Do Rights to Payment under Quantum Meruit Exist for Works Carried Out Beyond the Financial Ceiling a Letter of Intent?

If work is carried out beyond the financial limit of the letter of intent, then there will only be an entitlement if the financial limit was not intended to prevent further payment. In AC Controls Ltd v British Broadcasting Corporation [2002] it was held that the spending cap was not intended to limit the amount that ACC could recover, but was intended to operate as a “trigger” entitling the BBC to terminate the contract any time after the cap was reached. ACC was required to carry on working and was entitled to payment of a reasonable value for the work done.

Apart from the above particular circumstances, a contractor exceeding the financial limit will have great difficulty in establishing an entitlement to payment absent a clear instruction and acceptance that additional payment would be made. In Mowlem PLC v Stena Line Ports Limited [2004] Stena was the owner and operator of the port of Holyhead in Anglesey and required the construction of a new ferry terminal called Terminal 5. Mowlem carried out the marine and offshore works under several letters of intent.

The first letter was issued on 17 October 2002. Stena committed to pay Mowlem a maximum of £400,000 so that they could get on with the work. As work progressed further letters of intent were required in order to increase the limit set by Stena, each superseding the previous letter. The last letter was issued on 4 July 2004 and set the maximum at £10 million. Each letter after the first stated that it superseded its immediate predecessor. Stena stated in the last letter that the commitment would allow Mowlem to proceed with the Works in accordance with the programme until 18 July 2003. That date was significant because it was the date shown on the programme for completion.

Mowlem did not complete by 18 July 2003. Stena was pressing Mowlem to complete the work because of a mistaken assumption that somehow there was a contract which required Mowlem to do just that. Mowlem continued working and indeed received instructions from Stena’s consultants in the usual way. The work was eventually completed.

Mowlem considered that the cost of the work had exceeded the limit of £10 million although Stena contested this. Mowlem submitted that the letter of intent only applied to work up to 18 July 2003, so they were entitled to payment for work done after that date irrespective of the limit. Mowlem also submitted that since it had carried out work in excess of the limit it was in any event entitled to be paid for it. The limit only applied until the limit was reached they said.

His Honour Judge Seymour held that from 4 July 2003 the relationship between Mowlem and Stena was governed by the letter of 4 July 2003 and the obligation to make payment continued until the letter was rescinded or a contract was executed. It made no commercial sense, he held, to have a financial limit on Stena’s obligation to make payment which could be avoided by simply carrying on to work after the date of 18 July 2003. The letter of intent was not limited to work before 18 July 2003. It was bizarre commercially if the limit could be avoided by simply exceeding it.

Mowlem also raised a number of common arguments in such cases. Stena had acted in such a way that led Mowlem to believe that Stena would not insist on the limit, Mowlem said. This was rejected on the facts. It was argued that there was a common assumption of Mowlem and Stena that Mowlem would be paid a reasonable sum. It was held that the evidence was against any such assumption.