British Steel Corpn v Cleveland Bridge and Engineering Co Ltd (1984) 1 All ER 504
This case involved a pure letter of intent. Cleveland issued a letter of intent to British Steel which stated: "We are pleased to advise you that it is the intention of Cleveland Bridge and Engineering Co Ltd to enter into a subcontract with your company for the supply and delivery of the steel cage castings which form the roof nodes on this project. The form of subcontract to be entered into will be our standard form of subcontract used in conjunction with the IC General Conditions of Contract and we request you proceed immediately with the works pending the preparation and issue of the official form of subcontract".
British Steel proceeded with the works as instructed in the letter of intent and manufactured then delivered the castings.
The parties were then unable to agree on the essential terms of the contract,and resultantly British Steel issued a claim against Cleveland Bridge.
Cleveland responded with a claim for set-off and a counterclaim on the basis of damages for breach of contract. In this case, the question as to whether a contract came to existence was crucial as Cleveland's set-off and counterclaim was formulated as a claim for breach of contract.
The Judge said that it was clear that the parties never agreed the precise and necessary terms of the contract. The Court therefore concluded that there was no binding contract between the parties( either an "if" contract as the work was being done pending a contract being concluded or, an"executory" contract as material terms remained to be concluded). The result was that there was simply a legal obligation upon Cleveland to pay to British Steel a reasonable sum (i.e. quantum meruit)for the work they had carried out. Therefore, Cleveland's set-off and counterclaim failed because there was no contract between the parties and consequently, there could be no damages resulting from breach of contract.
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