A Note of Caution on the Formalities of Guarantees

10 January 2013


The capacity of a corporation to enter into any legal transaction is governed by the constitution of the corporation and by the law of the country which governs the transaction.

Where a guarantee is governed by English Law the Statute of Frauds Act 1677 (the “Act”) will apply.  Historically, the purpose of the Act is to protect liability attaching to informal communications which may be made without sufficient consideration or expressed ambiguously.  The Act prevents such a communication being fraudulently alleged against a purported guarantor.

Section 4 of the Act prescribes for two ways in which a contract of guarantee may be validly enforced.  Firstly, by way of a written agreement signed by the party to be charged or his agent.  Secondly, by way of a note or memorandum of the promise of guarantee similarly signed by the guarantor or his agent.  In the case of the latter the agreement itself may be oral, as long as it is documented in a form signed by the guarantor or his agent to evidence such an agreement.

Case Law

The impact of section 4 of the Act in today’s methods of communication has been considered by the English Courts.  The case of Mehta v J Pereira Fernandes SA [2006] 2 All ER 891 provides guidance as to what constitutes a valid signature for the purposes of s.4 of the Act.

  • The claimant supplied products to a company of which the defendant was a director.  The company failed to pay for the products and the claimant presented a petition to wind up the company.
  • The defendant asked a member of his staff to send an e-mail to the claimant’s solicitors requesting an adjournment of the petition subject to a personal guarantee being given by him in favour of the claimant and an undertaking being given by him pending the signing of the personal guarantee. The e-mail was not signed by the defendant.
  • The offer was accepted (unconditionally) on the telephone (but not in writing). A guarantee document was sent out but never returned.
  • The defendant sought to rely on the automatic insertion of the sender’s e-mail address after the document had been transmitted by the sending and/or receiving ISP.

Judge Pelling QC held that the e-mail was a sufficient note or memorandum in writing in that it confirmed the earlier oral agreement, but that section 4 of the Act was not satisfied because there was no signature.  The fact that the defendant’s name appeared on the e-mail (albeit in an e-mail address form) was insufficient to constitute a signature, because the essence of a signature was that it was inserted with the intention of being a signature and authenticating the whole document.

The Court noted, an e-mail would be treated as signed where the sender ‘used his full name or his last name prefixed by some or all of his initials or using his initials, and possibly using a pseudonym or a combination of letters or numbers…providing always that whatever was used was inserted into the document in order to give, and with the intention of giving, authenticity to it’.

In the subsequent case of Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltd and another [2011] EWHC 56, the High Court considered the provisions of section 4 of the Act in determining whether it was arguable that an e-mail chain could constitute a guarantee.

  • In January 2008, Golden Ocean Group Ltd (Golden Ocean) were owners of a vessel which they offered for charter to Salgaocar Mining Industries PVT Ltd (SMI).  Negotiations took place, primarily by e-mail, in respect of a 10 year charter to the chartering arm of SMI, a Singaporean nominee company called Trustworth Pte Ltd (Trustworth), be “fully guaranteed” by SMI.
  • During January and February 2008, negotiations proceeded between Golden Ocean and a Mr Salgaocar (Salgaocar), purportedly acting on behalf of Trustworth and SMI.
  • Negotiations appeared to conclude at the end of February 2008.  However, the parties continued to correspond sporadically, and versions of the charterparty, prepared by the shipbrokers, were circulated but not apparently signed or authenticated by SMI (as guarantor) or Trustworth (as charterer).
  • In late 2009, as the ultimate delivery date for the vessel approached, Trustworth and SMI refused to take delivery, denying the existence of the charterparty and guarantee.
  • Golden Ocean brought a claim under the “guarantee” on the grounds that Trustworth failed to honour its obligations by refusing to take delivery of the vessel claiming that the guarantee had been established via the e-mails and documents sent between the parties.
  • SMI and Salgaocar alleged that matters were incomplete with no recap provided at the end of the chain of e-mails nor a full/complete signed agreement concluded.   They denied that the charterparty had been concluded and that no guarantee was established.

Clarke J dismissed SMI’s and Salgaocar’s arguments and held that Golden Ocean had an arguable claim that the e-mails and documents sent between the parties were sufficient to establish the guarantee amounting to an agreement in writing and the e-mails constituting the alleged contract being signed by the electronically printed signature of the persons who sent them.

The case confirms that an electronically printed signature is sufficient to satisfy the signature requirements of section 4 of the Act and where the Court held there was an arguable case of a guarantee being established, it should provide caution to parties entering into negotiations that a guarantee may still be created notwithstanding the presence of a signed manually signed document.  The case was affirmed in the UK Court of Appeal in March 2012.

Guarantees issued by SWIFT

The provisions of section 4 of the Act and its interpretation in light of modern communication methods has important implications for guarantees issued by SWIFT.

SWIFT (Society for Worldwide Interbank Financial Telecommunication) operates a messaging service for financial messages such as letters of credit, payments and securities transactions between member banks worldwide.  The SWIFT system provides a method of communication for delivering guarantees with the knowledge that they are to be sent quickly and securely.

Since the case of Fernandes SA v Mehta, the most significant guidance on what is capable of amounting to a signature has come in the case of WS Tankship II BV v The Kwangju Bank Ltd and another [2011] EWHC 3103 where the High Court stated obiter that a guarantee issued and sent by SWIFT message was “in writing and signed by the party to be charged” for the purpose of section 4 of the Act.

The name of the guarantor appeared only in the header of the guarantee where it had been automatically inserted by the SWIFT messaging system.  However Blair J held that the guarantor, by sending the message, had caused its name to be inserted into the document’s header and this was sufficient to amount to a signature for the purpose of the Act.  The position was, he said, analogous to the facts considered in the Golden Ocean case.


The case law provides that if the name of a guarantor appears in an e-mail with the intention that it is a signature and there is evidence of an intention to contract, then the name will constitute a signature for this purpose.  Similarly, the High Court stated obiter that a guarantee issued and sent by SWIFT messaging system was “in writing and signed by the party to be charged” where the inclusion of the Guarantor’s name in the header of the SWIFT message document was sufficient to amount to a signature for the purpose of the Act.

The distinction with the decision in the Metha case is thought to be that all messages have been automatically authenticated by the sender with a formal messaging system such as SWIFT, unlike messages from a more informal personal e-mail address.

The Act came into force long before modern methods of communication such as e-mail were contemplated.  Whilst such methods have complicated the issue of what constitutes a signature for the purposes of the Act, the Courts have imposed an ever widening interpretation of what is capable of amounting to a signature which shows the Courts adapting old law to new technology.

For further information or advice, please contact:

Mark Rhys-Jones
Tel: +44 292 047 7108

Adam Collinson
Adam Collinson, Consultant
e: AdamCollinson@eversheds-sutherland.com