Unfair Relationships and the Burden of Proof

Article by Katie Wilkinson

Debtors under regulated credit agreements are able to bring a claim of unfair relationship pursuant to sections 140A to 140C of the Consumer Credit Act 1974 (CCA).  Section 140B(9) provides for a reverse burden of proof in such claims.

Section 140B(9) of the CCA provides that where “the debtor or a surety alleges that the relationship between the debtor and creditor is unfair to the debtor, then it is for the creditor to prove to the contrary”.  Its effect is to reverse the usual rule that “he who asserts must prove”.

The concept of reversing the burden of proof is not new to the CCA; the unfair relationship provisions replaced claims for “extortionate credit bargain”.  The test in those claims under section 171(7) provided that if “the debtor or any surety alleges that the credit bargain is extortionate it is for the creditor to prove the contrary”.

The question that arises from the language of section 140B(9) is whether both the creditor and debtor bear both a legal and factual burden, or whether a debtor must first establish their factual case before the creditor is tasked with a legal burden of establishing there is no consequent unfairness?

Arguably, if a creditor has to discharge both the factual and legal burden, it increases the volume and complexity of disclosure and evidence in the litigation process and may encourage spurious claims brought with the intention of making the litigation process costly and onerous on the creditor.

Upon the introduction of the unfair Relationship provisions, it was broadly assumed by most practitioners that the burden of disproving unfairness only switched to the creditor once the debtor had established their factual case. However, in Bevin v Datum Finance Ltd [2011] EWHC 3542 (Ch) it was stated:

“[55]… it is not, in my judgment, incumbent on Mr. Bevin to show a prima facie case as to unfairness or any case as to unfairness. As the section says, all he has to do is to make an allegation of unfairness. If he makes that allegation, the legal burden is on the creditor to prove that the arrangement was not unfair. The creditor in this case, Datum, has not adduced any evidence on unfairness whatsoever.

[56] I do not, therefore, accept that Mr. Bevin has a burden at this stage, in effect, to reverse that burden by putting a showing on first…”

In the years that followed, the general view of the Courts was that a debtor need only make a bare assertion of unfair relationship, leaving the burden in law and fact resting at the feet of the creditor.  More recently, however, in Promontoria (Henrico) Ltd v Samra [2019] EWHC 2327 (Ch), I was said:

“[26]… the onus is on the [creditor] to show, to the normal civil standard, that the relationship is not unfair because of any of the reasons set out in s 140A(1)(a)-(c). Whether it is so unfair is a matter for the court’s overall judgment having regard to all the relevant circumstances and matters, including matters relating (ie personal) to the creditor and debtor. This onus on the [creditor] does not however mean, in my judgment… that where [the debtor] makes allegations of fact on which he relies he does not have the burden of proving them to the normal civil standard. The onus placed on the creditor is as to the relationship between it and the debtor, and does not have the effect that factual allegations made by [the debtor] must be accepted unless they can be positively disproved by contrary evidence.”

Arguably, the decision in Samra conflicts with Bevin and the County Court will have to decide the approach to take when dealing with unfair relationship claims.