In Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltd and another [2012] EWCA Civ 265, the Court of Appeal upheld the High Court's ruling that for the purposes of s.4 of the Statute of Frauds 1677 an enforceable guarantee could be created by:
- a series of negotiating emails, rather than one single document, provided the parties intended to be bound by the agreement, even if the parties expected that a formal guarantee document would be drawn up in the future; and
- the concluding email is properly signed by the guarantor. In this particular case, the signature was 'Guy', and arguments that 'Guy' did not constitute a signature, but was merely a familiar 'salutation', or alternatively, a signature to a communication, and therefore not effective to authenticate a contract of guarantee, were unsuccessful.
In this particular case, Golden Ocean Group (GOG), a shipping company, offered Salgaocar Mining Industries PVT Ltd (SMI) the opportunity to charter for ten years one of their vessels, and SMI negotiated with GOG via SMI's chartering arm Trustworth Pte Ltd. The claimant shipping company claimed that: (i) Trustworth had repudiated a 10 year charterparty dated 2 February 2008; (ii) Trustworth had been nominated by SMI as charterers; and (iii) the charter was guaranteed by SMI. The claimant claimed to have suffered losses of around $54m by reason of that repudiation and claimed that sum against SMI under the guarantee.
The decision considered s.4 of the Statute of Frauds 1677, which still applies to guarantees. It states that a guarantee must be in writing and must be signed by either the guarantor or a person legally authorised to sign on the guarantor's behalf. Lord Justice Tomlinson held that the Statute must, if possible, be construed in a manner which accommodates accepted contemporary business practice. In this case, it was a matter of ensuring, so far as is possible, that the adoption of usual and accepted practice could not be used as a vehicle for injustice by permitting parties to break promises which are supported by consideration and upon which reliance has been placed.
Subject to the requirement of signature, the judge could see no objection in principle to reference to a sequence of negotiating emails or other documents of the sort which was commonplace in ship chartering and ship sale and purchase. Whether the pattern of contract negotiation and formation habitually adopted in other areas of commercial life presents difficulty in adopting the same approach must await examination when the problem arises.
To avoid this scenario arising, it is important to state that all negotiations conducted via email are expressly stated to be 'subject to contract', to establish unequivocally that the shared intention is that neither party is to be bound until the execution of the formal document.
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