Collier v P & M J Wright (Holdings) Ltd

This is an appeal from the order dated 18th April 2007 of HHJ Hodge QC, sitting in Manchester District Registry. By his order, the judge dismissed an application by the appellant, Mr David Anthony Collier, to set aside a statutory demand served on him by the respondent P. & M. J. Wright (Holdings) Ltd ("Wrights"). He contended that he was not liable to pay the amount stated in the statutory demand, which was the balance of a judgment debt obtained against three partners, of whom he was one. He relied on a compromise agreement he contended that he had made with Wrights that his liability would be limited to a one-third share of the judgment debt.

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.

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.

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.

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:

“What principally weighs with me in thinking that Lord Coke made a mistake of fact is my conviction that all men of business, whether merchants or tradesmen, do every day recognize and act on the ground that prompt payment of a part of their demand may be more beneficial to them than it would be to insist on their rights and enforce payment of the whole. Even where the debtor is perfectly solvent, and sure to pay at last, this often is so. Where the credit of the debtor is doubtful it must be more so.”

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.”

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.

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.

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.

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 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.)

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.

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).”

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.

Mr Collier continued:

“The next communication I had with Mr Wright was service of the statutory demand five years later… I cannot now chase Messrs Flute or Broadfoot for any contribution (other than in their bankruptcies which appear to have taken place in 2002 or 2004) as it seems highly unlikely that there will be any funds for unsecured creditors. Had Mr Wright not reassured me as to my position, namely that I should continue paying my share in monthly instalments and that he would look to Messrs Broadfoot and Flute for the balance in respect of their share, I might well have been able, given that those gentlemen were my former business partners, to have reached some accommodation with them in the two years between my conversation with Mr Wright and the first of the bankruptcies. As it is now, that opportunity is lost to me.”

Mr Redfern gave evidence on behalf of Mr Collier. He said:

“…I was present at the meeting to which Mr. Collier refers and can recall that Mr. Collier made it clear to Mr. Wright that if the full debt was pursued against him he would be likely to go bankrupt and that Mr. Wright would not therefore receive any payment at all. Mr. Wright therefore reassured Mr. Collier that provided he continued to pay his “share” of the judgment Mr. Wright would only look to Broadfoot and Flute for the balance. I note that Mr. Wright acknowledges that Mr. Collier expressly referred to his potential bankruptcy within the context of reaching this agreement as to future payments to Mr Wright. I recall Mr. Wright saying towards the end of the conversation something along the lines of “Don’t worry, I am happy to treat you separately”. I note that Mr. Wright appears to have referred to this [conversation] as [constituting] an “agreement” when discussing matters with his solicitors (see correspondence exhibited to his statement).”

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.

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 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.

The judge dealt with a number of matters arising out of the decision of the district judge, from whom the matter was appealed to him. Those matters do not arise on this appeal and I can go straight to [23] to [28] of the judgment, where the judge resolved the two issues arising on this appeal:

“23.

I have already referred to the evidence on the substantive issue. So far as Mr. Collier’s own evidence is concerned, it is thin. In paragraph 7 of his affidavit, all that Mr. Collier does is to say that he asked Mr. Wright what Mr. Wright wanted him to do, and Mr. Wright had accepted that it was Mr. Wright’s responsibility to chase Messrs. Broadfoot and Flute, and that Mr. Collier should simply carry on paying his £200 per month each month. Mr. Kelly has pointed to the contrast between that and the terms of the earlier witness statement, in which, at the end of paragraph 7, having recorded that Mr. Wright had said that Mr. Collier should simply carry on paying his £200 each month, Mr. Collier had added the words that he, i.e. Mr. Wright, “would look at a separate arrangement with myself”, i.e. Mr. Collier. Mr. Kelly says that, on that evidence, I cannot find that there was a concluded agreement that Mr. Wright, on behalf of the creditor, would look to Mr. Collier for only one-third of the full amount of the judgment debt.

24.

Mr. Wright’s evidence is that whilst he cannot remember precisely what he said to Mr. Collier, he most certainly did not say anything which would have caused a joint and several debt to become a several debt; it was not apportioned and it would have been – as Mr. Wright described it – “bonkers” in the light of the difficulties of realisation or even of tracing Broadfoot and Flute. Thus, on Mr. Collier’s own evidence, there is no suggestion that Mr. Wright had agreed that, if Messrs. Broadfoot and Flute did not pay, the creditor would not pursue Mr. Collier. There is no suggestion there that it was agreed by Mr. Wright, on behalf of the creditor, that Mr Collier’s liability would be limited to a one-third share. However, in his witness statement Mr. Redfern does say that Mr. Wright reassured Mr Collier that, provided Mr. Collier continued to pay his share of the judgment, Mr Wright would only look to Broadfoot and Flute for the balance; and he goes on to say that he recalls Mr. Wright saying, towards the end of the conversation, something along the lines of “Do not worry, I am happy to treat you separately.”

25.

In the course of his submissions, Mr Uff has taken me to passages in the judgment of Mr. Roger Kaye QC, sitting as a Deputy Judge of the Chancery Division, in the case of Keller -v- BBR Graphic Engineers (Yorks) Limited, unreported, 14 December 2001. In the course of his judgment Mr Kaye, as he then was, referred to paragraph 12.4 of the Insolvency Practice Direction, which says that, on an application to set aside a statutory demand on the grounds that the debt is disputed, “the court will normally set aside the statutory demand if, in its opinion, on the evidence, there is a genuine triable issue”. At page 16 the Deputy Judge said that it seemed to him to have been plainly intended that what is generally thought to have been a lower threshold than is now applicable to applications for summary judgment under Part 24 of the CPR should apply to applications to set aside a statutory demand. He says that this is no doubt because of the serious consequences that a statutory demand which is not set aside must have in the form of the presentation of a bankruptcy petition. In other words, Mr Uff submits that I should not apply the higher threshold of whether Mr. Collier has a real prospect of success, but rather should simply decide whether he has disclosed a genuine triable issue. Mr. Uff has also taken me to a later passage at page 22 of the transcript of Mr Kaye’s judgment in which he said that, for his part, he did not think that the court should be too ready to put a person into bankruptcy on the basis of an over-analytical dissection of an alleged oral contract. He indicated that it was important to focus on the real questions: Is the debt disputed on substantial grounds? Is there a genuine triable issue?

26.

Applying that approach, it does seem to me that there is a genuine triable issue here as to the precise terms of the oral agreement. However, one must go on to consider whether the alleged agreement, tenuous though it is, is enforceable as a matter of law against the creditor. That raises the question first, whether there is a sufficient promise supported by adequate consideration. What is being alleged, as it seems to me, is a promise by Mr. Wright, on behalf of the creditor, that the creditor would look to Mr. Collier to pay only his one-third share of the joint debt. In order to support such a promise, as a matter of contract, it is necessary for Mr. Collier to show that consideration moved from him as a promisee. Mr Collier can only enforce that promise if he himself provided consideration for it, in terms either of some detriment which he suffered or some benefit which he conferred on the creditor. Try as I might, and notwithstanding Mr. Uff’s submissions, I cannot identify any consideration that moved from Mr. Collier for that promise.

27.

I must then go on to consider whether Mr. Collier can rely on some form of waiver or promissory estoppel. That is an issue addressed at paragraphs 17 to 22 of Mr. Uff’s written skeleton. He submits that there is a genuine triable issue as to that. He recognises that the evidence of reliance is not strong. In my judgment, that is, if anything, an understatement. It is in my judgment difficult to see any sufficient relevant alteration of position on the part of Mr. Collier, rendering it inequitable for the creditor now to resile from its alleged promise. The only detriments alleged are first, that until he changed banks in 2005, Mr. Collier continued to make the £200 monthly instalment payments that he was already making. I cannot see that this is of any relevance or a sufficient alteration of position. The second alleged detriment is in not pursuing in any way the other judgment debtors, Mr. Collier’s former partners; but there is no evidence whatsoever that Mr. Collier would have been in any better position to do so, in 2000, than he was when the creditor sought to recover the balance from Mr Collier. The documentation shows that in 2000 and 2001 the creditor was unable to locate Mr. Flute; and although it could locate Mr. Broadfoot, it was not successful in recovering any money from him. So far as both Mr. Broadfoot and Mr. Flute are concerned, it is clear from the schedule annexed to the statutory demand that, as from March of 2000, they had ceased to make any of their monthly payments. That is not disputed by Mr. Collier.

28.

Given the bankruptcy of Mr. Flute – apparently in 2002 – and Mr. Broadfoot – apparently in 2004 – and given the creditor’s inability to recover a single penny from them, despite being in possession of a judgment debt, I really do fail to see how it can it can be said by Mr. Collier that he has suffered any detriment from not being able to pursue, or as he puts it, chase Messrs. Flute or Broadfoot for any contribution as a result of the agreement that he reached, or says he reached, with Mr. Wright. All he can say is that, had Mr Wright not reassured him as to his position, he might well have been able to agree to some accommodation with them in the two years between his conversation with Mr. Wright and the first of the bankruptcies. It seems to me that there is wild speculation, incapable of amounting to anything rendering it unconscionable on the part of the creditor now to pursue Mr. Collier for the full amount of the debt.”

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.”

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.

The agreement issue

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.

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.

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.

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.”

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.

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:

It follows that the mere fact that a creditor agrees with a joint debtor to accept payment from him alone of his proportionate share does not result in a binding agreement. Accordingly, this factual paradigm does not constitute yet another situation when the rule in Pinnel’s case is avoided. Mr Collier can therefore succeed in his application to set aside the statutory demand only if he can show a triable issue bringing him within some existing exception to that rule as described above. For that reason he relies on promissory estoppel, to which I now turn.

The promissory estoppel point

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.

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.

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.

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.”

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.

In applying this principle, however, we must note the qualification: The creditor is only barred from his legal rights when it would be inequitable for him to insist upon them. 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. But he is not bound unless there has been truly an accord between them.”

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.

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.”

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.

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.

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.

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.”

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.

In Couldery v Bartrum (1881) 19 Ch D 394 at 399, Sir George Jessel MR observed:

“According to English common law a creditor might accept anything in satisfaction of his debt except a less amount of money. He might take a horse, or a canary, or tomtit if he chose, and that was accord and satisfaction; but, by a most extraordinary peculiarity of the English common law he could not take 19 shillings and sixpence in the pound; that was nudum pactum.” ”

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.

For the above reasons, I allow this appeal.

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.

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.

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.

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.

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.

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.

I agree that the appeal should be allowed. There is a real prospect of success on the promissory estoppel issue, which will fall to be decided at a substantive hearing of the dispute between Mr Collier and Wrights.