INTENTION

Question 1

Is intention an objective or subjective test?

Answer 1

objective

Question 2

What does the objective test mean?

Answer 2

Would a reasonable person regard each party as having intended to create legal relations to be bound? (Ermogenous v Greek Orthodox Community of SA Inc (High Court, 2002))
Consider external manifestations, conduct and circumstances of the parties, not concerned with their subjective intention:
What they said or did
The circumstances in which they said or did it
The subject matter of the agreement
The parties’ relationships with one another

Question 3

“outward manifestations”?

Answer 3

What they said or did
The circumstances in which they said or did it
The subject matter of the agreement
The parties’ relationships with one another

Question 4

Shahid v Australasian College of Dermatologists - issue

Answer 4

Was a contract created each time Shahid appealed and paid the appeal fee? Did the College intend to be bound by its training handbook?

Question 5

Shahid v Australasian College of Dermatologists - rule

Answer 5

Mutual intention to create legal relations evident
Context was businesslike, weighty subject matter
Payment of substantial fee for services- intention to take the promise seriously and carry the conventional legal consequences
Found for Shahid, intention to be legally bound

Question 6

Atco Controls Pty Ltd v Newtronics Pty Ltd - issue

Answer 6

Were the letters of support provided by Atco intended to be binding

Question 7

Atco Controls Pty Ltd v Newtronics Pty Ltd - rule

Answer 7

No intention to create legal relations
Letters of support relatively informal
Inconsistent with security deed
Parent company would want to avoid liability if Newtronics failed

Question 8

Traditional presumptions (commercial, family, other)

Answer 8

Commercial transactions- presumption of intention. Onus is on the party denying there is a contract to prove that there was no intention to be bound (party suing doesn’t need to show intention)
Agreements between family members- presumption against intention. Onus is on the party wanting to sue for breach of contract to prove intention to be bound existed
Other cases- no presumptions either way. Onus on the person wanting to sue for breach of contract to prove intention

Question 9

Ermongenous v Greek Orthodox Community of SA Inc - issue

Answer 9

Was the Church bound to pay Ermogenous for unpaid annual/long service leave?

Question 10

Ermogenous v Greek Orthodox Community of SA Inc - judgement

Answer 10

Onus on Ermogenous to establish intention
Parties intended to make a contract as distinct from an arrangement
Saw Ermogenous as an employee
Legally binding agreement reached

Question 11

Ermogenous on presumption

Answer 11

Shouldn’t be one hard and fast rule - not applicable to all situations
Presumptions should be used only to set the onus of proof for domestic situations

Question 12

Shahid v Australiasian College of Dermatologists on presumption

Answer 12

In a business context the person proposing that the parties did not intend to create legal relations bears the onus of proving so

Question 13

Intention in commercial transactions

• general rule
• onus

Answer 13

General rule- Strong presumption that commercial transactions are intended to create legal obligations
Onus on party denying the existence of an intention to create legal relations to disprove intention

Question 14

Letters of comfort

Answer 14

Letters of support/letter of comfort typically from parent company to subsidiary not intended to be legally binding unless statements are promissory in nature

Question 15

Kleinwort Benson Ltd v Malaysia Mining Corp - issue

Answer 15

Did the letters of comfort from Malaysia Mining Corp have contractual effect

Question 16

Kleinwort Benson Ltd v Malaysia Mining Corp - decision

Answer 16

Letters of comfort did not have contractual effect, merely statement of policy and present fact, not a contractual promise
Not intended to be anything other than a representation of fact

Question 17

Banque Brussels Lambert SA v Australian National Industries Ltd - issue

Answer 17

Was there an intent to create legal relations? Were the terms of the letter sufficiently promissory in nature to be contractual?

Question 18

Banque Brussels Lambert SA v Australian National Industries Ltd - decision

Answer 18

Intention to create legal relations- if the statements are promissory in character court should enforce them when dealing with business and when there is no indicate that they are not intended to be legally enforceable
Each case determined on its own facts
If parties are not prepared to sign a formal document then it goes against intention

Question 19

Intention in domestic and social arrangements

• general rule
• onus

Answer 19

Parties are presumed not to intend legal relations (since Ermogenous it is more neutral)
Party arguing that a domestic/social agreement is enforceable bears the onus of proving an intention
Onus can be discharged, but have to consider the circumstances
Arrangements of commercial nature between parties in a domestic or social relationship is more likely to indicate intent

Question 20

Ashton v Pratt - issue

Answer 20

Whether Mr Pratt made the alleged promises and if so whether they were sufficient to amount to a contract, whether they were intended to be legally binding and whether they are unenforceable for public policy reasons

Question 21

Ashton v Pratt - decision

Answer 21

Evidence that promises were made and accepted, and evidence that the terms were not too uncertain
Arrangements made in a family are not intended to have legal force, the context of this arrangement was social, sought no legal advice or recorded their agreement in writing
Arrangements contrary to public policy

Question 22

Todd v Nicol - issue

Answer 22

Was the arrangement between the Todds and Mrs Nicol purely social?

Question 23

Todd v Nicol - decision

Answer 23

Intention to create legal relations- where one party has partly executed and relied on the promise then it is more likely to be considered enforceable
Substantial reliance as a result of a promise usually amounts to intention

Question 24

Intention in government agreements

Difficulties:

Answer 24

Matters of politics
Matters of government or public policy
Government administrative activities
Need to distinguish between an enforceable contractual promise and mere policy statements
Gratuitous social series in the execution of policy

Question 25

Administration of Papua and New Guinea v Leahy - issue

Answer 25

Had the Department intended to enter into legal relations when they agreed to take over spraying his property?

Question 26

Administration of Papua and New Guinea v Leahy - decision

Answer 26

No intention to enter into legal relations
Consisted of agreed promises- not intention to enter into a contract
Did no more then carry out their governmental or departmental function
An administrative arrangement, merely pursuing the policy adopted

Question 27

Placer Developments Ltd v Commonwealth

Answer 27

Had the parties intended to enter into legal relations? Was the promise illusory as the Commonwealth could determine the rate of the subsidy?

Question 28

Placer Developments Ltd v Commonwealth

Answer 28

The objective reasonable person would conclude that the promise was not a statement of policy but rather an intention to create legal relations based on the conditions:
• Written agreement
• The fact that the government had appropriated funds
• Parliament’s approval of the Agreement
• The commercial character and language used

Question 29

What is a preliminary agreement?

Answer 29

Parties negotiate the principle terms of a transaction
Parties enter into a preliminary written agreement with the intention to record their agreement more formally and fully in the future
“Agreement subject to contract…. “
Common in commercial world

Question 30

Masters v Cameron - issue

Answer 30

Was Masters legally bound by the preliminary agreement created with Cameron?

Question 31

Masters v Cameron

Answer 31

The expression “subject to contract” signify an intention not to be bound
Contract was to contain not only the terms in the signed document but whatever else the solicitors may fairly have considered appropriate
Established 3 categories of preliminary agreements
No binding contract- category 3 case

Question 32

Category 1 - preliminary agreement

Answer 32

1. Parties have reached finality with all the terms of their bargain and intend to be bound to the performance of those terms, but propose to have the terms restated more clearly but not different
   Bound to perform the terms of the preliminary agreement, whether or not the formal agreement comes into existence

Question 33

Category 2 - preliminary agreement

Answer 33

2. Parties have completely agreed upon all terms of the bargain, have no intention to depart from or add to them, but have still made performance of one or more of the terms conditional upon execution of a formal document
   Parties are contractually bound to bring the formal contract into existence and then carry that formal contract into execution

Question 34

Category 3 - preliminary agreement

Answer 34

3. The parties do not intend to make a concluded bargain, unless and until they execute a formal contract
   The terms of the agreement have no effect. Matters still need to be negotiated, matters will be affected by other provisions to be introduced into the formal document

Question 35

Fourth category - Baulkham Hill Private Hospital Pty Ltd v GR Securities Pty Ltd (1986)

Answer 35

One in which the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms