Edwards v Skyways Ltd [1964] 1 WLR 349

The court held that an employer’s promise to make an “ex gratia” redundancy payment was legally binding. Commercial agreements are presumed to have legal intent, and the term “ex gratia” did not negate that presumption.

Facts

Captain Peter John Edwards was employed by Skyways Ltd as an airline pilot. In 1962, due to financial difficulties, the company decided to reduce its pilot workforce by approximately 15%. Edwards was given three months’ notice of redundancy. During negotiations between Skyways Ltd and the British Air Line Pilots Association (BALPA), the company agreed to make an “ex gratia” payment to redundant pilots equivalent to the company’s contributions to their pension fund, provided they opted for a cash refund of their own contributions instead of a paid-up pension.

Edwards chose to take the cash refund and was informed of the approximate amount he would receive, including the ex gratia payment. However, after Edwards left the company, Skyways Ltd rescinded its decision to make ex gratia payments, citing financial constraints. Edwards sued the company to recover the promised payment.

Procedural History

The case was heard in the Queen’s Bench Division of the High Court. The primary issue was whether the agreement to make the ex gratia payment was legally enforceable.​

Issues

1. Did the agreement between Skyways Ltd and BALPA to make an ex gratia payment constitute a legally binding contract?
2. Did the parties intend to create legal relations?​
3. Did the term “ex gratia” negate the intention to create legal relations?

Judgment

The court held in favour of Edwards, ruling that the agreement to make the ex gratia payment was legally binding. The court found that the agreement was made in a commercial context, and there was a strong presumption that the parties intended to create legal relations. Skyways Ltd failed to rebut this presumption.​

Reasoning

Megaw J emphasised that agreements made in a business context carry a strong presumption of legal enforceability:​

“Where, as here, an agreement was reached in the course of business relations, and there was an intention to agree, there was a heavy onus on the party alleging that it was not intended to give rise to legal obligations.”​

Regarding the use of the term “ex gratia,” Megaw J stated:​

“The words ‘ex gratia’ in a promise to make a payment, although indicating that pre-existing legal liability was not admitted, did not carry a necessary or even probable implication that the promise was intended to be without legal effect.”​

He further noted that the company’s argument that the payment was intended to be non-binding to avoid tax liability was unconvincing.

“The evidence falls far short of showing that this supposed background of avoidance of tax liability was present as an important element in the minds of all, or indeed any, of the persons who attended the meeting.”​

Megaw J concluded that the agreement was a valid contract supported by consideration and enforceable by law.​

Ratio Decidendi

In commercial agreements, there is a strong presumption that the parties intend to create legal relations. The use of terms like “ex gratia” does not, by itself, negate this presumption. The burden of proof lies on the party asserting the absence of such intention.​

Obiter Dicta

Megaw J discussed the objective nature of determining the intention to create legal relations, highlighting the challenges in assessing the subjective intentions of multiple representatives in a business meeting.

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