• In the case of Kleinwort Benson Ltd v Malaysia Mining Corp [1989] 1 All ER 785, the comfort letter did not have contractual effect because there was no information regarding the company’s future performance; the comfort letter was only about present conduct.
  • This contract case is related to company law meaning how companies operate.
  • This case raises questions about where responsibility to cover the debt lies after a company goes into liquidation even though it still owes the bank loan payments.

Facts of the Case

  • C claimed damages against D for breaching a warranty. This warranty dictated that D would ensure M.M.C. Metals would fulfil its financial obligations to C.
  • The lower courts held D had contractual obligations to C because of the assertions in the comfort letter.
  • D appealed arguing that the letter of comforts from 1984 and 1985 respectively indicate contractual promises regarding future conduct.
  • More specifically D contended the contractual promises stated the merchant bankers would ensure that M.M.C. Metals would meet its liabilities at all times.

Issues

  • The main question of the case: do the phrases in paragraph 3 of the letter constitute as a warranty or contractual promise?
  • Is there an intention to create legal relations?
  • Does the letter of intent establish a legally binding contract?

Held by Court of Appeal

  • Appeal allowed – D made an explicit statement regarding their policy that no promise regarding future policy was made or implied. D successfully claimed their statement of present fact was that the subsidary could pay its debts therefore the provisions of the letter of comfort was not legally binding.

Ralph Gibson L.J

Intention to create legal relations

  • The letter of comfort was only used in the negotiation stage. The judge disagrees with previous judges instead he held the letters of comfort express the parties’ legal relationship.
  • There were no express terms to indicate a contractual promise. Paragraph 3 is a representation of fact.
  • “The absence of express words of warranty as to present facts or the absence of express words of promise as to future conduct does not conclusively exclude a statement from the status of warranty or promise.” [390]
  • “The plain meaning of those words, without the addition contained in Hirst J.’s formulation of its meaning, does fit the factual background.” [393]
  • According to the judge, the burden of proof that there was no intention to create legal intention lies with “the party who asserts that no legal effect was intended, and the onus is a heavy one”. Edwards v Skyways [1964] 1 WLR 349 [355]

Relevant contractual promise

  • Paragraph 3 of the letter is not a contractual promise. It does not give any indication to future intentions. This case heavily considers Esso Petroleum Co. Ltd. v. Mardon [1976] Q.B. 801 – a misrepresentation case where the words were held to be a warranty.
  • “If my view of this case is correct, the plaintiffs have suffered grave financial loss as a result of the collapse of the tin market and the following decision by the defendants not to honour a moral responsibility which they assumed in order to gain for their subsidiary the finance necessary for the trading operations which the defendants wished that subsidiary to pursue.” [394]

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