Gaia Ventures Ltd v Abbeygate Helical (Leisure Plaza) Ltd

An obligation to use reasonable endeavours is a positive obligation to take reasonable steps to achieve the specified outcome as soon as reasonably practicable. The court must consider whether the step was feasible and whether it was reasonable in all the circumstances, balancing objectively unreasonable adverse consequences against the contractual obligation.

A party cannot rely on financial constraints which it created by manipulating related contractual and funding arrangements. Delaying performance to preserve those arrangements, and thereby avoid an overage liability, breached the obligation. Contractual references to leases being merged may include surrender and the point at which specifically enforceable agreements enable cancellation of the relevant registered titles.

Abbeygate acquired leasehold interests and agreed to pay Gaia’s predecessor a £1.4m overage payment if specified planning and title conditions were satisfied. The agreement required Abbeygate to use reasonable endeavours to acquire the necessary property interests and achieve those conditions as soon as reasonably practicable.

Norris J held that Abbeygate had breached that obligation by delaying approval of the ice-rink specification, acquisition or surrender of transformer leases, and variation of service easements until after the contractual longstop date. He ordered Abbeygate to pay Gaia £1.4m plus interest: [2018] EWHC 118 (Ch). Abbeygate appealed on contractual construction, the relevance of funding considerations, the meaning of “merged”, the judge’s factual findings and causation.

1. Appeal dismissed. The overage provisions required Abbeygate to use reasonable endeavours to satisfy the relevant title condition as soon as reasonably practicable. “Registered leases” included the transformer leases but not the temporary ice-rink leaseback, which required no variation or merger.
2. An obligation to use reasonable endeavours is positive. The court must ask whether the relevant step was feasible and whether, in all the circumstances, it was reasonable to take it, balancing the risk of adverse consequences against the contractual obligation. The consequences are assessed objectively. The court did not need to decide generally whether development finance may be a permissible consideration because Abbeygate’s restriction on access to funding was self-imposed.
3. Abbeygate deliberately structured the HCA and Morrisons agreements so that the title-assembly conditions remained conditional until funding was available and the longstop date had passed. It could not rely on that self-created difficulty. The delays in approving the ice specification, entering the new ice-rink lease, surrendering the transformer leases and varying the service easements breached clause 3.3.
4. For contractual construction, the relevant words had to be understood in the context of the agreement’s nature, purpose and other terms. “Merged” was not confined to technical legal merger and included surrender. The condition could be satisfied in equity when specifically enforceable agreements put the relevant interests in hand and enabled Abbeygate to procure cancellation of the registered titles. Under section 74(b) of the Land Registration Act 2002, cancellation would relate back to the date of application.
5. The judge’s evaluative factual findings had an evidential basis and were not to be retried on appeal. The necessary agreements and approvals could probably have been obtained before the longstop date. Males LJ additionally held that uncertainty in the counterfactual did not defeat causation where the defendant’s own conduct caused the evidential difficulty and performance would probably have achieved the contractual outcome.

• Court of Appeal (Civil Division) — Appeal dismissed on 14 May 2019: [2019] EWCA Civ 823.
• High Court of Justice, Chancery Division — Norris J ordered Abbeygate to pay Gaia £1.4m plus interest for breach of the overage agreement: [2018] EWHC 118 (Ch).