Letters of Comfort: A Trans-Systemic Analysis (International Banking and Finance Law Series Book 15)

This book presents the first thoroughgoing analysis of the contractual effect of letters of comfort as it appears in both common law and civil law systems. The commentary draws on cases from a wide variety of jurisdictions and on the full range of legal scholarship on the subject in several languages. Among the specific issues and topics raised along the way are the following: the typology of letters of comfort; the legal nature of letters of comfort; the use of letters of comfort in corporate group and banking practice; the economic explanation for the use of letters of comfort; the contractual effect of letters of comfort in French law; ‘ten commandments’ of letters of comfort; Clearly evoking the tension between business needs, the law, and judicial application, the book analyses what happens when the relationship between a lender and a creditor breaks down, or the latter becomes insolvent, and courts or arbitrators are asked to determine the legal status of a comfort letter. This is an area of practice in which lawyers in any field of business activity are inevitably concerned, and in which useful guidance is scarce. For this reason this detailed analysis will be very welcome. Series Title Title Copyright Dedication The Author Table of Contents Preface Chapter 1 Introduction 1.1 Raison d’être for this Book 1.2 A Preliminary General Delineation of Letters of Comfort 1.3 Origin and International Dimension of Letters of Comfort 1.4 Scope of Investigation 1.5 Limitation of Topic 1.6 Roadmap Chapter 2 The Concept of the Letter of Comfort and its Delineation 2.1 Introduction 2.2 Definitions 2.3 Terminology 2.4 The Typology of Letters of Comfort 2.4.1 Classification of Letters of Comfort in Belgian Law 2.4.2 Classification of Letters of Comfort in French Law 2.4.3 Classification of Letters of Comfort in Dutch Law 2.4.4 Classification of Letters of Comfort in German Law 2.4.5 Classification of Letters of Comfort in Anglo-Common Law 2.5 Delineation 2.5.1 Letter of Comfort Properly So Called or ‘Weak’ or ‘Soft’ Letter of Comfort 2.5.2 Letter of Responsibility or ‘Strong’ or ‘Hard’ Letter of Comfort 2.5.3 Medium Strength Letter of Comfort or Letter of Comfort in Ordinary Vernacular 2.6 The Legal Nature of Letters of Comfort 2.6.1 Contract as Basis for the Letter of Comfort 2.6.2 Binding Unilateral Promise as Basis For The Letter Of Comfort 2.6.3 Credit Mandate as Basis for the Letter of Comfort 2.7 Letters of Comfort and Traditional Securities Chapter 3 The Use of Letters of Comfort in Corporate Group and Banking Practice 3.1 Introduction 3.2 Reasons for the Use of Letters of Comfort 3.2.1 Reasons for Their Acceptance by Banks 3.2.2 Reasons for Their Provision by Parent Companies 3.2.3 An Economic Explanation for the Use Of Letters of Comfort 3.2.4 Remarks 3.3 The Banking Practice of Grading Letters of Comfort Chapter 4 The Contractual Effect of Letters of Comfort in the Anglo-Common Law 4.1 Introduction 4.2 Consideration 4.3 Certainty 4.4 Intention to Create Legal Relations 4.4.1 ‘Deliberate No-Law’: Honour or No Agreement Clauses 4.4.2 ‘Contextual No-Law’: Gentleman’s Agreements and Letters of Comfort 4.5 Early Encounters with Letters of Comfort 4.5.1 Chemco Leasing Spa v. Rediffusion plc: Preparing the Foundations for the Contractual Intention Approach 4.5.1.1 The Facts 4.5.1.2 The Issues 4.5.1.3 The Decision 4.5.1.4 On Appeal 4.5.2 Re Augustus Barnett and Son Ltd 4.5.2.1 The Facts 4.5.2.2 The Issues 4.5.2.3 The Decision 4.6 Determining the Contractual Effect of Letters of Comfort Chapter 5 The Contractual Effect of Letters of Comfort: The Contractual Intention Approach 5.1 Introduction 5.2 Intention to Create Legal Relations and Letters of Comfort 5.3 Kleinwort Benson Ltd v. Malaysia Mining Corporation Berhad at First Instance: The Judicial Beacon for the Contractual Intention Approach 5.3.1 The Facts 5.3.2 The Issues 5.3.3 The Decision 5.3.4 Remarks 5.4 Conclusion Chapter 6 The Contractual Effect of Letters of Comfort: The Constructionist Approach A. Introduction B. Literal Construction of Letters of Comfort 6.1 Kleinwort Benson Ltd v. Malaysia Mining Corporation Berhad on appeal – The Judicial Beacon for the Constructionist Approach 6.1.1 Constructionist Approach 6.1.2 The Ordinary Meaning of Words 6.1.2.1 The Ordinary Meaning of ‘Policy’ 6.1.2.2 The Ordinary Meaning of Some Commonly Used Words 6.1.3 Relevance of the Factual Matrix 6.1.4 Remarks 6.2 Re Atlantic Computers plc (in administration). National Australia Bank Ltd v. Soden: Following the Constructionist Approach in England 6.2.1 The Facts 6.2.2 The Issues 6.2.3 The Decision 6.3 Associated British Ports v. Ferryways NV: Confirming the Constructionist Approach in England 6.3.1 The Facts 6.3.2 The Issues 6.3.3 The Decision 6.3.4 Remarks 6.4 Bank of New Zealand v. Ginivan: The Constructionist Approach in the New Zealand High Court 6.4.1 The Facts 6.4.2 The Issues 6.4.3 The Decision 6.5 Bank of New Zealand v. Ginivan: On Appeal 6.6 Genos Development Ltd v. Cornish Jenner and Christie Ltd: A Confused Decision 6.6.1 The Facts 6.6.2 The Issues 6.6.3 The Decision 6.7 Toronto Dominion Bank v. Leigh Instruments: The Constructionist Approach in Canada 6.7.1 The Facts 6.7.2 The Issues 6.7.3 The Decision 6.7.4 On Appeal 6.7.5 Remarks 6.8 Bouygues SA v. Shanghai Links Executive Community Ltd – The Constructionist Approach in Hong Kong 6.8.1 The Facts 6.8.2 The Issues 6.8.3 The Decision C. Certainty in Letters of Comfort 6.9 Commonwealth Bank of Australia v. TLI Management Pty Ltd – The Certainty of Terms Approach in Australia 6.9.1 The Facts 6.9.2 The Issues 6.9.3 The Decision 6.9.4 Remarks 6.10 Australian European Finance Corporation Ltd v. Sheahan – The Certainty of Terms Approach in Australia 6.10.1 The Facts 6.10.2 The Issues 6.10.3 The Decision 6.10.4 Remarks 6.11 Conclusion Chapter 7 The Contractual Effect of Letters of Comfort: The Commercial Interpretation Approach 7.1 Introduction 7.2 Policy reasons for the legal enforceability of letters of comfort 7.3 Banque Brussels Lambert SA v. Australian National Industries Ltd – The Judicial Beacon for the Commercial Interpretation Approach 7.3.1 The Facts 7.3.2 The Issues 7.3.3 The Decision 7.3.4 Remarks 7.4 Hong Kong and Shanghai Banking Corporation Ltd v. Jurong Engineering Ltd – Letters of Comfort in Singapore 7.4.1 The Facts 7.4.2 The Issues 7.4.3 The Decision 7.4.4 Remarks 7.5 Gate Gourmet Australia Pty Ltd (in liquidation) v. Gate Gourmet Holding AG – Applying the Commercial Interpretation Approach without Relying on the Presumption to Create Legal Relations 7.5.1 The Facts 7.5.2 The Issues 7.5.3 The Decision 7.5.4 Remarks 7.6 Newtronics Pty Ltd (recs and mgrs appt) (in liq) v. Atco Controls Pty Ltd (in liq): Following Gate Gourmet 7.6.1 The Facts 7.6.2 The Issues 7.6.3 The Decision 7.6.4 Remarks 7.7 Atco Controls Pty Ltd (in liq) v. Newtronics Pty Ltd (recs and mgrs appt) (in liq) – Distinguishing Gate Gourmet and Focusing on Consideration 7.7.1 The Decision 7.7.2 Remarks Chapter 8 Elements of French Contract Law 8.1 Introduction 8.2 The Concept of Contract and Patrimony 8.3 Types of Contract 8.4 Validity of Contracts 8.5 Construction and Style of Contracts 8.6 Breach of Contract 8.6.1 Distinction between an Obligation of Result (obligation de résultat or resultaatsverbintenis) and an Obligation of Means (obligation de moyens or middelenverbintenis) 8.6.2 Remedies 8.7 Gentlemen’s Agreements 8.8 Early Encounters with Letters of Comfort Chapter 9 Contractual Effect of Letters of Comfort in French Law 9.1 Introduction 9.2 Letters of Comfort and Legislation 9.3 Letters of Comfort and Selected Case Law 9.3.1 Viuda de José Tolra v. Société de développement regional du Languedoc-Roussillion: Decision of the Cour de Cassation (Chambre Commerciale) Dated 21 December 1987 9.3.1.1 The Facts 9.3.1.2 The Issues 9.3.1.3 The Decision 9.3.2 Compagnie générale de banque Citibank v. SA Le Crédit d’équipement des petites et moyennes enterprises (CEPME) et autres: Decision of the Cour de Cassation (Chambre Commerciale) Dated 23 October 1990 9.3.2.1 The Facts 9.3.2.2 The Issues 9.3.2.3 The Decision 9.3.3 Compagnie générale de travaux et d’installations électriques v. Banque atlantique de Côte-d’Ivoire: Decision of the Cour de Cassation (Chambre Commerciale) Dated 19 March 1991 9.3.3.1 The Facts 9.3.3.2 The Issues 9.3.3.3 The Decision 9.3.4 SNE Sitraco v. Société Curtainwalls Unlimited Inc.: Decision of the Cour de Cassation (Chambre Commerciale) Dated 16 July 1993 9.3.4.1 The Facts 9.3.4.2 The Issues 9.3.4.3 The Decision 9.3.5 Sony Music Entertainment France v. France Télécom: Decision of the Cour de Cassation (Chambre Commerciale) Dated 26 January 1999 9.3.5.1 The Facts 9.3.5.2 The Issues 9.3.5.3 The Decision 9.3.6 Sofiber v. Banque Populaire de Bretagne: Decision of the Cour de Cassation (Chambre Commerciale) Dated 26 February 2002 9.3.6.1 The Facts 9.3.6.2 The Issues 9.3.6.3 The Decision 9.3.7 Lordex v. La Rhénane: Decision of the Cour de Cassation (Chambre Commerciale) Dated 9 July 2002 9.3.7.1 The Facts 9.3.7.2 The Issues 9.3.7.3 The Decision 9.3.8 Askea v. Société Générale: Decision of the Cour de Cassation (Chambre Commerciale) Dated 19 April 2005 9.3.8.1 The Facts 9.3.8.2 The Issues 9.3.8.3 The Decision 9.3.9 Nief Plastic v. Crédit Lyonnais: Decision of the Cour de Cassation (Chambre Commerciale) Dated 19 January 2010 9.3.9.1 The Facts 9.3.9.2 The Issues 9.3.9.3 The Decision 9.3.10 Sté Bayerische Hypo und Vereinbank v. Sté Emball’iso: Decision of the Cour de Cassation (Chambre Commerciale) Dated 17 May 2011 9.3.10.1 The Facts 9.3.10.2 The Issues 9.3.10.3 The Decision 9.4 Comments on French Law on Letters of Comfort Chapter 10 Conclusion 10.1 Autochthonous Commercial Instruments in Search of a Doctrinal Basis 10.2 Letters of Comfort in Global Legal Context 10.3 Practical Considerations for the Use of Letters of Comfort 10.4 The Tension between Business Needs, the Law and Judicial Application 10.5 Letters of Comfort: A Vehicle for Revitalising Australian Law of Obligations? 10.6 Epilogue: The Ten Commandments of Letters of Comfort Bibliography Table of Cases Index