GUARANTEES AND THE STATUTE OF FRAUDS

October 31, 2014

The case of Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltd and another -[2012] 3 All ER 842 saw the UK Court of Appeal confirm a High Court ruling that an e-mail chain of correspondence can give rise to a binding contract of guarantee. The defendants had argued that a guarantee in a chain of emails was unenforceable pursuant to section 4a of the Statute of Frauds 1677 as it was not made in writing, or evidenced in a memorandum or note in writing, and was not signed. The trial judge disagreed and the defendants appealed.

The Court of Appeal held for the purposes of section 4 of the Statute of Frauds, there was no objection in principle to referring to a sequence of negotiating e-mails or other documents.

The Court held the Statute of Frauds had, if possible, to be construed in a manner which accommodated accepted contemporary business practice. It contained no express indication that the agreement in writing required to satisfy its terms had to be in one or even a limited number of documents. The court expresses that the purpose of the requirement that the agreement had to be both in writing and signed by the guarantor was to ensure that a person was not held liable as guarantor on the basis of an oral utterance which was ill-considered, ambiguous or even completely fictitious. A combination of writing and an acknowledgement by signature of the solemnity of the undertaking had been chosen to eliminate that mischief. There was nothing in either the mischief sought to be eliminated or the means adopted to achieve that end which required a limitation upon the number of documents in which the writing was to be found.

This decision of the Court of Appeal confirms that care must always be exercised in e-mail negotiations so as to avoid entering into binding obligations without an intention to do so.

Please note; the content of this article is for information purposes only and further advice should be sought from a professional legal advisor before any action is taken.
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