Ipsofactoj.com: International Cases [2004] Part 4 Case 1 [HL]


THE HOUSE OF LORDS

Coram

Actionstrength Ltd

- vs -

International Glass

Engineering In. Gl.en. SpA

LORD BINGHAM OF CORNHILL

LORD WOOLFE

LORD HOFFMANN

LORD CLYDE

LORD WALKER OF GESTINGTHORPE

3 APRIL 2003


Judgment

Lord Bingham of Cornhill

My Lords,

  1. Section 4 of the Statute of Frauds was enacted in 1677 to address a mischief facilitated, it seems, by the procedural deficiencies of the day (Holdsworth, A History of English Law, vol VI, pp 388-390): the calling of perjured evidence to prove spurious agreements said to have been made orally. The solution applied to the five classes of contract specified in section 4 was to require, as a condition of enforceability, some written memorandum or note of the agreement signed by the party to be charged under the agreement or his authorised agent.

  2. It quickly became evident that if the seventeenth century solution addressed one mischief it was capable of giving rise to another: that a party, making and acting on what was thought to be a binding oral agreement, would find his commercial expectations defeated when the time for enforcement came and the other party successfully relied on the lack of a written memorandum or note of the agreement.

  3. In one of the five specified classes of agreement, relating to contracts for the sale or other disposition of land, this second mischief was mitigated by the doctrine of part performance. Implementation of an agreement (even if partial) could be relied on to prove its existence. This doctrine was expressly preserved by section 40(2) of the Law of Property Act 1925, when section 4 of the Statute of Frauds (in its application to real property) was effectively re-enacted in section 40(1). A majority of the House gave the doctrine of part performance a broad interpretation in Steadman v Steadman [1976] AC 536. By section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, following a report by the Law Commission (Transfer of Land: Formalities for Contracts for Sale Etc of Land, HC2, June 1987, Law Com. No 164), section 40 of the 1925 Act was superseded by a requirement that contracts for the sale or other disposition of land should be made in writing.

  4. By the Law Reform (Enforcement of Contracts) Act 1954, section 4 of the Statute of Frauds was repealed in its application to three of the five classes originally specified. Section 4 now applies only to the class of agreement which is at issue in this appeal, an agreement under which it is sought "to charge the defendant upon any special promise to answer for the debt, default or miscarriages of another person".

  5. The facts assumed to be true for purposes of these proceedings at this stage have been helpfully summarised by Lord Walker of Gestingthorpe, whose summary I gratefully adopt and need not repeat. If tested at trial those facts might or might not be established. But if, as must be assumed, they are correct, they illustrate the second mischief to which I have referred above. Actionstrength agreed with Inglen to supply labour to enable Inglen (the main contractor chosen by St-Gobain) to build a factory for St-Gobain. Inglen's deficiencies as a contractor led to Actionstrength being drawn, more closely than would be normal for a labour-only sub-contractor, into the oversight of Inglen's performance. From an early date Actionstrength had difficulty obtaining payment by Inglen and considerable arrears built up. Actionstrength was contractually entitled to terminate its contract with Inglen on 30 days' notice if duly approved invoices had not been paid within 30 days and remained unpaid. Such termination would have been seriously prejudicial to St-Gobain, whose interest was to take expeditious possession of a completed factory. Actionstrength threatened to withdraw its labour. St-Gobain induced it not to do so by promising that, if Inglen did not pay Actionstrength any sums which were or became owing, it (St-Gobain) would do so. On that undertaking Actionstrength forebore to withdraw its labour and continued to supply labour to Inglen, whose indebtedness to Actionstrength increased fivefold over the weeks that followed. St-Gobain received the benefit of the work done by the labour which Actionstrength supplied. When Actionstrength, unable to obtain payment by Inglen, sought to enforce the agreement against St-Gobain, that company relied on the absence of a written memorandum or note of the agreement to defeat Actionstrength's claim.

  6. While section 4 of the Statute of Frauds has been repealed or replaced in its application to the other four classes of contract originally specified, it has been retained in relation to guarantees. In 1937 the Law Revision Committee (in its Sixth Interim Report, Statute of Frauds and the Doctrine of Consideration, Cmd 5449, paragraph 16) recommended the repeal of so much as remained of section 4. But a minority headed by Goddard J dissented in relation to guarantees, on the grounds

    1. that there was a real danger of inexperienced people being led into undertaking obligations which they did not fully understand, and that opportunities would be given to the unscrupulous to assert that credit was given on the faith of a guarantee which the alleged surety had had no intention of giving;

    2. that a guarantee was a special class of contract, being generally one-sided and disinterested as far as the surety was concerned, and the necessity of writing would give the proposed surety an opportunity for thought;

    3. that the requirement of writing would ensure that the terms of the guarantee were settled and recorded;

    4. that Parliament had imposed a requirement of writing in other contractual contexts;

    5. that judges and juries were not infallible on questions of fact, and in the vast majority of cases the surety was getting nothing out of the bargain;

    6. that it was desirable to protect the small man; and

    7. that the necessity for guarantees to be in writing was generally understood.

    No action was taken on the 1937 report. In 1953 the Law Reform Committee (First Report, Statute of Frauds and Section 4 of the Sale of Goods Act 1893, Cmd 8809) endorsed the recommendation of its predecessor that section 4 of the Statute of Frauds should be largely repealed but, agreeing with those who had earlier dissented, unanimously recommended that the section should continue to apply to guarantees. Effect was given to this report by enactment of the 1954 Act. Whatever the strength of the reasons given by the dissenting minority for retaining the old rule in relation to conventional consumer guarantees, it will be apparent that those reasons have little bearing on cases where the facts are such as those to be assumed here. It was not a bargain struck between inexperienced people, liable to misunderstand what they were doing. St-Gobain, as surety, had a very clear incentive to keep the Actionstrength workforce on site and, on the assumed facts, had an opportunity to think again. There is assumed to be no issue about the terms of the guarantee. English contract law does not ordinarily require writing as a condition of enforceability. It is not obvious why judges are more fallible when ruling on guarantees than other forms of oral contract. These were not small men in need of paternalist protection. While the familiar form of bank guarantee is well understood, it must be at least doubtful whether those who made the assumed agreement in this case appreciated that it was in law a guarantee. The judge at first instance was doubtful whether it was or not. The Court of Appeal reached the view that it was, but regarded the point as interesting and not entirely easy: [2002] 1 WLR 566, 568, [2001] EWCA Civ 1477, paragraph 2. Two members of the court discussed the question at a little length, with detailed reference to authority.

  7. It may be questionable whether, in relation to contracts of guarantee, the mischief at which section 4 was originally aimed, is not now outweighed, at least in some classes of case, by the mischief to which it can give rise in a case such as the present, however unusual such cases may be. But that is not a question for the House in its judicial capacity. Sitting judicially, the House must of course give effect to the law of the land of which (in England and Wales) section 4 is part. As Mr. McGhee for Actionstrength correctly recognised, that section is fatal to his client's claim unless St-Gobain can be shown to be estopped from relying on the section.

  8. Neither party suggested, nor could it be suggested, that the ordinary rules of estoppel are inapplicable to guarantees. The well-known case of Amalgamated Investment & Property Co Ltd (In Liquidation) v Texas Commerce International Bank Ltd [1982] QB 84 is one in which a party was held to be estopped from disputing the assumed effect of a guarantee. But the same approach should be followed as in other cases. On the facts of this case that involves asking three questions: 

    1. What is the assumption which Actionstrength made?

    2. Did St-Gobain induce or encourage the making of that assumption?

    3. Is it in all the circumstances unconscionable for St-Gobain to place reliance on section 4?

    It would, as Mr. Soole QC for St-Gobain submitted, be wrong in principle to ask the third question before both of the first two.

  9. It is implicit in the assumed facts that Actionstrength believed itself to be the beneficiary of an effective guarantee. Its difficulty, in my view insuperable, arises with the second question. For in seeking to show inducement or encouragement Actionstrength can rely on nothing beyond the oral agreement of St-Gobain which, in the absence of writing, is rendered unenforceable by section 4. There was no respresentation by St-Gobain that it would honour the agreement despite the absence of writing, or that it was not a contract of guarantee, or that it would confirm the agreement in writing. Nor did St-Gobain make any payment direct to Actionstrength which could arguably be relied on as affirming the oral agreement or inducing Actionstrength to go on supplying labour. If St-Gobain were held to be estopped in this case it is hard to see why any oral guarantor, where credit was extended to a debtor on the strength of a guarantee, would not be similarly estopped. The result would be to render nugatory a provision which, despite its age, Parliament has deliberately chosen to retain.

  10. For these reasons, and those given by Lord Hoffmann, Lord Clyde and Lord Walker of Gestingthorpe, with which I agree, I am of the reluctant but clear opinion that the appeal must be dismissed. I agree with the order which Lord Walker proposes.

    Lord Woolfe

    My Lords,

  11. I have read the speeches of Lord Bingham of Cornhill, Lord Hoffmann, Lord Clyde and Lord Walker of Gestingthorpe.

  12. I agree with them that this appeal has to be dismissed for the reasons they give. I also do so with regret. There is nothing on the facts that are before us which could establish the estoppel on which the appellant seeks to rely. 

    Lord Hoffmann

    My Lords,

  13. The appellant ("Actionstrength") was a labour-only subcontractor providing services to the main contractor ("Inglen") in connection with the construction of a float glass factory in East Yorkshire for the respondent ("St-Gobain"). Actionstrength has obtained a default judgment against Inglen for about 1.3m but Inglen is insolvent and there is unlikely to be a dividend. In these proceedings, Actionstrength sues St-Gobain on an alleged oral guarantee of Inglen's liability. It says that the guarantee was given on behalf of St-Gobain by a Mr. Watkinson on 11 February 2000, when Inglen owed Actionstrength about 197,000. Actionstrength was threatening that unless it was paid, it would withdraw its labour from the site. It alleges that to avoid this happening, Mr. Watkinson promised that if he could not persuade Inglen to meet its obligations, St-Gobain would itself pay Actionstrength out of money withheld from what was due to Inglen under the main contract. Relying on this promise, Actionstrength went on providing labour to Inglen on credit for about another month until the indebtedness reached 1.3m.

  14. St-Gobain, on the other hand, has a very different version of events. It agrees that Actionstrength was claiming to be unpaid and threatening to withdraw its labour and disrupt the contract in other ways. But it says that it told Actionstrength that this would be counter-productive. It said it had paid Inglen enough to enable it to meet its obligations to Actionstrength and offered to help try to resolve any dispute between Actionstrength and Inglen. That was enough to persuade Actionstrength to continue to perform the subcontract. But St-Gobain says that it certainly did not promise to pay Inglen's debts. On the contrary, it had made it clear that it would not make a direct payment to a subcontractor.

  15. This is a fairly common dispute over who said what; in the ordinary way it would have been resolved by a judge hearing the witnesses and deciding which of them he believed. But St-Gobain says that a hearing is unnecessary because, even if Actionstrength's version were to be accepted, the promise would be unenforceable by virtue of section 4 of the Statute of Frauds 1677:

    No action shall be brought .... whereby to charge the defendant upon any special promise to answer for the debt, default or miscarriages of another person .... unless the agreement upon which such action shall be brought or some memorandum or note thereof shall be in writing and signed by the party to be charged therewith or some other person thereunto by him lawfully authorised.

  16. So St-Gobain applied for summary judgment on the ground that the action had no real prospect of success (CPR 24.2). The application was refused by Mitting J on the ground that it was arguable that St-Gobain's promise was not "to answer for the debt .... of another person" and therefore outside the statute. But the Court of Appeal held that it plainly was and this finding has not been challenged in your Lordships' House. Instead, Mr. McGhee for Actionstrength submits that St-Gobain should not be allowed to rely on the statute because, on the facts as alleged, and which must for present purposes be assumed to be true, it would be unconscionable for St-Gobain not to keep its promise.

  17. This argument received short shrift in the Court of Appeal. Simon Brown LJ said ([2002] 1 WLR 566, 576-577) that it was "quite hopeless" and dismissed it in one paragraph. The other members of the court had nothing to add.

  18. If one assumes that a judge would find that Actionstrength's version of events was right, to hold the promise unenforceable would certainly appear unfair. Actionstrength would have supplied Inglen with services which were indirectly for the benefit of St-Gobain, because they enabled Inglen to perform the main contract, in reliance on St-Gobain's promise to pay for them. Morally, there would be no excuse for St-Gobain not keeping its promise. On the other hand, if one assumes that a judge would find that St-Gobain's version was right, the statute enables it to dispose summarily of proceedings which should never have been brought.

  19. In an application for summary judgment such as this, which is in the nature of a demurrer, one has to assume that Actionstrength's version is true. And that naturally inclines one to try to find some way in which the putative injustice can be avoided. It is, however, important to bear in mind that the purpose of the statute was precisely to avoid the need to decide which side was telling the truth about whether or not an oral promise had been made and exactly what had been promised. Parliament decided that there had been too many cases in which the wrong side had been believed. Hence the title, "An Act for prevention of frauds and perjuries". It is quite true, as Mr. McGhee said, that the system of civil procedure in 1677 was not very well adapted to discovering the truth. For one thing, the parties to the action were not competent witnesses. But the question of whether the Act should be preserved in its application to guarantees was considered in 1953 by the Law Reform Committee (First Report, Statute of Frauds and Section 4 of the Sale of Goods Act 1893, Cmd 8809) and the recommendation of a very strong Committee was to keep it.

  20. The terms of the statute therefore show that Parliament, although obviously conscious that it would allow some people to break their promises, thought that this injustice was outweighed by the need to protect people from being held liable on the basis of oral utterances which were ill-considered, ambiguous or completely fictitious. This means that while normally one would approach the construction of a statute on the basis that Parliament was unlikely to have intended to cause injustice by allowing people to break promises which had been relied upon, no such assumption can be made about the statute. Although the scope of the statute must be tested on the assumption that the facts alleged by Actionstrength are true, it must not be construed in a way which would undermine its purpose.

  21. It its original form, section 4 of the 1677 Act also applied to sales of land, promises by executors or administrators to answer damages out of their own estates, agreements made in consideration of marriage and agreements not to be performed within a year. Sales of land were removed to section 40 of the Law of Property Act 1925 (which has since been replaced by section 2 of the Law of Property (Miscellaneous Provisions) Act 1989) and promises by executors or administrators, agreements in consideration of marriage and agreements not to be performed within a year were deleted by section 1 of the Law Reform (Enforcement of Contracts) Act 1954. That left only promises to answer for the debt etc of another.

  22. Very soon after the statute of 1677, the courts introduced the doctrine of part performance to restrict its application to sales of land. It was held that a contract, initially unenforceable because of the statute, could become enforceable by virtue of acts which the plaintiff did afterwards. The doctrine was justified by a combination to two reasons. The first was a form of estoppel: as Lord Reid said in Steadman v Steadman [1976] AC 536,540:

    If one party to an agreement stands by and lets the other party incur expense or prejudice his position on the faith of the agreement being valid he will not then be allowed to turn round and assert that the agreement is unenforceable.

  23. The second reason was that the acts done by the plaintiff could in themselves prove the existence of the contract in a way which could be an acceptable substitute for the note or memorandum required by the statute. These two reasons did not cover the same ground: acts which satisfied the first might fail to satisfy the second. In Steadman's case the House of Lords gave priority to the first reason and relaxed the need for the acts of part performance to be probative of the contract. It was however still possible to adhere to the reconciliation of the statute and the part performance doctrine which the Earl of Selborne LC gave in Maddison v Alderson (1883) 8 App Cas 467, 475-476:

    In a suit founded on .... part performance, the defendant is really 'charged' upon the equities resulting from the acts done in execution of the contract, and not (within the meaning of the statute) upon the contract itself .... The matter has advanced beyond the stage of contract; and the equities which arise out of the stage which it has reached cannot be administered unless the contract is regarded.

  24. The reconciliation thus draws a distinction between the executory contract, not performed on either side, and the effect of subsequent acts of performance by the plaintiff. The former attracted the full force of the statute while the latter could create an equitable rather than purely contractual right to performance. The statute and the doctrine of part performance could co-exist in this way because contracts for the sale of land almost always start by being executory on both sides and usually remain executory until completed by mutual performance.

  25. What Mr. McGhee submits in this case is that the estoppel principle which partly underpins the doctrine of part performance is wide enough to be applied to contracts of guarantee. On the facts presently alleged, it is also the case that, in Lord Reid's words, St-Gobain stood by and let Actionstrength prejudice its position, by extending credit to Inglen, on the faith of the guarantee being valid. There is authority for saying that estoppel is a principle of broad, not to say protean, application: see, for example Taylors Fashions Ltd v Liverpool Victoria Trustees Co Ltd (Note) [1982] QB 133. Although he cited no case in any jurisdiction in which estoppel had been applied to avoid the application of the statute to a guarantee, Mr. McGhee says that there is no argument of principle against it.

  26. The difficulty which faces this submission is that while the nature of a sale of land is such that the contract and part performance can co-exist in their respective domains, no such co-existence is possible between the statute and the estoppel for which Mr. McGhee contends. It is in the nature of a contract of guarantee that the party seeking to enforce it will always have performed first. Unless he has advanced credit or forborne from withdrawing credit, there will be no guaranteed debt for which he can sue. It will always be the case that the creditor will have acted to his prejudice on the faith of the guarantor's promise. To admit an estoppel on these grounds would be to repeal the statute.

  27. Mr. McGhee argues that the estoppel need not apply in every case. What makes this case different, he says, is that

    1. Actionstrength continued to supply Inglen only because of St-Gobain's encouragement

    2. St-Gobain knew that without such encouragement Actionstrength would not continue to perform its contract with Inglen

    3. St-Gobain stood to suffer loss and delay if Actionstrength did not continue to perform and gave the guarantee to avoid this and

    4. St-Gobain knew that if Actionstrength continued to perform, there was a real prospect that it would suffer substantial loss unless the guarantee was honoured.

  28. In my opinion none of these features are different from those which attend the giving of every guarantee. If a creditor or prospective creditor asks for a guarantee, it is always a reasonable inference that without the guarantee he would not have extended or continued to extend credit. The guarantor may reasonably be expected to know this. It is frequently in the interest of the guarantor to give the guarantee; for example, when it secures the indebtedness of a company he controls, a business associate or even a spouse. And it must be obvious that the creditor may suffer loss if the guarantee is not honoured. No doubt in each case there will be differences in degree, but no distinctions that could be drawn without throwing the law into total confusion.

  29. It is not necessary to consider whether circumstances may arise in which a guarantor may be estopped from relying upon the statute. It is sufficient that in my opinion the estoppel which Actionstrength seeks to rely upon in this case would be inconsistent with the provisions of the statute. I would therefore dismiss the appeal.

    Lord Clyde

    My Lords,

  30. The appellant in the present appeal ("Actionstrength") agreed with the first defendant ("Inglen") to provide construction staff to the first defendant in connection with the construction of a factory by the first defendant for the second defendant (St-Gobain"). Inglen has failed to pay all the sums due by it to Actionstrength. Actionstrength lodged a claim against both defendants for the amount due to it under the contract. Default judgment was obtained against Inglen but it has gone into liquidation and no dividend is expected from the liquidator. So we are only concerned with the claim against St-Gobain. That company is the respondent in the present appeal. The claim against St-Gobain is based upon an alleged agreement between Actionstrength and St-Gobain made orally on 11 February 2000.

  31. The essentials of the alleged agreement were set out on behalf of the claimant Actionstrength in paragraph 5 of the particulars of claim where it was stated that on or about 11 February 2000:

    in the course of a meeting between Mr. Sutcliffe [of Actionstrength] and Steve Watkinson on behalf of the second defendant and subsequently in the course of a telephone conversation between John Smith on behalf of the claimant and Mr. Watkinson the claimant and the second defendant agreed that in consideration of the claimant not withdrawing its labour from the site as aforesaid the second defendant would ensure that the claimant received any amount due to it from the first defendant under the supply contract if necessary by redirecting to the claimant payments due by the second defendant to the first defendant.

  32. St-Gobain denies that such an agreement was made and in any event invokes the Statute of Frauds 1677. It is now accepted that the agreement falls within the scope of section 4 of the Statute of Frauds. But Actionstrength replies that St-Gobain is estopped from relying on the statute and that is now the only question which remains in the case.

  33. The grounds on which Actionstrength supports that proposition in its reply to the defence of the second defendant were:

    (1)

    by reason of the facts and matters mentioned in paragraph 5 of the particulars of claim the second defendant encouraged the claimant not to withdraw its labour from the site;

    (2)

    in the faith of the assurance by the second defendant that it would ensure that the claimant received any amount due to it from the first defendant under the supply contract the claimant acted to its detriment in continuing to supply labour for the site:

    (3)

    in the premises it would be unconscionable for the second defendant to deny that it entered into a binding agreement as alleged.

    The matter has arisen under an application by the second defendant for summary judgment. The present issue has to be determined in the light of the facts which the appellant seeks to prove.

  34. It does not seem to me necessary to resolve the question whether or not there may be cases where a guarantor may be estopped from invoking section 4 of the Statute of Frauds. I am content to proceed upon the assumption that there may be such a case. As it seems to me, the present case can be resolved on its own circumstances without exploring the wider issues of law. The contract in the present case may be taken to have been constituted by the undertaking given by the second defendant and the actings of the claimant in keeping its workforce on site and continuing to work there. The distinct question arises whether the agreement is enforceable. To that question, in the absence of any writing, the Statute of Frauds gives a negative answer. Without entering into questions of the categorisation of different classes of estoppel, it seems to me that some recognisable structural framework must be established before recourse is had to the underlying idea of unconscionable conduct in the particular circumstances. The framework here should include the following elements: that Actionstrength assumed that St-Gobain would honour the guarantee; that that assumption was induced or encouraged by St-Gobain; and that Actionstrength relied on that assumption.

  35. The short answer to the case in my view is that these factors cannot all be found in the material before us, and in particular in the pleadings. The only assurance given to Actionstrength was the promise itself. In order to be estopped from invoking the statute there must be something more, such as some additional encouragement, inducement or assurance. In addition to the promise there must be some influence exerted by St-Gobain on Actionstrength to lead it to assume that the promise would be honoured. But there is no suggestion made that St-Gobain said or did anything to lead Actionstrength to assume that St-Gobain would not stand on its rights. Nor is St-Gobain said to have done anything which would foster such an assumption. Further the acts of Actionstrength in keeping the labour force on site and continuing to work do not demonstrate a reliance on some assumption of the enforceability of the guarantee. The acts may have followed upon the giving of the verbal promise and they could operate to support the conclusion of the contract. But they do not necessarily relate to an assumption of the enforceability of that contract. They are essentially no different from the acts which any creditor would normally carry out after a surety has given him some guarantee relating to his provision of credit.

  36. For these reasons I agree that the appeal should be dismissed.

    Lord Walker of Gestingthorpe

    My Lords,

  37. This appeal is concerned with what is assumed to have been an oral contract of guarantee entered into between St-Gobain Glass UK Ltd ("St-Gobain") and Actionstrength Ltd ("Actionstrength"). The matter has to be put in terms of assumptions because the appeal started life as a striking-out application under Part 24 of the Civil Procedure Rules, and that application must be tested on the basis that the facts pleaded by Actionstrength would be proved at trial. It is clear from the witness statements that if the matter were to go to trial there would be serious issues of fact to be decided.

  38. St-Gobain wished to have a new factory built at Eggborough in Yorkshire for the manufacture of float glass. On 26 May 1999 it entered into a contract with an Italian company, International Glass Engineering In.Gl.En.SpA ("Inglen") as main contractor for the construction of the factory. Actionstrength (then trading as Morson Alltrades) is a recruitment agency which provides engineering and construction workers to its clients. On 2 August 1999 it entered into a contract with Inglen to provide construction workers at the factory site. The contract provided for Actionstrength to submit weekly reports and monthly invoices. Inglen was to pay approved invoices within 30 days. Construction work began soon afterwards.

  39. It is clear from the witness statements that relations between St- Gobain, Inglen and Actionstrength got off to a bad start, and did not improve. Inglen and Actionstrength both seem to have complained to St-Gobain about the other's perceived deficiencies. It is not necessary to go into the conflicting evidence except to note that by December 1999 Inglen was seriously in arrears with payments claimed to be due to Actionstrength. Early in February 2000 arrears amounting to almost 500,000 were reduced by two payments totalling 300,000 but over 197,000 remained outstanding. On 11 February 2000 Mr. Craig Sutcliffe, a business development manager with Actionstrength, went to the site to announce his intention to withdraw all labour from the site unless all Inglen's arrears were paid that day. He had a series of meetings with different representatives of Inglen and St-Gobain, including Mr. Maurice Lemaille and Mr. Steve Watkinson of St-Gobain. Mr. Watkinson also spoke on the telephone to Mr. John Smith, Actionstrength's managing director.

  40. The outcome was (on Actionstrength's case, and as it is put in a witness statement made by Mr. Sutcliffe) that authorised representatives of St-Gobain agreed with Actionstrength:

    that if [Actionstrength] agreed not to withdraw the workforce from site [St-Gobain] would ensure that [Actionstrength] would receive any amount due from Inglen, under the contract for the provision of labour, if necessary by re-directing to [Actionstrength] payments due by [St-Gobain] to Inglen.

  41. Actionstrength agreed to continue to supply labour, and did so for about another month. By then Inglen's liability had risen to about 1.3million. At a meeting on 21 March it became clear that the parties had reached the end of the road. Actionstrength withdrew the workforce and on 25 April 2000 it issued proceedings against both Inglen and St- Gobain, pleading the written agreement of 2 August 1999 against Inglen and the oral agreement of 11 February 2000 against St-Gobain. St- Gobain put in a defence raising some issues of fact and also pleading section 4 of the Statute of Frauds 1677. St-Gobain also issued a Part 20 claim for indemnity against Inglen.

  42. Actionstrength put in a reply, the meat of which was in para 3:

    If, which is denied, section 4 of the Statute of Frauds 1677 is applicable to the agreement it is averred that [St- Gobain] is estopped from relying on the provisions of the said section since:

    (1)

    by reason of the facts and matters mentioned in para 5 of the particulars of claim [the pleaded oral agreement of 11 February 2000] [St-Gobain] encouraged [Actionstrength] not to withdraw its labour from the site;

    (2)

    In the faith of the assurance by [St-Gobain] that it would ensure that [Actionstrength] received any amount due to it from [Inglen] under the supply contract [Actionstrength] acted to its detriment in continuing to supply labour for the site;

    (3)

    In the premises it would be unconscionable for [St- Gobain] to deny that it entered into a binding agreement as alleged.

  43. Actionstrength obtained summary judgment against Inglen but Inglen is in liquidation and the judgment remains unsatisfied. Then on 26 April 2001 St-Gobain applied under CPR Part 24 for summary judgment dismissing Actionstrength's claim. On 30 July 2001 Mitting J, sitting in Manchester, rejected the application for summary judgment. Two points were argued before him: whether the alleged oral agreement of 11 February 2000 should be regarded as a contract of guarantee or a contract of indemnity (the latter not being within section 4); and if it was a contract of guarantee, whether Actionstrength had an arguable case on estoppel. The judge regarded the first point as open to argument, and considered that it should be argued at trial, after the judge had found the facts. He expressed no view on the estoppel point.

  44. St-Gobain appealed to the Court of Appeal (Simon Brown, Peter Gibson and Tuckey LJJ) [2002] 1 WLR 566, which heard argument on both points, and allowed the appeal in a reserved judgment given on 10 October 2001. The Court of Appeal dealt fully with the first issue, concluding that on the oral agreement as pleaded (and as evidenced by Mr. Sutcliffe's witness statement) it was a contract of guarantee and not a contract of indemnity (see Simon Brown LJ at pp 570-576, paras 12-41; Peter Gibson LJ at pp 577-580, paras 45-53; Tuckey LJ agreed with both judgments). The Court of Appeal dealt with the estoppel point much more shortly. In a single paragraph Simon Brown LJ (with whom the other members of the Court agreed) described the estoppel argument as quite hopeless. He said (p 577, para 42):

    Estoppel cannot depend merely on sympathy and an assessment of comparative hardship.

  45. Actionstrength has appealed to your Lordships' House with leave granted by an Appeal Committee. Actionstrength no longer disputes that the pleaded oral agreement was a guarantee, and that section 4 of the Statute of Frauds is engaged. But it relies on the estoppel to circumvent the effect of the section.

  46. Section 4 of the Statute of Frauds 1677, so far as now in force, is in the following terms:

    No action shall be brought .... whereby to charge the defendant upon any special promise to answer for the debt, default or miscarriages of another person .... unless the agreement upon which such action shall be brought, or some memorandum or note thereof, shall be in writing, and signed by the party to be charged therewith, or some other person thereunto by him lawfully authorised.

    When it was originally enacted the section covered four other types of contract, that is

    1. a contract by an executor or administrator to accept personal liability;

    2. a contract in consideration of marriage;

    3. a contract for the disposition of land; and

    4. a contract to be performed more than one year after its formation.

    The section was re-enacted, in relation to contracts for the disposition of land, by section 40 of the Law of Property Act 1925 and was then replaced (with significant changes) by section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. Section 4 was repealed, in relation to the other three types of contract, by the Law Reform (Enforcement of Contracts) Act 1954. Mr. McGhee (for Actionstrength) has urged on your Lordships that the Statute of Frauds was passed in a bygone age when the civil justice system was very different (in particular, neither party to civil litigation was a competent witness). But when the point was last considered (as it was by the Law Reform Committee shortly before the change of law in 1954) the recommendation was to retain section 4 in relation to contracts of guarantee.

  47. Mr. McGhee made clear in his opening submissions (and confirmed in his reply) that he was not relying on proprietary estoppel, or on the equitable doctrine of part performance. But it is worth noting that the doctrine of part performance was developed not as the enforcement of a contract which Parliament had made unenforceable, but as an action on the equities arising out of what had been done towards performance of the oral contract. Granting relief on the strength of those equities was regarded as involving no inconsistency with the Statute of Frauds. Indeed Lord Simon of Glaisdale said in Steadman v Steadman [1976] AC 536, 559, in relation to the famous speech by the Earl of Selborne LC in Maddison v Alderson (1883) 8 App Cas 467, 475-6, that it achieved "a complete reconciliation between the provisions of the statute and the doctrine of part performance".

  48. Since part performance of an oral contract for the sale of land was an equitable doctrine, the equitable remedy of specific performance was the only relief available. In this case Actionstrength was claiming a liquidated sum (about 1.3 million) and that is no doubt part of the reason why Mr. McGhee did not seek to rely on part performance. Another reason may be the difficulty (even with the apparent liberalisation effected by Steadman v Steadman) of showing that what Actionstrength did, after 11 February 2000, was referable to its pleaded oral contract with St-Gobain (rather than to its written contract with Inglen).

  49. Instead Mr. McGhee relied on the broad general principle as to estoppel stated by Oliver J in Taylors Fashions Ltd v Liverpool Victoria Trustees Co Ltd (Note) [1982] QB 133 (and since approved and followed by many higher courts). Mr. McGhee submitted that this is not a case (such as those referred to by Viscount Radcliffe in Kok Hoong v Leong Cheong Kweng Mines Ltd [1964] AC 993, 1015-8) in which a clear public policy underlying a statute (for instance, the need to protect vulnerable persons dealing with moneylenders or landlords) prevents an estoppel arising. That appeared not to be in dispute. But Mr. McGhee still had to demonstrate how the estoppel which he contended for could take effect (otherwise than through an equitable doctrine for which he did not contend) in a way which is consistent with the provisions of section 4 and does not deprive the section of any real effect.

  50. Mr. McGhee accepted that there appears to be no English case (indeed, so far as his researches have gone, no case in any jurisdiction) in which an oral contract of guarantee has been enforced through the medium of an estoppel. However, your Lordships' attention was drawn to two recent decisions which were put forward as offering some assistance. The first is Bank of Scotland v Wright [1991] BCLC 244. In that case a director of two companies (one a subsidiary of the other) had given the bank a written guarantee of the liability of the holding company (only); but under an "interavailable" facility backed by cross-guarantees (by the companies) the holding company was liable for the subsidiary's indebtedness to the bank. When the bank sued the individual guarantor for the whole of the corporate indebtedness there were two issues, the construction of the guarantee and (if the bank failed on that point) estoppel by convention. Brooke J decided the first point in favour of the bank, and said cautiously on the second (after referring to what Viscount Radcliffe said in Kok Hoong and to Humphries v Humphries [1910] 2 KB 531) (p 266):

    In the light of these authorities I would not exclude the possibility that circumstances might arise in which a guarantor might have acted in such a way as to create or influence the other party's mistaken belief in the effectiveness of his guarantee so that it would be unconscionable to allow him to rely on the Statute of Frauds. Such a finding would depend very much on the court's views, on the facts of any particular case, of the personalities and attributes of the two parties between whom the alleged estoppel was alleged to have arisen.

    I see no reason to disagree with those observations, but they presuppose some sort of representation by the guarantor, together with unconscionability; not just unconscionability on its own.

  51. The other case is Shah v Shah [2002] QB 35. There the Court of Appeal was concerned with section 1 of the Law of Property (Miscellaneous Provisions) Act 1989, relating to the execution of deeds. Section 1(3) requires a deed made by an individual to be signed:

    (i)

    by him in the presence of a witness who attests the signature; or

    (ii)

    at his direction and in his presence and the presence of two witnesses who each attest the signature.

    The deed in question appeared on its face to comply with these requirements, but the evidence was that the witness to the signatures of two of the defendants had not signed in their presence (but shortly afterwards, not in their presence). Pill LJ (with whom Tuckey LJ and Sir Christopher Slade agreed) said (at p 41, para 13):

    The delivery of the document constituted an unambiguous representation of fact that it was a deed.

    He saw no reason of policy to exclude the operation of an estoppel. I do not think that this case helps Actionstrength, any more than Bank of Scotland v Wright does. In Shah v Shah the delivery of an apparently valid deed constituted an unambiguous representation of its nature. In the present case, by contrast, what passed between the parties (as pleaded by Actionstrength and as set out in Mr. Sutcliffe's witness statement) did not amount to an unambiguous representation that there was an enforceable contract, or that St-Gobain would not take any point on section 4 of the Statute of Frauds.

  52. That is the point which Mr. Soole QC (for St-Gobain) rightly put in the forefront of his submissions as what he called the short answer to the appeal. He was willing to concede (in line with what Brooke J said in Bank of Scotland v Wright) that an explicit assurance that St-Gobain would not plead the Statute of Frauds (like an explicit assurance not to take a limitation point) could found an estoppel. But it would wholly frustrate the continued operation of section 4 in relation to contracts of guarantee if an oral promise were to be treated, without more, as somehow carrying in itself a representation that the promise would be treated as enforceable.

  53. To treat the very same facts as creating as an unenforceable oral contract and as amounting to a representation (enforceable as soon as relied on) that the contract would be enforceable, despite section 4 and to do so while disavowing any reliance on the doctrine of part performance would be to subvert the whole force of the section as it remains in operation, by Parliament's considered choice, in relation to contracts of guarantee. It would be comparable (in a non-statutory context) to treating the mere fact of a mistaken payment made by A to B as importing a representation by A that the money was indeed due to B, so as to create an estoppel if B (relying on the implicit assurance) acted to his detriment by spending even part of the money.

  54. Mr. Soole's submissions appear to me to be unanswerable, and I do not think it is necessary to go on to what he called his longer answer to the appeal. I quite see that the pleaded oral contract of guarantee is an unusual one, said to have been entered into by a company whose economic strength is no doubt much greater than that of most guarantors. St-Gobain does appear (again, on Actionstrength's pleaded case) to have obtained the benefit of about a month's work on its factory which might not otherwise have been performed. But in the absence of any assurance (other than the bare oral promise itself) the degree of detrimental reliance on the part of Actionstrength is irrelevant. I think that Simon Brown LJ was right in describing Actionstrength's case on estoppel as hopeless.

  55. I have had the advantage of reading in draft the speeches prepared by my noble and learned friends Lord Bingham of Cornhill and Lord Hoffmann. I agree with them, and for the reasons which they give, as well as for those set out above, I would dismiss this appeal. I would order the appellant to pay the respondent's costs before your Lordships' House.


Cases

Steadman v Steadman [1976] AC 536; St-Gobain Glass UK Ltd v Actionstrength Ltd [2002] 1 WLR 566, 568, [2001] EWCA Civ 1477; Amalgamated Investment & Property Co Ltd (In Liquidation) v Texas Commerce International Bank Ltd [1982] QB 84; Maddison v Alderson (1883) 8 App Cas 467; Taylors Fashions Ltd v Liverpool Victoria Trustees Co Ltd (Note) [1982] QB 133; Kok Hoong v Leong Cheong Kweng Mines Ltd [1964] AC 993; Bank of Scotland v Wright [1991] BCLC 244; Humphries v Humphries [1910] 2 KB 531; Shah v Shah [2002] QB 35

Legislations

Statute of Frauds 1677: s.4

Law of Property Act 1925: s.40(1), (2)

Law of Property (Miscellaneous Provisions) Act 1989: s.2

Law Reform (Enforcement of Contracts) Act 1954

Authors and other references

Holdsworth, A History of English Law, vol VI

Law Commission, "Transfer of Land: Formalities for Contracts for Sale Etc of Land", HC2, June 1987, Law Com. No 164

Law Revision Committee, "Statute of Frauds and the Doctrine of Consideration", 1937, Sixth Interim Report, Cmd 5449

Law Reform Committee, "Statute of Frauds and Section 4 of the Sale of Goods Act 1893", 1953, First Report, Cmd 8809


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