A word of caution on letters of intent
27 Sep 2017
In Arcadis Consulting (UK) Ltd v AMEC Ltd the TCC found that a simple contract existed between two parties based on a letter of intent. However, without a formal contract the terms and conditions proposed by the parties to limit liability were not incorporated into the contract, despite successive sets of draft terms and conditions containing such a limit.
Arcadis was employed by AMEC to conduct design services on construction projects with the view to a larger overarching agreement between the parties; however such an agreement was never confirmed.
Following the completion of Arcadis’s services regarding a car park, serious defects arose. Arcadis maintained a contract existed which incorporated terms and conditions and schedules capping its liability to AMEC at £610,515. AMEC contended the parties had not reached an agreement as to the applicable terms and conditions. The question that the court therefore faced was whether there was a contract and, if so, whether it incorporated a liability cap.
The TCC decided that, firstly, a binding contract existed based upon the letter of intent; essentially, an offer to carry out the work and an acceptance of price. Differing draft contractual terms and conditions had been negotiated between the parties, each with varying levels of limitation to Arcadis’s liability. However, despite finding that there was a contract, there was no clear agreement to any of the negotiated terms and conditions and therefore the court held there was no cap on Arcadis’s liability.
The conclusion that can be drawn is that special care needs to be taken by parties who wish to limit their financial liability. Parties should take time to ensure that a formal contract incorporating the relevant liability cap has been agreed before work commences and risk crystallises.