Despite living in an age of instantaneous correspondence and fast contractual negotiations, parties may still assume that promises as important as parent company guarantees, require detailed written documents, wet-ink, or e-signature signatures in order to be enforceable. The English Courts have recently reaffirmed that this is not the case.
SFL Ace 2 Co Inc v DCW Management Ltd (formerly Allseas Global Management Ltd) (the “M/V Green Ace”)
Facts
The Green Ace concerned a claim by shipowners against a parent company under a parent company guarantee said to have been given to secure the performance of its subsidiary’s (the charterers’) obligations under a charterparty. The claim was for US$27.41 million in loss of earnings after the charterers allegedly repudiated the charterparty by representing that they were unable to take delivery of the vessel.
Issue
The case highlighted the approach of the English Courts to the formalities of concluding a guarantee:
The parent company argued that (a) the guarantee had not been agreed by the exchange of emails, and that (b) if it had, it did not fulfil the requirements for there to be a binding guarantee (as set out in section 4 of the Statue of Frauds 1677 – i.e “in Writeing (sic) and signed by the partie (sic) to be charged therewith”).
The shipowners claimed that the wording “[charterers] … to be guaranteed by [parent company]” in the brokers’ emails with the final charterparty re-cap was sufficient to conclude the guarantee.
The parent company also relied on rectification to seek to remove any guarantee.
Decision
The Commercial Court found that the exchanges of emails:
were in writing and signed (by the email signature of the parent company’s authorised broker) in satisfaction of section 4 of the Statute of Frauds 1677, which meant there was a binding agreement that the parent company would guarantee the obligations of the charterer; and
agreeing terms “to be guaranteed by” the shipowner was sufficient in this case to evidence an immediately binding guarantee.
It was also found that rectification was not applicable, as the requirements of mistake were not present: it was not a mistake to include the guarantee in the agreed terms.
Comment
This decision is a reminder of the wide approach taken by the English Courts to concluding guarantees under the almost 350-year-old Statute of Frauds 1677. This follows the trend in the recent line of authorities (including also the C Challenger and Golden Ocean) which show that:
a simple reference in a recap to a guarantee, e.g “fully guaranteed by [parent company]” can be sufficient writing (without the need for a separate formal document);
an email signature after a re-cap of agreed terms can constitute a signature (without the need for wet-ink or e-signing); and
this applies to the email signature of a broker too – if they have authority to act on the parent company’s behalf.
It means that guarantees may still be binding, despite no separately formalised document of guarantee being concluded.
In every case, it is important to look at the factual position, including the exchanges between the parties and what has been agreed, which in this case meant looking at email exchanges over a period of nearly three months whilst the charter was being negotiated, and also considering what was decided during an in-person meeting.
