His Honour Judge Anthony Thornton QC:
1. Introduction
- The claimant ("Mr Smeaton") is claiming damages from the defendant ("Equifax") which is one of the three principal credit rating agencies ("CRAs") operating in the United Kingdom[1]. Each CRA collects and holds information ("credit data") relevant to the financial standing of most adults ("consumers") in the United Kingdom. The information includes details of the credit card and mortgage history, credit agreement defaults, electoral roll registration, county court judgments and bankruptcy information of United Kingdom-based consumers. This credit data is provided to the CRAs by banks and most other providers of finance and credit. The credit data for each consumer is collated and held on a credit file in that consumer's name and the credit file is provided on request to credit providers ("customers") when those customers are processing a consumer credit application for that consumer or for a third party that the consumer has an interest in. The credit data will be used by the customer to assist it in deciding whether to provide the credit facilities being applied for.
- It is obviously essential that the credit data held on a consumer's credit file is accurate at all times and that updating procedures are in place that enable any changes that occur to the data to be recorded as promptly as reasonably possible on that consumer's credit file. For many years, credit data has been collected and stored electronically and since the Data Protection Act 1998 ("DPA") came into force, the obtaining, recording, storing and sharing of these details are now subject to the requirements of that Act. The effect of the DPA is that each CRA, as a data controller, has a statutory duty to comply with the statutory data protection principles provided for in the DPA in relation to all credit data which that CRA controls. In particular, a CRA is subject to the fourth data principle which requires all personal data to be accurate and to be kept up to date. If a CRA causes a customer to suffer damage by reason of a contravention of any of the requirements of the DPA, including the fourth principle, section 13 of the DPA requires it to pay compensation for that damage to the consumer unless it proves that it took reasonable steps to ensure the accuracy of the credit data in question.
- Mr Smeaton's complaint against Equifax is, in summary, that between 12 March 2001 and 17 July 2006, Equifax included in his credit file an entry that he was subject to a bankruptcy order made by Aylesbury County Court pursuant to the relevant provisions of the Insolvency Act 1986 ("IA")[2] and the Insolvency Rules 1986 ("IR")[3] on 1 March 2001 that was inaccurate in two material respects. Firstly, the entry was inaccurate between 12 March 2001 and 22 May 2002 since, between those dates, the bankruptcy order was subject to a stay order imposed by Hart J sitting in the Chancery Division of the High Court in an appeal application relating to that bankruptcy order. It was conceded by Equifax's witness Mr Beresford in evidence that had Equifax been made aware of the terms of this stay order, the entry would have been removed from Mr Smeaton's credit file whilst the stay was in place. Secondly, the entry was inaccurate between 22 May 2002 and 17 July 2006 because the entry remained on Mr Smeaton's credit file throughout that period although the bankruptcy order had been rescinded on 22 May 2002 by a consent order made by the Aylesbury County Court. In short, Mr Smeaton contends that his credit file erroneously recorded that he was bankrupt between 12 March 2001 and 17 July 2006 when the entry should have been removed in its entirety from the file on 12 March 2001 when the bankruptcy order was stayed or, alternatively, on 22 May 2002 when it was rescinded.
- Mr Smeaton now claims compensation for the loss and damage he alleges he was caused by this inaccurate entry. The loss and damage was triggered by two applications that he had made to National Westminster Bank ("Nat West") on behalf of his company, Ability Records Ltd ("Ability") and himself. He had applied to Nat West on behalf of Ability for a Small Firms Loan Guarantee Scheme ("SFLGS") loan, for the opportunity to open a business account and for associated overdraft facilities and on his own behalf for the opportunity to guarantee both this loan and the associated business account and overdraft facilities. On receipt of his applications, Nat West consulted Mr Smeaton's credit file held by Equifax. Having done so, it refused both applications, initially on 30 June 2006 and finally on 10 August 2006. Mr Smeaton contends that these refusals occurred as the direct result of Nat West being provided on about 30 June 2006 with the inaccurate entry on his credit file that recorded that he was the subject of an undischarged bankruptcy order made on 1 March 2001. Mr Smeaton contends that Nat West would have granted these applications had his credit file been accurate when Nat West consulted it on 30 June 2006. He further contends that the refusal of the applications set in train a catastrophic series of events which have caused him extensive loss and damage.
- Mr Smeaton's claim raises novel issues under section 13 of the DPA 1998. He brings his claim additionally as a claim for damages for negligence and this claim too raises novel issues. When the trial started, I made an order that the first trial would be confined to liability only with causation and damages to be tried later if Mr Smeaton succeeded on liability. I expressed the order that I had in mind in these terms:
"All questions of causation and remoteness should be held over and what I am trying today is the issue of breach. … I propose therefore to define what it is that I am to decide as including the general question of whether [there was a breach of duty] and whether any breach of duty that I find took place caused any loss. In doing that I am not deciding what loss. All I am deciding is whether there is no loss."[4]
- I subsequently made an order dated 21 November 2011 that defined the issues that I was to decide in these terms:
1. The following issues are to be determined by the Court on the basis of the evidence and the submissions received to date:
(1) Did the Defendant breach any duty to the Claimant under the Data Protection Act 1998?
(2) Did the Defendant owe the Claimant a duty of care at common law, and, if so, what was the content of that duty?
(3) If the Defendant did owe the Claimant a duty of care, did the Defendant breach that duty?
(4) If the Defendant was in breach of any duties owed to the Claimant, did such breach or breaches cause Mr Smeaton to be unable to obtain funding on behalf of Ability Records Limited in mid-2006 or subsequently?
2. Any other issues are to be determined at a further hearing, if necessary, after the Court's judgment in relation to the issues identified in paragraph 1 above has been handed down.
- The claim has had a long and troubled procedural history during the whole of which Mr Smeaton has acted in person. He is severely dyslexic and for some months in the early part of the period following Nat West's rejection of his applications, he was homeless and in poor health and he attributes both misfortunes to his stress-related response on learning of the inaccurate credit information that had been held by Equifax on his credit file for over five years. He has also had limited means since 2006 and has in consequence acted in person throughout. He has presented his claim clearly and with moderation. The claim identifies a number of heads of damage but these have not so far been particularised or quantified. Mr Smeaton regards his claim as being a substantial one but its scope and size will only be determined if he succeeds in the liability and causation issues that I must first determine.
- The claim is brought under two related causes of action, breach of duty and statutory duty. The effect of its long procedural history is that I am concerned with alleged breaches of statutory and common law duty that occurred over a five-year period between 12 March 2001 and 17 July 2006. The claim form was issued on 1 March 2007 so that the entire period of these alleged breaches occurred within six years of the claim being issued and no question of limitation arises. For various reasons which are not relevant to my consideration of the claim, the trial itself did not take place until 2011. However, I am concerned with what has emerged as a novel and difficult claim that is based in both negligence and statutory duty and which raises issues of general importance that must be determined by reference to standards of care prevailing at least six years ago. Due to advances in the electronic processing of credit data and to legislative changes in the insolvency legislation concerning personal bankruptcies, it is very unlikely that the highly unusual facts of this case will ever re-occur in the future. Thus, if Mr Smeaton's claim succeeds, it will give rise to a tiny, albeit significant, incremental advance in the law of negligence as well as being a novel claim for breach of the statutory duty imposed by the DPA.
- The trial itself occupied nearly three days. At the trial, Equifax was represented by Mr Alexander Milner and Mr Smeaton represented himself. Two witnesses were called on behalf of Equifax. These were Mr Nicholas Beresford, its then UK Data Director, and Mr Steven Martin, its then Head of Compliance and Regulatory Affairs. A witness statement was also served from its solicitor, Mr Simon Thomas which deals with procedural matters which were not directly relevant to the issues that I am presently concerned with. Mr Smeaton gave evidence and was cross-examined. He also made opening and closing submissions and served three witness statements, two written submissions dealing with the issues and three further written submissions dealing with procedural matters.
2. Summary of Relevant Insolvency Legislation
- Introduction. This case is concerned with personal insolvency legislation in the form that it was in 2001 and 2002. There have been relatively modest changes to that legislation since 2002 which I have attempted to refer to where these are potentially relevant. This case is particularly concerned with bankruptcy petitions and bankruptcy, discharge, annulment, rescission and stay orders. Until the 1990s, the number of personal bankruptcy orders made each year was relatively modest and the great majority of those related to business debts. Thus, in 1989, about 9,000 bankruptcy orders were made of which less than one third related to consumer debts. By 2001, the number of bankruptcy orders had risen to 23,477 of which 76% related to consumer debts. Furthermore, the proportion of petitions issued by debtors had increased enormously over the decade up to 2010 from a minority in 1999 to over 84% by the end of 2010. These changes occurred for a variety of overlapping reasons, the principal one being the huge increase in the availability of credit, particularly mortgages and credit cards, and the huge increase in personal over-indebtedness. Other reasons included the introduction in 1986 of automatic discharge from bankruptcy[5] and a growing belief that bankruptcy was an acceptable way of avoiding the consequences of negative equity and unaffordable debts. As a result, the number of bankruptcy orders made each year has increased exponentially, the proportion of commercially-based creditor petitions has fallen rapidly and the proportion of debtor petitions in consumer-based bankruptcies has similarly increased. Mr Smeaton's case is concerned with a creditor consumer-based petition that was presented by his then landlord for a debt created by arrears of rent[6].
- Bankruptcy petition. A person becomes bankrupt when a bankruptcy order is made following the presentation of a bankruptcy petition. Petitions are either presented by a creditor as a creditor's petition or by a debtor as a debtor's petition. The grounds that may found a creditor's petition are differently expressed to those that may found a debtor's petition although the underlying basis of both types of petition is very similar, namely that the individual in question is insolvent and cannot pay his or her debts. The provisions of the IA and IR apply to both types of petition. However, since this case concerns a creditor's petition, I have only considered the insolvency legislation from that standpoint.
- A bankruptcy petition, whether by one or more creditors, must relate to a debt or debts of at least £750. A creditor's petition is usually but not invariably preceded by the service of a statutory demand since a debtor is conclusively presumed to be unable to pay a debt if a statutory demand has been served in relation to that debt at least 21 days prior to the presentation of the petition and the debt remains unpaid. As soon as the petition has been presented to the court, the court must send the Chief Land Registrar a notice of the petition together with a request that it be registered in the register of pending actions[7].
- Bankruptcy order. The presentation of a petition to a court having bankruptcy jurisdiction is followed by an application for, and the making of, a bankruptcy order if the statutory conditions for an order are met. The order commences and takes effect on the day on which it is made and continues until the debtor is discharged.
- Withdrawal, stay and dismiss. The court can at any time before a bankruptcy order has been made order that the petition should be withdrawn, dismissed or stayed. Once a bankruptcy order has been made, these orders are still available but only if the bankruptcy order is first annulled or rescinded by a court exercising bankruptcy jurisdiction or quashed by an appeal court concerned with a first or second appeal from such a court. The relevant provisions of the IA are set out in section 266 of the IA as follows:
(2) A bankruptcy petition shall not be withdrawn without the leave of the court.
(3) The court has a general power, if it appears to it appropriate to do so on the grounds that there has been a contravention of the rules or for any other reason, to dismiss a bankruptcy petition or to stay proceedings on such a petition; and, where it stays proceedings on a petition, it may do so on such terms and conditions as it thinks fit.
It should be noted that these provisions can only apply where there is no bankruptcy order in place or where that order has first been quashed, annulled or rescinded. There are differences of substance between them. If a petition has been dismissed, it cannot be revived but it remains in being as a petition that has failed. If the petition has been stayed, it can be revived once the court has ordered that the stay should be removed. If the petition has been withdrawn, from the moment the withdrawal order takes effect, the petition cannot be revived and is to be considered as if it had never been presented. It is for that reason that no petition may be withdrawn without the permission of the court and, in exercising that discretion, the court will first consider whether it should refuse to permit a withdrawal because, for example, a third party would be prejudiced if the debtor was for the future to be regarded as someone against whom no petition had been issued.
- Once a bankruptcy order is made. Once the court has made a bankruptcy order, it must immediately provide two copies of the order to the Official Receiver ("OR") who must send one copy to the bankrupt. The OR must also notify the Chief Land Registrar of the terms of the bankruptcy order to enable it to be registered in the register of writs and orders affecting land and must also arrange to have the order advertised in the London Gazette.
- Unless the court makes an order to extend the time that the bankruptcy order is to remain in force, the bankrupt is subject to an automatic discharge of the bankruptcy order after three years or, since 1 April 2004, after one year. The bankruptcy order commences and takes effect on the day that it is made and it ordinarily continues until discharged. The court may, on the application of the bankrupt, order the OR to stay or suspend the advertising of the order in the London Gazette or the notifying of the Chief Land Registrar of it pending further order[8]. Moreover, both the court making the order and a judge of the Chancery Division of the High Court, being the court that hears appeals from a bankruptcy order, may order that the bankruptcy order should be stayed pending or following the hearing of an appeal from that order.
- Appeals. In personal insolvency proceedings, it is possible for a bankrupt to apply to the court making the bankruptcy order to review, rescind or vary any bankruptcy order. This power, which is unique to the insolvency jurisdiction, is provided for in section 375 of the IA as follows:
375.-Appeals etc. from courts exercising insolvency jurisdiction.
(1) Every court having jurisdiction for the purposes of the Parts in this Group may review, rescind or vary any order made by it in the exercise of that jurisdiction.
(2) An appeal from a decision made in the exercise of jurisdiction for the purposes of those Parts by a County Court or by a registrar in bankruptcy of the High Court lies to a single judge of the High Court; and an appeal from a decision of that judge on such an appeal lies to the Court of Appeal.
(3) A count court is not, in the exercise of its jurisdiction for the purposes of those Parts, to be subject to be restrained by the order of any other court, and no appeal lies from its decision in the exercise of that jurisdiction except as provided by this section.
- It can be seen from the heading to section 375 and from the wording and structure of that section that the exercise of the power to rescind a bankruptcy order or any other order made in bankruptcy proceedings is analogous to the exercise of an appeal jurisdiction and is ordinarily but not necessarily exercisable by the judge who made the original order or by another judge of that court. The cases concerned with this provision make it clear that it should not be used as a means of appealing a bankruptcy order and it should only be made in exceptional circumstances which will usually only exist if they are different and changed from those prevailing at the time the order that is being rescinded was initially made.
- The power to rescind a bankruptcy order is also a power that may be exercised by an appeal court in an appeal or a pre-hearing application in an appeal brought from the original bankruptcy order in addition to the usual appellate court powers of reviewing, rehearing or quashing an order of the lower court. Before 6 April 2010, an appeal against a bankruptcy order, annulment order or rescission order, including an order refusing to review a bankruptcy order made in the County Court or by a High Court registrar was a first appeal which did not require permission to appeal to be obtained before it could be brought. The absence of a requirement to obtain permission to appeal in insolvency cases, notwithstanding the introduction of that requirement in almost all other cases in 2000, arose from the "complicated and unclear interaction between CPR 52, the Insolvency Rules and the [Insolvency Proceedings] practice direction"[9]. Since 6 April 2010, an appeal brought against any of these orders in bankruptcy proceedings may only be brought as a first appeal with the permission of either the court making the order or a judge of the Chancery Division of the High Court[10]. Permission is still not required however to make a first application to a judge of the county court or a High Court registrar for a rescission order[11]. On the hearing of the appeal, the appeal court may order that the bankruptcy order should be quashed, varied, annulled or rescinded.
- Stay and suspension. A bankruptcy judge may order the OR to suspend the statutory consequences of a bankruptcy order, namely the mandatory requirements that he should notify the Chief Land Registrar of the bankruptcy order and advertise it in the London Gazette and the discretionary power to advertise it in any other newspaper[12]. A judge sitting in the bankruptcy jurisdiction has the power to impose a stay of any bankruptcy order by virtue of section 375(1) of the IA. This section enables any court with bankruptcy jurisdiction, including the High Court when exercising appellate jurisdiction from a bankruptcy order, to review, rescind or vary any order made in the exercise of that jurisdiction. This power may, therefore, be used in an appropriate case by a bankruptcy judge or a judge sitting on an appeal or proposed appeal from a bankruptcy order to stay or suspend a bankruptcy order pending an appeal of, or an application for permission to appeal, that order. Moreover, a High Court judge also has the power to impose a stay of a bankruptcy order by virtue of CPR 52.7(a) as a judge sitting on an appeal from the district judge exercising bankruptcy jurisdiction in the county court.
- Rescission, annulment and quashing of a bankruptcy order. There are three ways that a bankruptcy order may be brought to an end before it has been discharged. These are by way of rescission or annulment or, by an appellate court, by a quashing order. These three different ways of prematurely terminating a bankruptcy order are clearly set out and explained by Millett LJ in Fitch v Official Receiver[13] as follows:
Section 375(1) of the IA 1986 reads as follows:
'Every court having jurisdiction [in bankruptcy] may review, rescind or vary any order made by it in the exercise of that jurisdiction.'
The section replaced sections in identical terms in earlier Bankruptcy Acts: see section 104(1) of the Bankruptcy Act 1883 (46 & 47 Vit. c. 52) and section 108(1) of the Bankruptcy Act 1914. The jurisdiction is unique to insolvency (having recently been extended from bankruptcy to company winding up), in that it allows the court to review and rescind or vary an order made by a court of co-ordinate jurisdiction. It applies to any order made in the exercise of the bankruptcy jurisdiction. It is available to rescind a bankruptcy order as it was formerly available to rescind a receiving order. The court's power to review and if thought fit rescind a bankruptcy order is, in theory at least, virtually unlimited. It may be contrasted with the power of the court to annul a bankruptcy order under section 282(1) of the IA 1986, which replaced section 29 of the Bankruptcy Act 1914. This is limited to two situations: (i) where it appears to the court that, on any grounds existing at the time the order was made, the order ought not to have been made; and (ii) where, since the making of the order, the bankruptcy debts and the expenses of the bankruptcy have been duly paid. Except in this second case, the court's power to annul the bankruptcy order must be based on grounds existing at the time of when the bankruptcy order was made.
Similarly of course, an appellate court can quash a bankruptcy order only if it is satisfied that, on the evidence which was before the court which made the order or on new evidence which is admitted in accordance with the rule in Ladd v Marshall[14], the order should not have been made. An application under section 375(1) is essentially different. It must be based on a change in circumstances since the order was made or, more rarely, on the discovery of further evidence which could not be adduce on appeal.
- If a bankruptcy order is rescinded or annulled, the underlying petition remains in place and the petitioning creditor may use that petition to apply afresh for a bankruptcy order if the statutory requirements can be satisfied at the time when the further application for that order is heard. However, if the basis of the rescission or annulment order was that the petition should not have been presented in the first place or is one that cannot found a fresh application for a bankruptcy order, the court may, in addition to making a rescission or an annulment order, also order that the petition should be withdrawn. A petition may not be withdrawn without an order of the court[15] which will not be made unless it can be shown that the presentation of the petition was misconceived since it was one that the petitioner should never have presented. In that event, not only has the bankruptcy order been nullified but it is to be treated as if it had never been presented in the first place. This situation is to be distinguished from that occurring when a court dismisses a petition. In that event, the court has determined that the substantive grounds put forward in support of the petition for a bankruptcy order have not been made out. When the petition is dismissed, it remains in being but the bankruptcy order it applied for has been refused on jurisdictional or substantive grounds.
- Individual Insolvency Register. The Register of Bankruptcy Orders ("RBO") was set up with effect from 22 March 1999[16]. Every court making a bankruptcy order was required to serve a copy of the order on the OR as soon as it was made[17] and the OR was required to enter onto the RBO details of every bankruptcy order as soon as it was served on him by the court making the order[18]. The RBO was reconstituted as the Individual Insolvency Register ("IIR") with effect from 1 April 2004[19]. Every court making a bankruptcy order remained under an obligation to serve a copy of the order on the OR as soon as it was made and the OR was required to enter onto the IIR details of every bankruptcy order as soon as it was served on him by the court[20].
- There was no evidence as to what information had to be recorded on the RBO. Since 1 April 2004, there must be recorded on the IIR details which identify the debtor, the OR and trustee's contact details and, specifically, where a bankruptcy order is rescinded by the court, the fact that such an order has been made and (if different) the date on which the rescission has effect.[21] The obligation to record these details is a mandatory one which is placed on the Secretary of State but the duty is qualified by a precondition that it only arises once he has been informed of these details. He will in fact have been informed given the corresponding obligation placed on the court to submit these details when the petition is lodged and when the bankruptcy and rescission orders have been made[22].
- Removal of an IIR entry when a bankruptcy order is discharged. Between 1986, when the automatic discharge of bankruptcy orders was first introduced, and 2004, every bankruptcy order was automatically discharged after three years and the details of the bankruptcy order remained on the RBO for two years from the date of that automatic discharge when they were removed without any intervention from the former bankrupt. With effect from 1 April 2004, the IRs were amended so that the IIR was introduced, a bankruptcy order was automatically discharged after one year and the details of the bankruptcy order remained on the IRR for three months from the date of that automatic discharge.
- Removal of an IIR entry when a bankruptcy order was annulled. Between 11 January 1988 and 31 March 2004, a court was required forthwith to give notice of the making of the order to the Secretary of State once it had made an annulment order under section 282 of the IA[23]. The Secretary of State was then required to delete from the RBO and, following its replacement, from the IIR all information entered on the register in respect of the bankruptcy order[24]. From 1 April 2004, the court had the same notification obligation but the Secretary of State had to delete all information concerning the annulled bankruptcy order within 28 days of the IS's receipt of the notice of the annulment[25]. From 1 April 2010, the court's obligation of notification was changed from it being obliged forthwith to notify the Secretary of State to being obliged to notify as soon as reasonably practicable[26].
- Removal of an IIR entry when a bankruptcy order was rescinded or stayed. The IRs have never imposed a requirement on a court to notify the Secretary of State of the fact or terms of a rescission order rescinding a bankruptcy order. However, since the court has an obligation to notify the Secretary of State of the making of a bankruptcy order, the same court is subject to an implied obligation to notify the Secretary of State that the bankruptcy order so notified has been rescinded. In practice, courts do notify the Secretary of State of the fact of a rescission order relating to a bankruptcy order by sending to the Secretary of State a copy of the order. That was done by the Aylesbury Court in Mr Smeaton's case and it is obviously done in all other rescission cases since the IS is able to maintain statistics showing how many rescission orders rescinding a bankruptcy order were made in any year and is also able to amend the IIL to delete reference to bankruptcy orders that have been rescinded, again as occurred in Mr Smeaton's case.
- Until 1 April 2004, the Secretary of State was under no obligation imposed by the IRs to delete rescinded bankruptcy order entries on the RBO so that when Mr Smeaton's order was rescinded, any notification of that rescission to the Secretary of State and any deletion of the rescinded bankruptcy order from the RBO did not occur by virtue of an express requirement of the IRs. However, since 1 April 2004, the Secretary of State has been under an express obligation to delete reference on the IIR to an order that has been rescinded 28 days after he has received a copy of the court order rescinding the bankruptcy order in question[27]. There is a further duty to enter onto the IIR the fact that a rescission order has been made relating to a particular bankruptcy order. That duty is stated to be dependent upon notification being given to the Secretary of State that an order has been made but it is not also dependent on his being served with a copy of the order.[28]
- In practice, therefore, the Secretary of State will receive both a notification and a copy of the rescission order soon after the rescission order was made and the Secretary of State will immediately delete the reference to the bankruptcy order from the BRO or, since 2004, the IIR.
- There is no provision requiring a court to notify the Secretary of State or for the Secretary of State or the IS to make an appropriate amendment to or deletion from the BRO or the IIR following a stay order that has been made to stay the effects of a bankruptcy order. However, the OR was in this case a party to the application made by Mr Smeaton to Hart J on 12 March 2001 to stay the bankruptcy order made in his case pending the hearing of an appeal and he was present in court when Hart J made an order that the bankruptcy order made on 1 March 2001 should be stayed. By the 12 March 2001, the bankruptcy order had been gazetted and registered in the Land Registry and notified on the BRO and on Mr Smeaton's credit file with the CRAs. It was not possible, of course, to unscramble the gazetting of the bankruptcy order but it would have been possible to delete the entry from the BRO. The Secretary of State, through the OR present in court, had notice of the terms of the stay order and, it would seem, as a party to the order should have given effect to the stay by causing the BRO entry to be removed and to have applied for a vacation of the registration of the order in the Land Registry enclosing a copy of Hart J's order with that application.
- The OR subsequently tacitly acknowledged this failure. This tacit admission occurred following the issue of the consent order giving effect to the agreement to rescind the bankruptcy order was issued by the court. The order contained an additional order permitting the debtor to apply to remove the caution. Mr Smeaton contended that it was the obligation of the OR to make that application. After initially declining to do so, the OR accepted that it was his obligation to apply and did so by signing and delivering to the Land Registry the appropriate form applying to vacate the entry of the notification of a pending action. The only basis for the OR's obligation to make this application was an obligation to take this step that flowed from Hart J's stay order which the OR was a party to. This is because neither the IRs nor IS practice accepts or provides for an obligation placed on the OR to make any application to the Land Registry to vacate bankruptcy entries save where the OR has been ordered by the court to take such a step.
- Notification by the bankrupt of discharge, annulment, rescission or stay. The IRs have always provided that the "former bankrupt" could require the Secretary of State, in reality the OR, to give notice of the making of an annulment order by taking either or both of the following steps, advertising the order by gazetting it and advertising it in any newspaper in which the bankruptcy order had been advertised in[29]. One of the consequences of such an advertisement would be that if the entry had not already been removed from the BRO or IIR, that removal would take place when the OR received a copy of the application and caused the relevant advertisement or advertisements to be placed. There never has been any similar provision relating to discharge or to a rescission or stay order of a bankruptcy order.
- Land Registry considerations. Three separate types of protection may be registered in the Land Registry by or on behalf of the debtor bankrupt's estate. The petition may be registered in the register of pending actions, the bankruptcy order in the register of writs and orders and the interest of the trustee in any property of the bankrupt arising on the making of the bankruptcy order may be registered in the proprietorship and charges registers. There are a series of relevant steps that must be taken in relation to the registration of the details of a bankruptcy petition and a bankruptcy order and of the interest of the bankrupt's estate and trustee in the Land Registry and in relation to the removal of any entry relating to these matters following the discharge, annulment or rescission of a bankruptcy order. Often, the bankrupt will be registered as having a registered interest in land so that the relevant registrations will include relevant registrations related to that land. However, Mr Smeaton held no interest in land so that these Land Registry considerations were less extensive in his case.
- This is a summary of the relevant steps that had to be taken:
(1) When the creditors' petition in Mr Smeaton's case was filed with the court, the court had to apply to the Land Charges Department to register the petition in the register of pending actions under the Land Charges Act 1972[30]. The Registrar, on receipt of these details will not only register the petition in the register of pending actions but will register a notice of the pending action against any registered estate or charge which appears to be affected. In Mr Smeaton's case, no such registration would have occurred since there was no estate or charge registered in his name.
(2) As soon as a bankruptcy order is made, the court must notify the OR of the terms of the bankruptcy order and the OR must apply to the Registrar to register it in the register of writs and orders under the Land Charges Act 1972[31].
(3) The Registrar is required to register a notice or restriction relating to the petition and bankruptcy order against any registered estate or charge that appears to be affected. Since the bankruptcy order will invariably follow speedily after the bankruptcy petition, the effect of registration of the order will be to vest any relevant estate or charge in the OR or the trustee of the bankrupt's estate and no disposition of that estate or charge may take place until the OR or the trustee's interest has been registered.
(4) When the bankruptcy order is discharged, there is nothing that will need to be done to vacate any registered notice or restriction since the former bankrupt no longer will have any interest in any property that had been registered in his name at the date of the bankruptcy order. However, the registration of the bankruptcy petition and the bankruptcy order can only be cancelled if the discharged bankrupt first obtains an order of the court permitting this. Without such an order, these registrations will remain until automatically ceasing to have effect after five years[32].
(5) If the bankruptcy order is annulled, the court should include in the order a provision permitting vacation of the registration of the bankruptcy petition as a pending action and of the bankruptcy order in the register of writs and orders affecting land. An application may then be made on the appropriate form to the Registrar to cancel any bankruptcy notice or restriction. There is no express provision as to who may make such an application. Clearly the former bankrupt may but it would seem that the OR may also make the application on the appropriate form. If the debtor has an interest in property that has vested in the OR or the trustee, the court must make an order confirming that the property should vest in the OR or trustee. Otherwise, the property will revest in the debtor[33].
(6) If the bankruptcy order is rescinded or stayed, there is no express provision in the IRs as to what should then happen. If the former bankrupt wishes to have the registration cancelled, it is necessary to show that the petition has been ordered to be withdrawn and that the court has ordered that the registration of the bankruptcy petition and bankruptcy order may be cancelled. If these orders have been obtained with the rescission order, an application may be made to the Registrar on the appropriate form for cancellation accompanied by a copy of the orders withdrawing the petition and permitting cancellation of the registration. There is no provision in the IRs or the Land Registration Rules as to who should make such an application. Clearly the former bankrupt may but it would seem, as happened in this case, that the OR may, or possibly must, make the application.
(7) The registration of bankruptcy petitions and orders in the Land Registry will automatically cease five years after the date of entry if they have not previously been cancelled[34].
- IIR as a source of credit data. Neither the RBO nor the IIR was a direct source of bankruptcy data for Equifax until 2008 when, for the first time, the IS introduced for CRAs a facility enabling the entire contents of the IIR to be transferred electronically from the IIR to each CRA on a daily basis. Until that change occurred, there appeared to be no practical way that the IIR could be used by a CRA to obtain details of bankruptcy orders that were removed from the IIR because they had been discharged, annulled or rescinded. This change has transformed Equifax's collection of bankruptcy data since Equifax now receives electronically from the IS on a daily basis a complete copy of the IIR and is able to compare electronically that copy with the previous working day's copy and, thereby, obtain a list of the additions and removals from the IIR on a daily basis. Having obtained that data, Equifax can and does immediately electronically amend the credit files of anyone whose data has been subject to an addition or removal from the IIR. The IRs in their present form following amendments in 2010 provide that the OR has a duty to remove entries from the IIR following an annulment or rescission order as soon as the IS is provided with a copy of the relevant court order which each court must provide to the IS as soon as it is made[35]. The effect of this change was clearly stated by Mr Milner in his closing written submissions to be as follows:
"The degree of risk. The risk of incorrectly reporting someone as bankrupt is now almost zero because CRAs take their information directly from the Register and BOs which have been annulled or rescinded must be deleted from the Register by the OR.[36]"
- Difference between discharge and annulment, rescission or stay. It is immediately apparent that there is a fundamental difference between an individual who has been the subject of a bankruptcy order and one whose bankruptcy order was annulled because it ought not to have been made, rescinded or stayed. In the first case, the bankruptcy process was carried through to completion and was then brought to an end by the discharge. In the latter case, the bankruptcy process was halted and the debtor released from the bankruptcy process before it had been completed.
- There is a second fundamental difference to consider. This is the difference between an individual whose bankruptcy order has been annulled, rescinded or stayed and one whose bankruptcy order has not only been annulled, rescinded or stayed but whose bankruptcy petition has been withdrawn. In the latter case, when the bankruptcy order is annulled, rescinded or stayed, the debtor is from that moment on to be considered as one who was never insolvent, albeit that there remains on that individual's record the fact that an outstanding bankruptcy petition remains in his or her name. However, if the bankruptcy petition remains in place following the annulment, rescission or stay of the bankruptcy order, the petition may be revived unless it is ordered to be dismissed. Furthermore, the individual may correctly be described as someone who had been subject to a bankruptcy petition which will carry with it some stigma relating to his or her creditworthiness, albeit far less than the stigma that will attach to a discharged or undischarged bankrupt.
- Difference between annulment and rescission. The relevant statutory provisions are as follows:
(1) Annulment. This is provided for in section 282:
282. -Court's power to annul bankruptcy order.
(1) The court may annul a bankruptcy order if it at any time appears to the court-
(a) that, on any grounds existing at the time the order was made, the order sought ought not to have been made, or
(b) that, to the extent required by the rules, the bankruptcy debts and the expenses of the bankruptcy have all, since the making of the order, been either paid or secured to the satisfaction of the court.
…
(3) The court may annul a bankruptcy order whether or not the bankrupt has been discharged from the bankruptcy.
(4) Where the court annuls a bankruptcy order …
(a) any sale or other disposition of property, payment made or other thing duly done, under any provision in this Group of Parts, by or under the authority of the official receiver or a trustee of the bankrupt's estate or by the court is valid, but
(b) if any of the bankrupt's estate is then vested, under any such provision, in such a trustee, it shall vest in such person as the court may appoint or, in default of such appointment, revert to the bankrupt on such terms (if any) as the court may direct:
and the court may include in its order such supplemental provisions as may be authorised by the rules.
(2) Rescission. This is provided for in section 375:
375. -Appeals etc. from courts exercising insolvency jurisdiction.
(1) Every court having jurisdiction for the purposes of the Parts in this Group may review, rescind or vary any order made by it in the exercise of that jurisdiction.
- Annulments of bankruptcy orders are only rarely ordered and the rescission of such orders are only very rarely ordered. Mr Beresford obtained from the IS the statistic that between 1 April 2010 and 31 March 2011 there were 255 annulments of bankruptcy orders on the grounds that the order ought never to have been made[37] and 24 rescissions of such orders. In 2009 there were 74,670 bankruptcy orders made. The comparable statistics for 2002 were not made available but since there were about one third of the number of bankruptcy orders made in 2002[38], the comparable number of annulments would have been about 85 and of rescissions about 8. It follows that a tiny proportion of all bankruptcy orders are annulled on the grounds that the order should not have been made and an even tinier proportion are rescinded.
- In general terms, the difference between annulment and rescission is that an annulment order is only available on three specific grounds of which the only relevant one is that the order should never have been made whereas a bankruptcy order may be rescinded on any exceptional ground that the court in its discretion considers should lead to the bankruptcy order being rescinded. An annulment order can only be made by taking account of the same grounds and evidence that were before the court that made the original bankruptcy order whereas a rescission order can usually only be made on new grounds where, additionally, the circumstances are exceptional.
- A helpful analysis of the basis on which a bankruptcy court could order rescission of a bankruptcy order or any other order in the bankruptcy proceedings was provided by Laddie J in Papanicola v Humphreys[39] where he said:
25. It seems to me that a number of propositions can be formulated in relation to s 375. Some of them are derived from the passages cited above:
(1) The section gives the court a wide discretion to review vary or rescind any order made in the exercise of the bankruptcy jurisdiction.
(2) The onus is on the applicant to demonstrate the existence of circumstances which justify exercise of the discretion in his favour.
(3) Those circumstances must be exceptional.
(4) The circumstances relied on must involve a material difference to what was before the court which made the original order. In other words there must be something new to justify the overturning of the original order.
(5) There is no limit to the factors which may be taken into account. They can include, for example, changes which have occurred since the making of the original order and significant facts which, although in existence at the time of the original order, were not brought to the court's attention at that time.
(6) Where the new circumstances relied on consist of or include new evidence which could have been made available at the original hearing, that, and any explanation by the applicant gives for the failure to produce it then or any lack of such explanation, are factors which can be taken into account in the exercise of the discretion.
26. The second and fourth of these propositions merit some expansion. Inherent in s 375 is the concept that something has changed so that it is appropriate for the court to reconsider its own earlier order. If there is no change in circumstances, the only way to challenge the order is by appeal. The court is not to review its order simply on the basis that the applicant wants to present essentially the same facts and the same arguments but more forcefully or attractively. This is apparent from the following passage in Fitch:
…
27. The same requirement that there should be something new appears to be inherent in Millett J's judgment in In re A Debtor[40]:
"Where an application is made to the original tribunal to review, rescind or vary an order of its own, however, the question is not whether the original order ought to have been made upon the material then before it but whether that order ought to remain in force in the light either of changed circumstances or in the light of fresh evidence, whether or not such evidence might have been obtained at the time of the original hearing. The matter is one of discretion, and where the evidence might and should have been obtained at the original hearing that will be a factor for the court to take into account; but the rationale of the rule in Ladd v. Marshall, that there should be an end to litigation and that a litigant is not to be deprived of the fruits of a judgment except on substantial grounds, has no bearing in the bankruptcy jurisdiction. The very existence of section 375 is inconsistent with such a rationale.
28. This passage supports the sixth proposition set out in paragraph 25 above."
- Thus, ordinarily, a rescission order will not be contemplated unless there has been an exceptional change of circumstances since the original bankruptcy order was made. If the court concludes that not only should the bankruptcy order be annulled or rescinded but that the original petition should never have been issued, it may order that the petition should be withdrawn.
- There are, or certainly were in 2002, two procedural differences between the two orders. In the case of an annulment order, the court would automatically inform the OR that it had been made and the OR was obliged to take steps to have the order removed from the IIR. Further, the court annulling a bankruptcy order was required to include a provision in the order permitting vacation of the registration of the order in the Land Registry[41]. The necessary steps to vacate the registration had to be taken by the debtor[42]. For rescissions, there was no rule requiring the OR to remove the bankruptcy order entry from the IIR on being notified neither of the rescission nor for the rescinding court to include an order permitting vacation of the Land Registry order. The ISTM did, however, provide common sense guidance that the OR should deal with rescissions in broadly the same way as an annulment application[43]. For the reasons already set out above, it would appear that, in practice, a court considers itself bound to notify the OR of the details of a rescission order rescinding a bankruptcy order that it has made and such an order is usually accompanied by an order granting permission to cancel the relevant Land Registry entries.
- In Mr Smeaton's case, a bankruptcy order was made, was suspended 11 days later pending an appeal and was then subject to a consent order which rescinded the bankruptcy order, ordered the petition to be withdrawn and granted permission to Mr Smeaton to remove the Land Registry caution. For good measure, the OR then accepted an obligation to apply to the Land Registry to remove that caution.
3. Factual Background
- Early history. Mr Smeaton is now aged 63. It is relevant to his claim that he is dyslexic and, in consequence, has great difficulty in absorbing written information and retaining concentration when reading or studying papers. He provided the court with an assessment report dating back to 1983 that was prepared by a specialist psychologist and speech therapist which described him as being in the top half of the bright normal intelligence range with a verbal scale IQ of 125 but as being one whose dyslexia interferes with his life, particularly given his need to read passages several times before he can understand them.
- From an early age, Mr Smeaton had a passion for rock bands. He was a good friend of members of "The Who" and was himself a musician, vocalist and DJ with a particular penchant for ballad, country, reggae and ballroom music. In 1969, having served in the navy, he joined his father's business and in 1974 he moved to the USA and worked there for that business for 24 years. Whilst living in California, he developed a niche business involving the importation and distribution of English and European recordings. He returned to the UK in early 1999 and, on 28 July 2000, established a company that has been called Ability Records Ltd since 4 October 2001. This company was set up to produce and market a new music label specialising in dance music played in a modern way. After setting up the company, he invested his own resources in the company, most of which were used to help finance the cost of recording tracks in various formats and in then attempting to market them.
- Trouble with the Butcher family. By the time that Ability was formed, Mr Smeaton had become involved with three members of a family called Butcher. They owned in their own names a flat in Wembley. Mr Smeaton, on his return to London, rented the flat and occupied it. Later in 1999, he had difficulty meeting the rent and Mr Smeaton alleges that the Butchers unlawfully and forcefully evicted him from the flat without recourse to the law and then changed the locks and destroyed or irreparably damaged his possessions. Mr Smeaton started county court proceedings in the Watford County Court claiming damages for this unlawful retaking of possession and for the loss of his possessions. He stated in evidence that he had been advised that his unlawful possession claim was properly quantified as the difference between the value of the flat untenanted and tenanted on the date of his unlawful eviction and that the value of this claim was, he thought, about £10,000.
- It came to Mr Smeaton's notice that the Butchers were, as he put it in evidence, spreading it about that he was "a bad guy and hadn't paid the rent." He was particularly incensed at this allegation or words to that effect being set out in the pleadings and in witness statements served on behalf of the Butchers. In consequence, whilst acting in person, he started defamation proceedings in 1999 against the Butchers. Soon after the proceedings had been served, a procedural application that was made on behalf of the Butchers was successful and Mr Smeaton was ordered to pay their assessed costs of the hearing. It is not now known what the application was but it did not lead to the action being struck out since it was still live when it was compromised in May 2002. Mr Smeaton did not have the money to pay the Butchers the summarily assessed sum he had been ordered to pay. Instead, he notified the Butchers that he would pay that sum by setting it off against his outstanding monetary claims arising from his having been unlawfully evicted from the flat.
- Sometime later, in July 2000, he and his brother-in-law formed Ability and needed cheap business premises for the company. Mr Smeaton learnt that a company called High Street Office Services ("HOSES") owned a vacant basement office in Watford that was in poor condition. This company had nothing to do with the Butchers or the disputes that he had with them. Ability was short of money but it was hoping to obtain funds through a VAT cash accounting scheme that Mr Smeaton's brother-in-law was attempting to negotiate with the VAT authorities. In consequence, Mr Smeaton negotiated an arrangement with HOSES whereby Ability would lease the office accommodation and refurbish it at its own expense in return for being allowed to defer paying rent until the funds from the VAT cash accounting scheme had materialised. Ability moved in and undertook substantial refurbishment work at its own expense including the installation of ICN lines. Unfortunately, the funds did not materialise and Ability was unable to meet HSOS's demand for the deferred rent. As a result, HOSES repossessed the offices, changed the locks and re-let the premises. In doing so, they impounded or destroyed all Ability's possessions and papers that had been located there.
- Ability, through Mr Smeaton, threatened to sue HOSES for damages for the unlawful termination of the lease. However, he was then advised that Ability had never become tenants but were licensees who were discharging their liability to pay a licence fee by refurbishing the offices at its expense. In consequence, Ability never brought a claim against HOSES.
- The bankruptcy proceedings. It was at this point that, on 10 October 2000, the Butchers lodged a bankruptcy petition against Mr Smeaton in the Aylesbury County Court that was based on the debt that they alleged was outstanding and which had been created by the costs order that had been made in the defamation proceedings. The petition was registered as a pending action in the Land Registry on 12 October 2000. Mr Smeaton considered that the petition was maliciously motivated and that its purpose was not to collect the debt that he had discharged by setting it off against his damages claim but was instead intended to fatally disrupt his on-going claims in the Watford County Court. He provided independent evidence to the effect that the Butchers had suggested that if Mr Smeaton was made bankrupt, he would be unable to pursue these claims. This evidence was intended to support his allegation that the bankruptcy petition had been presented for an unlawful ulterior motive.
- Mr Smeaton was representing himself in the defamation proceedings, the damages claim based on his having been unlawfully evicted and the bankruptcy proceedings since legal aid was either unavailable or unattainable for these three sets of proceedings and he could not afford to fund his own representation.
- When the bankruptcy petition was heard, Mr Smeaton applied to the district judge to dismiss it. His application was based on the allegation that the petition was presented for the malicious and extraneous purpose of fatally disrupting his claims in the Watford County Court. Moreover, he contended that, as a result of those claims, there was no outstanding debt and that the petition should be stayed pending the hearing of his damages claim in the Watford County Court. Mr Smeaton also alleged that there had been procedural impropriety because the petitioners were permitted to rely on matters which he had not been given notice of. Moreover, he alleged that he had not had a fair opportunity, as a dyslexic litigant in person, to present his case properly.
- These grounds failed because the district judge ruled that Mr Smeaton could not in law rely on his claimed set-off. He therefore did not consider whether Mr Smeaton's damages claims were sufficiently well-founded factually to provide a set-off against the costs debt, whether the petition should be struck out because it had been brought for a malicious and extraneous purpose or whether Mr Smeaton's procedural objections were well-founded. Thus, on 1 March 2001, a bankruptcy order was made against Mr Smeaton with immediate effect. The district judge appears to have refused a stay or to consider rescinding or annulling the bankruptcy order. Mr Smeaton acted promptly. On the same day, he telephoned the OR's office in St Albans and informed it that he was going to appeal the bankruptcy order and would apply for a stay of the order pending the hearing of his appeal. He also served the OR with the evidence that he had relied on at the hearing before the district judge in support of his contention that the petition had been served for a malicious and extraneous purpose.
- The OR caused a notification of the bankruptcy order to be published in the London Gazette on 7 March 2001 and he also notified the Chief Land Registrar that the bankruptcy order had been made by the Aylesbury County Court on 1 March 2001 and this was registered in the register of writs and orders in the Land Registry on 8 March 2001.
- The stay application in the Chancery Division. Mr Smeaton appeared in person before Hart J on Friday 12 March 2001. Before the hearing, he called in at the Citizen's Advice Bureau located in the Royal Courts of Justice and obtained some advice from that CAB. The petitioners were represented by counsel and the OR was not represented but someone from the OR's office in St Albans was present in court during the hearing. The judge granted a stay of the bankruptcy order and directed that the appeal should be pursued as soon as reasonably practicable. The judge must have considered that Mr Smeaton had strong grounds for succeeding in his appeal since he would not have granted a stay order unless he had considered that the intended appeal had good prospects of success. This was a high threshold for Mr Smeaton to reach since the appeal itself would only be capable of succeeding if the district judge's decision was found to be wrong or to be unjust as a result of a serious procedural irregularity or some other irregularity in the proceedings[44]. Permission to appeal was not required at that time, the requirement for permission to be obtained was first introduced in 2010. Unfortunately, the order was not drawn up but a copy of the minutes of order was sent to the Aylesbury County Court and it was from that document that Mr Smeaton obtained the wording of Hart J's order.
- It was not possible to obtain the transcript of Hart J's extempore judgment. However, Mr Smeaton remembered that the judge, in giving judgment, had said that the evidence that the petition had been maliciously motivated was very strong and that, in those circumstances, it was fair to stay the bankruptcy order. The judge was provided with a number of documents that had been lodged by the OR which Mr Smeaton was unable to absorb since they had been served at or just before the hearing. It is not known what documents were placed before the judge. However, it is likely that they included the witness statements and the other documents produced by Mr Smeaton at the hearing before the district judge. I have no reason to doubt Mr Smeaton's recollection of Hart J's judgment given the high hurdle that he had to surmount in order to obtain a stay order and an order for an expedited hearing.
- Counsel for Equifax suggested that the registration of the bankruptcy order in the RBO was deleted immediately after, and as a consequence of, the stay order. Support for this suggestion is found in a passage in the transcript of the hearing of Mr Smeaton's procedural appeal in this case that was heard in January 2009. That appeal was from the master's order that had struck out this action and the appeal was allowed to the extent that a negligence claim was permitted to be added to replace the defamation claim that had originally been pleaded and which remained struck out following the appeal.
- The appeal was heard by Collins J on 22 January 2009. The transcript contains this brief passage:
Mr Justice Collins: Well, it was removed from the public register on the 12th March 2001. It was removed from the public register. It remained in the Land Registry, and that was eventually removed when the bankruptcy order was quashed, or whatever the right word is.
It is not clear from the transcript what evidence was before the judge that led him to make this statement. Mr Smeaton, who was addressing the judge at this point, did not respond to it.
- Counsel for the OR later in the hearing appeared to confirm the suggestion that the bankruptcy notification had been deleted on 12 March 2001 during a later discussion between the judge and Mr Smeaton about an application to Patten J in the Chancery Division to vacate the pending action and bankruptcy order registrations in the Land Registry that had been made on 29 March 2002, more than a year after the Bankruptcy order had been made on 1 March 2001. Counsel intervened to correct a misunderstanding of the judge:
Mr Justice Collins: … the order made by Mr Justice Patten on the 29th coincided with the Official Receiver actually withdrawing it from the Land Registry… It had been withdrawn from the Land Registry, so there is nothing in that. It has been withdrawn from the Land Registry, but what was left, as I understand it, was the notification on the other register. Is that right?
Counsel: My Lord, no. By that point in time, the notification had been withdrawn from the insolvency register. The only other complaint relates to the gazetting and the failure to publish notification that the bankruptcy order had been rescinded.
- Following the stay of the bankruptcy order, the Chancery Division listing department did not list the appeal despite the judge's order that the appeal should be heard as soon as reasonably practicable. Moreover, it seems that the order was not drawn up since there was no copy of a sealed order on the file held by Aylesbury County Court in February 2007 when Mr Smeaton asked for a copy of it. There was, however, a copy of the minutes of order on the file.
- Mr Smeaton's knowledge of CRAs. Mr Smeaton's evidence, which was not seriously challenged and which I accept, was that he had never heard of, nor had he had any experience of, CRAs prior to July 2006. He was also unaware of the system whereby credit files were maintained on everybody that included details relevant to an individual's credit rating including details of their bankruptcy status. He was also unaware of the significant use made by customers, namely companies and businesses providing credit to consumers, of a consumer's credit file when a customer decided whether or not to provide credit of any kind to a consumer. This lack of knowledge arose, in his case, despite his being 53 when he was made subject to his bankruptcy order. His lack of knowledge arose due to the many years that he had lived in the United States, his unfamiliarity with financial matters and his dyslexia which resulted in his disinclination to read anything unless he really had to. Moreover, he was relatively poor on his return from the United States in 1999 so that, when he was served with the bankruptcy petition, he did not consult a solicitor. Instead, he acted with remarkable tenacity as a litigant in person in his three matters other than for a very short period in relation to his damages claims against the Butchers. Thus, he remained blithely unaware that Equifax, and the other CRAs, would have had a record of his bankruptcy order on his credit file that they would be holding or that that record would remain there to the possible detriment of his credit status and his ability to obtain credit after the bankruptcy order was stayed and then rescinded. He only first became aware of this unwelcome information when he received Nat West's letter dated 30 June 2006 notifying him that Ability's application for a business account had been refused because of the adverse data on his credit file. Since the letter was written before Equifax had been notified of Mr Smeaton's rescission order, the adverse data referred to must have been to the effect that, on 30 June 2006, he was currently bankrupt.
- Mr Smeaton was also lacking in knowledge about some of the finer details of bankruptcy law and practice, a relatively common lack of knowledge that extends to most lawyers who do not practise in that field. He was able, albeit unsuccessfully, to present his case opposing the bankruptcy petition before the district judge. He then found out enough about bankruptcy appeal procedure to enable him to mount the urgent application for a stay order from the bankruptcy order that was heard by Hart J some 11 days after the bankruptcy order had been made by the Aylesbury County Court and to seek and obtain an expedited hearing of the appeal. He also gave notice to the OR by telephone that he was intending to make an appeal application so that an official from the relevant OR's office was present in court when he made his application. He did make one understandable mistake in thinking that the stay order would halt all aspects of his bankruptcy including, had he known of this consequence at the time, the publication of his bankruptcy order in the London Gazette and its notification anywhere else, whether in the Land Registry or on a CRA credit file.
- Mr Smeaton erroneously thought, on hearing the judge order a stay pending his appeal, that until the appeal was heard, he could proceed on the basis that the petition had been withdrawn. This mistaken view is readily understood. Most people who have no understanding of bankruptcy procedure do not appreciate the difference between a bankruptcy petition being issued and then withdrawn and a bankruptcy order being made and then stayed. As soon as the bankruptcy order is made, it is no longer possible for the petition to be withdrawn unless the bankruptcy order is first annulled or rescinded. Mr Smeaton clearly thought that he had obtained a stay of the petition but it was too late for that. The unpublished minute of Hart J's order that Mr Smeaton obtained from Aylesbury County Court clearly states that:
Stay of bankruptcy Order date 1/3/01 pending the hearing of Mr Smeaton's Appeal therefrom.
- One of Mr Smeaton's complaints, although it is not one that he relies on in these proceedings, is that the official from the OR's office in court did not explain clearly to him outside court that the OR had already registered the bankruptcy order in the RBO and had already caused it to be gazetted nor did he explain that the effect of the stay order was merely to stop further steps being taken in the bankruptcy for the time being.
- Mr Smeaton also has grounds for complaint that Hart J's order was not drawn up and sealed by the High Court and was not then served on him by the OR or the court. Moreover, he also has grounds for complaint that the Chancery Division listing department did not immediately set his appeal down for a hearing as it had been ordered to do and, indeed, never did so subsequently. Had the order been complied with, the appeal could have been heard and decided within days of Hart J's order and the bankruptcy order could have been quashed by the judge hearing the appeal.
- The settlement agreement and Tomlin order. Mr Smeaton did, however, in the following months, take two steps of relevance. He applied for and obtained for the purposes of the appeal a copy of the district judge's judgment that had been delivered extempore on 1 March 2004. This judgment is no longer available. Mr Smeaton stated in evidence that the district judge must have realised that he had been mistaken in granting the bankruptcy order in the first place because, when the approved judgment was sent to him, it was accompanied by a note from the district judge, which I speculate would have been written on an accompanying compliments slip, which read something like:
"You will fare better in the Appeal Court"
Mr Smeaton was challenged about this suggestion but he insisted that that note, or something similar to it, had been written and, given the context, I accept his evidence. However, there is no evidence that anything else was done by the parties or the Chancery Division to seal Hart J's order or to progress the appeal to a hearing nor is there an explanation for the appeal still not having been listed by the time the bankruptcy proceedings were compromised almost exactly a year later.
- The second step that Mr Smeaton took was to apply through a solicitor for legal aid to cover the remaining stages of his damages claims, but not his defamation claim, against the Butchers. He was granted legal aid in about March or early April 2002 for that purpose and his solicitors named in the legal aid certificate were a firm called Lilywhite Williams. That firm had only been acting for about two weeks when all the matters involving the Butchers, being the bankruptcy proceedings, the damages claims and the defamation action, were all compromised.
- Mr Smeaton gave this graphic and credible explanation for the compromise agreement:
I didn't get any [advice]. When I tried to get legal aid, that was eventually granted and appointing Lilywhites to address the Watford County Court matter only on the grounds that nobody will give – legal aid does not cover defamation issues. I'm sure it does cover bankruptcy issues but in the process of talking to Lilywhites about the – they asked me what led to this fact that you were being illegally evicted and I told them about the Butcher issue. Then, at that point, they were saying, "Well, we can't advise you on that at all because we are not bankruptcy solicitors. We are not defamation solicitors and we are uninsured to give advice in those issues. … Not being able to get any substantial advice, I decided the best thing to do was to call it a day and just settle it … at that point and just forget about it.
- The Butchers were represented throughout in all three cases involving Mr Smeaton by a firm of solicitors called Malcolm Deer Whitfield Evans. Lilywhites' representative called Malcolm Deer's representative to explore the possibility of a settlement of the damages claims. The response, on instructions, was that the Butchers were prepared to accept a drop hands settlement of the damages claims if Mr Smeaton agreed that the bankruptcy petition would be withdrawn and the defamation action was also settled, presumably also on a drop hands basis. Lilywhites' representative made it crystal clear to Mr Butcher that since the firm did not practice in either the bankruptcy or defamation fields and were not instructed by Mr Smeaton in the bankruptcy or defamation matters, the representative could not give any advice at all on those two matters or as to their settlement. In short, the representative stated that it was Mr Smeaton's decision, and his decision alone, as to what he did about those two matters.
- Mr Smeaton decided to settle all three matters, in the case of the bankruptcy matter largely because he thought that all that the settlement was doing was to confirm what had already in practice occurred as a result of the stay order imposed by Hart J on 12 March 2001. He then spoke to Mr Deer, who was acting for the Butchers, on the telephone because only he could negotiate and agree a settlement of the bankruptcy and defamation matters. He agreed an overall settlement with Mr Deer who then drafted a settlement agreement and sent it to Lilywhites for Mr Smeaton to sign. This was done with the agreement of Mr Smeaton as the easiest way of achieving a settlement and the purpose of sending it to Lilywhites was to enable someone in the firm to witness Mr Smeaton's signature. Mr Smeaton called into Lilywhites and signed the agreement after he checked that it accurately reflected the terms that he had agreed to. The agreement was then returned to Malcolm Deer who submitted it to the court to enable the court to draw up a Tomlin order. Mr Smeaton believed that the agreement merely provided, so far as the bankruptcy matter was concerned, that the petition would be withdrawn. The court drew up a Tomlin order and sent two copies to Malcolm Deer for signature. This was done because it was recorded on the court file that Mr Smeaton was acting in person and Lilywhites were asked to pass a copy to him for him to sign. Malcolm Deer sent Mr Smeaton's copy to Lilywhites. Mr Smeaton then called in to Lilywhites' offices and signed it. Since his signature did not in fact need a witness, all he did was to sign the order. The signed order was then returned to Malcolm Deer who returned it and the order signed by its representative to the court.
- The agreement was annexed to the order but the copy of the order that is still available does not have that agreement annexed to it. The order, drafted by the court, provided that:
Upon the Petition of Messrs L, S and PD Butcher, Creditors which was presented on the 10th day of October 2000
Upon the parties having agreed the terms of settlement hereof and
Upon the parties having entered the agreement annexed
By consent it is ordered that:-
1. The Bankruptcy Order made by District Judge Mostyn on 1st March 2001 be rescinded.
2. The Petition presented by the Creditors on 5th October 2000 be withdrawn by the Creditors, L, S and PD Butcher.
3. The petition deposit of £300 paid by the creditors on 5th October 2000 to be retained by the Official Receiver.
4. Permission to the Debtor to apply to H. M. Land Registry to remove the caution registered against him on 8th March 2001 in respect of Pending Action reference WOB3106127[45].
5. There be no order as to costs.
6. There be liberty to apply for the purposes of enforcing the terms of this order.
The order was signed by Mr Smeaton and by Malcolm Deer Whitfield Evans on behalf of the Butchers and was dated 7 May 2002.
- It would appear from Mr Smeaton's evidence that the parties had only provided for the order to record that the petition should be withdrawn. However, this could only occur if the bankruptcy order was first set aside. The district judge appears to have taken the initiative in inserting a rescission order into the Tomlin order since that was the only way that a valid withdrawal order could be made. The parties accepted that addition by both signing the order. However, Mr Smeaton's evidence was that he did not recall studying the terms of the Tomlin order sufficiently carefully to notice this additional clause. Moreover, he had no idea of what it meant to rescind a bankruptcy order and considered that the bankruptcy petition had already been withdrawn by virtue of Michael Hart J's order of 11 May 2001. I accept that evidence. It is also to be noted that the OR took no part in the negotiations or in the drafting or in the agreement to compromise the bankruptcy proceedings.
- The order was sealed by the Aylesbury County Court and copies of the sealed order were sent to the parties. It is to be presumed that Tomlin orders were prepared and lodged in similar terms in the relevant courts dealing with the defamation and damages matters.
- Mr Smeaton's application in the Chancery Division. Mr Smeaton's evidence was that he first became aware that the bankruptcy proceedings had been registered against his name in the Land Registry when he received a copy of the Aylesbury County Court's Tomlin order. He immediately contacted the OR who, initially responded that it was Mr Smeaton's responsibility to apply to the Land Registry to remove the bankruptcy registration. There then occurred what counsel for the OR in the appeal heard by Collins J described as "toing and froing" between Mr Smeaton and the OR as to whose responsibility it was to apply the Land Registry for the registration to be removed. The OR initially took the view that because the order required Mr Smeaton to take this step, he should do nothing. However, it was for the OR to take this step. On what appears to have been the 26 May 2002, Mr Smeaton issued an application in the Chancery Division, returnable on 29 May 2002, seeking an order compelling the OR to arrange for the removal of the registration. The OR served an application on the Land Registry to have the registration removed which was received in the Land Registry and given effect to on 29 May 2002. Thus, the registration was only removed on the same day as the hearing of Mr Smeaton's application[46].
- Mr Smeaton was not informed or advised by either the CAB or the representative of the OR who attended court on 29 May 2002 that the bankruptcy order had been registered but that that registration had now been removed nor that he should take steps to have the details of his bankruptcy order removed from the credit files held by each CRA now that the order had been rescinded.
- On 29 May 2002, Mr Smeaton attended at the Royal Courts of Justice for the hearing of his application and, before the hearing, attended the CAB located there and obtained advice about his current situation. At the hearing, the representative of the OR drew to Briggs J's attention that the registration had just been removed and the judge made no order on the application.
- Mr Smeaton left court on 29 May 2002 believing that he had finally put all aspects of the bankruptcy order behind him and that the order had been rescinded and the petition had been withdrawn. He remained in blissful ignorance that the bankruptcy order had been registered on his credit file in each CRA operating in the United Kingdom on about 7 March 2001 and that it still remained there despite the rescission of the bankruptcy order and the withdrawal of the petition. He was also unaware of the fact that, until he took appropriate steps with each CRA to have his credit file corrected, the erroneous entry would remain on his credit file and would be brought to the attention of every customer, including banks, credit card companies and any company advancing credit, prior to any credit decision being taken about any of his credit applications.
- The period between 29 May 2002 and 30 June 2006. After Mr Smeaton was unjustifiably evicted from his flat, he went to live with his mother for a time and then moved to Stanmore, Middlesex. Mr Smeaton spent most of this period trying to get Ability's business off the ground. However, the company has never traded in a significant way and its annual accounts have always been made up on the basis of Ability being a dormant company. Mr Smeaton has always been the majority shareholder, indeed he considered that his shareholding in this period was 100%. Between July 2000 and 28 March 2003 he was Ability's principal director. He then resigned as a director and was replaced by his mother but he continued to run the company with Mr Scholefield acting as the part time company secretary. By May 2006, Mr Smeaton had put about £60,000 of his own money into the company, most of which was used to fund the making, recording and marketing of dance CDs.
- Mr Smeaton's Application to Nat West for credit. By 2005 Mr Smeaton considered that Ability had developed a niche product which had considerable potential and which had been overlooked by larger recording companies. He also considered that Ability was ready to break into various markets including the Indian subcontinent. He met Mr Atul Sharma, a Business Development Consultant, at a meeting arranged by the London Chamber of Commerce to promote exports to India. He also met an accountant there who expressed interest in helping him to raise finance to enable him to break into the Indian export market with his particular type of music. Mr Smeaton was advised by these new contacts to produce a business plan to support an application for a bank loan to be taken out in conjunction with the Government's Small Firms Loan Guarantee Scheme ("SFLGS"). This scheme involved one of the participating banks, such as Nat West, adopting its usual lending criteria, agreeing to advance a start-up loan to a small business to enable that business to start up, expand or restructure. If the loan did not exceed £50,000 in total, and if the bank agreed to the loan application, the Government would guarantee the loan on the terms and for the period provided for in the scheme.
- Mr Smeaton therefore produced a basic plan entitled 'About Ability Records' and a draft business plan and financing proposal. He approached Mr Shama and asked him if he could provide introductions to institutions that might provide Ability with finance. Mr Shama introduced him to Mr Parminder Athwal at Nat West's Enfield Branch and Mr Smeaton's evidence was that Mr Athwal agreed to provide Ability with a loan of up to £40,000 if that loan could be backed by the SFLGS. If the loan was accepted, Ability would be required to open a business account and take an overdraft facility of up to £10,000 to assist it whilst its application for the SFLGS loan was being processed. Mr Smeaton would be required to guarantee both the business account overdraft and the loan to Ability. Mr Smeaton was given forms by Mr Athwal to enable the company to apply for a loan of up to £40,000 backed by the SFLGS and for a business account with an overdraft facility. The forms were filled in and were sent to Mr Athwal on or about 5 December 2005. Mrs Smeaton signed them as she was the only active director of the company at that time. Mr Athwal returned them stating that it would be necessary for Ability to appoint a younger director than Mrs Smeaton who was then aged 79.
- Mr Smeaton appointed Ms Funlayo Oluwafisoye, who was aged 35, as a director. She was a qualified and experienced book keeping accountant. Mr Smeaton contended that she greatly impressed Nat West and that a second application was then submitted to Ability in June 2006 accompanied by the basic plan and a revised draft business plan and financing proposal. In reply, Mr Smeaton received a letter from Nat West dated 30 June 2006 refusing Ability's application to open a business account. The letter was written by Mr Chris Reddin, one of its business assistants at the Harrow Branch and it stated:
Thank you for your recent request for a Business Account.
I regret that on this occasion we are unable to help you for the following reasons. Adverse data revealed in credit reference search/Bankruptcy data revealed. No doubt this decision will come as a disappointment to you, however, I hope that you can understand the Bank's position.
Should your circumstances change in the future, we will be happy to consider a fresh application. If you feel there is information we did not take into account, you may contact me asking that we reconsider our decision. I will generally ask you to provide me with additional information that supports your request to reconsider your application.
Mr Smeaton, having recovered from his shock at learning that his short-lived bankruptcy was the subject of an adverse credit search, initially made enquiries by ringing up the Enfield branch of the Nat West that was dealing with Ability's commercial account application. He couldn't remember who it was he spoke to but he discovered that Nat West had inspected his credit file and that that file had recorded him as being an undischarged bankrupt whose bankruptcy order was dated 1 March 2001. He was also told that Nat West had obtained Mr Smeaton's credit file from Equifax. He therefore wrote to Equifax a letter dated 5 July 2006 and asked them to remove this reference to his being an undischarged bankrupt from his credit file, publish an apology and pay him compensation of £500,000. Equifax replied to Mr Smeaton's letter of complaint with letters dated 17 July 2006 and 9 August 2006. These letters explained that there had been no update published in the London Gazette since the publication of his bankruptcy on 7 March 2001 nor any notification to Equifax advising it of his bankruptcy order having been "discharged or annulled" so that the bankruptcy entry on his credit file had not been amended. However, the entry had now been removed from its database. Both letters dismissed the claim for compensation as being unfounded since the entry was removed as soon as Equifax was informed that the bankruptcy had been "discharged or annulled" or, in a later paragraph "rescinded" (the first letter) or "rescinded" (the second letter).
- On 10 July 2006, he also replied to Nat West's letter with a letter written in his own handwriting on the bottom of the letter which he returned to Nat West and which read as follows:-
Thank you for the above letter which I was surprised to receive because I am not a "bankrupt". This is a Ltd company account application. It had no bad debts. I am not a director of it. It was your insistence that I be a signatory on the account against my wish. I have sent evidence supporting the fact that I am not a bankrupt under separate cover. Please open the account.
K Smeaton
PPS
The information that I am supposedly a bankrupt should have come to light 6 month ago when the bank last researched the matter.
The explanation for Mr Smeaton's statement that he was not a director of Ability is that he had resigned as a director on 28 March 2003 and was not re-appointed as a director until 11 December 2006. However, throughout the period that he was not a director, he retained his ownership of the company and he ran the company and effectively took all management decisions on its behalf. He was, in truth, a "shadow director".
- Mr Smeaton then contacted Nat West's Harrow Branch that was dealing with the SFLGS application and arranged to meet Mrs Mugridge, one of its business managers to discuss Ability's loan application. Following that meeting, Mrs Mugridge wrote to him on 10 August 2006 as follows:-
Thank you for taking the time to meet with me to discuss the possibility of getting a Small Firms Loan Guarantee for apex £60K
I have been in contact with Mr Athwal, as to how much he had done with regards to the previous meeting that you had with him with regards to the opening of an account for Ability Records Ltd, but it fell for a decline because of the adverse data that was in the background.
I am also having to decline your request as the adverse data will be a stumbling block that I am unable to escape, and our lending centre will not entertain any request were this an issue.
I hope that you are able to progress in some way with your ambitions with the Company and wish you all the best for the future, once again I am sorry that I am unable to assist you with the lending required.
- The aftermath of the failed credit application. There was very little evidence given by Mr Smeaton relating to the period after August 2006. It is noteworthy, however, that Ms Oluwafisoye is recorded as having resigned as a director on 30 June 2006, being the day that Nat West sent Mr Smeaton its letter rejecting Ability's application for a business account overdraft facility on the grounds of the adverse bankruptcy data on Mr Smeaton's credit file. The period following the rejection of Ability's applications for a loan, loan facilities and a business account and of Mr Smeaton to act as the guarantor of the loan and the overdraft facility was evidently beset by financial problems and significant stress-related illness. Mr Smeaton also lost his flat and was, according to his proposed schedule of damage, homeless and living on the street from 6 January 2007 until 28 August 2007.
- The claim for compensation or damages Mr Smeaton's starting point in his claim against Equifax is that he was employed by Ability and was the sole, or a major shareholder, of that company. In those roles, he was responsible for processing and applying for a loan and a business account with an overdraft facility for the company and the refusal by Nat West to provide both of these facilities was entirely the result of its discovery of the adverse bankruptcy entry on his Equifax credit file. In consequence, Ability was unable to obtain a loan supported by the SFLGS and has since been unable to trade properly or promote its exports to any significant extent and has not declared any dividend over the last five years. As a result, its shares are virtually worthless whereas they would have been very valuable had the loan been obtained and the company been able to launch its new product in consequence.
- His claims are essentially for the recovery of his financial outlay in Ability, the loss of his share in the trading profits in the years 2006-2009, the loss of the appreciation in the value of his shareholding in Ability and of the value of a house that he was unable to buy, small further items of consequential expenditure and damages for the loss of his home, distress, trauma and depression and the loss of his business and financial reputation. Mr Smeaton makes these claims on the basis that he was wholly dependent on Ability as a source of income by way of salary and dividends. He makes these claims for his loss as compensation under section 13 of the DPA and as damages for negligence.
4 Credit Reference Agencies
- Equifax is a credit reference agency ("CRA") which is defined in section 145(8) of the Consumer Credit Act ("CCA") as "a person carrying on business comprising the furnishing of persons with information relevant to the financial standing of individuals, being information collected by the agency for that purpose." A CRA collects and holds information about consumers that is relevant to any assessment of that consumer's financial status which may be consulted by a customer when deciding whether to provide credit to that individual. The information is provided to many UK-based customers under contracts with the CRAs and with the agreement of their consumers provided by the terms of business incorporated into the terms of each consumer's contract with the customer. Thus, any loan, mortgage, hire purchase agreement and other similar transactions will invariably involve the customer consulting one of the UK licensed CRAs to obtain details of the relevant consumer's credit status, namely the data that is held on that CRA's particular credit file on which all credit details for that particular consumer are held. These details included in 2001 any default on a loan repayment or refusal of credit and similar information which is either in the public domain or which the individual has agreed may be passed onto licensed CRAs by consumers. Clearly, one of the highly relevant pieces of information that is collected and shared with licensed CRAs' customers is as to any bankruptcy order that is in force or has recently been discharged.
- A CRA is very tightly regulated in relation to the obtaining, retention, dissemination and correction of any data it holds in relation to an individual. The principal legislative provisions that were in force between 2000 and 2006 are found in the CCA, the Consumer Credit (Credit Rating Agencies) Regulations 2000 ("CRAR") and the Data Protection Act 1998 ("DPA"). The CCA and the DPA go hand in hand together since all licensed CRAs store all their data electronically. A CRA was under a duty to comply with the statutory "data protection principles" in relation to the data which they controlled (section 4(4)). These principles are set out in Schedule 1 of the DPA and the relevant principle is principle 4 which states that "personal data shall be accurate and, where necessary, kept up to date."
- A CRA's duty to maintain accurate credit files is supplemented by a number of statutory requirements as follows:
(1) A CRA must provide a consumer with a copy of his or her credit file upon receiving a written request and receiving payment of the prescribed fee of £2 (section 158(4) of the CCA and the similar obligation contained in section 7 of the DPA).
(2) A CRA must respond to any notice submitted by a consumer who considers that an entry in his or her credit file is incorrect by either removing or correcting the entry and providing that consumer with a corrected copy of the file or informing the consumer within 28 days that it is taking no action (section 159(2)). If the CRA decides to take no action, the consumer may serve a notice on the CRA requiring it to add to the file a "notice of correction" and to provide a copy of the notice not exceeding 200 words that is to be provided with information that the CRA furnishes that is included in or based on that entry (section 159(3)).
(3) If a CRA contravenes the DPA, a consumer who has suffered damage as a result is entitled to compensation for that damage (section 13(1) of the DPA). In proceedings brought against a person by virtue of that section, it is a defence to prove that that the CRA had taken such care as in all the circumstances was reasonably required to comply with the requirement concerned (section 13(3)).
- Since, on any view, the data stored on Mr Smeaton's data file was inaccurate and had not been updated between 12 March 2001 when Hart J imposed a stay order on the bankruptcy order and 17 July 2006 when details of that bankrupt order were deleted from his data file, the principal issue that I must decide is whether Equifax has shown that it had taken such care as in all the circumstances was reasonably required to keep Mr Smeaton's data file up to date over that extended period.
- Mr Nicholas Beresford, Equifax's Data Director, explained why it was very difficult to ensure that the data relating to current bankruptcy orders was kept up to date. There were, in 2009, approximately 400,000 bankruptcies on Equifax's data files. This figure represents the number of those who were currently subject to a bankruptcy order and those whose orders had been notified to Equifax as having been discharged, rescinded or annulled over the last six years. That total included the 45,221 bankruptcy orders made in 2009. Equifax does not seek to ascertain when a bankruptcy order is discharged or brought to an end and, further it does not independently check its data files and search for erroneously recorded bankruptcy data. Until 2008, Equifax was made aware of all bankruptcy orders when they were made because these orders and the date on which they were made were recorded in the London Gazette and Equifax uploaded these entries manually onto its databases. Since 2008, Equifax has taken a subscription from the IS so as to receive by electronic transfer at regular intervals the entire contents of the IIR save for sole trader information which it obtains directly from the London Gazette in electronic format.
- The entry that was placed on Mr Smeaton's credit file is no longer available since it was deleted on 18 July 2006 when he notified Equifax that his bankruptcy order had been rescinded. However, a mock-up of what the entry would have looked like was provided in evidence and it looked like this:
| Name |
Date of Birth |
|
Match Level |
| [ ] |
[ ] |
|
[ ] |
| Type |
Value |
Court Date |
Satisfied |
| Bankruptcy order |
£x |
10 June 2011 |
(1) |
(1) This space would have been left blank since the order had not been notified to Equifax as having been discharged, annulled or rescinded.
- Equifax receives information about bankruptcy orders which have been annulled, rescinded or discharged in two different ways. The first way is by being notified by the debtor consumer that his or her bankruptcy order has been discharged or has otherwise come to an end. The second way is by obtaining details of all discharged, rescinded and annulled bankruptcy orders advertised in the London Gazette. These advertisements appear only when a debtor consumer arranges for a notice advertising in the London Gazette that his or her bankruptcy order has been terminated having paid the current fee. If the fact that a particular bankruptcy order has been brought to an end is not brought to Equifax's attention, as occurred in this case, the erroneous entry to the effect that that consumer is still subject to a current bankruptcy order remained on that consumer's credit file.
- Over the years, a number of publications have been placed in circulation that give advice to consumers as to how to obtain a cancellation of an erroneous bankruptcy entry on their credit files held by CRAs. In 2002 and 2003, the only relevant available publication was one published by the IS in October 2001 called Can my bankruptcy be cancelled? There was no evidence of how widely this publication was made available, where and how it could be obtained and how it was brought to the attention of those who were, or had been, subject to a bankruptcy order. It was available on line but there was no evidence as to when it first became available on line. In any event, this publication was of no use to Mr Smeaton, even if he had been aware of it and had been able to read and absorb its contents it notwithstanding his reading difficulties since it only addressed annulments of bankruptcy orders and made no mention of the rescission of such orders.
5. Equifax's Evidence
- Equifax has been operating its credit data gathering service and maintaining consumer credit files since the early 1970s. It would appear that it has collected, filed and updated the bankruptcy data that it keeps on consumer credit files in the same way for many years. There was no evidence about Equifax's early pre-DPA methods of working but there does not appear to have been any change in the way that it has obtained and corrected bankruptcy data since the mid-1980s when the IA introduced the current insolvency legislation. The evidence did not show how many data files held by Equifax contain bankruptcy data but there must be at least 500,000 such files. Although that must amount to a small proportion of the total number of data files that Equifax holds, bankruptcy data is of critical importance for customers since they will want to know if any consumer applying for credit is a current or recently discharged bankrupt and, hence, an unacceptable or very unattractive credit risk. Moreover, any erroneous or out-of-date data that remains uncorrected on a consumer's credit file can be particularly damaging for a consumer, particularly in periods where credit is hard to come by. Thus, even before the requirements of the DPA were introduced, Equifax would have been aware of the particular need to ensure reliable and up-to-date bankruptcy data.
- The evidence shows that for at least the last 25 years until 2008, Equifax's principal source of its bankruptcy data has been the London Gazette for details of new bankruptcies and self-reporting of its customers for the up-dating of these bankruptcy details. Moreover, it would appear that no research has been undertaken to ascertain how reliable Equifax's bankruptcy data is or how it's the accuracy of its collection and up-dating procedures could be improved. It was particularly noticeable that Equifax provided no evidence of whether or not its systems generally and its bankruptcy data collection system in particular were checked to ensure compliance with the DPA when it was introduced or are checked on a regular basis to see how DPA compliance can be improved.
- It is clear that Equifax has always worked on the basis that there is no practical way for it to ascertain which bankruptcy orders have been discharged, annulled or rescinded on any given day and that it can only obtain this information from individual consumers informing it of their release from a bankruptcy order or from the London Gazette which in turn relies on being provided with this unsolicited information by individual consumers. The DPA was passed in 1998 but Equifax does not appear to have evolved any strategy to ensure that it complied with the Act at the outset or that it continues to comply with the Act in a rapidly changing world.
- Mr Martin explained that Equifax considered that it had taken reasonable steps to ensure that it adhered to the DPA data protection principles. He summarised Equifax's view in these two passages of his evidence:
We believe that the publications that are in existence, that have been in existence for many years, have never changed, have always given the appropriate message, are the … reasonable steps that's necessary to inform people. And we work on the basis that, you know, the information is accurate … that we receive. And that we immediately follow up should any suggestion of inaccuracy take place, to identify immediately whether that's the case or not and take the appropriate action.
… when somebody applies for credit and they're declined for credit that they're advised if the information relates to credit reference agency information. If that is the case, they are advised to obtain a copy of their credit file at that point. Then, things become very apparent if there are any inaccuracies on the database and steps can be taken to correct them, as was the case eventually in July 2006 when that process took place. [47]
- Mr Martin also stated that Equifax had never had discussions with representatives of other CRAs or with the Court Service or the IS or the relevant Government Department to see whether a system could be set up which was easy and inexpensive to operate whereby bankruptcy courts, the IA, the relevant Government Departments and consumer groups would report all relevant annulment, rescission, stay and quashing orders to all CRAs. Equally, Equifax, whether working with other CRAs or individually, has not ascertained whether such data could be speedily and cheaply collected centrally by the OR, the IIR or in some other way and then disseminated. He also said that this situation had existed for many years, certainly from well before 2000, and that Equifax had not reviewed its reactive policy with regard to acquiring details of bankruptcy order annulments and rescissions nor its assumption that there was no practical step that it could take to ascertain details of such annulments and rescissions.
- Mr Beresford explained that the IS and the Information Commissioner had both published booklets which advised that if a bankruptcy was annulled (i.e. cancelled), the consumer would need to send proof of this to each CRA. The current versions of these booklets are available on line. He provided copies of the relevant advice from 2001 until 2005 which was as follows:
What is the effect of the annulment of a bankruptcy order?
Credit Reference Agencies - the Official Receiver does not send any form of notice to credit reference agencies. The agencies pick up information from other sources such as advertisements of bankruptcies in newspapers, "The London Gazette" and the Register of County Court Judgments. If no advertisement of your discharge from bankruptcy or the annulment of the bankruptcy order is made, separate information will have to be provided to credit reference agencies to amend their records. (IS: Can my bankruptcy be cancelled? October 2001)
Agencies also keep the details of bankruptcies on file for 6 years. Any County Court which deals with bankruptcy can tell you how to discharge a bankruptcy. You can then ask the agencies to record the discharge although you will have to give them evidence of it." (Data Protection Commissioner: No Credit, December 2001)
What is on my credit file? …
If your bankruptcy has been discharged, you may need to sign the credit reference agencies a certificate of discharge (unless you have paid for the Official Receiver to publicly advertise your discharge). You can get the certificate of discharge from the court where the bankruptcy was filed. There will be a fee for this. …
If your bankruptcy has been annulled (cancelled), you will need to send proof to the credit rating agencies. (Information Commissioner: Credit explained, December 2005).
He also explained that if Equifax was to check the status of every bankruptcy order on an annual basis, it would have to check all 400,000 bankruptcy orders held in its data bases and that would require thousands of searches to be carried out on a daily basis.
6. Findings
- My principal findings of fact are as follows:
(1) Mr Smeaton was never insolvent and should not have been made subject to a bankruptcy order in the first place. He had set-off his arrears of rent against his entitlement to substantial damages for wrongful eviction from the premises that he was renting from his landlord creditor and for the loss of and damage to his property and possessions. Furthermore, there was very good evidence that the petition was an abuse of process and that the bankruptcy hearing had failed, due to procedural errors, to consider and take account of his evidence.
(2) Mr Smeaton was a consumer who should never have been made bankrupt and who had the strongest possible grounds for contending that he should never have been made the subject of a bankruptcy order and the details of that order should have been deleted from his data file no later than 12 May 2002.
(3) Hart J, at a contested hearing in the presence of the creditor petitioners' counsel and of a member of the OR's staff who had attended the hearing, granted Mr Smeaton's application for a stay of the bankruptcy order and directed a speedy hearing of his appeal from that order. Mr Smeaton had very good prospects of succeeding in his appeal and of obtaining an order quashing or rescinding the bankruptcy order and striking out or permanently staying the petition.
(4) The effect of the Tomlin order that was obtained by consent and without Mr Smeaton having had the benefit of legal advice was that Mr Smeaton was in the position of someone who had never had a bankruptcy order made against him, had not been susceptible to a bankruptcy petition and was not a discharged bankrupt. This was because the bankruptcy order had been rescinded, the petition had been withdrawn, permission had been granted for an application to be made to the Land Registry to remove the caution that had been registered as a consequence of the bankruptcy order and Mr Smeaton had not had to pay anything towards the costs of the petitioners or the OR. Moreover, the OR had accepted that, unusually, he had had an obligation to apply to the Land Registry to have the caution cancelled.
(5) The rescission order that rescinded Mr Smeaton's bankruptcy order was one of only about ten such rescission orders that had been made in 2002. Only a proportion of those rescission orders were coupled with an order that the petition should be withdrawn or dismissed. A copy of the consent order would have been sent by the Aylesbury County Court to the OR on the day the order was made and the IIR entry recording Mr Smeaton's bankruptcy order would have been removed within a working day or two of the OR receiving a copy of the order. Indeed, it seems that the entry had been removed soon after Hart J's stay order had been made on 12 March 2001 so that, although an attempt to remove the notice of the bankruptcy order would have been made soon after a copy of the Tomlin order was served on the OR, it would have been discovered that that entry had already been removed.
(6) Mr Smeaton was unaware of Equifax or of the other CRAs operating in the United Kingdom, of the system of collecting credit data and of its use by customers when processing applications for credit, of the process of maintaining credit files, of the addition of details of his bankruptcy order onto his credit file and of the fact that, unless he notified CRAs or paid for an advertisement to be placed in the London Gazette, the details of that bankruptcy order would remain on his credit file until March 2007 when it would be removed automatically despite the stay and rescission orders that had been made. He is heavily dyslexic and has never been able to read official documents since his ability to read such documents, to concentrate whilst doing so and to absorb the information that they contain is severely constrained.
(7) The only publication that Mr Smeaton could reasonably have been expected to consult in the period between March 2001 and May 2002, had he taken active steps to track down relevant publications and read and absorb their contents, was the IS's publication Can my bankruptcy be cancelled? That publication only refers to annulments of bankruptcy orders and had Mr Smeaton read it, he would reasonably have concluded that its advice did not cover his situation. There is nothing in the publication that would have reasonably suggested to him that he should take any action, following the stay order that had been made in March 2001, to notify all relevant CRAs that his bankruptcy order had been stayed and then rescinded and that his credit file should be corrected or amended.
(8) Equifax had never reviewed the general approach that it had developed to the recording of bankruptcy orders on the credit files that it held for consumers. This approach was to the effect that it would rely entirely on information provided by consumers or placed in the London Gazette by consumers before removing or amending these entries. Moreover, Equifax had never applied its mind to whether it should treat those whose orders were properly made and which had ran their full course until discharge differently from those whose orders were brought to an earlier end by annulment, rescission or by being stayed by a court order. It had therefore not considered whether it could and should take steps proactively to ascertain whether it was reasonably possible to find out when annulment, rescission and stay orders were made without having to rely on being informed of this by consumers whose bankruptcy orders had been dealt with in this way.
(9) Until electronic sharing of the entire IIR was initiated in 2008, Equifax considered that it was not necessary for it to do anything to ensure the accuracy of bankruptcy information collected on consumer credit files nor to take any steps to inform consumers that it was their responsibility to bring details of inaccuracies in their credit files relating to bankruptcy orders to its attention. Equifax also considered that sufficient advice was available to consumers of their rights in relation to the correction of inaccurate data in the various publications that were in the public domain to ensure that bankruptcy credit data held on its data files remained accurate and that details of any rescission or annulment of bankruptcy orders were promptly added to its data base.
(10) Equifax's principal reason for not reviewing its approach to bankruptcy data was that it considered that it was wholly impracticable to undertake the checks that would be necessary if it was to itself ascertain when a bankruptcy order was discharged or otherwise brought to an end or stayed. This view was understandable and reasonable in the years up to 2008 if it was applied to every bankruptcy order. In 2010, for example, at least 50,000 of the 500,000 undischarged bankruptcies recorded on its data base were discharged or otherwise terminated. However, it was not reasonable to treat in the same way those bankruptcy orders that were discharged as those that were subject to annulment, rescission or stay or to treat annulment and rescission orders that were coupled with an order permitting their underlying petition to be withdrawn in the same way as those which had not been coupled with that order. Equifax should have considered whether it was possible to find a quick, reliable and cheap way of being informed of annulment, rescission and stay orders which did not rely exclusively on consumers drawing such orders to its attention.
7. Issue 1 – Data Protection Act
Issue: Did the Defendant breach any duty owed to the Claimant under the Data Protection Act 1998?
- Introduction. I will first set out the terms of the relevant legislation. Section 13 provides:
13. - Compensation for failure to comply with certain requirements
(1) An individual who suffers damage by reason of any contravention by a data controller of any of the requirements of this Act is entitled to compensation from the data controller for that damage.
(2) An individual who suffers distress by reason of any contravention by a data controller of any of the requirements of this Act is entitled to compensation from the data controller for that distress if-
(a) The individual also suffers damage by reason of the contravention, or
(b) The contravention relates to the processing of personal data for special
special purposes.
(3) In proceedings brought against a person by virtue of this section it is a defence to prove that he had taken such care as in all the circumstances was reasonably required to comply with the requirement concerned.
The relevant "requirements" are the relevant requirements taken from those imposed by section 4 of, and schedule 1 to, the DPA. The relevant requirements are highlighted and are are set out in the annex to this judgment. The requirements are those that govern how Equifax as a CRA should process personal data which is defined in section 1 of the DPA as being data which relate to a living individual who can be identified. Clearly data about an individual's bankruptcy status comes within that definition of personal data.
- Equifax's obligations, as they relate to its collection of bankruptcy data, are defined by reference to the statutory data protection principles. These must be considered in the round and, since the obligation is defined by reference to a series of general principles, the nature of a data controller's obligation in any particular situation must be considered on a case by case basis using those general principles as guidelines and interpreting them by reference to considerations of reasonableness and proportionality.
- Reasonable care. Before considering the nature of the duty to comply with the data protection principles and whether Equifax was in breach of any of them in relation to Mr Smeaton, I will consider the statutory provisions that qualify that duty. Since it is alleged that Equifax was in breach of the fourth principle, it is necessary to consider the statutory proviso to that principle in conjunction with the overall proviso provided by section 13 of the DPA. These two provisos are as follows:
- Section 13(3) provides that:
In proceedings brought against a person by virtue of this section it is a defence to prove that he had taken such care as in all the circumstances was reasonably required to comply with the requirement concerned.
The fourth principle states that personal data shall be accurate and kept up to date is subject to the proviso that it is not contravened by reason of any inaccuracy in the data obtained from a third party where:
… having regard to the purpose or purposes for which the data were obtained and further processed, the data controller has taken reasonable steps to ensure the accuracy of the data.
- In the context of this case, there seems to be little difference between the section 13 requirement of having taken "such care as in all the circumstances was reasonably required" and the fourth principle requirement of having taken "reasonable steps to ensure the accuracy of the data". However, it is clear that these are positive obligations requiring the taking of care and of reasonable steps. It is not sufficient for the data controller to do nothing and undertake no assessment or analysis of the accuracy of the data and of the steps that would be available to ensure its continuing accuracy and then seek to rationalise its inaction subsequently. Furthermore, the burden of proof is laid squarely on the shoulders of the data controller. Where, as here, the relevant personal data rapidly became inaccurate after it had been gathered and it remained accessible in its inaccurate form for over five years, there is a clearly established breach of the fourth principle. Equifax is only able to avoid liability if it can show, on the balance of probabilities, both that it had taken steps to ensure that data's continuing accuracy and that the steps that it took were, in the context of gathering bankruptcy credit data for use by a CRA, the steps that were reasonably required to ensure its continuing accuracy.
- Data protection principles. The principles are set out in Part 1 of Schedule 1 and each is subject to a guide to their interpretation that is set out in Part 2 of Schedule 1. A further requirement of some importance is that the first principle, which provides that personal data shall be processed fairly and lawfully, can only be met if one of the conditions in Schedule 2 is met. In the case of CRAs, that requirement is clearly fulfilled since a CRA is pursuing a legitimate interest and processing personal data such as bankruptcy data is necessary for the pursuit of providing data that can be used to assess a consumer's credit status.
- There are four principles that are particularly relevant to this case. They are that the data must be processed fairly and lawfully, that the data should be accurate and kept up to date and should not be kept for longer than is necessary for the legitimate purpose for which it is kept. A further relevant principle is that the data should be processed in accordance with the rights of data subjects under the Act[48].
- This case is concerned with a serious failure to keep the data file of one consumer up to date in circumstances which are highly unusual and probably unique. The principal failure complained of is that of not removing the bankruptcy entry on or immediately following the issue of the Tomlin order dated 7 May 2002 and the second failure is that of not removing the bankruptcy entry on or soon after the date of the stay order of Hart J made on 11 May 2001. This is a one-off case since the probably unique circumstances of this case would not, since 2008, have given rise to the principal failure albeit that the failure that occurred in the twelve-month period up to 7 May 2002 could still occur if a bankruptcy order is stayed pending an appeal against that order.
- It is also important to keep in mind that the failures in this case are significant on any view. Equifax maintained an entry on a consumer's data file for over five years to the effect that he was an undischarged bankrupt. In fact, for all but the initial ten days of the first year of that period, his bankruptcy had been stayed and for the remaining four years he was in the position of never having been made bankrupt. The dissemination of that erroneous information to a significant number of customers constitutes a significant breach of the fourth principle as well as amounting to breaches of the first and fifth principles. Those breaches are only justified, if at all, if Equifax can show that it took reasonable steps to ensure the accuracy of the data throughout the time it remained accessible on Mr Smeaton's data file taking into account that it was already relying, and entitled to rely, on the exception provided for in paragraph 3 of Part II of Schedule 1.
- Both Mr Milner on behalf of Equifax and Mr Smeaton provided two sets of detailed and very helpful written closing submissions. These convincingly demonstrate that until it started to share the contents of the IIR electronically in 2008, it was impracticable, if not impossible, for Equifax to ensure that the entirety of the bankruptcy order data kept on its databases was accurate and up to date at all times.
- However, Equifax has never addressed the question of whether it should treat all bankruptcy orders in one category or whether it should instead make a distinction between the great majority of bankruptcy orders that remain in place until discharged and the small minority of such orders that are terminated prematurely because the bankruptcy is set aside and the affected consumer is no longer to be treated as having ever been a bankrupt. In other words, the question raised by Mr Smeaton's case is the much smaller question of whether the tiny number of consumers who were subjected to a bankruptcy order that was subsequently rescinded and whose petition is subsequently dismissed should be treated as a special class of consumer who were entitled to the protection of the fourth principle without Equifax being entitled to rely on the proviso of having taken reasonable steps to ensure accuracy that is applicable to most other discharged bankrupts.
- Equifax contends that it may rely on the proviso to the fourth principle and that it has taken reasonable steps to ensure the accuracy of the data. In order to show that it has taken reasonable steps in this case, Equifax needs to point to positive action that it has taken in order to seek to avoid contravening the fourth principle in relation to Mr Smeaton and to others in a similar position. Such steps could include carrying out a risk assessment at regular intervals to assess (1) the risk that it would not come to know of a rescission or annulment or stay order, (2) the risk that a consumer affected by a rescission or annulment order would not be aware of the need to notify it of that order, (3) what it would have to do in order to obtain details of those orders from the courts imposing them and (4) whether and how the IS came to be aware of such orders.
- This process of enquiry and assessment is required of Equifax given the onerous nature of the data protection principles that Equifax must comply with. Equifax must take reasonable steps to ensure that its credit data, including its bankruptcy order data, is kept up to date. That, at the very least, requires it to undertake at regular intervals an assessment, review or audit of the measures it has in place to ensure that the credit data that it holds is accurate. It needs to keep under regular review whether its data control procedures can be improved with the use of reasonable measures and, where necessary, to undertake any necessary improvements.
- A very good example of what Equifax can and has done to improve the control of its bankruptcy data occurred in 2008 when it was offered and accepted the facility of sharing the contents of the IIR on a daily basis. There was no evidence to show how the offer of that facility came about and why it had not been initiated earlier. It would have been possible for Equifax to have made enquiries of the IS, the Court Service, the Lord Chancellor's Department and of other CRAs long before 2008 with the aim of finding out whether it could share the data that courts sent to the Secretary of State, the OR and the IS and whether the raw data used to update the RBO and the IIR could be provided to it and other CRAs. Given the information gathering duties imposed on bankruptcy courts by the IRs and the IA, and given the information that was received by those responsible for compiling the RBO and the IIR, it would not have been a particularly onerous task for, by way of example, a daily list of all annulment, rescission and stay orders to be compiled from data obtained from the courts and for that list to be provided to all CRAs. What is notable is that Equifax never appear to have asked these questions, to have undertaken these assessments or to have reviewed its procedures or to have checked whether it could make improvements so as to ensure that all reasonable steps were being taken to ensure the accuracy of its bankruptcy data without having to rely on self-reporting by consumers.
- When in this case Equifax was required retrospectively to justify the reasonableness of the bankruptcy data correction system that was in operation, it made the following points:
(1) There was no practicable and economic way for it to ensure the continuing accuracy of the data relating to those subject to a bankruptcy order looking at all those individuals as a single class.
(2) It was therefore reasonable to rely on individual consumers self-reporting the discharge, annulment, rescission or staying of their individual bankruptcy order prompted as appropriate by that consumer's self-selected reliance on advice that was contained in published advisory materials. It was neither necessary nor reasonable for it to check and, where necessary, to suggest improvements to the published materials, to itself publish any advice whether on its own or in conjunction with other CRAs or to advertise the necessity of checking individual data files.
(3) Mr Smeaton's suggested ways of Equifax proactively checking its data are impracticable or impossible.
- Equifax's breach. Equifax could have considered but never appears to have considered whether it should treat differently those whose bankruptcy orders had run their full course and had then been discharged from those whose bankruptcy orders had been prematurely ended by rescission, annulment or stay without the petition being withdrawn. The group whose bankruptcy order will run its course and then be discharged was a large group and data about it was cumbrous and difficult to assemble. Moreover, those bankrupts had brought that state upon themselves and they would be subject to automatic discharge which would be brought to Equifax's attention when it occurred. Moreover, before 2008 there was no electronic method of obtaining that data. It is therefore clear that no further steps could or should reasonably have been taken to ensure that the bankruptcy data held on the data files of those individuals remained accurate.
- However, for those subject to the annulment, rescission or stay of their bankruptcy orders, the position was different. Many, but not all, of those people would have been unwittingly or wrongly declared bankrupt initially and at least some of them would not be likely to have a sufficient familiarity of the process to know that they should bring to the attention of CRAs the fact of their annulment, rescission or stay. Moreover, on any view, the numbers affected were very small.
- Any detailed consideration of the bankruptcy data and the system giving rise to bankruptcy orders should have identified those subject to rescission as being a special class within the class of those subject to early termination of their bankruptcy orders. They are a tiny number, it would be rare indeed that they had brought the bankruptcy order onto themselves in the first place and, at least in the early 2000s, they were not covered by the guidance offered to those whose orders had been annulled.
- Equifax should also have noticed that those whose orders were annulled were immediately brought to the attention of the OR and had their entry on the IIR automatically removed since the court that had made the annulment order would have sent a copy of that order to the OR who had a duty immediately to amend the IIR on receipt of it. Although the same notification process did not occur for those subject to rescission and stay orders, the numbers were tiny and the extra task of reporting these to the OR would not have been great. Indeed, rescission orders are now invariably brought to the attention of the OR by the relevant court and their entry on the IIR is immediately corrected.
- Whether alone or in conjunction with the other two licensed CRAs, Equifax could have held discussions with the Secretary of State and the IS to seek to persuade those parties to modify the then current arrangements so that: (a) courts dealing with personal insolvency reported on rescission and stay orders in addition to annulment orders that were already subject to a reporting regime; (b) the Secretary of State arranged for those subject to annulment, rescission and stay orders to be the subject of an automatic report in the London Gazette and (c) the RBO and, subsequently, the IIR reported in a separate part of the register a list of all those bankruptcy orders subject to rescission, annulment or stay that could be consulted by CRAs and the public.
- As an alternative, Equifax could have considered and then implemented other ways of obtaining data about orders relating to the termination of bankruptcy orders by means other than discharge.
- However, Equifax did none of these things and presumed throughout this period that all bankrupt orders should be considered as a single class, that there was no difference between bankruptcy orders subject to discharge compared to those subject to rescission, annulment or stay; between those orders subject to annulment compared to those subject to rescission and stay; or between those orders that were annulled or rescinded without a dismissal of the petition compared to the same orders that were coupled with an order dismissing the petition.
- In those circumstances, it is clear that, in Mr Smeaton's case, particularly given its remarkable factual circumstances, Equifax has failed to show that the contraventions of the fourth principle that occurred could be excused because they had taken reasonable steps to ensure the accuracy of his data. In truth, it had taken no steps to ensure the continuing accuracy of the bankruptcy data other than to respond to consumer information that it received. It had not even taken the vital first step of regularly considering whether the class of those subject to rescinded bankruptcy orders could be proactively monitored.
- The answer to the first issue is that Equifax was in breach of its duty to ensure that Mr Smeaton's personal data was accurate and kept up to date.
8. Issues 2 and 3 – Negligence
Issues: 2. Did the Defendant owe the Claimant a duty of care at common law and, if so, what was the content of that duty?
3. If the Defendant did owe the Claimant a duty of care, did the Defendant breach that duty?
- Introduction. I have found that Equifax is liable for breach of a statutory duty which is grounded in a failure to take reasonable steps and to exercise reasonable care to protect Mr Smeaton, being the individual to whom it owed that duty, from damage. Mr Smeaton, nonetheless, also brings his claim in negligence. Equifax denies that it owed him any duty of care irrespective of the statutory duty it owed him under the DPA. Its position was clearly and helpfully set out by Mr Milner in his closing submissions in this way:
9. The leading authority on the test for a duty of care in cases of alleged negligence causing pure economic loss is Commissioners of Customs and Excise v Barclays Bank plc[49]. The speeches of the members of the House of Lords show differences in emphasis but the following principles can be said to emerge from them:
3. Three tests exist for the imposition of a duty of care, namely:[50]
a. The "assumption of responsibility" test;
b. The "threefold test" of foreseeability of loss, proximity, and whether it is fair, just and reasonable to impose a duty; and
c. The "incremental" test, which involves consideration of whether the circumstances are sufficiently similar to those in which a duty of care has been recognised previously.
4. An "assumption of responsibility" is a sufficient, but not a necessary, condition for the existence of a duty of care.
9. The first question is therefore whether Equifax assumed a responsibility to Mr Smeaton. It is submitted that it did not assume any responsibility in any meaningful sense. Indeed, Equifax had no personal dealings at all with Mr Smeaton until he contacted it in July 2006, and had no reason to regard him or treat him any differently from any other member of the public. Even the provision of credit references to lenders is a highly automated process which cannot amount to an assumption of responsibility towards every member of the public who applies for credit.
15. (4) Mr Smeaton did not rely on Equifax in any meaningful sense. He had no influence over any lender's choice of CRA, and did not even know that a reference had been sought from Equifax until after he had made enquiries of Nat West in July 2006. He could no doubt have withheld consent to the lender's conducting a credit check at all, but would then inevitably have been refused credit.
16. Given the business realities, therefore, it would be highly artificial to regard Equifax as having assumed a responsibility to Mr Smeaton.
- I have only quoted the submission that deals with the assumption of responsibility test since that is the only test that I am going to consider. I do not accept Mr Milner's conclusion that, because Equifax did not have Mr Smeaton in mind and could not have consciously assumed responsibility for him in a personal sense, it cannot have assumed responsibility in law for the economic consequences, and any proved stress-related damage, of its negligent failure to operate an accurate data gathering and retention system. Given the framework, duties and compensation provisions of the DPA, Equifax, by deciding to operate as a CRA and provide credit checks and references to customers, has assumed a responsibility to the consumers whose personal data it holds for the benefit of its customers. This is the liability that is imposed on it by the DPA when it chooses to offer services as a CRA and it owes the same duties to affected consumers as it owes to them by virtue of the statutory data protection principles that it must apply. In both cases, it must act with reasonable skill and care.
- It seems to me self-evident that since common law duties can co-exist with statutory duties based on a similar failure to exercise reasonable skill and care, a statutory tortfeasor acting negligently is ordinarily also to be found to be liable in common law negligence. The only practical consequence of this somewhat conceptual distinction between liability for breach of statutory duty and liability for breach of a common law duty is that it is conceivable that the rules of remoteness, scope of duty, recoverable loss and limitation are, in some situations, more generous in negligence than in statutory duty and, in the case of distress, more generous in statutory duty than in negligence.
- In the light of my findings as to breach of statutory duty, it is not necessary for me to go further and consider the much more difficult question of whether Equifax owed Mr Smeaton a duty of care on either of the two further bases for liability for causing economic loss referred to in Mr Milner's submissions. The law of negligence is now developed incrementally and by reference to the factual situation of a particular case. In those circumstances, I will not embark on that enquiry.
- I have already found that Equifax never considered, as it should have done, what practical and easily implementable steps it could take to ensure the accuracy of the bankruptcy credit data it held. This failure was particularly marked in relation to consumers whose bankruptcy orders had been nullified and brought to an end prematurely. I have also found that that failure amounted to a failure to exercise reasonable care and that, had it considered the matter, Equifax could have adopted further measures which, had they been implemented, would have avoided Mr Smeaton's damage.
- Conclusion. I therefore find that Equifax owed to Mr Smeaton a common law duty of care and that he was in breach of that duty. This duty of care was the same duty which was breached in the same way as the statutory duty owed to Mr Smeaton that was imposed by and incurred under the DPA. It will only become clear once Mr Smeaton's case in relation to loss and recoverable damage has been pleaded whether this additional cause of action has any practical consequences for him or, indeed, for Equifax.
1. Issue 3 - Causation
Issue: If the Defendant was in breach of any duties owed to the Claimant, did such breach or breaches cause Mr Smeaton to be unable to obtain funding on behalf of Ability Records Limited in mid-2006 or subsequently?
- Introduction. I must first summarise my findings of fact that relate to Mr Smeaton's credit file. The evidence was not detailed in relation to these matters and was confined to a somewhat sketchy analysis of Mr Smeaton's credit file undertaken by Mr Beresford. Mr Smeaton had not been given particulars of these matters prior to the hearing and he was cross-examined on the relevant entries briefly and without having had an opportunity of examining the specific entries in any detail.
- Mr Smeaton's credit file. Mr Beresford was at the time he gave evidence Equifax's UK Data Director. He was shown a copy of Mr Smeaton's credit file as it existed in Equifax's data files on 19 July 2006, the day that Equifax amended Mr Smeaton's file to record the fact that the bankruptcy order had been rescinded. He concluded that there was a significant amount of negative data recorded on the file. He referred, in particular, to these matters:
(1) Mr Smeaton opened four accounts in the five-year period between his bankruptcy order first being recorded and it being withdrawn. Two of these, a mobile account and a hire purchase agreement, were listed as being in default. He concluded that that showed that on occasion Mr Smeaton was struggling to keep up to date with his payments on both these accounts.
(2) Mr Smeaton had recorded against him a county court judgment for £218 on 10 January 2005.
(3) 25 credit searches were made in the period between 5 June 2002 and 30 June 2006. This number of searches suggested to Mr Beresford that Mr Smeaton was struggling to obtain credit.
- Mr Beresford concluded that Mr Smeaton's credit file showed him to be a poor credit risk and as one to whom a normal high street bank would not lend if it based that decision on the information contained on his Equifax credit file. He also concluded that it was likely that Mr Smeaton would have had his attention drawn to his poor credit risk and to the fact that his credit file showed him to be a poor credit risk on at least some of the occasions that he was enquiring about credit facilities and the credit searches were made
- Mr Smeaton was understandably somewhat indignant at being asked detailed questions about the contents of his credit file and about possible credit enquiries that he had made six or more years previously. However, he was able to give an explanation for the credit searches that were recorded on his credit file. He suggested that many of them related to enquiries he made from time to time about interest rates as a prelude to his considering whether to move his account or open a new credit or hire purchase account. Most of these enquiries were made at what he described as the first stage when no formal application was made. However, the fact that he had made an enquiry appeared to have been automatically recorded on his credit file. He explained that he had had a dispute about the sum for which a default county court judgment for £218 had been entered. He also had explanations for the two accounts apparently in default.
- I conclude that the evidence presented by the credit file gave little support for the submission that Mr Smeaton's credit would have been considered to have been so poor that he would never have obtained credit even if his credit file had made no reference to his bankruptcy order. The first and most obvious reason for this finding is that Mr Smeaton's credit file did contain that reference and, furthermore, in the later part of the five-year period it related to, the reference showed him to be an undischarged bankrupt who remained undischarged after the period for automatic discharge had passed. That could well have explained at least some of the negative entries on the file.
- Moreover, contrary to Mr Beresford's suggestion that his attention would have been drawn to his poor data file, he stated that he never once was informed about the existence or contents of his data file. This evidence was supported by the contents of his brief third statement dated 18 July 2011 and sworn on 11 November 2011 which I admitted at the hearing on 16 November 2011. In this statement he set out what he had been told by Mr Tony Cottrell, the then current manager of the Rayner's Lane, London branch of Nat West when he spoke to him on 18 July 2011. Mr Cottrell informed him that banks generally, and by inference Nat West in particular, do not inform consumers of the information correction facility that is available to a consumer who wishes to ascertain what credit data is held about that consumer by a CRA and who wishes to correct inaccuracies in that data.
- A further reason for disregarding the contents of the file is that, as Mr Beresford explained, it is possible to arrange for an apparently adverse file to be improved so that it no longer contains at least some of the apparently adverse references. This is achieved by perfectly legitimate means. Many entries can be explained and the explanation then set out on the data file. Others can contain errors that can be corrected. It would not be possible, without a great deal of informed work, to re-create Mr Smeaton's data file so that it appeared in the form that it would have had if there had been no bankruptcy entry on it in the period after 12 March 2001 and if the errors and explanations that could be eradicated and provided were to be found on it. It would, however, quite possibly appear in a different and much more positive light than the data file in its actual form on 19 July 2006.
- The applications to Nat West. Mr Smeaton had not dealt with Nat West before. He was introduced to Nat West's Enfield branch by Mr Shama who introduced him to Mr Athwal for the specific purpose of enabling Mr Smeaton to apply for an SFLGS loan. Evidently, Mr Shama knew Mr Athwal and had introduced others to him for the same purpose previously. The SFLGS scheme involved a list of participating banks, one of whom was Nat West and so it was necessary for an applicant to approach one of those banks. The bank was required first to consider whether to grant a loan to the applicant company using its normal commercial lending criteria and, if it was prepared to do so, a successful application could be made for a SFLGS loan.
- Mr Smeaton made two applications for an SFLGS loan. Both applications were made by Ability and not by him personally. Each application was accompanied by an application by Ability to open a business account coupled with an overdraft facility. The first pair of applications were made on the appropriate application forms and were filled out and signed by Mr Smeaton's mother in December 2005. At that time, Mrs Smeaton was the sole director of the company which was wholly managed and directed by Mr Smeaton. This pair of applications did not reach Nat West because Mr Athwal, on seeing them, returned them informing Mr Smeaton that it would not be acceptable for the loan to be applied by for by the 79-year old non-executive sole director of the company.
- Mr Smeaton then filled out and signed the application forms himself in his capacity as the sole manager of the company and as the person who, if personal guarantees were required, would be providing the additional personal guarantee of the loan and Ability's overdraft. The applications had to be considered by two different branches of Nat West. The business account was to be opened at the Enfield Branch where Mr Athwal was located. The applications were therefore sent to that branch. However, Nat West operated its participation in the SFLGS from its Harrow Branch, so they also had to be considered there. Both branches would, inevitably, need to consider Mr Smeaton's credit rating. Firstly, they would want to assess it since he was the sole manager of the applicant company and the company's credit risk was therefore largely dependent on Mr Smeaton. Secondly, they would be looking to Mr Smeaton to act as a guarantor of either or both credit facilities being applied for by Ability.
- It was, in those circumstances, inevitable that Nat West would, on discovering that Mr Smeaton was reported to be an undischarged bankrupt of over five years standing at a time when automatic discharge should have occurred after three years. The first and most obvious reason for refusing Ability's applications in those circumstances would have been that Mr Smeaton would have appeared to have been an undischarged bankrupt and an undischarged bankrupt is prohibited from being a director of a company or of being involved in the promotion, formation or management of a company without the leave of the court.[51] There was no evidence that Mr Smeaton was acting with the leave of the court and, moreover, he was not merely involved with the management of Ability, he was the sole manager and, in effect, its sole shadow director. In addition to that, Nat West would not conceivably have considered Mr Smeaton as a possible guarantor nor would it have considered advancing a loan to a small company whose sole manager was an undischarged bankrupt who remained undischarged five years after his bankruptcy order and who had not declared this to the bank when making the loan application on Ability's behalf.
- For those reasons, it is not only credible but clearly the case that Nat West's Enfield branch refused the company account and overdraft facility application in its letter dated 30 June 2006 with the words: "Adverse data revealed in credit reference search/bankruptcy data revealed". In other words, the application was refused on account of Mr Smeaton's recorded longstanding undischarged bankruptcy.
- Ability's SFLGS application still had to be processed by the Harrow Branch and, following Mr Smeaton's irate contact with Equifax and its correction of his data file, he contacted one of the Harrow Branch business manager's dealing with the SFLGS and went to see her. He, of course, explained that he was no longer bankrupt but, by then, the Enfield Branch had already refused the commercial account and overdraft application and the copy of Mr Smeaton's data file showing him to be an undischarged bankrupt of five years standing and the sole manager of the company would still have been on his and Ability's Nat West records. Following the meeting, Mrs Mugridge, the Nat West business manager that he had seen, wrote to him and informed him that the Ability application he had made was declined because the application to open a business account had already been declined "because of the adverse data that was in the background" and because "the adverse data will be a stumbling block that I am unable to escape." These references to adverse data are clearly, in context, to the bankruptcy data that had lain on Mr Smeaton's credit file for so long.
- For all these reasons, it is inescapable that the applications were refused on the sole ground of Mr Smeaton's bankruptcy entry on his credit file.
- Equifax also contends that even if Ability was unable to obtain funding in July 2006 because of the bankruptcy data on Mr Smeaton's credit file, that was not the reason for its failure to obtain credit subsequently. Mr Milner submitted that Mr Smeaton accepted in cross-examination that his suggestion that that refusal was due to the bankruptcy order was pure speculation. This subject was dealt with, of necessity, very briefly in cross-examination and, in context, Mr Smeaton's apparent acceptance that his evidence that the cause of the refusal was his bankruptcy was pure speculation was a highly qualified acceptance. His evidence was unequivocal that he had had it made clear to him that Nat West was no longer prepared to consider advancing Ability a loan to enable it to participate in the SFLGS or to advance it credit because Mr Smeaton had a credit record which included an entry that had remained there for five years that he was a bankrupt. The fact that that entry had been removed following Nat West's initial enquiries did not affect its overall view as to his unsuitability since he was someone who had had that adverse credit record for so long.
- Ability's failure to make a further SFLGS application to another participating bank is, on Mr Smeaton's case, explained in this way. His life descended into a tragic mixture of homelessness, living in a car on the streets, mental breakdown, impecuniosity and a consequent inability to progress his business affairs as a direct result of the enormous shock on discovering that he had had an adverse credit record for the last five years and that the bank on which he had pinned so much hope in providing Ability with the necessary step up to obtain the SFLGS, itself an essential feature of its business plan, prevented him from taking anything other than relatively modest steps to further that plan for many months. He was taking some action, but for some time that action was the best that he could take but were not sufficient to enable him to obtain alternative sources of credit or finance.
- Conclusion. Mr Smeaton has established that Ability was unable to obtain funding on behalf of Ability Records Limited in mid-2006 or subsequently as a direct result of Equifax's breach of the data protection principles and, in particular, as a direct result of its retaining on Mr Smeaton's credit file details of his undischarged bankruptcy order between 12 March 2001 and 17 July 2006.
10. Overall Conclusion
- I answer the issues as follows:
(1) Did the Defendant breach any duty to the Claimant under the Data Protection Act 1998?
Answer: Yes
(2) Did the Defendant owe the Claimant a duty of care at common law, and, if so, what was the content of that duty?
Answer: Yes. The duty was coextensive with the Defendant's duties under the DPA.
(3) If the Defendant did owe the Claimant a duty of care, did the Defendant breach that duty?
Answer: Yes
(4) If the Defendant was in breach of any duties owed to the Claimant, did such breach or breaches cause Mr Smeaton to be unable to obtain funding on behalf of Ability Records Limited in mid-2006 or subsequently?
Answer: Yes, both in mid-2006 and subsequently.
HH Judge Anthony Thornton
Relevant provisions of the DPA
A. A. DPA
4. – The data protection principles
References in this Act to the data protection principles are to the principles set out in Part 1 of Schedule 1
Those principles are to be interpreted in accordance with Part II of Schedule 1.
…
… it shall be the duty of a data controller to comply with the data protection principles in relation to all personal data with respect to which his is the data controller."
I set out the relevant principles and the provisions relating to their interpretation with the particularly salient provisions set out in bold.
B. B. Schedules 1 and 2
SCHEDULE 1
The data protection principles
Part I The principles
1 Personal data shall be processed fairly and lawfully and, in particular, shall not be processed unless—
(a) at least one of the conditions in Schedule 2 is met,
…
2 Personal data shall be obtained only for one or more specified and lawful purposes, and shall not be further processed in any manner incompatible with that purpose or those purposes.
3 Personal data shall be adequate, relevant and not excessive in relation to the purpose or purposes for which they are processed.
4 Personal data shall be accurate and, where necessary, kept up to date.
5 Personal data processed for any purpose or purposes shall not be kept for longer than is necessary for that purpose or those purposes.
6 Personal data shall be processed in accordance with the rights of data subjects under this Act.
…
Part II Interpretation of the principles in Part I
The first principle
1(1) In determining for the purposes of the first principle whether personal data are processed fairly, regard is to be had to the method by which they are obtained, including in particular whether any person from whom they are obtained is deceived or misled as to the purpose or purposes for which they are to be processed.
(2) Subject to paragraph 2, for the purposes of the first principle data are to be treated as obtained fairly if they consist of information obtained from a person who—
(a) is authorised by or under any enactment to supply it, or
(b) is required to supply it by or under any enactment or by any convention or other instrument imposing an international obligation on the United Kingdom.
2(1) Subject to paragraph 3, for the purposes of the first principle personal data are not to be treated as processed fairly unless—
(a) in the case of data obtained from the data subject, the data controller ensures so far as practicable that the data subject has, is provided with, or has made readily available to him, the information specified in sub-paragraph (3), and
(b) in any other case, the data controller ensures so far as practicable that, before the relevant time or as soon as practicable after that time, the data subject has, is provided with, or has made readily available to him, the information specified in sub-paragraph (3).
(2) In sub-paragraph (1)(b) "the relevant time" means—
(a) the time when the data controller first processes the data, or
(b) in a case where at that time disclosure to a third party within a reasonable period is envisaged—
(i) if the data are in fact disclosed to such a person within that period, the time when the data are first disclosed,
(ii) if within that period the data controller becomes, or ought to become, aware that the data are unlikely to be disclosed to such a person within that period, the time when the data controller does become, or ought to become, so aware, or
(iii) in any other case, the end of that period.
(3) The information referred to in sub-paragraph (1) is as follows, namely—
(a) the identity of the data controller,
(b) if he has nominated a representative for the purposes of this Act, the identity of that representative,
(c) the purpose or purposes for which the data are intended to be processed, and
(d) any further information which is necessary, having regard to the specific circumstances in which the data are or are to be processed, to enable processing in respect of the data subject to be fair.
3(1) Paragraph 2(1)(b) does not apply where either of the primary conditions in sub-paragraph (2), together with such further conditions as may be prescribed by the Secretary of State by order, are met.
(2) The primary conditions referred to in sub-paragraph (1) are—
(a) that the provision of that information would involve a disproportionate effort, …
The fourth principle.
7 The fourth principle is not to be regarded as being contravened by reason of any inaccuracy in personal data which accurately record information obtained by the data controller from the data subject or a third party in a case where—.
(a) having regard to the purpose or purposes for which the data were obtained and further processed, the data controller has taken reasonable steps to ensure the accuracy of the data, and
(b) if the data subject has notified the data controller of the data subject's view that the data are inaccurate, the data indicate that fact.
…
SCHEDULE 2
Conditions relevant for purposes of the first principle: processing of any personal data
…
5 The processing is necessary—
6(1) The processing is necessary for the purposes of legitimate interests pursued by the data controller or by the third party or parties to whom the data are disclosed, except where the processing is unwarranted in any particular case by reason of prejudice to the rights and freedoms or legitimate interests of the data subject.
…"
