06 July 2017 - Post by:Jason Rix
In Minerva v Greenland, the court provides some useful pointers as to when a party has met an obligation to use reasonable endeavours to secure a particular outcome.
Minerva sold a development site to Greenland. The sale agreement provided that if Minerva was successful in obtaining enhanced planning permission within a certain time, Greenland would pay an “overage” fee.
Minerva succeeded in obtaining enhanced permission, but the permission lapsed when Greenland refused to agree final terms with the Council. Minerva argued that Greenland’s refusal was a breach of the sale agreement which prevented it from earning the “overage”. Greenland countered that Minerva was in breach of its obligation under the sale agreement to use reasonable endeavours to limit the affordable housing contribution required as part of any enhanced planning permission.
Rose J held that the objective question to be asked when considering reasonable endeavours was “what would a reasonable and prudent person acting properly in their own commercial interest and applying their minds to their contractual obligation have done” (in this case, to limit the affordable housing contribution).
The court must also consider whether actions which could have been taken would have been successful (UBH v Standard Life (1988)). If evidence showed that it would have been useless to take a particular action, the court should be extremely reluctant to find that not taking that action was unreasonable.
Had Minerva done enough?
- Witness evidence persuaded the court that Minerva had acted reasonably, and was central to rebutting Greenland’s arguments.
- Greenland argued that Minerva wasted time and had not left itself enough time to properly negotiate. The court did not approve of this approach, saying that Greenland had to point to more specific alleged failures; otherwise a party could always argue that if its counterparty had held out just a little longer they would have achieved a better result.
- Greenland had set such a tight deadline for Minerva to secure enhanced permission that it had set a limit on how far it could reasonably expect Minerva to prolong ancillary negotiations.
- There was no evidence that Minerva mishandled the negotiations with the Council or failed to take points that were available to them.
As such, the court held that Minerva had complied with the reasonable endeavours obligation.
Applying the principles above, parties can take comfort that where they have handled negotiations competently and appropriately having regard to the time available, the court is likely to find that they have met an obligation to use reasonable endeavours to secure a particular outcome. Parties should also note the importance of fact and expert witnesses, who played a major role in persuading the judge what amounted to reasonable endeavours in the circumstances.