Lenders will be penalised for failing to keep or prevent destruction of documents.

In American Express Services Europe Ltd v Armstrong, the defendant had had a credit card account with the claimant from 1990 to 2008. The agreement between them set out the usual provisions such as credit limit, relevant interest rates etc. The agreement provided for interest at a daily rate but the parties agreed that it did not expressly provide for compound interest to be charged. The credit card agreement came to an end and the claimant commenced proceedings for the outstanding balance of just over £12,500 in 2006. A default notice had first been issued as early as 1998. The defendant defended on the basis that the entire sum was irrecoverable under the Consumer Credit Act 1974 as compound interest had been unlawfully included in the total. The claimant responded by waiving all claims to interest and additional charges beyond the annual fee. The sum claimed was reduced to £6,809. The claimants had, as a routine measure, destroyed or failed to exclude from destruction the statements of account for the card from 1990 to 2001. As a result, it could not prove categorically whether that reduced figure contained interest or not, and if so, how much.

The court had to decide whether the debt was enforceable and also whether the sum should be reduced to reflect the court's response to the claimant's destruction of evidence. At first instance the judge held it was enforceable and reduced the sum by £2,000. Both parties appealed.

On appeal, the judge held that on the evidence there was never any agreement to pay compound interest, it was charged in error. The defendant never realised compound interest was being charged, did not therefore alter his position as a result and could not rely on estoppel arguments. As to whether the deduction of £2,000 was too much, adverse inferences should be drawn against a party who destroys relevant evidence even though the destruction is not malicious but merely inappropriate or cavalier. The judge at first instance had taken a robust view and if any mistakes were made, they were made in favour of the defendant. The judge on appeal took the same view. Both appeals were dismissed.

Things to consider

This is not the first case where the court has criticised lenders for their lack of record keeping - see Earles v Barclays Bank PLC in our October 2009 update. The court took the view that organisations such as the claimant should have appropriate systems in place to avoid destruction of documents where it is known that a potential claim may arise. The records in this case should have been removed from the lender's blanket policy of destruction once the original default notice had been issued.