February 2011
In 2006 the English courts established the principle that a valid guarantee could be created by a chain of emails. The case was Nilesh Mehta v J Pereira Fernandes S.A.
[2006] EWHC 813
(Ch). However, in that case the court decided that the email guarantee had not been validly signed, leaving open the question of whether, in practice, a valid guarantee could exist in an email exchange. Now, in Golden Ocean Group Ltd v Salgaocar Mining Industries
PVT Ltd [2011] EWHC 56 (Comm) the courts have confirmed that an electronic signature block in an email is a valid signature on an electronic guarantee. What does this mean for commercial negotiations? How easy is it to accidentally create a guarantee in an email?
The Statute of Frauds – protecting guarantors
The Statute of Frauds 1677 requires that a guarantee (or a note or memorandum of it) must be in writing and signed by the guarantor. The intention of the Statute of Frauds was to protect people from being liable for informal communications which they may not have intended to be bound by. Email would appear to be exactly the type of informal communication which the Statue of Frauds had in mind; however the law has evolved in a different way.
guarantee, saying that as a matter of "good commercial sense....the law should give effect to agreements made by a series of e-mail communications". It did not matter that the guarantee was not in a separate document or contain detailed terms.
Moving on to signature of the electronic guarantee, it was common ground that an electronic signature would be sufficient and that "a first name, initials or, perhaps, a nickname will suffice". The electronic signature block at the bottom of the email was therefore sufficient to constitute a signature and a valid guarantee could exist. Creating guarantees by email – Step 1: the Mehta case
What does this mean for commercial negotiations?
In 2006 the High Court accepted the principle that the
"agreement....memorandum or note" required for the purpose of section 4 of the Statue of Frauds 1677 could be found in an email. The Mehta case, however, concluded that there was no valid guarantee because an automatically inserted email address did not constitute the "signature" required by the
Statue of Frauds. Although the principle of electronic guarantees was established, the issue was left open for the time being.
Creating guarantees by email – Step 2: the
Ocean case
Golden
In Golden Ocean the High Court once again considered the issue of electronic guarantees. The court approved the principle that a chain of emails could constitute a valid
The Mehta case indicated that it would be possible to create a valid guarantee by email. The Golden Ocean case confirms this and states that an electronic signature on an email is sufficient to "sign" the guarantee.
Parties involved in commercial negotiations must take care not to inadvertently create binding guarantee obligations in email correspondence. Despite the increasingly commercial approach taken by the courts, it still seems unlikely that a court would find that a guarantee had been given where there was a clear intention to the contrary. To ensure that there can be no suggestion of a binding obligation being created the parties should always clearly state where negotiations are being undertaken subject to contract.
Lucy Shurwood is a Senior Associate in Pinsent Masons' Banking and Restructuring Group
© Pinsent Masons LLP 2011
Should you have any questions please contact Lucy Shurwood (lucy.shurwood@pinsentmasons.com) or your usual Pinsent Masons adviser who will be able to assist you further.
This note does not constitute legal advice. Specific legal advice should be taken before acting on any of the topics covered.
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