Will your settlement agreement be binding if all one party is doing is promising not to pursue a defence to the original debt?

A settlement agreement, like any other contract, requires consideration (broadly, the provision of something of value) to be binding. This can be particularly problematic for settlements where one party avoids being sued in return for agreeing to do something which it had previously agreed to do anyway (eg pay a debt already owing). Prior caselaw has established that in that situation, the payer (debtor) is not really providing any valid consideration to the creditor.

This principle is based on an 1884 decision and looked like it was about to re-examined in last year's Supreme Court decision of Rock Advertising v MBW. The Court of Appeal had held that an agreement to pay something you already owe could amount to consideration if the creditor stands more chance of being paid as a result. However, the Supreme Court (having decided the case on another ground), refused to decide if that kind of practical benefit amounted to valid consideration.

The issue in the recent Court of Appeal decision in Simantob v Shavlevan was slightly different though. There, the debtor didn't just promise to pay the same debt, it also promised not to pursue a defence that that debt was unenforceable in law.

There is textbook commentary to the effect that giving up a worthless legal argument cannot amount to consideration. However, here, the evidence was that the debtor believed in the defence and intended to pursue it in court (if necessary), even though the debtor also recognised that it raised a "doubtful or undecided point". That was held to be enough to amount to valid consideration.

In reaching this conclusion, the Court of Appeal had in mind the public policy in favour of holding parties to their commercial bargains.