Collier v P & MJ Wright (Holdings) Ltd – Case Summary

Collier v P & MJ Wright (Holdings) Ltd

Court of Appeal

Citations: [2007] EWCA Civ 1329; [2008] 1 WLR 643; [2007] BPIR 1452; [2007] NPC 136; [2008] CLY 675.

Facts

The applicant and his partners took out a commercial loan for his company with a credit company. After a county court judgment against his company, the applicant and the partners agreed to pay the company’s debts at a rate of £600 a month. Later, the parties agreed that the applicant could reduce his payments to £200 and that he would only be liable for 1/3rd of the debt. He started paying £200 a month, and continued to do so for five years. Eventually, he had paid off his third of the debt.

However, his partners became bankrupt. The credit company made a statutory demand for the full amount of the outstanding debt from the applicant. The applicant argued that the credit company could not go back on their promise to only hold him liable for 1/3rd of the debt. To set aside the statutory demand at this stage, the applicant needed to show that there was a genuinely triable issue (under para 12.4 of the Practice Direction – Insolvency Proceedings) as to whether the credit company was bound by the agreement.

Issue(s)
  1. Was the credit company contractually potentially bound by their promise to hold the applicant liable for a third of the debt?
  2. Was the credit company potentially prevented from going back on their promise by promissory estoppel?
Decision

The Court of Appeal held in favour of the applicant. The credit company’s promise was to accept less in satisfaction of a full debt. This is not good consideration, so they were not contractually bound by the promise. However, there was a triable issue as to whether the credit company was estopped from going back on their promise. In particular, the applicant may have changed his position by paying off a third of the debt in reliance on the promise.

This Case is Authority For…

A promise to pay part of a debt is not good consideration for a promise to settle the whole debt. The debtor is already obliged to pay the full debt, and they cannot rely on an existing obligation as consideration.

Promissory estoppel requires:

  1. A clear and unequivocal promise which the promisor knew or intended the other would rely on;
  2. A change in position by the promisee in reliance on the promise;
  3. That it would be inequitable for the promisor to rely on the promise.

The mere fact that a lot of time has passed in which the promisee acted in accordance with the agreement is not enough to make reneging on the promise inequitable.

Promissory estoppel generally only suspends the promisor’s right to insist on his strict legal rights. However, if the effect of reneging on the promise is sufficiently inequitable, the promisor’s rights may be extinguished.

Other

There is no material difference between the ‘genuine triable issue’ standard and the ‘real prospect of success’ standard applied in summary judgment cases. It usually requires some plausible evidence supporting the applicant’s case.

This case conflicts with the Court of Appeal decision in Emery v UCB Corporate Services Ltd (Formerly UCB Bank Plc) [2001] EWCA Civ 675. In that case, the court held that merely making the lower payments was not sufficient change in position. However, in this case, the Court of Appeal considered that making the lower payments was potentially sufficient change in position. Emery was not referenced by the Court in Collier.