Promontoria (Oak) Ltd v Emanuel 2020 – debt sales and reliance on secondary evidence

A recent appeal has set aside the title to sue asserted by Promontoria (better known as Cerberus) as assignee of Clydesdale's debt.

The judgment offers helpful guidance as to the court's approach to the treatment of secondary evidence (in this case, redacted copies of key confidential documents) and highlights some of the difficulties when it comes to enforcement of assigned debt – an area of increased focus by policymakers.

Summary

On its face, the case itself could be regarded as ordinary:

• Following default by Mr and Mrs Emanuel, Clydesdale (the Bank) made demand in 2012.
• In 2016, the Bank assigned the debt (and legal charge) to Promontoria who, in 2017, commenced possession proceedings.

However, Mr and Mrs Emanuel defended that claim by asserting that Promontoria had not proved its entitlement to sue as, amongst other matters, it was relying on a redacted Deed of Assignment.

Promontoria produced the Deed of Assignment but chose to heavily redact it - removing references to 'commercially sensitive material' contained within.

It submitted that the redactions had no bearing on the existence and effectiveness of the assignment. Critically, they did not move from that position through to trial and the unredacted Deed of Assignment and the related Sale and Purchase Agreement were not disclosed.

At first instance, the Judge was satisfied that the assignment was valid by reference to the redacted Deed of Assignment, Promotoria's witness evidence and, interestingly, that "the parties to the [assignment] are in no doubt about its validity and enforceability…"  – even in the absence of the Sale and Purchase agreement (referred to in the Deed of Assignment).

On appeal, however, the Emanuels successfully overturned this decision on the basis that the first instance judge adopted an incorrect approach to secondary evidence and, in the circumstances, should not have determined that Promontoria had established title on the basis of the redacted Deed of Assignment.

In doing so, the court produced some helpful guidance in respect of the probative difference between "primary" (or best) and "secondary" (or second best) evidence – which is often the subject of bank and lender disputes.

Approach to secondary evidence

The historic maxim for the "best-evidence" rule was that a party must produce the "best" evidence that the nature of the case will allow and that any less good evidence was to be excluded.

The strictness of that rule has long since gone and the court instead applies a broader approach to the exercise of its judicial discretion when it comes to the admittance (or not) of secondary evidence and the weight to be attached to it.

The discretion will naturally vary from case to case. For instance, in most circumstances, a photocopy will be as good evidence as the original but, depending on the matters in issue between the parties, a copy may not be conclusive.

Naturally, if there is an allegation of forgery, the court would expect to have the original before it, whereas that would not be the case if the matter in issue is construction of a contractual provision.

The reason for a party's inability to produce the original should also be considered. If there is good reason why, the court will not be particularly inclined to draw any adverse inference.

Conversely, if the original is readily available and no coherent reason is given for the failure to produce it, the court is likely to draw an adverse inference, potentially assuming that the primary evidence does not tell the same story as the secondary evidence.

Finally, the court will look at the procedural history of the case, noting that a trial is the culmination of a process which involves identifying and framing the issues and ensuring proper disclosure of documentary evidence appropriate to the resolution of those issues. So, when considering the "best evidence" rule a trial judge will take into account the interlocutory steps that have been taken by the parties in bringing their dispute to trial.

Parties should use this case as a helpful guide of the best evidence rule and note the warnings if secondary evidence is being relied on in place of production of an original document. Sometimes, it cannot be avoided but a party relying on secondary evidence should be ready to explain this to mitigate any adverse inference.

Asserting that parts of a document are confidential is never enough (of itself) to avoid disclosure obligations – the disclosing party should apply to the court to obtain an order protecting that confidence.  

Comment

Disputes where the underlying debts have been sold, assigned or transferred will grow as a feature of lender disputes – due to the volume of debt that has been bought/sold in the last 10 years.

In ordinary circumstances this should not give rise to independent grounds for dispute/complaint, provided that the transfer process has been properly followed and issues (such as title to sue) are properly documented/responded to when challenged.

However, this case highlights that unless issues have been properly dealt with before trial – they can offer a complete defence, negate the whole exercise and prove costly.

Whilst both sides were criticised for not having this matter addressed before trial (e.g. either by way of a specific disclosure application or a "confidentiality club" order), the Emanuels will be much happier with the outcome. The possession proceedings will have to be recommenced but first, Promontoria will be obliged to fully disclose the critical documents and, no doubt, they will be exposed to intense scrutiny.

The circumstances of this case will also resonate with customers and campaigners in relation to so called "mortgage prisoners" and "vulture funds". The said campaign is gaining traction (and pace) as the APPG on Fair Business banking and Martin Lewis have taken up the cause (see here and here).