UK: Letters Of Intent: More Salutary Lessons From The Court Of Appeal

Last Updated: 11 January 2007
Article by Billie Bingham and Victoria Pecket

The Courts’ time has again been occupied by a dispute concerning a letter of intent. In this recent case the Court of Appeal considered a letter of intent which included a temporary arrangement for the provision of facilities management services by Skanska to Somerfield Stores. This judgment reminds us of the following:

  • The dangers of using letters of intent to start works early when the terms of the contract have not been agreed.
  • Judges should not rush to strain the meaning of words even if that leads to a result which does not appear to them to be commercially reasonable.
  • The term "subject to contract" as a label does not always mean that no contract is enforceable.

To view the article in full, please see below:


Full Article

The Courts’ time has again been occupied by a dispute concerning a letter of intent. In this recent case the Court of Appeal considered a letter of intent which included a temporary arrangement for the provision of facilities management services by Skanska to Somerfield Stores. This judgment reminds us of the following:

  • The dangers of using letters of intent to start works early when the terms of the contract have not been agreed.
  • Judges should not rush to strain the meaning of words even if that leads to a result which does not appear to them to be commercially reasonable.
  • The term "subject to contract" as a label does not always mean that no contract is enforceable.

In June 2000, Somerfield (the well known supermarket operator) invited Skanska to tender for the provision of maintenance services to its properties for a 3 year period. A draft contract known as the "Facilities Management Agreement" (FMA) was attached to Somerfield’s letter. Negotiations ensued over the terms of the FMA but before it was concluded, Somerfield decided that it wanted to receive Skanska’s services immediately so it sent Skanska a Letter of Intent.

The Letter of Intent included the following:

  • It was expressed to be "subject to contract".
  • Somerfield requested the provision of services "which are more particularly described in the draft contract enclosed with the Tender".
  • The letter also stated "you will provide the services under the terms of the Contract from 28 August 2000… until 27 October 2000 ("the Initial Period").

A final contract was never concluded, although two extensions to the temporary agreement were granted until January 2001. A dispute arose and Skanska sought to enforce certain terms of the FMA. During the dispute it was common ground between the parties that although the letter of intent was headed "subject to contract" it did include a contract relating to the provision of "services". This reminds us that documents headed "subject to contract" will not necessarily be devoid of all contractual effect.

The Judge in the Technology and Construction Court ("TCC") accepted Skanska’s argument that the Letter of Intent incorporated only the terms of the FMA that were necessary to define the services Skanska was to provide. In summary, he interpreted the words in the Letter of Intent by giving consideration to the surrounding circumstances in which they were written.

The Court of Appeal disagreed with the Judge and noted the following:

  • The surrounding circumstances and commercial commonsense do not represent a licence to the court to re-write a contract merely because its terms seem somewhat unexpected, a little unreasonable or not commercially very wise.
  • The contract will contain the words the parties have chosen to use in order to identify their contractual rights and obligations… they have control over the words they use and what they agree.
  • The court must be careful before departing from the natural meaning of the provision in the contract merely because it may conflict with its notions of commercial common sense of what the parties may, must or should have thought or intended. Judges are not always the most commercially minded let alone the most commercially experienced, of people, and should, avoid arrogating to themselves overconfidently the role of arbiter of commercial reasonableness or likelihood.

The Court held that the words "you will provide the services under the terms of the contract" should be given their natural meaning (that is, the provision of the services required by the letter was to be governed by the draft FMA appended to it). Their reasoning was that the parties were prepared to be bound by the terms of the FMA for a short period whilst negotiations continued i.e. they were content with its general thrust.

The Court also noted that the services were of a relatively complex nature, including over 300 different types of operation, and therefore it was more likely than not that the parties would have expected to have fairly detailed provisions, such as those contained in the June FMA, rather than virtually no express terms.

The Judge in the TCC had erred in holding the Letter of Intent incorporated only the terms of the FMA that were necessary to define the services Skanska was to provide. The natural and ordinary meaning of the words "under the terms of the contract" was that the terms of the draft contract would govern the services to be provided under the temporary agreement (except to the extent they were inconsistent with the terms of the letter itself) without being limited to identifying the services by reference to the draft contract.

The Court of Appeal concluded the matter would be sent back to the Judge in the TCC to enable him to decide which of the terms of the FMA would apply to the temporary arrangement.

Case: Somerfield Stores Ltd v Skanska Rashleigh Weatherfoil Ltd [2006] EWCA Civ 1732

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 11/01/2007.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.