Procrastinators beware

A developer has been required to pay substantial damages where it did not use 'reasonable endeavours' to fulfil conditions that would have triggered an obligation to pay overage.

Background

In Gaia Ventures Ltd v Abbeygate Helical (Leisure Plaza) Ltd, Abbeygate bought development land in Milton Keynes. The terms of the purchase required Abbeygate to use reasonable endeavours to obtain planning permission for the development of the property and, after the grant of planning consent and if other site assembly conditions had been exercised, to pay overage of £1.4 million to the seller. The overage would be payable only if the conditions for its payment were met within 10 years of the original purchase.

As with many development projects, there were a number of pieces of the development jigsaw to assemble. Abbeygate retained considerable influence over the order of this and, as a result of the complexity of the development and the timescales involved, the conditions to trigger payment of the overage were not met until four days after the cut-off date for its payment.

The original landowner sought damages contending that Abbeygate had not used reasonable endeavours to satisfy the conditions for payment of the overage. The issue, as the judge put it succinctly, was "How hard do you have to work to make yourself liable to pay £1.4 million?"

Reasonable endeavours obligations

An obligation to use reasonable endeavours is a descriptive phrase. It is not an absolute standard of behaviour.

To determine whether or not the obligation has been met, you have to look at all the surrounding circumstances of the case. In an earlier case (Rhodia International Holdings Ltd v Huntsman [2007] EWHC 292), the judge said:

"There may be many reasonable courses which could be taken in a given situation to achieve a particular aim. An obligation to use reasonable endeavours to achieve the aim only requires a party to take one reasonable course, not all of them, whereas 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."

A promise to use "reasonable endeavours" cannot to be read as equivalent to a promise to act "if and to the extent that it is in conformity with my proposed arrangements". Instead, it is an obligation to take reasonable steps to achieve the promised objective.

The questions to consider are what steps are required to achieve the objective, are they feasible and, in all the circumstances, it is reasonable to take those steps (or unreasonable not to take them). The person using reasonable endeavours has to balance the risk of adverse consequences in taking those steps again the obligation achieve the promised objective. At the same time, an obligation to use "reasonable endeavours" also carries with it an obligation not to take any actions that would make achieving the promised objective more difficult.

Indicators that reasonable endeavours had not been used

The judge found that Abbeygate had not used reasonable endeavours to fulfil the conditions for the payment of overage.

Some of the actions that Abbeygate had carried out were left until it was convenient for Abbeygate or suited its funds flow. The indication is that this was not consistent with an obligation to use "reasonable endeavours" to satisfy the overage conditions.

At other times in the development process, Abbeygate, knowing of the deadline, had approached matters on the footing of how late it could safely leave addressing those matters, to ensure that the conditions were not fulfilled until after the deadline for the payment of the overage.

Effectively, it had manipulated the order in which the development jigsaw was put together to avoid the obligation to pay overage.

Conclusion

Developments can involve a number of complex elements. Parties need to ensure that specific obligations to use reasonable endeavours to achieve certain objectives are not lost in the complexity of the matter or, worse, that they take advantage of the complexity to engineer a situation where no overage has to be paid.

Gaia Ventures Ltd v Abbeygate Helical (Leisure Plaza) Ltd [2018] EWHC 118 (Ch)