Conclusive evidence clause

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Any finance lawyer will be familiar with the conclusive evidence clause. These beauties are meant to support — dramatic look gopher — indemnities. There’s a wealth of snarkily-presented information in indemnities in the usual place but the key point to remember is that, a well-crafted indemnity is meant to be a pre-agreement to pay an ascertainable sum of money: both parties are meant to have a fairly clear handle on what will have to be paid out.

Of course, as we well know, most indemnities are not well-crafted, but will be hopelessly vague, woolly, all-you-can-possibly-think-of affairs — just the kind of thing that isn’t “readily ascertainable”, at least not without the need for the a full adversarial process, with a day’s cross examination from Sir Jerrold Baxter-Morley, Q.C., to thrash them out.

What to do? Light-bulb moment! Have someone issue a certificate of indebtedness! Better still, have the counterparty agree, in advance, that it will be conclusive of the amount owed! Brazen though this strategy seems, it must have worked for a time, because we now find conclusive evidence clauses a part of standard boilerplate in any kinds of financing document — even, entertainingly, those without indemnities — to the point where few people know what the provision is even for, and even fewer challenge it. Well, dear reader, now you do, and you can!

In the traditional banking world — the one where lenders are prudent community pillars, obtain only the indemnities they need and that can be justified before a jury of their peers, and borrowers understand their place in the world — this is all straightforward: A banker ought to know how much she is owed, and how much interest, and how it compounds, and ought not to be subjected to a tedious back-and-forth with a mendacious borrower trying prolong process of paying. That sort of carry-on only benefits one person, as we all know, O dear attorney.

Thus, you will see that tell-tale caveat: “in the absence of manifest error”: where the sum claimed was obvious and not really in dispute; the bank did certify it but a fly got in the typewriter or some such thing and they sent out a certificate containing obviously the wrong number. Well, clearly that’s not conclusive, right?

But, alas, we do not live in such sensible times. The banking world is populated by idiots. These days indemnities are thrown around willy-nilly in the capital markets business, to cover all kinds of stupidly indeterminate, inappropriate things. It will not shock an experienced counsel to see an indemnity claimed for “any and all losses, costs, damages, liabilities, disbursements, expenses claims of whatever kind we may experience at any time in any space-time continuum, merely as a function of drawing a breath”.

This is outrageous, but well paid members of the legal profession will defend it to the hilt, which they will then try to bury in someone’s back, in the process pinning a certificate of indebtedness between the adjacent shoulder blades.

Eventually, even those who revere correct principle over grubby pragmatism will feel cowed and will give in. Life is too short. Have your stupid conclusive evidence clause.

But, good luck enforcing it. And, really, good luck sticking in a clause saying “In the absence of manifest error, a certificate from the Lender as to any “Loss” will be conclusive evidence of the amount owing” and getting a tribunal of fact to pay it the blindest bit of attention.

See also

• Indemnity
• Manifest error
• The Well-Crafted Indemnity