In the recent case of Brooke Homes (Bicester) Ltd v Portfolio Property Partners Ltd & Ors [2021] EWHC 3015 (Ch), the High Court considered the meaning of “all reasonable endeavours” and the obligations that the term places on parties to a contract.
Facts
The dispute in this case related to “Heads of Heads” entered into in 2015 between Portfolio Property Partners Limited and P3 Eco (Bicester) Himley Limited (the Defendants) and Brooke Homes (Bicester) Limited (the Claimant) for the purchase of the proposed site for an “eco town” in Bicester (the “Heads”). The Heads provided that, subject to the grant of planning permission and satisfaction of other conditions, that the Claimant would purchase the land from the Defendant.
The Heads also stated that the parties “shall use all reasonable endeavours to enter into a final binding agreement which captures legally these Heads of Agreement acting in good faith towards each other”. The parties, and their conveyancers, began negotiating a conditional sale agreement.
Despite entering into the Heads in 2015 and planning permission being granted in 2017, no conditional sale agreement had been agreed after years of negotiations and the Claimant issued proceedings for breach of contract in 2019.
Outcome
The Court ruled that the Defendants had breached their positive obligations to use all reasonable endeavours to negotiate the terms of the Heads into a conditional sale contract. The key points noted by the judge in reaching this conclusion related to the Defendant’s failure to provide a plan of the land to be transferred and the fact that the Defendant was in advanced negotiations with other parties regarding the sale of the land that were potentially more favourable to it..
The Defendants disputed the allegation that the failure to provide a plan of the site was a breach of their obligations. They argued that a definitive plan identifying the land to be transferred could not be agreed until the planning permission had been granted. The judge rejected this argument and stated that this would not prevent the parties from entering into a conditional sale agreement. Moreover, wording was proposed for the draft conditional sale agreement that would allow for the plans to be amended after the parties had entered into that agreement. The fact that these amendments were not progressed by the Defendants provided further support for the judge’s conclusion.
The judge stated that active endeavour was required by the Defendants to satisfy their obligation to use all reasonable endeavours, and that passivity or inactivity is likely to be construed as a potential breach. If a reasonable course of action is identified by the claimant then the defendant can be required to explain why it was not required to follow it.
The meaning of “Endeavours” clauses
The judge also provided a summary of the meaning of “all reasonable endeavours” compared to other types of endeavours. The variations of endeavours clauses were summarised as follows:
- Reasonable endeavours – “if one reasonable path is taken then the obligation is discharged”.
- All reasonable endeavours – “all reasonable paths or actions to be exhausted”.
- Best endeavours – previous case law (e.g. Rhodia International Holdings Limited v Huntsman International) has suggested that there is not much difference between “all reasonable” and “best” endeavours. However, some best endeavours clauses might require the sacrifice of some commercial interest whereas all reasonable endeavours is unlikely to do so.
Although the explanation given by the judge in this case summarises the different types of obligations, the he stressed that endeavours clauses will not always be applied strictly with these interpretations and the definition will vary based on the context it is used and the facts of the case.
There are also variations of the endeavours clauses, such as “commercially reasonable endeavours” that have been used in contracts. But there is much more uncertainty around these terms as they have not been subject of as much case law as the terms discussed above.
Comment
Toby Cooper, an Associate in Stevens & Bolton’s banking team, comments that “this case is an example of the high standards that all reasonable endeavours can place on a contacting party. Although all reasonable endeavours may be seen as the middle ground between “best” and “reasonable”, this case illustrates how onerous all reasonable endeavours can be.
Endeavours obligations are used in legal documents spanning different legal practice areas and careful thought should be given when negotiating a clause containing these kinds of obligations. Parties should be hesitant agreeing to use all reasonable or best endeavours unless they are certain that they can fulfil the obligations.”