UK: Court Of Appeal Gives Effect To Market Practice – Guarantees Given In Email Negotiations

Last Updated: 11 April 2012
Article by Paul Herring and James Hickland

Golden Ocean Group Limited v. (1) Salgaocar Mining Industries PVT Limited and (2) Mr Anil Salgaocar [2012] EWCA Civ 265

For a guarantee to be enforceable, the Statute of Frauds 1677 requires it (or a note or memorandum of it) to be in writing and signed by the guarantor or by a person authorised on his behalf.  In this case, the Court of Appeal considered the application of the Statute to modern business practices, in particular negotiation of a charterparty and guarantee between brokers by email.

The background facts

In January 2008, Golden Ocean sought employment for a newbuilding capesize bulk carrier which was under construction and due to be delivered in late 2009. Golden Ocean's broker (A) commenced negotiations for a 10 year charter with a purchase option at the end of the charter with broker B who was acting on behalf of Salgaocar Mining Industries ("SMI"). Both brokers worked for the same broking house. Golden Ocean offered to charter the vessel "for account SMI". Broker B countered with an offer identifying the charterers as "a/c Trustworth Pte Limited Singapore ["Trustworth"] fully guaranteed by Salgaocar Mining Industries Goa". The court noted that the evidence indicates that Trustworth was the chartering arm of SMI. Negotiations proceeded by email on the basis of the charterers being "Trustworth fully guaranteed by SMI".

Agreement was reached on main terms by 15 January 2008 and on detailed charterparty terms by 2 February 2008. Recaps sent at both stages identified the charterer as "Trustworth Shipping Pte Limited Singapore fully guaranteed by Salgaocar Mining Industries Goa." Negotiations then continued on the terms of a MOA to apply if the purchase option was exercised, again by email and largely on an accept/except basis (i.e. only setting out the points on which a counter was made, without setting out all of the points that had been agreed). The last point to be agreed was the time for provision of a deposit after declaration of the purchase option. Broker A proposed 5 days to broker B. The response from broker B on 21 February 2008 ("the Final Email") was as follows:









No specific document of guarantee was drawn up and the proforma charterparty was never signed by Trustworth or SMI. In December 2009, shortly before the vessel was to be delivered, Trustworth denied the existence of a charterparty and refused to take delivery of the vessel. Golden Ocean accepted this conduct as a repudiatory breach of the charterparty, bringing it to an end. Golden Ocean are pursuing Trustworth in arbitration and in the present action sue SMI as guarantors.

SMI challenged the jurisdiction of the English courts to hear Golden Ocean's claims, primarily on the basis that Golden Ocean had no real prospect of success because the alleged guarantee falls foul of the Statute of Frauds 1677 ("the Statute"). The Commercial Court dismissed SMI's challenge, finding that it was well arguable that the final agreement contained in the sequence of emails culminating in the Final Email was, as regards the guarantee, a contract in writing for the purposes of the Statute.

The Court of Appeal decision

Before the Court of Appeal, the following arguments were raised by SMI:

  1. There is no single document which can be identified as the contract of guarantee.

  2. The Final Email is not itself a contract of guarantee but simply brings into effect a guarantee, doing so by operation of law (rather than by express intention), because agreement on the MOA meant that the related agreement for a charterparty became binding.

  3. The single signed document required to satisfy the Statute could set out the terms of a guarantee by reference to other documents provided that there is in the signed document express or necessary reference to such other document or documents. The Final Email, however, does not refer to any of the terms of the guarantee - nor even save inferentially to the existence of a guarantee.

  4. The Final Email contemplates the creation of a future instrument, a formal charterparty document, which would be the one instrument comprising a contract of guarantee which alone satisfies the statutory requirement for an agreement in writing.

  5. The Final Email is not signed. It contains no more than a salutation from broker B to broker A.

  6. It must be shown that broker B was the authorised agent of the guarantor to sign the agreement of guarantee, as distinct from having the authority to conclude the contract of guarantee.

The Court of Appeal agreed with the first instance judge and noted that the Statute contains no express indication that the agreement in writing required to satisfy its terms must be in one or even a limited number of documents and saw no reason for such a limitation to be imposed. It saw no objection in principle to reference to a sequence of negotiating emails or other documents of the sort which is common in chartering and ship sale and purchase, noting that the Statute must insofar as is possible be construed in a manner which accommodates accepted contemporary business practice.

The appeal court considered that it was not sensible to contemplate that the charterparty should become binding on the parties to it in the absence of a guarantee enforceable by the owners against the guarantor, noting that it was not suggested that the charterparty was not binding. It continued that to hold that the owners and charterers were not bound until the execution of a formal charterparty would frustrate their expectations.

There were several important findings as regards the question of signature for the purposes of the Statute:

  1. An electronic signature is sufficient and a first name, initials, or perhaps a nickname will suffice.

  2. Whilst chartering brokers may communicate with one another in a familiar manner, this does not detract from the seriousness of the business they are conducting. Broker B put his name on the email so as to indicate that it came with his authority and that he took responsibility for its contents. This signature on the Final Email, assuming his authority, is to be regarded as authentication of the contract of guarantee contained in it and the other document or documents in the sequence leading up to it.

  3. The intention with which broker B put his name on the Final Email (by which email the guarantee was concluded, even if not expressly on its face) is irrelevant if he had authority from SMI to send an authenticated email containing the information set out in it. Such authority from SMI will be sufficient to satisfy the Statute, without the need for any further enquiry as to the capacity in which broker B signed. Issues as to whether broker B had the necessary authority to send the Final Email are to be dealt with at trial.


The judgments in this case are a further example of the courts taking account of and giving effect to modern commercial practices and realities, taking a commonsense view as to compliance with formalities. As the Court of Appeal noted, the purpose of the Statute is to avoid disputes about oral utterances and, in particular, to avoid the possibility of alleged guarantors being held liable on the basis of oral evidence which might in fact be perjured. It is not to prescribe or restrict the ways in which commercial men transact their business.

The reality was that Golden Ocean would not have negotiated with an insubstantial company such as Trustworth about such a significant commitment, still less concluded a charterparty with them, unless Trustworth's performance was guaranteed by a company of substance such as SMI. If there was no enforceable guarantee in such circumstances, those who control insubstantial chartering entities would in effect have an option as to whether to perform, to be exercised no doubt in light of prevailing market conditions at the relevant time, with the owners on the other hand being bound to perform but uncertain as to whether charterers will perform and unable to make alternative arrangements until charterers' intentions become clear. This of course would not make commercial sense.

Care should of course always be taken during the course of written negotiations in particular so as to avoid the possibility of potential guarantors being committed to obligations when they did not intend to be so. However, a potential guarantor has various means to protect itself. For example, any proposed guarantor may, if it so wishes, stipulate that it is not to be bound until execution of a formal document, whether a charterparty or separate letter, or that a guarantee may only be concluded and/or authenticated by specific individuals within its organisation if it wishes to exclude the possibility of being bound via its broker.

Paul Herring and James Hickland of Ince & Co LLP acted for Golden Ocean.

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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