Reasonable endeavours
MINERVA v GREENLAND [2017]
The requirements imposed by an obligation to use ‘reasonable endeavours’ to achieve a particular outcome have been the subject of considerable uncertainty and confusion for many years and its meaning is not particularly clear. This case showed that where the parties have handled negotiations competently and appropriately having regard to the time available, the Court is likely to find that they have met such an obligation.
Facts:
- Minerva (“M”) sold a development site to Greenland (“G”). The sale agreement (“Agreement”) provided that if M was successful in obtaining ‘enhanced’ planning permission (ie permission which would permit additional development) within the next 10 months, G would pay an ‘overage’ fee if certain conditions were met.
- Under the Agreement M had to submit its enhanced planning permission application to G for approval, which was not to be unreasonably withheld or delayed and had to be given within a 10 business day period. If G did not communicate a decision within that period then consent was deemed to have been given. In the event G said it needed four weeks to consider the request but M submitted its enhanced planning application anyway.
- M obtained the planning permission but it lapsed when G refused to agree final terms with the Council with regards to a so-called section 106 Agreement under which G would have been required to make additional financial contributions to the Council towards affordable housing.
- M argued that G’s refusal was a breach of the Agreement which prevented it from earning the ‘overage’. In response G said that M was in breach of its obligation under the Agreement to use ‘reasonable endeavours’ to limit the affordable housing contribution required as part of any enhanced planning permission.
Decision:
- The Court said that the question to be asked was, “what would a reasonable and prudent person acting properly in their own commercial interest and applying their minds to their contractual obligation have done [to limit the affordable housing contribution]?
- Whether actions which could have been taken would have been successful must also be considered. If evidence showed that it would have been useless to take a particular action, the Court should be extremely reluctant to find that not taking that action was unreasonable. Witness evidence persuaded the Court that M had acted reasonably.
- G argued that M wasted time and had not left itself enough time to negotiate properly. The Court disagreed saying that G had to point to more specific alleged failures. Nor was it sufficient for G to argue that if the other party had held out for longer, it would have achieved a better result.
- G had imposed such a tight deadline for M to secure the enhanced planning permission that it had set a limit on how far it could reasonably expect M to prolong negotiations.
- There was no particular evidence that M had mishandled the negotiations with the Council or had failed to take points that were available to it.
- As such, the Court decided that M had complied with the reasonable endeavours obligation.
Points to note:
- A request for consent does not have to be especially formal; an email request is perfectly sufficient.
- The party refusing consent can only rely on reasons that actually influenced its ‘mind’ at the time of the decision but they do not all need to be expressed to the party seeking consent at the time it is refused. That would seem to suggest that there is no duty to provide reasons.
- What this case illustrates is that a commitment to use ‘reasonable endeavours to negotiate’ (which was effectively exactly what this was) is inherently uncertain and extremely difficult to enforce. Provided negotiations have been handled competently and appropriately, particularly with regard to the strict time available (where that applies), the Court is likely to find that the parties have met an obligation to use reasonable endeavours to secure a particular outcome.