Litigation
Guarantees
Guarantees are widely used in a range of commercial transactions, but despite this familiarity it is always worth checking the basic rules are complied with to ensure that you have an enforceable obligation.
Signing a guarantee
Section 4 of the Statute of Frauds 1677 (Statute of Frauds) stipulates that a guarantee must be in writing and signed by the guarantor or a person lawfully authorised by it. Whilst this principle has not been removed with the passage of a considerable period of time, the courts have shown an appreciation of the changes in the way parties do business. “Signature", for the purposes of the Statute of Frauds, has been given a wide interpretation so that an e-mail can be a sufficient memorandum or note 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.
In Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltd [2011] EWHC 56 (Comm), the court 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. 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. It was not necessary for the guarantee to be documented in a separate agreement or in any more ample terms. Where there is a sequence of communications, the language used and the conduct or convention of the transaction 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.
In WS Tankship II BV v The Kwangiu Bank Limited [2011] EWHC 3103 (Comm), the court held that taking into account the nature of the transaction and the working of the documents, the insertion of the name of a guarantor automatically by the SWIFT messaging system and the sending of the message constituted a sufficient signature for the Statute of Frauds.
If it is intended to rely on a course of correspondence to establish a guarantee has come into existence, care should be taken to ensure that the final written document contains a statement of all the material terms of the guarantee; a subject to contract document may not be sufficient as a note or memorandum of a guarantee. back to top
Execution of deeds: delivery
Although a guarantee is a contract which can simply be signed, it is not uncommon for guarantee to be executed as a deed which requires four key elements to be present or the deed will be invalid. It must be: in writing, clear on its face that it is intended to be a deed, signed and delivered as a deed. Although these are simple and well known rules, they frequently cause problems for parties seeking to rely on the deed at a later stage.
A recent reminder of the importance of the formality of delivery arose in Bibby Financial Services Ltd v Magson [2011] EWHC 2495 (QB), where the court had to determine whether guarantees and warranties in the form of deeds had been delivered by individuals. The individuals had signed the deeds, their signatures had been witnessed and the deeds handed to the other side, but the individuals contended that they had signed as a gesture of good faith, expecting, in the light of discussions at the time of signature, that clean versions incorporating their manuscript notations would be produced and versions in those revised forms would be signed afresh.
For a document to be delivered as a deed it is essential that the person signing the deed separately indicates that he intends to be bound by the deed. Mere signature is not enough. Nor is ‘delivery’ the act of a document that looks like a deed being given to the person who appears to be the beneficiary of it. The essence of delivery is not whether the document is physically handed over to the beneficiary, but whether the person whose deed it is supposed to be intends to be bound by it. The court held, on the facts, that none of the guarantees or the warranties in question was intended to be delivered, in the technical sense, when handed to the other side after signature and so the guarantees were not enforceable. back to top