UK: Court considers whether a guarantee by way of email has been signed

The court has recently looked at whether a guarantee by way of email had been signed with a view to establishing whether it was enforceable. The court concluded the email had not been signed just because the sender’s name and email address appeared in the header information. The decision will be of interest to creditors who, although they may have formal procedures in place governing the taking of guarantees, may find themselves in the position of being offered a guarantee by way of email.

The court has recently looked at whether a guarantee by way of email had been signed with a view to establishing whether it was enforceable. The court concluded the email had not been signed just because the sender’s name and email address appeared in the header information. The decision will be of interest to creditors who, although they may have formal procedures in place governing the taking of guarantees, may find themselves in the position of being offered a guarantee by way of email.

Mr Mehta sent an email offering a personal guarantee of a debt due from his company. He did not sign the email either by typing his name at the end of the body of the message or by using a secure signature verification tool. The only place where his name was to be found was in the sent email address line at the top of the email.

The issues before the court were:

• whether the email was a memorandum or note of an agreement to guarantee and

• whether the email had been signed, so as to satisfy the requirements of s 4 Statute of Frauds.

The purpose of the Statute is to protect people from being held liable on oral or unsigned written communications. Where there is an offer in writing made by the party to be bound containing the essential terms and the party to be bound accepts that his offer has been accepted (even if only orally), then a memorandum or note has been made to satisfy the Statute.

The court found that:

• the email amounted to a memorandum or note that would be enforceable as a guarantee;

• the email had not been signed by the automatic insertion (by the internet service provider) of Mr Mehta’s email address.

The court considered the email address to be the equivalent of a fax number and did not consider that to be enough to show an intention to be bound by the terms of the document.

In working out whether a document has been signed, the court uses a functional test: asking whether the conduct of the would-be signatory indicates an intention to authenticate the document.

In this case, it would have been sufficient for the guarantor to have typed his name as a sign-off to the main body of the email. Note too, the difference between best practice in requiring a guarantee to be by way of deed and the position in law that the guarantee will be effective if it is in writing and signed.

The position could be compared to the case of IRC v Conbeer although the judge in the Mehta case does not refer to it perhaps because Conbeer limited its consideration of the meaning of "signed" in relation to Part 8 of the Insolvency Rules 1986 only. In Conbeer, it was decided that a faxed proxy form was signed if it bore upon it some distinctive or personal marking which had been placed there by or with the authority of the would-be signatory. When the form was faxed it transmitted two things: the contents of the fax and the signature applied to it. What is important is not the form of the signature itself but an intention to authenticate the document.

The European Commission published a report on 20 March 2006, showing that individuals and businesses have been slow to make use of electronic signature tools, despite the creation of a Community framework to support their legal admissibility. The EC anticipates the growing use of electronic ID cards will serve to identify the holder and authenticate the signature, as well as enabling the holder to sign electronic documents.

Law: Further reading: s 4 Statute of Frauds 1677, Nilesh Mehta v J Pereira Fernandes SA [2006] EWHC 813 (Ch); IRC v Conbeer British Company Cases ChD 189 20 November 1995

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

The original publication date for this article was 09/05/2006.