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Contract guarantees get a 21st century makeover

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The Court of Appeal’s Judgement opens the way to email exchanges being used instead of a hard copy signed document for the purposes of the 1677 Act of Parliament known as the Statute of Frauds, which sets out that certain contracts – such as a guarantee or land sale - will only be enforceable if in writing and signed by the person to be bound or by someone on his behalf.

Commercial law expert, Edward Worthy of Gepp & Sons solicitors, commented:  “Under English law there are very few agreements which actually have to be in writing and signed to be enforceable, although there has to be clear evidence of what was agreed.   We have seen a string of cases over the past decade which has established that an email exchange can constitute an ordinary contract and that a typed name at the foot of an email message can be a signature.

“Now, guarantees and land sale agreements join the 21st century.  This case confirms that an email exchange can be treated as a written document for the purposes of the Statute of Fraud.” 

In the case - Golden Ocean Group Ltd v Salgoacar Mining Industries - there had been a series of emails negotiating the terms of a long term shipping charter.  One of the terms agreed was that the obligations of the charterer would be fully guaranteed by Salgoacar Mining. But the company then tried to avoid liability, by saying that the guarantee had not been contained in a written, signed document.

When the case reached the High Court, the ruling went in favour of email messages, saying that it was ‘highly desirable that the law should give effect to agreements made by a series of e mail messages’ and that the emails which made up the contract were each signed by electronically printed signatures of the people sending them, and that this was enough to constitute a signature for the purposes of the Statute of Frauds. 

When the case went to the Court of Appeal, the appeal judges agreed with the ruling, with Lord Tomlinson saying that a guarantee agreement could consist of several documents and that  ‘the purpose of the Statute of Frauds was not to ensure that the documentation was economical, it was to ensure that the parties knew exactly what had been promised and to avoid ambiguity.’

Edward added:  “Both companies and individuals need to recognise that this means they may be held to what they write in emails. When this Act of Parliament was drawn up, a letter had to be written with quill and ink and people would take care over what they said. Nowadays, an email exchange is instantaneous and often informal, so we tend to be less guarded about what we write and less careful about how we express ourselves. 

“But this case shows that we cannot hide behind lack of formality. The message is clear: think twice before you press send; if you expect the agreement to be put into a formal contract later you must say so, or use a phrase like ‘subject to contract’.

“It’s also important to avoid starting work on a contract until all the terms have been agreed, otherwise even a guarantee that is not in writing might be enforceable.”

For additional information please contact Edward Worthy of Gepp & Sons on 01245 493939 or worthye@gepp.co.uk

The above is not legal advice; it is intended to provide information of general interest about current legal issues.

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