Ferrera v Hardy

A third party debt order can attach only a civil debt which the third party owes, or will owe, to the judgment debtor. A judgment creditor cannot obtain a better claim against the third party than the judgment debtor has. Housing benefit paid by a local authority to a landlord or the landlord’s agent ordinarily discharges the tenant’s rent liability; it does not, without more, create a debtor-and-creditor relationship between the authority and the recipient. The question whether an agent holds received money on trust for the principal is distinct and depends on the circumstances, including whether the agent was required to keep the money separate. Where no attachable debt exists, it is unnecessary to decide the trust issue.

Mr Hardy held an unsatisfied judgment debt against Mr Ferrera. He obtained a third party debt order against Liverpool City Council, seeking to attach housing benefit which the Council paid to Mr Ferrera as agent for private landlords.

The District Judge set aside the order in part, except for £650 representing Mr Ferrera’s commission, and directed payment of the remaining sums to the landlords’ current agent. His Honour Judge Hodge QC dismissed Mr Hardy’s appeal, holding that the money was subject to a trust in favour of the landlords. Mr Hardy brought a second appeal to the Court of Appeal. The central issue was whether the Council owed an attachable civil debt to Mr Ferrera.

1. Appeal dismissed. The order below was upheld on a different ground. Under CPR Part 72, a third party debt order requires a debt due or accruing due from the third party to the judgment debtor. The judgment creditor cannot stand in a better position than the judgment debtor and a useful test is whether the judgment debtor could sue the third party to recover the debt.
2. The housing benefit was payable to the tenant. Under the Housing Benefit Regulations 2006, payment to a landlord discharges, in whole or in part, the tenant’s rent liability. It does not ordinarily discharge a debt owed by the Council. On the likely view that the Council acted under its discretionary power, Mr Ferrera could not sue the Council for the money; the landlords would have to look to the tenant for rent arrears.
3. The result would be the same if the Council acted under its mandatory power. A statutory or public law obligation to pay housing benefit to the landlord was insufficient, without more, to create the civil debtor-and-creditor relationship required by CPR Part 72.
4. The courts below had treated the trust question as decisive. The Court of Appeal explained that an agent does not necessarily hold money received for a principal on trust. The relevant principles were discussed by Briggs J in Pearson & Ors v Lehman Brothers Finance SA & Ors [2010] EWHC 2914 Ch. The result depends on the circumstances, including whether the agent was instructed to keep the money in a separate account. The court did not decide that issue because there was no relevant Council debt to attach.
5. The appeal was dismissed. The court did not determine the evidential burden or the merits of the competing submissions concerning a trust.

1. Court of Appeal (Civil Division) — appeal dismissed on 7 October 2015, upholding the order below on the ground that no attachable debt was owed by Liverpool City Council to the judgment debtor.
2. High Court of Justice, Manchester District Registry — His Honour Judge Hodge QC dismissed the appeal from District Judge Wright’s order.
3. District Judge Wright — set aside the third party debt order in part, directing payment of the relevant sums to the landlords’ current agent, while allowing £650 representing Mr Ferrera’s commission to be paid to Mr Hardy.