In CLS Civil Engineering Ltd v WJG Evans and Sons [2024] EWHC 194 the TCC found that in the absence of a formally agreed building contract, a liability cap contained in an unsigned letter of intent was binding. As a result, the claimant contractor was not entitled to additional payment exceeding the cap.

Background

CLS Civil Engineering Ltd (“CLS”) engaged WJG Evans and Sons (“WJG”) to complete a construction project, involving the building of a library, retail provision and three apartments (“the Works”).

Works commenced under an unsigned letter of intent (“LOI”) while the parties sought to agree terms of a JCT Intermediate Building Contract (the JCT Contract”).

A dispute arose following CLS’ termination of the contract, with WJG applying for final payment in the gross sum of £1,413,669.24.

CLS’ response was to commence Part 8 proceedings for declarations to the effect that  the unsigned LOI capped its payment liability at £1.1 million (“the Cap”). WJG’s position was that an agreement on a JCT Contract had been reached which allowed them to claim their final payment application in full.

Held

The liability cap contained within the unsigned LOI was binding on the parties and WJG was not entitled to the additional payment sought.

Validity and enforceability of the Cap

The judge determined WJG was bound by the Cap within the LOI since “the parties’ discussions in relation to a formal Contract and JCT terms never achieved a meeting of minds” and so no JCT contract had been agreed upon.

WJG further conceded in a witness statement that the Cap had been agreed. This was consistent with WJG’s Acknowledgement of Service which stated the same. These factors were sufficient to dispose of the point and confirmed the LOI (and not the JCT Contract) was the document governing the parties’ relationship.

Estoppel

Despite it being uncommon for estoppel claims to be considered using Part 8 (because they often involve disputed facts too complex for Part 8), the Judge considered WJG’s estoppel claims by applying the summary judgment test under CPR 24 – namely, whether WJG’s claims had any “real prospect of success”. After a thorough review of the correspondence and conduct between the parties, it was held WJG had no real prospects of sustaining its claim in estoppel, meaning there was no impediment to the Part 8 determination.

Analysis

This case again illustrates the importance of taking the time to properly negotiate and allocate risk under a formal contract prior to commencing works.

To the extent parties wish to rely on a letter of intent prior to entering a formal contract, caution must be exercised and the same should be drafted to include key non-negotiable terms. Any stated caps on liability (whether in a party’s scope of services or money related) should be closely monitored at all times to ensure they are not exceeded. In this case, at the point at which the Cap was about to be exceeded, WJG ought sensibly to have ceased work pending negotiation of a variation to the Cap/conclusion of a formal contract.

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This article contains information of general interest about current legal issues, but does not provide legal advice. It is prepared for the general information of our clients and other interested parties. This article should not be relied upon in any specific situation without appropriate legal advice. If you require legal advice on any of the issues raised in this article, please contact one of our specialist construction lawyers.

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