Highlight on a High Court Decision – CCA applies to Tomlin Orders
In an important decision for almost anybody involved in commercial litigation, the High Court on 22 May 2020 handed down the first decision stating categorically that the Consumer Credit Act 1974 (CCA) does apply to agreements recorded in Tomlin Orders.
The case in question is Gertner (1) and Laser Trust (2) v CFL Finance Limited  EWHC 1241 (Ch).
The case was an appeal from a decision of Chief ICC Judge Briggs, in the context of:
(i) a bankruptcy petition presented against Mr Gertner by CFL and
(ii) an IVA proposal subsequently made by Mr Gertner to his creditors (by far the largest of which was Laser Trust).
CFL was a commercial lender and had made a loan to a company of which Mr Gertner was a director. Mr Gertner gave a personal guarantee and when the borrower defaulted CFL pursued him for payment, issuing a money claim against him.
The bankruptcy petition against Mr Gertner which was the subject of today’s decision was based on a Tomlin Order that recorded a settlement of the money claim. The Tomlin Order required Mr Gertner to make payment of a settlement sum in instalments and provided that if any instalment went unpaid a lump sum would become payable, attracting interest on a compounding basis.
Mr Gertner challenged the petition on 2 main grounds.
The first was that the Court had no discretion to make a bankruptcy order against a debtor who had proposed an IVA unless it was clear that the proposal stood no realistic prospect of being approved.
The second, which is the subject of this article, was that the terms of the Settlement Agreement attached to the Tomlin Order were:
a) subject to the provisions of the CCA and
b) not in compliance with the requirement of the Act
such that they were unenforceable or void (and the petition debt was therefore disputed on substantive grounds).
Mr Justice Marcus Smith found for Mr Gertner in relation to the first ground and allowed the appeal. On the second ground, he found that the agreement in question was not unenforceable or void but significantly, that this was not because it was appended to a Tomlin Order which could not be made subject to the provisions of the CCA, due to matters of public policy.
The Judge highlighted the fact that Section 173 of the CCA prohibits parties from contracting out of the effect of the Act and that the Act applies simply to “agreements”. It was conceded by Mr Gertner that as a result it could not apply to an Order of the Court.
Considering whether the settlement agreement in question could not be subject to the effect of the CCA because it was appended to a Tomlin Order, the Judge said:
“Whilst a Tomlin order causes the proceedings between the parties to remain live for the purposes of enforcement of the settlement, the fact that a contractual settlement is appended to an order staying proceedings save for the purpose of carrying the terms of the settlement into effect does nothing to change the contractual nature of the compromise between the parties. The scheduled terms to a Tomlin order form, notwithstanding the related order of the court, a contractual agreement. I can see no reason why the fact that a contractual agreement is scheduled to a Tomlin order would cause the Consumer Credit Act to cease to apply if it otherwise did apply.”
This is the first time (so far as the author is aware) that the Court has made an unequivocal statement on this important point.
In light of this decision, parties entering into settlement agreements appended to Tomlin Orders would be wise to ensure that they are alive to issues that might arise if the Consumer Credit Act is subsequently brought into play by one of the parties as a justification for non-compliance.
Teacher Stern LLP acted for Moises Gertner at first instance and in relation to the successful appeal.
For more information about this or other matters relating to any aspect of commercial or insolvency litigation please contact Jack Rabinowicz (Head of Commercial Litigation) or the author Lee Donoghue via email to firstname.lastname@example.org or email@example.com or by telephone on 020 7242 3191.