Lloyd's Maritime and Commercial Law Quarterly
A VERY COMFORTABLE COMFORT LETTER
Kleinwort Benson Ltd. v. Malaysia Mining Corp. Bhd.
In Kleinwort Benson Ltd. v. Malaysia Mining Corp. Bhd,1 the Commercial Court had to consider the legal effect of a document which both sender and recipient described as a “comfort letter”. The decision is one which will gladden the spirits of anyone who has received such a document, cause shivers to run down the spine of anyone who has ever sent such a document and stimulate the brain cells of any lawyer who tries to correlate the judgment to the generally accepted canons of contract law.
In 1983, the defendants (“MMC”) caused a subsidiary, MMC Metals Ltd. (“Metals”), to be incorporated. The intention was that Metals should trade in tin on the London Metal Exchange. For this purpose Metals needed extra funding above its share capital. Accordingly, MMC started to negotiate the necessary facility with the plaintiffs (“KB”), a leading London merchant bank. At first, KB said that they would require MMC to be jointly and severally liable with Metals for the amount of any loan. The cost would be an accepting commission of ⅜% per annum. MMC indicated that they were not prepared to accept such liability or give a guarantee in respect of Metals and that an extra ⅛% commission would be no problem. KB then said that a comfort letter would be acceptable to them but that the commission would be ½%. They proffered a draft which would be acceptable to them. It contained the following paragraph:
It is our policy to ensure that the business of [Metals] is conducted in such a way that [Metals] is at all times in a position to meet its liabilities to you under the above arrangements.
The text of the comfort letter which MMC eventually sent to KB was only slightly different. The full letter was as follows:
We refer to your recent discussions with [Metals] as a result of which you propose granting [Metals]: (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 [Metals] because we control directly or indirectly [Metals],
(2) We confirm that we will not reduce our current financial interest in [Metals] 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 [Metals] is at all times in a position to meet its liabilities to you under the above arrangements.2
The commission charged by KB for these arrangements was ½% per annum.
A few months later the facility was increased to £10 million and a replacement letter was sent by MMC to KB. It was in identical terms (mutatis mutandis) to the first letter and stated that it superseded the previous “letter of awareness”.
1. [1988] 1 W.L.R. 799.
2. The paragraph numbers were not in the original but were inserted by the judge for clarity of reference in his judgment.
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