In the recent case of Astor Management AG v Atalaya Mining Plc EWHC 425 (Comm) the High Court held that an express requirement within a contract to use ‘all reasonable endeavours’ to secure a debt facility was enforceable.
If you enter into a contract including such a clause, what does this mean and what is the extent of the obligations imposed upon you?
Contracts often include such wording. An obligation to use “best endeavours” is the most onerous, followed by “all reasonable endeavours” “commercially reasonable endeavours” and with an obligation to use “reasonable endeavours” imposing a less harsh obligation.
In this case, the defendants had agreed to purchase the claimant’s interest in a company that owned a dormant copper mine and to pay the purchase price by way of deferred consideration.
The agreement stipulated that the defendants were required to use ‘all reasonable endeavours’ to obtain a debt facility by a specific date for a specific sum to enable the company to resume ‘mining operations,’ following which the requirement to pay the deferred consideration would be triggered.
Subsequently the defendants chose to raise funds from their parent company and this enabled them to restart mining. This meant that they no longer required any debt facility funding and therefore they believed that they had not triggered the requirement to pay the deferred consideration by the specified date and if they didn’t obtain any debt funding, the payment would never be triggered.
The claimants issued proceedings for breach of the agreement. They argued that:
the defendants had not used all ‘reasonable endeavours’ to secure the debt facility before the specific date;
a ‘principle of futility’ should be applied in that if a precondition to obtaining the contractual right becomes unnecessary then the courts should not enforce the precondition; and
the defendants had breached their implied obligation to act in good faith under the agreement.
Essentially the claimants felt that payment of the deferred consideration had been triggered as funding for resumption of the ‘mining operations’ had been secured even though this was from a different source and therefore the defendants were in breach by failing to pay the deferred consideration by the specified date.
The High Court held that:
the defendants had not breached the agreement as the specified date was a target and not an obligation therefore the defendants would need to fulfil the obligation in the future;
the ‘reasonable endeavours’ clause was enforceable as the court was required ‘to give effect to what the parties have agreed’;
there was however no principle of futility and therefore the contractual precondition to secure a debt facility was not to be disapplied.
The court also held that there was no need to imply a duty of good faith because the defendants had already expressly agreed to use ‘all reasonable endeavours’ to secure the debt facility.
The courts will always try to give effect to what the parties originally agreed.
In any contract it is important to ensure that all express obligations are included and that the agreement includes an expiry date by which any obligations should be complied with and the consequences of any breach.
If you enter into an express obligation, it is essential that it is complied with. In this case the judge stated that the court will not disapply an express obligation ‘just because complying with it is considered by the court to serve no useful purpose’.
If you are asked to enter into a reasonable endeavours obligation, you need to be aware that this does impose an obligation upon you, that needs to be complied with, or you at least need to be able to demonstrate what steps you have taken to comply and why it has not been possible (if appropriate).
An alternative approach to including such a generic phrase would be to include expressly:-
- the steps the party should take to achieve the required result
- how regularly a party must report on the steps taken where efforts made
- whether it is possible to achieve the result by alternative means and if so whether the same consequences apply as with the original intention
- how long the obligation will continue
- the consequences of failing to achieve the desired result within the specified time frame
For further guidance on reasonable endeavours or to bring a claim for breach, please get in touch with Farleys Solicitors on 0845 287 0939 or submit your enquiry through our online form.