#16749 - Intent To Create Legal Relations Pq Notes - Contract Law

The court considers the objective conduct of the parties as a whole to determine if the parties intended to create legal relations.

• Elias LJ in Attrill v Dresdner Kleinwort (2013)

Andrews: But for borderline cases, a more nuanced approach is adopted: the court will inquire closely into what the parties actually thought to be the case, such as in Parker v Clark.

Aikens LJ in Barbudev v Eurocom Cable Management Bulgaria Food (2012): “In a commercial context, the onus of demonstrating that there was a lack of intention to create legal relations lies on the party asserting it and it is a heavy one”. Another authority is Esso Petroleum v Customs & Excise Commissioner (1976).

Accordingly, there is a presumption to create legal relations in commercial contexts.

This presumption can be rebutted in a few ways.

(i) Using the formula ‘subject to contract’.

Grant v Bragg (2009): Where the parties have agreed that informal agreement should be finalised in writing on paper, the effect is to render the parties’ dealings implicitly ‘subject to contract’. The phrase need not be explicitly used.

However, RTS Flexible Systems Ltd v Molkerei (2010): The parties’ conduct can indicate a joint indication to disapply the ‘subject to contract’ bar, provided that all the points of dispute have been resolved during negotiations and the parties have made substantial performance under the agreement.

Salvation Army Trustee v West Yorkshire Metropolitan CC (1980): Estoppel can override the ‘subject to contract’ bar.

(ii) Where parties expressly render a commercial agreement legally ineffective

Rose & Frank Co v Crompton Bros (1925)

(ii) Depending on the specific facts of the case

Apply the following cases analogously:

• Hedley v Kemp: Despite the important business elements in the band’s relations, the relationship between the band members went beyond that, given their close-knit friendship and passion for music. The presumption was rebutted.

• Kleinwort Benson v Malaysian Mining (1989)

Facts: D had assured C (lender) that it would ensure that the business of X, D’s subsidiary company, is at all times able to meet its liabilities to C. The letter read: “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 [loan facility] arrangements.” Comforted by this, C lent a large sum to X, which defaulted on repayment and became insolvent. C then sued D upon the letter of comfort.

Verdict: Unsuccessful. The document did not contain a commitment or a promise; the presumption that there is an intent to create legal relations only operates if a promise can be identified. The letter was couched in the present tense and there was no guarantee as to the continuation of this practice.

• Baird Textile Holdings v Marks & Spencer (2001)

Facts: C was a long-time supplier of clothes to D. question: was there a long-term contract between C and D? C was dropped eventually, after which C sued D for breach of an alleged long-term supply agreement.

Verdict: There was no such agreement, but merely a long-standing pattern of discrete contracts for particular orders. D, possessing greater economic power, had all along intended that matters should remain fluid in this way. The presumption of enforceability in commercial contexts cannot apply unless the court can first identify an explicit or apparent promise.

Mance LJ:

At 69: “Objectively, the only sensible analysis of the present situation is in my judgment that the parties had an extremely good long-term commercial relationship, but not one which they ever sought to express, or which the court would ever seek to express, in terms of long-term contractual obligations. The upshot is that I agree with the judge's conclusion that there was never here any agreement on essentials.”

At 76: “It is evident that Baird felt, quite rightly, that it had achieved a long and very close relationship, an informal business 'partnership', with M&S, and that it could, as a practical matter, rely on this and on M&S's management's general goodwill and good intentions. But managements, economic conditions and intentions may all change, and businessmen must be taken to be aware that, without specific contractual protection, their business may suffer in consequence. I do not think that the law should be ready to seek to fetter business relationships, even--and perhaps especially--those as long and as close as the present, with its own view of what might represent appropriate business conduct, when the parties have not chosen, or have not been willing or able, to do so in any identifiable legal fashion or terms...