CFL Finance Ltd v Laser Trust & Anor

A settlement agreement scheduled to a Tomlin order remains a contract, so the Consumer Credit Act 1974 can apply if the agreement provides credit. Credit ordinarily involves contractual deferment of an existing debt for consideration. A compromise of a claim genuinely disputed on substantial grounds does not, without more, defer a debt where it is uncertain whether anything was owed. Conversely, an agreement for consideration under which an existing debt is paid by instalments can provide credit, even if the debtor has asserted a hopeless defence. The precise boundary between a debt and a mere claim was left open. The court held that there was a genuine triable issue whether the settlement provided credit.

CFL Finance Limited sued Moises Gertner under a guarantee. The proceedings were settled by a Tomlin order and schedule requiring staged payments and a costs contribution, with accelerated liability on default. After partial default, CFL presented a bankruptcy petition.

The first-instance bankruptcy order was set aside on other grounds by Marcus Smith J, who rejected the contention that the Settlement Agreement provided credit under the Consumer Credit Act 1974: [2020] EWHC 1241 (Ch). CFL appealed and Mr Gertner cross-appealed. CFL’s appeal was later struck out after failure to provide security, and the bankruptcy petition was dismissed. The Court of Appeal heard only the cross-appeal. The central questions were whether the scheduled settlement was an agreement to which the Act could apply and whether it supplied credit.

1. Cross-appeal allowed in part. The order below was amended so that Mr Gertner’s appeal from the bankruptcy decision was allowed on the additional Consumer Credit Act ground.
2. A schedule to a Tomlin order is a contractual agreement, not an order of the court. The Consumer Credit Act 1974 can therefore apply to it if the agreement involves the provision of credit. The court rejected the suggestion that settlement of litigation necessarily gives the agreement an essential character outside the Act. The distinction from McMillan Williams v Range [2004] EWCA Civ 294 was material because that agreement concerned remuneration and it was uncertain whether any debt would arise.
3. Under section 9(1), credit includes financial accommodation. Its essence is contractual deferment of debt. Deferment must be pursuant to an agreement and supported by consideration. Giving up a claim or defence can constitute consideration where it was advanced on reasonable grounds and had a fair chance of success. A defence known to be hopeless does not, by itself, provide consideration.
4. A compromise of a claim genuinely disputed in its entirety on substantial grounds does not defer a debt merely because it requires future payments, where it is uncertain whether anything was owed. By contrast, where indebtedness is not genuinely disputed and, for consideration, the creditor accepts instalments instead of immediate payment, the agreement provides credit. The precise boundary between a debt and a mere claim was left undecided because adversarial argument was incomplete.
5. On the evidence, the defence to the principal sum of £1.7 million appeared legally invalid and had no real prospect of success. There was nevertheless a real possibility that Mr Gertner did not believe it had a fair chance of success. Since the Settlement Agreement also included consideration in the form of a costs contribution, there was a genuine triable issue whether it provided credit and was unenforceable for non-compliance with sections 40, 61–64, 77A or 86B of the Act. Had the bankruptcy petition remained pending, it would have been dismissed.

1. Court of Appeal (Civil Division) allowed Mr Gertner’s cross-appeal to the extent of amending the order below to include the Consumer Credit Act ground.
2. High Court, Business and Property Courts allowed appeals from the bankruptcy decision on other grounds, set aside the bankruptcy order and rejected the Consumer Credit Act argument: [2020] EWHC 1241 (Ch).
3. Insolvency and Companies Court made a bankruptcy order against Mr Gertner. The bankruptcy petition was subsequently dismissed.