Facts
The employer (CLS) engaged WJG as a contractor for the construction of a library, retail unit and three residential apartments. Whilst the parties were negotiating the terms of the JCT contract, the parties entered into a Letter of Intent (" LoI "). After negotiations between the parties, this included an overall liability cap of £1.1million (having increased various terms from the original limit of £150,000).
CLS terminated the contract. WJG asserted that CLS was in repudiatory breach of contract and sought £1,413,669.24 from CLS by way of termination of the account.
Claim
CLS brought a claim under Part 8 against WJG and sought a declaration from the Court that (i) there was no construction contract so the LoI therefore governed the legal relationship between the parties and (ii) the maximum liability was £1.1million.
WJG argued that the proceedings ought to be brought under Part 7, the terms of the cap did not apply and the JCT Intermediate Contract was applicable. Accordingly, WJG also sought to argue that CLS were estopped from relying on the liability cap.
Judgment
In the TCC, the judge determined that the matter was suitable under Part 8 as the facts were not materially disputed between the parties and:
- The LoI was binding since the JCT contract terms had never been agreed so could not apply; and
- The cap of £1.1.million was therefore applicable.
As to WJG's estoppel argument, the judge decided this was weak and had no real prospect of success.
Implications
This case is a stark reminder to parties not to enter into LoI's lightly. It is, generally, preferable to take the time to negotiate the terms of the construction contract (be that JCT or otherwise) before works start as once they commence, the contract negotiations are often sidelined (or not even concluded as in this case).
If it gets to a stage where a LoI is the only option, parties should ensure the terms are clear and any limits of liability are regularly monitored to ensure they are not exceeded. Works should stop when the limit of liability is reached since continuing to carry out any works beyond this, could be at the contractor's peril.
