In the case of Salem & Anor v Salem & Ors[2024] EWHC 3311 (Ch), the High Court ruled a clause unenforceable which required the parties to "agree to use reasonable endeavours to agree on a binding process for an expert determination".
Background
This dispute involved a disagreement within the Salem family regarding their interests in their trading business across West Africa (known as the "African Business"). The dispute was initially settled in April 2016 through a Settlement Deed, which aimed to resolve ongoing litigation by dividing the African Business through a "Conciliation Process", which was required to conclude by 1 January 2017.
Clause 6.5 of the Settlement Deed acted as a backstop if the Conciliation Process did not result in an agreed division of the African Business by the deadline. Clause 6.5 stated (emphasis added):
"If the Conciliation Process does not result in an agreed division of the African Business ... by 1 January 2017 ... then, unless an extension is agreed by the Parties in writing, by 1 February 2017 the Parties agree to use reasonable endeavours to agree a binding process for an expert determination to value and divide the African Business."
The Conciliation Process ultimately failed. One of the claimants, Moussa Raymond Salem ("Moussy"), brought an application seeking to enforce clause 6.5. Several of the defendants sought a summary dismissal of the application, either by way of strike out or summary judgment, arguing that clause 6.5 is no more than an agreement to agree, and therefore of no legal effect, or alternatively that it was time-limited in its operation.
The Court's decision
The central issue was whether clause 6.5 was enforceable. In considering the language of the clause, the court noted that much of it described matters yet to be agreed and was "aspirational ... and tentative". As the court noted, "The meaning conveyed by these linguistic signals is that everything was still up for grabs. That seems obvious, because if it was not, then the Parties would simply have set out what they had already agreed."
Moussy argued that clauses imposing an obligation to use reasonable endeavours are routinely enforced, provided certain criteria are fulfilled, referencing the following passage in Jet2.com Ltd v Blackpool Airport Ltd [2012] EWCA Civ 41 (at paragraph 69):
"... an obligation to use best endeavours should usually be held to be an enforceable obligation unless (i) the object intended to be procured by the endeavours is too vague or elusive to be itself a matter of legal obligation; or (ii) the parties have ... provided no criteria on the basis of which it is possible to assess whether best endeavours have been, or can be used ..."
It was argued that the object was clear, namely, to achieve a binding process of expert determination. The criteria to be used to assess compliance were said to be the reasonableness standard, plus suggested "terms and steps" set out in sub-clauses to clause 6.5, which it was anticipated an agreement might include.
The case of Astor Management A.G. v. Atalaya Mining plc and others [2017] EWHC 425 (Comm), was also relied upon, in which there was an obligation to use reasonable endeavours to secure senior debt finance and related guarantee facilities from third party funders before a certain date. The obligation was enforceable in this case: the object was held to be sufficiently certain and there were sufficient objective criteria by which to evaluate the reasonableness of the endeavours.
The court found that the present case was "quite different" from Astor, where the object of the reasonable endeavours was an agreement with a third party. The court identified that even if the object in the present case was sufficiently certain, there was still a "major problem" in identifying sufficiently objective criteria by which to evaluate the reasonableness of the parties' endeavours to try and reach such an agreement.
The court referenced Walford v Miles [1992] 2 A.C. 128, in which it was stated that the concept of a duty to negotiate in good faith is "inherently repugnant to the adversarial position of the parties when involved in negotiations" because "each party to the negotiations is entitled to pursue his (or her) own interest". Provided there is no misrepresentation, it is reasonable for a negotiating party to take whatever position they like in order to pursue their own interests. The court noted therefore that the undertaking to act reasonably in this context has no real meaning.
The court concluded that clause 6.5 was unenforceable – it lacked certainty and was an agreement to agree. Even if it was binding, the court found it to be time-limited, with 1 February 2017 as the cut-off point on the natural reading of the clause. Consequently, Moussy's application to enforce the clause was dismissed.
Commentary
This judgment highlights the inherent pitfalls of including 'agreements to agree' within contractual clauses, particularly those that hinge on the concept of using 'reasonable endeavours' to reach a subsequent agreement. It also underscores the importance of clear and specific contractual language in dispute resolution clauses.
Parties should ensure that their contractual obligations are clearly defined and specific. When drafting endeavours clauses, it is crucial to articulate the desired objective and any specific steps or measures required to satisfy the obligation. This approach will aid in the enforceability of the clause and provide greater commercial certainty. The interpretation of 'endeavours' in English contracts is discussed further in our article, Meaning of 'endeavours'. As demonstrated, inserting reasonable endeavours language will not rescue a clause which is unenforceable due to a lack of certainty.
" a commitment to use reasonable endeavours to try and reach an agreement is meaningless, because it imposes no real limit to the parties' freedom of action "
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
