Lees v Kaye (2022) EWHC 1151 (QB)

This is another judgment on the operation of the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England & Wales) Regulations 2020. (The first was part of the Brake v Axnoller litigation, the denouments of which I have yet to write up). The case highlights the potential impact of a moratorium and the importance of paying attention to them, because it can give rise to great difficulty in unravelling what has been done.

A brief background – this all arose from a claim by one leaseholder and joint freeholder (Kaye) against the other leaseholder and joint freeholder (Lees) in nuisance and harassment. That claim was successful (albeit that the defendant unsuccessfully applied to adjourn the trial hearing, and didn’t turn up, nor to the subsequent assessment of damages hearing), and damages of £96,936 were awarded, plus costs with a payment of £50,000 on account.

The defendant didn’t pay, and charging orders were secured on her flat, to include the damages and costs.

The claimant began proceedings for an order for sale of the flat, and an order was made on 6 March 2020 that unless the defendant paid £297,888.68 by 3 April 2020, the lease was to be sold by the claimant for £470,000 and the defendant was to give up possession by 3 April.

The defendant didn’t do anything, and the claimant sought to enforce the possession order. A warrant was due to be enforced on 8 July 2021 (after the general stay), but the defendant had been granted a breathing space moratorium for the period 1 July 2021 to 29 August 2021, so this did not go ahead. In September 2021, the claim was transferred to the High Court and a writ of possession issued to take effect on 27 October 2021.

The defendant was granted a Mental Health Breathing Space moratorium for 26 October to 25 December 2021, so the writ was not enforced. The claimant sought a review of the moratorium, which was unsuccessful, then applied to the county court for permission to take action regardless of the moratorium. This was dismissed by HHJ Luba QC, finding that the debt was a qualifying debt for the purpose of the regulations (as it was not a non-eligible debt of damages for death or personal injury), and the application should not have been made to the County Court as the matter had been transferred to the High Court.

A further date for execution of the writ was then arranged for 13 January 2022.

On 12 January 2022 the defendant was granted a further mental health crisis moratorium, starting on 13 January 2022 and ending 12 February.

On the morning of 13 January, the claimant’s solicitor

was notified of the grant of the Moratorium (…), he formed the view that the debt fell within an exception and that the eviction should proceed, a view which was confirmed by the advisors to the High Court Enforcement Officers.

The warrant was executed on 13 January. On 15 February, the defendant was granted a further mental health crisis moratorium. On 24 February, the defendant issued this application, for re-entry and determination that this was a breach of the moratorium.

On 10 March 2022, the claimant purported to sell the lease to the second respondent and applied to register the transfer. Registration was suspended pending determination of the position.

On the application, interim relief for re-entry was not granted, but a limited injunction on dealing with the property was made,, and a hearing set down to determine whether
“a….the Judgment Debt is a non-eligible debt by reason of regulation 5(4)(i) of the Regulations. “
b….the Judgment Debt is excluded from the scope of regulation 7 of the Regulations by reason of regulation 7(13)(a).
c…regulation 7(12) of the Regulations does not render the sale of the Property to the Second Respondent null and void.”

The claimant/first respondent argued variously:

i) the applicant had failed to establish that any moratorium was in place when the eviction took place and when the lease was sold.
ii) enforcement of charging orders is outside the scope of the restrictions created by a moratorium and that eviction of the Applicant from the Flat in the course of enforcing the charging order was not therefore prohibited by the moratorium – regulation 7(13)(a)
iii) the debt was a ‘non-eligible debt’ because damage were for psychiatric injury
iv) the sale of the lease was not a sale of the applicant’s property, but of an interest in the property belonging to the first respondent and created by the charging order (which had the usual creation of a legal term in the property pursuant to section 90 of the Law of Property Act 1925 for the claimant).
vi) Even if the eviction and sale were breaches of reg 7, it was not clear what the effect of reg 12 (“Any action taken contrary to this regulation shall be null and void”) was, where the applicant’s interest in the property was to a single day’s reversion at the end of the lease.

The High Court held:

The moratorium was properly registered and effective. The moratorium was initiated when

a debt advisor provides the Secretary of State with the information specified in regulation 31(1). The crucial information to be registered are the details of the debtor and the date on which the moratorium started (regulation 36(1)). No active decision or step needs to be taken by the Secretary of State. Indeed from what I have seen and from the face of the Regulations it seems to me that save for the loading of information onto the system by the debt advisor there is no physical or mental activity required by anyone; the whole process thereafter, including the generation of notices and emails, is automated.

The register was a matter of record.

The debt was not a ‘non-eligible debt’ by containing damages for personal injury. While the judgments in the first claim may have made reference to the impact of the defendant’s behaviour on the mental health of the claimant, the judgment were clear what damages were awarded for for, and there were none for ‘psychiatric injury’ and no personal injury claim was pleaded.

In any event, the whole of the damages would have to be for personal injury for that debt to be non-eligible.

The charging order did not take the debt out of the regulations. While reg 7(13) provided that nothing in reg 7 affects “(a) a charging order made before the start of the moratorium”, that simply meant that the charging order was preserved unaffected by the moratorium, not that steps could be taken to enforece a debt secured by a charging order.

Secured debts were eligible debts by way of reg 5(4)(a), and that extended to charging orders.

The first respondent’s position on the sale to the second respondent during a moratorium was a red herring. The fundamental question was whether the eviction and sale were enforcement of a debt that was caught by the moratorium regulations. They were so.

The fact that by the order of District Judge Kanwar a term of years certain was vested in the Applicant did not alter the position. True it is that this gave the First Respondent a proprietary interest in the Lease, which he then sold to the Second Respondent, but as paragraph 4 of the order specifically stated this was “To enable the Claimant to carry out the sale” of the Flat, or more specifically the Applicant’s interest in the Lease. It was a well established method of providing the mechanics to an equitable chargee to enable the chargee to sell a property with a view to seeking repayment of the monies secured by the charge. It is not in dispute that the effect of such a sale in such a way is, once registered at HM Land Registry, to transfer to the purchaser the title originally held by the debtor, not some new title created in favour of the creditor/chargee. I do not set out the well-known statutory provisions which give effect to such a transaction in that way.

The eviction and sale were indeed “null and void”. Regulation 7(12) is unequivocal

Notwithstanding the fact that the sale of the Lease has not been completed by registration I find that the transactional steps taken in the course of the sale, by which I mean the contract for sale and the transfer, being actions taken to enforce a moratorium debt, are null and void. As between the Applicant and the Respondents it is as if those actions had never been taken. Those actions do not bind the Applicant. The relief to be granted to the Applicant needs to reflect that conclusion.

I say nothing about the effect of this conclusion as between the other parties involved, being not only the Respondents but the Applicant’s mortgagee and any lender who might have advanced money to the Second Respondent in reliance on a new charge over the Lease. Nor do those third parties need to be joined to this Application to determine whether the eviction and sale were valid or void. There will no doubt be complicated arguments about restitutionary rights and remedies which are not matters for me to determine on the Application.

The first respondent had raised no very exceptional circumstances that would persuade the court not to grant relief and in so doing subverting the policy of the regulations.

Application allowed and applicant entitled to an order restoring the position to that before the eviction.

Comment

The moratorium regulations need to be taken seriously. The first and second respondents (seller and buyer) here now find themselves in a difficult position, and one that will very likely cost the first respondent quite a lot to sort out, all on the basis of a flawed judgement call on the morning of 13 January 2022 – to proceed with the eviction that day after notification of the moratorium.