Cross Border Verbal Guarantee- How Reliable
Maxwell Alves represented a Hong Kong based defendant and successfully defended a claim made by an English company. The main issue of the case was the enforceability of an alleged oral guarantee supposedly made by our client. A noteworthy feature of this case was that the matter was heard in central London whilst the client remained in Hong Kong and attended the trial by video link. Maxwell Alves, having offices present in both London and Hong Kong, fully utilised its advantages in conducting and concluding this matter with a successful outcome.
“No problem, I guarantee” is a sentence that we come across in our everyday lives. However, how much can you really rely upon it?
Back in 2004, Dr Alan Ma published an article on the enforceability of oral guarantees. Within this article, Dr Ma analysed the Court’s approach to this thorny, yet commonly recurring, issue based on a judgement handed down by the Supreme Court (the highest court in the United Kingdom). The relevant judgement cited within this article was namely Actionstrength Limited v International Glass Engineering  UKHL.
Twelve years later, Maxwell Alves represented a Hong Kong based defendant and successfully defended a claim made by an English company. The main issue of the case was the enforceability of an alleged oral guarantee supposedly made by our client. A noteworthy feature of this case was that the matter was heard in central London whilst the client remained in Hong Kong and attended the trial by video link. Maxwell Alves, having offices present in both London and Hong Kong, fully utilised its advantages in conducting and concluding this matter with a successful outcome.
The origin of the law governing the enforceability of an oral guarantee is dated back to the 17th Century. Section 4 of the Statute of Frauds Act 1677 (the “Statute”) was enacted with an aim to address the calling of perjured evidence to prove spurious agreements said to have been made orally. The Act requires, 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 authorized agent. When it was first enacted in the 17th Century, Section 4 applied to 5 classes of agreements. Since then, Section 4 has been repealed or replaced in its application and now only applies to a class of agreement under which it is sought “to charge the defendant upon any special promise to answer for the debt, default miscarriages of another person”. Accordingly, Section 4 still applies to contracts in relation to guarantees. It should be noted that English contract law does not ordinarily require writing as a condition of enforceability and contracts of guarantees are an exception to the general principles of contract law.
The Claimant was an English company who conducted international trade business. A dispute relating to a contractual obligation to the supply of luxury goods arose between the Claimant, a Chinese company (the “1st Defendant”) and an individual who was domiciled in Hong Kong (“the 2nd Defendant”) for a substantial sum of money.
Being located in China and recognising the jurisdictional issues relating to the enforceability of a UK judgement in China, the 1st Defendant (“D1”) adopted a somewhat passive approach to these proceedings. On the other hand, given that the 2nd Defendant (“D2”), our client, was jointly and severally liable for the monies claimed for by the Claimant, thus meaning that the Claimant was entitled to recover his loss from our client if the claim was successful, our client had no option but the vigorously defend the claim.
It should be noted that it was not disputed as to whether the D1 had breached its contractual obligations by failing to repay the Claimant the monies for the goods supplied. We did not act on behalf of the D1 and only acted on behalf of the D2 to these proceedings.
The case against our client was that D2 had provided an oral guarantee for full payment of the consignments of goods in the event that the HK Company failed to do so. In support of their claim, the Claimant presented a chain of emails exchanged between the owner of the Claimant and D2.
The case turned primarily on two key issues, namely, (a) was there a personal guarantee provided by our client and if so, (b) was the guarantee enforceable by way virtue of a written memorandum evidencing such alleged oral guarantee.
To reach its decision the Court cited the relevant law, namely, Section 4 of the Statute. Despite the fact that the Statute is somewhat dated, the Court stressed the importance of the Statute whereby a two limbed test must be satisfied in order to enforce an alleged oral guarantee.
As with all civil proceedings, the burden of proof was on the Claimant to prove their case against the Defendants on a balance of probabilities. In this case, the Court determined that the Claimant did not sufficient do so. The Court found that the reliability of the Claimant’s oral evidence, under cross examination, was somewhat limited and wholly inconsistent with the case pleaded for. As a result, the Court dismissed the claim against our client and costs were awarded in favour of our client, D2.
As with all disputes there is the real possibility that it could result in being very costly and time consuming for all parties. Below, we have set out some practical considerations which should be applied on a case by case basis and is unlikely to be published in the law reports.
The two fundamental issues relating to cross-border disputes specifically are as follows:
1. One and/or both parties are located outside of the jurisdiction (i.e. in this case the UK); and
2. English not being a party’s native language.
To address point (1) above, flying to London in order to attend a hearing is not only a matter of time and money but it could also be demoralising and stressful for any individual. In this particular case, we respectfully requested the Court to allow our client to give evidence by virtue of video link in Hong Kong. The Court granted our request which meant that our client was not only awarded with the freedom to choose a venue in Hong Kong (subject to video conference facilities being adequate) but more importantly was able to save both time and monies by avoiding having travel to the UK.
Despite the clear advantage of the English courts utilising technological advancements, our client and our Hong Kong office had to accommodate the time difference between the two time zones. The trial started at 6:30pm in Hong Kong and lasted for the whole day in London meaning that the trial continued well into the late hours of Hong Kong, arguably a small price to pay in the grand scheme of things.
With regards to (2) above, it should be appreciated that when you are not speaking your native language, there is a tendency to rely on interpreters. Our client is a business person with a basic understanding of the English language which meant that speaking in a court environment would be a very daunting experience. Upon our client’s request, we arranged for an interpreter to be present during the trial. However, during the preparation for such trial, we noticed that the video link could create a slight time lag between the speaker and receiver. The combined effect of transmission delay and interpretation could indirectly adversely affect the judge’s impression on our client as a credible witness. The result of such discovery meant that on the eve of the trial we made a bold decision and advised our client to attend the trial without an interpreter present.
The above clearly identifies a number of practical issues which should be discussed and addressed on a case by case basis as it may very well afford the client the slight advantage required to draw a successful outcome from any dispute.
In this day and age globalisation and cross-border transactions are now more prominent than ever. The UK, specifically the laws of England and Wales, are well known for its effective/reliable legal system and together with the court’s main objective of reducing costs, the English courts and laws are becoming more and more popular as the governing law/chosen venue to many commercial contracts and disputes.
With the above in mind, this article aims to provide an insight into how disputes involving parties located across the world may benefit from the English legal system, as well as some practical considerations to take on board when seeking to achieve a desired outcome for clients.
Please note that the above information has been provided on an informative basis and is not to be considered and/or construed as legal advice. Should you wish to discuss any of the above-mentioned issues further, please feel free to contact us accordingly.
Maxwell Alves Solicitors