Debt purchasing and the paper trail

Promontoria (Henrico) Ltd v Friel [2019] CSOH 2 (8 January 2019), a decision of Lord Ericht in the Outer House of the Court of Session, cast the spotlight on a number of issues regularly faced by those involved in the industry of taking assignations of debts from lenders. Essentially the key issues for lawyers within the debt purchasing industry are:

• an inability to obtain original (as opposed to copy) documents from the original lender;
• proving title to sue in circumstances where the assignation document contains a number of commercially sensitive or confidential clauses.

Copy documents

In Friel, the pursuers were unable to retrieve a principal copy of the personal guarantee on which they relied, despite efforts to locate it on the part of the original lender. As a result, they sought an order proving the tenor of a copy guarantee. The court held that in order to prove the tenor of a document, three elements were required:

• proof that the document had been executed;
• proof that its contents were as set out in the copy produced;
• proof of the circumstances of the loss of the document.

It was broadly accepted that the first two elements were in place. In relation to the third element, the defender argued that this had not been established, for all that had been shown was that the document could not be found. It had not, it was argued, been proven that the document was in fact lost, nor the manner in which this had occurred.

The court held that the defender’s argument went too far. Under reference to authority dating from 1847, it was held that the principle in circumstances where execution and content were proven was that “only very general and slight proof” of the circumstances of loss was required. Nor was it necessary to establish that the loss occurred without fault. In those circumstances the court was content to find the tenor of the document proven.

Title to sue

On the question of title to sue, the pursuer in this case had produced a redacted version of the contract between it and the lender dealing with the assignation of the debt. In particular, as is common in such cases, the assignation document contained details of a significant number of loans which were being assigned. None of these had any relevance to the case in issue and those details had been redacted. The assignation was also a copy document, which had been certified as a true copy by a firm of solicitors signing the firm’s name, and not by an individual.

It was argued by the defender that title to sue had not been established on the basis that the document was inadmissible. This was because (a) it had been certified by a non-natural person and without meeting the formalities of execution required for formal writing; and (b) it was not a complete copy of the agreement but had been redacted. Therefore, it was not a “true copy” of the agreement.

The court rejected these arguments.

In relation to the question of certification, the court held that there was nothing within the Civil Evidence (Scotland) Act 1988 that prevented a copy document from being certified by a non-natural person. Equally, there was nothing that required formal execution by that entity. It was in the interests of justice that the process “facilitates the efficient conduct of court business by providing a simple straightforward method for certifying copy documents”, rather than a formal technical process.

Redaction of commercially sensitive documents

On the issue of redaction, the court held that it was competent (and indeed in some cases desirable) for a redacted document to be lodged in evidence. It had been suggested that production of a redacted document was an abuse of process. The Lord Ordinary held that: “In my view the production of a duly certified copy of a legal document under redaction of parts not relevant to the issues before the court is not an abuse of process. On the contrary, it assists in the efficient conduct of judicial business.” The court went on to state that “The wholesale lodging of an extensive schedule of information which is not relevant to the pursuer, and contains confidential commercial information about third parties, does not assist the court in the focusing of the case before the court.”

Whilst not explicit in the judgment, the court appeared not wholly to approve of the defender's approach of insisting on strict proof of every document before the court. In one passage of the judgment the court states that “If parties were required to prove the original of every document on which they rely, then the efficient and cost-effective administration of justice would be impeded as much court time would require to be expended on proving documents rather than addressing the substance of a case… However in this case the defender chose to put the pursuer to his proof.”

The court considered the redacted assignation document as produced, and the letters issued to the defenders intimating the assignation. It took account of the pursuer’s position that only two entities (the pursuer and the original lender) could possibly own this debt, and the lack of contrary evidence led by the defender. In all the circumstances the court was willing to hold that the pursuer had proved on the balance of probabilities that the bank had assigned its rights to the pursuer and that the pursuer therefore had title to sue.

Conclusion

The case is the latest to uphold the use of redacted documents in specific circumstances where the redactions do not impact upon the substance of the case. It is clear that the use of such documents will be approved by the courts, and especially so in commercial procedure where orders could be sought at an early stage in the event that there were concerns about the level of redaction.

Moreover, the court’s findings on the certification of copy documents will also assist to clarify the law. It is clear that there is a relatively low bar in relation to such certification, and that it is competent for corporate entities to certify documents used in these types of cases.