Professional Documents
Culture Documents
(2007) EWCA Civ 1329
(2007) EWCA Civ 1329
Date: 14/12/2007
Before :
COLLIER Appellant
- and -
P & M. J. WRIGHT (HOLDINGS) LTD Respondent
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Mr David Uff (instructed by Messrs Betesh Partnership Solicitors) for the Appellant
Mr Siward Atkins (instructed by Messrs Christine Sharpe & Co.) for the Respondent
2. The issues before the judge involved the application of a rule of English contract law,
namely the rule in Pinnel’s case (1603) 5 Coke’s Rep 117a. This rule is based on the dictum
of Sir Edward Coke in that case that “payment of a lesser sum on the [due] day in the
satisfaction of a greater cannot be any satisfaction of the whole.” In the 19th century, the
House of Lords, observing this dictum was long-standing, held that consideration was
necessary for the discharge of the debtor’s liability (Foakes v Beer (1883-4) LR 9 App Cas
605). That meant that a debtor who was obliged to pay £100 could not discharge it by
paying £50 even if the effect of the parties’ agreement was that the creditor should accept
that sum in full satisfaction. The link between the rule in Pinnel's case and the doctrine of
consideration was first established by Foakes v Beer.
3. Needless to say, the rule in Pinnel’s case has proved very controversial. The effect of the rule
is that it is not enough to give a creditor some only of the money to which he is already
entitled. While that may sound like a good result in terms of creditor protection, the
consequence is also that, where a compromise has been made, the expectations of the parties
are frustrated. Thus, the rule makes it difficult to enter into compromises of claims, which it
can often be commercially beneficial for both parties to do. The courts have, however,
developed a number of exceptions to the rule. The first exception was created by Coke
himself. He recognised that, although payment of a lesser sum could not discharge a greater
debt, "the gift of a horse, hawk, robe etc in satisfaction is good". Denning J (as he then was)
was the originator of another doctrine which was used to alleviate the effects of the rule in
Pinnel's case, namely the doctrine of promissory estoppel. Mr Collier also relies on the
doctrine and I shall have to explain it in more detail below. Suffice it to say at this stage that
where there was a compromise agreement the doctrine of promissory estoppel meant that the
agreement was binding if it was inequitable for the creditor to enforce his strict legal rights.
The Court of Appeal has also held that the rule does not apply where the debt arises from the
provision of services: Williams v Roffey [1991] 1 QB 1. We are not concerned with this
exception because this court, in Re Selectmove Ltd [1995] 1 WLR 474, considered Williams
but confirmed that a promise to pay part of the money to which the creditor is already
entitled is not good consideration. The court applied Foakes v Beer and held that a debtor's
promise to pay the sum due from him by instalments without interest did not prevent the
creditor from suing for the interest. There may be other cases where the rule is in effect
circumvented.
4. On this appeal, Mr David Uff, for Mr Collier, seeks to develop a further exception to the
rule. He submits that where a debtor agrees to pay part of a joint debt, and to become
severally liable for that part, the parties have necessarily entered into a binding agreement
for good consideration that the debtor's liability for the rest of the joint debt is discharged. I
shall have to explain this in greater detail below.
5. So this is another case in which a challenge is made to the rule in Pinnel’s case. It does not
apply in Scots law, which has no requirement for consideration. In 1937, the Law Revision
Committee, chaired by Lord Wright MR, recommended the reversal of the rule in Pinnel’s
case by statute but its recommendation has not been implemented (Sixth Interim Report on
The Statute of Frauds and the Doctrine of Consideration, Cmnd 5449, paras 33 to 35). The
Committee said:
“34. In Foakes v. Beer Lord Blackburn was evidently disposed to
hold that it was still open to the House of Lords to reconsider the
rule based on the dictum, but in deference to his colleagues who
were of a different opinion he did not press his views. In a few
words (at p. 622) he summed up what appears to us to be a
powerful argument for the abolition of the rule. He said:
35. In our opinion this view is as valid as it was fifty years ago,
and we have no hesitation in recommending that legislation
should be passed to give effect to it. This legislation would have
the additional value of removing the logical difficulty involved in
finding consideration for the creditors’ promises in a composition
with creditors when not under seal. It would be possible to enact
only that actual payment of the lesser sum should discharge the
obligation to pay the greater, but we consider that it is more
logical and more convenient to recommend that the greater
obligation can be discharged either by a promise to pay a lesser
sum or by actual payment of it, but that if the new agreement is
not performed then the original obligation shall revive.”
6. The current edition of Treitel on The Law of Contract (12 ed, 2007, Edwin Peel, p136) states
that the law would be more consistent, and satisfactory in its practical operation, if it treated
benefits obtained by part payment in the same way as “the gift of a horse, hawk, robe etc”.
The text points out that a remedy might lie in duress if a creditor was suborned into agreeing
to accept a smaller amount than that to which he was entitled. However, in the light of
Foakes v Beer, the point made in Treitel is not open in this court. What we have to consider
is whether it is open to this court to carve out yet another exception or use an existing one.
The procedural background
7. Wrights’ statutory demand is dated 31 May 2006 and is for the sum of £58,814.32. This sum
is said to be a commercial loan culminating in a consent judgment dated 22 April 1999 in the
Liverpool County Court in the sum of £46,800 and entered against Mr Collier and against
two co-defendants, Alexander Broadfoot and Vincent Flute, less instalments paid in
accordance with the terms of the consent order but with the addition of interest at 8%. We
have not been concerned with the interest claim. Interest was not specified in the consent
order. Counsel accept that any dispute as to interest would be a dispute as to part only of the
debt on which the demand is based and would not bring that amount down below the
minimum amount on which a bankruptcy petition may be based. Because there is a
judgment, there can be no dispute about the fact that the sum of £46,800 was due as at 22
April 1999. It is common ground that the liability of Mr Collier, Mr Broadfoot and Mr Flute
is joint, not joint and several. This is no doubt due to the fact that the defendants were
partners and thus jointly liable for the firm’s debts.
8. On 27 June 2006, Mr Collier applied to set aside the statutory demand. The procedure for
setting aside a statutory demand is governed by the Insolvency Rules (SI 1986/1925).
Insolvency Rule 6.4 permits a debtor to make an application to set aside a statutory demand
within 18 days of its service on him. The Insolvency Rules require this application to be
supported by an affidavit stating (among other things) the grounds on which the debtor
claims that it should be set aside (Insolvency Rule 6.4(4)). By virtue of Insolvency Rule
6.5(4) the court may grant the application on certain grounds. Reliance is placed on (b):
“the debt is disputed on grounds which appear to the court to be
substantial.”
The wording “a genuine triable issue” appears in the relevant provision, para.12.4, of the
Practice Direction on Insolvency Proceedings, which applies to proceedings in the High
Court and the County Court. This is the applicable test where there is a dispute as to a debt
which is not subject to a judgment. I would treat the debt here as not “subject” to a
judgment because in the light of the dispute which I have yet to describe the debt is not now
solely subject to a judgment.
9. It is common ground between the parties that Mr Collier has the burden of proof on this
application. It is said that this test is lower than the real prospect of success test in CPR 24.
Whether that is correct is one of the matters I shall consider after I have set out the relevant
part of the judgment of the judge.
The evidence
10. The consent order also provided for the three partners to pay the judgment debt by monthly
instalments of £600 commencing on 30 May 1999. (The order said nothing about interest.)
11. In his affidavit of 26 June 2006, Mr Collier explained that he had been in partnership with
Mr Broadfoot and Mr Flute in property development and that the partners had borrowed
money from Wrights. He stated that the partners paid the first few months’ instalments (I
assume, by each partner paying £200 per week) but in the next three months only £400 per
month was paid. These payments were made out of a joint bank account in the three names.
The partnership came to an end in 2000 and Mr Collier made arrangements to pay his share
each month by standing order over five years. Then Mr Collier paid monthly instalments of
£200 for five years from May 1999. These payments were interrupted when he changed his
bank account but in due course he paid the amount needed to make his payments one-third
of the total. In total, he paid £15,600. But he did nothing more than he was bound to do
under the terms of the consent judgment.
12. The critical event is a meeting between Mr Collier and Mr Wright at the offices of his
employer, Mr James Redfern, at the end of 2000. Although the judge refers in his judgment
to two witness statements by Mr Collier, we have seen only one. In it, Mr Collier states that
Mr Wright told him that Mr Broadfoot and Mr Flute had not been paying their £200 share
per month. This paragraph then continues as follows:
“I asked Mr Wright what he wanted me to do and he said that it
was his responsibility to chase Messrs Broadfoot and Flute and
that I should simply carry on paying my £200 per month (which I
did for the next four years and more).”
13. This representation is said to have resulted in a binding agreement, to which I refer below
as “the agreement”. There is no contemporary written evidence of the agreement.
16. The last sentence of the extract just cited from Mr Redfern’s witness statement appears to be
a reference to a letter, dated 24 August 2000, which refers to an agreement with the three
partners. That letter takes the matter no further. It is unnecessary to set out Mr Wright’s
evidence since the judge had to work on the basis that the allegations made by Mr Collier
could be established at trial in the absence of incontrovertible evidence to the contrary. He
denies that he said anything that would have caused the joint and several debt to become a
several debt.
17. Because Mr Broadfoot and Mr Flute became bankrupt in 2004 and 2002 respectively, Mr
Wright looks to Mr Collier for payment of the whole of the balance of the judgment debt.
Mr Collier’s grounds for his application to set aside the statutory demand
18. Mr Collier relies on two grounds for saying that the debt, which is the basis of the statutory
demand, is disputed on substantial grounds. First, he contends that a triable issue arises from
the agreement which he made with Mr Wright. He contends that this was a binding
agreement because, by agreeing to accept sole responsibility for a one-third share, he gave
consideration in law for the promise of Mr Wright (on behalf of Wrights) to accept him as a
debtor only for a one-third share of the judgment debt. I will call this "the agreement issue".
Mr Collier's second ground is based on promissory estoppel. He says that Wrights are
estopped from proceeding against him from more than a one-third of the £46,800, and that
accordingly he has no further obligation to them. I will call this "the promissory estoppel
issue”. The judge ruled against Mr Collier on both issues as appears from the extract of his
judgment set out in the next section.
20. At [25] of his judgment, set out above, the judge correctly held that, sitting in the county
court jurisdiction, he was bound by a decision of the High Court as to what an applicant
under Insolvency Rule 6.5(4) must show. He was therefore bound to follow the decision of
Mr Roger Kaye QC, sitting as a deputy judge of the Chancery Division, in Kellar v BBR
Graphic Engineers (Yorks) Limited [2001] 1 All ER (D) 416. In that case the issue was
whether the district judge had applied the right test on an application to set aside a statutory
demand because the conclusions of the district judge referred to a real prospect of success,
the test used in CPR 24.2, rather than the test of genuine triable issue. Mr Roger Kaye QC
noted that the Insolvency Rules did not use the test of real prospect of success. He held:
“It seems to me therefore to have been plainly intended that what
is generally thought to have been a lower threshold than is now
applicable to applications and Part 24 of the Civil Procedure Rule
is to continue to apply to applications to set aside a statutory
demand. This is no doubt because of the serious consequences
that a statutory demand which is not set aside must have. It
almost invariably and inevitably leads to the presentation of a
bankruptcy petition and a bankruptcy order if the statutory
demand is not set aside.”
21. Mr Roger Kaye QC does not explain in what way the test of real prospect of success would
here differ from that of genuine triable issue. I note that, in the recent case of Ashworth v
Newnote Ltd [2007] EWCA Civ 793 at [33], Lawrence Collins LJ, with whom Buxton LJ
agreed, regarded the debate as to a difference between "genuine triable issue" and "real
prospect of success" as involving "a sterile and largely verbal question", and that there is no
practical difference between the two. I do not consider that the passage that I have cited
above from the judgment of Mr Roger Kaye QC should be followed. I accept that the
refusal to set aside a statutory demand is a serious step, but so is the grant of summary
judgment. The court cannot grant summary judgment under CPR 24.2 unless it is satisfied
that the party against whom the order is to be made has no real prospect of success. To have
a real prospect of success a party must have a case which is more than merely arguable (see
The Saudi Eagle [1986] 2 Lloyd’s Rep 221). If the Kellar test were applicable, the court
would have to apply a lower threshold than real prospect of success, and that would mean
that it would be enough on an application to set aside a statutory demand if the dispute were
merely arguable. However, that approach would give no real weight to the word
“substantial” in the Insolvency Rule; nor would it give any meaning to the word “genuine”
in the Practice Direction. In my judgment, the requirements of substantiality or (if different)
genuineness would not be met simply by showing that the dispute is arguable. There has to
be something to suggest that the assertion is sustainable. The best evidence would be
incontrovertible evidence to support the applicant’s case, but this is rarely available. It
would in general be enough if there were some evidence to support the applicant’s version of
the facts, such as a witness statement or a document, although it would be open to the court
to reject that evidence if it was inherently implausible or if it was contradicted, or was not
supported, by contemporaneous documentation (see also per as Lawrence Collins LJ states
in Ashworth at [34]). But a mere assertion by the applicant that something had been said or
happened would not generally be enough if those words or events were in dispute and
material to the issue between the parties. There is in the result no material difference on
disputed factual issues between real prospect of success and genuine triable issue.
22. The judge found that there was a triable dispute on the facts but held that, even if the facts
alleged were established, there was in law no substantial dispute. The triable issue identified
by the judge on the facts was whether Mr Wright entered into a binding agreement with Mr
Collier that, if Mr Collier paid one-third share of the joint judgment debt, he would not be
liable for the balance. The judge found that this was a triable issue because of Mr Collier’s
evidence. The judge did not consider that the triable issue emerged from Mr Wright's
evidence (Judgment, [24]). In my judgment, this is not correct because Mr Collier in his
witness statement indicated that Mr Wright had given him an assurance that if he continued
paying his share in monthly instalments he would look to Messrs Broadfoot and Flute for
the balance. Mr Redfern’s evidence confirms that this was the alleged agreement.
23. What then was the effect of the alleged agreement? It was an alleged agreement that, if Mr
Collier paid a one-third share or (which is not the same thing but which is not materially
different for the purpose of this case) agreed to pay the balance of his one-third share,
Wrights would not pursue him for any part of the balance of the judgment debt. Wrights’
promise on this basis is easy to see. But on the face of it Mr Collier’s promise is only a
promise to pay part of what he already owed. This is not good consideration: see the rule in
Pinnel’s case as explained in Foakes v Beer.
24. Mr Uff seeks to avoid the problem posed by the rule in Pinnel’s case pointing out that, under
the judgment debt, Mr Collier was a joint debtor for 100% of the judgment debt whereas
under his agreement with Mr Wright he was solely and severally liable for one-third of it.
He submits that in consequence Mr Collier forwent the advantages of being a joint debtor.
He gave up the possibility that Mr Wright would release Mr Broadfoot or Mr Flute (without
reserving Wrights’ position against Mr Collier), which would by law discharge Mr Collier
automatically. He also gave up the possibility that he would predecease his partners and that
his liability would then pass to them.
25. Mr Siward Atkins, for Wrights, relies on the following passage from Chitty on Contracts,
vol 1 at 17-018:
“The courts generally construe a release as a covenant not to sue
if it contains an indication of intention that the other debtors are
not to be discharged. Moreover, even an accord and satisfaction
with one joint or joint and several debtor will not discharge the
others if the agreement, expressly or impliedly, provides that the
creditor’s rights against them shall be preserved.”
26. In this case, submits Mr Atkins, taking the alleged agreement at its highest, there was
simply a promise not to sue Mr Collier on his joint liability. The parties clearly intended that
Wrights should be free to pursue Messrs. Broadfoot and Flute. Accordingly, Mr Collier did
not assume any fresh several liability. An agreement to pay part of a debt is not valid
consideration and there is no evidence to support any other consideration. He also submits
that the judge correctly held at the end of [26] of his judgment that no consideration had
moved from Mr Collier.
27. I do not consider that there is a genuine triable issue that the alleged agreement was a
binding one. To be binding, Mr Collier had to provide consideration for Wrights’ promise. I
reach this conclusion for four reasons:
(i) It is common ground that neither Mr Wright nor Mr Collier intended to affect the
position of the other partners, and indeed Mr Wright proceeded to take steps against
them. Accordingly, as Mr Atkins submits, the most to which the agreement could
amount is a promise by Wrights not to sue Mr Collier if he paid one-third of the
joint debt. That was a new collateral agreement added to the existing arrangements.
His joint liability was unaffected. An agreement to pay part of an existing debt is
not on the authorities sufficient to constitute consideration in law.
(ii) Mr Atkins accepts that, if a promise had been given, for example that Mr Collier
would not petition for his own bankruptcy, there would have been consideration.
However, there is no evidence to this effect.
29. Mr Uff also relies on the doctrine of promissory estoppel, which the common law and in
particular Lord Denning, both at first instance and in this court, developed to meet the
hardship created by the rule in Pinnel's case. The principal authority is Central London
Property Trust v. High Trees House Ltd [1947] 1 KB 130. This case concerns a rent
reduction given by concession during the Second World War. After that war, the landlord
sought to recover the difference between the reserved rent and the concessionary rent for the
period following the war. Denning J held that the agreement to reduce the rent was intended
to apply only while the war lasted. It was not intended to run for the full term of the lease.
Accordingly the landlord could recover the full rent for the post-war period.
30. Denning J went on to hold (obiter) that the landlord was bound by the earlier agreement as a
result of what we now call promissory estoppel: the landlord had made a representation on
which the tenants relied and it would be inequitable for the landlord to be allowed to resile
from his promise. Denning J relied on Hughes v Metropolitan Railway (1887) 2 App Cas
439. In that case, a landlord gave his tenant six months’ notice to repair the premises. The
lease could be forfeited if the tenant failed to comply. During the six months following
service of the notice, the parties entered into negotiations for the landlord to buy the lease
and with his concurrence no repairs were done during that period. When the negotiations
failed, the landlord claimed to treat the lease for forfeit on the expiry of six months from the
original notice. The House of Lords held that the tenant was entitled to relief in equity
against forfeiture, and that the six months allowed for repair should run from the date of the
failure of the negotiations. The landlord had waived his right to strict performance.
Denning J observed that the principle in Hughes had not been considered in Foakes v Beer.
In that case, the parties’ agreement for the giving of time was contained in a written
agreement and there was no suggestion as to any representation by the creditor. The crucial
element in the Hughes case was that the tenant had been induced to act on the basis of a
representation by the landlord.
31. The doctrine of promissory estoppel has been approved and developed in later cases. In Tool
Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd [1955] 1 WLR 761 the House of
Lords (per Viscount Simmonds, Lord Tucker and Lord Cohen) accepted in principle that
Hughes v Metropolitan Railway could apply to a reduction by concession in payments due to
a creditor and held that the concession could be terminated by giving reasonable notice. The
doctrine of promissory estoppel only applies when it is inequitable for the creditor (or other
representor) to insist on his full rights: see D & C Builders v Rees [1966] 2 QB 617.
32. Mr Uff accepts that there must be reliance on the promise but submits that there does not
have to be detriment. In this regard he relies on the following passage from Chitty at 3-136:
“Inequitable. By making the part payment, the debtor acts in
reliance on the creditor’s promise, and so makes it prima facie
“inequitable” for the creditor peremptorily to go back on his
promise. But other circumstances may lead to the conclusion that
it would not be “inequitable” for the creditor to reassert his claim
for the full amount: this would, for example, be in the position
where the debtor had failed to perform his promise to pay the
smaller amount.”
33. He also relies on the following passage from the judgment of Lord Denning MR in D & C
Builders v Rees, with which Dankwerts LJ agreed:
“This principle [the principle of promissory estoppel] has been
applied to cases where a creditor agrees to accept a lesser sum in
discharge of a greater. So much so that we can now say that,
when a creditor and a debtor enter upon a course of negotiation,
which leads the debtor to suppose that, on payment of the lesser
sum, the creditor will not enforce payment of the balance, and on
the faith thereof the debtor pays the lesser sum and the creditor
accepts it as satisfaction: then the creditor will not be allowed to
enforce payment of the balance when it would be inequitable to
do so. This was well illustrated during the last war. Tenants went
away to escape the bombs and left their houses unoccupied. The
landlords accepted a reduced rent for the time they were empty.
It was held that the landlords could not afterwards turn round and
sue for the balance, see Central London Property Trust Ltd. v.
High Trees House Ltd. This caused at the time some eyebrows to
be raised in high places. But they have been lowered since. The
solution was so obviously just that no one could well gainsay it.
34. Mr Uff accepts that the doctrine is generally suspensory because the courts do the minimum
necessary to satisfy the equity. However, he submits that the requirement of detriment, and
perhaps other requirements of the doctrine, have to be approached as part of a broader
enquiry as to whether repudiation of an assurance is or is not unconscionable in all the
circumstances (see generally per Robert Walker LJ (as he then was) in Gillett v Holt [2001]
Ch 210 at 232D). Here, he submits, there is a triable issue as to the basic question of
unfairness. There had been part payments over a number of years and the lapse of 5 1/2
years between promise and repudiation. The part payments were maintained over a number
of years. By inference, Mr Collier conducted his affairs on the premise that his obligation
was a several obligation and undertook new commitments based on the belief that he had so
conducted his finances as to enable those payments and no more. Mr Uff further submits
that Mr Collier did not take steps he would otherwise have taken, including on the evidence
considering bankruptcy or composition with his creditors or pursuing or pressing the joint
debtors to contribute. In addition, by each payment he would have been misled into
acknowledging the joint debt for the purposes of limitation.
35. Mr Atkins submits that the requirements for promissory estoppel are set out in the following
passage from Chitty at 3-086:
“Requirements. For the equitable doctrine to operate there must
be a legal relationship giving rise to rights and duties between the
parties; a promise or a representation by one party that he will not
enforce against the other his strict legal rights arising out of that
relationship; an intention on the part of the former party that the
latter will rely on the representation; and such reliance by the
latter party. Even if these requirements are satisfied, the
operation of the doctrine may be excluded if it is, nevertheless,
not “inequitable” for the first party to go back on his promise.
The doctrine most commonly applies to promises not to enforce
contractual rights, but it also extends to certain other
relationships. These points will be discussed in the following
paragraphs.”
36. He further submits that Mr Collier must raise some factor which would make it inequitable
for Mr Wright now to resile from the alleged assurance in the agreement. On his
submissions, the matters relied upon by Mr Collier are misconceived or totally unsupported
by evidence. He submits that the mere lapse of time cannot be enough. He further submits
that it is not enough that Mr Collier conducted his affairs on the premise that his obligation
was a several obligation. In any event there is no agreement as to that. He has to show
detrimental reliance. The assumption of a several debt in place of a joint one cannot be a
detriment but only a benefit. He further submits that it is not enough for Mr Collier to say
that he maintained the agreed payments because that of itself does not suggest any prejudice.
He further submits that there is no evidence that Mr Collier would have entered bankruptcy
or proposed a compromise with his creditors or an individual voluntary arrangement. The
evidence of Mr Redfern was that Mr Collier did not want to go into bankruptcy. Likewise,
submits Mr Atkins, there is no evidence that Mr Collier would have been able to recover
anything from his partners. In 2000 Mr Collier could not have been misled into making
instalment payments. He was always liable to make those payments. I note that there is no
evidence that Mr Collier's position now is in any material respect different from that
immediately before the agreement was made. For instance, there is no evidence that he
entered into any business venture or made any substantial investment on the strength of the
agreement. Nor is there any evidence that he could not raise the money now to meet
Wrights’ claim. Mr Collier has had plenty of time to produce this evidence, since service of
the statutory demand on 31 May 2007.
37. I now turn to my conclusions. Mr Collier has to show that it is inequitable for Wrights to
resile from its alleged promise: see the Tool Metal case. The effect of promissory estoppel is
usually suspensory only, but, if the effect of resiling is sufficiently inequitable, a debtor may
be able to show that the right to recover the debt is not merely postponed but extinguished:
see the High Trees case and the Tool Metal case with respect to the wartime payments.
38. In this case, the burden was on Mr Collier to show that there was a genuine triable issue that
it would be inequitable for Wrights now to insist on payment. He does not have to prove his
case at this stage. On the other hand, as I have said, it is not enough for a debtor merely to
assert that he thinks that he has a defence. He has to produce some tangible evidence in
support, though it need not be all his evidence that he would adduce if there were a trial, nor
even need he raise all the possible defences open to him. What matters therefore is whether
Mr Collier has adduced enough to support his case.
39. The mere fact that the time had elapsed would not be enough of itself to give rise to
promissory estoppel. Mr Atkins submits that the payment by Mr Collier of his instalments
would not be enough because he was already bound to make those payments. Mr Collier’s
case, however, is that he made the payments on the faith of the agreement he had made with
Mr Wright. He contends that there is a triable issue as to whether there has been an accord
and satisfaction since he has now paid his share of the judgment and (if he can prove that the
alleged agreement was made) that Wrights voluntarily agreed to accept that sum. It follows
from the judgment of Lord Denning MR in D & C Builders which I have already set out that
that is enough to make it inequitable for Wrights in those circumstances to pursue him for
the balance because Lord Denning held:
“Where there has been a true accord, under which the creditor
voluntarily agrees to accept a lesser sum in satisfaction, and the
debtor acts upon that accord by paying the lesser sum and the
creditor accepts it, then it is inequitable for the creditor afterwards
to insist on the balance.”
40. The passage from Chitty quoted at [32] above reflects this part of Lord Denning’s judgment.
In all the circumstances, Mr Collier has in my judgment raised a triable issue as to
promissory estoppel.
42. The facts of this case demonstrate that, if (1) a debtor offers to pay part only of the amount
he owes; (2) the creditor voluntarily accepts that offer, and (3) in reliance on the creditor’s
acceptance the debtor pays that part of the amount he owes in full, the creditor will, by virtue
of the doctrine of promissory estoppel, be bound to accept that sum in full and final
satisfaction of the whole debt. For him to resile will of itself be inequitable. In addition, in
these circumstances, the promissory estoppel has the effect of extinguishing the creditor's
right to the balance of the debt. This part of our law originated in the brilliant obiter dictum
of Denning J, as he was, in the High Trees case. To a significant degree it achieves in
practical terms the recommendation of the Law Revision Committee chaired by Lord Wright
MR in 1937.
Disposition
43. For the above reasons, I allow this appeal.
Lord Justice Longmore:
44. I agree with my Lady on the first part of the case, namely that the agreement made between
Mr Collier and Mr Wright was merely to accept a lesser sum from Mr Collier than that
which was due and that that cannot be a binding agreement in law since it has no
consideration to support it. I have found the promissory estoppel point more difficult.
45. The first question is: what was the oral promise or representation made by Mr Wright to Mr
Collier? Mr Collier says that Mr Wright’s promise was that if Mr Collier continued to pay
£200 per month the company would look to Mr Broadfoot and Mr Flute for their share and
not to Mr Collier. I agree that it is arguable (just) that that constitutes agreement or
representation by Mr Wright never to sue Mr Collier for the full judgment sum. It is also
arguable that it is no more than a promise that the Company will not look to Mr Collier
while he continues to pay his share. One would expect an agreement permanently to forgo
one’s rights (especially rights founded on a judgment) to be much clearer than the agreement
evidenced in this case. The fact that it is impossible to see any benefit to Mr Wright, or
detriment to Mr Collier, makes it all the more difficult to construe the agreement as a
permanent surrender of Mr Wright’s company’s right to sue for the balance.
46. The second question is whether, even if the promise or representation is to be regarded on a
permanent surrender of the company’s rights, Mr Collier has relied on it in any meaningful
way. The judge could find no evidence that he had. The suggested reliance is that, but for
the agreement, Mr Collier would (or might) have pursued his co-debtors. But, as the judge
pointed out, there is no evidence that had he done so at the time when the promise or
representation was being made to him, he would have been in a better position to do so than
when the promise was revoked (or, as it might be, when the promise expired). Mr Flute
became bankrupt in 2002 and Mr Broadfoot in 2004. The only realistic inference is that if
Mr Collier had taken any action against them in 2001, they would only have become
bankrupt earlier.
47. Nevertheless, as my Lady points out, it seems that on the authority of D & C Builders v Rees
[1966] 2 QB 617 it can be a sufficient reliance for the purpose of promissory estoppel if a
lesser payment is made as agreed. That does, however, require there to be an accord. No
sufficient accord was proved in D & C Builders itself since the owner had taken advantage
of the builder’s desperate need for money. For the reasons I have given, I doubt if there was
any true accord in this case because the true construction of the promise or representation
may well be that there was only an agreement to suspend the exercise of the creditor’s rights,
not to forgo them permanently.
48. There is then a third question, namely whether it would be inequitable for the company to
resile from its promise. That cannot be inquired into on this appeal, but I agree that it is
arguable that it would be inequitable. There might, however, be much to be said on the other
side. If, as my Lady puts it, the “brilliant obiter dictum” of Denning J in the High Trees case
of 1947 did indeed substantially achieve in practical terms the recommendation of the Law
Revision Committee chaired by Lord Wright in 1937, it is perhaps all the more important
that agreements which are said to forgo a creditor’s rights on a permanent basis should not
be too benevolently construed.
49. I do, however, agree with my Lady that it is arguable that Mr Collier’s promissory estoppel
defence might succeed if there were to be a trial and that the current statutory demand
should therefore be set aside. I agree the appeal should be allowed.