This article was originally published in the October issue of Corporate Rescue and Insolvency.
Key Points
- In the recent case of Little & Anor v Olympian Homes Limited [2024] EWHC 1766 (Ch), the court held that an argument based on waiver by estoppel was sufficient to establish a substantial dispute for the purposes of an application to set aside a statutory demand. In doing so the court considered the nature of such an estoppel and the criteria for it to arise.
- The case also illustrates the differences between waiver by contract and waiver by estoppel.
- Finally, the decision serves as a reminder to lenders that, even if a formal waiver has not been requested or granted, it might still be possible for a borrower to assert promissory estoppel in certain circumstances and to have a statutory demand set aside on that basis.
Background
Olympian Homes Limited (OHL) made a loan to Tribeca Property Ltd (TPL) pursuant to a facility agreement which was personally guaranteed by Mr Little and Mr O’Shea (the Applicants). The principal due under the loan facility was repaid in full but the interest was left outstanding. At around the time of the repayment of the principal there were emails referring to the release of the security for the loan and OHL circulated a draft release document under cover of an email which stated:
“I’ve drafted a short release acknowledging that [TPL and the Applicants] are released from the terms of the facility and the two properties in Bristol are also released. This is attached.”
The draft release was never signed but was held to be complete save for the insertion of the date of the facility agreement.
OHL submitted that the representative who had circulated the draft release was new to the company and did not realise until later that interest remained outstanding.
However, even after becoming aware of that fact, it wasn’t until around one year later (TPL having gone into liquidation) that the subject of the outstanding interest was raised with the Applicants. When it was not paid, statutory demands were served by OHL on the Applicants.
The Applicants applied to set aside the statutory demands under Rule 10.4 of the Insolvency Rules 2016, on the basis that OHL:
- had agreed to waive its right to interest under the loan facility (waiver by contract); and/or
- in all the circumstances, was estopped from seeking to recover the interest (waiver by estoppel).
The Applicants relied on the emails and the draft release and also alleged that a director of OHL had said in conversation that no interest would be charged on the loan. There were no contemporaneous documents evidencing this conversation and it was denied by OHL’s director.
The facility agreement contained the following relevant clauses:
Clause 15.1:
“no amendment of this agreement or any Finance Document shall be effective unless it is in writing and signed by or on behalf of each party to it (or its authorised representative)” [emphasis added].
Clause 15.2:
“A waiver of any right or remedy under this agreement or any Finance Document or by law or any consent given under this agreement or any Finance Document, is only effective if given in writing by the waiving or consenting party and shall not be deemed a waiver of any other breach or default. It only applies in the circumstances for which it is given and shall not prevent the party giving it from subsequently relying on the relevant provision” [emphasis added].
The relevant test
Rule 10.5(5)(b) provides that the court may grant an application to set aside a statutory demand if “the debt is disputed on grounds which appear to the court to be substantial”. Deputy ICC Judge Shekerdemian KC held that the burden is on the Applicants to show that there is a genuine triable issue, “there being no material difference between such test and ‘a real prospect of success’”. As to the meaning of the latter, the judge cited Collier v P & M J Wright Ltd [2008] 1 WLR 643 in which Arden LJ said:
“To have a real prospect of success a party must have a case which is more than merely arguable …”
The judge therefore rejected a submission by counsel for the Applicants that the genuine triable issue threshold is “low”.
As to disputes of fact, the judge cautioned that the dispute must be relevant in the sense that it must underpin “a legally coherent and legally recognisable defence to the debt in question. If a dispute of fact does not give rise to an available arguable defence, then whilst that dispute might provide context and narrative, it will be irrelevant as a matter of substance”.
Waiver by contract
The judge applied the formulation of contractual waiver set out in Chitty:
“Where one party voluntarily accedes to a request by the other that he should forbear to insist on the mode of performance fixed by the contract, the court may hold that he has waived his right to require that the contract be performed in this respect according to its original tenor.”
The judge held that the waiver can be oral, written, or inferred from conduct, and that (contrary to the common-ground position of counsel) consideration is not required unless the waiver amounts to a variation of the contract (citing W.J. Alan & Co. Ltd v El Nasr Export and Import Co [1972] 2 QB 189 at 193). She said:
“Despite the apparent common ground between counsel as to the need for consideration to support a so-called ‘contractual waiver’, in my judgment this is not inevitably the case unless a so-called ‘contractual’ waiver is more appropriately to be characterised as a variation; in such a case, then consideration will be essential.”
An alleged waiver which is more appropriately characterised as a variation or amendment would also have to comply with any contractual requirements for variation or amendment, such as that it must be in writing and signed (as in this case). As set out above, the facility agreement contained clauses requiring that:
- any amendment of the agreement must be agreed “in writing and signed by or on behalf of each party” in order to be effective; and
- any waiver would only be effective if “given in writing by the waiving or consenting party”.
As a result, arguments that the waiver had been agreed orally or could be inferred from OHLs conduct were not pursued forcefully at trial. The judgment therefore focused on the question of whether there had been a written waiver of the right to interest.
Having reviewed the correspondence between the parties, the judge found no clear evidence indicating that either TPL or the Applicants had requested that interest be waived. Nor was there any evidence of a clear acceptance of any such request by OHL. Moreover, if the waiver amounted to a variation and consideration was therefore required, none was provided, communicated to OHL or agreed to by OHL. Accordingly, the judge was not persuaded that there was a genuine triable issue on this ground.
Waiver by estoppel
The Applicants’ alternative argument was that OHL was estopped from asserting its contractual right to interest under the facility agreement. The judge held that waiver by estoppel is a species of promissory estoppel. For such an estoppel to arise there must be:
- a legal relationship giving rise to rights and duties between the parties;
- a promise or representation by one party that they will not enforce against the other their strict legal rights arising out of that relationship;
- an intention on the part of the person making the promise or representation that the other party will rely on it; and
- reliance on that statement or conduct by the other party.
However, even if the above conditions are satisfied, estoppel will not be available if it would be “inequitable” to prevent a party from going back on its promise (Hughes v Metropolitan Railway Co. [1877] 2 App Cas 439).
Further, the judge held that:
- the promise or representation may be made by way of an unequivocal statement or by way of clear conduct which objectively indicates an intention to promise to give up, or not to enforce, a right;
- the promise may be implied, provided it is unambiguous and “intended to affect the legal relations between the parties” (Spence v Shell (1980) 256 E.G. 55);
- no consideration for the promise is required;
- the operation of estoppel is not excluded by a no oral-variation clause (Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24, per Lord Sumption at para 16);
- detriment is not a requirement for reliance, but change of position is; and
- there is no requirement that the act constituting reliance on the part of the representee must be communicated to the representor: “it is enough that there has been the act said to constitute reliance and that the promise/ representation has influenced it or been a contributing factor ... This is a question of fact”.
Within the context of an application to set aside a statutory demand the judge did not, and did not need to, reach any final decision as to whether all of the criteria for promissory estoppel were definitively satisfied. However, she was satisfied that “there are genuine disputes on substantial grounds” affecting each of them. In particular, the judge held that the covering email by which the draft release document was provided to the Applicants did contain a clear and unequivocal statement that the Applicants were released from their guarantees. Moreover, although the attached document was a draft it was complete in every material respect, and it unequivocally referenced the release of the Applicants in terms consistent with the covering email.
Regarding the question of whether it would be inequitable to prevent OHL from resiling from any such promises, the judge held that “the law in this respect is not entirely straightforward, and … the arguments are nuanced”. As such, the judge concluded that this was an issue which merited consideration at a full trial.
The judge therefore held that the statutory demands against the applicants should be set aside on the basis that there was a genuine dispute on substantial grounds.
Concluding comment
This case turned on its particular (unusual) facts. Nevertheless, it provides us with a useful reminder of the principles relevant to waiver cases and an example of how those principles will be applied by the court in the context of loan facilities.
It serves as a reminder to lenders that, even if a formal waiver has not been requested or granted, it might still be possible for a borrower to assert promissory estoppel in certain circumstances and to have a statutory demand set aside on that basis. If concessions are being made by a lender in the course of business negotiations with a borrower or guarantor, this case illustrates the need to be clear about what is, and what is not, being offered and the benefit of expressly reserving rights.