Topic: How to determine whether the parties to an agreement intend to create a
legal relation under Australian law? Is the concept of “intention to create a legal
relation” available under Vietnamese law?
I. Introduction
Contracts are considered to play an essential role in commercial activities in
Australia. We can observe the use of contracts in many situations from the
provision of goods and services to banking and finance and so on. Consequently,
the demand for a set of standard principles which we call the law of contract was
made up to govern the mentioned activities. Turner et at. (2021) have stated five
essential functions of the law of contract including ensuring certainty; encouraging
planning; creating market value for goods and services; providing formal
resolution procedures in case of conflict and risk distribution among parties
entering into the contract. Especially, Australian law also clearly defines essential
elements that make a contract valid and enforceable and one of them is the
intention to create legal relation. Hence, this essay will focus on discussing how to
determine whether the parties to an agreement have the intention to engage in a
legally binding contract under Australian law as well as exploring whether we can
apply the term “intention to create a legal relation” under Vietnamese law.
II. The Intention of the Parties to Create
Legal Relations
Based on (Turner et at. 2021), a contract is an agreement consisting of legal rights
and obligations and can be enforceable in court. To evaluate the enforcement
feature of one contract, one of the elements the court will examine is the intention
to create legally binding relations among parties (Turner et at. 2021). In other
words, the court will seek out evidence to determine whether the parties
intentionally want their agreement to be enforceable in the courts.
III. How to Determine the Intention to Enter
a Legal Relation Under Australian Law
Under Australian Law, the courts can use several ways to decide the intention to
engage in the enforceable agreement between the parties which will be discussed
more specifically in the following sections.
1. The Reasonable Person Standard
In legal terms, the reasonable person standard (sometimes called the reasonable
person test) means that in legal proceedings, the court takes into account the
normal behavior of an average person in similar circumstances. Those individuals
who meet or exceed the expected typical response are not considered negligent. On
the other hand, those who fail to meet the standard for typical behavior are deemed
negligent (Kutner, 2023). Under the law of contract, when there is a conflict about
the intention of the parties or when the contracts did not have enough express terms
to indicate the intention. The courts will apply the reasonable person test to
determine whether parties deliberately engage in the contracts. The key point of
this method is that no matter whether the parties admit their intention or they refuse
it, the court will make the judgment through the objective view of an ordinary
person (Turner et at. 2021). Additionally, when using the objective test, several
elements will be taken into consideration such as the content of the agreement, the
context in which the agreement is made and several relevant surrounding
circumstances (Contract Law – Intention - Chamberlains Law Firm, 2021).
One of the instances of using an objective test is the Ermogenous v Greek
Orthodox Community of SA Inc (2002) case (Law, 2020). When Archbishop
Ermogenous resigned after more than 20 years of employment with the
Greek Orthodox Church, he demanded an amount of money as annual leave and
long service leave. However, under the reasonable person standard, the High Court
stated that the absence of intent to fully consider the specific circumstances
surrounding the employment contract indicates a lack of attention to the
agreement's inherent nature.
Besides the objective test, there are two basic assumptions that can assist the courts
in finding the intent. They are presumptions about social/domestic and commercial
agreements which will be discussed in the following sections (Turner et at. 2021).
However, Turner et at. (2021) also emphasize that these assumptions just serve as
assisting roles in determining the intention or we can regard them as relevant
surrounding circumstances mentioned above
2. Presumptions
2.1 Social and Domestic Agreements
In the situation when parties establish social or domestic agreements, they are
considered to not have the intention of entering into enforceable agreements Turner
et at. (2021). However, there is still an exception in that the Courts still use the
objective test for social and domestic agreements. One of the common domestic
relationships is the agreement made between husband and wife. Under the first
assumption, the agreement formed within the marriage period will be considered
by the Court as the intention to create legally binding does not exist. For example,
in the case Balfour v Balfour [1919] 2 KB 571,(Turner et at. 2021), the husband
promised to give his wife 30$ per month as maintenance when they had to live far
away. After their divorce, she claimed the amount of money they had agreed upon.
However, the Court stated that the agreement was an ordinary domestic
arrangement, which was not intended to give rise to a legally binding contract.
Extended from the first assumption, the courts will regard parties deliberately
engaging in legal relations if they make the agreement after their relationship goes
to end. In the Merritt v Merritt [1970] 1 WLR 1211 case Turner et at. (2021), after
a couple divorced, the husband was supposed to give the allowance to the wife
monthly and she will use that money to pay the mortgage of their house in their
joint name. The husband signed the document stating that when the wife finished
the mortgage payment she can own the house under her name. However,d the
husband eventually refused to transfer the house for her. The Court held that as the
agreement created after their divorce, they decided the husband had shown the
intention to create a legal intention and was enforced by it.
2.2 Commercial Agreements
Turner et at. (2021) stated that when the agreement is made in the business
context, the parties are normally assumed to have the intention to create legal
relations. According to the analysis from (Chan, 2012), in the Malago Pty Ltd v
AW Ellis Engineering Pty Ltd [2012] NSWCA 227 case, the Court of Appeal has
chosen to adopt an approach that emphasizes the importance of giving effect to
commercial contracts whenever feasible. This is achieved by interpreting the terms
of the contract in a reasonable and practical manner.
2.2.1 Expression exclusion on the intention
The commercial agreement assumption discussed above can be rejected if the
business agreement included any express statement show that the parties did not
intend to enter into an enforceable contract (Turner et at. 2021). For example,
examining the Rose & Frank Co v JR Crompton & Bros Ltd [1925] AC 445, the
agreement clearly states that “This arrangement is not entered into … as a formal
or legal agreement, and shall not be subject to legal jurisdiction in the law courts”.
Based on this statement, it is obvious for the Court to hold that the agreement was
not enforceable.
2.2.2 Letter of Comfort
According to (Turner et at. 2021), a Letter of comfort is a document issued by one
party to another in order to provide reassurance regarding a specific matter. It is
often used in business transactions or financial arrangements. Normally, the Court
will not take the letter of comfort as evidence for the intention to create a legal
contract. However, in some cases, the letter of comfort still shows the intent to be
contractually bound by the effect of objective evaluation. Under the Banque
Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR
502 case (Turner et at. 2021), the ANI sent a letter of comfort to Smedley but they
disposed of its holding without any announcement. Although the ANI argued that
the letter of comfort did not show any intention the court assumed that when
parties enter into commercial agreements, they intend for those agreements to be
legally binding and it was determined that ANI did not provide sufficient evidence
to refute this assumption.
2.2.3 Government Policy Proposal
Another type of commercial agreement is Government Policy Proposal. According
to (Turner et at. 2021), when the government engages in a normal commercial
agreement for the purchase of goods or services, we can regard this agreement as a
legally binding contract. However, not all the government contracts that the court
can state as enforceable such as commitment to build a school hall.
IV. The Concept of “Intention to Enter a
Legal Contract under Vietnamese Law”
This issue will be discussed under Law No. 91/2015/QH13 (Civil Code). Under the
Vietnamese Civil Code 2015, the term “Intention to create legal relations is not
defined clearly as separately as the Australian Law. However, Vietnamese Law still
implies the intention to engage in an enforceable contract through the rule of offer
and acceptance. Specifically, Article 386 Clause 1 defines the act of offering as a
sign of showing the intention to enter into the contract and will be legally binding
by it. Typically, when the other party accepts the offer as outlined in Article 393, it
is considered an indication of their intention.
V. Conclusion
In conclusion, under Australian law, the reasonable person standard plays a
majority part in determining whether the intention to be enforceable by the contract
exists. The court still uses two basic assumptions about social/domestic agreements
and commercial agreements to make the final decision. However, the application of
these presumptions can be removed by the effect of objective assessment. About
the Vietnamese Civil Code, we still have the rule to determine the intention
through the act of offering and accepting.
Reference List
Balfour v Balfour [1919] 2 KB 571
Banque Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR
502
Chan, L. (2012, November 6). Malago Pty Ltd v AW Ellis Engineering Pty Ltd [2012] NSWCA
227 - MTECC. MTECC.
https://mtecc.com.au/malago-pty-ltd-v-aw-ellis-engineering-pty-ltd-2012-nswca-227/
Contract Law – Intention - Chamberlains Law Firm. (2021, September 24). Chamberlains Law
Firm. https://chamberlains.com.au/contract-law-intention/
Kutner, A. (2023, May 30). askadamskutner. Adam S. Kutner, Injury Attorneys.
https://www.askadamskutner.com/personal-injury/reasonable-person-standard/#:~:text=Th
e%20purpose%20of%20the%20reasonable,on%20an%20objective%2C%20reasonable%2
0person.
Law, C. (2020, October 28). Australian Contract Law. Australian Contract Law.
https://www.australiancontractlaw.info/cases/database/ermogenous-v-greek-orthodox-com
munity
Merritt v Merritt [1970] 1 WLR 1211
Rose & Frank Co v JR Crompton & Bros Ltd [1925] AC 445
thuvienphapluat.vn. (2015). Bộ luật dân sự 2015 số 91/2015/QH13 mới nhất.
Thuvienphapluat.vn.
https://thuvienphapluat.vn/van-ban/Quyen-dan-su/Bo-luat-dan-su-2015-296215.aspx
Turner, C., Trone, J., & Gamble, R. (2021). Concise Australian commercial law (6th ed.).
Thomson Reuters
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