Whilst a letter of intent can record the basis for entering into a business relationship, it lacks the certainty and depth that a contract provides. They should therefore be used with caution. Here the parties used a letter of intent, agreeing that they would finalise a contract, but the contract (or any key terms) were never agreed.
Applicants must apply to the right track to avoid wasting time and costs if they are made to restart their application in the correct track.
Background
In 2021 the developer CLS Civil Engineering Limited (CLS) engaged the building contractor WJG Evans and Sons (WJGE) to carry out construction works of a library, retail provision and three apartments at a development in Narbeth, Pembrokeshire.
The matter before the court centred on the contractual relationship between the parties. CLS argued that they were engaged using a letter of intent and its revisions (the LOI) and this was "a short point of contractual construction and is thus suitable for determination under Part 8". Whereas WJGE argued that the construction contract was governed by JCT terms (the Proposed Contract) and/or that CLS is estopped from denying this. WJGE also argued that there were substantial disputes of fact, so a Part 7 determination was more suitable.
The reason this was such an important decision for the parties was that the LOI had a liability cap of £1.1 million for CLS, while the Proposed Contract had no such cap on liability, and WJGE had issued a final application for £1,413,669.24.
Civil Procedure Rules Part 7 vs Part 8
Generally, a claim will be made using Part 7, but if a claim does not involve a substantial dispute of fact then Part 8 may be used. Part 8 claims are usually dealt with quicker as they are determined without lengthy pleadings and omit various usual stages of proceedings such as disclosure and will therefore save on costs.
The Technology and Construction Court guide says it will hear applications for declaratory relief "arising out of the commencement of an adjudication". For example, a Part 8 claim can be used when challenging the jurisdiction of an adjudicator or the validity of his decision, provided the relevant primary facts are not in dispute.
The Court has a discretion under CPR 8.1(4) to order a claim to continue under Part 7. Neil Moody KC was the sitting judge and he observed that if he could not determine the issues, then he would have to exercise that discretion leading to extended delays and cost, which would have been disproportionate to the amount in dispute in this case.
Judgement
Neil Moody KC observed that the key dispute was the validity of WJGE's final valuation and whether the cap was agreed and limited CLS' liability. He also observed that there were multiple disputes of fact, and the parties had not agreed the scope of the dispute nor the manner in which disputes should be determined. However, the parties had agreed that it was open to the Court to consider disputed matters against a summary judgment test –i.e. whether WJGE has a real prospect of success on the relevant issue.
Moody KC considered that the facts which were in dispute were neither substantial nor did they materially impact the key element of the claim - the applicability of the cap. Therefore, the claim could remain in the Part 8 track.
He then turned to the construction of the contract. On the facts, there were numerous communications between the parties regarding the LOI and increasing the cap under it while the contract terms were negotiated. In his judgment, he held WJGE accepted the cap in the LOI by commencing work and by continuing to ask to increase the liability cap as the works progressed. This underlines the importance of having a signed contract in place if a party wishes to rely on it. Not only was there no contract, but the terms were not agreed at any point from the commencing of works in 2021 to its conclusion in 2023. As Neil Moody KC puts it, "[the parties] never achieved a meeting of minds."
Estoppel
This case was also unusual for a Part 8 claim, because it considered the arguments for estoppel. It did so against a summary judgment test where it was found they were too weak to succeed, so it did not make the claim unsuitably complicated for the Part 8 track.
WJGE argued for two estoppels:
- CLS is estopped from alleging that there was no agreement that the JCT Intermediate Form of Contract 2016 would apply (estoppel by acquiescence); and
- An email dated 1 October 2021 contained a representation as to agreement of the contract conditions proposed by WJGE, and CLS is now estopped from denying that.
The first estoppel was denied as:
- correspondence allegedly showing agreement to JCT terms was sent two days after the LOI and it would therefore be an amendment to the LOI; and
- looking at the correspondence as a whole, it was or should have been clear to WJGE that the JCT terms were still being negotiated.
The second estoppel was denied because, as above, looking at the correspondence as a whole, it was or should have been clear to WJGE that the JCT terms were still being negotiated.
Conclusions
CLS v WJGE underlines the importance of agreeing contract terms before commencing works in the construction sector. Not only did WJGE fail to agree JCT terms, but WJGE had affirmed the cap in the LOI by continuing to work and refer to it. WJGE was therefore limited to claiming costs up to the cap, notwithstanding that they claimed to have undertaken work well in excess of the cap.
When considering whether an issue in dispute is suitable for the Part 8 procedure parties should consider the guidance in Berkeley Homes (South East London) Limited v John Sisk and Son Limited [2023]. Where there are substantial disputes of fact it will usually be unsuitable for the Part 8 procedure. If it is suitable, the claimant should follow the guidance in the case of Cathay Pacific Airlines Ltd v Lufthansa Technik [2019] so that the scope of the dispute and the manner in which any disputed questions of fact should be determined is agreed before the hearing.
Whilst estoppel will not usually be considered in a Part 8 claim as they usually contain disputed facts. However, in this case such disputed facts could be determined against a summary judgment test, which is whether an issue has a real prospect of success.
In this case when confronted with a claim under Part 8, the TCC focused on the key issues between the parties so as to ensure the case was dealt with quickly and justly, given the relatively modest amount in dispute between them. However, whether the court will allow a claim to proceed under Part 8 is entirely at the discretion of the court and it will not incentivise abuse from purposefully misapplied unsuitable cases.
