The key issue in the case of Gaia Ventures Ltd v Abbeygate Helical (Leisure Plaza) Ltd was whether a developer used 'reasonable endeavours' to achieve 'as soon as reasonably practicable' the satisfaction of certain conditions which would trigger liability to make an overage payment.
Abbeygate acquired the superior lease of a leisure complex in Milton Keynes with a view to developing the site. In order to develop the site, Abbeygate would need to: 1) acquire the freehold of the site or alter the superior lease to permit redevelopment; and 2) acquire all interests derived out of the superior lease, including the lease of the ice rink.
On 4 July 2003, the tenant of the ice rink, Planet, transferred its lease to Abbeygate for a premium of GBP 1.525 million. At the same time, the parties entered into an overage covenant pursuant to which Abbeygate would pay to Planet an additional sum of GBP 1.4 million once 'an Acceptable Planning Permission' had been granted. Abbeygate covenanted to "use its reasonable endeavours to obtain an Acceptable Planning Permission".
The payment obligation in the overage provision was subject to one proviso: the trigger date for payment must occur within 10 years i.e. by 4 July 2013, and was conditional upon Abbeygate successfully acquiring or varying the property interests in the site as part of the development process.
Abbeygate also covenanted that it would "as soon as it considers strategically advisable (taking into account the requirement to obtain an Acceptable Planning Permission) commence and thereafter use reasonable endeavours to negotiate and agree with the parties entitled to the reversions … the variations contemplated by [the condition] as soon as reasonably practicable".
Abbeygate entered into a number of conditional agreements in respect of the site but retained considerable influence over when and in what order those conditions would be satisfied. As a result of the complexity of the arrangements and associated timescales, the conditions triggering the payment obligation were only satisfied four days after the expiry of the 10 year longstop date provided for in the overage provision.
Gaia, which had acquired the benefit of the overage provision from Planet, sought damages contending that Abbeygate had "failed to use reasonable endeavours" to satisfy the conditions for payment of the overage.
The decision – reasonable endeavours
Mr Justice Norris confirmed that 'reasonable endeavours' is "a descriptive phrase without any immutable content". When determining whether the obligation has been met, one must consider all of the particular circumstances of the case.
Guidance can be taken from the earlier decision in Rhodia International Holdings Limited v Huntsman in which it was 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…"
Abbeygate had an obligation to take reasonable steps. The question is whether the relevant step was feasible, and then whether in all the circumstances it was reasonable to take it (or unreasonable not to take it), balancing the risk of adverse consequences against the obligation to perform the promise. Implicit in the undertaking to use 'reasonable endeavours' is an undertaking not to take any actions which would make the achievement of the aim more difficult.
In terms of the timing of performance, the obligation is to do it as soon as reasonably practicable, not "when convenient" or "at the time best suited to Abbeygate".
The Judge found that Abbeygate did not approach matters with a desire to take steps "as soon as reasonably practicable" but rather to leave matters as late as possible in order to take advantage of the delay. He held that Abbeygate did not make reasonable endeavours to achieve as soon as reasonably practicable the necessary variation of the property interests. If it had done so, all necessary property interests would have been in hand and the trigger date would have occurred at a time which would have entitled Gaia to claim the overage payment.
Accordingly, the Judge held that Gaia was entitled to damages in the sum of GBP 1.4 million.