In Regera S.à r.l v Cohen & Ors [2025] EWHC 2107 (Comm), the Commercial Court considered applications to set aside substantial default judgments entered against two individual guarantors of a high-value loan facility.
While the decision addresses a range of issues, for us it provides a warning on the limits of contractual service provisions and the scope of consumer protection in commercial lending.
Key takeaway
Contractual service clauses in consumer contracts must comply with consumer fairness standards. Current LMA drafting - drafted for use in the sophisticated commercial lending sector - does not always meet this standard.
Background
Regera S.à r.l, (Lender) advanced a US$33.41m term loan to Mr Andrew Valmorbida (Borrower) under a Facility Agreement dated 14 June 2021. Phillip Ean Cohen and Maria Therese Valmorbida (Guarantors) were alleged to have provided personal guarantees capped at US$2.5m each under the Facility Agreement.
Following the Borrower’s default, the Lender pursued the Guarantors for the sums due under the facility and sought to serve legal proceedings on them. Proceedings were served on Law Debenture Corporate Services Ltd as process agent, appointed by the Lender as a replacement process agent in accordance with the mechanism for replacing the process agent set out in the Facility Agreement. Default judgments were entered on 2 September 2024, awarding US$2.75m plus £10,000 costs against each Guarantor.
The Guarantors applied to set aside the judgments. Amongst other things, they argued invalid service and consumer protection breaches.
Process agent clauses, Obligors’ Agent and consumer fairness
The process agent clause in the Facility Agreement allowed the Lender to appoint a replacement process agent if the original process agent ceased to act. The original process agent entered insolvency proceedings and, following the process set out in the Facility Agreement, the Lender appointed Law Debenture as replacement process agent. The language used in the replacement of process agent clause mirrored standard LMA drafting, but the court found it unsuitable in this consumer context.
The judge held that the clause was unfair under section 62 of the Consumer Rights Act 2015:
“Circumstances could therefore arise where proceedings could be served on a replacement agent, in this case Law Debenture, on behalf of the First and Second Defendants, without the First and Second Defendants ever being made aware of such an appointment. This could lead to the entry of default judgments against the guarantors without the guarantors being aware of the service of process in the first place. Of course, such default judgments could be set aside, but I do not consider that is an answer to the unfairness of the term.” (para. 96(4))
The Facility Agreement did not require express notification to the Guarantors of the appointment of the replacement agent, but the Lender argued that notice to the Borrower sufficed, since the Borrower was appointed as Obligors’ Agent under clause 3 of the Facility Agreement meaning that notice to the Borrower was deemed notice to, amongst others, the Guarantors. The judge acknowledged this mechanism but found that it did not cure the unfairness of the clause in a consumer context. The potential for service of proceedings to occur without the Guarantors’ actual knowledge (even if technically deemed notified via the Borrower) was still problematic.
This judgment provides a cautionary reminder that LMA-style provisions, including the use of an Obligors’ Agent and replacement process agent provisions, are not always appropriate for transactions involving individuals. Where guarantors are individuals, relying solely on deemed notice may not be sufficient to ensure fairness or compliance with consumer protection legislation.
Practical implications for lenders
- Process agent clauses: Where individuals are involved, consider including an express obligation to notify all parties of any change in process agent. This will likely require departing from standard LMA drafting.
- Obligors’ Agent mechanism: In group company facilities, service on Obligors’ Agent may be sufficient. However, where individuals are guarantors, reliance on deemed notice may be problematic: if in doubt, provide express notice to all individual obligors involved.
- Choice of process agent: Appoint well-established process agent companies from the outset to minimise the risk of dissolution or failure.
- Independent legal advice: Where individuals are providing guarantees, ensure that the Independent Legal Advice obtained by the individuals covers not only the guarantee terms but also procedural mechanisms such as service and replacement agent clauses.
- Service strategy: Consider alternative service routes where process agent clauses may be vulnerable.
Matthew Padian