The claimant, ERDC was a contractor who carried out the construction of a new sport facility for the defendant, Brunel University. ERDC had tendered for the works on the basis of a JCT standard form of contract. The works were carried out under letters of intent pending formal execution of the contract.
On expiry of the last letter of intent, ERDC continued to carry out the works. However, when it received the contract for signature, ERDC declined to sign the contract claiming that it would only continue on the basis that all work carried out would be valued on a quantum meruit basis (i.e. a reasonable price for the work done) rather than in accordance with the JCT valuation rules.
Brunel University disagreed with ERDC. Accordingly, ERDC left the site without completing the works and commenced proceedings against Brunel University. Brunel University in turn counterclaimed for defective and unfinished work.
What was the appropriate method of assessing the value of ERDC's works?
Reference
Judge Humphrey LLoyd considered it was plain from the letters of intent that the parties intended to create legal relations. His Honour also considered that the letters of intent and their acceptance were contracts. Accordingly, the works ERDC carried out before the expiry of the letters of intent were valued in accordance with the JCT valuation rules as contemplated by the letters of intent.
With respect to ERDC's works carried out after expiry of the letters of intent, the judge considered that the conditions under which the works had been carried out were not that different from those originally contemplated by the parties. Further, ERDC only made its position clear at a much later stage. It was therefore inappropriate to switch from an assessment based on rates to ERDC's costs. The judge therefore decided that the amount due in respect of those works, although recoverable on a quantum meruit basis, should be valued on the same basis as that done before expiry of the letters of intent.
Judge Humphrey LLoyd held that Brunel University did not have a counterclaim in the "classic sense", as there was no contract in place when the defective work was carried out. However, the judge thought it would be strange if Brunel University had to pay more than the true value of the benefit it received. An adjustment was therefore made in respect of some of the works to reflect the money paid by Brunel University to bring those works up to standard.
*Full case details
ERDC Group Limited vs Brunel University
High Court of Justice (Queen's Bench Division), His Honour Humphrey LLoyd QC [2006] EWHC 0000 (TCC)
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Postscript
Parties to a construction contract will often exchange "letters of intent" pending preparation of formal contracts. Broadly speaking there is no clear authority on the legal effect of such letters and it will often come down to the language used by the parties. In this case, the court decided that the language did not negate contractual intention and the parties were therefore bound by the letters. Ascertaining the exact scope of letters of intent and, if further work is done beyond that, clarifying on what basis that work is to be done could save parties from a costly and time consuming dispute.
