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Civil Penalty Notice - Upper Tribunal Guidance on the Approach to Calculating the Amount of Penalty


Trinity Housing barristers have recently delivered a series of webinars dealing with the Appeals process in the First Tier Tribunal (FTT), looking at the procedure in bringing an appeal, Licensing of Houses in Multiple Occupation (HMOs), Improvement Notices and Civil Penalty Notices. Alice Richardson and Vilma Vodanovic dealt specifically with the latter.

Vilma now further examines how the penalties are calculated by looking at useful guidance from the Upper Tribunal (UT) handed down on 8th June 2020 in the case of AA HOMES & HOUSING LTD (2) ANABOW SERVICES LIMITED v LONDON BOROUGH OF CROYDON [2020] UKUT 0181 (LC). 

This year there have already been two decisions from the UT (London Borough of Waltham Forest v Marshall [2020] UKUT 35 (LC)and Sutton v Norwich City Council [2020] UKUT 90 (LC))about the status of the Government guidance (Ministry of Housing, Communities and Local Government: Civil Penalties under the Housing and Planning Act 2016, Guidance for Local Housing Authorities) and local authorities’ own policies on calculating civil penalties and how the FTT should approach them.

This appeal on the other hand raised an issue of the local authority not applying its own policy correctly.

The facts:

A1 (AA Homes & Housing Ltd) owned a block of 54 residential flats of which flat 39 was one. A2 (Anabow Services Ltd) managed the flats for A1. Flat 39 was let to Mr Watson and he paid rent of £900 per month. After a referral from the Fire Brigade, R (LB of Croydon) inspected the block of flats and found that there were 36 flats that should have been licensed, flat 39 being one of them. There were also a number of fire hazards found in the common parts of the building and in relation to flat 39. An Improvement Notice was served in respect of these in October 2017. Shortly before that, A1 applied for a licence of flat 39. It was not properly made though, in that the date of the tenancy was mis-stated as having only just begun, apparently in order to obtain a discount. Eventually the details were set right and a licence was issued and back-dated to the date of application in September 2017; so the property was unlicensed for some five months. In February 2018 R served notices of intention to issue financial penalties: £26,000 in respect of A1, and £12,000 in respect of A2. Final notices in April 2018 confirmed those amounts.

The Guidance mentioned above tells us how the penalties are to be calculated in terms of what factors are to be taken into account. R had its own policy incorporating those factors, and it had its own method of calculating the penalty with a points scoring system which then translated through a matrix into a total score equivalent to a fine level.

Summary of R’s considerations in relation to A1:

Stage 1: 9 points

Culpability and harm: high

  • failure to apply for a licence prior to the start of the tenancy agreement despite being aware of the scheme
  • inaccurate information being given once the application was made
  • slow progress and risk was taken.

Impact on the tenant and wider environment: high

  • the property inspections found some issues with the fire precautions and risk assessment of the whole block
  • failure to license undermined the whole licensing scheme
  • not licensing a property meant that all parties would not benefit from the requirements imposed by the conditions.                       

Stage 2: 3 points

Aggravating features:

  • failure to license 36 flats in the block
  • the length of time for which Flat 39 had been unlicensed (5 months)
  • errors in the application (these were deliberate)

Stage 3: 0

Mitigating features:

  • the applicants’ endeavours to put a better system in place but not that substantial         

Stage 4: initially 0 but then 1 point

Penalty review:

  • a further point was added to the overall total to reflect the wider non-compliance and the actual rental income.

Stage 5: 2 points

Totality:

  • 2 points were added for totality because so many flats were unlicensed.

Total: 15 points

A2’s decision involved a similar process with the total points being 10 and hence the lower penalty.

Both As appealed to the FTT.

FTT decision:

A1 - reduced penalty to £20,000

A2 - stayed the same at £12,000

Looking at the stages above, in relation to A1, this is what the FTT decided:

Stage 1: 12 points (increased R’s 9 points)

Culpability and harm: Significant harm rather than high  because there were significant fire issues at the property.

(These fire issues were in fact as follows: multiple fire safety failings of a serious nature including the front door at the base of the single staircase being locked, a single staircase with no ventilation, very high fire loading in the basement with a single door that did not close properly, and a vertical open void running the height of the building)

State 2: 0 points

No points were added for aggravating features because it was felt that this was double counting.

Stage 3:

Nothing was deducted for mitigation, in the absence of any evidence from the appellants who did not give evidence. There was some correspondence from them about what steps they planned but they were deemed to be “somewhat unsubstantial”, with no timeframe or proper plan for change.

Stage 4: 1 point

This remained the same.

Stage 5: 0 points

No adjustment was made for totality at stage 5, because there was only one offence, and the respondent’s policy indicates that an adjustment for totality is relevant where the respondent is imposing a number of penalties (and not as an alternative to imposing penalties in respect of other offences), which is of course how the criminal courts approach totality. It is not the same as taking into consideration offences that have not been prosecuted.

Total: 13 points which resulted in £20,000.

As for A2, the penalty was left untouched.

Appeal to the Upper Tribunal

These are the grounds on which the FTT gave permission to appeal on a point of law:

1) It is arguable that the tribunal, in coming to its conclusions, wrongly gave (undue) weight to the issue of the fire risk at the building.

2) It is arguable that the tribunal took account of irrelevant matters or failed to give due weight to other evidence before it.

3) It is arguable that the tribunal erred in not applying its reasoning in respect of A1 to the Financial Penalty imposed in respect of A2.

4) This is a relatively new jurisdiction for the tribunal. There may be a wider public interest in the Upper Tribunal considering the tribunal’s approach to Financial Penalties in these circumstances.

Ground 1:

In a nutshell, this ground dealt with the fact that the CPN was imposed for a failure to license, not for the failure to remedy the fire risk hazards in Flat 39 or indeed the common parts of the building. The criticism was that there was an overemphasis on fire hazards which is not what As were being penalised for.

All the fire risk issues which had been identified  related to the common parts of the building, with one exception that does relate to Flat 39, namely that it is said that the tenant of Flat 39 was not aware of the fire evacuation plan for the building. And even then, that last point was not caused by the failure to license.

The UT decided: 

50. The fire hazards in the building could have had a serious impact on many people. But I agree with the appellants that it was not caused by the failure to obtain a licence. Nor is it appropriate for the respondent to take a holistic approachto matters of criminal liability; there is no suggestion of such an approach in the policy. And that is as one would expect; the starting point and the primary measure of the penalty must be the harm caused by this offence and not by another one which falls to be punished by a different process or under different provisions.

51. The FTT was understandably very concerned about the evidence of fire hazards, but it made a leap it should not have taken by making it a major factor in its assessment of harm. The FTTs decision therefore to move the assessment of harm up so that stage 1 yielded 12 points was wrong, and was so far wrong as to amount to an error of law. The appeal succeeds on this ground.

52. That said, I would have no hesitation in regarding the fire hazards as an aggravating factor just as, in sentencing in the criminal courts, other offences may be an aggravating factor. Similarly the efforts made by the appellants to set matters right would be a mitigating factor; in choosing not to give evidence the appellants did themselves no favours on this point and it may be that on a re-hearing the fire hazards, and the efforts made to remedy them, can be given consideration at the proper stage of the assessment.(my emphasis)

Ground 2:

This ground encompassed a number of factors that were given undue weight or some that were given none at all.

Inadequate evidence for the assessment of culpability

R assessed As culpability as high; As said it was no more than moderate.

The UT decided as follows:

56. I agree that there is little explanation of the FTTs assessment of culpability. But the FTT had to do the best it could with the little that the appellants seem to have offered. No evidence was given by its officers. When an application was made for a licence in September 2017 the date of the commencement of the tenancy was mis-stated. The first appellant is the owner of a property that cost £1.7 million and contains 54 residential flats. A plea of incompetence from a landlord with means on that scale and with a large portfolio of properties (albeit in a single building) is not convincing. The FTT was entitled to draw inferences from the material before it and it cannot be said to have erred or to have been irrational on this point.(my emphasis)

Undue weight placed on the impact on regulation

In assessing the penalty, R took into account the impact on the licensing scheme as a whole. As argue that there were no grounds for this because one third of the block was licensed correctly.

The UT did not think that the As had anything to be proud of in that situation where only a third of the flats in the building was correctly licensed. But, it was not clear that the FTT took this factor into account at all.

Failure to take into account documentary evidence relevant to mitigation

This was a point raised about the FTT not affording sufficient weight to documentary evidence because there was no live evidence given by As, especially in relation to fire safety measures put in place at the property in response to the Improvement Notice issued in October 2017.

But As were in some difficulty on this ground because they made no witness statement introducing the correspondence or indicating reliance on the documentary evidence and then did not attend the hearing for cross-examination. In those circumstances, it is difficult to see how the FTT could have placed much weight on that documentary evidence.

Failure to take into account other matters of mitigation

As argued that they engaged and co-operated with R and that was a mitigating feature. They generally complied with their obligations under the licensing scheme and there were failings in R’s system which meant that it was difficult to get answers to queries.

The UT’s view on this was as follows:

62. I do not think that anything of further substance is revealed by these points. I do not know what general compliance” means, in the light of the level of failure to license so many of the flats in the building. Again, the appellants did not give evidence and all the FTT had was counsels submissions. So these points do not amount to a successful ground of appeal; it may be that at a re-hearing the appellants may be able to offer more assistance to the FTT and to provide evidence on the basis of which the FTT may be able to see further matters of mitigation.

Evidence of means

As gave no evidence of their means and this was stated by the FTT in their decision.

It did not lead anywhere as a ground of appeal as the UT made clear:

64. I do not see any indication in the FTTs decision that the level of penalty for either appellant was influenced by their not giving evidence of their means. It would appear that the point was mentioned simply to confirm that there was no issue about ability to pay and no need to consider a reduction on that basis. So this point does not take matters any further.

Ground 3:

The third ground arises from the brevity of the consideration given to the penalty to be imposed upon A2. The UT agreed with this ground as it could not understand the FTT’s reasoning, so the appeal was allowed for there to be a re-consideration by the FTT.

As were successful on grounds 1 and 3, so the matter was remitted to the FTT for a re-hearing.

Comment:

Ground 1 reveals the error of law and provides the most useful guidance. The FTT should have looked at the fire hazards in the property as an aggravating feature only. The fact that these fire hazards existed was not to be the starting point when assessing the level of culpability and harm under stage 1 of the process. The harm caused by the offence being punished should be the starting point, so in this case the failure to license.

Ground 2 was not successful but in its discussion, it did reveal a point of practical importance. Where appellants choose not to give evidence, there are two matters to be borne in mind: firstly, care should be taken over how the evidence is presented and exhibited so that it can properly be taken into account and the FTT can place reliance on it; and secondly, inferences will be drawn against those appellants who choose not to appear at the hearing for the purposes of cross-examination. 

Ground 3 revealed no point of principle; rather it was a failure by the FTT to give adequate reasons and consider the position regarding A2 more fully.

There are two further points to take away from looking at the FTT decision as to the failures by R to apply its own policy, even though these did not form part of the grounds of appeal:

  1. The FTT found that there was double counting by R when they added 3 points under Stage 2 for aggravating features, so these were removed on appeal by the FTT. Some of the points listed by R were certainly more pertinent to stage 1. The interesting one is the issue of A1 making a deliberate mistake in the application process in order to obtain a discount. I can see how this could be relevant perhaps to culpability, but I can also see an argument for saying that this was indeed an aggravating feature.
  2. The meaning of ‘totality’ of offences (considered at stage 5): R took into account that there were 35 other properties that were unlicensed in the block and added 2 points to the overall score. The FTT removed these because it considered that these were not the offences for which the CPN had been imposed - there was only one offence in fact in respect of flat 39.

Vilma is a recognised specialist in Housing Law in the North East and across the North, with a client base that includes most major housing associations and local authorities. She also acts for tenants and private landlords in housing related matters. In January 2019, Vilma was appointed to the First-Tier Tribunal as a Fee-paid Tribunal Judge.

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