Case Facts
The claimant, Captain Peter John Edwards, had been employed by Skyways Ltd as an aircraft pilot from June 1955. On 26 January 1962, he received a redundancy notice giving three months' notice, as part of a broader declaration of approximately 15% redundancy among the company's pilot strength. His employment ended on 31 March 1962.
As a member of the defendant company's contributory pension fund, the claimant was entitled, upon leaving employment before retirement age, to elect between two options: first, to withdraw the sum of his own contributions to the fund; or second, to take the right to a paid-up pension payable at retirement age.
On 6 February 1962, two days before the critical meeting, the board of directors of Skyways passed a resolution empowering their secretary to agree, should circumstances require, to the payment to redundant aircrew members of an ex gratia amount approximating to the company's contributions for each member of the Pension and Superannuation Fund.
On 8 February 1962, authorised representatives of Skyways met with representatives of the British Air Line Pilots Association (BALPA), who were acting as duly authorised agents for the claimant and other redundant pilots. At that meeting, it was agreed that pilots declared redundant and leaving Skyways would receive an ex gratia payment equivalent to the company's contributions to the pension fund. The company's representative stated that payments would "approximate to" the company's contributions.
On 1 May 1962, having found alternative employment, the claimant elected to withdraw his own contributions to the pension fund — rather than take the paid-up pension — and to receive the ex gratia payment the company had promised. The following day, on 2 May 1962, the Skyways board resolved to rescind their earlier decision to make ex gratia payments to redundant aircrew, citing the company's financial difficulties and obligations to creditors. Skyways duly paid the claimant his own pension contributions but refused to make the ex gratia payment.
At the hearing, the defendant company admitted that there was consideration moving from the claimant, and that at the time of the 8 February 1962 meeting the company had intended to carry out the recorded agreement. The sole issues before the court were therefore whether the agreement was intended to create legal relations, and whether the terms were sufficiently certain to be enforceable.
Held
The court held that the agreement was legally binding and that the defendant was liable to pay the promised ex gratia sum to the claimant.
On the question of intention to create legal relations, the court held that where an agreement is made in a business or commercial context, there is a strong presumption that the parties intend it to be legally binding. The onus of rebutting that presumption falls upon the party asserting that no legal relations were intended, and that onus is a heavy one. On the facts, the defendant had not discharged that onus.
The court further held that the use of the phrase "ex gratia" did not negate the legally binding nature of the promise. The phrase was used simply to indicate that the company did not acknowledge any pre-existing legal liability — it was not intended to deprive the promise, once accepted, of its binding legal effect. Even if the phrase had been employed with a view to avoiding income tax consequences, this did not alter the conclusion that the parties had intended to enter into a legally enforceable agreement.
On the question of certainty, the court held that the words "approximating to" did not render the agreement too vague to be enforceable. On the evidence, the phrase connoted at most a rounding off downwards of a few pounds to a round figure, and the agreement was therefore sufficiently certain.
Ratio Decidendi
The ratio of this case concerns two distinct but related principles in the law of contract.
First, in a commercial or business context, the law presumes that the parties intend their agreements to create legal relations. The burden of rebutting this presumption lies upon the party who asserts that no legal relations were intended, and that burden is a heavy one. This principle stands in contrast to the position in domestic and social arrangements, where the opposite presumption applies, as illustrated by Balfour v Balfour [1919]. The present agreement arose squarely in a business context — it was negotiated between an employer and a trade union acting as authorised agent for the affected employees — and the court therefore applied the commercial presumption.
In reaching this conclusion, the court considered and distinguished the decision in Rose & Frank v JR Crompton & Bros [1925], which concerned a commercial agreement that was expressly stated not to be legally binding. No such express exclusion existed in the present case, and the mere use of the phrase "ex gratia" fell far short of the kind of clear and explicit language that would be required to displace the presumption of legal enforceability in a business context.
Second, the use of the phrase "approximating to" in describing the quantum of the promised payment did not render the agreement void for uncertainty. Certainty of terms is a requirement for a binding contract, but a degree of imprecision that can be resolved on the evidence will not defeat enforceability. Here, the court found on the evidence that the phrase merely signified a modest rounding down to a convenient round figure, and the agreement was therefore sufficiently certain to be enforceable.
Obiter Dicta
Not applicable.