Defending court action during Breathing Space

A breathing space moratorium under the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (the breathing space regs) puts wide-ranging protections in place to stop creditors enforcing moratorium debts. Enforcement steps that should stop are detailed in reg 7(7), which lists a lot of our old favourites — obtaining warrants, eviction under arrears grounds, applications for default judgment, and more.

When looking at court claims, the most relevant steps are:

7(7)(f) start any action or legal proceedings against a debtor relating to or as a consequence of non-payment of a moratorium debt

7(7)(g) make an application for a default judgment in respect of a claim for money against the debtor

Note — A default judgment is a judgment that’s made without a hearing, and when the defendant hasn’t filed a defence or an acknowledgement of service. The creditor must apply for a default judgment.

We won’t be talking here about situations where the creditor has successfully applied to the court for permission to enforce the debt — this is a possibility under reg 7(2). For more information on how the court considers this you can read our article on enforcement through the moratorium.

New court action

Whilst in breathing space, the client will have a defence against new court claims based on the breathing space regs above. The client should contact the creditor if able to and invite them to discontinue the claim, but it would be safest to send in a defence as well.

The defence below is based on breathing space, but you should always consider your client’s circumstances and longer term tactics. If you’re successful in getting the claim stopped at this stage, the creditor could start court action again after the moratorium period. You should consider whether the client can defend the claim on other grounds, or what they could do to avoid that court action in the future — for example come to an arrangement with the creditor, or apply for an insolvency option.

The defence

The defence should state:

• The client is currently (or at the time the claim was started) in a moratorium under the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020
• Under reg 7(2) of those regs, the creditor cannot take any of the enforcement steps specified in reg 7(6)
• Under reg 7(7)(f), this includes starting ‘any action or legal proceedings against a debtor relating to or as a consequence of non-payment of a moratorium debt’

What to ask the court for

On the defence form, the client should ask the court to:

• strike out the claim under 3.4(2)(a) of the Civil Procedure Rules (CPR): ‘the statement of case discloses no reasonable grounds for bringing or defending the claim’ and
• give summary judgment under CPR 24.2(a)(i) : ‘claimant has no real prospect of succeeding on the claim or issue’

This is at the court’s discretion, so there’s no guarantee it will take one of those steps, and it’s possible that the claim may continue as a defended case. If the court does agree to strike out, or give summary judgment, the claim will be dismissed.

Existing legal proceedings during the moratorium

Rules around pending legal proceedings are in regulation 10 of the breathing space regs. Reg 10(1) states that the creditor must notify the court of the moratorium. Practice Direction 70B gives details that this should be done in writing, state that the debt is subject to a moratorium, and if possible include the date the moratorium started and a copy of the moratorium notification. Reg 10 also applies if the court ‘is otherwise made aware of a moratorium,’ so if the creditor hasn’t notified them the client can do this.

If the creditor started proceedings before the moratorium then court action can usually continue until the court has made an order or judgment.

This means:

• if the client has put in a defence then a hearing can be scheduled or a decision made during the moratorium
• if the client has admitted the debt, a judgement can be made during the moratorium, either as a ‘forthwith’ or an instalment order

However some proceedings shouldn’t go ahead:

• The creditor can’t apply for a default judgment (this is stated in reg 7(7)(g) of the breathing space regs and is covered in the breathing space guidance to creditors.
• No action or proceedings to enforce an order or judgment should progress during the moratorium period
• Any bankruptcy petition must be stayed until after the moratorium

Time limits and responding to claims

A breathing space moratorium will stop the creditor applying for default judgment in existing proceedings, but it doesn’t extend the time limits for the client to respond to a claim, so they’ll still need to be aware of any court deadlines.

If no defence or acknowledgement of service (AoS) form is filed before the end of the moratorium period, and the client is out of time to do this, the creditor could apply for default judgment as soon as the moratorium ends. If the client does file a defence or AoS during the moratorium period, the creditor won’t be able to apply for default judgment, even if the client’s response is late. The rules for this are in CPR 12.3.

Judgments made while the client is in a moratorium

If the CCJ has been made during the moratorium, the client would have to apply for a set aside if they wanted to challenge it. We’ll only discuss how breathing space relates to these applications, rather than going into detail about the general points of setting aside a judgment. Applications are complex, must be made promptly, and specialist support is strongly recommended. Debt advisers can get support with specific cases from Shelter’s Specialist Debt Advice Service (SDAS) — please note SDAS isn’t available to the public.

The information in this article relates to default judgments. If the judgment was instead made at a hearing, a set aside can only be granted in exceptional circumstances. The client may instead have to consider appealing the order.

The client should always think carefully about whether it’s worth applying for a set aside — unless they have a defence to the actual debt itself, it’s usually only likely to be a delaying tactic. Successfully setting aside a judgment will prevent enforcement until a new claim or decision is made, but the moratorium will prevent enforcement anyway. In a standard breathing space there might not be much to gain, as a set aside application will probably be heard after it’s ended, and they may get a better outcome by applying to vary or suspend payments. If the client is in a mental health crisis moratorium it might be more worthwhile, as this is likely to last longer.

Claims started during the moratorium

The rules for set aside applications on default judgments are in part 13 of the Civil Procedure Rules (CPR). The fact that the creditor got a default judgment during a moratorium isn’t one of the mandatory grounds for a set aside (CPR 13.2) — if your client can ask for a set aside on one of these grounds, they should always do so, although it would be wise to include the discretionary points below as well.

Discretionary grounds are covered in CPR 13.3. The Court will first consider whether the client has a real prospect of successfully defending the claim (CPR 13.3(1)(a)). If the client was in a breathing space moratorium at the point the claim was made, this will be a defence as in scenario 1 above.

It would be useful to refer to reg 7(12): ‘Any action taken contrary to this regulation shall be null and void.’ This was interpreted in Lees v Kaye [2022] EWHC QB 1151 to be ‘unequivocal’ to the point of rendering an eviction and subsequent sale of a property invalid. This should also apply to any enforcement proceedings that have taken place on the back of the judgment — for example if the creditor has obtained a charging order following the original CCJ, the client can argue the charge should be removed.

Default judgments in existing proceedings

The position is different if there was already a pending claim when the client entered breathing space. At the point the claim was made, being in a breathing space moratorium wouldn’t have been a defence available to the client. If they want to set aside the CCJ because the creditor breached reg 7(7)(g) by applying for a default judgment, they’d have to use CPR 13.3(1)(b) instead — that there’s ‘some other good reason’ to set it aside. The breach of the breathing space regs might be a good reason, but we don’t have any case law on this.

When looking at other good reasons, the court will also consider whether setting aside will serve any useful purpose — for example if there are costs or reputational issues. Simply delaying enforcement is unlikely to be a good reason. However, the statutory purpose of the breathing space scheme is to provide respite for the client (in a standard moratorium) to get advice and move towards a solution. If they’ve been able to take steps to do this, evidence showing this would be useful, and might go towards persuading the court to set aside the judgment

Process

A set aside application should be made on form N244, and be supported by evidence and a witness statement. The court fee will be payable, unless your client is eligible for fee remission.

The application should set out:

• Details of the client’s defence
• Any other good reason to set aside the judgment
• Proof that the application has been made promptly — for example a timeline showing when they learned of the judgment and actions taken since
• Reasons that the client didn’t file a defence to the claim at the time
• Any other relevant circumstances the court should take into account when exercising its discretion

For a claim made during the moratorium, the client would put down the defence that as they were in breathing space when the claim was started. Under reg 7(2), the creditor was barred from taking any enforcement steps, including court action (reg 7(7)(f)). For the full details, see above under the ‘new court action’ heading. For existing proceedings, they’d need to address the ‘other good reason’ points instead. If the client has a defence to the debt claim itself, they should include this as well in both cases.

You can find more guidance on what the application should include, how it should be drafted, and set asides in general in the CPAG Debt Advice Handbook, and on the Shelter legal website.

If the judgment is set aside, the claim is usually still pending. It is possible for the court to dismiss the claim entirely if the defence is made out in full. The client could ask for the case to be struck out and/or for summary judgment on the N244 as well, again using the details under the ‘new court action’ heading.

Social policy

If you come across creditors taking court action during a moratorium, it would be helpful to report it through your usual social policy channels. We’ve not heard about any ‘mainstream’ creditors doing this, but if you do come across it then the client could complain to the relevant body — for example the Financial Ombudsman Service for creditors regulated by the Financial Conduct Authority.

Megan Lloyd works as a debt expert in the Expert Advice team at Citizens Advice

The information in this article is correct as of the date of publication