| Date | 1 July 1998 |
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| Judgment | Midland Veneers Ltd -v- Unilock HCP Ltd, CA 12 March 1998 |
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| The Issue | The use of letters of intent. |
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| Implication |
The court will look for unequivocal acceptance embracing all essential terms in order to find a contract. |
printTo establish a contract not only requires agreement by the parties on all the terms they consider essential, but also sufficient certainty in their dealings to satisfy the common law requirement of completeness. An intention to create a legally binding relationship must also be present. Letters of intent traditionally fail on both, since they are usually an incomplete statement preparatory to a formal contract. Under normal circumstances therefore, a letter of intent is binding upon neither party. Such an outcome usually works to the disadvantage of the client or purchasing party. For example, in British Steel -v- Cleveland Bridge in 1984, the supplier of steel castings was held entitled to a reasonable sum for the work carried out under a letter of intent, but not liable for delays or short supply since no contract had been formed which could be said to define the scope of works in their entirety. A typical arrangement where a letter of intent is often used is where goods are on long delivery and the purchaser instructs the seller to place orders for materials in advance of a contract being entered into. In the event of there being no subsequent contract the seller will be entitled to be paid on a quantum meruit basis, or in other words, a reasonable remuneration. However this is not to say that in all such circumstances no contract will be found. A letter of intent may occasionally take effect as an ancillary contract entitling the recipient to interim costs if the intended future contract is not made and perhaps imposing liabilities, for example for the quality or suitability of work done. In any event a court will examine the nature of the negotiations and exchanges between the parties to establish whether terms necessary for a binding contract have been agreed. For example in VHE Construction -v- Alfred McAlpine in 1997, despite the parties having failed to agree important terms relating to the frequency of payment and the amount of discounts to be applied to the contract price, the court held that there was a contract and that the disputed points were simply a question of interpretation of that contract. In Mitsui Babcock -v- John Brown Engineering in 1996 the court arrived at a similar decision. Unable to agree terms for the testing of the works upon completion, the contract documents had been signed and initialled with all the relevant clauses relating to performance crossed out and annotated to the effect that these remained to be agreed. Again the court held that a binding contract had been concluded notwithstanding the absence of agreement on these significant terms. A case where the court refused to find a contract however, between Midland Veneers Ltd -v- Unilock HCP Ltd, was decided in the Court of Appeal in March of this year. Unilock had issued to Midland a letter of intent for the supply and installation of joinery fittings to encase heating installations for an office refurbishment. Negotiations continued and some goods were supplied, and shortly afterwards Unilock placed an order with Midland which made reference to the intended level of liquidated and ascertained damages and to its requirement for a parent company guarantee. Midland in turn acknowledged the order with a letter which stated: "Thank you for your valued order, which has been passed to a production unit for processing. They will send you their order acceptance shortly or will contact you if full manufacturing details have not been received with your order." Following this there was a considerable exchange on the terms and conditions, culminating in Unilock agreeing by letter to waive its requirement for a parent company guarantee and for liquidated damages. In due course the works were largely completed, but a dispute arose concerning delay. Examining all of these matters the Official Referee found that there had been no concluded contract between the parties as there had been no acceptance by Midland. He concluded that the only matter where the parties were ad idem was as to price. Unilock appealed arguing that the judge was wrong in law in finding that no contract had been concluded. Firstly they argued that the Midland acknowledgment letter amounted to an acceptance. The Court of Appeal held that this was no more than an acknowledgement. The letter said that the order was being passed to another division of the company which was to either send their acceptance or request further details. The judge commented: "Manifestly that cannot in law amount to acceptance and the attempt to dress it as acceptance, is in my judgment, hopeless." Finally Unilock argued that there had been an accepted contract by the performance of the parties. That contract contained clear agreements as to price, specification and performance. Such difference as there was related merely to agreement over the standard conditions which were to apply. This, argued Unilock, was something of a luxury and by no means necessary for the operation or construction of the contract. The Court of Appeal dismissed this argument. The judge had found that there was agreement as to price only, and this was not a finding of law but a finding of fact. Accordingly the Court of Appeal concluded that there was no argument on any point that could properly be categorised as a point of law and accordingly the appeal against the Official Referee's finding, that there had been no concluded contract, was dismissed.
CJ-9823
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