Collier v P & M J Wright (Holdings) Ltd

A creditor’s promise to accept a joint debtor’s proportionate share of an existing debt does not create a binding compromise without fresh consideration. Payment of part of an existing monetary debt remains insufficient consideration.

However, promissory estoppel may prevent a creditor from recovering the balance where there was a true accord, the creditor voluntarily accepted the lesser sum, and the debtor paid it in reliance on that accord. The estoppel may extinguish, rather than merely suspend, the right to the balance where resiling would be inequitable. On an application to set aside a statutory demand, the debtor must show a sustainable dispute supported by some tangible evidence; a mere assertion or an argument alone is insufficient.

The respondent had obtained a consent judgment against three partners jointly. It later served a statutory demand on Mr Collier for the unpaid balance after the other two partners became bankrupt.

Mr Collier had paid £200 monthly for five years. He alleged that the creditor had agreed to look to him only for his one-third share and to pursue the other partners for the balance. He applied under the Insolvency Rules to set aside the statutory demand.

HHJ Hodge QC dismissed the application. Mr Collier appealed, relying on a binding compromise and, alternatively, promissory estoppel. The central issues were whether the alleged agreement had consideration and whether the evidence disclosed a real prospect that it would be inequitable for the creditor to demand the balance.

Appeal allowed. The statutory demand was to be set aside because Mr Collier had a real prospect of succeeding at a substantive hearing on promissory estoppel.

1. The court held that the applicable standard under the Insolvency Rules was not materially lower than the CPR real-prospect-of-success standard. A substantial or genuine dispute requires some tangible evidence supporting the debtor’s case. A bare assertion, or a case which is merely arguable, is insufficient.
2. The alleged agreement was not contractually binding. Even if the creditor promised to pursue Mr Collier only for one-third of the joint judgment debt, Mr Collier promised only to pay part of what he already owed. Under Pinnel’s case (1603) 5 Coke’s Rep 117a, as explained by Foakes v Beer (1883-4) LR 9 App Cas 605, that supplied no consideration. The alleged collateral arrangement left the other debtors’ position unaffected and did not create fresh several liability.
3. Promissory estoppel nevertheless raised a triable issue. Applying D & C Builders v Rees [1966] 2 QB 617, a true accord under which a creditor voluntarily accepts a lesser sum, followed by payment in reliance on it, may make it inequitable to insist on the balance. In a sufficiently inequitable case, the effect may be to extinguish the balance rather than merely suspend enforcement.
4. Lady Justice Arden concluded that Mr Collier’s evidence of the assurance, corroborated by Mr Redfern, and his completed payments of the alleged share were sufficient to raise that issue. Longmore LJ agreed that the defence was arguable, while stressing that a permanent surrender of rights founded on a judgment must be clearly established and that the alleged accord and inequity required trial. Mummery LJ agreed that there was a real prospect of success on promissory estoppel.

• Court of Appeal (Civil Division) — Allowed Mr Collier’s appeal and held that the statutory demand should be set aside: [2007] EWCA Civ 1329.
• Chancery Division, Manchester District Registry (HHJ Hodge QC) — On 18 April 2007, dismissed Mr Collier’s application to set aside the statutory demand.
• District Judge — An earlier decision was referred to, but its outcome and terms were not stated in the judgment.