| Date | 6 July 2005 |
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| Judgment | Mowlem plc v Stena Line Ports Ltd, TCC 6 October 2004 |
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| The Issue | Applying the terms of letters of intent. |
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| Implication |
Where a letter of intent provides a limit of expenditure, the contractor should be careful not to carry out works in excess of that limit without express sanction. |
printStena Line Ports is the owner and operator of the port of Holyhead in Anglesey. Stena engaged Mowlem to construct the marine and onshore works of a new ferry terminal called Terminal Five. The works were undertaken by Mowlem on the strength of no less than 14 letters of intent written on behalf of Stena by its consulting engineer, Mouchel. It was common ground between the parties that each of those 14 letters of intent took effect as a contractual offer from Stena, which Mowlem accepted by carrying out the works outlined in the letter. Following the 1983 case of British Steel Corporation v Cleveland Bridge Engineering, the letters of intent brought into place an "if" contract whereby, if Mowlem carried out the works, Stena agreed to pay a reasonable sum for those works up to the sum set out in the letter of intent. It was also agreed by the parties that the contract brought into existence by the acceptance of each letter of intent superseded the previous contract so that it was the final letter of intent dated 4 July 2003 which was relevant to any analysis of the contractual and legal rights of either party after that date. That last letter of intent was in a fairly standard format; "On behalf of Stena Line Ports Ltd we confirm that it is their intention to award to you the above contract subject to this being confirmed by execution of a written contract in due course. In the meantime, pending finalisation and agreement of a number of outstanding issues this letter of intent supersedes the previous letter of intent and authorises you to proceed with the following works: Secure and mobilise marine plant and drilling equipment; supply and deliver reclamation material; proceed in accordance with the contract both for on and off site works. You will be paid in accordance with the provisions in the tender documents such reasonable amounts as can be substantiated in respect of your costs for orders placed or work done, subject to the maximum amount given below. We confirm that Stena Line Ports' commitment to expenditure up to a maximum of £10 million will enable you to proceed with the works in accordance with your program until 18 July 2003". As might be anticipated, the works did not finish by 18 July 2003 and nor did Mowlem, according to their submissions, complete the works within the £10 million limit. A dispute arose between the parties and the matter came before the Technology and Construction Court in London. Mowlem argued that Stena was fully aware that it had carried out works after the 18 July 2003 and indeed Stena had issued various orders for extra work after that date, after they had been informed that the cost of the works would exceed £10 million. Mowlem contended that having been instructed to carry out and complete the works after 18 July 2003, they became entitled to be remunerated for the whole of the works on a quantum meruit basis. Alternatively, Mowlem said that there was a number of items within their account which fell to be considered outside the £10 million limit, including a disputed clause 12 claim which the parties had separately agreed to refer to conciliation and the separate instructions which had been received after 18 July 2003. Mowlem concluded that the limit of £10 million only applied until that limit had been reached. Accordingly, if a reasonable sum for the work done exceeded £10 million, the limit ceased to be material. Stena argued that the correct course for Mowlem to follow in the event that it considered that the limit of £10 million imposed by the letter of intent was too low, was to have stopped work or at least to have threatened to do so. Stena noted that Mouchel's valuation of the work was considerably under the £10 million figure, therefore any submission on behalf of Mowlem which depended upon Stena knowing that Mowlem had incurred costs in excess of £10 million at any point was misconceived. Stena added that Mowlem was not prohibited from carrying out works after 18 July 2003. If Mowlem chose to carry out works after that date, those works would be subject to the terms of the letter of intent and in particular they would be subject to the limit of £10 million. Finally Stena contended that there could be no entitlement to quantum meruit since it was clear that the terms for payment were entirely governed by the contract between the parties. His Honour Judge Richard Seymour QC accepted entirely the arguments of Stena. The last letter of intent was effective to secure that Mowlem would be entitled to be paid such reasonable amounts as it could substantiate in respect of costs for orders placed or work done subject to a maximum amount of £10 million. Judge Seymour was clear that the letter of intent did not have effect only until 18 July 2003 or only in relation to work done or work instructed before that date. It would make no commercial sense to have a financial limit on Stena's obligations to make payment which could be avoided by the simple expedient of continuing to carry out work after 18 July 2003. Judge Seymour commented that it would be even more bizarre commercially if the financial limitation of Stena's obligations could be avoided simply by Mowlem exceeding that limit. Mowlem's claim in the action accordingly failed and a declaration in favour of Stena was given with the effect that Mowlem's entitlement to payment for the works would be subject to a maximum of £10 million.
CJ-0526
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