conclusive evidence clause (and manifest errors)

Conclusive evidence clauses provide that a determination of an amount payable by a debtor is a final determination of the sum payable.

The contractual obligation to make the calculation usually lies with the paying party. They’re most often used in loan agreements, contracts of guarantee, factoring agreements and construction contracts.

These clauses sidestep extensive investigation of outstanding debts and having to trawl through financial records to find errors in calculations.

In more sophisticated versions, a certificate produced by one party or agent for the party, and served on the other. Again, the amount due to be paid will be stated to be conclusive evidence of that amount to be paid.

 

Approach of Courts

Courts tend not to interfere with the legal effect of clauses such as these. Court support these sorts of clauses because they avoid a detailed investigation and reconciliation process at trial - and all the expense it causes to the parties litigating and the court's time. Clauses such as these also narrow the scope of potential disputes.

The case law says that courts are prevented from determining the true amount of any monies due to be paid under the Agreement, in the absence of manifest error. The reference to “manifest error” is to allow a comeback if there is a material mistake in the calculations.

What is manifest error?

There are 3 steps to determine with a manifest error exists:

1. Ascertain what it is that was contractually agreed to be paid
2. Ascertain the scope of the power to make a decision which is conclusive evidence.
   For example, there can't be conclusive evidence of all sums due and payable under a contract, where the power to conclusively determine a sum is limited to only part of the contractual sums payable.
3. Was there a manifest error?
4. A manifest error will exist where:
   1. an error exists which " is obvious or easily demonstrable without extensive investigation"
   2. fraud (such as fraudulent misrepresentation) has tainted the calculations or the background to the calculations 
   3. there is a mistake on the face of the calculations. 

Errors should be obvious or readily demonstrated without extensive investigation. Extensive investigation of each outstanding debt is precisely what the conclusive evidence clause is designed to prevent. And the parties agreed to it: so courts are unlikely to intervene without good cause. 

Note though, that calculations may be made at one moment in time based on a set of facts which the receiving party can’t verify.

There's no reason in principle why the verification (and detection of a manifest error) cannot be conducted by the prejudiced party after subsequent events take place that puts them in a position to verify the numbers.

In the end, there needs to be parity between what the contract says, and the amount conclusively determined.

Legally Enforceable Assessments

Provided that the calculation does not contain manifest error or is otherwise tainted, the determination comes up as being legally enforceable.

Any formalities required by the contract also need to be complied with, such as:

• format of any required notice
• service of a notice of the decision or certificate

There may be others in the contract.

Example: Conclusive Evidence clause

Any decision made by the [Customer / Creditor] in respect of the Supplier’s entitlement to payment under this agreement or upon any calculation by the [Customer / Creditor] of sums due and payable under the payment clauses shall, save for manifest error, be final,  conclusive and binding.

Related: Boilerplate Clauses