Banque Brussels
Banque Brussels Lambert SA v Australian National Industries Ltd
Supreme Court of NSW (1989) 21 NSWLR 502
Case details
Court
Supreme Court of Victoria
(full bench)
Judge
Chief Justice Rogers
Issues
Agreement
Letters of comfort
Overview
Australian National Industries (ANI) gave a letter of comfort to Banque Brussels in respect of a loan they provided to a third party (Spedly Securities Limited (SSL). ANI had a controlling interest in SSL’s parent company.
The letter said:
We take this opportunity to confirm that it is our practice to ensure that our affiliate Spedly Securities Limited will at all times be in a position to meet its financial obligations as they fall due. The financial obligations include repayment of all loans made by your Bank under the arrangements mentioned in this letter.
The letter also said that it was not their ‘intention to reduce our shareholding in Spedly Holdings Limited … during the currency of this facility’ and ‘We would … provide your Bank with ninety (90) days notice of any subsequent decisions taken by us to dispose of this shareholding …’
ANI subsequently disposed of the shareholdings without informing the bank. When SSL was unable to pay its debt and went into liquidation, Banque Brussels sued ANI, alleging breach of agreement . ANI claimed that letter/agreement did not manifest and intention to create legal relations.
Chief Justice Rogers
His Honour went through the history of the transaction in great detail before examining the nature of letters of comfort (from 520), He observed:
‘The letter of comfort developed as an alternative to a guarantee or surety where the writer, more often than not the parent company, either was unable, or unwilling, to issue one of these more traditional securities. …’
His Honour observed that ‘two Queen’s Counsel, their juniors and a platoon of solicitors were engaged over five days in argument as to whether .. the defendant in this case, assumed merely a moral responsibility, or whether it was liable at law. (p 505)
On the contractual claim, his Honour observed that the claim here turned on whether there was an intention to create legal relations and whether the terms of the letter were sufficiently promissory to be held to be contractual.
Intention
On the question of intent, his Honour noted that the overriding test was intention of the parties determined objectively by reference to the document as a whole, taking account of the background practices of the industry.
His Honour made clear that the letter of comfort was not a guarantee - that ANI was clearly not intending to assume secondary liability for the debts - but this did not mean it was not binding.
[at 523] There should be no room in the proper flow of commerce for some purgatory where statements made by businessmen, after hard bargaining and made to induce another business person to enter into a business transaction would, without any express statement to that effect, reside in a twilight zone of merely honourable engagement. The whole thrust of the law today is to attempt to give proper effect to commercial transactions. It is for this reason that uncertainty, a concept so much loved by lawyers, has fallen into disfavour as a tool for striking down commercial bargains. If the statements are appropriately promissory in character, courts should enforce them when they are uttered in the course of business and there is no clear indication that they are not intended to be legally enforceable. …
[at 524] … it is inimical to the effective administration of justice in commercial disputes that a court should use a finely tuned linguistic fork.’
In commercial arrangements there is a presumption that there is an intention to create legal relations; that presumption was not displaced here. [Note, cf Ermogenous]
Conclusion
His Honour further held that statements within the letter where promissory in character and should be upheld.