Russell Kelsall on the decision by the Court of Appeal to restore order in the case of Smeaton v Equifax
Data protection, and the use of databases, has always been an important part of consumer financing. Credit reference agencies (CRAs) provide a key service by collating information into one place which allows a lender to decide whether or not to lend monies. Consumers have recently challenged the way in which lenders use data, and how they report to CRAs.
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For example, consumers have challenged lenders who reported non-payment under unenforceable consumer credit or hire agreements (regulated by the Consumer Credit Act 1974) to CRAs. This led to a clear and robust judgment of Mr Justice Flaux (sitting in the High Court) in McGuffick v Royal Bank of Scotland plc [2009] EWHC 2386 (Comm). He decided there was no breach of the Data Protection Act 1998 (DPA); debts due under those unenforceable agreements were not ‘written off’ and the reporting was legitimately made under the Principles of Reciprocity.
It was therefore surprising for all lenders and CRAs to discover that His Honour Judge Thornton QC (sitting as a judge of the High Court) handed down a judgment on 11 May 2012 in Smeaton v Equifax plc [2012] EWHC 2322 (QB) deciding that CRAs were under a duty to ensure that the data it retained, and provided to lenders, was accurate and, if it was not, they would be responsible for losses resulting from the wrong information.
Fortunately, sense was restored by the Court of Appeal when it handed down judgment on 20 February 2013 in Smeaton v Equifax plc [2013] EWCA Civ 108. The end result, very sensibly, is that CRAs owe no duty of care to individuals.
The basic facts are fairly straightforward.
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By GlobalDataBetween 22 May 2002 and 17 July 2006, Equifax recorded on Mr Smeaton’s credit file that he was subject to a bankruptcy order.
This was wrong because, while Mr Smeaton was declared bankrupt on 1 March 2001, the bankruptcy order was rescinded on 22 May 2002. Mr Smeaton later applied to National Westminster Bank, in June 2006, to open an account for one of his limited companies, Ability Records Limited. The application was rejected (in part) because of Mr Smeaton’s bankruptcy, which still appeared
on his credit file.
Mr Smeaton then contacted Equifax to tell them that his bankruptcy order had been rescinded and demanded compensation of £500,000. Equifax immediately updated its records but refused to pay any compensation.
After hearing submissions, Lord Justice Tomlinson decided:
– Mr Smeaton’s credit file showed, by the time of his application to NatWest, "an unsatisfied county court judgment" and "eleven credit agreements which had gone into default";
– HHJ Thornton QC’s conclusion that any breach or breaches of duty caused Mr Smeaton loss because it stopped Ability from obtaining a loan was "simply unsustainable";
– Because Mr Smeaton’s bankruptcy order was rescinded it was not, because of the changes to the Insolvency Act 1986, automatically notified to the London Gazette but Mr Smeaton could have advertised the rescission or contacted CRAs;
– The documentation issued by the Insolvency Service and the Information Commissioner at the time of the bankruptcy order’s rescission made it clear to the "reasonably informed reader" that he might need to "seek advice on the question of whether the setting
aside of his bankruptcy order would without more necessarily be picked up by the CRAs";
– Equifax "did take steps to ensure that its bankruptcy data was accurate" because it monitored the Gazette (and manually updated its records) and, from 2008, it subscribed to the electronic data supply; and
– There was no justification for HHJ Thornton QC deciding that Equifax also owed a duty of care in negligence (as well as a duty under the DPA) because it would not be foreseeable, the relationship was not sufficiently proximate and it was not just, fair or reasonable to impose such a duty.
This is a sensible and pragmatic judgment from the Court of Appeal. It appreciates that CRAs affect all us. The way in which CRAs operate mean that information is drawn from a number of different sources.
If HHJ Thornton QC’s decision was right, it would put an unnecessary (and probably disproportionately expensive) burden on CRAs to check (and continue to check) every single piece information they receive from lenders, the Court Service and other third parties. The cost of providing the credit reference service would no doubt increase, as would the cost of credit (because lenders would need to employ teams of people to provide supporting information to CRAs).
What the Court of Appeal’s decision makes clear is that there is no duty on CRAs to ensure the accuracy of the data it retains.
This is welcome news not only for CRAs but also for those who operate (and use) other voluntary databases like HPI or even the DVLA.
Russell Kelsall is a senior associate at Squire Sanders LLP
