Week 4: Intention and Certainty Contract Law Intention - A contract can only be enforceable if the parties intended by that agreement to create legal relations. - This is tested objectively would a reasonable person think that this agreement was intended to be legally binding? assessment of which requires the consideration of various factors including: Closeness of relationship between the parties; Surrounding circumstances; Nature of the agreement (such as preliminary agreements); Involvement of commercial interests; Seriousness of consequences of acting on the promise. - CL developed presumptions: in commercial agreements the parties are presumed to have intention; domestic or social agreements are presumed to not have intention. - High Court recently expressed doubt about the usefulness of these presumptions in Ermogenous v Greek Orthodox Community - PRESUMPTIONS - Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 [4.10] Facts - The Greek Orthodox Community employed the appellant as Archbishop of the Greek Orthodox Churches for 23 years before he resigned. - He sued for unpaid annual leave and long service leave entitlements, but the Community denied that he was employed under a 'contract of employment' Issue Did the parties intend a legally enforceable relationship? Held presumptions are not helpful, these are rules of thumb. There was no ground for inferring an absence of intention to creat legal relations on the facts found by the industrial magistrate; there is no presumption that an arrangement about renumeration of a minister of religion will not give rise to legally enforceable obligations.
- Gaudron, McHugh, Hayne and Callnian JJ: [Intention] describes what it is that would objectively be conveyed by what was said or done, having regard to the circumstances in which those statements and actions happened. For our part, we doubt the utility of using the language of presumptions in this context. It by no means follows, that it is impossible that the relationship between the minister and the body or group which seeks or receives that ministry will be governed by a contract, and that respondent in this appeal did not seek to advance any such absolute proposition. Rather, the respondent advanced the more limited proposition, adopted by Doyle CJ and Bleby J, that an intention to enter contractual relations is not to be presumed where the arrangement concerns the engagement of a minister of religion but must affirmatively be proved. - Kirby J: There is therefore no presumption that contract between religious or associated bodies and ministers of religion, of their nature, are not intended to be legally enforceable. Every day of his life, Archibishop Ermogenous, like everyone else in Australia, made contractual arrangements of an express or implied kind with secular organisations and individuals of great variety... It would be contrary to basic principle to suggest that his spiritual calling somehow placed him outside the rights and duties of the law of obligations. - COMMERCIAL TRANSACTIONS - There will be an assumption that legal relations were intended. The onus is on the one who wants to prove otherwise. - Banque Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR 502 [4.30] Facts The bank acquired a letter of comfort from ANI, a 45% shareholder in Spedley Securities Ltd's holding company, before it would give Spedley a $US5 million eurocurrency facility. In the letter, ANI said that it would provide the bank with 90 days notice of any decision to dispose of its shareholding, and that it was its practice to endure that Spedley would be in a position to meet its financial obligations to the bank. ANI later sold its shares without notice to the bank, and it did not ensure that Spedley could meet its obligation to the bank. The bank claimed $A7 million damages after Spedley went into liquidation.
Issue Did the letter of comfort make contractual promises? Held Yes; the bank succeeded. If statements were appropriately promissory in character, courts should enforce them when they were uttered in the course of business and there was no clear indication that they were not intended to be legally enforceable. Although the letter was not a guarantee, ANI was in breach of two enforceable contractual promises. - Rogers CJ: Letters of comfort have become so frequent in international commercial transactions. The French approach to letter of comfort is refreshingly honest and sensible [where:] A so called "letter of responsibility" will, under French law, be considered as a commitment to perform because in the commercial world the creation of a meaningless instrument or document is unthinkable. There should be no room in the proper flow of commerce for some purgatory where statements made by businessmen, after hard bargaining and made to induce another business person to enter into business transaction world, without any express statement to that effect, reside in a twilight zone of merely honourable engagement. The true question therefore was whether the statement sued upon was promissory in character. In my view, the plaintiff has made out its claim that the defendant was in breach of two enforceable contractual promises. - DOMESTIC AND SOCIAL AGREEMENTS - A presumptions that parties to a domestic/social agreement do not intend to create legal relations mean that the person seeking to enforce the contract made in a domestic/social setting bears the onus of proving an intention to create legal obligations. - In determining intention, the court will take into account all of the circumstances of the transaction into account obviously varying from case to case. - Todd v Nicol [1957] SASR 72[4.50] Facts Mrs Nicol wrote to her sister-in-law in Scotland, Mrs Todd, and invited her to migrate with her daughter to Australia and to share her home on a permanent basis. They accepted this offer, moved from Scotland and took up the residence, but soon the parties were in dispute. Issue Was there a contract? Did the parties intend to be legally bound? Held In the circumstances, the intention to be attributed to the parties was to enter into a contract that was legally binding. However, Mrs Nicol was entitled to bring the agreement to an end, since Mrs Todd's behaviour was responsible for the cessation of reasonable home conditions.
- Mayo J: I do not suppose that it came into the conscious thoughts of any of the parties (ie either plaintiffs or the defendants) that legal sanctions would be called in aid of the plan that was proposed and followed... there is no explicit reference to intention, that is to say, an intention to create obligations that are legally enforceable. By a process of reasoning it may be possible to ascertain if any such intention can be attributed to the parties having regard to the features with which they have enveloped the project... [here, there was] an intended combination of resources of an apparently permanent nature. My conclusion is that the intention to be attributed to the parties was to enter into a contract that was legally binding. - GOVERNMENT AGREEMENTS - In government commercial transactions, intention is likely to be present. - However, where administrative/political activities are concerned, the courts are likely to find that an intention to create legal relations does not exist. - Administration of Papua and New Guinea v Leahy (1961) 105 CLR 6 [4.65] - ticks on cows Facts The Administration of PNG agreed to carry out a tick-eradication program on Leahy's property at his request. Through deficiencies of character and over-indulgence in alcohol, the Administration's officers neglected their work, and Leahy's cattle become more serious affected with Redwater fever than they have been before. He sued for damages. Issue Was there a contract? Did the parties intend to create legal relations? Held Leahy failed. The arrangements were not contractual, since the Administration did no more than give effect effect to a general policy of dispensing aid to individual cattle owners as a means of coping with a recognised menace to an important part of the Territory's economy, and Leahy's attitude throughout was that of a private person appealing for government assistance. - Dixon CJ: There was no intention on [PNG's] parts to enter into any contract, to undertake contractual obligations or to do or undertake more that was considered naturally and properly incident to carrying out their governmental or departmental function in the conditions prevailing. They were merely pursuing the policy adopted of the eradication of tick. - McTiernan J:
The arrangement consisted of agreed promises but that is not enough to make a contract unless it was the common intention of the parties to enter into legal obligations, mutually communicated, expressly or impliedly. The conduct of the parties constituted an administrative arrangement by which the Administration in pursuance of its agricultural policy, gave assistance to an owner of stock to prevent that stock contracting a disease which was prevalent in the Territory. The work done was analagous to a social service which generally does not have as its - Kitto J: basis a legal relationship of a contractual nature and from which no right of action would arise in favour of the citizen who is receiving the services. The question is whether they parties to the correspondence which passed and the conversations which took place evinced an intention to make a bargain mutually binding between them. The plaintiff expected the Department to honour its promises... There is only one inquiry: whether, taking into account all the circumstances, it is right to conclude that the respondent and the Administration were dealing with one another on a contractual basis, or were merely arranging the manner and extent of gratuitous assistance to the respondent. The case fall into the class of which illustrations may be found in Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424 The arrangements made were not contractual. - PRELIMINARY AGREEMENTS - Masters v Cameron (1954) 91 CLR 353 [4.80] Facts preliminary agreements buy farming property 'on solicitors'; incurred financial difficulties That aprties signed a document which said "I Violet Christina Cameron... agree to sell my farming property at Bowelling... for 17,500. This agreement is made subject to the preparation of a formal contract of sale which shall be acceptable to my solicitors on the above terms and conditions...". Mr Masters paid a deposit of 1750 to an agent, but later denied there was a contract. Issue Did the parties intend to be immediately bound by the contract? Held Having regard particularly to the final sentence, the document did not constitute a binding contract, but was only a record of terms upon which the signatories were agreed as a basis for the negotiation of a contract. The 1750 would take on the character of a deposit upon the making of the contract and until them belonged to Mr Masters.
- The Court Dixon CJ, McTiernan and Kitto JJ: Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree to the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three cases. - 1) the parties have reached finality in arranging all the terms of their bargain and intended to be immediately bound to the performance of those terms. (binding contract) - 2) the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of those terms conditional upon the execution of a formal document. (binding contract) - 3) the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal document (no binding effect) The question depends upon the intention disclosed by the language the parties have employed, and no special form of words is essential to be used in order that there shall be no contract binding upon the parties before the execution of their agreement in its ultimate shape.
Certainty - There may appear to be offer and acceptance, but if the agreement is uncertain, incomplete, or a contractual promise is illusory. Certainty the language has to be be capable of meaning whereby the court can attribute a particular contractual intention to the parties (even if language is obscure, if the court can interpret the words to discern contractual intention, then the agreement is not uncertain): Council of the Upper County District v Australian Chilling and Freezing Co Ltd (1968); Biotechnology Australia Pty Ltd v Pace (1988) Completeness if the parties have omitted essential terms from their agreement, the agreement might still fail even if the language is clear: Hall v Busst (1960); Whitlock v Brew (1968) Illusory promises a promise where the performance is at the discretion of the promisor is not enforceable: Meehan v Jones (1982); Godecke v Kirwan (1973); Placer Development Ltd v Commonwealth (1969) Severance if the incomplete, uncertain or illusory provision is essential, then the contract must be severed (fail). Waiver an uncertain, incomplete or illusory provision in a contract may be able to be waived by the party of whose benefit that clause was inserted.
- Council of the Upper County District v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 High Court of Australia Appeal from the Supreme Court of New South Wales [5.50] Facts: - The council agreed to supply electricity at certain rates. - Clause 5 of the agreement provided that 'if the supplier's costs shall vary in other respects' then the supplier (the council) can vary the amount payable by the purchaser. - The company claimed that the clause was uncertain and that, accordingly, the council had no entitlement to increase the charge. - NSWCA held that clause 5 was void for uncertainty, council appealed to HC. Issue Was the clause uncertain? Held Barwick CJ - 'It is surely indisputable that the council would incur costs other than the price of the bulk electricity in order to supply the company as agreed...' - '...a contract of which there can be more than one possible meaning of which when construed can produce in its application more than one result in not therefore void for uncertainty.' - 'A contract to build a bridge at a cost could not, in my opinion, be held void for uncertainty: it could not properly, in my opinion, be said to be meaningless: nor is it, in my opinion, ambiguous.' - '...generally speaking, the cost of doing something is certain in the sense that it provides a criterion be reference to which the rights of the parties may ultimately and logically be worked out, if not by the parties then by the courts.'
- Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 [5.55] Facts: - Dr Pace, a senior scientist, entered into a contract of employment with Biotechnology which included 'the option to participate in the Company's senior staff equity sharing scheme'. No scheme existed and no scheme was brought into effect during his employment. - Pace claimed damages in respect of Biotechnology's failure to provide him with an option to join the scheme. - TJ held Biotechnology liable for damages for breach of its contractual promise to provide Pace with an option to acquire shares in the company. Biotechnology appealed. Issue Did Biotechnology breach a contractual promise? Held Pace failed by majority. - Kirby P: 'Courts will not enforce contracts which such provisions that suggest that agreement between the parties as to essential terms, even though apparent, are too illusory.' 'Contracts are agreements between parties. Generally, their terms must be those which reflect the will of the parties, objectively determined.' 'Unfortunately, it is my opinion that the answers to both of these questions much be in the affirmative... the term is just too uncertain of content... If, however, contrary to my view, the promise was not illusory for these reasons, it was nonetheless void for uncertainty because of the challenged term contained within it too many elements which are uncertain' and he goes on to ask about the specifics of the elements of the clause. 'I am of the opinion that the promise of the appellant did not...create any contractual obligation to the respondent which he may enforce in a court of law. It was rather...a provision for "future arrangements" not a contract concluded before the parties.' - McHugh J 'A contract made for consideration which is illusory is unenforceable: Placer Development Ltd v Commonwealth; Meehan v Jones.' 'A consideration is illusory if its payment or fulfilment depends upon an unfettered discretion vested in the promisor. Thus a promise by the Commonwealth that it will pay a subsidy "of an amount or rate determined by the Commonwealth from time to time" is an illusory consideration: Placer Developement...So is a promise that any services rendered by a person would "be taken into consideration, and such renumeration be made as should be deemed right"; Taylor v Brewer...' and he gives more examples from case law. 'Was there a promise that Dr Pace could participate in if and when a scheme was formulated? Or was there a promise that a scheme would be formulated?'