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Wilson Smithett & Cape Sugar Ltd v Bangladesh Sugar and Food Industries Ltd, [1986] 1 Lloyd’s Rep 378

Intention to create legal relations in the formation of contracts.

Facts

A company responded to a tender invitation concerning the sale of sugar with Bangladesh Sugar and Food Industries. Following the submission of the tender, the Parties conducted negotiations and the company presented an offer which was to remain open until 12 June 1981. Within the date, Bangladesh Sugar issued a letter of intent for the supply of materials by the company pursuant to the terms of the offer, further requesting the company to put up a performance bond within one week. The performance bond was put up within the time period, yet Bangladesh Sugar alleged that the letter of intent did constitute a legally-binding contract between the Parties.

Issue

The question arose as to whether the letter of intent demonstrated an intention to create legal relations in respect of future conduct as a legally-binding contract.

Held

The Court held that the letter must be examined within its context to determine whether it was intended to create legal obligations between the Parties and constituted a legal contract. On the facts, the letter of intent can be constructed as an intention to contract with the recipient, as an acceptance of the company’s terms of the offer following the negotiations, and pursuant to which the recipient may act in reliance. The fact that the letter employed some cautionary, unclear or imprecise language did not demonstrate the absence of legal intent to be bound by its content. Further, the letter prescribed express obligations upon the other party, pursuant to which the party complied and began performance of the contract. Thus, the letter of intent constituted an intention to create legal obligations between the parties and as a legal acceptance of the other party’s offer, pursuant to which a contract was formed.

Word Count: 295


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