Do you think before pressing the "Send" button?
Email is often regarded by construction professionals as being a less formal means of communication not having the same status as posted letters but extreme caution must be exercised when entering into contractual negotiations, as email correspondence may have contractual effect – even in respect of something as important as a guarantee.
A very old piece of legislation, the Statute of Frauds Act 1677, sets out a number of requirements with regards to contract of guarantees and their validity.
In the recent case of Golden Ocean Group Ltd v Salgaocar Mining Industries Ltd the Court of Appeal held that in certain circumstances in today's commercial world, the requirement for a contract of guarantee to be in writing could be satisfied by reference to a sequence of negotiating e-mails or other documents of the sort which was commonplace in similar transactions in the marketplace and need not be contained in a single document. The court also held that such a series of documents may in fact be authenticated by the electronic signature of the guarantor's agent.
Although the case concerns shipping, it is relevant also to the construction industry. In 2008, Golden Ocean chartered a vessel to Salgaocar Mining Industries ("SMI") through the chartering arm of SMI, Trustworth Ltd. The agents for both parties, acting through the same ship brokers, entered into negotiations for a charterparty. These negotiations were conducted largely through email correspondence between the parties and subsequently the terms of the charter were settled in the sequence of emails and a version of the charterparty was circulated, although it was never executed. Trustworth had chartered many vessels in the past on behalf of SMI and the emails in this instance included reference to Trustworth being fully guaranteed by SMI.
In late 2009, SMI and Trustworth refused to take delivery of the vessel, denying the existence of the charterparty and guarantee, both claiming that the brokers did not have authority to bind them to any contract either of charter or of guarantee. Golden Ocean brought a claim under the guarantee on the basis that the emails and correspondence were sufficient to establish the existence of the charterparty and guarantee and claimed to have suffered losses of around $54million by reason of the repudiation of the charter.
The Court of Appeal found that the Statute contained no express indication that the agreement in writing required to satisfy its terms had to be in one or even a limited number of documents.
More importantly, with regards to wider commercial scenarios, Lord Tomlinson noted that while it was sensible in practice to incorporate a guarantee into a formally executed document, "The Statute must however, if possible, be construed in a manner which accommodates accepted contemporary business practice". It was held that the conclusion of commercial contracts, particularly charterparties, by an exchange of e-mails, formerly telexes or faxes, in which the terms agreed early on were not repeated verbatim later in the exchanges, was entirely common place.
This decision may have important repercussions in the construction industry, where similar email correspondence is commonplace and often no formal contract documents are executed until late in the day, and acts as a warning to those conducting contractual negotiations by email that even without a formal signed document, you may still create a guarantee and so need to be careful about what you say in emails.
Caution should therefore be exercised when parties engage in negotiation and careful drafting of correspondence and documentation is required to ensure that binding obligations are not entered into unwittingly.
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.
