Intention in Contracts

To have a valid contract, there must be an intention to legally bind yourself and the other party to its terms.

Past cases show a presumption that domestic or family agreements are not legally binding. For example, in the seminal UK case Balfour v Balfour (1919), the Kings Bench held that an agreement between a husband and wife could not be considered a binding contract.

However, the Supreme Court of South Australia, in Todd v Nicol (1957), later recognised that an agreement between an aunt and niece had sufficient intention to constitute a binding contract, challenging the above presumption.

The High Court of Australia's decision in Ermogenous v Greek Orthodox Community of SA Inc (2002) did away with the presumption that parties in a domestic relationship did not intend to create legal relations. Whether the requisite intention to create a legal relationship exists now depends on the particular facts of the case.

For example, sometimes courts may be more willing to see intention in a contract where the parties are or are close to being separated (Merritt v Merrit).

Ashton v Pratt (2015) 88 NSWLR 281

The 2015 case Ashton v Pratt boasts an interesting set of facts.

Facts:

  • Ms Madison Ashton was an escort providing services for Mr Richard Pratt
  • In October 2003, Mr Pratt indicated to Ms Ashton that he would support her financially as his mistress
  • Mr Pratt asked Ms Ashton not to return to the escort industry and be his mistress  instead. In return, he promised to pay her an allowance, purchase a car for her and set up a $2.5 million trust for each of her children.
  • In December 2004, Mr Pratt ended the relationship but promised to continue to financially support Ms Ashton
  • Based on these promises, Ms Ashton received a sum of money and a car
  • After Mr Pratt passed away, his wife sued his estate arguing that Ms Ashton should not have received anything
  • The estate argued that Mr Pratt had never  intended to enter binding legal relations with Ms Ashton, relying on the close personal context in which these promises where made as evidence of  the lack of intention
  • The question was whether, by his promises to Ms Ashton, Mr Pratt entered into a legally binding contract with Ms Ashton to pay her

What did the court decide?

  • The promises between Mr Pratt and Ms Ashton were not legally binding and therefore, there was no contract
  • The court held that while there is no presumption that domestic/family contracts are not legally binding, the circumstances of this case show that there was no intention to be bound
  • Some reasons for this are:
    • The language used in the promises did not indicate an obligation – instead, Mr Pratt spoke in terms of what he wished/proposed to do. For example, Mr Pratt stated: “I want to do this for you. I am happy to help you. I want you to totally forget about the escort business and I want to support your business venture because I want you to be with me. I want you to do the same thing that Shari did and I want to provide you the luxurious lifestyle that you deserve” ([229]).
    • The promises did not specify that Ms Ashton had to do anything in return for the financial support
    • Details of the agreement were not discussed such as the length of the agreement, how to end the agreement, and what Ms Ashton was to do in return

 

What this interesting scenario shows us is that whether a family agreement is binding depends on the circumstances in which the promises were made and the qualities of the promises. There is no overarching statement in law that a contract between family members cannot be binding.

DISCLAIMER: The information provided above is published for general informational purposes only and is not intended to be nor should it be relied upon as a substitute for legal or other advice.