EWHC 1439 (TCC)
25 June 2008, Mr Justice Akenhead
In early 2007, Clapham Park Homes (“CPH”) wished to have refurbishment and regeneration works carried out to a number of houses and flats. Diamond Build Ltd (“DB”) were invited to tender for the works. The invitation to tender letter dated 2 March 2007 enclosed a specification and other documents. The specification stated that the contract would be the JCT Intermediate Building Contract 2005 edition With Contractor’s Design and that the agreement would be executed as a deed.
DB submitted its tender on 2 April 2007 and on 5 June 2007, CPH sent DB a letter of intent, which was reissued on 7 June 2007. The letter of intent was signed by DB. Amongst other things, the letter of intent set out when the works were to commence and the Contract Sum and also stated that:
- it was CPH’s intention to enter into a contract with DB on the basis of the JCT Intermediate Form of Contract, 2005 Edition with further amendments as specified in the Specification;
- should it not be possible for CPH and DB to execute a formal contract in place of the letter of intent then CPH would reimburse DB their reasonable costs up to and including the date on which DB was notified that the contract would not proceed provided that the Supervising Officer was satisfied that those costs were appropriate and that in any event total costs would not exceed £250,000; and
- the undertakings given in the letter of intent would be wholly extinguished upon execution of the formal contract.
Following commencement of the works, the contract documents were drawn up and signed by CPH and sent to DB for signature. In the meantime, DB negotiated with a subcontractor to enter into a JCT form of subcontract consistent with the main contract arrangement and interim certificates were issued using a JCT proforma. However, DB did not sign and return the contract documents. Disputes arose between the parties and on 15 November 2007, CPH wrote to DB giving notice that no further work was to be carried out under the letter of intent. DB responded stating that the contract was based on the JCT Intermediate Form of Contract, 2005 Edition. The question of what contract terms governed the parties was referred to the TCC.
Issues and Findings
Had the letter of intent been superseded by the contract documents?
Could it be argued that CPH were estopped from relying on the letter of intent?
At the outset of his judgment the Judge commented that this is a case which illustrates the dangers posed by letters of intent which are not followed up promptly by the parties’ processing of the formal contract anticipated at the letter of intent stage. Even though the parties in this case essentially acted as if the formal contract documents had been executed, on the basis of the law as it stands, the letter of intent was still held to be in force thus limiting the recourse of the contractor against the employer.