This was an appeal to the House of Lords in respect of the applicability of the doctrine of estoppel to guarantees, themselves governed by Section 4 of the Statute of Frauds 1677. Saint-Gobain had retained the First Defendant (“Inglen”) as the main contractor for the construction of a new factory in Yorkshire. Actionstrength was a labour-only subcontractor that supplied labour to Inglen. Inglen failed to make a payment to Actionstrength and Actionstrength indicated its intention to withdraw labour from the site. Saint-Gobain allegedly made an oral promise to Actionstrength that if Inglen did not pay any sums that were or became owing to Actionstrength, Saint-Gobain would make such payments directly to Actionstrength. Actionstrength claim payment from Saint-Gobain based on this alleged promise. This appeal does not concern the nature of the alleged promise, as it is accepted by the parties that the promise, if made, constitutes a guarantee to which Section 4 of the Statute of Fraud applies.
The question before the court was whether there was an estoppel that prevented Saint-Gobain from relying on the provisions of Section 4 of the Statute of Frauds.

Section 4 of the Statute of Frauds provides (to the extent that it remains in force):

“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, so some other person thereunto by him lawfully authorised.”

Actionstrength claimed that by reason of the alleged agreement between Actionstrength and Saint-Gobain as to payment, Saint-Gobain encouraged Actionstrength not to withdraw its labour from the site. Further, on the strength of that alleged promise, Actionstrength acted to its detriment in continuing to supply labour for the site. Finally, Actionstrength claimed that it would be unconscionable for Saint-Gobain to deny that it entered into a binding agreement as alleged.

  

Reference

The House of Lords dismissed Actionstrength’s appeal on the basis that although an estoppel could exist that would provide a defence to Section 4 of the Statute of Frauds, if an oral promise were to be treated, without more, as some how acting as a representation that the promise would be treated as enforceable, this would wholly frustrate the operation of Section 4. Lord Bingham of Cornhill stated that three questions should be asked: 1. What is the assumption that Actionstrength made? 2. Did Saint-Gobain induce or encourage the making of that assumption? 3. Is it in all the circumstances unconscionable for Saint-Gobain to place reliance on Section 4? The Court decided that Actionstrength failed in relation to the second question. In seeking to show inducement or encouragement, Actionstrength could not rely on anything beyond the oral agreement of Saint-Gobain, which, in the absence of writing, was rendered unenforceable by Section 4. There was no representation by Saint-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 Saint-Gobain make any payment direct to Actionstrength that could be relied on as affirming the oral agreement or inducing Actionstrength to go on supplying labour.

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Postscript

This is an interesting case because it confirms that, in accordance with Section 4 of the Statute of Frauds, a guarantee must be in writing. Further, if there is nothing more than an oral promise to pay, there will be no estoppel that will prevent reliance on Section 4. For it to be possible to rely on an estoppel it is likely that there must be something more than the oral promise, for example, part payment or a further representation confirming the alleged oral guarantee.