The Full Federal Court’s recent judgement in Cirrus Real Time Processing Systems Pty Ltd v Jet Aviation Australia Pty Ltd [2025] FCAFC 85 offers a critical insight into the formation of contracts.
The judgement shows the importance of an objective intention to create legal relations in a commercial setting, particularly if there is ambiguous language or essential terms which are unresolved and may undermine contractual certainty.
The Court’s decision emphasises the importance of safeguarding your business’ interests and the crucial role of formalising a written contract prior to engaging in an agreement based on the conduct of another party.
Key takeaways from the Federal Court’s decision:
- Whilst verbal contracts are recognised in law, it is best practice to ensure an agreement is in writing! This assists in express evidence of a contract.
- Do not assume another party’s verbal or written commitment in conversation to enter into an agreement creates a legally binding agreement.
- Do not infer contractual intent merely from actions or negotiations.
- If there are essential terms which are unresolved by the parties or noted as terms to be agreed by the parties in future, the Court is less likely to find there was an intention to create legal relations.
- Avoid ambiguous language such as “should” and “commitment” as this may indicate to the Court that negotiations are still ongoing and the terms of a contract have not yet been agreed upon.
How is a Contract Validly Formed in Australia?
In Australia there are five foundational elements to effectively enter a legally binding contract.
- Offer
- Acceptance
- Consideration
- Certainty and Completeness
- Intention to Create Legal Relations
Offer & Acceptance
Offer and Acceptance usually arise together as a clear and definite proposal by one party which is then accepted by the other or multiple parties. Acceptance of an offer must be unconditional. If there is an alteration to the proposal or terms of the offer, this transforms a response into a counteroffer rather than acceptance.
Acceptance does not have to arise from written acceptance but may arise from verbal indication or conduct. One party’s silence will typically not amount to acceptance of an offer.
The best approach to facilitate offer and acceptance is a formal written and signed contract by both parties.
Consideration
Each party to an agreement must provide something of value to the other party. This will typically involve a mutual exchange of value and does not have to involve money but can involve labour, materials and other indications of value.
Certainty & Completeness
All essential terms of a contract must be sufficiently clear, specific to the contract and existent within a contract. Vague or incomplete terms within a contract may render a contract void for uncertainty.
Intention to Create Legal Relations
Whilst typically assumed in any written commercial or business agreement due to the nature of the contract, this is a requirement that both parties intended for an agreement to be legally binding. This presumption is not always absolute but must be considered in context; it cannot be relied upon if you are engaging in a domestic or a purely social arrangement with a family or friend.
What does the Federal Court’s decision tell us about the formation of a contract?
In Cirrus Real Time Processing Systems Pty Ltd v Jet Aviation Australia Pty Ltd [2025] FCAFC 85, Cirrus and Jet Aviation (at the time HP) collectively worked together to obtain a contract with the New Zealand Defence Force over several years. No legally binding arrangement emerged from this extended collaboration. Cirrus contended that if Jet Aviation succeeded in the tender, there was an intention to contract on the specific terms of a quotation document. However, there was no signed subcontract between the two parties and Jet Aviation eventually selected an alternative subcontractor.
The Full Federal Court ultimately determined that no legally binding contract existed between the two parties.
A contentious email was raised in which Jet Aviation stated that it “should” engage Cirrus on the terms of the quotation if the initial contract was awarded, however this was deemed insufficient. The conditional phrasing did not objectively signal a binding commitment between the two parties.
The Court emphasised that terms such as “should” or “commitment”, without unequivocal language between the two parties, failed to evidence an intention to create legal relations. Several essential terms including the pricing frameworks, insurance obligations and liquidated damages also remained unresolved, undermining both the certainty and completeness of any purported contract.
Our Recommendations
When entering into a contract, ensure the following to protect your business:
- Record all terms in a single, comprehensive written document
- Ensure the agreement is signed and properly executed by all parties.
- Ensure all essential terms are included clearly within the contract with no critical elements remaining unaddressed.
- Ensure all terms are unambiguous and use precise language to define obligations and expectations on all parties.
- Do not rely on conduct or informal verbal exchanges as a substitute for a formal written agreement.
- Ensure you maintain an accurate and up to date record of any contract.
Contact Us
Please contact us today if you need advice on entering into an agreement or drafting a written contract for an agreement, on (02) 9189 5288.
Craig Higginbotham and William Ioannou
8 September 2025
