UK: Contracts: Keeping Formalities To A Minimum

Last Updated: 8 September 2011
Article by Mike Kilbee

Commercial Thinking

A feature of English contract law is the willingness of the court to recognise the realities of commercial life. These realities often result in contracts, or perhaps alleged contracts, being in anything other than a neat and tidy document which has indisputably been signed by duly authorised persons. The Commercial Court demonstrated this in the case of Golden Ocean Group Limited v Salgaocar Mining Industries Pvt Limited, Mr Anil V. Salgaocar [2011] EWHC 56 (Comm). The dispute related to the chartering of a ship and a guarantee of the charterer's obligations and the court had to consider a range of questions regarding contracts and guarantees which could easily relate to any number of commercial transactions. The court proceedings were brought in order to determine whether the Claimant, Golden Ocean Group, had an arguable case and, if so, that it should be permitted to issue proceedings in the English courts and serve them on the defendants in Goa. The judgment, therefore, is not a decision on the substantive issues in dispute.

There had been a series of emails passing between a firm of shipbrokers and Golden Ocean Group on the one hand and between the same firm of shipbrokers and Mr Salgaocar on the other hand. These emails were the process by which Mr Salgaocar negotiated with Golden Ocean Group for the charter of a ship by Golden Ocean Group to a company called Trustworth and with the intention that the obligations of Trustworth would be guaranteed by Salgaocar Mining Industries (SMI). All emails were to and from the shipbrokers. The final emails indicated that all the terms of the charter agreement had been agreed. A formal charter agreement was then drawn up but was never signed.

The court had to decide whether there was an arguable case that a contract for the charter of the ship had been made and that the obligations of the charterer, Trustworth, had been guaranteed by SMI. If there was a guarantee then further questions arose as to whether the requirements of the Statute of Frauds Act 1677 had been complied with. If the requirements had not been complied with, then the guarantee would not be enforceable.

The court had little difficulty in deciding that it was perfectly possible for a written contract for charter to be concluded by way of a sequence of emails in which the proposed terms are set out or referred to and by which outstanding points are negotiated and eventually agreed. In this case the emails did not go between the parties but were to and from the shipbrokers who relayed to each of the parties the messages from the other party. Any given email usually dealt only with the outstanding point or points still under negotiation and did not expressly refer back to all the other terms which had been agreed in earlier emails. The court decided that it was not necessary for each email to refer back to the previously agreed terms and that there need be no limit to the number of emails in the sequence.

An early email recorded that negotiations were proceeding on the basis of the charterers being "Trustworth fully guaranteed by SMI". The court decided that Golden Ocean Group had a "well arguable" claim that the charter and the guarantee were valid contracts. The court did, however, have to consider whether Golden Ocean Group had an arguable case that such guarantee complied with section 4 of the Statute of Frauds. This Statute requires that, to be enforceable, a guarantee must be in writing or that there is some written memorandum or note of the guarantee. In either case, the guarantee or the memorandum or note must be signed by the guarantor or by some other person lawfully authorised by the guarantor. The court decided that Golden Ocean Group did have an arguable case that the email sequence had produced a guarantee which was an agreement in writing. As regards the requirement for signature by or on behalf of the guarantor, the parties to the action agreed that an electronic signature would be sufficient.

The question before the court was whether there had, in fact, been anything which constituted a signature. The judgment includes a very useful review of previously decided cases which give guidance on this question and the court had little difficulty in deciding that the emails which constituted the contract were signed by the electronically printed signature of the person who sent them. Being satisfied that there was an arguable case that the guarantee was in writing and had been signed, the court then had to consider whether the signatures on the emails were by a person "lawfully authorised" by the guarantor, SMI. The emails had been from Mr Salgaocar to the shipbrokers and then from the shipbrokers to representatives of Golden Ocean Group. The court considered a range of background factors including previous transactions conducted by Mr Salgaocar on behalf of SMI and decided that there was an arguable case that Mr Salgaocar had authority to bind SMI. Further, this authority extended to Mr Salgaocar authorising the shipbroker to bind SMI. Even if the shipbroker had not been given actual authority to bind SMI, the court considered that it was arguable that it had apparent authority to do so.

It remains to be seen whether the dispute will result in a court action which will go through to a hearing and judgement. Any such judgment may or may not uphold the "arguable case" but it is instructive to see just how accommodating the court is prepared to be in grappling with what, on the face of it, might appear to be a rather unpromising collection of documents.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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