1. Introduction

CFL Finance Ltd v. Laser Trust & Anor ([2021] EWCA Civ 228) is a landmark case adjudicated by the Court of Appeal (Civil Division) of England and Wales on February 23, 2021. The case delves into the nuanced intersection between settlement agreements, specifically those facilitated through Tomlin orders, and the applicability of the Consumer Credit Act 1974 (CCA). The principal parties involved are CFL Finance Limited ("CFL"), a creditor company, and Mr. Moises Gertner, the guarantor of a loan extended to Lanza Holdings Limited ("Lanza"). The core issue revolves around whether the settlement agreement, executed via a Tomlin order, falls within the regulatory ambit of the CCA.

2. Summary of the Judgment

In 2008, CFL advanced £3.5 million to Lanza under a facility agreement, with Mr. Gertner providing a guarantee. Following Lanza's default, CFL initiated proceedings against Mr. Gertner in 2010, seeking £1.7 million plus interest. Mr. Gertner contested the claim, raising multiple defenses, including questioning the authority of CFL's CEO in entering the loan agreement and challenging the validity of the interest terms under the CCA.

The litigation was subsequently settled through a Tomlin order, instituting a Settlement Agreement wherein Mr. Gertner agreed to pay £2 million in installments to CFL. However, Mr. Gertner failed to comply fully with the payment terms, triggering clauses that made the entire owed amount immediately due. CFL pursued a bankruptcy petition against Mr. Gertner, which was initially upheld by Judge Briggs but later overturned by Marcus Smith J upon appeal.

The crux of the appellate decision centered on whether the Settlement Agreement constituted a "consumer credit agreement" under the CCA. Marcus Smith J concluded that the agreement did not involve the provision of credit as defined by the CCA, thus rendering the CCA inapplicable. However, on cross-appeal, the higher courts scrutinized the reasoning, highlighting potential oversights in considering the nature of the settlement and the existence of a genuine debt.

3. Analysis

3.1. Precedents Cited

The judgment extensively referenced pivotal cases and authoritative texts to underpin the court's reasoning:

• McCombe LJ in Watson v Sadiq ([2013] EWCA Civ 822): Clarified that the schedule to a Tomlin order constitutes a contractual agreement, not a mere court order.
• Hamblen LJ in Vanden Recycling Ltd v Kras Recycling BV ([2017] EWCA Civ 354): Reinforced the contractual nature of Tomlin order schedules.
• McMillan Williams v Range ([2004] EWCA Civ 294): Introduced the "essential character" test to determine if an agreement constitutes credit under the CCA.
• Dimond v Lovell ([2002] 1 AC 384): Emphasized that deferred payments can constitute credit.
• Holyoake v Candy ([2017] EWHC 3397 (Ch)): Discussed the enforceability of settlement deeds in the context of the CCA, distinguishing from the present case.
• Binder v Alachouzos ([1972] 2 QB 151): Highlighted the binding nature of bona fide compromises even when statutory provisions are involved.

Additionally, the judgment drew upon authoritative legal texts such as Goode's Consumer Credit Law and Practice to elucidate the definitions and applications of key terms within the CCA.

3.2. Legal Reasoning

The central legal debate was whether the Settlement Agreement appended to a Tomlin order qualified as a "consumer credit agreement" under the CCA. Under section 8(1), a consumer credit agreement involves an individual (debtor) receiving credit from another party (creditor). The determination hinged on whether the settlement agreement provided a form of "financial accommodation" or constituted a "credit" as per section 9(1) of the CCA.

Judge Briggs initially held that the settlement did not constitute credit, primarily because it did not provide a cash loan or financial accommodation but was a mere compromise of claims. Marcus Smith J, however, agreed with Briggs on the absence of credit but differed on whether the mere contractual nature of the Tomlin order's schedule could preclude the CCA's applicability.

The judgment critically analyzed whether the settlement agreement defers an existing debt, thereby providing credit. It was posited that if the debtor relinquishes a defense without substantial grounds, the settlement could indeed amount to a credit agreement. This nuanced interpretation suggests that the CCA's reach extends to settlement agreements that effectively provide credit through deferred payments, regardless of the strength of the defenses previously raised.

3.3. Impact

This judgment significantly impacts how settlement agreements, particularly those executed via Tomlin orders, are treated under consumer credit law. It delineates the boundaries of the CCA's applicability, asserting that settlements involving deferred payments may fall within the CCA's regulatory framework. This has broader implications for creditors and debtors alike, as it underscores the necessity for meticulous drafting of settlement terms to ensure compliance with the CCA.

Future cases will likely reference this judgment when determining the enforceability of settlement agreements and whether such agreements are subject to consumer credit regulations. It also serves as a cautionary tale for creditors in structuring settlements to avoid unintended regulatory obligations.

4. Complex Concepts Simplified

4.1. Tomlin Orders

A Tomlin order is a type of court order that effectively ends litigation based on terms agreed upon by the parties, which are detailed in a separate schedule. While the order itself is a court directive to stay proceedings, the scheduled terms constitute a binding contractual agreement between the parties.

4.2. Consumer Credit Act 1974 (CCA)

The Consumer Credit Act 1974 is legislation in the UK that regulates consumer credit and hire agreements. It aims to protect consumers by imposing regulations on how credit is offered and enforced. Key provisions include definitions of credit agreements, requirements for licensing, and protections against unfair credit practices.

4.3. Consumer Credit Agreement

Under the CCA, a consumer credit agreement is any agreement where one party (the creditor) provides credit to another (the debtor). This includes cash loans and other forms of financial accommodation, and such agreements are subject to strict regulatory standards to protect the debtor.

4.4. Regulated vs. Unregulated Agreements

The CCA distinguishes between regulated and unregulated credit agreements. Regulated agreements must comply with the CCA's requirements, while certain exemptions exist. Understanding this distinction is crucial in determining whether an agreement falls under the CCA's scope.

5. Conclusion

The CFL Finance Ltd v. Laser Trust & Anor judgment elucidates the intricate relationship between settlement agreements and consumer credit regulations. It underscores that settlement agreements, particularly those executed via Tomlin orders, may indeed constitute consumer credit agreements if they involve the deferral of debt, thereby attracting the CCA's regulatory framework. This decision emphasizes the importance for legal practitioners to rigorously assess the nature of settlement terms and their potential implications under the CCA. The judgment serves as a critical reference point for future litigations involving the intersection of settlement agreements and consumer credit law, ensuring that both creditors and debtors navigate these agreements with a clear understanding of their legal standings and obligations.