Court rules on due diligence obligation

In a recent case the Technology and Construction Court has refused permission to appeal against an arbitrator’s decision awarding damages against a developer that stopped work on a project for over a year.

The developer suspended work because the recession had rendered the project unviable, arguing that continuing would have been “commercial suicide”. The prospective tenants of the development alleged that this breached the parties’ agreement for lease, which included separate clauses requiring the developer to:

• Carry out the works diligently (the diligence obligation).
• Use all reasonable endeavours to ensure that the works were completed as soon as reasonably practicable (the completion obligation).

 The court agreed with the arbitrator that the developer had breached the diligence obligation. In doing so, the court held that the concept of diligence carried with it notions of “assiduity/expedition”  and that the developer’s two obligations stood separately, so that even if stopping work was not a breach of the completion obligation, it was still a breach of the diligence obligation.

The case demonstrates that that the Courts will strictly enforce the above standard provisions when interpreting Development Agreements and the onus is on Developers to complete developments irrespective of the wider economic circumstances.