Intention To Create Legal Relations

Front 1

Dalrymple v Dalrymple (1811)

Lord Stowell

Back 1

(Contracts) must not be the sports of an idle hour,mere matters of pleasantry and badinage, never intended by the parties to haveany serious effect whatever.

Hint 1

Sports

Front 2

According to Clark

Back 2

There can be an offer, acceptance and consideration and not be an enforceable contract, if the parties stipulate that they do not intend to create legal relations. Without an intention to be legally bound, there is no enforceable contract.

Hint 2

Not enforceable

Front 3

Edmonds v Lawson [2000]

Back 3

Whether the parties intended to enter into legally binding relations is an issue to be determined objectively and not by inquiring into their respective states of mind.

Hint 3

Objective

Front 4

Family & Domestic Agreements

Back 4

Traditionally taken the view that these are to be presumed not to give rise to legal relations.

Presumption only: in certain circumstances, these agreements will give rise to legal relations.

Hint 4

Tradition

Front 5

Balfour v Balfour [1919]

Back 5

Ceylon

He promised to pay her £30 per month as maintenance while they were forced to live apart.

Hint 5

Husband / Wife

Front 6

Courtney v Courtney (1923)

Ireland

Back 6

The court upheld as binding a separation agreement which was drawn up in writing and agreed before the local parish priest

Hint 6

Priest

Front 7

Jones v Padvatton [1969]

Back 7

Mother / Daughter

Monthly allowance and live in house with child.

COA ruled that agreement was in good faith and not legally binding

Hint 7

Mother and Daughter

Front 8

Haggar v De Placido [1972]

Back 8

Son RTA

Formal written document agreed with his mother and brother that he would pay them 12 guineas a week in return for nursing him back to health.

Hint 8

RTA

Front 9

Commercial Agreements

Back 9

Presumed to have been intended to create legal relations.

Sometimes parties choose to depart from this presumption, and deliberately provide that an agreement should not be enforceable by the courts

Front 10

O’Rourke v Talbot Ireland [1984]

Back 10

Barrington J

Heavy onus of proof rests on a person alleging that a commercial agreement was not intended to create legal relations

Hint 10

Onus of.....

Front 11

Edwards v Skyways Ltd. [1964]1 All ER 494

Back 11

Pilot - redundancy. If he withdrew contributions to the pension fund, they would pay him the equivalent in an ex gratia payment. Agreed and the company then had further financial difficulty and reneged.

Held: Agreement had been made in a business context Strong presumption that it is legally binding.

Hint 11

Airline Pilot

Front 12

Rose and Frank v Crompton [1923] KB 26

Back 12

Supply of tissue paper. Sole agents in the US until March 1920. Contract contained an honourable pledge clause which stated the agreement was not a formal or legal agreement and shall not be subject to the jurisdiction of the courts in neither England nor the US.

Held:The honourable pledge clause rebutted the presumption that the parties intend to be legally bound by agreements. Agreement had no legal effect.

Hint 12

Honourable Pledge

Front 13

Letters ofComfort

Back 13

If a subsidiary company is about to enter into a transaction, and the other party to the transaction is not happy with the financial stability of the subsidiary. 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.

Hint 13

Example

Front 14

Kleinwort Benson v Malaysia Mining Corporation [1989]

Back 14

London metals market.

Credit facility for subsidiary. Plaintiffs requested a suitable letter of comfort. “It is our policy to ensure that the business of [the subsidiary] is at all times in a position to meetits liabilities" The tin market collapsed. Subsidiary went into liquidation, owing the plaintiff the amount of the credit facility

COA - Intention to create legal relations did not arise. Letter of comfort, was a mere statement of present fact regarding the defendant’s intentions, rather than a contractual promise as to future conduct

No more than a moral responsibility. Had the comfort letter been phrased in terms such as “It is and will continue to be our policy …”

Hint 14

Tin market

Front 15

Banque Brussels Lambert v Australian National Industries Ltd [1989]

Critical of last case

Back 15

Subsidiary sought credit, and security was sought from the parent company.

Agreed that the parent company would give the plaintiff 90 days’ notice of any decision to dispose of or reduce their shareholding, and that the plaintiff would have a right to give 30 days’ notice for the repayment of all outstanding amounts if parent company made that decision.

Agreement made it very difficult for the parent company to sell the subsidiary.

The defendant disposed of its shares in the subsidiary without giving the required notice to the plaintiff

Held by the court to amount to a breach of contract. Clear promise as to future conduct, not merely a statement of present fact. Commercial contracts of any sort should not be treated as belonging to: “a twilight zone of merely honourable engagement”unless the contract clearly so stated on its face;

Hint 15

Twilight Zone

Front 16

Lettersof Intent

Back 16

In contrast to a comfort letter, one in which a person or company seeks to induce another entity to undertake work or incur expenditure, while denying or limiting liability to that other entity, often by insisting that liability turns on concluding a formal contract at a later date

Hint 16

Definition

Front 17

AC Controls Ltd. v BBC (2002)

Several of the letters of intent cases weresummarised

Back 17

1. Can be binding contract, if language when objectively construed indicates such.

2. ‘if’ contract. Offer to carry out defined services. No obligation to perform is created and obligation to remunerate is limited by the express and implied terms of that offer.

3. Contract can be created if a transaction is fully performed and obstacles to the formation of a contract removed in negotiations and performance.

4. Language used must be looked at with background.

Hint 17

4 Critera

Front 18

Collective Agreements

Back 18

Agreements of a collective nature between management and workers. At first glance, these are agreements of a commercial nature,which would be presumed to be legally binding.

Front 19

Industrial Relations Act 1990

Back 19

Statutory recognition that it is generally undesirable courts should involve themselves in industrial relations disputes

Note:In English law, there is a strong presumption that collective agreements are not intended to give rise to legal relations

Hint 19

Ireland / England

Front 20

Ford v AUEFW [1969]

Back 20

Precisely drafted document. Dispute resolution procedure, No stoppage of work until that procedure had been completed.

Some unions called a strike without completing procedure. Ford sought to stop them from doing so.

Held: such agreements were presumed not to be legally enforceable, and that: “Withoutclear and express provisions, they remain in the realm ofundertakings binding in honour.” Position given statutory effect in England, by s.18 of the Trade Union and Industrial Relations Act 1974

Front 21

Ardmore Studios v Lynch [1965]

Ireland more pragmatic, case-by-case, approach

Back 21

Agreement to employ electricians from an agreed list. Alleged that the company was in breach of this agreement.

Held that this agreement had come to an end by the time of the alleged breach; and, obiter, Agreement was too vague to constitute a contract. However, had the agreement been more detailed, it could have constituted a binding contract

Hint 21

Electricians

Front 22

Goulding Chemicals v Bolger [1977]

Ireland

Back 22

Trade union members -redundancy agreement negotiated by their trade unions, picket in breach of that agreement.

The employer sought to restrain the picketing.

Held: It was binding, but against the unions and union officials: did not bind the members,who were not a party to it.

The court took the view that such agreements were generally binding. Kenny J.indicated:

(1) Heavy onus of proof on the party who alleged that a particular collective agreement was not intended to create legal relations

(2) Ford v AUEFW [1969] may not be considered a correct statement of the law in Ireland.

Hint 22

Union Officials

Front 23

O’Rourke v Talbot Ireland [1984]

Back 23

Productivity agreement, they could be reassigned to other duties within the company. Assurance that their jobs would be secure, written guarantee not be made redundant on a compulsory basis for a five-year period. One year later made redundant. A matter of fact that the management honestly believed the guarantee which they gave did not have legal consequences. However, Barrington J. held that the subjective belief of the defendant on entering into the agreement was irrelevant: the agreement had to be construed in an objective manner. Held: The agreement was a commercial agreement.It is clear … management knew that an offer of job security would influence the [plaintiffs’] attitude towards the scheme of redeployment in the company. It is also clear, assurance given did influence their attitude and that the scheme of redeployment was implemented with the [plaintiffs’]agreement and co-operation because of the assurance given. It therefore appears to me that the presumption of law is that the parties intended to create legal relations.

Surrounding circumstances did not rebut this presumption. Quite the contrary was the case: by insisting on a written guarantee, the plaintiffs were making it clear that what was intended was an enforceable agreement, although some terms of the agreement (, e.g. full discussion of certain matters before implementation) were quite vague, it was held that the guarantee of no compulsory redundancies was enforceable.

Megaw J said in Edwards v Skyways [1964]

“the onus is on the party who asserts that no legal effect was intended, and the onus is a heavy one.”

Hint 23

Compulsory Redundancy

Front 24

Statutory Intervention

Back 24

Industrial Relations Act 1946, as amended by the Industrial Relations Act 1990, provision for the registration of collective agreements with the Labour Court with consent of all parties to the agreement.

When agreement is registered, it becomes enforceable by way of proceedings before the Labour Court (rather than by the ordinary courts). The extent to which a registered agreement may be enforced in the ordinary courts remains to be known.

Hint 24

Act

Front 25

Agreements to Negotiate

Back 25

Where parties have not finalised all the material terms of a contract, but it is their firm intention to do so. (for example, two parties may agree a takeover in principle, and may agree to negotiate in good faith to put in place the details of the takeover).

Front 26

Can one party enforce the agreement to negotiate as against the other?

Back 26

1) Did the parties intendit to have legal effect? In the context of a commercial transaction, it may be presumed that they did.

2) Is contract sufficiently definite to be enforceable?

3) Not incomplete simply because it needs further agreement between the parties. However, a contract will be incomplete and unenforceable if what is left to be agreed makes the contract “unworkable or void for uncertainty”

4) “agree to agree” or agree to negotiate will generally be found to be so vague as to be unenforceable because it lacks certainty.

Hint 26

Criteria

Front 27

Cadbury Ireland v Kerry Co-op Creameries [1982]

Back 27

Barrington J

It was indicated that a particular clause was unenforceable since it involved at best “a commitment to enter into honest negotiations.”

Hint 27

Honest

Front 28

Case law from other jurisdictions

Coal Cliff Colleries v Sijehama Ltd (1991)

Back 28

NSWCA held that, while the law will not enforce an agreement to agree, nevertheless some promises to negotiate in good faith may be enforceable

Front 29

Con Kellergis v Calshonie Ltd (1997)

Back 29

Provided that the price to be paid for variation of building contract was to be determined by good faith negotiation between one of the parties and the builder. The court accepted that, while difficult questions of fact as to bona fides, etc. might arise, the agreement to negotiate in good faith in this case was sufficiently definite to be enforceable

Hint 29

Good Faith

Front 30

Exceptionto the principle

Walford v Miles [1992]

Back 30

These are lock-out agreements, not lock-in agreements: a commitment not to negotiate with others, not a commitment to negotiate with the potential purchaser

If an agreement to negotiate is unenforceable, it may be possible to achieve the same result by way of a lock-out agreement. Agreement involves one party agreeing not to negotiate with a third party for a specified period of time.