British Steel Corp v Cleveland Bridge and Engineering Co Ltd [1984]

Court: High Court

Facts: Cleveland Bridge and Engineering Co Ltd (D) purchased steel nodes from British Steel Corp (C). D issued a 'letter of intent' expressing an intention to enter into a formal contract based on their own standard terms. Despite ongoing negotiations, no formal contract was concluded, and disagreements persisted over terms such as progress payments and liability for late delivery. Work on the nodes proceeded, and they were delivered and accepted by D. D later refused to pay, counterclaiming for breach of contract due to alleged late delivery. C argued that no formal contract existed and sought a claim for restitution under 'quantum meruit' for the value of the delivered nodes.

Issue: Whether a binding contract existed between the parties and if so, whether British Steel Corp was entitled to restitution for the delivered nodes.

Held: The High Court ruled in favor of British Steel Corp. It was determined that no formal contract had been concluded due to unresolved negotiations. The 'letter of intent' was deemed non-binding as the essential terms of the contract were still under discussion. However, since the work was performed and the nodes were accepted, British Steel Corp was entitled to a claim for 'quantum meruit'—a reasonable sum for the value of the work done, as restitution for the benefit received by the defendants.

Key Judicial Statement: Robert Goff J: Letters of intent are non-binding when key terms are still under negotiation. In such cases, where work is carried out under a letter of intent but no formal contract is finalized, a claim for 'quantum meruit' can be made to ensure fair compensation for the work done. The absence of a finalized contract does not preclude recovery for the value provided.

💡 Leveluplaw: case underscores that letters of intent do not create binding contracts when essential terms are still being negotiated. In the absence of a formal agreement, courts may grant restitutionary claims, such as 'quantum meruit,' to address unjust enrichment and ensure fair compensation for work performed.