Intention (PDF)

INTENTION  2 Intention Introduction Not provided for in the Contracts Act Refers to ‘intention to create legal obligations’ ▫ Created at the time of contract That is, an intention to become legally...

INTENTION  2 Intention Introduction Not provided for in the Contracts Act Refers to ‘intention to create legal obligations’ ▫ Created at the time of contract That is, an intention to become legally bound, with legal consequences to sue and be sued Generally, intention is derived depending on whether it is a... ▫ Social and domestic agreement ▫ Commercial contract  3 Intention Choo Tiong Hin & Ors v Choo Hock Swee (1959) 25 MLJ 67 … an agreement is not a contract in the strict sense of the word, unless it is the common intention of the parties that it shall be legally enforceable. Such an intention is normally inferred from the nature of the agreement. ”  4 Intention “ For instance, in the case of agreements regulating commerce for business, it is obvious that the parties intend legal consequences to follow; per contra, in the case of agreements relating to social agreements, it is inferred as a matter of course that there is no common intention to create legal obligations. ”  5 Intention  6 Intention Introduction What is a social and domestic agreement? It can be seen from the perspective of: 1. Subject matter, and/or  agreements of a social nature 2. Relationship between parties  Refers generally to spouses, parents and children, etc  7 Intention Choo Tiong Hin & Ors v Choo Hock Swee (1959) 25 MLJ 67 “ … in the case of agreements relating to social engagements, it is inferred as a matter of course that there is no common intention to create legal obligations. “ The agreements … possess all the characteristics of a private family arrangement depending for its efficacy upon a sense of filial duty and paternal responsibility on the part of the adopted sons and their adoptive father …”  8 Intention Balfour v Balfour Husband and wife. Husband went to Sri Lanka to work. Wife unable to follow, and stayed in UK. Husband agreed to pay £30/month. Held … no intention to create legal relations, thus no contract.  9 Intention Jones v Padavatton Mother and daughter. D (Washington) accepted an offer from Mum to go to UK to do law, and was provided maintenance. Nothing in writing, no terms recorded. House was then bought in London, which daughter stayed. Other rooms rented to provide maintenance. Mum paid for the house, and house in mum’s name. Rent not taken by mum, no accounts of rent.  10 Intention Court of Appeal: Only a family arrangement. “depends on the good faith of the promises which are made and are not intended to be rigid, binding agreements”  11 Intention Exception All presumptions can be rebutted If an intention to be bound can be shown, then there is a contract  12 Intention Merrit v Merrit Husband and wife. Separated. Husband agreed to transfer the house to the wife, as long as wife paid the instalments. This was put in writing. Husband later refused to transfer. Court of Appeal … there is intention. COMMERCIAL AGREEMENTS  14 Intention Choo Tiong Hin & Ors v Choo Hock Swee (1959) 25 MLJ 67 … in the case of agreements regulating commerce for business, it is obvious that the parties intend legal consequences to follow;  15 Intention Introduction The presumption is that there is an intention to be bound However, if one can show that there is no such intention, the presumption is rebutted Onus of proof to rebut falls on the one alledging that there is an intention  16 Intention What must be looked at is the surrounding circumstances Even if it deals with commercial relationships, must view: ▫ The wordings of the agreement ▫ Nature of the agreement ▫ Background an agreement was reached  17 Intention Rose and Frank Co v JR Crompton & Bros Ltd “ This arrangement is not entered into, nor is this memorandum written, as a formal agreement, and shall not be subject to legal jurisdiction in the Law Courts either of the United States or England, but is only a definite expression and record of the purpose and intention of the three parties concerned, to which they each honourably pledge themselves, with the fullest confidence – based on past business with each other – that it will be carried out through each of the three parties with mutual loyalty and friendly co-operation”.  18 Intention “ This arrangement is not entered into, nor is this memorandum written, as a formal agreement, and shall not be subject to legal jurisdiction in the Law Courts either of the United States or England, but is only a definite expression and record of the purpose and intention of the three parties concerned, to which they each honourably pledge themselves, with the fullest confidence – based on past business with each other – that it will be carried out through each of the three parties with mutual loyalty and friendly co-operation”.  19 Intention Home Insurance Co Ltd & St Paul Fire and Marine Insurance Co Administratia Asigurarilor De Stat Insurance contract. “This treaty shall be interpreted as an honourable agreement rather than as a legal obligation” Disputes “shall be referred to two arbitrators”  20 Intention Esso Petroleum v Commissioners of Custom and Excise Petrol sales promotion: for every four gallons of petrol, a coin bearing the likeness of an English soccer team member who played in the World Cup competition in Mexico in 1970 will be given. Q: is there a legally binding contract between dealers and customers for the coin?  21 Intention True it is that the respondents are engaged in business. True it is that they hope to promote the sale of their petrol, but it does not seem to me necessarily to follow or to be inferred that there was any intention on their part that their dealers should enter into legally binding contracts with regard to the coins ;  22 Intention The offer of a gift of a free coin cannot properly be regarded as a business matter. Such an offer is not “the subject-matter of the agreement.” No reason to imply any intention to enter into contractual relations from the statements on the posters that a coin would be given if four gallons of petrol were bought. No reason to impute that every motorist who went to a garage where the posters were displayed to buy four gallons of petrol had any intention to enter into a legally binding contract for the supply of a coin to him.  23 Intention “On the acceptance of his offer to purchase four gallons there was no doubt a legally binding contract for the supply to him of that quantity of petrol, but I see again no reason to conclude that because such an offer was made by him, it must be held that, as the posters were displayed, his offer included an offer to take a coin.”  24 Intention  25 Intention Introduction Letter of Comfort a.k.a. LoC ▫ A document, usually from an affiliate (such as the holding / parent company) of the borrower ▫ This document assures the financial soundness of the borrower to repay its debts A LoC does not have a legal effect ▫ It is a moral obligation ▫ Does NOT create any payment/financial obligation on the affiliate A letter of guarantee, however, does ▫ It is a legal obligation Thus, one must look at the intention of the parties Depends on the intention of the parties  26 Intention Kleinwort Benson Ltd v MMC D is MMC Bhd and D’s subsidiary is Malaysia Mining Corporation Metals Ltd (MMC Metals). P’s bank, Kleinwort Benson, gave a loan of ₤10 million to MMC Metals. P asked D to be MMC Metals’ guarantor. They refused. Instead, issued a letter stating, “It is our policy to ensure that our subsidiary is in a solvent position”  27 Intention In reliance of this letter of comfort, the bank advanced money to MMC Metals. MMC Metals subsequently became insolvent. Bank then took action against MMC Bhd for the unpaid loan, based on the letter of comfort. Held … There was intention to create legal relations as it was a commercial agreement and there was nothing to rebut the presumption.  28 Intention However: Court of Appeal … Held that there was no intention. The letter was merely a statement of fact of the defendant’s policy at that time, and did not give any future commitment or assurance that the policy would continue. D did not want to give a guarantee, and thus had only given a letter of comfort. Court had considered the purpose of the letter of comfort.  29 Intention North South Properties Sdn Bhd v David Teh Teik Lim & Anor 2 CLJ 510, CA A letter of comfort is generally a statement of moral responsibility. It is NOT intended to have any legally binding effect. However, it is capable of giving rise to a legally binding obligation if the intention of the parties and the circumstances it is given shows it is so.  30 Intention “We, the undersigned being the Directors of the Company hereby give you our joint and several undertaking that the sum of $217,002.50 referred to paragraph 2 (two) of the said letter dated 7 May 1991 shall be paid to you on or before the 29th day of October 1991.”  31 Intention OSK Trustees Berhad v Kerajaan Malaysia (Civil Appeal No. W-01-7-01/2012) Malaysian International Tuna Port Sdn Bhd (MITP) is a special purpose vehicle incorporated for the purpose of carrying out upgrading works in Kompleks LKIM Batu Maung, Penang. Entered into an Agreement on 16 December 2004 with Lembaga Kemajuan Ikan Malaysia (LKIM).  32 Intention To finance its work under the Agreement, MITP issued RM240 million of Islamic bonds under a Bai Bithaman Ajil Islamic Securities Facility (BAIS Facility) pursuant to a Trust Deed dated 10 April 2007. OSK Trustees Berhad (Trustee) was appointed as the trustee for the holders of these bonds.  33 Intention The Ministry of Agriculture and Agro-Based Industry (MOA), on behalf of the Government, issued a letter of support dated 2 October 2006 (letter of comfort) to the Trustee in connection with the Islamic bonds.  34 Intention MITP defaulted on its repayment obligations under the BAIS Facility and the Trustee obtained judgment against MITP for a sum of approximately RM208 million. The Trustee then filed an action against the Government on the ground that the Government had breached its undertaking, representation and assurance in the letter of comfort.  35 Intention "2. … we confirm the viability of MITP, including its ability to incur borrowings and repay which is critical to ensure the successful implementation and completion of the project … : Ensures that MITP is (in) a position to meet (and do meet on a full and timely basis) their liabilities in respect of all amounts borrowed for so long as the amount in respect of the borrowings remain outstanding; and Provide all necessary support to MITP and also ensure that MITP shall not take any detrimental action which cause MITP not being able to perform its obligations in respect of its borrowings. 3. This letter is strictly limited to the points raised in paragraph 2(a) and (b) above and there is no express or implied guarantee with regards to the borrowings of MITP."  36 Intention Held … Court of Appeal unanimously dismissed the Trustee's appeal. Upheld the High Court's decision that the letter of comfort issued by the Government was not intended to create any binding effect between the parties. Mainly: Whether the letter of comfort amounted to an undertaking, representation and assurance that the Government would ensure that MITP would be in a position to fulfil its obligations under the BAIS Facility or whether the letter of comfort was merely a letter of comfort without any legal liabilities  37 Intention The Court of Appeal agreed with the High Court that three main questions had to be answered. [One of] the main question : Whether the letter of comfort amounted to an undertaking, representation and assurance that the Government would ensure that MITP would be in a position to fulfil its obligations under the BAIS Facility or whether the letter of comfort was merely a letter of comfort without any legal liabilities;  38 Intention "2. … we confirm the viability of MITP, including its ability to incur borrowings and repay which is critical to ensure the successful implementation and completion of the project … : Ensures that MITP is (in) a position to meet (and do meet on a full and timely basis) their liabilities in respect of all amounts borrowed for so long as the amount in respect of the borrowings remain outstanding; and Provide all necessary support to MITP and also ensure that MITP shall not take any detrimental action which cause MITP not being able to perform its obligations in respect of its borrowings. 3. This letter is strictly limited to the points raised in paragraph 2(a) and (b) above and there is no express or implied guarantee with regards to the borrowings of MITP."  39 Intention The overriding test is that of the intention document as a whole seen against the background of the practices of the particular trade or industry Whether a letter of comfort is capable of giving rise to a legally binding undertaking will depend on: ▫ the intention of the parties, and ▫ the circumstances under which the same is given  40 Intention Thus … The wording in the support letter does not amount to any guarantee from MOA It is but merely a strong support letter from MOA reaffirming what is required in the Shareholders Agreement dated 26.10.2004. Clear that the Government did not intend to be legally bound by the terms of the letter of comfort. END