the confiscation proceedings as oppressive. That is not a sufficient answer. The very possibility of such a scenario is in itself an indication that Parliament had not intended the confiscation procedure to be available at all.

Mr Paul did refer us to the observations of the court in Nelson (at paragraphs 44 and 45), whereby the possibility of both compensation and confiscation in respect of the same offence was acknowledged. But such a “gap in the statutory process”, as it was described (by reference to s.6(6) of the 2002 Act), does not need to be found here and should not be found here, given the wording of the 2004 Act. It is not readily to be thought that Parliament could have intended a landlord, at least potentially, to be mulcted of more than the total rent he has received during the period the house was unlicensed. (It may also, in fact, be queried why, if confiscation was intended to be available at the behest of a prosecuting local housing authority, it was thought necessary to confer powers of recovery of housing benefit under s.97 at all.)

It also does no harm to stand back a little from the intricacies of some of the arguments here. As stated by the House of Lords in Jennings [2008] UKHL 29; [2008] 2 CAR 29 at paragraph 13:

Such a conclusion, we might also add, does not deprive the courts, and local housing authorities, of effective sanctions. Quite apart from the remedy of rent repayment orders, fines of up to £20,000 for each offence per house under s.95(1) are authorised by the statute to be imposed: and magistrates can be expected to be robust and to impose suitably severe fines in cases where the circumstances call for robustness and severity.

For the avoidance of doubt, it should be stated that the fact that the Crown Court had no power, as this court has decided, to make a confiscation order does not mean that the committal for sentence under s.70 was itself invalid. Mr Rule rightly accepted that. Committal is available “with a view to a confiscation order being considered under section 6”.

It follows that the appeal succeeds to the extent that the confiscation order must be quashed. The various other renewed grounds of application are dismissed.

As we have indicated, the fine of £2,000 imposed in the Crown Court can in no way be criticised as excessive. As to the order for costs in the Crown Court, the amount was reasonable in itself. Mr Rule says, however, that an element of time was taken up in the Crown Court in arguing the confiscation point: and on that point he has now been shown to be right. But the appellant took very many points below (even arguing for a conditional discharge) on all of which it lost. And as to the confiscation point, that seems in its present form to have been argued relatively shortly below and only to have been fully developed on appeal to this Court (albeit even then as only one of a number of grounds advanced): indeed, Mr Rule‟s ultimate argument was only fully expounded in the course of his submissions before us. In all the circumstances, we vary the order as to costs below only to the extent of substituting a figure of £3,000. As to the costs of this appeal, we will receive counsel‟s written submissions before deciding on the appropriate order.