Intention to create legal relations

Counterintuitively, the best way of discovering whether the parties intended to contract is not to ask them, as this "subjective test" would give the rogue an easy loophole to escape liability.

Instead, just as in Carlill v Carbolic Smoke Ball Company,[1] the court applies the "objective test" and asks whether the reasonable bystander, after taking into account all the circumstances of the case, thinks that the parties intended to be bound.

[b] Since the advertisement (pictured) stated that the company had "deposited £1,000 in the Alliance Bank to show sincerity in the matter", the court held that any objective bystander who read this would presume an intention to contract.

The context and circumstances of conversation between the purported contracting parties may be of great relevance in determining whether intention to create legal relations exists.

Sellers J held, applying the objective test, that the facts showed a "mutuality" between the parties, adding: If my conclusion that there was an arrangement to share any prize money is not correct, the alternative position to that of these three persons competing together as a "syndicate", as counsel for the plaintiff put it, would mean that the plaintiff, despite her propensity for having a gamble, suddenly abandoned all her interest in the competition in the Sunday Empire News.

I think that that is most improbable ...In Coward v MIB,[12] the Court of Appeal held that when a motorcyclist regularly gave a friend a pillion lift in return for some remuneration in cash or in-kind, there was no contract.

In a similar "lifts for friends case", Albert v MIB,[14] the House of Lords approved Denning's decision in Connell (so that Coward may be considered bad law).

Business transactions incur a strong presumption of a valid contract: these agreements where the parties deal as though they were strangers, are presumed to be binding.

At common law, Ford v Amalgamated Union of Engineering and Foundry Workers,[21] the courts held that collective agreements were not binding.

The Industrial Relations Act 1971, introduced by Robert Carr (employment minister in Edward Heath's cabinet), provided that collective agreements were binding, unless a contact clause in writing declared otherwise.