UK: "Proceed With Due Diligence", "Reasonable Endeavours To Procure", Repudiatory Breach And Affirmation All In One Case

Last Updated: 2 August 2012
Article by Mark Alsop

Ampurius Nu Homes Holdings Limited v Telford Homes (Creekside) Limited [2012] EWHC1820 (Ch)

This case related to a development of 4 blocks of waterfront properties in Greenwich/Deptford. The parties entered into an agreement under which Telford agreed to construct the mixed use blocks and grant long leases of the commercial units to Ampurius. In March 2009 Telford stopped work on 2 of the blocks because of funding difficulties. In November 2009, Ampurius alleged that cessation of work amounted to a repudiatory breach. In October 2010, Ampurius' solicitors gave notice terminating the contract for repudiatory breach. By that stage, Telford had just recommenced work, so it denied being in repudiatory breach and terminated the contract itself for Ampurius' repudiatory breach.

The contract provided that Telford was to procure that its works were carried out "with due diligence". It was also to "use its reasonable endeavours to procure completion of its works by the Target Date or as soon as reasonably possible thereafter". There was no termination clause.

Included amongst the various claims was a claim by Ampurius that Telford was in breach of these two obligations and that this amounted to repudiatory breach. Telford claimed that, even if it was in repudiatory breach, Ampurius had delayed too long in accepting repudiation and had affirmed the contract.

The High Court (Roth J) found in favour of Ampurius. In a judgment that touched on several areas of contract law relating to termination, a number of points are of interest:

  • Due diligence obligation.Telford argued that the obligations should be interpreted as meaning only to do the work carefully and not in time – one reason being that timing was covered by the reasonable endeavours obligation as to target dates. The judge did not accept that. The judge observed that it was not infrequent for overlapping obligations to be imposed by different contractual provisions, and "the presumption against surplusage is of little weight in the interpretation of commercial contracts". Due diligence was a familiar concept in construction contracts and usually connoted both due care and "due assiduity/expedition". He could see no reason to give it a restricted interpretation. It was well known to both parties that Ampurius was keen to have delivery of all four blocks as close together in time as possible. Therefore, deliberate cessation of all work on two of the four blocks could not be consonant with due diligence. An unexpected lack of funding might explain the breach, but did not excuse it.
  • Reasonable endeavours.Telford's argument was that "reasonable endeavours to procure completion" by set times encompassed financial resources. So as long as it had made reasonable endeavours to procure finance, it would not be in breach. The judge disagreed. On an objective reading, the qualification of an absolute obligation by "reasonable endeavours" was designed to cover matters that directly related to the physical conduct of the works, thereby providing excuse for delay. The clause did not extend to matters extraneous to the carrying out of the work, such as having the financial resources to do the work. In March or July 2009, it was not clear that Telford was in breach of the reasonable endeavours obligation, since an early resumption might have enabled it to complete on time (i.e. Feb 2011). However, Telford did not resume work until Oct 2010 and the evidence was that completion would have occurred at least a year late. Self evidently, some considerable time before October 2010 it would have been clear that the target date was going to be substantially exceeded. At that point, Telford was in breach of the obligation to use reasonable endeavours since the reason for delayed completion was the deliberate decision to halt work on two blocks. Moreover, this was a continuing breach.
  • Whether the breaches were repudiatory. Neither obligation was either a condition or warranty, but an intermediate or innominate term, so the issue of repudiation turned on the nature of the breach.

    - The judge did not accept that, because time was not of the essence, Ampurius had to serve a reasonable notice making time of the essence before Telford could be in repudiatory breach. That would be unduly formalistic.

    - An ongoing breach may at the outset not constitute a repudiation, but as it continues, it can after a time acquire a repudiatory character. Here, the breaches became more serious as time went by and the completion date became later and later.

    - Where an agreement comprises different stages (in this case, the construction of separate blocks), a breach can still be a repudiatory breach even though it does not affect the whole of the contract but only affects a significant part. Telford could not avoid a repudiatory breach by saying that two of the blocks had been completed, and that it was going to wait for three years before completing the other. The contract envisaged a single project involving four blocks. To hold otherwise would frustrate the commercial purpose of the agreement.

    - Telford's ongoing breach of the due diligence obligation had become sufficiently substantial to be repudiatory by the end of 2009, at which stage the work on two of the blocks had been halted for over five months and Telford was unable to state when it might be in a position to recommence work. It was not sufficient for Telford to state that it intended to complete the whole project, or that at the end of the day, Ampurius would receive the entire contract, albeit late. It was the common intention that all four blocks were to be delivered as close in time as possible.

    - A breach of the reasonable endeavours obligation constituted a repudiation by July 2010. By then work on two of the blocks had been halted for about a year and it was clear that cessation of the work meant no possibility of completion of those blocks close to the target date.
  • Whether there was an renunciation. Ampurius had also argued that there was a renunciation of the contract by Telford, i.e. conduct which envisaged an intention not to perform. The judge rejected this. Here, Telford did not state that it had no intention of completing the work, but rather it repeatedly asserted that it was going to do so – and it did indeed continue the works after the contract came to an end.
  • Whether Ampurius had affirmed the contract.Ampurius first alleged that Telford was in repudiatory breach in November 2009, but did not purport to accept the repudiation until October 2010. Telford argued that, by then, it was too late since Ampurius had repeatedly affirmed the contract. The judge disagreed. He looked at the case law and in particular a statement of Moore-Bick J that a court should not be willing to hold that a contact has been affirmed without very clear evidence that the injured party has indeed chosen to go on with the contract. Ampurius had engaged in a prolonged negotiation with Telford and various proposals and counter proposals had been made on the basis that the issue could be resolved. Although Ampurius was clearly reluctant to bring the contract to an end and sought resolution by negotiation, those discussions were always without prejudice to its right to terminate. It was also relevant that this was a continuing breach which became more serious as time went on – it was not a case of a party taking 12 or 15 months to decide what to do about a one off breach that had occurred. Furthermore, there was no conduct by Ampurius that could give rise to an estoppel. Or any other indication that Ampurius definitely intended to keep the contract on foot.
  • Resumption of works. It was relevant that the resumption by Telford of the works was not done simply with a view to performance of the contract with Ampurius, but because Telford was itself deeply committed to the development, of which the sale of commercial units to Ampurius was only a small part. Irrespective of affirmation by Ampurius, Telford was going to carry out these works anyway. Although Ampurius was told at a without prejudice meeting in September 2010 that Telford would re-start work in October, Ampurius' solicitors had written an open letter asking when works would be commenced and had not received a reply. In the event, the judge accepted Ampurius' evidence that it did not know, when its solicitor sent the termination letter, that works had resumed some three weeks earlier. Ampurius had not therefore lost the right to accept the repudiation.

Comment - There are a number of interesting points here. "Due diligence" includes both care and time obligations. "Reasonable endeavours" cannot be excused by lack of funding. An ongoing breach has rather different consequences to a one-off breach in terms of the other parties' right to terminate. And a party does not necessarily lose his right to terminate a contract even where the breach happened nearly a year earlier. This latter point is perhaps at variance with a couple of recent non-construction cases which indicate that an election whether to terminate or not has to be made promptly after the breach. But the cases depend on their facts.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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