Golden Ocean Group v Salgaocar Mining Industries PVT Ltd and another
| Jurisdiction | England & Wales |
| Judge | Lord Justice Tomlinson,Sir Mark Waller,Lord Justice Rix |
| Judgment Date | 09 March 2012 |
| Neutral Citation | [2012] EWCA Civ 265 |
| Docket Number | Case No: A3/2011/0440 and 0438 |
| Court | Court of Appeal (Civil Division) |
| Date | 09 March 2012 |
Lord Justice Rix
Lord Justice Tomlinson
and
Sir Mark Waller
Case No: A3/2011/0440 and 0438
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION, COMMERCIAL COURT
Mr Justice Christopher Clarke
Royal Courts of Justice
Strand, London, WC2A 2LL
Timothy Young QC and Daniel Bovensiepen (instructed by Ince & Co LLP) for the Respondent
(1) Dominic Kendrick QC and Peter MacDonald-Eggers QC (instructed by MFB Solicitors) for Appellant (1)
(2) Charles Kimmins QC and Luke Pearce (instructed by Bentley, Stokes & Lowless, Solicitors) for Appellant (2)
Hearing dates : 7, 8, and 9 November 2011
Approved Judgment
Introduction
The principal question which falls for decision in this case is whether a contract of guarantee is enforceable where contained not in a single document signed by the guarantor but in a series of documents duly authenticated by the signature of the guarantor. It is common in commercial transactions for a contract of guarantee to be contained in a single document, and it is no doubt convenient that a guarantee should be evidenced in this way. The question however which arises in this appeal is whether it must. Christopher Clarke J, in the Commercial Court, held that it need not – [2011] EWHC 56 (Comm); [2011] 1 WLR 2575. He held that an enforceable contract of guarantee may indeed be found in a properly authenticated series of documents. His decision is said to have been unorthodox and contrary to the understanding of commercial men. It is said to have caused alarm.
The Statute of Frauds 1677 ("the Statute") was "An Act for prevention of Frauds and Perjuries. For prevention of any fraudulent Practices which are commonly endeavoured to be upheld by Perjury and Subornation of Perjury". Section 4 thereof prohibited the bringing of actions in respect of certain transactions "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 authorised". Originally section 4 applied to five classes of transaction;
i) An agreement by an executor or administrator to pay damages out of his own estate;
ii) A contract of guarantee;
iii) An agreement made upon consideration of marriage;
iv) A contract for the sale or other disposition of an interest in land; and
v) A contract that is not to be performed within the space of one year from the making thereof.
The purpose of the Statute was, according to Lord Hoffmann, Actionstrength Ltd v International Glass Engineering SPA [2003] 2 AC 541 at 549 "… precisely to avoid the need to decide which side was telling the truth about whether or not an oral promise had been made and exactly what had been promised." Parliament must have decided, thought Lord Hoffmann, that there had been "too many cases in which the wrong side had been believed." Lord Hoffmann also points out, in the same passage, that:—
"It is quite true … that the system of civil procedure in 1677 was not very well adapted to discovering the truth. For one thing, the parties to the action were not competent witnesses. But the question of whether the Act should be preserved in its application to guarantees was considered in 1953 by the Law Reform Committee (First Report, Statute of Frauds and Section 4 of the Sale of Goods Act 1893 (Cmd 8809)) and the recommendation of a very strong committee was to keep it."
Lord Bingham in his speech in Actionstrength said that section 4 was enacted "to address a mischief facilitated, it seems, by the procedural deficiencies of the day … the calling of perjured evidence to prove spurious agreements said to have been made orally. The solution applied to the five classes of contract specified in section 4 was to require, as a condition of enforceability, some written memorandum or note of the agreement signed by the party to be charged under the agreement or his authorised agent" – see at 544–545.
History does not relate why these five classes of transaction were singled out for special treatment. The "very strong" Law Reform Committee, presided over by Jenkins LJ, reported to the Lord Chancellor in 1953 that the field had been "arbitrarily chosen". However that may be, section 4 of the Statute in its modern form survives only in respect of contracts of guarantee, although special and now different provision has been made for contracts for the sale or other dispositions of an interest in land – see section 40 of the Law of Property Act 1925 and section 2 of the Law of Property (Miscellaneous Provisions) Act 1989.
Thus in its modern form section 4 of the Statute provides:—
"No action shall be brought whereby to charge the Defendant upon any special promise to answer for the debt default or miscarriage 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 authorised."
The Appellants are anxious to stress that section 4 of the Statute is no dusty relic. Its abolition, or so much thereof as by then survived 1, had been recommended in 1937 by the Law Revision Committee in its Sixth Interim Report, Statute of Frauds and the Doctrine of Consideration (Cmd 5549) paragraph 16. But on that earlier occasion a minority headed by Goddard J, who as Lord Goddard CJ was a member of the later Law Reform Committee, had favoured its retention. The reasons of the minority, as summarised in Actionstrength, at page 546, were:—
"(1) that there was a real danger of inexperienced people being led into undertaking obligations which they did not fully understand, and that opportunities would be given to the unscrupulous to assert that credit was given on the faith of a guarantee which the alleged surety had had no intention of giving;
(2) that a guarantee was a special class of contract, being generally one-sided and disinterested as far as the surety was
concerned, and the necessity of writing would give the proposed surety an opportunity for thought;(3) that the requirement of writing would ensure that the terms of the guarantee were settled and recorded;
(4) that Parliament had imposed a requirement of writing in other contractual contexts;
(5) that judges and juries were not infallible on questions of fact, and in the vast majority of cases the surety was getting nothing out of the bargain;
(6) that it was desirable to protect the small man; and
(7) that the necessity for guarantees to be in writing was generally understood."
The Law Reform Committee agreed in 1953 that writing should continue to be required for contracts of guarantee. It recommended repeal of the section so far as concerned its application to the other three remaining classes of contract and the recommendation was adopted by enactment of the Law Reform (Enforcement of Contracts) Act 1954. Section 40 of the Law of Property Act 1925 has now been superseded by section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 which requires that contracts for the sale or other disposition of an interest in land must be made in writing. A memorandum or note of an agreement is no longer sufficient.
Lord Hoffmann points out in Actionstrength at paragraph 20 of his speech:—
"The terms of the statute therefore show that Parliament, although obviously conscious that it would allow some people to break their promises, thought that this injustice was outweighed by the need to protect people from being held liable on the basis of oral utterances which were ill-considered, ambiguous or completely fictitious. This means that while normally one would approach the construction of a statute on the basis that Parliament was unlikely to have intended to cause injustice by allowing people to break promises which had been relied upon, no such assumption can be made about the statute."
The dispute
The context in which the application of section 4 falls to be considered on this appeal is very familiar. It is the conclusion of a long term, ten year, time charter of a valuable vessel, a newbuilding Capesize bulker of 176,000 tonnes deadweight. The owners, Golden Ocean Group Ltd, hereinafter ("Golden Ocean") were negotiating for the hire of their vessel to a substantial conglomerate of industries, the Indian company Salgaocar Mining Industries Pvt Ltd, to which I shall refer hereafter as ("SMI"). SMI is based in Goa. Like many other similar conglomerates SMI has a chartering arm, here Trustworth Shipping Pte Limited, hereinafter ("Trustworth"), a Singaporean company. There may be issues at trial as to the status and purpose of Trustworth, but it is unlikely to be denied that since about the end of 2005 Trustworth has chartered many vessels and carried in them from India to, mainly, China, cargoes which SMI had sold. The use of Trustworth may well be driven by tax reasons and related to the restrictions on transfer abroad of foreign currency imposed by Indian Exchange Control Regulations. If, as the judge thought likely, the use of Trustworth was intended to distance the charter from India, there would be nothing either unusual or disreputable about that. It is entirely commonplace. So however is the quid pro quo, that an owner asked to deal with such a charterer would often and perhaps ordinarily be unprepared to do so save on terms that its obligations are fully guaranteed by its parent or some other company of substance. The transaction here followed that familiar pattern.
The procedural context in which the question arises is an application by the Defendants, now Appellants, SMI and Mr Anil V...
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