England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ON APPEAL FROM THE DERBY COUNTY COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		12/02/2010

Mr Justice Tugendhat:

1. This appeal concerns the interpretation of the Housing Act 2004 ("the Act"), ss214-215. These sections are in Chapter 4 of the Act under the heading "Tenancy Deposit Schemes". A tenancy deposit scheme safeguards tenancy deposits paid in connection with shorthold tenancies. Landlords commonly require tenants to pay a deposit, as security for any damage that the tenant may do to the property. One purpose of the Act was to provide security to tenants, since in some cases landlords have failed to return the tenant's deposits at the end of tenancies in circumstances when they have no right to retain it. The Act requires, by s.213, that any tenancy deposit paid to a person in connection with a shorthold tenancy must, as for the time when it is received, be dealt with in accordance with an authorised scheme. At ss.214 and 215 the Act provides for proceedings which a tenant may take if the landlord fails to comply with the requirements of the Act, and for sanctions for non-compliance.
2. This an appeal from a decision of HHJ Lea ("the Judge") made on 24 August 2009. By an order dated 6 November 2009 the application for permission to appeal (and to do so out of time) was listed before this court as on oral hearing, with the substantive appeal to follow, if leave was given. On 25 January 2010 both parties were represented by counsel and prepared to argue the substantive appeal. At the start of the hearing I indicated that I wished to hear the substantive argument, and I gave permission to appeal and the extension of time necessary.

HOUSING ACT 2004

3. The Housing Act 2004 ("the 2004 Act") includes the following provisions relating to deposits:

"s212...

(9)     In this Chapter— (a)     references to a landlord or landlords in relation to any shorthold tenancy or tenancies include references to a person or persons acting on his or their behalf in relation to the tenancy or tenancies,…

S.213 Requirements relating to tenancy deposits

(1) Any tenancy deposit paid to a person in connection with a shorthold tenancy must, as from the time when it is received, be dealt with in accordance with an authorised scheme....

(3) Where a landlord receives a tenancy deposit in connection with a shorthold tenancy, the initial requirements of an authorised scheme must be complied with by the landlord in relation to the deposit within the period of 14 days beginning with the date on which it is received.

(4) For the purposes of this section "the initial requirements" of an authorised scheme are such requirements imposed by the scheme as fall to be complied with by a landlord on receiving such a tenancy deposit.

(5) A landlord who has received such a tenancy deposit must give the tenant and any relevant person such information relating to—

(a) the authorised scheme applying to the deposit,

(b) compliance by the landlord with the initial requirements of the scheme in relation to the deposit, and

(c) the operation of provisions of this Chapter in relation to the deposit,

as may be prescribed.

(6) The information required by subsection (5) must be given to the tenant and any relevant person—

(a) in the prescribed form or in a form substantially to the same effect, and

(b) within the period of 14 days beginning with the date on which the deposit is received by the landlord.


214 Proceedings relating to tenancy deposits

(1) Where a tenancy deposit has been paid in connection with a shorthold tenancy, the tenant … may make an application to a county court on the grounds—

(a) that the initial requirements of an authorised scheme (see section 213(4)) have not, or section 213(6)(a) has not, been complied with in relation to the deposit; …

(2) Subsections (3) and (4) apply if on such an application the court—

(a) is satisfied that those requirements have not, or section 213(6)(a) has not, been complied with in relation to the deposit, or

(b) is not satisfied that the deposit is being held in accordance with an authorised scheme,

as the case may be.

(3) The court must, as it thinks fit, either—

(a) order the person who appears to the court to be holding the deposit to repay it to the applicant, or

(b) order that person to pay the deposit into the designated account held by the scheme administrator under an authorised custodial scheme,

within the period of 14 days beginning with the date of the making of the order.

(4) The court must also order the landlord to pay to the applicant a sum of money equal to three times the amount of the deposit within the period of 14 days beginning with the date of the making of the order….

215 Sanctions for non-compliance

(1) If a tenancy deposit has been paid in connection with a shorthold tenancy, no [notice under section 21(1)(b) or (4)(a) of the Housing Act 1988] notice may be given in relation to the tenancy at a time when—

(a) the deposit is not being held in accordance with an authorised scheme, or

(b) the initial requirements of such a scheme (see section 213(4)) have not been complied with in relation to the deposit.

(2) If section 213(6) is not complied with in relation to a deposit given in connection with a shorthold tenancy, no [notice under section 21(1)(b) or (4)(a) of the Housing Act 1988] may be given in relation to the tenancy until such time as section 213(6)(a) is complied with.

(3) If any deposit given in connection with a shorthold tenancy could not be lawfully required as a result of section 213(7), no [notice under section 21(1)(b) or (4)(a) of the Housing Act 1988] may be given in relation to the tenancy until such time as the property in question is returned to the person by whom it was given as a deposit...."

4. The Housing Act 1988 ("the 1988 Act") s21 provides:

"21 Recovery of possession on expiry or termination of assured shorthold tenancy

(1) … on or after the coming to an end of an assured shorthold tenancy which was a fixed term tenancy, a court shall make an order for possession of the dwelling-house if it is satisfied—

(a) that the assured shorthold tenancy has come to an end and no further assured tenancy (whether shorthold or not) is for the time being in existence, other than an assured shorthold periodic tenancy (whether statutory or not); and

(b) the landlord or, in the case of joint landlords, at least one of them has given to the tenant not less than two months' notice in writing stating that he requires possession of the dwelling-house.

(2) A notice under paragraph (b) of subsection (1) above may be given before or on the day on which the tenancy comes to an end; and that subsection shall have effect notwithstanding that on the coming to an end of the fixed term tenancy a statutory periodic tenancy arises.

(3) Where a court makes an order for possession of a dwelling-house by virtue of subsection (1) above, any statutory periodic tenancy which has arisen on the coming to an end of the assured shorthold tenancy shall end (without further notice and regardless of the period) in accordance with section 5(1A).

(4) Without prejudice to any such right as is referred to in subsection (1) above, a court shall make an order for possession of a dwelling-house let on an assured shorthold tenancy which is a periodic tenancy if the court is satisfied—

(a) that the landlord or, in the case of joint landlords, at least one of them has given to the tenant a notice [in writing] stating that, after a date specified in the notice, being the last day of a period of the tenancy and not earlier than two months after the date the notice was given, possession of the dwelling-house is required by virtue of this section; and

(b) that the date specified in the notice under paragraph (a) above is not earlier than the earliest day on which, apart from section 5(1) above, the tenancy could be brought to an end by a notice to quit given by the landlord on the same date as the notice under paragraph (a) above..."

THE SCHEME

5. The Deposit Protection Service ("DPS") is a trading name of Computershare Investor Services plc. It administers a scheme ("the Scheme"), and is authorised to hold deposits, under the Housing Act 2004 s.213. Other schemes are insurance based, but the Scheme is custodial. The terms and conditions of the DPS as then in force included the following:

"9. Deposit Submission

a. The Landlord or Letting Agent is responsible for ensuring that Deposits are submitted for protection within 14 calendar days of the date of receipt by the Landlord. ...

d. The Landlord or Letting Agent is responsible for ensuring that the information contained on the Deposit Submission Form is full and correct.

e. The following information is a mandatory requirement on all Deposit Submission Forms: [there are 12 items of information relating to the landlord, the property and the tenant]...

f. Incomplete, illegible or unrecognisable Deposit Submission Forms will be rejected and payments returned to the sending landlord within 4 Business Days of receipt.

f. In the event that cheques are returned unpaid, The DPS will levy a fee of £25 which must be paid by the Landlord. Until this fee is paid, The DPS will not accept a Deposit from the Landlord."

THE FACTS

6. The facts of this claim were not in dispute. Witness statements had been filed but no oral evidence was called before the Judge.
7. On 28^th February 2008 the Claimants entered into an assured shorthold tenancy agreement with Derby Build Ltd ("the actual landlords") by which the Claimants was granted a 12 month tenancy of 69 Longlands Lane, Findern, Derby. The Defendant acted as letting agent for the actual landlords.
8. By clause 1.12 –1.13 of the agreement the Claimants was under an obligation to pay a deposit of £2,700 to the Defendant, who were to hold the deposit as stakeholder. Clause 4 of the agreement provided that the deposit was to be held as security for the performance by the Claimants of their obligations under the agreement, including to pay for any damage for which they might be liable. On the same day the deposit of £2,700 was paid to the Defendant by way of a debit or credit card, which was credited to the Defendant's account on 4^th March 2008.
9. It was common ground that this was a deposit which was required to be protected under the provisions of Chapter 4 of the Housing Act 2004.
10. On 19 May the deposit was registered and lodged with the DPS, and the Claimants were so informed on 21 May 2008. It follows that it was not until that date that the Claimants were given the information which a landlord is required by s.213 (5) and (6) to give to a tenant. Nothing turns on this additional failure.
11. By 19 May some two and half months had passed since the deposit had been received by the Defendant. The Judge was not concerned with why this delay had occurred, and neither am I. The explanation offered by the Defendant is that it was due to difficulties encountered when the present management of the Defendant took over the business.
12. Following correspondence, on 27 November 2008 these proceedings were commenced. By that time, of course, the deposit was protected and the information had been given. The issue in this case is what is the effect of the delay?
13. Two points were taken before the Judge. First, it was argued that by s.214(4) of the 2004 Act a claim under s.214 could only be brought against the person who was in fact the landlord (namely Derby Build Ltd in this case), and not against the letting agent. Second, it was argued that where the tenant commences a claim at a time when the deposit is in fact protected, albeit that it was not protected within 14 days after the landlord has received the deposit, no order may be made under s.214(4). The Judge rejected both arguments, and both are renewed on this appeal.

WAS THERE A BREACH OF s.213?

14. The Particulars of Claim identify the breach of, or failure to comply with, s213(3) as the fact that the Defendant did not transfer the deposit into the scheme within a period of 14 days beginning with the date on which it was received. Thus two elements are identified: first, the failure to transfer the deposit into the scheme and, second, the failure to do so within 14 days.
15. The Judge stated that it was conceded on behalf of the Defendant that there has been a breach of s.213 (3) in that the initial requirements of the scheme were not complied with.
16. Mr Browne did make an oral concession, but he submits that this was a misunderstanding. He states that it was a key point of the defence that the scheme does not impose any initial requirements upon those who choose to make use of it. All that it is required is for the deposit to be paid into the scheme. He concedes that payment was not made within 14 days (and that the prescribed information was not given within 14 days), but it was not conceded that there was a breach of the initial requirements of the scheme.
17. Mr Browne argues that it is necessary to go to the terms of the Scheme itself to see what, if any, initial requirements there may be. It is not s.213 (3) or (4) that imposes a requirement that the deposit must be lodged with the scheme within 14 days. Nor is that requirement to be found in the terms of the Scheme itself. He referred me to clause 9 cited above, and other clauses. The Judge made no finding on this point, because he had misunderstood the scope of what was conceded.
18. Mr Browne goes on to argue that there would be an absurdity if there were an initial requirement that the deposit be lodged with the Scheme within 14 days. The absurdity would arise under s.214(3), because s.214(3) envisages only two possible orders, either (a) repayment of the deposit to the applicant or (b) payment into the Scheme. Neither of those orders makes any sense if the deposit has in fact already been lodged with the Scheme.
19. Mr McNamara responds that it is hard to see what could be more fundamental a requirement than that the deposit be paid into the Scheme to safeguard the tenant's position.
20. Mr McNamara further submits that the requirement that this be done within 14 days is imposed by s.213(3).
21. I do not think that the Judge did misunderstand when he said that it was conceded that there had been a breach of the initial requirements of the scheme, but he may have misunderstood the scope of the concession.
22. The Judge went on in his judgment to consider whether there had been a breach. He held that s.213(1) provided that the deposit had to be dealt with in accordance with an authorised scheme "as from the time it was received" and that s.213(3) did impose a 14 day requirement. He did not at that point in his judgment identify the initial requirements of the Scheme. He did not do so, because in para 2g of his judgment he had identified the alleged failure as being "that the deposit was not transferred into DPS within 14 days of its receipt". In other words, he is stating that the initial requirements of the Scheme included both elements, namely the fact of transfer of the deposit, and the time limit of 14 days.
23. The 2004 Act s.213(3) imposes a 14 day requirement for compliance with the initial requirements of the scheme, but it does not identify the initial requirements of the Scheme. This is because the statute envisages that more than one type of scheme might be authorised: s212(1), (2). The DPS scheme is a custodial scheme, requiring deposits, but it does not follow that all authorised schemes must follow that model. An insurance based scheme would have a different requirement.
24. Clause 9 of the terms of the Scheme requires both that the deposit be "submitted for protection" and that that be done "within 14 calendar days of the date of receipt by the Landlord". The words 'initial requirements' do not appear in clause 9. But it is plain that that is what that clause contains. What is less clear is whether the initial requirement of the scheme is just the payment into the scheme, or whether the time limit of 14 days is also part of the initial requirement of the scheme.
25. Mr Browne submits that s.214(3) is in a form more demanding than might be expected, if the time limit is part of the initial requirement. Neither of the two orders envisaged in s214(3) explicitly addresses the situation here, namely that the deposit has been lodged with the Scheme late, but at a time before the court is about to make the order. The Claimants were aware of this possible argument, and they do not ask for an order under s.214(3) in the present case. The reason given in evidence is that, although the Claimants claim to be entitled to repayment under s.214(3)(a), they "recognise that the Defendant is entitled to withhold the Deposit during the period of the tenancy".
26. It is this situation that Mr Browne submitted to be absurd. I think that is putting it too high. If the time limit is part of the initial requirement, then a possible construction of s.214(3) may be that a landlord who is in breach of s.213(3) forfeits the right to retain a deposit at all. That would certainly be harsh, but it is not absurd.
27. Since s.214(3) states that the court "must" make "either" an order under s214(3)(a) "or" an order under s214(3)(b), it might be expected that a tenant would claim that one or other of those alternatives is mandatory, and that the court cannot avoid them by the fact that the tenant happens not to make the claim under s.214(3). In other respects the Claimants do not shrink from submitting that the effect of the legislation upon landlords is harsh. The Judge called it draconian.
28. I remind myself of the definition in s.213(4): " "the initial requirements" of an authorised scheme are such requirements imposed by the scheme as fall to be complied with by a landlord on receiving such a tenancy deposit".
29. In my judgment, the requirement that there be payment into the Scheme is the initial requirement of the Scheme, and not the requirement that that be done within 14 days. The time limit of 14 days is a requirement of s.213(3). That requirement is repeated in the scheme, but so are a number of other provisions of the 2004 Act. The fact that the time limit is repeated in the terms of the Scheme does not make it an initial requirement of the Scheme.
30. It follows that in my judgment there was in this case a breach of s.213 during the period in which the deposit was not lodged with the Scheme.

THE MEANING OF "LANDLORD" IN s.214(4)

31. The argument for the Defendant is that the definition in s.212(9) does not apply to s.214(4). The Judge rejected that, saying that s.212(9) was clear in its terms and applied to s.214(4). He noted that on the facts of this case it was agreed that it was the Defendant, the letting agent, which received the payment of the deposit, and it was the Defendant that failed to comply with the requirement of s.213(3). He also observed that if the argument of the Defendant were correct, the result would be that the tenant would sue the actual landlord, who would then have to join the letting agent in the proceedings. The effect of s.219(9) is that the tenant can claim directly against the person responsible.
32. For the Defendant it is submitted that that cannot be the true construction of s.214(4). Mr Browne submits that in s.214(3)(a) the 2004 Act provides that the court may order "the person who appears to the court to be holding the deposit to repay it to the applicant". He submits that that makes clear that the order may be made against a person other than the actual landlord. But that provision would be otiose, he submits, if the word landlord in s.214 included the letting agent, since the person holding the deposit would be "a person or persons acting on … behalf [of the actual landlord] in relation to the tenancy".
33. Further, Mr Browne submits that if it were the intention of the legislature that an order under s.214(4) could be made against a letting agent as well as against an actual landlord, it is to be expected that there would appear in that subsection also the words "the person who appears to the court to be holding the deposit".
34. Further, Mr Browne submits that if the interpretation accepted by the Judge is correct, then an order under s.214(4) may be made against an agent even if his only role was to advertise the property and to introduce the tenant, and the deposit was received by the actual landlord and not by the tenant. This would be manifestly unjust.
35. Mr Browne submits that his suggested interpretation of s.214 is consistent with the general principle of statutory interpretation that the economic interests of a person should not be taken away except under clear authority of law (the presumption against doubtful penalisation). Mr Browne also refers to material in Hansard as an aid to construction.
36. For the Defendant Mr McNamara submits that s.212(9) is clear and unambiguous, as the Judge held. In the present case the court is concerned with an agent who did in fact receive payment of the deposit.
37. In my judgment the Judge was clearly correct on this issue. The words of s.212(9) are clear and unambiguous, and there can be no occasion to look at Hansard or to any other extraneous material to interpret s.214.
38. In my view the words in s.214(3)(a) "the person who appears to the court to be holding the deposit" are not otiose. Rather, those words limit the scope of any possible order under s.214(3)(a) to the person holding the deposit, and prevent such an order being made against any other person who would come within the statutory definition of the landlord – for example a letting agent who, at the time of the making of the court order, was not holding the deposit.
39. No such limitation would be appropriate in s.214(4). Unlike s. 214(3), which is an order for restitution made against the holder of the deposit, s.214(4) is penal, as Mr Browne points out. There is no reason why the penalty should be imposed on the person who, at the time the court order is made, happens to be holding the deposit. The penalty should be imposed on a person who is responsible for the failure to comply with s.213. In the present case that is the Defendant, and not the actual landlord (assuming, at this stage, that there has been a non-compliance which attracts an order under s.214(4)).
40. I am not concerned with how the court would approach a case where the deposit was received by the actual landlord, and any non-compliance with s.213 was by the actual landlord, but proceedings were brought against the agent. It may well be that the court would then not make an order against the agent, possibly having regard either to the principle referred to by Mr Browne, or to ECHR First Protocol, art 1. But I make no decision about that.

CAN AN ORDER UNDER s.214(4) BE MADE ONCE THE DEPOSIT HAS BEEN LODGED WITH THE SCHEME?

41. The submission for the Defendant was that where the landlord or agent protects the deposit outside the 14 day period from receipt, but before a claim is issued by the tenant, the tenant is no longer entitled to an order under s.214(4).
42. The Judge observed that if this argument is correct, then it follows that an unscrupulous landlord or letting agent could hold onto the deposit and deal with it however he wished outside the scheme in clear breach of s.213(3) without sanction, provided that once proceedings were threatened the deposit was paid into a protected scheme. He considered that this would "drive a coach and horses" through the Act, by which I understand him to mean that such an interpretation would defeat the legislative purpose, and so cannot be right.
43. Mr Browne accepted that an unscrupulous landlord could, on his interpretation, hold on to the deposit until proceedings were brought. If that is what the landlord did, but after the tenant commenced proceedings the landlord then paid the deposit into the scheme before an order was made under s.214(3), the sanction would be an order that he pay the costs of the proceedings, but no more. If he obdurately continued to hold on to the deposit after the tenant had commenced proceedings, so that an order could be made under s.214(3), then an order under s.214(4) could be made, but not otherwise.
44. But Mr Browne submitted that an interpretation of the 2004 Act with that consequence is preferable to an interpretation which gives rise to the harsh consequences for the landlord that would follow from the interpretation of Mr McNamara, which the Judge accepted. He referred to the presumption against doubtful penalisation, and what he submits is the disproportion between the severity of an order under s.214(4) and what might be no more than a brief and insignificant failure to submit the deposit for protection within 14 days.
45. In order to demonstrate quite how harsh the consequences can be for the landlord on the Claimants' interpretation, Mr Browne turned to s.215.
46. The wording of s.214(2) and of s.215(1) is similar. By s.214(2)(a) an order under s.214(3) and (4) is triggered if the court "is satisfied that [the initial] requirements [of an authorised scheme] have not… been complied with in relation to the deposit". By s.215(1)(b) no notice under s.21 of the 1988 Act may be given "at a time when … the initial requirements of [an authorised] scheme have not been complied with in relation to the deposit".
47. Mr Browne submits that if the initial requirements of a scheme include the 14 day time limit, and this has not been complied with, then the initial requirement of the scheme can never be complied with after the 14 days have expired. It would follow that a notice under s.21 of the 1988 Act could never be given, even if the deposit has been submitted for protection after the 14 days. The effect would be to convert the assured shorthold tenancy into a fully assured tenancy with perpetual security of tenure.
48. Further, Mr Browne refers to tenancies which do not start as tenancies protected by the 1988 Act, but later fall within its provisions (due for example to a fall in the rent payable to below £25,000 per annum, or on the death of the resident landlord). He submits that in such cases deposits would have been taken and not protected long before the tenancy fell into the protection of the 1988 Act, and thus within Chapter 4 of the 2004 Act. He submits that the effect of the Claimants' interpretation is that the landlord would be in immediate and irreparable default, with the consequences set out in the previous paragraph.
49. The present case does not concern s.215, and I make no decision as to the meaning of s.215. Mr McNamara made submissions on the wording of that section which I do not need to set out.
50. Mr McNamara submits that the legislative purpose of the 2004 Act was to revolutionise the retention of deposits and punish those who failed to act in accordance with its terms. He supports the reasoning of the Judge. He accepts that the implication is that if the landlord is one day late his breach is irremediable.
51. There is certainly force in the argument, accepted by the Judge, that the effect of the Act is weaker if, on a tenant's application under s.214(1), a landlord is at risk of no more than an order for costs if he omits to lodge the deposit with the scheme until after the application has been made.
52. But as Mr Browne has pointed out, s.214 is not the only provision for sanctions for non-compliance. The section actually headed "Sanctions for non-compliance" is s.215. It would seem that on any view, so long as the landlord has not lodged the deposit with the scheme, he cannot recover possession under s.21 of the 1988 Act.
53. Moreover, on Mr Browne's interpretation, s.214(4) serves a useful purpose. If it were not there, a landlord could wait until the court made an order under s.214(3) before returning the deposit or paying it into the scheme (depending upon which of the two possible orders the court made). The effect of s.214(4) is to provide a strong incentive to the landlord to act as soon as proceedings are started, if he has not acted before.
54. The outcome of this appeal turns on whether the 14 day requirement is, or is not, a part of the initial requirements of an authorised scheme. If it is not, then when the deposit is paid into the scheme later than 14 days from its receipt by the landlord, but before the tenant commences proceedings, then the court cannot be satisfied under s.214(2)(a), and therefore the court will not be able to make an order under s.214(3) or (4).
55. If, in order to give any effect to Chapter 4 of the 2004 Act, it were necessary for s.214(4) to apply in such case, then it might be possible to interpret s.214 so that the 14 day time requirement is to be considered a part of the initial requirements of the scheme. But I think that would be a strained interpretation, and I do not think it is necessary in order for Chapter 4 of the 2004 Act to have effect. Chapter 4 has effect, in that so long as the deposit is not paid, the landlord cannot recover possession. Of course, if it is the tenant who wants to give up possession and recover his deposit, that sanction is nullified. But that does not mean that, on the interpretation that I would give to the ss.213 and 214, there is no sanction.
56. For these reasons I allow the appeal.