It is a basic principle of English law that a contract can be formed orally, without documents. However, where the contract is for the sale or disposition of an interest in land, or a guarantee, statute requires a signed written agreement. Specifically, Section 4 of the Statute of Frauds 1677 provides that a guarantee (or alternatively a memorandum or note of a guarantee) has to be in writing and signed by or on behalf of the guarantor.
However, in the recent case of Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltd1, the High Court has held that a chain of emails was sufficient to constitute a guarantee, even though the alleged guarantors had not signed a final guarantee document.
In this case, the claimant (G) owned a vessel which T, a nominee company of the defendant (S), sought to charter. G entered into email negotiations to charter the vessel with an individual (Mr X) who was acting on behalf of both T and S. Reference was made during these negotiations to G’s contract for charter with T being “fully guaranteed by S”. The basic terms of the contract were agreed by the email exchanges and further conditions to the charter (referred to as “subjects”) were satisfied at various stages in those exchanges. On the apparent conclusion of email negotiations, versions of the charter agreement were circulated but these were not signed by either S or T. When the date for delivery of the vessel approached, T and S refused to take delivery of it and denied the existence of both the contract for charter and the guarantee.
G subsequently brought proceedings against S, claiming that the email correspondence was sufficient to establish the existence of a guarantee. S denied the existence of the guarantee on the basis that the series of emails was incomplete as it ended without a recap or a full agreement incorporating all the terms.
The High Court judge, Clarke J, held that the emails and other documents exchanged between the parties established a sufficient memorandum or note of guarantee as:
- the name of the guarantor appeared in the email with the intention that it was a “signature”
- there was evidence of an intention to contract.
What amounts to a “signature”?
The issue of what amounted to a “signature” had previously been considered by the court in the case of N Mehta v J Pereira Fernandes SA2 where it was held that the automatic insertion of a person’s email address when the email was transmitted did not amount to a signature. In this case, Judge Pelling QC reviewed the various authorities dealing with the issue of what amounted to a signature and held that:
“a party can sign a document for the purposes of Section 4 by using his full name or his last name prefixed by some or all of his initials or using his initials, and possibly by using a pseudonym or a combination of letters and numbers (as can happen for example with a Lloyd’s slip scratch).”
What was important was that: “whatever was used was inserted into the document in order to give, and with the intention of giving, authenticity to it. Its inclusion must have been intended as a signature for these purposes.”3
On the facts of the N Mehta case, as the insertion of an email address was automatic, there was no relevant intent for it to constitute a signature.
However, it was common ground between the parties in the Golden Ocean case that an electronic signature was sufficient to amount to a “signature” for the purposes of section 4 of the Statute of Frauds 1677. In giving judgment the judge acknowledged that the emails which constituted the contract were signed by the electronically printed signatures of the persons who sent them. Interestingly, Clarke J also commented that an email, the text of which begins “Paul/Peter”, may be regarded as signed by Peter because by that form of wording, Peter signifies that he is addressing Paul and “authenticates the content of the whole of what follows.” 4
What constituted the guarantee?
In the Golden Ocean case, the court held that it did not matter how many previous emails or documents there were in a chain of correspondence: a court was entitled to look at all of them. Clarke J noted that in the context of contracts for charter with guarantees, it was common to find chains of emails, documents and the fulfilment of “subjects” along the way and that it made “good commercial sense” to look at all documents which might constitute the guarantee. Clarke J stated:
“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.”5
Clarke J held that the fact that one of the parties had made a “request for a recap” did not mean that an agreement had not been made as a recap would have been “recapitulation of an agreement that had (arguably) already been made in writing”.6 In any event, Clarke J referred to the fact that the last email in the chain referred implicitly to previous communications in the chain.
“Subject to Contract”
Negotiating parties often try to mitigate the risk of entering into a binding contract (or guarantee) by expressing pre-contractual negotiations as being “subject to contract”. The inclusion of this phrase is said by the courts to create a strong presumption that the parties do not intend to be bound. However, its use is not conclusive and, in this respect, it is interesting see that even though there was a request for a recap in the Golden Ocean case, a binding guarantee was still held to exist. In a recent decision of the Court of Appeal in Immingham Storage Company Ltd v Clear plc7 it was held that the phrase “a contract will follow in due course” did not negate the formation of a binding contract where other factors pointed to a clear intention to create legal relations, including the fulfilment of a number of conditions.
The Immingham Storage and Golden Ocean cases are a timely reminder for parties to take care when entering into pre-contractual negotiations as a series of emails can amount to a contract or a guarantee, even where there is no signed agreement or even a final form of agreement. Parties should be aware that if a dispute arises, the test the courts will apply is the “reasonable businessman” test (per Steyn J in Percey Trenthan v Archital Luxfer8) which is: would a reasonable businessman objectively assess from the parties’ conduct that they intended to be bound?