An Expensive Obligation: reasonable endeavours as soon as reasonably practicable

In the recent High Court case of Gaia v Abbeygate [i], a developer was found not to have made reasonable endeavours to fulfil conditions of a contract as soon as reasonably practicable.   It was held that the additional conditions of the contract could have been met (and the overage payment to the Seller triggered) by the long stop date had the developer used such reasonable endeavours.  The developer was made to pay the overage payment of £1.4 million together with interest.

The developer acquired land, the sale contract including overage provisions requiring the developer to use reasonable endeavours to satisfy certain conditions, including obtaining the grant of planning permission.  Once planning permission had been granted, the developer was contracted to pay an overage payment if some further conditions were met before the long stop date.  These further conditions were contracted to be met ‘as soon as reasonably practicable’.  They included variations of easements and surrenders of substation leases and so were not onerous or difficult to meet in and of themselves.  However, it could be seen that the developer had more control over the payment of the overage given that the developer had to satisfy the further conditions, and therefore the protection given to the Seller in this instance was that of “reasonable endeavours as soon as reasonably practicable”.

On first inspection the terms “reasonable endeavours” and “as soon as reasonably practicable” may seem nebulous and open to interpretation.  Whilst there is indeed no absolute standard for these terms they have been considered in the Court, such as in the case of Rhodia v Huntsman[ii]. In this case the terms “reasonable endeavours” and “best endeavours” were examined and, in its summation, the Court stated that “An obligation to use reasonable endeavours to achieve the aim only requires a party to take one reasonable course, not all of them, where as an obligation to use best endeavours probably requires a party to take all reasonable courses he can.  In that context, it may well be that an obligation to use all reasonable endeavours equates with using best endeavours“.  This provides some insight into how the Court views these terms, but the Court is not bound by these interpretations and will examine each case on its own merit.

In Gaia v Abbeygate, the Court took the view that the additional conditions were relatively straightforward. As such, any delay leading to the long stop date being surpassed were viewed to be delays caused by the developer not using their reasonable endeavours to satisfy the conditions as soon as reasonably practicable.  The developer satisfied the conditions of the overage provisions four days after the long stop date of ten years, and in this case it could be viewed that they manipulated the circumstances to avoid making the overage payment.

In conclusion, developers should be careful when agreeing to use reasonable endeavours, best endeavours or indeed all reasonable endeavours in performing their contractual obligations and should be mindful of what could be considered ‘as soon as reasonably practicable’.  If you need advice on the terms of your contract or you would like to know more then please get in touch.