An order for unliquidated costs was a contingent liability and was not a qualifying debt for the purposes of a debt respite mental health crisis moratorium.
Summary
This case considered whether an order regarding unliquidated costs would constitute a moratorium debt for the purposes of a mental health crisis moratorium under the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (DRS Regs 2020).
Background
In prior proceedings (see Axnoller Events Ltd and another v Brake and others [2021] EWHC 828) (Ch)), Mr and Mrs Brake and their son D’Arcy (the Brakes) had unsuccessfully applied to recuse the judge for bias.
On 2 May 2021, following the refusal of their recusal application, the judge decided that the Brakes should pay the costs, subject to detailed assessment of Axnoller Events Ltd and the other parties involved (the Guy Parties). However, the amount of costs to be paid was not decided. In order to quantify the costs, the judge required the costs schedule from the Guy Parties, as well as written submissions from all parties concerning whether a payment on account should be made as per Civil Procedure Rules – CPR 44.2(8).
The court considered the matter of costs on 4 June 2021, after receiving the requested information.
In the submissions, the court was informed that Mr Brake had entered into a mental health crisis moratorium (MHCM) on 6 May 2021. The Brakes argued that as a result of Mr Brake entering to the MHCM, the Guy Parties were unable to enforce any debt payable to them and that an order for a payment on account should not be made. They also argued that the protections detailed in regulation 7 of the DRS Regs 2020 applied to all joint debtors, therefore both Mrs Brake and their son would also be protected from enforcement.
The Guy Parties challenged this submission on two grounds. First of all, they argued that the debt that would be created if a payment on account was ordered would not be a moratorium debt within regulation 6 of the DRS Regs 2020. Secondly, even if it was a moratorium debt, the Guys Parties were not seeking an order which would enforce the debt in any manner detailed in regulation 7 of the DRS Regs 2020 and, therefore, making an order for a payment on account should not be prohibited.
The court considered the submissions and circulated a proposed judgment to all parties. In response, Mrs Brake raised a further point that, pursuant to Regulation 15 of the DRS Regs 2020, a debt becomes a moratorium debt once the appropriate party has been notified.
The court decided to address Mrs Brake’s new point by revising the judgment, rather than by formal way of appeal.
The court's decision
The court decided that the order for costs made on 2 May 2021 against the Brakes was not a qualifying debt. The order created a contingent liability, but it could not be enforced before being liquidated.
In other words, the costs order was a contingent liability, so it could not be considered a qualifying debt and, in turn, it would not satisfy the conditions of regulation 6 of DRS Regs 2020. Para 22 of the judgement states:
"‘In ordinary language a 'debt' is a liquidated sum that is due and owing: see eg Webb v Stenton (1883) 11 QBD 518, CA. In my judgment that is also its meaning in the regulations. Thus, the order of 2 May 2021 did not create a debt for the purposes of the regulations".
On regulation 15 of DRS Regs 2020, the court commented that it was not clear whether the procedure relating to additional debts is intended to cover future debts, incurred after the moratorium, or only to debts already in existence but unknown to the debt advice provider at the time of the application for a moratorium. It did not make a final decision on this point and highlighted that because the debt in question will not exist until the order liquidating the costs is made, regulation 15 was irrelevant.
Ultimately, the court ordered that the Brakes pay costs of £15,391.95 by 18 June 2021.
Comments
This case confirms that contingent liabilities would not meet the definition of a qualifying debt and, therefore, they cannot become a moratorium debt protected from enforcement under regulation 7 of DRS Regs 2020.
Advisers assisting debtors with either a Breathing Space Moratorium or MHCM application will need to advise those who are subject to ongoing legal proceedings that the courts will not be prevented from making costs orders during a moratorium.