Kleinwort Benson v Malaysian Mining Corp

351 words (1 pages) Case Summary

Kleinwort Benson Ltd v Malaysian Mining

Corporation, [1989] 1 WLR 379
Intention to create legal relations in the formation of contracts.

Facts

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.

Issue

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. 

Held

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.