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

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
IN THE MATTER OF AN APPEAL
FROM THE COUNTY COURT AT CENTRAL LONDON

		Royal Courts of Justice Strand, London, WC2A 2LL
		04/08/2017

Mr Justice Turner :

INTRODUCTION

1. The respondents live at 23 Maidstone House, Carmen Street, London, E14 ("the flat") which they occupy as tenants under a lease granted by the appellant. On 4 February 2016, the appellant brought a claim against them seeking a possession order alleging that they had acted in breach of several terms of the lease. This claim was heard by Mr Recorder Wilson QC who, on 5 April 2017, granted a suspended order for possession. The appellant challenges this decision by way of appeal to this court on the ground that the Recorder ought to have made an order for outright possession. An issue also arises as to whether the Recorder was right to refuse to make an Unlawful Profit Order in the appellant's favour under section 5 of the Prevention of Social Housing Fraud Act 2013.

THE BACKGROUND

2. The appellant is a Registered Provider of Social Housing. It works with the local housing authority to provide affordable housing to those unable to obtain accommodation in the open market. I pause to note that there is a very long waiting list indeed for such accommodation and that those who secure it should be expected to be slow to abuse the benefits and advantages which it brings.
3. The flat in question has two bedrooms and can be found on the fifth floor of a block of similar flats. The tenancy, which began on 27 October 2014 was an assured shorthold 'starter' tenancy which, after a period of 12 months, became a fully assured tenancy within the meaning of Part I of the Housing Act 1988. At all material times, the respondents received Housing Benefit which covered the rent for the flat in full.
4. The following were relevant terms of the lease:

i) By clause 4.1: the respondents agreed that they would live at the flat as their only or principal home.

ii) By clause 4.2: they were prohibited from sub-letting all of the flat.

iii) By clause 4.3: they enjoyed the right to take in a lodger or sub-let part of the flat, albeit only with the appellant's prior written permission.

iv) By clause 6.1: they covenanted to pay the rent every Monday in advance.

v) By clause 9.1: they covenanted not to use the flat for any criminal, immoral or illegal purpose.

5. On 21 August 2015, the appellant received an email from a local informant alleging that the respondents were sub-letting the flat. After carrying out a series of credit searches, the appellant discovered that the first respondent had financial links to another of the appellant's properties at 33 Farrance Street, London, E14, which, by no coincidence, turned out to be her mother's home.
6. Shortly afterwards, on 6 November 2015, the appellant referred the case to the Council's fraud investigation team. Thereafter, the Council and the appellant planned, for obvious reasons, to conduct a joint and simultaneous inspection of the flat and of 33 Farrance Street to find out what was going on. These inspections duly took place on the morning of 12 November 2015. The officers were accompanied, as it happens, by a camera crew filming a documentary for the BBC. Viewers were not to be disappointed by what was revealed.
7. As the informant's email had predicted, the respondents were not found at their own flat. They were, however, discovered to be at the first respondent's mother's home at 33 Farrance Street together with their two children. The respondents admitted at that stage, although they were to deny it later, that they were living at Farrance Street and had allowed others to occupy their own flat. This was a rare but ephemeral and uncharacteristic display of honesty on the part of the respondents which they were later quick to regret and to correct. The second respondent, however, soon reverted to his baser instincts and began to behave so aggressively towards the investigating officer that the police had to be called.
8. At the same time, two officers of the appellant visited the respondents' flat. There they found one Ms Jannatul Rehana and one Mr Jahed Ahmed who, under caution, admitted occupying the flat from about August 2015 and paying a monthly rent of £400 to the respondents for the privilege. At the time of the visit, they were sleeping in the flat's first bedroom but did not have access to the second bedroom which was padlocked shut. They said that the room, which contained toys and a cot, was kept locked in order, if necessary, to give the misleading impression that the respondents and their children were occupying the flat in the event that the premises were ever inspected.
9. Not long afterwards, the second respondent arrived at the flat. In an obvious and farcically clumsy attempt to cover his tracks he demanded that Ms Rehana and Mr Ahmed should leave. He promptly took the keys to the flat from them and purported to evict them. In a telephone conversation with Ms Rehana later the same day he threatened to burn their clothes.
10. Later the same morning, the second respondent returned to 33 Farrance Street following upon his confected confrontation with Ms Rehana and Mr Ahmed. Upon his arrival, the police arrested both him and the first respondent for unlawfully sub-letting the flat and other related offences. In interview under caution, the first respondent lied stating that she had merely stayed at 33 Farrance Street over the night before to look after her brother who was suffering from a serious medical condition. The second respondent gave a 'no comment' interview. When the tape stopped, however, he laughed, saying, "We'll see who laughs last when the case goes to court" and that, in common with other cases against him with which the police had not proceeded, he would "get away with this too."
11. On 18 January 2016, the appellant served the respondents with notice of its intention to seek possession of the flat on Grounds 10, 12 and 14 of Schedule 2 to the Housing Act 1988. The court issued the appellant's claim for possession of the flat on 4 February 2016 and it was ultimately listed for trial on 12 and 13 October 2016.
12. One might be forgiven for thinking that, in the light of these developments, the second respondent, despite his display of smug bravado at the police station, might have been careful not to push his ill-deserved luck too much further. However, his complacent and unfounded belief in his immunity from the consequences of his own criminality was soon exposed yet again when, on 20 May 2016, the police executed a search warrant at the flat and found the second respondent to be in possession of cannabis. They also found drug dealing paraphernalia including: scales, plastic dealing bags, SIM cards and cash. The second respondent was arrested on suspicion of possessing a Class B drug with intent to supply. On that occasion, he was aggressive and abusive towards the officers, using the vilest of language and threatening to get a friend to "sort them out". In the event, in a procedural development not unknown in the criminal courts, the second defendant pleaded guilty to simple possession and was fined. It is in this context that I note in passing, although I do not hold it against the second respondent, that his counsel struggled readily to explain to me what legitimate use his client could have had for the scales and the dealing bags.
13. On 12 October 2016, the claim came before the Recorder who read the trial bundle which included the parties' statements of case and evidence. He went on to hear evidence from the officers who investigated the respondents, from the respondents themselves and from the first respondent's mother and brother.
14. The appellant claimed that it was entitled to possession because the respondents had in effect parted with possession of the whole of the flat. As a result, by s.15A of the Housing Act 1988, they had lost security of tenure and, following expiry of the notice to quit, had lost any right to occupy the flat. The appellant lost this argument primarily on the basis that, by keeping the second bedroom locked, the respondents had not granted exclusive possession to Ms Rehana and Mr Ahmed. This finding is not the subject of an appeal to this Court, although I pause to note that it is not without irony that the only part of the flat which the respondents kept under their control was the unoccupied bedroom full of toys to be deployed in the manner of a Potemkin village with which to deceive the appellants.
15. The appellant argued in the alternative that, even if the respondents had not lost security, they were able, in the alternative, to obtain possession of the flat on Grounds 10, 12 and/or 14 of Schedule 2 to the Housing Act 1988 and that it was reasonable, in the circumstances, for the Court to make an outright order. It contended that the respondents' tenancy breaches were too serious to justify a suspended order and there was no cogent evidence before the court to the effect that their dishonest behaviour would not recur.
16. The appellant also applied for an Unlawful Profit Order ('UPO'), under section 5 of the Prevention of Social Housing Fraud Act 2013, requiring the respondents to pay it the net proceeds of parting with possession of the flat or sub-letting or parting with possession of part of it.
17. The respondents' case was that they had merely permitted distant relatives, Ms Rehana and Mr Ahmed, to stay at the flat with them temporarily and had not received any money from them for their occupation. They denied that they had stopped occupying the flat as their only or principal home or that they had sub-let or parted with possession of any part of it. They even denied that they had previously admitted that they had done so. More particularly, they asserted that, by a most unhappy coincidence, they had merely left the flat for 33 Farrance Street at about 4am on the morning of the day of the simultaneous inspections because the first respondent was required to tend to her brother who suffers from a serious medical condition. They had taken their children with them. They had padlocked the door to the second bedroom as they left in order, in part, to keep the room sterile. Upon leaving, they had informed Ms Rehana and Mr Ahmed that they could sleep in their bed, instead of in the living room. While admitting a small amount of rent arrears, they denied that the appellant was entitled to possession, whether by its notice to quit or on statutory Grounds 10, 12 or 14.
18. Having heard submissions, the Recorder reserved judgment which he thereafter delivered on 3 April 2017.
19. Unsurprisingly, he did not accept the elaborate farrago of lies which the respondents had told in their barefaced attempt to cover up their obvious fraud. The appellant asks this court to conclude from the Recorder's judgment, and I do, that the following had been established to his satisfaction:

i) The respondents and their children had moved out of the flat in early August 2015 to live with the first respondent's mother at 33 Farrance Street. In doing so, they had stopped occupying the flat as their only or principal home and had thereby breached clause 4.1 of their tenancy agreement.

ii) Contrary to the respondents' repeated denials, Ms Rehana and Mr Ahmed had in fact paid the respondents £400 per month to live at the flat. The respondents had sub-let part of the flat to them and had thereby breached clause 4.3 of their tenancy agreement.

iii) Their tale that they had left the flat in the middle of the night telling Ms Rehana and Mr Ahmed as they left that they could sleep in the family bed was as mendacious as it was absurd.

iv) The respondents had deliberately kept the locked second bedroom at the flat containing toys and a cot as camouflage to deceive the appellant into believing, in the event of an inspection, that they and their children were still living at the flat.

v) They had let out a home which ought to have been available to accommodate one of over 4,000 families on the housing waiting list many of whom were vulnerable and/or living in unsatisfactory and overcrowded accommodation.

vi) The respondents and each of the family members who gave evidence in support of them including the first respondent's mother and brothers had perjured themselves before the Court. Indeed, the respondents had lied under caution, verified false witness statements and, subsequently, lied under oath. These lies had the inevitable effect of putting the appellant to the considerable, and probably irrecoverable, expense of protracted litigation.

vii) In consequence, neither of the respondents offered the court any explanation for their conduct nor had they expressed any remorse for it. (Indeed, I gave the respondents the opportunity to come clean during the hearing of the appeal but they chose to remain mute.)

viii) To this catalogue of fraud and deception must be added the second respondent's threats and aggression towards the investigating officer and his blustering, brazen, hostile and unlawful eviction of Ms Rehana and Mr Ahmed.

ix) Notwithstanding the obvious precariousness of his position, the second respondent subsequently resorted to using the flat as a base from which to further his interest in illegal drugs.

x) Last, and probably least, the respondents were, at material times, in arrears with their rent.

20. In his judgment, the Recorder dismissed the appellant's primary claim for possession of the flat upon finding that the respondents had not parted with possession of the whole of it and had, therefore, retained security of tenure. He allowed the alternative claim for possession but, in the exercise of his discretion under section 9 of the Housing Act 1988, suspended enforcement of the possession order. He made no order in the claim for a UPO.
21. The appellant now contends that the exercise of the Recorder's discretion was seriously flawed and that his decision to make the last two of these orders was plainly wrong. Accordingly, it is argued, this Court should, in the exercise of its own discretion, make an outright possession order in lieu of the second and a UPO in lieu of the third. The appellant does not appeal against the first.

THE STATUTORY FRAMEWORK

22. Assured tenancies are regulated by Part I of the Housing Act 1988, under the provisions of which, in broad terms, an agreement under which dwelling-house is let as a separate dwelling is an assured tenancy so long as the tenant occupies the dwelling-house as his only or principal home.
23. By section 15 of the 1988 Act, it is a term of every assured, periodic tenancy, with limited exceptions which are immaterial for present purposes, that the tenant shall not, without the landlord's consent, assign the tenancy (in whole or in part), or sublet or part with possession of the whole or any part of the dwelling-house.
24. By section 15A of the 1988 Act, if, in breach of an express or implied term of the tenancy, an assured tenant parts with possession of the dwelling house, or sublets the whole of the dwelling house, the tenancy ceases to be an assured tenancy and cannot subsequently become assured. In that case, the tenancy may be terminated by the service of a notice to quit.
25. By section 5 of the 1988 Act, however, a periodic, assured tenancy cannot be brought to an end by the landlord except by obtaining a court order in accordance with Chapter I of Part I. Further, by section 7, the court may not make an order for possession of such a dwelling-house except on one or more of the grounds to be found in Schedule 2 to the 1988 Act.
26. Part I of Schedule 2 sets out the grounds on which a court must order possession if the ground is established ('mandatory grounds'). Part II sets out the grounds on which a court may order possession if the ground is established and the court considers it reasonable to do so ('discretionary grounds'). The grounds on which the appellant relies on this appeal (Grounds 10, 12 and 14) are all discretionary. Before making a possession order, therefore, the Recorder had to be satisfied that it was reasonable, in all the circumstances, to make the order.
27. The Recorder had, therefore, a discretion to make or decline to make an order. Under section 9 of the 1988 Act, he had a similar discretion to make an order outright to postpone the date for possession or to suspend enforcement of the order on terms. Neither discretion was, however, unfettered. Over the years, the Court of Appeal has given guidance about the exercise of the court's discretion under sections 7 and 9 of the 1988 Act, their equivalent under sections 84 and 85 of the Housing Act 1985 and more generally with respect to similar historical statutory provisions.

CRIMINAL OFFENCES

28. Section 2 of the Prevention of Social Housing Fraud Act 2013 creates two criminal offences relating to unlawful sub-letting in the context of assured tenancies.
29. The possession of a controlled drug such as cannabis is a criminal offence under section 5 of the misuse of Drugs Act 1971.

THE CASE LAW

30. In Cumming v Danson [1942] 2 All ER 653 the Court held that: "in considering whether it is reasonable to make an order for possession, the duty of the judge is to take into account all relevant circumstances as they exist at the date of the hearing… in a broad common sense way… giving weight as he thinks right to the various factors in the situation". In Enfield LBC v McKeon [1986] 1 WLR 1007 the Court held that 'reasonable' means reasonable having regard not only to the interests of the parties, but also to the interests of the public.
31. In Raeuchle v Laimond Properties Ltd (2001) 33 H.L.R. 10, in a passage which has been frequently cited with approval in subsequent authorities, Chadwick LJ observed at paragraph 22:

"It is important, of course, for an appellate court to recognise that the question whether or not to suspend an order for possession … involves an exercise in discretion by the judge, to whom that power is entrusted by the statute. An appellate court, applying well-established principles, will not interfere with an exercise of discretion unless satisfied that the exercise is flawed—that is to say that the discretion has been exercised on a wrong principle, or that the decision-maker has taken into account some matter which he should not have taken into account or has left out of account something which he should have taken into account, or that for some other reason the decision is plainly wrong."

32. Of particular relevance to the circumstances of this appeal is the extent to which a court can be confident that the future conduct of the tenants will justify a suspended order. As the Court of Appeal observed in Leeds & Yorkshire HA Ltd v Vertigan [2010] EWCA Civ 1583, the assessment of likely future conduct is bound to be based on past behaviour, the circumstances in which any offer of compliance is put forward and the reliance that can be placed on the word of the promisor.
33. As Gage LJ held in Sandwell MBC v Hensley [2008] HLR 22 at paragraph 17:

"What in my judgment can be said is that the effect of Mousah is to stress the serious nature of a breach of a condition which involves the committing of a criminal offence. The more serious the offence, the more serious the breach. Convictions of several offences will obviously be even more serious. In such circumstances, it seems to me that the court should only suspend the order if there is cogent evidence which demonstrates, as Ward L.J. put it in Manchester City Council v Higgins [2005] EWCA Civ 1423, a sound basis for the hope that the previous conduct will cease."

THE DECISION OF THE RECORDER

34. I am satisfied that the decision of the Recorder was fatally and demonstrably flawed.
35. In paragraph 34 (b) of his judgment he identified as a special circumstance justifying the suspension of the possession order the fact that this "is not a case where tenants were unscrupulously making a profit by subletting: the defendants were collecting £400m a month by subletting but their own rent to Poplar Harca was £146.78 a week which amounts to rather over £600 a month."
36. This was a serious error. The Recorder had plainly overlooked the fact that the respondents were, throughout the relevant period, pocketing weekly Housing Benefit of £138.91 to cover the rent on the flat which they were no longer occupying and, at the same time, fraudulently harvesting an additional £400 per month from Ms Rehana and Mr Ahmed.
37. This mistake went on seriously to contaminate the Recorder's assessment of the motive which lay behind the respondents' decision to stay with the first respondent's mother. The recorder was persuaded that the respondents had moved out of the flat primarily so that the first respondent could look after her seriously (and indisputably) ill brother. However, the Recorder expressly prayed in aid when reaching this conclusion his mistaken assumption that there was no profit to be had from the move. Once the existence of the substantial profit element is reintroduced into the equation, his balancing exercise is rendered irredeemably contaminated.
38. Furthermore, the Recorder categorised the altruistic motives of the respondents, as he found them to have been, as a factor which "takes this case right out of the ordinary run of cases".
39. Putting it bluntly, I am entirely satisfied that the Recorder was taken in by the respondents. I make the following observations:

i) The respondents' case was so clouded by a miasma of lies that there was no evidence to support the Recorder's conclusion that they, with their children, had decided to move in with the first respondent's mother for wholly altruistic reasons. Indeed, on their case, they had never moved in at all.

ii) If the real reason for moving in were to look after the first respondent's brother, they could have done this without, at the same time, renting out their flat for profit to Ms Rehana and Mr Ahmed.

iii) It was but a short walk from the flat to the first respondent's mother's home, a fact which further undermines the conclusion that it was necessary for the whole family to decamp completely to allow the first defendant access to attend to her brother when needed.

40. The fact that the Recorder exercised his discretion on a demonstrably flawed basis means that this Court must exercise that discretion afresh. In doing so, notwithstanding the passage of time since the hearing before the Recorder, I am entirely satisfied that it would be wrong to exercise my discretion to suspend the possession order in this case. In particular, the sheer scale and persistence of the respondents' initial fraudulent deceit aggravated by further and subsequent drug related offending wholly justifies the condign consequences of an outright order. I would stress that it is not compassionate to allow profiteering fraudsters indefinitely to continue to occupy premises and thereby exclude from such accommodation more needy and deserving families. In particular, in this case, there was a complete dearth of material which could amount to cogent evidence that the respondents would mend their ways in future. Accordingly, possession will be granted to take effect in 21 days from the date of this judgment.

UNLAWFUL PROFIT ORDERS

41. A UPO is an order requiring a secure or assured tenant to pay his landlord an amount representing the profit made from sub-letting or parting with possession of the whole or part of a dwelling-house. Section 5 provides in so far as is material:

"Unlawful profit orders: civil proceedings

This section has no associated Explanatory Notes

(1)The court may, on the application of the landlord of a dwelling-house let under … an assured tenancy, make an unlawful profit order if—

(b)… the conditions in subsection (4) are met.

(2)An "unlawful profit order" is an order requiring the tenant against whom it is made to pay the landlord an amount representing the profit made by the tenant from the conduct described in subsection … (4)(c).

(4)The conditions … are that—

(a) the landlord is a private registered provider of social housing or a registered social landlord,

(b) the tenancy is not a shared ownership lease,

(c) in breach of an express or implied term of the tenancy, a tenant under the tenancy has sub-let or parted with possession of the whole or part of the dwelling-house,

(d) the tenant has ceased to occupy the dwelling-house as the tenant's only or principal home, and

(e) the tenant has received money as a result of the conduct described in paragraph (c).

(5) The amount payable under an unlawful profit order must be such amount as the court considers appropriate, having regard to any evidence and to any representations that are made by or on behalf of the landlord or the tenant, but subject to subsections (6) and (7).

(6)The maximum amount payable under an unlawful profit order is calculated as follows—

• Step 1

Determine the total amount the tenant received as a result of the conduct described in subsection … (4)(c) (or the best estimate of that amount).

• Step 2

Deduct from the amount determined under step 1 the total amount, if any, paid by the tenant as rent to the landlord (including service charges) over the period during which the conduct described in subsection … (4)(c) took place.

(7)Where an unlawful profit order has been made against the tenant under section 4, an order under this section may only provide for the landlord to recover an amount equal to the aggregate of the following—

(a)any amount by which the amount of the tenant's profit found under this section exceeds the amount payable under the order made under section 4, and

(b)a sum equal to any portion of the amount payable under the order made under section 4 that the landlord fails to recover,

and the landlord may not enforce the order under this section, so far as it relates to a sum mentioned in paragraph (b), without the leave of the court."

42. In this case, it is evident that each and every condition under section 1(4) has been fulfilled. The issue arises, however, as to the calculation of the maximum amount payable. The appellant points to the fact that a net sum of £1,550 was received by the respondents from Ms Rehana and Mr Ahmed and this is the sum which should be ordered to be paid. The Recorder, however, concluded that the rent which the respondents were collecting was less than the rent they were paying the appellant and thus assumed that the maximum payment was zero. In so doing, he left out of account the fact that the rent for the flat was covered entirely by Housing Benefit and so the monies received by the respondents from Ms Rehana and Mr Ahmed were pure profit.
43. I am satisfied that the total amount referred to under step 1 does not exclude the element of Housing Benefit. It is argued on behalf of the respondents that, on a strict interpretation of the statute, the Housing Benefit was not, in itself, received as a result of their breach of the tenancy agreement and so should be disregarded. I do not agree. The inclusion of the word "total" indicates that the gross receipts secured and consequent upon the dishonest relinquishment of possession should be considered under step 1. To hold otherwise would be to render all but nugatory the clear purpose of the section. A very considerable proportion of tenants in socially rented homes are in receipt of Housing Benefit and those who have their rents paid for them are those in the best position to be able to benefit from unlawful profiteering of this type. To disregard Housing Benefit under Step 1 but include it to the ill-gotten advantage of the fraudster under Step 2 would be to thwart the obvious intention of Parliament to provide a mechanism with which to strip him of his spoils.
44. It follows that the Recorder was wrong to conclude that the maximum amount payable under section 6 was zero and, in the absence of any material upon which I would be minded to reduce the amount payable, I award the sum of £1,550 under this head.