Commonwealth Bank of Australia v TLI Management Pty Ltd [1990] VR 510
Contract; formation; intention to be legally bound; letter of comfort.
Facts: TLI Management was in the process of taking over a company called Hovertravel Australia. In the meantime, Hovertravel needed to borrow money to maintain its business. It applied for a loan from the Commonwealth Bank of Australia. To support this application, TLI sent a letter to the bank saying: "We hereby acknowledge that the Commonwealth Bank of Australia has agreed to make temporary credit facilities totalling two hundred and fifty thousand Australian dollars ($250,000) available to Hovertravel Australia Pty Ltd which represents payment for ongoing operating costs and salaries. We confirm that the company [TLI Management] will complete take-over arrangements (subject to shareholders' approval) of Hovertravel Australia Pty Ltd as soon as legally possible. These arrangements include the injection of sufficient capital to repay the temporary facility as mentioned above on the take-over date or within 30 days of this date."
Issue: Did this letter contain legally enforceable promises by TLI to the Commonwealth Bank?
Decision: Tadgell J in the Victorian Supreme Court held that the letter created no legally enforceable obligations.
Reason: The letter contained no promissory language or wording to indicate that TLI was undertaking any contractual obligations. It contained only ambiguous statements of TLI's intention, which could not be construed as a binding guarantee.