Treasure & Son Ltd v Dawes

A payment by a third party discharges another person’s debt only where the payment is made as that person’s agent, for and on their account, with their prior authority or subsequent ratification. The court must distinguish between payment by a third party and payment by the debtor using money obtained through a third-party loan. Where the evidence establishes authority or ratification, and the creditor knowingly accepts and uses the payment, the debt is discharged. Concerns about possible recovery by the third-party payer or VAT consequences do not prevent discharge where they are unsupported or legally immaterial.

Martin Dawes engaged Treasure & Son Ltd to carry out works at Dinmore Manor. An adjudicator ordered Mr Dawes to pay Treasure, and the adjudicator’s decision was subsequently enforced by Akenhead J. The judgment debt was paid into Treasure’s account from an account held by Mr Dawes’s daughter, Hayley Dawes.

Treasure questioned whether the payment discharged Mr Dawes’s liability and commenced proceedings under CPR Part 8. Mr Dawes sought a declaration that the judgment debt had been paid. The central issues were whether the money was Mr Dawes’s own money and, alternatively, whether it had been paid by Hayley and Mr Dawes’s son as agents, for and on account of Mr Dawes, with his authority or ratification.

1. The court held that the judgment debt had been paid for and on behalf of Mr Dawes. A payment made voluntarily by a person intending to discharge another’s debt does not discharge that debt unless the payer acted with the debtor’s authority or the debtor subsequently ratified the payment. The court relied on Crantrave Limited v Lloyds Bank plc [2002] All ER (Comm) 89, Simpson v Eggington (1855) 10 Exch 845 and Smith v Cox [1942] 2 KB 558.

2. Payment using money obtained through a third-party loan may amount to direct payment by the debtor. However, the evidence did not establish that the money used here already belonged to Mr Dawes. The loan documents instead described the sums as paid on his behalf.

3. Hayley and Paul Dawes had paid the precise amount required following the enforcement judgment. The surrounding family relationship, Mr Dawes’s knowledge and approval, the subsequent loan agreements, and his alternative ratification established that the sums were paid for and on his account.

4. The court distinguished Smith v Cox [1942] 2 KB 558. In that case the payment had been made by a third party without the debtor’s knowledge or request. Here, both debtor and creditor knew of the payment, and Treasure had used part of it to pay fees and VAT. The mischief addressed by the rule therefore did not arise.

5. The judgment debt was discharged. Any later repayment resulting from the arbitration would be a matter between Treasure and Mr Dawes. The parties were directed to consider the appropriate form of order and whether confirmations from Hayley and Paul Dawes would make their joinder unnecessary. Costs were to be addressed separately.

First-instance proceedings under CPR Part 8. The judgment records an earlier enforcement judgment by Akenhead J, but gives no citation for it.