Gordon Deane: Victory for bank customers in debt transfer case
Gordon Deane, partner at Balfour + Mason, discusses the English case where borrowers were successful in challenging the validity of a loan transfer from one bank to another.
The facts of the case are as follows. The Emanuels had borrowed money from Clydesdale Bank for the purposes of their business. Clydesdale subsequently gave the Emanuels notice that, given loan repayments were not being made, it was making formal demand for repayment of the entire outstanding loan. The Emanuels did not repay the loan. Four years later, Clydesdale notified the Emanuels that their loan had been sold to Promontoria Holding 170 BV. Subsequently, Promontoria (Oak) Ltd, a different company, but in the same group of companies, brought legal proceedings against the Emanuels as the assignee of the debts owed to Clydesdale.
The claim succeeded before the first instance judge on the basis of secondary evidence regarding the assignment between Clydesdale and Promontoria. This evidence was adduced in the form of a significantly redacted assignment deed, despite the Emanuels’ opposition on the ground that Promontoria had not established title to the debts.
The Emanuels were then granted permission to appeal.
A substantial part of the Judgment of Marcus Smith J is taken up with a review of the “best evidence” rule. The “best evidence” rule was once considered a key principle of the law of evidence, but that rule (that a party must produce the best evidence that the nature of the case allowed and that any less good evidence was to be excluded), is now considered to be obsolete. The modern position is that secondary evidence of the contents of a document is admissible. The weight that should be given to that secondary evidence (if any) is a matter for the court to decide, in the light of all circumstances of the case.
The Emanuels’ appeal was allowed. Marcus Smith J’s conclusions were as follows:-
- While it was open to the first instance judge to find, on the evidence before him, that the assignment validly transferred Clydesdale’s rights to Promontoria, the judge failed to consider the implications of the evidence that was not put before him. The first instance judge’s conclusion that there were no further relevant documents required to prove title, was simply wrong. He should have seen the entire deed of assignment and the sale and purchase agreement referred to in it. He failed to pay proper regard to the significant probative difference between the primary evidence that was not before the court and the secondary evidence that was before the court.
- It was accepted that Promontoria could have produced the original deed of assignment or an unredacted copy of the original. The reason for the redactions was said to be confidentiality. However, the first instance judge was wrong to accept, without more, that the redacted passages were irrelevant. The unredacted deed of assignment was clearly relevant. Further, the first instance judge did not consider at all the failure to adduce the sale and purchase agreement, which was obviously relevant. Promontoria’s justification for not adducing the documents was not good enough. Even if they were confidential, that was a not a reason in itself to withhold relevant materials, and the first instance judge was “clearly wrong” in concluding that this material was irrelevant.
- The validity of the chain of title between Clydesdale and Promontoria had been put in issue by the Emanuels, so the first instance judge needed to see the unredacted deed and the sale and purchase agreement, unless there was a good reason for not adducing this obviously relevant material. Since there was not, the first instance judge had decided this issue on a false basis.
- Taking these matters into account, the first instance judge’s decision to admit the redacted assignment deed into evidence and then to rely on it to decide the question of title was a decision no judge could properly have reached.
- The first instance judge’s decision was set aside. The appropriate course now was to hold that the redacted deed of assignment was insufficient to prove Promontoria’s title to sue.
This decision may open the door to a number of challenges to the transfer of customer debts by Clydesdale Bank (and other UK banks) to companies in the Cerberus Group.