HOW NOT TO SEND LOVE LETTERS TO YOUR LAWYERSLessons in Using Letters of Intent: Sarah Fox

1: IS IT A CONTRACT?Hart v FidlerDiamond Build v ClaphamDurabella v Jarvis

Contract Needs 4 Critical Contents

“It is trite law that in order to have a building contract you usually need agreement as to parties, workscope, price and time... This workscope is plainly not discernible from the letter of November 1. It is based on subsequent orders, instructions and the like which may, or may not, have been reduced to writing. If the contract document does not even begin to define the contract workscope it seems to me impossible to say that all the terms, or even all the material terms, are set out in writing.” Hart Investments Ltd v Fidler [2006]

2: WHY USE THEM?Cunningham v CollettCLLS Guidance

Speed … nothing else

“Letters of intent are used unthinkingly in the UK construction industry, and…they can create many more problems than they solve… [but] there can be limited occasions when such a letter of intent is appropriate”

“There will be times when a letter of intent is the best way of ensuring that the works can start promptly, with a clear time-table both for the finalisation of the contract formalities, and for the carrying out of the works themselves”

Cunningham v Collett & Farmer [2006]

3: WHAT NOT TO DOArcadis v AMEC, Ampleforth v

TTPM

DON’T: get tunnel vision/distracted

DO: get the full contract signed

4: AVOID THREE KEY RISKSNo contractMisunderstandingsBeing Negligent

“This case starkly demonstrates the commercial truism that it is usually better for a party to reach a full agreement (which in this case would almost certainly have included some sort of cap on their liability) through a process of negotiation and give-and-take, rather than to delay and then fail to reach any detailed agreement at all.”

Arcadis Consulting (UK) Ltd v AMEC (BSC) Ltd [2016]

No Contract

“Letters of intent have a valid role. But their limitations must be recognised, although all too often they are not. They are a necessary evil which should only be resorted to when it is absolutely essential to commence works prior to finalising the contract documents. They are not a replacement for a contract, although they are often treated as such. Whatever their form, they have significant drawbacks… They rarely offer certainty as to scope, price or timescale; and if they do, the spectre of the ‘Trojan horse’ usually looms”

SCL paper D116, Bowling

Misunderstandings

Being Negligent“The execution of a contract is to be seen not as a mere aspiration but rather as fundamental. It is the contract that defines the rights, duties and remedies of the parties and that regulates their relationships… letters of intent such as those used in the present case are contracts of a skeletal nature; they pave the way for the formal contract, once executed... They do not protect, and are not intended to protect, the employer’s interests in the same manner as would the formal contract…”

Ampleforth Abbey Trust v TTPM [2012]

What letter of intent users need is simplicity

Creating Success

Make it: Binding Temporary Simple

Image: © Mark Holdgate. Used with permission