Is Your Conclusive Evidence Clause Really Conclusive?

• Published date: 18 September 2023
• Subject Matter: Corporate/Commercial Law, Criminal Law, Contracts and Commercial Law, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: PD Legal
• Author: Mr Peter Doraisamy

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 England as well as in Australia, these clauses are commonly used in various types of documentation by all kinds of businesses in common law jurisdictions. An example where CECs tend to be used would be in contracts between bankers and corporate customers, to afford a practical and reasonable management of risk allocation Alternatively, CECs could also be found in certificates of engineers and architects, present in construction contracts.

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 Denning MR observed that the incorporation of such clauses was judicially accepted...