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LETTER OF INTENT

An oral contract, so the saying goes, is not worth the paper it is written on. While this may not be entirely true, it is certainly the case that failing to take the trouble to record your agreement in writing does make it difficult to prove what has been agreed, if there is some doubt about it later, writes Kim Franklin. And there usually is.

Most people fail to write down the terms of their agreement because they are not entirely clear about them at the time. The problems involved in reducing an agreement to writing are particularly exaggerated in multi-faceted construction contracts with extensive, sometimes burdensome, documentation.

Besides which, hope springs eternal, triumphing, as always, over experience.

Who wants to get bogged down in the paperwork when there is a project to be built?

A common solution to the 'enthusiasm versus caution' problem is the Letter of Intent.

This is a half-way-house, designed to confirm the parties' intention to enter into a formal contract, when they can get round to it.

What happens when work starts but the contract is not executed is a familiar theme to those of us brought in to sort out the ensuing muddle. The recent case of Hackwood v Areen Design Services (ADS) demonstrates the point.

Hackwood wanted to carry out extensive renovation works to Hackwood House, a Grade II-listed property near Basingstoke in Hampshire.

It engaged contractor ADS on the understanding that it would enter into the JCT Standard Form With Contractors' Design. Rather than delay the project, which had already been held back by the foot-and-mouth epidemic, it agreed a letter of intent.

ADS carried out work to the value of £13.2 million over the next 65 weeks but the JCT contract was never executed.

After practical completion, ADS took a claim for an extension of time and variations totalling £4 million to adjudication.

Hackwood, which agreed that the JCT contract had been incorporated, successfully resisted the claim. Undeterred, ADS referred its claim to arbitration. Hackwood then changed tack and denied that the JCT terms had been incorporated. Without the JCT terms, it argued, there could be no arbitration agreement, and therefore no arbitration.

Hackwood asked the Technology and Construction Court to find that the arbitration was a nullity. The case was heard by Mr Justice Field, one of the five High Court Judges recently allocated by Mr Justice Rupert Jackson (dubbed 'the Jackson Five') to try TCC cases. The judge found that the letter of intent, considered as a whole, did incorporate the JCT contract and, with it, the arbitration clause. While he acknowledged that the various options in the uncompleted appendix had been left open, this did not make the contract unusable or uncertain and the arbitration was allowed to proceed.

Needless to say, had the parties executed the contract as intended, they would have been spared this unnecessary trip to court. What's more, had they gone to arbitration in the first place, ADS would have saved itself the costs of the adjudication.

Kim Franklin is a barrister and chartered arbitrator at Crown Office Chambers in London.

Visit www. crownofficechambers. com

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