The High Court recently shed light on the steps necessary to satisfy an ‘all reasonable endeavours’ clause in Brooke Homes (Bicester) Limited v Portfolio Property Partners Limited and Others  EWCH 3015 (Ch).
The P3 Group (the “Defendant”) was a developer wanting to create an eco-town. The Defendant entered into Heads of Agreement with Brooke Homes (the “Claimant”) under which the Defendant would acquire land from the Claimant to build the eco-town, subject to conditions. The Heads of Agreement stated that “the parties shall use all reasonable endeavours to enter into a final binding Agreement”.
Amongst other things, the Heads of Agreement required the parties to use all reasonable endeavours to enter into a Conditional Sale Agreement (“CSA”). Despite pre-payments from the Claimant, and the interest of funding, the Defendant began discussions with another potential purchaser. No CSA had been executed on the expiry of three years and the Claimant issued proceedings.
The Court held that the Defendant had not used all reasonable endeavours for the duration of the agreements in place.
- What effort is required from the parties under an “all reasonable endeavours” clause?
- Did the P3 Group parties breach the agreements, in particular did the P3 parties fail to take “all reasonable endeavours” throughout the period of the agreement?
The Court considered that there are three types of endeavour clauses and summarised their positions:
- Reasonable endeavours: whereby only one reasonable path may discharge the obligation.
- All reasonable endeavours: whereby all reasonable paths or actions should be exhausted. Active endeavour is required and therefore, passivity or inactivity is likely to be construed as a breach. The court confirmed the existing understanding that there is little difference between this type of clause and a ‘best endeavours’ obligation.
- Best endeavours: whereby all reasonable paths or actions must be exhausted and depending on context, certain clauses may require the sacrifice of some commercial interests on the part of the party.
The court considered that such a sacrifice was less likely to be demanded in an ‘all reasonable endeavours clause’ but ultimately, this will depend on the precise wording and context in which the clause finds itself. Therefore, parties should tread carefully with ‘all reasonable endeavours’ clauses which may require “some subordination of commercial interests”.
The High Court also considered that a party may be discharged from a reasonable endeavours clause where that party was faced with an insuperable obstacle preventing reasonable endeavours from achieving a desired result.
The Brooke Homes decision confirms the existing position that ‘all reasonable endeavours’ falls between ‘reasonable endeavours’ and ‘best endeavours’, and emphasises the importance of context in deciding where in between it should fall. The case illustrates the dangers of generic obligations. Whilst more accurate wording laying out obligations would be subject to more negotiation and planning in advance, it would avoid uncertainty as to what is expected of each party.