Property – Order for sale – Mental health crisis moratorium – Claimant judgment creditor applying to cancel mental health moratorium in favour of defendant – Whether defendant satisfying criteria for initiation of mental health crisis moratorium – Whether claimant entitled to injunctive relief – Application granted
The claimant had an unpaid judgment against the defendant for more than £300,000. He was granted a final charging order over the defendant’s lease of a ground-floor maisonette, 8 Leysfield Road, London W12. An order for sale was made, pursuant to which the claimant purported to sell the defendant’s leasehold interest to D for £505,000. The claimant used part of the proceeds (£188,963.90) to discharge the defendant’s mortgage over her lease. The defendant was evicted and D went into occupation.
However, the defendant had been subject to a breathing space moratorium, having been granted a series of four mental health crisis moratoria under the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020. As a result, the sale and eviction were held to be null and void: [2022] EWHC 1151 (QB); [2022] EGLR 25 (the May judgment).
The court subsequently dismissed the claimant’s application to set aside the moratorium and held that the effect of the discharge of the mortgage had been to subrogate the claimant to the rights and liabilities of the bank as creditor of the defendant and mortgagee of the lease: [2022] EWHC 3326 (KB).
The defendant’s liability to the claimant now stood at £500,000. Part of that liability was secured by the charging order made against the lease of the flat, which remained in place following the May judgment, and part of it was secured by subrogation to the bank charge over the lease.
The defendant sent a letter before action to the claimant indicating that she intended to seek damages, without further notice, for breach of statutory duty and trespass. She was granted a further mental health crisis moratorium commencing on 8 November 2022 (the current moratorium).
The claimant applied to cancel the current moratorium pursuant to regulation 19 of the 2020 Regulations and sought an order forbidding the defendant, for a period of 60 days, from applying for any further moratorium to prevent him from enforcing the judgment debt. The request was later refined to one for injunctive relief.
Held: The application was granted.
(1) Under regulation 28(2)(e) of the 2020 Regulations, there were two conditions to be satisfied before the criteria for initiation of a mental health crisis moratorium could be met: (i) the debtor was suffering from a “mental disorder of a serious nature”; and (ii) in respect of that disorder, the debtor was receiving “crisis, emergency or acute” care or treatment in hospital or in the community.
In essence, a mental health moratorium continued so long as the debt advice provider was satisfied, where an application was made under regulation 28(2)(e), that the debtor was continuing to receive mental health crisis treatment for a mental disorder of a serious nature.
On the evidence, the criteria of regulation 28(2)(e) were not met when the application for the current moratorium was made: see regulation 17(2)(a). There had therefore been a material irregularity in accordance with regulation 17(1)(b). As a result, the current moratorium would be cancelled pursuant to regulation 19(3)(a) and (b): Axnoller Events Ltd v Brake and another [2021] EWHC 2308 (Ch); [2021] 1 WLTR 6218 applied.
(2) In assessing prejudice, post-moratorium conduct could alter the balance of prejudice. Improvement in condition might enable a debtor to engage with the debt problem. If the debtor having sufficiently improved did not do so, that might make the moratorium unfairly prejudicial. The regulations necessarily required a court to consider prejudice which outweighed any mental health crisis which the debtor might demonstrate. The interests of creditors and debtors were chalk and cheese, and the court might determine for itself where the line was to be drawn.
Disclosure of treatment and prognosis was required to carry out the balancing exercise, without which it would be difficult to assess the debtor’s interests. Accordingly, sufficient detail of the duration and severity of the illness, the prognosis and the timescale for improvement were required. Where the evidence, if any, suggested that the debtor’s mental health had improved to an extent that it would be reasonable to expect them to engage with debt advice, that would weigh in favour of cancellation.
In assessing where the balance lay, regulation 19(3) enabled a court to distinguish between the effects on a particular creditor, and creditors generally, and make a tailored order.
(3) In the instant case, on balance, the interests of the claimant had been unfairly prejudiced. The judgment debt was substantial and long-standing and no attempts had been made by the defendant to discharge it, notwithstanding that one of the express purposes of the breathing space legislation was to provide the debtor with the opportunity of making a “realistic plan for the repayment of some or all of the debts” : section 6(2) of the Financial Guidance and Claims Act 2018.
Either the debt was no longer fully secured or it would cease to be fully secured in the near future as the sums owed by the defendant to the claimant continued to grow, but there was no evidence to suggest that the defendant required any further protection from her debts. The evidence showed that she had been able to continue to work and be economically productive.
Notwithstanding the statutory nature of the debt respite scheme (which included the scheme for mental health crisis moratoria), the High Court had power to restrain potential abuses of the scheme by placing sensible limits on the ability to access it. Taking that as a starting point, there was a real risk, given the history of this case, that were she not to be restrained the defendant might seek to obtain a further moratorium and prevent the claimant from enforcing the judgment debt.
(4) In all the circumstances, a fair and proportionate approach dictated that the defendant should be restrained from seeking a further breathing space or mental health crisis moratorium for a period to be discussed. However, to protect her interests, she would have permission to apply within seven days of the date of the order to be made to vary or discharge that part of it which related to the proposed injunction. If she did not avail herself of such permission, she should nevertheless have permission to apply to vary or discharge the injunction at any point in the course of its duration, if she wished to seek a further breathing space or mental health crisis moratorium, so long as any such application was made on notice and was accompanied by the evidence which she proposed to rely on in support of a request for a further moratorium.
Kerry Bretheron KC and Philip Judd (instructed by Perrin Myddelton of Harpenden) appeared for the claimant; the defendant did not appear and was not represented.
Eileen O’Grady, barrister
