7 November, 2016
NTRODUCTION
The scope of reasonable endeavour obligations has been a recurring topic both in Singapore and the UK, particularly in the situation where a party is obliged to take steps to obtain the consent of the relevant authorities in a transaction.
This article reviews the position in Singapore and the UK on the extent of a purchaser’s duty to use reasonable endeavours to procure the consent of the relevant authority in a property transaction. While the duty to use reasonable endeavours may suggest that a party faced with an initial rejection from the relevant authority must take further steps to obtain its consent, this duty has to be interpreted in accordance with the appropriate context.
THE SINGAPORE POSITION
In The One Suites Pte Ltd v Pacific Motor Credit (Pte) Ltd [2015] 3 SLR 695 (“The One Suites”), the sale and purchase of a property was contingent on obtaining the necessary approvals from the relevant authorities. However, the buyer’s application was rejected as its proposed uses of the property did not conform to the long term land use plan for the site.
A question then arose whether the buyer was obliged to use reasonable endeavours to persuade the relevant authority to reconsider its decision.
The Singapore Court of Appeal (“SGCA” ) noted that where a sale of land was subject to the approval of the authorities, there is usually an implied obligation to use reasonable endeavours to obtain the requisite approvals from the relevant authorities.
However, where any particular requisite approval has been refused, there was no rule or proposition that a party must invariably use reasonable endeavours or take further steps to obtain the requisit approval. Whether or not an obligation to use reasonable endeavours is satisfied depends on the circumstances of each case.
In this case, the SGCA did not imply a term on the buyer to use reasonable endeavours to take further steps to obtain consent from the relevant authority because the parties’ agreement had expressly provided for rescission of the agreement upon the relevant authority refusing to approve the sale. In other words, the scope of the obligation to use reasonable endeavours should be determined with regard to the express terms of the contract itself. Hence, the parties’ agreement would therefore be rescinded at the cut-off point when the relevant authority refused to give its approval.
THE ENGLISH POSITION
The more recent English decision of Bristol Rovers (1883) Limited v Sainsbury’s Supermarkets Limited [2016] EWCA Civ 160 (“Bristol Rovers”) considered similar issues raised in The One Suites case. In the English Court of Appeal ( “EWCA”) decision, Bristol Rovers, a football club, agreed to sell its football stadium to Sainsbury’s, a supermarket chain. The proposed sale required a planning permission application to be approved by the Bristol City Council ( “Council”).
Under the conditional contract for the sale, Sainsbury’s was obliged to, inter alia, use all reasonable endeavours to obtain the Council’s planning permission as soon as reasonably possible. If such planning permission
was refused, Sainsbury’s was required to lodge an appeal if its counsel advised that there was at least a 60% chance of success (“the 60% test”).
The contract also provided that either party was entitled to serve a termination notice if any condition was not satisfied in accordance with the agreement before a cut-off date that was defined in the contract.
On 4 May 2012, Sainsbury’s applied to the Council for planning permission and sought approval for its ability to make deliveries to its new store 24 hours a day, 7 days a week.
On 16 January 2013, the Council informally decided to grant the application, but imposed a condition that the hours for deliveries to the new store be limited to between 6am to 11pm on weekdays and 9am to 8pm at weekends and bank holidays.
After protracted negotiations with Bristol Rovers, Sainsbury’s filed an application on 27 November 2013 based on an agreement with Bristol Rovers that the application was to obtain planning permission which did not restrict delivery hours. In addition, the agreement provided that the application would be pursued without obtaining the advice of planning counsel as to the prospects of success of the application.
On 28 January 2014, the Council rejected the application. Thereafter, Bristol Rovers sought to persuade Sainsbury’s to take further steps to appeal, but Sainsbury’s refused to do so. The planning counsel had advised that the appeal only had a 55% chance of success.
Subsequently, Sainsbury’s terminated the contract by serving a termination notice on Bristol Rovers. Bristol Rovers filed its own appeal against the Council’s decision and succeeded.
A question then arose as to whether Sainsbury’s had complied with its contractual obligation to use reasonable endeavours to obtain the Council’s planning permission, after the Council’s rejection in early 2014.
The EWCA held that Sainsbury’s did not breach the reasonable endeavours obligation, because the contract provided that before an appeal is required to be lodged, the 60% test must be satisfied. This test was not satisfied as the planning counsel had advised that the prospects of success on the appeal were only 55%.
Given that Sainsbury’s was not obliged to file the appeal, the EWCA also held that the reasonable endeavours obligation did not require Sainsbury’s to give consent to Bristol Rovers to file its own appeal.
The EWCA also considered whether Sainsbury’s duty to use reasonable endeavours to obtain the Council’s planning permission survived beyond the contractual cut-off date. Interestingly, the EWCA held that it did, because the contractual provisions did not provide that the process of obtaining planning permission would be stopped merely because of the unsuccessful application. Moreover, terminating the reasonable endeavours obligation at the cut-off date would render the requirement of service of a termination notice superfluous. Ultimately, the EWCA held that Sainsbury’s had validly terminated the contract, which brought its reasonable endeavours obligation to an end.
COMMENT
A comparison of both cases suggests that specific express terms in an agreement have a significant influence on the interpretation of the scope of a party’s general reasonable endeavours obligation. In The One Suites, an express provision for the rescission of the sale upon the relevant authority’s refusal negated any implied obligation on the buyer to use reasonable endeavours to take further steps. Similarly, in Bristol Rovers, the specific stipulation of the 60% test was decisive in determining the cut-off date for termination of Sainsbury’s obligations to use reasonable endeavours under the contract.
However, the position as to the survival of a party’s reasonable endeavours obligation after a certain cut-off point is less clear. The One Suites demonstrated that an express term which stipulated that the time when the relevant authority refused to give its approval represented the cut-off point which ended the reasonable endeavours
obligation.
Bristol Rovers applied a process-based approach which did not end the reasonable endeavours obligation at the cut-off point so long as there were further steps that the buyer could take to obtain the grant of planning permission before the contract was terminated.
Accordingly, a party who wishes to ensure the survival of the other party’s obligation to use reasonable endeavours would do well to pay careful attention to the drafting of any express provision relating to a cut-off point in the agreement.
To ensure the certainty of the extent of the reasonable endeavours obligation, it is suggested that parties should enquire into the administrative process of obtaining approvals and when all appeals would be final and binding. If the appeal process is likely to be long and protracted, it may be better for the parties to clearly specify a cut-off point and the termination of the contract on this cut-off point.
For more information, please contact:
Sandra Han, Partner, RHT Taylor Wessing
sandra.han@rhtlawtaylorwessing.com
