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legal alert: The dangers of using letters of intent

06 Nov 2018

Case: Arcadis Consulting (UK) Limited v AMEC (BCS) Limited [2018] EWCA Civ 2222

The Court of Appeal has overturned a TCC judgment in which it was held that a consultant could not rely on a limitation of its liability in a letter of intent because the final contract had not been agreed.

Facts

AMEC was engaged as a sub-contractor on 2 projects and wanted to appoint Arcadis as its design consultant on both projects. The parties negotiated the terms of a framework agreement for both projects.  Various draft terms were exchanged, including a cap on Arcadis’ liability. However a formal contract was never signed or agreed. 

Defects arose at the car park (the second project) and AMEC sought to recover c£40million losses from Arcadis.  Arcadis sought to claim its liability was limited as per the interim terms agreed.

The judge at first instance held that none of the terms that the parties had been negotiating were incorporated because a final agreement had not been reached.  This meant there was no limitation provision on which Arcadis could rely.

Decision

The Court of Appeal overturned the first instance decision. AMEC had instructed Arcadis to proceed under a set of “interim terms” pending agreement of the framework agreement.  By its conduct and correspondence, Arcadis proceeded on the basis of these terms and those terms governed the contract for the first project.

AMEC also instructed Arcadis to perform services under the second project on the “terms and conditions we are currently working under with yourselves”.  The court looked at the natural meaning of the words and held this meant that the second project was to be governed by the same terms as the first project.  It disagreed with the first instance judge who interpreted the words “working under” to mean “under negotiation”.

The parties had entered into an interim contract pending conclusion of the framework agreement and Arcadis had accepted these terms by performance of its services and by letter.  The correspondence made it clear that the parties intended for there to be a limitation of Arcadis’ liability and it would have been “extraordinary” for Arcadis to have assumed unlimited liability.

Implications

If parties are to use letters of intent or interim terms pending conclusion of a contract, they should proceed with caution.  Interim terms may still be binding and so parties should ensure that they are comfortable with the terms agreed and negotiated, particularly concerning payment and liability.  It is important to limit the scope and value of works under a letter of intent and make it clear the final contract will supersede terms in the letter of intent.

If you require any assistance with reviewing or preparing a letter of intent, please contact Bal Manak on bal.manak@watsonburton.com or 0345 901 0929.

 
 
 

Contacts


Bal Manak | Associate

Email:
bal.manak@watsonburton.com
Tel:
0345 901 0929