Articles

Gaia Ventures Limited v Abbeygate Helical (Leisure Plaza) Limited

14th February 2018

The question at the heart of the case was whether a developer (“Abbeygate”) had used “reasonable endeavours” to achieve “as soon as reasonably practicable” the satisfaction of a condition upon the fulfilment of which it became obliged to make an overage payment.

Abbeygate was a joint venture company, the object of which was to acquire and redevelop a site in Milton Keynes. The site comprised a leisure complex, to include an ice rink.

Abbeygate paid Planet Ice Limited (“Planet”) an immediate premium of £1.525m to acquire the lease of the ice rink and at the same time entered into an overage covenant. In essence within a period of days after a trigger date Abbeygate was to pay Planet an additional sum of £1.4m.

The payment obligation in the overage provision was subject to a proviso and a condition.

The proviso was that the trigger date had to occur within 10 years. The condition related to the successful gathering in or variation of property interests in the site as part of the development process.

The overage provision also contained a covenant by Abbeygate “as soon as it considers strategically advisable [to] commence and thereafter use reasonable endeavours to negotiate and agree with the parties entitled to the reversions…the variations contemplated by [the condition] as soon as reasonably practicable”.

Planet subsequently encountered financial difficulties. In return for a payment of £200,000 Planet assigned the benefit of the overage provision to Gaia Ventures Limited (“Gaia”).

Abbeygate entered into agreements with numerous parties in respect of the site. It constructed what Norris J described as “a network of underconditioned agreements” and it retained considerable influence over when and in what order those conditions were satisfied. The upshot of this was that everything came together for the purposes of the condition in the overage provision four days after the expiry of the 10 year longstop date. Gaia smelt a rat!

What did “reasonable endeavours” require? Norris J set out that it is “a descriptive phrase without any immutable content”. Its application requires a judge to make a value judgment in the light of all the facts of the particular case. He was assisted by the decision in Rhodia International Holdings Limited v Huntsman [2007] EWHC 292:

…there may be many reasonable courses which could be taken in a given situation to achieve a particular aim. An obligation to use reasonable endeavours to achieve the aim only requires a party to take one reasonable course, not all of them, whereas an obligation to use best endeavours probably requires a party to take all reasonable courses he can. In that context, it may well be that an obligation to use all reasonable endeavours equates with using best endeavours…

The relevant question was whether the step to be taken was feasible and then whether in all the circumstances it was reasonable to take it (or unreasonable not to take it), balancing the risk of adverse consequences against the obligation to perform the promise. The court would be concerned to see whether the consequences of taking a particular step was on an objective view unreasonable and impractical. For example, something which merely affects a developer’s profit margins would not be in the ordinary course be taken into account when considering whether it was reasonably practicable to commence development.

What did “as soon as reasonably practicable” require? Norris J set out that the obligation was not to do it “when convenient” or “at the time best suited to Abbeygate” but as soon as reasonably practicable.

Norris J decided that Abbeygate had sought to take advantage of any delay that might be engineered or which otherwise occurred. He found that reasonable endeavours were not made to attain satisfaction of the condition as soon as reasonably practicable. Rather he found that Abbeygate’s focus had been to control the speed of the process to accommodate its own funding needs.

He therefore held that Gaia was entitled to damages equivalent to the sum that was payable under the overage provision.

Team: Tim Hammond
Expertise: Real Property

 

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