Acting diligently and all reasonable endeavours
MORRIS HOMES v KEAY [2013]
Obligations to 'act diligently' in carrying out works and to use 'reasonable endeavours' to complete are quite common in commercial agreements. In this case the Court considered whether there was an overlap between these two contractual requirements.
Facts:
- M was the developer under an agreement for lease relating to a medical centre in Birmingham. The relevant provisions that were the cause of the dispute were:
- clause 3.1 - M was required "as soon as reasonably practicable to commence and thereafter diligently carry out the Works in accordance with the planning permission ... in a good and workmanlike manner";
- clause 4 - required M to "use all reasonable endeavours to ensure that the Works are completed as soon as reasonably practicable … unless prevented or delayed by any cause or circumstance not within the reasonable control of [M]".
- Due to the financial crisis in 2008, M suspended works and the dispute was referred to arbitration in 2012.
- The arbitrator found that M was in breach of clause 3.1. M appealed to the Technology and Construction Court which agreed with the arbitrator’s award.
Decision:
- The arbitrator split M’s obligations into three parts:
- it was obliged to commence the works “as soon as reasonably practicable”;
- it then had to carry them out “diligently”; and
- it had to use “all reasonable endeavours” to ensure they were completed “as soon as reasonably practicable” unless prevented or delayed by a cause or circumstance not within its reasonable control.
- The arbitrator said that none of these obligations was subject or subsidiary to any of the others, and accordingly that effect had to be given to each one of them.
- M argued that because of the financial crisis in 2008, it was faced with risking ‘commercial suicide’ if it continued with the project and that an obligation to use ‘all reasonable endeavours’ did not oblige it to take such a risk. It also maintained that if it was not in breach of this obligation, then it could not be in breach of the requirement to carry out the works diligently.
- The arbitrator disagreed, however, saying that each obligation was separate and that clause 3.1 operated independently of clause 4. By stopping the works for over a year, M was not carrying them out diligently regardless of whether or not it was also in breach of the obligation to use ‘all reasonable endeavours’ under clause 4.
Point to Note:
- What this case highlights are the dangers of having two slightly differently worded provisions that potentially overlap. Here, rather than interpreting them in the aggregate which the Court could perhaps have done, it applied both clauses independently meaning that the party with the obligation was faced with having to comply with the more onerous formulation.