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Yoghurt in a pea soup
Guess what? We’ve got another case in which the
parties started work on the basis of a letter of intent. The
slight difference in this case is that it concerns Müller twin
pots
“Parliament says that what is to be paid if
no price can be fathomed is ‘a reasonable price’, the time for
doing the work is a ‘reasonable time’. Murky, yes, but a
contract all the same”
You can almost hear the judge sigh: “This
case is another example of the perils of proceeding with work
under a letter of intent. The preliminary issue before me
requires the determination of what were the terms of a contract
constituted, in part, by a letter of intent, whether that
contract came to an end, whether it was replaced by another one,
and if so, what were its terms.”
Mind you, if the learned judge in this case (RTS
vs Molkerei Müller, 16 May 2008) one day graduates to
become a construction dispute adjudicator, he will get much more
practice at deciding letter of intent conundrums. Adjudicators
don’t sigh at letters of intent; we sing a little song: “Here we
go again, happy as can be, same old silly games, same old
repartee.”
Müller makes rather delicious yoghurt,
especially the twin-pot pack. RTS Flexible Systems makes
automated machines for packaging the pots. In 2003, Müller and
RTS started courting each other. Quotation A winged its way to
Müller. They danced.
Then they danced to another 10 quotations:
Müller’s requirements expanded, contracted, and expanded again.
Eventually RTS did the work of design, manufacture, assembly,
delivery, installation and commissioning.
And then they had their dispute. No different
to any construction industry story. Useful, though, to have the
views of Mr Justice Christopher Clarke.
In the courting stage, Müller put up its
smallprint terms. RTS put up its own smallprint terms.
Eventually, RTS suggested the standard form MF/1, that being the
even-handed Institute of Electrical Engineers document. They
hummed and hawed. They met and talked. By now we are at
quotation J. Müller sent the letter of intent. It started well:
“thank you for your … offer … 16 February reference J”. “Please
accept this letter of intent as confirmation of our wish to
proceed, subject to the following terms …” and then there were
more hums and haws.
RTS hummed in return. The judge said
quotation J was an offer to carry out the work set out,
including RTS’ terms. But the letter of intent was not
acceptance; it was a counter offer. RTS’ reply a few days later
was “acceptance subject to the two qualifications contained
therein”. Müller accepted all that. So that part of the courting
gives us “the letter of intent contract”. Then the judge
declared what that deal promised. It included a time period of
four weeks to “finalise” amendments to the standard form
contract or else the letter of intent would expire.
The negotiations went on and on and work
continued. That’s what always happens. The letter of intent by
now had expired. The work goes on, the money comes in. There is,
in my language, a “murky” contract lurking in the gloom. Pea
soup.
So what now is the deal? The judge said that
the two companies at least agreed on the work that was to be
done for the price already named. He called this a “natural
inference”. But it was not essential for them to have agreed the
terms and conditions and they did not do so. All that was
happening was that Müller was calling for, and RTS carrying out,
the work without agreement as to terms.
I’m often told that it is essential to a
contract that the “form” or smallprint is to be agreed,
otherwise no contract is formed.
“The work goes on, the money comes in. There
is, in my language, a ‘murky’ contract lurking in the gloom. Pea
soup.”
Be careful. The construction industry has
recourse to the payment machinery in the Scheme. So if the work
itself is agreed or identified, whether in advance or on the
hoof, the time for payment is laid down by parliament: what is
to be paid if no price can be fathomed is “a reasonable price”,
the time for doing the work is a “reasonable time”.
Murky, yes, but a contract all the same.
Incidentally, when we say that “essential terms” have to be in
writing, can you begin to see what in law is needed to satisfy
“essential”? It isn’t as much as often made out.
So, the letter of intent is a contract. Its
promises, or terms, are figured out from the express provisions
as objectively ascertained from the wording of the letter, as
well as what is implied to resolve uncertainties. If that letter
of intent expires but the parties are still edging their way
towards some deal and meanwhile do work, call that the “pea soup
contract”. But contract it certainly is.
Readers are invited to forward recent
judgments for reporting in this column (with full
acknowledgement) to: Tony Bingham, 3 Paper Buildings, Temple,
London EC4Y 7EU. DX: 37164 Biggleswade
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