Inner House case considering an agreement between NCP and EDI for a development at Castle Terrace car park in Edinburgh. The agreement involved EDI being interposed into a lease of the subjects between the City of Edinburgh Council and NCP in return for a capital payment of £5m and then using its close links with the City of Edinburgh Council (EDI being wholly owned by the Council) to deliver the development.

In terms of the agreement, EDI were obliged to “use all reasonable endeavours” expected of “a normal experienced prudent developer in the circumstances” to pursue the development. However, the development did not take place and, as it was entitled to do under the agreement, EDI served notice on NCP requiring NCP to buy back the tenant’s interest under the lease. NCP failed to do so contending that they were not obliged to serve the appropriate notice[1] as EDI were in material breach of the agreement having failed to comply with their obligation to use all reasonable endeavours.  NCP argued that EDI had approached the project as if they merely had an option to pursue the development rather than an obligation compelling them to undertake it. The question for the court was whether EDI had met the required standard.

The Inner House upheld Lord Glennie’s judgement that EDI had met the standard and found that the work they carried out and the assessment they reached were not significantly different from those to be expected of a normal experienced prudent developer in the circumstances. In particular, EDI could not be criticised for failing to pursue further steps in relation to any of four alternative sites since (on the evidence heard by Lord Glennie) such further steps would have been futile. It was clear from the papers available to the court that the problem of finding alternative car parking space was critical to unlocking the development and it had not been possible to identify alternative provision for car parking.

The Court also said the following on the standard of effort required from the Council:

“In our opinion it is clear that the obligation to pursue a project or seek a planning consent with all reasonable endeavours is one that requires the court to consider whether there were reasonable steps which the obligant could have taken but did not. For that reason it is a higher or more onerous obligation than one restricted to using “reasonable endeavours”. However, whether the phrase used is “all reasonable endeavours… or “reasonable  endeavours” we agree with the view expressed by Lord Hodge in MacTaggart & Mickel Homes Ltd v Hunter… that an obligation in either terms does not require the obligant to disregard its own commercial interests. Where the balance between the obligation to use reasonable endeavours and countervailing commercial considerations falls to be struck depends on the wording of the obligation in question. In considering what steps would be reasonable, the court also has to consider whether any further steps would have been successful. We agree with Lord Hodge… that if an obligant can show that it would have been useless for it to have taken a particular step (or steps), because it would not have been sufficient to achieve success, that would provide an answer to any claim that the obligant had acted in breach of contract… Equally if there was an insuperable obstacle, it is irrelevant that there may have been other obstacles which could have been overcome, or at any rate in respect of which the obligant had not yet done all that could reasonably be expected of it to try to overcome.”

 The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.