Kleinwort Benson Ltd v Malaysia Mining Corp Bhd (MMC)

In the case of Kleinwort Benson Ltd v Malaysia Mining Corp Bhd (MMC) 1, the Bank hereby called
the plaintiff (Kleinwort Benson) gave a loan of 10 milion to a subsidiary of the borrower hereby
called defedent (Malaysia Mining Corp Bhd (MMC)). The defendant summit the plaintiff two letter
of comfort which contained It is our policy to ensure that our subsidiary is in a solvent position.
Upon the borrowers or subsidiary becoming insolvent, the bank took action against the parent codefendant based on the letter of the comfort2. The trial judge held that there was intention to create a
legal relation as it was a commercial agreement and there was nothing to rebut the presumption.
However, the case was brought to the Court of Appeal (CA). The Court of Appeal considered the
purpose of the letter of comfort and held that there was no such intention. In this case the letter was
held to be 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. It also showed that the defendant
did not want to give a guarantee, and thus it had only given the plaintiff a letter of comfort.

Analysis
Generally letter of comfort is a letter given to a lender or bank by a borrower company whereby the
company undertakes some narrow accountability but it decline short of being a assurance.
Occasionally, letter of comfort particularly administer that there are not having any intention to
make the contract legally binding. A letter of comfort in another word the letter of awareness is a
conversation from a party to other party that express as a beginning to show thier willingness to
invade into a contractual agreement missing of the aspect of legally binding the said contract 3. The
main purpose of the letter of comfort is to create a morally binding but not legally binding
assurance. For example, Bank X made a relationship with Borrower Y by entering into a loan
agreement and one of the terms criterion is a letter of comfort given by Borrower Ys parent
company in the letter of comfort stated the terms: It is Parent Zs management to make sure that
the profession of Borrower Y is to meet its duty to the lenders at all the times. Borrower Y goes
into elimination or annihilation and the lenders look for to petition against Parent Z under the letter
of comfort. The question arise in the Court will be to interpret the letter of comfort and to conclude
whether the decision or comment was to determine a contractual promise as to up coming use or
whether it was a description of actual fact. If it were the previous, the lenders would have a petition
against Parent Z for breach of the written promise as stated in the agreement. If it were the situated,
1 Kleinwort Benson Ltd v Malaysia Mining Corporation Bhd [1989] 1 WLR 379
2 ANJA, case report Kleinwort Benson Ltd v Malaysia Mining Corporation Bhd
3 Minter Ellison, Law Bulletin Letters of Comfort accessed September 2013

the lenders would only can make a petition against Parent Z if the statement was not true at the time
when the agreement was made. However away such a arrangement, in a commercial context there
will basically be minor confusion that a letter of comfort is to have a intention to create legal
relations. In this case, the trial judge held that there was an intended to create a legal relation
between the parties. However, in the Court of Appeal held that there was no intended to create a
legal relation. Generally, the letter of comfort will act as intention to create legal relation and
against it depends on the particular situation of the case. The issue whether the letter of comfort can
turn into legally binding or nor rises again in the case of Banque Brussels Lambert SA v. Australian
National industries Ltd. The case was just after the case of Kleinwort Benson Ltd v Malaysia
Mining Corp Bhd (MMC)4. The judgement for this case, the court held that the letter of comfort was
act as not have any intention to create legally bindin. The judgement base on the case of Kleinwort
Benson Ltd v Malaysia Mining Corp Bhd (MMC) was considered as ineffective because there have
two different judgement during the trial and appeal. This is because the function or the use of the
letter of comfort was not stated clearly whether the letter can use as a intend to create a legal
ralation or not intend to create a legal relation. In opinion, there should have a clear statement of use
of the letter of comfort. Whether the letter of comfort is to create a legal binding assurance or just
merely a statement of a fact of the party's policy at the time when the agreement or contract made.
If the statement of the function of the letter of comfort is clear, than all parties will understand the
use of the letter of comfort.

4 Banque Brussels Lamberts SA v Australian National Industries Ltd [1989] 21 NSWLR 502