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Court of Appeal dismisses appeal by company director over £99k penalties for breaches of HMO regulations, non-compliance with enforcement notices

The Court of Appeal has rejected a company director's appeal over penalties amounting to £99,000 imposed by the Upper Tribunal for breaches of regulations covering houses in multiple occupation (HMOs), and non-compliance with enforcement notices.

The penalties related to Max House, 60 St Faiths Lane, Norwich of which Faith’s Lane Apartments (FLAL) was the freehold owner. The appellant, Mr Sutton, was the director of FLAL and owner of 54.8% of its shares.

Max House was built as an office building but by 2015 work had been undertaken to convert it into apartments which were advertised as available to let.

The council's housing team leader visited the building in December 2017 and found 34 of the 47 apartments occupied. Two months later the local authority served eight improvement notices.

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By 17 September 2018, the council officer had concluded that offences had been committed under section 30 of the Housing Act 2004 in relation to five of the eight improvement notices and she arranged for the service of five notices of intent to impose financial penalties on each of FLAL and Mr Sutton.

The UT noted that no representations were received from either Mr Sutton or the company in response to the notices of intent and on 17 October 2018 final notices imposing the proposed penalties were served on both. In aggregate each set of five notices imposed penalties of £140,000 on Mr Sutton and [the] same sum on FLAL.

In the meantime, the housing team leader had become satisfied that breaches of the Licensing and Management of Houses in Multiple Occupation (Additional Provisions) (England) Regulations 2007 justified the imposition of separate financial penalties. On 11 June 2018, notices of intent to impose such penalties were served, five on FLAL and five on Mr Sutton as its director. The notices alleged breaches of regulations 4, 5, 7, 8 and 10.

This time, Mr Sutton argued against the council's proposals in written representations on behalf of both himself and FLAL. However, on 17 September 2018 the council nonetheless served final notices on FLAL and Mr Sutton imposing financial penalties.

On 30 October 2018, the council served a prohibition order in relation to Max House barring its use as residential accommodation with effect from 27 November. The building was subsequently emptied of its residents and, as a result, FLAL's rental income came to an end and it became unable to service its borrowing. On 16 August 2019, the company went into administration.

Prior to this, the First-tier Tribunal had transferred the case to the UT.

In March 2020 the UT found that Norwich City Council had been entitled to impose financial penalties on FLAL and Mr Sutton for breaches of five of the 2007 Regulations and for non-compliance with four of the eight improvement notices it had served.

The Upper Tribunal did, however, reduce the penalties on FLAL to £32,000 for breaches of the 2007 regulations, and £43,000 for non-compliance with the improvement notices.

The UT also reduced the penalties on Mr Sutton to £50,000 for breaches of the 2007 regulations, and £49,000 for non-compliance with the improvement notices.

The main reason why the penalties imposed on Mr Sutton were higher than those imposed on FLAL was that the UT took into account his dealings with another property in Norwich, which the Tribunal found was relevant to his culpability.

Mr Sutton appealed the UT’s ruling.

In Sutton v Norwich City Council [2021] EWCA Civ 20 Lord Justice Newey said the UT had been fully conscious of the danger of double punishment, and that it had adopted an approach that was overly generous to Mr Sutton. “The risk that a penalty imposed on FLAL might go unpaid was, I think, something that could properly be taken into account because it bore on the potential for double punishment.”

The Court of Appeal judge noted how the UT at paragraph 302 of its decision had said it was satisfied that the substantial penalties it was imposing were "necessary to reflect the seriousness of the offences and are proportionate to the risks to which the large numbers of residents of Max House were exposed over a lengthy period".

The UT continued:

"We do not think that, in aggregate, these sums are excessive or unjust, and we have taken account of the overlap between the circumstances of certain offences, and the fact that Mr Sutton may be penalised both in his individual capacity and in his capacity as a shareholder. We believe that the imposition of a significantly greater aggregate penalty on Mr Sutton properly reflects his responsibility for the conduct of the affairs of the company, his personal knowledge of the condition of the building, his responsibility for the occurrence of similar problems at Hardwick House and his greater ability to pay."

Lord Justice Newey said that, in his view, the penalties which the UT imposed could not be impugned.

Moylan LJ and Underhill LJ agreed the appeal should be dismissed.

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