Brake V Guy Breathing Space

• Published date: 10 June 2021
• Subject Matter: Finance and Banking, Litigation, Mediation & Arbitration, Debt Capital Markets, Trials & Appeals & Compensation
• Law Firm: Moon Beever
• Author: Ms Sarah May, Frances Coulson, Graham McPhie and James Latham

The Brake v Guy litigation has given rise to a number of judgments of no particular interest to the outside world (but if you think otherwise you can find them at [2021] EWHC 671 (Ch), [2021] EWHC 949 (Ch) and [2021] EWHC 1282 (Ch)). The latest judgment of HHJ Paul Matthews, Axnoller Events Ltd v Brake & Anor (Costs) [2021] EWHC 1500 (Ch), is of interest, however, as it considers the effect of the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium)(England and Wales) Regulations 2020 made under the Financial Guidance and Claims Act 2018.

The Regulations provide protection from creditors through two types of moratorium: a breathing space moratorium of up to 60 days and a mental health crisis breathing space moratorium, which lasts as long as treatment continues plus 30 days. The effect of each is to stop a creditor from taking action on a qualifying debt or continuing such action (including enforcement) if the creditor has already commenced proceedings.

The judge had already decided in principle on 2 May 2021 that the Brakes should pay the costs of an unsuccessful recusal application. The issue before him was quantum. The Brakes contended that the order now sought could not be made because the mental health of one of them had given rise to a moratorium. The Guy parties claimed it was irrelevant for two reasons: first because any debt that would be created by an interim payment order (which they were seeking) could not be a 'moratorium debt' within the meaning of reg 6 and hence protected by reg 7; secondly, because, even if it were, they were not seeking at this stage to take any of the steps prohibited during the moratorium by reg 7(6) or (7): the making of the order would not of itself result in any enforcement action being taken.

The judge proceeded on the basis that the moratorium had begun on 7 May 2021.

He noted that the moratorium provided for by reg 7 applied only to a 'moratorium debt.' According to reg 6, a 'moratorium debt' was a 'qualifying debt' which satisfied three conditions. It included 'any amount which a debtor is liable to pay under or in relation to ' a court judgment' (reg 5(3)(a)(ii)). The word 'debt' itself was not defined.

The first of the three conditions for a qualifying debt to be a moratorium debt was that the debt 'was incurred by a debtor in relation to whom a moratorium is in place.'. The second was that it was owed by the debtor when the application for the moratorium was made. The third was...