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Oxford Law Citator

Part II Formation, 7 Intent to Create Legal Relations

From: Contract Law in Practice

Neil Andrews

Content type:: Book content

Product:: International Commercial Law [ICML]

Published in print:: 27 May 2021

ISBN:: 9780192897947

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Subject(s):: Interpretation of contract — Limitation of liability — Performance of contract — Validity of contract

(p. 152) 7 Intent to Create Legal Relations

Outline

Proposition.

7.01 In the absence of a deed, the promise must not only be supported by consideration but must also be made in circumstances objectively consistent with an intent to create legal relations.¹ There is a presumption that commercial agreements are intended to create legal relations, although consideration must also be shown.

7.02 This presumption can be rebutted if the parties’ dealings are ‘subject to contract’ [3.43], or expressed as a mere ‘gentlemen’s agreement’, or if the court concludes that the circumstances indicate that the arrangement is not intended to create legal relations.

7.03 In the case of collective agreements between trade unions and employers or employers’ associations, the converse presumption operates, that there is no intent to create legal relations.²

7.04 However, a commercial arrangement will be presumed to give rise to a contract only if it contains or discloses a clear promissory commitment (an ‘apparent promise’ [7.44]). Promises which explicitly or objectively disclose no intent to create legal relations will not be enforced.

7.05 In some non-commercial contexts, the court will presume that an agreement, even though technically supported by consideration, should not be legally binding. But on the borderline between commercial and domestic dealings, the tendency has been to treat an agreement as legally binding [7.53] to [7.58].

Evaluation

7.06 The status of the ‘intent to create legal relations’ doctrine has become disputed. There are three views: (i) ‘intent’ is an unnecessary rider to ordinary principles of consensus; (ii) (p. 153) ‘intent’ should be allowed to oust the older doctrine of ‘consideration’; (iii) ‘intent’ is here to stay but it operates in partnership with and alongside ‘consideration’. Of these three views, it is submitted that the third is correct.

View (i): ‘Intent’ doctrine should be subsumed by ‘offer and acceptance’.

7.07 This is the bold and sceptical contention that intent to create legal relations should be excised as a separate doctrine. Instead, ‘intent’ should be treated as merely an aspect of the ‘offer and acceptance’ bundle of rules. Thus one textbook suggests³ that the doctrine of intent to create legal relations is better viewed as part of the rules on offer and acceptance. However, in response to this, it should be noted that the independent nature of the intention to create legal relations doctrine is widely accepted. The doctrine enjoys a secure place both in the practice of the courts and in leading textbooks.⁴

View (ii): ‘Intent’ destined to oust consideration?

7.08 This is the imperialistic view: that ‘intent to create legal relations’ should and will supplant the doctrine of consideration. According to this view, ‘consideration’ should be abolished (however, it is likely that this would require legislation because it is too late for this doctrine to be simply abandoned by judicial decision). The present argument is that ‘consideration’ is an inexact and indirect way of posing the question addressed more precisely by the doctrine of ‘intent to create legal relations’: is this promise supported by a shared wish to create legally binding rights and duties, or is the promise too casual and informal to have legal force? However, this ‘imperialistic’ view is open to objection. For example, McKendrick rightly doubts whether the ‘intent’ doctrine will, or should, oust ‘consideration’:⁵ at the core of ‘consideration’ is the legal system’s refusal to give effect to gratuitous promises unless they are (as it were) (i) solemnized in a formal way (by use of a ‘deed’,) or (ii) the parties, by use of nominal consideration, signal their intention to create a binding agreement.

View (iii): Intent to create legal relations is an independent doctrine supplementing consideration.

7.09 This is the modern and (attractive) orthodox approach. It is consistent with the fact that the doctrine of intent to create legal relations has taken firm root as a separate test, operating additionally to the bargain test of ‘consideration’ and the requirement of certainty. This orthodoxy should be respected: the better view is that the consideration or bargain test is not just a roundabout way of discerning an ‘intent’ to create legal rights (on the basis of a rule-of-thumb inference that a ‘bargain’ is normally intended to be legally binding, but a promise of pure generosity is not). ‘Consideration’ encapsulates a paternalistic policy: that the promisor (and those interested in his solvency and prosperity) should be protected against the risk of squandering too liberally his assets (and energies) by making gratuitous promises. And so, X’s promise to give £1 million to Y, or to release T from his debt of £5 million, will be given effect only if X makes the effort to clothe his benevolence in the form of a deed, or the parties, by use of nominal consideration, signal their intention to create a binding agreement.

7.10 It is not enough that X in these situations utters the incantation ‘this promise is accompanied by an intention to create legal relations’. Even if the promise were sincerely intended (p. 154) to create legal rights, the purpose of the ‘consideration’ doctrine is to give the gratuitous promisor the right to change his mind. And so, he cannot be sued for the sum not paid nor (in the case of releases) can he, as creditor, be prevented from suing X for the balance not in fact paid.

Presumed Unenforceability: Family Relations

Spouses: Marriage Still Intact.

7.11 The first context in which the intent to create legal relations doctrine is applied so as to render promises legally unenforceable, despite the presence of consideration, is marriages.

7.12 In Balfour v Balfour (1919) the Court of Appeal treated a maintenance agreement between husband and wife as lacking legal enforceability because financial arrangements made during a marriage are presumed not to have been intended to be sued upon. And so, the husband’s non-payments were not legally valid debts (the Balfour case is examined in greater detail below). It is different if the agreement is made as a deed of covenant or if the marriage has already (irretrievably) foundered so that the spouses are dealing at arm’s length, as in Merritt v Merritt (1970) where Widgery LJ said:⁶ ‘The experience of life and human nature which raises this presumption in the case of a husband and wife living together in amity does not support it when the affection which produces that relationship of confidence has gone.’ Similarly, in Soulsbury v Soulsbury (2007) [3.173] an ex-husband promised to leave his ex-wife £100,000 in his will if she refrained from enforcing a maintenance order against him. The promise was legally enforceable.

7.13 In Balfour v Balfour Atkin LJ in the Court of Appeal said that the cold courts are no place for spouses to sue each other for breach of promises if, at the time of the relevant contract’s formation, they were living ‘in amity’.⁷ In a characteristically purple passage,⁸ Atkin LJ said:⁹

the small Courts of this country would have to be multiplied one hundredfold if these arrangements [between spouses during friendly relations] were held to result in legal obligations … Agreements such as these are outside the realm of contracts altogether … [and] are not sealed with seals and sealing wax. The consideration that really obtains for them is that natural love and affection which counts for so little in these cold Courts … In respect of these promises each house is a domain into which the King’s writ does not seek to run, and to which his officers do not seek to be admitted.

7.14 The Court of Appeal in the Balfour case also held that consideration was lacking on the present facts. Warrington and Duke LJJ held that there had been no real counter-promise by the wife, and hence no consideration.¹⁰ This reversed the first instance decision where (p. 155) Sargant J had found consideration (and intent to create legal relations): for him the consideration had been the fact that the wife had made an implicit undertaking not to pledge the husband’s credit for more than the £30 per month which he had promised to pay (in a later case, Williams v Williams (1957),¹¹ the Court of Appeal accepted that form of consideration in this context where the parties had separated).

Ante-Nuptial and Post-Nuptial Special Arrangements.

7.15 Ante-nuptial and post-nuptial agreements concerning future property arrangements between spouses or prospective spouses, in the event of future separation, are no longer contrary to public policy.¹²

Other Family Relations.

7.16 It is not clear whether, or to what extent, the presumption of legal unenforceability extends beyond amicable marriages to other types of family or emotional relationship. Atkin LJ in Rose & Frank Co v Crompton Bros (1923) referred to the Balfour case as authority for the proposition that there is a presumption of legal unenforceability with respect to ‘agreements made in the course of family life between members of a family’.¹³ And Scrutton LJ in the same case referred to ‘social and family relations’.¹⁴

7.17 In Jones v Padavatton (1969)¹⁵ a mother (Violet Lalgee Jones) succeeded in evicting her daughter (Ruby Padavatton, and her son, Tommy) from a property¹⁶ which the mother had bought and where the latter had been a licensee. All three members of the Court of Appeal agreed that the daughter could be evicted by the mother. Salmon LJ in fact considered that there had been a contract which had expired, but he acknowledged a ‘presumption of fact’, which he expressed as follows:¹⁷

… as a rule when arrangements are made between close relations, for example, between husband and wife, parent and child or uncle and nephew in relation to an allowance, there is a presumption against an intention of creating any legal relationship. This is not a presumption of law, but of fact. It derives from experience of life and human nature which shows that in such circumstances men and women usually do not intend to create legal rights and obligations, but intend to rely solely on family ties of mutual trust and affection … There may, however, be circumstances in which this presumption can be rebutted.

7.18 Another judge in Jones v Padavatton, Fenton-Atkinson LJ, found that the parties had not intended to create legally binding relations. Danckwerts LJ alone relied, in reaching his decision, on a broad proposition derived from Balfour v Balfour.

7.19 Moreover, there are numerous instances of contracts being actionable despite close or moderately close family ties: father-in-law (in fact his estate) and son-in-law in Tweddle v Atkinson (1861) [9.36]; uncle and nephew in Shadwell v Shadwell (1860);¹⁸ aunt and nephew (p. 156) in Beswick v Beswick (1968) [9.22]; father and daughter in Joscelyne v Nissen (1970) [21.24]; see also Re McArdle (1951) [6.35] (agreement between a mother and adult children) where the claim failed on the basis of lack of consideration (the past consideration rule) rather than the absence of intent to create legal relations.

Commercial Deals: Presumption of Legal Enforceability

Presumption of Legal Enforceability.

7.20 There is a clear presumption that commercial arrangements (including, of course, contracts involving a consumer) will be legally binding (subject to the presence of consideration, or if made by deed).¹⁹ This presumption was enunciated by Megaw J in Edwards v Skyways (1964),²⁰ where a company’s promise to pay redundancy money was held to be enforceable, even though expressed to be ‘ex gratia’.²¹ Megaw J expressed this presumption, or rather the manner in which it can be expressly rebutted, as follows:²² ‘Where the subject matter of the agreement is not domestic or social, but is related to business affairs, the parties may, by using clear words, show that their intention is to make the transaction binding in honour only, and not in law; and the courts will give effect to the expressed intention.’

7.21 In greater detail, in Edwards v Skyways the relevant written undertaking had been qualified by the words ‘ex gratia’. The company contended that this formula explicitly negative an intention to create legal relations. But Megaw J rejected this defence, and explained away the ‘ex gratia’ tag as follows:²³

… litigation … is frequently compromised on the terms that one party shall make to the other a payment described in express terms as ‘ex gratia’ or ‘without admission of liability.’ The two phrases … are used simply to indicate … that the party agreeing to pay does not admit any pre-existing liability on his part; but he is certainly not seeking to preclude the legal enforceability of the settlement itself by describing the contemplated payment as ‘ex gratia’. So here, … I see nothing … to warrant the conclusion that this promise, duly made and accepted, for valid consideration, was not intended by the parties to be enforceable in law.

Other Cases.

7.22 In New York Laser Clinic Ltd v Naturastudios Ltd (2019)²⁴ Cavanagh J rightly rejected the (bold) submission by claimant’s counsel that the Edwards v Skyways presumption renders a pre-contractual statement presumptively a collateral warranty without more.

7.23 Leggatt J in Magellan Spirit ApS v Vitol SA (‘The Magellan Spirit’) (2016)²⁵ noted that a non-legally binding jurisdiction clause does not furnish a cause of action for an anti-suit injunction, stating that the latter requires breach of a legally binding exclusive jurisdiction clause.

(p. 157) 7.24 In Esso Petroleum Co Ltd v Customs and Excise Commissioners (1976)²⁶ (the ‘World Cup 1970’ ‘free’ coins case) the House of Lords held that an advertising promotion was accompanied by an intent to create legal relations. The majority noted the presumption that an agreement is legally enforceable, based on the statement in Edwards v Skyways (see [7.20] and [7.21] above): Lords Wilberforce, Simon, and Fraser held that there was an intent to create legal relations supporting an agreement for the transfer of the plastic coins, the consideration for which was buying four gallons at an Esso filling station. That ‘plastic coin for every four gallons’ agreement was between Esso and each customer.

7.25 In Ogdens Ltd v Nelson (1905),²⁷ which involved the war between the nation’s tobacco manufacturers, Lord Lindley dismissed any idea that the relevant written agreement was not legally binding. It had been made in circumstances which were deadly serious and the pecuniary promise, although extravagant and commercially injudicious, had to be legally enforced. Ogdens had tried to capture the tobacco market by promising to distribute their profits and to pay a proportion of £200,000, for each of the following four years, to wholesale purchasers who in return agreed not to buy from any third parties. Money was paid in accordance with the promise in one year. But, before the end of the four-year period, Ogdens became insolvent and their business was bought by their rivals, the Imperial Tobacco Company. In the House of Lords, Lord Lindley said that Ogdens’ promise was clearly a legal undertaking:²⁸ ‘[the written undertaking] never was put forward as a practical joke which nobody was to pay attention to—it was a serious business agreement’.

7.26 The presumption of an intent to create legal relations within a business context is also illustrated by J Evans & Son (Portsmouth) v Andrea Merzario Ltd (1976).²⁹ Here the Court of Appeal held that an oral promise not to carry the claimant’s containers above deck gave rise to a binding contract that the assurance would be respected. The claimant’s container (in which a cargo was held) had fallen from the ship when, contrary to this assurance, it had been placed above deck. This express oral assurance took effect despite various exemptions contained in the written terms of the contract. The present express assurance was incompatible with those written terms, and it was held to prevail. And so, the claimant importers succeeded in their claim against the defendant forwarding agents (reversing Kerr J).

7.27 Similarly, in Novus Aviation Ltd v Alubaf Arab International Bank BSC (2016),³⁰ Leggatt J held that a written commitment contained a binding agreement, even if a more formal version of the agreement did not eventuate.

Intent to Create Legal Relations and the Objective Principle.

7.28 The imputation of an intent to create legal relations rests upon the objective principle [2.18], as discussed in this context in Novus Aviation Ltd v Alubaf Arab International Bank BSC (2016),³¹ where Leggatt J cited Longmore LJ’s remarks in the Maple Leaf case (2009):

(p. 158)

I would not myself accept that the [defendants’] subjective intentions have any relevance to the questions whether and when there came to be a binding contract. It is trite law that, although no contract can be made without an intention to be legally bound, that intention has to be ascertained objectively, not by looking into the parties’ minds.

Barrister’s Fees.

7.29 At Common Law a barrister could not sue for his or her fees, whether in respect of litigious or non-litigious work. But the position has now been changed by statute³² and, moreover, contracts can be entered between barristers and instructing solicitors.³³

Surrogacy Arrangements.

7.30 This topic, within the United Kingdom, is treated as an issue of public policy and statute has intervened. The leading case, Whittington Hospital NHS Trust v XX (2020), is considered at [16.13].³⁴

Enforceability: Bankers’ Bonus Promises.

7.31 The Court of Appeal in Attrill v Dresdner Kleinwort Ltd (2013)³⁵ held that an investment bank’s announcement to its workforce that the bank would be creating a guaranteed minimum 400 million Euro bonus chest disclosed an objective intent to create legal relations. The bank’s workforce had reasonably concluded that this was a binding commitment.³⁶ This was not a politician’s, comedian’s, or fair-weather friend’s promise.

Matter of Honour: ‘Gentlemen’s Agreements’.

7.32 The presumption that commercial contexts render bargains prima facie enforceable has been applied, overtly or sub silentio, in countless cases. But this is a presumption. Therefore, a clear indication that the transaction is not legally enforceable, such as by stating that it is made as a matter of honour alone, will render the transaction unenforceable in the courts. This was explicitly the position in Rose & Frank Co v Crompton Bros (1925),³⁷ which concerned a long-term supply agreement (it is interesting that in this case the relevant gentlemen’s agreement had supplanted a former arrangement which had been legally enforceable). Of course, individual contracts of supply made under the legally unenforceable arrangement were binding contracts. Explaining the legal unenforceability of the supply arrangement, Lord Phillimore (giving the main speech) said:³⁸

… the overriding clause … is that which provides that it is to be a contract of honour only and unenforceable at law … The unenforceable agreement cannot (it is true) be relied upon as cancelling the previous agreements, because it was to have no legal weight. But … the proper inference … was that the arrangement … was, though unenforceable, intended to supersede all previous arrangements or agreements, whether enforceable or unenforceable.

(p. 159) 7.33 There is a line of cases where football pools companies have succeeded in expressly excluding legal liability to pay, it being clear to the claimant that such a ‘honourable pledge clause’ existed.³⁹

7.34 In Green Deal Marketing Southern Ltd v Economy Energy Trading Ltd (2019)⁴⁰ Judge Keyser QC awarded compensation for breach of contract and compensation under regulation 17 of the Commercial Agents (Council Directive) Regulations 1993, having held that ‘Heads of Terms’ were legally enforceable. These terms contained in the ‘Heads of Terms’ document had been formally signed by directors following lengthy negotiation. The judge noted that the signed document made clear that:⁴¹

a formal contract was contemplated. However, [the language falls] far short of expressly negativing an intention that the document should have legal effect until the formal contract was executed, and much of the content of the document reads as a present agreement. It makes perfect sense to reach a binding agreement in the expectation that it will hold the ring until a more comprehensive agreement is put in place.

7.35 Although it might have made ‘perfect sense’ on those particular facts, this was a special situation. In general, the legal profession assumes that ‘Heads of Terms’ (or ‘Heads of Agreement’), notably with respect to commercial property matters, are (presumptively) not binding.⁴² Instead they are provisional and ‘subject to contract’ (whether impliedly or on the basis that ‘Heads of Terms’, at least contextually, is a phrase synonymous with ‘subject to contract’ [3.43]).

‘Letter of Intent’: Need to Construe.⁴³

7.36 A letter of intent might be worded so that it clearly indicates that it creates a legally binding set of relations. This is simply a matter of construction. For example, it is not uncommon for a building contract to be preceded by a letter of intent which has been carefully formulated so as to cap the amount of remuneration which the contractor can recover, in the absence of the main contract being agreed and becoming operative. Conversely, and again upon careful construction, an agreement between commercial parties might be held not⁴⁴ to constitute a legally binding agreement, even if there is no crystal-clear explicit statement that it is not to be legally enforceable (eg in British Steel Corporation v Cleveland Bridge and Engineering Co Ltd (1984), the letter of intent was not binding, and did not give rise to either an ‘executory’ contract nor an unilateral contract, but Goff J ordered that goods supplied were to be paid for under a quantum valebat [3.26]).⁴⁵

‘Letter of Comfort’.

(p. 160) 7.37 The Court of Appeal’s decision (reversing Hirst J) in Kleinwort Benson Ltd v Malaysian Mining Berhad (1989)⁴⁶ is the leading case in English law on the topic of ‘letters of comfort’. Here a parent company had staunchly refused to give the lender a guarantee with respect to the parent company’s subsidiary’s debts. Instead the parent company had given the relevant lender merely a letter of comfort. The Court of Appeal, reversing Hirst J (whose decision in favour of the lender was surprising), held that the context made clear that the agreement was not a guarantee (that is a surety agreement, on guarantees stricto sensu and in this sense see [5.09]). Secondly, the Court of Appeal held that the wording of the promise was linguistically so dilute that, on correct construction, it should be held not to contain a commitment by way of an enforceable guarantee.

7.38 The Court of Appeal noted⁴⁷ that the letter comprised three substantive paragraphs. The crucial paragraph was number (3) (the numbering was added by Hirst J at first instance). Paragraph (1) was of no consequence. It was conceded that (2) was contractual. But (2) would not assist the claimant. ‘(3) It is our policy to ensure that the business of MMC Metals Ltd is at all times in a position to meet its liabilities to you under the above arrangements. Yours faithfully Malaysia Mining Corporation Berhad.’

7.39 Ralph Gibson LJ said:⁴⁸

[The] evidence [received as factual matrix material: generally see [20.48]] of the refusal by the defendants to assume legal responsibility for the liabilities of Metals to the plaintiffs in the normal form of joint and several liability or of guarantee, and the consequent resort by the parties to what they described as a comfort letter … are … admissible … [It] is clear that … paragraph 3 cannot be regarded as intended to contain a contractual promise as to the future policy of the defendants …The consequences of the decision of the defendants to repudiate their moral responsibility are not matters for this court.

The Semantic Niceties of Contractual Commitment.

7.40 The language of a commercial document might not disclose a true promise or binding commitment (eg see the Sulamerica case, concerning mediation agreements [4.55]). In Abbar v Saudi Economic & Development Co (SEDCO) Real Estate Ltd (2013) David Richards J held that the words ‘anticipated’ and ‘intended’ negatived any firm intention to guarantee that a development site would be sold to a third party within 18 months.⁴⁹ In particular, he said:⁵⁰ ‘The … refrain …[here is] that the holding period of 1 to 1½ years is an “anticipated” or “intended” period. These statements of intention are … inconsistent with an intention to create a binding contractual term as to the duration of the investment . …’

Absence of Any Promise or Contractual Commitment.

7.41 The Edwards v Skyways presumption [7.20] must not be misapplied. It is not a substitute for offer and acceptance. There must be a clear agreement. Without such an agreement, the presumption of legal enforceability is a mere abstract proposition of legal policy and that presumption will not have been ‘engaged’ on the facts.

(p. 161) 7.42 It appears that the commercial presumption applies only to (i) (wholly) express contractual undertakings, as distinct from (ii) implied or (iii) hybrid express and implied arrangements.⁵¹ In the case of (iii), see the careful discussion in Assuranceforeningen Gard Gjensidig v International Oil Petroleum Compensation Fund (2014),⁵² where Hamblen J held that no such hybrid contract had been substantiated. But it is not clear whether this point makes any real practical difference in the treatment of implied or hybrid express/implied agreements which indubitably can be identified in commercial contexts.

7.43 With respect, the true proposition, it is submitted, which is illustrated by the Baird case (see text below), is that, rightly, the courts will not use the ‘intent to create legal relations’ concept as an illegitimate means of inferring that legal relations have been impliedly created when in fact there is insufficient evidence to support the existence of such a consensus. But, once such implied consensus is found, the next issue is whether there is an intent to create legal relations. It is submitted that the appropriate approach in a business context is to apply the Edwards v Skyways presumption [7.20] that such an intent does exist. Of course, the presumption can be rebutted.

Absence of an ‘Apparent Promise’: No Long-Term Supply Agreement: Series of Separate Transactions.

7.44 And so, in Baird Textiles Holdings Ltd v Marks and Spencer plc (2001)⁵³ the Court of Appeal concluded that the Baird company could not establish that Marks and Spencer (a department store selling, amongst other things, clothing) had entered a binding contract for long-term supply of clothing products. There was simply no substance in that plea. Resort by the Baird company to the Edwards v Skyways presumption was a desperate and misplaced attempt to conjure an agreement out of thin air. In short, repeat orders do not constitute an overarching supply agreement. Here, despite a lengthy chain of discrete orders, there was no basis for finding a long-term contract. Mance LJ noted⁵⁴ how difficult it would be to formulate any contract on these facts, and furthermore the Court of Appeal noted that the courts do not make contracts for parties.

7.45 Judge Pelling QC in Bony v Kacou (2017) cited the Baird case for the proposition that an implied contract will not be inferred by the court if the relevant line of conduct or pattern of dealings could equally have occurred in the absence of a contract.⁵⁵

Borderline Unenforceability (1): Royalties: Members of a Band.

7.46 Not all situations are easily allocated to the Balfour v Balfour [7.12] (‘non-commercial’) or Edwards v Skyways [7.20] (‘commercial’) contrasting categories. In the next two cases the court held that promises, even if made, had not been intended to be legally enforceable. The court held that in each of these cases the context did not disclose objectively an intent to create legal relations. That conclusion was drawn even though the context in the first case (Hadley v Kemp, (p. 162) 1999) savoured of, and in the second case (Blue v Ashley, 2017) manifestly involved a commercial matter (the latter case is examined two paragraphs below).

7.47 In Hadley v Kemp (1999)⁵⁶ the issue was whether Kemp, the copyright holder, had made an alleged oral promise to share royalties with his friends and fellow members of the ‘Spandau Ballet’ band. Even if such a promise had been made, the further issue was whether it was a binding legal promise. Park J concluded that, even if a promise of sufficient certainty had been made, it was not made with an intent to create legal relations. This was a situation where friendship had hardened into business relations, but the free-and-easy nature of their underlying relations was uppermost in the judge’s assessment of the evidence. Park J said:⁵⁷

[T]he courts will normally be disposed to find that an arrangement made in a business context was intended to be legally binding. However, there is no rule of law about it … The members of the band had known each other since their schooldays … Despite the important business elements in the band’s mutual relations I am not persuaded that the plaintiffs have established that [Kemp, the defendant leading member’s] decision to share his publishing income, and his statement to the band about it, were made with an intention to create legal relations.

Borderline Unenforceability (2): Tycoon’s Drinking ‘Banter’.

7.48 In Blue v Ashley (2017)⁵⁸ Leggatt J held that even if, in a pub, the defendant millionaire businessman, Mr Ashley, had promised to pay a financial assistant, Mr Blue, £15 million, if Blue succeeded in getting the share price of Sports Direct to £8 per share (this was a company which the defendant ran), there was no intent to create legal relations. Instead, objectively, no-one (other than Blue, and even he only retrospectively) supposed that the promise had been made other than jocularly. Leggatt J concluded:⁵⁹

… [No] reasonable person present in the Horse & Groom [licensed premises: a pub] on 24 January, 2013 would have thought that the offer to pay Mr Blue £15 million was serious and was intended to create a contract, and no one who was actually present in the Horse & Groom that evening including Mr Blue did in fact think so at the time. They all thought it was a joke.

7.49 Earlier in his judgment, Leggatt J explained the approach to be adopted when determining whether an intent to create legal relations can be found:⁶⁰

[55] … Not every agreement that people make with each other, even if there is consideration for it and the terms are certain, is reasonably intended to be enforceable in the courts … [56] Factors which may tend to show that an agreement was not intended to be legally binding include the fact that it was made in a social context, the fact that it was expressed in vague language and the fact that the promissory statement was made in anger or jest . …

(p. 163) 7.50 Conversely, no joke was perceived in Ogdens Ltd v Nash (1905)⁶¹ Lord Lindley commenting, ‘[the written undertaking] never was put forward as a practical joke which nobody was to pay attention to—it was a serious business agreement’.

Borderline Unenforceability (3): Methodist Ministry.

7.51 The Supreme Court in Preston v President of the Methodist Conference (2013) held by a majority that a Methodist priest has no contract of employment but operates under an appointment which is a matter of non-contractual honour. It followed that she could not bring a complaint of unfair dismissal.⁶² The Preston decision is surprising because (as noted in the case itself by Lord Sumption)⁶³ an earlier line of cases shows that there is no presumption against contractual relations arising in respect of spiritual engagements.⁶⁴ In an impressive dissent in the Preston case, Baroness Hale concluded that it would be absurd if a Methodist priest could not claim in contract.

Borderline Unenforceability (4): Golfing Prize.

7.52 In Lens v Devonshire Club (1914), Scrutton J refused an action by a golfer (it appears that the golfer was an amateur) for a prize promised by his club.⁶⁵

Borderline Enforceability (1): Property in Return for Care Services.

7.53 In Parker v Clark (1960)⁶⁶ an agreement to support and care for an elderly couple in return for a property interest was upheld as legally binding by Devlin J. He awarded damages in favour of the claimants. He dismissed the defence based on the alleged lack of ‘intent to create legal relations’ because this was not a mere domestic arrangement.

Borderline Enforceability (2): Petrol-Sharing: Reimbursement Duty.

7.54 A bilateral agreement to pay towards petrol (or diesel or electricity) if a work mate gives the promisor a lift does not create a binding contract. And so, the innocent party (whether he be the passenger or driver) cannot sue for compensation in respect of refusal to perform.⁶⁷ But once the arrangement ceases to be executory, that is, once the lift is given, the driver would appear to have a good claim for debt or a quantum meruit.⁶⁸ However, these decisions concerned the availability of default insurance, under the Motor Insurers’ Bureau scheme, and on this insurance point the law has now changed.⁶⁹

Borderline Enforceability (3): Sharing the Winnings of a Competition or Lottery Entry.

7.55 In Simpkins v Puys (1955)⁷⁰ a tripartite arrangement to participate in a weekly newspaper competition yielded winnings for the defendant. Sellers J held that the other two contributors to the entry fee were entitled to a one-third share of the winnings. A similar case is (p. 164) Kucukkoylu v Ozcan (2014)⁷¹ where, after six days of trial, it was held that (i) the parties had agreed to play the Lottery on a ‘50:50 basis’, (ii) each had contributed equally, with the result that (iii) the winnings were to be distributed equally, that last point being supported by either an express or an implied term.

Borderline Enforceability (4): Elite Athlete and the Organizing Committee.

7.56 In Modahl v British Athletic Federation Ltd (2001) the court found that the context imported an intent to create legal relations. In this case an elite athlete was held to have contractual rights by virtue of her participation in international competitions run by her national athletics authority.⁷² The claimant sought damages of £1 million against the British Athletic Federation (BAF) for an alleged contractual failure to deal fairly with her challenge to the accuracy of a urine test result (the result had gone against the athlete, resulting in severe damage to her career and reputation). Although the contract in the Modahl case included an implied term that both parties would be governed by the BAF’s rulebook, there had been no breach of that procedure, nor had there been any contractual breach taking the form of ‘bias’ towards her. And so, Modahl’s damages claim failed.

7.57 The Modahl case was distinguished in Tod v Swim Wales (2018),⁷³ where Choudhury J held that a local swimming club’s affiliation to a national association involved a two-tier structure and there was no hint of any express contractual nexus between an individual swimming instructor and the upper tier of the swimming hierarchy (distinguishing⁷⁴ the Modahl case, where the athletic association’s rules in several respects were addressed to individual athletes), nor in the Tod case was there any implied contractual connection based on conduct and regular interaction.⁷⁵

Borderline Enforceability (5): Loss of Chance Damages: Football Transfer Negotiations.

7.58 In McGill v The Sports and Entertainment Media Group (2006)⁷⁶ the Court of Appeal rejected without hesitation the contention that an oral agreement had created a legally enforceable contract for the provision of agency services. The Football Association’s rules required such agreements to be in writing. With respect, it is submitted that the FA rules did not directly render the oral agreement legally unenforceable (they lack the force of general law). Instead the relevance of those rules was that they formed the background to the oral agreement and negatived an immediate joint intention to create a binding (oral) agreement. And so the agent was taking the risk that the footballer might not agree to a written agreement. The case concerned a loss of chance claim in the tort of inducing breach of contract. The Court of Appeal (Lloyd-Jones and Henderson LJJ) held that the claim for loss of chance damages should be considered at first instance, to which the claim was remitted for further consideration. The relevant ‘chance’ was that the footballer might have signed a written contract with the agent. If such a written contract had been signed, that agreement would undoubtedly have been legally binding.

Footnotes:

¹ D Allen, ‘The Gentleman’s Agreement in Legal Theory and in Modern Practice’ (2000) Anglo-American Law Review 204; AG Chloros, ‘The Doctrine of Consideration and the Reform of the Law of Contract’ (1968) 17 ICLQ 137 (instructive on the doctrine of intent to create legal relations and not just on consideration); M Freeman, ‘Contracting in the Haven: Balfour v Balfour Revisited’ in R Halson (ed), Exploring the Boundaries of Contract (Dartmouth Publishing 1996) 68; M Furmston and GJ Tolhurst, Contract Formation: Law and Practice (2nd edn, OUP 2016) ch 7, ‘letters of intent’; and, specifically, on comfort letters 7.60 ff and 10.59 ff; M Furmston, ‘Letters of Intent’ in AS Burrows and E Peel (eds), Contract Formation and Parties (OUP 2010) ch 2; M Furmston, T Norisada, and J Poole, Contract Formation and Letters of Comfort (Wiley Publishing 1998); S Hedley, ‘Keeping Contract in its Place Balfour v Balfour and the Enforceability of Informal Agreements’ (1985) 5 OJLS 391, especially 400–04; B Hepple, ‘Intent to Create Legal Relations’ [1970] CLJ 122; J Morgan, Great Debates in Contract Law (3rd edn, Palgrave Publishing 2020) 44–48 (and the literature cited at 72–73); P Saprai, ‘Balfour v Balfour and the Separation of Contract and Promise’ (2017) 37 LS 468; AWB Simpson, ‘Innovation in Nineteenth Century Contract Law’ (1975) 91 LQR 247, 263–65.

² s 179, Trade Union and Labour Relations (Consolidation) Act 1992; Allen, ‘The Gentleman’s Agreement in Legal Theory and in Modern Practice’, 222–23.

³ M Furmston (gen ed), Law of Contract (6th edn, LexisNexis 2017) 2.172.

⁴ As noted by E McKendrick, Contract Law: Text, Cases and Materials (9th edn, OUP 2020) 278–79.

⁵ E McKendrick, Contract Law (13th edn, Palgrave Publishing 2019) 5.29.

⁶ [1970] 1 WLR 1211, 1214 (CA).

⁷ [1919] 2 KB 571, 579 (CA); the formula of ‘in amity’ recurs, 572 and 576.

⁸ ‘High-flown and rhetorical’, S Waddams, Principle and Policy in Contract Law: Competing or Complementary Concepts? (CUP 2011) 167. Atkin LJ’s judgment was described by Salmon LJ in Jones v Padavatton [1960] 1 WLR 332, 328 (CA), as ‘celebrated’, and by Danckwerts LJ, ibid, as an ‘magnificent exposition’.

⁹ [1919] 2 KB 571, 579 (CA).

¹⁰ [1919] 2 KB 571, 575, 577–78 (CA), respectively; for discussion of maintenance agreements which allocate jurisdiction to award post-divorce maintenance to a particular national jurisdiction, Brack v Brack [2018] EWCA Civ 2862, [2019] 1 WLR 3438 (where the agreement was defective).

¹¹ [1957] 1 WLR 148 (CA).

¹² Granatino v Radmacher [2010] UKSC 42, [2011] 1 AC 534; noted, J Miles (2011) 74 MLR 430 and by J Herring, PG Harris, and RH George (2011) 127 LQR 335; J Scherpe (ed), Marital Agreements and Private Autonomy in Comparative Perspective (Bloomsbury Publishing 2012); Brack v Brack [2018] EWCA Civ 28 [2019] 1 WLR 3438; Versteegh v Versteegh [2018] EWCA Civ 1050.

¹³ [1923] 2 KB 261, 288–91 (CA); affirmed on this point, [1925] AC 445 (HL).

¹⁴ ibid, 288.

¹⁵ [1969] 1 WLR 328 (CA).

¹⁶ 181, Highbury Quadrant, London.

¹⁷ ibid, 332–33; cited by Widgery LJ in [1970] 1 WLR 1211, 1214 (CA).

¹⁸ (1860) 9 CB (NS) 159 (Erle CJ, Keating J; Byles J dissenting); the dissent was preferred by Salmon LJ during general comments in Jones v Padavatton [1969] 1 WLR 328, 333 (CA).

¹⁹ Chitty on Contracts (HG Beale gen ed, 33rd edn, Sweet and Maxwell 2018) 2nd supplement 2020, 2-171, and 2-173, collects numerous decisions which illustrate the objective determination of the issue whether, in commercial or business contexts, the parties have acceded to an agreement with intent to create legal relations.

²⁰ [1964] 1 WLR 349.

²¹ A majority in Wyatt v Krelinger and Fernau [1933] 1 KB 793 (CA), Greer and Slesser LJJ, held that a promise to pay a pension was supported by an intent to create legal relations; on this point Scrutton LJ dissented; but there was no valid consideration.

²² [1964] 1 WLR 349, 354–55.

²³ ibid, 356.

²⁴ [2019] EWHC 2892 (QB) at [64] and [65].

²⁵ [2016] EWHC 454 (Comm), [2017] 1 All ER (Comm) 241, [2016] 2 Lloyd’s Rep 1 at [55] and [56].

²⁶ [1976] 1 WLR 1 (HL).

²⁷ [1905] AC 109, 114 (HL).

²⁸ ibid, 114.

²⁹ [1976] 1 WLR 1078 (CA); noted, J Adams (1977) 40 MLR 227.

³⁰ [2016] EWHC 1575 (Comm), [2017] 1 BCLC 414 at [46] to [53].

³¹ ibid, at [54] to [59]; where Leggatt J examined Andrew Smith J’s discussion of the intent to create legal relations doctrine in Maple Leaf Macro Volatility Master Fund v Rouvroy [2009] EWHC 257 (Comm), [2009] 2 All ER (Comm) 287, [2009] 1 Lloyd’s Rep 475; Leggatt J in the Novus case also citing at [55] Longmore LJ’s remarks in the Maple Leaf case, [2009] EWCA Civ 1334, [2010] 2 All ER (Comm) 788 at [17].

³² s 61, Courts and Legal Services Act 1990.

³³ Gwinnutt v George [2019] EWCA Civ 656, [2019] Ch 471 (reversing Judge Davis-White QC, [2018] EWHC 2169 (Ch), [2019] Ch 52).

³⁴ Whittington Hospital NHS Trust v XX [2020] UKSC 14, [2020] 2 WLR 972.

³⁵ [2013] EWCA Civ 394, [2013] 3 All ER 807.

³⁶ ibid, at [61], [62], [86], [87] (Elias LJ).

³⁷ [1925] AC 445 (HL); Allen, ‘The Gentleman’s Agreement in Legal Theory and in Modern Practice’, 205–06.

³⁸ ibid, 450–57.

³⁹ Allen, ‘The Gentleman’s Agreement in Legal Theory and in Modern Practice’, 206, 217; Furmston and Tolhurst, Contract Formation (2016) 10.47, noting Jones v Vernon’s Pools Ltd [1938] 2 All ER 626, and later cases.

⁴⁰ [2019] EWHC 507 (Ch), [2019] 2 All ER (Comm) 191 (Judge Keyser QC).

⁴¹ ibid, at [98].

⁴² For example, Britoil plc v Hunt Overseas Oil Inc [1994] CLC 561 (CA); as noted in FSHC Group Holdings Ltd v GLAS Trust Corporation Ltd (Rev 1) [2019] EWCA Civ 1361, [2020] Ch 365 at [88] to [97].

⁴³ M Furmston and GJ Tolhurst, Contract Formation: Law and Practice (2nd edn, OUP 2016) ch 7; M Furmston, ‘Letters of Intent’ in Burrows and Peel (eds), Contract Formation and Parties, ch 2; Furmston, Norisada, and Poole, Contract Formation and Letters of Comfort (; S Ball, ‘Work Carried Out in Pursuance of Letters of Intent—Contract or Restitution?’ (1983) 99 LQR 572; E Pannebakker, Letter of Intent in International Contracting (Intersentia Publishing 2017).

⁴⁴ For example, Shaker v Vistajet [2012] EWHC 1329 (Comm), [2012] 2 All ER (Comm) 1010, [2012] 2 Lloyd’s Rep 93 at [3], [7], [8] (Teare J) (explicit declaration that (1) LOI non-binding, except (2) vis-à-vis good faith negotiation and deposit arrangement, but element (2) was void for uncertainty under Walford v Miles rule).

⁴⁵ [1984] 1 All ER 504, 511–512 (Goff J); Allen, ‘The Gentleman’s Agreement in Legal Theory and in Modern Practice’, 209, 220.

⁴⁶ [1989] 1 WLR 379 (CA).

⁴⁷ ibid, 383.

⁴⁸ ibid, 393–94.

⁴⁹ [2013] EWHC 1414 (Ch) at [113], [128] to [133].

⁵⁰ ibid, at [128].

⁵¹ Baird Textiles Holdings Ltd v Marks and Spencer plc [2001] EWCA Civ 274, [2002] 1 All ER (Comm) 737 at [61] and [62]; on that case, Chitty (2018) 2-170; AS Burrows, A Casebook on Contract (7th edn, Hart Publishing 2020) 90.

⁵² [2014] EWHC 3367 (Comm) at [98] to [103], citing also Bingham LJ in Blackpool and Fylde Aero Club v Blackpool BC [1990] 1 WLR 1195, 1202.

⁵³ [2001] EWCA Civ 274, [2002] 1 All ER (Comm) 737; examined, J Morgan in D Campbell, L Mulcahy, and S Wheeler (eds), Changing Concepts of Contract (Palgrave Publishing 2013) ch 8.

⁵⁴ ibid, at [65] and [68]; see, notably, [69] and [76].

⁵⁵ [2017] EWHC 2146 (Ch) at [49]; citing Baird Textile Holdings Ltd v Marks and Spencer plc [2001] EWCA Civ 274, [2002] 1 All ER (Comm) 737 at [18] (Sir Andrew Morritt C; with Mance LJ agreeing at [62]).

⁵⁶ [1999] EMLR 589.

⁵⁷ ibid, 623–24.

⁵⁸ [2017] EWHC 1928 (Comm).

⁵⁹ ibid, at [142].

⁶⁰ ibid, at [55], [56].

⁶¹ [1905] AC 109, 114 (HL).

⁶² [2013] UKSC 29, [2013] 2 AC 163 (Lord Sumption) at [25] and [26], reversing the Employment Appeal Tribunal and the Court of Appeal.

⁶³ ibid, at [26].

⁶⁴ Percy v Church of Scotland Board of National Mission [2005] UKHL 73, [2006] 2 AC 28; Davies v Presbyterian Church of Wales [1986] 1 WLR 323; HL; President of the Methodist Conference v Parfitt [1984] QB 368 (CA).

⁶⁵ The Times, 4 December 1914, on which see Scrutton LJ in the Rose & Crompton case, [1923] 2 KB 261, 288, CA.

⁶⁶ [1960] 1 WLR 286.

⁶⁷ At any rate, in the absence of clear evidence that the parties did in fact intend to create legal relations: Coward v Motor Insurers’ Bureau [1963] 2 QB 259, 271 (Upjohn LJ) (CA).

⁶⁸ The latter if the amount had not been specified: Albert v Motor Insurers’ Bureau [1972] AC 301, 340 (HL) (Lord Cross).

⁶⁹ Chitty (2018) 2-178, at fn 998.

⁷⁰ [1955] 1 WLR 975.

⁷¹ [2014] EWHC 1972 (QB) (Judge Gosnell) at [42], [51].

⁷² [2001] EWCA Civ 1447, [2002] 1 WLR 1192 at [51], [52], and [105] (Latham and Mance LJJ); but Jonathan Parker LJ dissented on this point at [77] and [80], saying that he could discern no intent to create legal relations.

⁷³ [2018] EWHC 665 (QB).

⁷⁴ ibid, at [102].

⁷⁵ [2018] EWHC 665 (QB) at [79], considering factors articulated in Heis v MF Global UK Services Ltd (in administration) [2016] EWCA Civ 569, [2016] Pens LR 225 at [32] (Vos LJ).

⁷⁶ [2016] EWCA Civ 1063, [2017] 1 WLR 989 at [47] to [48].

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