The Bray & Bray Dispute Resolution team outlines the recent Court of Appeal decision on settlement agreements and credit in CFL Finance Ltd V Gertner [2021] and the potential implications for creditors.

The Consumer Credit Act 1974 (CCA) imposes onerous obligations on credit controllers to help protect the individual consumer from unfair lending. In the recent decision of CFL Finance Ltd V Gertner [2021] EWCA CIV 228 (CFL v Gertner), the Court of Appeal found that a settlement agreement, regardless as to whether it is scheduled in a Tomlin Order or not, will be regulated by the CCA in certain circumstances – a decision that undoubtedly complicates an already cumbersome procedure and has left many wondering whether it is still safe to settle.

CFL Finance Ltd V Gertner

Under a facility agreement, Lanza Holdings Ltd (Lanza) borrowed £3.5 million from CFL Finance Ltd (CFL) with obligations to pay this back in time. One of the owners of Lanza, Mr Gertner, acted as a guarantor in the transaction. When Lanza defaulted on its repayments under the agreement, CFL issued proceedings against Mr Gertner. Mr Gertner in turn defended CFL’s claim on a number of different grounds.

CFL’s claim was eventually settled by way of a settlement agreement scheduled to a Tomlin Order. Although Mr Gertner partially complied with this, to the extent that he paid to CFL around £1.5 million under the settlement agreement, he eventually defaulted on his repayments and as a result, all outstanding capital and interest became due immediately from him.

When CFL issued a bankruptcy petition against him, Mr Gertner pleaded that the Tomlin Order was regulated by the CCA and as such, the agreement was unenforceable. Whilst the Court initially rejected this argument, the Court of Appeal took a different view.

The Court of Appeal turning the tides

The Court of Appeal considered when, if ever, the CCA will apply to agreements settling litigation. Specifically, whether the CCA could apply to the schedule of a Tomlin Order and whether the settlement agreement in this case provided the defendant with ‘credit’ for the purposes of the CCA.

The Court of Appeal saw no reason why a contractual agreement under cover of a Tomlin Order would prohibit the CCA from applying. The Court did however mention that, had the parties reached an agreement by way of a Consent Order, the CCA would not apply because the settlement would have been within an Order of the Court as opposed to being scheduled to one.

“If the Settlement Agreement provided “credit” within the meaning of the CCA, I do not see why the fact that it served to settle the proceedings CFL had brought against Mr Gertner should preclude application of the CCA.” – Lord Justice Newey.

The second issue however was considered to be key to the application of the CCA and the Court paved out several key tipping points which included the following:

  • The defendant must be an individual (including a sole trader, a partnership of two or three individuals or an unincorporated association)
  • The claim must not be disputed. Where an agreement is made to settle a claim that was genuinely disputed in its entirety on substantial grounds, the CCA will not apply.

However, the most important factor was without doubt the provision of consideration.

It’s all in the consideration

Has there been consideration for deferment of the debt? For the CCA to afford protection, there must be an agreement in place for the debt deferment. For an agreement to exist, consideration must have been provided by the parties. This can take many forms and the Court gave the following examples: –

  1. A promise to forgo a claim and/or a defence that had reasonable prospects of success in return for delayed repayment. However, giving up a claim/defence that lacks merit or an honest belief in its success will not constitute consideration.
  2. A promise to pay interest in return for delayed repayment.

Therefore, where a debtor does not dispute his indebtedness to a creditor and the two enter into an agreement whereby the creditor agrees to accept payment by instalments in return for some form of consideration, it appears that credit is provided and a ‘consumer credit agreement’ is formed. Where no consideration is provided by the debtor in return for more time to pay, the CCA will not apply.

A debt or a claim?

Credit controllers, together with claimants generally, may now feel like they’re in a bit of a minefield, with one wrong move resulting in a settlement that isn’t worth the paper it’s written on. This is especially so in light of the fact the Court of Appeal openly refrained from reaching a firm conclusion on the dividing line between a debt and a mere claim – the former being regulated by the CCA and the latter not.

However, it has been confirmed that CFL have applied for permission to appeal to the Supreme Court and so, it is likely that this matter will be clarified further shortly.

Speak to our specialists

In the meantime, if you require advice in relation to the CCA or your position generally in relation to the settlement of a dispute, the Bray & Bray Dispute Resolution team are available to assist you. Lorna Trueman is Head of Dispute Resolution. Please email: or call us on 01162 548 871.