Conditional Contracts for Sale Structure of a Typical Conditional … · 2017-09-07 · conditional sale contract in which the purchaser agrees or warrants that planning permission

Adam Rosenthal

Conditional Contracts for Sale 1

February 2016

Conditional Contracts for Sale

Structure of a Typical Conditional Contract

1. Conditional contracts can be found in all shapes and sizes. In relation to the sale and

purchase of real property, conditional contracts are a useful device to apportion risk

between the buyer and seller where property is being sold for a particular purpose,

frequently some sort of development. A buyer might not wish to commit without

securing planning permission / any other required consents which will enable the buyer

to develop the land in accordance with a desired scheme. The seller will want to ensure

that any conditions which are attached to the sale are fulfilled.

2. Usually, it is impractical for the parties to have joint responsibility for ensuring the

satisfaction of the conditions. Where the buyer is seeking permission to undertake a

particular type of development, the typical contract will require the buyer to use a

certain level of endeavour to achieve that permission, in order to render the contract

unconditional. The seller will wish to be able to police the buyer’s efforts, which will

require the buyer to keep the seller informed and, where necessary, involve the seller in

the process. The buyer might require the co-operation of the seller (e.g. entering into a

s.106 agreement) and the seller might, therefore, be subject to positive duties to co-

operate.

3. There will usually be some time limits attached to securing the conditions. Clearly, a

seller would not wish to have the land sterilised indefinitely by an agreement to sell

without any defined completion date. So, the usual form of contract will contain express

rights on the part of both parties to terminate the agreement if conditions are not

satisfied within a certain time period. There might well be rights to extend that time

period, e.g. where a planning application is subject to an appeal or judicial review.

4. In some instances, it might be decided that an option is more appropriate than a

conditional contract. Option agreements might well contain similar provisions requiring

one party to use endeavours to secure permission for a development, which will then

provide the occasion for exercising the option. However, the crucial difference between

an option and a conditional contract is that a conditional contract creates an obligation

on the buyer to buy when the conditions are fulfilled. An option merely gives the

potential buyer the right to buy, but without any obligation. If circumstances have

changed and, notwithstanding the existence of planning permission, the buyer decides

that he no longer wishes to own and develop the land, the grant of an option gives him

that choice. A conditional contract for sale does not.

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February 2016

Obligations to Secure Satisfaction of Conditions

5. It is not necessary for either party to the contract to be under any obligation to procure

satisfaction of any conditions to which performance of the contract is made subject.

However, in a typical sale and purchase contract which is made conditional on securing

an appropriate permission or other matters required for development, the conditions

will usually be inserted for the benefit of one party and the other party is unlikely to

agree to bear the entire risk of that condition not being fulfilled. So, one would expect

to find some form of obligation on the part of the other party to procure the satisfaction

of the condition. That obligation is unlikely to be unqualified, especially where the

obligation requires the party concerned to procure the doing of something by a third

party over whom he may not be able to exercise absolute control (e.g. the local

planning authority). If it were unqualified, it would amount to a warranty that the state

of affairs required to satisfy the condition will be achieved. Although not unworkable, a

conditional sale contract in which the purchaser agrees or warrants that planning

permission will be granted would be a peculiar bargain for a purchaser to enter into.

6. The typical mechanism which is used is to require the obligor to use some degree of

endeavour rather than to procure the specific outcome. The content of the duty

undertaken is therefore different. It is not to secure a result, but rather to take certain

steps towards that end. It envisages that the result might not be secured in

circumstances where the obligor has used appropriate endeavours in an effort to

procure that the condition is satisfied.

7. In the context of the sale of land for development purposes, the obligation to use

endeavours to satisfy a condition will usually focus on obtaining a planning permission

which satisfies the requirements of one or both parties to the contract. The contract will

usually define, in detail, the type of planning permission which will satisfy the condition.

Frequently, this is done by reference to a very general description of the type of

development for which permission might be sought, subject to the proviso that it must

not be subject to “onerous conditions”. For example, a retailer might require a store of

a particular size. If planning permission will only be granted for a smaller store, the

retailer will not want to complete the purchase. The planning authority might impose

other conditions on the hours of trading, car parking, deliveries etc. As buyer, the

retailer would wish to have the ability to decide whether the conditions imposed by the

local authority make the proposed development unviable. Other conditions might

involve acquiring land from third parties or rights over such land. The obligation to use

endeavours to fulfil such conditions might, depending on the circumstances, be imposed

on the seller or the buyer.

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February 2016

Reasonable/Best Endeavours

8. There are numerous permutations of the type of “endeavours clause” which might be

imposed. It goes without saying that in any case the terms of the particular contract fall

to be construed against the agreement as a whole and the relevant factual matrix.

However, there are some broad general principles which emerge from the authorities.

9. First, it is clear, both as a matter of language and authority that an obligation to use

“best endeavours” is a more onerous one than an obligation to use “reasonable

endeavours”. In Rhodia International Holdings Limited v Huntsman International LLC

[2007] 1 CLC 59, Julian Flaux QC, sitting as a Deputy Judge of the Commercial Court said

that an obligation to use reasonable endeavours to achieve the aim will only require a

party to take “one reasonable course”, rather than all such courses. Conversely, an

obligation to use best endeavours “probably requires a party to take all the reasonable

courses he can”. Earlier authority tended to the conclusion that there is little difference,

in substance, between an obligation to use reasonable endeavours and an obligation to

use best endeavours (e.g. Overseas Buyers v Granadex [1980] 2 Lloyd’s Rep 608, IBM UK

Limited v Rockware Glass Ltd [1980] FSR 335). However, as a general principle, this is

unlikely to be applied today. It is inconsistent with both recent authority and the

perceived meaning of these terms which are now used frequently in commercial

contracts.

10. Secondly, there has been some uncertainty as to where an obligation to use “all

reasonable endeavours” fits into the spectrum. In Jolley v Carmel Ltd [2000] 2 EGLR 153,

Kim Lewison QC (sitting as a Deputy Judge of the Chancery Division) suggested (albeit

obiter) that “reasonable endeavours” is at the lowest end of a spectrum, with “best

endeavours” at the highest and that “all reasonable endeavours” sits somewhere in the

middle. This followed an earlier decision of Rougier J in UBH (Mechanical Services) Ltd v

Standard Life Assurance Co (The Times 13 November 1986).

11. However, it seems that this somewhat elliptical distinction is of little, if any practical

relevance. In EDI Central Limited v National Car Parks Ltd [2011] SLT 75, in the Scottish

Court of Session, Lord Glennie described the difference between the obligation to use

“all reasonable endeavours” and “best endeavours” as “metaphysical rather than

practical.” He went on to explain that it is difficult to conceive that an obligation to use

“best endeavours” requires a party to take steps which are ex-hypothesi unreasonable.

12. In Mana v Fleming [2007] NZCA 324, the Court of Appeal of New Zealand commented

on an obligation to “do all things reasonably necessary”:

“The word ‘reasonably’ introduces a qualitative or relative measure of what is necessary; its effect is to modify the obligation by reference to what is reasonable in

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February 2016

the circumstances. The necessary things must be rational or in accord with reason, eliminating things which it would be unreasonable to require to be done in the circumstances. The purchaser is not required to go beyond the bounds of reason. He or she is required to do all that can be reasonably done to achieve the contractual object but no more.

The word ‘reasonably’ must import an objective standard, and performance is to be measured by applying that standard to the relevant facts and circumstances. Adoption of an objective standard is consistent with principle. The Court is the arbiter of what is reasonably necessary in any case, viewed from the purchaser’s perspective. Anything less than an objective standard would allow a subjective assessment according to the values of the party whose conduct is at issue. That would deprive the word ‘reasonably’ of any meaning and convert the contract into an option to purchase.”

13. The inclination to view an obligation to use “all reasonable endeavours” as imposing a

lower standard than the obligation to use “best endeavours” might well appeal to the

absence of the reasonableness yardstick. However, although an obligation to use best

endeavours does not expressly qualify the steps required to be taken with the word

“reasonable”, it is almost impossible to conceive of a situation where a court would

construe the obligation as requiring steps to be taken which “go beyond the bounds of

reason”. If it did, it would be no different to a contractual warranty. This would be

inconsistent with an express obligation to merely use endeavours, even “best

endeavours”.

Commercial Considerations

14. Disputes about the performance of a reasonable or best endeavours obligation often

turn on the extent to which it is open to the obligor to take into account its own

interests and/or commercial or economic considerations. In Sheffield District Railway

Company v Great Central Railway Company (1911) 27 TLR 451, the lessee of a railway

line agreed to use its “best endeavours” to develop traffic on the demised railway line.

The lessee operated other railway lines which it considered to be of more importance

and the lessor argued that the lessee had favoured the other lines to the detriment of

the railway line which was the subject of the lease. Lawrence J held:

“We think ‘best endeavours’ means what the words say; they do not mean second-best endeavours. They do not mean that the [lessee] must so conduct its business as to offend its traders and drive them to competing routes. They do not mean that the limits of reason must be overstepped with regard to the cost of the services; but short of these qualifications the words mean that the [lessee] must, broadly speaking, leave no stone unturned to develop the traffic on the [demised railway line].

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The [lessee] has assumed a quasi-fiduciary position towards the [lessor], a position similar to that of a bailiff or agent, and they are bound to treat the [lessor] at least as well as they treat themselves.”

15. Similarly, in IBM UK Limited v Rockware Glass Ltd [1980] FSR 335, the Court of Appeal

considered a contractual obligation on the part of a buyer to use its best endeavours to

obtain planning permission. Buckley LJ (with whom the other members of the court

agreed) said:

“In my judgement the test must be: what would an owner of the property with which we are concerned in this case, who was anxious to obtain planning permission, do to achieve that end?… [The obligors] are bound to take all those steps in their power which are capable of producing the desired results, namely the obtaining of planning permission, being steps which a prudent, determined and reasonable owner, acting in his own interests and desiring to achieve that result, would take.”

16. Buckley LJ went on to clarify that his reference to a prudent owner “acting in his own

interests” meant acting in the interests of a landowner seeking to obtain planning

permission rather than the interests of somebody who is under a contractual obligation.

In substance, this comes close to the analogy with a fiduciary or an agent in Sheffield

District Railway Company referred to above. However, the analogy cannot be pressed

very far. It is difficult to see how it might be of assistance to draw upon analogies of this

sort, rather than attempting to construe and define the scope of a particular obligation

in its own contractual setting.

17. In Yewbelle Ltd v London Green Developments Ltd [2008] 1 P & CR 279, a contract for

the sale of land was conditional upon the seller entering into a section 106 agreement

with the local authority on certain terms. The seller contracted to use “all reasonable

endeavours” to obtain that agreement. The seller failed to do so and the buyer

contended that it was in breach of its obligation. Lewison J held that the obligation did

not require the seller to “sacrifice its own commercial interests” (although the decision

was reversed on appeal at [2008] 1 P & CR 279, this aspect of the decision was upheld).

In doing so, Lewison J followed an earlier decision of the Court of Appeal in Phillips

Petroleum Co UK Ltd v Enron Europe Limited [1997] CLC 329, in which an agreement for

the sale of gas contained an obligation on the part of the seller and buyer to use

reasonable endeavours to agree to the date on which the sellers would commence

deliveries of gas to the buyer. It was argued that each party was under an obligation to

reach agreement, having regard only to criteria of technical and operational

practicability and without regard to selfish or commercial motives. This was rejected by

the Court of Appeal. Potter LJ said that there was:

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“… No reason to suppose that it was the expectation, let alone the obligation, of the parties that, in any area of activity in which room is left for manoeuvre or further negotiation, they were not at liberty to take into account their own financial position and act in the manner most beneficial to them, short of bad faith for breach of an express term of the contract.”

18. Phillips Petroleum was a case in which the obligation was to use “reasonable

endeavours” rather than “all reasonable endeavours” or “best endeavours”. However,

on the basis of the spectrum of endeavours which now seems to govern the true

meaning of the various permutations of an endeavours obligation, it is to be expected

that an obligation to use some, rather than all or best endeavours would provide more

scope for the obligor to take account of his own interests, not least because it appears

to secure or to the obligor contractual choice as to which reasonable endeavours it

employs to secure or the desired result.

19. In CPC Group Limited v Qatari Diar Real Estate Investment Co [2010] EWHC 1535 (Ch),

Vos J. considered an obligation in a sale and development agreement with an

investment vehicle owned by the Qatari royal family in relation to the Chelsea Barracks

in Pimlico, to “use all reasonable but commercially prudent endeavours” to achieve

certain targets, including procuring planning permission for a particular development. It

was argued that (a) the obligation to use all reasonable endeavours equates to an

obligation to use best endeavours and that (b) an obligation to use best endeavours

requires the obligor to subordinate its own financial interests to achieving the desired

result. In light of the express qualification that the endeavours must be “commercially

prudent” to fall within the obligation, this was a bold submission. However, in rejecting

it, Vos J. held that the obligation to use all reasonable endeavours does not always

require the obligor to sacrifice his commercial interests. He said:

“Clause 7.1 and paragraph 5(a) are not equivalent to a “best endeavours”

obligation, and they do not require QD to ignore or forego its commercial

interests. Instead, they allow QD to consider its own commercial interests

alongside those of CPC, and require it to take all reasonable steps to procure the

Planning Permission, provided those steps are commercially prudent.”

20. There is a subtle difference between Vos J. and Lewison J. in Yewbelle. In CPC v Qatari

Diar, Vos J. held that commercial interests need not “always” be sacrificed in order to

satisfy the obligation to use all reasonable endeavours. In Yewbelle, Lewison did not

include the word “always”. To the extent that Lewison J’s formulation appeared to

suggest that there could never be a situation where an obligation to use all reasonable

endeavours would require the obligor to act contrary to his own commercial interest

was probably putting the point of principle too high. However, it is unlikely that he

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intended to go that far and it would be straining his use of language, when set in the

context of the facts of that case, to suggest that he did.

21. More recently, in Jet2.com Limited v Blackpool Airport Limited [2012] 1 CLC 605, the

Court of Appeal was concerned with an operation agreement between the claimant

airline and the defendant airport setting out the terms on which the airline will operate

from Blackpool Airport for a 15-year period. The agreement provided that the parties

would cooperate to promote the airline’s low-cost services from the airport and set out

the terms on which the airport would provide ground services and marketing support.

This included an obligation that the parties would cooperate together and “use their

best endeavours” to promote the airline’s services. Some years into the term of the

agreement, the airport ceased to allow the airline to operate outside of normal opening

hours. The airline argued that this was in breach of the cooperation obligation. As to the

scope of that obligation, Moore-Bick LJ said:

“It was a central plank of BAL's argument before the judge that the obligation to use best endeavours did not require it to act contrary to its own commercial interests, which, in the context of this case, amounts to saying that BAL was not obliged to accept aircraft movements outside normal hours if that would cause it financial loss. Some support for that conclusion can be found in the cases, notably Terrell v Mabie Todd & Co Ltd and Yewbelle Ltd v London Green Developments Ltd , but I think the judge was right in saying that whether, and if so to what extent, a person who has undertaken to use his best endeavours can have regard to his own financial interests will depend very much on the nature and terms of the contract in question.”

22. Longmore LJ added:

“The fact that he has agreed to use his best endeavours pre-supposes that he

may well be put to some financial cost, so financial cost cannot be a trump card

to enable him to extricate himself from what would otherwise be his obligation.

As AT Lawrence J said in the Sheffield District Railway Co case, best endeavours

does not mean second best endeavours. But I would agree with Moore-Bick LJ

(para. 32) that, if it became clear that Jet2 could never expect to operate low

cost services profitably from Blackpool, BAL could not be expected themselves

to incur losses after that time in seeking to promote (or effectively propping up)

a failing business.”

23. Other than the fact that a best endeavours obligation does not, automatically, preclude

the obligor from taking into account his own economic or financial interests, no point of

principle emerges from this decision. Rather, it is necessary to have regard to the nature

and terms of the contract in question to determine whether it is in the parties’

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contemplation that the obligor would have to sacrifice its financial interests, and if so, to

what extent.

24. It will be apparent that no uniform test can be applied to determine the extent to which

the obligor is entitled to take into account his own economic, commercial or other

interests. In each case, a cost/benefit analysis will be required of any “endeavour”

which the other party alleges ought to have been employed by the obligor pursuant to

the reasonable or best endeavours obligation. The court must take into account the

prospects of success of an endeavour. It must also take into account the potential cost.

The lower the likelihood of success, the less likely the step would be required to be

taken. However, an endeavour which only has a small prospect of succeeding, but which

is of minimal cost might well be pursued by a reasonable person in the position of the

obligor.

25. A case which falls on the other side of the line is Ampurius NU Homes Holdings Ltd v

Telford Homes (Creekside) Ltd [2012] EWHC 1820 (Ch), in which the court considered a

contract for the leasehold sale of the commercial buildings in a mixed-use development

in which the seller agreed to use reasonable endeavours to procure completion of the

“Landlord’s Works” by the “Target Date” or as soon as reasonably possible thereafter.

After the contract was made, the credit crunch set in and the seller’s funding, which was

conditional on a target number of off-plan sales of residential units, failed to

materialise. This prevented the seller from progressing the commercial part of the

development which was not completed until some time after the Target Date. The seller

argued that the “reasonable endeavours” obligation was satisfied if the seller was using

reasonable endeavours to secure the necessary funding to develop. This was rejected by

the trial judge (Roth J) who said:

“I do not think that a ‘reasonable endeavours' clause as regards the time of

completion in what is, in this respect, a construction contract can extend to

endeavours to have sufficient money to perform the contract. Although the

language could literally bear that meaning, in my judgment, on an objective

reading the qualification of “reasonable endeavours”, as opposed to an

absolute obligation to complete, is designed to cover matters that directly

relate to the physical conduct of the works, thereby providing an excuse for

delay in such circumstances as inclement weather or a shortage of materials for

which the Defendant was not responsible. The clause does not, in my view,

extend to matters antecedent or extraneous to the carrying out of the work,

such as having the financial resources to do the work at all.”

26. So, it was held that although the seller might not have been able to fund the completion

of the development by the target date, it was failing to use reasonable endeavours if it

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did not do so. This, it is suggested, is out of kilter with the above authorities. The

obligation was not to complete the development by the target date, but to use

reasonable endeavours to do so. The Judge was swayed by the fact that no work was

being carried out at all for a prolonged period, but even in the context of this rather

different endeavours obligation, it is difficult to reconcile this conclusion with the

reasoning in the above cases. (NB the decision in Ampurius was reversed on appeal, but

on the question of whether the breach by the claimant was a repudiatory breach which

entitled the defendant to terminate the contract).

Burden of Proof

27. In EDI Central Limited v National Car Parks Ltd [2011] SLT 75, Lord Glennie provided the

following tentative guidance about the burden of proof where there is an allegation of

breach of a reasonable or best endeavours obligation.

“The other point concerns the onus of proof. As I said earlier, NCP led at proof. This

was because they accepted that the burden was on them to show that EDI were in

breach, so as to give a basis for the mutuality argument. But it does not seem to me

that the burden necessarily remains throughout on NCP. My tentative view is that if

NCP can point to steps which could have been taken, by evidence (or possibly by

pleading), the evidential burden may shift to EDI to show, as the case may be, that

they took those steps, that they could not reasonably have been expected to take

them or that such steps would have been bound to fail. It is EDI who are likely to

have the evidence on these points and, once a sufficient case has been raised by

NCP, the burden must ultimately be on EDI to establish that they used all

reasonable endeavours as required by the agreement: c f Mactaggart & Mickel

Homes Lt at para.58 in which Lord Hodge refers to the onus of proof being on the

party asserting that he has used reasonable endeavours. However, the point was

not argued before me and, in the conclusions I have reached, it makes no difference

to the outcome.”

Good Faith Obligations

28. English law shies from implying contractual duties to act in good faith. Contractual

freedom allows the parties to define the four corners of their bargain and

entrepreneurial activity would be at risk if the courts went about implying extensive

duties to act in good faith. Nevertheless, recent decisions have ventured into the

implication of duties of good faith / honesty in contracts: see Yam Seng v International

Trade Corp Limited [2013] 1 CLC 662, D & G Cars Limited v Essex Police Authority [2015]

EWHC 226 (QB).

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29. It is open to the parties to agree, expressly, that they owe each other duties to act in

good faith. In Berkeley Community Villages Ltd v Pullen [2007] 3 EGLR 101, the claimant

developers contracted with the defendants, the owners of 520 acres of farmland, to use

their expertise to maximise the potential for development of the defendants’ land in

return for a fee payable in specified circumstances. It was an express term of the

agreement that “in all matters relating to this Agreement the parties will act with the

utmost good faith towards one another and will act reasonably and prudently at all

times”.

30. The developers made efforts to promote the land, going some way towards securing

planning permission of considerable value, but the owners received an offer from a

third party to buy the land for a substantial price. The developers argued that the sale

price reflected the benefit of its planning proposals and applied for an injunction to

restrain the sale on the ground that the sale would be in breach of the good faith

obligation. Morgan J. accepted the submission that the express term imposed on the

owners of the land:

“a contractual obligation to observe reasonable commercial standards of fair

dealing in accordance with their actions which related to the Agreement and …

requires the Defendants to be faithful to the agreed common purpose of promoting

the land for development purposes and consistent with the justified expectations of

the claimant as to its ability to promote the land and, if successful, to receive a fee”.

31. He held that the intended sale would amount to a breach of the owners’ obligation of

good faith because of the time and expense incurred by the developer as a result of

which the value of the land had been considerably enhanced.

32. Berkeley v Pullen was applied by the Deputy Judge in Gold Group Properties Ltd v BDW

Trading Ltd [2010] EWHC 1632 (TCC), where a developer agreed to construct dwellings

on the defendant’s land, whereupon the defendant would sell the houses and share the

revenue with the developer. Minimum sale prices were agreed together with revenue

sharing provisions. It was an express term of the agreement that the parties were “at all

times to act in good faith towards the other and use all reasonable endeavours to

ensure the observance by themselves of the terms of this agreement”. The developer

failed to develop and the defendant claimed that he was in repudiatory breach of the

agreement. The developer argued that the defendant was in repudiatory breach of the

good faith obligation by refusing to renegotiate the minimum prices which, as a result of

the fall in the market after the “credit crunch”, would have eradicated the developer’s

profit. The Judge rejected that argument. He said:

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“… good faith, whilst requiring the parties to act in a way that will allow both parties

to enjoy the anticipated benefits of the contract, does not require either party to

give up a freely negotiated financial advantage clearly embedded in the contract.”

33. In reaching this conclusion, the Judge applied the observations of Barrett J. in the

Supreme Court of New South Wales in Overlook v Foxtel [2002] NSWSC 17:

“It must be accepted that the party subject to the obligation is not required to

subordinate the party's own interests, so long as pursuit of those interests does not

entail unreasonable interference with the enjoyment of a benefit conferred by the

express contractual terms so that the enjoyment becomes (or could become) …

‘nugatory, worthless or, perhaps, seriously undermined’ … the implied obligation of

good faith underwrites the spirit of the contract and supports the integrity of its

character. A party is precluded from cynical resort to the black letter. But no party is

fixed with the duty to subordinate self-interest entirely which is the lot of the

fiduciary … The duty is not a duty to prefer the interests of the other contracting

party. It is, rather, a duty to recognise and to have due regard to the legitimate

interests of both the parties in the enjoyment of the fruits of the contract as

delineated by its terms.”

34. In CPC v Qatari Diar (above), Vos J. considered an express duty to act in “the utmost

good faith towards each other in relation to the matters set out [in the contract]…”. This

immediately preceded the obligation to use all reasonable but commercially prudent

endeavours to enable the achievement of the various threshold events (referred to

above). Of course, the two parts of the clause had to be construed together and

consistently with each other. To that end, Vos J. said, of the good faith obligation:

“Thus, it seems to me that the content of the obligation of utmost good faith in the

SPA was to adhere to the spirit of the contract, which was to seek to obtain planning

consent for the maximum Developable Area in the shortest possible time, and to

observe reasonable commercial standards of fair dealing, and to be faithful to the

agreed common purpose, and to act consistently with the justified expectations of

the parties. I do not need, it seems to me, to decide whether this obligation

could only be broken if QD or CPC acted in bad faith, but it might be hard to

understand, as Lord Scott said in Manifest Shipping how, without bad faith, there

can be a breach of a ‘duty of good faith, utmost or otherwise’.”

35. Accordingly, an obligation to act in good faith is not dissimilar to an obligation to use

reasonable or even best endeavours. The substance of the obligation will be determined

by the nature of the contractual obligations to which it relates.

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Rights of Termination

36. In a typical conditional contract for sale, the failure to achieve a target or to satisfy a

condition will not automatically bring the contract to an end, but in most cases, will

trigger a mutual right to determine the contract. It is important that the contract makes

clear what must have happened (or not have happened) before the right to terminate

arises.

37. Where the right to terminate arises for failure to satisfy a condition, such as obtaining

planning permissions, it is not infrequently argued that the party who was subject to the

obligation to use endeavours to obtain that planning permission was in breach of the

obligation. This brings into play the doctrine in Alghussein v Eton College [1988] 1 WLR

587, that a party to a contract cannot rely on his own wrong to invoke a contractual

right. That case, itself, concerned an agreement for a 99-year lease, conditional on the

prospective tenant building a block of flats. The agreement provided that if the flats had

not been constructed by a certain date because of the tenant’s wilful default, the lease

should be granted. The tenant failed to build the flats, but then sued for specific

performance of the agreement. The court held that the prospective tenants were not

entitled to rely on the clause requiring completion in the event of the tenant’s wilful

default because to do so would be to rely on their own wrong.

38. Equally, where a condition (e.g. the grant of planning permission) is not satisfied

because a party has failed to use reasonable or best endeavours to procure its

satisfaction, that party cannot set up its breach of contract to terminate the contract.

39. The doctrine operates by way of implied term. So, it is conceivable that it might be

ousted by the express terms of a contract. Nevertheless, the term will be implied unless

there is a clear intention to the contrary: see Sainsburys Supermarkets Ltd v Bristol

Rovers (1883) Ltd [2016] 1 P & CR 6.

40. However, it is not any breach of contract which will preclude the party in breach from

exercising termination rights. There must be some nexus between the breach and the

right of termination. This is straightforward where, for example, the breach consists of a

failure to use reasonable endeavours to procure satisfaction of the condition, or a

breach of a duty on the part of the landowner to co-operate with the buyer in the

buyer’s efforts to satisfy the condition. However, where the trigger for the right to

terminate arises irrespective of a breach of some other obligation by the party who

seeks to exercise the right to terminate, it is unlikely to that the doctrine would preclude

that party from terminating. It is not intended to be a common law equivalent to

equity’s “clean hands” doctrine.

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