The Court of Appeal has recently held that a chain of emails can create an enforceable guarantee. In doing so, the Court upheld the High Court’s ruling in the case of Golden Ocean Group Limited v Salgaocar Mining Industries PVT Limited (2011) EWHC 56 (Comm). The central issue in the case was the validity of a guarantee contained in an agreement which was negotiated in a sequence of emails, but never formalised as a signed document.
The formalities relating to guarantees are set out in the Statute of Frauds 1677, under which a guarantee is valid only if it is set out as an agreement in writing. It must also be signed by the guarantor or a person authorised by the guarantor. Despite its antiquity, the statute retains the force of law.
The case concerned a dispute over the existence of a charterparty, that is, a contract for charter. Golden Ocean Group Limited ("Golden Ocean"), an Indian shipping company, offered to charter one of its newly built vessels to Salgaocar Mining Industries PVT ("SMI"). Brokers for Golden Ocean and SMI negotiated the terms of the charter by email. Under the proposed terms, SMI was to charter the vessel for a period of 10 years via its Singaporean chartering arm, Trustworth Shipping Pte Limited ("Trustworth").
Early emails exchanged between the brokers stated that the charter would be “fully guaranteed” by SMI. The implication was that if Trustworth failed to fulfil its obligations under the charter, SMI would be liable to meet those obligations. Subsequent emails between the brokers addressed other points and made no further reference to the guarantee. The last email in the chain was sent by the broker for Golden Ocean. He confirmed his agreement on the final outstanding point and requested that a formal agreement setting out the agreed terms be produced, but one was never drawn up.
As the delivery date for the ship approached, Trustworth refused to take delivery. Golden Ocean claimed that Trustworth had failed to fulfil its obligations and sued SMI under the guarantee. SMI claimed that the guarantee was not valid, because there was no single document which set out the terms and which was signed by SMI. SMI argued that under the Statute of Frauds 1677, a guarantee is valid only if it is contained in a single written agreement signed by the guarantor.
The High Court first considered whether the charterparty containing the guarantee was required to be set out in a single document. The Court took into account the commercial context of the dispute and recognised that contracts are often negotiated informally by email, particularly in the shipping industry. A common pattern of negotiations is to agree some terms at an early stage, then proceed to negotiate outstanding points and conclude the contract without repeating the terms agreed at an earlier stage.
Clarke J stated that there was nothing in the relevant statute requiring a guarantee to be set out in a single document. As long as the agreement was in writing, it could be set out in a number of documents or emails. Accordingly, the charterparty and the guarantee set out in the email exchange between the brokers were valid.
The Court also considered whether the requirement for the guarantee to be signed by the guarantor or its authorised agent could be satisfied in the context of an email exchange. Neither SMI (as the guarantor) nor its broker had signed any documents in the conventional sense. However, the absence of a conventional signature was not fatal to the validity of the guarantee, because the typing of a name in an email could constitute a valid signature. When the broker for SMI had typed his first name in the final email confirming his agreement on the outstanding points, he had clearly intended to be bound by the terms set out in the whole sequence of emails. His electronic signature therefore signified his assent to all agreed terms and amounted to a valid signature.
The case highlights the need for particular care to be taken when negotiating commercial contracts by email. Without due care, the final email bearing an informal salutation may bring into effect an enforceable guarantee. Parties should make it clear that they do not intend to be bound until a formal document incorporating the agreed terms has been manually executed. To minimise the risk, all correspondence relating to the negotiations should be marked "subject to contract" or subject to the satisfaction of conditions.
If you require any further information about the issues raised in this article please contactTanya Shillingford (firstname.lastname@example.org), or any other member of Goodman Derrick LLP’s Corporate team on 0207 404 0606.
This guide is for general information and interest only and should not be relied upon as providing specific legal advice.
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