Intention to Create Legal Relations

The approach the courts take in determining an ITCLR?

The approach the courts take in determining an ITCLR?

An objective one - 'what would a reasonable person in the position of the parties have been likely to have intended'?

The presumption in a social & domestic setting?

There is no intention to create legal relations.

Balfour v Balfour [1919]:

- Held: In favour of the husband (no ICLR).
domestic agreements of this kind are not intended to be legally binding.

Wilson v Burnett

Held : No ICLR - “money changes hands“ The other two repeatedly asked her if she was ‘going to share’, suggesting no agreement was in place.

Jones v Vernon’s Pools

his presumption can be rebutted (proved not to be true) as sometimes agreements are made in business that are “binding in honour only” and are not meant to be enforceable in law.

The idea that there is intention to create legal relations in a domestic setting?

- Merritt v Merritt [1970]
- Parker v Clarke [196

Merritt v Merritt [1970]:

Held: In favour of Mrs Merritt (ICLR). The arrangement was sufficiently enforceable, and the paying of the mortgage was ample consideration for Mr Merritt's promise.

How is Merritt v Merritt [1970] distinguished from Balfour v Balfour [1919]?

In Balfour v Balfour [1919] the arrangement was made when the marriage was still in tact and the couple can still be said to have been in a happy relationship. In Merritt v Merritt [1970] however, the arrangement was made after the marriage had broken down and therefore, there was no more 'domestic setting' to imply no ICLR.

Parker v Clarke

- Facts: The claimants sold their own house and agreed to move in with the defendants and help look after them, them promising them the defendants' house - ds sued for damages.
- Held: In favour of the Parkers (ICLR).
The fact that the claimants took certain action suggested it was intended to be a binding agreement.

Simpkins v Pays [1955]:

- Facts: Each of the three women made a listing and the three entries were submitted on one form. One won £750 which was paid to the defendant. The others sued.
- Held: As money had been paid by the other people in the house the presumption of a social and domestic agreement was rebutted. There was an intention to create legal relations, so the lodger had to share his winnings.

How does the ruling in Simpkins v Pays apply?

Simpkins v Pays [1955] is a sort of exception, given the more recent ruling in Wilson v Burnett [2007]. It is suggested that those who intend to share competition prizes are advised to make their agreements formal, as the presumption that social agreements are not intended to be legally binding will not necessarily be overturned as easily as it was in Simpkins v Pays [1955].

- Sadler v Reynolds [2005]

Held: The burden was on the journalist to prove that there was intention to create legal relations, i.e. that it was a business agreement rather than a social and domestic agreement. "something between an obviously commercial transaction and a social exchange".

What is the presumption for intention to create legal relations in a commercial setting?

There is an intention to create legal relations.

Cases for there is an intention to create legal relations in a commercial setting?

- Edwards v Skyways [1964]
- Esso Petroleum Co. v Commissioners of Customs and Excise [1976]

Edwards v Skyways

- Facts: The plaintiff was a pilot who was made redundant. As part of an arrangement for this, he was offered (and accepted) a payment stated to be 'ex gratia' (by favour). The company then denied there was any legal obligation to make the payment.
- Held: In favour of the pilot (ICLR).

Esso Petroleum Co. v Commissioners of Customs and Excise [1976]:

- Facts: Esso (petrol company) created an offer where customers would receive one free World Cup coin for every four gallons of petrol purchased.
- Held: Held: As Esso was clearly trying to gain more business from the promotion, there was held to be intention to be bound by the arrangement, so tax was payable.

Presumption of ITCLR in a commercial setting be rebutted?

By using clear wording:
- Subject to Contract
- Honourable Pledge Clause
- Comfort Letter

Will the use of clear wording always work to rebut an assumption of an intention to create legal relations?

No, the Supreme Court has recently indicated that these options don't necessarily mean that it will be applied to prevent a contract from arising if the parties' subsequent behaviour indicates they have waived this agreement.

Kleinwort Benson Ltd v Malaysia Mining Corporation

- Facts: A company in Malaysia, acquired a loan from bankers. The Malaysian company wrote the bank a 'comfort letter' to ensure that the company is in a position to meet its liabilities to the bank who then granted them £10 million. When the company went into liquidation, the merchant bankers relied upon these letters to order the company to pay the subsidiary's outstanding sums.
- Held: In favour of the Malaysia Mining Corporation (no ICLR).