03/06/2019

Deposit penalties. How many breaches is too many?

Howard v Dalton, County Court at Dartford, 7 May 2019 (unreported, note of judgment with grateful thanks to Rea Murray of 4-5 Grays Inn Square).

A quick note, because Rea Murray has done the heavy lifting for me. We’ve seen the ‘claims for multiple deposit breaches’ issues before, although in the guise of whether a claim could be brought for a number of tenancies at once. This was a county court appeal to a circuit judge on exactly what counted as a claimable breach, and how many could be claimed per tenancy.

Ms H was the tenant of Mr D. The first tenancy was in 2007. A deposit of £900 was paid, then on signing the tenancy agreement, a further £845 was paid to Mr D, with a receipt given saying ‘deposit remainer’. There were a further seven tenancy agreements entered into between the parties.

At first instance, it was found as fact that the deposit was not protected in a scheme until 2014, and no prescribed information was ever served.

Ms H brought a claim. Mr D defended, but both parties were unrepresented and Mr D did not attend first instance trial. Ms H’s particulars claimed breaches of Housing Act 2004 s.213(3) (failure to protect) and s.213(6) (failure to provide prescribed information) in respect of eight tenancies, but did not specify a sum.

The first instance district judge held that there had been two breaches (failure to protect and failure to provide prescribed information) for each of the eight tenancies, so 16 breaches. The award was three times the deposit of £1745 for each breach, giving a total of £83,760.

Perhaps unsurprisingly, Mr D appealed.

On appeal, the circuit judge held:

S.214 Housing Act 2004 provided a point of access for damages for either a breach of s.213(3) or s.213(6). A single award of damages was intended regardless of the number of individual breaches.

A failure to protect under s.213(3) would inevitably give rise to a failure to provide prescribed information under s.213(6). It was not Parliament’s intention that damages should be awarded for each breach, rather than only either breach. The requirement to provide prescribed information could not be independent from the requirement to protect.

The penalty was therefore one penalty per tenancy.

Mr D had raised limitation on appeal, and this was valid as the pre-action correspondence had not set out that eight tenancies would be relied upon at trial. 6 years limitation was applied, reducing the tenancies claimable to four.

The second payment of £845 was rent in advance, not a deposit – applying Johnson v Old (2013) EWCA 415 (our report).

The penalty was reduced from three times to two times the deposit, (not entirely clear why).

The deposit penalty payable to Ms H was therefore £7,200.

Comment

While slightly raising an eyebrow that Mr D succeeded on factual points (the rent in advance) on appeal despite not having turned up to trial, the legal points strike me as right.

S.214(1) Housing Act 2004 provides

(1) Where a tenancy deposit has been paid in connection with a shorthold tenancy on or after 6 April 2007 , the tenant or any relevant person (as defined by section 213(10)) may make an application to the county court on the grounds—

(a) that section 213(3) or (6) has not been complied with in relation to the deposit, (…)

So, stated as in the alternative, not additionally. At least per tenancy.

On the other hand, the finding that Superstrike Ltd. v. Rodrigues (2013) EWCA Civ 669 meant that claims for breaches in respect of each subsequent tenancy could be brought in one claim also strikes me as right. (Subject to any limitation defence, of course – 6 years prior to issue of the claim).

The reduction from 3 times penalty to 2 times penalty is also somewhat mysterious, but such is the nature of the court’s discretion in this regard.

The usual caveats apply – this is a county court appeal, so not binding and persuasive at best, save in the CJ’s immediate area. But it makes sense, at least on the number of breaches that can be raised.

 

 

 

Giles Peaker is a solicitor and partner in the Housing and Public Law team at Anthony Gold Solicitors in South London. You can find him on Linkedin and on Twitter. Known as NL round these parts.

16 Comments

  1. kjetilniki

    I do not know the full facts of the case and there may be other matters contradicting my thoughts.
    Limitation

    Mr D had raised limitation on appeal, and this was valid as the pre-action correspondence had not set out that eight tenancies would be relied upon at trial. 6 years limitation was applied, reducing the tenancies claimable to four.

    As I read the posting
    1 in pre-action corresp T did not set out that all 8 tenancies would be claimed.
    2 T did claim for 8 tenancies
    3 L did not plead limitation
    4 an award was made for 8
    5 L appealed
    6 the Circuit Judge allowed L to claim limitation for the 1st time on appeal

    As I understand it, limitation has to be pleaded to amount to a defence and that it is too late to raise it for the first time on appeal. Not mentioning it in pre-action correspondence does not seem to me to be a relevant reason to allow it ion appeal, (as opposed to T having been positively misleading)

    Reply
    • Giles Peaker

      I’d broadly agree. However, it seems that the particulars mentioned 8 tenancies, but the prayer did not set out a specified sum. So it may also be that the pleaded case was not clear on extent of claim.

      Reply
  2. Michael Barnes

    S214(1)(a): it is my understanding that “or” in English is an inclusive or, not an exclusive or (i.e. at least one of the items, not exactly one).

    Reply
  3. Darren King

    This is an interesting case but I don’t understand the application of the 6 year limit. The Limitations Act specifically allows for the postponement of the limitation period where a deliberate commission of a breach of duty takes place in circumstances in which it is unlikely to be discovered for some time. Surely a tenant is most likely to become aware of the non-protection of their deposit at, or towards, the end of their tenancy and so the limitation period should run from when they became aware of it rather than from the date of the actual breach of duty. It is also very difficult to see how a landlord could claim that such a breach is anything other than a deliberate act. Maybe, as the claimant was unrepresented, he failed to make this point in court.

    Reply
    • Giles Peaker

      I very much doubt it was pleaded. However, I doubt it would work anyway. The requirement at s.32 Limitation Act 1980 is for fraud or deliberate concealment by the Defendant. That would require considerably more than just not protecting the deposit. I don’t think s.32(2) rescues the position either, as the claim was in part for failure to provide the prescribed information, which the tenant arguably should be aware of at the time – that was not concealed.

      Reply
  4. Darren King

    I can’t believe that this principle has never been properly established in court. The important bit is in s32(2).

    The LA 1980 s32(1) b allows for the postponement of the limitation period if ‘any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant’
    s32(2) For the purposes of subsection (1) above, deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to a deliberate concealment of the facts involved in that breach of duty.

    A landlord can’t simply avoid the penalty by saying he didn’t deliberately fail to protect the deposit as this would amount to ignorance of the law, or honest mistake, being accepted as a legitimate defence. The decision not to protect must therefore be considered a deliberate commission of a breach of duty and, as it perfectly reasonable to accept that a tenant wouldn’t immediately discover that their deposit hadn’t been protected, this must surely amount to a deliberate concealment.

    I think the understanding of the word ‘or’ is possibly a bit fuzzy but as the prescribed information can’t be provided when the deposit isn’t protected it seems reasonable to to say that the plaintiff can claim against the landlord for either not protecting the deposit or for failing to issue the prescribed information but not both for the same breach of duty.

    Reply
    • Giles Peaker

      A breach is ‘likely to be discovered’ immediately where, as here, it includes not providing the prescribed information.

      Reply
  5. Darren King

    This assumes that the tenant knew that they should receive it. It must surely be difficult for the landlord to argue that the tenant should have been more ‘in the know’ about deposit protection law than the landlord was. If the Landlord can say he didn’t protect the deposit simply because he didn’t know he had to, then the tenant must be able apply for the limitation period to be postponed if he didn’t realise that he should have received the prescribed information. Surely this is why not supplying the information is also a penalty carrying offence. It can never have been the intention of the law to allow the worst offending landlords simply to get away with it after 6 years of being in breach of duty and this must be why the LA 1980 makes allowances for this type of situation.
    I believe that another part of the LA 1980 also offers postponement of the limitation period in situations where the plaintiff is at a disadvantage to the defendant in some way. eg A longterm tenant (of more than 6 years) may not want to start proceedings until the end of his tenancy for fear of facing a retaliatory eviction.

    Reply
    • Giles Peaker

      No, it doesn’t depend on the tenant’s actual state of knowledge. A breach which results in not providing the tenant with something that the tenant could or ought to know that they should receive is not ‘unlikely to be discovered’. Quite the reverse. Nor is the landlord’s state of knowledge relevant for limitation.

      6 years is the absolutely standard limitation on contract/statutory claims. There is no reason why deposit penalties should be different. It would be easy to make an argument for the unfairness of limitation on every kind of case, deposit cases are not special.

      There is no other postponement of limitation of the kind you suggest.

      Reply
  6. Darren King

    Once a tenant has paid their deposit and moved into a property they really aren’t likely to give it much thought again until they are in the process of moving out. Are you saying that, in the eyes of the law, the tenant is held to have a duty to investigate the workings of deposit protection law within days of moving in and then to identify any legal shortcomings in the behaviour of the landlord. What if the landlord said that the deposit would be protected and the tenant simply believed him? Does this not amount to ‘concealment’?

    Reply
    • Giles Peaker

      It does not depend on whether or not the tenant was actually aware of what they should receive. The test is whether the circumstances are such that the breach is unlikely to be discovered. A failure to provide the prescribed information is not a breach that is ‘unlikely to be discovered’ because it involves not providing the tenant with something that should have been provided. It is an overt breach.

      Reply
  7. Darren King

    I think we may end up going around in circles a little on this one.
    I concede that there is a difference between something being ‘unlikely to be discovered’ and it being ‘undiscoverable’. Clearly, it would be ‘possible’ for the tenant to discover that the landlord is in breach of his duty by reading up on deposit protection laws and processes and contacting all of the government approved schemes. However, the normal circumstances surrounding a rental deposit are that, once paid, it is unlikely to be thought of again by the tenant until the end of the tenancy, therefore making the landlords failure to protect it ‘unlikely to be discovered for some time’ especially if he has lied about doing so.
    How is the tenant to know that the prescribed information should arrive when there is no statutory requirement on the landlord, or anyone else for that matter, to tell him it would be sent? So something he isn’t expecting doesn’t arrive! I’m not sure that would ring alarm bells for me.
    I think you are putting too much onus on the tenant, who may not have the capacity to investigate and make judgements as to the landlords compliance with the law, to identify that the landlord is in breach of his duty.

    Reply
    • Giles Peaker

      No, not circles, as you are stuck on the tenant’s actual knowledge of the law, which is irrelevant. Ignorance of the law is an individual state, not true of all tenants, by a long shot. So, that cannot amount to ‘circumstances in which it is unlikely to be discovered for some time’.

      Look at it this way, the landlord couldn’t possibly know what the specific tenant knew or didn’t know about deposit rules, so it is not in effect concealment.

      Recall the How to Rent guide, which must also be provided, makes the requirement for the prescribed information clear, though that is not a vital factor.

      Reply
  8. Darren King

    Ok, straight lines with a brick wall at the end.
    It’s not that I’m stuck on the tenant’s knowledge of the law but I have been desperately racking my brain as to where, using your interpretation, s32(1) b / s32(2) could ever be applied. I can’t think of a single situation where, if the potential plaintiff had spent enough time, effort and money on investigation, it would have proved impossible for him to discover, within a very short space of time, a breach of duty, etc, against him.
    Out of curiosity, was the ‘How to Rent Guide’ available as long ago as 2009? Even if it was, just suppose that the same landlord who declined to protect a deposit had also failed to provide a guide to his tenant that could give a clue as to his possible breach of duty. Might that happen?
    I just find it depressingly disappointing that you are saying that there is absolutely no recourse to the law for a long term tenant who has been intentionally mislead by a rogue landlord who lied about protecting a deposit for a period of over 10 years. Basically, if you can maintain a lie for long enough, eventually you get away with it! I just don’t believe that the Limitations Act 1980 was designed to offer protection against prosecution for this class of landlord.

    Reply
    • Giles Peaker

      There are plenty of situations where it might apply. Even with deposits – imagine a landlord faked a deposit certificate.

      It isn’t about ‘time, effort and money on investigation’. Plenty of tenants were aware of deposit rules. And that, by itself, means that you are talking about the individual tenant’s state of knowledge.

      Look at limitation on tort/negligence claims. Where there is a ‘knowledge’ exception, that runs from when the claimant knew or ought reasonably have known that they had suffered a loss – not when they knew that had a cause of action, and not when that specific person knew, but when a reasonable person would have known.

      And limitation of 6 years means you can claim in respect of breaches within the 6 years prior to date of claim. So on your example, there would have to have been no renewal tenancies, or no statutory periodic arising within the last 6 years to avoid a penalty. You’ve also changed your example to being a landlord who had lied about protecting the deposit. That might be different – s.32(1)(b) – depending on what the landlord did. Active steps to hide the breach would be deliberate concealment. What you were arguing was the application of s.32(2) in a situation where the landlord had simply failed to protect the deposit. That is not workable, I think.

      Again limitation applies to all cases. It could be argued to be unfair in all cases (eg why does a tenant only get 6 years claim period for disrepair, when a leaseholder gets 12 years?). Deposits are not a special case and there is nothing to make them a special case.

      Reply

Trackbacks/Pingbacks

  1. Deposit Penalty – Multiple Breaches and Limitations | GRL Landlord Association - […] thanks to NearlyLegal for reporting this one. In Howard v Dalton, County Court at Dartford, 7 May 2019, a…

Leave a Reply (We can't offer advice on individual issues)

This site uses Akismet to reduce spam. Learn how your comment data is processed.