Intention to create legal relations & certainty of contractual terms

cases

balfour v balfour

jones v padavatton

hynes v hynes

simpkins v pays

horan v orielly

coleman v mullen

kleinworth benson v malaysia mining corporation

Ford v AUEFW

Goulding chemicals v bolger

esb v newman

mackie v wilde

Jet2Com v Blackpool Airport Ltd

MacRobertson Miller Airline Services v Commissioner of state taxation

supermac’s ireland ltd v Katesan (Naas) Ltd

KSY juice blends UK ltd v citrosuco GmbH

walford v miles

intention to create legal relations

not all agreements are legally enforceable as they don’t all have the intention to create an agreement

intention is to be given an objective meaning

what a party intends is to be gauged according to what a reasonable person would understand him to intend

e.g. to offer a friend a meal is not to invite litigation

social or domestic arrangements

there is a presumption that domestic family transactions are not intended to be legally binding, but this preusmption may be rebutted

balfour v balfour

Mr Balfour promised to pay his wife £30 a month while they lived apart. When he stopped paying, she sued to enforce the promise.

Held: There was no legally binding contract because the agreement was a domestic arrangement and the parties were not presumed to intend to create legal relations.

jones v padavatton

A mother promised her daughter financial support if she gave up her job and moved to England to study for the Bar. The mother later bought a house for the daughter to live in, but they fell out and the mother sought possession.

Held: There was no intention to create legal relations. It was a family arrangement, and the presumption against legal intention was not rebutted, had the agreement been in writing and the terms less uncertain, the outcome may have been different

hynes v hynes

Two brothers agreed to transfer a business from one brother to the other. Although they were family members, the court found that the arrangement was intended to create legal relations because it was a serious business agreement

simpkins v pays

A grandmother, granddaughter and a lodger regularly entered a newspaper competition together. They agreed to share any winnings, and they each contributed to the entry.

The granddaughter won £750, but the grandmother claimed her share. The granddaughter argued that their arrangement was just a friendly family agreement.

Held: The grandmother was entitled to her share because the parties had intended to create legal relations due to the risks and profits involved

horan v orielly

Horan was a member of a five-person lottery syndicate, where each member was supposed to contribute equally. Horan fell into arrears but had previously been allowed to catch up his payments. When the syndicate won £1,577,578, Horan claimed he was still entitled to one-fifth.

Held: The Supreme Court held that Horan was not entitled to a share, because he had not contributed to the winning ticket. The practice of allowing him to pay in arrears did not vary the original agreement, and the person managing the syndicate could not unilaterally change its terms.

coleman v mullen

Coleman cared for her elderly neighbour, O’Keeffe, for several years, doing cooking, cleaning and other personal tasks. After O’Keeffe died, Coleman claimed payment for her services.

Held: She was not entitled to payment. The services were provided voluntarily out of friendship, with no agreement or expectation of payment and no intention to create legal relations

“humanitarian services provided on a purely neighbourly basis for someone in need” fell outside the “scope of contratclaw”

commercial arrangements

commercial agreements are prima facie intended to create legal relations

this presumption can be rebutted by clear evidence that there is no such intention, the objective test applies in this respect

a heavy onus is required on the person alleging that a commercial agreement was not intended for legal relations, given the nature of the contract being commercially orientated

letters of comfort

questions of intention to create legal relations arise in particular in the area of letters of comfort which are undertakings given by one undertaking in respect of another, related undertaking

it is common for the other party to be given an assurance by the parent company that the subsidiary is or will be provided with the funds necessary to complete the transaction

this assurance, which falls short of a guarantee of the subsidarys’s debts, is an example of a letter of comfort

kleinworth benson v malaysia mining corporation

Kleinwort Benson lent money to a subsidiary of Malaysian Mining Corporation after receiving a “comfort letter” from the parent company saying “it was their policy” to ensure the subsidiary could meet its liabilities. The subsidiary later went bankrupt, and the bank tried to make the parent company pay.

held to not be legally binding, had it said “it is, and will always continue to be, our policy” then the issue of intention to create legal relations would arise

letters of intent

a letter of intent is generally used to indicate the intention of the issuer to enter into contractual arrangements, in due course, with the person to whom it is issued. if it is worded as such, it will not be considered to be legally binding

collective agreements

collective agreements are agreements of a collective nature between management and workers, which present special difficulties

at first glance these are agreements of a commercial nature which would be presumed to be legally binding

however the position is not straightforward

the reason why collective agreements will sometimes be treated as not giving rise to legal relations as they tend to be less than precise in their terms, and represent loose arrangements between labour and management

Ford v AUEFW

in english law there is a strong presumption that collective agreements are not intended to give rise to legal relations

Ford and the trade unions entered into collective agreements about employment conditions. The union later went on strike, and Ford argued that the agreement was legally binding.

Held: The agreement was not legally enforceable because the parties did not intend to create legal relations. Collective agreements were viewed as arrangements between employers and unions, rather than contracts enforceable in court.

Goulding chemicals v bolger

irish law seems to be less hostile towards giving collective agreements legal effects, taking a more hands on, case-by-case approach

Goulding Chemicals agreed with several trade unions on redundancy payments when its East Wall factory closed. Some employees later refused to accept the agreement and continued picketing.

The Supreme Court held that the agreement between the company and the unions was intended to create legal relations, describing it as a business-like agreement

heavy onus rests on the party alleging that the agreement was not intended to make legal relations

supreme court also indicated that Ford AUEFW may not be considered a correct statement of law in ireland

o’rourke v talbot Ireland

Nine foremen were facing possible redundancy at Talbot. The company gave them a written assurance that they would not be made compulsorily redundant, in return for the foremen agreeing to changes in their working arrangements. When the company later tried to make them redundant, it argued that the agreement was not legally binding.

Held: The agreement was legally binding. The court applied an objective test: even though management believed the agreement was not legally enforceable, the circumstances showed that the parties intended to create legal relations.

the management knew that an offer of job security would influence the plaintiffs attitude toward the scheme of redeployment within the company

exceptions to the intention to create legal relations

an honour clause or “gentlemans clause” stating that they did not wish to create legal relations could seek to exclude legal liability

certainty of terms

for a contract to be enforceable it must be sufficiently certain and complete, courts will noy usually be prepared to rewrite a contract for the parties to litigation

an absence of certainty in a contract may give rise to the conclusion that the party(s) actually did not intend to create legal relations

the terms of a contract should not be vague, ambiguous, uncertain, or insuscptible to clarification

ambiguous terms

a term capable of being interpreted in more than one way, often the court will try and establish what the true intention of the parties is in a particular matter

esb v newman

Mrs waddington had 4 premises and the D claimed to have only agreed to cover the costs of the electricity in one premises

held that the contract was ambiguous and that it did not apply to the supply of electricity to Mrs Waddington at premises other than those mentioned in the contract

courts may adopt a number of mechanisms in order to clarify vague terms

1. the contract itself might provide for an alternative mechanism within which to decide the dispute

2. the admission or calling of oral or parol evidence

3. terms that may be implied by statute

4. terms that may be implied by reference to the principle of reasonableness

5. terms that may be implied to give “business efficacy” to the contract

6. terms implied by a previous course of dealing, which may through custom or practice, clarify the issue before the court

mackie v wilde

the issuing o 25 annual fishing permits and “a few” day tickets were held to be too vague and the agreement was declared to be void

best endeavours clause

a party may require a party to use their “best efforts” or their “best endeavours” to perform an aspect of the contract

Jet2Com v Blackpool Airport Ltd

Jet2 and Blackpool Airport agreed to use their “best endeavours” to promote Jet2’s low-cost services. Jet2 regularly operated flights outside the airport's normal opening hours, but the airport later refused to handle these flights because it was costly.

Held: The Court of Appeal held that the best endeavours clause was legally enforceable and required the airport to accommodate out-of-hours flights. The obligation was not too vague, and the airport could not simply stop complying because it was commercially inconvenient.

illusory terms

empty promises will not be enforced by the courts

if a term is constructed in such a manner that interpretation leaves the court of party without any valid meaning, the term will be deemed an illusory term

MacRobertson Miller Airline Services v Commissioner of state taxation

incomplete agreements

the parties may not be able to agree to all of the terms of a deal and may leave further terms to be agreed at a future time. such arrangements can cause difficulties for the courts who may be left to decide if there is a valid contract to enforce

the court will find an incomplete contract to be void if it renders the contract unworkable

supermac’s ireland ltd v Katesan (Naas) Ltd

held that whether there is a concluded agreement is whether “everything intended to be covered by the agreement has been either expressly or impliedly agreed”

so even if there is not an express agreement on a term such as the deposit, there could still be an implied agreement

KSY juice blends UK ltd v citrosuco GmbH

concerned a long term supply contract where part of the price was “left to be agreed” each year, raising a certainty vs enforceability problem

coA held that where both parties clearly intend a long term binding agreement, the law should preserve enforceability by implying a term that the price defaults to a reasonable market rate if an agreement is not reached

agreements to negotiate in good faith

irish courts have never decisively determined whether or not a contract to contract in the future is enforceable

a question arises as to whether agreements to negotiate can be legally binding

although a contract is not incomplete simply because it calls for some further agreement between the parties, ne

walford v miles

the reason why an agreement to negotiate, like an agreement to agree is unenforceable, is simply because it lacks the necessary certainty

the examiner is of the opinion that agreements to agree are unenforceable