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

A special promise to answer for another person’s debt is unenforceable under section 4 of the Statute of Frauds 1677 unless evidenced by a signed writing. Ordinary estoppel principles remain available, but the bare oral promise and the creditor’s resulting extension or continuation of credit cannot themselves establish an estoppel. The creditor must show an assumption that the guarantee would be honoured, inducement or encouragement of that assumption by something additional attributable to the guarantor, and circumstances making reliance on the statutory formality unconscionable. Unconscionability cannot be considered before assumption and inducement are established. Treating ordinary performance and detrimental reliance as sufficient would deprive the statutory writing requirement of effect. The House left open whether an additional assurance, such as an undertaking not to invoke the statute, could exceptionally found an estoppel.

Actionstrength supplied construction labour to Inglen, the main contractor engaged by St-Gobain to build a factory. After substantial arrears accrued, Actionstrength threatened to withdraw its workforce. It alleged that St-Gobain orally promised to pay sums owed by Inglen if Actionstrength continued working. Actionstrength did so, and Inglen’s indebtedness rose to about £1.3 million. Actionstrength obtained default judgment against the insolvent Inglen and pursued St-Gobain under the alleged oral guarantee.

St-Gobain sought summary judgment. Mitting J refused the application because it was arguable that the promise was an indemnity rather than a guarantee. The Court of Appeal allowed St-Gobain’s appeal in [2001] EWCA Civ 1477, reported at [2002] 1 WLR 566. It held that the promise was a guarantee and rejected the estoppel argument. Before the House, Actionstrength accepted that section 4 of the Statute of Frauds 1677 applied. The sole issue was whether St-Gobain could be estopped from relying on the absence of signed written evidence.

Appeal dismissed unanimously. The House upheld the summary disposal of the claim against St-Gobain. Lord Woolf agreed with the reasons given in the four substantive speeches.

1. Lord Bingham held that section 4 of the Statute of Frauds 1677 was fatal to the claim unless an estoppel could be established. Parliament had deliberately retained the signed-writing requirement for guarantees. The provision therefore had to be applied even though it could produce unfairness on the assumed facts.

2. Lord Bingham formulated three sequential questions: what assumption the creditor made; whether the guarantor induced or encouraged that assumption; and whether reliance on section 4 would be unconscionable in all the circumstances. The third question could not properly be addressed before the first two. Lord Clyde adopted a comparable structural framework requiring an assumption that the guarantee would be honoured, inducement or encouragement by the guarantor, and reliance by the creditor.

3. Lords Bingham, Clyde and Walker held that the alleged oral promise supplied no sufficient inducement beyond the promise itself. There was no representation that St-Gobain would honour the promise despite the lack of writing, that the agreement was not a guarantee, that it would be confirmed in writing, or that St-Gobain would refrain from invoking section 4. Actionstrength’s continued provision of labour was the ordinary performance expected after a guarantee and did not establish reliance on a separate assumption of enforceability.

4. Lord Hoffmann explained that a creditor ordinarily advances or continues credit on the faith of every guarantee. The guarantor commonly knows that credit depends on the promise and may benefit from giving it. If those features alone created an estoppel, section 4 would effectively be repealed. The doctrine of part performance considered in Steadman v Steadman [1976] AC 536 and Maddison v Alderson (1883) 8 App Cas 467 was different: it operated through equities arising from subsequent acts in land transactions and did not enforce the executory contract as such.

5. Lords Hoffmann and Clyde did not decide whether a guarantor could ever be estopped from relying on section 4. Lord Walker approved the possibility contemplated in Bank of Scotland v Wright [1991] BCLC 244, but stressed that it presupposed some additional representation by the guarantor. He distinguished Shah v Shah [2002] QB 35, where delivery of an apparently valid deed represented that it was a deed. No equivalent representation occurred here. The degree of detrimental reliance was therefore irrelevant.

6. Lord Walker ordered Actionstrength to pay St-Gobain’s costs in the House.

1. House of Lords: The House unanimously dismissed Actionstrength’s appeal in [2003] UKHL 17, upheld the summary disposal of its claim against St-Gobain, and ordered Actionstrength to pay St-Gobain’s costs in the House.
2. Court of Appeal: In [2001] EWCA Civ 1477, reported at [2002] 1 WLR 566, the court allowed St-Gobain’s appeal. It held that the pleaded agreement was a guarantee rather than an indemnity and rejected the estoppel argument.
3. High Court: Mitting J refused St-Gobain’s application for summary judgment under Part 24 of the Civil Procedure Rules 1998. He considered the distinction between a guarantee and an indemnity arguable and expressed no view on estoppel.