The words “reasonable endeavours” or “best endeavours” can sometimes be found in contracts but what do they actually mean?
The High Court was recently asked to consider this question in the case of Astor Management AG v Atalaya Mining Plc. The case concerned the sale of an interest in a copper mine. Under the terms of the agreement most of the purchase price was deferred and payable by Atalaya upon it securing a debt facility to operate the mine. Atalaya was required to use “all reasonable endeavours” to obtain that facility by 31 December 2010.
Ultimately, Atalaya did not obtain the debt facility by the target date but instead raised the necessary funds via loans from its parent company. Astor argued that the deferred payment was still payable because Atalaya had failed to comply with its obligations to use all reasonable endeavours to obtain a debt facility. Atalaya denied that this was the case and said that the obligation to use reasonable endeavours was unenforceable because there were no objective criteria to assess the reasonableness of its endeavours to obtain the facility.
The Court had to consider whether the payment obligation had been triggered and whether there was a legally enforceable obligation to use all reasonable endeavours to obtain the facility and, if so, whether the obligation expired on 31 December 2010.
It found that by obtaining funding from its parent company Astor had not triggered the payment of the deferred consideration because that funding did not constitute a debt facility.
However, the Court disagreed with Atalaya’s arguments regarding reasonable endeavours and found that the undertaking within the agreement was enforceable. It said “the role of the court in a commercial dispute is to give effect to what the parties have agreed, not to throw its hand in the air and refuse to do so because the parties have not made its task easy”.
The Court also rejected Atalaya’s argument that the obligation to use all reasonable endeavours fell away after 31 December 2010. Atalaya was under an obligation to obtain the debt facility by this date if practicable and, if not, that obligation continued and it was required to use all reasonable endeavours to obtain the facility as soon as practicable afterwards.
To avoid litigation, parties to a contract should ensure that it clearly sets out what each party is required to do. For example, an undertaking by a contracting party should stipulate:
- what specific steps that party is required to take and by when;
- how they should communicate their progress to the other party;
- how long the party should be bound by the undertaking;
- what the consequences would be if the party giving the undertaking failed to comply by the agreed date.