INTENTION

Intention

Introduction
• Not provided for in the Contracts Act
• Refers to ‘intention to create legal obligations’
▫ Created at the time of contract
• That is, an intention to become legally bound,
with legal consequences to sue and be sued
• Generally, intention is derived depending on
whether it is a ...
▫ Social and domestic agreement
▫ Commercial contract
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Intention

Choo Tiong Hin & Ors v Choo Hock Swee

(1959) 25 MLJ 67

… an agreement is not a contract in the strict

sense of the word, unless it is the common
intention of the parties that it shall be legally
enforceable. Such an intention is normally
inferred from the nature of the agreement. ”
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Intention

“ For instance, in the case of agreements

regulating commerce for business, it is obvious
that the parties intend legal consequences to
follow; per contra, in the case of agreements
relating to social agreements, it is inferred as a
matter of course that there is no common
intention to create legal obligations. ”
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Intention

Social and domestic agreements

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Intention

Introduction
• What is a social and domestic agreement?
• It can be seen from the perspective of:

1. Subject matter, and/or

 agreements of a social nature

2. Relationship between parties

 Refers generally to spouses, parents and children,
etc
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Intention

Choo Tiong Hin & Ors v Choo Hock Swee

(1959) 25 MLJ 67

“ … in the case of agreements relating to social

engagements, it is inferred as a matter of course
that there is no common intention to create legal
obligations.

“ The agreements … possess all the characteristics

of a private family arrangement depending for its
efficacy upon a sense of filial duty and paternal
responsibility on the part of the adopted sons and
their adoptive father …”
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Intention

Balfour v Balfour

Husband and wife.

Husband went to Sri Lanka to work. Wife unable

to follow, and stayed in UK. Husband agreed to
pay £30/month.

Held … no intention to create legal relations,

thus no contract.
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Intention

Jones v Padavatton

Mother and daughter.

D (Washington) accepted an offer from Mum to

go to UK to do law, and was provided
maintenance. Nothing in writing, no terms
recorded. House was then bought in London,
which daughter stayed. Other rooms rented to
provide maintenance. Mum paid for the house,
and house in mum’s name. Rent not taken by
mum, no accounts of rent.
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Intention

Court of Appeal:

Only a family arrangement.

“depends on the good faith of the promises

which are made and are not intended to be rigid,
binding agreements”
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Intention

Exception
• All presumptions can be rebutted
• If an intention to be bound can be shown, then
there is a contract
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Intention

Merrit v Merrit

Husband and wife.

Separated. Husband agreed to transfer the house

to the wife, as long as wife paid the instalments.
This was put in writing. Husband later refused to
transfer.

Court of Appeal … there is intention.

COMMERCIAL AGREEMENTS
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Intention

Choo Tiong Hin & Ors v Choo Hock Swee

(1959) 25 MLJ 67

… in the case of agreements regulating

commerce for business, it is obvious that the
parties intend legal consequences to follow;
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Intention

Introduction
• The presumption is that there is an intention to
be bound
• However, if one can show that there is no such
intention, the presumption is rebutted
• Onus of proof to rebut falls on the one alledging
that there is an intention
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Intention

• What must be looked at is the surrounding

circumstances
• Even if it deals with commercial relationships,
must view:
▫ The wordings of the agreement
▫ Nature of the agreement
▫ Background an agreement was reached
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Intention

Rose and Frank Co v JR Crompton & Bros Ltd

“ This arrangement is not entered into, nor is this

memorandum written, as a formal agreement, and shall not
be subject to legal jurisdiction in the Law Courts either of the
United States or England, but is only a definite expression
and record of the purpose and intention of the three parties
concerned, to which they each honourably pledge themselves,
with the fullest confidence – based on past business with each
other – that it will be carried out through each of the three
parties with mutual loyalty and friendly co-operation”.
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Intention

“ This arrangement is not entered into, nor is this

memorandum written, as a formal agreement, and shall
not be subject to legal jurisdiction in the Law Courts
either of the United States or England, but is only a
definite expression and record of the purpose and
intention of the three parties concerned, to which they
each honourably pledge themselves, with the fullest
confidence – based on past business with each other –
that it will be carried out through each of the three parties
with mutual loyalty and friendly co-operation”.
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Intention

Home Insurance Co Ltd & St Paul Fire and

Marine Insurance Co Administratia
Asigurarilor De Stat

Insurance contract.

“This treaty shall be interpreted as an honourable

agreement rather than as a legal obligation”

Disputes “shall be referred to two arbitrators”

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Intention

Esso Petroleum v Commissioners of Custom and

Excise

Petrol sales promotion: for every four gallons of

petrol, a coin bearing the likeness of an English
soccer team member who played in the World
Cup competition in Mexico in 1970 will be given.

Q: is there a legally binding contract between

dealers and customers for the coin?
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Intention

True it is that the respondents are engaged in

business. True it is that they hope to promote the
sale of their petrol,

but it does not seem to me necessarily to follow

or to be inferred

that there was any intention on their part

that their dealers should enter into legally

binding contracts with regard to the coins ;
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Intention

• The offer of a gift of a free coin cannot properly be

regarded as a business matter.

• Such an offer is not “the subject-matter of the

agreement.”

• No reason to imply any intention to enter into contractual

relations from the statements on the posters that a coin
would be given if four gallons of petrol were bought.

• No reason to impute that every motorist who went to a

garage where the posters were displayed to buy four
gallons of petrol had any intention to enter into a legally
binding contract for the supply of a coin to him.
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Intention

“On the acceptance of his offer to purchase four

gallons there was no doubt a legally binding
contract for the supply to him of that quantity of
petrol, but I see again no reason to conclude that
because such an offer was made by him, it must
be held that, as the posters were displayed, his
offer included an offer to take a coin. “
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Intention

Letters of Comfort / Intent

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Intention

Introduction
• Letter of Comfort a.k.a. LoC
▫ A document, usually from an affiliate (such as the holding /
parent company) of the borrower
▫ This document assures the financial soundness of the borrower
to repay its debts
• A LoC does not have a legal effect
▫ It is a moral obligation
▫ Does NOT create any payment/financial obligation on the
affiliate
• A letter of guarantee, however, does
▫ It is a legal obligation
• Thus, one must look at the intention of the parties
• Depends on the intention of the parties
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Intention

Kleinwort Benson Ltd v MMC

D is MMC Bhd and D’s subsidiary is Malaysia Mining
Corporation Metals Ltd (MMC Metals). P’s bank,
Kleinwort Benson, gave a loan of ₤10 million to MMC
Metals.
P asked D to be MMC Metals’ guarantor. They refused.
Instead, issued a letter stating, “It is our policy to
ensure that our subsidiary is in a solvent position”
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Intention

In reliance of this letter of comfort, the bank

advanced money to MMC Metals. MMC Metals
subsequently became insolvent. Bank then took
action against MMC Bhd for the unpaid loan,
based on the letter of comfort.

Held … There was intention to create legal

relations as it was a commercial agreement and
there was nothing to rebut the presumption.
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Intention

However: Court of Appeal …

Held that there was no intention.

The letter was merely a statement of fact of the

defendant’s policy at that time, and did not give any
future commitment or assurance that the policy would
continue.

D did not want to give a guarantee, and thus had only

given a letter of comfort. Court had considered the
purpose of the letter of comfort.
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Intention

North South Properties Sdn Bhd v David

Teh Teik Lim & Anor [2005] 2 CLJ 510, CA

A letter of comfort is generally a statement of

moral responsibility. It is NOT intended to have
any legally binding effect. However, it is capable of
giving rise to a legally binding obligation if the
intention of the parties and the circumstances it is
given shows it is so.
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Intention

“We, the undersigned being the Directors of the

Company hereby give you our joint and several
undertaking that the sum of $217,002.50 referred
to paragraph 2 (two) of the said letter dated 7 May
1991 shall be paid to you on or before the 29th day
of October 1991.”
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Intention

OSK Trustees Berhad v Kerajaan Malaysia

(Civil Appeal No. W-01-7-01/2012)

Malaysian International Tuna Port Sdn Bhd

(MITP) is a special purpose vehicle incorporated

for the purpose of carrying out upgrading works in

Kompleks LKIM Batu Maung, Penang. Entered

into an Agreement on 16 December 2004 with

Lembaga Kemajuan Ikan Malaysia (LKIM).

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Intention

To finance its work under the Agreement, MITP

issued RM240 million of Islamic bonds under a

Bai Bithaman Ajil Islamic Securities Facility (BAIS

Facility) pursuant to a Trust Deed dated 10 April

2007. OSK Trustees Berhad (Trustee) was

appointed as the trustee for the holders of these

bonds.
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Intention

The Ministry of Agriculture and Agro-Based Industry

(MOA), on behalf of the Government, issued a letter
of support dated 2 October 2006 (letter of comfort)
to the Trustee in connection with the Islamic bonds.
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Intention

MITP defaulted on its repayment obligations under

the BAIS Facility and the Trustee obtained judgment
against MITP for a sum of approximately RM208
million.

The Trustee then filed an action against the

Government on the ground that the Government had
breached its undertaking, representation and
assurance in the letter of comfort.
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Intention

"2. … we confirm the viability of MITP, including its ability to

incur borrowings and repay which is critical to ensure the
successful implementation and completion of the project … :

Ensures that MITP is (in) a position to meet (and do meet on a full

and timely basis) their liabilities in respect of all amounts
borrowed for so long as the amount in respect of the borrowings
remain outstanding; and

Provide all necessary support to MITP and also ensure that MITP
shall not take any detrimental action which cause MITP not being
able to perform its obligations in respect of its borrowings.

3. This letter is strictly limited to the points raised in paragraph

2(a) and (b) above and there is no express or implied guarantee
with regards to the borrowings of MITP."
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Intention

Held … Court of Appeal unanimously dismissed the Trustee's

appeal.

Upheld the High Court's decision that the letter of comfort issued
by the Government was not intended to create any binding effect
between the parties.

Mainly: Whether the letter of comfort amounted to an

undertaking, representation and assurance that the Government
would ensure that MITP would be in a position to fulfil its
obligations under the BAIS Facility or whether the letter of
comfort was merely a letter of comfort without any legal liabilities
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Intention

The Court of Appeal agreed with the High Court that

three main questions had to be answered.

[One of] the main question :

Whether the letter of comfort amounted to an

undertaking, representation and assurance that the
Government would ensure that MITP would be in a
position to fulfil its obligations under the BAIS Facility
or whether the letter of comfort was merely a letter of
comfort without any legal liabilities;
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Intention

"2. … we confirm the viability of MITP, including its ability to

incur borrowings and repay which is critical to ensure the
successful implementation and completion of the project … :

Ensures that MITP is (in) a position to meet (and do meet on a full

and timely basis) their liabilities in respect of all amounts
borrowed for so long as the amount in respect of the borrowings
remain outstanding; and

Provide all necessary support to MITP and also ensure that MITP
shall not take any detrimental action which cause MITP not being
able to perform its obligations in respect of its borrowings.

3. This letter is strictly limited to the points raised in paragraph

2(a) and (b) above and there is no express or implied guarantee
with regards to the borrowings of MITP."
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Intention

• The overriding test is that of the intention

document as a whole seen against the background
of the practices of the particular trade or industry

• Whether a letter of comfort is capable of giving rise

to a legally binding undertaking will depend on:
▫ the intention of the parties, and
▫ the circumstances under which the same is given
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Intention

Thus …

• The wording in the support letter does not

amount to any guarantee from MOA

• It is but merely a strong support letter from

MOA reaffirming what is required in the
Shareholders Agreement dated 26.10.2004.

• Clear that the Government did not intend to be

legally bound by the terms of the letter of
comfort.
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