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The need to tighten up on letters of intent
Peter Horne
A large proportion of contracts in this country (particularly in the building industry) are carried out on a letter of intent, possibly with the intention of formally executing a contract. There was a recent case Bryen & Langley -v- Boston [2004] EWHC 2450 (TCC) (04 November 2004), in which the interpretation of a letter of intent proved to be crucial and used an interpretation which I believe to be correct in law but inequitable.
The usual thing happened. Boston's consultant prepared tender documents, received tenders, negotiated some savings and issued a letter of intent (12 June 2001) on behalf of Boston who wanted work to start as soon as possible. B&L started work and continued while the contract documents were being prepared. The completed documents were sent to B&L for signature (28 June 2001). They signed and returned the documents (28 August 2001). Hands up anyone who has never come upon this situation before. There is nothing in the judgment about any further action regarding the forms but I assume that they were forwarded to Boston a short time after the end of August 2001 (there is no logical reason why this would not have happened). Boston did not sign the contract and so no copy was sent to B&L.
Work progressed and interim payments were made up to payment number 11 dated 17 July 2002, which was not paid. It appears that both parties had acted, to that stage at least, as though the terms of the JCT form applied. B&L referred the dispute to adjudication, the adjudicator decided that they should be paid, Boston did not pay and B&L sued for enforcement of the adjudicator's decision.
It is important to note at this point that Boston was a "residential occupier" as defined by the HGCRA, and therefore the provisions of that Act, including the right to adjudication, did not apply. However the terms of the formal contract signed by B&L gave a contractual right to adjudication in any event.
The judge (HH Richard Seymour QC) decided that the work had been carried out under the letter of intent and the terms of the standard form of contract, particularly the adjudication clause, did not apply. The adjudicator therefore had no jurisdiction because the letter of intent did not include an adjudication clause. The relevant terms of the letter of intent were:
"Further to our recent meeting, I can now confirm on behalf of our Client, Mr. Martin Boston, that it is his intention to proceed with the works with your Company in accordance with your Tender and subsequent amendments ….
The Contract will be executed under the Standard Form of Contract 1998 Edition, Private with Quantities and, should the project not proceed, your reasonable ascertainable costs will be recoverable from the Client but will not include any loss of profit or overhead recovery.
Judge Seymour was, in my humble opinion, right in law that the terms of the JCT form would not be incorporated until the contract was formally executed. I cannot argue with that part of his judgment. (Note - the editor is not so sure on this point - see below)
However, there is no indication in the judgment as to the return of tender documents to Boston. If, as I surmise, the documents had been returned to him on about the beginning of September 2001, he would have sat on the documents for some 10 months up to the time of the disputed payment.
Can it be equitable for a party to delay signature until he is aware of the possible advantage or disadvantage of formal execution (compare this with the principle behind disallowing a delayed challenge to jurisdiction in arbitration). I do not think so. A party cannot benefit from its own breach, is this not a similar situation, benefiting from its lack of action while taking advantage of the other parties expectation that the terms applied. Are the courts able to rectify the situation? I believe that there is an equitable power available to the judge to 'make done that which should have been done'? and that such power should be exercised in these circumstances.
Editor's note. I am not sure that the law is as clear-cut as this case suggests. The facts are remarkably similar to those in the earlier case of Westminster Building Company Limited v Andrew Beckingham [2004] EWHC 138 (TCC), including similar wording in the letter of intent. In that case HHJ Thornton found that the formal building contract did come into existence because Westminster's act of signing and returning it constituted an offer and Beckingham's conduct in allowing work to continue and remaining silent signified acceptance. I suspect that the difference between these judgements may be explained by the different judges involved. However notwithstanding this apparent inconsistency this case shows once again the importance of getting formal contracts signed and agreed at the beginning of a project, and not, as so often happens, at the end.