Banque Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR 502
Contract; formation; intention to be legally bound; letter of comfort.
Facts: Spedley Securities Ltd wanted to borrow US$5 million from Banque Brussels. The bank wanted an assurance that the loan would be repaid. Australian National Industries (ANI), which had a controlling interest in Spedley's parent company Spedley Holdings, wrote a letter to Banque Brussels saying: "We acknowledge that the terms and conditions of the arrangements have been accepted with our knowledge and consent and state that it would not be our intention to reduce our shareholding in Spedley Holdings Pty Ltd from the current level of 45% during the currency of this facility. We would, however, provide your Bank with ninety (90) days notice of any subsequent decisions taken by us to dispose of this shareholding, and furthermore we acknowledge that, should any such notice be served on your Bank, you reserve the right to call for the repayment of all outstanding loans within thirty (30) days. We take this opportunity to confirm that it is our practice to ensure that our affiliate Spedley Holdings Limited will at all times be in a position to meet its financial obligations as they fall due..."
ANI sold its shares in Spedley without giving the required notice and did not ensure that Spedley was in a position to be able to repay its loan.
Issue: Did the letter contain contractually binding undertakings?
Decision: Rogers J held that the letter of comfort was an enforceable contract.
Reason: The agreement was entered into in commercial circumstances, in which it will usually be inferred that promises are intended to be legally binding. The letter contained three promises: (1) a promise not to reduce the defendant's shareholding; (2) a promise to give 90 days' notice; and (3) a promise to ensure that Spedley would be able to repay its loan.