[2006] EWHC 3166 (Ch)
Yewbelle entered into a contract with London Green. Yewbelle agreed to use ‘all reasonable endeavours’ to obtain a s.106 agreement from the London Borough of Merton. Later Yewbelle realised that it would have to buy extra land at considerable cost to obtain the s.106 agreement.
The issue before the court was whether Yewbelle had used its ‘reasonable endeavours’ to obtain the s.106 agreement.
Lord Justice Lloyd
The obligation to use reasonable endeavours
29. Mr Dowding challenged the judge's interpretation of the obligation to use reasonable endeavours. The judge dealt with this in a passage in his judgment starting at paragraph 118. He accepted that, in using its reasonable endeavours, the Appellant was not required to sacrifice its own commercial interests: paragraph 122. He recognised that the obligation required the party to go on using reasonable endeavours until the point had been reached when all reasonable endeavours have been exhausted, and to go on would be mere repetition, though he observed that account had to be taken of events as they occurred, including extraordinary events: paragraph 123. In relation to the facts concerning the library issue, he recorded that reasonable endeavours had been used until December 2005, when the revised draft section 106 agreement was put forward. Thereafter no endeavours were used, so that the question was whether, by then, all reasonable endeavours had been exhausted, in the light of the circumstances as they then were. It was suggested that Mr Lobetta should have challenged the position adopted by Merton. The judge said, at paragraph 128: "I do not think I can conclude that a reasoned protest would have had no real chance of achieving the result". Mr Dowding submitted that this formulation put the test too low, and that there had to be more of a prospect that the reasoned protest would have achieved the desired result, for it to be a reasonable endeavour which the Appellant was obliged to take.
30. In support of this submission he cited the decision of the House of Lords in A P Stephen v Scottish Boatowners Mutual Insurance Association, The Talisman [1989] 1 Lloyd's Rep 535. That concerned an insurance claim for the loss of a vessel, and in particular rule 13 which required the insured to take all reasonable care to see that the vessel is kept in seaworthy condition, and continued:
"The Association shall not be liable for any claim for loss or damage when the insured making such a claim has not used all reasonable endeavours to save his vessel from such loss or damage."
31. It was argued that the owner and skipper ought to have done two things that he did not: he should have closed the seacocks and he should have sent out a mayday call. The House of Lords held that neither of these contentions justified holding that the insured had not used all reasonable endeavours to save the vessel. The question was posed, whether an ordinarily competent skipper, in the circumstances in which the actual skipper was, would reasonably be expected to attempt to close the seacocks; the answer given was that a skipper with ordinary skill and knowledge would not have appreciated that closing the seacocks would offer a significant prospect of saving the vessel. Similarly it was held that a skipper of ordinary skill and competence would not have regarded sending out a mayday call as offering a significant chance of saving the vessel: see per Lord Keith at pages 540 and 541. From that limited material Mr Dowding submitted that the House of Lords held that the test applicable to decide whether a particular step is within the scope of a reasonable endeavours obligation is whether, if taken, it would offer a significant chance of achieving the result aimed at. It followed, he argued, that Lewison J posed the wrong test in the present case, and that if he had asked whether a reasoned protest would have had a significant chance of getting Merton to change its position as regards the wording of clause 15.2 of the draft agreement under section 106, the answer should have been that it did not, so that the reasonable endeavours obligation did not require that the Appellant should make such a protest.
32. The present case is a long way from The Talisman on the facts, and in terms of the content and context of the reasonable endeavours obligation. I cannot accept Mr Dowding's submission that Lord Keith laid down a general rule as to the standard by reference to which it is to be tested whether a party had undertaken all reasonable endeavours, under whatever kind of contract. In any event, I doubt whether, in expressing himself as he did at paragraph 128, Lewison J thought that he was applying a test which was different in substance. Mr Dowding suggested that a "real chance" assumes a lower threshold of probability than a "significant" or a "substantial" chance. In some cases it may, but in the context of the judge's judgment in this case, I doubt whether he would have regarded the substitution for the word "real", in relation to the chance, of another adjective such as "worthwhile", "substantial" or "significant" as altering his meaning noticeably.
33. Thus, I do not accept that the judge applied the wrong legal test in judging whether the Appellant had used all reasonable endeavours under the contract.
Did the Appellant use all reasonable endeavours?
101. The Appellant's position on this is that, accepting the implied term as found by the judge, its obligation was to exercise all reasonable endeavours to resolve this problem, but that there was nothing further that it was obliged to do in this respect, and that accordingly, subject to giving the Respondent a proper opportunity to decide whether or not to waive the condition, it was entitled to rescind the contract…
102. I approach this point on the footing that a section 106 agreement which related to a smaller site, omitting the third party land, would not have been substantially in the form of the original contractual draft, because of its effect on the extent of the floorspace, including that under the headlease, but that a section 106 agreement in the original form, but which also provided for the owner of the third party land to be a party, so that this parcel of land would also be bound, would have been substantially in the same form as the contractual draft. Thus, the line taken by the Respondent at the time was not correct, when it sought to take advantage of the Appellant's revised planning application for the smaller site. On the other hand, for the Appellant to put in a revised planning application might itself have been regarded as inconsistent with its obligations under the contract, unless there really was nothing more that could be done. So, as it seems to me, the Appellant's case on this depends on that proposition.
103. I also take the view that the position in respect of the library is irrelevant to this point. Even on the basis, as set out above, that the seller had not yet exercised all reasonable endeavours as regards the library question by the time it called a halt to its efforts under clause 25.2 on that front, if there was nothing more that the seller could have done by way of reasonable endeavours about the third party land, that would be sufficient from the seller's point of view. If the third party land was an insuperable obstacle, it is irrelevant that there may have been other obstacles which could have been overcome, or at any rate in respect of which the seller had not yet done all that could reasonably be expected of it to try to overcome. Mr Bannister submitted that the seller was in breach of the contract by stopping the process of its reasonable endeavours under clause 25.2, in respect of the library, and that it could not complain if something later happened which eliminated the problem of the third party land, namely the Respondent's contract with the owner of the land. The fallacy in that argument, it seems to me, is that the seller's obligation under clause 25.2 is a single obligation, not one which exists in parallel as regards different issues and has to be pursued on one regardless of the position on another. If the point had been reached by the beginning of February when the seller could do no more by way of all reasonable endeavours to overcome one problem which stood in the way of achievement of the required section 106 agreement, then it did not have to do anything more to overcome other problems which also stood in the way and which, on their own, might have been resolved.
Conclusion
108. In my judgment, on this one point, the judge failed to consider a crucial question, and thereby came to the wrong conclusion. It seems to me that there was nothing that the seller could have done at the beginning of February to overcome this obstacle by the use of its own reasonable endeavours, regardless of what the buyer might wish to do. It was therefore appropriate for the seller to inform the buyer of the problem…