One of the issues relating to letters of intent is whether the intended standard form contract’s terms apply before that contract is signed.
Let’s consider some of the typical ways the paying party seeks to introduce those terms and what the courts have said about whether that attempt works.
Current intention
Attempt 1: “We confirm it is our intention to enter into a contract based on a standard form. These works documents will be incorporated into any order with us.”
In OD v Oak Dry Lining [2020], the court said that whilst it made sense for the works documents to be agreed at this point, it does not mean that…the [standard form’s] terms were incorporated. It is one thing to agree what particular you will have if you execute [the standard form]; it is quite another to say that you have, therefore, incorporated all those [standard form] terms and conditions at the outset.
Knowledge/acceptance
Attempt 2: “This letter of intent is based on your knowledge and acceptance of [specific standard form] contract.“
In OD v Oak Dry Lining, the court said this merely meant the contractor was agreeing in advance the standard form that would apply.
…the LOI contemplated only two possibilities. Either it applied by itself and on its own, with the provision for payment and relevant particular terms contained within it or a [standard form] contract is actually executed and signed with all the particulars filled in. There is, in my judgement, no third way, i.e. that in the meantime there is an adoption of the [standard form’s] terms. Neither the language nor the context of the LOI provides for that and nor it is, in any way necessary…
In accordance with...
Attempt 3: “It is our intention to award you the works as detailed within these documents for this project, but we are not yet in a position to enter into a subcontract agreement.
Subject to the terms of this letter, we authorise and request you to proceed immediately with all works necessary to enable you to achieve the design and construction programmes in accordance with the listed documents.”
In Twintec v Volkerfitzpatrick Ltd [2014] the court said that it was necessary for [the subcontractor] to carry out the work in such a manner that it would not put itself in breach of any of the terms in the standard form of sub-contract once it had been entered into… But I do not consider that it can be said that dictates of business efficacy require a term to be implied that [the subcontractor] would comply with every term of the [standard form of subcontract’s] conditions…
The court held that what the LOI required was that [the subcontractor] would carry out such works as were necessary to achieve the programmes, being work that was compliant with the requirements of the documents identified in the LOI.
What should you do?
If you want to rely on the terms of a standard form contract or subcontract, you need to get it signed. Any attempt to adopt its terms and incorporate it in the interim is likely to be ineffective.
Cases: OD Developments v Oak Dry Lining Ltd [2020] EWHC 2854; Twintec Ltd v Volkerfitzpatrick Ltd [2014] EWHC 10
