If you are conducting negotiations by email, be careful what you write because it may have unexpected consequences, as Andrew Power explains.
Parties to commercial contracts, including secured loan transactions, should be aware of a recent UK decision which held that an enforceable guarantee need not necessarily be created by a single formal document but may, in fact, be formed by a sequence of documents. In the case of Golden Ocean Group Limited v Salgaocar Mining Industries PVT Limited and Mr Anil V Salgaocar, the English Court of Appeal upheld a Commercial Court decision whereby a legally-enforceable guarantee was deemed to have been formed by way of reference to such a guarantee in a chain of email correspondence negotiating an underlying commercial agreement.
This case involved a chain of emails between shipping brokers in the negotiation of a charterparty (a contract between the owner of a vessel and the charterer for the use of that vessel). During the course of negotiation, the provision of a guarantee by the respondent was stated by way of email, although the terms of such a guarantee were not expressly concluded. The chain of emails eventually culminated in an email binding the parties to the terms of the charterparty. This email was deemed by the courts to have not only concluded the terms of the charterparty but also to have concluded the provision of the associated guarantee, irrespective of the fact that the granting of the guarantee was not expressly repeated in the final email.In delivering its judgment, the English Court of Appeal considered the terms of the Statute of Frauds 1677, which requires that a guarantee (or a note or memorandum of it) must be in writing and signed by the guarantor (or by an authorised person) for it to be deemed to be validly formed and duly enforceable. In interpreting the legislation, the court held that while a guarantee must be in writing, it need not be restricted to a single written document. It was held that a series of documents negotiating the terms of a commercial agreement, which includes reference to the provision of a guarantee, may constitute a valid and enforceable guarantee, provided that the parties intend to be bound by the overall agreement.
The Court of Appeal also emphasised the requirement for the series of documents containing the guarantee to be signed by a duly authorised person. Furthermore, the signature must be intended not only to authenticate the single document in which it is contained, but must be intended to authenticate the terms contained in the entire chain of documents. In the case in question, the signature of the guarantor’s agent contained in the final email was deemed sufficient to create a valid enforceable guarantee on the basis that it was intended to bind the guarantor to the overall terms of the agreement as contained in the chain of email correspondence, which included reference to the provision of a guarantee.
This decision shows an increasing commercial approach of the English courts in interpreting legislation so as to reflect the modern realities of the conclusion of commercial contracts in practice. It is quite possible that a similar approach may also be adopted by the Irish courts. Parties should therefore exercise a greater degree of care when negotiating commercial agreements and should ensure that all correspondence is clearly marked “subject to contract/contract denied” until there is absolute certainty as to the terms of agreement to which the parties wish to be bound. This is necessary so as to remove any ambiguity as to whether representations made in the course of negotiation are to form part of the final agreement, particularly in instances when an agent is authorised to bind the contracting party.
The decision in Golden Ocean Group Limited highlights the risk of inadvertent agreement when negotiating commercial agreements by way of email correspondence. Parties to such an agreement should be especially cautious when agreeing to be bound by email.
For more information, please contact Andrew Power at email@example.com.
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