What directors and managers should learn from CLS Civil Engineering Ltd v WJG Evans & Sons
Letters of Intent (LOIs) are widely used in construction and commercial projects to allow work to begin before a full contract is signed. They often feel like a practical compromise: the project gets moving, the parties stay busy and lawyers continue negotiating in the background.
A 2024 decision of the Technology and Construction Court is a clear warning that this comfort can be misleading. The case shows how an LOI can become the only binding contract between the parties — and how financial limits within it can be enforced, even when they make commercial outcomes feel unfair.
Background to the case
CLS engaged contractor WJG to carry out works on a development in Pembrokeshire. The parties expected to enter into a formal JCT construction contract and while negotiations continued, work began under an LOI.
The LOI allowed WJG to proceed with the works but included a financial cap on how much CLS would have to pay. That cap was initially £150,000 (plus VAT). As the project progressed, it was increased several times — first to £300,000, then £500,000, £800,000, and finally £1.1 million.
Despite these increases, no formal JCT contract was ever signed.
By the time the works were complete, WJG submitted a final valuation of around £1.4 million. CLS refused to pay above the £1.1 million cap, arguing that the LOI governed the relationship. WJG said that a full construction contract had come into existence and that the cap should no longer apply.
The courts decision
The court agreed with CLS.
The judge found that no formal contract had ever been concluded. Although the parties were negotiating JCT terms, they had never reached agreement on all the essential provisions. There was no “meeting of minds” required for a legally binding contract to arise. Instead, the LOI (with its subsequent revisions) governed the relationship throughout the project.
Crucially, the court held that the £1.1 million cap was binding. This was not only because it was expressly mentioned in the LOI, but also because the correspondence between the parties showed that WJG had repeatedly acknowledged that it was working subject to that limit.
Emails from WJG referred to the contractor getting “close to the cap”, exceeding earlier caps, and asking for increases. Each time CLS agreed to raise the limit and WJG continued working on that basis. Objectively viewed, WJG had accepted the cap on multiple occasions.
The contractor’s entitlement was therefore limited to £1.1 million, even though the actual value of the works was higher, at about £1.4m.
Key takeaways CLS Civil Engineering Ltd v WJG Evans & Sons
From a commercial perspective, this outcome may feel harsh: the contractor completed work worth more than the cap but was not paid for the full amount. However, the case reflects a consistent message from the courts:
- an LOI is not a vague holding document if it contains clear terms — especially about payment limits — those terms can and will be enforced;
- for employers/client organisations, the case demonstrates that LOIs can provide real protection where projects move forward without a signed contract;
- for contractors, it highlights the serious financial risk of continuing to work under an LOI that refers to payment caps;
- the case shows that what parties say and write during a project matters a lot – the parties’ emails played a decisive role in proving that the contractor accepted the cap mentioned in the LOI;
- there is also a wider lesson that LOIs tend to last longer than intended: many LOIs are drafted on the assumption that they will only apply for a short time but in reality, projects often proceed much further than anticipated before a full contract is agreed, if one is agreed at all. When that happens, the LOI may become the de facto contract, even if neither party intended that outcome.
Key points for drafting and negotiating LOIs
1. Treat an LOI as a real contract – assume that the LOI may end up governing the entire project, so draft it accordingly;
2. Be clear on financial caps – if a cap on payment is included, the courts are likely to enforce it strictly, so track spending carefully and increase the cap or be prepared to stop work if the cap is reached;
3. Avoid open‑ended arrangements – LOIs should be short‑term and tightly controlled: if the project is progressing, finalise the full contract promptly (or use the LOI, ensuring that it covers all key legal and commercial issues);
4. Watch what your team says in emails – all inter-party correspondence (including emails) can evidence acceptance of key legal and commercial terms, so educate project teams that emails will later be read by a judge in deciding the legal position.
5. Do not rely on “commercial common sense and fairness” – the courts will focus on what was objectively agreed, not on what seems fair in all the circumstances.
6. Contractors/suppliers should proactively manage risk – if work is approaching the cap, escalate immediately: continuing to work without agreement on payment may mean working for free.
Final thought
Letters of intent are not inherently bad, but they are often misunderstood or misused. This case is a strong reminder that an LOI is not a safety net — it is a tightrope. Directors and managers should approach them with the same care and discipline as any other binding contractual arrangement.
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