In the increasingly electronic world in which we all live and work, traditional rules, regulations and standards are coming under more and more scrutiny. In the UK, there have been a number of legal cases relating to the question of whether an email, or even the typing of a name at the bottom of an email is sufficient to amount to a binding contract. In March of this year, the second highest appellate court, the Court of Appeal, had to consider1 whether or not a contract of guarantee was enforceable when it was contained not in a single document signed by the guarantor but in a series of documents, including emails said to have been authenticated by the signature of the guarantor.
Although clearly a decision binding only under English law, the case raises a number of issues which are relevant to any contract negotiations. The dispute related to a claim by Golden Ocean under an alleged guarantee for some US$57 million arising out of the alleged repudiation of a long term charter. In early 2008 Golden Ocean offered to charter to SMI (or an account guaranteed by SMI) a vessel with an option to purchase the vessel at the end of the charter period. The entity nominated by SMI to enter into the charter was Trustworth Shipping Pte Ltd. Trustworth was a related company. The negotiations following this offer were conducted by email and proceeded on the basis “Trustworth fully guaranteed by SMI.” When disputes arose it was argued that the email chain was too disjointed and insu" cient to constitute a guarantee. There was no single document that could be identified as the contract of guarantee. It was further said that the guarantee was unenforceable, under section four of the Statute of Frauds2 provides:
“No action shall be brought whereby to charge the Defendant upon any special promise to answer for the debt default or miscarriage of another person unless the agreement upon which such action shall be brought or some memorandum or note thereof shall be in writing and signed by the party to be charged therewith or some other person thereunto by him lawfully authorised.”
The original Judge, Mr. Justice Christopher Clarke had commented that as a matter of commercial good sense it was:
“highly desirable that the law should give effect to agreements made by a series of e-mail communications which follow, more clearly than many negotiations between men of business, the sequence of offer, counter offer, and " final acceptance, by which, classically, the law determines whether a contract has been made.”
Further, he held that the fact that the emails which constituted the contract were signed by the electronically printed signature of the persons who sent them was su" cient to constitute a signature for the purpose of the Statute of Frauds. His approach was followed by the Court of Appeal.
In the Court of Appeal, Lord Tomlinson looked at why there was a requirement that the agreement must be both in writing and signed by the guarantor. There was nothing in the Statute of Frauds containing an express indication that the agreement in writing must be in one or even a limited number of documents. The purpose of the requirement that the agreement must be both in writing and signed by the guarantor was not there to ensure that the documentation was economical. The reason was to ensure that the parties knew exactly what had been promised and to avoid ambiguity and the need to decide which side was telling the truth about whether or not an oral promise had been made3.
Further, the conclusion of commercial contracts by an exchange of emails4, in which the terms agreed at an early stage are not repeated later in the course of correspondence, is far from unusual. Whilst it may be more common and is certainly more convenient in commercial transactions for a contract of guarantee to be contained in a single document, it is today equally commonplace for charterparties, as it is for many different forms of contract to be concluded by an email exchange, and the parties here had no difficulty in knowing at exactly what point they had undertaken a binding obligation and on what terms. In fact it was only necessary to look at two of the emails to identify a clear agreement. Lord Tomlinson said that:
“The present case is not concerned with prescribing best or prudent practice. It is concerned with ensuring, so far as is possible, that the adoption of usual and accepted practice cannot 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.”
It is often said that the parties are the masters of their contractual bargain. If the documents relied upon in making up a contract contemplate the execution of a further contract it becomes a question of construction as to whether the execution of that further contract is a condition of the bargain (in which case there will be no enforceable contract either because the condition is unfulfilled) or whether it is a mere expression of the desire of the parties as to the manner in which they would like to proceed (in which case provided there is a binding contract, the lack of a formal contract does not matter). The proposed guarantor could have made it clear that that it was not to be bound until execution of a formal document, of whatever kind, but it did not do so. Equally, the owners too could have stipulated that they too were not to be bound until execution of a formal document. Neither party did so.
When it came to the signature, it was accepted that all that is required is that the guarantor’s name is written or printed in the document5. The document here which confirmed the conclusion of the contract of guarantee was an email ending with the name Guy, indicating that it was sent by Mr. Hindley, the broker. It was suggested that this was not a signature at all. It was no more than a salutation, and it was certainly not a signature appropriate or effective to authenticate a contract of guarantee.
In the view of the court, by putting down his name at the end of the email, Mr. Hindley indicated that the email duly came with his authority and that he took responsibility for the contents. Further, professional brokers understand that their communications give rise to obligations binding their principals. This was not simply an inconsequential communication. It was a communication which the brokers will readily have appreciated brought into being both the charterparty and the guarantee. It was therefore sufficient to act as a signature as required by the Statute of Frauds.
Indeed, if you think about it, not everyone when they sign their name, actually sets out their name in full. Some use just one word, others the four or five that make up their entire name. In the world of today, why should it be so different when you type your full name or just your first? Some people have electronic signatures which replicate their written one. Remember that all can be equally binding.
So what can you do?
We all do business by email. First of all, remember that an email (as quite probably is a text if you regularly use sms in the course of your business dealing) is the equivalent of a letter. Second, if you are negotiating by way of email, you may want to take a cautious approach and mark your emails “subject to contract,”6 or perhaps some other condition. For example, it may be that final agreement will not be made unless and until the parties have signed a formal final document.
Thirdly, before you press send, read your email through, have you actually accepted or confrmed the terms (or some of them at least) you are meant to be negotiating? Remember too, that if you start performing the contract before the formal terms are agreed (and there are often pressing commercial reasons why this is so, whatever the lawyer may say) then you may find that you are left with a contract that is only partially agreed. It may be that in the future, a dispute arises over one of the grey areas that were left unresolved. Keep a checklist, so you know what is and is not agreed. And finally, of course, and it is easier said than done – just check who you are actually sending your email to.