New Law on Proving Consumer Contracts
Proving that a debt is owed under a consumer contract should be fairly straightforward. However, companies who lend money to consumers will often have hundreds of thousands of customers at any one time. Inevitably, when dealing with so many customers, documents do sometimes get lost.
Proving that a Debt is OwedIf a lender pursues a borrower for a consumer debt through the courts they may be able to obtain a default judgment if there is no response to the claim. However, if the case is defended there will be one or more court hearings where the lender will have to prove their case. Depending on the size of the debt, and the complexity of the case, it may go to a Small Claims hearing - where the court may adopt a relatively relaxed approach to the trial - or to a longer more formal hearing where the strict rules of procedure and evidence will be followed. In either event the lender will be expected to prove that the borrower entered into a contract.
If the original contract cannot be found the lender could be in some difficulty. Although it may be possible to prove the contract in other ways, the absence of a copy of the original contract could potentially be fatal to a lender's case. Indeed, some borrowers adopt a "technical" defence to a claim issued against them by a lender. In doing so they do not exactly deny that they owe the money claimed – they just force the lender to prove that they do. The first step in proving this is providing evidence of the original contract.
The Case of Carey v HSBCThe case of Carey v HSBC – which in fact included several related appeals on the same point and also involved the Office of Fair Trading (OFT) – answered the question of whether a lender could prove a debt when the original contract is unavailable.
The agreements in the cases heard together with Carey v HSBC all related to credit cards and involved many of the UK's biggest lenders. The specific point related to requests by borrowers to lenders, pursuant to section 78 of the Consumer Credit Act 1974 (CCA) to be provided with a copy of the executed agreement. It was clear that this was an important point of law which could have a dramatic impact on the ability of lenders to enforce outstanding debts. This is why many individual appeals were brought together and why the OFT became involved.
The Potential Consequences of the Absence of the Original AgreementConsumer Credit agreements must be in a particular format and contain certain specified information to be valid. If a lender cannot produce a true copy of the agreement originally signed by the parties they may not be able to prove that a properly executed agreement was entered into. According to the CCA an improperly-executed agreement can only be enforced against a borrower with an order of the court. Courts should not make an order permitting enforcement of an improperly executed agreement if this would cause prejudice to the borrower. This is because it would result in an "unfair relationship" (as defined by the CCA) between the parties.
The argument, broadly, raised on behalf of the borrowers in Carey v HSBC was that the very absence of evidence of a properly executed agreement raised a presumption that there was an unfair relationship between the lender and the borrower. Therefore the lender should not be able to enforce the agreement.
The Decision of the CourtHis Honour Judge Waksman QC, who heard the Appeal, disagreed with the arguments put forward on behalf of the borrowers that the absence of a copy of the original, properly executed, agreement raised a presumption that there was an improperly-executed agreement. His judgment suggests that the inability of a lender to provide an original copy of a properly executed agreement is not proof that no properly executed agreement exists. A borrower must provide evidence, or at least an argument, that an agreement was improperly executed to substantiate a claim that an unfair relationship exists between the parties.
Crucially it was also held that a lender could satisfy the requirements of the CCA by producing a “reconstituted” version of the agreement. A reconstituted agreement should contain the name and address of the borrower as they were at the time that the agreement was entered into. However, the information entered on the reconstituted agreement can be gathered from sources of information other than the original agreement itself and need not be in a form which would comply with the requirements of the CCA for a valid agreement.
This ruling could make it much harder for borrowers to run a strictly technically defence to a debt claim – and much easier for lenders to prove that a debt is owed.