Letter of Intent in UK Law

It has become increasingly common in recent years in the construction industry for a form of "letter of intent" to be employed which, while it does indeed contain a request to a contractor to commence the execution of works, also seeks to circumscribe the remuneration to which he will be entitled in respect of work done pursuant to the request in the event that no contract is concluded.

The letter from Trinity Union had all the characteristics about which the Law Society was concerned. It envisaged (a) a payment of $10 million to generate funds of $100 million; (b) a profit of 150 per cent. In addition, it was written on letterhead with Bower Cotton's address. It named Mr Simms as the person through whom the contract would be made. It named Bower Cotton's account as the account where the escrow funds would be kept.

Whether there is a binding contract between the parties and, if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations.

Instead the governing criterion is the reasonable expectations of honest sensible businessmen. (2) Contracts may come into existence, not as a result of offer and acceptance, but during and as a result of performance. The fact that the transaction was performed on both sides will often make it unrealistic to argue that there was no intention to enter into legal relations and difficult to submit that the contract is void for vagueness or uncertainty.

The thrust of the evidence was, and I find, that no-one at that stage anticipated with any great degree of seriousness that Mr Al Fayed would invest more than £60m. What was left in relation to that was effectively a default situation in which the parties reverted to the normal company law provisions governing the issue of shares, albeit tempered by what was ultimately the letter of intent.

Moreover, even if it were necessary to so, recourse may only be to the "rules of international business activities generally accepted in the petroleum industry". Furthermore, recourse is to be had to such rules only insofar as they do not contradict the laws of Lithuania. The State did not, in any event, adduce any evidence of what were the "rules of international business activities generally accepted in the petroleum industry".

If a construction contract is abandoned or terminated, the employer is in new territory for which the liquidated damages clause may not have made provision. It may be more logical and more consonant with the parties' bargain to assess the employer's total losses flowing from the abandonment or termination, applying the ordinary rules for assessing damages for breach of contract.