Cunningham & Ors v Collett & Farmer

A letter of intent may be an appropriate means of commencing construction works before execution of the full contract. Its suitability depends on whether the workscope and price are agreed, or subject to a clear mechanism, whether the contractual terms and programme are sufficiently settled, and whether there is a good reason for an early start. Such a letter should define the limited rights and liabilities created by it. The risk that negotiations will fail remains, but careful drafting should limit the consequences. A contractor’s delay or loss claim must be assessed by identifying the cause of the failure to conclude the full contract. A professional contract administrator must administer the contract fairly and cannot act as an unrestrained advocate for one party.

The claimants engaged the defendants as architects for the refurbishment of a listed country house. The project was intended to proceed with Eugena as building contractor. Before the full building contract was agreed, Gelande issued a letter of intent authorising limited preliminary and specialist design works up to £50,000.

The full contract was never concluded. Disputes arose principally over an escrow arrangement and Eugena’s delay costs. Eugena left the project, and the defendants later suspended their architectural services for non-payment of fees. The claimants alleged breach of contract and professional negligence, claiming losses including replacement consultants’ fees, wasted expenditure, stigma and delay. The defendants counterclaimed unpaid fees.

1. Claim dismissed; counterclaim allowed in part. The claimants failed to establish breach of contract or negligence. Judgment was entered for the defendants for £16,464.60, with interest to be agreed. Costs were to be dealt with separately.
2. A letter of intent could either create no contractual rights or liabilities, or create a limited contract. The letter in this case was of the latter kind. It limited both the permitted works and expenditure to £50,000.
3. A limited letter of intent could be appropriate where the workscope and price were agreed, or subject to a clear mechanism; the contract terms were agreed or very likely to be agreed; the programme was broadly settled; and there were good reasons for an early start. The intended early completion of principal rooms supplied such a reason. The outstanding omissions, contract amendments, escrow wording and structural engineer appointment did not make the letter premature on the facts.
4. The defendants were not negligent in recommending MW 98, in obtaining three tenders, or in the alleged design deficiencies. The absence of a structural engineer was principally attributable to the claimants’ decision to defer the appointment. Any possible delay from that issue was not causative because the construction works could not begin under the letter of intent until the escrow wording was agreed.
5. The principal cause of the failure to conclude the full contract was the claimants’ delay in addressing the escrow wording. Their subsequent refusal to pay any delay costs was unjustified and was the foreseeable cause of Eugena’s decision not to proceed. The claimants’ other criticisms did not cause recoverable loss.
6. The defendants were entitled to administer the letter of intent by reference to MW 98. They were also required to act fairly when considering Eugena’s extension-of-time claim. Indicating that they were minded to grant an extension, subject to understanding the full impact of the delay, was proper.
7. The defendants were entitled to suspend their services for non-payment. Their fee entitlement was reduced by the £5,000 payment made on account.

The judgment was a first-instance decision. The judgment records earlier adjudication and enforcement proceedings, but no appellate decision.