[1964] 1 All ER 494
Queen's Bench
Edwards worked as an airline pilot for Skyways. Skyways offered Edwards redundancy on terms that if he withdraw his pension contribution they would make him an ex gratia payment 'approximating to' their contributions. Edwards accepted the offer but Skyways refused to make its promised ex gratia payment to him. Edwards sued for the promised ex gratia payment. Skyways claimed that by using the term 'ex gratia' they had intended not to create legal relations.
Megaw J
[The] agreement is recorded as follows...
'To those pilots who are finally declared redundant, the company will make an ex-gratia payment equivalent to their (the company's) own contributions to the... Pension Scheme.'
... The plaintiff has not been paid, because the obligation was merely, as I understood the defendant company's view, a moral one, which they repudiated. It is not necessary for me to set out the subsequent history, since it does not affect the issue, namely: was there a legal obligation on the part of the defendant company?
The defendant company admit, as I understand it, that at the meeting a promise was made on their behalf with their authority, although the actual word 'promise' was not used. In the defence it was pleaded that no consideration moved from the plaintiff. That plea was expressly abandoned at the hearing. It was conceded that there was consideration. The defendant company admit that it was their intention to carry out their promise when they made it, and that the plaintiff's representatives, and the plaintiff himself, believed, and acted in the belief, that the promise would be fulfilled. Everyone, at the end of the meeting, believed that there was an agreement which would be carried out. But the defendant company say that the promise and the agreement have no legal effect, because there was no intention to enter into relations in respect of the promised payment.
It is clear from such cases as Rose and Frank Co. v J. R. Crompton & Bros., Ltd. and Balfour v Balfour, that there are cases in which English law recognises that an agreement, in other respects duly made, does not give rise to legal rights, because the parties have not intended that their legal relations should be affected. Where the subject-matter of the agreement is some domestic or social relationship or transaction, as in Balfour v Balfour, the law will often deny legal consequences to the agreement, because of the very nature of the subject-matter. Where the subject-matter of the agreement is not domestic or social, but is related to business affairs, the parties may, be using clear words, show that their intention is to make the transaction binding in honour only, and not in law; and the courts will give effect to the expressed intention. [See Scrutton LJ in Rose and Frank Co. v J. R. Crompton & Bros, Ltd.]
In the present case, the subject-matter of the agreement is business relations, not social or domestic matters. There was a meeting of minds -- an intention to agree. There was, admittedly, consideration for the defendant company's promise. I accept the propositions of counsel for the plaintiff that in a case of this nature the onus is on the party who assets that no legal effect was intended, and the onus in a heavy one... [T]he defendant company say, first, as I understand it, that the mere use of the phrase 'ex gratia' by itself, as a part of the promise to pay, shows that the parties contemplated that the promise, when accepted, should have no binding force in law. They say, secondly, that even if their first proposition is not correct as a general proposition, nevertheless here there was certain background knowledge, present in the minds of everyone, which gave unambiguous significance to 'ex gratia' as excluding legal relationship.
As to the first proposition, the words 'ex gratia' do not, in my judgment, carry a necessary, or even a probable, implication that the agreement is to be without legal effect. It is, I think, common experience amongst practitioners of the law that litigation or threatened litigation is frequently compromised on the terms that one party shall make to the other a payment described in express terms as 'ex gratia' or without admission of liability'. The two phrases are, I think, synonymous. No one would imagine that a settlement, so made, is unenforceable at law. The words 'ex gratia' or 'without admission of liability' are used simply to indicate -- it may be as a matter of amour propre, or it may be to avoid a precedent in subsequent cases -- that the party agreeing to pay does not admit any pre-existing liability on his part; but he is certainly not seeking to preclude the legal enforceability of the settlement itself by describing the contemplated payment as 'ex gratia'. So here, there are obvious reasons why the phrase might have been used by the defendant company in just such a way. They might have desired to avoid conceding that any such payment was due under the employers' contract of service. They might have wished -- perhaps ironically in the event - to show, by using the phrase, their generosity in making a payment beyond what was required by the contract of service. I see nothing in the mere use of the words 'ex gratia', unless in the circ*mstances some very special meaning has to be given to them, to warrant the conclusion that this promise, duly made and accepted, for valid consideration, was not intended by the parties to be enforceable in law.
