High Court finds obligation to use “all reasonable endeavours” to reach agreement with third party was enforceable

The High Court has upheld a contractual provision requiring a party to use "all reasonable endeavours" to obtain a senior debt facility agreement, rejecting arguments that the clause was too uncertain to be enforced: Astor Management AG v Atalaya Mining Plc [2017] EWHC 425 (Comm).

It is a well-established principle that English law will not enforce a mere “agreement to agree” since, in the absence of objective criteria regarding the agreement to be reached, there is no way to determine what the parties are obliged to do. In Dany Lions Ltd v Bristol Cars Ltd [2014] EWHC 817 (QB), for example, the court declined to enforce an obligation in a settlement agreement to use reasonable endeavours to enter into a third party contract (for the restoration of a classic car), as the court could not evaluate whether it was reasonable to refuse to agree to any particular terms on offer.

The present case suggests a greater willingness to enforce an endeavours obligation where the object of the endeavours is a contract with a third party. It does however suggest that the courts will be slow to find that such an obligation has been breached.

Given the uncertainty surrounding these issues, commercial parties negotiating a clause of this sort would be well advised to ensure that the object of the endeavours is clearly defined – so that, so far as possible, there are agreed parameters as to what any agreement should look like – and there is also clarity as to the steps that are (or are not) required to comply with the obligation.   

James Farrell and Michael Barron, a partner and associate in our disputes team, consider the decision further below. For more on endeavours obligations, see the sixth in our series of contract disputes practical guides, Endeavours obligations: How hard do you have to try?

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Court of Appeal considers “all reasonable endeavours” obligation

The Court of Appeal has held that a party was not in breach of an obligation to use "all reasonable endeavours" to procure the grant of planning permission where that obligation was subject to a qualification regarding the circumstances in which it had to pursue an appeal, ie only where planning counsel advised the prospects of success were 60% or greater: Bristol Rovers (1883) Ltd v Sainsbury's Supermarkets Ltd [2016] EWCA Civ 160.

The decision illustrates that general obligations to endeavour to achieve some object, whether that is to use "best" or "reasonable" or (as here) "all reasonable" endeavours, will give way to more specific provisions setting out steps that must be taken, or steps that need not be taken, to comply with the obligation. In this case there was some ambiguity in the drafting of the relevant clause, which complicated matters, but nonetheless the decision illustrates the value of including such provisions in order to set boundaries on a potentially open-ended endeavours obligation. 

James Farrell and Maura McIntosh outline the decision below. For more information on endeavours obligations, see our recently published guide: Endeavours obligations: How hard do you have to try? which forms part of our series of contract disputes practical guides.

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Endeavours obligations: How hard do you have to try?

Obligations to endeavour to achieve some object are commonly agreed in commercial contracts where the relevant party is not willing to take on an absolute obligation to that effect.

Typical clauses may require the use of "best endeavours", "reasonable endeavours" or "all reasonable endeavours", but it is not always clear what these terms require in practice.

In this fifth of our series of contract disputes practical guides, James Farrell, Ann Levin and Gavin Williams consider how the typical clauses differ from one another and what they are likely to require in practice, and provide some practical tips for commercial parties. You can click here to download the PDF guide.

Clients and contacts of the firm can also register to access the archived version of our webinar exploring these issues by contacting Jane Webber. The webinar lasts an hour and qualifies for one CPD point. Or if you would prefer a shorter version focusing on key practical tips, Ann has also presented this 10 minute podcast.

There are four previous editions in the series, listed below, which can be accessed from the home page for our contract disputes series (which is also linked under "our guides" in the top menu):

  • When do you have a binding contract? It may be more (or less) often than you think
  • What does your contract mean? How the courts interpret contracts
  • Pre-contractual statements: When can they come back to bite you?
  • How far can you act in your own self-interest? The role of good faith in commercial contracts

Endeavours obligations in long term contracts: article published

The Court of Appeal decision in Jet2.com Limited v Blackpool Airport Limited [2012] EWCA Civ 417 illustrates the particular complications that can arise with endeavours obligations in the context of a long term contract. Caroline Kehoe and Joanne Keillor have published an article in the New Law Journal which considers the issues. Click here to download a pdf of the article, or here for our blog post on the decision.

Court of Appeal decision on best endeavours clause

By a majority, the Court of Appeal has held that an airport operator’s obligation to use best endeavours to promote an airline’s low-cost services gave rise to an enforceable obligation to operate outside normal opening hours, as this was essential to the airline’s business model. The airport could not escape this obligation on the basis that to comply would be unprofitable: Jet2.com Limited v Blackpool Airport Limited [2012] EWCA Civ 417.

Clauses requiring the use of “best”, “reasonable” or “all reasonable” endeavours to achieve some objective are commonly used in commercial agreements where a party will not accept an absolute obligation. Their precise meaning is, however, open to a great deal of debate. This decision gives further illustration of the potential uncertainties. Where a clause is broadly drafted, it may be difficult to predict in advance not only what is required to fulfil the obligation, but whether it is sufficiently certain to be enforceable in the first place.

Some practical implications of the judgments include:

  • Given the uncertainties, the drafting of such clauses should be approached with great care.
  • Where possible, it may be best to specify what steps a party is required to take (or not take) in order to comply with an obligation, or at least set some criteria by which a party’s endeavours can be assessed.
  • Parties should give careful consideration to how they perform an agreement in practice. Once the status quo has been established, a party may be called upon to justify any departure from it. Continue reading

Article published on endeavours and good faith

Commercial contracts commonly require one or both parties to use “reasonable”, “all reasonable” or “best” endeavours to achieve some goal, or to act or negotiate in “good faith”. Despite the frequency with which such terms are used, there is a surprising lack of clarity in the case law as to what they actually mean in practice.

Caroline Kehoe has published an article in the New Law Journal which considers the case law and draws together the threads. Click here to download a pdf.

Endeavouring to understand endeavours obligations

“Reasonable endeavours”, “best endeavours” and “all reasonable endeavours” undertakings are commonly found in all types of commercial contracts and are frequently subject to negotiation. However, despite their ubiquitous use, the actual meaning of these expressions, and the extent of the obligations they impose, is not entirely clear. In addition, the case law creates a somewhat confusing picture.

Whilst not entirely eradicating the uncertainty in this area, the recent decision of the High Court in CPC Group Limited v Qatari Diar Real Estate Investment Company [2010] EWHC 1535 (Ch) offers some clarification and provides a salutary lesson that parties should carefully consider the extent of the “endeavours” obligations they want to impose. Continue reading

‘Reasonable endeavours’ undertaking – Commercial Court clarification

“Reasonable endeavours” and “best endeavours” undertakings are very commonly found in contracts of almost every description, and whether a party may be prepared to accept such an obligation is regularly debated in commercial negotiations.  Despite the frequency with which these obligations are routinely accepted, there is surprisingly little reasoned authority on the scope and extent of what such an obligation actually entails.  What authority that does exist is often confusing, considering that this is such a deceptively straightforward concept.

For this reason, the recent first instance decision of the Commercial Court in Rhodia International Holdings Limited & Another v Huntsman International LLC [2007] EWHC 292 (Comm) provides some useful clarification in this area to parties entering into these obligations. Continue reading