Romal Capital (C02) Limited v Peel Ports Limited: reasonable endeavours obligations in conditional contracts 

In contracts conditional on the grant of planning permission, it is not unusual for such contracts to contain procedural requirements to be complied with on the part of the party submitting the planning application (such as obtaining prior approval to a planning application, obtain consent to initial designs and carry out due diligence on development opportunities).

But what happens if that party does not comply with these obligations? Does it automatically release the other party from complying with its obligations?

In this recent decision, the Court considered the scope of a landlord’s reasonable endeavours obligation to assist a tenant in obtaining planning permission under an Agreement for Lease (“AFL”), and the consequences of failing to fulfil such obligations.

Peel Ports Limited (“Peel”) held a long leasehold interest in part of the docklands north area of Liverpool City Centre, an area known as Liverpool Waters. Peel entered into an AFL with Romal Capital (C02) Limited (“Romal”) pursuant to which Peel was obliged to use reasonable endeavours to assist Romal in pursuing a planning application for residential development on the land.

Romal contended that, had Peel provided the requisite assistance under the AFL, it would have been able to obtain a planning permission for a more substantial development than the permission ultimately granted for 330 units. Romal accordingly claimed damages representing the difference between the net profits of the planning permission obtained and the net profits of the planning permission which it asserted could have been obtained had Peel provided proper assistance, a sum of approximately £12 million.

Peel advanced two principal arguments in its defence. First, Peel contended that Romal had failed to comply with its own obligations under the terms of the AFL (such as obtaining peel’s approval to the planning application prior to submission) and that, consequently, the planning application submitted fell outside the scope of the AFL. On this basis, Peel argued that it was not under any obligation to use reasonable endeavours to support the application.

Second, Peel argued that even if it was obliged to use reasonable endeavours to assist, any breach had not caused Romal loss as there was no substantial chance of a planning permission for a greater development being obtained in any event.

The Court dismissed Peel’s argument. Having regard to Peel’s conduct in correspondence with Romal, the judge found that even though Romal had failed to comply with the procedural requirements under the terms of the AFL, all parties had proceeded on the basis that the application fell within the terms of the AFL. Peel could not therefore resile from that position.

Turning to the question of breach, the Court found that Peel had breached its reasonable endeavours obligations in a number of respects:

• Peel failed to integrate its designs for the wider area with Romal’s proposed development;
• Peel pursued amendments to the existing outline planning permission which made it materially more difficult for Romal to obtain its planning permission;
• Peel withheld information about its own masterplan changes which would adversely impact Romal’s development; and
• Peel prioritised its own relationship with the Council ahead of its obligations to Romal under the AFL.

The Court found that these actions significantly reduced Romal’s prospects of obtaining a planning permission for a larger development. The Court concluded that there was a 60% chance that Romal would have obtained planning permission for the larger development had Peel used reasonable endeavours to assist. The quantification of Romal’s losses remains to be determined at a subsequent hearing.

This decision is really interesting as its shows the Court’s willingness to look behind the wording of the AFL to the actions of the parties. Obligations of the type contained within this AFL are common in development agreements and this case serves as a useful reminder of the importance of making sure that all parties are aware of and can comply with their obligations. ‘Reasonable endeavours’ is a term that’s used widely within Real Estate – sometimes without much thought for its consequences. Cases like this highlight that it’s not always enough to have words on paper – a party’s actions also need to support those words. I personally am interested to see the damages outcome – how much will Romal be awarded?  

Need expert legal advice? Contact Emma Peliza, Real Estate Senior Associate, here.