Under the contract for the development of the Chelsea Barracks site, Qatari was obliged to use "all reasonable but commercially prudent endeavours" to enable the achievement of certain thresholds leading to payment of the deferred consideration and to procure planning permission free of legal challenges. Further, both parties owed each other an express duty to act in the "utmost good faith".

In March and May 2009, His Royal Highness, the Prince of Wales made it known to His Highness the Emir of Qatar, the Prime Minister of Qatar, and Qatari’s Chairman, his dislike of the proposal and his support for a more traditional approach. On 12 June 2009, Qatari withdrew the planning application.

The main issues for Vos J in CPC Group Ltd v Qatari Diar Real Estate Inv Co [2010] EWHC 1535 (Ch) were 

  • Whether Qatari was entitled under the contract with CPC to withdraw the planning application and whether such action constituted a breach of contract. 
  • Whether either party had acted in breach of their duties of utmost good faith in the events following the Prince of Wales' intervention. 
  • Whether Qatari was in breach of its obligation to use "all reasonable but commercially prudent endeavours" to meet the various threshold events and payment dates set out in the contract in respect of the deferred consideration and to procure planning permission.

Vos J did not find that either party had breached the obligation to act in good faith, saying that "Both these ”bad faith” cases are built, in my judgment, on unsteady foundations".

As to the meaning of the obligation to act "in the utmost good faith", the Judge noted that there is not actually much authority on the point. Vos J said that the obligation must be looked at in the commercial context of the contract.

On the obligation to use reasonable endeavours, CPC argued that the obligation is less onerous than one to use best endeavours, but an obligation to use all reasonable endeavours (author’s emphasis) is to be equated with an obligation to use best endeavours. Therefore, a party subject to such an obligation must, if necessary, subordinate its own financial interests to obtaining the desired result. Vos J rejected CPC's arguments and concluded that the obligation to use "all reasonable endeavours" did not always mean that the obligor must sacrifice his commercial interests.

Mr Justice Vos said that Qatari had found itself in a very difficult political situation following the Prince's comments and that, in its actions, it "was making the best of a bad job". This had, however, led it to breach the contract with CPC. Vos J did not, however, find that Qatari had been in breach of its duty of utmost good faith, nor that it had breached its obligations to "use all reasonable but commercially prudent endeavours" in performing aspects of the agreement. Equally, he did not find that CPC had breached its own obligations to act in the utmost good faith.

COMMENT

The case confirms that commercial interests do not necessarily need to be sacrificed in the pursuit of acting in the "utmost good faith" or of using "all reasonable endeavours", although it will depend on the particular circumstances. Here, the parties had made this clearer in their drafting by including the phrase "but commercially prudent" in their "all reasonable endeavours" clause.

The Judge did not offer any clarification as to the difference between "all reasonable endeavours" and "reasonable endeavours", but did say that, in this context, "all reasonable but commercially prudent endeavours" did not equate to a "best endeavours" obligation. This is contrary to CPC's argument and contrary to what Lewison J had said in Rhodia International Holdings Ltd & anor v Huntsman International LLC [2007] EWHC 292 (Comm), but no clear explanation as to why this was so was provided. Therefore, we are no further forward as to what is expected of a party subject to an "all reasonable endeavours" clause as opposed to just a "reasonable endeavours" clause. In any event, the case seems to say that it is not strictly necessary to include a phrase such as "but commercially prudent" in order to protect commercial interests (although for certainty, it is not a bad idea), but it might, depending on the particular circumstances, prevent an "all reasonable endeavours" clause equating to a "best endeavours" clause.

In any event, the case seems to say that it is not strictly necessary to include a phrase such as "but commercially prudent" in order to protect commercial interests (although for certainty, it is not a bad idea), but it might, depending on the particular circumstances, prevent an "all reasonable endeavours" clause equating to a "best endeavours" clause.