Letter of intent – No Contract

Merit –v- Balfour Beatty (2011) CILL. TCC, Edwards-Stuart J

Balfour Beatty was negotiating a contract package for plant and pipeworks with Costain to construct a research facility.  It entered into sub-contract negotiations with Merit for elements of the works.  On 2 March Balfour Beatty issued a letter of intent for works to a value capped at not more than £500,000 pending agreement of a formal sub-contract.  The works progressed and Balfour Beatty repeatedly issued extensions to the cap which eventually reached £1.6m.  The parties went on negotiating on price while the works went forward and reached stalemate with Balfour Beatty offering the contract sum of £1,600,000 and Merit requesting a contract sum of £1,637,500.  The parties failed to get beyond this and the works were completed.  Merit subsequently issued proceedings for additional payments and Balfour Beatty defended the Court Case arguing that the dispute should have been taken to arbitration under the arbitration clause in the proposed sub-contract.

HELD:

There was no sub-contract because the parties had never reached agreement on price.  Consequently the arbitration clause in the proposed sub-contract had no legal effect.

Comment

This particular court case did not resolve the question of liability for the £685,000 claimed.  It generated heavy costs and considerable time and effort just to resolve the uncertainties left by the parties’ failure to form a contract 8 years before, in 2004.

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