In the recent case Regus (Maxim) Limited v The Bank of Scotland plc, [2011] CSOH 129 the Court of Session has considered whether a letter issued by the Bank of Scotland in the context of a wider commercial agreement could be used to create an enforceable legal obligation, and be relied on as such, or whether it was merely a letter of comfort, without legal standing.

Facts

Tritax Eurocentral EZ Unit Trust ("Tritax") purchased the Maxim Office Park development at Eurocentral, North Lanarkshire prior to its completion. Regus (Maxim) Limited ("Regus") agreed to lease part of that development. As an incentive, it was agreed that funds would be made available to Regus in respect of fit-out costs. The agreement for sale to Tritax imposed certain restrictions as to whom the development, or parts of it, could be let. As such, a company meeting the qualifying criteria, TAL CPT HUB Company Limited ("HUB"), was formed to take a lease of the restaurant, leisure/gym, crèche and retail facilities within the development. HUB then sub-let these areas to Regus.

As required by the terms of the lease agreement, HUB delivered a letter to Regus from the Bank of Scotland ("the Bank") confirming that the Bank was holding sums on deposit to meet the landlord's commitment to fit-out costs. The letter from the Bank stated that "it may assist the proposed tenant to have confirmation from us that, on behalf of the landlord and TAL CPT, we hold the sum of £913,172 to meet the landlord's commitment to fit out costs. These funds will be released in accordance with the drawdown procedure agreed between the parties, whereby the proposed tenant's contractors will issue monthly certificates. This is subject always to agreement of wider commercial terms with the incoming tenant."

Regus carried out the fitting out works and issued its invoices to HUB. However, the Bank refused to release the sums held by them to Regus. The Bank stated that they were exercising a right of retention on the basis that there had been a default in the Facility Agreement.

Arguments

Regus raised an action for payment in which they sought to rely on the terms of the Bank's letter. They argued that:

  1. The letter was an undertaking in terms of which the Bank were obliged to make payment.
  2. There was a separate underlying agreement between the Bank and Tritax/HUB in respect of which Regus were, by means of a third party right, entitled to payment from the Bank.
  3. That the Bank were personally barred from relying on the terms of their agreements with Tritax/the developers to resist payment to Regus.
  4. That the letter contained negligent misrepresentations acted on by Regus to their detriment and the Bank were obliged to make payment to Regus for breach of a duty of care.

Decision

Lord Menzies rejected Regus’s arguments and dismissed the action. He held that the Bank had made no clear expression of any willingness to be bound by their letter. He stated that the letter could not amount to a unilateral undertaking by the Bank to create a legal obligation to pay sums to Regus. Lord Menzies found that the letter was no more than a letter of comfort, and a description of a payment mechanism.

Comment

This case serves as an important warning to those who might seek to rely on terms provided in similar letters of comfort. While such letters might carry a moral responsibility, they do not necessarily contain any legal obligation. The court will not enforce a moral responsibility where there is no legal obligation. Parties should ensure that any terms on which they wish to rely are structured into a formal agreement.