Actionstrength Ltd (trading as Vital Resources) v International Glass Engineering in.GL.EN SpA and another

JurisdictionUK Non-devolved
JudgeLORD BINGHAM OF CORNHILL,LORD WOOLF,LORD HOFFMANN,LORD CLYDE,LORD WALKER OF GESTINGTHORPE
Judgment Date03 April 2003
Neutral Citation[2003] UKHL 17
Date03 April 2003
CourtHouse of Lords
Actionstrength Limited
(t/1 Vital Resources (formerly t/a Morson Alltrades) (company number 2761631) (Appellants)
and
International Glass Engineering In.Gl.En.SpA

and others

(Respondents)

[2003] UKHL 17

The Appellate Committee comprised:

Lord Bingham of Cornhill

Lord Woolf

Lord Hoffmann

Lord Clyde

Lord Walker of Gestingthorpe

HOUSE OF LORDS

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

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.

  • (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.

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...

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78 cases
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    • United Kingdom
    • Chancery Division
    • 15 April 2014
    ...41 Another authority to which I was referred on this aspect of the case was Actionstrength Ltd v International Glass Engineering Spa [2003] 2 AC 541. In that case, a defendant sought to have proceedings struck out on the basis that the agreement alleged by the claimant would, even if prove......
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    ...the law has positively declared not to subsist. Furthermore, in Actionstrength Ltd v International Glass Engineering IN. GL. EN SpA [2003] 2 All ER 615, Lord Hoffmann said that to admit an estoppel when this contravened the provisions of the Statute of Frauds would be tantamount to repealin......
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1 firm's commentaries
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    • Mondaq United Kingdom
    • 16 December 2003
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6 books & journal articles
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    • Hibernian Law Journal No. 12-2013, January 2013
    • 1 January 2013
    ...was intended to address, para.55 (citing Actionstrength Limited (t/a Vital Resources) v International Glass Engineering In.Gl.En. Spa [2003] 2 AC 541. 05 Cuddihy.indd 92 11/06/2013 13:46 Case Notes on Contracts of Guarantee 93 The Court accepted that there was an “attractive logic” to the s......
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    • Construction Law. Volume II - Third Edition
    • 13 April 2020
    ...349 [121 ER 132]. 70 Birmingham Joinery Ltd v Phillips [1999] EWCA Civ 866. 71 Actionstrength Ltd v International Glass Engineering SpA [2003] 2 AC 541. Lord Walker indicated (at 556–557) that an estoppel could arise where there was (a) an unambiguous representation or assurance that there ......
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    • Construction Law. Volume I - Third Edition
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    ...once 217 [1936] 3 all Er 374. 218 as to which, see paragraphs 9.74–9.77. 219 Actionstrength Ltd v International Glass Engineering SpA [2003] 2 aC 541 at 546, per Lord Bingham. See also Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24 at [7], per Lord Sumption JSC. 220......
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