However, this principle can be crucial in deciding whether an agreement is legally binding, as evidenced by the recent Blue v Ashley (2017) EWHC case in 1928. The case concerned an agreement between Mr Michael Ashley, owner of Sports Direct Group, and Mr Jeffrey Blue, a management consultant, which stated that if Mr Blue could guarantee Mr Ashley`s company`s share price at more than £8 per share, Mr Ashley would pay him a £15 million premium for his services. The deal was struck in a pub with other Sports Direct representatives and the company`s share value rose to over £8, but Mr Ashley claimed the deal was just a “skirmish” and refused to pay the bonus to Mr Blue. Mr Blue then brought an action. In the High Court, Leggatt J. focused on whether there was an intention to establish legal relationships. The case revolved around the factual context in which the alleged contract was concluded and, finally, the action was dismissed on the ground that, according to the objective test, the social environment did not indicate that a formal contract had been concluded, so that Mr Blue could not rely on the agreement to draw legal consequences from it. This case illustrates the importance of the intention to create legal relationships in the design of a contract as a crucial element of the court`s analysis in practice, which ultimately cannot be undermined. In civil law systems, the concept of the intention to create legal relationships is closely related to the “theory of will” of treaties, as advocated by the German jurist Friedrich Carl von Savigny in his nineteenth-century system of Contemporary Roman Law. [22] In the nineteenth century, it was important to understand that contracts were based on a meeting of minds between two or more parties and that their mutual consent to an agreement or their intention to enter into contracts was of paramount importance. While it is generally true that courts want to confirm the intentions of the parties,[23] in the second half of the nineteenth century, courts moved to a more objective interpretative attitude,[24] emphasizing how the parties had expressed their consent to a transaction to the outside world.
Given this change, it has always been said that “the intention to be legally bound” was a necessary element for a contract, but it reflected a guideline on when agreements should and should not be enforced. When the High Court was convicted, Judge Leggatt dismissed Mr. Blue`s action. This was done on the grounds that the parties did not intend Mr. Ashley to be legally bound by his rather extravagant promise to Mr. Blue. The judge made a number of remarks; The bottom line was that a drinking night at the pub was an unlikely setting for formal contract negotiations. In addition, he was not really able for Mr Blue to achieve the target of raising the share price above £8. After all, it would certainly have been outside of Mr. Ashley`s character to make such a promise.
The approach is identical to social relationships between friends, where there is also a presumption that there is no intention to establish legal relationships, as illustrated by Coward v Motor Insurers` Bureau (1962) 1 All ER 531. An agreement between friends that an elevator works, driving a motorcycle was not considered legally binding because there was no intention that it would create legal obligations for each party. This presumption was successfully rebutted in Albert v. Motor Insurers` Bureau (1971) 2 All ER 1345, where a similar agreement providing for a person who drove his colleagues to work for eight years was considered contractual and thus resulted in liability for damages. The court concluded that the passenger`s expectation of paying for the service, as well as the nature of the activity, which went beyond mere social conviviality and constituted a commercial activity, gave rise to the intention to create legal relationships despite the industrial relations at issue. However, there are problems in taking into account subjective intent; namely, that it will inevitably increase the number of enforceable contracts. This could lead to increased ingenuity in legally binding agreements, as more realistic interactions between the parties are taken into account. However, it can also mean that courts absorb irrelevant information, waste valuable court time, increase the backlog and deplete the parties` funds (UpCounsel, “What is the subjective approach to contract law?”). Therefore, the objective approach is preferred because it recognizes only the prima facie intentions of the parties. This is arguably a better fit for the way the law is supposed to operate effectively, and therefore justifies the purely objective approach it takes.
The intention to create legal relationships is often overlooked, but this case shows how this principle can sometimes be crucial to the applicability of a contract. . . .