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Legal Comment
by Peter
Horne
A Bit More On Letters Of Intent
I hope that this is not getting boring - for the last two issues we have been discussing letters of intent which, on the face of it, appeared to let the entire contract and incorporate the standard terms referred to but which did no such thing - they were pure letters of intent and there would be no contract until the formal document was executed.
What we have now is a letter of intent which purports to accept part of a tender but which is signed by the contracting parties then there is a second 'letter of intent' which purports to accept the other parts of the tender but which the Building Contractor did not sign.
The case is Allen Wilson Shopfitters -v- Mr Anthony Buckingham. The court did not establish the full value but stated that 'the work actually carried out was, on any view, over £500,000'. The work was in an existing property at Bucklers Hard, Beaulieu (even a wonderful part of the country can give rise to disputes). The first 'letter of intent'? was for a restricted scope of work, covering schedules 3 and 4, in the sum of £68,500 and based on the JCT contract. I immediately started thinking 'hang on, all this accepting part of the tender seems a bit iffy'. We then find that the contractor signed and returned a copy of the letter in accordance with instructions therein. OK so far - proper contract for two sections of the work (spot the offer/counter offer and acceptance?). Then there was a second 'letter of intent'? covering the remaining works and in similar terms to the first. This letter was not, however, signed and returned by the contractor. Oho, I think, here comes trouble. A dispute arose (as you may expect) over the payment for work covered by the second 'letter of intent'. The judge found that this work had been instructed by the employer's agent and that variations so instructed were covered by a variations clause in the contract which had been formed by the first (signed) 'letter of intent'. No-one seems to have said anything about the 'variations' changing the entire nature of the contract. Thus we now have letters of intent which are nothing of the sort; the first is actually a counter-offer which is accepted by the contractor and the second is an instruction to carry out variations!
The judge did criticise the consultants, in particular, because there was no lump sum agreement in place before work commenced. So many disputes arise out of just this point (what is good for our business is usually bad for the industry as a whole).
This case also again confirms that adjudication is not an unfair term under the Unfair Terms in Consumer Contracts Regulations.
Court Of Appeal Get It Wrong
If anyone has been quoting the Court of Appeal judgment in Lesotho Development Authority -v- Impreglio SPA and Ors you may have to reverse your position as the House of Lords, 30 June 2005, largely reversed the C of A decisions.
It appears that the Court of Appeal 'did not take into account the radical nature of the alteration of our arbitration law brought about by the 1996 Act. Moreover, the Court of Appeal approached the construction of section 48(4) through the lens of case law pre-dating the 1996 Act'. (para 22 of the House of Lords opinion) at least as regards one of the issues.
There were only two issues, each with a sub-issue:
Whether the original tribunal had the power to express the award apportioned between several different currencies. The sub-issue was whether the tribunal had acted in excess of jurisdiction on this matter.
Whether the original tribunal had the power to award pre-award interest under section 49 of the Act or was such power excluded or modified by the terms of the contract or the operation of (Lesotho) law. The sub-issue was whether the tribunal's award of interest amounted to an error of law or an excess of jurisdiction.
All decisions of the Court of Appeal were reversed.
I think that some lessons can be learnt from this case. Firstly, if the Court of Appeal can make such errors, we should never feel embarrassed by any criticism by the Courts. Secondly, take care when applying older judgments to current facts - and do not rely on counsel to get it right. Remember that judgments pre 1996 are still valid precedents provided that they have not been overtaken by legislation.
The Importance Of 'Legal Intent'
I hope that I am not going over old ground unnecessarily but I have noticed that some students (and ex-students) have either been badly taught or have not understood all of the essentials to a valid contract. The matters of offer, acceptance and consideration are generally OK but I have noticed that 'for a legal purpose' then appears. Although contracts for unlawful purposes are unenforceable, students and others should not be diverted at this stage, enforcement is a whole new chapter.
It was on looking at the JCT 2005 Framework Agreement Non-binding (FA/N) (I apologise to the non-construction types for that bit of gobbledygook) that I was reminded of the intention to create a legally binding agreement which is the proper necessity for the creation of a legally binding contract (there is also a binding Framework Agreement). When looking even at the title of this agreement, it suddenly becomes obvious. The agreement will have 'offer and acceptance' and both parties have duties, therefore consideration is present and the purpose is lawful BUT it is specifically stated that the agreement is Non-binding and it is therefore not a legally binding contract. I have been telling people for years that, in a commercial situation, it is most probable that there is an intention to create a legally binding relationship - I even have to re-think that!
Reported by Murray Armes