Are You Trying Hard Enough? Endeavours And Good Faith Clauses In English Law Contracts

Published in Dechert's Commercial Matters March 2012

Parties often qualify contractual obligations in commercial contracts by including an "endeavours" clause – for example, an obligation to use reasonable, all reasonable or best endeavours (or a variation of these). However, exactly how hard a party must try in order to satisfy any such obligation is by no means certain.

Contracts sometimes also require parties to act in "good faith" or "utmost good faith". Although a frequently used concept in other jurisdictions, the obligation this imposes on parties under English law is, again, unclear.

The "Chelsea Barracks" case explored both of these types of clauses, and, in a recent case involving an airport and a low-cost airline, the meaning of "endeavours" clauses was further considered by the court.

CPC Group Limited v Qatari Diar Real Estate Investment Company (the Chelsea Barracks Case)

CPC Group Limited (CPC) and Qatari Diar Real Estate Investment Company (QD) entered into a joint venture to redevelop the Chelsea Barracks site in London. In November 2008, CPC sold its interest in the joint venture to QD for initial consideration of £38 million and deferred consideration totalling a maximum of £81 million. Pursuant to the sale and purchase agreement:

CPC and QD owed each other an express duty to act in the "utmost good faith"; and QD had an obligation to use "all reasonable but commercially prudent endeavours" to achieve the thresholds for the payment of deferred consideration, which in practice required obtaining planning permission. As noted in the press, the Prince of Wales expressed his dislike of the plans to redevelop the site to his Qatari royal contacts (who passed his concerns on to QD). Boris Johnson, Mayor of London, also made clear his disapproval of the plans. The original planning application was subsequently withdrawn. Amongst other issues, the judge was asked to consider:

whether QD's conduct in relation to the planning application (including its dealings with the Prince of Wales, Boris Johnson and withdrawing the application) amounted to a breach of its duty to act in utmost good faith or of its obligation to use all reasonable but commercially prudent endeavours; and whether CPC's conduct in trying to procure an early payment of deferred consideration under the SPA also constituted a breach of its duty to act it utmost good faith. The High Court concluded, on the facts, that:

neither QD nor CPC had breached its duty to act...