“There is little doubt that the Agreement is tortuously, laboriously and…badly drafted. It makes any draftsman itch to have a try at it. However I have to decide what it means.”
As someone involved in drafting and negotiating construction contracts, Proudman J’s analysis of the sale contract in Bristol Rovers (1883) Ltd v Sainsbury’s Supermarkets Ltd (recently affirmed by the Court of Appeal) represents something of a nightmare to me. It illustrates the horrors that can result from using a poorly defined “endeavours” obligation.
The case concerned a £30 million agreement to sell Bristol Rovers’ Memorial football stadium to Sainsbury’s, who planned to redevelop it as a supermarket.
Completion of the sale was conditional on various matters, including that Sainsbury’s was granted planning permission that allowed 24/7 deliveries to its new store. In short, failure to satisfy the planning condition by a certain date entitled Sainsbury’s to terminate the agreement, but Sainsbury’s was required to use all reasonable endeavours to obtain this planning permission.
The agreement provided that, if planning permission was granted with restrictions on the timing of deliveries and subject to certain conditions being met, Sainsbury’s was obliged to appeal the decision. Unfortunately, Bristol City Council refused to grant an unrestricted permission. Sainsbury’s initially lodged two appeals, before withdrawing the second appeal because one of the relevant conditions had not been met.
Planning permission was not obtained by the cut-off date and Sainsbury’s exercised its right to terminate the agreement. There were various issues in dispute, the key one for the purposes of this blog being: had Sainsbury’s failed to use all reasonable endeavours to procure an acceptable planning permission as soon as reasonably possible in breach of the sale agreement?
At first instance, the court found that Sainsbury’s was entitled to terminate. Keen to push the sale through, Bristol Rovers appealed. The Court of Appeal ruled in favour of Sainsbury’s. It held that the obligation to use all reasonable endeavours to procure an acceptable planning permission was expressly qualified by the provisions relating to Sainsbury’s obligation to appeal a planning refusal. Sainbury’s was obliged to do so in certain circumstances, otherwise it was within Sainsbury’s absolute discretion.
Let’s (use all reasonable endeavours to) be clear
Whether an obligation is absolute and, if not, how far a party has to go to satisfy it, is a regular source of debate in the context of construction projects. The key question is precisely what needs to be done to satisfy the obligation. This case underlines the importance of including specific drafting to clarify the scope of a qualified obligation and to this end, it is often helpful to stipulate in the contract the steps a party is expected to take. For example, the contract may:
- Include a test against which the party performing the obligation can be measured. A good illustration of this is CEP Holdings Ltd and CEP Claddings Ltd v Steni AS, where CEP was held to be required to “do everything that a reasonably competent and energetic distributor would do” in pursuing its obligation to use “all reasonable endeavours” to promote and sell Steni’s products.
- Make it clear that a party must take all steps to try and achieve the required outcome, not just some of them. A party should not be able to pick and choose from a menu of possible actions.
- Exclude factors that could otherwise relieve a party of its qualified obligation. For example, if a party is required to use all reasonable endeavours to do something, you could state that certain factors will be disregarded when assessing whether it has satisfied its obligation. Such factors may include increased future costs arising out of known issues, insolvency of contractors or consultants, or the risk of adverse financial consequences to the party who has to perform the obligation.
Don’t be under any illusions. A qualified obligation may not be an innocuous concession made as part of a negotiation. Indeed, arguably it can be more dangerous than an absolute obligation, because of the uncertainty it potentially creates. Don’t concede “qualifications” without drilling down into what you actually mean and then make sure your agreement clearly reflects this. Failure to do so may lead to time-consuming and costly litigation, as this case demonstrates.