Creating a contract by accident.

Golden Ocean Group Limited v Salgaocar Mining Industries PVT Ltd and another [2012] EWCA Civ 265

A recent commercial litigation case in the Court of Appeal had to consider whether a chain of emails between the parties amounted to a contract. Trustworth had agreed to charter a vessel. In the emails between the parties reference was made to the deal being “fully guaranteed by” an affiliate Salgaocar Mining Industries Ltd.

The Defendant repudiated the agreement and the Claimant took action.

Even though one of the parties asked the other to provide a complete signed agreement incorporating all the key terms ,which was never created, the court held the parties had intended to be bound by the terms agreed in the e-mails.

Section 4 of the Statute of Frauds 1677 states that an agreement should be in writing and signed by the parties.

The Court of Appeal said

  • “The Statute [of Frauds] must however, if possible, be construed in a manner which accommodates accepted contemporary business practice. The present case is not concerned with prescribing best or prudent practice. It is concerned with ensuring, so far as possible, that the adoption of usual and accepted practice cannot be used as a vehicle for injustice by permitting parties to break promises which are supported by consideration and upon which reliance has been place.”

The Court held that, although it is common practice, the statute does not require that a contract of guarantee or any other agreement be in a single document or have a specified form of signature, e.g. a hand written signature.

A series of negotiating e-mails  properly signed would constitute a guarantee, provided that the parties intended to be bound. In this case an electronic signature was sufficient. The email had been signed “Guy”. That was enough. This applied even if the parties anticipated that a formal document would be drawn up in the future. This scenario was distinguished from the situation where parties negotiate subject to contract and do not intend to be bound until the execution of a formal document.

To avoid this situation it is important to state in the email that all negotiations via email are expressly stated to be ‘subject to contract’, to establish unequivocally that the parties shared intention is that neither is to be bound until final execution of the formal document.

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