Disclosure & Costs
Banks are facing an increasing amount of litigation in the current economic climate and their conduct is being increasingly scrutinised. Customers are questioning their conduct more readily and it has become even more crucial that the banking and finance sector appear to be behaving fairly.
The recent case of Timothy Duncan Earles -v- Barclays Bank Plc, 8 October 2009 should act as a stark warning to banks and financial institutions that the Courts will not take kindly to a defendant bank’s failure to provide relevant information, even if this was not a deliberate step.
The case in question related to an action between a customer and his bank. The claimant had banked with Barclays for in excess of 30 years and had, at one point, even been a bank manager with Barclays. He took a bank loan for £2.45 million to fund his property development business.
The Claimant also had a personal account with Barclays. Regular withdrawals were made from the business account and the overdraft far exceeded the £125,000 personal guarantee, which the claimant had in place. Barclays thus began transferring sums from the Claimant’s personal account to reduce the overdraft on the business account. The Claimant subsequently alleged that five unauthorised transactions took place causing a loss of £2.4 million plus interest.
Barclays denied that the transfers were unauthorised; the Bank said that the Claimant gave oral telephone instructions to staff at the Bank, which they were obliged to follow in accordance with the terms and conditions governing the account.
Essentially the dispute was very straightforward. The primary issue was described by the Judge as “beguilingly simple” – were telephone calls made authorising the transfers or not? This issue would normally be resolved very efficiently by checking the contemporaneous bank records. Electronically Stored Information (ESI) is nowadays used to record over 90% of all communication – phone records, text messages, emails, bank records etc, all of which are invaluable to a dispute such as this.
ESI are “documents” under the CPR and therefore they form part of the documents which should be disclosed as part of a dispute. These ESI are vast in number and the court expected a bank would have a system whereby they can efficiently gather together the relevant information if a dispute arises:
“a bank in this day and age of electronic records and communications with an in-house litigation department [should] have an efficient and effective information management system in place to provide identification, preservation, collection, processing, review analysis and production of its ESI in the disclosure process in litigation…“
In this particular case the Claimant wrote a letter before action and complaint in October 2007. Barclays’ legal team responded the very next day. This should have alerted the Bank to the possibility that a claim may be issued at some point in the near future. Despite this no one at the Bank took the obvious step of preserving the necessary telephone records and e-mail.
Although there is no duty to preserve documents prior to the commencement of proceedings it should have been obvious, following correspondence from the Claimant that proceedings may follow. Despite this, Barclay’s legal team did not disclose any telephone records and were severely criticised as a result.
Notwithstanding this omission, the Judge decided on the live evidence at trial that the customer had authorised the transfers. Although he found in favour of the Bank, he severely criticised its failure to comply with the CPR and the Bank recovered only 25% of its costs.
Gibson & Co
November 2009