It often happens, when parties enter into a commercial contract, that some aspects of the agreement cannot be performed until a later date, and there may be uncertainty at the time of contracting, as to the capability of the parties actually to implement certain terms of the deal. Invariably the parties will insert some kind of suspensive condition into the contract, which will usually require the parties to put some effort into achieving the desired outcome. Typically, this is expressed as a requirement to use "endeavours" of some kind, and unless carefully expressed at a level of commitment clearly understood between the parties, disputes can arise as to the amount of effort expected of the parties to attempt to achieve the required result.
The recent case of Mactaggart & Mickel Homes Limited v Charles Andrew Moore Hunter and Sandra Elizabeth Hunter [2010 CSOH 130] provides a timely reminder of the importance of clarity in the wording of a contract which obliges a party to use "endeavours" for a particular purpose.
Requirement to use reasonable endeavours to obtain planning consent
The case concern the terms of missives of sale which MMHL entered into to purchase an area of land from Mr and Mrs Hunter for residential development, at a price of £3.5 million. The missives obliged MMHL to pay to Mr and Mrs Hunter a deposit of £1.5 million on the date of entry in exchange for a disposition of the land in their favour. MMHL were then obliged to use "reasonable endeavours" to obtain detailed planning permission (in terms satisfactory to MMHL) to construct no fewer than 17 and no more than 19 residential units on the site. If MMHL obtained a satisfactory planning permission they were obliged to notify Mr and Mrs Hunter to that effect and pay over the balance of the price.
MMHL initially sought planning permission for 19 units on the site, however the local authority refused consent for this number of units for a variety of reasons, mainly relating to the perceived failure of the proposed development to take account of the character of the conservation area in which the development was to be situated. MMHL then submitted a new application for a 13 unit development, however the local authority still felt that this proposal did not adequately address the reasons for the previous refusal.
Having decided that proposals to build fewer units on the site were not economically viable, MMHL notified Mr and Mrs Hunter that they were unable to obtain a satisfactory planning permission for the development. The missives obliged Mr and Mrs Hunter to repay the deposit to MMHL within 21 days of the date of such a notice, in exchange for a re-conveyance of the site. However Mr and Mrs Hunter failed to repay the deposit within the 21 day period.
Some time later (with the deposit still not repaid), MMHL rescinded the missives (which allowed them to retain ownership of the site) and raised proceedings against Mr and Mrs Hunter to recover the shortfall between the £1.5 million deposit paid and the open market value of the site at that time (according to valuations obtained by MMHL).
Did MMHL use reasonable endeavours?
Mr and Mrs Hunter argued that MMHL were not entitled to serve the notice requiring repayment of the deposit under the Missives, for a number of reasons, which included MMHL's failure to use "reasonable endeavours" to obtain planning permission. The court therefore required to consider whether, in the circumstances, the endeavours used by MMHL in order to obtain planning permission for no fewer than 17 and no more than 19 units on the site were sufficient to discharge their obligation to use "reasonable endeavours".
The onus of showing that they had used "reasonable endeavours" rested with MMHL. In rejecting Mr and Mrs Hunter's argument, and agreeing that MMHL had complied with their obligation to use "reasonable endeavours" to obtain the planning permission, the Lord Ordinary, Lord Hodge noted that in its context the phrase "reasonable endeavours" imposed obligations on MMHL which were not as onerous as the phrase "all reasonable endeavours". Lord Hodge referred to the case of Agroexpert State Enterprise for Foreign Trade v Compagnie Europeenne de Cereales [1974 1 Lloyd's LR 499], in which it was stated that an obligation in a contract to use "all reasonable endeavours" required the court to consider whether there were reasonable steps which could have been taken, but were not.
What is the level of effort required?
In any given situation there may be a number of reasonable courses which could be taken. The distinction being made by Lord Hodge appears to be that an obligation to use "reasonable endeavours" would probably only require an obligant to take one reasonable course, whereas an obligation to use "all reasonable endeavours" would probably require the obligant to exhaust all reasonable courses available. Although not dealt with directly, Lord Hodge also suggests that an obligation to use "best endeavours" would be more onerous still.
The outcome in this case is a reminder that the obligations to use endeavours to achieve a particular end will be interpreted by the courts as requiring the parties involved to undertake varying degrees of effort to achieve the end in question. The degree of endeavours required to comply with an obligation will depend on the circumstances of the individual contract. It is therefore important that the parties to a contract give due consideration to the measure of effort intended to be imposed on a party to achieve the outcome in question before wording the obligation accordingly.
To read the full opinion in the case of Mactaggart & Mickel Homes Limited v Hunter click here.