Proving the Debt - Hearsay Rule Still Applies in Debt Claims
In this article we discuss a recent case that highlights the evidential difficulties for lenders in obtaining summary judgment against debtors and the lack of clarity in the area.

 

In the recent case of Promontoria (Aran) Limited v Burns [2020] IECA 87 the Court of Appeal dismissed Promontoria's appeal of a decision of the High Court rejecting their evidence of the debt claimed. The High Court did so on the basis that the evidence provided of the debt to the Court by Promontoria was inadmissible hearsay. This case highlights the difficulties debt holders may experience when seeking to recover debt in summary proceedings where the plaintiff is not the original lender.

Loan Sale to Promontori

Ulster Bank had issued summary proceedings for the debt in 2013 and subsequently sold the loan to Promontoria in 2015. Promontoria then sought judgment in amount in excess of €27m under the loan against the defendant, Mr Burns. 

The High Court application for summary judgment was grounded on an affidavit of Mr Harris who was a senior asset manager with Link ASI Ltd which administered the debt on behalf of Promontoria. The affidavit exhibited non-certified copies of guarantees and letters of demand made on foot of those guarantees. Mr Burns denied that any debt existed and put Promontoria on full proof of the existence of the debt. He also contended that Mr Harris' evidence was hearsay and therefore inadmissible. 

The Rule Against Hearsay

The rule against hearsay essentially stipulates that witnesses may only give evidence as to matters to which they have direct, first-hand knowledge. This means that where a party relies on documentary evidence, ordinarily only the author of the document may attest to its truth. Ms Justice Baker for the Court of Appeal explained that the rule exists to ensure the veracity and reliability of evidence. However, as she also noted, an overly harsh rule causes problems including "cumbersome and unduly long civil litigation".

Could Promontoria Avail of an Exception?

Promontoria tried to avail of one of the exceptions to the hearsay rule under common law where documents, such as account statements, demonstrate a "course of dealings" between the parties to indicate that a debt existed. In such circumstances a person familiar with the records could attest to the documents' reliability.

Court of Appeal Decision

Baker J.  held that a debt claim could be established by credible evidence from a course of dealing such as from reliable business records. However, on examination of the documents Promontoria sought to rely on, the Court found they did not prove the debt. 

While the Court accepted that Mr Harris had authority to swear an affidavit and Mr Harris had confirmed in his affidavit that he had "access to the books and records … having relevance to the proceedings", the affidavit did not state that his evidence was drawn from analysing the historic books and records of Ulster Bank, including customer account statements sent to Mr Burns. This omission was, she held "unlikely to be accidental" and was "precisely the type of mischief the rule excluding hearsay evidence seeks to avoid". Baker J. held that at best the evidence of Mr Harris was evidence of the amount Promontoria was told was due by Ulster Bank when the loan was sold – in other words, "classic hearsay".

Lack of Clarity

The Court of Appeal highlighted the lack of clarity surrounding the exception to the rule against hearsay throughout the judgment. The Court noted that recent judgments of the Supreme Court on this point have been given by three-judge panels and "an authoritative decision of the full court is awaited and needed".

Mr Justice Collins, in a separate concurring judgment, echoed Ms Justice Baker's call for clarity and stated that it was not in the public interest that straightforward debt claims should require a plenary hearing. He concluded by calling for legislative intervention to allow for business records to be admitted in civil proceedings.

What this Means for Lenders

This case, along with other recent decisions including Bank of Ireland v O'Malley, highlight the difficulties that may arise where the party seeking to prove the debt is not the original lender. In such circumstances the claimant must be in a position to put sufficient evidence before a court to prove that the debt is due. Where a claimant is seeking to rely on the course of dealing exception to the rule against hearsay it must be very careful to exhibit documents such as customer account statements in order to prove a debt.

 

Contributed by Simona Mulligan & Eógan Hickey

 

Key Contacts

Ruairi Rynn Partner

Fergus Doorly Partner

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