Spartafield Ltd v Penten Group Ltd

A letter of intent may create a binding interim contract while the parties negotiate a later replacement contract. Work performed under that letter is not, by itself, evidence that a subsequent contract was formed where the work and payment were already authorised by the letter. Whether a replacement contract was concluded depends objectively on the parties’ communications and conduct, including which terms they regarded as conditions of agreement.

Contemplation of formal execution does not itself make signature a precondition to contractual formation. That depends on construction and the parties’ intentions. A replacement contract may therefore arise without signature where the parties have agreed the terms regarded as essential and have not made execution a condition.

Spartafield, a developer, and Penten, a contractor, began a construction project under a counter-signed letter of intent. The letter authorised works up to £1 million and contemplated a later formal contract on the terms of the JCT Intermediate Building Contract with Contractor’s Design 2011.

The parties subsequently agreed the scope, price, contractual conditions, completion date and collateral warranty arrangements, but Penten did not execute the formal contract. Penten later maintained that the letter of intent continued to govern their relationship. Spartafield sought a declaration that the letter had been replaced by a JCT contract.

1. Declaration granted. The parties entered into a replacement contract incorporating the JCT Intermediate Building Contract with Contractor’s Design 2011, in substitution for the letter of intent. The precise declaration was left for counsel to formulate.
2. The letter of intent was itself contractually binding, but it permitted either party to withdraw until replaced. It incorporated the JCT payment provisions, subject to the letter’s express terms and its right of withdrawal. Accordingly, the parties’ payment and certification practices were neutral on the question whether a later contract had been formed.
3. Contract formation was determined objectively by the parties’ communications and conduct. By the end of May 2014, the parties had agreed the JCT conditions, scope of work, price of £1,150,000, completion date of 14 July 2014 and collateral warranty arrangements. Matters remaining concerned recording or refining detail and did not prevent formation.
4. The contemplated formal execution of the JCT documents was not a condition of formation. The letter contained no language such as “until”, “unless” or “subject to” imposing such a condition. Its references to a formal contract were descriptive of the parties’ intended documentation.
5. Penten’s later refusal to sign did not entitle it to withdraw from the replacement contract. Alternatively, by mid-September 2014 the parties had again agreed all terms of substance. The completion date remained agreed, with Penten entitled to seek an extension of time under the JCT conditions.
6. The alternative cases based on a simple non-JCT contract, contract by performance and estoppel by convention failed. The claim was otherwise left for consequential submissions concerning the adjudications and costs.

Not stated in the judgment.