Introduction
Conclusive evidence clauses ("CECs"), often found in banking documents, are essentially clauses providing that a determination of liability (which tends to involve the issuance of a certificate) shall be a conclusive determination of both the liability of a debtor and the amount payable by such debtor. An illustrative example is as follows: when a CEC is incorporated into the terms and conditions governing a bank account, the bank will be legally entitled to consider the bank statements as conclusive evidence of all that is presented within the bank statements of the account holder – this includes particulars of all transactions within. The incorporation of a CEC into an agreement imposes a duty on bank customers to verify their own bank statements, and notify the bank of any discrepancies within a certain period of time. If bank customers do not do so, they will be precluded from challenging their liability and amount payable on their part.
An example of such a clause provides as follows:
A certificate signed by any officer or solicitor of the Bank as to any amount due at any time from the Customer [ie, the borrower] and/or the Guarantor [ie, the defendant] to the bank in respect of the Guarantee (including the calculation of any amount of any interest payable) shall, in any legal proceedings against the Guarantor, be conclusive evidence of the indebtedness at such date of the Customer and/or the Guarantor to the Bank and shall be binding on the Guarantor.
But are these clauses really conclusive, as the plain wording may suggest?
Background
CECs were originally constructed for purposes of facilitating greater convenience when proving any outstanding sums owed and facilitating efficient repayment of the loan monies. This would save time and expense relating to arguments on issues of liability, as well as the amount owed by the debtor. Having been recognized in
When dealing with CECs, it is imperative to bear in mind one of the underlying bases for the judicial acceptance of such clauses. In Bache, Lord
Additionally, another rationale for such clauses is that of contract, in that an agreement between parties regarding the manner in which the matter is to be determined should be upheld, unless there are any relevant public policy considerations.
The legal position
Whether the court will give effect to a conclusive evidence clause
There is a rebuttable presumption in commercial documents that a party has not agreed to confer on the other party an exclusive right to determine conclusively all issues relating to an adversarial claim. As such, the court will generally not permit a party to solely rely on a CEC to succeed in such a claim.
I. Interpretation of the Clause
Much of whether a CEC will be deemed valid in the eyes of the Court, is largely dependent on the interpretation of the clause. A court may give effect to a clause that is well-drafted and unequivocally confers to one party the right to determine issues impacting on the other, in the absence of fraud or obvious error on the face of it. This is provided that the party making the determination fulfils his duty to act fairly in doing so. In the case of
However, V K Rajah J (as he then was) in the
II. Are CECs necessarily one-sided?
It may appear to some that conclusive evidence clauses are one-sided in favour of the lender. Even if so, the law is not blind to the interests of the other party as an agreement that is one-sided or onerous will be construed strictly against the party seeking to rely on it. Also, CECs that purport to exclude liability for the fraudulent conduct of bank employees would run afoul the reasonableness test under Section 11 of the Unfair Contract Terms Act (UCTA). That said, Courts usually void such conclusive clauses through the UCTA or on public policy grounds.
III. Misconduct
As for whether conclusive evidence clauses can relieve a lender from liability for its misconduct, there must be clear and unambiguous language to that effect. Courts have upheld such clauses to exonerate banks from having to bear liability of honouring forged cheques.
The distinction between liability and debt amount
Even if the courts give effect to the incorporation of a conclusive evidence clause, the distinction between liability and the debt amount should be considered. For instance, it must be examined whether the ambit of the conclusive evidence clause used is sufficiently wide to preclude a party from challenging the liability and/or amount of a debt.
Conclusion
To conclude, the effect of a conclusive evidence clause will depend on the exact words used in the case at hand, and in substance, what these words would be interpreted to mean. The significance of this matter is highlighted by the viewpoints of certain scholars who contend that the worth inherent in a conclusive evidence clause is centred around the verification duty. This duty, which is both reasonable and enforceable under common law, has been a subject of debate. Within the context of a conclusive evidence clause, a bank maintains its liability for unauthorised transactions if the customer adheres to the verification duty. Nonetheless, the unyielding efficiency of this clause and its lack of consideration for individual case circumstances have led it to be regarded as an exclusion clause. In cases where unauthorised transactions are deceitfully initiated by an employee of the bank, it's not surprising that a court might deem such occurrences as unreasonable and against public policy. Even in such circumstances, a bank should still have the authority to impose a verification duty based on established common law contractual principles.
Banks should also contemplate strategies for upholding their right to customer verification under such situations. One viable approach involves the formulation of terms and conditions wherein the verification duty is distinctly separated from the conclusive consequences of a breach, thereby avoiding negative associations. Most importantly, a legislative intervention that takes a balanced approach, considering breaches by both parties and all relevant circumstances, might represent the most optimal solution.
Finally, given that the primary value of a verification duty lies in its fulfilment, banks should direct their efforts toward achieving higher levels of compliance. This entails investing in customer education and striving for enhanced transparency throughout the contractual process. Customers should receive adequate information regarding the verification duty and its significance at the point of contract initiation (account opening). Subsequently, customers should receive periodic reminders of their responsibility to verify and promptly report.
As long as the provided statement accurately represents the unauthorised transaction, this approach will ultimately bolster the reasonableness of the verification duty. With time, customer behaviours can indeed be guided toward more extensive verification—a practice that banks should assume responsibility for cultivating.
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Footnotes
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3 Booysen, Sandra A, "RECENT DEVELOPMENTS Verification Duties, Conclusive Evidence Clauses, and Fraud by Bank Employees", Banking & Finance Law Review ("Booysen") p 687.
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7 Dobbs v
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9 ibid at [63].
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16 Booysen at p 693.
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22 Booysen at p 694.
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26 Verification Duties, Conclusive Evidence Clauses, and Fraud by Bank Employees [2012] Banking & Finance Law Review at [709-710].
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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