It is fairly common for charter parties to be executed on the basis that the charterer procures a guarantor who will guarantee the performance by the charterer under the charter party. The guarantee is therefore an important part of the entire commercial arrangement, and it is important to ensure that all necessary formalities (at least where the charter party is subject to English law) are met.
English law does (based on a statute from 1677!) have certain very specific requirements for a guarantee to be binding on the guarantor. These requirements are that guarantees must
- Be in writing (or if it is given orally, there must be a “memorandum or note” evidencing the oral agreement) and
- The agreement or memorandum must be signed by the guarantor (or by someone authorised by the guarantor to do so).
This has previously caused problems. In 2006, the English High Court decided that a guarantee given by e-mail was not enforceable. The problem in the 2006 case was not that the guarantee was given by e-mail: the e-mail itself did constitute a note or memorandum, but this particular e-mail did not fulfil the requirements of a signature as required. The creditor sought to rely on the fact that the e-mail did include the e-mail address at the top of the e-mail, but this was automatically inserted and did not constitute a signature. No other form of signature was included in the e-mail.
Accordingly, the English High Court held that there was no manifestation of any sort that the guarantor intended to be bound by the guarantee. In other words, in order for the guarantee to be binding, it must be demonstrated that the guarantor had intended by his or her act of typing his or her name into the e-mail that he intended to “sign it” and do that in such a way so as to demonstrate an intention to be bound by it.
In a much more recent case decided in early 2011, the High Court has now held that a “chain” of e-mails may be sufficient to constitute a guarantee. In this case, there was in fact no signature on a guarantee in writing – the guarantee was included as part of a recap of charter party terms being negotiated and then accepted and agreed.
Claimant owners started negotiations (via brokers) which were mostly conducted by e-mail with a charterer, Gold Star. A term of the suggested charter party terms was that Gold Star’s performance was to be “fully guaranteed by” a company abbreviated SMI. The suggested term about the SMI guarantee was repeated in more than one message being exchanged with offers and counteroffers.
(It is perhaps noteworthy that the wording at all times was not changed and in particular was not conditional in the sense that the performance by Gold Star was “to be guaranteed” or similar - the wording chosen was in fact expressed in terms of SMI giving a guarantee when the agreement was made and not something which was to be executed or issued in the future).
Negotiations continued in the more or less usual way with offers and counteroffers and with “approval” subjects being lifted and with messages being exchanged saying e.g. “agree to the below and therefore fully fixed” and also “many thanks yours - we are all done!”. This was therefore completed in February 2008 but only later in July 2008 did brokers draw up the charter party.
In the charter party, the brokers inserted (in the description of the charterers) the name of the charterers followed immediately by “fully guarantee by” SMI.
There was no reference to the guarantee or the guarantors in the e-mail correspondence forwarding the drawn up working charter party, and the working charter party itself did not otherwise refer to the guarantee or the guarantors. The working copy was never signed by any of the parties.
When the time for delivery of the vessel approached, the charterers denied the existence of a charter party and in particular the guarantors denied the existence of a guarantee.
The vessel owners therefore had to commence proceedings in order to have established whether the guarantee in the recap (contained in a somewhat significant chain of e-mail correspondence) was binding on the guarantors.
The High Court held that the chain of e-mails did amount to an intention to make a binding agreement and that the name of the guarantor appeared in the e-mail with the intention that it was a “signature”.
The parties had agreed as common ground that with regard to signature an electronic signature was sufficient to constitute a signature for the purpose of the English statute and in this case the e-mails (where the recap was contained) were in fact signed by electronically printed signatures of the sender. It was also held that the brokers involved who handled much of the email correspondence had apparent authority to bind the guarantor.
The court also stated that the number of e-mails which at the end of the day make up the final agreement is not a factor in itself. Regardless of the number of previous e-mails in a long chain of correspondence the court will be entitled to (and here did) look at them all. The court also acknowledged that perhaps in particular with regard to negotiation of charter parties it is common for the contract to be included in a number of e-mails which include a number of offers, counteroffers, listing of subjects etc.
It is also not necessary for the guarantee to be in a separate document or, for that matter, to be any more detailed in its wording than what was the case here.
Once the agreement was made, the guarantee was also “complete”.
This may be a useful reminder to always make sure that any and all of the terms which are being negotiated by exchanging offers and counteroffers etc. must be looked at and decided upon in order to ensure that the agreement, once it is reached, does include all the terms wished for (or exclude them as the case may be).
The case does not do away with the statutory requirements in English law for the guarantee to be in writing and to be signed, but it does illustrate what can amount to a document in writing (a “memorandum”) and how it can be signed.
Perhaps more than anything else, this case is a reminder that the negotiation of important terms in the charter party is perhaps in danger of “slipping from sight” when it is part of an extensive e-mail correspondence referring back and forth to previous offers and counteroffers, subjects, part accept, lifting of sum approvals etc.
[2011] EWHC 56 (Comm)
Lloyd’s Law Report [2006] 1. 65