Recent High Court Case Provides Guidance on “All Reasonable Endeavours” Clauses
The High Court has given guidance on what is needed to satisfy an “all reasonable endeavours” clause in an agreement, following the recent case of Brooke Homes (Bicester) Limited v Portfolio Property Partners Limited and Others [2021] EWCH 3015 (Ch) (“Brooke Homes”).
Background
Rather than having an absolute obligation, often contracts include an “endeavours” clause for parties to fulfil a future objective, for example working to conclude a binding agreement within a certain period of time. There is a range of such endeavours clauses, from using “reasonable endeavours” to "best endeavours", with “all reasonable endeavours” being considered a middle ground.
The Facts of the Case
The Defendants, referred to in the judgment as the “P3 parties”, were a group of developers who intended to purchase land from the Claimant, Brooke Homes, for the building of a zero-carbon eco-town.
Under the heads of agreement signed on 16 April 2015, the parties had agreed to use “all reasonable endeavours” to enter a binding conditional sale agreement to reflect the heads of agreement, subject to the grant of planning permission for intended use of the land. As well as the heads of agreement, the parties also entered into an exclusivity agreement, and later an addendum agreement to deal with additional pre-contractual payments (the Agreements).
Despite outline planning permission being received in March 2017, the parties had still not agreed the conditional sale agreement by the end of 2017 and proceedings were issued in 2019.
There were a number of issues for the High Court to consider, but the key matter for the purpose of this article was whether the P3 parties had used all reasonable endeavours to enter into the conditional sale agreement.
The Judgment
The High Court gave some further insight into the spectrum of endeavours clauses:
“The first is simply to use reasonable endeavours, which might mean if one reasonable path is taken then the obligation is discharged. The second is to use all reasonable endeavours. This is normally interpreted as requiring all reasonable paths or actions to be exhausted. In this respect it may be said there is little difference with such a clause and duty to use best endeavours. Some best endeavours clauses might however be said to require, depending on their context, the sacrifice of some commercial interests on the part of the party, whereas an obligation to use all reasonable endeavours is probably less likely to do so.”
The judge clarified that the court would usually expect the parties to make active endeavour where there is a requirement for all reasonable endeavours to be taken, and “passivity or inactivity is likely to be construed as a potential breach”. These precise wording of these clauses should also always be considered as well as the commercial context itself.
The High Court therefore held that the Defendants were in breach of their obligations under the Agreements to use all reasonable endeavours and to negotiate in good faith to enter into a binding conditional sale agreement. Damages were therefore awarded in the sum of £13.4 million.
Implications
Based on the judgment, care should be taken when including such clauses in agreements as it is suggested that use of an “all reasonable endeavours” clause is much like having a “best endeavours clause” and as such places a stringent obligation on the parties to actively take all reasonable actions to achieve the objective in order to discharge the duty. However, these matters are considered on the facts on a case by case basis, and in order to avoid uncertainty, the parties may choose to agree and list in the agreement what they are and are not prepared to do to seek to fulfil the objective.
The full judgment is available here.
These notes have been prepared for the purpose of articles only. They should not be regarded as a substitute for taking legal advice.