Edwards v Skyways Ltd [1969] 1 WLR 349

Facts

• The defendant, Skyways Ltd, an airline company facing financial difficulties, decided to make several pilots redundant.
• An agreement was reached between Skyways Ltd and the British Airline Pilots Association to pay each redundant pilot an ‘ex gratia’ sum equivalent to the company’s contributions to their pension funds.
• This agreement originated from a board resolution and was further discussed and ratified at a meeting between company and association representatives.
• The claimant, a pilot who accepted redundancy, sought payment of the agreed pension fund contributions from the company.
• Skyways Ltd conceded the presence of consideration but argued that the agreement was merely a moral obligation and not legally enforceable, contending there was no intention to create legal relations.

Issues

1. Whether the agreement between Skyways Ltd and the British Airline Pilots Association demonstrated an intention to create legal relations.
2. Whether the use of the term ‘ex gratia’ indicated that the agreement was not legally binding.

Decision

• The court found there was an intention to create legal relations in the agreement.
• It was held that in commercial or business contexts, there is a presumption that parties intend their agreements to be legally enforceable.
• The burden rested on the party denying legal intention to prove an express intention to the contrary.
• The use of the term ‘ex gratia’ signified only that the payer was not under a pre-existing liability, not that the agreement itself was not legally binding.
• The agreement was enforceable, and the claimant was entitled to the payment.

Legal Principles

• There is a strong presumption that parties in commercial agreements intend to create legal relations, which can only be rebutted by clear evidence of a contrary intention.
• Terms such as ‘ex gratia’ do not, by themselves, negate legal enforceability in commercial agreements.
• The presence of consideration and formality in negotiations typically supports the presumption of legal intent.
• Distinction is maintained between commercial agreements (presumed legally binding) and social or domestic agreements (presumed not binding unless proven otherwise).

Conclusion

Edwards v Skyways established that commercial agreements are presumed to be legally binding, and language such as ‘ex gratia’ does not negate that presumption without compelling contrary evidence. This case affirms that parties to business agreements should expressly state if they intend their arrangement to be non-binding.