Commercial finance

Guarantees and indemnities

The High Court has held that the sequence of e-mail negotiations and related documents could be pieced together in such a way that it was arguable a guarantee existed which defeated the statutory defence available to a guarantor under section 4 of the Statute of Frauds 1677 (namely that a valid guarantee must be an agreement, memorandum or note in writing and signed by the guarantor or someone at his direction)

Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltd [2011] EWHC 56 (Comm)

In this case, negotiations for the charter of a ship had been conducted by a chain of emails which contained the details of the charterparty and referred to the charterparty being guaranteed by the defendant. The delivery of the ship was refused and the claimant claimed that the e-mails and documents sent between the parties were sufficient to establish the guarantee. The defendant denied the existence of a guarantee, arguing that the charterparty, and any guarantee within it, was incomplete since the chain of e-mails were disjointed and insufficient to establish a guarantee; for example they had ended without a "recap" or a full and complete signed agreement incorporating all the key terms and did not satisfy section 4.

The court considered the arguments surrounding the existence (or otherwise) of the guarantee and held that the claimant had an arguable claim that the chain of e-mails and documents sent between the parties were sufficient to establish the guarantee. Despite the fact the alleged guarantors had not manually signed a final guarantee document, the judge reasoned that it made "good commercial sense" to look at all documents, including e-mails, which might constitute the guarantee, however many they may be. The court said it was not necessary for the guarantee to be documented in a separate agreement or in any more ample terms but held that where there is a sequence of communications, the language used and the conduct or convention of the transaction concerned are sufficient for the court to piece together a binding guarantee. The e-mails which constituted the alleged contract were signed by the electronically printed signature of the persons who sent them.

“Signature", for the purposes of the Statute of Frauds, has been given a wide interpretation in recent cases so that an e-mail can be a sufficient memorandum or note for the purposes of the Statute of Frauds if the name of the guarantor appears in the e-mail with the intention that it is a "signature" and there is evidence of an intention to contract, rather than a mere statement of expectation This case applies existing law to a specific set of facts but is an interesting modern extension of very old law. In this instance the outcome was in favour of the creditor but it is a useful reminder of the need for caution in pre-contract negotiations to ensure that binding obligations are not unwittingly formed by a sequence of e-mails (or other documents), the language used or the convention of the
transaction.