Cases - British Steel Corp v Cleveland Bridge & Engineering

Record details

Name
British Steel Corp v Cleveland Bridge & Engineering
Date
[1984]
Citation
1 AII 504
Keywords
Contract - building contract - letter of intent - executory contract - certainty of terms - quantum meruit - whether there was a contract - whether the contractor was entitled to be paid on a quantum meruit basi
Summary

The defendants successfully tendered for the fabrication of steel work in the construction of a building. The defendants sent a letter of intent to the claimants which:

  1. recorded the defendants' intention to enter into a contract with the claimant;
  2. proposed that the contract be on the defendants' standard form; and
  3. requested the plaintiffs to commence work immediately 'pending the preparation and issuing to you of the official form of sub-contract'.

There were further discussions as to the proper specifications, which were changed extensively. The claimants went ahead with the manufacture and delivery of the products. When all but one of the nodes had been delivered, delivery of the remaining elements was held up due to an industrial dispute.

The defendants refused to make any interim or final payment and instead claimed for late delivery, or delivery of the nodes out of sequence. The claimants sued for the value of the steelwork on a quantum meruit, contending that no binding contract had been entered into.

It was held, on the facts, that an executory contract had not been created by the claimants beginning to manufacture following receipt of the letter of intent, because the parties were still negotiating. Given those negotiations, it was impossible to determine the extent of the liability. Because the parties had not been able to reach agreement on the price or other essential terms, the contract was not entered into. The defendants were therefore obliged to pay a reasonable sum for the work done pursuant to the claimants' request.

This is one of the leading cases on the enforceability of letters of intent. It also provides yet another example of how reliance upon letters of intent can lead to dispute.