Updated: Oct 7, 2021
An intention to create legal relations is one of the essential ingredients of a legally binding contract in Australia. Let's look at what it means to have an intention to create legal relations.
The legal rules about an intention to create legal relations in contract law are:
Objective assessment: If a reasonable person would consider that both parties had an intention to create legal relations, it does not matter that one or both parties did not subjectively have such an intention (ref: Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd)
Domestic relationships: It may be difficult to prove an intention to create legal relations exists between family members or in domestic relationships
Commercial relationships: Objectively, parties to a commercial agreement will generally be considered to have intended to create legal relations
Conditional and 'subject to': Whether an intention to create legal relations exists for agreements that are expressed to be 'subject to contract', depends on the following rules (ref: Masters v Cameron):
the parties have reached finality in arranging all the terms of their bargain and intend 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
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
the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract
the parties intend to be bound immediately and exclusively by the terms that they have agreed upon while expecting to make a further contract
Author: Farrah Motley, an Australian contract lawyer.