Is HNW declaration valid where exact words do not match CONC?

In a case relating to action against guarantors of a loan facility, the Commercial Court has considered unfairness under the CRA and the application of the High Net Worth exemption for credit agreements. Three individuals acted as guarantors of a loan made by the lender to Mr V. Mr V had defaulted under the loan.

The focus of the case was on whether service of proceedings under the guarantees on two of the guarantors was valid. However, as part of the case, the Court discussed:

• whether a clause in the facility agreement (to which the guarantors were also party) that appointed a specific agent for service of process on them and required them to agree that any failure by the agent to notify of any process served would not invalidate the proceedings was unfair under the CRA. The clause operated such that when a replacement agent was appointed in respect of Mr V, the guarantors were not notified, with the result that proceedings could be served on the replacement agent on the guarantors’ behalf, and then default judgments be entered against them without them even being aware the process had been served in the first place. The judge held, on the facts, that it was unfair;
• whether the facility was in fact a regulated credit agreement, which would be unenforceable because the lender was not authorised to lend under regulated agreements. The Facility Agreement included terms similar to what the relevant CONC rules required in order for the required parts of Art 60H(1)(c) and (d) RAO to apply, but it did not comply strictly with the wording requirements, in that it was headed “Borrower Declaration of High Net Worth” rather than the required “Declaration by high net worth borrower or hirer”. The claimants said it had to include the precise wording, because CONC said it “must have the following form and content”, and that, as a result, the Facility Agreement was not enforceable. The lender said the agreement substantially complied with the requirements and that was sufficient. A similar issue was raised in relation to the letter from an accountancy firm confirming the borrower’s net worth. The judge drew on other cases, in particular Campbell V Tyrrell, where a “business purpose” declaration had been ruled valid, notwithstanding that it said the loan was made “wholly” for business purposes rather than “wholly or predominantly” for business purposes (and the word “wholly” was correct on the facts). On that basis, the judge considered that substantial compliance was enough, but stressed he was not making a summary determination on the point, so it could still have been advanced at trial.

This case related to an application by the guarantors to have a default judgment set aside – and the court allowed the application, so these issues may come up again at trial.