A Guarantee by Email?

In English law the basic principles surrounding contracts are designed with flexibility in mind, allowing parties to enter into a contract informally without the need for a written agreement.  In contrast, the Statute of Frauds 1677 requires that a guarantee of performance of a contract is in writing and signed by the relevant guarantor in order to be enforced.

In Golden Ocean Group Limited v Salgaocar Mining Industries PVT Limited and another [2012 EWCA Civ 265 the Court of Appeal had to consider if a chain of emails discussing the terms of a guarantee was enforceable.   The claimant had offered to charter a vessel to another company, Trustworth Shipping Pte Limited (“Trustworth”), with an option to purchase at the end of the charter period. During discussions regarding the agreement reference was made to the deal being “fully guaranteed” by the defendant.  When Trustworth repudiated the agreement by refusing to take delivery of the vessel, the claimant sought to rely on the guarantee given by the defendant.  The defendant argued that the guarantee was unenforceable as the email chain was incomplete and did not contain a recap of the terms.  Accordingly, they argued that the guarantee was not in writing or signed, meaning it could not satisfy the requirements of the Statute of Frauds.

Chain Of Emails

The court first considered whether a chain of emails could constitute the written terms of a guarantee.  The court held that it was desirable to use good business sense to give effect to agreements made by a series of e-mail communications where it is clear the sequence of offer, counter offer and final acceptance has been followed determining that a contract has been made.  This included negotiation of guarantees.  It was noted that one party had requested a recap of the terms of the guarantee, however the fact that this was not provided would not repudiate an agreement that had arguably already been agreed in writing.

In many instances parties will seek to mitigate the risk of entering into an agreement by marking correspondence as “Subject to Contract”. This is a strong indication to the courts that the parties are not intended to be bound by the terms discussed, however, this is not irrefutable.

Requirement For Signature

The court then considered what amounts to a ‘signature’.  This had previously been considered in the case of Metha v J Pereira Fernandes SA [2006] EWHC 813 which held that the automatic insertion of an email address would not constitute a signature.  It was held in Golden Ocean Group that a party can sign a document by using his full name, last name prefixed by initials, initials alone or even a pseudonym or code.  What is important must be that whatever was inserted, must be done with the intention of giving authenticity to it as a signature.  The email in question which concluded the guarantee simply contained the name “Guy”, being that of Mr Guy Hindley, the defendant’s broker.  Mr Hindley confirmed he had included his name to indicate it came with his authority and that he took responsibility for its contents.  Accordingly, the court held this was sufficient to satisfy the requirements of the Statute of Frauds.

Parties To The Guarantee

These considerations are not solely related to the matter of discussions by email.  In WS Tankship II BV v The Kwangju Bank Ltd and another [2011] EWHC 3103  the court was asked to consider the validity of a letter of guarantee sent via SWIFT message (a secure international messaging service used by financial institutions).  This matter is slightly different from Golden Ocean Group as the courts were asked to decide on a primary liability rather than a guarantee as determined by the Statute of Frauds, however they did offer some helpful comments on the application of the Statute.

The court accepted that the party name “Kwangju Bank Ltd” did not appear in the text of the body of the guarantee, however the name did appear in the header, which was automatically inserted into the SWIFT message.  The court concluded that by sending the message, the defendant had knowingly intended for its name to be inserted and as such it was sufficient to constitute a signature.  The court also held that the type of communication provided sufficient authentication for the recipient to know the transmission had come from the defendant.  This is in contrast with the earlier case of Metha, however the distinction is drawn to the differing type of communication.

Old Law To New Technology

Both cases of Golden Ocean Group and WS Tankship demonstrate a willingness of the courts to adapt old law to new technology.  It is significant to note that typing a name in an email may now constitute a signature for the purposes of the Statute of Frauds, and parties should be more careful than ever when conducting negotiations by email that they do not enter into binding agreements or guarantees unintentionally.  It may be more prudent to show a clear intention to produce a written document with a wet signature, rather than letting your emails do it for you.

Amy Fletcher