Letter Of Intent Not A Contract

In the recent case of Whittle Movers v Hollywood Express, the Court of Appeal has held that there was no binding contract where the terms of the contract continued to be negotiated, even though one party was performing the intended services and being paid pursuant to a letter of intent.

Hollywood put out to tender distribution and warehousing services for the UCI and Odeon Cinema chains, together with Blockbuster stores. Whittle was the successful tenderer. There were negotiations, during which Whittle was persuaded to tender for a six year contract. A letter of intent was entered into which set out Hollywood's intention to enter into a contract with Whittle for distribution services. The letter of intent was stated not to be legally binding. Shortly after that, a written "interim agreement" was sent to Whittle providing that the distribution services would be supplied on the same terms as the agreement with the previous distributor (which involved far fewer cinemas). It was signed by Whittle.

About six weeks later, in January 2006, Whittle started providing the services. At this time, the key terms had not been settled: negotiations continued up until October 2006, at which stage Hollywood declined to enter into a contract because its owners decided to put the company up for sale. Hollywood gave notice to terminate the "contract", being the six months notice provided for in the interim agreement. Whittle's main issue was that it had priced the supply of services on the basis that it would be entering into a long term, six year contract, not a contract terminable on six months notice, and it wanted to recover the difference in price.

The judge in the High Court strained to find a contract and settled on a contract on the terms of the interim contract. The Court of Appeal rejected this and said that there was no contract at all. All negotiations were subject to contract and no binding arrangement was to come into existence until a formal document was signed.

The point is that there was no unfairness in holding that there was no contract. Whittle were entitled to a "restitutionary" remedy, i.e. if Hollywood had paid less than a reasonable price, bearing in mind the intended length of the contract, it would have been "unjustly enriched" and would have to pay the full amount. A further court hearing was ordered to determine the relevant amount.

Yet again, this case highlights the problems that arise where parties perform a contract without having agreed the main terms or entered into a formal contract . Note the difference between a case like this, where some of the main terms were outstanding - there will be no contract because the courts will not decide what terms the parties would have agreed. And, on the other hand, cases where the parties have agreed all the main terms - in those cases there may be a binding contract, even if there is no formal contract.