Kleinwort Benson Ltd v Malaysia Mining Corporation Berhad
Court of Appeal
Citations: [1989] 1 WLR 379; [1989] 1 All ER 785; [1989] 1 Lloyd’s Rep 556; (1989) 5 BCC 337; (1989) 86(16) LSG 35; (1989) 139 NLJ 221; (1989) 133 SJ 262.
Facts
The defendant was a Malaysian company. They formed an English subsidiary to operate as a ring dealing member of the London Metal Exchange. The subsidiary began negotiating with the claimants for a loan. The defendant sent the claimant a ‘comfort letter’ stating that ‘it is our policy to ensure that the business of [the subsidiary] is at all times in a position to meet its liabilities’. Relying on this letter, the claimant granted the loan. In reliance on a second comfort letter from the defendant to the same effect, the claimant later doubled the loan facility.
After the tin market collapsed, the subsidiary went into liquidation with its loans to the claimant unpaid. The defendant refused to pay the outstanding amount. They argued that they never intended to be legally bound by the two comfort letters.
Issue(s)
- Did the defendant intend to be legally bound by the comfort letters?
Decision
The Court of Appeal held in favour of the defendant. The comfort letters stated the defendant’s present policy, and did not make any explicit or implicit promises as to the future (or indeed any promise). As a result, the letters could not be interpreted as a warranty. They had no contractual effect.
This Case is Authority For…
As a matter of commercial custom, ‘comfort letters’ are usually only intended to give reassurance to the recipient. They are normally not intended to result in legally binding relations. As such the presumption that commercial parties intend to be legally bound by their promises does not apply to comfort letters.
