Actionstrength Limited (t/a Vital Resources (formerly t/a Morson Alltrades)) (company number 2761631) (Appellants) v. International Glass Engineering In.Gl.En. SpA and others (Respondents)
33. The grounds on which Actionstrength supports that proposition in its reply to the defence of the second defendant were:
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
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:
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:
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)  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):
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:
When it was originally enacted the section covered four other types of contract, that is (i) a contract by an executor or administrator to accept personal liability; (ii) a contract in consideration of marriage; (iii) a contract for the disposition of land; and (iv) 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  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)  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  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  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  2 KB 531):
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  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:
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):
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 4and to do so while disavowing any reliance on the doctrine of part performancewould 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.