Background
OX1 Limited owned three flats above commercial premises at The Blarney Stone in Banbury. Tariq Khuja was the company’s sole director and shareholder, while a managing agent handled the flats’ day-to-day management. Following inspections in August 2023, Cherwell District Council identified fire and other hazards and later served improvement notices on the company.
The Council alleged eight breaches of regulations governing houses in multiple occupation and imposed financial penalties of £24,975 on both OX1 and Mr Khuja. It said Mr Khuja was personally liable under section 251 of the Housing Act 2004 because he had failed to take reasonable steps to prevent the company’s offences. The First-tier Tribunal found the property was an HMO, set aside the improvement notice as excessively broad, but upheld liability for the penalties and reduced each penalty to £11,000.
The FTT found that the company’s breaches had occurred with Mr Khuja’s consent because he was its sole director, shareholder and “directing mind.” Mr Khuja appealed only the penalty imposed on him; the company’s penalty remained in place.
The Court’s Holding
The Upper Tribunal allowed Mr Khuja’s appeal, set aside the FTT’s decision concerning his penalty, and substituted a decision cancelling it. Section 251 does not make a director liable merely because of his office or status as a company’s controlling mind. To establish “consent,” the authority must prove, directly or by inference, that the director actually knew the material facts constituting the company’s offence and agreed to the business being conducted on that basis.
The FTT had made no finding that Mr Khuja knew of the regulatory breaches before the August 2023 inspection. His knowledge after the inspection, when he was cooperating in remedial work, could not support an inference that the earlier breaches were committed with his consent. Its reasoning was therefore unexplained and unsustainable.
The Tribunal also held that the FTT had failed to address double punishment when setting Mr Khuja’s penalty. Since he was sole shareholder as well as director, the company penalty affected him pound for pound. Applying Sutton v Norwich City Council, the FTT should have considered the company penalty when fixing any personal penalty. The matter was not remitted: a fresh case on consent or neglect would be potentially futile, disproportionate and unfair, particularly as only £1,000 of Mr Khuja’s penalty differed from the company’s.
Key Takeaways
- A sole director is not personally liable under section 251 simply because he or she is the company’s controlling mind.
- “Consent” requires proof of actual knowledge of the facts constituting the corporate offence; what a director ought to have known may instead be relevant to neglect.
- Where a company and its owner-director are both penalised, the tribunal must consider whether the combined penalties create double punishment.
Why It Matters
The decision draws a clear distinction between consent and neglect in section 251 of the Housing Act 2004. Local authorities seeking a civil penalty against a company officer must identify evidence supporting the particular statutory basis of personal liability, rather than infer consent from the officer’s position alone.
It also reinforces that personal penalties cannot be assessed in isolation where the same individual bears the economic effect of a penalty imposed on a solvent one-person company.