In Edwards v Skyways Ltd [1964], the court held that a promise made by the company to provide ex gratia payments to redundant pilots created an intention to enter into a binding agreement, despite the company's claim that it was non-binding. The judge noted that although ex gratia typically implies no legal obligation, the context of business relations and the understanding of the parties involved indicated that a binding agreement was intended. Ultimately, the court ruled in favor of the plaintiff, confirming the enforceability of the agreement.

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Casenotes
Edwards v Skyways Ltd [1964] 1 WLR 349 1964 1 All ER 494 Queen's Bench
Division
[This version of the judgment has been edited by Dr Robert N Moles
Underlining where it occurs is for editorial emphasis]
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The Secretary of the Board of Skyways was empowered in discussions with the
British Air Line Pilots Association to agree to payments to redundant aircrew
members of an ex gratia amount with regard to pension and superannuation. The
Company and Association reps met and agreed that payment would be made of an ex
gratia amount with regard to the pension payment, and a refund of contributions. The
decision was published in the newsletter. One redundant pilot was told what his
payment and refund would be. He received the refund, but then the company
rescinded its decision to make the ex gratia payments. When he sought to recover it,
he was told that there was no obligation to pay it.
HELD Megaw LJ
The company admits that a promise was made and that it intended to carry it out. The
plaintiff acted on the belief that it would be fulfilled. The Co says the promise and
agreement had no legal effect because there was no intention to enter legal
relations. Rose and Frank and Balfour recognise that an agreement may not give rise
to legal rights because this was not intended - in the social relations of that case. Even
regarding business affairs, the parties can show that it was their intention to make the
agreement binding in honour only and the courts will respect that intention.
In this case the matter is business relations. There was a meeting of minds, an
intention to agree. I am not sure how the "objective" test of intention works between a
company and a trade association where there were 5 or 6 people on either side.
However, the company says, ex gratia means not binding and the background
knowledge understood it as such. Ex gratia may mean without admission of liability,
or without there being any pre-existing legal right (may be to avoid setting an

2. awkward precedent). Settlements are often expressed in this way. But this does not
mean that such agreements are legally unenforceable.
It was understood at the meeting that if the payments were made as a result of a
legally enforceable agreement, they would be taxable. But if made without legal
obligation on the part of the company, then it would not be taxable. So the agreement,
it was argued, intended to exclude legal sanctions. The evidence does not show that
this factor was an important element in the minds of all those at the meeting. Thus the
argument was not sufficient to establish that this was the intention of all present.
Judgment for the plaintiff.