knowledge | 3 September 2020 |
Loan Sales: Evidential Stumbling Block Removed for Credit Servicing Firms and Loan Owners?
One legacy of the financial crisis of 2008 was the sale by banks of non-performing loans to international institutional investors who appointed regulated credit servicing firms to manage those loans. Inevitably, some of these non-performing loans required enforcement action on the part of the credit servicing firms or, prior to the introduction of the credit servicing regime in Ireland, the loan owners. Many such enforcement actions have, however, run into evidential stumbling blocks connected with the rule against hearsay and so credit servicing firms and loan owners will view the enactment of the Civil Law and Criminal Law (Miscellaneous Provisions) Act 2020 with interest.
What is the rule against hearsay and are there exceptions?
The rule against hearsay prevents the use of an out of court statement, to prove the truth of its content, in other words, to establish some fact set out in the statement in question. The rule helps to ensure the integrity of evidence presented in court proceedings. The rule also applies to documentary evidence.
The rule has the potential to exclude certain probative evidence and lead to injustice so a large number of exceptions to the rule have grown up at common law or have been provided for in legislation.
For example, at common law, there is a wide ranging exception to the hearsay rule that permits the admission of public documents compiled by public officials as prima facie evidence of facts stated therein. This exception has been supplemented by legislation. The exception exists because of the presumption of reliability which can be generally attached to public documents.
The same wide presumption does not apply to private documents such as business records. However, certain statutory provisions have provided for the admission of these documents where the circumstances of their creation point towards a high degree of reliability. Examples include the Bankers’ Books Evidence Acts and the “business records” provisions in section 5 of the Criminal Evidence Act 1992. However, these instruments are limited in their application, the former only applying to “banks” and the latter only to criminal proceedings.
As a result, plaintiffs suing on foot of an assignment of debt, particularly assignees that are not “banks” within the meaning of the Bankers’ Books Evidence Acts have often had difficulties in proving their case, particularly in summary proceedings (those heard on affidavit rather than on oral evidence). Many plaintiffs in legal proceedings who are not the original lender have found their route to judgment frustrated and/or significantly delayed and so will welcome the enactment of the Civil Law and Criminal Law (Miscellaneous Provisions) Act 2020 (the “Act”).
What does the Act do?
The Act provides a new statutory basis for the admission of business records into evidence for the purposes of civil proceedings. In such proceedings, subject to some exceptions and satisfaction of prescribed criteria, any record in (or capable of being reproduced in) documentary form is presumed to be admissible as evidence of the truth of the facts asserted in the document. The prescribed criteria include (amongst others) that the business record:
- was compiled in the ordinary course of a business
- was supplied by a person (whether or not he or she so compiled it and is identifiable) who had, or may reasonably be supposed to have had, personal knowledge of the matters dealt with, and
- in the case of information in non-legible form that has been reproduced in permanent legible form, was reproduced in the course of the normal operation of the reproduction system concerned.
To benefit from the above statutory exception, a number of additional notice criteria must also be satisfied. These include, amongst others, an obligation to provide the other parties, not later than 21 days before the commencement of the civil trial, with notice of intention to submit the relevant document into evidence, together with a copy of the document.
By way of safeguard, the courts retain an overriding discretion as to whether or not a business record should be admitted into evidence and, in this regard, are required to take certain prescribed considerations into account (eg an assessment of the reliability of the information). The court may refuse to admit a document under the new provisions where its admission is not in the interests of justice.
In estimating the weight to be given to a particular document admitted here, the court will have regard to all the circumstances from which any inference can reasonably be drawn as to its accuracy or otherwise. The court may also hear evidence as to credibility of the supplier of the information contained in the document.
The importance of the hearsay rule to ensure the integrity of evidence should not be understated. It can be seen as a requirement of fair procedures before the courts and anchored in the Constitution. However, the common law is not always well-tailored to the changing business world and needs legislative adjustment from time to time. On this basis and subject to the safeguards built into the Act, the recent changes should be welcomed as a sensible move towards a more efficient and cost-effective legal system.
This briefing is for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.