[2025] EWHC 2107 (Comm)

Enforceability under Consumer Credit legislation

The First and Second Defendants contend that the Facility Agreement is a regulated credit agreement within the meaning of article 60B(3) of the 2001 Order and, as the Claimant is not authorised and regulated by the FCA for credit regulated activity, in order to be an enforceable agreement, the HNW Exemption in article 60H of the 2001 Order must apply. If it does not apply, then the Facility Agreement is not enforceable pursuant to section 26(1) of the Financial Services and Markets Act 2000 and the Consumer Credit Act 1974.

Thus far, there is, as I understand it, no dispute between the parties. The point in issue is whether the declaration and statement contained in clause 38 of the Facility Agreement complied with the requirements of CONC App, para. 1.4.6 and 1.4.7.

The First and Second Defendants submitted that the HNW Exemption is not applicable because the requirements of article 60H(1)(c) and (d) were not satisfied in that the Facility Agreement did not include in clause 38 of the Facility Agreement a declaration made by the Borrower that he forwent the protection and remedies available under a regulated credit agreement and a statement in relation to the income or assets of the borrower, both of which complied with rules made by the FCA. It is argued that the declaration and statement in clause 38 of the Facility Agreement had to comply strictly with those requirements as CONC App, para. 14.6 and 1.4.7 provide that the declaration and statement “must have the following form and content”. As a result, the Facility Agreement was not enforceable. Further, it is argued, that the guarantee in clause 19 of the Facility Agreement did not conform with the mandatory requirements of the Guarantee Regulations, in particular omitting the statutory heading and signature box wording required to be shown in a regulated guarantee (regulation 3(1) of the Guarantee Regulations). As a result, the personal guarantees are not enforceable against the First and Second Defendants without a Court Order pursuant to section 105(7) of the 1974 Act. It follows, argue the First and Second Defendants, that the entry of default judgments are matters of enforcement and so should be set aside. Clause 19.5(f) does not affect the position, for various reasons, including that the loan agreement and the personal guarantees are each independently unenforceable.

The Claimant contends that the Facility Agreement has substantially complied with the requirements of article 60H of the 2001 Order and CONC App, para. 1.4.6 and 1.4.7, and that is sufficient for these purposes. Even if the Facility Agreement and the personal guarantees are unenforceable pursuant to section 105(7) of the Consumer Credit Act 1974 and the Guarantee Regulations, the Claimant’s reliance on clause 40.2.1(a) of the Facility Agreement, and CPR rule 6.11, is not an act of enforcement. Further, clause 40 is severable from the remainder of the Facility Agreement and so if the loan agreement and the personal guarantees are unenforceable, that does not affect clause 40, given that its purpose is to facilitate the speedy resolution of disputes in the English Courts by ensuring that defendants (especially those resident out of the jurisdiction) cannot create delay and obstruction at the initial stage of service. In any event, the Claimant would be entitled to apply for and obtain an order to enforce the Facility Agreement pursuant to section 28A of the Financial Services and Markets Act 2000.

Article 60H of the 2001 Order provides that:

“(1)

A credit agreement is an exempt agreement for the purposes of this Chapter if -

(a)

the borrower is an individual,

(b)

the agreement is either -

(i)

secured on land, or

(ii)

for credit which exceeds £60,260 …

(c)

the agreement includes a declaration made by the borrower which provides that the borrower agrees to forgo the protection and remedies that would be available to the borrower if the agreement were a regulated credit agreement and which complies with rules made by the FCA for the purposes of this paragraph,

(d)

a statement has been made in relation to the income or assets of the borrower which complies with rules made by the FCA for the purposes of this paragraph,

(e)

the connection between the statement and the agreement complies with any rules made by the FCA for the purposes of this paragraph (including as to the period of time between the making of the statement and the agreement being entered into), and

(f)

a copy of the statement was provided to the lender before the agreement was entered into.”

CONC App, para. 1.4.6 provides that:

“The declaration for the purposes of articles 60H(1)(c) and 60Q(b) of the Regulated Activities Order must have the following form and content-

“Declaration by high net worth borrower or hirer

(articles 60H(1) and 60Q of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001)

I confirm that I have received a copy of the statement of high net worth made in relation to me for the purposes of article 60H(1)(d) or article 60Q(c) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001.

I understand that by making this declaration I will not have the benefit of the protection and remedies that would be available to me under the Financial Services and Markets Act 2000 or the Consumer Credit Act 1974 if this agreement were a regulated agreement under those Acts.

I understand that this declaration does not affect the powers of the court to make an order under section 140B of the Consumer Credit Act 1974 in relation to a credit agreement where it determines that the relationship between the lender and the borrower is unfair to the borrower.*

I am aware that if I am in any doubt as to the consequences of making this declaration then I should seek independent legal advice”.

*This section should be omitted in the case of a consumer hire agreement”

Clause 38 of the Facility Agreement provided that:

“38.

Borrower Declaration of High Net Worth

(Articles 60H(1) and 60Q of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001)

I confirm that I have received a copy of the statement of high net worth made in relation to me for the purposes of article 60H(1)(d) or article 60Q(c) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001.

I understand that by making this declaration I will not have the benefit of the protection and remedies that would be available to me under the Financial Services and Markets Act 2000 or the Consumer Credit Act 1974 if this agreement were a regulated agreement under those Acts.

I understand that this declaration does not affect the powers of the court to make an order under section 140B of the Consumer Credit Act 1974 in relation to a credit agreement where it determines that the relationship between the lender and the borrower is unfair to the borrower.

I am aware that if I am in any doubt as to the consequences of making this declaration then I should seek independent legal advice”

The First and Second Defendants submitted that the heading in clause 38 of the Facility Agreement, “Borrower Declaration of High Net Worth”, does not comply with CONC App, para. 1.4.6 because the heading required was “Declaration by high net worth borrower or hirer”.

Without considering the authorities, my initial impression is that there is no meaningful difference, whether in content or form, between the wording of the heading in clause 38 and the wording of the heading in CONC App, para. 1.4.6.

CONC App, para. 1.4.7 provides that:

“A statement of high net worth for the purposes of articles 60H(1)(d) and 60Q(c) of the Regulated Activities Order, and CONC 1.2.10R, must have the following form and content:

“Statement of High Net Worth

(articles 60H(1) and 60Q of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 /CONC 1.2.10R*)

I/We* (insert full name) .............................................................. of (insert address and postcode) .............................................................. confirm that I am/we* are a person qualified to make a statement of high net worth under rules made by the Financial Conduct Authority, by virtue of the fact that

..............................................................

…

*Delete as appropriate.”

The First and Second Defendants submitted that the statement of high net worth made by Katz & Co (London) LLP on 10th June 2021 did not contain the correct heading for the statement and the opening paragraph of the statement of high net worth was incorrect. The heading of the Katz & Co letter stated “Statement of High Net Worth of Andrew Valmorbida” and the first paragraph of the letter stated that “We Katz & Co (Chartered Accountants) of the above address confirm that we are qualified to make a statement of high net worth under rules made by the Financial Conduct Authority as we are a firm which is a member of the Institute of Chartered Accountants in England and Wales, by virtue of the fact that in our opinion, Andrew Valmorbida … is an individual of high net worth because …”.

Again, without consideration of the authorities, I consider that the heading and opening paragraph of the Katz & Co letter substantially complies with CONC App, para. 1.4.7.

There are in fact two versions of the Katz & Co letter dated 10th June 2021, each on a different letterhead. One refers to the Claimant as the lender, but the other refers to “Internationales Bankhaus Bodensee AG” as the lender. There is no explanation why there are two such letters. Assuming that both letters were issued on 10th June 2021 and prior to the Facility Agreement, and assuming that there is no other relevant evidence, I do not consider that this is an issue of non-compliance in and of itself.

The question is whether the failure of the declaration and statement to comply strictly with the verbatim requirements of the “content and form” of CONC App, para. 1.4.6 and 1.4.7 is sufficient on its own to render the Facility Agreement and the guarantees in clause 19 unenforceable.

In support of its contention that substantial compliance with CONC App was sufficient, the Claimant relied on the decision of the Court of Appeal in TFS Stores Ltd v The Designer Retail Outlet Centres (Mansfield) General Partner Ltd [2021] EWCA Civ 688, [2021] Bus LR 1407. In that case, the relevant legislation (Landlord and Tenant Act 1954) required the tenant to execute a declaration “in the form or substantially in the form” set out in a specified statutory instrument. At para. 39, the Court said that “a declaration will be “in the form or substantially in the form” prescribed if the declaration as a whole fulfils all the essential purposes of the prescribed form and that, despite the use of apparently mandatory language, Parliament is not to be taken to have insisted on an interpretation which is contrary to commercial sense”. I do not consider that this decision can stand as authority that substantial compliance is sufficient for the purposes of CONC App, given that the relevant statutory instrument in TFS Stores Ltd v The Designer Retail Outlet Centres expressly permitted a declaration “substantially in the form” of the requirements of that statutory instrument. However, the Court of Appeal did indicate, at least as I understand it, that if Parliament had intended an un-commercial interpretation, the language requiring precise compliance should be clear and unambiguous. Failing such clarity and lack of ambiguity, one should interpret the requirements of the relevant legislation, in this case CONC App, in a manner which is consistent with, and not contrary to, commercial sense.

The Claimant also relied on the decision in Campbell v Tyrrell [2022] EWHC 423 (Ch); [2022] GCCR 20019, which concerned the question whether an exemption for business use in respect of regulated credit agreements under section 16B of the Consumer Credit Act 1974 applied, as the legislation then stood. Section 16B(1) applied where the credit exceeded £25,000 and the agreement was entered into by the debtor “wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by him”. Section 16B(2) created a presumption: “If an agreement falling within subsection (1) includes a declaration made by the debtor … to the effect that the agreement is entered into by him wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by him, the agreement shall be presumed to have been entered into by him wholly or predominantly for such purposes”. Pursuant to section 16B(4), the Consumer Credit (Exempt Agreements) Order 2007 (SI 2007/1168) was made and provided that a declaration for the purposes of section 16B(2) “shall - (a) comply with Schedule 3 …”. Article 6 of Schedule 3 to the 2007 Order provided that: “A declaration for the purposes of article 6 must have the following form and content …”.

In Campbell v Tyrrell, it was common ground that the business purposes declaration in the relevant loan agreement signed by Ms Campbell with Goldcrest Finance Ltd failed strictly to comply with the requirements of the 2007 Order, because the words “or predominantly” were omitted after the word “wholly”. Ms Campbell submitted that this omission was fatal to the efficacy of the declaration so that the presumption did not arise, because whilst section 16B(2) uses the words “to the effect that …”, the wording of the 2007 Order was mandatory in that a declaration for the purposes of section 16B(2) “shall - (a) comply with Schedule 3 …”, and such a declaration “must have the following form and content”. It was argued that it would be a startling outcome if the absence of the words “or predominantly” within a declaration given for the purposes of a loan agreement under section 16B(1) had the effect of transforming the loan agreement from an exempt agreement into a regulated agreement. HH Judge Hodge QC addressed the question of statutory construction as follows:

“47.

In my judgment, where a loan agreement is entered into wholly, rather than predominantly, for business purposes, then a declaration to that effect sufficiently satisfies the requirements of s.16B(2), so as to give rise to the presumption arising under that sub-section, even though the words “or predominantly” have been omitted. That conclusion is supported by the authorities cited by Mr Connolly [counsel for Goldcrest], even though none of them is directly in point.

48.

In The Chiltern Railway Company Limited v Patel [2008] EWCA Civ 178, Lord Neuberger MR said (at paragraph 12):

Of course, the statutory requirements in relation to a notice or a declaration could be so clearly and unequivocally expressed that strict compliance would be required and that any deviation, however insignificant, from those requirements would render a purported notice or declaration invalid. Sometimes, indeed, although it conflicts with common and commercial common sense, this may be the result because it is correct as a matter of law. However, this is not such a case.

49.

Even where, on the face of the statute, strict compliance might seem to be required, some slight degree of flexibility may be permissible. Mr Connolly cites, by way of example, the case of Davis v Burton (1883) 11 QBD 537, where the relevant statute provided that a bill of sale should be “in accordance with the form in the schedule." With his characteristic disdain for technicalities, Sir Baliol Brett MR said (at page 540):

That must mean that every bill of sale shall be substantially like the form in the schedule. Nothing substantial must be subtracted from it, and nothing actually inconsistent must be added to it.

Fry LJ said the same (at page 541):

The meaning of s. 9 is that every bill of sale which is not substantially ‘in accordance with the form in the schedule’, shall be void.

Admittedly those observations were obiter, because the actual decision was that the bill of sale was void, as it was not made in the form given in the schedule. But they show that statutory requirements in relation to the form of a document must be clearly and unequivocally expressed before strict compliance will be required and any deviation, however insignificant, operate to render the document invalid. As Mr Connolly points out, a document does not need to be “word perfect” in order to comply with the statutory requirements.”

HH Judge Hodge QC then proceeded to interpret section 16B and the 2007 Order having regard to their purpose and concluded that where a loan is taken out wholly, rather than predominantly, for the purposes of a business carried in by the debtor, a business purposes declaration is valid even though it omits the redundant words “or predominantly”, so that presumption in section 16B(2) was not lost.

The approach to construction which the learned judge adopted was consistent with that adopted by the Court of Appeal in TFS Stores Ltd v The Designer Retail Outlet Centres (Mansfield) General Partner Ltd [2021] EWCA Civ 688, [2021] Bus LR 1407.

In interpreting CONC App, I have in mind GEN 2.2.9 of the FCA Handbook which provides that “Unless the context otherwise requires or unless otherwise stated in a particular sourcebook or manual, where italics have not been used, an expression bears its natural meaning (subject to the Interpretation Act 1978)”. I do not, however, consider that this means that the Court should not have regard to the purpose of the legislation in interpreting statutory provisions.

In my judgment, the Claimant has discharged the burden based on the balance of probabilities that the Facility Agreement and the guarantees therein are not unenforceable, based on the evidence currently available to me, in circumstances where the legislation is not unambiguously clear that, unless the strict verbatim requirements of CONC App, para. 1.4.6 and 1.4.7 are complied with, otherwise substantial compliance would render the Facility Agreement as non-compliant. The closest that the relevant language comes to a “word perfect” requirement is that para. 1.4.6 and 1.4.7 provides that the declaration and statement “must have the following form and content”. However, that is the same language used in Campbell v Tyrrell, where the Court considered that substantial compliance was sufficient.

In reaching this conclusion, of course, I am not making a summary determination which would prevent the First and Second Defendants from advancing these important arguments at trial.

On this ground, therefore, I am not sufficiently convinced that the Facility Agreement, including the guarantees in clause 19, are unenforceable under Consumer Credit legislation, as to justify upholding the First and Second Defendants’ application under CPR rule 13.2 on this ground. Therefore, I find that on the basis of the evidence currently before the Court the Claimant has established on the balance of probabilities that the Facility Agreement and the guarantees are not unenforceable pursuant to Consumer Credit legislation.

Had I come to a different conclusion, there were additional arguments as to the effect of the contract being unenforceable, which should be addressed.

The first such issue is whether the mere fact that a contract is unenforceable means that a party can or cannot commence and serve legal proceedings with a view to obtaining a court order enforcing the contract. The Claimant relied on the decision in McGuffick v Royal Bank of Scotland [2009] EWHC 2386 (Comm); [2010] 1 All ER 634, para. 77-81, where Flaux J held that steps taken by a creditor seeking to obtain payment under a regulated consumer credit agreement are not acts of enforcement, such as demanding payment, issuing a default notice, threatening legal action, instructing a third party to demand payment or otherwise to seek to procure payment, or bringing proceedings; they are at best acts preparatory to enforcement. The act of enforcement, on this analysis, is therefore the making of a court order or the entry of judgment requiring payment, including the entry of default judgment (Madison CF UK v Various [2018] EWHC 2786 (Ch); [2018] GCCR 16199, para. 4, 25).

However, the First and Second Defendants referred me to the FCA Guidance on Guarantor Loans: Default Notices (FG 17/1), at para. 2.6-2.7:

“2.6

As noted in GC16/7, we do not consider that ‘enforcement of security’ is limited to obtaining a court judgment. In our view it is clear from the structure of the CCA, and relevant case law, that enforcement can include exercising some forms of ‘self-help’ remedy relating to security if the remedy is sufficiently coercive.

2.7

A guarantee is enforced in the FCA’s view if, following breach of the agreement by the borrower:

• the lender demands payment by the guarantor, or

• the lender takes payment from the guarantor by using a continuous payment authority (CPA) or direct debit mandate that was previously provided and without at least appropriate prior notification to the guarantor.”

For what it is worth, clause 40 - which regulates jurisdiction and service of process - is headed “Enforcement”. However, clause 1.2.1(n) provides that “Section, Clause and Schedule headings are for ease of reference only”.

If I had held that the First and Second Defendants succeeded on the matter of unenforceability under the Consumer Credit legislation, I would have been inclined to hold that they also succeeded in their argument that the service of process with a view to obtaining a court order requiring payment under the guarantees in the Facility Agreement was also an act of enforcement.

The second supplementary issue was whether clause 40.2 was severable from the remainder of the Facility Agreement, even if the Facility Agreement and guarantees in clause 19 are unenforceable, in the same way that a jurisdiction or arbitration agreement might be in cases where the main contract was argued to be void or invalid. This argument was advanced by the Claimant, I think, in response to a question I raised during the hearing. In any event, I do not consider that clause 40.2 can be severed from an agreement which is unenforceable pursuant to Consumer Credit legislation, because that legislation is concerned with the unenforceability of the regulated credit agreement as a whole and any provision, including one as to service, would plainly impact any rights that a consumer might otherwise have (Soleymani v Nifty Gateway LLC [2022] EWCA Civ 1297; [2023] 2 All ER 569, para. 149-154).

In any event, I do not consider that the First and Second Defendants are entitled to relief under CPR rule 13.2 on this ground.