Best Endeavours Clauses - Do They Work?

Dany Lions Ltd v Bristol Cars Ltd [2014] EWHC 817 (QB)

Under what circumstances are clauses which require a party to use 'best/reasonable endeavours' to conclude an agreement with a third party enforceable?

A mechanic could not fulfil his contract to restore a client's classic car. The client and mechanic concluded a settlement agreement in which the client agreed to use reasonable endeavours to enter a restoration contract with a third party (another mechanic) the result of which would mean no loss would be payable. The client failed to agree a contract with the third party in the timescale allotted. The Court was asked to rule on whether the reasonable endeavours clause in the settlement agreement was effective.

Relevant law

Clauses which require a party to negotiate a future contract (an 'agreement to agree') with another party are unenforceable because the object of the obligation lacks certainty. Clauses requiring a party to use reasonable (or best) endeavours to negotiate an agreement with another party are also generally unenforceable for the same reason, but there are limited circumstances in which such a clause may be acceptable.

Reasonable endeavours clauses are only enforceable if two requirements are met:

i) there is sufficient certainty about the object requiring best endeavours. The clause will generally require a clearly defined object (e.g. permission to import certain goods, or the acquisition of a grant, or of another form of finance); and

ii) there must be sufficient objective criteria by which to measure the endeavours.

Therefore, reasonable endeavours clauses to negotiate a future agreement are potentially enforceable, but only if the future agreement is set out clearly and sufficiently in advance and the terms are likely...

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