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Reasonable endeavours? – Astor management AG v Atalaya Mining plc [2017] EWHC 425 (Comm)

Published on 12 June 2017

When is an “all reasonable endeavours” obligation unenforceable?

The facts

Astor Management AG entered into a master agreement (the Agreement) with Atalaya Mining plc in 2009, whereby Atalaya wished to buy Astor’s interest in a dormant copper mine. Payment of at least EUR 43.8 million was by way of deferred consideration. Under the Agreement, the first instalment was said to be triggered when:

• the permits required to restart mining activities were granted and

• a “senior debt facility” in a sum suffcient to restart mining operations was secured.

Atalaya was required to use “all reasonable endeavours” to obtain the debt facility by 31 December 2010.

In 2015, Atalaya raised necessary funds through its parent company and not by way of a senior debt facility. Astor argued that the deferred consideration had been triggered, however as the senior debt facility was not obtained, Atalaya argued that the deferred consideration was not payable.

The court had to consider whether there was a legally enforceable obligation to use “all reasonable endeavours” to obtain the senior debt facility and if so, whether that obligation expired on 31 December 2010. In addition, the court considered whether the agreement contained an implied obligation to perform in good faith.

The decision
Reasonable endeavours

The court considered Dany Lions Ltd v Bristol Cars [2014] EWHC 817 (QB) which held that an obligation to use reasonable endeavours would only be enforceable if the object of the endeavours is suffciently certain and there are objective criteria by which to evaluate the attempt. The court disagreed with these observations and held that the role of the court in a commercial dispute is “to give effect to what the parties have agreed, not to throw its hands in the air and refuse to do so because the parties have not made that task easy.”

Whether a party has performed the “reasonable endeavours” obligation is a question for the court to decide. Where there is lack of objective criteria this can only be directing the court towards deciding whether the endeavours are “reasonable”, therefore the burden of proof falls on the party alleging failure to comply with the obligation. Although it may be diffcult to prove a breach, this does not mean that there is no obligation to use reasonable endeavours. The court found that the obligation did not expire on 31 December 2010, it was merely a target date. However based on the evidence, there had been no breach of the reasonable endeavours.

Good faith

Astor also argued that the agreement contained an implied duty to perform it in good faith. They argued that Atalaya was in breach of that duty by securing funding in a way that avoided the
trigger of payment.

Leggatt J referred to his earlier decision in Yam Seng Pte Lts v International Trade Corp [2013] EWHC 111 (QB) and took the view that this case was not the occasion to explore the implied duty of good faith. He commented that such duty is a modest requirement that reflects the expectation that the other party will act honestly towards the other party and not conduct itself in a way that aims to frustrate the purpose of the contract.

He concluded that there was no need or scope to imply a duty of good faith to obtain senior debt finance as that requirement was subsumed in the express obligation to use all reasonable endeavours.

Why is this important?

This is a useful illustration of the court’s approach to reasonable endeavours obligations and whether such obligations have been breached.

Any practical tips?

Reasonable endeavours obligations are often used in contracts and often disputed before the courts. Parties should try to set out expressly what reasonable endeavours obligations actually entail. This should include detailing specific steps to be taken, how long the obligation lasts and any consequences of failing to achieve the objective.

 

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