The recent English High Court judgment of Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltd (“SMI”),  EWHC 56 (Comm), provides useful guidance for parties negotiating a contract via email where one party subsequently argues that a resulting contractual guarantee is unenforceable under section 4 of the Statute of Frauds 1677. The judgment analyses, amongst other things, whether 21st-century methods of commun¬ication constitute an “agreement, memorandum or note in writing and signed” and more specifically, whether a guarantee might be unenforceable because it was “agreed” upon in a lengthy chain of email correspondence.
Golden Ocean brought a claim under a "guarantee" for over $50 million. The underlying basis was an allegation that a long-term charterer had failed to honor its obligations by failing to take delivery of the vessel "MV Golden Future" under a 10-year charter contract worth $40,500 per day.
The charter contract followed detailed negotiations between Golden Ocean and Mr. Anil Salgaocar, a co-defendant acting on behalf of the charterer and its guarantor, SMI. In court, both defendants now argued that there was no contract or guarantee in existence. Golden Ocean countered that this was contrary to all oral and written communication leading up to, concluding and subsequent to the agreement.
In terms of the guarantee, the defendants sought to rely on section 4 of the Statute of Frauds adopted by the Cavalier Parliament in 1677, some form of which still exists today in many common law jurisdictions. This statute states: "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".
In summary, relying on section 4, the defendants argued that the guarantee was incomplete because:
- The key terms relating to the guarantee were contained in email correspondence between the parties and the final email relating to the guarantee requested Golden Ocean to recap certain terms, and obtain a written acknowledgment from each employee of receipt of this notice;
- The final email between the parties relating to the guarantee also referred to the agreement being recorded in a future document; and
- The string of emails and other documents (all relating to the guarantee) could not be patched together to establish a guarantee, as not all of the emails and documents referred to each other.
Mr. Justice Christopher Clark was not persuaded by these arguments, stating "I am entirely satisfied that it is well arguable that the Statute of Frauds has been satisfied because the agreement upon which Golden Ocean bases its claim was an agreement in writing". He also was not convinced by the "recap" argument: "it does not seem to me that the request for recap means that there was no agreement in writing. The recap was a recapitulation of an agreement that had already been made – in writing", nor by the "volumin¬ous documents" argument: "If there is said to have been an agreement in writing the Court is entitled to look at those documents which are said to constitute the agreement, however many they may be".
The judge went on: "As to commercial good sense, it seems to me 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. This is particularly so when charterparties with guarantees are often negotiated and concluded by the sort of e-mail exchange seen in this case; and are not necessarily followed by a drawn-up charter".
This case highlights the danger faced by parties at the negotiating table where the contract is to be governed by English law. Clearly, UK Courts will not always cobble together extrinsic evidence to give effect to a contract, exemplified by the recent case of Fairstate Limited v General Enterprise & Management Limited and Atef Sarian  EWHC 3072 (2B); however, it is clear from Mr Salgaocar’s experience that parties who wish not to be bound by their correspondence or related documentation should take extreme care to ensure that their conduct does not leave them so, despite the absence of a single, written, signed and integrated contract document. Whilst marking correspondence "Subject To Contract" can help, this is not foolproof, as demonstrated in the recent case of Jirehouse Capital & Ors v Beller & Anor,  EWHC 2538 (Ch). If pre-contractual negotiations are intended to be exactly that, guidance should always be sought to ensure that a Gordian knot is not unwillingly tied.