Reasonable endeavours
Gaia Ventures v Abbeygate (Court of Appeal) [2019]
Many contracts routinely contain obligations to ‘endeavour’ to do something. These seem to give rise to disputes quite frequently as to the precise extent of the obligation. This case is the latest example.
Facts:
On 4 July 2003 Abbeygate entered into a contract with Planet Ice for the purchase of two ‘Ice Rink Leases’ for the sum of £1.5m. Abbeygate covenanted to pay to Planet Ice an additional sum of £1.4m not later than 10 working days after any ‘Trigger Date’ (as defined). The relevant Trigger Date was defined as "… the Date of an Acceptable Planning Permission… ". However, the definition was subject to a proviso that "no date more than ten years after the [date of the transfer] will be a Trigger Date". The longstop Trigger Date was therefore 4 July 2013.
Another clause imposed on Abbeygate an obligation to
"… use its reasonable endeavours to obtain an Acceptable Planning Permission having regard to the advice of its consultants including Planning Counsel of at least five years standing from time to time and it shall not be obliged to do so [if] it is advised that it does not have a greater than 60% prospect of success."
Finally, there was an additional obligation which required Abbeygate to use reasonable endeavours to acquire certain leases and the freehold of the site as soon as reasonably practicable (an essential pre-condition to fulfilling the planning condition requirement).
Abbeygate contended that obligations in these terms entitle the covenantor to have regard to its own commercial interests when deciding what steps to take. It was accepted that the relevant condition had not been satisfied before the longstop Trigger Date. However, the claim was that had Abbeygate used reasonable endeavours the condition would have been satisfied in time.
Decision:
In the High Court the judge held that “reasonable endeavours were not made [so as] to satisfy the [relevant condition]”. Abbeygate manipulated the conditions in various agreements in order to benefit its own cash flows and thereby avoid the requirement to make the additional payment.
The Court of Appeal reviewed the law on different types of ‘endeavours’ commitments. The obligation in an earlier case of Alghussein was one to use best endeavours (not reasonable endeavours) to commence and proceed diligently with the development in accordance with "the licences and permissions obtained as soon as reasonably practicable after the grant of such consents". The court in that case said “This supports the view that only technical rather than financial considerations should be relevant to determining when it was reasonably practicable to begin and complete the development”.
Ultimately the High Court judge was held to have decided the case on the facts (and therefore there was no mistake in law for the Court of Appeal to overturn) namely that Abbeygate had devoted its energies (at least in part) to ensuring that the fulfilment of the conditions would not be achieved until after the date when it would escape liability to make the additional payment. Its delay was motivated (at least in part) by a desire to avoid the additional payment. The restriction on access to funding was self-imposed and therefore it had not used ‘reasonable endeavours’. It was therefore not necessary for the Court of Appeal to express a final view about whether financial considerations could be taken into account when assessing whether a reasonable endeavours commitment has been fulfilled and it therefore did not do so. This is unfortunate.
Points to Note:
- There is little, if any, clarity here. For example, the courts typically attempt to define ‘best endeavours’ in terms of ‘reasonableness’ which is terribly confusing;
- If there is evidence of an ulterior motive then it is likely you will not be fulfilling an endeavours obligation;
- Assessing whether an ‘endeavours’ commitment has been fulfilled ‘is a value judgment in the light of all the facts of the particular case’;
- The content of the duty lies on a spectrum dependent upon the precise language used;
- Typically a ‘best endeavours’ obligation is generally thought of as a more onerous obligation than a ‘reasonable endeavours’ commitment and there is almost certainly truth in that as a principle. However, neither is a terribly onerous commitment compared with an absolute obligation;
- At least one case suggests that ‘best endeavours requires a party to take all reasonable courses of action open to a party whereas a reasonable endeavours obligation only requires a party to take one reasonable course’. This ignores the fact that in the vast majority of cases there are not multiple alternative courses of action. Instead it is just a matter of the extent of the efforts made (and financial cost incurred) in pursuing the one available course.
- It remains uncertain to what extent a party is entitled to take into account its own costs of endeavouring;
- If you want to include an endeavours obligation in a contract it is probably best to define what is required of the party giving the commitment. Some objective guidance (of the type set out in the first endeavours commitment above) may be useful. Alternatively, a more general definition along the following lines may be useful “an obligation to do whatever should reasonably be done in the circumstances by a responsible and reasonably funded service provider or a responsible customer receiving the Services to fulfil the obligation concerned and the commitment to the other party”.