Piercing the corporate veil in Housing Act prosecutions

Jackson Sirica looks at the challenges for local authorities when deciding who to prosecute for housing offences.

Statutory offences abound in housing law. Whether it is failing to license an HMO, or failing to have in place a selective license in a location in which such a regime applies, the breadth of potential criminal liability in this area of law is significant. Of course, it most often falls to local authorities to enforce these provisions by bringing prosecutions or, in relation to offences under the Housing Act 2004, serving civil penalty notices. In doing so, local authorities are often faced with a problem: who to prosecute? In particular, where a company is involved, can the individuals concerned be prosecuted? Or just the company?

The answer is that it depends. As a general legal principle, of course, the company is a separate legal entity, and its acts are separate from the acts of its shareholders and officers. However, particularly in housing and local government law, it may arise that a company and an individual are, in actual fact, one and the same. Particularly in these circumstances, even though an act may technically have been done in the name of the company, or a notice served on that company rather than its director, it may be viewed as unfair that the main driver of the alleged wrongdoing escapes liability, and only the company faces prosecution.

However, most of the Housing Acts contain a provision enabling the prosecuting authority to look behind the corporate form in some circumstances. For example, the Housing Act 1996 section 223 is in the following terms:

1. Where an offence under this Act committed by a body corporate is proved to have been committed with the consent or connivance of a director, manager, secretary or other similar officer of the body corporate, or a person purporting to act in such a capacity, he as well as the body corporate is guilty of an offence and liable to be proceeded against and punished accordingly.
2. Where the affairs of a body corporate are managed by its members, subsection (1) applies in relation to the acts and defaults of a member in connection with his functions of management as if he were a director of the body corporate.

In slightly different terms is section 251 of the Housing Act 2004:

1. Where an offence under this Act committed by a body corporate is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of—

a) director, manager, secretary or other similar officer of the body corporate, or 

b) a person purporting to act in such a capacity,

he as well as the body corporate commits the offence and is liable to be proceeded against and punished accordingly.

2. Where the affairs of a body corporate are managed by its members, subsection (1) applies in relation to the acts and defaults of a member in connection with his functions of management as if he were a director of the body corporate.

One can see, therefore, the importance of understanding the terms of the section relied upon to prove individual liability. For offences under the Housing Act 2004, for example, it will suffice to prove to the criminal standard that an offence committed by a body corporate was attributable to “any neglect” on the part of a director, manager, etc. On the other hand, offences under the Housing Act 1996 require proof of “consent or connivance” – clearly, more onerous requirements. Unlike neglect, “consent or connivance” suggests a level of knowledge about the conduct in issue. Careful thought must therefore be given to whether the conduct at issue meets the relevant test for individual liability, and, if so, the evidence required to prove such liability.

Outside of housing law per se, another important statutory power that raises questions as to corporate responsibility is section 16 of the Local Government (Miscellaneous Provisions) Act 1976. In summary, this gives a local authority power to request information relating to land ownership. It is therefore relevant in housing law matters, despite more specific powers in other legislation (see, for example, section 235 of the Housing Act 2004).

Service of a notice under section 16 can be effected on the people listed in section 16(1). Where a notice is served on a company only, and that company fails to comply with that notice, or makes a statement which it knows to be false in a material particular, or recklessly makes a statement which is false in a material particular, the company commits an offence under section 16(2). However, section 44(3) provides as follows, in familiar terms:

When an offence under this Part of this Act (including an offence under byelaws made by virtue of section 12 of this Act) which has been committed by a body corporate is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, any director, manager, secretary or other similar officer of the body corporate or any person who was purporting to act in any such capacity, he as well as the body corporate shall be guilty of that offence and be liable to be proceeded against and punished accordingly.

Where the affairs of a body corporate are managed by its members the preceding provisions of this subsection shall apply in relation to the acts and defaults of a member in connection with his functions of management as if he were a director of the body corporate.

Local authorities should therefore be alert to the possibility that, even though a notice under section 16 is served only on the company, the offence under section 16 may be committed by individuals as well, if the requirements in section 44 of the LGMPA 1976 are met. It should also be noted that, for section 16 offences, neglect on the part of a director or officer will be sufficient for the offence to be made out. This is the lesser standard of the provisions set out above.

In summary, in preparing for trials in housing matters (or appeals against civil penalty notices before the First Tier Tribunal), local authorities should consider what evidence will be required at an early stage. This could take the form of witness statements, exhibits, etc. If the local authority is alleging individual responsibility, then the evidence should deal with the individuals in the case and their role in the conduct alleged. Of course, local authorities should also consider their duties as prosecutors to review the evidence and determine, among other things, whether it provides a realistic prospect of conviction (or upholding a CPN) against each defendant, including those for whom individual liability is alleged. Of course, if it does not, then local authorities should not continue the prosecution or defend the appeal against CPN. However, it may be the case that the provisions outlined above mean that an offence will be made out against an individual when, in the absence of those provisions, only the company would be responsible. If, however, a notice has been properly served on an individual as well as a company, then this may provide a basis for individual liability separate to the provisions detailed above.

Jackson Sirica is a barrister at Cornerstone Barristers.