The court ordered the cancellation of a mental health crisis moratorium on the basis of material irregularity and unfair prejudice.
Regulation references in this summary are to the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020.
Summary
The County Court held that Mr Stoute’s mental health crisis moratorium should be cancelled due to material irregularity and unfair prejudice to his creditor.
The debt advice provider should not have been satisfied, based on the evidence provided, that Mr Stoute was receiving mental health crisis treatment. This was a material irregularity.
Mr Stoute had entered a series of moratoriums for over three years, the property was in negative equity and no payments had been made to the mortgage since June 2021. This resulted in unfair prejudice to the creditor.
Background
Bluestone had obtained a possession order as a result of mortgage arrears. The order had not been enforced and Mr Stoute remained in the property.
Mr Stoute entered a mental health crisis moratorium in September 2023. This was the sixth moratorium he had entered.
Previous court proceedings
This judgment follows an earlier hearing which dealt with the issues of whether the debt was a qualifying debt and whether the court’s permission was required to enforce the possession order.
These aspects of the case were appealed to the High Court, which dismissed the appeal. It agreed that enforcement of the possession order required court permission.
Read our case summary of Bluestone v Stoute.
Current court proceedings
This hearing considered Bluestone’s application for the moratorium to be cancelled under regulation 19.
Bluestone argued there was material irregularity because:
the evidence that Mr Stoute was receiving mental health crisis treatment was insufficient and contradictory
there was no intention for Mr Stoute to create a repayment plan
Bluestone also argued there was unfair prejudice because Mr Stoute had:
continued to work and carry on a business throughout the moratoriums
prioritised payments to other creditors over Bluestone
The court’s decision
The court held that the moratorium should be cancelled because there was material irregularity. It also decided the moratorium unfairly prejudiced Bluestone.
Material irregularity
The court held that evidence provided by the Approved Mental Health Professional and another person working for the community mental health team was contradictory. This was a material irregularity.
The judge followed the High Court decision in Kaye v Lees. This held that ‘eligibility criteria’ has a wider meaning than the criteria listed at regulation 30(3) and includes evidence of mental health crisis treatment as required by regulation 30(4).
Read our case summary of Kaye v Lees (2).
The judge also followed the approach taken in a later hearing in the Kaye v Lees litigation, where it was held that the debt advice provider is required to undertake a ‘quasi-judicial’ function.
Read our case summary of Kaye v Lees (3).
The debt advice provider must determine whether a debtor is receiving mental health crisis treatment based on the available evidence. A judge considers whether a reasonable debt advice provider would have reached the same decision regarding mental health crisis treatment when deciding if there has been material irregularity.
Unfair prejudice
The court held that there was unfair prejudice to Bluestone. The relevant factors were the:
length of time Mr Stoute had been in moratoriums
lack of mortgage payments even though Mr Stoute claimed he could afford to make payments
fact the property was in negative equity
lack of medical evidence to prove the impact of cancellation on Mr Stoute’s mental health
Comment
This decision provides useful guidance on how the courts interpret material irregularity and unfair prejudice.
This is a County Court decision and not binding on other courts, though it is likely to be persuasive.
Evidence available at the time
The judge commented that the court should not look at the issue of evidence retrospectively. The debt advice provider’s decision should only be assessed based on the evidence they had at the time they entered the debtor into the moratorium.
Interest of the debtor and the creditor
The judge said that if there is clear evidence that there will be a severe impact on the debtor’s mental health, this must be considered by the court when weighing up the interests of the creditor and debtor. The judge also stated that the balance shifts in the creditor’s favour the longer a moratorium goes on, particularly in a case where security is eroded and a property goes into negative equity.
Requirement to provide debt advice or develop a payment plan
The judge commented that a mental health crisis moratorium can still be appropriate if there is no intention to provide debt advice to the debtor during the moratorium.
The judge’s comments on appropriateness appear to cast some doubt over the comments of the judge in Kaye v Lees that a debtor in a mental health crisis moratorium must work with the debt advice provider to develop a payment plan. The judge in this case considered the High Court’s comments in Kaye v Lees to be obiter.