GUARANTEE, INDEMNITY OR BINDING LETTER OF COMFORT?

Associated British Ports v Ferryways NV [2009] EWCA Civ 189, [2009] 1 Lloyd’s Rep 595

In Associated British Ports v Ferryways NV [2009] EWCA Civ 189, [2009] 1 Lloyd’s Rep 595 the issue before the Court of Appeal was whether a letter sent by the second defendant to the claimant was a guarantee, an indemnity or a binding letter of comfort. It was held that it was a guarantee and not an indemnity because the obligation which had been assumed was secondary and not primary. The letter was held not to be a letter of comfort, properly so called, because the hallmark of a letter of comfort is that it does not give rise to a contractual liability. The letter in the present case did create a contractual liability but the liability which it created was secondary and not primary.