Kleinwort Benson Ltd v Malaysian Mining Corporation,  1 WLR 379
Intention to create legal relations in the formation of contracts.
A company incorporated in Malaysia, acquired a cash loan from merchant bankers for the purposes of funding its subsidiary trading company in London. The Malaysian company wrote the bank a ‘comfort letter’ asserting that its policy is to ensure that the subsidiary company is in a position to meet its liabilities to the bank. The bank granted a £5 million facility initially, and, following a second identical letter, the bank raised the facility to £10 million. When the subsidiary company went into liquidation, the merchant bankers relied upon these letters to order the company to pay the subsidiary’s outstanding sums. The Malaysian company claimed that the letters were not intended, nor understood, by both parties to create legal obligations.
The issue arose as to whether the assertion in the letters were intended to create legal relations in respect of future payment as a legally-binding contract.
The Court held that, in the absence of an expressly stated intention to create legal relations in respect of the payment, the Court must determine whether the statement within its context was intended and understood by the parties, as a binding legal promise as to future conduct.
On the facts, the Court held the express words used were not in the form of a contractual promise and were a mere statement of fact concerning the bank’s present “policy;” and not a promise that this “policy” will remain in the future. Further, when placed within the context of the letter itself and bank documentation, the assertion does not evidence an intention to create a legal obligation as to future conduct. The words were merely of comfort and of moral responsibility, and did not have the meaning nor effect of creating a legal promise of future conduct with legally-binding effect.
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