IN THE CLERKENWELL AND SHOREDITCH COUNTY COURT
Claim No.9EC01126

B E T W E E N:

 (1) Farid Hashemi
(2) Matthew Johnson
Appellants/Claimants

-  and  -

Gladehurst Properties Limited
Respondent/Defendant

Judgment of His Honour Judge Cryan given on 9th December 2009:

1.	This is an appeal against the decision of DJ Stary sitting at the Clerkenwell County Court 9th July 2009 refusing to set aside the order made by DJ Manners in this court on 2nd April 2009 which struck out the Appellant’s claim for the penalty stipulated in Part VI Housing Act 2004, and gave leave for the substantive hearing of the Appellant’s claim for £618 in restitution of sums withheld by the Respondent from a deposit paid in respect of an Assured Shorthold Tenancy between the parties. Permission to appeal was granted out of time by order of His Honour Judge Mitchell dated 16th October 2009

The Facts
2.	The Respondent let to Mr Hashemi and Mr Matthew Johnson (“the tenants”), under an Assured Shorthold Tenancy agreement dated 8th August 2007 the residential dwelling known as Flat 8, 238 City Road, London EC1V 2PQ (“the property”) for a fixed term of one year with a six month “break clause” following two months’ written notice from either party., subject to certain other restrictions. 

3.	The terms of the tenancy agreement provided that the tenancy commenced on Thursday 6th September 2007 and that the tenants shall pay rent monthly in advance in the sum of £2080. 00.
4.	A deposit of £6240, being equal to three months’ rent, was paid to the Respondent in advance of the commencement of the tenancy. The terms of the lease were in anachronistic terms when considered in the light of Part VI Housing Act 2004 and provided that the deposit be held by the Respondent in accordance with the terms set out in the tenancy agreement and the addendum attached to the agreement. 
5.	Clause 8.1 of the tenancy agreement provides as follows;
“The Tenant agrees to pay the Landlord’s costs of and in connection with:
(i)	The sum of £176.25 being £150 plus VAT for the set up costs of this tenancy including the preparation and completion of this contract together with the checking of the said inventory at the commencement of the tenancy. A further £100 + VAT will become payable if the tenant wishes the Landlord to register the deposit with the government deposit scheme.
(ii)	“Any breach by the Tenant of any covenant contained in this Agreement whether for the payment of rent or otherwise whatsoever and in the case of legal costs on a Solicitor and own client basis.”
6.	Contrary to the provisions of Part VI Housing Act 2004 the deposit was never                                           registered or dealt with in accordance with the Act. 
Termination of Tenancy
7.	The tenants vacated the property on 8th October 2008. An independent inventory clerk, Mr John Bourne, was contracted to perform an inspection of the flat following the tenants’ departure. Mr Bourne’s report suggested that the premises had not been well cared for and that significant deductions should be made from the deposit. If Mr Bourne was right they had not been careful tenants. 
Repayment of Tenant’s deposit less deductions for dilapidations
8.	The Respondent duly paid back to the tenants the full security deposit received, being £6240, less the following deductions, items (a) to (c) of which (totalling £505.99) are not disputed by the Appellant as falling due;
8..a	£79.74 in unpaid water rates;
8..b	£176.25 in unpaid inventory charges;
8..c	£250 in respect of professional cleaning to the premises;
8..d	£500 for repainting of walls;
8..e	£118 for various dilapidations recorded by Mr Bourne.
9.	The Appellant’s claim for £618 in restitution therefore concerns the deductions for items (d) and (e).

10.	Following the tenants’ departure from the property Mr. Farid Hashemi wrote to the respondent requesting receipts and a breakdown of the sums deducted from the damages, and putting the Respondent on notice that the Appellant would seek to make a claim for three times the deposit under s.214 Housing Act 2004.

Commencement of Proceedings
11.	On  16th February 2009 Mr Farid Hashemi, by filing and serving an N1 Claim Form containing his Particulars of Claim purported to issue a claim against the respondent in both his own name and that of his co-tenant, Mr Matthew Johnson. The claim form was only signed by Mr. Hashemi and not by Mr. Johnson in accordance with the CPR. No further Particulars of Claim have ever been served. Mr Johnson who has returned to New Jersey in the United States, has not made an appearance in these proceedings and there is an issue of which I must say more later as to whether he is to be regarded as a party to these proceedings and whether they are correctly constituted. 

12.	In its defence filed on the 26th February 2009 the defendant pleaded that it had not been fully aware of the impact of the Housing Act 2004, but accepted that it applied. It referred to a passage in the lease about the deposit, which gave an option to enter into a government deposit protection scheme, and commented that it was not taken up by the tenant. It was unclear what the purpose of pleading that clause was since it is not relevant to the landlord’s immutable duty under the Act and is incapable of constituting a defence. 
 
13.	There was also reference to the level of the rent being within the statutory shortfall tenancy limits, but the total annual payments to the landlord being in excess of the £25,000.00 ceiling. However, the point has not and cannot be pursued as a defence since it is the amount of the rent which it is conceded is the relevant figure. Finally, the defence pleaded that the landlord had all the necessary receipts for the dilapidations and other expenses paid on behalf of the tenant. Once again this does not constitute a defence, but it might give rise to a set-off.

14.	The matter came, on the papers, before DJ Manners on 2nd April 2009.  Of her own motion she struck out the claim on the basis that the tenancy ended before the application was made.

15.	An application was made to set that order aside. The matter came before District Judge Stary on 9th July 2009 when Mr Hashemi appeared in person and the Respondent was represented by its representative Mr Singer. The district judge heard submissions and dismissed the Appellant’s application in so far as it related to the claim pursuant to the Housing Act 2004 but allowed the order relating to the claim for £618 to be set aside. District Judge Stary made provision for the Respondent to file an amended Defence.

16.	The matter came before the court on a further occasion on 10th September 2009 when DJ Karp [64] gave comprehensive directions to take the claim for the £618 to trial.

17.	By an undated application for permission to appeal and Grounds of Appeal drafted by Counsel and dated 8th October 2009 permission was sought to appeal the decision of DJ Stary.

18.	The application for permission to appeal out of time came before HHJ Mitchell sitting at the Clerkenwell and Shoreditch County Court on 16th October 2009. HHJ John Mitchell ordered that the Appellant shall be permitted to appeal the decision of District Judge Stary out of time and gave directions relating to the hearing of the appeal. There was a delay in the receipt of the transcript as required to be filed pursuant to HHJ Mitchell. 

Threshold for successful appeal
19.	CPR 52.11(3) provides that;
The appeal court will allow an appeal where the decision of the lower court was – 
()a	wrong; or
()b	unjust because of serious procedural or other irregularity in the proceedings of the lower court.
20.	As used in CPR 52.11(3)(a) “wrong” must mean that the court below erred either in law, in fact, or in the exercise of its discretion (see White Book 52.11.4). The gateway contained in CPR 52.11(3)(b) is more onerous; the procedural or other irregularity must be a serious one and the irregularity must have caused the decision to be unjust .

21.	Strictly the appeal requires this court to ask whether District Judge Stary was wrong in the application of the courts case management powers in holding that there was no case of sufficient merit to go to trial. She reached that conclusion on the basis of her interpretation of the Part VI of the Housing Act 2004 and it is therefore necessary for me to consider the Act and the district judge’s reasons for her interpretation of its effect..

Relevant Law
22.	It is common ground that the relevant provisions sections 212 to 215 of the Housing Act 2004 in relation to deposits came into force on 6th April 2007 and therefore applied to this tenancy. 
23.	Insofar as is relevant for present purposes, s213 provides:
(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.
(2) No person may require the payment of a tenancy deposit in connection with a shorthold tenancy which is not to be subject to the requirement in subsection (1).
(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. 

(9) The provisions of this section apply despite any agreement to the contrary.

24.	Section 214 of the Act provides:
(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, or
		(b) [not relevant]

	(2) Subsections (3) and (4) apply if on such an application the court –
(a) is satisfied that those requirement 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,

25.	Subsections (3) and (4) set out what must happen if the grounds for the application are justified:	
(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. 

26.	I accept that Mr. Gannon in his skeleton argument has correctly identified the passages in the transcript of District Judge Stary’s judgement where she deals with why she did not consider the claim sustainable. She said:
 At page 3:
‘It seems to me in this case that the objective behind the scheme is the following: first to ensure the deposit is properly protected, from the point of view of the tenant, and ….. to encourage the landlords to do so, to impose draconian provisions; but secondly there is a let-out to a landlord who, on being notified, puts it right. Now, here we are in a situation that this tenancy has terminated, the deposit (less allowable deductions) has been handed back; the landlord is not in a position to ‘put it right’ because the tenancy has been determined. It is not intended in my view that the statutory provisions would force a landlord into making you payments under these draconian legislations where the deposit has actually, in the event, been properly dealt with. That is why my colleague struck out your claim at the beginning.
 At page 6 District Judge Stary went on to say:
‘But you – because you did not object to this at the time, you have not allowed them to put it back into a position where they could have actually done it. They believe it had been done; you never told him; you did not give him an opportunity to do it.’
Finally, at page 7 she said:
‘But I do not think it is appropriate to raise, after the tenancy has finished, details about the deposit which, if you had done it at the time, they would have said to their agents: ‘Well, haven’t you covered it?’, they would have said: ‘Oh, gosh, no sorry, let’s do it now’, and that would have given them the absolute clearance from the claims that you are making. So you did not give them – you did not act fairly during the currency of the deposit, and that is why I am not allowing it.’

27.	In his submissions Mr. Gannon is critical of the district judge’s observation that there is a “let out” for a landlord who upon realising his error in failing to deal with the deposit appropriately seeks to put it right before the court comes to consider it. It seems to me that he need not go that far in the instant case for this landlord has never dealt with the deposit in the correct way in accordance with Part VI of the Act and still retains part of it. Some part of it is retained (in effect with the agreement of the appellant against the agreed dilapidations), but the remainder the respondent continues to hold against the resolution of the issue which District Judge Stary ordered to be tried. There can be no question that in accordance with the scheme of the Act a landlord should not be holding any part of a qualifying deposit at this stage, or at least without the safeguards of the Act being in place.

28.	There are essentially two schemes under which a qualifying deposit ought to have been dealt with and the details of those schemes and their conduct are provided for in Schedule 10 of the Act. Different provisions apply depending upon whether a landlord chooses to adopt one of the two so-called custodial schemes or the so-called insurance scheme. In the custodial schemes, the deposit will be held by one of the scheme providers.  The deposit is held and it is for the landlord or tenant, in accordance with the scheme to apply, at any time after the tenancy has ended, for the whole or part of the relevant amount to be paid to him by the scheme administrator. The scheme administrator must deal with the deposit as provided for in Schedule 10 of the Act.

29.	The tenant and the landlord notify the scheme administrator that they have agreed that the relevant amount should be paid, wholly to one of them, or partly to the one and partly to the other. If, having received such a notification, the scheme administrator is satisfied that the tenant and the landlord have so agreed, the scheme administrator must arrange for the relevant amount to be paid, in accordance with the agreement, within the period of 10 days beginning with the date on which the notification is received by the scheme administrator. 

30.	Where the parties disagree about the distribution of the deposit, as in the instant case, and the dispute comes to court, it is then for the tenant or the landlord to notify the scheme administrator that a court has decided that the relevant amount is payable either wholly to one of them or partly to the one and partly to the other, and that decision has become final. If upon being so notified the scheme administrator is satisfied he must arrange for the relevant amount to be paid, in accordance with the court’s decision, within the period of 10 days beginning with the date on which the notification is received by the scheme administrator.

31.	Different, but equally formal provisions apply under the insurance scheme, and it is obvious upon a full reading of Schedule 10 that the role of the scheme under the Act is every bit as operative after the tenancy has come to an end as during its course.

32.	The question of whether there is a “let out” was argued before me on the basis that on a proper interpretation of Part VI of the Act it is open to the landlord to avoid the draconian penalty imposed by the Act by dealing with the deposit in accordance with the scheme at any time, provided it is before the matter is before the court. For the purposes of this case it is unnecessary for me to decide that point and I shall decline to do so save out of respect for the argument before me to say that I am doubtful that Parliament intended to create such a toothless watch-dog as Ms West for the respondent so tenaciously argued.

33.	The district judge interpreted the act purposefully, as she saw it, but did so on a number of erroneous premises, namely that: 

a) the deposit had been dealt with correctly. It had not. There is only one way that a deposit can be dealt with and that is in accordance with the Act. Clearly, it was not. 
b) that tenancy had run its course and there was no longer any role for the Act. For the reasons I have given in relation to Schedule 10, I regard that as an error. The fact that section 214 of the Act refers to an application being made by “the tenant”, cannot mean anything other than “the tenant who paid the deposit”. Any other interpretation would deprive the tenant of the opportunity to seek relief from the court at one of the most crucial times encompassed by the Act, namely the time when the tenancy has come to an end and the tenant is actively seeking his deposit back. It is inconceivable that a tenant who only discovers at that stage that his landlord has failed to comply with the Act would be deprived of the very protection which the Act was designed to give on the basis that he was a “former tenant”. 
If support for such an interpretation is needed it is to be found in the use of the word “tenant” in Schedule 10 where it is clearly dealing with  former tenants. The use of the word throughout the Act must have been intended to bear the same interpretation and it is manifest that in Schedule 10 and throughout the Act it is intended to include a tenant whose tenancy has come to an end. 
Although not binding on me I take note of the decisions to which Mr. Gannon has referred me of the District Bench in the cases of Woods v Harrington August 2009 Legal Action 35, and Stankova v Glassonbury June 2008 Legal Action 31 and that no reported case supports a contrary interpretation.
c) that there is available to a landlord some species of equitable defence based on the either an implied duty on the tenant to place a landlord on notice  or where a landlord has acted outside the scheme of the Act but no significant mischief has resulted. I can find noting in the Act to support either proposition, even, which I doubt, there be the  “let out” provisions argued for. The penalty provisions are statutory and not susceptible to the sort of equitable relief envisaged by the district judge.

34.	For the reasons which I have given I am entirely satisfied that the decision of District Judge Stary should be set aside. Her interpretation of this difficult statute on this occasion was plainly wrong and the claim ought not to have been struck out for the reasons given. However, at the hearing of the appeal the respondent’s counsel, Ms West sought to advance a number of arguments by which she sought to justify the decision on other grounds. In effect she invited the court to consider her skeleton argument as if it were a counter notice and she set out a number of arguments justifying a strike-out on grounds which had not been taken before District Judge Stary and, indeed, which had not been pleaded in the defence. Mr Gannon took no issue with this and invited the court to resolve the points at this stage.

Technical defect in the original claim

35.	The respondent submitted that there is a technical defect in the appellant’s original claim in that the N1 Claim Form, incorporating the Particulars of Claim, did not bear a statement of truth.  CPR PD 4.1 provides that a statement of case without a statement of truth will remain effective unless struck out the respondent accepts it is not fatal that the N1 is without a statement of truth with respect to the appellant. Thus far I accept the submission is correct, but it was made in order to set the ground for a more fundamental attack on the status of the proceedings.

36.	Ms West submitted that the appellant was in fact Mr Hashemi, who was the only claimant and/or appellant in the proceedings, notwithstanding the fact that he had attempted to commence proceedings, and to appeal the order of District Judge Stary of 9th July 2009, in both his own name and that of the other joint tenant, Mr Johnson. 

37.	She went on to point out that;
37..a	Mr Johnson had never appeared in the proceedings;
37..b	Mr Johnson had never instructed solicitors (including the appellant’s solicitors) to represent him in the proceedings;
37..c	Mr Johnson had never filed a statement of case, witness statement or other document in the proceedings;
37..d	Mr Johnson had never communicated with the court or the respondent in relation to the proceedings;
37..e	Mr Johnson had never indicated to the court that he has sought to empower any person in any capacity (let alone any permissible capacity) to bring and litigate the proceedings on his behalf.

38.	On that basis she submitted that it was quite wrong for Mr Hashemi to have named Mr Johnson as a claimant in the proceedings on the N1 Claim Form and the court was wholly unable to treat Mr Johnson as a party to the proceedings, since it is clear he cannot be considered a claimant in these proceedings (having never filed a Claim Form, Particulars of Claim, witness statement or other statement of case, or signed the N1 filed by the Appellant in these proceedings) and he had never been joined to these proceedings in any other capacity.

39.	Further, it was submitted that the court was wholly unable to treat Mr Johnson as an appellant in the proceedings since he has not filed an Appellant’s Notice in the proceedings, or signed the statement of truth in the Appellant’s Notice filed by Mr Hashemi in the proceedings. Similarly, he had not filed any other witness statement or statement of case in the appeal or been joined in any other capacity. 

40.	In making her submissions, Ms West relied on the requirements of CPR 22, including the Practice Direction, which provides at CPR Part 22(1) and (8) as follows:
“ 22.1 (1) The following documents must be verified by a statement of truth –
(a) 	a statement of case;
(b) 	a response complying with an order under rule 18.1 to provide further information;
(c) 	a witness statement;
(d) 	an acknowledgement of service in a claim begun by way of the Part 8 procedure; 
(e) 	a certificate stating the reasons for bringing a possession claim or a landlord and tenant claim in the High Court in accordance with rules 55.3(2) and 56.2(2);
(f) 	a certificate of service; and
(g) 	any other document where a rule or practice direction requires.
(8) A statement of truth in a statement of case may be made by –
(a) 	a person who is not a party; or
(b) 	by two parties jointly,
where this is permitted by a relevant practice direction.”

Paragraph 3.1 of the Practice Direction to CPR Part 22 is headed  “Who may sign the statement of truth” and provides as follows;
“In a statement of case, a response or an application notice, the statement of truth must be signed by:
(1) 	the party or his litigation friend, or
(2) 	the legal representative of the party or litigation friend.”

41.	 Ms West went on to submit that in the absence of an N1 signed by Mr Johnson the court is wholly unable to treat Mr Johnson as a claimant in the proceedings. In the event Mr Johnson is, for any reason, found by the court to be a claimant in the proceedings, she further submitted that, absent any valid Appellant’s Notice signed by Mr Johnson, the court should regard itself as wholly unable to treat Mr Johnson as an appellant in the proceedings. The Respondent submits that the fact that the appellant’s grounds of appeal (as drafted by Counsel) and the bundle are headed so as to show that Mr Hashemi is the sole Appellant in this appeal demonstrates that the Appellant impliedly accepts this is the case. 

42.	Ms West might have gone on to add that CPR 19.3 (1) provides that:
“Where a claimant claims a remedy to which some other person is jointly entitled with him, all persons jointly entitled to the remedy must be parties unless the court orders otherwise.”

43.	In fact the situation, as it evolved before the court was not entirely as depicted by Ms West in her skeleton argument. At the appeal hearing I gave leave for a witness statement from Mr Johnson to be filed. It purported to be a second statement in the proceedings. The only other document which might have constituted a first statement was an unsigned document at page 85 of the trial bundle which purported to be a statement of Mr. Johnson. Mr Gannon was unable to help me with its provenance, save that it was received by this court on 25th March 2009. It showed Mr Johnson as living in the United States of America and the document speaks of, “Before filing our claim [Mr. Hashemi] had told me that………”. 

44.	I have no reason to doubt the provenance of the second statement. It is dated 6th December 2009. It is signed by Mr. Johnson and it is headed-up in the action carrying the same two names as the Form N.1, namely Mr Hashemi and Mr Johnson. In it Mr Johnson explains that he is living in the United Sates and that “I confirm that that I am happy for Mr Hashemi to pursue this case and [this] appeal…..….on my behalf”.

45.	I am satisfied that whilst the claim does require to be put in good order so far as the parties are concerned, the overriding objective, and that in that context it is important that legitimate claims are not defeated by technicalities. Given that the action is clearly being brought with the full support of Mr Johnson, it seems to me that under the court’s case management powers it is open to me either to accept that he is  regularly joined as a party or, perhaps more appropriately, to direct under CPR 19.3 and 19.6 that Mr Johnson should not be a party to these proceedings, given his difficulty in attending, and that given their identical interest, Mr Hashemi is entitled to pursue the action in a representative capacity. In the later event all orders would be binding on Mr. Johnson, though only enforceable against him with leave. I regard it as appropriate to adopt one or other of those courses, but since the question of representation under CPR 19.6 was not argued before me I will hear further representations on the point.

46.	In reaching this conclusion I have in mind the example of Jacklin v Fraser Property Management Ltd, T/a Martin and Co (Bedford), a decision of District Judge Lightman sitting at the Central London County Court of 8th May 2009 cited by Ms West and discussed in the article “Deposit Dilemmas” NLJ 2009 159(7381) 1127-1128 as an example of a case where the court found that the action was improperly constituted because it had been brought by only one of two joint tenants. Ms West does not suggest that the Jacklin case is binding authority in this court. In the absence of a fuller report it is unclear to me whether the other joint tenant was even aware of the action. There is insufficient in the report to deter me from the approach which I have set out and which in the circumstances of this case best accord with the overriding objective.

47.	Once this procedural issue is resolved it seems to me that the appropriate course would be for me to consider whether there remains anything in the defence which merits consideration save on the issue of a set-off on the basis of admitted or proven dilapidations. Any set-off apart, I cannot see that the defence pleads any maintainable defence and in the circumstances and subject to further argument I would be minded to consider striking it out and entering judgment on the claim.

48.	 I have not heard argument on the availability of set-off and I appreciate that, although not binding on me, there are various conflicting decisions on the point of the availability of set-off in such cases. Provisionally, it seems to me that there are strong arguments in each direction. On the one hand the relationship between the parties is such and the genesis of the claim and counter-claim is such that there is the “inseparable connection” of which the authorities speak in relation to an equitable set-off.  However, it is also the case that the order which the court is required to make under Part VI of the Act is clear and mandatory. It does arise from any contractual obligation and is in the nature of a penalty. Thus, it is arguable that the court should simply do its duty under the Act and allow any other claim to be brought effectively separately. I will hear further argument on this point.

49. Having heard further from counsel  I think it would be better if the proceedings were constituted in a representative way. The title therefore needs to be amended.  I am content this can be done on basis of the evidence before the court as indicated in my judgment. The orders made by this court in relation to this matter are binding on the party represented as well. The three general requirements for a representative are present, there is a unity of interest between the Claimant and Mr Johnson. I am not satisfied that simply by issuing proceedings in his name, without Mr Johnson taking a more active part in the claim, he would have become a party, acquiescence isn’t sufficient to make him a party. Further, Mr Johnson is in the US, it is difficult for him, although I accept not impossible, to act, and he had not instructed the solicitors acting for the Claimant. That creates another practical difficulty, but I am satisfied the overriding objective is appropriately met by a constructive use of the Civil Procedure Rules, particularly, Civil Procedure Rule 19.6. It is to my mind necessary and appropriate these proceedings are constituted in a way that binds Mr Johnson completely, it is unfair to have issues hanging over the landlord, and the remaining matters regarding the lease need to be resolved at the same time.