Estoppel and the Statute of Frauds

An oral guarantee that results in the extension of credit or some other action or forebearance does not give rise to an estoppel in the absence of some further assurance and some further detriment than are inherent in the guarantee contract itself.

In Actionstrength Ltd v International Glass Engineering In.GL.en SpA ([2003] UKHL 17, HL) C was D1’s sub-contractor. D1 was the main contractor under a contract to build a factory for D2. D1 was in arrears with the payments due to D2 under the sub-contract. C alleged that there was a meeting at which D2 assured C that payments due to D1 would be withheld from D1 and used to pay C. This was disputed but for the purposes of D2’s claim to have the action struck out it was assumed that C’s account of the facts was accurate. D2 argued that the promise would amount to a guarantee and would be unenforceable because of the failure to comply with section 4 of the Statute of Frauds. C argued that, in reliance on D2’s assurance, it had continued to perform its obligations under the sub-contract for a further month. C argued that this gave rise to an estoppel; it would be unconscionable for D2 to resile from its assurance. C failed. This was a simple case of an unenforceable guarantee; there was no additional assurance / detriment to give rise to an estoppel. There was no independent equity subsisting alongside the contract. C had refused to rely on part performance.

Lord Bingham hinted that the outcome might have been different if D2 had made any payment to C pursuant to the alleged assurance (para 9).  Lord Hoffman made the point that equity can intervene where there have been subsequent acts of part performance (paras. 22 – 24). But part performance relies on the distinction to be drawn between the contract, on the one hand, and performance. It cannot intervene to make enforceable  a fully executory contract that does not comply with statutory formalities. It is the later performance that gives rise to the equity.  Giving credit is central to the guarantee arrangement. Treating it as giving rise to an estoppel would mean that estoppel could be invoked in the case of any guarantee (para. 26). Lord Clyde thought that where there was need for some ‘additional encouragement, inducement or assurance’ (para. 35).

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