Kaye v Lees (3)

The High Court refused to extend an injunction that prevented the debtor applying for a further moratorium under the Debt Respite Scheme Regulations.

Summary

In previous court proceedings, the High Court granted an injunction preventing Lees from applying for moratoria under the Debt Respite Scheme Regulations for a period of two months. Kaye applied to the court to request an extension of this injunction.

The High Court refused the application on the basis that, while the court holds the power to make an injunction, the decision whether a moratorium is appropriate lies with the debt advice provider. The debtor might have personal circumstances that permit a further moratorium.

Background

The County Court awarded Kaye damages due to harassment and nuisance caused by Lees. The debt was enforced by way of a charging order, then an order for sale and writ of possession.

Kaye evicted Lees from her home. Kaye sold the property. The High Court held the eviction and sale null and void as Lees had entered a second mental health crisis moratorium (MHCM).

Read our case summary of Lees v Kaye.

Lees’ mortgage was subrogated to Kaye. In this case, the court refused to cancel the MHCM or give permission for enforcement action.

Read our case summary of Kaye v Lees.

The court cancelled Lees’ fourth MHCM on the grounds of material irregularity. It was not satisfied that Lees' mental health condition was a "mental disorder of a serious nature".

The court decided that Kaye had been unfairly prejudiced by the MHCM as Lees had not explored options to deal with the debt and this was not in the spirit of the Regulations.

The court granted an injunction preventing Lees from applying for moratoria for two months.

Read our case summary of Kaye v Lees (2).

Application to extend the injunction

Lees was evicted from the property.

Kaye requested an extension of the injunction so he could complete the sale without Lees entering a further moratorium.

The court's decision

The High Court refused to extend the injunction.

It commented that while the court has the power to grant an injunction, it must also consider whether it is proper to exercise its power on the facts presented.

It reasoned that the Debt Respite Scheme Regulations give a debtor a right to apply for a breathing space moratorium or a MHCM. The regulations do not put a limit on a debtor entering a new MHCM when one has been cancelled.

A debt advice provider decides whether it is appropriate to apply for a moratorium. It would not be right for the court to grant an injunction which would alter the debt advice provider's decision-making process.

Intent of the Debt Respite Scheme Regulations

Section 6(2) Financial Guidance and Claims Act 2018 intended for a debt respite scheme to do one or more of the following:

• protect individuals in debt from interest or charges during a moratorium

• protect individuals in debt from enforcement action during a moratorium

• help individuals in debt and their creditors devise a realistic plan for the repayment of some or all of their debts

The court held that these three purposes must be taken as a whole rather than looked at separately.

The court held that the latter point should be part of the decision-making process when a debt advice provider considers whether a moratorium is appropriate.

The court predicted that, based on the facts known at this point, any application that Lees makes for a moratorium ought to be turned down, but there might be some unknown circumstances that would permit Lees to enter into another moratorium.

Comment

This judgment has raised the stakes for debt advice providers considering whether to enter a debtor into either a breathing space moratorium or a MHCM.

In considering whether to extend the injunction, the court placed great focus on the role of the debt advice provider to consider whether a moratorium is appropriate, and whether a debtor is using a moratorium to find an appropriate debt solution.

The court criticised the debt advice provider working with Lees that they had been too willing to grant the moratoria and unwilling to cancel them upon review. There was no evidence that the debt advice provider had worked with Lees to develop a payment plan.

The judge commented that a debt advice provider has a quasi-judicial role and therefore might find themselves facing a judicial review. This has potential consequences that will echo throughout the debt advice sector.

Advisers might face arguments that a breathing space moratorium or a MHCM is not being used to find an appropriate debt solution. This could be particularly concerning where a client in a MHCM is not seeking advice, or is struggling to engage in a meaningful way, as it opens up the moratorium to review and possibly judicial review.

Read more about breathing space and mental health crisis moratoriums on Shelter Legal.