Caught in the crunch – the peril of finance preventing completion
19 October 2012
This article first appeared in Construction
News, 18 Oct 12
The turbulent financial climate has thrown up many issues for
developers. Recently the court's attention turned to the
question of what happens to a commitment to use reasonable
endeavours to complete a development, if despite your best efforts
the lack of available finance in a tough market prevents you from
doing so and reminded us of the importance of saying what we mean
in our contracts.
Terms obliging parties to use "reasonable
endeavours" to complete a project are common in construction
and development agreements. When negotiating terms, limiting
a commitment to use of reasonable endeavours is generally perceived
as 'watering it down', allowing you to strike a balance between
your commitments and your own commercial interests. The more
stringent requirement to use "best" or "all
reasonable" endeavours do not – you must perform at any
In the recent Ampurius case, the
developer (Telford) agreed to use reasonable endeavours to procure
the completion of a mixed use development by specific dates.
Funds from the pre-sale of early phases of the development were
supposed to help finance the later phases. When the credit
crunch hit, predicted sales dropped and with no other finance
available despite genuine attempts to find it, Telford simply could
not finish the development.
When Ampurius claimed that Telford had
breached its commitment to complete, Telford pointed out that it
only had to use reasonable endeavours to procure completion.
Telford thought that it had honoured that commitment having tried
to find finance even if, ultimately, it could not raise the
Not so said the Courts. Lack of funding
might explain the failure but it did not excuse it. As far as
the Court was concerned 'procuring completion' in the context of a
construction project referred to conditions affecting physical
performance of the works, not other setbacks that could affect the
project. Telford would not, for example, be responsible for
adverse weather or limited supply of materials, but wider issues
such as lack of funds were Telford's risk.
You could argue, as Telford did, that finance
is so integral to delivery of a project that the availability of
finance must be relevant - put simply "no money, no project" and
Telford could not influence the financial markets. However,
the dividing line has been drawn.
Opinions may be divided on whether the
Ampurius decision is fair or correct. Either way,
the case reminds us to not just focus on the niceties of the
distinction between "best" and "reasonable"
endeavours as the temptation is often to do. Whilst
important, even more so is giving thought to the other part of the
equation – the scope of what it is that you are committing to use
reasonable endeavours to do.
Had Telford committed to use reasonable
endeavours to procure the "finance and completion" of the
development for example, the outcome might have been very
different. The message is to be specific, then you should
find you get the deal you had bargained for.
Woolston is a partner in the Construction
Group at Field Fisher Waterhouse