Letters of intent


Traditionally Courts bend over backwards to find a contract exists where the parties had begun performance whilst negotiations continued. However, in recent years the Court of Appeal (CA) has indicated a firm departure from that approach and this is once again reflected in this case. The implications for contracting parties are potentially quite serious and, in many respects, uncertain.


After a tender process, H selected W as its sub-contractor for certain distribution services. The words ‘subject to contract’ were used frequently in the documentation and the letter of intent made clear that any work undertaken before the formal contract had been concluded was at W's risk.

The parties then entered into an ‘interim agreement’ which was largely on the same terms entered into between H and its previous sub-contractor. No long term contract was ever signed. However, W started performance, invoiced H and H paid W. Later on details of the long term agreement were agreed in principle but H never supplied a signature copy. H then gave six months' notice of its intention to terminate its arrangements with W in line with the notice period referred to in the interim agreement.


points to note:

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