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.

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.

Thus, in the Galliard Homes case Lindsay J, giving the only substantive judgment in the Court of Appeal, which also comprised Evans and Schiemann LJJ, at page 236 quoted with approval the statement in Megarry & Wade, The Law of Real Property, 5 th ed (1984) at pages 568-9 that it is possible for an agreement 'subject to contract' or 'subject to written contract' to become legally binding if the parties later agree to waive that condition, for they are in effect making a firm contract by reference to the terms of the earlier agreement.

What happened after that £60m was not, I find, the subject of a lot of deliberation. 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. It was clearly referred to, because there had been a discussion about it between Mr Al Fayed and the Muddymans, but in reality it was way down the scale of likelihood.

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.

Nor does Article 35.2 justify any invocation of principles of "international law" as Mr. Shackleton suggested. The clause gives primacy to Lithuanian law and only permits other laws to be referred to where they are "required" to supplement Lithuanian law, which they are not in the present case. 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".