Kleinwort Benson v Malaysian Mining [1989]
Share
Kleinwort Benson Ltd v Malaysian Mining Corporation [1989] 1 WLR 379 is a contract law case concerning the intention to create legal relations.
A Malaysian company obtained a cash loan from merchant bankers to finance its subsidiary trading company in London. The Malaysian company issued a 'comfort letter' to the bank, asserting its policy to ensure that the subsidiary could meet its obligations to the bank. Initially, the bank granted a £5 million facility, and after a second identical letter, increased the facility to £10 million. Subsequently, when the subsidiary went into liquidation, the merchant bankers invoked the letters to demand payment for the outstanding sums owed by the subsidiary. The Malaysian company contended that the letters were not intended, nor understood, by both parties to establish legal obligations.
The central question was whether the statements in the letters were intended to create legal relations, forming a legally-binding contract regarding future payments. It was held that in the absence of an explicitly stated intention to create legal relations regarding future payments, the determination rested on whether the statement within its context was intended and understood by the parties as a binding legal promise for future conduct.
On examining the facts, the Court found that the express words used in the letters did not constitute a contractual promise but rather a statement of the bank's present policy. The crucial distinction was that it was not a promise that this policy would persist in the future. When considered in the context of the letter and the bank's documentation, the assertion did not demonstrate an intention to create a legal obligation for future conduct. The words were characterised as offering comfort and expressing moral responsibility but lacked the meaning and effect necessary to constitute a legally-binding promise for future conduct. Consequently, the Court held that the letters did not establish a binding contractual commitment for future payment obligations.
A Malaysian company obtained a cash loan from merchant bankers to finance its subsidiary trading company in London. The Malaysian company issued a 'comfort letter' to the bank, asserting its policy to ensure that the subsidiary could meet its obligations to the bank. Initially, the bank granted a £5 million facility, and after a second identical letter, increased the facility to £10 million. Subsequently, when the subsidiary went into liquidation, the merchant bankers invoked the letters to demand payment for the outstanding sums owed by the subsidiary. The Malaysian company contended that the letters were not intended, nor understood, by both parties to establish legal obligations.
The central question was whether the statements in the letters were intended to create legal relations, forming a legally-binding contract regarding future payments. It was held that in the absence of an explicitly stated intention to create legal relations regarding future payments, the determination rested on whether the statement within its context was intended and understood by the parties as a binding legal promise for future conduct.
On examining the facts, the Court found that the express words used in the letters did not constitute a contractual promise but rather a statement of the bank's present policy. The crucial distinction was that it was not a promise that this policy would persist in the future. When considered in the context of the letter and the bank's documentation, the assertion did not demonstrate an intention to create a legal obligation for future conduct. The words were characterised as offering comfort and expressing moral responsibility but lacked the meaning and effect necessary to constitute a legally-binding promise for future conduct. Consequently, the Court held that the letters did not establish a binding contractual commitment for future payment obligations.
