Sutton v Norwich City Council

House in multiple occupation – Civil penalties – Assessment – Appellant director of company converting office building allegedly in breach of building regulations – Appellants failing to comply with improvement notices – Respondent local authority regarding property as house in multiple occupation and serving notices for breach of HMO Regulations 2007 – Respondent imposing penalties on both appellants – Upper Tribunal reducing penalties – First appellant appealing – Whether penalties apportioned between company and director – Whether cap on penalty applicable – Whether tribunal erring in assessment of individual penalties – Appeal dismissed The appellant was the sole director and 55% shareholder of the second appellant company, which was the freehold owner of Max House, Wales Square, 60 St Faiths Lane, Norwich, an office block that had been converted in breach of building regulations into an “apart-hotel”. The respondent local authority classed the property as a house in multiple occupation (HMO) under section 257 of the Housing Act 2004. It was therefore subject to the Licensing and Management of Houses in Multiple Occupation (Additional Provisions) (England) Regulations 2007. In 2018, the respondent local authority served notices on the second appellant for breach of duties under the 2007 Regulations. Health and safety hazards were discovered during inspections of the property which led to the respondent serving improvement notices. When the appellants failed to comply with the notices, the respondent imposed penalties totalling £236,000 on each appellant in respect of four breaches of the regulations and three failures to comply with the improvement notices. On the appellants’ appeal, the Upper Tribunal reduced the penalties to £99,000 for the first appellant and £75,000 for the second appellant in respect of the same breaches and failures: [2020] UKUT 90 (LC); [2020] PLSCS 53. The first appellant appealed. Held: The appeal was dismissed. (1) A tribunal’s decision as to what civil penalty it should impose for either a breach of the 2007 Regulations or failure to comply with an improvement notice involved both evaluation and discretion. An appellate court or tribunal was not entitled to overturn a penalty just because it thought it would have imposed a different one. To interfere, the court or tribunal had to conclude that the decision under appeal was an unreasonable one or was wrong because of an identifiable flaw in the judge’s reasoning, such as a gap in logic, a lack of consistency, or a failure to take account of some material factor, which undermined the cogency of the conclusion. (2) There was no rule that, when deciding what civil penalties to impose on a company and one or more of its directors under section 249A of the 2004 Act, a court or tribunal was bound to ask itself first what penalty the offence merited overall and then how that penalty should be apportioned. Equally, there was no rule as to how the penalty imposed on a company should relate to the penalty imposed on a director or directors. It all depended on the facts. On the other hand, it was necessary to beware of double punishment. An individual with an interest in a company might be worse off to the extent of some or all of a fine imposed on the company and a court had to have that in mind when deciding what, if any, fine to impose on the individual personally: R v Rollco Screw and Rivet Co Ltd and others [1999] 2 Cr App Rep (S) 436; R v Snaresbrook Crown Court, ex parte Patel [2000] COD 255 and R v Western Trading Ltd [2020] EWCA Crim 1234; [2020] PLSCS 174 considered. (3) The owner of a solvent one-man company might be expected to be the poorer by the total of the penalties imposed on himself and the company. In such a case, the penalty on the owner-director should not be determined without regard to that imposed on the company and appropriate adjustments should be made. Different considerations would arise if a director held only a proportion of the company’s shares or the company was insolvent. The extent to which a director-shareholder stood to be affected by a penalty imposed on the company depended on the size of his shareholding. Where the company was already insolvent, there might be no risk of double punishment: his shares being worthless, a director-shareholder should be no worse off as a result of a penalty on the company unless, say, it somehow served to increase his exposure on a guarantee he had given for company indebtedness. More difficult assessments might be called for where a company was of doubtful solvency or where penalties were also being imposed on other directors, who might themselves perhaps own shares. (4) In the present case, the Upper Tribunal was fully conscious of the danger of double punishment. The risk that a penalty imposed on the second appellant might go unpaid was something that could properly be taken into account because it bore on the potential for double punishment. Further, section 249A(4) of the 2004 Act stipulated that the “amount of a financial penalty imposed under this section… must not be more than £30,000”. There was thus a cap on the size of penalty that could be imposed on any particular person in respect of an offence. However, there was no bar on the aggregate of penalties imposed on two or more persons exceeding £30,000. The £30,000 cap related to the “financial penalty on a person” which could be imposed pursuant to section 249A(1). In principle, therefore, £30,000 penalties could be imposed on both a company and one or more of its directors. There was no good reason for the court to interfere with the conclusions which the tribunal reached on the evidence. It was evident that the tribunal paid proper regard to the need to avoid double punishment and it gave adequate reasons for the approach it adopted. The tribunal concluded that, taking account of the overlap between the circumstances of certain offences, and the fact that the first appellant might be penalised both in his individual capacity and in his capacity as a shareholder, the imposition of a significantly greater aggregate penalty on the first appellant properly reflected 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 another property and his greater ability to pay. In the court’s view, the penalties which the tribunal imposed could not be impugned. The appellant appeared in person; Marcus Croskell (instructed by NP Law) appeared for the respondent. Eileen O’Grady, barrister Click here to read a transcript of Sutton v Norwich City Council