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In its recent decision in Golden Ocean Group Limited v
Salgaocar Mining Industries PVT Ltd and another1 ,
the Court of Appeal confirmed the High Court's ruling that an
exchange of emails can create an enforceable guarantee.
Background
A guarantee, like any other contract, must satisfy the basic
legal requirements for the creation of a contract. These are:
offer,
acceptance,
intention to create legal relations, and
consideration.
In addition, in relation to guarantees, section 4 of the Statute
of Frauds 1677 provides that in order for a guarantee to be
enforceable it (or alternatively some memorandum or note of the
guarantee) must be both:
in writing, and
signed by the guarantor or a person authorised by the
guarantor.
Facts of the case
The case involved Golden Ocean Group Ltd (Golden
Ocean), the owner of a cargo ship which it offered to
charter to Salgaocar Mining Industries PVT Ltd
(Salgaocar) for ten years through its chartering
arm Trustworth Pte Ltd (Trustworth).
Negotiations for the charter proceeded between Golden Ocean and
Trustworth/Salgaocar predominantly by email between the respective
parties' shipbrokers. A number of these early email exchanges
referred in their subject headings only to a contract for charter
to be entered into with Trustworth being "fully guaranteed by
Salgaocar". The emails also dealt with the significant terms
of the charter and anticipated that agreement would be reached
subject to specific conditions (such as board approvals) being
satisfied at various stages in the negotiation. A number of these
conditions did not appear to ever be satisfied.
Following the conclusion of the main negotiations, the parties
continued to exchange sporadic emails and a few months later, a
form of the contract for charter was prepared and circulated by the
shipbrokers. The contract contained no reference to a guarantee by
Salgaocar other than in the description of the charterer. On the
facts, the contract for charter was never signed and no separate
form of guarantee was ever circulated for signature.
Shortly before the scheduled delivery of the vessel, Trustworth and
Salgaocar refused to take delivery of the vessel and denied that a
contract for charter or a guarantee existed, later arguing (amongst
other things) that the contract for charter, and any guarantee
within it, were never concluded given that the email exchanges and
draft documents were too disjointed and did not end with any form
of recap or signed agreement incorporating all the key terms of the
charter and guarantee.
Decision
The Court of Appeal held that (amongst other things):-
Section 4 of the Statute of Frauds 1677 does not require that
the "agreement in writing" be in a single document or
even in a limited number of documents.
A sequence of negotiating emails or other documents properly
signed could constitute a guarantee if the parties intended to be
bound by the agreement contained therein.
An email upon which a party puts his name (even if a nickname
or not his full name) so as to indicate that the email comes with
his authority and that he took responsibility for its contents will
be a signature for the purposes of the Statute of Frauds 1677 and
thus for the purposes of creating an enforceable guarantee.
A person who has been given authority to negotiate and agree
the terms of a guarantee on behalf of the guarantor will have
sufficient authority, for the purposes of the Statute of Frauds
1677, to sign a written memorandum or note of the guarantee which
will be enforceable.
Implications
Individuals should exercise caution when negotiating the
commercial terms of guarantees because surprisingly informal
documentation and signatures can create binding guarantees.
In order to attempt to avoid inadvertently creating a guarantee
during negotiations, all correspondence and documentation should be
marked "SUBJECT TO CONTRACT".
We would always recommend that professional legal advice be
sought in connection with the negotiation and entry into of any
guarantees.
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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