UK: But You Promised!
Contracts Law, Commercial Disputes

In a recent House of Lords’ decision, Actionstrength Ltd v International Glass Engineering SpA and others¹, the application of a 300 year old statute was approached on the basis that Parliament may have intended to cause injustice by allowing people to break promises which had been relied upon.

The decision related to the enforceability of a purported guarantee given orally. The appellant, Actionstrength was a labour-only subcontractor retained by a main contractor, Inglen, which in turn was retained by the respondent, St-Gobain to construct a plate glass factory in East Yorkshire. The matter proceeded on the assumption that a guarantee had been given to Actionstrength by St-Gobain in respect of a debt owed by Inglen to Actionstrength of about £197,000. In short, Actionstrength had threatened to withdraw its labour from the site unless the debt was paid. To avoid this, St-Gobain allegedly promised that if Inglen could not be persuaded to pay Actionstrength, St- Gobain would do so out of monies withheld from what was due to Inglen under the main contract. In reliance, Actionstrength continued providing labour until the debt had reached approximately £1.3 million. Actionstrength was still unable to obtain payment from Inglen and at this point, the labour was withdrawn and Actionstrength sued St-Gobain on the basis of the alleged guarantee of payment.

In response, St-Gobain argued that even if a promise had been given (which was denied), it was unenforceable by virtue of s.4 of the Statute of Frauds 1677 which states that no court action shall be brought ‘…to charge the defendant upon any special promise to answer for the debt…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…’.

Actionstrength’s problem of course was that the guarantee upon which it relied had been made only orally and thereby fell foul of the Statute. Nevertheless, it argued that it would be unconscionable for St-Gobain to renege on its promise. However, the House of Lords disagreed and held that the alleged oral guarantee was not enforceable. The Court decided that Actionstrength could not rely on an estoppel (i.e. could not prevent St-Gobain from denying the truth of the assertion allegedly made to Actionstrength) since to admit an estoppel on the grounds that Actionstrength had acted to its detriment in reliance on the oral promise would effectively amount to a repeal of the Statute of Frauds (the court noted that in almost any case, the recipient of the oral promise could be said to have acted to their detriment). The possibility that an estoppel may be relied upon in other circumstances was left open, but it is difficult to see just what these circumstances might be.

While it was acknowledged that the 17th century mischief that the Statute was intended to redress (i.e. to avoid the calling of perjured evidence to prove spurious agreements said to have been made orally) was perhaps outweighed by the mischief to which it can give rise in cases such as this, it was for Parliament, not the courts, to repeal the Statute.²

Nevertheless, the Court did acknowledge that the reasons for retaining the rule could have little bearing on cases where the facts were such as those assumed in this instance. For example, (i) it did not involve a bargain struck between inexperienced people; (ii) St-Gobain had a clear incentive to keep the Actionstrength workforce on site (and did benefit in this respect); (iii) contract law does not ordinarily require writing as a condition of enforceability; and (iv) it was doubtful whether those involved appreciated that the agreement made was in law a guarantee.

Ultimately, Lord Hoffmann noted that the purpose of the Statute was to avoid the need to decide which side was telling the truth. Any potential injustice in this and other cases was outweighed by the need to protect people from being held liable on the basis of oral utterances which were illconsidered, ambiguous or completely fictitious. In this context, he said that no assumption can be made that Parliament did not intend to cause injustice by allowing people to break promises which had been relied upon³.

In short, unless evidenced and signed in writing, an offer, even in good faith, is an offer of nothing. Parties who have concerns about the solvency of employers (developers/main contractors) must ensure that any promises or guarantees are recorded and signed by the person giving the guarantee if they are to be relied upon.