CFL Finance Ltd v Laser Trust & Anor

The Court of Appeal held that the schedule to a Tomlin order is a contract and, accordingly, the Consumer Credit Act 1974 can apply to a settlement agreement appended to such an order where the agreement otherwise falls within the Act. The court rejected the view that the mere fact that a compromise is scheduled to a Tomlin order prevents application of the CCA.

The central substantive question was whether the Settlement Agreement provided "credit" (that is, a form of financial accommodation) to Mr Gertner. The court held that whether a settlement agreement provides credit depends on whether it operates to defer an existing debt for consideration, and that there can be circumstances in which a debtor's denial of liability will not prevent the CCA applying if the debt was in truth sufficiently clear and the settlement effects deferment of that debt.

Applying those principles, the court found there was a genuine triable issue as to whether the Settlement Agreement provided credit within the meaning of the CCA because the defence to the principal sum appeared insubstantial and there was a real possibility the defendant did not genuinely believe it had a fair chance of success. For that reason the cross-appeal was allowed in part so that Marcus Smith J's order was amended to include ground 5.

The appellant CFL Finance had advanced funds to a company and later sued the guarantor Mr Moises Gertner for sums said to be due under a guarantee. The proceedings were settled by a Tomlin order which incorporated a Settlement Agreement under which Mr Gertner agreed to pay sums by instalments; default provisions crystallised the wider claim. CFL later presented a bankruptcy petition after serving a statutory demand; Chief Insolvency and Companies Court Judge Briggs granted a bankruptcy order. That order was overturned by Marcus Smith J who allowed appeals on several grounds but rejected the submission that the Settlement Agreement was unenforceable under the Consumer Credit Act 1974 on the ground that it did not provide "credit".

The present appeal concerned Mr Gertner's cross-appeal from Judge Briggs' decision. The Court of Appeal was asked to decide:

• whether the CCA can apply to the schedule to a Tomlin order; and
• whether the Settlement Agreement provided "credit" ("financial accommodation") to the debtor for the purposes of section 9 of the CCA.

The court analysed the statutory framework of the CCA (including sections 8, 9, 11-13, 21, 40, the requirements for execution in sections 61-64, Part VI and sections 75-86, and the unfair relationships provisions in sections 140A and 140C). It reviewed authority on the meaning of "credit" and the Goode formulation that debt is deferred and credit extended whenever the contract provides for payment later than would otherwise have been due. The court distinguished cases where at the time of agreement it was uncertain whether any debt existed (so no credit) from cases where an objectively clear debt is deferred.

The Court of Appeal held that a Tomlin schedule is contractual and that the CCA does not automatically cease to apply to a settlement appended to a Tomlin order. The court recognised two competing policy considerations: the need to uphold bona fide compromises and the need to preserve statutory protections for debtors. The judges concluded there must be a point at which an existing debt is sufficiently clear that a settlement which defers payment confers "credit" despite a debtor's formal denial of liability.

Applying those principles to the facts, the majority (Newey LJ, Popplewell LJ and David Richards LJ concurring) found there was a genuine triable issue whether the Settlement Agreement provided credit because the principal defence to the £1.7 million appeared legally insubstantial and the defendant may not have genuinely believed in it. The cross-appeal was allowed in part: paragraph 1 of Marcus Smith J's order was amended so that the appeal from Judge Briggs was allowed also on ground 5. The court did not attempt to fix the precise dividing line between a "debt" and a mere claim and left that as a matter for further trial if necessary.

Cross-appeal allowed in part. The Court of Appeal held that the schedule to a Tomlin order is a contract and that the Consumer Credit Act 1974 can apply to a settlement appended to such an order where the settlement operates to defer an existing debt for consideration. On the facts there was a genuine triable issue whether the Settlement Agreement provided "credit" because the defendant's principal defence to the claim for £1.7 million appeared insubstantial and there was a real possibility he did not genuinely believe it, so paragraph 1 of Marcus Smith J's order was amended to allow the appeal from Judge Briggs on ground 5 as well as grounds 1, 2 and 3.

Appeal from the High Court (Chancery Division) (Marcus Smith J) [2020] EWHC 1241 (Ch). Prior decision by Chief Insolvency and Companies Court Judge Briggs (bankruptcy order made 15 July 2019). Marcus Smith J allowed certain appeals from Judge Briggs but rejected the contention that the Settlement Agreement provided "credit" under the CCA; this Court amended Marcus Smith J's order to allow the appeal on that ground as well. The creditor's separate appeal was struck out for failure to provide security and the bankruptcy petition was subsequently dismissed.