Does a reasonable endeavours obligation prevent the giver from manipulating events so as to make compliance impossible?
The recent case of Gaia Ventures Ltd v Abbeygate Helical (Leisure Plaza) Ltd [2019] has made it clear that a reasonable endeavours obligation will be breached if the obligor has manipulated events so that compliance with the obligation is not possible.
In this case a developer contracted to make an overage payment to a former occupier of a site once planning permission was obtained. The overage payment was conditional on the developer acquiring certain other property interests in the site and the developer covenanted to use reasonable endeavours to acquire those interests as soon as practicable. No overage was due after a longstop date.
Before planning permission was granted, the developer entered into a contract to acquire the other property interests, but that contract was drafted so that it did not become unconditional until after the planning permission had been granted and after the longstop date had passed. In this way the developer had made it impossible for the conditionality for the overage payment ever to be met.
The beneficiary of the overage payment argued that the developer's behaviour meant it had breached its obligation to use reasonable endeavours to acquire the other property interests. The Court of Appeal agreed: the contract for the purchase of the other property interests had, at least partly, been set up so as to avoid the overage payment. The developer could have purchased the other property interests earlier and had not used its reasonable to endeavours to do so.
A reasonable endeavours obligation is generally accepted as obliging the contracting party to do what a reasonable person acting in their own commercial interests, but applying their mind to satisfying the obligation, would do. This case has made it clear that a party will be in breach of a reasonable endeavours obligation where it has taken steps to make it impossible to comply with its own obligation.
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