Kleinwort Benson Ltd v Malaysia Mining Corporation Berhad
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE RAPLH GIBSON,LORD JUSTICE NICHOLLS,LORD JUSTICE FOX |
| Judgment Date | 02 February 1989 |
| Judgment citation (vLex) | [1989] EWCA Civ J0202-5 |
| Docket Number | 89/0081 |
| Court | Court of Appeal (Civil Division) |
| Date | 02 February 1989 |
[1989] EWCA Civ J0202-5
Lord Justice Fox
Lord Justice Raplh Gibson
Lord Justice Nicholls
89/0081
1986 K. No. 1272
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
COMMERCIAL COURT
(MR JUSTICE HIRST)
Royal Courts of Justice,
MR SAMUEL STAMLER, Q.C and MR J. GIBSON-WATT (instructed by Messrs. Freshfields) appeared on behalf of the Appellants.
MR MARK WALLER.Q.C and MR N. PADFIELD (instructed by Messrs. Herbert Smith) appeared on behalf of the Respondents.
This is an appeal by the defendants, Malaysian Mining Corporation Berhad, from the decision of Hirst J. of 21st December 1987, by which the plaintiffs, Kleinwort Benson Limited, obtained judgment for damages for breach of contract against the defendants for £12.26m. including interest. The defendants ask that the judgment be set aside and that the plaintiffs' claim be dismissed on the ground that the defendants did not enter into any relevant contractual obligations to the plaintiffs.
The judgment of Hirst J., which is reported at (1988) 1 W.L.R. 799, contains an account of the circumstances in which the defendants provided to the plaintiffs the "comfort letter" upon the terms of which the plaintiffs' claim is founded. The description of the document as a "comfort letter" is that used by the parties themselves in the negotiations which preceded the provision of it by the defendants.
The plaintiffs are merchant bankers of high reputation and long experience. The defendants are a public limited company incorporated under the laws of Malaysia in which the Republic of Malaysia has at all material times held a controlling interest. In 1983 the defendants caused to be incorporated under the laws of this country a company called M.M.C. Metals Ltd. ("Metals"), as a wholly-owned but indirect subsidiary, to operate as a ring dealing member of the London Metal Exchange. The paid up capital of Metals was £1.5m. To carry out trading upon the London Metal Exchange much larger funds would be required. There were negotiations for the provision of funds by the plaintiffs to Metals. The plaintiffs sought from the defendants assurances as to the responsibility of the defendants for the repayment by Metals of any sums lent by the plaintiffs. A "comfort letter" dated 21st August 1984 was provided by the defendants as part of an acceptance credit/multi-currency cash loan facility granted by the plaintiffs to Metals to a maximum of £5m. That letter contained, among other statements, the assertion by the defendants that "it is our policy to ensure that the business of Metals is at all times in a position to meet its liabilities to you under the above arrangements". This case turns upon the proper construction, in its context, of that assertion by the defendants. In 1985 the facility was increased by the plaintiffs to a maximum of £10m. in reliance upon a second comfort letter dated 7th May 1985, which was in substantially identical terms.
In October 1985 the tin market collapsed when the International Tin Council announced that it was unable to meet its liabilities which ran to hundreds of millions of pounds. An account of those events and a list of the sovereign States (including the United Kingdom and Malaysia) which were members of the I.T.C. can be found in the judgment of Kerr L.J. in Maclaine Watson & Co. Ltd.v. Department of Trade and Industry (1988) 3 W.L.R. 1033. When the tin market collapsed Metals ceased trading. The plaintiffs demanded repayment of all sums outstanding. Nothing was paid, and Metals went into liquidation. The plaintiffs called upon the defendants to ensure that the plaintiffs received payment of the sums due.
The defendants refused to pay and said by telex of 3rd December 1985:"..…We have been advised that the statements made in the letter of 7th May (1985) were not intended by either party to impose, and do not impose,any legally binding obligation on us to support M.M.C. Metals Ltd. Tou will appreciate that circumstances are now materially different from those existing at the date of that letter and that although the policy referred to was our policy at that time and in the light of the circumstances then prevailing, no assurance was given that such policy would not be reviewed in the light of changing circumstances.
"We therefore cannot accept, as you stated in your telex, that we have given any assurances to you that M.M.C. Metals Ltd. would at all times be kept in a position to meet its liability to you".
Hirst J. described in his judgment the course of the discussions between the defendants and the plaintiffs which led to the provision of the two comfort letters. Before Hirst J. and in this Court it was accepted by both sides that those events could properly be taken into account as part of the context in which the second comfort letter was sent by the defendants.
I will set out Hirst J.'s description of those events substantially in his words which have been accepted as full and accurate by the parties: (page 802A):
".…in the first instance, by letter dated 16 December 1983, the plaintiffs offered to both the defendants and M.M.C. Metals Ltd. jointly a facility totalling £5 million on terms that, throughout the currency of the facility, both should be jointly and severally liable for all amounts due to the plaintiffs; on this basis an accepting commission/margin of 3/8 per cent. per annum was proposed.
"On 9 February 1984 there was a meeting in Singapore, attended on the plaintiffs' side by Mr Gordon Irwin, who was the sole witness at the trial. At this stage the plaintiffs were proposing a guarantee by the defendants rather than joint and several liability, but one of the defendants' representatives at the meeting stated that it was the defendants' policy not to guarantee their subsidiary's borrowings. At a subsequent meeting in London on 21 June 1984, Mr John Green, who had been newly appointed as the director in charge of M.M.C. Metals Ltd.'s operations, is recorded in the plaintiffs' meeting note as having stated:
'The original offer was outlined (£5 million u.f.n.@ 3/8 per cent. per annum margin guaranteed by (the defendants). A facility of this sort appears to fit in with Green's requirements, with the exception of the guarantee. Green said that (the defendants were) now not so keen on issuing guarantees just to keep finance costs down by 1/8 per cent. per annum and Green himself would be recommending that all M.M.C. Metals bank lines should be covered by a letter of comfort, rather than by a guarantee. I said that a letter of comfort would not be a problem, but that we would probably have to charge a higher rate'.
"This was reported by Mr Irwin in an internal memorandum dated 3 July 1984 as follows:
'Contrary to earlier reports, (the defendants) have now taken a decision not to issue guarantees to cover the banking facilities granted to M.M.C. Metals. As a result, we have been asked to consider a line which would be covered by a letter of comfort from (the defendants)'.
"Mr Irwin in evidence accepted that by this stage he realised that the plaintiffs would not be able to obtain either joint and several liability as originally proposed, or a guarantee from the defendants.
"Originally it was proposed that the defendants should draft the comfort letter, but eventually on 11 July 1984 the plaintiffs furnished to M.M.C. Metals Ltd. a revised facility letter addressed to them only, providing for 1/2 per cent. commission (i.e. an increase of 1/8) and accompanied by a draft of a proposed comfort letter, in which the crucial paragraph read:
'It is our policy to ensure that the business of M.M.C. Metals Ltd. is conducted in such a way that M.M.C. Metals Ltd. is at all times in a position to meet its liabilities to you under the above arrangements'. i.e., containing at this stage some extra words in the second line. On 10 August 1984 at a board meeting of the defendants the following directors' written resolution was passed:
'That M.M.C. Metals Ltd. be authorised to accept the above facility on terms and conditions contained in the letter from (the plaintiffs) dated 11 July 1984, and that the required letter of comfort in the form attached be issued to (the plaintiffs)'.
"Eventually, on 17 September 1984, M.M.C. Metals Ltd, returned the formal facility letter to the plaintiffs, accompanied by the first comfort letter, dated 21 August 1984, with the crucial paragraph redrafted by the defendants. The full text of the letter is:
'We refer to your recent discussion with M.M.C. Metals Ltd. as a result of which you propose granting M.M.C. Metals Ltd.: (a) banking facilities of up to £5 million; and (b) spot and forward foreign exchange facilities with a limitation that total delivery in cash will not on any one day exceed £5 million.
(1) We hereby confirm that we know and approve of these facilities and are aware of the fact that they have been granted to M.M.C. Metals Ltd. because we control directly or indirectly M.M.C. Metals Ltd. (2) We confirm that we will not reduce our current financial interest in M.M.C. Metals Ltd. until the above facilities have been repaid or until you have confirmed that you are prepared to continue the facilities with new shareholders. (3) It is our policy to ensure that the business of M.M.C. Metals Ltd. is at all times in a position to meet its liabilities to you under the above arrangements. Tours faithfully, Malaysia Mining Corporation Berhad.
"I have inserted numbers for the three main paragraphs for clarity of reference...
To continue reading
Request your trial
-
Bowerman v Association of British Travel Agents Ltd
...referred to in the judgments: Carlill v Carbolic Smoke Ball CoELR [1893] 1 QB 256. Kleinwort Benson Ltd v Malaysia Mining Corp BerhadWLR [1989] 1 WLR 379; (1989) 5 BCC 337. Shanklin Pier Ltd v Detel Products LtdELR [1951] 2 KB 854. Contract — Intention to create legal relations — Considerat......
-
LTT Global Consultants v BMC Academy Pte Ltd
... ... plaintiff is a sole proprietorship in Malaysia and has its registered address in ... of joint efforts” (at p 1156) and Kleinwort ... Benson v Malaysian ning Corp Berhad [1988] 1 WLR 799 ... ...
-
Lemon Grass Pte Ltd v Peranakan Place Complex Pte Ltd
...parties intended to create a legally binding contract: Ralph Gibson LJ in Kleinworth Benson Ltd v Malaysia Mining Corporation Berhad [1989] 1 All E.R. 785 at 796. 119. They must also establish consideration, which in the case of a collateral contract is easy to prove. All that is required i......
-
British & Commonwealth Holdings Plc and and Others v British & Commonwealth Holdings Plc and and Others
...as to the financial capability of another, as in letters of comfort (see Kleinwort Benson Ltd. v. Malaysia Mining Corporation Berhad [1989] 1 W.L.R. 379). The assurance may be anywhere in the range between a guarantee and a vague expression of opinion, depending on the words used. The judge......
-
How Comforting Is A Comfort Letter?
...Leigh. Footnotes * Shawn Goldmintz is an articling student at Aird & Berlis LLP. Kleinwort Benson Ltd. v. Malaysia Mining Corp., [1989] 1 All E.R. 785 (C.A.), revg [1988] 1 All E.R. 714 (Q.B., leave to appeal to H.L. refused [1989] 1 All E.R. 785 (C.A.) at p. Banque Brussels Lambert SA ......
-
Security for performance
...Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLr 502; Kleinwort Benson Ltd v Malaysia Mining Corporation Bhd [1989] 1 WLr 379 (Ca); Commonwealth Bank of Australia v TLI Management Pty Ltd [1990] Vr 510; hiess Contractors Pty Ltd v Montgomery Watson Australia Pty Ltd ......
-
Intention to Create Legal Relations
...that it had breached a contractual obligation to repay the loan contained in the above provisions of the letter of comfort. 33 [1989] 1 All ER 785 (CA), rev’g [1988] 1 All ER 714 (QB), leave to appeal refused, [1989] 1 All ER 785 at 798 (CA) [ Kleinwort Benson ]. For discussion, see DH Clar......
-
RESOLVING AMBIGUITY THROUGH EXTRINSIC EVIDENCE
...that both parties intended to create a legally binding contract: Ralph Gibson LJ in Kleinwort Benson v Malaysia Mining Corp[1989] 1 All ER 785 at 796. They must also establish consideration, which in the case of a collateral contract is easy to prove. All that is required is the promisee [t......
-
Intention to Create Legal Relations
...facilities have been repaid or until you have confirmed that you are prepared to continue the facilities with new shareholders. 33 [1989] 1 All E.R. 785 (C.A.), rev’g [1988] 1 All E.R. 714 (Q.B.), leave to appeal refused, [1989] 1 All E.R. 785 at 798 (C.A.) [ Kleinwort Benson ]. For discus......