If one party has fulfilled its obligations under the contract and the other party fails to perform its share, it may lead to unjustified enrichment of not holding the other party legally liable. „Whether the parties intend to establish legally binding relationships is a question that must be determined objectively and not by questioning their respective mindsets.“ Trade relations: In the case of commercial relations, it is generally assumed that the parties, unless refuted, intend the agreement to be legally binding. However, this principle can be crucial in deciding whether an agreement is legally binding, as evidenced by the recent Blue v Ashley (2017) EWHC case in 1928. The case concerned an agreement between Mr Michael Ashley, owner of Sports Direct Group, and Mr Jeffrey Blue, a management consultant, which stated that if Mr Michael Ashley. Blue could guarantee Mr Ashley`s company`s share price at more than £8 per share, Mr Ashley would pay him a bonus of £15 million for his services. The deal was struck in a pub with other Sports Direct representatives and the company`s share value rose to over £8, but Mr Ashley claimed the deal was just a „skirmish“ and refused to pay the bonus to Mr Blue. Mr Blue then brought an action. In the High Court, Leggatt J. focused on whether there was an intention to establish legal relationships. The case revolved around the factual context in which the alleged contract was concluded and, finally, the action was dismissed on the ground that, according to the objective test, the social environment did not indicate that a formal contract had been concluded, so that Mr Blue could not rely on the agreement to draw legal consequences from it. This case illustrates the importance of the intention to create legal relationships in the design of a contract as a crucial element of the court`s analysis in practice, which ultimately cannot be undermined.
For commercial transactions, the strong presumption of a valid contract applies: these agreements, in which the parties act as if they were foreigners, are considered binding. However, „honor clauses“ in „gentlemen`s agreements“ are recognized as a denying intention to create legal relationships, as in Jones v Vernons Pools (where the „This agreement is binding only in honor“ clause was effective). Care must be taken not to draft a clause to try to exclude the jurisdiction of a court, because the clause will be void, as in Baker v. Jones.  If a contract contains both an „honour clause“ and a clause that attempts to exclude the jurisdiction of a court (as in Rose & Frank v. Crompton), the court may apply the blue pencil rule that removes the offensive part. The court will then recognize the rest, if it still makes sense and is consistent with the agreements of the parties. The offensive clause read as follows: The burden of proof of intent lies with the applicant. The intention to create legal relationships is often overlooked, but this case shows how this principle can sometimes be crucial to the applicability of a contract. The courts are currently conducting an objective review to determine whether there is an intention to establish legal relationships. This approach has recently been clarified as „an examination of what has been communicated between them by words or behaviour, and whether this objectively leads to the conclusion that they intended to create legal relationships and whether they had agreed on any conditions they considered essential to the formation of legally binding relationships or that the law required“ (Lord Clarke, RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG  UKSC 14, paragraph 45).
The advantages of an objective test are that it creates legal certainty and is based on concrete evidence. The intention to create legal relationships, among other elements such as agreement, security and consideration, has been established as an essential element in the conclusion of a contract. It is considered necessary because it shows the willingness of the parties to conclude a legally binding agreement. In current law, it is clear that the intention to establish legal relationships must be determined objectively. Recently, Lord Bingham asserted in Edmonds v Lawson  EWCA Civ 69: The reasoning behind it has long been accepted that contracts should only be applied if their effect is to be serious. Lord Stowell conceded that „contracts must not be the sport of an off-peak hour, mere matters of courtesy and evil which must never be desired by the parties to have a serious effect“ (Dalrymple v Dalrymple (1811) 161 ER 665). The court ruled that the promise was not legally binding for two main reasons: it is important to note that examining a contract does not rebut the presumption, as businessmen and women are expected to follow the „normal conclusion“. that the parties are not bound to unless they sign. (Sir Andrew Morritt C, Whitehead Mann Ltd v. Cheverny Consulting Ltd (2006) EWCA Civ 1303). . .