Contracts Casebook - Chapter 5

CHAPTER 5
Intention
[5.10] PRESUMPTIONS.......................................................................................................... 134
[5.10] Ermogenous v Greek Orthodox Community of SA..................................... 134
[5.30] COMMERCIAL TRANSACTIONS................................................................................... 139
[5.30] Banque Brussels Lambert v Australian National Industries.......................... 139
[5.45] DOMESTIC AND SOCIAL AGREEMENTS...................................................................... 144
[5.50] Todd v Nicol.................................................................................... 144
[5.60] GOVERNMENT AGREEMENTS..................................................................................... 150
[5.65] Administration of Papua and New Guinea v Leahy................................... 150
[5.80] PRELIMINARY AGREEMENTS........................................................................................ 152
[5.80] Masters v Cameron........................................................................... 152
[5.05] The third element of contract formation is that the parties must manifest an intention
to create legal relations. There are several situations in which parties may reach a clear and
certain agreement that satisfies the consideration requirement, but may not be intended to
create legal relations:
1. Where an agreement is made in a commercial context, a question may arise whether the
parties intend to make an honourable, rather than legal commitment.
2. The issue may arise in a social or domestic context. An agreement to help a friend to
move some furniture in return for dinner involves an exchange of promises, but is clearly
not intended to be legally binding. An agreement relating to more substantial matters,
such as employment or the sale of valuable property, may be intended to attract legal
consequences even when it is made with a close relative.
3. An issue of intention to contract may arise where an agreement is made between a
government and an individual. The implementation of government policy may, for
example, lead a government to reach an agreement with a particular individual to
provide some assistance. The fact that the individual is providing something in return
for that assistance does not necessarily mean that the parties intend to make a contract.
4. Where parties reach a preliminary agreement, the question may arise whether the parties
intend to be bound immediately, or not until some time in the future when the parties
have finalised some outstanding issues or recorded their agreement in a more formal
manner.
The intention to create legal relations requirement has often been approached on the basis
that certain types of agreements are presumed to be intended to be binding, while others
are presumed not to be made with such an intention. It is said that parties to commercial
agreements are presumed to intend legal consequences, while parties to social or domestic
agreements are presumed not to intend legal consequences. Such presumptions determine who
bears the onus of proof. A person denying the enforceability of a commercial agreement has
been said to bear the onus of proving that the parties did not intend legal consequences.
A person seeking to enforce a social or domestic agreement is said to bear the onus of proving
[5.05] 133
Part II: Formation
that it was intended to be binding. The decision of the High Court in Ermogenous v Greek
Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95 (extracted at [5.10])
suggests that considerable caution should be exercised in using presumptions to determine
whether the intention to create legal relations requirement is satisfied. It has even been said
that the court in Ermogenous “rejected the use of presumptions as a basis for ascertaining
whether parties intended to enter into contractual relations”: Evans v Secretary, Department
of Families, Housing, Community Services and Indigenous Affairs [2012] FCAFC 81, [12].
The objective nature of the inquiry as to intention and the circumstances that should be
taken into account were clearly articulated in the joint judgment of Gaudron, McHugh, Hayne
and Callinan JJ in Ermogenous v Greek Orthodox Community of SA Inc. The admissibility
and relevance of evidence as to the actual intentions of the parties were considered by the
New South Wales Court of Appeal in Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd
(1985) 2 NSWLR 309. A good illustration of the application of these principles is Shahid v
Australasian College of Dermatologists [2008] FCAFC 72; (2008) 168 FCR 46.
PRESUMPTIONS
Ermogenous v Greek Orthodox Community of SA

[5.10] Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95 (High
Court of Australia) –Appeal from the Supreme Court of South Australia.
[FACTS: The appellant served as the Archbishop of the autocephalous Greek Orthodox Church in
Australia for more than 23 years. He claimed that he had been employed by the respondent to serve in
that position. After he resigned from the position, the Archbishop claimed that the respondent owed
him certain sums of money in respect of accumulated annual leave and long service leave entitlements.
He could only claim those payments if he was an employee of the respondent. The respondent was
a community organisation founded to foster Greek culture as well as the Greek Orthodox faith. It
organised cultural, sporting and social activity, built churches and recruited and paid consecrated
clergy. The respondent recruited the appellant to the position of Archbishop, paid him a salary or
stipend during his period of service and treated him as an employee, reserving the right to control
the way in which he discharged his duties. An industrial magistrate found that he was an employee
of the respondent and was therefore entitled to the payments. The Full Court of the Supreme Court
of South Australia (by majority) allowed an appeal on the basis that the parties had not intended to
create legal relations. The Archbishop appealed to the High Court.]
GAUDRON, McHUGH, HAYNE and CALLINAN JJ: [103] Both members of the majority in the Full
Court of the Supreme Court (Doyle CJ and Bleby J) took, as their stated starting point, the proposition
that an intention to enter a contractual relationship about the remuneration and maintenance and
support of a minister of religion is not to be presumed ((2000) 77 SASR 523 at 524–5 [4]‌per
Doyle CJ, 575–6 [207] per Bleby J). This proposition was said to find its origin, or at least its support,
in several decisions in the United Kingdom … and one Australian decision (Knowles v Anglican Church
Property Trust, Diocese of Bathurst (1999) 89 IR 47 a decision of the Industrial Relations Commission
of New South Wales). Both Doyle CJ (2000) 77 SASR 523 at 529 [19]–[20] and Bleby J (2000)
77 SASR 523 at 577-578 [212] concluded that the Industrial Magistrate had not considered, as a
distinct issue, whether the parties had intended to enter a legally binding relationship. Their Honours
then proceeded to consider whether there had been such an intention and concluded that there
had not …
Intention to create contractual relations
[5.15] [105] “It is of the essence of contract, regarded as a class of obligations, that there is a voluntary
assumption of a legally enforceable duty” (Australian Woollen Mills Pty Ltd v Commonwealth (1954)
134 [5.10]
Intention Chapter 5
Ermogenous v Greek Orthodox Community of SA cont.
92 CLR 424 at 457 per Dixon CJ, Williams, Webb, Fullagar and Kitto JJ). To be a legally enforceable
duty there must, of course, be identifiable parties to the arrangement, the terms of the arrangement
must be certain, and, unless recorded as a deed, there must generally be real consideration for
the agreement. Yet “[t]‌he circumstances may show that [the parties] did not intend, or cannot be
regarded as having intended, to subject their agreement to the adjudication of the courts” (South
Australia v Commonwealth (1962) 108 CLR 130 at 154 per Windeyer J).
Because the inquiry about this last aspect may take account of the subject- matter of the
agreement, the status of the parties to it, their relationship to one another, and other surrounding
circumstances (South Australia v Commonwealth (1962) 108 CLR 130 at 154; Placer Development Ltd
v Commonwealth (1969) 121 CLR 353 at 367 per Windeyer J), not only is there obvious difficulty
in formulating rules intended to prescribe the kinds of cases in which an intention to create
contractual relations should, or should not, be found to exist, it would be wrong to do so. Because
the search for the “intention to create contractual relations” requires an objective assessment of
the state of affairs between the parties (Masters v Cameron (1954) 91 CLR 353 at 362 per Dixon CJ,
McTiernan and Kitto JJ; ABC v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548–9 per
Gleeson CJ) (as distinct from the identification of any uncommunicated subjective reservation or
intention that either may harbour) the circumstances which might properly be taken into account
in deciding whether there was the relevant intention are so varied as to preclude the formation
of any prescriptive rules. Although the word “intention” is used in this context, it is used in the
same sense as it is used in other contractual contexts. It describes what it is that would objectively
be conveyed by what was said or done, having regard to [106] the circumstances in which those
statements and actions happened (Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982)
149 CLR 337 at 348-353 per Mason J; Royal Botanic Gardens and Domain Trust v South Sydney City
Council [2002] HCA 5; (2002) 240 CLR 45). It is not a search for the uncommunicated subjective
motives or intentions of the parties.
In this context of intention to create legal relations there is frequent reference to “presumptions”. It
is said that it may be presumed that there are some “family arrangements” which are not intended to
give rise to legal obligations and it was said in this case that it should not be presumed that there was
an intention to create legal relations because it was a matter concerning the engagement of a minister
of religion. For our part, we doubt the utility of using the language of presumptions in this context. At
best, the use of that language does no more than invite attention to identifying the party who bears
the onus of proof. In this case, where issue was joined about the existence of a legally binding contract
between the parties, there could be no doubt that it was for the appellant to demonstrate that there
was such a contract. Reference to presumptions may serve only to distract attention from that more
basic and important proposition.
More importantly, the use of the language of presumptions may lead, as it did in this case, to treating
one proposition (that an intention to create legal relations is not to be presumed) as equivalent to
another, different proposition (that generally, or usually, or it is to be presumed that, an arrangement
about remuneration of a minister of religion will not give rise to legally enforceable obligations).
References to “the usual non-contractual status of a priest or minister” and factors which “generally
militate against” a finding of intention to create legal relations (cf (2000) 77 SASR 523 at 576 [207]
per Bleby J) illustrate the point. The latter proposition may then be understood as suggesting, in some
way, that proof to the contrary is to be seen as particularly difficult and yet offer no guidance at all
about how it may be done. Especially is that so when the chief factor said to justify the proposition
that an intention to create legal relations must be proved (the essentially spiritual role of a minister of
religion) is then put forward as the principal reason not to find that intention in a particular case, and
any other matters suggesting that there may be an intention to create legal relations are treated as
dealing only with “collateral” or “peripheral” aspects of the relationship between the parties ((2000)
77 SASR 523 at 576 [207] per Bleby J). In practice, the latter proposition may rapidly ossify into a rule
of law, that there cannot be a contract of employment of a minister of religion, distorting the proper
application of basic principles of the law of contract.
[5.15] 135
Part II: Formation
It is equally important to notice that the second form of proposition that we have identified may
hide the making of some unwarranted [107] assumptions that certain principles and practices of
church governance are “usual” or “general”, or that a particular kind of relationship between clergy
and the church or community in which they work is the norm. No such assumptions can be made.
It is convenient to turn now to examine some of the cases said to support the proposition that an
intention to create legal relations about remuneration of a minister of religion is not to be presumed.
As Bleby J pointed out (2000) 77 SASR 523 at 563 [173], it was held in most of the cases to which he
referred that the minister of religion concerned was not employed under a contract of employment.
The cases did not all take the same path to reach that conclusion and, on analysis, it can be seen that
there are several different and distinct questions that were seen as determinative.
In the Curates Case, Parker J noted [1912] 2 Ch 563 at 568–70 that a curate in the Church of
England owed duties to the vicar of the parish and to the bishop of the diocese, but his Lordship
concluded that the authority which each had over the curate came not from some contractual
relationship, it came from the fact that the curate held an office subject to the laws of the Church in
which that office was held….
In other cases to which reference was made, both in argument and in the reasons of Bleby J, there
was a real question about who would be the employer if there was a contract of employment. In
Parfitt [1984] QB 368, a minister sued the President of the Methodist Conference because that person
was nominated by statute to represent the Methodist Church in all legal proceedings [1984] QB 368
at 371 but the contract which he sought to establish was one to which it was said that the Church (an
unincorporated body) was party …
[108] As was pointed out in Cameron v Hogan (1934) 51 CLR 358 at 371, there are at least
two difficulties that arise if action is brought to enforce a contract said to have been made with
an unincorporated body. First, there is difficulty in properly constituting the action by sufficiently
identifying all the proper parties to the suit (difficulties that may not always be met by constituting
the action as a representative proceeding). Secondly, there is the further difficulty ((1934) 51 CLR 358
at 372) of identifying who it is who is said to be responsible for the breach which is alleged. Are all
members of the body to be said to be in breach of the contract; are only some to be [109] said to be
in breach? These are not mere formal difficulties. They invite close attention to identifying the contract
that is alleged to have been made and, in particular, the identification of its parties.
Similar but not identical problems in identifying who it is who is said to be the employer can be
seen to be reflected in the decision in Diocese of Southwark v Coker [1998] ICR 140. The “Diocese of
Southwark”, initially named by Dr Coker as the respondent to his claim for unfair dismissal, was a
description of the district under the jurisdiction of the Bishop of Southwark…. It was the Bishop who
had legal responsibility for licensing the appointment of assistant curates, and for the termination
or revocation of such an appointment. But as Mummery LJ pointed out [1998] ICR 140 at 148, the
Bishop could not be regarded as the employer:
[T]‌
hat relationship [between bishop and curate], cemented by the oath of canonical
obedience, is governed by the law of the established church, which is part of the public law
of England, and not by a negotiated, contractual arrangement.
Finally, reference must also be made to the statements, found in several cases, that the relationship
between a minister of religion and a church is pre-eminently or even entirely spiritual, not contractual
(Rogers v Booth [1937] 2 All ER 751 at 754 per Sir Wilfrid Greene MR; Lewery v Salvation Army in
Canada (1993) 104 DLR (4th) 449 at 453).
[110] That the relationship between a minister of religion and the relevant religious body or group
in which, and to which, he or she ministers is, at its root, concerned with matters spiritual is self-
evidently true. That the minister’s conduct as minister will at least be informed, if not wholly governed,
by consideration of matters spiritual is likewise self-evident. It by no means follows, however, that
it is impossible that the relationship between the minister and the body or group which seeks or
136 [5.15]
Intention Chapter 5
receives that ministry will be governed by a contract, and the 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 ((2000) 77 SASR 523 at 524 [4]‌per Doyle CJ, 576 [207], 584 [236]
per Bleby J). Nevertheless, it is as well to identify some aspects of the more absolute proposition
earlier identified –that the relationship between minister and church is pre-eminently or even entirely
spiritual because, in the end, the conclusion at which the majority of the Full Court arrived, was that
the only arrangement or relationship which the appellant had was with a church not the respondent,
and was a spiritual, not a contractual relationship.
First, although the proposition that the relationship between minister and church is pre-eminently
or even entirely spiritual is couched in apparently absolute terms, it has been recognised that there
are aspects of that relationship which may give rise to legally enforceable rights and duties. As was
pointed out in Davies [1986] 1 WLR 323 at 329 per Lord Templeman; [1986] 1 All ER 705 at 710:
Until the applicant [in that case] was deprived of his pastorate in accordance with the
procedures laid down in the book of rules, he was entitled to be paid his stipend out of the
income of the sustentation fund and to occupy his manse. (emphasis added)
Secondly, the “essentially spiritual” character of the relationship may take on a different character
when one of the parties to the arrangement (the putative employer) is not itself a spiritual body but
is, as Staughton LJ said in Coker [1998] ICR 140 at 150, “a school, or a duke, or an airport authority”
or, we would add, an incorporated body having the characteristics of the present respondent. To say
that a minister of religion serves God and those to whom he or she ministers (Diocese of Southwark v
Coker [1998] ICR 140 at 150 per Staughton LJ) may be right, but that is a description of the minister’s
spiritual duties. It leaves open the possibility that the minister has been engaged to do this under a
contract of employment.
Against the background of this examination of some of the cases [111] relied on by the respondent,
it is convenient to turn again to the facts of the present case.
The present case
[5.20] The Industrial Magistrate’s finding that the appellant was employed by the respondent under a
contract of employment proceeded from the premise of his unchallenged finding that the respondent
(and other similar Australian bodies in the same tradition) had previously recruited and employed
clergy who were, as we noted earlier, generally subject to the directions of the Communities. Those
clergy were, and were treated as, employees of the relevant Community. The respondent, and other
Communities, had employed clergy because to do so was to provide for a fundamental element in the
preservation of the Hellenic and Orthodox culture they had been formed to enhance and preserve …
[112] We do not accept that the Industrial Magistrate failed to consider the question of intention to
create legal relations. The Industrial Magistrate described the issue as being “Can a minister of religion
be in law an employee?” and he dealt at length with the principal cases upon which the respondent
relied both in this Court and in the Full Court of the Supreme Court. It seems that, at trial, the
respondent advanced an argument framed in absolute terms. The Industrial Magistrate recorded it as
being that “a minister of religion —any religion —can not in law be considered an employee of any
other person or legal entity”. This proposition was rejected. But, read as a whole, the reasons of the
Industrial Magistrate reveal that whether the arrangement which he had found to have been made
between the appellant and the respondent was intended by them to be subject to the adjudication of
the courts was a question at the centre of his consideration.
No less importantly, the Industrial Magistrate expressly recognised that, in each of the several cases
to which the respondent had referred in support of its submissions, there had been (1997) 64 SAIR
622 at 734:
[5.20] 137
Part II: Formation
a close consideration of the particular facts of the matter, including the charters, statutes and
documents of fundamental belief of each creed considered, the documented position of the
clergy in respect of each of the churches mentioned, and the special provisions of statute
which govern the actual situation in the law of that particular church.
He undertook a similarly close examination of the evidence that had been called at the trial of this
matter about those subjects. That is, he examined, with care, all of the objective circumstances which
bore on whether the parties intended to make a contract, as distinct from an arrangement binding
only in honour.
The Industrial Magistrate did not make the error which the majority in the Full Court of the Supreme
Court attributed to him. Even if the Industrial Magistrate did make that error, the inference which
the Full Court drew about the absence of an intention to create legal relations was an inference that
was not open on the facts that had been found at trial. An inference that there was no intention to
create legal relations depended upon making an assumption, contrary to the facts found below, that
the “church” was distinct from the “Community”, or it depended upon discerning from the decided
cases a proposition more general or absolute than those decisions warrant.
In its appeal to the Full Court the respondent had put forward, as a separate ground of appeal,
that “[i]‌f there was any enforceable contract it was not in law a contract of employment”. The leave
to appeal granted by the Full Court was not restricted and it follows that this ground was before it,
but the conclusions reached by the majority on the question of intention to create legal relations
made it [113] unnecessary for their Honours to decide it. Accordingly, as things now stand, there
remains for further argument in the Full Court, the issue whether the contract found to have been
made between the appellant and the respondent was a contract of employment. Given the resolution
of the question which appears to have been the chief foundation for the Full Court granting leave
to appeal to it, despite there having been two previous unsuccessful appeals in this matter, there
may be an issue whether this remaining question should be agitated further or, instead, the leave
previously granted by the Full Court should to that extent now be revoked. That is a matter for the
Full Court.
The appeal to this Court should be allowed with costs. Paragraphs 3 to 6 inclusive of the order of
the Full Court of the Supreme Court should be set aside and the matter remitted to that Court for
further hearing and determination conformably with the reasons of this Court.
[5.25] KIRBY J: [119] I am unconvinced that the English cases cited by Bleby J warrant a conclusion
that, in Australia, a contract partaking of the usual features of one of employment, necessarily loses
that character because it relates to the vocation of a minister of religion. A minister of religion must be
housed, must eat, be clothed and otherwise be provided for. The fact that his or her vocation is, at one
level, spiritual in purpose and character does not, of itself, remove the possibility that arrangements
for necessities may have been intended to be enforced when it is proved that such arrangements have
been breached. If one starts with the proposition that a religious vocation is in law an “office” created
by the public law and in its essential character is only a “spiritual” one, it is comparatively simple to
arrive at a different result than if one accepts the postulates that have developed in Australian law
because of the different history of churches and other religious organisations in this country. Courts
here, as elsewhere, will be hesitant to enforce purely spiritual and theological rules (as in Wylde (1948)
78 CLR 224 and Scandrett v Dowling (1992) 27 NSWLR 483). But they will not hesitate to enforce, as
arrangements intended to have contractual or other binding force, rules of a proprietorial character
concerned with proprietoral rights.
Within this dichotomy, a proved agreement with a body such as the respondent to provide for
the necessities of life of a minister of religion, or even of an archbishop, is an arrangement of the
second kind. It is not one which, of its character, Australian law will refuse to enforce because the law
presumes a lack of intention to enter legal relations or classifies the resulting dispute as non-justiciable.
To the extent that English decisions, starting from a different history and legal foundation and taking a
different approach, reach a different conclusion, they do not express the common law of Australia …
138 [5.25]
Intention Chapter 5
[121] There is therefore no presumption that contracts between religious or associated bodies and
ministers of religion, of their nature, are not intended to be legally enforceable. At least where the
contracts concern proprietary and economic entitlements, of the kind which in this case Archbishop
Ermogenous sought to enforce (and certainly where they are not intertwined with questions of
religious doctrine that a court would not feel competent to resolve according to legal norms) there
is no inhibition either of a legal or discretionary character that would prevent enforcement of such
claims when they are otherwise proved to give rise to legal rights and duties …
[123] Even if, contrary to my view, there were something in the spiritual calling of a minister of
religion (including an archbishop) that put that person in relation to his or her church beyond the
kind of contractual relations that might be enforced in a court of law, any such rule would not apply
to arrangements for the provision of necessities made with a secular community organisation such as
the respondent. Every day of his life, Archbishop Ermogenous, like everyone else in Australia, made
contractual arrangements of an express or implied kind with secular organisations and individuals of
great variety. Most of these were insubstantial but some would be substantial. 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.
Appeal allowed.

COMMERCIAL TRANSACTIONS
Banque Brussels Lambert v Australian National Industries

[5.30] Banque Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR 502 (Supreme
Court of New South Wales –Action).
[FACTS: The defendant (ANI), a public company listed on the stock exchange, provided a letter
of comfort to the plaintiff (BBL) in relation to a loan facility provided by the plaintiff to Spedley
Securities Ltd (Spedley). The defendant held a controlling interest in Spedley’s parent company,
Spedley Holdings Ltd (Holdings). The defendant provided a strongly worded letter of comfort at
the plaintiff’s insistence after some negotiation and the exchange of several drafts. In the letter, the
defendant consented to the making of the loan, agreed to provide the bank with 90 days notice
of any decision to dispose of its interest in Holdings and confirmed that it was the defendant’s
practice to ensure that Spedley will at all times be in a position to meet its financial obligations.
The defendant disposed of its shareholding in Holdings without giving the required notice to the
plaintiff. Spedley was unable to repay the debt to the plaintiff and later went into liquidation.
The plaintiff sought relief on the basis of breach of contract, equitable estoppel or misleading or
deceptive conduct in breach of s 52 of the Trade Practices Act 1974 (Cth). The defendant denied
liability in contract on the basis, inter alia, that the parties did not manifest an intention to create
legal relations.]
ROGERS CJ:
The proceedings
[504] In 1982, Spedley Securities Ltd (Spedley) wished to obtain a loan facility of US$5 million
from the plaintiff, a Belgian bank. The plaintiff (BBL) wanted, to adopt a neutral term, additional
reassurance that any draw down loan would be repaid. Spedley was a fully owned subsidiary of
Spedley Holdings Ltd (Holdings). In turn, 45 per cent of the capital of Holdings was held by the
defendant (ANI). The reassurance to the plaintiff took the form of a letter from the defendant in the
following terms:
[5.30] 139
Part II: Formation
Banque Brussels Lambert v Australian National Industries cont.
We confirm that we are aware of the eurocurrency facility of US$5 million which your Bank
has granted to Spedley Securities Limited, which is a wholly-owned subsidiary of Spedley
Holdings Limited.
We acknowledge that the terms and conditions of the arrangements have been accepted
with our knowledge and consent and state that it would not be our intention to reduce
our shareholding in Spedley Holdings Limited from the current level of 45% during the
currency of this facility. We would, however, provide your Bank with ninety (90) days notice
of any subsequent decisions taken by us to dispose of this shareholding, and furthermore we
acknowledge that, should any such notice be served on your Bank, you reserve the right to
call for the repayment of all outstanding loans within thirty (30) days.
We take this opportunity to confirm that it is our practice to ensure that our affiliate
Spedley Securities Limited, will at all times be in a position to meet its financial obligations as
they fall due. These financial obligations include repayment of all loans made by your Bank
under the arrangements mentioned in this letter.
[His Honour then set out a letter from Spedley to the bank which referred to the letter from ANI and
which further stated that should ANI give the 90 days notice, Spedley would repay all outstanding
loans within 30 days.]
In fact, in 1989, the defendant sold its shares in Holdings without first giving 90 days notice and
the plaintiff lost the opportunity of calling for repayment of its outstanding loan to Spedley within that
period. The defendant did not ensure that Spedley was in a position to meet its financial obligation
to the plaintiff as it fell due.
[505] It is common ground between the plaintiff and the defendant that the defendant failed to
act in accordance with the statements it made in its letter. It did not, at any time, notify the plaintiff
that it did not intend to so act.
Put simply, the plaintiff, BBL, lent Spedley a large sum of money (approximately A$ 7 million)
on the “security” of the letter from the defendant. The plaintiff seeks to recover damages from the
defendant in respect of its losses, as Spedley is now in liquidation. It has been agreed that only liability
should be argued and depending on the outcome, quantum shall be decided later.
The defendant maintains that it is not liable to compensate the plaintiff for any damage it may
have suffered. At the forefront of the defendant’s argument stands the judgment in Kleinwort Benson
Ltd v Malaysia Mining Corp Berhad [1989] 1 WLR 379. Three of the Lord Justices in the English Court
of Appeal held that the statement in the letter of comfort given by the defendant, concerning its
policy with respect to the liabilities of subsidiaries, involved it in no enforceable legal obligation. Ralph
Gibson LJ, delivering the judgment of the court, concluded (at 394):
If my view of this case is correct, the plaintiffs have suffered grave financial loss as a result of
the collapse of the tin market and the following decision by the defendants not to honour
a moral responsibility which they assumed in order to gain for their subsidiary the finance
necessary for the trading operations which the defendants wished that subsidiary to pursue.
The defendants have demonstrated, in my judgment, that they made no relevant contractual
promise to the plaintiffs which could support the judgment in favour of the plaintiffs. The
consequences of the decision of the defendants to repudiate their moral responsibility are
not matters for this court.
Before me, two Queen’s Counsel, their juniors and a platoon of solicitors were engaged over five days
in argument as to whether, as in Kleinwort Benson, the defendant in this case, assumed merely a moral
responsibility, or whether it was liable at law …
The plaintiff puts its case in a number of ways. First, that the letter of comfort constitutes a binding
contractual obligation, which the defendant breached. The plaintiff claims that the letter made two
promises enforceable at law. One, that whilst the facility was on foot, the defendant was to provide
the plaintiff with 90 days notice of any sale by the defendant of its 45 per cent shareholding in
140 [5.30]
Intention Chapter 5
Holdings. Two, that, during the life of the facility, the defendant would ensure that Spedley would at
all times be in a position to meet its financial obligations as they fell due …
[His Honour then set out the evidence and continued:]
Letters of comfort
[5.35] [520] This is an appropriate point to examine in general terms the learning on letters of
comfort, for their purpose and the various modes of their interpretation are indicative of their general
standing. As was noted in Kleinwort Benson, there is no general rule concerning letters of comfort,
although trends can be detected in the academic analysis. The letter of comfort developed as an
alternative to a guarantee or surety where the writer, more often than not the parent company, either
was unable, or unwilling, to issue one of these more traditional securities. According to Mr Osterreith,
letters of comfort were first used in the 1960s in the United States. United States parents were reluctant
to give guarantees because they had to be disclosed in the accounts as contingent liabilities. Letters
of comfort were not required to be so shown. The same situation applied in Europe and so letters
of comfort came into use there as well. In Mr Osterreith’s experience, letters of comfort have been
invariably sufficient to secure payment to the creditor. Letters of comfort were issued where the parent
simply did not want to incur legal liability, where the parent was primarily concerned to protect its
own credit rating, where the parent wanted to avoid showing a contingent liability on its balance
sheet as this would contravene limits on commitments, and also where there were unfavourable tax
and foreign exchange consequences: see generally, “Letters of Responsibility” (1978) 6 International
Business Lawyer 288–332.
Letters of comfort have become so frequent in international commercial transactions that a German
writer characterised them as “collateral sui generis” (Franken, “The Force of Comfort Letters Under
German Law” (1985) 6(4) International Financial Law Review 14 at 15), although this same writer
acknowledges that a great deal of uncertainty surrounds the practical legal obligations imposed by
a letter of comfort. This view is reiterated throughout the literature. In each case, it ultimately turns
on the terms of the [521] letter. Yet, in this context, the French approach to letters of comfort is
refreshingly honest and sensible. Writing in the section on France in the compilation on Letters of
Responsibility (at 302), Léon Proscour states that:
A so called “letter of responsibility” will, under French law, be considered as a commitment

to perform (“obligation de faire”) because in the commercial world the creation of a
meaningless instrument or document is unthinkable. It is not a full-sized guaranty [sic] —
otherwise it would say it is so —but some performance is provided in order to help a creditor
insure his rights. Refusal of such performance opens a case for damages; this is the legal rule
of violation of an “obligation de faire”.
In Société Viuda de Jose Tolra v Sodler (21 December 1987, La Revue Banque March 1988) the Cour de
Cassation recognised as enforceable security a letter of comfort from a parent company to a creditor
of its subsidiary.
The claim in contract
[5.40] This claim turns on the existence or otherwise, of an intention to create legal obligations and
whether the terms of the letter are of a sufficiently promissory nature to be held to be contractual.
The two questions arise independently, but are interrelated in that it is from the terms of the letter
seen against the backdrop of surrounding circumstances that the parties’ intentions in both respects
fall to be determined.
Turning first to the question of intention to enter into a legal relationship in order to ascertain
whether the letter of comfort was intended to give rise to legal obligations, it is necessary to examine
the events surrounding its inception. BBL starts with the prima facie presumption that in commercial
transactions there is an intention to create legal relations, and the onus of proving the absence of such
intention rests with the party “who asserts that no legal effect is intended, and the onus is a heavy
[5.40] 141
Part II: Formation
one”: Edwards v Skyways Ltd [1964] 1 WLR 349 at 355 per Megaw J. The defendant submits that the
Skyways onus is discharged by pointing to the course of negotiations leading to the final version of
the letter, coupled with a close textual analysis of its terms.
Greig and Davis in The Law of Contract (1987) state that: “The overriding test is, of course, that
the intentions of the parties, as deduced from the document as a whole seen against the background
of the practices of the particular trade or industry”: 229–30. Nothing turns on the nomenclature of
“letter of comfort”, as was observed by the Court of Appeal in Kleinwort Benson.
It is clear that at the time of negotiating the initial US$1 million facility, and its subsequent increase
to US$5 million, it was made quite clear to both Spedley and ANI that the facility was subject to BBL
obtaining a suitable letter of comfort or some other indication of commitment from ANI….
[523] In a very different field of discourse, Lord Justice Scrutton remarked “there will be no Alsatia
in England”. I believe it was that kind of sentiment that informed the judgment of Sir John Megaw in
Edwards v Skyways Ltd. 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 a business transaction would, without any express statement to that effect, reside
in a twilight zone of merely honourable engagement. The whole thrust of the law today is to attempt
to give proper effect to commercial transactions. It is for this reason that uncertainty, a concept so
much loved by lawyers, has fallen into disfavour as a tool for striking down commercial bargains. If
the statements are appropriately promissory in character, courts should enforce them when they are
uttered in the course of business and there is no clear indication that they are not intended to be
legally enforceable.
If I may say, the judgments of Hirst J, at first instance in Kleinwort Benson [1988] 1 WLR 799 and
Staughton J, whose unreported judgment in Chemco Leasing SpA v Redifusion plc Staughton J, 19 July
1985 is extensively referred to by Hirst J, reflect the bias of experienced commercial judges to pay high
regard to the fact that the comfort letters in issue before them came into existence as part and parcel
of a commercial banking transaction and that the promises were an important feature of the letters.
In the Court of Appeal in Kleinwort Benson, Ralph Gibson LJ held the principle in Edwards v Skyways
Ltd inapplicable, saying that the presumption of intention only became significant when the words of
the agreement were clearly promissory. The Court of Appeal pointed [out] that, in a sense, the trial
judge had been asked the incorrect question. The parties had conceded that one of the statements
in the letter was a contractual promise and intended to have legal effect. The true question therefore
was whether the statement sued upon was promissory in character. It was to this question that the
Court of Appeal returned a negative answer.
The Court of Appeal subjected the letters to minute textual analysis. Courts will become irrelevant
in the resolution of commercial disputes if they allow this approach to dominate their consideration
of commercial documents.
Probably at the heart of the judgment delivered by Ralph Gibson LJ is the statement (at 792): “In
my judgment, the defendants made a statement as to what their policy was, and did not in para 3 of
the comfort letters expressly promise that such policy would be continued in future”.
That construction of the letter renders the document a scrap of paper. If the Lord Justice is correct,
the writer has not expressed itself on anything relevant as a matter of honour.
[524] The test prescribed by the law of Australia to determine whether a statement was promissory
or only representational is different from that in England. This has been pointed out by McPherson J
in Nemeth v Bayswater Road Pty Ltd [1988] 2 Qd R 406. His Honour said (at 416):
The question to be determined therefore is whether the passages in the evidence set out
above can be said to give rise to a warranty or promise having contractual effect. In Dick
Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623 at 627, the matter was
stated thus by Lord Denning MR:
142 [5.40]
Intention Chapter 5
It was said by Holt CJ, and repeated in Heilbut, Symons & Co v Buckleton, that: “An
affirmation at the time of the sale is a warranty, provided it appear on evidence to be so
‘intended’. But that word ‘intended’ has given rise to difficulties. I endeavoured to explain in
Oscar Chess Ltd v Williams that the question whether a warranty was intended depends on
the conduct of the parties, on their words and behaviour, rather than on their thoughts. If an
intelligent bystander would reasonably infer that a warranty was intended, that will suffice.
What conduct, then? What words and behaviour lead to the inference of a warranty?”
Adopting that approach, the problem nevertheless remains of determining what it is in the
conduct or words of the parties that in an objective sense demonstrates that they intended
a particular statement to be legally binding upon the party making it. After the passage
from the case just cited, Lord Denning went on to say that there was prima facie ground for
inferring that a warranty was intended if the statement or representation in question was
made “for the very purpose of inducing the other party to act upon it, and actually inducing
him to act upon it” by entering into the contract. But there is authority binding upon us
to hold that such factors alone are not sufficient to convert the statement or representation
into a promise or undertaking to be contractually bound to its factual accuracy or to its
fulfilment: see JJ Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435 at 443; Ross v Allis-
Chalmers Australia Pty Ltd (1980) 55 ALJR 8.
Greig and Davis discuss in helpful detail (p 480 et seq) the various matters to be taken into account in
determining this objective intention. Obviously the actual words used are a very important indicator.
Nonetheless, it is inimical to the effective administration of justice in commercial disputes that a
court should use a finely tuned linguistic fork. A good illustration of where this leads is the well meant
effort by counsel for the defendant in the present case in providing me with a schedule showing the
similarities and differences between the letter in Kleinwort Benson and the present case.
Turning to the terms of this particular letter of comfort, it is clear that the first paragraph contains no
contractual representation, but merely an indication of awareness. The second paragraph may be split
into two sections; for ease of reference, let the statement in relation to ANI’s intention as to reduction of
its shareholdings in Holdings be called 2(a), and that pertaining to giving 90 days notice be called 2(b).
Looking at para 2 as a whole, the plaintiff argued that it was expressed in the language of promise,
and that the amendments made in the course of [525] negotiations did not detract from this. The
defendant, on the other hand, maintained that the inclusion of the word “would” softened the
statement to such an extent that it could not be regarded as anything more than a statement of
present intention. In addition, the inclusion of “however” indicates that the second part (2(b)) is also
only intended to be a statement of intention.
In my opinion, 2(b) contains an undertaking of a contractual nature, which is in no way diminished
by the presence of “however”. The reason for the use of the word is easily explained. The first limb,
2(a), caters for the contemplated intention. Then 2(b) deals with the situation where, for whatever
reason, that intention is to be departed from. In that context, to say “however” should my intentions
change is perfectly appropriate use of language in preceding the promise of the action to be taken
in that circumstance. That action, that is, the 90 days notice, is intended to confer a clear benefit
on the plaintiff. The nature of the benefit appears most clearly from an earlier draft. It enables the
plaintiff to obtain immediate reimbursement. The 90 days notice, together with the 30 days period of
demand, is a carefully crafted trigger to allow for recovery. The two letters need to be read together
as a scheme. That deprives the employment of the word “would” of any significance. The Spedley
letter in the second paragraph, in speaking of the 90 days notice for ANI, speaks of “they (that is ANI)
will provide you” with the requisite notice. I can see no reason why 2(b) should not be regarded as a
promissory statement.
As to 2(a), the now famous letter in Kleinwort Benson contained a similar, albeit somewhat stronger,
provision: “We confirm that we will not reduce our current financial interest in MMC Metals Ltd until
[5.40] 143
Part II: Formation
the above facilities have been repaid …” The parties there agreed that it was a promise intended to
give rise to legal relationships: compare Commonwealth Bank of Australia v TLI Management Pty Ltd
[1990] VR 510. In the present case, the statement “it would not be our intention to reduce” carries
the same import. The only reason for splitting the analysis of para 2 into (a) and (b) would be if the
foregoing was held to be incorrect, in that 2(a) was determined not to be contractual. There can, in
any case, be no doubt as to the status of 2(b) …
The question whether the third paragraph of the letter of comfort is promissory is far more thorny.
However, in my view, if the paragraph is read as follows: “it is our practice to ensure that Spedley is
at all times in a position to repay all loans made to it by your Bank”, its promissory nature is much
clearer. I see no relevant difference between that and saying that “we promise to ensure that” Spedley
will at all times be in a position to repay the [526] plaintiff. The letter needs to be read in the light
of the statement of policy ascribed to Mr Maher (at 508G): “it is our corporate policy to support our
subsidiaries”. …
In my view, the plaintiff has made out its claim that the defendant was in breach of two enforceable
contractual promises. This enables me to deal with the other issues in a summary fashion.
Judgment for the plaintiff on liability.

DOMESTIC AND SOCIAL AGREEMENTS

[5.45] Domestic and social agreements have in the past been approached on the basis that
parties to such agreements are presumed not to intend legal obligations (see, eg, Jones v
Padavatton [1969] 1 WLR 328, 332–3). In some cases, including the well-known decision
of the English Court of Appeal in Balfour v Balfour [1919] 2 KB 571, 579, it has almost
appeared that there is a rule of law that financial agreements between spouses will not attract
legal consequences. In Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8;
(2002) 209 CLR 95 (extracted at [5.10]) Gaudron, McHugh, Hayne and Callinan JJ rejected
the idea that any rules can or should be formulated to prescribe the types of cases in which an
intention to create legal relations should or should not be found. It is now accepted that, since
Ermogenous, no presumption should be made about the enforceability of agreements made in
a social or domestic context: Ashton v Pratt [2015] NSWCA 12; (2015) 88 NSWLR 281, [73];
Evans v Secretary, Department of Families, Housing, Community Services and Indigenous
Affairs [2012] FCAFC 81, [12]–[16]. Each case will be considered on its own facts, although
the nature of the relationship between the parties and the context in which the agreement was
made remain important considerations.
Todd v Nicol
[5.50] Todd v Nicol [1957] SASR 72 (Supreme Court of South Australia –Action).
[FACTS: The defendant, a woman living in Australia, invited the plaintiffs, the sister (Margaret Todd)
and niece (Grace Todd) of the defendant’s deceased husband, to move from Scotland to Australia
to share her house and provide her with company. The defendant proposed the arrangement in
a letter to the plaintiffs. The defendant promised to alter her will (by making a codicil) so that the
house would be theirs until they died (or, in the case of Grace, married). The plaintiffs accepted the
offer. They sold their belongings, and the niece resigned her employment. The plaintiffs moved from
144 [5.45]
Intention Chapter 5
Todd v Nicol cont.
Scotland to South Australia and resided with the defendant for several years. The relationship between
the plaintiffs and the defendant deteriorated, and the defendant asked the plaintiffs to leave the
house. The plaintiffs claimed they were entitled by contract to remain in the house. The defendant
counterclaimed for possession of the house, either on the basis that there was no contract between
the parties, or that any contract had been validly terminated.]
MAYO J: [74] In this action the plaintiffs (sister and niece of the defendant’s husband, now
deceased) claim a declaration that pursuant to a certain contract they are entitled to reside rent free
in the premises, 254 Greenhill Road, Hazelwood Park until their respective deaths, or, in the case of
the second plaintiff, until marriage. Ancillary relief is also sought in respect of the contract described in
the statement of claim. The defendant denies the contract alleged, but, if there be any such contract,
she seeks its rescission by counterclaim. There is a reply on behalf of the plaintiffs….
The contract, on which the plaintiffs rely, is said to be contained in letters which passed between the
parties. I will quote so much of the correspondence as in my opinion has bearing on the preliminary
question that counsel have asked to be determined before other matters are investigated, viz whether
there is an agreement legally binding between plaintiffs and defendant whereby the former became
entitled to live in the premises mentioned.
Important parts of the defendant’s letter to the plaintiffs of date April 6th, 1947, may be cited:
I have wondered if you would like to come and live with me. That is what I want to know
first of all. I must have company at my age and it is not good for anyone to live alone …
This is a funny old house … there is quite room enough for you both to come to me (and
May Holt, later, when she wants to and has opportunity –which will not be yet as far as we
both can see). You would share my home … and no rent at all … All in it we could share for
I have enough I think, for all. If … you do sell your belongings –keep your china, and house
linen and cutlery for I may not have enough of those things to go round … It is a big thing
for you to do … but I think we would be happy together … once you are here or on the
way, I would alter my will that the home was to be yours and Gracie’s (unless you marry …)
until you passed on … and if May Holt is with me, may be she to share it too … I have not
mentioned this to Willie but will you consult him? I may tell him in my next letter … of my
proposition … think well before accepting my suggestions … if this does not eventuate I will
have to work out some other plan for myself.
To that “proposition” the plaintiffs sent a cable and a letter to the defendant. These were not
produced, having been destroyed. In substance both these communications were to the effect that
they accepted the invitation. It is alleged by the plaintiffs that these documents were productive of
the contract. Steps were promptly taken by them to engage passages by steamer for the voyage to
Adelaide.
It is an accepted principle that regard may be had to the subsequent conduct of, and communications
between, parties for the purpose of discovering whether the intention to be attributed to them was to
make a binding arrangement or otherwise, and if the former what the parties understood the terms to
be, that is to say, in so far as the words used were not productive of certainty. The acts of parties, where
meaning is in doubt, may be used to remove uncertainty, or to explain, but not to contradict, the
language used (Van Diemen’s Land Co v Table Cape Marine Board [1906] AC 92; Watcham v Attorney-
General of the East Africa Protectorate [1919] AC 533). The manner in which parties act, with the
apparent approval of all concerned, may indicate their view of what has been agreed between them.
Upon receipt of the plaintiffs’ cable the defendant wrote again, the communication being dated
April 16th, 1947. The introductory words are:
How perfectly thrilling it was to me to get your cable this morn … The little place … we will
try and make it home for us all … Today I went in to the solicitor and added a codicil to my
will, for I want to protect you both in case anything happens to me before your arrival here
… When I sign it the house is yours for life Margaret without expense, also you Gracie (unless
[5.50] 145
Part II: Formation
you marry) … and if Miss Holt wishes to share the home too she is also protected … I am
longing now to get your letter … so that I can know a little more of your immediate plans
and how far you have gone and when you can really come … When I know I will try and get
the place as I think you would enjoy it best. Anyway we can change round to suit each other
when the time comes … I want you to have the beautiful sunshine and freedom of life that
one enjoys in Australia…. If you sail before you get another letter … bring your china and
linen … hoping we can soon meet.
A letter from the defendant of April 24th refers to a codicil:
to the effect … you both were to be allowed to live on in this home until you either died
too –or were married … and also if I were to die before you came out you were to receive a
sum of money to help to carry you on….
I am doing my darndest to think things out for your protection just in case … I went to the
Immigration Office … and secured two forms of nomination … although we sound alright
on paper you might not like me … when you have to live with me. Still I think you will …
Margaret … if I can make life … brighter and easier for you and Gracie I would be so happy
in doing it.
The plaintiffs left Scotland in June, 1947. They gave up the tenancy of their house, sold furniture and
belongings. Grace gave up her employment a fortnight before sailing. Passages were obtained on
RMS Stratheden costing about £79 each (tourist class). They arrived in Adelaide about the end of
July, and have lived under the same roof as the defendant ever since. A copy of clauses 7 and 8 of the
defendant’s will was handed to them by her, or on her behalf, after their arrival. The clauses contain
certain additions that were not foreshadowed in the [77] correspondence, but it can be said that in
substance the provisions secure the home, rent free, to the plaintiffs (with two others) during life if
they do not marry, and desire to continue in residence at 254 Greenhill Road.
Unhappily, cordial relationship has not been sustained. As a result the questions involved in the
present proceedings have come up for determination by a court of law. The request at present made
by counsel for both sides is for a decision whether, as between the parties, there is a contract of a
kind that is enforceable, or which, on breach, will sound in damages. If there be such a contract,
it may be necessary to ascertain the precise terms (express or implied), also whether a breach was
threatened, or has occurred on either side, and what consequences follow. The alternative findings
are said to be: (1) The arrangement was purely social. The parties had no actual intention to create
legal obligations, and no such intention will be attributed to them. (2) A contract legally enforceable
between the parties was entered into. (3) There is no contract other than a licence to reside in the
defendant’s home, which may be revocable, or irrevocable.
Mr Cleland, for the defendant, claimed that the understanding to which acceptance of the
proposal in the letter of April 6th gave rise was in the nature of a family or domestic expedient for
mutual convenience, or alternatively a social project based on courtesy. He contended the plaintiffs
must show that there was a deliberate promise by the defendant seriously made and supported
by consideration. As between relatives or persons on intimate terms of good will, the prima-facie
presumption will always be, he claimed (where visits and friendly intercourse are involved) that the
basis is not legal obligation but affection and trust. Dr Bray submitted that there was a complete
mutuality of wills which gave rise to a contract cognizable and enforceable at law.
I do not suppose that it came into the conscious thoughts of any of the parties (ie either plaintiffs or
the defendant) that legal sanctions would be called in aid of the plan that was proposed and followed.
But even so, that does not solve the problem. There is no explicit reference to, nor indeed any
latent indication concerning, methods of enforcement, in the correspondence. Where mutual trust is
present, it is unlikely that such an aspect will enter the mind of any party to negotiations. Still less is it
likely to be expressed in speech or writing. Nevertheless there is an allusion in the letter of April 24th,
to which reference has been made. There was of course a consensus, and that was responsible for the
146 [5.50]
Intention Chapter 5
voyage by the plaintiffs to Australia. The purpose of the voyage was for them to take up residence with
the defendant at her home. Certainly the plaintiffs were licensed to enter upon those premises and
reside there. But that fact does not conclude the matter. Residence in the home of another may be
on a licence determinable forthwith or by notice. Such a situation could be incidental to travel from
Scotland here, or even to a purpose to remain here indefinitely.
Much argument was addressed to the elements that go to make up an enforceable bargain.
A contract may be defined as an agreement between two or any number of persons that is intended
to be enforceable at law. [78] It comes into being by virtue of an offer on one side which is accepted
on the other. The offer and the acceptance may be explicit in precise terms, or implied from conduct,
or language, which can be properly so construed. The contract may result from communications, by
word of mouth, in writing, or by inference from conduct, or by a combination of all or any two of
these media.
The subject matter usually involves the parties on either side doing, or abstaining from, conduct
of some sort. A factor that is requisite is the presence of valuable consideration. Some right, interest,
profit or benefit must be provided for, or some forbearance, detriment, loss or responsibility given,
suffered or undertaken. Consideration must “move” from both sides. The adequacy of the benefit or
burden, or the balance of equality, does not come up for investigation provided the law attributes
some real value to it.
If an intention to enter into an enforceable undertaking does not appear by the express terms of
the engagement, it must be capable of being properly read into the provisions. The language used,
or the relative situation of the parties to the understanding, may be such as to indicate no such
intention was present (Balfour v Balfour [1919] 2 KB 571). When the circumstances or conduct of the
parties demonstrate that no such purpose was present it will not be imputed (Booker v Palmer [1942]
2 All ER 674, at 676–7; Cobb v Lane [1952] 1 All ER 1199). If the arrangement by its terms indicates
that the plan is merely to take effect as an honourable pledge, or is not to be followed by any legal
consequences, it will not have legal enforceability attributed (Jones v Vernon’s Pools Ltd [1938] 2 All
ER 626; Appleson v H Littlewood Ltd [1939] 1 All ER 464.) The status in this respect may be explicitly
set out in a document (Rose and Frank Co v JR Crompton & Bros Ltd [1925] AC 445). Where business
arrangements are involved the presumption of enforceability will be readily presumed. Where,
however, the situation is not of that kind, such an implication is necessarily more doubtful.
The intention must, of course; be shown to be that of all parties. Where the parties are ad idem
consensu, a common purpose will be attributed to them. Neither side will be permitted to prove an
intention that is not in conformity with what has passed between them. If the existence of mutuality
be in issue, one party or the other may demonstrate by reference to the negotiations (whether
committed to paper or oral), that the alleged acceptance was not unqualified, or unconditional,
in relation to the terms of the offer, or that the respective intentions of the negotiators differed in
material aspects.
Another element concerns the certainty that is required. A contract will not be formulated for
parties if they have left important conditions hidden in obscure language, or there are details subject
to further negotiation. If provisions are too vague, or too indefinite, for reasonable certainty to be
discovered concerning what is intended, the engagements will not be enforced unless the uncertain
features are severable from that [79] part constituting the substantive arrangement. As to this aspect
arrangements between parties will not necessarily be expected to cover every possible contingency
that may arise, particularly where the duration of performance will be lengthy and the circumstances
in detail unpredictable. Solvitur ambulando may be the principle for meeting some of such future day
to day problems.
It is conceded the plaintiffs had a licence to enter upon the defendant’s land and live in her home.
The question whether that licence was irrevocable was referred to in argument. It was pointed out
that such a licence will be revocable unless (i) there be a grant of an interest in the land, (ii) an
agreement for such a licence that is specifically enforceable, or (iii) there is conduct raising an equity
[5.50] 147
Part II: Formation
in favour of the licensees. “Putting it briefly, they must show grant, contract, or estoppel” (Moffat v
Sheppard (1909) 9 CLR 265 at 286).
As already noticed, in the communications quoted in part, there is no explicit reference to intention,
that is to say, to an intention to create obligations that are legally enforceable. In the absence of any
statement concerning that purpose it is necessary to inquire whether there is any material from which
an inference may be drawn. By a process of reasoning it may be possible to ascertain if any such
an intention can be attributed to the parties having regard to the features with which they have
enveloped the project.
The essentials of the scheme are somewhat submerged in rather dithyrambic passages of
explanation. Counsel have drawn attention to extracts that they have deemed important, and I have
essayed a selection. The references show to some extent what the parties contemplated on either side,
and accordingly the underlying animus may perhaps be extracted by a process a posteriori. There
can be no definite rule or formula for deducing the purpose or intention entertained, that is to say,
whether enforcement of a plan is to depend on trust or legal sanction. The process of elucidation will
be empirical.
Certain elements incidental to the suggested scheme or plan may be noticed. The expense of
travel from Scotland to Australia by two persons who do not seem to be over-endowed with wealth,
and the absence of any condition covering a return to Scotland, seem to negative the notion of a visit;
a visit that was to provide opportunity for social intercourse. Although one letter from the defendant
shows that the possible incompatibility of temperament or temper, the possibility of a “misfit”, had
occurred to her, no provision for separating or leaving the home before death, except on marriage
(the reference to which is concluded in terms suggesting the jocular), was formulated. No provision is
put forward to enable the discharge of joint residence, or a termination of the arrangement.
The expectation that certain belongings of the plaintiffs would have to be sold ex necessitate rei,
and the suggestion that the sale should not comprise certain household articles probably required
to render the premises a home for all, are significant. Thereby is demonstrated an [80] intended
combination of resources of an apparently permanent nature. The provision of a testamentary adjunct
to give security to the plaintiffs in the administration of the defendant’s estate justifies the view that
the defendant thought security for the plaintiffs during her lifetime was adequately provided by the
plan laid down in the letter of April 6th. The provision by will might be construed, I suppose, as
indicating that her goodwill was the safeguard, but I incline to the alternative that the arrangement
inter vivos was expected to be binding in some way upon her during her lifetime.
It is undeniable that features in the letters are capable of being harmonised with an hypothesis that
the plan was quite safe and secure for the plaintiffs because of the defendant’s honourable assurances
accompanying or implicit in her invitation, backed up (as it were) by her affection for her deceased
husband. But in my view that theory cannot measure up when compared with the weight that must
be given to an interpretation that does not place the future of the plaintiffs so largely subject to what
would be no more than the whim of the defendant in so material an aspect.
My conclusion is that the intention to be attributed to the parties was to enter into a contract that
was legally binding. The element of consideration gives no difficulty provided the other ingredients
necessary to form a binding contract are present. Mr Cleland did not suggest that the disposal of
property, the expense of travel, the change of location, and the abandonment of employment and
of the security of their Scottish residence in exchange for the Australian domicile, had no features
capable of being so regarded. I have not yet directed attention to the terms and conditions of that
contract express or implicit. Counsel purposely refrained from addressing any arguments on that
aspect….
[After further hearing, Majo J considered whether the terms of the contract had been breached by
the plaintiffs and, if so, the consequences of such a breach.]
148 [5.50]
Intention Chapter 5
[75] The defendant sets up an implied term in the contract that the plaintiffs should, whilst residing
in the premises mentioned, “behave in a reasonable and decent manner”. …
[85] Provision is to be implied in a contract when the matter, to which the same relates, is not
covered by express terms, nor annexed thereto by usage, statute or otherwise. But the implication
will, even then, be treated as proper to be read into the text, only when it is clearly necessary [86]
to introduce the term in order to make the contract operative according to the intention of the
parties as indicated by the express terms: per Latham CJ in Scanlan’s New Neon Ltd v Tooheys Ltd
(1943) 67 CLR 169, at 194 et seq. The term must be directly related to the project entertained
by the parties. If they did not direct their minds to the necessity for some condition to enable
the purpose to be carried out, an interpretation of the transaction may be worked out where it is
shown to be required, from its character, from the elements which are contained within it. The
nature and circumstances of the transaction will supply the grounds from which the intention is
to be deduced: eg per Dixon J (as he then was) in Bonython v The Commonwealth (1948) 75 CLR
589, at 626.
The most famous and oft repeated passage on this topic emanated from Bowen LJ in The Moorcock
(1889) 14 PD 64, at 68. Another case that has been highlighted is Hamlyn & Co v Wood & Co [1891]
2 QB 488. But it has been commented that the “general remarks” of Bowen LJ do not accurately state
the principle as it is now understood (McKinnon LJ in Shirlaw v Southern Foundries (1926) Ltd (1939)
2 KB 206, at 227). An implication may be manifestly necessary as an adjunct, so that, if such a term
had been suggested to the parties at the time they were negotiating, they would have immediately
agreed such a term was indispensable. Ordinarily it appears to be accepted that the provision to be
implied must be necessary in the “business sense” to give efficacy to the contract: eg per Scrutton LJ
in Reigate v Union Manufacturing Co [1918] 1 KB 592, at 605. The bestowal of such efficacy to a
contract to join in a home suggests the importation of some sort of “business” activity into a domestic
scene. But I suppose “business” in that sense does not limit the principle to contracts of a commercial
or trading kind.
A home is a place where the residents ordinarily eat morning and night, and where they usually
sleep. With adults it may have the characteristic of permanency. A home is, or used to be regarded as
a place of refuge and rest. With modern conveniences, and under the present conditions of life, these
aspects may perhaps be regarded as undergoing change. References to “sharing a home” can be
taken to import an intention by the parties to live together under conditions of mutual indulgence and
forbearance, of propriety, decorum and friendliness, and, if necessary, of resignation and toleration as
might be reasonably expected in a home.
Will not a contract to share a home necessarily have implied in it conditions concerning behaviour?
I have no difficulty in giving an affirmative answer to that question as a generalization. Acceptance of
the licence to enter and remain upon premises for use of the same as a home results in the privilege
taking effect as a licence. A limited privilege under licence must, I think carry with it an implicit
engagement not to act in any manner that exceeds the scope of the permission….
[88] That plaintiff [Mrs Todd] has not behaved in a reasonable and decent manner in the home. Her
conduct is, in my opinion, responsible for the cessation of reasonable home conditions. The contract
to which all litigants were parties, the licence under which all three persons lived together at the
Hazelwood Park address, came into being in an expectation that all would contribute to satisfactory
home conditions. The plaintiffs’ licence was to enable them to join in, establish and continue a home
for all three persons. Mrs Todd has been responsible for breaches of conditions implied in the contract
by virtue of the nature of the licence….
[89] If I am correct in my conclusion, did the breach by the elder plaintiff give the defendant the
right to terminate contractual relations and withdraw the licence? I accept the proposition that the
plaintiffs on their side, and the defendant on her side, were under duty to conduct themselves, or
herself, in a sufficiently reasonable manner that the ordinary features of a home should be available
[5.50] 149
Part II: Formation
to them all. Only under such conditions would life for elderly people under the same roof be possible.
In the presence of persistent disruptive influences the locality ceases to be a home, it ceases to have
the qualities of a home. As it is no longer a home the licence is ended. Such being the position the
defendant was entitled to act, and bring the agreement to an end. Notice by the defendant’s solicitors
was effective. The arrangements no longer avail the plaintiffs.
There will be judgment for the defendant on the claim and on the counterclaim. Order that the
plaintiffs do vacate the premises. The plaintiffs will pay the defendant’s costs.
Judgment for defendant on claim and counterclaim.

GOVERNMENT AGREEMENTS
[5.60] Governments and governmental bodies routinely enter into contracts with suppliers
of goods and services in the usual fashion. An intention to create legal relations is likely
to be manifested when a government enters into a commercial transaction expressed in
contractual language (see Placer Development v Commonwealth (1969) 121 CLR 353, 367–
8 (per Windeyer J extracted at [6.200])). Where the administrative or political activities of
government are concerned, however, the courts are likely to find that an intention to create
legal relations does not exist (in addition to the following case, see Australian Woollen Mills
Pty Ltd v Commonwealth, extracted at [4.20]).
Administration of Papua and New Guinea v Leahy

[5.65] Administration of Papua and New Guinea v Leahy (1961) 105 CLR 6 (High Court of Australia) –
Appeal from the Supreme Court of the Territory of Papua and New Guinea.
[FACTS: For several years, the plaintiff had experienced difficulty controlling an infestation of cattle
ticks on his property. He was provided with equipment and advice by the Commonwealth Department
of Agriculture as part of its tick eradication program. He requested further assistance. In a meeting
with representatives of the Department, an arrangement was made that officers of the Department
would take over the spraying of the plaintiff’s property. The plaintiff was to supply and pay for the
other labour required, and to muster the cattle. The department’s officers failed to carry out the
spraying skilfully and efficiently, and the plaintiff’s cattle became even more seriously infected with
ticks. The plaintiff sued the Administration for damages for breach of contract. The plaintiff succeeded
at first instance.]
DIXON CJ: [10] In my opinion this appeal must be allowed on the simple ground that the facts
in no way support the conclusion that the defendant, the Administration of the Territory, entered
into any such contractual relation with the plaintiff as his pleading alleges or as has been found
in his favour. I am clearly of opinion that the Administration of the Territory, by its officers, did
not contract with the plaintiff; there was no intention on their part to enter into any contract, to
undertake contractual obligations or to do or undertake more than 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 for the eradication of tick. I do not wish to
add anything to the reasons for this view of the case given by Kitto J whose judgment I have had the
advantage of reading …
[5.70] McTIERNAN J: I think that this appeal should be allowed … [11] The arrangement consisted
of agreed promises but that is not enough to make a contract, unless it was the common intention
150 [5.60]
Intention Chapter 5
Administration of Papua and New Guinea v Leahy cont.
of the parties to enter into legal obligations, mutually communicated, expressly or impliedly. It was
not an express or implied term of the arrangement that the respondent should make any payment
for the treatment of the cattle. I cannot agree that the Administration through its officers intended
to enter into legal relations when, at the request of the respondent, it undertook the organization of
the tick eradication campaign with respect to his cattle. 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 by the Administration was analagous [sic] to a social service which generally
does not have as its 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 if the Government acts inefficiently
in performing them …
KITTO J: [13] In the statement of claim one cause of action only against the Administration was
alleged, and that was in contract. After setting out that the respondent was the lessee and the
appellant, the Administration, was the lessor of a property at Zenag in the Territory, on which for
a number of years the respondent had been grazing and rearing dairy and beef cattle and carrying
on the business of a producer and vendor of dairy products, beef cattle and meat, the statement
of claim alleged a contract between the Administration and the respondent by which the former
agreed that it would carry on at Zenag a campaign for the eradication of cattle tick from the
respondent’s cattle, and that the campaign would be carried out thoroughly and skilfully. The
consideration alleged was that the respondent would allow the Administration’s servants to enter
upon his property and spray the cattle thereon, would make available to the Administration the
services of six native labourers, and would forbear from interfering with the work of the servants
in carrying out the campaign. The breach assigned was that the Administration, although its
servants sprayed the respondent’s cattle between June 1954 and July 1955, failed to carry out the
spraying thoroughly and skilfully. Particulars of resulting damage were given, comprising loss of
cattle by death, loss of natural increase, loss of milk production, and deterioration of condition
of the herd …
On the appeal the controversy has been as to whether the proved and admitted facts, when
considered in their setting of time and circumstance, establish a contract, or only an arrangement
having no legally binding force. The question is whether the parties to [14] the correspondence
which passed and the conversations which took place evinced an intention to make a bargain
mutually binding between the Administration and the respondent in the sphere of legal rights and
obligations …
[18] In the judgment of the learned Chief Justice there occurs the following passage:
Considering the position of the plaintiff it is clear that he was assuming some liabilities and
responsibilities and agreed to depart from his own proposals to the extent of co-operating with the
Administration to carry out its campaign. I [19] think that it is clear that the plaintiff expected the
Department to honour its promises and to see that the campaign was carried out properly. He was
prepared to leave the entire conduct of the campaign to the Department and in fact he was insisting
that they should take complete charge of it. I think that the proper conclusion is that Mr Leahy was
entering into a transaction which as between individuals would amount to a contract and which
was intended to impose obligations of a legal character on both parties. There remains of course the
question whether in relation to this transaction the Administration should be considered as being
upon a different footing from that of an ordinary individual.
It must be remembered, however, that there are not two questions, whether the interviews were
such as would have produced a contract if they had taken place between private individuals, and
if so whether it makes a difference that they took place between a private individual on the one
hand and government officers acting in their official capacities on the other hand. 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
[5.70] 151
Part II: Formation
Administration of Papua and New Guinea v Leahy cont.
the manner and extent of gratuitous assistance to the respondent which the Department was willing
to render in execution of the Administration’s policy concerning the eradication of cattle tick in the
Territory …
[20] From first to last the Department showed itself to be doing no more than giving effect
to a general policy of dispensing aid to individual cattle owners as a means of coping with a
recognized menace to an important part of the Territory’s economy. And the respondent’s [21]
attitude throughout was that of a private person appealing for government assistance on the
ground that the Department, by doing for him what it insisted ought to be done on his property,
would be performing a function of government in accordance with its settled policy. The whole
atmosphere of the correspondence and discussions that took place was different from that which
exists between contracting parties. True it is that the Department relied upon the continuing co-
operation of the respondent in performing his part of what was arranged between them. The
officers concerned were no doubt quite fully aware that if the respondent should make substantial
failure at any time in affording the co-operation he was promising, all that had been put into the
campaign up to that time would go for nought. But they knew too that he had every incentive to
make the campaign a success. The loss, if it should be abandoned, would be far more serious for
him than for the Administration, and he had already shown that he felt he was in a cleft stick: he
could not afford to carry out a thorough spraying campaign himself, but unless it were carried out
he could not get permission to move his cattle from his eaten-out pastures to new country. In the
circumstances, the fact that in the absence of a contract he might draw out at any time has no real
weight in considering whether a contract was entered into.
For the reasons given, the case falls into the class of which illustrations may be found in Australian
Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424; (1955) 93 CLR 546, and Milne v
Attorney-General for the State of Tasmania (1956) 95 CLR 460, at 472, 473. The arrangements made
on 7th June 1954 were not contractual and the judgment giving damages for the failure of the
Administration, through the two defaulting officers, to give effect to them on its part cannot be
sustained.
Appeal allowed.

PRELIMINARY AGREEMENTS
Masters v Cameron
[5.80] Masters v Cameron (1954) 91 CLR 353 (High Court of Australia) –Appeal from the Supreme
Court of Western Australia.
[FACTS: Cameron (the respondent) and Mr and Mrs Masters (the appellants) signed a document
whereby Cameron agreed to sell and the Masters agreed to buy for £17,500 a certain property owned
by Cameron. A deposit of £1,750 was paid by the purchasers to a farm agent. The document contained
the following clause: “This agreement is made subject to the preparation of a formal contract of sale
which shall be acceptable to my [Cameron’s] solicitors on the above terms and conditions”. The
purchasers encountered financial difficulties, denied that they were legally bound to purchase the
property, and sought to recover the deposit.]
THE COURT (DIXON CJ, McTIERNAN and KITTO JJ): [360] The first question in the appeal is
whether, as Wolff J considered, this document on its true construction constitutes a binding contract
between the respondent and the appellants, or only a record of terms upon which the signatories
152 [5.80]
Intention Chapter 5
Masters v Cameron cont.
were agreed as a basis for the negotiation of a contract. Plainly enough they were agreed that there
should be a sale and purchase, and the parties, the property, the price, and the date for possession
were all clearly settled between them. All the essentials of a contract are there; but whether there is
a contract depends entirely upon the meaning and effect of the final sentence in that portion of the
document which the [male] appellant signed.
Where parties who have been in negotiation reach agreement upon terms of a contractual nature
and also agree that the matter of their negotiation shall be dealt with by a formal contract, the
case may belong to any of three classes. It may be one in which 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, but at the same time propose to have the terms restated in a form which will be fuller
or more precise but not different in effect. Or, secondly, it may be a case in which 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 the terms conditional upon the execution of a formal document. Or, thirdly, the case may be
one in which the intention of the parties is not to make a concluded bargain at all, unless and until
they execute a formal contract.
[5.85] In each of the first two cases there is a binding contract: in the first case a contract binding
the parties at once to perform the agreed terms whether the contemplated formal document comes
into existence or not, and to join (if they have so agreed) in settling and executing the formal
document; and in the second case a contract binding the parties to join in bringing the formal
contract into existence and then to carry it into execution. Of these two cases the first is the more
common. Throughout the decisions on this branch of the law the proposition is insisted upon which
Lord [361] Blackburn expressed in Rossiter v Miller (1878) 3 App Cas 1124, where he said that the
mere fact that the parties have expressly stipulated that there shall afterwards be a formal agreement
prepared, embodying the terms, which shall be signed by the parties does not, by itself, show that
they continue merely in negotiation. His Lordship proceeded: “as soon as the fact is established of
the final mutual assent of the parties so that those who draw up the formal agreement have not the
power to vary the terms already settled, I think the contract is completed”: (1878) 3 App Cas 1124
at 1151.
[5.90] A case of the second class came before this court in Niesmann v Collingridge (1921) 29 CLR
177, where all the essential terms of a contract had been agreed upon, and the only reference to the
execution of a further document was in the term as to price, which stipulated that payment should
be made “on the signing of the contract”. Rich and Starke JJ observed that this did not make the
signing of a contract a condition of agreement, but made it a condition of the obligation to pay, and
carried a necessary implication that each party would sign a contract in accordance with the terms
of agreement. Their Honours, agreeing with Knox CJ, held that there was no difficulty in decreeing
specific performance of the agreement, “and so compelling the performance of a stipulation of the
agreement necessary to its carrying out and due completion”: (1921) 29 CLR 177 at 185.
[5.95] Cases of the third class are fundamentally different. They are cases in which the terms of
agreement are not intended to have, and therefore do not have, any binding effect of their own. The
parties may have so provided either because they have dealt only with major matters and contemplate
that others will or may be regulated by provisions to be introduced into the formal document, as in
Summergreene v Parker (1950) 80 CLR 304 or simply because they wish to reserve to themselves a right
to withdraw at any time until the formal document is signed. These possibilities were both referred to
in Rossiter v Miller (1878) 3 App Cas 1124. Lord O’Hagan said (1878) 3 App Cas 1124 at 1149:
Undoubtedly, if any prospective contract, involving the possibility of new terms, or the
modification of those already discussed, remains to be adopted, matters must be taken to
be still in a train of negotiation, and a dissatisfied party may refuse to proceed. But when an
agreement [362] embracing all the particulars essential for finality and completeness, even
though it may be desired to reduce it to shape by a solicitor, is such that those particulars
[5.95] 153
Part II: Formation
Masters v Cameron cont.
must remain unchanged, it is not, in my mind, less coercive because of the technical formality
which remains to be made.
And Lord Blackburn said (1878) 3 App Cas 1124 at 1152:
Parties often do enter into a negotiation meaning that, when they have (or think they have)
come to one mind, the result shall be put into formal shape, and then (if on seeing the result
in that shape they find they are agreed) signed and made binding; but that each party is to
reserve to himself the right to retire from the contract, if, on looking at the formal contract, he
finds that though it may represent what he said, it does not represent what he meant to say.
Whenever, on the true construction of the evidence, this appears to be the intention, I think
that the parties ought not to be held bound till they have executed the formal agreement.
So, as Parker J said in Von Hatzfeldt-Wildenburg v Alexander [1912] 1 Ch 284 at 289, in such a case
there is no enforceable contract, either because the condition is unfulfilled or because the law does
not recognise a contract to enter into a contract.
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. Nor is any formula,
such as “subject to contract”, so intractable as always and necessarily to produce that result. But the
natural sense of such words was shown by the language of Lord Westbury when he said in Chinnock v
Marchioness of Ely (1865) 46 ER 1066 at 1069: “if to a proposal or offer an assent be given subject to
a provision as to a contract, then the stipulation as to the contract is a term of the assent, and there is
no agreement independent of that stipulation”. …
This being the natural meaning of “subject to contract”, “subject to the preparation of a formal
contract”, and expressions [363] of similar import, it has been recognised throughout the cases on
the topic that such words prima facie create an overriding condition, so that what has been agreed
upon must be regarded as the intended basis for a future contract and not as constituting a contract.
Indeed, Lord Greene MR remarked during the argument in Eccles v Bryant and Pollock [1948] Ch 93 at
94, that when the expression “subject to contract” was used he had never known a case in which it
had been suggested, much less held, that this did not import that there was nothing binding till the
exchange of parts of the formal contract was made. The effect of the early cases on the subject was
stated by Sir George Jessel MR in Winn v Bull (1877) 7 Ch D 29, when he said in a passage which has
become well-known (1877) 7 Ch D 29 at 32:
It comes, therefore, to this, that where you have a proposal or agreement made in writing
expressed to be subject to a formal contract being prepared, it means what it says; it is
subject to and is dependent upon a formal contract being prepared. When it is not expressly
stated to be subject to a formal contract it becomes a question of construction, whether the
parties intended that the terms agreed on should be put into form, or whether they should
be subject to a new agreement the terms of which are not expressed in detail …
[5.100] [364] In the present case the context provides no reason for holding that the case is outside
the application of these authorities. The formal contract, it is true, is to be “on the above terms
and conditions”, but it is to be acceptable to the vendor’s solicitors, and the meaning is sufficiently
evident that the contract shall contain, not only the stated terms and conditions expressed in a form
satisfactory to the solicitors, but also whatever else the solicitors may fairly consider appropriate to the
case. Accordingly the first of the four questions which went to trial should have been answered by
saying that no binding contract for the sale and purchase of the property mentioned in the document
dated 6 December 1951, was made between [Cameron] and [Masters] …
Appeal allowed.

154 [5.100]
Intention Chapter 5
[5.105] Note
In Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622,
628, McLelland J suggested that:
There is in reality a fourth class of case additional to the three mentioned in Masters v Cameron,
as recognised by Knox CJ, Rich J and Dixon J, in Sinclair, Scott & Co v Naughton (1929) 43
CLR 310 at 317, namely, “… 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”.
The existence of a “fourth category” has been accepted in many subsequent cases. In
Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd [2000] WASCA 27; (2000) 22 WAR 101,
for example, the Full Court of the Supreme Court of Western Australia (by majority) held
that a heads of agreement relating to a mineral exploration venture fell within this category
and was therefore binding. As to whether there is a need for the fourth category, see Peden,
Carter and Tolhurst, “When Three Just Isn’t Enough: The Fourth Category of the ‘Subject to
Contract’ Cases” (2004) 20 Journal of Contract Law 156 and McLauchlan, “In Defence of
the Fourth Category of Preliminary Agreements: Or Are There Only Two?” (2005) 21 Journal
of Contract Law 286. In Tasman Capital Pty Ltd v Sinclair [2008] NSWCA 248; (2008) 75
NSWLR 1, [26] Giles JA (with whom McColl JA and Young CJ agreed) referred to this debate
and observed that:
The Masters v Cameron (1954) 91 CLR 353 categories, and a possible fourth category, are
intellectual aids, but whether parties have come to a binding agreement is a matter of their
objectively ascertained intention. Categorisation does not greatly contribute to the decision in
the particular case, which is concerned with finding what agreement, if any, the parties came to.

[5.105] 155

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CHAPTER 5

Ermogenous v Greek Orthodox Community of SA

Ermogenous v Greek Orthodox Community of SA cont.

Ermogenous v Greek Orthodox Community of SA cont.

Ermogenous v Greek Orthodox Community of SA cont.

Ermogenous v Greek Orthodox Community of SA cont.

Ermogenous v Greek Orthodox Community of SA cont.

Banque Brussels Lambert v Australian National Industries

Banque Brussels Lambert v Australian National Industries cont.

Banque Brussels Lambert v Australian National Industries cont.

A so called “letter of responsibility” will, under French law, be considered as a commitment

Banque Brussels Lambert v Australian National Industries cont.

Banque Brussels Lambert v Australian National Industries cont.

Banque Brussels Lambert v Australian National Industries cont.

DOMESTIC AND SOCIAL AGREEMENTS

Todd v Nicol cont.

Todd v Nicol cont.

Todd v Nicol cont.

Todd v Nicol cont.

Todd v Nicol cont.

Todd v Nicol cont.

Administration of Papua and New Guinea v Leahy

Administration of Papua and New Guinea v Leahy cont.

Administration of Papua and New Guinea v Leahy cont.

Masters v Cameron cont.

Masters v Cameron cont.

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Ermogenous v Greek Orthodox Community of SA

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Todd v Nicol cont.

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Administration of Papua and New Guinea v Leahy

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