“Reasonable Endeavours” means having a Plan B
In the October 2017 decision in the case of Tamanna & Ors v Zattere  NSWSC 1388 Justice Darke in the New South Wales Supreme Court gave some guidance as to what is required by an obligation to use reasonable endeavours.
The decision is really useful in other contexts, but may not be applicable to future sunset clauses for registration of sales of residential property, because of the new section 66ZL of the Conveyancing Act 1990 (NSW) which came into effect in November 2015.
In this case, the residential off the plan sale contracts each contained a provision that gave either party the right to rescind in the event that a plan of sub-division and s-88B instrument were not registered by 31 December 2014 (“Sunset Date”). Ms Zattere, the vendor in the present case, sought to rely upon this clause after failing to register such documents for her planned development before the relevant Sunset date passed.
These contracts also contained the commonplace provision that the vendor will use their best (or their “reasonable”) endeavours to have these documents registered by the Sunset Date. The purchaser said that the vendor failed to comply with this obligation and therefore was not entitled to rescind.
On this point the Court observed:
- there is no meaningful distinction between “best” and “reasonable” endeavours; and
- even if compliance by the vendor is not expressly a condition precedent to the right of rescission, a party to a contract is not entitled to rely on the result of its own default.
As it happened, access to neighbouring properties was required for stormwater and sewerage purposes in order that the development could progress, and such access was not able to be secured by agreement with the relevant owners before the Sunset Date (or at all).
In determining whether or not attempts to negotiate an agreement with the neighbouring proprietors discharged the vendor’s obligation, the Court observed:
- A developer is obliged to prepare and plan sufficiently to achieve registration;
- There was a clearly constrained timeline for the development work, however the scope of work was not challenging or technically complicated;
- This obligation cannot be delegated by the developer to an agent; and
- It was or should have been clear to the vendor that registration could not have been achieved within the timeline unless a prompt 88K easement application was made.
At  per Darke J:
The failure of the vendor to take this step effectively tied the progress of the subdivision to the uncertain fate of the negotiations with Mr Pearson….the degree of uncertainty attended to it was such that pursuit of that strategy fell short of compliance with the vendor’s obligations to use its reasonable endeavours
The Court found the vendor’s rescissions were therefore invalid and, subject to establishing readiness, willingness and ability to perform their own obligations, the purchasers were entitled to recover the expectation damages flowing from this repudiation.
An obligation to use reasonable (or best) endeavours is a serious obligation. Clear planning and all reasonable efforts, including in this case commencing section 88K easement proceedings as a “Plan B”, is likely to be required as part of “reasonable endeavours”.