There are many reasons why one side to a dispute might claim that there was no contract, but the courts will do their very best to prove them wrong

“Gone, to the little girl in the blue dress!”

It was my greatest fear. Having an antiques dealer mother, I attended many an auction in my youth, acutely aware that one wrong move might bind together my mother and a beastly Victorian commode with worrying stains.

If you believe some of the stories recently proffered in court, parties are finding themselves similarly bound into contracts that they never intend to sign. But it seems the courts are taking these sob stories with a pinch of salt and, if all material terms are agreed, are inclined to find that a contract is in place between the parties.

Ian Yule illustrated how, in the case of Tesco Stores vs Costain 2003, there was a letter of intent with no formal contract (3 October 2003, page 53). However, that letter of intent itself was found to be the contract. In Westminster Building Company Ltd vs Beckingham 2004 the client’s conduct in allowing works to proceed outweighed the fact that the contract remained unsigned.

There has been another case worthy of report, where the court has again created a route to a contract. It is the Court of Appeal case of Harvey Shop Fitters Ltd vs ADI Ltd.

ADI appointed Harvey to carry out work on its property. ADI’s architect produced tender documents based on the IFC84. Harvey duly submitted a tender.

ADI’s architect wrote to Harvey: “It is the intention of your client … to enter into a contract with you on the basis of the tender sum … The main contract documents are currently being prepared for signature … accept this letter as authority to proceed. If … the contract should fail to proceed and be formalised, then [you] … will be reimbursed on a quantum meruit basis [according to the value of the job]”.

Harvey counter-signed the letter. In the event, however, no formal IFC84 contract materialised.

A dispute then arose whereby it suited ADI to claim that there was a lump sum IFC84 contract in place. However, Harvey’s interests were best served by claiming there was no contract and that it should receive payment on a “quantum meruit” basis. So what do we have? Contract or no contract?

Lord Justice Latham also clarified that a court can look behind the literal interpretation of a letter to the true intent

It was a tricky one, with pointers in each direction, and it found its way to the Court of Appeal. In the client’s favour were the facts that payments had been on the architect’s interim certificates pursuant to IFC84, the architect’s instructions were on IFC84 forms, and the final account figure was based on the lump sum tender figure in accordance with IFC84. It was all looking very IFC84.

On the other hand, Harvey pointed to those words “if … the [IFC84] contract should fail to proceed and be formalised then [you] … will be reimbursed on a quantum meruit basis”. Surely, it contested, the answer is right there in black and white.

Lord Justice Latham mulled over these words and concluded that the phrases “failed to proceed” and “be formalised” were to be read conjunctively, not disjunctively. Or, in the lingo of us common mortals, the quantum meruit principle would only apply if the contract both “failed to proceed” and failed to “be formalised”. Here, the contract had not failed to proceed. It had only failed to be formalised.

The judge also clarified that a court can look behind the literal interpretation of a letter to the true intent. Further, the letter ought not to be read in isolation but as part of the overall negotiation process which, in this case, had already determined all the material issues.

The rest was plain sailing. The judge explained that just because parties intend to enter into a formal contract does not prevent a contract existing. He found a contract to be in place. The fact that the contractor did not pull his quantum meruit bunny out of his hat until the 11th hour did nothing to help his case.

So here we have another case of the courts finding a contract to be in place even where the i’s and t’s still require attention.

It would seem that, if there has been a meeting of the minds somewhere, a judge will seek it out with all the fervour of a sniffer dog.

Melinda Parisotti is an in-house barrister at Wren Managers