"Letters of intent" are there to get the works started while the contract gets sorted out. But if things go wrong before that happens, all sorts of wonderful things can happen. Wonderful for lawyers, that is.
The “Letter of Intent” malarkey has always kept a roof over a poor old lawyer’s head. Here is the story of yet another case. Now then, wouldn’t you think that Galliard Homes, being a fair-sized professional enterprise, would have got rid of those confounded letters by now? It hasn’t, and neither have many other outfits, but, oh dear, they do keep cropping up in disputes.

What happened this time is that Galliard began negotiations with J Jarvis & Sons for the fitting-out of a number of flats already built by Galliard. The contract was to be an ordinary JCT80 and the price was still being hammered out, but eventually the two companies shook hands on the amount.

Then, and this so often happens, Galliard sent its letter of intent. Now, before we go any further, let me tell you that such letters frequently go much further than mere intent. They confirm the completed negotiations that indicate a complete contract, leaving only the preparation and completion of the formal documentation. In other words, the big label “letter of intent" may mean nothing of any consequence.

What then happens is that the buying department takes months to compile the contract document bumf. Meanwhile, the work is well under way, but by now the honeymoon is over. The couple have already had a fight or two; in some cases, the rift is so big it would take an army of marriage guidance counsellors to drag the parties away from each others’ throats. Then, someone looks at the unsigned forms of contract and assumes that the absent monikers means no contract came into existence. They support that idea by that distant letter of intent. Ah ha! The marriage never happened. Well, that didn’t happen in Galliard vs Jarvis.

Yes, yes, they fell out; Jarvis sued Galliard, and yes, they had shaken hands on the price, and yes, they knew JCT80 would apply. But if JCT80 applies, said Galliard, then you must arbitrate, since that’s what the standard form says. No, no, argued Jarvis, we didn’t actually get into contract.

Jarvis’ key reason for saying this was that Galliard’s letter of intent was a true letter of intent. It said that no contract can come into existence until JCT80 is signed. So, said the judge, the dealings were, in effect, “subject to contract”. Well done Galliard, you produced a perfect letter of intent, which was rotten luck really since by now you wanted JCT80 to apply. I will say why in a minute.

There was another reason why no contract was formed. It is because the bargaining and the shaking of hands still lacked the fundamental requirement of certainty. The judge decided that a price was agreed but nobody could fathom whether it was a gross maximum or a lump-sum price. So, the true intention of the parties was unclear, and the deal lacked certainty.

All Jarvis had to do was a fair and reasonable job in the areas it agreed to do it on a hand-to-mouth basis

What difference did all this make? It meant there was, in fact and in law, no contract. Did that mean Jarvis did all the work for nothing? No, of course not. Jarvis would be remunerated on the basis of quantum meruit. What’s more, once Jarvis had had enough of this relationship it could stop, with reasonable notice, pack its saw benches, and go home. No contract, no price, no programme, no defined scope of work applied. All it had to do was a fair and reasonable job in the areas it agreed to do it on a hand-to-mouth basis, and work diligently and not mess anyone around … easy, isn’t it?

My guess is that almost all contractors would work every day of the year on that basis. By the way, this is a Court of Appeal decision, so it has clout. But, truth is, it tells us nothing new.

But now let me drive home an unexpected spin-off from this story. It is nothing to do with the case itself, but I reckon the Galliard vs Jarvis story giving us a “no contract” position means that the Construction Act’s adjudication provisions don’t apply. For a referee to have jurisdiction there has to be a construction contract. And there’s more. None of the payment provisions of the act apply, either. Further still, there is no duty to send notices showing what’s going to be paid, nor any duty to send notices prior to withholding money when the other bloke has been acting up.

In fact, the whole thing is so loose, so uncertain, that the hand-to-mouth working, quantum meruit payment is a dog’s dinner, and it’s not surprising when the contractor simply says: “Blow all this, I’m off.”

But please don’t give up the endless letters of intent. They keep many happy families well-clothed and snug in these winter months. Clothed in wigs and gowns, of course.