Collier v P & MJ Wright (Holdings) Ltd [2007] EWCA Civ 1329

Mr Collier, jointly liable with two partners on a judgment debt, claimed a creditor had agreed to accept only his one-third share. The Court of Appeal held no binding contract existed but set aside the statutory demand, finding a triable promissory estoppel issue.

Facts

Mr Collier was in partnership with Mr Broadfoot and Mr Flute. A consent judgment dated 22 April 1999 was entered against the three partners in the sum of £46,800, to be paid by monthly instalments of £600. The partners’ liability was joint (not joint and several) because the debt was a partnership debt. The partnership dissolved in 2000 and Mr Collier arranged to pay £200 per month (his one-third share) by standing order.

Mr Collier alleged that at a meeting in late 2000, Mr Wright (on behalf of the respondent creditor, Wrights) agreed that Mr Collier should simply carry on paying his £200 per month and that Wrights would pursue Messrs Broadfoot and Flute for the balance. Mr Redfern’s evidence supported this, recalling Mr Wright saying something like ‘Don’t worry, I am happy to treat you separately’. Mr Broadfoot and Mr Flute were subsequently made bankrupt (in 2004 and 2002 respectively), and Wrights served a statutory demand on Mr Collier for the outstanding balance of £58,814.32. Mr Collier applied to set aside the statutory demand. HHJ Hodge QC dismissed the application and Mr Collier appealed.

Issues

The appeal raised three principal issues:

• The correct threshold test under Insolvency Rule 6.5(4)(b) for setting aside a statutory demand on the ground that the debt is disputed on substantial grounds.
• Whether there was a triable issue that Mr Collier and Wrights had entered into a binding contract under which Mr Collier’s liability was reduced to his one-third share (the agreement issue), in light of the rule in Pinnel’s Case and Foakes v Beer.
• Whether there was a triable issue that Wrights were precluded by promissory estoppel from pursuing Mr Collier for more than one-third of the judgment debt.

Arguments

Appellant (Mr Collier)

Mr Uff submitted that by agreeing to assume several liability for a one-third share, Mr Collier gave good consideration, because he forwent advantages of being a joint debtor (such as automatic discharge on release of a co-debtor, or discharge if he predeceased his partners). Alternatively, he relied on promissory estoppel, contending that there had been reliance through continued payments over several years, forbearance from pursuing his former partners, and from exploring bankruptcy or a composition with creditors. He argued the court should apply the lower ‘genuine triable issue’ threshold under the Insolvency Practice Direction.

Respondent (Wrights)

Mr Atkins submitted that the alleged agreement amounted at most to a promise not to sue on a joint liability, with no fresh several liability being assumed. A promise to pay part of an existing debt is not good consideration (Foakes v Beer; Re Selectmove). On estoppel, he submitted there was no detrimental reliance: Mr Collier was already obliged to make the instalment payments, there was no evidence he would have recovered anything from his partners, and no evidence of any changed position.

Judgment

The threshold test

Arden LJ declined to follow Kellar v BBR Graphic Engineers (Yorks) Ltd insofar as it suggested a lower threshold than CPR 24.2. Relying on Ashworth v Newnote Ltd, she held that there is no material difference on disputed factual issues between ‘real prospect of success’ and ‘genuine triable issue’. A mere assertion is not enough; there must be some tangible evidence, such as a witness statement or document, and the requirements of ‘substantiality’ and ‘genuineness’ in the rule and the Practice Direction would not be met by showing the dispute is merely arguable.

The agreement issue

The Court held there was no triable issue that a binding contract had been made. The alleged agreement amounted at most to a collateral promise by Wrights not to sue Mr Collier if he paid his one-third share. His joint liability remained unaffected, as the parties did not intend to affect the position of the other partners. A promise to pay part of an existing debt is not good consideration, applying the rule in Pinnel’s Case as confirmed in Foakes v Beer and Re Selectmove. The incidental legal consequences of a release of joint liability (such as loss of discharge on the death of a co-debtor) flowed from the creditor’s offer rather than constituting consideration moving from Mr Collier. Longmore LJ and Mummery LJ agreed.

The promissory estoppel issue

Arden LJ, citing Central London Property Trust v High Trees House Ltd, Hughes v Metropolitan Railway, Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd, and D & C Builders v Rees, held that there was a triable issue as to promissory estoppel. Relying particularly on Lord Denning MR’s statement in D & C Builders:

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.

Arden LJ set out the following proposition: if (1) a debtor offers to pay part only of the amount owed; (2) the creditor voluntarily accepts that offer; and (3) in reliance on acceptance the debtor pays that part, the creditor will be bound by promissory estoppel to accept that sum in full and final satisfaction, with the right to the balance extinguished.

Longmore LJ agreed with reservations. He doubted whether the oral promise amounted to a permanent surrender of rights rather than a mere suspension, and doubted whether there was a ‘true accord’. He also noted that the suggested reliance (forbearance from pursuing co-debtors) was not shown to have caused any real prejudice given their subsequent bankruptcies. Nevertheless, he agreed it was arguable that the estoppel defence might succeed and that the statutory demand should be set aside. Mummery LJ agreed there was a real prospect of success on the estoppel issue.

Disposition

The appeal was allowed and the statutory demand set aside.

Implications

The decision is significant for its restatement, in the Court of Appeal, of the interaction between the rule in Pinnel’s Case/Foakes v Beer and the doctrine of promissory estoppel. Arden LJ’s formulation indicates that where a debtor pays part of a debt in reliance on a creditor’s voluntary acceptance of that part in satisfaction, promissory estoppel may not merely suspend but extinguish the creditor’s right to the balance. The judgment accepts that this largely achieves in practice the 1937 Law Revision Committee’s recommendation to reverse the rule in Pinnel’s Case.

However, the decision has limits. First, the consideration point was decided against the debtor: the Court confirmed that a bare agreement to pay part of an existing debt remains unenforceable for want of consideration. Secondly, the promissory estoppel finding was only that there was a triable issue; the defence was not finally established. Thirdly, Longmore LJ’s concurring judgment emphasises that promises to forgo judgment rights permanently should not be benevolently construed, and that the estoppel requires a true accord and meaningful reliance.

The case also clarifies, at appellate level, that the ‘genuine triable issue’ threshold for setting aside a statutory demand is not materially different from the ‘real prospect of success’ test under CPR 24, and that some tangible evidence is required. The decision is therefore of practical importance to insolvency practitioners, creditors contemplating bankruptcy petitions, and debtors seeking to resist them, as well as to contract lawyers advising on compromises of debts.

Verdict: Appeal allowed; the statutory demand served by P & M. J. Wright (Holdings) Ltd on Mr Collier was set aside on the basis that there was a triable issue as to promissory estoppel, although Mr Collier’s argument that a binding contract had been formed was rejected.

Source: Collier v P & MJ Wright (Holdings) Ltd [2007] EWCA Civ 1329