Reasonable endeavours to reach agreements with third parties: are they enforceable?
23 March 2017
A clause undertaking to use all reasonable endeavours to make an agreement with a third party is enforceable (Astor Management v Atalaya Mining).
Astor argued that two of the defendants had breached an undertaking to use “all reasonable endeavours” to obtain a debt facility. The defendants raised a number of arguments in defence, including that the clause was unenforceable and, if it was, they had not breached it.
The High Court found that the clause was enforceable. The court disagreed with observations in Dany Lions v Bristol Cars in so far as they gave the impression that the requirements of certainty of object and sufficient objective criteria are difficult to satisfy and will not usually be met where the object of an undertaking to use reasonable endeavours is an agreement with a third party.
On the contrary, the court found that it should “almost always be possible” to give sensible content to enter such a clause. There was no problem of uncertainty of object, as there is no inherent difficulty in telling whether an agreement with a third party has been made. Any complaint about lack of objective criteria could only be directed to the task of whether the endeavours were ‘reasonable,’ but where parties adopt a reasonableness test, they are inviting the court to make a value judgment.
This case gives comfort to commercial parties that undertakings to use reasonable (or best) endeavours to reach agreements with third parties are likely to be enforceable. To hold that a clause is too uncertain to be enforceable is a last resort. However, as Astor found in this case, even if a party establishes that a reasonable endeavours clause is enforceable, it may still struggle to surmount the further hurdle of proving an absence of endeavours on the facts.
Update November 2018: the Court of Appeal dismissed Astor’s appeal. In any event there was no challenge to the judge's finding that there was a contractual requirement to use "all reasonable endeavours" and that this had not been breached.