Civil Engineering Reference
In-Depth Information
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The letters ofintent, which were all similar in wording, were in effect small contracts.
They paved the way for a formal contract to apply retrospectively to the Works, but
theyexpresslystatedthattheprovisionsoftheformalcontractwouldnotapplyuntilit
was executed.
ItwasarguedthattheremayhavebeenanimpliedcontractonthebasisthatKier,after
the letters of intent had expired, made application for an extension of time under the
termsoftheunsignedcontract.Therewasnoimpliedcontractinthisinstance,because
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1
the letters of intent had all been issued on the basis that they were subject to a formal
contract being executed; for an implied contract to arise in these circumstances would
be exceptional.
there was no doubt that the parties had contracted on the basis of the letters of intent
only.
there was never a time when the parties suggested that there was no need for a formal
signed contract.
2
3
•
The limitation clause in TT's terms of appointment was unreasonable and, therefore,
contrary to the Unfair Terms in Construction Contracts 1977. This conclusion was
reached because the appointment said that TT had the obligation to take out profes-
sional indemnity insurance to a level of £10 million. Yet after taking into account fees
already paid, the clause purported to limit liability to £111,321.
The court decided that, if pressed, there was a two thirds chance that Kier would have
signed the contract, and there was the possibility that Kier might have been successful in
arguing that the liquidated damages were in fact a penalty. The likely level of settlement
between the Trust and Kier if the contract had been signed was £340,000, of which the
Trust should recover £226,667 from TT. Against this was set some unpaid fees to which
TT were due in the sum of £37,167.
In this case, the court found that the advice to issue the initial letter of intent was not
negligent; it was the advice to continue issuing further letters which was wrong. Although
there are times when a letter of intent is justified, those times should be few and a last re-
sort.
