Enforcement of judgment debts: The novel approach in Brake v Guy
In the recent English High Court decision of Brake & Anor v Guy & Ors  EWHC 1746 (Ch) (11 July 2022), a judgment creditor successfully obtained an injunction against a judgment debtor requiring him to draw down his pension, and a third party debt order against the pension trustee in respect of the proceeds of that draw down. Although Harneys does not practise English law, the case is likely to be persuasive in the offshore jurisdictions. The decision is an example of the latitude courts have in judgment debt recovery and a reminder of the flexibility of the injunction jurisdiction.
Third party debt orders (also known in some jurisdictions as garnishee orders) are a judgment enforcement tool. Where a third party owes a debt to a judgment debtor, the judgment creditor can apply for an order that the third party pay the debt to the judgment creditor instead of the judgment debtor. The substantive limitation of such an order is that there must be a “debt”. The test for whether or not a “debt” exists for the purposes of granting a third party debt order is whether the judgment debtor could immediately and effectually sue the third party for the debt. Commonly, a judgment creditor will apply for an order in respect of the credit balance of a judgment debtor’s bank accounts. Notably, there is usually no contingency or pre-condition to the judgment debtor’s ability to withdraw the credit balance of its account. The balance of the bank account is a “debt” owing by the bank to its customer, and the court orders the bank to pay that debt to the judgment creditor.
In Brake, the judgment creditor applied for a third party debt order against the trustee of the judgment debtor’s pension fund. The difficulty for the judgment creditor was that, as it turns out, the judgment debtor’s pension fund comprised investments rather than cash and, while the judgment debtor had a beneficial interest in those investments, the judgment debtor was not itself a creditor of the pension trustee. Rather, the judgment debtor had a contractual right under his pension plan to draw down his pension (i.e. to cause the pension trustee to liquidate the investments and pay out the proceeds).
To work around this difficulty, the judgment creditor obtained an injunction against the judgment debtor requiring him to take the steps necessary to draw down his pension, and a third party debt order against the pension trustee in respect of the proceeds of that draw down. A similar approach has also recently been utilised by the judgment creditor in Lindsay v O'Loughnane  EWHC 1829 (QB).
It was also of critical importance to the judgment creditor’s case in Brake that the judgment debtor had made the decision to crystallise his pension fund such that there were no longer any relevant discretions available to the trustee to prevent the judgment debtor from accessing his pension funds. The decision may have turned out very differently had the trustee retained a discretion not to pay out the pension funds.