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What does it mean to use “all reasonable but commercially prudent endeavours”?

DATE: 23.06.2011

 

In June of this year, in the case of CPC Group Limited v Qatari Diar Real Estate Investment Company [2010] EWHC 1535 (Ch), the UK High Court was required to interpret the contractual obligation to use “all reasonable but commercially prudent endeavours”. The case arose from a widely publicised dispute concerning the redevelopment of Chelsea Barracks, a British Army barracks located in the City of Westminster, London.

The judge was asked to consider whether Qatari Diar's (“QD”) conduct in withdrawing a planning application for the redevelopment of Chelsea Barracks was a breach of its obligation to use all reasonable but commercially prudent endeavours to procure planning permission. QD reportedly withdrew the planning permission application after an intervention from the Prince of Wales.

The Court found that QD's conduct did not breach its obligation to use all reasonable but commercially prudent endeavours and therefore ordered that CPC Group Limited's (“CPC”) claims against QD for damages for breach of this obligation be dismissed.

The Court rejected CPC’s argument that an obligation to use "all reasonable endeavours" should be equated with an obligation to use "best endeavours", which requires a party to subordinate its own commercial interests in order to achieve the desired result. The judge relied on Lloyd LJ’s Court of Appeal decision in Yewbelle Limited v. London Green Developments [2006] EWH 3166 (ch) (“Yewbelle”) in concluding that the obligation to use "all reasonable endeavours" does not always require the obliged party to sacrifice his commercial interests. The Court felt that this interpretation clearly applied to the contract between the parties because the contract itself stated that QD was not to be required to sacrifice its commercial interests as the addition of the qualification, "but commercially prudent" to the contractual obligation to use “all reasonable endeavours”, was clearly intended to restrict the scope of the obligation.

The judge opined that an obligation to use “all reasonable but commercially prudent endeavours” did not require QD to ignore or forgo its commercial interests. Instead, the clause allowed QD to consider its own commercial interests alongside those of CPC, and required it to take all reasonable steps to procure the planning permission, provided those steps were commercially prudent. The judge emphasised the importance of this distinction and stated that it permitted QD to consider its own commercial interests in deciding how to respond to the Prince of Wales' intervention. However, the judge also said that the clause did not allow QD to “consider its own political interests, insofar as they were different from its commercial interests or insofar as they required commercially imprudent measures”.

This case is informative in the context of the interpretation of endeavours clauses. More particularly, it highlights the approach which is likely to be taken by the Irish Courts, in interpreting qualifications made to an endeavours clause.

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