The decision in the NSW Supreme Court - Court of Appeal, Foster v Hall [2012] NSWCA 122, provides guidance on how the courts will interpret a contractual condition to use “best reasonable endeavours”.

Facts

The case concerned a contract of sale of rural land at Mount Kembla where both parties agreed to use “best reasonable endeavours” to have a proposed plan of subdivision of the land registered within 12 months of the contract date.

Registration of the plan did not occur within that period of 12 months and, as a result, the vendors purported to rescind the contract.

The purchasers maintained the vendors were not entitled to rescind, as they had not used their “best reasonable endeavours” to have the plan of subdivision registered. The purchasers treated the purported rescission by the vendors as a repudiation of the contract and the purchasers then terminated the contract.

As a precondition to registration of the plan of subdivision, the vendors were required to comply with certain conditions contained in the local Council’s development consent.

The vendors argued that one of the conditions in the development consent, relating to the gradient of an access way for the property, was physically impossible to achieve and pointless, and on that basis, argued that they did not breach the obligation to use “best reasonable endeavours” in allowing the development consent to lapse.

Decision

The Court of Appeal, in interpreting the use of the phrase “best reasonable endeavours”, observed that the inclusion of the word “best” raised the standard higher than that required by an obligation to use “reasonable endeavours”. The Court then equated an obligation to use “best reasonable endeavours” with an obligation to use “best endeavours”.

The Court also considered relevant case law and concluded that an obligation to use “best endeavours” is governed by what is reasonable and prudent in the circumstances, recognising that the relevant party is also acting in its own interest.

Having regard to the development consent condition, the Court decided that the vendors were capable of complying with that condition by seeking an amendment to the condition. Further, the Court held that while the exercise of “best reasonable endeavours” will not always require a party to seek an amendment to a development consent condition, given the Council’s demonstrated willingness to consider a requested amendment, the vendors’ failure to request an amendment was in breach of their obligation to use “best reasonable endeavours”.

Lessons to be learned

When negotiating and drafting standards of qualifications to be applied to a contractual obligation, always be very clear on what level of obligation you are willing to undertake or accept and ensure the wording in the contract reflects that level of obligation.

Where possible, be specific about any obligations that are excluded or included.

For example, if the vendors in this case had included a condition in the contract allowing them to rescind the contract if any development consent provision was unacceptable to them, this may have overcome the difficulty in rescinding which they ultimately faced.