Act: Mr Russell, 1^st Defender, Party

Alt: Party

EDINBURGH, 20 December 2013

The Sheriff Principal, having resumed consideration of the cause, refuses the appeal, adheres to the interlocutor of 20 September 2013; finds the defenders and appellants liable to the pursuer and respondent in the expenses of the appeal all as same may be taxed; allows an account thereof to be lodged and when lodged remits same to the Auditor of Court to tax and to report.

(signed) Mhairi M Stephen

Note:

1. These proceedings concern the tenancy entered into between the pursuer Mr Tenzin, as tenant, and the defenders and appellants Stuart Russell and Laura Clark, as landlords, in respect of heritable property at 4/6 Admiralty Street, Edinburgh. The lease began on 1 May 2012 and ended on 17 December 2012. The deposit was £750 and the monthly rent £630. As the sheriff observes there is no factual dispute that the appellants held the deposit of £750. At the end of the tenancy the appellants intromitted with the deposit by making deductions from the deposit for cleaning and repairs etc before returning the balance of the deposit to the pursuer.

2. It is therefore not in dispute that the appellants failed to pay the deposit to the scheme administrator of an approved scheme in terms of Regulation 3 of the Tenancy Deposit Schemes (Scotland) Regulations 2011 (SSI 176/2011) ("the TDS Regulations"). There is likewise no dispute that the property and the lease is a relevant tenancy for the purpose of the regulations. Regulation 3 requires a landlord who has received a tenancy deposit in connection with a relevant tenancy to pay the deposit to the scheme administrator of an approved scheme within 30 working days of the beginning of the tenancy. It is agreed that the appellants required to pay the deposit to the scheme administrator no later than 13 November 2012 due to the operation of transitional provisions. The sheriff records this at paragraph 7 of his judgment. This amounts to a breach of or failure to comply with the landlords' obligations under Regulation 3 of the TDS Regs, which in turn engages Regulations 9 and 10. Regulations 9 and 10 are as follows:-

"Court Orders

9 - (1) A tenant who has paid a tenancy deposit may apply to the sheriff for an order under Regulation 10 where the landlord did not comply with any duty in Regulation 3 in respect of the tenancy deposit. (2) An application under paragraph (1) must be made by summary application and must be made no later than 3 months after the tenancy has ended.

10 If satisfied that the landlord did not comply with any duty in Regulation 3 the sheriff -

(a) Must order the landlord to pay the tenant an amount not exceeding three times the amount of the tenancy deposit; and

(b) May...........

3. Accordingly, there having clearly been a failure to comply with the landlord's duty under Regulation 3 the sheriff was compelled to order the landlord to pay an amount of money tied to the amount of the tenancy deposit, provided the tenant applies for such an order within 3 months following the end of the tenancy. The sheriff ordered that the appellants pay the maximum monetary penalty of three times the tenancy deposit. The appellants challenge the sheriff's decision on the amount of the order. They suggest that the sheriff gave no explanation as to why he exercised his discretion in the way he did. The sheriff's reasoning and decision can be found in paragraph [13] of his judgment. The sheriff analyses the regulations and refers to the equivalent English provisions including the decision in Vision Enterprises Limited v Tiensia [2012] I WLR 94. He observes that the monetary payment does not refer to any loss or damages but is a penalty. The sheriff has complete discretion up to a maximum of three times the tenancy deposit.

APPELLANTS' SUBMISSIONS

4. Mr Russell, the first named defender represented both appellants. Mr Russell agreed with the sheriff's observation in paragraph 1 that he has legal training but not in litigation. He accepted that the defenders had failed to comply with their duties as landlords in terms of Regulation 3 of the TDS Regulations. He accepted that the respondent's summary application had been warranted and served within the time limit stipulated in Regulation 9(2). The Minute of Amendment for the pursuer was tendered on 20 June 2013 and the proof took place on 12 September following which the sheriff made avizandum.

5. Mr Russell put forward three grounds of appeal but these were developed into eight numbered paragraphs in his Note of Appeal. Essentially however, the three grounds of appeal relate firstly, to the competence of the respondent's summary application; secondly, that the sheriff erred in allowing amendment outwith the statutory time limit and that the summary application being incompetent was incapable of being cured by way of amendment especially outwith the three month time limit. Thirdly, the appellants sought to argue that the sheriff had erred in his approach to the exercise of his discretion on the amount of the penalty in terms of Regulation 10(a).

6. Mr Russell argued that the summary application was fundamentally incompetent. The crave for declarator was an abstract crave unconnected with any meaningful remedy and certainly unconnected with the remedy now sought namely, an order for payment in terms of Regulation 10. The summary application as warranted and served could bestow no entitlement on the pursuer to payment. It was incompetent to seek a crave which had no legal consequences or meaning for the pursuer (Macphail on Sheriff Court Practice (Chapter 20 - Declaratory Actions 20.01). The appellants derived assistance from this passage "it is incompetent to bring an action to have a fact declared which has no legal consequences for the pursuer, or to seek a judicial opinion on an abstract question of law." The crave of the summary application referred solely to Regulation 3. Regulation 3 did not provide any basis for an order for payment. As the summary application did not seek payment the sheriff had misdirected himself in law in relation to the "jurisdictional competence" of the summary application which failed to comply with the substantive law set out in the Housing (Scotland) Act 2006 and the TDS Regulations. The appellants referred to Simpson v Downie CSIH 2013 SLT 178 where the Inner House provided its opinion of the court's jurisdictional competence. The sheriff was wrong to distinguish Simpson v Downie. He erred in failing to recognise that the summary application ostensibly raised timeously was not a competent application in terms of the TDS Regulations.

7. The sheriff had misdirected himself in law by permitting amendment in summary application proceedings. Having regard to Jamieson on Summary Applications (paragraph 30.26) the sheriff fell into error by allowing amendment to cure the defect in the writ after the expiry of the time limit allowed in the regulations. Jamieson suggests that the sheriff can allow an amendment to cure any defect in form but not to alter the substantive nature of the writ. The purported amendment fundamentally altered the basis of the pursuer's case and the sheriff therefore erred in allowing amendment to cure the substantive defect in the application. It was not competent for the sheriff to allow an amendment to cure the defect after the expiry of the time bar and if it was competent the sheriff wrongly exercised his discretion standing the prejudice to the appellants. The sheriff had no competent action before him upon which he could exercise his discretion. The appellants referred to the following authorities in support of that submission - Pompa's Trustees v Edinburgh Magistrates 1942 SC 119; Simpson v the Burgh of Inverurie 1974 SLT (Sh Ct) 96; Tennent Caledonian Breweries Limited v Gearty 1980 SLT (Sh Ct) 71; Rutherford v Virtue 1993 SCLR 886; Wilson v Lothian Regional Council 1995 SLT 991; Gray Aitken Partnership Limited v Link Housing Association Limited 2007 SC 294; Simpson v Downie 2013 SLT 178 and Macphail on Sheriff Court Practice 3^rd Ed Ch 10. Mr Russell argued that the defenders had suffered prejudice by requiring to defend and face the expense of defending an incompetent action. They were entitled to rely on the arguments they put forward before the sheriff namely that the pursuer and respondent had no title or interest to seek payment and they were entitled to rely on the protection of time bar. To raise an incompetent action timeously was no answer.

8. Finally the sheriff erred in the order he made for monetary payment. He erred in failing to take account of the short period of default. He erred in taking account of the appellants' right and entitlement to maintain their defence to the action despite their admitted failure to comply with their duties under the TDS Regs. He failed to take account of the novelty and complexity of the regulations. He failed to recognise that the breach occurred during the notice of termination of the tenancy and he failed to have regard to the logical proposition that the highest awards should be reserved for blatant breaches and this was not one of these cases.

Submissions for the respondent

9. Mr Tensin represented himself and responded to the appellants' arguments. In essence he associated himself with the sheriff's reasoning. There was no credible legal foundation for the appellants' submissions. Mr Tenzin referred to Rule 2.4 of the Summary Application Rules and pointed out that his summary application which was warranted and served timeously had complied with the requirements of the rules.

10. Mr Tenzin considered that he had properly and accurately based his summary application on the Housing (Scotland) Act 2006 and the TDS Regulations. I was referred to Condescendence 4 of the Summary Application which sets out his case together with the statutory framework and regulations. There had been a clear failure to comply with the duty under Regulation 3. Accordingly, there is no ambiguity whatsoever or rather there should be no ambiguity in the mind of the defender as to the order sought. The appellants' submissions on "jurisdictional competence" are wrong and it is important to look at the articles of condescendence and not simply the crave. The interests of justice would require that the sheriff consider the writ as a whole.

11. Mr Tenzin distinguished the authorities relied upon by the appellants - Simpson v Downie (supra) Tennant Caledonian Breweries v Gearty; Rutherford v Virtue; Gray Aitken Partnership v Link Housing Association Limited and Simpson v Downie. Unlike the pursuers in these cases he had raised the summary application correctly in accordance with the requirements of the regulations. He had raised the proceedings properly in his own name with the correct defenders and timeously. His original crave covered all the points necessary to engage the mandatory obligation under Regulation 10 to order payment. The crucial issue was a breach of Regulation 3 on the part of the defenders and this was the only condition that the sheriff required to be satisfied about before ordering payment. Mr Tenzin explained that he ultimately decided to ask the court to receive a minute of amendment to include an operative crave for payment to implement the sheriff's order. This was to avoid the technical arguments such as occurred before the sheriff and now on appeal. Amendment could be allowed to cure defects providing there was no fundamental nullity in the proceedings. The action was competent; there was no time bar issue and the sheriff was correct to consider the amendment and exercise his discretion to allow the amendment in the interests of justice. The authorities referred to by the appellants were cases where the pursuer had either used the wrong mode of action or in the case of Simpson v Downie was simply out of time. In the case of Gray Aitken the pursuer's designation was fundamentally wrong and amendment outwith the time bar was not allowed. Mr Tenzin derived assistance from Pompa's Trustees at page 125 and Wilson v Lothian Regional Council.

12. Lastly, on the matter of penalty or sanction Mr Tenzin stressed that the order for payment was indeed a penalty. The appellants had not provided reasons or mitigating evidence for non-compliance. Accordingly, I was urged to adhere to the sheriff's decision and reasoning and refuse the appeal and award expenses in his favour.

DECISION

13. This appeal relates to the interpretation and operation of the TDS Regulations which came into force in March 2011. The regulations are made under powers conferred by Part IV of the Housing (Sc) Act 2006. That part of the 2006 Act is concerned with tenancy deposits as are the TDS Regulations. A tenancy deposit is defined as a sum of money which in the context of a tenancy is money held as security for the performance and discharge of the occupant's obligations or liabilities under that tenancy.

14. The regulations impose duties on landlords in connection with tenancy deposits. The object is the safeguarding of the deposit in a tenancy deposit scheme. The purpose in so doing is to protect the money paid by the tenant to the landlord so that the landlord does not have the whip hand on the deposit at the termination of the tenancy. The regulations make it compulsory that the tenant's deposit or tenant's money is safeguarded in an approved scheme. If the landlord defaults in his duties towards the tenant's money then he is penalised. The regulations operate quite clearly to enforce compliance on the part of landlords by providing sanctions for non-compliance. Part II of the Regulations sets out the operation of the sanctions. Regulations 9 and 10 govern the court orders. However, the bedrock of the regulatory framework is Regulation 3 which sets out the landlord's duties in relation to deposits. The court can only make an order or impose a sanction "where the landlord did not comply with any duty in Regulation 3 in respect of that tenancy deposit". In that event, providing a tenant makes a summary application within three months of the tenancy ending, the sheriff must make an order penalising the landlord if the sheriff is satisfied that the landlord failed to comply with any duty in Regulation 3.

15. It is therefore clear that the regulations explicitly provide that the court impose a sanction or monetary penalty in the event of a default. In the event of a default the court must impose a sanction and has the power to determine the amount of that penalty up to a limit of three times the amount of the tenancy deposit.

16. The primary object of sanctions is to enforce or certainly encourage compliance with obligations or duties and to prevent default.

17. The regulations also provide a mechanism for resolving disputes between landlord and tenant at the end of the tenancy about the amount of the deposit to be repaid. The administrator of an approved tenancy deposit scheme must provide for the adjudication of such disputes in a fair and cost effective manner. When a landlord fails to pay the deposit into an approved tenancy deposit scheme the tenant is also deprived of access to this free dispute resolution procedure

18. The value of such adjudication cannot be over stated. It benefits both landlord and tenant. It avoids the requirement for court proceedings which can be costly in terms of money and time not to mention stressful. Usually, such disputes are small claims actions. The sheriff court is all too familiar with such cases. Disputes over refund of deposits are commonly encountered in the small claims procedure. Although this procedure is designed to be accessible to unrepresented litigants, the issues can become complex when questions of rent arrears and breaches of tenancy obligations arise - and of course, the real cost of the proceedings invariably far exceeds the expenses which may be recovered by the successful party.

19. The regulations have as their main purpose the safeguarding of the tenant's deposit. The regulations were enacted against a background that some landlords were abusing their position as holder of the deposit monies by retaining the deposit at the termination of the tenancy and negotiating on damage and dilapidations from a position of strength. Parliament has now decided that should stop and plainly the regulations make it compulsory to put the deposit outwith the reach of both landlord and tenant with an associated dispute resolution process. The dispute resolution process is accessible to both landlord and tenant and places them on an equal footing. In a situation where a landlord claimed entitlement to retain all or part of a deposit he would require to produce to the independent arbiter vouching in support of that claim. A plain reading of the regulations particularly Part II (Sanctions) makes it clear that Parliament has provided a sanction to back up the scheme and encourage and ensure compliance. The landlord will be penalised in an amount of money up to three times the deposit if he fails to comply. The issue for the court relates to compliance or non-compliance. Regulation 9 empowers the tenant and places in his or her hands the option to apply to the court for a monetary order. It is strict liability for non-compliance. There are no rules as to the approach that the court should take in assessing the amount of the order. The court must make an order and it is therefore reasonable to read into the regulations that Parliament intended to leave it entirely to the court to determine the level of penalty to impose. The regulations do not enumerate any matters or criteria which the court must have regard to. Accordingly, the sheriff has complete discretion as to the level of the order and is constrained only by the amount of the deposit and a triple multiplier. The sheriff, of course, will have regard to any evidence offered by way of mitigation. In dealing with non-compliance no distinction has been drawn by the legislators between the careless or devious; the experienced or inexperienced, the culpable or inadvertent. Likewise the strict liability consequences of non-compliance allow the court to promote rigorous application of the regulations pour encourager les autres. In other words deterrence.

20. That appears to me to be the statutory and regulatory framework and purpose. Against that background I turn to the grounds of appeal in the present case.

21. The appellants' principal argument depends on the premise that the summary application lodged timeously with the court is fundamentally incompetent as it simply seeks declarator. It is implicit in this argument that the unamended writ would be incapable of providing the pursuer with the remedy he seeks namely, a statutory payment in terms of Regulation 10. Furthermore, it is suggested in the second ground of appeal that the action is fundamentally incompetent due to it having as a crave a declarator which has no legal consequences for the pursuer. That ground of appeal suggests that the pursuer requires to have an interest to have declared to be his. Firstly, it is evident that the pursuer Mr Tenzin has an interest in Regulation 3 which governs the duties in relation to tenancy deposits. He is a party to the lease and has an interest in the fulfilment by his landlord of the duties relating to the tenancy deposit which is the tenant's money. There is no basis whatsoever for suggesting that this is an abstract or academic point. More particularly a declarator or finding in respect of the landlord's compliance or non-compliance with his duties under Regulation 3 is the trigger for a payment under Regulation 10. If a vehicle is required to reach that point then the summary application is that vehicle. The original crave does appear to conflate an order for payment with a reference to the landlords' duties under Regulation 3. Nevertheless, the written case makes the tenant's position crystal clear. He sets out the justification for seeking an order for payment with reference to Regulations 3, 9 and 10. Significantly, the appellants admit their failure to comply with Regulation 3. Their defence relates solely to the question of whether the pursuer has title and interest to sue and that standing the crave of the initial writ the sheriff does not possess the jurisdictional competence to make an order under Regulation 10(a).

22. The appellants admit their failure to comply with their duties as landlords in terms of Regulation 3 which immediately engages the mandatory requirement that the sheriff shall order the landlord to make a payment in terms of Regulation 10(a). The sheriff is bound to make that order on these pleadings. Accordingly, it appears to me that the proposition that the pursuer's summary application is incompetent is fundamentally flawed. It may be prudent for a pursuer in Mr Tenzin's circumstances to crave separately an order for payment but it is my view that the crave of the initial writ as originally warranted is sufficient to trigger a payment under Regulation 10. The pursuer is asking the court for a finding and declarator of entitlement to payment with reference to the landlord's duty under Regulation 3. He explicitly refers to the landlords' failure to pay the deposit to a scheme administrator within 30 working days in his pleadings. The appellants should be in no doubt as to what the respondent is seeking from the averments in Article 4 of Condescendence. The appellants chose to challenge the pursuer's title to sue and the form of the summary application. They do so in the clear knowledge of their default. In my view, the initial writ brings the tenant's application for an order under Regulation 10 of the TDS Regs competently before the court. A summary application seeking a finding and declarator of entitlement to payment in terms of Regulation 3 is sufficient to achieve a Regulation 10 order. The writ as originally warranted is both competent and apt to secure the payment which the pursuer seeks.

23. The case of Simpson v Downie falls to be distinguished. The "jurisdictional competence" of the court in that case was circumscribed by the provisions of the Family Law (Scotland) Act 2006 in particular section 28. That section innovates by creating a right to apply to the court for a financial order when cohabiting couples separate. The section provides that any such application must be brought within a year. In Simpson the defender's application was late and the Inner House decided that the court's jurisdiction was circumscribed by the provision. The application was out of time and fell to be dismissed. There was no suggestion that the application had ever been brought in time. There was simply no dispute about that. Accordingly, the sheriff, in my view, was correct to distinguish Simpson v Downie which has no application to the present case. In the present appeal the application was brought within the strict time limit of three months.

24. That leaves the question of the amendment and whether it was competent for the sheriff to allow the amendment by introducing the new crave for payment and whether it was competent or reasonable for the sheriff to do so at the stage of proof. The appellants suggest that the granting of the pursuer's amendment at the stage of avizandum also constitutes an error there being no opportunity for the appellants to alter their position on the proposed amendment prior to the issue of the sheriff's decision.

25. It appears to me that this latter argument is simply wrong. The amendment was not proposed at the stage of avizandum but rather was received prior to the proof. The amendment is intimated and lodged in June 2013. The minute of amendment was moved by the respondent at the outset of proceedings before the sheriff. The sheriff at paragraph [12] observes:

"In the present case, there is no dispute that the action was brought timeously. The crave which the pursuer sought at the outset was one of declarator. What the minute of amendment seeks to do is to insert an order for payment."

Having referred to Jamieson on Summary Applications and Simpson v the Burgh of Inverurie 1974 SLT (Sh Ct) 96 the sheriff adopts the reasoning of the court in Simpson v the Burgh of Inverurie as follows:

"This action was brought timeously. The writ complied with all the necessary requirements of the rules but did not contain an order for payment. As I do not consider it can be said that the writ was a fundamental nullity I see no reason why leave to amend should not be granted. There was never any doubt as to what the case was about or the relevant regulations relied upon. There is no actual prejudice to the defenders in allowing the amendment other than taking advantage of the fact that the writ originally did not have a crave for payment as such. The minute of amendment requires no answers and simply gives an operative crave to the existing declarator".

26. The case of Simpson v the Burgh of Inverurie involved a writ which contained no crave whatsoever. The Sheriff Principal in that case decided that the writ was nevertheless competent and was capable of being amended.

27. The remaining authorities cited by the appellants do not, in my view, advance matters in favour of this appeal. Pompa's Trustees is a well known case. It establishes that amendment cannot cure a radical incompetence nor will the court allow by amendment an alteration to the basis of the case after the expiry of a time limit. Pompa's case did not involve a radical incompetence and amendment was allowed. This case, likewise, does not involve a radical incompetence or a fundamental change to the respondents' case out of time. Mr Tenzin has in his initial writ followed the summary application rules and he sets out in the writ explicitly the appellants' non-compliance and the consequences of that non-compliance.

28. In Tennent Caledonian Brewers v Gearty and Rutherford v Virtue the proceedings were fundamentally incompetent as the pursuers had raised the wrong type of action contrary to the Sheriff Courts (Scotland) Act 1971. Ordinary proceedings had been commenced whereas summary cause procedure was a statutory requirement. There was therefore no process to cure by amendment. In Gray Aitken the pursuers' own designation was incorrect. This was a fundamental and substantial error and could not be cured by amendment outwith the time limits. These circumstances are far removed from the present case. Wilson in my view does not assist the appellant. The summons in that action contained no conclusion (crave). Lord Osborne did not accept that constituted a fundamental nullity. He did so despite the requirement in the Court of Session Rules that a summons must have a conclusion. The Lord Ordinary considered his powers to allow amendment and did allow amendment taking into account the nature of the oversight and the prejudice or lack of prejudice to the defenders. Lord Osborne did, however, have regard to the clear prejudice which the pursuer would suffer if the action was not allowed to proceed. Although the circumstances of that case are quite different to the present case it may be appropriate to set out part of Lord Osborne's decision where important parallels can be observed.

"In the whole circumstances, the view which I have reached is that the absence of any conclusion in the pursuer's summons has not created a situation in which her action must be seen as a fundamental nullity. In particular, in my opinion, none of the authorities cited to me requires me to reach the conclusion that this action is fundamentally null. Furthermore, having regard to practical considerations which were to some extent discussed in the debate before me, I can see no reason why I should be forced so to conclude. From the outset of this action, it was perfectly plain that both parties were under no misapprehension as to the nature of the claim which the pursuer was seeking to assert. In addition, no considerations were mentioned to show that the defenders would be in any way prejudiced, if the conclusion were to be reached that the action was not a fundamental nullity, other than, of course, the loss of the windfall benefit of its dismissal."

29. In my view, these words are apt in the present case. The appellants are unable to point to any prejudice other than they required to defend an action which they argued was incompetent. Set against the context of a clear admitted breach of Regulation 3 I did not consider that this amounted to much. The legislators, as I have said, place the issue of recovery of an award of money fairly and squarely in the hands of the tenant who requires to exercise his right to apply to the court within a fairly tight and speedy timescale from the termination of the tenancy. It follows that the grounds of appeal relating to the competence of the current proceedings and the amendment of the proceedings fall to be rejected.

30. I turn to the remaining ground of appeal which relates to the quantum of the award. In view of my analysis of the regulations the sheriff has complete and unfettered discretion as to the award to make, an appellate court has little, if any, justification for intervening. Clearly, if a sheriff exceeded the parameters set down by Parliament in the regulations that would be an error. Fairness in procedure would suggest that the sheriff must have regard to any mitigation, however in this case the sheriff indicates that no evidence was led in mitigation. Furthermore, standing the terms of the regulations it is difficult to see what effect mitigation might have. As I have observed the sheriff is entitled to impose any penalty including the maximum to promote compliance with the regulations especially at this early stage in their operation and implementation. I regard this as important. It is clear that the appellants made deductions from the deposit at the end of the tenancy directly contrary to the letter and spirit of the regulations. As the sheriff states - "the very thing which it seems to me this legislation was designed to avoid or at least mitigate." Therefore, there is no basis upon which I can or should interfere with the sheriff's decision. The appeal falls to be dismissed. I will award expenses to the respondent.

(signed) Mhairi M Stephen