Frederick Simpson successful in defending ‘letter of intent’ claim
In Portmay Properties Ltd v Alco Glass Systems Ltd HHJ, Murch found that a letter of intent did not constitute a contract for the works as a whole and that the claimant was not entitled to the return of deposits paid on the grounds of unjust enrichment.
Portmay considered appointing Alco as glazing contractor for a small residential development. The parties put in place a letter of intent, recording Portmay’s “intention … to appoint” Alco and providing that Alco would cost up some design changes agreed at a recent meeting and that the “agreed contract sum is not to exceed £210,000”. It concluded “We agree to pay the amount of £10,000 in order to commence the design works and effectively to secure your services in relation to this project.” A little over a year later Portmay paid a further tranche of deposit.
In the event, the parties never progressed beyond the design phase before relations soured. Portmay then brought a claim alleging that the letter of intent constituted a contract for the glazing works and that Alco was in repudiatory breach. Portmay sought the return of the two tranches of deposit and various other delay-related damages.
The principal delay claim (half the value of the claim as a whole) was ill-founded and was dismissed in the first hour of the trial; the remainder of the delay claims were subsequently abandoned. It then fell to the court to consider the claim for return of the deposits, either as damages for breach of contract or on the basis of Alco’s supposed unjust enrichment. In dismissing the claim, HHJ Murch:
- Found that the letter of intent did not constitute a contract for the glazing works as a whole but was limited in its contractual effect to the payment of the deposits and the obligation on Alco to commence design work; and that payment of the second tranche of deposit was a variation of that limited agreement, in return for which Alco would continue its design work, rather than anything more.
- Found that Alco was not in any event in repudiatory breach.
- Found that the deposits were stage payments which had fallen due (being payable before design work commenced) and were neither divisible nor refundable.
- Found that Portmay had not established any joint understanding between the parties that payment of the deposit monies was conditional on some underlying basis, and that Portmay was accordingly not entitled to recover the monies on the grounds of failure of basis.
The case is a welcome instance of the court adopting a straightforward construction of a letter of intent, and is also a reminder of the importance of carefully pleading claims in delay and unjust enrichment.
Frederick Simpson was instructed by Lewis Cohen of Setfords.
