A Pre-Contract Contract

Previous articles have considered the danger of “Letters of Intent” or where correspondence has unintentionally resulted in a legally binding contract.

The decision in Immingham Storage v Clear provides a similar warning in respect of “pre-contract” negotiations.

IS provided a quotation, subject to IS’s T&Cs, to Clear stating that it was: “subject to board approval”. It also said that a “formal contract will follow in due course”.

The quotation was signed and returned by Clear. In reply, IS said it would seek internal Board approval. Subsequently, IS wrote back to Clear saying it was “delighted to accept your offer…” and that a “full contract will be raised over the next few days”.

IS then sent the formal contract to Clear. The covering letter stated that the contract was to “formalise the existing situation between us as detailed in the quotation”.

Clear did not sign or return the contract and did not avail itself of IS’s services. Clear also refused to pay IS’s invoices denying that there was a contract in place.

IS argued that a contract was formed when it accepted the signed quotation. Clear denied that the signed quotation was capable of being accepted.

The Court of Appeal agreed with the first instance judge.

All the necessary terms of the contract were set out in the quotation; the condition that IS had to obtain internal board approval was satisfied as at the time IS accepted the signed quotation. The Court also held that the parties had a clear intention to enter into legal relations.

COMMENT: It is notable that the correspondence between the parties did not include a “subject to contract” qualification. If it had, this may have prevented a contract being concluded. The Judge also said that the reference to a “full contract” did not prevent a contract being entered into on the terms set out in the quotation. Although not a construction case, this is another example of how careful parties need to be when conducting “pre-contract” negotiations.