SFL Ace 2 Company Limited v DCW Management Limited
DMC/SandT/25/08
England
SFL Ace 2 Company Limited v DCW Management Limited (Formerly Allseas Global Management Limited) (The “Green Ace”)
Commercial Court: Christopher Hancock KC: [2024] EWHC 1877 (Comm): 22 July 2024
Judgment available on BAILII @ https://www.bailii.org/ew/cases/EWHC/Comm/2024/1877.html
Julian Kenny KC and Mark Tushingham (instructed by Tatham & Co) for the Claimant Owners
David Ambrose (acting as a representative of the Defendant) for the Defendant Guarantors
CHARTERPARTIES: PERFORMANCE GUARANTEES: WHETHER AN EMAIL SIGN OFF EXECUTING A PARENT COMPANY GUARANTEE IS ENFORCEABLE UNDER THE STATUTE OF FRAUDS 1677
Summary
SFL Ace 2 Company Limited (‘Owners’) entered a charterparty with Allseas Global Projects Logistics Limited (‘Charterers’) for the MV Green Ace (‘Vessel’). The claim arose from an alleged guarantee of Charterers’ obligations by Allseas Global Management Limited (‘AGML’). AGML are part of the same corporate group as Charterers. The charterparty was negotiated and finalised through the exchange of emails and meetings between the parties.
AGML defended the claim by asserting, amongst other things, that the guarantee was invalid and/or unenforceable under section 4 of the Statute of Frauds 1677 (see fn.1) because it was not in ‘writing’ and ‘signed’ by the relevant party.
In its judgment, the Commercial Court found in Owners’ favour, holding that a valid and enforceable guarantee existed. In particular, the Judge held that an email sign off was sufficient to make the parent company guarantee valid and enforceable. There was no need for detailed written documents, wet ink or electronic signature. The Judge used a broad approach to the term ‘writing’ for the purposes of the Statute of Frauds.
Case note contributed by Joshua Hamlet, MCIArb, LLB (Hons) LEC (HWLS), LLM CIDR (QMUL) Dist, Senior Associate at Collas Crill and International Contributor to DMC’s CaseNotes.
Background
Owners were part of a corporate group which owned and managed a fleet of around 75 ships. AGML were part of a corporate group based in Oldham, United Kingdom (‘Allseas’) which carried on business in shipping and freight forwarding. Allseas had multiple companies but had a single or common management structure.
The negotiations for the charter started with an email of 2 March 2022 from the brokers, Clarkson, to Owners saying that Allseas were interested in chartering the Vessel for a period of 12 to 24 months. Allseas, through Clarkson, on 31 March 2022 sent an indication of the commercial terms on which they would be prepared to charter the Vessel. The indication listed Charterers as the proposed charterer but made no reference to a guarantee.
On 1 April 2022, Owners countered the terms by introducing a requirement for a guarantee on behalf of Charterers – a proposal which Charterers rejected. Between 25 to 27 April 2022, there was an exchange of emails wherein each side maintained its position.
On 28 April 2022, Owners informed the brokers that they would not be able to discuss further without some form of guarantee. There was a pause in the negotiations between the parties.
Between 12 to 18 May 2022, the parties continued their negotiation over emails. In these, AGML were identified as charterers.
There was evidence from an internal note that described the discussions that occurred when the parties met in Dubai on 24 May 2022. The note recorded that Allseas were willing to provide a ‘TopCo’ guarantee from their holding company.
On 27 May 2022, Owners proposed that the BOD-approval subjects be reinstated until COB on 30 May 2022. The email on their behalf included an updated recap showing AGML as charterers.
Then, on 30 May 2022, Owners asked to reinstate Charterers as the proposed charterer but then also to add a guarantee from AGML. Several emails were exchanged including Allseas’ representative referring to the fact that amendments were made to the chartering entity and the guaranteeing entity. Recaps reflecting Owners’ new proposal were circulated amongst the parties.
There was a Whatsapp exchange between Allseas’ representatives reflecting their agreement with the terms and lifting their subjects. A clean recap was sent to Owners and then, on 31 May 2022, the Allseas’ team received an email saying that they had a fully committed fixture for the Vessel and setting out a clean recap.
The charter was concluded on 30 May but never signed even though a version was drawn up and sent to Owners.
In mid-August 2022, shortly before the Vessel was to be delivered to Charterers, Allseas approached Owners to renegotiate the rates because they experienced cash flow issues as freight rates had dropped significantly across the market. On 18 August 2022, the Allseas’ team made several proposals to change the rates. Owners did not respond to these proposals.
The Vessel was delivered on 22 August 2022 and Owners allege that a payment of 15 days’ hire in advance fell due on that day. Owners sent a message to Charterers asking them to pay the outstanding hire within 96 hours. Allseas emailed the brokers informing them that they could not accept the Vessel under the current charter terms. Owners relied on this email as Charterers’ repudiation of the contract. They replied through the brokers saying that they treated it as a renunciation and they were electing to terminate the charter.
The Judgment
AGML argued that the emails were evidence of a binding charter, with an agreement to provide a guarantee in the future once its terms were agreed. The Judge reviewed the relevant principles of contractual interpretation and found this case to be an example of the limited circumstances where regard may be had to the parties’ negotiations. He held that Owners had always made it clear that they required a guarantee and there came a time when Charterers relaxed their position on that point. After the Dubai meeting, there remained agreement that the Allseas’ parent company, AGML, would act as performance guarantor for the fixture.
The Judge also decided that the emails were evidence of both the charter and the guarantee.
On the section 4 of the Statute of Frauds’ issue, the Judge acknowledged that there was no dispute as to signature. The Judge followed the guidance in The “C Challenger” (fn.2) and considered himself bound by Golden Ocean v Salgaocar Mining (fn3). These cases encouraged a broad interpretation of ‘in writing and signed’, which included an exchange of emails.
The Judge reaffirmed Popplewell J’s (as he then was) description of the substantial whole benefit test in Spar Shipping v Grand China Logistics (fn.4) for deciding whether conduct is renunciatory. It was accepted that unwillingness to perform a contract according to its terms even through inability could amount to a renunciation if the performance proffered were substantially inconsistent with that party’s obligations.
The Judge agreed with Owners that such was the case here, because the 24 August 2022 email conveyed that Charterers were unable to perform the charter according to its terms and, therefore, would not do so.
The Judge calculated the loss caused by the renunciation by using the difference between the amounts Owners would have earned under the terminated charter and the amounts they earned from replacement fixtures. The quantum of damages awarded was US$27,406,062.39.
Comment
This judgment puts those involved in negotiating charterparties and similar contracts on alert that their emails could create enforceable performance guarantees.
The cases on section 4 of the Statute of Frauds 1677 tend to hold parties to their agreements. The jurisprudence preserves commercial integrity by preventing parties from using technical reasons to avoid their obligations. It also protects commercial parties from losing the substantial benefit of their business agreements.
Therefore, the cases allow guarantees to be evidenced by multiple documents, such as through responses to communications that reference the guarantee, documents acknowledging the existence of a contract, electronic signatures or even documents signed by agents. This judgment, therefore, merely continues this trend by confirming that email sign-offs and exchanges can also create a binding guarantee.
On that basis, those involved in negotiating charterparties must be careful to ensure that their or their clients’ position is reflected during the negotiations. Additionally, the ‘subjects’ of any document should only be lifted after they or their clients have a clear understanding of their obligations and the expectations of their counterparty.
Footnote 1: S.4 of the Statute of Frauds 1677 reads:
“No Action shall be brought . . . whereby to charge the Defendant upon any special promise to answer for the debt default or miscarriages of another person . unless the Agreement upon which such Action shall be brought or some Memorandum or Note thereof shall be in Writing and signed by the party to be charged therewith or some other person thereunto by him lawfully authorized.” [original text modernised]
Footnote 2: [2021] 2 Lloyd’s Rep 109
Footnote 3: [2012] 1 Lloyd’s Rep 542
Footnote 4: [2015] 2 Lloyd’s Rep 407
