Collier v P & M J Wright (Holdings) Ltd
| Jurisdiction | England & Wales |
| Judge | Lady Justice Arden,Lord Justice Longmore,Lord Justice Mummery |
| Judgment Date | 14 December 2007 |
| Neutral Citation | [2007] EWCA Civ 1329 |
| Docket Number | Case No: A2/2007/0923 |
| Court | Court of Appeal (Civil Division) |
| Date | 14 December 2007 |
[2007] EWCA Civ 1329
Lord Justice Mummery
Ady Justice Arden and
Lord Justice Longmore
Case No: A2/2007/0923
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
HIS HONOUR JUDGE HODGE QC
Royal Courts of Justice
Strand,
London, WC2A 2LL
Mr David Uff (instructed by Messrs Betesh Partnership Solicitors) for the Appellant
Mr Siward Atkins (instructed by Messrs Christine Sharpe & Co.) for the Respondent
Hearing date: 15November2007
Introduction
This is an appeal from the order dated 18 th 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 rule in Pinnel's case
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 117 a. 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.
The procedural background
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...
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