Intention to create legal relations

Definition

Intention to Create Legal Relations means that the parties must intend to
enter into a legally binding agreement in which the rights and obligations
of the agreement are enforceable (i.e. in court).

Presumptions and rebuttal of presumptions:

1) In the case of commercial and business agreements, the

presumption is that the parties intend to be legally bound;

2) In the case of domestic or social agreements, it is presumed that the

parties do not intend to be legally bound.

These presumptions maybe rebutted (disproved) by evidence that the

parties intended something different and it is determined objectively.

Burden of proof

In a business agreement it is the responsibility of the person claiming that

there was no intention to be legally bound to rebut this presumption.

 If one party claims that there was no intention to create a legally

binding agreement, the burden of proof falls on that party.

 They must provide evidence to convince the court that, contrary to

the usual expectation in business dealings, the parties did not
intend to be legally bound.

Eg. - Attrill v Dresdner Kleinwort Ltd [2013] EWCA Civ 394

 Employers couldn’t rebut the presumption and were liable to provide

the promised multi-million-euro bonus pool.

 Elias LJ [31] argued:

In employment contexts, promises made about work terms are strongly

presumed to be legally binding. This is because:

1. They occur within an existing legal relationship (employer-

employee).

2. Courts assume employment-related promises are meant to be as

enforceable as other contract terms.
 3. An objective view suggests that reasonable people would expect
such promises to be binding.

 The actual or presumed intention of the party seeking to rebut the

presumption has to be looked at.

 this needs to be done by reference to the objective standard e.g.

what they said, did, or wrote; not what they thought.

 Same applies to domestic and social agreements, the burden falls

on the party wishing to enforce the agreement to rebut the
presumption and prove the parties did intend to create legal
relations (burden of proof0.

Summary

-In commercial agreements he burden of proof is on the party trying argue

against enforcement of the contract to rebut the presumption;

- In domestic agreements the burden of proof is on the party trying to

enforce to rebut the presumption.

Commercial Agreements

Commercial parties expect to be able to enforce an agreement if

the other side does not perform their promise.

The Commercial (Rebuttable) Presumption

 It is a very strong presumption that there is an intention to create a

legal relationship in all commercial transactions. And the courts
presume this

 This is because, the contract is made to be enforced based purely

on the commercial nature of the agreement or the existing
relationship between the parties.
  But if a party wishes to assert that legal relations were not intended
when the agreement was entered into, the onus is a heavy one to
prove and takes a lot to rebut this presumption.

 Certain terms in contractual agreements may be used by parties to

express their intentions to not to be bound by a contract eg- "this
agreement is binding in honour only", "this agreement is not subject
to the jurisdiction of the courts". It should be clear -- the intention
not to be bound

Rebutting the Presumption

 Parties expressed in their contracts whether they intend to be bound

or not by using such devices, but they do not.

Rebuttal by an expression of actual intention…

 Rose & Frank Co. v Crompton [1924] UKHL 2, [1925] AC 445

*parties had an agreement around the supply of carbonised tissue paper

and the agreement also said that the claimants would be the sole agents
of the responding party in the United States.

*agreement contained a clause that expressed that the agreement was

'...not subject to legal jurisdiction in the law courts.'

*The clause was deemed valid and the agreement was held by the House
of Lords not to be legally binding.

*The clause had rebutted the presumption that the parties intended to
form legal relations in this commercial agreement.

 Appleson v H Littlewood Ltd [1939] 1 All ER 464

*a plaintiff sent in a football pools coupon ('the pools' was a betting pool
based on predicting football scores)

*that contained a condition on the back that stated the entry 'shall not be
attended by or give rise to any legal relationship, rights, duties,
consequences'.

*The Court of Appeal held that the condition was valid and the agreement
was not binding. It rebutted the presumption of the creation of a legal
relationship.
  Jones v Vernon's Pools Ltd [1938] 2 All ER 626

*the use of the words ‘binding in honour only’ indicated that the
presumption was rebutted and the claimant failed to enforce the contract.

Rebuttal where there is no express display of actual intention…

the court is often called to examine the apparent intention of the parties
based on the objective test (specifically the position of a reasonable
person of business)

Edwards v Skyways [1964] 1 WLR 349

 an airline was in financial difficulty and had to make a number of

pilots redundant.

 In consultation with the British Airline Pilots Associate, the airline

agreed to pay the redundant pilots an 'ex gratia payment'
equivalent to the company's payments into the pension fund.

 This was also agreed at a meeting between the company and

association’s representatives. Mr Edwards agreed to leave the
company and be made redundant and tried to claim the money he
was owed.

 The company claimed that there was consideration for the

agreement but they did not intend to create legal relations. The
court held that where the agreement was reached in the course of
business, the presumption is that they intended to create legal
relations.

 The company had to prove that it was a moral agreement and not a
legal one, but the words 'ex gratia' were not deemed sufficient to
rebut this presumption and the other formalities that the company
went through suggested that they intended to create legal
relations.

 objective test is applied to the specific facts of each case.

Esso Petroleum v Commissioners of Customs and Excise [1975]

UKHL 4

 if customers purchased 4 gallons or more of petrol, they were

entitled to a free commemorative World Cup collectible coin.
  The House of Lords had to decide if they were produced for resale,
as if they were, Esso would need to pay tax on them (£200,000 of
tax!).

 The Law Lords considered whether there was a contract in relation

to the coins (there was obviously one in relation to the petrol)
between Esso and drivers who bought more than four gallons. With
a decision of 3:2, the Law Lords found that there was an intention to
create legal relations due to the transaction existing in a commercial
context.

 "the whole transaction took place in a setting of business relations."

 The majority opined that the coins contract was collateral to the
main contract for the sale of petrol and so the coins were not
produced for sale.

 Therefore, Esso Petroleum were not required to pay the tax as the
coins were not exchanged for money consideration. But this case
does tell us how the courts look at the context in which the contract
is taking place.

Kleinwort Benson Ltd v Malaysia Mining Corporation Bhd [1989] 1

All ER 785

 A subsidiary of the Malaysia Mining Corporation (MMC) was seeking

a loan from Kleinwort Benson, for which Kleinwort Benson sought a
comfort letter from MMC.

 (A comfort letter is generally used when a company is unable or

unwilling to give a guarantee, but wishes to give some comfort (to
the recipient of the letter) as to its subsidiary's ability to satisfy its
contractual obligations).

 MMC wrote to Kleinwort Benson stating that it was their policy to

ensure that the business of the subsidiary was at all times in a
position to meet its liabilities to Kleinwort Benson under the loan
facility arrangements.

 The subsidiary subsequently defaulted on the loan repayments, and

Kleinwort Benson sought recovery from MMC under the terms of the
comfort letter.

 The Court of Appeal held that letters of comfort are statements of

present fact and not contractual promises as to future conduct. They
found that the action must fail because there was no contractual
promise made - they took the view that the case was not one
 turning upon the question of intention to create legal relations -
such a question would only arise if there was a separate agreement
that the undertaking given should not be of legal effect, and in the
absence of such a separate agreement, the only issue was what was
the proper construction of the crucial sentence. This decision has
been criticised.

Bowerman v Association of British Travel Agents Ltd [1995] 11

WLUK 303

 the Association of British Travel Agents Ltd (ABTA) offered a

protection scheme to travellers. The scheme had been discontinued
but the tour operator who worked with ABTA had a notice about the
scheme in their offices.

 When the customers booked a holiday, they were not aware that the
scheme was no longer in operation. The notice was intended to be
read and would reasonably have been read by a member of the
public as containing an offer of a promise which the customer was
entitled to accept by choosing to do business with an ABTA member.

 It was sufficiently clear to have been legally enforceable and

disclosed an intention to create legal relations. The court also
stressed the need to exclude any intention to be legally bound
expressly and very clearly.

University of Plymouth v European Language Centre [2009] EWCA

Civ 784

the Court of Appeal stated that it was necessary to consider the

background of the relationship between the parties to determine whether
there was an intention to create a legal relationship.

 The court found that there was a degree of mutual trust between
the parties and accommodation, and teaching facilities had been
provided for summer schools for over 7 years. However, the court
also found that the details were also negotiated annually and set out
in a formal written contract.
  This was because the agreements were always formally negotiated
and agreed and based on prior conduct; they intended to create a
legal relationship when they formally agreed the contract in writing.

 Baird Textile Holdings Ltd v Marks & Spencer plc [2001] EWCA Civ
274 which relates to the difference between formal agreements and
where companies actively avoid them. Where there are such
existing relationships, the courts will look to the intention of the
parties in these relationships.

Blue v Ashley [2017] EWHC 1928

 a promise by Mike Ashley (the owner of Sports Direct) to Jeffrey

Blue, a consultant employed by him, that he would pay him £15
million if Mr Blue could get the share price of Sports Direct to double
in price, was held not to be binding.

 Although the parties were in a commercial relationship with one

another, the promise was made in a public house after several pints
of beer had been consumed and was in the course of a jocular
conversation with others.

 As Leggatt J put it, ‘… no reasonable person present in the Horse

and Groom … would have thought that the offer to pay Mr Blue £15
million was serious and was intended to create a contract …’ It
shows how important the context within which a contract is agreed
is, when judged objectively by a reasonable person, to defining if
the parties are able to rebut the presumption to create legal
relations.

Summary

The commercial presumption can be rebutted the courts look at the

 Subject matter

 The context in which the agreement is taking place

 The prior relationships of the parties

Social and Domestic Agreements

The Social and Domestic (Rebuttable) Presumption

 the courts presume that there is no intention to create legal

relations.

 inferences to be drawn from the circumstances of each case and the

language used by the parties

Matrimonial Agreements

Balfour v Balfour [1919] 2 KB 571

 a husband agreed to send his wife £30/month for her support while
he was working abroad. This continued while their relationship was
happy and intact but their relationship subsequently fell apart, and
they separated permanently.

 Following their separation, Mr Balfour stopped paying Mrs Balfour

the monthly allowance. So she sued him for it. The Court of Appeal
held that there was no contract between them.

 This case demonstrates the courts' reluctance to interfere in

domestic arrangements and the policy to keep such agreements
outside of the courts - the case discusses the problem with
recognising domestic promises as contracts

Merritt v Merritt [1970] 1 WLR 1211; [1970] 2 All ER 760

 Mr Merritt moved out of the family home and in with another

woman. Mr Merritt met with Mrs Merritt to discuss their financial
affairs and promised to pay her £40 per month plus his share of the
house once she had finished paying off the mortgage.

 in all these cases the court does not try to discover the intention by
looking into the minds of the parties. It looks at the situation in
which they were placed and asks itself: would reasonable people
regard the agreement as intended to be legally binding?"

Other Domestic and Social Arrangements

Simpkins v Pays [1955] 1 WLR 975

 a lodger and the members of the family with whom he lived agreed
to go shares in a newspaper competition. They sent in a winning
entry.

 The court held that there was an intention to be legally bound and
the prize money should be shared according to the terms of the
agreement.

 The reason this presumption was rebutted was that the lodger was
already in an existing contractual relationship with the family as he
paid them rent.

Jones v Padavatton [1969] 1 WLR 328

 P sought to persuade her daughter to take up a new career by

offering her a generous living allowance while she pursued studies
to become a barrister. P also bought a house, in which the daughter
had rooms, the rest being let to tenants.

 Eventually, after more than one unsuccessful attempt at the exams,

the mother and daughter fell out and the mother tried to evict her
from the house.

 A majority Court of Appeal decision found that the daughter had no

right to stay in the house because there was no contract between
she and her mother. The court saw no evidence to rebut the
presumption that this was a mere domestic arrangement.

Parker v Clark [1960] 1 WLR 286

 an elderly couple agreed with another couple (some years younger

than them) that if the younger couple would sell their home and
move in with the elderly couple and share household expenses, then
the older ones would leave the younger ones a certain sum upon
the death of the (older) husband.

 The two couples later fell out and the younger ones were asked to
leave, and they sought damages for breach of contract.

 They were successful as the court took the view that they would not
have sold their own house if they did not think they were entering
into a legally binding agreement. This detrimental reliance is a
strong indicator that they intended to enter a legally binding
agreement.
Wilson v Burnett [2007] EWCA Civ 1170

 three young women who worked together went to a bingo session at

which one of them won a national prize of over £100,000. Her
companions alleged that they had agreed that they would share any
prize over £10.

 The trial judge held against them and they appealed. The Court of
Appeal held that evidence for the agreement was not conclusive and
in particular there were a number of occasions when it was asked of
her “Are you going to share?" The court seemed to confirm the
judge’s view that “chat or talk” about sharing winnings had not
“crossed that line which exists between talk and ‘meaning
business’, or an intention to create a legal relationship.”

In order to rebut domestic or social presumption, think about the

 Specific context in which it occurs and what is said and done.

 If there is overarching commercial element or business relationship

alongside, then this may be sufficient in order to find the ICLR.