Judgments - 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)
|
OPINIONS
OF THE LORDS OF APPEAL
FOR JUDGMENT IN THE CAUSE
Actionstrength Limited (t/1 Vital Resources (formerly
t/a Morson Alltrades) (company number 2761631 (Appellants)
v.
International Glass Engineering In.Gl.En. SpA and
others (Respondents)
ON
THURSDAY 3 APRIL 2003
The Appellate Committee comprised:
Lord Bingham of Cornhill
Lord Woolf
Lord Hoffmann
Lord Clyde
Lord Walker of Gestingthorpe
HOUSE OF LORDS
OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT
IN THE CAUSE
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)
[2003] UKHL 17
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. Inglens 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 Inglens
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
Actionstrengths 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
- 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,
- 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,
- that the requirement of writing would ensure that the
terms of the guarantee were settled and recorded,
- that Parliament had imposed a requirement of writing
in other contractual contexts,
- 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,
- that it was desirable to protect the small man, and
- 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:
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 clients 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 WOOLF 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 Inglens
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 Inglens 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
Actionstrengths 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-Gobains 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 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
Actionstrengths 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-Gobains 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-Gobains 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
Actionstrengths 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
Steadmans 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 Reids 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). 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 guarantors
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 (a)
Actionstrength continued to supply Inglen only because of St-Gobains
encouragement (b) St-Gobain knew that without such encouragement
Actionstrength would not continue to perform its contract with Inglen (c)
St-Gobain stood to suffer loss and delay if Actionstrength did not
continue to perform and gave the guarantee to avoid this and (d) 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:
- 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,
- 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:
- 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 others 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 Inglens 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,
Actionstrengths managing director.
40. The outcome was (on Actionstrengths 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 Inglens 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. Actionstrength 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:
- 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,
- 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,
- 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 Actionstrengths 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), 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 Sutcliffes
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 (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 [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)(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
subsidiarys 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):
"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 partys
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 courts 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" (p 266).
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
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 Sutcliffes 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 Parliaments 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 Sooles 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 Actionstrengths pleaded
case) to have obtained the benefit of about a months 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 Actionstrengths 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 respondents costs before your Lordships House.