Using reasonable endeavours and due diligence
AMPURIUS NU HOMES v TELFORD HOMES [2012]
This case looked at the meaning of a commitment to carry out contractual obligations with ‘reasonable endeavours’ and ‘due diligence’, terms often used in many contracts. The Court gave some useful guidance on how these commitments are interpreted and whether the financial resources of the party giving the obligation should be considered.
Facts:
- The parties entered into a contract in October 2007 for the development of four blocks of property in London. T was required to ensure the works were carried out with ‘due diligence’ and to use “reasonable endeavours to procure” that the work was completed by the target date “or as soon as reasonably possible afterwards”.
- Due to the collapse of the property market and consequent funding problems, in March 2009 T put development of two of the blocks on hold. In November 2009 A claimed that stopping the work amounted to a repudiatory breach (ie a breach which is serious enough to entitle the aggrieved party to terminate the contract and sue for damages). It was not until October 2010 that A actually gave notice to end the contract on the basis of this alleged repudiatory breach. However, by this point in time T had recommenced the work and so claimed that A’s termination was itself a repudiatory breach.
- A maintained that T was in breach of its ‘due diligence’ and ‘reasonable endeavours’ commitments. T claimed that A had delayed too long in seeking to terminate and had affirmed the contract.
Decision:
- Repudiatory breach - The Court found that T was in repudiatory breach and that A was entitled to end the contract and claim the return of its deposit.
- Due diligence - T argued that to perform works with ‘due diligence’ should be interpreted as meaning only to do the work carefully. The Court disagreed stating that the familiar concept of ‘due diligence’ in construction contracts was intended to also denote due speed and efficiency. Both parties knew that A was keen to have delivery of all four blocks as close together in time as possible. According to the Judge, the unexpected lack of funding may have explained, but could not eliminate, the breach of a contractual obligation which was to procure that the works were conducted with due diligence.
- Reasonable endeavours - T claimed that provided it had made reasonable endeavours to obtain funding, it would not have breached the obligation. The Court again disagreed. It said the reasonable endeavours qualification was limited only to “matters that directly relate to the physical conduct of the works”, such as inclement weather or a shortage of materials which would provide an excuse for delay. The obligation was not satisfied simply by having used reasonable endeavours to obtain the necessary financial resources to carry out the work. As the delay carried on for some time, it was evident that the target date would be substantially exceeded and this amounted, at some unspecified point in time, to a breach of the ‘reasonable endeavours’ commitment.
- Contract was not affirmed - The Court rejected T's submission that A's delay in ending the agreement meant A had affirmed the contract, saying that for this to have been the case, there must be very clear evidence that the injured party has indeed elected to continue with the agreement. A had conducted prolonged negotiations with T in the interim period (without prejudice to its entitlement to terminate) and this was perfectly legitimate and did not amount to affirmation. The Court emphasised that this was an ongoing, continuing breach by T which could still be used by A as a basis to terminate. The position may well have been different in relation to a once and for all, one-off breach.
Points to Note:
- An obligation to use ‘due diligence’ can encompass both taking reasonable care and meeting time commitments expediently.
- ‘Reasonable endeavours’ cannot be excused by lack of funding unless there is express wording to this effect. It is usually worth agreeing a definition of ‘reasonable endeavours’ as this is then less susceptible to the changing opinions of Judges and allows the commitment to more closely reflect what the parties might themselves expect.
- ‘Endeavours’ clauses remain inherently uncertain, difficult to rely upon and it is not easy to know with confidence whether the commitment has been fulfilled.
- Where an agreement comprises different parts or stages, if the breach goes 'to the root' or substantially deprives the innocent party of the benefit of a significant part or stage, it may still amount to a serious breach of the whole contract even though that party has had the benefit of other parts or stages. This was the position here but, as always, the case was decided on its specific facts.
- As the judge said “The law does not require an injured party to snatch at a repudiation; he does not automatically lose his right to treat the contract as discharged merely by calling on the other to reconsider his position and recognise his obligations." However, delaying too long is undoubtedly dangerous. How long is too long will depend upon all the circumstances.
- This case was appealed in 2013 - see Telford Homes v Ampurius NU Homes (CA).