Yewbelle Ltd v London Green Developments Ltd & Anor

Where a contract requires a seller to use all reasonable endeavours to obtain a specified section 106 agreement, the obligation is a single composite obligation. If it becomes clear that the agreement cannot be obtained by any further reasonable endeavour of the seller, the seller may notify the buyer and allow a reasonable period for the buyer to decide whether to complete without it. If the buyer does not elect to complete within that period, the seller may rescind, even if another obstacle might independently have been overcome. A reasonable-endeavours obligation does not require the seller to incur substantial expenditure or pursue a materially different development scheme. The court must assess the position when notice is given, not by hindsight from a later solution found by the buyer.

The sellers contracted to sell a development site. Under clause 25.2, they had to use all reasonable endeavours by completion to obtain a completed section 106 agreement, while the buyer was not bound to complete until it had been obtained. The draft agreement concerned a development partly situated on land later found to belong to an independent third party. Merton also altered its requirements concerning a proposed library.

The sellers notified the buyer that the contractual agreement could not be obtained and treated the sale contract as discharged. The buyer later offered to complete without the agreement and counterclaimed for specific performance. Lewison J held that the sellers had not used all reasonable endeavours and rejected their claim. The central issues were whether a term allowed rescission after reasonable endeavours had failed and whether that stage had been reached in relation to the third-party land.

1. Appeal allowed. The sellers were entitled to treat the contract as discharged because of the third-party land problem. The buyer’s Part 20 claim for specific performance was dismissed.
2. The court upheld the implication of a term requiring the sellers, after using all reasonable endeavours for a reasonable time without obtaining the required section 106 agreement, to notify the buyer and give it a reasonable opportunity to elect whether to complete without that agreement. If the buyer did not elect to complete, the sellers could rescind. Automatic termination was rejected.
3. The obligation in clause 25.2 was a single obligation, although the factual obstacles could be considered separately. Once one obstacle was insuperable by any further reasonable endeavour of the sellers, they were not required to continue efforts concerning another obstacle which might itself have been overcome.
4. The sellers were not required to buy the third-party land, pay substantial sums to procure its owner’s participation in the agreement, or pursue a reduced development scheme inconsistent with the contractual requirement that the agreement be substantially in the form of the attached draft. It was, however, a reasonable endeavour to inform the buyer of the difficulty and allow it to identify a solution.
5. The assessment had to be made when the sellers notified the buyer. The buyer had not stated that it was trying to acquire the third-party land or needed time for that purpose. Its later conditional agreement with the landowner therefore did not keep the contract alive. By 23 May 2006, at the latest, a reasonable period had expired.
6. On the library issue, the sellers had not exhausted all reasonable endeavours: they had not seriously attempted to persuade Merton to withdraw the revised clause 15.2 or adopted a sufficiently assertive negotiating position. That issue did not prevent rescission because the third-party land obstacle was independently sufficient.
7. Buxton LJ dissented on the implication of the term. He considered that clause 25.2 protected the buyer and that implication would improperly reverse the contractual allocation of risk. Waller LJ agreed with Lloyd LJ’s reasoning and conclusion.

• Court of Appeal (Civil Division) [2007] EWCA Civ 475: appeal allowed. The sellers’ claim was upheld and the buyer’s counterclaim for specific performance dismissed.
• High Court of Justice, Chancery Division [2006] EWHC 3166 (Ch): Lewison J held that the sellers had not used all reasonable endeavours and could not rely on non-satisfaction of the condition to discharge the sale agreement.