Case name & citation: Edwards v Skyways Ltd.  1 WLR 349
Jurisdiction: Queen’s Bench Division
Year of the case: 1964
Area of law: Intention to create legal relations
What is the case about?
In this case, the question that was addressed was whether the parties intended to enter into legal relations and whether or not their agreement to pay a redundancy payment to redundant pilots was an enforceable contract.
Facts of the case (Edwards v Skyways)
The defendant, a financially troubled airline company was laying off a number of its pilots. The airline company and the British Airline Pilots Association came to an agreement that on termination of employment, each pilot would be paid an “ex gratia payment” equivalent to the company’s contribution to the pension fund. The Association provided consideration for this promise.
Initially, this was subject to a resolution passed by the company’s Board, and it was agreed upon at a meeting between representatives from the company and the Association.
On the redundancy of the plaintiff, he claimed the payment of his contributions. However, the airline company refused to pay, alleging that there was no legal obligation to pay but was merely a moral one.
Regarding the agreement between the airline company and the Association to pay employee contributions, the question arose as to whether it was intended to establish legal relations and obligations. Was the contract legally enforceable?
Judgment of the Court in “Edwards v Skyways”
The Court decided that when an agreement is made in the course of business operations rather than in a domestic or social setting, there is a presumption that the parties intended to enter into a legal relationship and that their legal relations should be affected.
The responsibility to prove is on the party rebutting this presumption. They must show that they specifically intended to create a purely “moral” agreement rather than a legal one.
But the defendant company failed to provide enough evidence to rebut this presumption.
The Court further held that the company’s inclusion of the phrase “ex gratia” in the promise to pay does not indicate or imply that the agreement has no legal force.
Also, the test for intent to be legally bound is objective. The Courts look at this criterion through the viewpoint of a reasonable bystander. The subjective intentions of the parties are irrelevant.
Therefore, the claim of the defendant was rejected. It was held that the agreement was made in a business setting with authorized representatives and hence, there was an intention to create legal obligations. The plaintiff was entitled to receive the payment.
Another similar case
As previously stated, the usual presumption in commercial or business transactions is that the parties aim to establish legal relations. In a business agreement, it is presumed that it will be followed by legal consequences. This presumption, however, may be negated by express terms to the contrary. And the case of Rose & Frank v Crompton & Bros. (1925) is a relevant example of this. Read the full case here.
What happens in domestic agreements?
In family or social agreements, for example, an agreement to entertain a person with dinner, to play sports, etc., it is usually seen that the parties do not intend legal consequences. But the opposite can also be true depending upon the circumstances of each case. You may want to refer to Simpkins v Pays (1955) and Jones v Padavatton (1969) which throw light on domestic agreements and their enforceability.
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