Actionstrength Ltd v International Glass Engineering INGLEN SpA

An oral promise by a third party to pay a subcontractor if the contractor defaults is a guarantee within section 4 of the Statute of Frauds 1677 where the promisor’s own assets are at risk. Describing the promised source of payment as a particular fund or as money otherwise payable to the contractor does not avoid the statute if payment would leave the contractor entitled to recover the same sum from the promisor. The distinction is between a primary obligation, such as an authorised redirection of the debtor’s own funds which extinguishes the debtor’s liability, and secondary liability for another’s default. Estoppel will not ordinarily prevent reliance on section 4 merely because the creditor continued performance in reliance on the oral promise and suffered substantial detriment.

Actionstrength supplied labour to International Glass Engineering IN.GL.EN S.P.A. under a subcontract. Saint-Gobain Glass UK Ltd, the employer, allegedly promised that if Actionstrength continued working, it would ensure payment of sums due from Inglen, including by redirecting sums Saint-Gobain owed Inglen.

Inglen failed to pay, became insolvent, and Actionstrength claimed against Saint-Gobain. Saint-Gobain applied for summary judgment under CPR 24.2, contending that the alleged oral agreement was a guarantee unenforceable under section 4 of the Statute of Frauds 1677. Mitting J dismissed the application because the evidence might support a primary payment obligation. The Court of Appeal considered whether the agreement was within section 4 and whether estoppel could prevent reliance on it.

1. Appeal allowed. The claim against Saint-Gobain was struck out. The appellant was awarded the costs of the application, appeal, action and Part 20 proceedings against Inglen.
2. The agreement had to be characterised by substance rather than form. Even on the construction most favourable to Actionstrength, Saint-Gobain promised to pay if Inglen did not pay, by redirecting money which Saint-Gobain otherwise owed Inglen. That was secondary liability for Inglen’s default and therefore a special promise within section 4 of the Statute of Frauds 1677.
3. The distinction from Andrews v Smith and Steggall v Lymburner was that, in those cases, the debtor had authorised or consented to payment from money otherwise due to him. The arrangements therefore created a primary liability, or were tantamount to a novation or assignment, and payment extinguished the debtor’s liability pro tanto. Here, payment by Saint-Gobain would not have discharged Inglen’s liability to Saint-Gobain. Inglen or its liquidator could still claim the same sum, so the payment would be from Saint-Gobain’s own funds.
4. The court rejected the suggested distinction between a guarantee payable from general assets and one limited to a particular asset or fund. Section 4 contained no such limitation. Morley v Boothby supported applying the section where the source of payment was designated, while the reasoning of Higgins J in Harvey v Edwards Dunlop & Co Ltd was insufficient authority for the contrary proposition.
5. Estoppel could not arise merely because the promise encouraged Actionstrength to continue working and increased its exposure. Such an approach would undermine or create uncertainty in section 4. The court envisaged that estoppel might operate where a guarantor assured the creditor that an oral promise would bind despite the absence of writing, but those facts were not present.

• Court of Appeal: Allowed Saint-Gobain’s appeal and struck out the claim against it.
• High Court, Queen’s Bench Division, Manchester District Registry: Mitting J dismissed Saint-Gobain’s CPR 24.2 application for summary judgment on 30 July 2001, holding that the evidence might disclose a primary obligation and that the issue should proceed to trial.