The Court of Appeal confirms the High Court’s decision that an enforceable guarantee can be created by a chain of e-mails

In the recent case of Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltd and another, the Court of Appeal confirmed a High Court ruling that an enforceable guarantee can be created by a series of e-mails that is authenticated by the online signature of the guarantor.

The facts of the case in brief are that Golden Ocean Group Ltd (Golden Ocean) offered to charter their vessel to Salgaocar Mining Industries PVT Ltd (SMI). SMI agreed to enter into negotiations to charter the vessel on a 10-year contract through the chartering arm of SMI, Trustworth Pte Ltd (Trustworth).

Negotiations between the parties were conducted via a single firm of shipbrokers acting for both parties; mainly over e-mails.  The negotiations between the parties appeared to conclude at the end of February 2008, however, the parties continued to correspond sporadically, and versions of the charterparty, prepared by the shipbrokers, were circulated but not apparently signed or authenticated by SMI (as guarantor) or Trustworth (as charterer). As the delivery date for the vessel approached in 2009, Trustworth and SMI refused to take delivery, denying the existence of the charterparty and guarantee.

As a result of Trustworth and SMI’s actions, Golden Ocean brought a claim under the “guarantee” for approximately $54 million on the basis that the charterer (Trustworth) had failed to honour its obligations by refusing to take delivery of the vessel. Golden Ocean claimed that the e-mails and documents sent between the parties were sufficient to establish the guarantee, despite the statutory defence available to a guarantor under the Statute of Frauds.

Section 4 of the Statute of Frauds 1677 specifies that a guarantee must be in writing and be signed by the guarantor or a person lawfully authorised by it (otherwise there should be a memorandum or note of the agreement signed by the guarantor or at its direction).

The Court applied the various authorities to the facts and held that it was not necessary for the “guarantee to be documented in a separate agreement or in any more ample terms”. The e-mails which constituted the alleged contract were signed by the electronically printed signature of the persons who sent them.

The judgment should make practitioners aware that surprisingly casual means of communication and informal documentation and signatures (such as emails signed informally) can create enforceable guarantees.  One should therefore be mindful that if you do not want to create an enforceable guarantee while negotiating in writing then it is important to make it clear from the outset that you are negotiating subject to contract only and do not intend to be bound until a formal document is executed between the parties.