LETTERS OF INTENT AND THE EXISTENCE OF A CONTRACT

RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG (UK Productions) [2008] EWHC 1087 (TCC), [2008] All ER (D) 206 (May)

In RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG (UK Productions) [2008] EWHC 1087 (TCC), [2008] All ER (D) 206 (May) Mr Justice Christopher Clarke considered ‘the perils of proceeding with work under a letter of intent’. He held that, although the letter of intent sent by the defendants to the claimant amounted to a counter offer, the parties had in fact entered into what he termed a ‘letter of intent contract’. The letter of intent envisaged that the parties would enter into a formal contract within four weeks and the contract was held to have come to an end on the expiry of that period without a formal contract having been concluded. Nevertheless, the claimants continued with the work and the defendants accepted performance and paid for part of it. In such circumstances it was held that the parties had entered into a further contract. It was unrealistic to suppose that they had not intended to create legal relations and it was held that they had reached full agreement on the work to be done for the price they had already agreed.